Good afternoon. Welcome to the Oculus Innovative Sciences Fiscal First Quarter 2014 Conference Call. My name is Shannon and I will be your coordinator for today's conference. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes. I will now turn the call over to Mr. Dan McFadden. Please proceed, sir.

Thank you, Shannon. Good afternoon. Thank you for joining us. With me on the call today are our CEO, Jim Schutz; and our CFO/COO, Bob Miller. We will open the call with Bob Miller's review of our financial results for the quarter, followed by Jim Schutz update on current activities as well as our business strategy moving forward. This afternoon, Oculus issued a press release detailing fiscal first quarter 2014 financial results and recent corporate developments. The copy of the release can be downloaded from our website, which is at 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 will be happy to assist you. As well, we're pleased to announce that as of 45 minutes ago, our subsidiary Ruthigen has publicly filed their S-1A or amendment to the registration statement with the SEC. If you go to the sec.gov website, you can do an Edgar search and type in Ruthigen, R-U-T-H-I-G-E-N or their symbol RTGN for more information on that filing. 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 such 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 approvals 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 with that, I will now turn the call over to Jim Schutz, our CEO. Jim?

Thank you, Dan, and thank you, all, for joining us today. This is my second earnings call since taking over as CEO in February 2013 and as an investor, I appreciate an upfront understanding of the numbers on earnings calls. So to that end, Bob Miller, will jump in right into the numbers describing our quarterly results and then touch on the guidance looking forward. Following Bob, I'll spend a few minutes on an update on our activity during this past quarter and then look ahead. And then finally, of course, we'll open the call up for questions for investors. And then we'll end the call only after every shareholder has had a chance to ask those questions. So, Bob, I'll hand the microphone to you.

Thank you, Jim. First I will indicate how we did in our guidance for the first quarter ending June 30th. Secondly, provide the guidance for the second quarter ending September. And lastly we'll summarize our financial results for the first quarter. How did we do on our financial guidance for the quarter ending June 30th? We've provided guidance for the total revenue in the range of 3.3 million and 3.4 million. We've provided guidance of the $3.5 million range for cash operating expenses and spent 3 million, with more than expected Ruthigen preclinical expenses. We were lower than the $1 million negative EBITDAS range with 0.7 million negative due to lower than expected operating expenses. What is our guidance for the quarter ending September 30th? For the quarter ending September, we expect total revenue to be higher than 3.6 million, cash operating expenses to be in the $3.8 million range and EBITDAS to be in the range of 1.2 million negative. The Ruthigen expenses for this quarter are expected to be about 1.3 million, which includes salaries, consultant services and preclinical studies (inaudible) IMD application for the primary drug candidate for the prevention of infection in abdominal surgery. Ruthigen will not start any of its clinical trials until they complete their own funding with the IPO. We expect that if the IPO does not occur by the end of September then only the expenses that will continue, salaries and salary-related costs, since all of the FDA preclinical tests will be completed by then. In addition, the direct IPO-related costs such as legal costs will be repaid to Oculus by Ruthigen at the time of the closing of the IPO. On the last earnings call, we provided revenue growth rate guidance for our three business groups for our full fiscal year…

Thank you, Bob. For my portion to today's call, I'd like to look backwards for just a moment, then look forward to several upcoming milestones and then finally open the call up for Q&A. When I took over the role of CEO in February, the senior management team and I crafted a transition plan which encompass five initiatives. Our first initiative was to the creation of a separate standalone company Ruthigen to focus on our new surgical drug RUT5860. We have a seasoned management team in charge of Ruthigen and they are moving forward as you can tell by today's filing in that S-1A. Biotech IPOs at the moment seem especially strong. As of Tuesday, the 116 IPOs in 2013 raised $25 billion plus and produced an average return of 31%. There have been 67 IPOs in the last 90 days, with total proceeds of $12.4 billion and an average return of 29%. The active IPO pipeline looking forward includes 100 companies looking to raise around $32 billion. We won't and can't make any promises on the timing or evaluation for Ruthigen but for those of you who know Hoji Alimi, the CEO of Ruthigen, you know he is highly motivated to get out the door when the time is right. Bob already mentioned the cash we plan to receive via milestone payments from Ruthigen once they've secured their funding. He also mentioned that there's a lot of detail in Ruthigen's S-1A that is on file now. Please stay tuned for more here, lots of interesting news coming out on this relationship. Second key initiative from our February timeframe was the deployment of a strategic plan for Oculus' future growth all the while controlling expenses. You'll hear me repeat this mantra over and over again just as our employees do,…

Thank you. (Operator Instructions). Our first question is from Dan Trang of Stonegate Securities. You may begin.

