UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





[X] ANNUAL REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31,
2008.





[_]
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 incorporation or organization)
              (I.R.S.
      Employer
                Identification
      No.)





4452
Beltway Dr.


Addison,
Texas 75001


(Address
of principal executive offices) (Zip Code)





Registrant's
telephone number: (214)
905-5145








Securities
registered under Section 12(b) of the Exchange Act:





Title of Class
                  Name of exchange on which
      registeredCommon
      Stock, par value $0.001
                  New
      York Stock Exchange Alternext
US


-----------------------------





Securities
registered under Section 12(g) of the Exchange Act:





None


-----------------------------





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes   ̈    No  x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x




Indicate
by check mark whether the registrant (1) has 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  x    No   ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈




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





Large
      accelerated filer
             ̈
            
            Accelerated
      filer  ̈Non-accelerated
      filer
             ̈
            
            Smaller
      reporting company x





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




As of
June 30, 2008 (the last business day of the most recently completed second
fiscal quarter), the aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates of the registrant (without
admitting that any person whose shares are not included in the calculation is an
affiliate) was approximately $7,430,274 based on the closing price of the
registrant’s common stock as reported on the American Stock Exchange (now known
as the New York Stock Exchange Alternext US) on such date.




As of
March 16, 2009, the outstanding shares of registrant’s Common Stock were
65,582,532.
















ULURU Inc.FORM
      10-KFOR
      THE YEAR ENDED DECEMBER 31, 2008TABLE OF CONTENTSItem
              
              PagePart I1.
              Description of Business
              31A.
              Risk Factors
              151B.
              Unresolved Staff Comments
              242.
              Description of Property
              243.
              Legal Proceedings
              244.
              Submission of Matters to a Vote of Security
      Holders
              24Part II5.
              Market for Common Equity, Related Stockholder Matters, and
      Small Business Issuer Purchases of Equity Securities
              256.
              Selected Financial Data
              257.
              Management's Discussion and Analysis of Financial Condition
      and Results of Operations
              267A.
              Quantitative and Qualitative Disclosures about Market
      Risk
              348.
              Financial Statements and Supplementary
    Data
              349.
              Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure
              349A.
              Controls and Procedures
              359B.
              Other Information
              36Part III10.
              Directors, Executive Officers, Promoters, Control Persons
      and Corporate Governance; Section 16(a) Beneficial Ownership Reporting
      Compliance
              3611.
              Executive Compensation
              4312.
              Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
              5713.
              Certain Relationships and Related Transactions, and
      Director Independence
              5814.
              Principal Accountant Fees and Services
              59Part IV15.
              Exhibits and Financial Statement
    Schedules
              60Signatures
              61







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of Contents


Part I








FORWARD-LOOKING INFORMATION
IS SUBJECT TO RISK AND UNCERTAINTY





This
Annual Report on Form 10-K (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 that 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, the Company’s goals, plans and projections
regarding its financial position, statements indicating that the Company has
cash and cash equivalents sufficient to fund our operations for the foreseeable
future, 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 this 2008 Annual Report on Form 10-K, particularly under
“Risk Factors”, 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.








ITEM
1.                      DESCRIPTION
OF BUSINESS





Organizational
History





ULURU
Inc. (hereinafter “we”, “our”, “us”, or the “Company”), was incorporated on
September 17, 1987 under the laws of the State of Nevada, originally under the
name Casinos of the World, Inc.  From April 1993 to January 2002, the
Company changed its name on four separate occasions, with Oxford Ventures, Inc.
being the Company’s name on January 30, 2002.





Our
charter was suspended (subject to reinstatement) by the State of Nevada in
September 2001 for inactivity and failure to pay annual fees and costs. Its
active status was reinstated on January 30, 2002, upon payment of all past due
fees and costs.





On
December 2, 2003, we issued 8,625,000 shares pursuant to an Asset Purchase
Agreement.  On December 5, 2003, we declared a 2.25 stock dividend
which increased the issued and outstanding shares from 10,528,276 common shares
to 34,216,897 common shares.





On March
1, 2004, we affected a 4 to 1 forward split, increasing our outstanding shares
to 136,867,588.





