Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Sep. 30, 2014 | Nov. 12, 2014 | |
Document And Entity Information | ||
Entity Registrant Name | Oculus Innovative Sciences, Inc. | |
Entity Central Index Key | 1367083 | |
Document Type | S-1 | |
Document Period End Date | 30-Sep-14 | |
Amendment Flag | TRUE | |
Amendment Description | XBRL is being amended to reflect changes in the Subsequent Event note for September only. | |
Current Fiscal Year End Date | -28 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 8,660,580 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2015 |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (USD $) | Sep. 30, 2014 | Mar. 31, 2014 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | |||
Current assets: | |||
Cash and cash equivalents | $3,549 | $5,480 | $7,900 |
Accounts receivable, net | 2,149 | 1,790 | 1,707 |
Due from affiliate | 0 | 537 | 0 |
Inventories, net | 1,235 | 1,088 | 992 |
Prepaid expenses and other current assets | 358 | 647 | 935 |
Total current assets | 7,291 | 9,542 | 11,534 |
Property and equipment, net | 867 | 971 | 800 |
Deferred offering costs | 44 | ||
Long-term investment, at cost | 10,150 | 10,150 | 0 |
Other assets | 86 | 128 | 187 |
Total assets | 18,394 | 20,791 | 12,565 |
Current liabilities: | |||
Accounts payable | 1,051 | 736 | 808 |
Accrued expenses and other current liabilities | 556 | 889 | 703 |
Current portion of cash settlement liability | 37 | ||
Deferred revenue | 1,990 | 2,629 | 2,320 |
Current portion of long-term debt | 8 | 143 | 1,259 |
Derivative liabilities (See Note 5) | 856 | 3,175 | 0 |
Total current liabilities | 4,461 | 7,572 | 5,127 |
Deferred revenue | 563 | 1,152 | 2,619 |
Long-term debt, less current portion | 0 | 4 | 676 |
Cash settlement liability, less current portion | 62 | ||
Total liabilities | 5,024 | 8,728 | 8,484 |
Stockholders' Equity | |||
Convertible preferred stock, $0.0001 par value; 714,286 shares authorized, none issued and outstanding at September 30, 2014 (unaudited) and March 31, 2014, respectively | 0 | 0 | 0 |
Common stock, $0.0001 par value; 14,285,715 shares authorized, 8,585,382 and 8,160,145 shares issued and outstanding at September 30, 2014 (unaudited) and March 31, 2014, respectively (Note 12) | 1 | 1 | 1 |
Additional paid-in capital | 151,338 | 149,141 | 144,816 |
Accumulated other comprehensive loss | -3,171 | -3,069 | -2,991 |
Accumulated deficit | -134,798 | -134,010 | -137,745 |
Total stockholders' equity | 13,370 | 12,063 | 4,081 |
Total liabilities and stockholders' equity | $18,394 | $20,791 | $12,565 |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2014 | Mar. 31, 2014 | Mar. 31, 2013 |
Statement of Financial Position [Abstract] | |||
Convertible preferred stock par value (in Dollars per share) | $0.00 | $0.00 | $0.00 |
Convertible preferred stock shares authorized | 714,286 | 714,286 | 714,286 |
Convertible preferred stock shares issued | 0 | 0 | 0 |
Convertible preferred stock shares outstanding | 0 | 0 | 0 |
Common stock par value (in Dollars per share) | $0.00 | $0.00 | $0.00 |
Common stock shares authorized | 14,285,715 | 14,285,715 | 14,285,715 |
Common stock shares issued | 8,585,382 | 8,160,145 | 6,583,150 |
Common stock shares outstanding | 8,585,382 | 8,160,145 | 6,583,150 |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
In Thousands, except Per Share data, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 |
Revenues | ||||||
Product | $2,695 | $3,456 | $5,491 | $6,177 | $10,894 | $12,897 |
Product licensing fees | 378 | 397 | 752 | 830 | 1,829 | 1,686 |
Service | 191 | 236 | 413 | 454 | 945 | 869 |
Total revenues | 3,264 | 4,089 | 6,656 | 7,461 | 13,668 | 15,452 |
Cost of revenues | ||||||
Product | 1,368 | 1,203 | 2,690 | 2,224 | 4,510 | 3,976 |
Service | 164 | 181 | 328 | 332 | 761 | 733 |
Total cost of revenues | 1,532 | 1,384 | 3,018 | 2,556 | 5,271 | 4,709 |
Gross profit | 1,732 | 2,705 | 3,638 | 4,905 | 8,397 | 10,743 |
Operating expenses | ||||||
Research and development | 353 | 883 | 792 | 1,390 | 2,887 | 2,223 |
Selling, general and administrative | 2,923 | 3,093 | 5,904 | 5,912 | 11,561 | 11,894 |
Total operating expenses | 3,276 | 3,976 | 6,696 | 7,302 | 14,448 | 14,117 |
Loss from operations | -1,544 | -1,271 | -3,058 | -2,397 | -6,051 | -3,374 |
Interest expense | -1 | -188 | -4 | -438 | -1,058 | -1,107 |
Interest income | 0 | 0 | 0 | 1 | 1 | 7 |
Gain (loss) due to change in fair value of common stock | 0 | 99 | 0 | -210 | 1,357 | -1,599 |
Gain on deconsolidation of Ruthigen | 11,133 | 0 | ||||
Gain (Loss) due to change in fair value of derivative liabilities (See Note 5) | 841 | 0 | 2,319 | 0 | -1,566 | 767 |
Other expense, net | -14 | -39 | -45 | -67 | -81 | -125 |
Net income (loss) | -718 | -1,399 | -788 | -3,111 | 3,735 | -5,431 |
Preferred stock deemed dividend | 0 | -1,062 | ||||
Net income (loss) available to common shareholders | 3,735 | -6,493 | ||||
Net loss per common share: basic and diluted | ($0.08) | ($0.21) | ($0.09) | ($0.47) | ||
Earnings (loss) per common share - Basic | $0.54 | ($1.30) | ||||
Earnings (loss) per common share - Diluted | $0.54 | ($1.30) | ||||
Weighted-average number of shares used in per common share calculations: | ||||||
Basic and diluted | 8,503 | 6,631 | 8,425 | 6,625 | ||
Weighted-average number of common shares outstanding - Basic | 6,882 | 4,977 | ||||
Weighted-average number of common shares outstanding - Diluted | 6,898 | 4,977 | ||||
Other comprehensive loss, net of tax | ||||||
Net loss | -718 | -1,399 | -788 | -3,111 | 3,735 | -5,431 |
Foreign currency translation adjustments | -110 | 13 | -102 | -86 | -78 | 62 |
Comprehensive loss | ($828) | ($1,386) | ($890) | ($3,197) | $3,657 | ($5,369) |
Consolidated_Statements_of_Cha
Consolidated Statements of Changes in Stockholders' Equity (USD $) | Convertible Preferred STock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
Beginning balance, amount at Mar. 31, 2012 | $0 | $134,499,000 | ($3,053,000) | ($132,314,000) | ($868,000) | |
Beginning balance, shares at Mar. 31, 2012 | 4,144,206 | |||||
Issuance of common stock offering, net of commissions, expenses and other offering costs, shares | 1,569,286 | |||||
Issuance of common stock offering, net of commissions, expenses and other offering costs, amount | 1,000 | 4,941,000 | 4,942,000 | |||
Issuance of convertible preferred stock offering, net of commissions, expenses and other offering costs, shares | 1,000 | |||||
Issuance of convertible preferred stock offering, net of commissions, expenses and other offering costs, amount | 907,000 | 907,000 | ||||
Fair value of common stock purchase warrants issued with a cash settlement provision | -2,347,000 | -2,347,000 | ||||
Conversion of convertible preferred stock into common stock, shares | -1,000 | 158,730 | ||||
Issuance of common stock in conenction with exercise of stock options, shares | 9,878 | |||||
Issuance of common stock in conenction with exercise of stock options, amount | 28,000 | 28,000 | ||||
Issuance of common stock for services, shares | 71,534 | |||||
Issuance of common stock for services, amount | 443,000 | 443,000 | ||||
Issuance of common stock to settle obligations, shares | 12,232 | |||||
Issuance of common stock to settle obligations, amount | 51,000 | 51,000 | ||||
Fair value of common stock issued in connection with stock purchase agreement, shares | 617,284 | |||||
Fair value of common stock issued in connection with stock purchase agreement, amount | 3,500,000 | 3,500,000 | ||||
Reclassification of liability to equity related to the modification of common stock purchase warrants with a cash settlement provision | 1,636,000 | 1,636,000 | ||||
Common stock purchase warrants issued to consultants | 4,000 | 4,000 | ||||
Employee stock-based compensation expense, net of forfeitures | 1,154,000 | 1,154,000 | ||||
Foreign currency translation adjustment | 62,000 | 62,000 | ||||
Net income (loss) | -5,431,000 | -5,431,000 | ||||
Ending balance, amount at Mar. 31, 2013 | 0 | 1,000 | 144,816,000 | -2,991,000 | -137,745,000 | 4,081,000 |
Ending balance, shares at Mar. 31, 2013 | 0 | 6,583,150 | ||||
Issuance of common stock offering, net of commissions, expenses and other offering costs, shares | 1,000,620 | |||||
Issuance of common stock offering, net of commissions, expenses and other offering costs, amount | 3,188,000 | 3,188,000 | ||||
Fair value of common stock purchase warrants issued with a cash settlement provision | -3,292,000 | -3,292,000 | ||||
Issuance of common stock for services, shares | 105,981 | |||||
Issuance of common stock for services, amount | 341,000 | 341,000 | ||||
Reclassification of liability to equity related to the modification of common stock purchase warrants with a cash settlement provision | 1,683,000 | 1,683,000 | ||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 449,620 | |||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, amount | 1,295,000 | 1,295,000 | ||||
Issuance of common stock in conenction with the cashless exercise of common stock purchase warrants, shares | 20,774 | |||||
Common stock purchase warrants issued to consultants | 3,000 | 3,000 | ||||
Employee stock-based compensation expense, net of forfeitures | 1,107,000 | 1,107,000 | ||||
Foreign currency translation adjustment | -78,000 | -78,000 | ||||
Net income (loss) | 3,735,000 | 3,735,000 | ||||
Ending balance, amount at Mar. 31, 2014 | $0 | $1,000 | $149,141,000 | ($3,069,000) | ($134,010,000) | $12,063,000 |
Ending balance, shares at Mar. 31, 2014 | 0 | 8,160,145 |
Condensed_Consolidated_Stateme1
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) | 6 Months Ended | 12 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 |
Cash flows from operating activities | ||||
Net income (loss) | ($788) | ($3,111) | $3,735 | ($5,431) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depreciation and amortization | 101 | 136 | 284 | 268 |
Provision for doubtful accounts | -6 | 33 | ||
Provision for obsolete inventory | 6 | 85 | ||
Stock-based compensation | 907 | 666 | 1,451 | 1,601 |
Change in fair value of derivative liability (see Note 5) | -2,319 | 0 | 1,566 | -767 |
Loss due to change in fair value of common stock | 0 | 210 | -1,357 | 1,599 |
Gain on deconsolidation of Ruthigen | -11,133 | 0 | ||
Non-cash interest expense | 0 | 294 | 863 | 624 |
Foreign currency transaction losses (gains) | 15 | -5 | -6 | 11 |
Gain (loss) on disposal of property and equipment | -13 | 0 | 39 | 2 |
Changes in operating assets and liabilities: | ||||
Accounts receivable, net | -426 | -738 | -88 | 411 |
Due from affiliate | 537 | 0 | -537 | 0 |
Inventories, net | -188 | 215 | -126 | -103 |
Prepaid expenses and other current assets | 287 | 369 | 458 | -262 |
Accounts payable | 331 | 225 | 848 | -10 |
Accrued expenses and other liabilities | -158 | 76 | 271 | -141 |
Deferred revenue | -1,295 | -791 | -1,158 | 3,230 |
Net cash (used in) provided by operating activities | -3,009 | -2,454 | -4,890 | 1,150 |
Cash flows from investing activities: | ||||
Purchases of property and equipment | -16 | -338 | -504 | -257 |
Long-term deposits | 39 | 26 | 59 | -113 |
Net cash provided by (used in) investing activities | 23 | -312 | -445 | -370 |
Cash flows from financing activities: | ||||
Proceeds from issuance of common stock, net of offering costs | 1,213 | 0 | 3,188 | 4,942 |
Proceeds from the issuance of convertible preferred stock, net of offering costs | 0 | 907 | ||
Deferred offering costs | 0 | -780 | 44 | -44 |
Proceeds from the exercise of common stock upon exercise of stock options and warrants | 1,295 | 28 | ||
Proceeds from cash settlement liability | 33 | 0 | ||
Principal payments on long-term debt | -139 | -1,138 | -1,615 | -2,083 |
Net cash provided by (used in) financing activities | 1,074 | -1,918 | 2,945 | 3,750 |
Effect of exchange rate on cash and cash equivalents | -19 | -26 | -30 | 19 |
Net decrease in cash and cash equivalents | -1,931 | -4,710 | -2,420 | 4,549 |
Cash and cash equivalents, beginning of year | 5,480 | 7,900 | 7,900 | 3,351 |
Cash and cash equivalents, end of period | 3,549 | 3,190 | 5,480 | 7,900 |
Supplemental disclosure of cash flow information: | ||||
Cash paid for interest | 4 | 143 | 195 | 483 |
Non-cash operating and financing activities: | ||||
Insurance premiums financed | 188 | 155 | ||
Issuance of common stock to settle obligations | 0 | 51 | ||
Non-cash investing and financing activities: | ||||
Common stock issued in connection with stock purchase agreement (See Note 10) | 0 | 3,500 | ||
Debt settled in connection with stock purchase agreement (See Note 10) | 1,131 | 0 | ||
Cash settlement liability settled in connection with stock purchase agreement (See Note 10) | 2,000 | 0 | ||
Reclassification of derivative liabilities to paid in capital | 1,683 | 1,636 | ||
Warrants issued as derivative liabilities in connection with registered direct offering | $3,292 | $2,347 |
1_Organization_and_Basis_of_Pr
1. Organization and Basis of Presentation | 6 Months Ended | 12 Months Ended | ||||||||||||||||
Sep. 30, 2014 | Mar. 31, 2014 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||
Organization and Basis of Presentation | Organization | Organization | ||||||||||||||||
Oculus Innovative Sciences, Inc. (the “Company”) was incorporated under the laws of the State of California in April 1999 and was reincorporated under the laws of the State of Delaware in December 2006. The Company’s principal office is located in Petaluma, California. The Company is a global specialty device and pharmaceutical company that develops, produces, and markets solutions for the treatment of dermatological conditions and advanced tissue care in the United States and internationally. The Company is pioneering innovative products for the dermatology, surgical, advanced tissue and skin care, and animal healthcare markets. The Company’s key proprietary technology platform is called Microcyn® Technology. This technology is based on electrically charged oxychlorine small molecules designed to target a wide range of organisms that cause disease (pathogens). Several Microcyn® Technology tissue care products are designed to treat infections and enhance healing while reducing the need for antibiotics. | Oculus Innovative Sciences, Inc. (the “Company”) was incorporated under the laws of the State of California in April 1999 and was reincorporated under the laws of the State of Delaware in December 2006. The Company’s principal office is located in Petaluma, California. The Company is a global healthcare company that designs, produces, and markets prescription and non-prescription products in over 20 countries. It is pioneering innovative products for the dermatology, surgical, advanced wound and skin care, and animal healthcare markets. The Company’s primary focus is on its proprietary technology platform called Microcyn® Technology. This technology is based on electrically charged oxychlorine small molecules designed to target a wide range of organisms that cause disease (pathogens). Several Microcyn® Technology tissue care products are designed to treat infections and enhance healing while reducing the need for antibiotics. | |||||||||||||||||
Basis of Presentation | Reverse Stock Split | |||||||||||||||||
The accompanying unaudited condensed consolidated financial statements as of September 30, 2014 and for the three and six months then ended have been prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The unaudited condensed consolidated balance sheet as of September 30, 2014, the condensed consolidated statements of comprehensive loss for the three and six months ended September 30, 2014 and 2013, and the condensed consolidated statements of cash flows for the six months ended September 30, 2014 and 2013 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended September 30, 2014 are not necessarily indicative of results to be expected for the year ending March 31, 2015 or for any future interim period. The condensed consolidated balance sheet at March 31, 2014 has been derived from audited consolidated financial statements. However, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended March 31, 2014, and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on June 30, 2014. | Effective April 1, 2013, the Company effected a reverse stock split of its common stock, par value $0.0001 per share. Every 7 shares of common stock were reclassified and combined into one share of common stock. No fractional shares were issued as a result of the reverse stock split. Instead, each resulting fractional share of common stock was rounded up to one whole share. The reverse stock split reduced the number of shares of the Company’s common stock outstanding from 46,080,513 to 6,583,150. The total number of authorized shares of common stock was also proportionally decreased by a ratio of 1:7 and the par value per share of the common stock continued to be $0.0001. | |||||||||||||||||
Use of Estimates | All common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect a 1 for 7 reverse stock split. | |||||||||||||||||
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt discounts, valuation of investments, and the estimated amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts estimates accordingly. The allowances for uncollectible accounts receivable balances amounted to $19,000 and $8,000, which are included in Accounts Receivable, net in the accompanying September 30, 2014 and March 31, 2014 condensed consolidated balance sheets, respectively. | Deconsolidation of Ruthigen, Inc. | |||||||||||||||||
Net Loss per Share | On March 26, 2014, the Company deconsolidated its formerly wholly-owned subsidiary Ruthigen, Inc. (“Ruthigen”) in connection with the completion of Ruthigen’s initial public offering of its common stock. As a result of the initial public offering, the Company’s ownership interest in Ruthigen decreased to approximately 43%. The Ruthigen results from operations and cash flows through March 26, 2014 have been included in the Company’s consolidated financial statements. See Note 8. | |||||||||||||||||
The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic loss per share for the three and six months ended September 30, 2014 and 2013 excludes the potentially dilutive securities summarized in the table below because their inclusion would be anti-dilutive. | ||||||||||||||||||
September 30, | ||||||||||||||||||
2014 | 2013 | |||||||||||||||||
Options to purchase common stock | 2,754,000 | 1,229,000 | ||||||||||||||||
Warrants to purchase common stock | 2,034,000 | 1,318,000 | ||||||||||||||||
4,788,000 | 2,547,000 | |||||||||||||||||
Common Stock Purchase Warrants and Other Derivative Financial Instruments | ||||||||||||||||||
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that its freestanding derivatives, which principally consist of warrants to purchase common stock, satisfied the criteria for classification as equity instruments, other than certain warrants that contained reset provisions and certain warrants that required net-cash settlement that the Company classified as derivative liabilities as more fully described in Note 5. | ||||||||||||||||||
Revenue Recognition and Accounts Receivable | ||||||||||||||||||
The Company generates revenue from sales of our products to hospitals, medical centers, doctors, pharmacies, and distributors. The Company sells our products directly to third parties and to distributors through various cancelable distribution agreements. The Company also entered into agreements to license our technology and products. | ||||||||||||||||||
The Company also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. | ||||||||||||||||||
The Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured. | ||||||||||||||||||
The Company requires all of our product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer, shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in lieu of purchase orders. | ||||||||||||||||||
The Company recognizes revenue at the time in which we receive confirmation that the goods were either tendered at their destination, when shipped “FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. | ||||||||||||||||||
The selling prices of all goods are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established list prices. The Company does not customarily permit our customers to return any products for monetary refunds or credit against completed or future sales. The Company may, from time to time, replace expired goods on a discretionary basis. The Company records these types of adjustments, when made, as a reduction of revenue. Sales adjustments were insignificant during the quarters ended September 30, 2014 and 2013 and the years ended March 31, 2014 and 2013. | ||||||||||||||||||
The Company evaluates the creditworthiness of new customers and monitor the creditworthiness of our existing customers to determine whether events or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which a sale is made. Payment terms on sales made in the United States are generally 30 days and internationally, generally range from 30 days to 90 days. | ||||||||||||||||||
In the event a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains a reserve for amounts which may not be collectible due to risk of credit losses. | ||||||||||||||||||
Additionally, the Company defers recognition of revenue related to distributors’ that are unable to provide inventory or product sell-through reports on a timely basis, until payment is received. The Company believes the receipt of payment is the best indication of product sell-through. | ||||||||||||||||||
The Company has entered into distribution agreements in Europe, Mexico, and certain other countries. Recognition of revenue and related cost of revenue from product sales is deferred until the product is sold from the distributors to their customers. | ||||||||||||||||||
When the Company receives letters of credit and the terms of the sale provide for no right of return except to replace defective product, revenue is recognized when the letter of credit becomes effective and the product is shipped. | ||||||||||||||||||
Product license revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered. If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized over the performance obligation period. | ||||||||||||||||||
Assuming the elements meet the criteria for separation and all other revenue requirements for recognition, the revenue recognition methodology prescribed for each unit of accounting is summarized below: | ||||||||||||||||||
When appropriate, the Company defers recognition of non-refundable upfront fees. If the Company has continuing performance obligations then such up-front fees are deferred and recognized over the period of continuing involvement. | ||||||||||||||||||
The Company recognizes royalty revenues from licensed products upon the sale of the related products. | ||||||||||||||||||
Revenue from consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer. | ||||||||||||||||||
Inventory | ||||||||||||||||||
Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or market. Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value. | ||||||||||||||||||
Income Taxes | ||||||||||||||||||
The Company is required to determine the aggregate amount of income tax expense or loss based upon tax statutes in jurisdictions in which it conducts business. In making these estimates, the Company adjusts its results determined in accordance with generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities resulting from these differences are reflected on its balance sheet for temporary differences in loss and credit carryforwards that will reverse in subsequent years. The Company also establishes a valuation allowance against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances are based, in part, on predictions that management must make as to the results in future periods. The outcome of events could differ over time which would require that the Company makes changes in its valuation allowance. | ||||||||||||||||||
Fair Value of Financial Assets and Liabilities | ||||||||||||||||||
Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The carrying amounts of long-term investments include the investment held in Ruthigen, Inc. (“Ruthigen”) and are carried at cost, which management believes approximates fair value. The fair value of capital lease obligations and equipment loans approximates their carrying amounts as a market rate of interest is attached to their repayment. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value: | ||||||||||||||||||
Level 1 – quoted prices in active markets for identical assets or liabilities | ||||||||||||||||||
Level 2 – quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. | ||||||||||||||||||
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions) | ||||||||||||||||||
Financial liabilities measured at fair value on a recurring basis are summarized below: | ||||||||||||||||||
Fair Value Measurements at September 30, 2014 Using | ||||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | |||||||||||||||
September 30, | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
2014 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Derivative liabilities – warrants | $ | 856,000 | – | – | $ | 856,000 | ||||||||||||
Fair Value Measurements at March 31, 2014 Using | ||||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | |||||||||||||||
