Sonoma Pharmaceuticals, Inc. (SNOA) Q4 2013 Earnings Report, Transcript and Summary

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 includes the animal healthcare and human over the counter products, last quarter, we provided revenue growth guidance of 20% to 30% for the full fiscal year 2013. For the first -- for the 12 months, we achieved revenue growth rate of 17% and a decline of 29% for the fourth quarter due to late winter storms delaying the typical seasonal purchasing, as I mentioned earlier. We are providing growth guidance for the fiscal year 2014 of 0% to 15% for this group. Number two. For the Rx U.S. group, which includes all other non-Innovacyn U.S. markets such as dermatology and wound care, last quarter, we provided revenue growth guidance of 175% to 200% for the full fiscal year. We achieved a revenue growth of 114% for 12 months due to lower sampling and kit sales than expected. The expected positive impact of the launch of the scar product, and increasing our own sales force is partially offset by the discontinuance of the sales to Onset and Union Springs. Thus, we are providing revenue growth guidance of 5% to 20% over last year for the full fiscal year 2014 for this group. Number three. For the international group, we had revenue growth guidance of 5% to 10% for the full year. We achieved growth of 8% for the 12 months. Due to More Pharma's negative short-term impact on revenue growth, we are providing a revenue forecast of international for the full fiscal year '14 of 5% to 20%. The continued high unit growth of More Pharma, which I'll talk about later, will offset the lower transfer price later in the fiscal year. For the total product revenue growth for the full fiscal year of 2013, we provided product revenue guidance of 25% to 30% growth. The product revenue growth for the 12 months was 23% with flat revenue for the fourth quarter, due again, in large part, to the delayed seasonal purchasing of Vetericyn as previously mentioned. We are forecasting product revenue growth rate for the full fiscal year of 2014 to be in the range of 0% to 15%. Again, let me say that this guidance does not include any revenue relating to the potential $8 million clinical milestone payments from Ruthigen, or related to any products from new partners or new indications. Moving now to the results for our fourth fiscal quarter ending March 31, 2013. Product revenues were flat compared to the same quarter last year with increases in Europe, China, India, Singapore, offset by declines in the United States and Mexico. In general, the flat quarter of revenue growth was caused by 2 factors: one, the More Pharma transaction, which reduced our short-term revenue growth while improving operating profitability and our long-term revenue growth prospects; and two, the delayed seasonal purchasing, which I've mentioned before, by the ranch and farm animal owners caused by the late winter storms. Product revenue in the United States decreased $167,000 or 12% due to the lower unit growth from our animal healthcare partner. The revenue reported from Innovacyn of $659,000 for the 3 months ended March 31, 2013, was down $299,000 from the same period last year. The revenue from the prescription business increased $111,000 or 24% to $580,000, driven by the growth in sales to dermatologists. We are pleased with the progress, growth and clinical success of our Microcyn-based products in the dermatology market. Furthermore, Quinnova is launching 2 new Microcyn-based products over the next 6 months, and they initiated a launch of a convenience check in March 2013. The results in Mexico represent the second full quarter after the More Pharma transaction, shifting from our 30-person sales force to More Pharma's 200-person sales force in Mexico. One, the unit volume growth in Mexico for the quarter of 49% over the same period last year, and two, the recognition of $370,000 related to the amortization of upfront fees paid, was offset by a 54% reduction in dollar-adjusted transfer price per unit compared to last year. Due to the transfer of the sales function to More Pharma, Oculus eliminated the cost of the sales people and the promotions. As a result, during the quarter, SG&A expenses in Mexico were $608,000 lower than they were in the same period last year, improving our profitability in Mexico. Our gross profitability for the quarter was 69% compared to 67% for the same period last year, and our operating expenses minus noncash expenses during the quarter were $3.4 million, up from $3.1 million in the same period last year, primarily due to higher Ruthigen compensation expenses, partially offset by lower expenses in Mexico. EBITDAS for the quarter ending March 31, was negative $1.1 million compared to negative $924,000 for the same period last year due to higher operating expenses, partially offset by higher gross margins. What are the results for the full fiscal year 2013? In summary, we had a solid year with product revenue up 23%, gross profitability was 73% and cash operating expenses were up $236,000, or 2%, above the same period last year. As a result of the sales growth and relatively flat expenses, the operating loss minus non-cash expenses, EBITDAS, for the full fiscal year was $1.5 million, including onetime severance cost of $410,000 in Mexico and Ruthigen expenses of $457,000 compared to $3.3 million in the same period last year, an improvement of $1.8 million. This demonstrates our progress on the road to profitability, especially when excluding the Ruthigen expenses. As a lead-in to Jim, over the last 4 to 5 months, Oculus has spent a significant amount of time and money working on documents and activities relating to the intended Ruthigen IPO. We believe that the Ruthigen IPO will have a significant positive impact on the value of Oculus as we will be major shareholders in Ruthigen, thus, unlocking the value of this opportunity. An additional benefit to Oculus from this intended Ruthigen IPO is an $8 million clinically triggered set of milestone payments. With that comment, I'll turn it back over to Jim.