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Contents








On
October 12, 2005, we entered into a merger agreement with ULURU Inc., a Delaware
corporation ("ULURU Delaware"), and Uluru Acquisition Corp., a wholly-owned
Delaware subsidiary of ours formed on September 29, 2005. Under the terms of the
agreement, Uluru Acquisition Corp. merged into ULURU Delaware, after ULURU
Delaware had acquired the net assets of the topical component of Access
Pharmaceuticals, Inc., under Section 368 (a) (1) (A) of the Internal Revenue
Code.





As a
result of the merger, we acquired all of the issued and outstanding shares of
ULURU Delaware under a stock exchange transaction, and ULURU Delaware became a
wholly-owned subsidiary of the Company, its legal parent. However, for financial
accounting and reporting purposes, ULURU Delaware is treated as the acquirer and
is consolidated with its legal parent, similar to the accounting treatment given
in a recapitalization. For accounting presentation purposes only, our net assets
are treated as being acquired by ULURU Delaware at fair value as of the date of
the stock exchange transaction, and the financial reporting thereafter has not
been, and will not be, that of a development stage enterprise, since ULURU
Delaware had substantial earned revenues from planned
operations.  Both companies have a December 31 fiscal year
end.





On March
29, 2006, we filed a Certificate of Amendment to the Articles of Incorporation
in Nevada.  This Certificate of Amendment authorized a 400:1 reverse
stock split  so that in exchange for every 400 outstanding shares of
common stock that each shareholder had at the close of business on March 29,
2006, the shareholder would receive one share of common stock.  As a
result of this reverse stock split, our issued and outstanding common stock was
reduced from 340,396,081 pre-split shares of common stock to 851,094 post-split
shares which include additional shares for fractional interests.  The
Certificate of Amendment also authorized a decrease in authorized shares of
common stock from 400,000,000 shares, par value $.001 each, to 200,000,000, par
value $.001 each, and authorized up to 20,000 shares of Preferred Stock, par
value $.001.





On March
31, 2006, we filed a Certificate of Amendment to the Articles of Incorporation
in Nevada to change our name from "Oxford Ventures, Inc." to "ULURU
Inc."  On the same date, we moved our executive offices to Addison,
Texas.





On March
31, 2006, we acquired, through our wholly-owned subsidiary (Uluru Acquisition
Corp.) a 100% ownership interest in ULURU Delaware through a merger of ULURU
Delaware into Uluru Acquisition Corp.  We acquired ULURU Delaware in
exchange for 11,000,000 shares of our common stock. As a result of this merger,
the former shareholders of ULURU Delaware owned an aggregate of 92.8% of the
issued and outstanding shares of our common stock and the pre-merger
shareholders of ours owned an aggregate of 7.2% of the issued and outstanding
shares of our common stock.





At the
effective time of such merger, the members of the ULURU Delaware Board of
Directors holding office immediately prior to such merger became our directors,
and all persons holding offices of ULURU Delaware at the effective time
continued to hold the same offices of the surviving
corporation.  Simultaneously, ULURU Inc.'s directors and officers
immediately prior to the closing of such merger resigned from all of their
respective positions with us.





On May
31, 2006, ULURU Delaware filed a Certificate of Amendment to its Certificate of
Incorporation in Delaware to change its name from "Uluru Inc." to "ULURU
Delaware Inc."




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Company
Mission and Strategy
 
 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 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.








Core
Technology Platforms





Our two
core drug delivery technologies were originally purchased from Access
Pharmaceuticals, Inc. in October 2005.  The acquisition provided for
the assumption of all assets of the topical drug delivery business including
inventories, capital equipment and intellectual property specifically identified
with the purchased technologies.





NanoflexTMTechnology





NanoflexTM
technology provides unique materials with a broad range of properties and
potential applications. While a conventional bulk hydrogel is an "infinite"
network of loosely cross-linked hydrophilic polymers that swells when placed in
polar solvents, we have discovered that a variety of unique biomaterials can be
formed through the aggregation of hydrogel-like nanoparticles. This concept
takes advantage of the inherent biocompatibility of hydrogels while overcoming
problems with local stress and strain, which cause bulk hydrogels to shear.
Unlike bulk hydrogels, these particle aggregates are shape retentive, can be
extruded or molded, and offer properties suitable for use in a variety of
in-vivo medical devices, and in novel drug delivery systems, by providing
tailored regions of drug incorporation and release. The polymers used in our
NanoflexTM
technology have been extensively researched by the academic and scientific
community and commercialized into several major medical products. They are
generally accepted as safe, non-toxic and biocompatible.