March 31, | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
2014 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Derivative liabilities – warrants | $ | 3,175,000 | – | – | $ | 3,175,000 | ||||||||||||
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer. | ||||||||||||||||||
As of September 30, 2014, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy. | ||||||||||||||||||
Impairment of Long-Lived Assets | ||||||||||||||||||
The Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that it is more likely than not that their carrying values may exceed their realizable values, and records impairment charges when considered necessary. Specific potential indicators of impairment include, but are not necessarily limited to: | ||||||||||||||||||
· | a significant decrease in the fair value of an asset; | |||||||||||||||||
· | a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; | |||||||||||||||||
· | a significant adverse change in legal factors or in the business climate that affects the value of an asset; | |||||||||||||||||
· | an adverse action or assessment by the U.S. Food and Drug Administration or another regulator; and | |||||||||||||||||
· | an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an income-producing asset. | |||||||||||||||||
When circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. In estimating these future cash flows, assets and liabilities are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, will be recognized. The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that management believes is reasonable. During the six months ended September 30, 2014, the Company had noted no indicators of impairment. | ||||||||||||||||||
Long-Term Investments | ||||||||||||||||||
The Company’s long-term investments consist of the 2,000,000 shares it owns in Ruthigen at September 30, 2014 and March 31, 2014. The Company carries securities that do not have a readily determinable fair value at cost. The Company reviewed available public information disclosed by Ruthigen to determine if operational issues could be identified that would result in a decline in the value of the Ruthigen investment. The Company did not identify any operational issues that would negatively impact the value of the investment. The Company has not recorded any impairment losses during the three or six months ended September 30, 2014 as it relates to its investments held. See Note 12 for recent developments as it relates to the Company's investments held in Ruthigen. | ||||||||||||||||||
Subsequent Events | ||||||||||||||||||
Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued (Note 12). | ||||||||||||||||||
Recent Accounting Pronouncements | ||||||||||||||||||
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period . This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | ||||||||||||||||||
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial position and results of operations. | ||||||||||||||||||
The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of these unaudited condensed consolidated financial statements. Management’s evaluations of events and conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern have been disclosed in Note 2. | ||||||||||||||||||
Accounting standards that have been issued or proposed by the FASB, SEC and/or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. |
2_Liquidity_and_Going_Concern
2. Liquidity and Going Concern | 6 Months Ended | 12 Months Ended |
Sep. 30, 2014 | Mar. 31, 2014 | |
Liquidity And Financial Condition | ||
Liquidity and Going Concern | The Company reported a loss of $788,000 for the six months ended September 30, 2014. At September 30, 2014 and March 31, 2014, the Company’s accumulated deficit amounted to $134,798,000 and $134,010,000, respectively. The Company had working capital of $2,830,000 and $1,970,000 as of September 30, 2014 and March 31, 2014, respectively. The Company expects to continue incurring losses for the foreseeable future and must raise additional capital to pursue its product development initiatives, penetrate markets for the sale of its products and continue as a going concern. The Company cannot provide any assurance that it will raise additional capital. Management believes that the Company has access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, the Company has not secured any commitment for new financing at this time nor can it provide any assurance that new financing will be available on commercially acceptable terms, if at all. If the economic climate in the U.S. deteriorates, the Company’s ability to raise additional capital could be negatively impacted. If the Company is unable to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These measures could cause significant delays in the Company’s efforts to commercialize its products, which is critical to the realization of its business plan and the future operations of the Company. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. | The Company had net income of $3,735,000 and incurred losses from operations of $6,051,000 for the year ended March 31, 2014. At March 31, 2014, the Company’s accumulated deficit amounted to $134,010,000. The Company had working capital of $1,970,000 as of March 31, 2014. The Company expects the need to raise additional capital from external sources in order to continue the longer term efforts contemplated under its business plan. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue its product development initiatives, penetrate markets for the sale of its products and continue as a going concern. |
On April 2, 2014, the Company entered into an At-the-Market Issuance Sales Agreement with MLV & Co. LLC (“MLV”) under which the Company may issue and sell shares of common stock having an aggregate offering price of up to $9,159,000 from time to time through MLV acting as the Company’s sales agent. The Company will pay MLV a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through MLV as agent under the Sales Agreement. As of June 24, 2014, the sales of shares under this agreement have resulted in net proceeds of $982,000. | ||
The Company currently anticipates that its cash and cash equivalents will be sufficient to meet its working capital requirements to continue its sales and marketing and research and development efforts through at least April 1, 2015. However, in order to execute the Company’s long-term Microcyn® product development strategy and to penetrate new and existing markets, the Company may need to raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other means and potentially reduce operating expenditures. | ||
Management believes that the Company has access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, the Company has not secured any commitment for new financing at this time, nor can it provide any assurance that other new financings will be available on commercially acceptable terms, if needed. If the Company is unable to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash. |
3_Summary_of_Significant_Accou
3. Summary of Significant Accounting Policies | 6 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||||||||
Sep. 30, 2014 | Mar. 31, 2014 | |||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | Use of Estimates | Principles of Consolidation | ||||||||||||||||||||||||||||||||
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt discounts, valuation of investments, and the estimated amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts estimates accordingly. The allowances for uncollectible accounts receivable balances amounted to $19,000 and $8,000, which are included in Accounts Receivable, net in the accompanying September 30, 2014 and March 31, 2014 condensed consolidated balance sheets, respectively. | The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Aquamed Technologies, Inc. (“Aquamed”), Oculus Technologies of Mexico S.A. de C.V. (“OTM”), Oculus Innovative Sciences Netherlands, B.V. (“OIS Europe”) and Ruthigen (through the date of deconsolidation on March 26, 2014). Aquamed has no current operations. All significant intercompany accounts and transactions have been eliminated in consolidation. | |||||||||||||||||||||||||||||||||
Net Loss per Share | Use of Estimates | |||||||||||||||||||||||||||||||||
The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic loss per share for the three and six months ended September 30, 2014 and 2013 excludes the potentially dilutive securities summarized in the table below because their inclusion would be anti-dilutive. | The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt discounts, valuation of investments, and the estimated amortization periods of upfront product licensing fees received from customers. | |||||||||||||||||||||||||||||||||
September 30, | Revenue Recognition | |||||||||||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||||||||||||
Options to purchase common stock | 2,754,000 | 1,229,000 | The Company generates revenue from sales of its products to hospitals, medical centers, doctors, pharmacies, and distributors. The Company sells its products directly to third parties and to distributors through various cancelable distribution agreements. The Company has also entered into agreements to license its technology and its products. | |||||||||||||||||||||||||||||||
Warrants to purchase common stock | 2,034,000 | 1,318,000 | ||||||||||||||||||||||||||||||||
4,788,000 | 2,547,000 | The Company also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. | ||||||||||||||||||||||||||||||||
Common Stock Purchase Warrants and Other Derivative Financial Instruments | The Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured. | |||||||||||||||||||||||||||||||||
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that its freestanding derivatives, which principally consist of warrants to purchase common stock, satisfied the criteria for classification as equity instruments, other than certain warrants that contained reset provisions and certain warrants that required net-cash settlement that the Company classified as derivative liabilities as more fully described in Note 5. | The Company requires all of its product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer, shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in lieu of purchase orders. | |||||||||||||||||||||||||||||||||
Revenue Recognition and Accounts Receivable | The Company recognizes revenue at the time it receives a confirmation that the goods were either tendered at their destination, when shipped “FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. | |||||||||||||||||||||||||||||||||
The Company generates revenue from sales of our products to hospitals, medical centers, doctors, pharmacies, and distributors. The Company sells our products directly to third parties and to distributors through various cancelable distribution agreements. The Company also entered into agreements to license our technology and products. | The selling prices of all goods that the Company sells are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established list prices. The Company does not customarily permit its customers to return any of its products for monetary refunds or credit against completed or future sales. The Company, from time to time, may replace expired goods on a discretionary basis. The Company records these types of adjustments, when made, as a reduction of revenue. Sales adjustments were insignificant during the years ended March 31, 2014 and 2013. | |||||||||||||||||||||||||||||||||
The Company also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. | The Company evaluates the creditworthiness of new customers and monitors the creditworthiness of its existing customers to determine whether events or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which a sale is made. Payment terms on sales made in the United States are generally 30 days and internationally, generally range from 30 days to 90 days. | |||||||||||||||||||||||||||||||||
The Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured. | In the event a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains a reserve for amounts which may not be collectible due to risk of credit losses. | |||||||||||||||||||||||||||||||||
The Company requires all of our product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer, shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in lieu of purchase orders. | Additionally, the Company’s treatment for recognizing revenue related to distributors that are unable to provide inventory or product sell-through reports on a timely basis, is to defer and recognize revenue when payment is received. The Company believes the receipt of payment is the best indication of product sell-through. | |||||||||||||||||||||||||||||||||
The Company recognizes revenue at the time in which we receive confirmation that the goods were either tendered at their destination, when shipped “FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. | The Company has entered into distribution agreements in Europe. Recognition of revenue and related cost of revenue from product sales is deferred until the product is sold from the distributors to their customers. | |||||||||||||||||||||||||||||||||
The selling prices of all goods are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established list prices. The Company does not customarily permit our customers to return any products for monetary refunds or credit against completed or future sales. The Company may, from time to time, replace expired goods on a discretionary basis. The Company records these types of adjustments, when made, as a reduction of revenue. Sales adjustments were insignificant during the quarters ended September 30, 2014 and 2013 and the years ended March 31, 2014 and 2013. | When the Company receives letters of credit and the terms of the sale provide for no right of return except to replace defective product, revenue is recognized when the letter of credit becomes effective and the product is shipped. | |||||||||||||||||||||||||||||||||
The Company evaluates the creditworthiness of new customers and monitor the creditworthiness of our existing customers to determine whether events or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which a sale is made. Payment terms on sales made in the United States are generally 30 days and internationally, generally range from 30 days to 90 days. | Product license revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered. If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized over the performance obligation period. | |||||||||||||||||||||||||||||||||
In the event a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains a reserve for amounts which may not be collectible due to risk of credit losses. | Assuming the elements meet the criteria for separation and all other revenue requirements for recognition, the revenue recognition methodology prescribed for each unit of accounting is summarized below: | |||||||||||||||||||||||||||||||||
Additionally, the Company defers recognition of revenue related to distributors’ that are unable to provide inventory or product sell-through reports on a timely basis, until payment is received. The Company believes the receipt of payment is the best indication of product sell-through. | When appropriate, the Company defers recognition of non-refundable upfront fees. If it has continuing performance obligations then such up-front fees are deferred and recognized over the period of continuing involvement. | |||||||||||||||||||||||||||||||||
The Company has entered into distribution agreements in Europe, Mexico, and certain other countries. Recognition of revenue and related cost of revenue from product sales is deferred until the product is sold from the distributors to their customers. | The Company recognizes royalty revenues from licensed products upon the sale of the related products. | |||||||||||||||||||||||||||||||||
When the Company receives letters of credit and the terms of the sale provide for no right of return except to replace defective product, revenue is recognized when the letter of credit becomes effective and the product is shipped. | Revenue from consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer. | |||||||||||||||||||||||||||||||||
Product license revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered. If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized over the performance obligation period. | Sales Tax and Value Added Taxes | |||||||||||||||||||||||||||||||||
Assuming the elements meet the criteria for separation and all other revenue requirements for recognition, the revenue recognition methodology prescribed for each unit of accounting is summarized below: | The Company accounts for sales taxes and value added taxes imposed on its goods and services on a net basis. | |||||||||||||||||||||||||||||||||
When appropriate, the Company defers recognition of non-refundable upfront fees. If the Company has continuing performance obligations then such up-front fees are deferred and recognized over the period of continuing involvement. | Cash and Cash Equivalents | |||||||||||||||||||||||||||||||||
The Company recognizes royalty revenues from licensed products upon the sale of the related products. | The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents may be invested in money market funds, commercial paper, variable rate demand instruments, and certificates of deposits. | |||||||||||||||||||||||||||||||||
Revenue from consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer. | Long-Term Investments | |||||||||||||||||||||||||||||||||
Inventory | The Company’s long-term investments consist of the 2,000,000 shares it owns in Ruthigen at March 31, 2014. The Company carries securities that do not have a readily determinable fair value at cost. The Company has not recorded any impairment losses during the years ended March 31, 2014 as it relates to its investments held. | |||||||||||||||||||||||||||||||||
Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or market. Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value. | Concentration of Credit Risk and Major Customers | |||||||||||||||||||||||||||||||||
Income Taxes | Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents and accounts receivable. Cash and cash equivalents are maintained in financial institutions in the United States, Mexico and the Netherlands. The Company is exposed to credit risk in the event of default by these financial institutions for amounts in excess of the Federal Deposit Insurance Corporation insured limits. Cash and cash equivalents held in foreign banks are intentionally kept at minimal levels, and therefore have minimal credit risk associated with them. | |||||||||||||||||||||||||||||||||
The Company is required to determine the aggregate amount of income tax expense or loss based upon tax statutes in jurisdictions in which it conducts business. In making these estimates, the Company adjusts its results determined in accordance with generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities resulting from these differences are reflected on its balance sheet for temporary differences in loss and credit carryforwards that will reverse in subsequent years. The Company also establishes a valuation allowance against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances are based, in part, on predictions that management must make as to the results in future periods. The outcome of events could differ over time which would require that the Company makes changes in its valuation allowance. | The Company grants credit to its business customers, which are primarily located in Mexico, Europe and the United States. Collateral is generally not required for trade receivables. The Company maintains allowances for potential credit losses. At March 31, 2014, one customer represented 44%, one customer represented 15%, and one customer represented 12% of the net accounts receivable balance. During the year ended March 31, 2014, one customer represented 38%, and one customer represented 23%, respectively, of net revenues. At March 31, 2013, one customer represented 34%, one customer represented 26%, and one customer represented 15% of the net accounts receivable balance. During the year ended March 31, 2013, one customer represented 25%, and one customer represented 13%, respectively, of net revenues. | |||||||||||||||||||||||||||||||||
Fair Value of Financial Assets and Liabilities | Accounts Receivable | |||||||||||||||||||||||||||||||||
Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The carrying amounts of long-term investments include the investment held in Ruthigen, Inc. (“Ruthigen”) and are carried at cost, which management believes approximates fair value. The fair value of capital lease obligations and equipment loans approximates their carrying amounts as a market rate of interest is attached to their repayment. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value: | Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, and sales returns. Estimates for cash discounts and sales returns are based on analysis of contractual terms and historical trends. | |||||||||||||||||||||||||||||||||
Level 1 – quoted prices in active markets for identical assets or liabilities | The Company’s policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Other factors that the Company considers include its existing contractual obligations, historical payment patterns of its customers and individual customer circumstances, an analysis of days sales outstanding by customer and geographic region, and a review of the local economic environment and its potential impact on government funding and reimbursement practices. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts at March 31, 2014 and 2013 represents probable credit losses in the amounts of $8,000 and $22,000, respectively. | |||||||||||||||||||||||||||||||||
Level 2 – quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. | Inventories | |||||||||||||||||||||||||||||||||
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions) | Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or market. | |||||||||||||||||||||||||||||||||
Financial liabilities measured at fair value on a recurring basis are summarized below: | Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and records a provision to write down excess and obsolete inventory to its estimated net realizable value. The Company recorded reserves to reduce the carrying amounts of inventories to their net realizable value in the amounts of $47,000 and $170,000 at March 31, 2014 and 2013, respectively, which is included in cost of product revenues on the Company’s accompanying consolidated statements of comprehensive income (loss). | |||||||||||||||||||||||||||||||||
Fair Value Measurements at September 30, 2014 Using | Fair Value of Financial Assets and Liabilities | |||||||||||||||||||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | |||||||||||||||||||||||||||||||
September 30, | (Level 1) | (Level 2) | (Level 3) | Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The carrying amounts of long-term investments include the investment in Ruthigen and are carried at cost, which management believes approximates fair value. The fair value of capital lease obligations and equipment loans approximates their carrying amounts as a market rate of interest is attached to their repayment. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value: | ||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||
Liabilities: | Level 1 – quoted prices in active markets for identical assets or liabilities | |||||||||||||||||||||||||||||||||
Derivative liabilities – warrants | $ | 856,000 | – | – | $ | 856,000 | ||||||||||||||||||||||||||||
Level 2 – quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. | ||||||||||||||||||||||||||||||||||
Fair Value Measurements at March 31, 2014 Using | ||||||||||||||||||||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions) | ||||||||||||||||||||||||||||||
March 31, | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||||||||
2014 | Financial liabilities measured at fair value on a recurring basis are summarized below: | |||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||
Derivative liabilities – warrants | $ | 3,175,000 | – | – | $ | 3,175,000 | Fair Value Measurements at March 31, 2014 Using | |||||||||||||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | |||||||||||||||||||||||||||||||
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer. | March 31, | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||
As of September 30, 2014, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy. | Liabilities: | |||||||||||||||||||||||||||||||||
Derivative liabilities – warrants | $ | 3,175,000 | – | – | $ | 3,175,000 | ||||||||||||||||||||||||||||
Impairment of Long-Lived Assets | ||||||||||||||||||||||||||||||||||
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer. | ||||||||||||||||||||||||||||||||||
The Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that it is more likely than not that their carrying values may exceed their realizable values, and records impairment charges when considered necessary. Specific potential indicators of impairment include, but are not necessarily limited to: | ||||||||||||||||||||||||||||||||||
Level 3 Valuation Techniques: | ||||||||||||||||||||||||||||||||||
