Good day, ladies and gentlemen. Welcome to the Oculus Innovative Sciences Fiscal Fourth Quarter 2013 Conference Call. My name is Karen and I'll be your coordinator for today's conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Dan McFadden. Please proceed.

Thank you, Karen. Good afternoon, and thank you for joining us. With me on the call today are our CEO, Jim Schutz; and our CFO, Bob Miller. We will open the call with Bob Miller's review of our financial results for both the quarter and fiscal year, followed by Jim's discussion of our business strategy moving forward. This afternoon, Oculus issued a press release detailing fiscal fourth quarter 2013 financial results and recent corporate developments. The copy of the release can be downloaded from our website, which is www.oculusis.com, and that's O-C-U-L-U-S-I-S dot com, or you can call Investor Relations at (425) 753-2105, and we'll be happy to assist you. Before we begin, I'll remind listeners that this conference call contains forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by use of words as expect, to expand, would and anticipate, among others. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including risk inherent in the development and commercialization of potential products; the risk that potential clinical studies or trials will not proceed as anticipated, or may not be successful or sufficient to meet regulatory standards or receive the regulatory clearance or approvals; as well as the company's future capital needs and its ability to obtain additional funding; and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission included in the quarterly report on Form 10-Q and the annual report on Form 10-K. Identified product applications and/or uses are intended to highlight potential applications for the investment community and does not infer that the company is marketing for these indications. The company does not provide any assurances that such applications will receive regulatory approvals. Oculus disclaims any obligation to update these forward-looking statements. So I will now turn the call over to Jim Schutz, our CEO.

Thank you, Dan, and thank you, all, for joining us today. This is my first earnings call since taking over as CEO in February of 2013. And we're going to change the format of these calls going forward. Our CFO, Bob Miller, will jump right into the numbers, describing our Q and K, or quarterly and annual results. And as an investor, I tune in to earning calls to hear the numbers and then get the general thoughts of the management team. So thanks for the patience with the change. After Bob shares our results, I'll spend a few minutes on several of our upcoming key milestones. And then, of course, we'll open up the call for questions from investors. And we'll only end the call after every shareholder has had a chance to ask those questions. So, Bob, I'll hand the microphone to you.

Thank you, Jim. I'll first indicate how we did in our guidance for the fourth quarter ending March; secondly, provide the guidance for the first quarter and fiscal year of 2014; and lastly, will summarize the financial results for the fourth quarter. How did we do on our financial guidance for the quarter ending March 31, 2013? We provided guidance of $3.6 million to $3.8 million in total revenue and achieved $3.3 million, which was due to lower than expected sales in Animal Healthcare caused by delayed seasonal purchasing relating to late winter storms in the East and Midwest. We provided guidance of -- the $2.8 million range for cash operating expenses and spent $3.4 million higher due to greater than expected Ruthigen expenses and management compensation. We are higher than the $0.5 million negative EBITDAS range with a $1.1 million negative due to lower sales and higher expenses than expected. What is our guidance for the quarter ending June 30, 2013? For the quarter ending June 30, we expect total revenue to be in the $3.2 million range, cash operating expenses in the $3.5 million range and EBITDAS to be in the range of $1 million negative. In the last several earnings calls, we provided revenue growth guidance for our 3 business groups for our full fiscal year 2013. How did we do for the 12 months in the fourth quarter of fiscal year 2013, and what is our guidance for fiscal year 2014? Before providing this guidance for the fiscal year 2014, let me say that this guidance does not, and let me underscore not, include any revenue relating to the potential $8 million clinical milestone payments from Ruthigen, or related to any products from new partners and new indications. In the first group, the Innovacyn group, which…