Our
NanoflexTM
technology system has at its core a system of hydrogel-like nanoparticles
composed of a polymer used in manufacturing contact lenses and other
FDA-approved implants.  These nanoparticles aggregate immediately and
irreversibly upon contact with physiological fluid, such as wound exudate or
blood, forming a flexible, nonresorbable material termed an
aggregate.





Utilizing
our proprietary NanoflexTM technology, we have developed three separate
development platforms from the system:





§
            NanoflexTM
      Powder§
            NanoflexTM
      Gel§
            NanoflexTM
      Injectable Liquid





Each of
the systems is composed of nanoparticles which are stabilized to prevent
aggregation prior to application to a physiological environment.  We
can control the particle size and chemical composition to affect the rate of
aggregation, the final material properties such as fluid content and strength of
the resulting aggregate, and if desired, the drug delivery profile for actives
trapped in the aggregate.




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NanoflexTMPowder





Our
NanoflexTM Powder
is composed of hydrogel particle flakes that aggregate immediately and
irreversibly upon contact with physiological fluid such as wound exudate,
forming a flexible, nonresorbable film.  The film can be used to cover
and protect a wound surface and can also be applied to provide specific drug
delivery profiles to a wound or skin surface.





The
powder is applied as a dry material and immediately hydrates and forms a
uniform, intact film with adhesion to the moist wound.  In addition,
we have formulated the powder with active pharmaceutical ingredients to provide
specific release profiles to wound surfaces.  A major advantage of our
nanoparticle aggregate technology is the ability to incorporate active drugs,
and provide controlled release.  Drug molecules can be trapped within
interstitial spaces between particles during aggregate formation. The spaces
between particles, or nanopores in the lattice, can be tailored by varying the
particle size which controls the diffusion rate.  Particle size
directly affects the size of the holes and channels in the aggregate lattice,
which slow down or speed up the movement of a compound as it is
released.  By choosing specific particle sizes and compositions and
formulating these with a given active, the drug delivery profile can be tailored
for a specific application.





We have
developed and are developing a range of products utilizing our NanoflexTM powder
in wound care:





§
            Powder
      dressings for the coverage and protection of acute and chronic wounds
      without an active ingredient;§
            Silver
      containing dressings with antimicrobial properties; and§
            Collagen
      containing dressings for management of chronic
  wounds.





Many
other actives can be combined with the base technology, which could lead to
significant improvements versus the present standard of care, such
as:





§
            Hemostatic
      agent containing dressings for acute trauma with blood
    loss;§
            Antibiotic
      containing dressings for treatment of infection; and§
            Growth
      factor containing dressings for management of slow healing chronic
      wounds.





NanoflexTMGel





Our
NanoflexTM
technology is composed of hydrated nanoparticles that are concentrated into a
viscoelastic gel.  The gel fills the shape of a container or envelope
and the physical properties such as firmness or elasticity can be varied by
changing the particle composition and concentrations.  If the gel is
exposed to physiological fluid such as in a body cavity, the particles will
aggregate immediately and irreversibly forming a flexible, nonresorbable
aggregate.  This technology is currently under development as an
advanced breast implant filler material inside of an elastomeric
shell.  The application of the gel technology allows tuned aesthetic
properties specific for patient needs, however the ability to form a bulk
aggregate in the event of a shell rupture provides a safer alternative to
certain other commercial gel filler materials, including silicone.





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NanoflexTMInjectable
Liquid





Our
family of dermal fillers and facial sculpting products has three major
components that form the injectable materials:





§
            Hyaluronic
      acid§
            NanoflexTM
      particles§
            Water





Hyaluronic
acid is a nonspecies-specific hydrophilic coiled polysaccharide that is present
in all connective tissue.  In dermal and sub-dermal tissue, hyaluronic
acid binds with water and provides volume and elasticity.  As a dermal
filler, hyaluronic acid provides superb biocompatibility, but applications of
this material can be limiting because the material is resorbed in a four to
twelve month period requiring repeat injections.  Our dermal filler
and sub-dermal filler can be composed of between 1 and 3% hyaluronic acid with
several choices of molecular weight.  Materials for facial sculpting
containing a lower component of hyaluronic acid result in a higher degree of
permanence.