· | a significant decrease in the fair value of an asset; | |||||||||||||||||||||||||||||||||
· | a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; | Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. | ||||||||||||||||||||||||||||||||
· | a significant adverse change in legal factors or in the business climate that affects the value of an asset; | |||||||||||||||||||||||||||||||||
· | an adverse action or assessment by the U.S. Food and Drug Administration or another regulator; and | The Company uses the Black-Scholes option valuation model to value Level 3 derivatives at inception and on subsequent valuation dates. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the derivative liabilities are recorded in “Loss due to change in fair value of derivative liabilities” in the Company’s consolidated statements of comprehensive income (loss). | ||||||||||||||||||||||||||||||||
· | an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an income-producing asset. | |||||||||||||||||||||||||||||||||
As of March 31, 2014, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy. | ||||||||||||||||||||||||||||||||||
When circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. In estimating these future cash flows, assets and liabilities are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, will be recognized. The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that management believes is reasonable. During the six months ended September 30, 2014, the Company had noted no indicators of impairment. | ||||||||||||||||||||||||||||||||||
Property and Equipment | ||||||||||||||||||||||||||||||||||
Long-Term Investments | ||||||||||||||||||||||||||||||||||
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets. Depreciation of leasehold improvements is computed using the straight-line method over the lesser of the estimated useful life of the improvement or the remaining term of the lease. Estimated useful asset life by classification is as follows: | ||||||||||||||||||||||||||||||||||
The Company’s long-term investments consist of the 2,000,000 shares it owns in Ruthigen at September 30, 2014 and March 31, 2014. The Company has accounted for the 2,000,000 shares of common stock it owns in Ruthigen at cost in accordance with ASC 325-20 as a result of (a) the restrictions on voting the shares held as disclosed above, (b) the Company having no representation on the Ruthigen Board of Directors, (c) the Company’s inability to set policy at Ruthigen (d) the Company having no further commitments for funding the operations of Ruthigen and (e) the restrictions on transferability of the shares which extend beyond a one-year period. The Company reviewed available public information disclosed by Ruthigen to determine if operational issues could be identified that would result in a decline in the value of the Ruthigen investment. The Company did not identify any operational issues that would negatively impact the value of the investment. The Company has not recorded any impairment losses during the three or six months ended September 30, 2014 as it relates to its investments held. See Note 12 for recent developments as it relates to the Company's investments held in Ruthigen. | ||||||||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||||||||
Subsequent Events | Office equipment | 3 | ||||||||||||||||||||||||||||||||
Manufacturing, lab and other equipment | 5 | |||||||||||||||||||||||||||||||||
Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued (Note 12). | Furniture and fixtures | 7 | ||||||||||||||||||||||||||||||||
Recent Accounting Pronouncements | Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred. | |||||||||||||||||||||||||||||||||
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period . This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | Impairment of Long-Lived Assets | |||||||||||||||||||||||||||||||||
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial position and results of operations. | The Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that it is more likely than not that their carrying values may exceed their realizable values, and records impairment charges when considered necessary. Specific potential indicators of impairment include, but are not necessarily limited to: | |||||||||||||||||||||||||||||||||
The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of these unaudited condensed consolidated financial statements. Management’s evaluations of events and conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern have been disclosed in Note 2. | · | a significant decrease in the fair value of an asset; | ||||||||||||||||||||||||||||||||
Accounting standards that have been issued or proposed by the FASB, SEC and/or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. | · | a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; | ||||||||||||||||||||||||||||||||
· | a significant adverse change in legal factors or in the business climate that affects the value of an asset; | |||||||||||||||||||||||||||||||||
· | an adverse action or assessment by the U.S. Food and Drug Administration or another regulator; and | |||||||||||||||||||||||||||||||||
· | an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an income-producing asset. | |||||||||||||||||||||||||||||||||
When circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. In estimating these future cash flows, assets and liabilities are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, will be recognized. The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that management believes is reasonable. During the years ended March 31, 2014 and 2013, the Company had noted no indicators of impairment. | ||||||||||||||||||||||||||||||||||
Research and Development | ||||||||||||||||||||||||||||||||||
Research and development expense is charged to operations as incurred and consists primarily of personnel expenses, clinical and regulatory services and supplies. For the years ended March 31, 2014 and 2013, research and development expense amounted to $2,887,000 and $2,223,000, respectively. | ||||||||||||||||||||||||||||||||||
Advertising Costs | ||||||||||||||||||||||||||||||||||
Advertising costs are expensed as incurred. Advertising costs amounted to $155,000 and $91,000, for the years ended March 31, 2014 and 2013, respectively. Advertising costs are included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income (loss). | ||||||||||||||||||||||||||||||||||
Shipping and Handling Costs | ||||||||||||||||||||||||||||||||||
The Company classifies amounts billed to customers related to shipping and handling in sale transactions as product revenues. Shipping and handling costs incurred are recorded in cost of product revenues. For the years ended March 31, 2014 and 2013, the Company recorded revenue related to shipping and handling costs of $58,000 and $116,000, respectively. | ||||||||||||||||||||||||||||||||||
Foreign Currency Reporting | ||||||||||||||||||||||||||||||||||
The Company’s subsidiary, OTM, uses the local currency (Mexican Pesos) as its functional currency and its subsidiary, OIS Europe, uses the local currency (Euro) as its functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and revenue and expense accounts are translated at average exchange rates during the period. Resulting translation adjustments were recorded in accumulated other comprehensive loss in the accompanying consolidated balance sheets at March 31, 2014 and 2013. | ||||||||||||||||||||||||||||||||||
Foreign currency transaction gains (losses) relate primarily to trade payables and receivables between subsidiaries OTM and OIS Europe. These transactions are expected to be settled in the foreseeable future. The Company recorded foreign currency transaction gains of $6,000 and losses of $11,000 for the years ended March 31, 2014 and 2013, respectively. The related gains were recorded in other expense, net, in the accompanying consolidated statements of comprehensive income (loss). | ||||||||||||||||||||||||||||||||||
Stock-Based Compensation | ||||||||||||||||||||||||||||||||||
The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. The Company estimates the fair value of employee stock awards using the Black-Scholes option pricing model. The Company amortizes the fair value of employee stock options on a straight-line basis over the requisite service period of the awards. Compensation expense includes the impact of an estimate for forfeitures for all stock options. | ||||||||||||||||||||||||||||||||||
The Company accounts for equity instruments issued to non-employees at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instrument vests or becomes non-forfeitable. Non-employee stock-based compensation charges are amortized over the vesting period or as earned. | ||||||||||||||||||||||||||||||||||
Income Taxes | ||||||||||||||||||||||||||||||||||
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. | ||||||||||||||||||||||||||||||||||
Tax benefits claimed or expected to be claimed on a tax return are recorded in the Company’s consolidated financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Uncertain tax positions have had no impact on the Company’s consolidated financial condition, results of comprehensive loss or cash flows. | ||||||||||||||||||||||||||||||||||
Comprehensive Loss | ||||||||||||||||||||||||||||||||||
Other comprehensive loss includes all changes in stockholders’ equity during a period from non-owner sources and is reported in the consolidated statement of changes in stockholders’ equity. To date, other comprehensive loss consists of changes in accumulated foreign currency translation adjustments. Accumulated other comprehensive losses at March 31, 2014 and 2013 were $3,069,000 and $2,991,000, respectively. | ||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Share | ||||||||||||||||||||||||||||||||||
Basic earnings and loss per share are computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the exercise of stock options and warrants from the calculation of net loss per share as their effect would be anti-dilutive. | ||||||||||||||||||||||||||||||||||
For the Years Ended | ||||||||||||||||||||||||||||||||||
March 31, | ||||||||||||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||||||||||||
Net income (loss) available to common stockholders - basic | $ | 3,735,000 | $ | (6,493,000 | ) | |||||||||||||||||||||||||||||
Denominator - basic: | ||||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | 6,882,000 | 4,977,000 | ||||||||||||||||||||||||||||||||
Basic earnings (loss) per common share | $ | 0.54 | $ | (1.30 | ) | |||||||||||||||||||||||||||||
Net income (loss) income available to common stockholders - diluted | $ | 3,735,000 | $ | (6,493,000 | ) | |||||||||||||||||||||||||||||
Denominator - diluted: | ||||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | 6,882,000 | 4,977,000 | ||||||||||||||||||||||||||||||||
Common share equivalents of outstanding stock options | 12,000 | – | ||||||||||||||||||||||||||||||||
Common share equivalents of outstanding warrants | 4,000 | – | ||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | 6,898,000 | 4,977,000 | ||||||||||||||||||||||||||||||||
Dilutive earnings (loss) per common share | $ | 0.54 | $ | (1.30 | ) | |||||||||||||||||||||||||||||
Securities excluded from the weighted average dilutive common shares outstanding because their inclusion would have been anti-dilutive: | ||||||||||||||||||||||||||||||||||
Stock options | 1,122,000 | 975,000 | ||||||||||||||||||||||||||||||||
Warrants | 1,410,000 | 1,318,000 | ||||||||||||||||||||||||||||||||
2,532,000 | 2,293,000 | |||||||||||||||||||||||||||||||||
Common Stock Purchase Warrants and Other Derivative Financial Instruments | ||||||||||||||||||||||||||||||||||
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that its freestanding derivatives, which principally consist of warrants to purchase common stock, satisfied the criteria for classification as equity instruments, other than certain warrants that contained reset provisions and certain warrants that required net-cash settlement that the Company classified as derivative liabilities as more fully described in Note 11. | ||||||||||||||||||||||||||||||||||
Preferred Stock | ||||||||||||||||||||||||||||||||||
The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Shares that are subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, preferred shares are classified as stockholders' equity. | ||||||||||||||||||||||||||||||||||
Convertible Instruments | ||||||||||||||||||||||||||||||||||
The Company evaluates and bifurcates conversion options from their host instruments and accounts for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable Generally Accepted Accounting Principles (“GAAP”). | ||||||||||||||||||||||||||||||||||
Subsequent Events | ||||||||||||||||||||||||||||||||||
Management has evaluated subsequent events or transactions occurring through the date these consolidated financial statements were issued. | ||||||||||||||||||||||||||||||||||
Recent Accounting Pronouncements | ||||||||||||||||||||||||||||||||||
Accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”), the U.S. Securities and Exchange Commission (“SEC”) and/or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
4_Condensed_Consolidated_Balan
4. Condensed Consolidated Balance Sheets | 6 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Balance Sheet Related Disclosures [Abstract] | |||||||||
Condensed Consolidated Balance Sheets | Inventories, net | ||||||||
Inventories, net consist of the following: | |||||||||
September 30, | March 31, | ||||||||
2014 | 2014 | ||||||||
Raw materials | $ | 796,000 | $ | 743,000 | |||||
Finished goods | 439,000 | 345,000 | |||||||
$ | 1,235,000 | $ | 1,088,000 | ||||||
5_Derivative_Liabilities
5. Derivative Liabilities | 6 Months Ended | 12 Months Ended | |||||||||||||||||||||
Sep. 30, 2014 | Mar. 31, 2014 | ||||||||||||||||||||||
Derivative Liability [Abstract] | |||||||||||||||||||||||
Derivative Liabilities | The Company deems financial instruments, which require net-cash settlement, as either an asset or a liability. The common stock purchase warrants issued in conjunction with the Company’s December 9, 2013 and February 26, 2014 registered direct offerings contain net-cash settlement features, which give the warrant holder the right to a net-cash settlement in the event certain transactions occur. Pursuant to the terms of the warrants, if such a transaction occurs, the warrant holder will be entitled to a net-cash settlement value calculated using the Black-Scholes valuation model using an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the Bloomberg Historical Volatility (“HVT”) function on Bloomberg, an expected term equal to the remaining term of the warrants, and applicable risk-free interest rate corresponding to the U.S. Treasury. | Warrants Issued in Conjunction with the Company’s August 13, 2007 Private Placement | |||||||||||||||||||||
The derivative liabilities relating to the warrants with net-cash settlement provisions were valued using the Black-Scholes option valuation model and the following assumptions on the following dates: | The Company deems financial instruments which do not have fixed settlement provisions to be derivative instruments. The common stock purchase warrants issued with the Company’s August 13, 2007 private placement, and the common stock purchase warrants issued to the placement agent in the transaction, do not have fixed settlement provisions because their exercise prices may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the warrant holders from the potential dilution associated with future financings. At issuance, the warrants were recognized as equity instruments and have since been re-characterized as derivative liabilities. Accordingly, the warrant obligations were adjusted to fair value at the end of each reporting period with the change in value reported in the consolidated statement of comprehensive loss. Such fair values were estimated using the Black-Scholes valuation model. Although the Company determined the common stock warrants include an implied down-side protection feature, it performed a Monte-Carlo simulation and concluded that the value of the feature is de minimis between the two models and the use of the Black-Scholes valuation model is considered to be a reasonable method to value the warrants. The Company will continue to adjust the derivative liability for changes in fair value until the earlier of the exercise, at which time the liability will be reclassified to stockholders’ equity (deficiency), or expiration of the warrants. | ||||||||||||||||||||||
Measurement | Warrants | Remaining | Exercise | Volatility | Risk-free | Fair | On February 13, 2013, the stock purchase warrants issued with the August 13, 2007 private placement expired. Accordingly, the Company has decreased the derivative liability by $55,000, from the amount reported at March 31, 2012, to reflect the expiration of the warrants and related change in fair value. This amount is included as a gain due to the change in the fair value of derivative liabilities in the accompanying consolidated statement of comprehensive loss for the year ended March 31, 2013. | ||||||||||||||||
Date | Contract | Price | Interest | Value | |||||||||||||||||||
Term in | Rate | Warrants Issued in Conjunction with the Company’s April 22, 2012 Registered Direct Offering | |||||||||||||||||||||
Years | |||||||||||||||||||||||
Warrant | The Company deems financial instruments which require net-cash settlement as either an asset or a liability. The common stock purchase warrants issued in conjunction with the Company’s April 22, 2012 registered direct offering originally contained a net-cash settlement feature which gave the warrant holder the right to net-cash settlement in the event certain transactions occur. Pursuant to the terms of the original warrants, if such a transaction occurs the warrant holder will be entitled to a net-cash settlement value calculated using the Black-Scholes valuation model using an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg, an expected term equal to the remaining term of the warrants, and applicable risk-free interest rate corresponding to the U.S. Treasury. On October 29, 2012, the Company entered into a side letter agreement with the holders of the warrants and the parties agreed to amend the terms of the warrants to eliminate the net-cash settlement feature contained in the warrants and extended the expiration date of the warrants by two years. Subsequent to the execution of the side letter agreement, the Company adjusted the fair value of the warrants to the modified fair value and recorded a $298,000 gain. Additionally, the Company recorded a $382,000 loss due to the incremental fair value adjustment resulting from the modification of the warrants from the April 2012 offering. Subsequent to the Company’s entry into the side letter agreement, the Company reclassified the fair value of the warrants of $1,636,000 from a liability to additional paid-in capital as classified on the accompanying March 31, 2013 consolidated balance sheet. | ||||||||||||||||||||||
Placement Agent Warrants | 31-Mar-14 | 16,500 | 2.09 | $ | 5 | 128% | 0.44% | $ | 37,000 | ||||||||||||||
Investor - Series A Warrants | 31-Mar-14 | 1,000 | 1.41 | $ | 3 | 128% | 0.44% | 1,000 | The derivative liability relating to the warrants with net-cash settlement provisions were valued using the Black-Scholes option valuation model and the following assumptions on the following dates: | ||||||||||||||
Investor - Series B Warrants | 31-Mar-14 | 1,400,000 | 1.41 | $ | 3.63 | 128% | 0.44% | 2,958,000 | |||||||||||||||
Placement Agent Warrants | 31-Mar-14 | 69,037 | 2.09 | $ | 3 | 128% | 0.44% | 179,000 | Modification Incremental | Pre-modification | April 22, | ||||||||||||
$ | 3,175,000 | Fair Value | October 30, | 2012 | |||||||||||||||||||
Warrant | October 30, | 2012 | |||||||||||||||||||||
Placement Agent Warrants | 30-Jun-14 | 16,500 | 1.84 | $ | 5 | 100% | 0.47% | $ | 19,000 | 2012 | |||||||||||||
Investor - Series A Warrants | 30-Jun-14 | 1,000 | 1.16 | $ | 3 | 100% | 0.11% | 1,000 | Expected life | 4.00 years | 2.00 years | 2.50 years | |||||||||||
Investor - Series B Warrants | 30-Jun-14 | 1,400,000 | 1.16 | $ | 3.63 | 100% | 0.11% | 1,568,000 | Risk-free interest rate | 0.74% | 0.30% | 0.40% | |||||||||||
Placement Agent Warrants | 30-Jun-14 | 69,037 | 1.84 | $ | 3 | 100% | 0.47% | 109,000 | Dividend yield | 0.00% | 0.00% | 0.00% | |||||||||||
$ | 1,697,000 | Volatility | 89% | 100% | 100% | ||||||||||||||||||
Warrant | Warrants outstanding | 495,874 | 495,874 | 495,874 | |||||||||||||||||||
Placement Agent Warrants | 30-Sep-14 | 16,500 | 1.59 | $ | 5 | 100% | 0.58% | $ | 11,000 | Fair value of warrants | $ | 1,636,000 | $ | 1,254,000 | $ | 2,347,000 | |||||||
Investor - Series A Warrants | 30-Sep-14 | 1,000 | 0.9 | $ | 3 | 100% | 0.13% | 1,000 | |||||||||||||||
Investor - Series B Warrants | 30-Sep-14 | 1,400,000 | 0.9 | $ | 3.63 | 100% | 0.13% | 777,000 | Warrants Issued in Conjunction with the Company’s December 9, 2013 and February 26, 2014 Registered Direct Offerings | ||||||||||||||
Placement Agent Warrants | 30-Sep-14 | 69,037 | 1.59 | $ | 3 | 100% | 0.58% | 67,000 | |||||||||||||||
$ | 856,000 | The Company deems financial instruments which require net-cash settlement as either an asset or a liability. The common stock purchase warrants issued in conjunction with the Company’s December 9, 2013 and February 26, 2014 registered direct offerings contain a net-cash settlement feature which give the warrant holder the right to net-cash settlement in the event certain transactions occur. Pursuant to the terms of the warrants, if such a transaction occurrs the warrant holder will be entitled to a net-cash settlement value calculated using the Black-Scholes valuation model using an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the HVT function on Bloomberg, an expected term equal to the remaining term of the warrants, and applicable risk-free interest rate corresponding to the U.S. Treasury. | |||||||||||||||||||||
The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis: | The derivative liabilities relating to the warrants with net-cash settlement provisions were valued using the Black-Scholes option valuation model and the following assumptions on the following dates: | ||||||||||||||||||||||
Derivative liabilities | Three Months Ended September 30, 2014 | Six Months Ended September 30, 2014 | Fair Value – Issue Date | Measurement Date | Warrants | Remaining Contract | Exercise | Volatility | Risk-free | Fair Value | |||||||||||||
Beginning fair value | $ | 1,697,000 | $ | 3,175,000 | Term in Years | Price | Interest Rate | ||||||||||||||||
Gain due to change in fair value of derivative liabilities | (841,000 | ) | (2,319,000 | ) | Placement Agent Warrants | 9-Dec-13 | 16,500 | 2.4 | $ | 5 | 223% | 0.44% | $ | 64,000 | |||||||||
Ending fair value | $ | 856,000 | $ | 856,000 | Investor - Series A Warrants | 26-Feb-14 | 450,620 | 1.5 | $ | 3 | 100% | 0.44% | 814,000 | ||||||||||
Investor - Series B Warrants | 26-Feb-14 | 1,400,000 | 1.5 | $ | 3.63 | 100% | 0.44% | 2,271,000 | |||||||||||||||
Placement Agent Warrants | 26-Feb-14 | 69,037 | 2.18 | $ | 3 | 100% | 0.44% | 143,000 | |||||||||||||||
$ | 3,292,000 | ||||||||||||||||||||||
Fair Value - Exercise Date | |||||||||||||||||||||||
Investor - Series A Warrants | 18-Mar-14 | 315,434 | 1.44 | $ | 3 | 104% | 0.44% | $ | 1,180,000 | ||||||||||||||
Investor - Series A Warrants | 19-Mar-14 | 134,186 | 1.44 | $ | 3 | 104% | 0.44% | 503,000 | |||||||||||||||
$ | 1,683,000 | ||||||||||||||||||||||
Fair Value – Reporting Date | |||||||||||||||||||||||
Placement Agent Warrants | 31-Mar-14 | 16,500 | 2.09 | $ | 5 | 128% | 0.44% | $ | 37,000 | ||||||||||||||
Investor - Series A Warrants | 31-Mar-14 | 1,000 | 1.41 | $ | 3 | 128% | 0.44% | 1,000 | |||||||||||||||
Investor - Series B Warrants | 31-Mar-14 | 1,400,000 | 1.41 | $ | 3.63 | 128% | 0.44% | 2,958,000 | |||||||||||||||
Placement Agent Warrants | 31-Mar-14 | 69,037 | 2.09 | $ | 3 | 128% | 0.44% | 179,000 | |||||||||||||||
$ | 3,175,000 | ||||||||||||||||||||||
The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis: | |||||||||||||||||||||||
Year Ended March 31, | |||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||
Beginning balance | $ | – | $ | 55,000 | |||||||||||||||||||
Fair value of warrants issued | 3,292,000 | 2,347,000 | |||||||||||||||||||||
Mark to market net unrealized loss (gain) | 1,566,000 | (1,148,000 | ) | ||||||||||||||||||||
Incremental fair value adjustment due to modification | – | 382,000 | |||||||||||||||||||||
Reclassification to additional paid in capital | (1,683,000 | ) | (1,636,000 | ) | |||||||||||||||||||
Ending balance | $ | 3,175,000 | $ | – | |||||||||||||||||||
6_Commitments_and_Contingencie
6. Commitments and Contingencies | 6 Months Ended | 12 Months Ended | ||||
Sep. 30, 2014 | Mar. 31, 2014 | |||||
Commitments and Contingencies Disclosure [Abstract] | ||||||
Commitments and Contingencies | Legal Matters | Lease Commitments | ||||