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 these targets allow us to get financially ahead -- healthy. I'd like to spend a few minutes and provide greater color on Ruthigen, our future growth, rightsizing compensation and some near-term milestones. Specific to Ruthigen, as Bob mentioned a number of times, Ruthigen's our surgical-focused drug subsidiary, and you probably know, they filed a confidential S-1 registration statement with the SEC on May 24, 2013, with the intent of taking that company public. Bob and I will be especially precise with our language, and you could hear it in Bob's speech today and you'll hear it in mine. We're going to be especially precise during this call and going forward to stay on the correct side of the SEC rules regarding gun-jumping. Oculus's founder, Hoji Alimi, is not on today's call for the first time in the company's history. As many of you know, Hoji is leading the charge as Ruthigen's CEO and is the perfect guy for that role. He's a great mix of science and business. And his true passion lies in research and development, clinicals, drug development and regulatory matters. His right hand person, Sameer Harish, is a terrific young CFO. He's an ex-Wall Street analyst from Needham and ThinkEquity, and coincidently, a microbiologist by training from Cal. You'll be hearing a lot more from these 2 when the timing affords. Ruthigen was formed as a standalone company in January of 2013. Clinical protocols and FDA pre-IND meetings occurred in February and March, respectively. We've engaged a banking team, lawyers and accountants to prepare for this registration statement process, and it is a process. Again, we filed the -- excuse me, we filed the registration statement confidentially under the new JOBS Act. We recently -- we spoke to a guy from NASDAQ who shared that 90% of companies that have filed S-1 registration statements since the JOBS Act creation have done so confidentially under the advice of their banking team. The separation of Ruthigen, we believe, makes absolute sense in terms of optimizing shareholder value. It leverages our years of experience, addressing the growing issue of pathogen resistance, while permitting a dedicated and focused team to unlock that value of this compelling new drug candidate, RUT58-60, for the prophylaxis or, another word, prevention of infection in abdominal surgeries. We believe RUT58-60 targets a large addressable surgical market, and we hope it's impactful to patients and healthcare professionals around the world. As you may know, there are fewer and fewer new antibiotics being developed and even fewer being taken through the FDA process. And the old bag of antibiotics are becoming less efficacious due to resistance issues. RUT58-60, Ruthigen's new surgical drug candidate, has a unique mode of action, does not facilitate bacterial resistance, and we believe is perfectly aligned with the new healthcare rules under the Affordable Care Act or ObamaCare, focusing on 2 things: reducing hospital acquired infections and patient readmissions. We recently announced various key agreements between Oculus and Ruthigen, including the license which describes the products, territory, intellectual property rights, term, payments and the like between the 2 companies. We think we did a good job aligning both companies to protect our intellectual property and to set both companies for success. The milestone payments, as Bob mentioned, back to Oculus include $8 million in typical clinical milestones, and other product indications could potentially create another $10 million in payments to Oculus. When more information can be made available specific to Ruthigen, we will be doing so via press releases and SEC filings on behalf of both companies. From purely the Oculus perspective, if and when Ruthigen gets public, all Ruthigen expenses including clinical, trial expenses and compensation will be funded by Ruthigen. Bob estimates that our cash operating expenses, post-Ruthigen, will fall to the $2.5 million per quarter range. If you assume 70% gross margins, you can calculate our EBITDAS breakeven numbers quickly. Ruthigen, again, is going to focus on products that are body invasive in nature, and Oculus will continue to focus on our current topical