Good afternoon. This is actually Marco Rodriguez calling in on behalf of Dan. I was wondering if you could provide just a little bit more color in regard to the milestone payments from Ruthigen. I understand there is the S-1 you filed and you disclosed the 8 million, but perhaps you could talk a little bit about timeframes assuming that the IPO happens when it's expected, what sort of a timeframe will that money be sent to you guys?

It involves an assumption of when the IPO would take place which is difficult for us to make at this point in time and we've been cautioned by the attorneys. We got to be careful if we do that. But with that said, as you'll see in the S-1 one of them is the filing of the IMD for $1 million. There's another one relating to a certain stage in their Phase 1, 2 and others related to their pivotal trials. So a lot of it depends on when they actually get out the door, but if you seem that they're going to get out the door fairly soon, a number of the milestones are earlier on in their clinical program.

Okay. So it's – if I'm understanding correctly and again, I apologize because we haven't had a chance to read through the S-1. The milestones, there's nothing that's going to be paid out assuming that they do their IPO tomorrow that you'll get something within a very short period of time. It's all dependant on when they do some sort of a filing or do some sort of activity in regards of their research. Is that correct?

There will be a payment not necessarily related to the IPO because I mentioned this on the call is all of the IPO direct costs that we paid for will get repaid at the time of the IPO.

Got it.

That's a fairly significant number. By the time we get there probably in the 800k plus category. And the R&D is something they're working toward now as quickly as they can and that's one of the reasons that we're working on the preclinical tests and studies that would get filed with the R&D.

Got it. And so just to clarify that rough estimate of $800,000 in IPO costs, that is exclusive or incremental for the 8 million of milestone payments, correct?

That's in addition to.

Got it. And a last quick question here again in regard to the spin-off here of Ruthigen, glancing here at the S-1 it kind of looks like first quarter, calendar quarter that is, they spent roughly about $0.5 million, is that a decent run rate that if we're thinking about a forward modeling perspective that we could kind of think through that that might be a good number to strip out of the operating expense line items?

So going forward, let's say that the IPO is not done by September and assuming all the preclinical tests we've done, the only thing that will continue would be their salary and related expenses and that includes really the salaries – and there would be some consulting but that would include the salaries of Hoji in here and their salaries are public as well as our director of regulatory and then maybe some additional consulting. So it would be – I'm not sure we've disclosed that number, but you could probably figure that out.

Okay. So let me make sure I understand because maybe I didn't communicate very well, but if we take a look at what your operating expenses were for this last year here and looking at the S-1, the January through March period, you've spent about $0.5 million. If we're looking at your business going forward ex-Ruthigen, is it easy enough for us to just say that we can take that roughly $3 million, $3.3 million and expenses you had here in your June quarter, subtract 0.5 million and that's kind of a run rate for you guys?

No, our run rate – so you're question is what's our run rate after Ruthigen?

Yes.

Okay. So yes, it is. In fact we have gone in the past, maybe in priors earnings call we have indicated that we would expect our cash operating expenses to be about 2.5 million. And if you take the guidance that we gave of 3.8 million, deduct the 1.3 million that we said that's our projected, cash operating expenses for Ruthigen we come back to the 2.5. Now the 477 number includes not only salaries by also it has some preclinical tests in that. If you just took their salaries, they'd be less than the 500k that they spent this quarter.

Got it. And then with the spin-off assuming the spin-off occurs, there's no impact to top line revenues. Is that correct?

That's correct.

Got it. Thank you guys very much. I'll jump back in queue.

Thank you, Marco.

Thank you. Our next question comes from Jack Wallace of Sidoti & Company. You may begin. Jack Wallace - Sidoti & Company: Thank you for taking my call guys. A couple of questions here about the guidance. So if I heard that correctly it's 30.6 million for the fiscal second quarter, maintained guidance for the year of 0% to 15%. Is that correct?

That's correct. We actually said greater – we expect to be greater than 3.6. Jack Wallace - Sidoti & Company: Greater than 3.6, okay. So just taking a look at that number and obviously the number posted in the first quarter, it's down in the double digits or more there for the first half of the year. Just was looking for a pretty substantial ramp in Q3, Q4. I guess the question there is where's that growth coming from and what is baked into the guidance? Maybe I missed it earlier on the call. Does that include the scar product launch, any new opportunities in Europe and additional SKUs in territories reached in Mexico and Latin America?