The Company, on occasion, may be involved in legal matters arising in the ordinary course of our business including matters involving proprietary technology. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business, financial condition or results of comprehensive loss. | On June 15, 2013, the Company leased office space in Mexico with an address of: Av De Las Americas, 1592 Piso 7, en la Colonia Country Club en Guadalajara Jalisco, CP 44637 for 23,400 Mexican Pesos (approximately $1,800 USD) per month. One months’ rent was required as a deposit. If the Company terminates this lease within the first year, a penalty in the amount of 12 months’ rent is applicable. If the Company terminates the contract within the second year, a penalty in the amount of 8 months’ rent is applicable. The lease term is for 3 years, beginning on June 15, 2013. | |||||
Employment Agreements | Also on June 15, 2013, the Company leased warehouse space in Mexico with an address of: Industra Mecanica Numero 2168 en el Fraccionamiento Industrial Zapopan Norte, de esta Ciudad for 35,000 Mexican Pesos (approximately $2,700 USD) per month. A deposit equal to two months’ rent was required. The lease term is from June 15, 2013 to June 14, 2014. | |||||
As of September 30, 2014, the Company had employment agreements in place with four of its key executives. The agreements provide, among other things, for the payment of nine to twenty-four months of severance compensation for terminations under certain circumstances. With respect to these agreements, at September 30, 2014, potential severance amounted to $1,130,000 and aggregated annual salaries amounted to $935,000. | We also share certain office and laboratory space, as well as certain laboratory equipment, in a building located at 454 North 34th Street, Seattle, Washington. The space is rented for $2,700 per month and requires a ninety day notice for cancellation. | |||||
Related Party Agreements | The Company currently rents approximately 800 square feet of sales office space in Herten, the Netherlands. The office space is rented on a month to month basis at $1,700 per month and requires a sixty day notice for cancellation. | |||||
On January 26, 2009, the Company entered into a commercial agreement with VetCure, Inc., a California corporation, to market and sell the Company’s Microcyn®-based animal healthcare products branded as Vetericyn®. VetCure, Inc. later changed its name to Vetericyn, Inc. This agreement was amended on February 24, 2009, July 24, 2009, June 1, 2010, and November 1, 2010. Pursuant to the agreement, the Company provides Vetericyn, Inc. with bulk product and Vetericyn, Inc. bottles, packages, and sells Microcyn®-based animal healthcare products branded as Vetericyn®. The Company receives a fixed amount for each bottle of Vetericyn® sold by Vetericyn, Inc. | On October 10, 2012, the Company entered into Amendment No. 7 to its property lease agreement, extending the lease on its Petaluma, California facility to September 30, 2017. Pursuant to the amendment, in exchange for certain improvements on the building, the Company agreed to increase the lease payment from $10,380 to $11,072 per month. | |||||
On September 15, 2009, the Company entered a commercial agreement with V&M Industries, Inc., a California corporation, to market and sell certain of the Company’s Microcyn® over-the-counter liquid and gel products. V&M Industries, Inc. subsequently changed its name to Innovacyn, Inc. On June 1, 2010, September 1, 2010, and November 1, 2010, the Company amended this agreement granting Innovacyn, Inc. the exclusive right to sell certain of its over-the-counter products. | On October 31, 2011, the Company leased approximately 1,800 square feet of office and manufacturing space in Sacramento, California. On August 30, 2012, the Company entered into an amendment to its lease dated October 31, 2011 for the property located at 3045 65th Street, Suite 13, Sacramento, California 95820, to amend the lease to include a 3,000 square foot industrial unit located at 3021 65th Street, Sacramento, California, and to extend the lease on both properties to October 31, 2013. The total rent for both properties is $2,610 per month. | |||||
Additionally, on July 1, 2011, Vetericyn, Inc. and Innovacyn, Inc. began to share profits with the Company related to the Vetericyn® and Microcyn® over-the-counter sales with Vetericyn, Inc. and Innovacyn, Inc. During the three months ended September 30, 2014 and 2013, the Company recorded revenue related to these agreements in the amounts of $459,000 and $1,289,000, respectively. During the six months ended September 30, 2014 and 2013, the Company recorded revenue related to these agreements in the amounts of $987,000 and $2,030,000, respectively. The revenue is recorded in product revenues in the accompanying condensed consolidated statements of comprehensive loss. At September 30, 2014 and March 31, 2014, the Company had outstanding accounts receivable of $117,000 and $220,000, respectively, related to Innovacyn, Inc. | Minimum lease payments for non-cancelable operating leases are as follows: | |||||
In April of 2014, Innovacyn, Inc. notified the Company that over the next twelve months Innovacyn, Inc. is in the process of transitioning to a new supplier for its animal care products. The Company is actively seeking new distribution channels and new animal healthcare partners The Company has identified two potential partners and is working on negotiating agreements. The Company can give no assurances that these potential partners will be able to agree on acceptable terms. Even if the Company is able to finalize agreements with these potential partners, these partnerships may not replace revenues to the same levels as the Company derived from Innovacyn. The Company’s animal healthcare revenues have been adversely impacted and will continue to be until a new animal healthcare partner is secured. If the Company is unable to locate new distribution channels or a new animal healthcare partner, the Company’s results of operations and financial condition may be adversely affected. The Company’s animal healthcare revenues for the three and nine months ended September 30, 2014 have declined as a result of this transition. | For Years Ending March 31, | |||||
2015 | $ | 321,000 | ||||
Commercial Agreements | 2016 | 189,000 | ||||
2017 | 149,000 | |||||
On August 9, 2012, the Company, along with its Mexican subsidiary and manufacturer Oculus Technologies of Mexico S.A. de C.V. (“Manufacturer”), entered into a license, exclusive distribution and supply agreement with More Pharma Corporation, S. de R.L. de C.V. (“More Pharma”) (the “License Agreement”). For a one-time payment of $500,000, the Company granted More Pharma an exclusive license, with the right to sublicense, under certain conditions and with the Company’s consent, to all of the Company’s proprietary rights related to certain of its pharmaceutical products for human application that utilize the Company’s Microcyn® Technology within Mexico. For an additional one-time payment of $3,000,000, the Company also agreed to appoint More Pharma as the exclusive distributor of certain of its products in Mexico for the term of the agreement. Additionally, Manufacturer granted More Pharma an exclusive license to certain of Manufacturer’s then-held trademarks in exchange for a payment of $100,000 to Manufacturer. The Company has the ability to terminate the agreement if certain annual purchase minimums are not met. The term of the agreement is twenty-five years from the effective date of August 15, 2012. The term of the License Agreement will automatically renew after the twenty-five year term for successive two year terms as long as More Pharma has materially complied with any and all of the obligations under the License Agreement, including but not limited to, meeting the minimum purchase requirements set forth therein. | 2018 | 66,000 | ||||
Total minimum lease payments | $ | 725,000 | ||||
Additionally, on August 9, 2012, the Company, along with Manufacturer, entered into an exclusive distribution and supply agreement with More Pharma (the “Distribution Agreement”). For a one-time payment of $1,500,000, the Company granted More Pharma the exclusive ability to market and sell certain of its pharmaceutical products for human application that utilize the Company’s Microcyn® Technology. The Company also appointed More Pharma as its exclusive distributor, with the right to execute sub-distribution agreements, under certain conditions, and with the Company’s consent, within the following countries: Antigua & Barbuda, Argentina, Aruba & Curacao, Bahamas, Barbados, Belize, Bolivia, Bonaire, Brazil, British Guyana, British Islands, Cayman Islands, Chile, Colombia, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, French Guyana, Grenada, Guadalupe, Guatemala, Haiti, Honduras, Jamaica, Martinique, Nicaragua, Paraguay, Peru, St. Bartolome, St. Vincent & Grenades, Surinam, Trinidad & Tobago, Turks & Caicos Islands, Uruguay, Venezuela and Virgin Islands. | ||||||
Rental expense amounted to $413,000 and $392,000 for the years ended March 31, 2014 and 2013, respectively and is recorded in the accompanying consolidated statement of comprehensive income (loss). | ||||||
The Company will recognize the $5,100,000 related to the License Agreement and the Distribution Agreement as revenue on a straight line basis consistent with the Company’s historical experience with contracts having similar terms, which is typically over three to five years of the contract. Additionally, the Company capitalized $214,000 of its transaction costs related to the License Agreement and the Distribution Agreement, which will be amortized by the Company as expense on a straight line basis consistent with the related revenue recognition practices. During the three and six months ended September 30, 2014 and 2013, the Company recognized $16,000 and $32,000, respectively, in each period, as expense related to the transaction costs of the transaction. During each of the three months ended September 30, 2014 and 2013, the Company recognized $378,000 related to the amortization of the upfront fees received in the transaction. During each of the six months ended September 30, 2014 and 2013, the Company recognized $752,000 related to the amortization of the upfront fees received in the transaction. The Company recognizes product sales on a sell-through basis as More Pharma sells products through to its customers. At September 30, 2014 and March 31, 2014, the Company had outstanding accounts receivable of $1,201,000 and $790,000 due from More Pharma, respectively. | ||||||
Legal Matters | ||||||
On July 25, 2011, the Company received notice of a lawsuit filed in Mexico by Cesar Mangotich Pacheco and Prodinnv, S.A. de C.V. represented by Cesar Mangotich Pacheco. The lawsuit appeared to allege conversion of assets, tortious interference and defamation, among other claims. In 2014, The case was dismissed due to inactivity. We remain of the opinion that the lawsuit was completely without merit. | ||||||
The Company, from time to time, is involved in legal matters arising in the ordinary course of its business including matters involving proprietary technology. While management believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation, will not have a material adverse effect on its business, financial condition or results of comprehensive loss. | ||||||
Employment Agreements | ||||||
As of March 31, 2014, the Company had employment agreements in place with four of its key executives. The agreements provide, among other things, for the payment of nine to twenty-four months of severance compensation for terminations under certain circumstances. With respect to these agreements, at March 31, 2014, potential severance amounted to $1,130,000 and aggregated annual salaries amounted to $935,000. | ||||||
Related Party Agreements | ||||||
On January 26, 2009, the Company entered into a commercial agreement with VetCure, Inc., a California corporation, to market and sell the Company’s Microcyn® Technology-based animal health care products branded as Vetericyn®. VetCure, Inc. later changed its name to Vetericyn, Inc. This agreement was amended on February 24, 2009, July 24, 2009, June 1, 2010, and November 1, 2010. Pursuant to the agreement, the Company provides Vetericyn, Inc. with bulk product and Vetericyn, Inc. bottles, packages, and sells Microcyn® Technology-based animal health care products branded as Vetericyn®. The Company receives a fixed amount for each bottle of Vetericyn® sold by Vetericyn, Inc. | ||||||
On September 15, 2009, the Company entered a commercial agreement with V&M Industries, Inc., a California corporation, to market and sell certain of the Company’s Microcyn® over-the-counter liquid and gel products. V&M Industries, Inc. subsequently changed its name to Innovacyn, Inc. On June 1, 2010, September 1, 2010, and November 1, 2010, the Company amended this agreement granting Innovacyn, Inc. the exclusive right to sell certain of its over-the-counter products. | ||||||
Additionally, on July 1, 2011, Vetericyn, Inc. and Innovacyn, Inc. began to share profits with the Company related to the Vetericyn® and Microcyn® over-the-counter sales with Vetericyn, Inc. and Innovacyn, Inc. During the years ended March 31, 2014 and 2013, the Company recorded revenue related to these agreements in the amounts of $3,100,000 and $3,906,000, respectively. The revenue is recorded in product revenues in the accompanying consolidated statements of comprehensive income (loss). At March 31, 2014 and 2013, the Company had outstanding accounts receivable of $220,000 and $264,000, respectively, related to Innovacyn, Inc. | ||||||
In April of 2014, Innovacyn, Inc. notified the Company that over the next twelve months Innovacyn, Inc. will transition to a new supplier for its animal care products. The Company is discussing a transition agreement with Innovacyn, Inc. and is actively seeking new distribution channels and locating a new animal health care partner. The Company’s future revenue may be adversely impacted during this transition. | ||||||
Shared Services Agreement | ||||||
The Company also entered into a shared services agreement with Ruthigen that would take effect upon the completion of Ruthigen's proposed initial public offering, if any should occur, pursuant to which it will provide Ruthigen with genera] services, including general accounting, human resources, laboratory personnel and shared R&D resources while Ruthigen plans to establish an independent facility and systems. As a wholly owned subsidiary of the Company, Ruthigen will be financed by the Company until the completion of the proposed initial public offering, if any should occur, and after such event, Ruthigen would become responsible for its own expenses. On January 31, 2014, the Company entered into Amendment No. 1 to the shared services agreement with Ruthigen to amend the terms of certain standard activities the Company shall provide Ruthigen and the terms related to access to the Company's facilities. All other terms and conditions of the shared services agreement remain unmodified and in full force and effect. | ||||||
Commercial Agreements | ||||||
On February 14, 2011, the Company entered into a Product Option Agreement with an Amneal Enterprises alliance member, AmDerma Pharmaceuticals, LLC (“AmDerma”). The Company plans to use its proprietary Microcyn® technology to develop a prescription pharmaceutical product for the treatment of acne in connection with AmDerma (the “Future Acne Product”). Pursuant to the Agreement, the Company sold the option to exclusively sell and distribute the Future Acne Product to AmDerma for a one-time non-refundable payment of $500,000. On June 23, 2011, AmDerma exercised its option to license rights to the drug candidate. On June 21, 2012, the Company finalized a collaboration agreement with AmDerma (the “Collaboration Agreement”). Pursuant to the Collaboration Agreement, AmDerma is responsible for the development of a Microcyn®--based acne drug candidate in the United States, including all activities required to gain regulatory approvals. AmDerma will also be responsible for all costs. Additionally, within one year of the first commercial sale by AmDerma, AmDerma shall identify at least one secondary indication that AmDerma will develop. If AmDerma declines to pursue such secondary indication, then the right to develop such secondary indication will revert back to the Company. The Company granted AmDerma an exclusive, royalty-bearing perpetual license in the United States and India, with the right to sublicense and subcontract in certain circumstances, and a right of first refusal to expand the territory of the license to include the European Union, Canada, Brazil, and Japan. The Company retained rights to the “rest of world.” Pursuant to the Collaboration Agreement, $250,000 of the upfront payment will be applied against a future milestone in the transaction and is recorded as deferred revenue in the March 31, 2014 in the accompanying consolidated balance sheet. The $250,000 of the upfront payment was earned and recognized as revenue during the year ended March 31, 2013. | ||||||
On August 9, 2012, the Company, along with its Mexican subsidiary and manufacturer Oculus Technologies of Mexico S.A. de C.V. (“Manufacturer”), entered into a license, exclusive distribution and supply agreement with More Pharma Corporation, S. de R.L. de C.V. (“More Pharma”) (the “License Agreement”). For a one-time payment of $500,000, the Company granted More Pharma an exclusive license, with the right to sublicense under certain conditions and with the Company’s consent, to all of the Company’s proprietary rights related to certain of its pharmaceutical products for human application that utilize the Company’s Microcyn® Technology within Mexico. For an additional one-time payment of $3,000,000, the Company also agreed to appoint More Pharma as the exclusive distributor of certain of its products in Mexico for the term of the agreement. Additionally, Manufacturer granted More Pharma an exclusive license to certain of Manufacturer’s then-held trademarks in exchange for a payment of $100,000 to Manufacturer. The Company has the ability to terminate the agreement if certain annual purchase minimums are not met. The term of the agreement is twenty-five years from the effective date of August 15, 2012. The term of the License Agreement will automatically renew after the twenty-five year term for successive two year terms as long as More Pharma has materially complied with any and all of the obligations under the License Agreement, including but not limited to, meeting the minimum purchase requirements set forth therein. | ||||||
Additionally, on August 9, 2012, the Company, along with Manufacturer, entered into an exclusive distribution and supply agreement with More Pharma (the “Distribution Agreement”). For a one-time payment of $1,500,000, the Company granted More Pharma exclusive ability to market and sell certain of its pharmaceutical products for human application that utilize the Company’s Microcyn® Technology. The Company also appointed More Pharma as its exclusive distributor, with the right to execute sub-distribution agreements under certain conditions and with the Company’s consent, within the following countries: Antigua & Barbuda, Argentina, Aruba & Curacao, Bahamas, Barbados, Belize, Bolivia, Bonaire, Brazil, British Guyana, British Islands, Cayman Islands, Chile, Colombia, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, French Guyana, Grenada, Guadalupe, Guatemala, Haiti, Honduras, Jamaica, Martinique, Nicaragua, Paraguay, Peru, St. Bartolome, St. Vincent & Grenades, Surinam, Trinidad & Tobago, Turks & Caicos Islands, Uruguay, Venezuela and Virgin Islands. | ||||||
The Company will recognize the $5,100,000 related to the License Agreement and the Distribution Agreement as revenue on a straight line basis consistent with the Company’s historical experience with contracts with similar terms, which is typically over three to five years of the contract. Additionally, the Company capitalized $214,000 of its transaction costs related to the License Agreement and the Distribution Agreement, which will be amortized by the Company as expense on a straight line basis consistent with the related revenue recognition practices. At March 31, 2014 and 2013, the Company had outstanding accounts receivable of $790,000 and $580,000 due from More Pharma, respectively. During years ended March 31, 2014 and 2013, the Company recognized $1,501,000 and $932,000, respectively, related to the amortization of the upfront fees received in the transaction. Additionally, during the year ended March 31, 2014 and 2013, the Company recognized $63,000 and $39,000, respectively, as expense related to the transaction costs of the transaction. The Company recognizes product sales on a sell-through basis as More Pharma sells products through to its customers. | ||||||
Other Matters | ||||||
NASDAQ Listing Matters | ||||||
On November 22, 2013, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC, notifying the Company that it was not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires us to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing on the Nasdaq Capital Market. As of September 30, 2013, the Company had stockholders’ equity of $1,550,000, as reported in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed by the Company with the Securities and Exchange Commission on November 19, 2013. The letter also noted that, as of November 21, 2013, the Company did not meet the compliance alternative requirement of market value of listed securities under Listing Rule 5550(b)(2), or the compliance alternative requirement of net income from continuing operations under Listing Rule 5550(b)(3). | ||||||
The Company was notified by the The Nasdaq Stock Market LLC on April 16, 2014 that it had regained compliance. |
7_Stockholders_Equity
7. Stockholders' Equity | 6 Months Ended | 12 Months Ended |
Sep. 30, 2014 | Mar. 31, 2014 | |
Stockholders' Equity | ||
Stockholders' Equity | Sale of Common Stock | Authorized Capital |
On April 2, 2014, the Company entered into an At-the-Market Issuance Sales Agreement with MLV & Co. LLC (“MLV”) under which the Company may issue and sell shares of common stock having an aggregate offering price of up to $9,159,000 from time to time through MLV acting as the Company’s sales agent. The Company will pay MLV a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through MLV as agent under the Sales Agreement. As of September 30, 2014, the sales of 392,656 shares under this agreement have resulted in gross proceeds of $1,284,000 and net proceeds of $1,213,000 (after deducting commissions, legal and accounting costs). | The Company is authorized to issue up to 14,285,715 shares of common stock with a par value of $0.0001 per share and 714,286 shares of convertible preferred stock with a par value of $0.0001 per share. | |
Common Stock Issued to Settle Fees for Services Provided | Description of Common Stock | |
On April 24, 2009, the Company entered into an agreement with Advocos LLC, a contract sales organization that serves as part of the Company’s sales force, for the sale of the Company’s tissue care products in the United States. Pursuant to the agreement, the Company agreed to pay the contract sales organization a monthly fee and commissions in return for providing a direct salesforce and management of the salesforce. The Company agreed to issue the contract sales organization cash and or shares of common stock as compensation for its services. On September 30, 2014, the Company issued 32,501 shares of common stock valued at $76,000 in connection with this agreement to settle outstanding fees. The Company has determined that the fair value of the common stock, which was calculated when the shares were issued, was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair value of the stock as expense. During the three and six months ended September 30, 2014, the Company recorded $33,000 and $62,000 of expense related to this agreement. The expense was recorded as selling, general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss. Additionally, the Company settled $14,000 of outstanding fees which were outstanding and accrued at March 31, 2014. | Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the board of directors. | |
April 2012 Registered Direct Offering | ||
On April 22, 2012, the Company entered into agreements with certain investors to issue up to: a) 337,143 shares of common stock; b) 1,000 shares of Series A Preferred Stock; and c) warrants to purchase up to 495,873 shares of common stock. The Company also offered up to 158,730 shares of common stock issuable upon conversion of the Series A Preferred Stock. The Company received approximately $3,124,000 in gross proceeds from the sale of these securities. Net proceeds after deducting the placement agent commissions, legal expenses and other offering expenses, and assuming no exercise of the Warrants, was $2,797,000. The Company retained Rodman & Renshaw, LLC as the exclusive placement agent for this offering, and paid them $218,680 in placement agent commissions. Following the close of the transaction, one of the investors converted 1,000 shares of the Series A Preferred Stock purchased in the transaction into 158,730 shares of common stock. | ||
