UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549





FORM
10-Q





[X]
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934.





For the
quarterly period ended: June 30,
2009





OR





[_]
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934.





For the
transition period from: ___ to ___.





Commission
File Number: 000-49670





ULURU
Inc.


(Exact
Name of Registrant as Specified in its Charter)





Nevada
              41-2118656(State
      or Other Jurisdiction of
              (I.R.S.
      Employer Identification No.)Incorporation
      or Organization)





4452
Beltway Drive


Addison,
Texas  75001


(Address
of Principal Executive Offices)





(214)
905-5145


Registrant's
Telephone Number, including Area Code







Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  þ    No  o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerate filer”,
“accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check
one):





Large
      accelerated filer
            o
            
            Accelerated
      filer oNon-accelerated
      filer
            o
            
            Smaller
      reporting company þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes  o    No  þ





The
number of outstanding shares of our common stock on August 14, 2009 was
66,099,419.





Table of Contents





ULURU Inc.





INDEX
TO FORM 10-Q





For
the Three Months Ended JUNE 30, 2009











PagePART I
            FINANCIAL INFORMATIONItem 1.
            Financial Statements
            3Condensed Consolidated Balance Sheets as of June 30, 2009
      (unaudited) and December 31, 2008
            3Condensed Consolidated Statements of Operations
      (unaudited) for the three and six months ended June 30, 2009 and
      2008
            4Condensed Consolidated Statements of Cash Flows
      (unaudited) for the six months ended June 30, 2009 and
      2008
            5Notes to Condensed Consolidated Financial Statements
      (unaudited)
            6Item 2.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            18Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            27Item 4.
            Controls and Procedures
            27PART II
            OTHER INFORMATIONItem 1.
            Legal Proceedings
            28Item 1A.
            Risk Factors
            28Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            28Item 3.
            Defaults Upon Senior Securities
            28Item 4.
            Submission of Matters to a Vote of Security
      Holders
            28Item 5.
            Other Information
            28Item 6.
            Exhibits
            29Signatures
            29


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PART 1 – FINANCIAL INFORMATION





ITEM
1.  FINANCIAL STATEMENTS








ULURU Inc.


CONDENSED
CONSOLIDATED BALANCE SHEETS








June
      30, 2009
                        
                        
                        December
      31, 2008(Unaudited)
                        
                        
                        (Audited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                        
                        $
                        1,710,005
                        
                        
                        $
                        7,567,588Accounts
      receivable
                        
                        
                        318,166
                        
                        
                        
                        195,562Notes
      receivable
                        
                        
                        1,018,219
                        
                        
                        
                        ---Inventory
                        
                        
                        1,068,920
                        
                        
                        
                        1,080,266Prepaid
      expenses and deferred charges
                        
                        
                        161,904
                        
                        
                        
                        468,625Total
      Current Assets
                        
                        
                        4,277,214
                        
                        
                        
                        9,312,041Property
      and Equipment, net
                        
                        
                        1,731,536
                        
                        
                        
                        1,828,040Other
      AssetsPatents,
      net
                        
                        
                        9,436,851
                        
                        
                        
                        9,965,169Deposits
                        
                        
                        20,819
                        
                        
                        
                        20,819Total
      Other Assets
                        
                        
                        9,457,670
                        
                        
                        
                        9,985,988TOTAL
      ASSETS
                        
                        $
                        15,466,420
                        
                        
                        $
                        21,126,069LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                        
                        $
                        678,074
                        
                        
                        $
                        1,441,986Accrued
      liabilities
                        
                        
                        542,880
                        
                        
                        
                        648,546Deferred
      revenue – current portion
                        
                        
                        99,974
                        
                        
                        
                        122,164Royalty
      advance
                        
                        
                        ---
                        
                        
                        
                        30,417Total
      Current Liabilities
                        
                        
                        1,320,928
                        
                        
                        
                        2,243,113Long
      Term LiabilitiesDeferred
      revenue, net – less current portion
                        
                        
                        1,306,950
                        
                        
                        
                        1,356,526TOTAL
      LIABILITIES
                        
                        
                        2,627,878
                        
                        
                        
                        3,599,639COMMITMENTS
      AND CONTINGENCIES
                        
                        
                        ---
                        
                        
                        
                        ---STOCKHOLDERS'
      EQUITYPreferred
      stock - $0.001 par value; 20,000 shares authorized;no
      shares issued and outstanding
                        
                        
                        ---
                        
                        
                        
                        ---Common
      Stock - $0.001 par value; 200,000,000 shares authorized;65,954,873
      and 65,509,481 shares issued and outstanding at June 30, 2009 and December
      31, 2008, respectively
                        
                        
                        65,955
                        
                        
                        
                        65,510Additional
      paid-in capital
                        
                        
                        45,351,112
                        
                        
                        
                        44,057,757Accumulated  (deficit)
                        
                        
                        (32,578,525
                        )
                        
                        
                        (26,596,837
                        )TOTAL
      STOCKHOLDERS’ EQUITY
                        
                        
                        12,838,542
                        
                        
                        
                        17,526,430TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                        
                        $
                        15,466,420
                        
                        
                        $
                        21,126,069The
      accompanying notes are an integral part of these consolidated financial
      statements.





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ULURU
Inc.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)








Three
      Months Ended June 30,
                  
                  
                  Six
      Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008REVENUESLicense
      fees
                  
                  $
                  24,925
                  
                  
                  $
                  25,522
                  
                  
                  $
                  49,576
                  
                  
                  $
                  39,293Royalty
      income
                  
                  
                  63,858
                  
                  
                  
                  84,772
                  
                  
                  
                  143,103
                  
                  
                  
                  160,346Product
      sales
                  
                  
                  47,311
                  
                  
                  
                  405
                  
                  
                  
                  79,954
                  
                  
                  
                  166,878Other
                  
                  
                  ---
                  
                  
                  
                  (15,000
                  )
                  
                  
                  32,190
                  
                  
                  
                  (15,000
                  )Total
      Revenues
                  
                  
                  136,094
                  
                  
                  
                  95,699
                  
                  
                  
                  304,823
                  
                  
                  
                  351,517COSTS
      AND EXPENSESCost
      of goods sold
                  
                  
                  8,921
                  
                  
                  
                  119
                  
                  
                  
                  14,998
                  
                  
                  
                  137,734Research
      and development
                  
                  
                  854,460
                  
                  
                  
                  887,544
                  
                  
                  
                  1,629,879
                  
                  
                  
                  1,742,760Selling,
      general and administrative
                  
                  
                  1,835,487
                  
                  
                  
                  1,341,235
                  
                  
                  
                  4,060,106
                  
                  
                  
                  2,234,470Amortization
                  
                  
                  269,183
                  
                  
                  
                  269,183
                  
                  
                  
                  535,449
                  
                  
                  
                  538,367Depreciation
                  
                  
                  47,007
                  
                  
                  
                  30,202
                  
                  
                  
                  79,578
                  
                  
                  
                  50,474Total
      Costs and Expenses
                  
                  
                  3,015,058
                  
                  
                  
                  2,508,283
                  
                  
                  
                  6,320,010
                  
                  
                  
                  4,703,805OPERATING
      (LOSS)
                  
                  
                  (
      2,878,964
                  )
                  
                  
                  (2,412,584
                  )
                  
                  
                  (6,015,187
                  )
                  
                  
                  (4,352,288
                  )Other
      Income (Expense)Interest
      and miscellaneous income
                  
                  
                  21,066
                  
                  
                  
                  78,888
                  
                  
                  
                  35,620
                  
                  
                  
                  203,933Loss
      on sale of equipment
                  
                  
                  (2,121
                  )
                  
                  
                  ---
                  
                  
                  
                  (2,121
                  )
                  
                  
                  ---(LOSS)
      BEFORE INCOME TAXES
                  
                  
                  (
      2,860,019
                  )
                  
                  
                  (2,333,696
                  )
                  
                  
                  (5,981,688
                  )
                  
                  
                  (4,148,355
                  )Income
      taxes
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  ---NET
      (LOSS)
                  
                  $
                  (2,860,019
                  )
                  
                  $
                  (2,333,696
                  )
                  
                  $
                  (5,981,688
                  )
                  
                  $
                  (4,148,355
                  )Basic
      and diluted net (loss) per common share
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.09
                  )
                  
                  $
                  (0.07
                  )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
                  
                  
                  65,602,990
                  
                  
                  
                  62,466,881
                  
                  
                  
                  65,564,354
                  
                  
                  
                  62,445,519The
      accompanying notes are an integral part of these consolidated financial
      statements.