It includes a couple of things and one of the things to keep in mind was that the More Pharma transaction, see a lot of our growth is related to that More Pharma transaction and the structure of that transaction tends to reduce our top line growth even though it improves our bottom line. So starting in the quarter in December, we will be comparing to More Pharma sort of apples-to-apples versus apples-to-oranges on the More Pharma trends in Mexico transaction. So we will start to see – when we start comparing apples-to-apples especially given the strong unit volume growth that we have down there, we'll start to see a positive revenue growth. Does that make sense on the December and March quarters? Jack Wallace - Sidoti & Company: Yes, it does. Just taking a look at, I guess, the gross numbers here. You've got basically 7 million for the first half of the year and you did 15.5 all of last year which implies a pretty nice pickup in Q3 and Q4 not just on an apples-to-apples but on a gross perspective. Just curious of where you see the ramp? I mean you obviously had 3.6 or greater in the second quarter. It's implying that Q3 and Q4 are going to be well above those numbers and I was curious if that's maybe all or most of that growth should be coming from Mexico or if some of the other U.S. Rx businesses have some approval and new product baked into the growth figures?

It's a combination of all of them actually and we expect to see some of the scar will take place. We also have another product that we're launching in dermatology. We have our wound care business continuing to grow, our own sales force is continuing to grow at the women's health area. We will see later – approvals in Europe will occur the quarter ending December. We'll probably see some growth occurring in the quarter after that, in the March quarter from that. The Vetericyn business we expect to – that's back to, or at least we've seen its back to more of a normal number now versus what it was before. So we expect to see some pickup there as well. Jack Wallace - Sidoti & Company: Okay. Thank you. That's helpful. And then maybe just talk a little bit more about the opportunity to the direct selling. You said your (inaudible) focused more in the southeast, but can you maybe talk about and potentially even put a dollar figure on the near-term opportunities there on a number of products in the bags there?

Yeah, I think it's a little too early for us at this point. We really just hired some of these people from the last quarter. And so it's very too early for us to talk about that at this point.

I will say this, Jack, the quality of sales people available in our hunt for the best [entitled]. It was really impressive. Some good resumes from some big companies. So we were pleased with the quality of the new hires. The training went off without a hitch and they're out knocking on doors now. So why don't you save that question for the September call. Jack Wallace - Sidoti & Company: You got it. And I was just curious, what was the internal sales count for the quarter, was it 12, was it three additional heads if I remember correctly?

Yeah. We were somewhere between 9 and 10 and then we picked up some new good outside sales people. We've been heavy with an inside sales force which we like, that one-two punch of having feet on the street and an inside sales force to do a follow up. So we're pleased with the quality of candidates and the headcount increase. Jack Wallace - Sidoti & Company: Got you. Thank you. And then just a clarification question with the 1.3 million number for Ruthigen, that's just for the second quarter, correct?

That's right, yes. Jack Wallace - Sidoti & Company: Got you. Okay. So I guess kind of going back to the cash burn question related to the direct sales, what is the anticipated pickup for the rest of the year with the new heads hired there?

You mean on the sales? Jack Wallace - Sidoti & Company: Correct.

Well, we expect to see growth in both the dermatology area with products that we haven't really talked about at this point for competitive reasons in dermatology as well as scar… Jack Wallace - Sidoti & Company: I'm sorry to cut you off there, Bob. I'm talking more in terms of operating expenses not revenue opportunity.

We think that our sort of base operating expenses for Oculus should be in the 2.5 million…

And that includes too Jack's point.

That includes the sales people. Jack Wallace - Sidoti & Company: Okay.

We've not broken it out pass that but we gave suggestive guidance in last earnings call, but post Ruthigen we expect cash operating expenses to fall in the 2.5 million range including the sales force. Jack Wallace - Sidoti & Company: Okay, great.

We also expect to see some increases later on in the year from the thing that we mentioned about the over the counter human area. But that at this point is we will spend more time on that in the next quarter. That's where it gets introduced. Jack Wallace - Sidoti & Company: Okay. Thank you. That's helpful. And then I noticed the shareholder's equity number, the book value there 2.6 million getting a little closer to the 2.5 million figure. I believe that was a figure that NASDAQ required. What are, I guess, the thoughts or the concerns there and if you might be hearing from the NASDAQ again sometime soon?

Well, we think there are a couple of potential solutions there. One is obviously with an IPO. That will provide us with a sufficient amount of net worth, so that that 2.5 number would not be anywhere close to an issue. Second possible solution that is we're looking at a number of additional product lines, SKUs that we may actually use some stock to pay for. And the third is just normal shares to be issued. Jack Wallace - Sidoti & Company: And then what about potential licensing opportunities with front payments somewhere to a More Pharma deal?