In connection with the issuance of the Series A Preferred Stock, the Company determined the instrument contained a beneficial conversion feature at the date of issuance. This beneficial conversion feature amounted to $1,062,000 and was recorded as a deemed preferred dividend on the consolidated statement of statement of comprehensive loss for the year ended March 31, 2013. | ||
The warrants issued with the offering have an initial exercise price of $8.26 per share, were not exercisable for nine months from the date of issuance, and had an initial exercise term of 2.5 years from the date of issuance. Additionally, the warrants initially contained a net-cash settlement feature which gave the warrant holder the right to net-cash settlement in the event certain transactions had occurred. Pursuant to the terms of the warrants, if such a transaction had occurred the warrant holder would have been entitled to a net-cash settlement value calculated using the Black-Scholes valuation model using specific volatility, expected term and risk-free interest rate assumptions, as further detailed in the warrants. On October 29, 2012, the Company entered into a side letter agreement with the holders of the warrants to amend the terms of the warrants. The holders of the warrants agreed to eliminate certain net-cash settlement features contained in the warrants in exchange for the Company’s agreement to a two-year extension of the expiration date of the warrants. Accordingly, the expiration date of the warrants was extended from October 25, 2014 to October 25, 2016 (Note 10). | ||
March 2013 Underwritten Public Offering | ||
On March 12, 2013, the Company closed an underwritten public offering of 1,232,143 shares of common stock at an offering price to the public of $2.80 per share, including an additional 160,715 shares of common stock to cover the underwriters’ over-allotment. The gross proceeds from this offering were $3,450,000, before deducting underwriting discounts and commissions and other estimated offering expenses of $398,000. The Company also issued warrants to the underwriters to purchase 53,571 shares of the Company’s common stock with an initial exercise price per share equal to $3.50, which was 125% of the public offering price. The underwriters’ warrants are exercisable from March 12, 2014 through March 12, 2016. | ||
December 2013 Registered Direct Offering | ||
On December 9, 2013, the Company completed a registered direct offering with accredited investors and issued 550,000 shares of its common stock at $4.00 per share, with no warrant coverage, yielding gross proceeds of $2,200,000 and net proceeds of $2,002,000 after deducting placement agent commissions and other offering costs. The Company retained Dawson James Securities, Inc. as the exclusive placement agent for this offering, and paid them $154,000 in placement agent commissions. In addition to the payment of certain cash fees upon closing of the offering, the Company issued a warrant to Dawson James Securities, Inc. to purchase up to 16,500 shares of common stock. The warrants are exercisable at $5.00 per share and will expire on May 3, 2016. | ||
February 2014 Registered Direct Offering | ||
On February 26, 2014, the Company completed a registered direct offering to institutional and accredited investors for $1,352,000 and net proceeds of $1,186,000 after deducting placement agent commissions and other offering costs. The Company issued units (the “Units”), consisting of shares of common stock and Series A and Series B warrants (collectively, the “Warrants”). Each Unit was priced at $3.00 and comprised of one share of common stock (the “Shares”), a Series A warrant (the “Series A Warrants”) and a certain number of Series B warrants (the “Series B Warrants”). Each investor received Series A Warrants to purchase a number of shares of common stock equal to 100% of the number of Shares purchased by such investor. Each investor received Series B Warrants to purchase a certain number of shares of common stock equal to the investor’s respective percentage of the total Series B Warrant allotment of 1,400,000 shares, whereby such percentage was determined by the respective percentage of the investor’s amount of the total Shares purchased by all investors in this offering; however, we did not issue fractional warrants and therefore, the number of Series B Warrants issued was rounded up or down depending on the total amount invested by each respective investor. The Series A Warrants will have an exercise price per share of $3.00 and expire five years from the date of issuance. The Series B Warrants will not be exercisable for six months following closing, will have an exercise price per share of $3.63 and expire on the later of (a) one year from the earlier of (i) the effective date of an effective registration statement pursuant to which all the Series B Warrant shares are registered for resale and (ii) the date that all Series B Warrant shares may be sold pursuant to Rule 144 (without volume limitations and assuming cashless exercise) and (b) one year anniversary of the closing of the initial public offering of our subsidiary, Ruthigen, Inc., or March 26, 2014. The Series B Warrants vested at the closing of Ruthigen’s initial public offering on March 26, 2014 | ||
The Company retained Dawson James Securities, Inc. as the exclusive placement agent for this offering, and paid them $94,630 in placement agent commissions. In addition to the payment of certain cash fees upon closing of the offering, the Company issued a warrant to Dawson James Securities, Inc. to purchase up to 69,037 shares of common stock. The warrants are exercisable at $3.00 per share and will expire on May 3, 2016. The warrant issued to Dawson James Securities, Inc. has no registration rights, but does contain cashless exercise provisions. | ||
Common Stock Issued to Non-Employees for Services | ||
On April 24, 2009, the Company entered into an agreement with Advocos LLC, a contract sales organization that serves as part of the Company’s sales force, for the sale of the Company’s wound care products in the United States. Pursuant to the agreement, the Company agreed to pay the contract sales organization a monthly fee and potential bonuses that will be based on achievement of certain levels of sales. The Company agreed to issue the contract sales organization cash or shares of common stock as compensation for its services. During the years ended March 31, 2014 and 2013, the Company issued 65,645 and 25,105 shares of common stock, respectively, in connection with this agreement. The Company has determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair market value of the stock as compensation expense. During the years ended March 31, 2014 and 2013, the Company recorded $208,000 and $179,000 of expense related to this agreement, respectively. The expense was recorded as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss). | ||
On December 17, 2009, the Company entered into an agreement with Windsor Corporation. Windsor Corporation provides financial advisory services to the Company. Pursuant to the agreement, the Company agreed to pay Windsor Corporation, on a quarterly basis, cash or common stock as compensation for services provided. The Company determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair market value of the stock as compensation expense. During the years ended March 31, 2014 and 2013, the Company issued 30,361 and 12,232 shares of common stock, respectively. During the years ended March 31, 2014 and 2013, the Company recorded $120,000 and $120,000, respectively, of expense related to this agreement, of which $109,000 was paid with 30,361 shares of common stock. The expense was recorded as selling, general and administrative expense in the accompanying consolidated statement of comprehensive income (loss). | ||
On September 4, 2012, the Company entered into an agreement with Worldwide Financial Marketing, Inc. for providing financial advisory services. Pursuant to the agreement, the Company agreed to pay Worldwide Financial Marketing, Inc. common stock as compensation for services provided. The Company determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, the Company recorded the fair market value of the stock as expense. During the year ended March 31, 2014 and 2013, the Company issued 10,000 and 3,571 shares of common stock, respectively, in connection with this agreement. During the year ended March 31, 2014 and 2013, the Company recorded $23,000 and $17,000 of expense related to this agreement, respectively. The expense was recorded as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss). |
8_StockBased_Compensation
8. Stock-Based Compensation | 6 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||||||||
Sep. 30, 2014 | Mar. 31, 2014 | |||||||||||||||||||||||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||
Stock-Based Compensation | In April 2014, the Company’s board of directors approved increases to the number of shares authorized for issuance under the 2006 and 2011 Plans by 250,000 and 1,224,021 shares, respectively. | 2004 Stock Plan | ||||||||||||||||||||||||||||||||
The Company estimated the fair value of employee and non-employee stock options using the Black-Scholes option pricing model. The fair values of employee and non-employee stock options are being amortized on a straight-line basis over the requisite service periods of the respective awards. | The Company’s 2004 stock option plans (the “Plan”) became effective July 2004. The Plan provides for grants of both incentive stock options (ISOs) and non-qualified stock options (NSOs) to employees, consultants and directors. | |||||||||||||||||||||||||||||||||
The Company believes that the fair value of the stock options issued to non-employees is more reliably measurable than the fair value of the services received. The stock-based compensation expense will fluctuate as the fair market value of the common stock fluctuates. In connection with stock options granted to non-employees, the Company recorded $40,000 and $93,000 of stock-based compensation expense in the three and six months ended September 30 2014, respectively. These amounts are included in the stock compensation table below. | In accordance with the Plan, the stated exercise price may not be less than 100% and 85% of the estimated fair market value of the Company’s common stock on the date of grant for ISOs and NSOs, respectively, as determined by the board of directors at the date of grant. With respect to any 10% shareholder, the exercise price of an ISO or NSO was not to exceed 110% of the estimated fair market value per share on the date of grant. | |||||||||||||||||||||||||||||||||
The expected term of stock options represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options. The expected stock price volatility for the Company’s stock options was determined by using an average of the historical share price volatilities of the Company and its industry peers. The Company will continue to analyze the stock price volatility and expected term assumptions as more data for the Company’s common stock and exercise patterns become available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. Compensation expense includes the impact of an estimate for forfeitures for all stock options. The Company estimates forfeitures based on historical experience and reduces compensation expense accordingly. The estimated forfeiture rates used during the three months ended September 30, 2014 ranged from 0.27% to 0.37%. | Options issued under the Plan generally have a ten-year term and generally became exercisable over a five-year period. | |||||||||||||||||||||||||||||||||
Stock-based compensation expense is as follows: | In connection with the Company’s reincorporation in Delaware on December 15, 2006, the Company’s board of directors determined no future options will be granted under the 2004 Plan. | |||||||||||||||||||||||||||||||||
Three Months | Six Months | 2006 Stock Plan | ||||||||||||||||||||||||||||||||
Ended | Ended | |||||||||||||||||||||||||||||||||
September 30, | September 30, | The board initially adopted the 2006 Stock Incentive Plan on August 25, 2006. On December 14, 2006, the stockholders approved the 2006 Stock Incentive Plan which became effective at the close of the Company’s initial public offering. The 2006 Stock Incentive Plan was later amended and restated by a unanimous board resolution on April 26, 2007, and such amendments were subsequently approved by the stockholders. On September 10, 2009, the Company’s shareholders approved a subsequent amendment to the 2006 Stock Incentive Plan. The 2006 Stock Incentive Plan, as amended and restated, is hereafter referred to as the “2006 Plan.” | ||||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||||||
Cost of service revenue | $ | 59,000 | $ | 30,000 | $ | 123,000 | $ | 56,000 | The 2006 Plan provides for the granting of incentive stock options to employees and the granting of nonstatutory stock options to employees, non-employee directors, advisors and consultants. The 2006 Plan also provides for grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants. | |||||||||||||||||||||||||
Research and development | 82,000 | 45,000 | 178,000 | 78,000 | ||||||||||||||||||||||||||||||
Selling, general and administrative | 315,000 | 221,000 | 606,000 | 349,000 | In accordance with the 2006 Plan the stated exercise price may not be less than 100% and 85% of the estimated fair market value of common stock on the date of grant for ISOs and NSOs, respectively, as determined by the board of directors at the date of grant. With respect to any 10% stockholder, the exercise price of an ISO or NSO shall not be less than 110% of the estimated fair market value per share on the date of grant. | |||||||||||||||||||||||||||||
Total stock-based compensation | $ | 456,000 | $ | 296,000 | $ | 907,000 | $ | 483,000 | ||||||||||||||||||||||||||
Options issued under the 2006 Plan generally have a ten-year term. | ||||||||||||||||||||||||||||||||||
At September 30, 2014, there were unrecognized compensation costs of $3,910,000 related to stock options which is expected to be recognized over a weighted-average amortization period of 2.38 years. | ||||||||||||||||||||||||||||||||||
Shares subject to awards that expire unexercised or are forfeited or terminated will again become available for issuance under the 2006 Plan. No participant in the 2006 Plan can receive option grants, restricted shares, stock appreciation rights or stock units for more than 26,786 shares (adjusted for the reverse stock split effective April 1, 2013) in the aggregate in any calendar year. | ||||||||||||||||||||||||||||||||||
No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options. | ||||||||||||||||||||||||||||||||||
On November 7, 2006, the board initially authorized a total of 178,571 of the Company’s common stock shares (adjusted for the reverse stock split effective April 1, 2013) for issuance under the 2006 Plan in addition to increases provided for in the 2006 Plan through August 25, 2016. On September 10, 2009, the Company’s shareholders approved an amendment of the 2006 Plan which authorized and reserved an additional 142,858 shares (adjusted for the reverse stock split effective April 1, 2013) for issuance under the 2006 Plan. The number of shares of the Company’s common stock reserved for issuance under the 2006 Plan may increase if such increase is approved by the board, with no further action by the stockholders, at the beginning of each fiscal year by an amount equal to the lesser of (i) 250,000 shares (adjusted for the reverse stock split effective April 1, 2013); (ii) 5% of the outstanding shares of common stock of the Company on the last day of the immediately preceding year, or (iii) an amount determined by the Company’s board of the directors. | ||||||||||||||||||||||||||||||||||
The Company did not capitalize any cost associated with stock-based compensation. | ||||||||||||||||||||||||||||||||||
As provided under the 2006 Plan, the aggregate number of shares authorized for issuance as awards under the 2006 Plan increased on April 1, 2012 by 207,199 shares (which number constitutes 5% of the outstanding shares on the last day of the year ended March 31, 2012). During the year ended March 31, 2014, the board of directors approved an increase of 250,000 shares authorized for issuance. The Plan is subject to adjustment on April 1, 2014, at the board’s discretion (Note 18). | ||||||||||||||||||||||||||||||||||
The fair value of the stock options granted was calculated using the Black-Scholes option-pricing model using the following weighted-average assumptions: | ||||||||||||||||||||||||||||||||||
2011 Stock Plan | ||||||||||||||||||||||||||||||||||
Three and Six Months | Six Months | |||||||||||||||||||||||||||||||||
Ended | Ended | On September 12, 2011, upon recommendation of the board, the stock holders approved the Company’s 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan is effective as of June 21, 2012. | ||||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | The 2011 Plan provides for the grant of incentive stock options as defined in Section 422 of the Internal Revenue Code to employees, and the grant of non-statutory stock options and stock purchase rights to employees, non-employee directors, advisors and consultants. The 2011 Plan also permits the grant of stock appreciation rights, stock units and restricted stock. | ||||||||||||||||||||||||||||||
Expected life | 8.90 years | 5.89 years | 5.89 years | 5.89 years | ||||||||||||||||||||||||||||||
Risk-free interest rate | 2.32% | 1.42% | 1.42% | 1.42% | The board has authorized 428,572 of the Company’s common stock for issuance under the 2011 Plan, in addition to automatic increases provided for in the 2011 Plan through April 1, 2021. The number of shares of the Company’s common stock reserved for issuance under the 2011 Plan will automatically increase, with no further action by the stockholders, at the beginning of each fiscal year by an amount equal to the lesser of (i) 15% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding year, or (ii) an amount approved by the Company’s board of directors. On April 1, 2012, the board determined not to increase the number of shares authorized for issuance under the 2011 Plan on April 1, 2012 as no shares had yet been issued from the 2011 Plan. The number of shares authorized for issuance will be subject to adjustment on April 1, 2014, in the board’s discretion (Note 18). | |||||||||||||||||||||||||||||
Dividend yield | 0.00% | 0.00% | 0.00% | 0.00% | ||||||||||||||||||||||||||||||
Volatility | 98% | 86% | 86% | 86% | Options issued under the 2011 Plan will generally have a ten-year term. | |||||||||||||||||||||||||||||
Fair value of options granted | $ | 2.39 | $ | 2.1 | $ | 2.1 | $ | 2.1 | ||||||||||||||||||||||||||
In accordance with the 2011 Plan, the stated exercise price of an employee incentive stock option shall not be less than 100% of the estimated fair market value of a share of common stock on the date of grant, and the stated exercise price of an nonstatutory option shall not be less 85% of the estimated fair market value of a share of common stock on the date of grant, as determined by the board of directors. An employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company shall not be eligible for the grant of an employee incentive stock option unless such grant satisfies the requirements of Section 422(c)(5) of the Internal Revenue Code. | ||||||||||||||||||||||||||||||||||
A summary of all option activity as of September 30, 2014 and changes during the three months then ended is presented below: | ||||||||||||||||||||||||||||||||||
Shares subject to awards that expire unexercised or are forfeited or terminated for any other reason will again become available for issuance under the 2011 Plan. No participant in the 2011 Plan can receive option grants, stock appreciation rights, restricted shares, or stock units for more than 107,143 shares in the aggregate in any calendar year. As provided under the 2011 Plan, the aggregate number of shares authorized for issuance as awards under the 2011 Plan automatically increases on April 1 of each year by in an amount equal to the lesser of (i) 15% of the outstanding shares on the last day of the immediately preceding year, or (ii) an amount determined by the board. During the year ended March 31, 2014, the board of directors approved an increase of 987,439 shares authorized for issuance. The Plan is subject to adjustment on April 1, 2014, at the board’s discretion (Note 18). | ||||||||||||||||||||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | |||||||||||||||||||||||||||||||
Shares | Average | Average | Intrinsic | Options and restricted stock units outstanding at March 31, 2014 under the various plans is as follows: | ||||||||||||||||||||||||||||||
Exercise Price | Contractual Term | Value | ||||||||||||||||||||||||||||||||
Outstanding at April 1, 2014 | 2,536,000 | $ | 7.78 | Plan | Total Number of Options and Restricted Stock Units Outstanding in Plan | |||||||||||||||||||||||||||||
Options granted | 245,000 | 2.76 | 2004 Plan | 66,000 | ||||||||||||||||||||||||||||||
Options exercised | – | – | 2006 Plan | 1,114,000 | ||||||||||||||||||||||||||||||
Options forfeited or expired | (27,000 | ) | 20.88 | 2011 Plan | 1,356,000 | |||||||||||||||||||||||||||||
Outstanding at September 30, 2014 | 2,754,000 | $ | 7.21 | 8.24 | $ | – | 2,536,000 | |||||||||||||||||||||||||||
Exercisable at September 30, 2014 | 1,197,000 | $ | 11.62 | 6.71 | $ | – | ||||||||||||||||||||||||||||
Options available for grant as of September 30, 2014 | 1,579,000 | A summary of activity under all option plans for the years ended March 31, 2014 and 2013 is presented below : | ||||||||||||||||||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock ($2.35) for stock options. | Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||||||||||||||||||
Shares | Average | Average | Intrinsic | |||||||||||||||||||||||||||||||
The Company issues new shares of common stock upon exercise of stock options. | Exercise Price | Contractual Term | Value | |||||||||||||||||||||||||||||||
Outstanding at March 31, 2012 | 895,000 | $ | 16.52 | |||||||||||||||||||||||||||||||
Options granted | 124,000 | 6.41 | ||||||||||||||||||||||||||||||||
Options exercised | (10,000 | ) | 5.53 | |||||||||||||||||||||||||||||||
Options forfeited or expired | (34,000 | ) | 24.38 | |||||||||||||||||||||||||||||||
Outstanding at March 31, 2013 | 975,000 | 15.08 | ||||||||||||||||||||||||||||||||
Options granted | 1,648,000 | 3.91 | ||||||||||||||||||||||||||||||||
Options exercised | – | – | ||||||||||||||||||||||||||||||||
Options forfeited or expired | (87,000 | ) | 16.04 | |||||||||||||||||||||||||||||||
Outstanding at March 31, 2014 | 2,536,000 | 7.78 | 8.49 | $ | 258,000 | |||||||||||||||||||||||||||||
Exercisable at March 31, 2014 | 934,000 | $ | 14.11 | 6.25 | $ | 122,000 | ||||||||||||||||||||||||||||
Options available for grant as of March 31, 2014 | 916,000 | |||||||||||||||||||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock ($3.77) for stock options. | ||||||||||||||||||||||||||||||||||
Stock-Based Compensation | ||||||||||||||||||||||||||||||||||
The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. The Company amortizes the fair value of employee stock options on a straight-line basis over the requisite service period of the awards. Compensation expense includes the impact of an estimate for forfeitures for all stock options. | ||||||||||||||||||||||||||||||||||
Employee stock-based compensation expense is as follows : | ||||||||||||||||||||||||||||||||||
Employee | Employee | |||||||||||||||||||||||||||||||||
Stock-based | Stock-based | |||||||||||||||||||||||||||||||||
Compensation | Compensation | |||||||||||||||||||||||||||||||||
for the Year Ended | for the Year Ended | |||||||||||||||||||||||||||||||||
March 31, 2014 | March 31, 2013 | |||||||||||||||||||||||||||||||||
Cost of revenues | $ | 126,000 | $ | 132,000 | ||||||||||||||||||||||||||||||
Research and development | 187,000 | 231,000 | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 794,000 | 791,000 | ||||||||||||||||||||||||||||||||
Total stock-based compensation | $ | 1,107,000 | $ | 1,154,000 | ||||||||||||||||||||||||||||||
No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options. | ||||||||||||||||||||||||||||||||||
The Company estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service periods of the respective awards. The fair value of employee stock options was estimated using the following weighted-average assumptions: | ||||||||||||||||||||||||||||||||||
Year Ended March 31, | ||||||||||||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||||||||||||
Fair value of common stock on date of grant | $ | 3.91 | $ | 6.41 | ||||||||||||||||||||||||||||||
Expected Term | 5.96 yrs | 5.80 yrs | ||||||||||||||||||||||||||||||||
Risk-free interest rate | 1.66% | 0.72% | ||||||||||||||||||||||||||||||||
Dividend yield | 0.00% | 0.00% | ||||||||||||||||||||||||||||||||
Volatility | 86.00% | 88.00% | ||||||||||||||||||||||||||||||||
The weighted-average fair values of options granted during the years ended March 31, 2014 and 2013 were $2.65 and $4.61, respectively. | ||||||||||||||||||||||||||||||||||