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ULURU Inc.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
                    
                    
                    2008OPERATING
      ACTIVITIES :Net
      (loss)
                    
                    $
                    (5,981,688
                    )
                    
                    $
                    (4,148,355
                    )Adjustments
      to reconcile net (loss) to net cash (used in) provided by operating
      activities:Amortization
                    
                    
                    535,449
                    
                    
                    
                    538,367Depreciation
                    
                    
                    94,278
                    
                    
                    
                    53,666Share-based
      compensation for stock and options issued to employees
                    
                    
                    1,218,726
                    
                    
                    
                    387,671Share-based
      compensation for options issued to non-employees
                    
                    
                    75,074
                    
                    
                    
                    80,286Loss
      on sale of equipment
                    
                    
                    2,121
                    
                    
                    
                    ---Change
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (122,604
                    )
                    
                    
                    501,233Inventory
                    
                    
                    11,346
                    
                    
                    
                    14,864Prepaid
      expenses and deferred charges
                    
                    
                    306,721
                    
                    
                    
                    187,545Deposits
                    
                    
                    ---
                    
                    
                    
                    1,060Accounts
      payable
                    
                    
                    (763,912
                    )
                    
                    
                    (103,525
                    )Accrued
      liabilities
                    
                    
                    (105,666
                    )
                    
                    
                    107,775Deferred
      revenue
                    
                    
                    (71,766
                    )
                    
                    
                    640,707Royalty
      advance
                    
                    
                    (30,417
                    )
                    
                    
                    (42,134
                    )Total
                    
                    
                    1,149,350
                    
                    
                    
                    2,367,515Net
      Cash (Used in) Operating Activities
                    
                    
                    (4,832,338
                    )
                    
                    
                    (1,780,840
                    )INVESTING
      ACTIVITIES :Purchase
      of property and equipment
                    
                    
                    (14,176
                    )
                    
                    
                    (419,799
                    )Increase
      in notes receivable
                    
                    
                    (1,018,219
                    )
                    
                    
                    ---Proceeds
      from sale of equipment
                    
                    
                    7,150
                    
                    
                    
                    ---Purchase
      of licensing rights
                    
                    
                    ---
                    
                    
                    
                    (142,650
                    )Net
      Cash (Used in) Investing Activities
                    
                    
                    (1,025,245
                    )
                    
                    
                    (562,449
                    )FINANCING
      ACTIVITIES :Proceeds
      from warrant exercises
                    
                    
                    ---
                    
                    
                    
                    ---Proceeds
      from stock option exercises
                    
                    
                    ---
                    
                    
                    
                    47,500Net
      Cash Provided by Financing Activities
                    
                    
                    ---
                    
                    
                    
                    47,500Net
      (Decrease) in Cash
                    
                    
                    (5,857,583
                    )
                    
                    
                    (2,295,789
                    )Cash,  beginning
      of period
                    
                    
                    7,567,588
                    
                    
                    
                    13,979,828Cash,  end
      of period
                    
                    $
                    1,710,005
                    
                    
                    $
                    11,684,039OTHER
      SUPPLEMENTAL INFORMATIONCash
      paid for interest
                    
                    $
                    ---
                    
                    
                    $
                    ---The
      accompanying notes are an integral part of these consolidated financial
      statements.





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ULURU Inc.





NOTES
TO


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)








NOTE
1.                      COMPANY
OVERVIEW AND BASIS OF PRESENTATION






Company
Overview





ULURU
Inc. (hereinafter “we”, “our”, “us”, “ULURU”, or the “Company”) is a Nevada
corporation.  We are a diversified specialty pharmaceutical company
committed to developing and commercializing a broad range of innovative wound
care and muco-adhesive film products based on our patented NanoflexTM and
OraDiscTM drug
delivery technologies, with the goal of improving outcomes for patients, health
care professionals, and health care payers.





Basis of
Presentation





In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S. GAAP”) for interim
financial information and with the instructions to Form 10-Q and include the
account of ULURU Inc., a Nevada corporation, and its wholly-owned subsidiary,
Uluru Delaware Inc., a Delaware corporation.  Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the Company’s financial position as of June
30, 2009 and the results of its operations for the three and six months ended
June 30, 2009 and 2008 and cash flows for the six months ended June 30, 2009 and
2008 have been made.





The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, as well as disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods.  Actual results
may differ from those estimates and assumptions.  These differences
are usually minor and are included in our consolidated financial statements as
soon as they are known.  Our estimates, judgments, and assumptions are
continually evaluated based on available information and experience. Because of
the use of estimates inherent in the financial reporting process, actual results
could differ from those estimates.





All
intercompany transactions and balances have been eliminated in
consolidation.





Operating
results for the three and six months ended June 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009.





These
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto contained in the Company’s Form 10-K
filed with the Securities and Exchange Commission on March 30,
2009.





- 6
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NOTE
2.                      SIGNIFICANT
ACCOUNTING POLICIES






Revenue Recognition and
Deferred Revenue





License
Fees





We
recognize revenue from license payments not tied to achieving a specific
performance milestone ratably during the period over which we are obligated to
perform services. The period over which we are obligated to perform services is
estimated based on available facts and circumstances. Determination of any
alteration of the performance period normally indicated by the terms of such
agreements involves judgment on management's part. License revenues with no
specific performance criteria are recognized when received from our foreign
licensee and their various foreign sub-licensees as there is no control by us
over the various foreign sub-licensees and no performance criteria to which we
are subject.





We
recognize revenue from performance payments ratably, when such performance is
substantially in our control and when we believe that completion of such
performance is reasonably probable, over the period during which we estimate
that we will complete such performance obligations.  In circumstances
where the arrangement includes a refund provision, we defer revenue recognition
until the refund condition is no longer applicable unless, in our judgment, the
refund circumstances are within our operating control and unlikely to
occur.





Substantive
at-risk milestone payments, which are based on achieving a specific performance
milestone when performance of such milestone is contingent on performance by
others or for which achievement cannot be reasonably estimated or assured, are
recognized as revenue when the milestone is achieved and the related payment is
due, provided that there is no substantial future service obligation associated
with the milestone.





Royalty
Income





We
receive royalty revenues under license agreements with a number of third parties
that sell products based on technology we have developed or to which we have
rights. The license agreements provide for the payment of royalties to us based
on sales of the licensed product. We record these revenues based on estimates of
the sales that occurred during the relevant period. The relevant period
estimates of sales are based on interim data provided by licensees and analysis
of historical royalties we have been paid (adjusted for any changes in facts and
circumstances, as appropriate).





We
maintain regular communication with our licensees in order to gauge the
reasonableness of our estimates. Differences between actual royalty revenues and
estimated royalty revenues are reconciled and adjusted for in the period in
which they become known, typically the following quarter. Historically,
adjustments have not been material based on actual amounts paid by licensees. As
it relates to royalty income, there are no future performance obligations on our
part under these license agreements. To the extent we do not have sufficient
ability to accurately estimate revenue; we record it on a cash
basis.





Product
Sales





We
recognize revenue and related costs from the sale of our products at the time
the products are shipped to the customer.




Sponsored Research
Income
 
 Sponsored
research income has no significant associated costs since it is being paid only
for information pertaining to a specific research and development project in
which the sponsor may become interested in acquiring products developed
thereby.  Payments received prior to the Company’s performance are
deferred. Contract amounts are not recognized as revenue until the customer
accepts or verifies the research has been completed.




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NOTE
3.                      THE
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS






Recently Adopted Accounting
Standards





In June
2009, the Financial Accounting Standards Board, or FASB, issued Statement
No. 168, or SFAS No.168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles. SFAS No.168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles, or GAAP,
superseding existing FASB, American Institute of Certified Public Accountants,
or AICPA, Emerging Issues Task Force, or EITF, and related accounting
literature. SFAS No.168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized
using the same topical structure in separate sections. SFAS No.168 will be
effective for financial statements issued for reporting periods that end after
September 15, 2009. As a result, SFAS No.168 is effective for us in the
third quarter of fiscal 2009. This will have an impact on our disclosures in the
condensed consolidated financial statements since all future references to
authoritative accounting literature will be references in accordance with SFAS
No.168.





In May
2009, FASB issued SFAS No. 165, Subsequent Events.SFAS
No. 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. SFAS No.165 requires entities to
disclose the date through which they have evaluated subsequent events and
whether the date corresponds with the issuance of their financial statements.
SFAS No. 165 is effective for interim and annual reporting periods ending
after June 15, 2009. We adopted SFAS No. 165 in the second
quarter of fiscal 2009. The adoption of SFAS No. 165 did not have a
material impact on our condensed consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, (“SFAS
No. 141R”).  SFAS No. 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, including goodwill, the liabilities
assumed and any non-controlling interest in the acquiree.  The
Statement also establishes disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R is effective for business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The impact of
adopting SFAS No. 141R will be dependent on the future business
combinations that the Company may pursue after its effective date.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of Accounting Research Bulletin
No. 51(“SFAS No. 160”), which establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS
No. 160 is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. The adoption did not
have a material effect on our consolidated financial statements.
 
 New Accounting Standards Not
Yet Adopted
 
 In June
2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force
(“EITF”) 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities” (“FSP EITF 03-6-1”).  FSP EITF 03-6-1
clarifies that share-based payment awards that entitle their holders to receive
non-forfeitable dividends or dividend equivalents before vesting should be
considered participating securities.  The Company does not have grants
of restricted stock that contain non-forfeitable rights to
dividends.  FSP EITF 03-6-1 is effective for fiscal years beginning
after December 15, 2008 on a retrospective basis and the Company
anticipates adoption in the first quarter of fiscal 2010.  The Company
has not determined the potential impact, if any, the adoption of FSP EITF 03-6-1
could have on its calculation of EPS.


- 8
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NOTE
4.                      SEGMENT
INFORMATION





We
operate in one business segment: the research, development and commercialization
of pharmaceutical products.  Our corporate headquarters in the United
States collects product sales, licensing fees, royalties, and sponsored research
revenues from our arrangements with external customers and
licensees.  Our entire business is managed by a single management
team, which reports to the Chief Executive Officer.