Thanks very much, Bob. The #1 question we hear from shareholders is how Bob and I are going to run the company differently going forward. We think that answer is best framed in the context of our goals and objectives that we've identified for our next fiscal year 2014, which began April 1, 2013. To that end, let me share our goals and objectives with you for this year. Ruthigen. We're going to spend some more time a little bit later in this conversation about Ruthigen, but very excited on this next year specific to Ruthigen in an effort to unlock the value of this really interesting and potentially big surgical drug candidate. Very excited about a dedicated management team with total focus on moving this drug candidate forward, and we'll obtain it on separate financing. Another goal and objective for us in this year is the single to double-digit product revenue growth, with plans to reaccelerate that growth in fiscal 2015. We hope to receive at least $2.5 million, if not more, in cash in milestone payments from Ruthigen. We hope to achieve EBITDAS positive for the first time in the company's history. We want to increase our international footprint from 21 countries as of April 1, 2013, to more than 30 countries within 12 months. As Bob mentioned, we're growing our U.S. sales force to 15 direct salespeople by July 1, 2013. We're going to rightsize executive compensation, and we're targeting a minimum of one new significant product launch -- launches in the U.S. each year. This year, it's our scar management product, but we're targeting a minimum of one new significant product launch each year. We think these goals and objectives will translate fiscal 2014 into a solid year. Aggressive targets, to be sure, but we think…

Karen.

Karen? Forgive me. Operator, we'd like to open up the phone lines for questions.

[Operator Instructions] And our first question comes from the line of Keith Zdroik [ph] from National Securities.

In regards to the debt that you guys have and with the monies that you raised back in March, can you touch upon the plans for paying down the debt if and when you're going to do it?

Yes. We currently have about $2 million worth of debt and a derivative liability of $2 million. We actually, as at the end of March timeframe, we had $2.8 million. We actually used -- prepaid part of that debt with the monies that we -- with part of the monies that we raised. Now the $2 million liability was -- is currently offset by the shares owned by WTI at this point. So we think those will be offset by -- when WTI sells those shares.

So how much did you actually pay down then?

We paid down about -- principal and interest, about $500,000.

And so technically speaking, like how much in debt do you have left at the moment then?

We currently have $2 million worth of debt and $2 million of a derivative liability related to the debt. Now we have -- WTI owns about 620,000 shares at this point that once they sell those, they'll use the proceeds of those shares to pay down the debt. Obviously, that depends upon what price they sell them. And currently, at the current price, it would pay off most of the derivative liability related to the debt.

So the only debt that you're actually focusing on paying down at this moment is just the $2 million. The derivative is something which you're not really that concerned about because it will be paid off once they sell their shares?

Exactly. Now, if the stock price goes up, then it will also not only pay down the derivative portion, but will also pay off part of the debt. And it could pay off a significant amount of the debt. And so the other thing to keep in mind is that, currently, our debt and interest payment quarterly is about $600,000. Starting July 1, just given the paydown of the debt structure, that goes down to $400,000 a quarter, and starting in January of next -- of 2014 -- this coming year, the new year, it goes down to about $300,000 per quarter. So our debt payments will start dropping effectively July 1.

I got you. And then if Ruthigen could officially go public, that might put you in a position where you could pay down the debt sooner.

Exactly. Or the stock price goes up.

And our next question comes from the line of Jack Wallace from Sidoti & Company. Jack Wallace - Sidoti & Company, LLC: I've got a couple of them for you here. I was wondering if you could give me some more comments on the U.S. Rx segment. It came in a little lower than expected and you mentioned the lower samples sent out. And I believe you also said in the script that you dropped, I believe it was Onset, and maybe one other distributor. Can you just talk a little bit more about that?

Yes, we had -- at one point, we had 2 distributors that were selling into the same market, the dermatology market. And that was problematic because we had a lot of fights between the 2 about what they were saying and complaining about each other. And so it makes a lot more sense to just have one distributor that sells into the derm market. Onset had only the kits, only the ability to use our product in a kit, and they -- and we decided -- they -- we decided that it made sense that they didn't want to continue doing that. And so -- and it makes it a lot easier for us because we just have one person that we're now selling -- that's selling into the derm market for us. Jack Wallace - Sidoti & Company, LLC: Got you. And then I assume then that the part of the lower number there had to do with losing a distributor or having them kind of lose out and then Quinnova and Derma being, say, the victor or the residual distributor. In terms of their unit growth in the quarter, was it in line? Are you happy with it?