The expected term of stock options represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options. The expected stock price volatility for the Company’s stock options was determined by using an average of the historical volatilities of the Company and its industry peers. The Company will continue to analyze the stock price volatility and expected term assumptions as more data for the Company’s common stock and exercise patterns become available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company estimates forfeitures based on historical experience and reduces compensation expense accordingly. The estimated forfeiture rates used during the year ended March 31, 2014 ranged from 2.53% to 4.77%. | ||||||||||||||||||||||||||||||||||
At March 31, 2014, there were unrecognized compensation costs of $4,124,000 related to stock options which are expected to be recognized over a weighted-average amortization period of 2.78 years. | ||||||||||||||||||||||||||||||||||
The Company did not capitalize any cost associated with stock-based compensation. | ||||||||||||||||||||||||||||||||||
The Company issues new shares of common stock upon exercise of stock options. |
9_Income_Taxes
9. Income Taxes | 6 Months Ended | 12 Months Ended | ||||||||
Sep. 30, 2014 | Mar. 31, 2014 | |||||||||
Income Tax Disclosure [Abstract] | ||||||||||
Income Taxes | The Company has completed a study to assess whether a change in control has occurred or whether there have been multiple changes of control since the Company’s formation. The Company determined, based on the results of the study, no change in control occurred for purposes of Internal Revenue Code section 382. The Company, after considering all available evidence, fully reserved its deferred tax assets since it is more likely than not such benefits will not be realized in future periods. The Company incurred losses for both financial reporting and income tax purposes for the year ended March 31, 2014. Accordingly, the Company is continuing to fully reserve for its deferred tax assets. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly. | The Company has the following net deferred tax assets (in thousands): | ||||||||
As a result of certain realization requirements of Accounting Standards Codification Topic 718, the Company’s deferred tax assets and liabilities do not include certain deferred tax assets at September 30, 2014 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting purposes. Equity will be increased by approximately $533,000 if and when such deferred tax assets are ultimately realized. | March 31, | |||||||||
2014 | 2013 | |||||||||
Deferred tax assets: | ||||||||||
Net operating loss carryforwards | $ | 36,209 | $ | 34,880 | ||||||
Research and development tax credit carryforwards | 1,650 | 1,646 | ||||||||
Stock-based compensation | 3,941 | 3,727 | ||||||||
Reserves and accruals | 2,537 | 1,404 | ||||||||
Other deferred tax assets | 13 | 13 | ||||||||
State income taxes | (1 | ) | 1 | |||||||
Basis difference in assets | 35 | 37 | ||||||||
Total deferred tax assets | $ | 44,384 | $ | 41,708 | ||||||
Deferred tax liabilities: | ||||||||||
Unrealized gain on Ruthigen | (3,111 | ) | – | |||||||
Net deferred tax asset | 41,273 | 41,708 | ||||||||
Valuation allowance | (41,273 | ) | (41,708 | ) | ||||||
Net deferred tax asset | $ | – | $ | – | ||||||
The Company’s recorded income tax expense, net of the change in the valuation allowance, for each of the periods presented is as follows (in thousands): | ||||||||||
Years Ended March 31, | ||||||||||
2014 | 2013 | |||||||||
Income tax (benefit) | $ | 436 | $ | (391 | ) | |||||
Change in valuation allowance | (436 | ) | 391 | |||||||
Net income tax expense | $ | – | $ | – | ||||||
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: | ||||||||||
Years Ended March 31, | ||||||||||
2014 | 2013 | |||||||||
Expected federal statutory rate | (34.0 | )% | (34.0 | )% | ||||||
State income taxes, net of federal benefit | (6.6 | )% | (3.8 | )% | ||||||
Research and development credit | 0.1 | % | (1.4 | )% | ||||||
Foreign earnings taxed at different rates | (2.6 | )% | 1.7 | % | ||||||
Recognition of change in estimate of state and foreign NOL carryforward benefits | 0 | % | 0 | % | ||||||
Effect of permanent differences on Ruthigen deconsolidation | 29.7 | % | 0 | % | ||||||
Effect of permanent differences | (19.5 | )% | 31.3 | % | ||||||
Impact of change in foreign deferred | 14.9 | % | (1.3 | )% | ||||||
Impact of change in foreign net operating loss | 15.8 | % | 0 | % | ||||||
Cancellation of stock options and true-ups | (6.5 | )% | 0.9 | % | ||||||
Withholding tax | 0 | % | (0.9 | )% | ||||||
Foreign tax credit | 0 | % | 0.9 | % | ||||||
Other | (3.1 | )% | (0.7 | )% | ||||||
(11.8 | )% | (7.3 | )% | |||||||
Change in valuation allowance | 11.8 | % | 7.3 | % | ||||||
Totals | 0 | % | 0 | % | ||||||
At March 31, 2014, the Company had net operating loss carryforwards for federal, state and foreign income tax purposes of approximately $84,027,010, $67,507,526 and $16,994,620, respectively. The federal net operating loss carryforwards will expire, if not utilized, beginning of fiscal year March 31, 2022. The state net operating loss carryforwards will expire, if not utilized, beginning of fiscal year March 31, 2015. The foreign net operating loss carryforwards will expire, if not utilized, beginning of fiscal year March 31, 2018. The Company also had, at March 31, 2014, federal and state research credit carryforwards of approximately $809,580 and 790,390, respectively. The federal credits will expire beginning in March 31, 2024 and the state credits do not expire. The Company also had, at March 31, 2014 foreign tax credits carryforwards of approximately $50,000. The foreign credits will expire beginning of fiscal year March 31, 2024. | ||||||||||
On March 26, 2014, Ruthigen, Inc. ("Ruthigen") filed a certificate of incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware in connection with the closing of the Company’s initial public offering of its securities. Upon the closing of the initial public offering, the Company deconsolidated Ruthigen because it no longer has a controlling financial interest in Ruthigen, its former subsidiary. For tax purposes, no taxable gain or loss is recognized related to the Company’s investment in Ruthigen because Oculus did not sell any of its ownership in Ruthigen as part of the initial public offering transaction. For financial reporting purpose, Ruthigen will be considered as a related party after the deconsolidation as long as Oculus still holds a non-controlling financial interest in Ruthigen. Ruthigen maintains a separate accounting function from Oculus as of March 26, 2014. | ||||||||||
The Company has completed a study to assess whether a change in control has occurred or whether there have been multiple changes of control since the Company’s formation. The Company determined, based on the results of the study, no change in control occurred for purposes of Internal Revenue Code section 382. The Company, after considering all available evidence, fully reserved for these and its other deferred tax assets since it is more likely than not such benefits will not be realized in future periods. The Company has incurred losses for both financial reporting and income tax purposes for the year ended March 31, 2014. Accordingly, the Company is continuing to fully reserve for its deferred tax assets. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly. | ||||||||||
As a result of certain realization requirements of Accounting Standards Codification Topic 718, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at March 31, 2013 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting purposes. Equity will be increased by approximately $533,000 if and when such deferred tax assets are ultimately realized. | ||||||||||
The Company only recognizes tax benefits from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. To date, the Company has not recognized such tax benefits in its consolidated financial statements. | ||||||||||
The Company has identified its federal tax return and its state tax return in California as major tax jurisdictions. The Company also filed tax returns in foreign jurisdictions, principally Mexico and The Netherlands. The Company’s evaluation of uncertain tax matters was performed for tax years ended through March 31, 2014. Generally, the Company is subject to audit for the years ended March 31, 2013, 2012 and 2011 and may be subject to audit for amounts relating to net operating loss carryforwards generated in periods prior to March 31, 2011. The Company has elected to retain its existing accounting policy with respect to the treatment of interest and penalties attributable to income taxes, and continues to reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit as well as its outstanding income tax assets and liabilities. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments, other than those identified above that would result in a material change to its financial position. | ||||||||||
The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of March 31, 2014. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business. |
10_Segment_and_Geographic_Info
10. Segment and Geographic Information | 6 Months Ended | 12 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | Mar. 31, 2014 | |||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||
Segment and Geographic Information | The Company generates product revenues from wound care products that are sold into the human and animal healthcare markets, and the Company generates service revenues from laboratory testing services, which are provided to medical device manufacturers. | The Company generates product revenues from wound care products which are sold into the human and animal healthcare markets, and the Company generates service revenues from laboratory testing services which are provided to medical device manufacturers. | ||||||||||||||||||||||||
The Company operates a single segment business for product sales, which consists of three geographical sales territories as follows (in thousands): | The Company operates a single segment business for product sales which consists of three geographical sales territories as follows: | |||||||||||||||||||||||||
Three Months | Six Months | March 31, | ||||||||||||||||||||||||
Ended | Ended | 2014 | 2013 | |||||||||||||||||||||||
September 30, | September 30, | U.S. | $ | 5,340,000 | $ | 6,842,000 | ||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | Mexico | 5,259,000 | 5,886,000 | ||||||||||||||||||||
U.S. | $ | 978,000 | $ | 1,898,000 | $ | 2,006,000 | $ | 3,221,000 | Europe and other | 2,124,000 | 1,855,000 | |||||||||||||||
Mexico | 1,541,000 | 1,352,000 | 3,011,000 | 2,776,000 | $ | 12,723,000 | $ | 14,583,000 | ||||||||||||||||||
Europe and Rest of World | 554,000 | 603,000 | 1,226,000 | 1,010,000 | ||||||||||||||||||||||
$ | 3,073,000 | $ | 3,853,000 | $ | 6,243,000 | $ | 7,007,000 | For the year ended March 31, 2014 and 2013, the Company recognized product licensing revenues of $1,829,000 and $1,686,000, respectively. Such revenues are included in the Company’s calculation of product revenues and are reflected in the table above under the respective geographic region where such licensing revenues were earned. | ||||||||||||||||||
For the three months ended September 30, 2014 and 2013, the Company received licensing revenues of $378,000 and $397,000, respectively. Such revenues are included in the Company’s calculation of product revenues and are reflected in the table above under the respective geographic region where such licensing revenues were earned. For the six months ended September 30, 2014 and 2013, the Company received licensing revenues of $752,000 and $830,000, respectively. Such revenues are included in the Company’s calculation of product revenues and are reflected in the table above under the respective geographic region where such licensing revenues were earned. | The Company’s service revenues amounted to $945,000 and $869,000 for the years ended March 31, 2014 and 2013. | |||||||||||||||||||||||||
The Company’s service revenues amounted to $191,000 and $236,000 for the three months ended September 30, 2014 and 2013, respectively, and the Company’s service revenues amounted to $413,000 and $454,000 for the six months ended September 30, 2014 and 2013, respectively. |
11_Significant_Customer_Concen
11. Significant Customer Concentrations | 6 Months Ended |
Sep. 30, 2014 | |
Significant Customer Concentrations | |
Significant Customer Concentrations | For the three months ended September 30, 2014, one customer represented 47% of net revenue and one customer represented 14% of net revenue. For the three months ended September 30, 2013, one customer represented 33% of net revenue and one customer represented 32% of net revenue. |
For the six months ended September 30, 2014, one customer represented 45% of net revenue and one customer represented 15% of net revenue. For the six months ended September 30, 2013, one customer represented 37% of net revenue and one customer represented 27% of net revenue. | |
At September 30, 2014, one customer represented 56%, and one customer represented 11% of the net accounts receivable balance. At March 31, 2014, one customer represented 44%, one customer represented 15%, and one customer represented 12% of the net accounts receivable balance. |
12_Subsequent_Events
12. Subsequent Events | 6 Months Ended | 12 Months Ended |
Sep. 30, 2014 | Mar. 31, 2014 | |
Subsequent Events [Abstract] | ||
Subsequent Events | On October 1, 2014, the Company granted an aggregate of 30,000 stock options to two of its non-employee directors. The options have an exercise price of $2.21 and vest quarterly over a one year period. The options were granted pursuant to the Company’s Non-Employee Director Compensation Plan. | At-the-Market Sales Issuances |
On December 4, 2014, the Company held a special meeting of stockholders, which approved an amendment to the Company’s Restated Certificate of Incorporation, as amended, increasing the number of authorized common stock, $0.0001 par value per share, to a total number of 30,000,000 shares. | On April 2, 2014, the Company entered into an At-the-Market Issuance Sales Agreement with MLV & Co. LLC under which we may issue and sell shares of our common stock having an aggregate offering price of up to $9,159,000 from time to time through MLV acting as the Company’s sales agent. The Company will pay MLV a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through MLV as agent under the Sales Agreement. As of June 24, 2014, the Company sold 300,000 shares and the sales of shares under this agreement have resulted in net proceeds of $982,000. | |
Pursuant to an At-the-Market Issuance Sales Agreement with MLV & Co. LLC dated April 2, 2014, under which the Company may issue and sell shares of common stock having an aggregate offering price of up to $9,159,000 from time to time through MLV acting as the Company’s sales agent, the Company sold 467,934 shares of common stock as of November 5, 2014. The sales of shares under this agreement have resulted in net proceeds of $1,399,000. The Company pays MLV a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through MLV as agent. | Increase in Shares Authorized for Issuance under the 2006 and 2011 Plans | |
On November 13, 2014, the Company received a letter from Exeltis Dermatology, Inc. (f/k/a Quinnova Pharmaceuticals, Inc.), a significant customer of the Company, and herein referred to as “Quinnova”, claiming that the Company is in breach of the Exclusive Sales and Distribution Agreement with Quinnova. Specifically, Quinnova has claimed that the marketing and selling of the Company’s Alevicyn gel product violates the terms of the Exclusive Sales and Distribution Agreement and has demanded the Company cease and desist from any further marketing or sales. The Company believes that the marketing and selling of the Alevicyn gel is not in violation of the agreement and that the claims made by Quinnova are without merit. The Company intends to defend this matter vigorously and does not believe an accrual for a potential loss relating to this matter is necessary at this time. While the Company believes this claim is without merit, there can be no assurances provided that the outcome of this matter will be favorable to the Company or will not have a negative impact on the Company’s consolidated financial position or results from operations. | In April 2014, the Company’s board of directors approved increases to the number of shares authorized for issuance under the 2006 and 2011 Plans by 250,000 and 1,224,021 shares, respectively. | |
On December 1, 2014, the Company granted an aggregate of 20,513 stock options to its four non-employee directors. The options have an exercise price of $1.40 and vested immediately, on the date such options were granted. In addition, the four non-employee directors will receive an aggregate of approximately $26,000 of cash compensation. The compensation was earned pursuant to the Company’s Non-Employee Director Compensation Plan as compensation for services provided during the three months ended September 30, 2014. | ||
On January 8, 2015, the Company entered into a Securities Purchase Agreement with two accredited investors, under which the Company agreed not to market, offer or sell its 2 million shares of common stock it holds in Ruthigen, Inc. to any person other than the investors for a period of 60 calendar days from the date of the Securities Purchase Agreement and under which the investors irrevocably agree to purchase all of the Ruthigen shares upon the occurrence of a trigger event. The purchase price for the Ruthigen shares to be purchased by the investors shall be $2.75 per share, or an aggregate of $5,500,000 for all of the Ruthigen shares. Such triggering event is defined in the Securities Purchase Agreement as the closing of any merger or consolidation of Ruthigen with or into another company, corporation or similar entity or the merger or consolidation of another company, corporation, or assets of a corporation or company into Ruthigen, or in the case of any sale or conveyance to another corporation or the assets or other property of Ruthigen, for which Ruthigen enters into a definitive agreement. Such definitive agreement could be subject to or pending customary closing conditions, regulatory approvals and/or shareholder approval and still be considered definitive for purposes of the Securities Purchase Agreement. Ruthigen and Dawson James Securities, Inc., as the managing underwriter of the Ruthigen IPO, approved the transaction in accordance with the provisions of the Separation Agreement between Ruthigen and the Company, dated August 2, 2013, as amended, subject to certain conditions set forth in the Securities Purchase Agreement. As of the filing date of the amended Registration Statement, of which this prospectus forms part, no triggering event has occurred nor can there be any assurance that one will occur. | ||
In connection with entering into the Securities Purchase Agreement to sell the Ruthigen shares at a fixed price of $2.75 per share, the Company has determined that the carrying value of the Ruthigen shares is impaired. As a result, during the three months ended December 31, 2014, the Company will record an impairment loss in the amount of $4,650,000 which represents the difference between cost and aggregate purchase price. | ||
Additionally, the Company agreed to pay Dawson James Securities, Inc. a finder’s fee in the amount of $200,000 upon the closing of the actual sale of the Ruthigen shares. |
4_Accounts_Receivable_March_20
4. Accounts Receivable (March 2014 note) | 12 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Receivables [Abstract] | |||||||||||||||||
4. Accounts Receivable | Accounts receivable consists of the following: | ||||||||||||||||
March 31, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Accounts receivable | $ | 1,798,000 | $ | 1,729,000 | |||||||||||||
Less: allowance for doubtful accounts | (8,000 | ) | (22,000 | ) | |||||||||||||
$ | 1,790,000 | $ | 1,707,000 | ||||||||||||||
Allowance for doubtful accounts activities are as follows: | |||||||||||||||||
Year Ended March 31 | Balance at | Additions | Deductions | Balance at | |||||||||||||
Beginning | Charged to | Write-Offs | End of Year | ||||||||||||||
of Year | Operations | ||||||||||||||||
2013 | $ | 52,000 | $ | 33,000 | $ | (63,000 | ) | $ | 22,000 | ||||||||
2014 | $ | 22,000 | $ | -6,000 | $ | (8,000 | ) | $ | 8,000 | ||||||||
5_Inventories_March_2014_note
5. Inventories (March 2014 note) | 12 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||
5. Inventories | Inventories consist of the following: | ||||||||||||||||
March 31, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Raw materials | $ | 790,000 | $ | 835,000 | |||||||||||||
Finished goods | 345,000 | 327,000 | |||||||||||||||
1,135,000 | 1,162,000 | ||||||||||||||||
Less: inventory allowances | (47,000 | ) | (170,000 | ) | |||||||||||||
$ | 1,088,000 | $ | 992,000 | ||||||||||||||
Reserve for obsolete inventories activities are as follows: | |||||||||||||||||
Year Ended March 31 | Balance at | Additions | Deductions | Balance at | |||||||||||||
Beginning | Charged to | Write-Offs | End of Year | ||||||||||||||
of Year | Cost of | ||||||||||||||||
Product Revenues | |||||||||||||||||
2013 | $ | 105,000 | $ | 85,000 | $ | (20,000 | ) | $ | 170,000 | ||||||||
2014 | $ | 170,000 | $ | 6,000 | $ | (129,000 | ) | $ | 47,000 | ||||||||
6_Prepaid_Expenses_and_Other_C
6. Prepaid Expenses and Other Current Assets (March 2014 note) | 12 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||
6. Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets consist of the following: | ||||||||
March 31, | |||||||||
2014 | 2013 | ||||||||
Prepaid insurance | $ | 429,000 | $ | 332,000 | |||||
Other prepaid expenses and other current assets | 218,000 | 603,000 | |||||||
$ | 647,000 | $ | 935,000 | ||||||
7_Property_and_Equipment_March
7. Property and Equipment (March 2014 note) | 12 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Property, Plant and Equipment [Abstract] | |||||||||
7. Property and Equipment | Property and equipment consists of the following: | ||||||||
March 31, | |||||||||
2014 | 2013 | ||||||||
Manufacturing, lab, and other equipment | $ | 3,073,000 | $ | 2,731,000 | |||||
Office equipment | 302,000 | 356,000 | |||||||
Furniture and fixtures | 88,000 | 78,000 | |||||||
Leasehold improvements | 269,000 | 282,000 | |||||||
3,732,000 | 3,447,000 | ||||||||
Less: accumulated depreciation and amortization | (2,761,000 | ) | (2,647,000 | ) | |||||
$ | 971,000 | $ | 800,000 | ||||||
Depreciation and amortization expense amounted to $284,000 and $268,000 for the years ended March 31, 2014 and 2013, respectively. | |||||||||
During the year ended March 31, 2014 and 2013, the Company incurred losses on the disposal of property and equipment in the amounts of $39,000 and $2,000, respectively. This amount was recorded within operating expenses in the accompanying consolidated statements of comprehensive income (loss). |
8_Investment_in_Ruthigen_Inc_M
8. Investment in Ruthigen, Inc. (March 2014 note) | 12 Months Ended | ||||
Mar. 31, 2014 | |||||
Investments, Debt and Equity Securities [Abstract] | |||||
8. Investment in Ruthigen, Inc. | The Company’s formerly wholly owned subsidiary, Ruthigen, was incorporated in the State of Nevada on January 18, 2013, and reincorporated from Nevada to Delaware on September 25, 2013. As of March 31, 2014 and 2013 and on the date of deconsolidation, March 26, 2014, the Company held 2,000,000 shares of Ruthigen common stock. | ||||
The Company has entered into key agreements with Ruthigen establishing the arrangements between the two companies following the completion of Ruthigen’s Initial Public Offering (the “IPO”), including license and supply and certain shared services arrangements. Each of these agreements was entered into in the overall context of Ruthigen’s separation from the Company (the “Separation”). The effective date for all three agreements is March 26, 2014, the closing date of Ruthigen’s IPO. | |||||
License and Supply Agreement | |||||
On June 6, 2013, the Company entered into a License and Supply Agreement with Ruthigen. Pursuant to the License and Supply Agreement, the Company agreed to exclusively license certain of its proprietary technology to Ruthigen to enable Ruthigen’s research and development and commercialization of the newly discovered RUT58-60, and any improvements to it, in the United States, Canada, European Union and Japan, referred to as the Territory, for certain invasive procedures in human treatment as defined in the License and Supply Agreement. On October 9, 2013 and November 6, 2013, the Company entered into Amendment No. 1 and No. 2 to the License and Supply Agreement with Ruthigen, respectively, to amend certain milestone events set forth in Section 7.1 of the License and Supply Agreement and to amend the terms of the manufacturing equipment purchases set forth in Section 6.13 of the License and Supply Agreement. On January 31, 2014, the Company entered into Amendment No. 3 to the License and Supply Agreement with Ruthigen to further amend certain milestone events and the terms of the manufacturing equipment purchases, and to remove sections of the License and Supply Agreement which related to an exclusive option granted to Ruthigen by the Company to expand the terms of the License and Supply Agreement to dermatologic uses. All other terms and conditions of the License and Supply Agreement remain unmodified and in full force and effect. | |||||