Our
revenues are currently derived primarily from one licensee for domestic
activities, two licensees for international activities, and our own domestic
sales of AltrazealTM.





Revenues
per geographic area for the three and six months ended June 30 are summarized as
follows:





Three
      Months Ended June 30,
                  
                  
                  Six
      Months Ended June 30,Revenues
                  
                  2009
                  
                  
                  %
                  
                  
                  2008
                  
                  
                  %
                  
                  
                  2009
                  
                  
                  %
                  
                  
                  2008
                  
                  
                  %Domestic
                  
                  $
                  69,031
                  
                  
                  
                  51
                  %
                  
                  $
                  7,013
                  
                  
                  
                  7
                  %
                  
                  $
                  122,837
                  
                  
                  
                  40
                  %
                  
                  $
                  194,013
                  
                  
                  
                  55
                  %International
                  
                  
                  67,063
                  
                  
                  
                  49
                  %
                  
                  
                  88,686
                  
                  
                  
                  93
                  %
                  
                  
                  181,986
                  
                  
                  
                  60
                  %
                  
                  
                  157,504
                  
                  
                  
                  45
                  %Total
                  
                  $
                  136,094
                  
                  
                  
                  100
                  %
                  
                  $
                  95,699
                  
                  
                  
                  100
                  %
                  
                  $
                  304,823
                  
                  
                  
                  100
                  %
                  
                  $
                  351,517
                  
                  
                  
                  100
                  %





A
significant portion of our revenues are derived from a few major
customers.  Customers with greater than 10% of total sales for the
three and six months ended June 30 are represented on the following
table:





Three
      Months Ended June 30,
                    
                    
                    Six
      Months Ended June 30,Customers
                    Product
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Discus Dental, Inc.
                    Aphthasol®
                    
                    
                    16
                    %
                    
                    
                    23
                    %
                    
                    
                    14
                    %
                    
                    
                    59
                    %Meldex International
                    OraDiscTM
      B
                    
                    
                    17
                    %
                    
                    
                    26
                    %
                    
                    
                    16
                    %
                    
                    
                    11
                    %ProStrakan, Ltd.
                    Zindaclin®
                    
                    
                    31
                    %
                    
                    
                    66
                    %
                    
                    
                    33
                    %
                    
                    
                    34
                    %Hoffmann-LaRoche
                    OraDiscTM
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    11
                    %
                    
                    
                    ---Novartis Consumer Health
                    Sponsored
      research
                    
                    
                    ---
                    
                    
                    
                    (16
                    %)
                    
                    
                    ---
                    
                    
                    
                    (
      4
                    %)Total
                    
                    
                    
                    64
                    %
                    
                    
                    99
                    %
                    
                    
                    74
                    %
                    
                    
                    100
                    %


The
results for the three and six months ended June 30, 2008, include a $15,000 fee
adjustment for a sponsored research program with Novartis Consumer Health,
thereby causing negative percentages in the table.








NOTE
5.                      NOTES
RECEIVABLE





On March
31, 2009, the Company entered into a Note Purchase Agreement (the “Note Purchase
Agreement”) with York Pharma, plc, a public limited company incorporated under
the laws of England and Wales (“York”).  The Note Purchase Agreement
provided for a secured revolving credit facility of up to $1,000,000 (the
“Facility”).  The Facility was repayable, along with accrued interest,
upon the earlier of (i) six (6) months from the date of the first drawdown under
the Note Purchase Agreement and (ii) thirty (30) days after the termination of
discussions with York regarding a potential strategic
transaction.  All loans made to York by the Company pursuant to the
Note Purchase Agreement were secured by substantially all of the assets of York,
including York’s intellectual property.  The initial drawdown of
$500,000 was made on April 2, 2009 and a subsequent drawdown of $500,000 was
made on May 19, 2009.  As of June 30, 2009, the balance due of
$1,018,219 was comprised of a principal balance of $1,000,000 and accrued and
unpaid interest of $18,219.





See Note
14 below for a description of events occurring in July 2009 that resulted in the
Company receiving cash payments in amounts equal to all outstanding principal
and accrued interest due under the Facility.








NOTE
6.                      INVENTORY





As of
June 30, 2009, our inventory was comprised of raw materials, manufacturing costs
incurred in the production of AltrazealTM, and AltrazealTM finished
goods.  Inventory consisted of the following at June 30, 2009 and
December 31, 2008:





Inventory
                          
                          June
      30, 2009
                          
                          
                          December
      31, 2008Raw materials
                          
                          $
                          112,002
                          
                          
                          $
                          113,916Work-in-progress
                          
                          
                          372,604
                          
                          
                          
                          344,921Finished goods
                          
                          
                          584,314
                          
                          
                          
                          621,429Total
                          
                          $
                          1,068,920
                          
                          
                          $
                          1,080,266





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NOTE
7.                      PROPERTY
AND EQUIPMENT





Property
and equipment, net, consisted of the following at June 30, 2009 and December 31,
2008:





Property and equipment
                    
                    June
      30, 2009
                    
                    
                    December
      31, 2008Laboratory equipment
                    
                    $
                    424,888
                    
                    
                    $
                    427,888Manufacturing equipment
                    
                    
                    1,483,223
                    
                    
                    
                    1,469,046Computers, office equipment, and furniture
                    
                    
                    140,360
                    
                    
                    
                    150,589Computer software
                    
                    
                    4,108
                    
                    
                    
                    4,108Leasehold improvements
                    
                    
                    95,841
                    
                    
                    
                    95,8412,148,420
                    
                    
                    
                    2,147,472Less: accumulated depreciation and amortization
                    
                    
                    (
      416,884
                    )
                    
                    
                    (
      319,432
                    )Property and equipment, net
                    
                    $
                    1,731,536
                    
                    
                    $
                    1,828,040





Depreciation
and amortization expense on property and equipment was $50,572 and $33,768 for
the three months ended June 30, 2009 and 2008, respectively and was $86,709 and
$57,605 for the six months ended June 30, 2009 and 2008,
respectively.








NOTE
8.                      PATENTS





Patents,
net, consisted of the following at June 30, 2009 and December 31,
2008:





Patents
                    
                    June
      30, 2009
                    
                    
                    December
      31, 2008Patents
                    
                    $
                    13,354,938
                    
                    
                    $
                    13,354,938Less: accumulated amortization
                    
                    
                    (
      3,918,087
                    )
                    
                    
                    (
      3,389,769
                    )Patents, net
                    
                    $
                    9,436,851
                    
                    
                    $
                    9,965,169





Amortization
expense on patents was $265,617 and $265,617 for the three months ended June 30,
2009 and 2008, respectively and was $528,318 and $531,236 for the six months
ended June 30, 2009 and 2008, respectively.  The future aggregate
amortization expense for patent assets, remaining as of June 30, 2009, is as
follows:





Year
      Ending December 31,
                    
                    Future
      Amortization
                      Expense2009 (Six months)
                    
                    $
                    537,0722010
                    
                    
                    1,065,3902011
                    
                    
                    1,015,4362012
                    
                    
                    723,4282013
                    
                    
                    721,4522014 & Beyond
                    
                    
                    5,374,073Total
                    
                    $
                    9,436,851





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NOTE
9.                      STOCKHOLDERS’
EQUITY





Common
Stock





As of
June 30, 2009 the Company had 65,954,873 shares of common stock issued and
outstanding.  The Company issued 372,341 shares of common stock during
the three months ended June 30, 2009 pursuant to the vesting of restricted stock
awards held by various employees.





Warrants





The
following table summarizes the warrants outstanding and the number of shares of
common stock subject to exercise as of June 30, 2009 and the changes therein
during the six months then ended:





Number
      of Shares of Common Stock Subject to Exercise
                        
                        
                        Weighted
      – Average
                          Exercise
      PriceBalance
      as of December 31, 2008
                        
                        
                        2,795,000
                        
                        
                        $
                        1.07Warrants
      issued
                        
                        
                        ---
                        
                        
                        
                        ---Warrants
      exercised
                        
                        
                        ---
                        
                        
                        
                        ---Warrants
      cancelled
                        
                        
                        ---
                        
                        
                        
                        ---Balance
      as of June 30, 2009
                        
                        
                        2,795,000
                        
                        
                        $
                        1.07








Of the
warrant shares subject to exercise as of June 30, 2009, expiration of the right
to exercise is as follows:


Date of expiration
                    
                    Number
      of Warrant Shares of Common Stock Subject to ExpirationAugust 30, 2011
                    
                    
                    1,125,000December 6, 2011
                    
                    
                    1,670,000Total
                    
                    
                    2,795,000





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NOTE
10.                      EARNINGS
PER SHARE





Basic and Diluted Net Loss
Per Share





In
accordance with SFAS No. 128, Earnings per Share, basic
earnings (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the
period.  Diluted earnings (loss) per common share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period, increased to include potential dilutive common
shares.  The effect of outstanding stock options, restricted vesting
common stock and warrants, when dilutive, is reflected in diluted earnings
(loss) per common share by application of the treasury stock
method.  We have excluded all outstanding stock options, restricted
vesting common stock and warrants from the calculation of diluted net loss per
common share because all such securities are antidilutive for all periods
presented.