Yes, their unit growth has been strong and they have continued to -- they launched a convenience kit basically to replace and affect the Onset sales in March. That's growing nicely. That's not quite up to where the Onset sales were, so therefore, that's why it was an offset to the growth. But we expect it to continue to grow, the convenience. Now, in addition to that, we've got 2 additional products, one of which is scar, which we think is -- we had just completed our clinical study. We've just submitted that back to the FDA for approval. It will probably take another 60 days, and then we expect to launch through Quinnova, that scar product starting sometime in the fall time of this year. Now those all will go to increase our growth, and we have another product that we haven't disclosed yet for competitive reasons that we think will be an interesting one as well in dermatology. Jack Wallace - Sidoti & Company, LLC: And with that product, are we thinking a similar launch time or possibly even sooner?

It'd be about the same time. Jack Wallace - Sidoti & Company, LLC: Great. And then let's talk a little bit about the Innovacyn business, the majority of that being animal healthcare, and yes, it – weather, it was a big factor this quarter. But was that the overriding and taking up the majority of the miss there, or is there maybe another piece of it, some of the nonseasonal or counter seasonal, say, big box retailer-type business that was also maybe a little bit slower than expected?

Yes, I -- we think that most of that -- our best belief on that, and from what -- the feedback that we've gotten from Innovacyn is that, that is the primary reason for the decline for the quarter. And just recently, we saw some -- we've seen some fairly good increases, which indicates that it's sort of back to normal. But we still provided a growth rate for the year of 0% to 15%. And therefore, we do believe that it'll get back to where it was before. Jack Wallace - Sidoti & Company, LLC: Great. And then maybe we'll talk about the non-Mexico international sales up like quite a bit in the quarter. And this business is typically lumpy, but there were obviously a couple of approvals or indications won in a couple of other foreign countries. I was wondering, is this just part of the same pattern of the sales being lumpy or are we going to see maybe a little bit more growth in the non-Mexico segment?

We expect to see some more growth especially in the European area. Later on this year, we expect to have some new CE mark approvals that will broaden our product line out in Europe. And we would expect to see higher growth rate than we've seen in Europe over the last couple of years. As you mentioned, the Middle East, China are -- tend to be lumpy at this point. We would expect -- there's some bidding processes that are going on in the Middle East that we -- that are very large potential increases for us that we didn't really build into our forecast, clearly an upside for us. Certain places like Singapore are going like gangbusters in terms of our -- the Microcyn sales. Jack Wallace - Sidoti & Company, LLC: And the majority of these call points in Europe, are those going to be hospitals, dermatologists?

Most of it's going to be in our wound care area, initially. But we do see an expansion later on this year into the dermatology area in Europe. That will probably take place a little bit later on in the fiscal year, and with the wound care increases occurring a little bit earlier in this fiscal year. Jack Wallace - Sidoti & Company, LLC: And then with Mexico and with the agreement with More Pharma, in terms of the unit growth, was that a number that you were pretty happy with in the quarter, obviously given the big takedown in the transfer price?

Yes, yes. We actually -- we had a -- as you probably know, we had a very large increase in the first quarter ending in December. I think it was almost 95%, 100% unit volume growth. We had 49%, 50% this time. And if you ask the More Pharma people, they say, don't count on that because it's just too much. They're really going with a lower growth rate than that. But at the same time, when you add in some of these other countries, you've got Mexico that's growing at a very fast unit volume growth, and they have not focused that much on the dermatology area in Mexico. They focus more on the wound care and are very excited about that product. Now, they're going to start focusing a little bit more on the derm side. So we see that -- we think that the unit growth will be strong. We're not going to -- we're not quite -- neither would they commit to anything like a 50% growth.

And Jack, Jim speaking, one additional thought there. As you know, we had 30 direct salespeople in Mexico that did a bang-up job. Upon transitioning to More Pharma, we terminated our relationship with those 30 salespeople, and now we have access to More Pharma's 200 salespeople in that same territory in Mexico. The international, Central, Caribbean and South American growth for More Pharma is also attractive because they have, by their own estimates, 900 salespeople covering the Caribbean, Central and South America. So to your point, we're very enthusiastic about what those guys are doing. We like the traction and we like the additional approvals that they're getting, and look forward to that big sales force taking our products. Jack Wallace - Sidoti & Company, LLC: And can you maybe comment on a number of additional SKUs or approvals that you've had in the quarter?

Are you looking backwards or forwards? Jack Wallace - Sidoti & Company, LLC: Backwards.