areas, including dermatology, acute care or hospital call points [ph], OB/GYNs and animal healthcare. So that was additional color on Ruthigen. Let me focus now on some additional thoughts on our future growth. Our future growth focuses on 3 simple areas: new products, new partners, new territories. Specific to new products, we have now over 100 product SKUs commercialized and more products in the pipeline. As Bob mentioned earlier, we very much like our early experience in this dermatology space with terrific pricing and private payer opportunities, and we're going to continue to focus on that area. Another growth area for us is new partners. Our best new partner to add to our growing list is Ruthigen. We're going to help with facilities, clinical patches, intellectual property protection, key R&D people for as long as Ruthigen will have us. We'll treat Ruthigen as a valued new partner because if we can help them, then obviously, our shareholders and Oculus benefits also. Speaking of partners, our newest board member -- we had an open board seat this spring and we filled it for the first time with a sales guru. Our newest board member, Jerry MacLaughlin, has been helpful, terrifically helpful since joining, with this mantra to me and the team, "Sell your best products yourself." To that end, we're growing our own U.S. sales team, which is currently selling Microcyn, as well as our new medical food products into advanced wound management, podiatry, again, OBGYN or women's health and diabetic care markets. By July 1, 2013, we'll have 15 direct sales people focused primarily on the Southeast, all within that cash operating expenses I described earlier of $2.5 million per quarter, post split with Ruthigen. The final thought on growth, new territories. Our global footprint will continue to grow as we recently announced with the new approvals and new products in Singapore, Malaysia, El Salvador, Panama and multiple Middle East countries. As of April 1, 2013, we were commercialized in 21 countries and we're targeting to grow that to over 30 within 12 months. So we talked about Ruthigen, our growth strategy with new products, new partners and new territories. And just a few thoughts on rightsizing our executive compensation. As part of our effort to reduce overhead and accelerate profitability, I'm voluntarily taking a $50,000 reduction salary -- reduction in salary effective next week, which is between a 16% and a 17% reduction. Bob and I strongly believe in the Microsoft model: keep your base salaries low; bonus potential when times are good; and to make sure we're aligned with creating long-term shareholder value, use stock options to pay only when our shareholders are paid. As an offset to my salary reduction, I'm working with our compensation committee to crack the stock option bonus at a healthy premium to make sure I'm putting my money where my mouth is. As an investor, money and compensation speaks -- excuse me, speak volumes to me. So now that the board has kindly tapped me on the shoulder to run things, I'd like to lead by example. So please stay tuned for more information about our compensation that will be filed in our 10-K later next week. One final thought regarding near-term milestones. As an investor myself, I look for 6- to 12-month milestones in addition to long-term prospects when studying a company. In our next 6 to 9 months, we see 3 interesting milestones that we think investors should track. One is Ruthigen and its intended IPO. Two, our FDA clearance or approval for our scar management product and the subsequent launch of that product. And then three, the impact of our growing U.S. salesforce. A polite reminder, at the risk of repetition here, I know I said it twice, but that growing U.S. sales force will stay within our $2.5 million per quarter in cash operating expenses post-Ruthigen split. So we've covered our Q and K numbers, our quarterly and annual numbers. We've covered our goals and objectives for our fiscal 2014. We've spent some time talking about Ruthigen and its intended IPO. We've spent a little bit of time talking about executive compensation and some near-term milestones. Thank you for taking the time to listen to this. And Kim?

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.