Shares
used in calculating basic and diluted net loss per common share exclude these
potential common shares as of June 30, 2009 and December 31, 2008:





June
      30, 2009
                      
                      
                      December
      31, 2008Antidilutive
      warrants to purchase common stock
                      
                      
                      2,795,000
                      
                      
                      
                      2,795,000Antidilutive
      options to purchase common stock
                      
                      
                      3,306,000
                      
                      
                      
                      3,706,000Restricted
      vesting common stock
                      
                      
                      550,428
                      
                      
                      
                      154,918Total
                      
                      
                      6,651,428
                      
                      
                      
                      6,655,918














- 12
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NOTE
11.                      SHARE
BASED COMPENSATION





The
Company’s share-based compensation plan, the 2006 Equity Incentive Plan
(“Incentive Plan”), is administered by the compensation committee of the Board
of Directors, which selects persons to receive awards and determines the number
of shares subject to each award and the terms, conditions, performance measures
and other provisions of the award.





We follow
the fair value recognition provisions of SFAS 123R, Share-Based Payments ("SFAS
No. 123(R)"), which requires the measurement and recognition of compensation
expense for all share-based payment awards made to employees, consultants, and
directors based on estimated fair values.  We use the Black-Scholes
option-pricing model to estimate the fair value of share-based awards with the
following weighted average assumptions for the three months ended June
30:





2009
                      
                      
                      2008Incentive Stock OptionsExpected
      volatility  (1)
                      
                      
                      ---
                      
                      
                      
                      69.8
                      %Risk-free
      interest rate %  (2)
                      
                      
                      ---
                      
                      
                      
                      3.43
                      %Expected
      term (in years)
                      
                      
                      ---
                      
                      
                      
                      5.0Dividend
      yield  (3)
                      
                      
                      ---
                      
                      
                      
                      0.0
                      %Forfeiture
      rate
                      
                      
                      ---
                      
                      
                      
                      4.4
                      %Nonstatutory Stock OptionsExpected
      volatility  (1)
                      
                      
                      ---
                      
                      
                      
                      69.8
                      %Risk-free
      interest rate %  (2)
                      
                      
                      ---
                      
                      
                      
                      3.33
                      %Expected
      term (in years)
                      
                      
                      ---
                      
                      
                      
                      3.0Dividend
      yield  (3)
                      
                      
                      ---
                      
                      
                      
                      0.0
                      %Forfeiture
      rate
                      
                      
                      ---
                      
                      
                      
                      0.0
                      %





(1)
            Expected
      volatility assumption was based upon a combination of historical stock
      price volatility measured on a daily basis and an estimate of expected
      future stock price volatility(2)
            Risk-free
      interest rate assumption is based upon U.S. Treasury bond interest rates
      appropriate for the term of the stock options.(3)
            The
      Company does not currently intend to pay cash dividends, thus has assumed
      a 0% dividend yield.











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Our Board
of Directors granted the following incentive stock option awards to executives
or employees and nonstatutory stock option awards to directors or non-employees
for the three and six months ended June 30:





Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Incentive Stock OptionsQuantity
                      
                      
                      ---
                      
                      
                      
                      120,000
                      
                      
                      
                      ---
                      
                      
                      
                      1,375,000Weighted
      average fair value per share
                      
                      
                      ---
                      
                      
                      $
                      0.76
                      
                      
                      
                      ---
                      
                      
                      $
                      1.25Fair
      value
                      
                      
                      ---
                      
                      
                      $
                      90,605
                      
                      
                      
                      ---
                      
                      
                      $
                      1,722,009Nonstatutory Stock OptionsQuantity
                      
                      
                      ---
                      
                      
                      
                      270,000
                      
                      
                      
                      75,000
                      
                      
                      
                      355,000Weighted
      average fair value per share
                      
                      
                      ---
                      
                      
                      $
                      0.53
                      
                      
                      $
                      0.14
                      
                      
                      $
                      0.70Fair
      value
                      
                      
                      ---
                      
                      
                      $
                      142,726
                      
                      
                      $
                      10,672
                      
                      
                      $
                      249,375








Stock Options (Incentive and
Nonstatutory)





The
following table summarizes share-based compensation related to stock options for
the three and six months ended June 30:





Three
      Months Ended
                    June
      30,
                  
                  
                  Six
      Months Ended
                    June
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Research
      and development
                  
                  $
                  159,051
                  
                  
                  $
                  35,872
                  
                  
                  $
                  194,741
                  
                  
                  $
                  68,001Selling,
      general and administrative
                  
                  
                  224,394
                  
                  
                  
                  206,489
                  
                  
                  
                  818,535
                  
                  
                  
                  367,095Total share-based compensation expense
                  
                  $
                  383,445
                  
                  
                  $
                  242,361
                  
                  
                  $
                  1,013,276
                  
                  
                  $
                  435,096





At June
30, 2009, the balance of unearned share-based compensation to be expensed in
future periods related to unvested stock option awards, as adjusted for expected
forfeitures, is approximately $1,190,177.  The period over which the
unearned share-based compensation is expected to be recognized is approximately
three years.





The
activity for stock options is summarized as follows:





Stock
      Options
                  
                  
                  Weighted
      Average Exercise Price per ShareOutstanding
      as of December 31, 2008
                  
                  
                  3,706,000
                  
                  
                  $
                  2.37Granted
                  
                  
                  75,000
                  
                  
                  
                  0.29Forfeited/cancelled
                  
                  
                  (475,000
                  )
                  
                  
                  2.25Exercised
                  
                  
                  ---
                  
                  
                  
                  ---Outstanding
      as of June 30, 2009
                  
                  
                  3,306,000
                  
                  
                  $
                  2.34





- 14
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The
following table presents the stock option grants outstanding and exercisable as
of June 30, 2009:





Options
      Outstanding
                    
                    
                    Options
      ExercisableStock
      Options Outstanding
                    
                    
                    Weighted
      Average Exercise Price per Share
                    
                    
                    Weighted
      Average Remaining Contractual Life in Years
                    
                    
                    Stock
      Options Exercisable
                    
                    
                    Weighted
      Average Exercise Price per Share940,000
                    
                    
                    $
                    0.89
                    
                    
                    
                    8.0
                    
                    
                    
                    483,750
                    
                    
                    $
                    0.95615,000
                    
                    
                    
                    1.57
                    
                    
                    
                    8.1
                    
                    
                    
                    537,291
                    
                    
                    
                    1.56931,000
                    
                    
                    
                    2.43
                    
                    
                    
                    5.9
                    
                    
                    
                    310,335
                    
                    
                    
                    2.43820,000
                    
                    
                    
                    4.47
                    
                    
                    
                    8.1
                    
                    
                    
                    464,062
                    
                    
                    
                    4.443,306,000
                    
                    
                    $
                    2.34
                    
                    
                    
                    7.5
                    
                    
                    
                    1,795,438
                    
                    
                    $
                    2.29








Restricted Stock
Awards





Restricted
stock awards, which typically vest over a period of two to five years, are
issued to certain key employees and are subject to forfeiture until the end of
an established restriction period.  We utilize the market price on the
date of grant as the fair market value of restricted stock awards and expense
the fair value on a straight-line basis over the vesting period.





The
following table summarizes share-based compensation related to restricted stock
awards for the three and six months ended June 30:





Three
      Months Ended
                      June
      30,
                    
                    
                    Six
      Months Ended
                      June
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Research
      and development
                    
                    $
                    54,205
                    
                    
                    $
                    4,297
                    
                    
                    $
                    60,316
                    
                    
                    $
                    7,955Selling,
      general and administrative
                    
                    
                    55,036
                    
                    
                    
                    13,937
                    
                    
                    
                    220,208
                    
                    
                    
                    24,906Total share-based compensation expense
                    
                    $
                    109,241
                    
                    
                    $
                    18,234
                    
                    
                    $
                    280,524
                    
                    
                    $
                    32,861





At June
30, 2009, the balance of unearned share-based compensation to be expensed in
future periods related to restricted stock awards, as adjusted for expected
forfeitures, is approximately $176,767.





The
activity of our non-vested restricted stock awards is summarized as
follows:





Restricted
      stock
                  
                  
                  Weighted
      Average Grant Date Fair ValueOutstanding
      as of December 31, 2008
                  
                  
                  154,918
                  
                  
                  $
                  2.70Shares
      granted
                  
                  
                  871,530
                  
                  
                  
                  0.19Shares
      forfeited/cancelled
                  
                  
                  (30,628
                  )
                  
                  
                  0.26Shares
      exercised/issued
                  
                  
                  (445,392
                  )
                  
                  
                  0.74Outstanding
      as of June 30, 2009
                  
                  
                  550,428
                  
                  
                  $
                  0.45





Summary of
Plans
 
 2006
Equity Incentive Plan
 
 In March
2006 our board of directors (“Board”) adopted and our stockholders approved our
2006 Equity Incentive Plan (“Incentive Plan”), which initially provided for the
issuance of up to 2 million shares of our Common Stock pursuant to stock option
and other equity awards.  At the annual meeting of the stockholders
held on May 8, 2008, our stockholders approved an amendment to the Incentive
Plan to increase from 2 million shares to 6 million shares the total number of
shares of Common Stock issuable under the Incentive Plan pursuant to stock
option and other equity awards.  As of June 30, 2009, we had granted
options to purchase 4,210,000 shares of Common Stock since the inception of the
Incentive Plan, of which 3,306,000 were outstanding at a weighted average
exercise price of $2.34 per share and we had granted awards for 1,029,242 share
of restricted stock since the inception of the Incentive Plan, of which 550,428
were outstanding.  As of June 30, 2009, there were 1,643,180 shares
that remained available for future grant under our Incentive
Plan.