Under the terms of the License and Supply Agreement, the Company will be prohibited from using the licensed proprietary technology to sell products that compete with Ruthigen’s products within the Territory, and Ruthigen cannot sell any device or product that competes with the Company’s products being sold or developed as of the effective date of the License and Supply Agreement. | |||||
Ruthigen will be required to make a total of $8,000,000 in milestone payments to the Company for the first product only, as follows: upon completion of last patient enrollment in Ruthigen’s Phase 1/2 clinical study; upon completion of last patient enrollment in Ruthigen's first pivotal clinical study; upon completion of Ruthigen’s first meeting with the U.S. Food and Drug Administration (“FDA”) following completion of Ruthigen’s first pivotal clinical trial; and upon first patient enrollment in Ruthigen’s second pivotal clinical trial. In addition, as further consideration under the agreement, Ruthigen will be required to make royalty payments to the Company based on Ruthigen’s annual net sales of the product from the date of first commercial sale to the date that Ruthigen ceases to commercialize the product, which percentage royalty rate will vary between 3% and 20% and will increase based on various net sales thresholds and will differ depending on the country in which the sales are made. | |||||
Separation Agreement | |||||
On August 2, 2013, the Company entered into a Separation Agreement with Ruthigen that contains key provisions relating to its ongoing relationship with Ruthigen following the completion of Ruthigen’s initial public offering. On January 31, 2014, the parties amended the Separation Agreement. The separation agreement took effect on March 26, 2014 upon the closing of Ruthigen’s initial public offering and terminates on the earlier of 8.5 years following the closing of the offering, or when the parties mutually agree to terminate it. The Separation Agreement also contains a series of restrictions on the Company’s ability to transfer the Ruthigen shares as well as restrictions on the Company’s ability to vote on the shares it owns. | |||||
The Company is restricted from transferring any of the Ruthigen shares it owns during the first year (the “lock up period”) immediately following the completion of Ruthigen’s initial public offering, unless consent to such transfer has been provided by both the Ruthigen board of directors and the lead underwriter in the Ruthigen IPO. Following the one-year lock up period and during the second year following the closing of the IPO, if Oculus owns greater than 19.9% of the issued and outstanding common stock of Ruthigen, transfers by the Company of the Ruthigen shares are restricted unless the Company obtains consent from the Ruthigen’s board of directors. | |||||
Following the completion of the second year, transfers of the Ruthigen shares must be conducted in accordance with the prescribed requirements for such transfers set forth in the Separation Agreement. These prescribed requirements include that the transfers must be in private placement transactions, the purchase price discount may not exceed certain percentages depending on the transferee, the amount of shares transferred in a given transfer (or series of transfers comprising a single transaction) may not exceed the greater of 5% of Ruthigen’s outstanding shares or $1.5 million in net proceeds to the Company, as well as certain other requirements set forth in the Separation Agreement. In addition to the prescribed manner for the Company to conduct transfers described above, if, following a minimum of 41.5 months following the closing of Ruthigen’s initial public offering have lapsed under the Separation Agreement and the Company has not consummated transfers of the Ruthigen shares it owns resulting in at least $3.8 million in net proceeds to the Company, then the Company has a one-time transfer and registration right to transfer the Ruthigen shares it owns in an amount equal to the difference between $3.8 million and the Ruthigen shares transferred by the Company pursuant to the Separation Agreement as of the time the Company elects to exercise its one-time right. Transfers conducted using this one-time right must be conducted with the consent of Ruthigen’s board of directors or within the prescribed requirements for such transfers set forth in the Separation Agreement, including, for example, that the purchase price discount may not exceed certain percentages, the amount of shares transferred may not exceed $3.8 million in net proceeds to the Company, as well as certain other requirements set forth in the Separation Agreement. | |||||
In addition to the above transfer restrictions, if the Company owns greater than 19.9% of the issued and outstanding common stock of Ruthigen during the 8.5 year term of the Separation Agreement, the Company is required to vote, in person or by proxy, all of the shares it owns in Ruthigen in the same manner as the majority of the votes cast by the holders of all the other issued and outstanding shares of Ruthigen at any duly called meeting of the stockholders or in any action by written consent of the stockholders of Ruthigen. | |||||
On January 31, 2014, the Company also entered into a Funding Agreement with Ruthigen due to certain changes to the terms of Ruthigen’s initial public offering that had occurred in order to govern the terms of certain additional financing which was provided to Ruthigen by the Company, in connection with the Separation, subject to the terms and conditions set forth in the agreement. The amended Separation Agreement disclosed above amended the terms of the prior separation agreement such that the terms of the Funding Agreement shall control the methodology for the allocation of the operational and offering related expenses incurred prior to and in connection with Ruthigen’s initial public offering for which Ruthigen was required to reimburse the Company. | |||||
Since the legal inception of Ruthigen on January 18, 2013 and through the date of the Funding Agreement, the Company had advanced Ruthigen $916,000 in connection with the funding of Ruthigen’s IPO and operations. Pursuant to the Funding Agreement, the Company agreed to continue to fund Ruthigen for a total of up to an additional $760,000 to allow Ruthigen to proceed with its initial public offering. The parties agreed that the Company had no further obligation to fund operations of Ruthigen beyond the amounts detailed in a budget mutually agreed upon by the parties in connection with the execution of the funding agreement. The Funding Agreement also required the resignation of all Ruthigen board of director members from the Company’s board of directors at the time Ruthigen’s initial public offering was completed. Furthermore, any funds provided by the Company to Ruthigen pursuant to the Funding Agreement were to be repaid by Ruthigen to the Company at the time of the closing of the Ruthigen initial public offering. Through the date of the Ruthigen IPO, the Company made aggregate advances to Ruthigen in the amount of $1,453,000 (inclusive of the $916,000 disclosed above). | |||||
In connection with the completion of the initial public offering, on March 26, 2014 Ruthigen reimbursed the Company $916,000 and as a result, the remaining $537,000 is included in due from affiliates on the Company’s consolidated balance sheet as of March 31, 2014. On April 1, 2014 Ruthigen reimbursed the Company the remaining $537,000. | |||||
Deconsolidation of Ruthigen | |||||
On March 26, 2014, Ruthigen completed an initial public offering for the issuance of 2,650,000 shares of its common stock to third parties (along with Series A and Series B warrants) for aggregate gross proceeds of $19,212,500. As a result, the Company’s ownership interest in Ruthigen decreased to 43% on March 26, 2014 and the Company deconsolidated Ruthigen. | |||||
The Company accounts for deconsolidation of subsidiaries in which it loses controlling interest in the financial interest of the subsidiary in accordance with Accounting Standards Codification (“ASC”) 810-10-40 – “Consolidation”. In accordance with ASC 810-10-40-5, the Company shall account for the deconsolidation of a subsidiary by recognizing a gain or loss in net income (loss) measured as the difference between: | |||||
a) | The aggregate of the fair value of any consideration received by the Company; plus | ||||
b) | The fair value of any retained non-controlling investment in the former subsidiary by the Company at the date the subsidiary is deconsolidated; plus | ||||
c) | The carrying amount of any existing non-controlling interest in the former subsidiary (including any accumulated other comprehensive income (loss) attributable to the non-controlling interest) at the date the subsidiary is deconsolidated; less | ||||
d) | The carrying amount of the former subsidiary’s assets and liabilities. | ||||
As a result of the deconsolidation of Ruthigen, the Company recorded a gain on deconsolidation of $11,133,000 calculated as follows: | |||||
March 26, | |||||
2014 | |||||
Aggregate fair value of consideration received by the Company | $ | – | |||
Fair value of retained non-controlling interest by the Company | 10,150,000 | ||||
Carrying amount on non-controlling interest in subsidiary | – | ||||
Less: | |||||
Carrying amount of the Ruthigen assets and liabilities | (983,000 | ) | |||
Gain (loss) on deconsolidation of Ruthigen | $ | 11,133,000 | |||
The aggregate fair value of the Company’s retained non-controlling interest in Ruthigen is comprised of the 2,000,000 shares of Ruthigen common stock held by the Company as of March 26, 2014 with an estimated fair value of $10,150,000. The fair market value of the 2,000,000 shares held by the Company was determined with the assistance of an independent valuation specialist considering key factors of the nature of the arrangement between the Company and Ruthigen, including but not limited to, the restrictions on transferability associated with the shares, the restrictions on voting the shares, and the limited trading history of the Ruthigen common stock. | |||||
Subsequent to the deconsolidation of Ruthigen, the Company has accounted for the 2,000,000 shares of common stock it owns in Ruthigen at cost in accordance with ASC 325-20 as a result of (a) the restrictions on voting the shares held as disclosed above, (b) the Company having no representation on the Ruthigen Board of Directors, (c) the Company’s inability to set policy at Ruthigen (d) the Company having no further commitments for funding the operations of Ruthigen and (e) the restrictions on transferability of the shares which extend beyond a one-year period. During the year ended March 31, 2014, the Company had noted no indicators of impairment as it relates to investment held in Ruthigen. |
9_Accrued_Expenses_and_Other_C
9. Accrued Expenses and Other Current Liabilities (March 2014 note) | 12 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Payables and Accruals [Abstract] | |||||||||
9. Accrued Expenses and Other Current Liabilities | Accrued expenses and other current liabilities consist of the following: | ||||||||
March 31, | |||||||||
2014 | 2013 | ||||||||
Salaries and related costs | $ | 516,000 | $ | 455,000 | |||||
Professional fees | 362,000 | 141,000 | |||||||
Other | 11,000 | 107,000 | |||||||
$ | 889,000 | $ | 703,000 | ||||||
10_LongTerm_Debt_March_2014_no
10. Long-Term Debt (March 2014 note) | 12 Months Ended | ||||
Mar. 31, 2014 | |||||
Debt Disclosure [Abstract] | |||||
10. Long-Term Debt | Financing of Insurance Premiums | ||||
On February 25, 2014, the Company entered into a note agreement for $188,000 with an interest rate of 4.81% per annum. This instrument was issued in connection with financing insurance premiums. The note is payable in monthly installments of $27,000 with the final payment on August 25, 2014. During the year ended March 31, 2014, the Company made principal and interest payments of $53,000 and $1,000, respectively. The remaining balance of this note amounted to $135,000 at March 31, 2014 which is included in the current portion of long-term debt in the accompanying consolidated balance sheet. | |||||
On February 25, 2013, the Company entered into a note agreement for $155,000 with an interest rate of 4.81% per annum. This instrument was issued in connection with financing insurance premiums. The note is payable in monthly installments of $22,500 with the final payment on August 25, 2013. During the year ended March 31, 2013, the Company made principal and interest payments of $44,000 and $1,000, respectively. The remaining balance of this note amounted to $110,000 at March 31, 2013, which $6,000 is included in the current portion of long-term debt in the accompanying consolidated balance sheet. | |||||
Venture Lending & Leasing, Inc. and Venture Lending & Leasing VI, Inc. | |||||
On May 1, 2010, the Company entered into a loan and security agreement and a supplement to the loan and security agreement with Venture Lending & Leasing V, Inc., to borrow $3,000,000 (together, the “VLL5 Loan Agreements”). In connection with those agreements, the Company issued two warrants to Venture Lending & Leasing V, LLC, a Delaware limited liability company (“LLC5”), which, in the aggregate, had a total put option cash value of $750,000 (the “VLL5 Warrants”). | |||||
On June 29, 2011, the Company entered into a loan and security agreement and a supplement to the loan and security agreement with Venture Lending & Leasing VI, Inc., to borrow $2,500,000 (together, the “VLL6 Loan Agreements”). In connection with those agreements, the Company issued three warrants to Venture Lending & Leasing VI, LLC, a Delaware limited liability company (“LLC6”), which, in the aggregate, had a total put option cash value of $1,250,000 (the “VLL6 Warrants”). | |||||
On October 30, 2012, the Company entered into respective letter agreements with VLL5 and VLL6 to amend the repayment terms of its outstanding debt obligations. Prior to the execution of these agreements, LLC5 and LLC6 held an aggregate of 79,517 warrants (adjusted for the reverse stock split effective April 1, 2013) to purchase common stock, which, in the aggregate, had a total put option cash value of $2,000,000 (the “Cash Settlement Liability”) and was included in long term liabilities on the Company’s consolidated balance sheets. | |||||
On that same day, the Company also entered into a stock purchase agreement with LLC5 and LLC6 (together with LLC5, collectively referred to as “WTI”) for the issuance to WTI of shares of its common stock having an aggregate grant date fair market value of $3,500,000, or approximately $5.67 per post-split share, in exchange for LLC5’s agreement to surrender the VLL5 Warrants, and LLC6’s agreement to surrender the VLL6 Warrants, and the surrender by WTI of the accompanying Cash Settlement Liability. Accordingly, on November 1, 2012, the Company issued an aggregate of 617,284 restricted shares of its post-split common stock (the “Shares”) to WTI, pursuant to the terms of the stock purchase agreement. The VLL5 Warrants and the VLL6 Warrants were surrendered on October 30, 2012. | |||||
If at any time between October 30, 2012 through either March 31, 2014 or July 31, 2015 (the “Settlement Dates”) WTI sells the Shares, then the proceeds from the sale of the Shares will be applied as follows (the “Grace Period”): | |||||
(a) | If and when the Shares are sold by WTI during the Grace Period, the fair value of the proceeds received will be retained by WTI as consideration for surrendering the Cash Settlement Liability, up to a maximum value of $2,000,000. | ||||
(b) | If and when the Shares are sold by WTI during the Grace Period, any additional proceeds received from the sale of the Shares in excess of $2,000,000 (approximately $3.22 per share) but up to $3,500,000 (approximately $5.67 per share) will be applied by WTI as a prepayment of a portion of the then outstanding debt based on the terms of the stock purchase agreement. | ||||
(c) | If and when the Shares are sold by WTI during the Grace Period, any additional proceeds received from the sale of the Shares in excess of $3,500,000 (approximately $5.67 per share) up to $4,500,000 (approximately $7.28 per share) shall be the sole possession and property of WTI, in accordance with the terms of the stock purchase agreement. | ||||
(d) | If the Shares are sold by WTI during the Grace Period for value in excess of $4,500,000 (approximately $6.72 per share), 50% of the amount of the proceeds in excess of the $4,500,000 will be the sole possession and property of WTI and 50% of the amount of the proceeds shall be applied as a prepayment of a portion of the then outstanding debt based on the terms of the stock purchase agreement. | ||||
(e) | If the Shares are sold by WTI during the Grace Period for value less than $2,000,000 (approximately $3.22 per share), the Company is required to make a cash payment to WTI until the total Cash Settlement Liability of $2,000,000 has been recovered (“Cash Shortfall”). | ||||
As of December 16, 2013, the Shares were sold for an average price of $5.35 per share, resulting in gross proceeds of $3,304,000 and net proceeds of $3,291,000 after deducting certain transaction costs. Pursuant to the stock purchase agreement, the net proceeds from the sale of the Shares were applied as follows: | |||||
(a) | $2,000,000 of the proceeds received were retained by LLC5 and LLC6 as consideration for surrendering the VLL5 Warrants and VLL6 Warrants and the underlying put warrant liabilities. | ||||
(b) | After the put warrant liabilities were satisfied, the remaining proceeds were applied to the reduction of the Company’s remaining loans outstanding under the VLL5 Loan Agreements and the VLL6 Loan Agreements. As there were no outstanding loans under the VLL5 Loan Agreements, the Company used the amount to prepay the outstanding loans under the VLL6 Loan Agreements, for which $1,131,000 of the proceeds received was applied as a prepayment of the then outstanding debt under the VLL6 Loan Agreements and $94,000 of the proceeds received was applied as a prepayment of all future interest owed in connection with the VLL6 Loan Agreements. | ||||
(c) | After the loans were prepaid in full, approximately $66,000 remained in excess of all outstanding obligations owed by the Company. Pursuant to the terms of the stock purchase agreement, such amount was allocated 50/50, and $33,000 was paid to the Company. | ||||
In connection with the VLL5 Loan Agreements and the VLL6 Loan Agreements, during the years ended March 31, 2014 and 2013, the Company made interest payments of $188,000 and $474,000, respectively, and aggregate principal payments of $1,379,000 and $1,855,000, respectively. In addition, for the years ended March 31, 2014 and 2013, the Company recorded $863,000 and $624,000 of non-cash interest related to the loans, respectively. | |||||
A summary of principal payments due in years subsequent to March 31, 2014 for long-term debt is as follows: | |||||
For Years Ending March 31, | |||||
2015 | 143,000 | ||||
2016 | 4,000 | ||||
Total principal payments | 147,000 | ||||
Less: current portion | (143,000 | ) | |||
Long-term portion | $ | 4,000 | |||
16_Employee_Benefit_Plan_March
16. Employee Benefit Plan (March 2014 note) | 12 Months Ended |
Mar. 31, 2014 | |
Compensation and Retirement Disclosure [Abstract] | |
16. Employee Benefit Plan | The Company has a program to contribute and administer a qualified 401(k) plan. Under the 401(k) plan, the Company matches employee contributions to the plan up to 4% of the employee’s salary. Company contributions to the plans amounted to an aggregate of $131,000 and $140,000 for the years ended March 31, 2014 and 2013, respectively. |
3_Summary_of_Significant_Accou1
3. Summary of Significant Accounting Policies (Policies) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||
Organization | Organization | ||||||||||||||||
Oculus Innovative Sciences, Inc. (the “Company”) was incorporated under the laws of the State of California in April 1999 and was reincorporated under the laws of the State of Delaware in December 2006. The Company’s principal office is located in Petaluma, California. The Company is a global specialty device and pharmaceutical company that develops, produces, and markets solutions for the treatment of dermatological conditions and advanced tissue care in the United States and internationally. The Company is pioneering innovative products for the dermatology, surgical, advanced tissue and skin care, and animal healthcare markets. The Company’s key proprietary technology platform is called Microcyn® Technology. This technology is based on electrically charged oxychlorine small molecules designed to target a wide range of organisms that cause disease (pathogens). Several Microcyn® Technology tissue care products are designed to treat infections and enhance healing while reducing the need for antibiotics. | |||||||||||||||||
Basis of Presentation | Basis of Presentation | ||||||||||||||||
The accompanying unaudited condensed consolidated financial statements as of September 30, 2014 and for the three and six months then ended have been prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The unaudited condensed consolidated balance sheet as of September 30, 2014, the condensed consolidated statements of comprehensive loss for the three and six months ended September 30, 2014 and 2013, and the condensed consolidated statements of cash flows for the six months ended September 30, 2014 and 2013 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended September 30, 2014 are not necessarily indicative of results to be expected for the year ending March 31, 2015 or for any future interim period. The condensed consolidated balance sheet at March 31, 2014 has been derived from audited consolidated financial statements. However, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended March 31, 2014, and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on June 30, 2014. | |||||||||||||||||
Use of Estimates | Use of Estimates | ||||||||||||||||
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt discounts, valuation of investments, and the estimated amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts estimates accordingly. The allowances for uncollectible accounts receivable balances amounted to $19,000 and $8,000, which are included in Accounts Receivable, net in the accompanying September 30, 2014 and March 31, 2014 condensed consolidated balance sheets, respectively. | |||||||||||||||||
Net Loss per Share | Net Loss per Share | ||||||||||||||||
The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic loss per share for the three and six months ended September 30, 2014 and 2013 excludes the potentially dilutive securities summarized in the table below because their inclusion would be anti-dilutive. | |||||||||||||||||
September 30, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Options to purchase common stock | 2,754,000 | 1,229,000 | |||||||||||||||
Warrants to purchase common stock | 2,034,000 | 1,318,000 | |||||||||||||||
4,788,000 | 2,547,000 | ||||||||||||||||
Common Stock Purchase Warrants and Other Derivative Financial Instruments | Common Stock Purchase Warrants and Other Derivative Financial Instruments | ||||||||||||||||
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that its freestanding derivatives, which principally consist of warrants to purchase common stock, satisfied the criteria for classification as equity instruments, other than certain warrants that contained reset provisions and certain warrants that required net-cash settlement that the Company classified as derivative liabilities as more fully described in Note 5. | |||||||||||||||||
Revenue Recognition and Accounts Receivable | Revenue Recognition and Accounts Receivable | ||||||||||||||||
The Company generates revenue from sales of our products to hospitals, medical centers, doctors, pharmacies, and distributors. The Company sells our products directly to third parties and to distributors through various cancelable distribution agreements. The Company also entered into agreements to license our technology and products. | |||||||||||||||||
The Company also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. | |||||||||||||||||
The Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured. | |||||||||||||||||
The Company requires all of our product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer, shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in lieu of purchase orders. | |||||||||||||||||
The Company recognizes revenue at the time in which we receive confirmation that the goods were either tendered at their destination, when shipped “FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. | |||||||||||||||||
The selling prices of all goods are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established list prices. The Company does not customarily permit our customers to return any products for monetary refunds or credit against completed or future sales. The Company may, from time to time, replace expired goods on a discretionary basis. The Company records these types of adjustments, when made, as a reduction of revenue. Sales adjustments were insignificant during the quarters ended September 30, 2014 and 2013 and the years ended March 31, 2014 and 2013. | |||||||||||||||||