Got you. I think -- I got my notes in front of me, but I know we added a handful of Central American countries. The More Pharma team is very clever in their regulatory approval strategy, going for low-hanging fruit countries first and then bigger South American countries that, frankly, have more challenging regulatory requirements. But they've done a nice job catching the business, and that's the CEO of More Pharma's word -- excuse me, that's his language. They wanted to catch our Microcyn business. We announced the deal in August or September of 2012. We're pleased with the way that they've [indiscernible] -- now, we're looking forward to them really running with the business going forward. Jack Wallace - Sidoti & Company, LLC: So it sounds to me like the guidance, maybe on the low side, should the right breaks go your way sooner than later, and the Microcyn Technology moving to countries a little bit quicker maybe towards the same rates as they had in Mexico in the next couple of quarters?

Yes. I'd say, one thing about the guidance is that there are 2 components to the growth: one is the unit volume growth, and the other one is the amortization of the upfront cost or the upfront payment from More Pharma. That's a fixed amount. So -- and then we've got the reduction of the transfer price. So all of those are the 3 working ingredients to it. So we are -- in our forecast, in our guidance, we picked a much lower number in terms of unit volume growth than 49%. Jack Wallace - Sidoti & Company, LLC: Got you. That's helpful. And then another question as regards to the direct sales force in the U.S. Now with those -- with the direct force there, you're not going to be having to pay a transfer price or a shared revenue with other distributors. Can you maybe comment on what gross margin on sales through the U.S. sales force might be?

It's not going to be -- in the U.S., we have fairly good margins. They're higher than our average and it's been brought down by the margins in Mexico, for instance and other -- like the Middle East margins are lower. So we think that by growing the U.S. sales with our own sales force -- actually, our margins, as that business grows, it will tend to increase our average margins. Jack Wallace - Sidoti & Company, LLC: Is there maybe a ballpark margin for just that U.S. sales force that you feel comfortable quoting?

Yes. In the past, we've locked in before the Mexico deal, we were at more than 75% gross margin. And so I would say that it'd be in that range. Jack Wallace - Sidoti & Company, LLC: Okay, great. And then maybe last question here. What would be the additional cap OpEx burn that would be associated with taking Ruthigen through to its IPO if you were to, say, assume a September IPO time?

Well, if you look at our -- Jim mentioned that cash and operating expense without Ruthigen of $2.5 million, and I gave guidance for June of $3.5 million range. So you can see how much we're spending on Ruthigen. And that would probably -- it'd probably continue in that ballpark until they get launched. Jack Wallace - Sidoti & Company, LLC: So the September quarter would see a similar over-the-top burn that the June quarter would see?

It'd be in that range, yes.

And we now have a question from the line of Marco Rodriguez from Stonegate Securities.

This is Dan Trang sitting in for Marco Rodriguez. I wonder if I can get some color on what you have to do to receive any of the milestone money from Ruthigen?

Dan, yes, Jim speaking. We filed an 8-K with the 2 key documents, life insurance and insured services. We did not redact the milestone payments from that license and supply. So I -- if you had the document in front of you, I could flip exactly to the page with you, exactly what those milestone payments are. But for those who don't have the document in front of you, it's your typical clinical and regulatory milestones for that $8 million in milestone payments by dockets. [ph]

Okay. And regarding the FDA approval for the scar management product, I'm wondering kind of where you guys are with that?

As Bob mentioned, we worked with the FDA on the protocol for the trial itself. We finished the trial and we just resubmitted our 510(k) application -- last week, Bob?

Yes.

Last week with the clinical information. Industry average, as Bob mentioned, is typically 90 business days. But because we've been in correspondence with the FDA on this and because they've reviewed the protocol, we're hoping for a faster clearance or approval.

And we also have a question from the line of Russ Huffington [ph] from Kalson & Associates [ph].

Jim, I'm very proud of you, and I speak for several shareholders, for taking that reduction in salary. That shows the way to lead the company, and that's a great move by a CEO. So that's really all I've got to say, and you all continue what you're doing. I know you're all trying to lead the company on the right track.

And I see no additional questions in the queue at this time.

Thank you, operator. We'll terminate the call and thanks, everybody, again for joining us today.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.