- 15
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NOTE
12.                      INCOME
TAXES





There was
no current federal tax provision or benefit recorded for any period since
inception, nor were there any recorded deferred income tax assets, as such
amounts were completely offset by valuation allowances.








NOTE
13.                      COMMITMENTS
AND CONTINGENCIES





Operating
Lease





On
January 31, 2006 we entered into a lease agreement for office and laboratory
space in Addison, Texas.  The lease, which commenced on April 1, 2006
and continues until April 1, 2013, currently requires a monthly lease obligation
of $9,228 per month, which is inclusive of monthly operating
expenses.





As of
June 30, 2009, the future minimum lease payments are as follows:





Year
      Ending December 31,
                  
                  Amount2009 (Six
      months)
                  
                  $
                  55,3702010
                  
                  
                  110,7402011
                  
                  
                  114,7552012
                  
                  
                  116,0942013
                  
                  
                  29,024Total minimum lease payments
                  
                  $
                  425,983





Rent
expense for our operating lease amounted to $26,311 and $27,924 for the three
months ended June 30, 2009 and 2008, respectively and was $53,726 and $55,848
for the six months ended June 30, 2009 and 2008, respectively.




Indemnification





In the
normal course of business, we enter into contracts and agreements that contain a
variety of representations and warranties and provide for general
indemnifications. Our exposure under these agreements is unknown because it
involves claims that may be made against us in the future, but have not yet been
made. To date, we have not paid any claims or been required to defend any action
related to our indemnification obligations. However, we may record charges in
the future as a result of these indemnification obligations.





In
accordance with our restated articles of incorporation and our amended and
restated bylaws, we have indemnification obligations to our officers and
directors for certain events or occurrences, subject to certain limits, while
they are serving at our request in their respective capacities. There have been
no claims to date and we have a director and officer insurance policy that
enables us to recover a portion of any amounts paid for future potential claims.
We have also entered into contractual indemnification agreements with each of
our officers and directors.





Employment
Agreements





As of
June 30, 2009 the Company is party to employment agreements with its officers,
which include Renaat Van den Hooff, President and Chief Executive Officer and
Terrance K. Wallberg, Vice President and Chief Financial Officer, as well as
other key executives including Daniel G. Moro, Vice President – Polymer Drug
Delivery and John V. St. John, Ph.D., Vice President - Research and
Development.  The employment agreement with Mr. Van den Hooff has an
initial term of two years and includes an automatic one-year term renewal for
each year thereafter.  The employment agreements with Mssrs. Wallberg,
Moro, and St. John each have a term of one year and include an automatic
one-year term renewal for each year thereafter.  Each employment
agreement provides for a base salary, bonus, stock options, stock grants, and
eligibility for Company provided benefit programs.  Under certain
circumstances, the employment agreements provide for certain severance benefits
in the event of termination or a change in control.  The employment
agreements also contain non-solicitation, confidentiality and non-competition
covenants, and a requirement for the assignment of certain invention and
intellectual property rights to the Company.





Separation
Agreement





On March
9, 2009 the Company entered into a separation agreement (the “Agreement”) with
Kerry P. Gray, the Company’s former Chief Executive Officer, whereby the Company
will provide certain benefits to Mr. Gray, including: (i) payments totaling
$400,000 during the initial 12 month period following the date of the Agreement;
(ii) commencing March 1, 2010 and continuing for a period of forty-eight (48)
months, the Company will pay to Mr. Gray a payment of $12,500 per month; (iii)
full acceleration of all vesting schedules for all outstanding Company stock
options and shares of restricted stock of the Company held by Mr. Gray, with all
such Company stock options remaining exercisable by Mr. Gray until March 1,
2012, provided that Mr. Gray has forfeited 300,000 stock options previously held
by him; and (iv) for a period of twenty-four (24) months following the date of
the Agreement the Company will maintain and provide coverage under Mr. Gray’s
existing health coverage plan.  Certain of such payments are secured
by a security interest in favor of Mr. Gray in our intellectual property
relating to Zindaclin®.  The Agreement also provides that Mr. Gray
will serve as a consultant to the Company for up to two full days per month
through August 31, 2009.  Mr. Gray will not be paid for the
performance of such consulting services.  The Agreement contains a
mutual release of claims, certain stock lock-up provisions, and other standard
provisions. The Agreement also provides that Mr. Gray will continue as a
director of the Company.




Milestone
Payments
 
 We were
subject to paying Access Pharmaceuticals, Inc. (“Access”) for certain milestones
based on our achievement of certain annual net sales, cumulative net sales,
and/or our having reached certain defined technology milestones including
licensing agreements and advancing products to clinical
development.  As of June 30, 2009, the future milestone obligations
that we are subject to paying Access, if the milestones related thereto are
achieved, total $4,750,000.  Such milestones are based on total annual
sales of 20 and 40 million dollars of certain products, annual sales of 20
million dollars of any one certain product, and cumulative sales of such
products of 50 and 100 million dollars.
 
 On March
7, 2008, the Company terminated the license agreement with ProStrakan Ltd. for
Amlexanox-related products in the United Kingdom and Ireland.  As part
of the termination, the Company agreed to pay ProStrakan Ltd. a royalty of 30%
on any future payments received by the Company from a new licensee in the United
Kingdom and Ireland territories, up to a maximum of $1,400,000.  On
November 17, 2008, the Company conveyed the Amlexanox-related product rights to
the United Kingdom and Ireland territories to MEDA AB.




- 16
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NOTE
14.                      SUBSEQUENT
EVENTS





In May
2009, the FASB issued SFAS No. 165, Subsequent Events.SFAS No.
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued.  SFAS No.165 requires entities
to disclose the date through which they have evaluated subsequent events and
whether the date corresponds with the release of their financial
statements.  We have evaluated subsequent events through August 14,
2009, the date when we issued our condensed consolidated financial statements
for the quarter ended June 30, 2009, and determined the following subsequent
events to be disclosed.





On July
22, 2009, the Company entered into a Forbearance Agreement with York Pharma, plc
whereby the Company agreed, in exchange for a payment of $250,000 on the
promissory note evidencing the loan made by the Company to York under the Note
Purchase Agreement (the “Note”), to forbear for a period of no more than seven
days from exercising its rights and remedies under the Note Purchase Agreement
and certain related loan documents (collectively, the “York Loan
Documents”).  The payment received from York was applied first to
unpaid interest and then the remainder to reduce the aggregate principal amount
owed to the Company.  Accordingly, the aggregate principal amount
payable to the Company was reduced to $774,246.  The Forbearance
Agreement provided that the remaining principal would accrue interest at an
increased rate of 14% per annum.





On July
24, 2009, the Company assigned all of its interest in and to its rights,
benefits and obligations under the Note Purchase Agreement to an unrelated third
party in exchange for a cash payment of $774,246 plus accrued interest of
$298.  As a result of such assignment, the Company no longer has any
interest in the York Loan Documents.





On July
27, 2009, the Company provided notice that, following the repayment of all
amounts owed to the Company by York, the Company no longer intends to acquire
York.


- 17
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION








You
should read the following discussion and analysis together with all financial
and non-financial information appearing elsewhere in this report and with our
consolidated financial statements and related notes included in our 2008 Annual
Report on Form 10-K, referred to as our 2008 Form 10-K, which has been
previously filed with the Securities and Exchange Commission. In addition to
historical information, the following discussion and other parts of this report
contain forward-looking information that involves risks and uncertainties,
including the statement that our cash and cash equivalents are sufficient to
fund our operations through December 2009.  Our actual results could
differ materially from those anticipated by such forward-looking information due
to competitive factors and other risks discussed in our 2008 Form 10-K under
“Risks Associated with our Business”.





Business
Overview





ULURU
Inc. (hereinafter “we”, “our”, “us”, “ULURU”, or the “Company”) is a Nevada
corporation.  We are a diversified specialty pharmaceutical company
committed to developing and commercializing a broad range of innovative wound
care and muco-adhesive film products based on our patented NanoflexTM and
OraDiscTM drug
delivery technologies, with the goal of improving outcomes for patients, health
care professionals, and health care payers.





Our
strategy is threefold:





§
            Establish
      the foundation for a market leadership position in wound management by
      developing and commercializing a customer focused portfolio of innovative
      wound care products based on the NanoflexTM
      technology to treat the various phases of wound
healing;§
            Develop
      our oral-transmucosal technology (OraDiscTM)
      and generate revenues through multiple licensing agreements;
      and§
            Develop
      our NanoflexTM
      technology for the medical aesthetics market and enter into one or more
      strategic partnerships to bring these products to
  market.





Recent
Developments





On July
22, 2009, the Company entered into a Forbearance Agreement with York Pharma, plc
whereby the Company agreed, in exchange for a payment on the Note of $250,000,
to forbear for a period of no more than seven days from exercising its rights
and remedies under the York Loan Documents.  The payment received from
York was applied first to unpaid interest and then the remainder to reduce the
aggregate principal amount owed to the Company.  Accordingly, the
aggregate principal amount payable to the Company was reduced to
$774,246.  The Forbearance Agreement provided that the remaining
principal would accrue interest at an increased rate of 14% per
annum.