The Company evaluates the creditworthiness of new customers and monitor the creditworthiness of our existing customers to determine whether events or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which a sale is made. Payment terms on sales made in the United States are generally 30 days and internationally, generally range from 30 days to 90 days. | |||||||||||||||||
In the event a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains a reserve for amounts which may not be collectible due to risk of credit losses. | |||||||||||||||||
Additionally, the Company defers recognition of revenue related to distributors’ that are unable to provide inventory or product sell-through reports on a timely basis, until payment is received. The Company believes the receipt of payment is the best indication of product sell-through. | |||||||||||||||||
The Company has entered into distribution agreements in Europe, Mexico, and certain other countries. Recognition of revenue and related cost of revenue from product sales is deferred until the product is sold from the distributors to their customers. | |||||||||||||||||
When the Company receives letters of credit and the terms of the sale provide for no right of return except to replace defective product, revenue is recognized when the letter of credit becomes effective and the product is shipped. | |||||||||||||||||
Product license revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered. If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized over the performance obligation period. | |||||||||||||||||
Assuming the elements meet the criteria for separation and all other revenue requirements for recognition, the revenue recognition methodology prescribed for each unit of accounting is summarized below: | |||||||||||||||||
When appropriate, the Company defers recognition of non-refundable upfront fees. If the Company has continuing performance obligations then such up-front fees are deferred and recognized over the period of continuing involvement. | |||||||||||||||||
The Company recognizes royalty revenues from licensed products upon the sale of the related products. | |||||||||||||||||
Revenue from consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer. | |||||||||||||||||
Inventory | Inventory | ||||||||||||||||
Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or market. Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value. | |||||||||||||||||
Income Taxes | Income Taxes | ||||||||||||||||
The Company is required to determine the aggregate amount of income tax expense or loss based upon tax statutes in jurisdictions in which it conducts business. In making these estimates, the Company adjusts its results determined in accordance with generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities resulting from these differences are reflected on its balance sheet for temporary differences in loss and credit carryforwards that will reverse in subsequent years. The Company also establishes a valuation allowance against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances are based, in part, on predictions that management must make as to the results in future periods. The outcome of events could differ over time which would require that the Company makes changes in its valuation allowance. | |||||||||||||||||
Fair Value of Financial Assets and Liabilities | Fair Value of Financial Assets and Liabilities | ||||||||||||||||
Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The carrying amounts of long-term investments include the investment held in Ruthigen, Inc. (“Ruthigen”) and are carried at cost, which management believes approximates fair value. The fair value of capital lease obligations and equipment loans approximates their carrying amounts as a market rate of interest is attached to their repayment. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value: | |||||||||||||||||
Level 1 – quoted prices in active markets for identical assets or liabilities | |||||||||||||||||
Level 2 – quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. | |||||||||||||||||
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions) | |||||||||||||||||
Financial liabilities measured at fair value on a recurring basis are summarized below: | |||||||||||||||||
Fair Value Measurements at September 30, 2014 Using | |||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | ||||||||||||||
September 30, | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
2014 | |||||||||||||||||
Liabilities: | |||||||||||||||||
Derivative liabilities – warrants | $ | 856,000 | – | – | $ | 856,000 | |||||||||||
Fair Value Measurements at March 31, 2014 Using | |||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | ||||||||||||||
March 31, | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
2014 | |||||||||||||||||
Liabilities: | |||||||||||||||||
Derivative liabilities – warrants | $ | 3,175,000 | – | – | $ | 3,175,000 | |||||||||||
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer. | |||||||||||||||||
As of September 30, 2014, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy. | |||||||||||||||||
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets | ||||||||||||||||
The Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that it is more likely than not that their carrying values may exceed their realizable values, and records impairment charges when considered necessary. Specific potential indicators of impairment include, but are not necessarily limited to: | |||||||||||||||||
· | a significant decrease in the fair value of an asset; | ||||||||||||||||
· | a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; | ||||||||||||||||
· | a significant adverse change in legal factors or in the business climate that affects the value of an asset; | ||||||||||||||||
· | an adverse action or assessment by the U.S. Food and Drug Administration or another regulator; and | ||||||||||||||||
· | an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an income-producing asset. | ||||||||||||||||
When circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. In estimating these future cash flows, assets and liabilities are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, will be recognized. The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that management believes is reasonable. During the six months ended September 30, 2014, the Company had noted no indicators of impairment. | |||||||||||||||||
Long-Term Investments | Long-Term Investments | ||||||||||||||||
The Company’s long-term investments consist of the 2,000,000 shares it owns in Ruthigen at September 30, 2014 and March 31, 2014. The Company has accounted for the 2,000,000 shares of common stock it owns in Ruthigen at cost in accordance with ASC 325-20 as a result of (a) the restrictions on voting the shares held as disclosed above, (b) the Company having no representation on the Ruthigen Board of Directors, (c) the Company’s inability to set policy at Ruthigen (d) the Company having no further commitments for funding the operations of Ruthigen and (e) the restrictions on transferability of the shares which extend beyond a one-year period. The Company reviewed available public information disclosed by Ruthigen to determine if operational issues could be identified that would result in a decline in the value of the Ruthigen investment. The Company did not identify any operational issues that would negatively impact the value of the investment. The Company has not recorded any impairment losses during the three or six months ended September 30, 2014 as it relates to its investments held. | |||||||||||||||||
Subsequent Events | Subsequent Events | ||||||||||||||||
Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued (Note 12). | |||||||||||||||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements | ||||||||||||||||
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period . This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | |||||||||||||||||
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial position and results of operations. | |||||||||||||||||
The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of these unaudited condensed consolidated financial statements. Management’s evaluations of events and conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern have been disclosed in Note 2. | |||||||||||||||||
Accounting standards that have been issued or proposed by the FASB, SEC and/or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. |
3_Summary_of_Significant_Accou2
3. Summary of Significant Accounting Policies (Tables) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||
Potentially dilutive securities excluded from computation of net loss per share | September 30, | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
Options to purchase common stock | 2,754,000 | 1,229,000 | |||||||||||||||
Warrants to purchase common stock | 2,034,000 | 1,318,000 | |||||||||||||||
4,788,000 | 2,547,000 | ||||||||||||||||
Financial liabilities measured at fair value on a recurring basis | Fair Value Measurements at September 30, 2014 Using | ||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | ||||||||||||||
September 30, | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
2014 | |||||||||||||||||
Liabilities: | |||||||||||||||||
Derivative liabilities – warrants | $ | 856,000 | – | – | $ | 856,000 | |||||||||||
Fair Value Measurements at March 31, 2014 Using | |||||||||||||||||
Total | Quoted prices in active markets for identical assets | Significant other observable inputs | Significant other unobservable inputs | ||||||||||||||
March 31, | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
2014 | |||||||||||||||||
Liabilities: | |||||||||||||||||
Derivative liabilities – warrants | $ | 3,175,000 | – | – | $ | 3,175,000 |
4_Condensed_Consolidated_Balan1
4. Condensed Consolidated Balance Sheets (Tables) | 6 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Balance Sheet Related Disclosures [Abstract] | |||||||||
Inventories | September 30, | March 31, | |||||||
2014 | 2014 | ||||||||
Raw materials | $ | 796,000 | $ | 743,000 | |||||
Finished goods | 439,000 | 345,000 | |||||||
$ | 1,235,000 | $ | 1,088,000 |
5_Derivative_Liabilities_Table
5. Derivative Liabilities (Tables) | 6 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Derivative Liability [Abstract] | ||||||||||
Valuation Assumptions | Measurement | Warrants | Remaining | Exercise | Volatility | Risk-free | Fair | |||
Date | Contract | Price | Interest | Value | ||||||
Term in | Rate | |||||||||
Years | ||||||||||
Warrant | ||||||||||
Placement Agent Warrants | 31-Mar-14 | 16,500 | 2.09 | $ | 5 | 128% | 0.44% | $ | 37,000 | |
Investor - Series A Warrants | 31-Mar-14 | 1,000 | 1.41 | $ | 3 | 128% | 0.44% | 1,000 | ||
Investor - Series B Warrants | 31-Mar-14 | 1,400,000 | 1.41 | $ | 3.63 | 128% | 0.44% | 2,958,000 | ||
Placement Agent Warrants | 31-Mar-14 | 69,037 | 2.09 | $ | 3 | 128% | 0.44% | 179,000 | ||
$ | 3,175,000 | |||||||||
Warrant | ||||||||||
Placement Agent Warrants | 30-Jun-14 | 16,500 | 1.84 | $ | 5 | 100% | 0.47% | $ | 19,000 | |
Investor - Series A Warrants | 30-Jun-14 | 1,000 | 1.16 | $ | 3 | 100% | 0.11% | 1,000 | ||
Investor - Series B Warrants | 30-Jun-14 | 1,400,000 | 1.16 | $ | 3.63 | 100% | 0.11% | 1,568,000 | ||
Placement Agent Warrants | 30-Jun-14 | 69,037 | 1.84 | $ | 3 | 100% | 0.47% | 109,000 | ||
$ | 1,697,000 | |||||||||
Warrant | ||||||||||
Placement Agent Warrants | 30-Sep-14 | 16,500 | 1.59 | $ | 5 | 100% | 0.58% | $ | 11,000 | |
Investor - Series A Warrants | 30-Sep-14 | 1,000 | 0.9 | $ | 3 | 100% | 0.13% | 1,000 | ||
Investor - Series B Warrants | 30-Sep-14 | 1,400,000 | 0.9 | $ | 3.63 | 100% | 0.13% | 777,000 | ||
Placement Agent Warrants | 30-Sep-14 | 69,037 | 1.59 | $ | 3 | 100% | 0.58% | 67,000 | ||
$ | 856,000 | |||||||||
Changes in fair value of Level 3 financial liabilities recurring basis | Derivative liabilities | Three Months Ended September 30, 2014 | Six Months Ended September 30, 2014 | |||||||
Beginning fair value | $ | 1,697,000 | $ | 3,175,000 | ||||||
Gain due to change in fair value of derivative liabilities | (841,000 | ) | (2,319,000 | ) | ||||||
Ending fair value | $ | 856,000 | $ | 856,000 |
8_StockBased_Compensation_Tabl
8. Stock-Based Compensation (Tables) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | |||||||||||||||||
Employee stock-based compensation expense | Three Months | Six Months | |||||||||||||||
Ended | Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Cost of service revenue | $ | 59,000 | $ | 30,000 | $ | 123,000 | $ | 56,000 | |||||||||
Research and development | 82,000 | 45,000 | 178,000 | 78,000 | |||||||||||||
Selling, general and administrative | 315,000 | 221,000 | 606,000 | 349,000 | |||||||||||||
Total stock-based compensation | $ | 456,000 | $ | 296,000 | $ | 907,000 | $ | 483,000 | |||||||||
Weighted average assumptions of fair falue of employee stock options | Three and Six Months | Six Months | |||||||||||||||
Ended | Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Expected life | 8.90 years | 5.89 years | 5.89 years | 5.89 years | |||||||||||||
Risk-free interest rate | 2.32% | 1.42% | 1.42% | 1.42% | |||||||||||||
Dividend yield | 0.00% | 0.00% | 0.00% | 0.00% | |||||||||||||
Volatility | 98% | 86% | 86% | 86% | |||||||||||||
Fair value of options granted | $ | 2.39 | $ | 2.1 | $ | 2.1 | $ | 2.1 | |||||||||
Summary of option activity | Number of | Weighted- | Weighted- | Aggregate | |||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at April 1, 2014 | 2,536,000 | $ | 7.78 | ||||||||||||||
Options granted | 245,000 | 2.76 | |||||||||||||||
Options exercised | – | – | |||||||||||||||
Options forfeited or expired | (27,000 | ) | 20.88 | ||||||||||||||
Outstanding at September 30, 2014 | 2,754,000 | $ | 7.21 | 8.24 | $ | – | |||||||||||
Exercisable at September 30, 2014 | 1,197,000 | $ | 11.62 | 6.71 | $ | – | |||||||||||
Options available for grant as of September 30, 2014 | 1,579,000 |
10_Segment_and_Geographic_Info1
10. Segment and Geographic Information (Tables) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||
Segment and Geographic Information | Three Months | Six Months | |||||||||||||||
Ended | Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
U.S. | $ | 978,000 | $ | 1,898,000 | $ | 2,006,000 | $ | 3,221,000 | |||||||||
Mexico | 1,541,000 | 1,352,000 | 3,011,000 | 2,776,000 | |||||||||||||
Europe and Rest of World | 554,000 | 603,000 | 1,226,000 | 1,010,000 | |||||||||||||
$ | 3,073,000 | $ | 3,853,000 | $ | 6,243,000 | $ | 7,007,000 |
2_Liquidity_and_Financial_Cond
2. Liquidity and Financial Condition (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
In Thousands, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 |
Liquidity And Financial Condition | ||||||
Net loss | ($718) | ($1,399) | ($788) | ($3,111) | $3,735 | ($5,431) |
Accumulated deficit | -134,798 | -134,798 | -134,010 | -137,745 | ||
Working capital | $2,830 | $2,830 | $1,970 |
3_Summary_of_Significant_Accou3
3. Summary of Significant Accounting Policies (Details - Potentially Dilutive Securities) | 6 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Total securities excluded from computation of basic net loss per share | 4,788,000 | 2,547,000 |
Stock Options [Member] | ||
Total securities excluded from computation of basic net loss per share | 2,754,000 | 1,229,000 |
Warrants [Member] | ||
Total securities excluded from computation of basic net loss per share | 2,034,000 | 1,318,000 |
3_Summary_of_Significant_Accou4
3. Summary of Significant Accounting Policies - Financial liabilities (Details) (USD $) | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 |
Liabilities: | |||
Derivative liabilities b warrants | $856,000 | $1,697,000 | $3,175,000 |
Fair Value, Measurements, Recurring [Member] | |||
Liabilities: | |||
Derivative liabilities b warrants | 856,000 | 3,175,000 | |
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | |||
Liabilities: | |||
Derivative liabilities b warrants | 0 | 0 | |
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | |||
Liabilities: | |||
Derivative liabilities b warrants | 0 | 0 | |
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | |||
Liabilities: | |||
Derivative liabilities b warrants | $856,000 | $3,175,000 |
3_Summary_of_Significant_Accou5
3. Summary of Significant Accounting Policies (Details Narrative) (USD $) | Sep. 30, 2014 | Mar. 31, 2014 |
In Thousands, except Share data, unless otherwise specified | ||
Allowance for uncollectible accounts receivable | $19 | $8 |
Ruthigen [Member] | ||
Common shares owned, investment | 2,000,000 | 2,000,000 |
4_Condensed_Consolidated_Balan2
4. Condensed Consolidated Balance Sheets (Details - Inventories) (USD $) | Sep. 30, 2014 | Mar. 31, 2014 | Mar. 31, 2013 |
Inventories, net | $1,235,000 | $1,088,000 | $992,000 |
Raw Materials [Member] | |||
Inventories, net | 796,000 | 743,000 | |
Finished Goods [Member] | |||
Inventories, net | $439,000 | $345,000 |
5_Derivative_Liabilities_Detai
5. Derivative Liabilities (Details - Valuation Assumptions) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended |
Jun. 30, 2014 | Sep. 30, 2014 | Mar. 31, 2014 | |
Warrants [Member] | |||
Fair Value Outstanding at end of period | $1,697,000 | $856,000 | $3,175,000 |
Placement Agent Warrants [Member] | |||
Warrants | 16,500 | 16,500 | 16,500 |
Remaining Contract Term in Years | 1 year 10 months 2 days | 1 year 7 months 2 days | 2 years 1 month 2 days |
Exercise Price | $5 | $5 | $5 |
Volatility | 100.00% | 100.00% | 128.00% |
Risk-free Interest Rate | 0.47% | 0.58% | 0.44% |
Fair Value Outstanding at end of period | 19,000 | 11,000 | 37,000 |
Investor - Series A Warrants [Member] | |||
Warrants | 1,000 | 1,000 | 1,000 |
Remaining Contract Term in Years | 1 year 1 month 28 days | 10 months 24 days | 1 year 4 months 28 days |
Exercise Price | $3 | $3 | $3 |
Volatility | 100.00% | 100.00% | 128.00% |
Risk-free Interest Rate | 0.11% | 0.13% | 0.44% |
Fair Value Outstanding at end of period | 1,000 | 1,000 | 1,000 |
Investor - Series B Warrants [Member] | |||
Warrants | 1,400,000 | 1,400,000 | 1,400,000 |
Remaining Contract Term in Years | 1 year 1 month 28 days | 10 months 24 days | 1 year 4 months 28 days |
Exercise Price | $3.63 | $3.63 | $3.63 |
Volatility | 100.00% | 100.00% | 128.00% |
Risk-free Interest Rate | 0.11% | 0.13% | 0.44% |
Fair Value Outstanding at end of period | 1,568,000 | 777,000 | 2,958,000 |
Placement Agent Warrants 2 [Member] | |||
Warrants | 69,037 | 69,037 | 69,037 |
Remaining Contract Term in Years | 1 year 10 months 2 days | 1 year 7 months 2 days | 2 years 1 month 2 days |
Exercise Price | $3 | $3 | $3 |
Volatility | 100.00% | 100.00% | 128.00% |
Risk-free Interest Rate | 0.47% | 0.58% | 0.44% |
Fair Value Outstanding at end of period | $109,000 | $67,000 | $179,000 |
5_Derivative_Liabilities_Detai1
5. Derivative Liabilities (Details - Changes in fair value) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Derivative Liability [Abstract] | ||||||
Beginning fair value | $1,697,000 | $3,175,000 | ||||
Gain due to change in fair value of derivative liabilities | -841,000 | 0 | -2,319,000 | 0 | 1,566,000 | -767,000 |
Ending balance, fair value | $856,000 | $856,000 | $3,175,000 |
6_Commitments_and_Contingencie1
6. Commitments and Contingencies (Details - Assumptions) (Stock Options [Member], USD $) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Stock Options [Member] | ||||
Assumptions used | ||||
Expected life | 8 years 10 months 24 days | 5 years 10 months 21 days | 5 years 10 months 21 days | 5 years 10 months 21 days |
Risk-free interest rate | 2.32% | 1.42% | 1.42% | 1.42% |
Dividend yield | 0.00% | 0.00% | 0.00% | 0.00% |
Volatility | 98.00% | 86.00% | 86.00% | 86.00% |
Fair value of options granted | $2.39 | $2.10 | $2.10 | $2.10 |
6_Commitments_and_Contingencie2
6. Commitments and Contingencies (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | |
Potential severance under certain employment agreements | $1,130,000 | |||||
Aggregated annual salaries under certain employment agreements | 935,000 | 935,000 | ||||
Product revenue | 2,695,000 | 3,456,000 | 5,491,000 | 6,177,000 | 10,894,000 | 12,897,000 |
Vetericyn and Innovacyn [Member] | ||||||
Product revenue | 459,000 | 1,289,000 | 987,000 | 2,030,000 | ||
Accounts receivable | 117,000 | 117,000 | 220,000 | |||
More Pharma [Member] | ||||||
Accounts receivable | 1,201,000 | 1,201,000 | 790,000 | |||
Transaction costs | 16,000 | 16,000 | 32,000 | 32,000 | ||
Amortization of upfront fees (transaction costs) | $378,000 | $378,000 | $752,000 | $752,000 |
7_Stockholders_Equity_Details_
7. Stockholders' Equity (Details Narrative) (USD $) | 6 Months Ended | 12 Months Ended | 3 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | Sep. 30, 2014 | |
Stock sold under agreement, shares | 392,656 | ||||
Net proceeds from issuance of common stock | $1,213,000 | $0 | $3,188,000 | $4,942,000 | |
Stock issued for services, shares | 32,501 | ||||
Stock issued for services, amount | 76,000 | 341,000 | 443,000 | ||
Selling, general and administrative [Member] | |||||
Difference between value of stock and services rendered | $62,000 | $33,000 |
8_StockBased_Compensation_Deta
8. Stock-Based Compensation (Details - Allocated Share-Based Compensation Expense) (USD $) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Total stock-based compensation | $456,000 | $296,000 | $907,000 | $483,000 |
Cost of revenues [Member] | ||||
Total stock-based compensation | 59,000 | 30,000 | 123,000 | 56,000 |
Research and development [Member] | ||||
Total stock-based compensation | 82,000 | 45,000 | 178,000 | 78,000 |
Selling, general and administrative [Member] | ||||
Total stock-based compensation | $315,000 | $221,000 | $606,000 | $349,000 |
8_StockBased_Compensation_Deta1
8. Stock-Based Compensation (Details - Options Outstanding) (Stock Options [Member], USD $) | 6 Months Ended |
In Thousands, except Share data, unless otherwise specified | Sep. 30, 2014 |
Stock Options [Member] | |
Options | |
Outstanding at beginning of period | 2,536,000 |
Granted | 245,000 |
Exercised | |
Forfeited or expired | -27,000 |
Outstanding at end of period | 2,754,000 |
Exercisable at end of period | 1,197,000 |
Options available for grant, ending | 1,579,000 |
Weighted Average Exercise Price | |
Outstanding at beginning of period | $7.78 |
Granted | $2.76 |
Exercised | |
Forfeited or expired | $20.88 |
Outstanding at end of period | $7.21 |
Exercisable at end of period | $11.62 |
Weighted Average Contractual Term | |
Outstanding at end of period | 8 years 2 months 26 days |
Exercisable at end of period | 6 years 8 months 16 days |
Aggregate Intrinsic Value | |
Fair Value Outstanding at end of period | $0 |
Exercisable at end of period | $0 |
8_StockBased_Compensation_Deta2
8. Stock-Based Compensation (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Stock based compensation expense | $456,000 | $296,000 | $907,000 | $483,000 |
Aggregate intrinsic value per share | $2.35 | |||
Unrecognized compensation costs related to stock options | 3,910,000 | 3,910,000 | ||
Weighted-average amortization period of unrecognized compensation costs | 2 years 4 months 17 days | |||
Stock Options - Non-employees [Member] | ||||
Stock based compensation expense | $40,000 | $93,000 | ||
2006 Plan [Member] | ||||
Increase in authorized shares | 250,000 | |||
2011 Plan [Member] | ||||
Increase in authorized shares | 1,224,021 |
10_Segment_and_Geographic_Info2
10. Segment and Geographic Information (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Sales revenue from geographical territories | $3,073,000 | $3,853,000 | $6,243,000 | $7,007,000 |
U.S. [Member] | ||||
Sales revenue from geographical territories | 978,000 | 1,898,000 | 2,006,000 | 3,221,000 |
Mexico [Member] | ||||
Sales revenue from geographical territories | 1,541,000 | 1,352,000 | 3,011,000 | 2,776,000 |
Europe and Rest of the World [Member] | ||||
Sales revenue from geographical territories | $554,000 | $603,000 | $1,226,000 | $1,010,000 |
10_Segment_and_Geographic_Info3
10. Segment and Geographic Information (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
In Thousands, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | Mar. 31, 2013 |
Segment Reporting [Abstract] | ||||||
Product licensing revenues | $378 | $397 | $752 | $830 | $1,829 | $1,686 |
Service revenues | $191 | $236 | $413 | $454 | $945 | $869 |
11_Significant_Customer_Concen1
11. Significant Customer Concentrations (Details Narrative) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2014 | |
Revenue [Member] | One Customer [Member] | |||||
Significant customer concentration | 47.00% | 33.00% | 45.00% | 37.00% | |
Revenue [Member] | Second Customer [Member] | |||||
Significant customer concentration | 14.00% | 32.00% | 15.00% | 27.00% | |
Accounts Receivable [Member] | One Customer [Member] | |||||
Significant customer concentration | 56.00% | 44.00% | |||
Accounts Receivable [Member] | Second Customer [Member] | |||||
Significant customer concentration | 11.00% | 15.00% | |||
Accounts Receivable [Member] | Third Customer [Member] | |||||
Significant customer concentration | 12.00% |