Yes, those are all get off from this. We don't have one of those right on the table right now. We do have a number of products that we're looking at to potentially acquire. Jack Wallace - Sidoti & Company: Got you. Thank you. I'll hop back in the queue.

Thanks Jack.

Thank you. Our next question is from [Keith Zdroik] of National Securities. You may begin.

Yeah, for the Ruthigen clinical trials that you're doing, do we know if the FDA will allow you to bridge any data from previous trials you've done?

Yeah, good question. I know the S-1A is brand new but take a peek at that. It's beautifully written in its correspondence with the FDA is described in there.

Okay. So you're saying go read that but you can't really comment on that or…?

Well, you are aware that SEC has very thorough gun jumping rules, so we're looking to counsel before, during and after the call to advise us on gun jumping rules. So we want to be on the right side of those rules, [Keith]. It's a beautifully written document. We would encourage all of our shareholders and everybody on this call to go read it.

Okay. Thank you very much.

Thank you. (Operator Instructions). Our next question comes from Chuck Lipson of CSL Associates. You may begin.

Good afternoon. I came across a little garble but you had said that the revenues would be greater than 3.6 million for Q2 with a negative $1.2 million EBITDA of which negative 1.3 million would be attributed to Ruthigen and the expenses of the IPO. So can I infer that Oculus would be EBITDA positive without Ruthigen in the next quarter?

You could make that case but we're not – performance and everything else are not the same as the real thing.

Okay. But the possibility exists.

If you just take our 713, we're negative this time. And you deduct out 477, you end up with something 270, 250 with 3.4 million of product revenue. So if we're greater than 3.6, you can sort of see we're getting close.

Okay. You'd often mentioned the brick and mortar opportunity that suddenly it comes to light, could you expand on that a little bit and tell us is that a strategy going forward or how big a rollout might that be? Did it seem to imply those on consignment?

Yeah, this is a – and Innovacyn's done a fantastic job in this area and we applaud them. They are a great partner of ours. They've also asked for competitive reasons that we not disclose very much about that at this point. And other than the sales will be available or the product will be available in the stores in the September timeframe. So we are going to honor that and we really appreciate their willingness to let us disclose what we have at this point. So I'm asking you if you could sort of hold on and wait till the product actually gets out in the store, I'll be happy to answer more questions about it at that point.

But just one curiosity question, is it an exclusive sort of deal or is it something that can be expanded to other retailers?

I believe it could be expanded. Yes.

And final question, the Ruthigen deal has obviously taken a lot of management's time. Can you expand on how that may have hurt you in this quarter that you're in or the quarter that we're in now? And what is – you only have so many hours in a day and a lot of it is being spent on this side deal. So where have you taken time from?

Great question. Yes, a lot of time, energy, effort and dollars; putting aside the dollars, Bob and I have spent a lot of time with the Board and the Ruthigen team on allocating time, energy and focus towards moving the Ruthigen process forward. And quite honestly, Chuck, we can't think about a more important project that we have internally to focus on at this fashion. It's a great question. Has it taken away from time we should be spending with our customers selling more product? Absolutely and I very much look forward to spending more time on that. But in the big scheme of things, we cannot think here at Oculus of a more important project than the Ruthigen process and very much looking forward to their next steps.

So there is a drop dead data on the Ruthigen IPO though by the end of September even if public or it's Phase 2 and whatever that is, cutting the expenses towards Ruthigen and see where we go from there?

I'm not sure it's a drop dead kind of thing. We didn't mean to imply that. What we meant to imply is that the expenses that they're going to incur are limited. And yes, we will continue with their salaries even if it goes beyond September in which case the next step for them would be the IPO at some point whether it occur before September or after September. And we still think that's a really important project for us and very meaningful for us and we think it's going to be very positive for the shareholders.

Okay. So I did briefly look at the S-3 and it did say that you have had some products with other partners with Ruthigen and possible sales to those partners are possible joint ventures or whatever. So I guess that could always be another opportunity since you do have other people that you're talking to.

It's brand new. We'll let you digest it before we have the answer to that.

Okay. I'll go back and read it. I only read it around 4.15, so it was a real skim. All right, good luck. I hope we see the Microcyn sales pick up and all the other opportunities going forward and your full attention gets back to the Oculus product line.

Thank you for the support, Chuck.

Thanks.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Jim Schutz for closing remarks.

Thank you again for joining us today. Last thought, I think this is my third last thought. If you have the time, energy, please join us for our annual shareholder meeting on Thursday, September 12th at 10 AM here in Northern California at the headquarters. Thanks again.

Ladies and gentlemen, this includes today's conference. Thank you for your participation. Have a wonderful day.