On July
24, 2009, the Company assigned all of its interest in and to its rights,
benefits and obligations under the Note Purchase Agreement to an unrelated third
party in exchange for a cash payment of $774,246 plus accrued interest of
$298.  As a result of such assignment, the Company no longer has any
interest in the York Loan Documents.





On July
27, 2009, the Company provided notice that, following the repayment of all
amounts owed to the Company by York, the Company no longer intends to acquire
York.





On June
30, 2009 the Company restructured its operations in efforts to conserve the
necessary cash to further the Company’s revised business plan.  Moving
forward, a core management group will be supplemented by a small selection of
external consultants to support the Company’s business activities. Selling
efforts will continue through a network of independent sales
representatives.





In order
to effectively market AltrazealTM to the numerous practitioners and sites of
care, the Company believes that it will need to have access to significantly
greater sales and marketing resources. Consequently, the Company is seeking a
strategic relationship whereby the Company can more effectively maximize the
revenue potential of AltrazealTM.  The Company has engaged an
investment bank to assist with a number of strategic initiatives, including
potential strategic partnerships and fund raising.







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RESULTS OF
OPERATIONS





Fluctuations in Operating
Results





Our
results of operations have fluctuated significantly from period to period in the
past and are likely to continue to do so in the future. We anticipate that our
quarterly and annual results of operations will be impacted for the foreseeable
future by several factors, including the timing and amount of payments received
pursuant to our current and future collaborations, and the progress and timing
of expenditures related to our development and commercialization efforts. Due to
these fluctuations, we believe that the period-to-period comparisons of our
operating results may not be a good indication of our future
performance.








Comparison of the three
months ended June 30, 2009 and 2008





Total
Revenues





Revenues
were $136,094 for the three months ended June 30, 2009, as compared to revenues
of $95,699 for the three months ended June 30, 2008, and were comprised of
licensing fees of approximately $25,000 for two OraDiscTM licensing agreements,
$22,000 for domestic royalties from the sale of Aphthasol® by our distributor,
$42,000 of foreign royalties from the sale of Zindaclin®, and $47,000 of
Altrazeal® product sales.





The
second quarter 2009 revenues represent an overall increase of approximately
$40,000 versus the comparative second quarter 2008 revenues, primarily due to an
increase of $47,000 in Altrazeal revenues and $15,000 in sponsored research as
the prior year included a non-recurring revenue adjustment.  This
increase was partially offset by a decrease of $10,000 in Zindaclin®
royalties.





Costs and
Expenses





Cost
of Goods Sold





Cost of
goods sold for the three months ended June 30, 2009 was $8,921 and consisted of
product costs for our Altrazeal® wound dressing.  Cost of goods sold
for the three months ended June 30, 2008 were only $119, as AltrazealTM was
initially launched in June 2008.





Research
and Development





Research
and development expenses totaled $854,460 for the three months ended June 30,
2009, including $213,256 in share-based compensation, compared to $887,544 for
the three months ended June 30, 2008, including $40,169 in share-based
compensation.  The decrease of approximately $33,000 in research and
development expenses was due primarily to decreases in direct research costs of
$265,000.  This decrease was partially offset by increases in
regulatory consulting of $96,000, clinical testing expenses associated with our
wound care technologies of $21,000, and additional compensation costs of
approximately $125,000, primarily for the vesting of certain restricted stock
awards associated with the Company’s workforce reduction in June
2009.





The
direct research and development expenses for the three months ended June 30,
2009 and 2008 were as follows:





Three
      Months Ended
                    June
      30,Technology
                  
                  2009
                  
                  
                  2008Wound care & nanoparticle
                  
                  $
                  18,402
                  
                  
                  $
                  194,133OraDiscTM
                  
                  
                  5,401
                  
                  
                  
                  90,314Aphthasol® & other technologies
                  
                  
                  4,169
                  
                  
                  
                  8,288Total
                  
                  $
                  27,972
                  
                  
                  $
                  292,735





Selling,
General and Administrative





Selling,
general and administrative expenses totaled $1,835,487 for the three months
ended June 30, 2009, including $279,430 in share-based compensation, compared to
$1,341,235 for the three months ended June 30, 2008, including $220,426 in
share-based compensation.  The increase of approximately $494,000 in
selling, general and administrative expenses was due primarily to additional
legal expenses of $169,000 relating to financing activities and the proposed
York Pharma acquisition and additional costs for sales and marketing activities
of $527,000, of which $303,000 related to compensation costs and $224,000
related to marketing and selling expenses.





These
increases were partially offset by a decrease of $55,000 in compensation costs,
lower legal fees associated with our patents of $40,000, lower investor
relations expenses of $35,000, lower shareholder expenses of $15,000 due to
having the Company’s annual shareholder meeting at a later date than in prior
years, decreased corporate travel expenses of $19,000, and lower director
compensation costs of $15,000.


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Amortization





Amortization
expense totaled $269,183 for the three months ended June 30, 2009, which is the
same amount of amortization expense for the three months ended June 30,
2008.  The expense for each period consisted primarily of amortization
associated with our patents.  There were no additional purchases of
patents during the three months ended June 30, 2009.





Depreciation





Depreciation
expense totaled $47,007 for the three months ended June 30, 2009 as compared to
$30,202 for the three months ended June 30, 2008.  The increase of
approximately $17,000 is attributable to our purchase of additional equipment
during 2008 and 2009.





Interest
and Miscellaneous Income





Interest
and miscellaneous income totaled $21,066 for the three months ended June 30,
2009 as compared to $78,888 for the three months ended June 30,
2008.  The decrease of approximately $58,000 is attributable to a
decrease in interest income due to lower cash balances and interest yields in
2009.








Comparison of the six months
ended June 30, 2009 and 2008





Total
Revenues





Revenues
were $304,823 for the six months ended June 30, 2009, as compared to revenues of
$351,517 for the six months ended June 30, 2008, and were comprised of licensing
fees of $49,576 from two OraDiscTM licensing agreements, domestic royalties of
$42,883 from the sale of Aphthasol® by our distributor, foreign royalties of
$100,220 from the sale of Zindaclin®, OraDiscTM related sponsored research
program fees of $32,190, and Altrazeal® product sales of $79,954.





The six
months ended June 30, 2009 revenues represent an overall decrease of
approximately $47,000 versus the comparative six months ended June 30, 2008
revenues, primarily due to a decrease of $166,000 in Aphthasol® product sales,
which was non-recurring revenue from a prior year, and a decrease of $18,000 in
Zindaclin® royalties.  These decreases were partially offset by an
increase of $80,000 in AltrazealTM product sales, increased licensing fees of
$10,000 for OraDisc technologies, and increased Ora DiscTM related sponsored
research program fees of $47,000.


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Costs and
Expenses





Cost
of Goods Sold





Cost of
goods sold for the six months ended June 30, 2009 was $14,998 and consisted
entirely of costs associated with the manufacture of Altrazeal®, whereas the
cost of goods sold for the six months ended June 30, 2008 was comprised of
$137,615 in costs associated with the manufacture of Aphthasol®  and
$119 for costs associated with the manufacture of Altrazeal®.





Research
and Development





Research
and development expenses totaled $1,629,879 for the six months ended June 30,
2009, including $255,057 in share-based compensation, compared to $1,742,760 for
the six months ended June 30, 2008, including $75,956 in share-based
compensation.  The decrease of approximately $113,000 in research and
development expenses was due primarily to decreases in direct research costs of
$433,000 relating to our wound care technologies.  This decrease was
partially offset by increased clinical testing expenses for our wound care
technologies of $11,000, regulatory consulting and expenses of $184,000, and
additional compensation costs of approximately $125,000, primarily relating to
the vesting of certain restricted stock awards associated with the Company’s
workforce reduction in June 2009.





The
direct research and development expenses for the six months ended June 30, 2009
and 2008 were as follows:





Six
      Months Ended
                    June
      30,Technology
                  
                  2009
                  
                  
                  2008Wound care & nanoparticle
                  
                  $
                  49,785
                  
                  
                  $
                  432,449OraDiscTM
                  
                  
                  159,126
                  
                  
                  
                  189,663Aphthasol® & other technologies
                  
                  
                  6,093
                  
                  
                  
                  26,582Total
                  
                  $
                  215,004
                  
                  
                  $
                  648,694








Selling,
General and Administrative





Selling,
general and administrative expenses totaled $4,060,106 for the six months ended
June 30, 2009, including $1,038,743 in share-based compensation, compared to
$2,234,470 for the six months ended June 30, 2008, including $392,001 in
share-based compensation.  The increase of approximately $1,825,000 in
selling, general and administrative expenses was due primarily to additional
costs of approximately $1,104,000 for the ramp-up of our sales and marketing
efforts,  distribution services of $148,000 and a net increase of
administrative compensation costs of $403,000.  The net increase in
administrative compensation costs includes approximately $515,000 of share based
compensation increases relating to the Company’s workforce reduction in June
2009 and the Separation Agreement with our former chief executive
officer.


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We also
incurred increases in legal services associated with our patent filings of
$42,000 and legal fees of $240,000 associated with filings made with the
Securities and Exchange Commission, financing activities, and the proposed York
Pharma acquisition.  Each of these factors were partially offset by a
decrease of $36,000 in corporate travel expenses, lower consulting fees of
$36,000, a decrease in investor relations expenses of $14,000, lower shareholder
expenses of $14,000 due to having the Company’s annual shareholder meeting at a
later date than in prior years, and decreased director compensation fees of
$12,000.





Amortization





Amortization
expense totaled $535,449 for the six months ended June 30, 2009 as compared to
$538,367 for the six months ended June 30, 2008.  The expense for each
period consists primarily of amortization associated with our
patents.  There were no additional purchases of patents during the six
months ended June 30, 2009.





Depreciation





Depreciation
expense totaled $79,578 for the six months ended June 30, 2009 as compared to
$50,474 for the six months ended June 30, 2008.  The increase of
approximately $29,000 is attributable to our purchase of additional equipment,
primarily manufacturing items, during 2009.





Interest
and Miscellaneous Income





Interest
and miscellaneous income totaled $35,620 for the six months ended June 30, 2009
as compared to $203,933 for the six months ended June 30, 2008.  The
decrease of approximately $168,000 is attributable to a decrease in interest
income due to lower cash balances and interest yields in 2009.





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LIQUIDITY AND CAPITAL
RESOURCES





We have
funded our operations primarily through the private sales of convertible
debentures and common stock.  Product sales, royalty payments,
contract research, licensing fees and milestone payments from our corporate
alliances have provided, and are expected in the future to provide funding for
operations. Our principal source of liquidity is cash and cash
equivalents.  As of June 30, 2009 our cash and cash equivalents were
$1,710,005 which is a decrease of $5,857,583 as compared to our cash and cash
equivalents at December 31, 2008 of $7,567,588.  Our working capital
(current assets less current liabilities) was $2,956,286 at June 30, 2009 as
compared to our working capital at December 31, 2008 of $7,068,927.





Consolidated
Cash Flow Data





Six
      Months Ended June 30,Net Cash Provided by (Used
    in)
                      
                      2009
                      
                      
                      2008Operating activities
                      
                      $
                      (4,832,338
                      )
                      
                      $
                      (1,780,840
                      )Investing activities
                      
                      
                      (1,025,245
                      )
                      
                      
                      (562,449
                      )Financing activities
                      
                      
                      ---
                      
                      
                      
                      47,500Net (Decrease) in cash and cash equivalents
                      
                      $
                      (5,857,583
                      )
                      
                      $
                      (2,295,789
                      )





Operating
Activities





For the
six months ended June 30, 2009, net cash used in operating activities was
$4,832,338.  The principal component of net cash used for the six
months ended June 30, 2009 stems from our net loss of approximately
$5,982,000.  This net loss for the six months ended June 30, 2009
included substantial non-cash charges in the form of share-based compensation,
amortization of patents, and depreciation.  These non-cash charges
totaled approximately $1,924,000.





Additional
uses of our net cash included a decrease of $764,000 in accounts payable due to
timing of vendor payments, increased accounts receivable of $122,000, a decrease
of $106,000 in accrued liabilities, the amortization of deferred revenues of
$72,000, and a decrease of $30,000 in our royalty advance for Aphthasol® due to
sales by our distributor.  These uses of net cash were partially
offset by a decrease of $307,000 in prepaid expenses due to expense
amortization, and a decrease of $11,000 in inventory due to AltrazealTM product
sales.





For the
six months ended June 30, 2008, net cash used in operating activities was
$1,780,840.  The principal components of net cash used for the six
months ended June 30, 2009 were our net loss of approximately
$4,148,000.  This net loss for the six months ended June 30, 2009
included substantial non-cash charges in the form of share-based compensation,
amortization of patents, and depreciation.  These non-cash charges
totaled approximately $1,060,000.





Additional
uses of our net cash was a decrease of approximately $103,000 in accounts
payable due to timing of vendor payments and a decrease of $42,000 in our
royalty advance for Aphthasol® due to sales by our distributor.  These
uses of net cash were partially offset by a decrease of $501,000 in accounts
receivable due to customer collections, a decrease of $187,000 in prepaid
expenses due to expense amortization, an increase in accrued liabilities of
$108,000 due to timing, and an increase in deferred revenues of $641,000 from
the receipt of licensing agreements associated with our OraDiscTM
technologies.





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Investing
Activities





Net cash
used in investing activities during the six months ended June 30, 2009 was
$1,025,245 and consisted of a decrease of approximately $1,018,000 in notes
receivable associated with the York Pharma loan and a decrease of $14,000
associated with the purchase of AltrazealTM manufacturing equipment, which were
partially offset by $7,000 of proceeds from the sale of laboratory
equipment.





For the
comparable six months of 2008, Net cash used in investing activities was
$562,449 and consisted primarily of manufacturing equipment purchases of
$420,000 for our AltrazealTM and OraDiscTM products along with $142,000 for the
buy-back of OraDiscTM licensing rights previously held by Zambon
S.p.A.





Financing
Activities





There
were no financing activities during the six months ended June 30,
2009.





Net cash
provided by financing activities during the six months ended June 30, 2008 was
$47,500 from the exercise of stock options to purchase 50,000 shares of our
common stock.





Liquidity





On June
30, 2009 the Company restructured its operations in efforts to conserve the
necessary cash to further the Company’s revised business plan.  Moving
forward, a core management group will be supplemented by a small selection of
external consultants to support the Company’s business activities. Selling
efforts will continue through a network of independent sales
representatives.





In order
to effectively market AltrazealTM to the numerous practitioners and sites of
care, the Company believes that it will need to have access to significantly
greater sales and marketing resources. Consequently, the Company is seeking a
strategic relationship whereby the Company can more effectively maximize the
revenue potential of AltrazealTM.  The Company has engaged an
investment bank to assist with a number of strategic initiatives, including
potential strategic partnerships and fund raising.





As of
July 31, 2009, we had cash and cash equivalents totaling
$1,904,575.  We expect to use our cash, cash equivalents, and
investments on working capital and general corporate purposes, products, product
rights, technologies, property and equipment, the payment of contractual
obligations, and regulatory or sales milestones that may become
due.  Our long-term liquidity will depend to a great extent on our
ability to fully commercialize our AltrazealTM and OraDiscTM technologies;
therefore we are continuing to search both domestically and internationally for
opportunities that will enable us to continue to expand our
business.  At this time, we cannot accurately predict the effect of
certain developments on the rate of sales growth during 2009 and beyond, such as
the degree of market acceptance, patent protection and exclusivity of our
products, the impact of competition, the effectiveness of our sales and
marketing efforts, and the outcome of our current efforts to develop, receive
approval for, and successfully launch our near-term product
candidates.




Based on
our current level of operations, projected sales of our existing products and
estimated sales from our product candidates, if approved, combined with other
revenues and interest income, we believe that we will be able to meet our
working capital and capital expenditure requirements at least through December
2009. We do not expect any material changes in our capital expenditure spending
during the remainder of 2009. However, we cannot be sure that our anticipated
revenue growth will be realized or that we will generate significant positive
cash flow from operations.
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As we
continue to expend funds to advance our business plan, there can be no assurance
that changes in our research and development plans, capital expenditures and/or
acquisitions of products or businesses, or other events affecting our operations
will not result in the earlier depletion of our funds.  In appropriate
situations, we may seek financial assistance from other sources, including
contribution by others to joint ventures and other collaborative or licensing
arrangements for the development, testing, manufacturing and marketing of
products under development.  Additionally, we may explore alternative
financing sources for our business activities, including the possibility of
loans from banks and public and/or private offerings of debt and equity
securities; however we cannot be certain that funding will be available on terms
acceptable to us, or at all.





Our
future capital requirements and adequacy of available funds will depend on many
factors including:





§
            The
      ability to successfully commercialize our wound management and burn care
      products and the market acceptance of these products;§
            The
      ability to establish and maintain collaborative arrangements with
      corporate partners for the research, development and commercialization of
      certain product opportunities;§
            Continued
      scientific progress in our development programs;§
            The
      costs involved in filing, prosecuting and enforcing patent
      claims;§
            Competing
      technological developments;§
            The
      cost of manufacturing and production scale-up; and§
            Successful
      regulatory filings.





Note
Purchase Agreement





On July
22, 2009, the Company entered into a Forbearance Agreement with York Pharma, plc
whereby the Company agreed, in exchange for a payment on the Note of $250,000,
to forbear for a period of no more than seven days from exercising its rights
and remedies under the Note Purchase Agreement and certain related loan
documents.  The payment received from York was applied first to unpaid
interest and then the remainder to reduce the aggregate principal amount owed to
the Company.  Accordingly, the aggregate principal amount payable to
the Company was reduced to $774,246.  The Forbearance Agreement
provided that the remaining principal would accrue interest at an increased rate
of 14% per annum.  On July 24, 2009, the Company assigned all of its
interest in and to its rights, benefits and obligations under the Note Purchase
Agreement to an unrelated third party in exchange for a cash payment of $774,246
plus accrued interest of $298.  As a result of such assignment, the
Company no longer has any interest in the York Loan Documents.








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Contractual
Obligations





The
following table summarizes our outstanding contractual cash obligations as of
June 30, 2009, which consists of a lease agreement for office and laboratory
space in Addison, Texas which commenced on April 1, 2006 and a separation
agreement with our former chief executive officer which was effective on March
9, 2009.





Payments
      Due By PeriodContractual
      Obligations
                  
                  Total
                  
                  
                  Less
      Than
                    1
      Year
                  
                  
                  2-3
                    Years
                  
                  
                  4-5
                    Years
                  
                  
                  After
      5
                    YearsOperating lease
                  
                  $
                  425,983
                  
                  
                  $
                  110,740
                  
                  
                  $
                  228,173
                  
                  
                  $
                  87,070
                  
                  
                  $
                  ---Separation agreement
                  
                  
                  783,333
                  
                  
                  
                  233,333
                  
                  
                  
                  300,000
                  
                  
                  
                  250,000
                  
                  
                  
                  ---Total contractual cash obligations
                  
                  $
                  1,209,316
                  
                  
                  $
                  344,073
                  
                  
                  $
                  528,173
                  
                  
                  $
                  337,070
                  
                  
                  $
                  ---








Off-Balance
Sheet Arrangements





As of
June 30, 2009, we did not have any off balance sheet arrangements.








Impact
of Inflation





We have
experienced only moderate price increases under our agreements with third-party
manufacturers as a result of raw material and labor price
increases.  We have generally passed these price increases along to
our customers.  However, there can be no assurance that possible
future inflation would not impact our operations.








CRITICAL ACCOUNTING POLICIES
AND ESTIMATES





Management’s
Discussion and Analysis of Financial Condition and Results of Operations
addresses our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) for
interim financial information. The preparation of our financial statements
requires that we make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, we
evaluate these estimates and judgments. We base our estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.  Our critical
account policies are summarized in our Annual Report on Form 10-K for the year
ended December 31, 2008.  We had no significant changes in our
critical accounting policies since our last annual report.





SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS





This
quarterly report on Form 10-Q (including documents incorporated by reference)
and other written and oral statements the Company makes from time to time
contain certain “forward-looking” statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can identify these forward-looking statements by the fact they use
words such as “should”, “expect”, “anticipate”, “estimate”, “target”, “may”,
“project”, “guidance”, “intend”, “plan”, “believe” and other words and terms of
similar meaning and expression in connection with any discussion of future
operating or financial performance. One can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current
facts.  Such forward-looking statements are based on current
expectations and involve inherent risks and uncertainties, including factors
that could delay, divert or change any of them, and could cause actual outcomes
to differ materially from current expectations. These statements are likely to
relate to, among other things, statements regarding the Company’s expected cash
and cash equivalents and working capital being sufficient until December 2009,
and other statements, including, the Company’s goals, plans and projections
regarding its financial position, results of operations, cash flows, market
position, product development, product approvals, sales efforts, expenses,
performance or results of current and anticipated products and the outcome of
contingencies such as legal proceedings, acquisitions, and financial results,
which are based on current expectations that involve inherent risks and
uncertainties, including internal or external factors that could delay, divert
or change any of them in the next several years. The Company has included
important factors in the cautionary statements included in its 2008 Annual
Report on Form 10-K, particularly under “Risk Associated with our Business”,
that the Company believes could cause actual results to differ materially from
any forward-looking statement.




Although
the Company believes it has been prudent in its plans and assumptions, no
assurance can be given that any goal or plan set forth in forward-looking
statements can be achieved and readers are cautioned not to place undue reliance
on such statements, which speak only as of the date made. The Company undertakes
no obligation to release publicly any revisions to forward-looking statements as
a result of new information, future events or otherwise.







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ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Concentrations
of Credit Risk





Concentration
of credit risk with respect to financial instruments, consisting primarily of
cash and cash equivalents, potentially expose us to concentrations of credit
risk due to the use of a limited number of banking institutions and due to
maintaining cash balances in banks, which, at times, may exceed the limits of
amounts insured by the Federal Deposit Insurance
Corporation.  Currently, we utilize Bank of America and Bank of
America Investment Services, Inc. as our banking institutions.  At
June 30, 2009 and December 31, 2008 our cash and cash equivalents totaled
$1,710,005 and $7,567,588, respectively.  However, because deposits
are maintained at these two financial institutions, we do not believe that there
is a significant risk of loss of uninsured amounts.  We also invest
cash in excess of immediate requirements in money market accounts, certificates
of deposit, corporate commercial paper with high quality ratings, and U.S.
government securities.  These investments are not held for trading or
other speculative purposes.  We are exposed to credit risk in the
event of default by these high quality corporations.




Concentration
of credit risk with respect to trade accounts receivable are customers with
balances that exceed 5% of total consolidated trade accounts receivable at June
30, 2009 and at December 31, 2008.  As of June 30, 2009, two customers
exceeded the 5% threshold.  Two customers exceeded the 5% threshold at
December 31, 2008.  We believe that these customer accounts are fully
collectible as of June 30, 2009.


Foreign
Currency Exchange Rate Risk





The
royalty revenues we receive on Zindaclin® are a percentage of the net sales made
by the various sub-licensees of our licensee, ProStrakan Ltd.  All of
these sales are made in foreign countries and the majority are denominated in
foreign currencies. The royalty payment on these foreign sales is calculated
initially in the foreign currency in which the sale is made and is then
converted into U.S. dollars to determine the amount that ProStrakan Ltd pays us
for royalty revenues. Fluctuations in the exchange ratio of the U.S. dollar and
these foreign currencies will have the effect of increasing or decreasing our
royalty revenues even if there is a constant amount of sales in foreign
currencies. For example, if the U.S. dollar weakens against a foreign currency,
then our royalty revenues will increase given a constant amount of sales in such
foreign currency.





The
impact on our royalty revenues from foreign currency exchange rate risk is based
on a number of factors, including the exchange rate (and the change in the
exchange rate from the prior period) between a foreign currency and the U.S.
dollar, and the amount of Zindaclin® sales by the various sub-licensees of
ProStrakan Ltd that are denominated in foreign currencies. We do not currently
hedge our foreign currency exchange rate risk.








ITEM 4:
CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures.





Our chief
executive officer and our chief financial officer, after evaluating the
effectiveness of our “disclosure controls and procedures” (as defined in Rules
13a-14(c) of the Securities and Exchange Act of 1934, as amended (the “Exchange
Act”)) as of the end of the period covered by this quarterly report, concluded
that the Company’s disclosure controls and procedures were (1) designed to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the Company’s chief executive
officer and chief financial officer by others within the Company, particularly
during the period in which this report was being prepared, and (2) effective, in
that they provide reasonable assurance that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.





Changes
in internal controls.





There
were no changes in our internal controls over financial reporting during the
quarter ended June 30, 2009 that have materially affected, or are reasonably
likely to material affect, our internal controls over financial
reporting.





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PART II: OTHER INFORMATION








ITEM 1 - LEGAL
PROCEEDINGS





The
Company was served in April 2009 with a compliant in an action in the Supreme
Court for New York County, State of New York.  The plaintiff, R.C.C.
Ventures, LLC, alleges that it is due a fee for its performance in procuring or
arranging a loan for the Company.  The Company denies all allegations
of the complaint and any liability to the plaintiff and will vigorously defend
against this claim.  The Company has also made a counterclaim against
R.C.C. Ventures, LLC for breach of contract and is seeking monetary
damages.








ITEM 1A
– RISK FACTORS





There
have been no material changes in our risk factors from those disclosed in our
2008 Annual Report on Form 10-K, filed on March 30, 2009, except as
follows:





Our cash and cash
equivalents may not  be sufficient to fund our operations beyond
December 2009.





Assuming
our current costs of operations remain relatively unchanged over the next
several months, our present cash and cash equivalents may not be sufficient to
fund our operations beyond December 2009.  Unless we are able to raise
additional funds from our financing efforts prior to such time, we may not be
able to support our operations and may be forced to cease operations and
dissolve the Company.








ITEM 2
- UNREGISTERED SALE OF EQUITY SECURITIES





None.








ITEM 3 -
DEFAULTS UPON SENIOR SECURITIES





None.








ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.








ITEM 5:
OTHER INFORMATION





None.






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ITEM 6:
EXHIBITS







Exhibit
      Number
              Description31.1
              Certification of Principal Executive Officer of ULURU
      Inc. Pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities
      Exchange Act of 1934, as Amended.31.2
              Certification of Principal Accounting Officer of ULURU
      Inc. Pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities
      Exchange Act of 1934, as Amended.32.1*
              Certification of Chief Executive Officer of ULURU Inc.
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2*
              Certification of Chief Financial Officer of ULURU Inc.
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*
              This
      exhibit shall not be deemed “filed” for purposes of Section 18 of the
      Securities Exchange Act of 1934 or otherwise subject to the liabilities of
      that Section nor shall it be deemed incorporated by reference in any
      filings under the Securities Act of 1933 or the Securities and Exchange
      Act of 1934.











SIGNATURES:





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





ULURU
      Inc.Date:  August 14,
      2009
            
            By:
            /s/
      Renaat Van den HooffRenaat
      Van den HooffChief
      Executive Officer and President(Principal
      Executive Officer)Date:  August 14,
      2009
            
            By:
            /s/
      Terrance K. WallbergTerrance
      K. WallbergChief
      Financial Officer and Vice President(Principal
      Financial and Accounting Officer)









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