A
suspension of hydrogel nanoparticles containing a small percentage of hyaluronic
acid, when injected into tissue, immediately and irreversibly aggregates. With
time, the hyaluronic acid portion of the aggregate resorbs, leaving behind a
porous, NanoflexTM
framework which provides the basis for cellular infiltration and acts as the
anchor for collagen attachment.  The resulting non-migrating porous
scaffold is projected to have a longevity time significantly greater than
currently available commercial products.





This
injectable system has been studied extensively for safety and for applications
as a dermal filler and is under development to provide a family of soft tissue
filler materials with different degrees of permanency.








Mucoadhesive
OraDiscTM
Technology





Treatment
of oral conditions generally relies upon the use of medications formulated as
gels and pastes, which are applied to lesions in the mouth. The duration of
effectiveness of these medications is typically short because the applied dose
is worn away through the mechanical actions of speaking, eating, and tongue
movement, and is washed away by saliva flow. To address these problems, we
developed a novel erodible mucoadhesive film product. This technology, known as
OraDiscTM, comprises a multi-layered film having an adhesive layer, a pre-formed
film layer, and a coated backing layer. Depending upon the intended application,
a pharmaceutically active compound can be formulated within any of these layers,
providing a wide range of potential applications. The disc stays in place
eroding over a period of time, so that subsequent removal is unnecessary. The
drug delivery rate is pre-determined by the rate of erosion of the disc, which
is in turn controlled by the composition of the backing layer.





Our
adhesive film technology has multiple applications, including the localized
delivery of drug to a mucosal site, use as a transmucosal delivery device for
delivering drugs into the systemic circulation, and incorporating the drug in
the outer layer for delivery into the oral cavity. The adhesive film will adhere
to any wet mucosal surface, including the vagina, where this technology
represents an opportunity to improve the delivery of drugs for female healthcare
applications. Additionally, the adhesive film has been formulated to adhere to
the surface of teeth and gums for the delivery of dental health and cosmetic
dental actives.





OraDiscTM
was initially developed as a drug delivery system to treat canker sores with the
same active ingredient (amlexanox) that is used in our Aphthasol® paste. We have
continued to develop the OraDiscTM technology and we have generated or are
exploring additional prototype drug delivery products, including those for pain
palliation in the oral cavity, gingivitis, cough and cold treatment, breath
freshener, tooth whitening and other dental applications.





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Marketed
Products





We have
used our drug delivery technology platforms to develop the following products
and product candidates:





AltrazealTM





AltrazealTM
Transforming Powder Dressing, based on our NanoflexTM
technology, has the potential to change the way health care providers approach
their treatment of wounds. Launched in June 2008, the product is indicated for
exuding wounds such as partial thickness burns, donor sites, abrasions,
surgical, acute and chronic wounds. The powder fills and seals the wound to
provide an optimal moist healing environment. The exudate is controlled through
the high moisture vapor transpiration rate (MVTR) that we believe creates a low
pressure environment which is believed to stimulate wound healing. Other
characteristics promoting the healing are oxygen permeability and bacteria
impermeability.  Patient comfort is enhanced with the easy application
and removal of our wound dressing, where no granulating tissue is harmed during
the removal procedure.  The dressing is flexible and adherent and is
designed to allow greater range of motion. In addition, AltrazealTM
typically does not require a secondary dressing and reduces the need for
frequent dressing changes, which offers a significant pharmaco-economic
benefit.





In 2008
AltrazealTM was
successfully scaled up through our network of strategic contract manufacturers.
We established a commercial organization including Sales and Marketing
management and 10 Product Specialists. The regulatory status of AltrazealTM is a
510(k) exempt product. The FDA was notified and the product was registered in
June 2008.  The product launch was in June 2008.





During
the initial six months of marketing, we gained clinical experience with over
3,000 patients using AltrazealTM for the treatment of various types of
wounds.  Two posters were presented and published at the annual
Clinical Symposium for Advancements in Skin & Wound Care
(CSASWC).





A
strategy for optimal reimbursement and publication of the mounting clinical
evidence  has been implemented to support our commercial
activities.  The commercial activities will be expanded by the launch
of new products such as AltrazealTM Silver
(filed with US FDA in October 2008) and obtaining a CE mark in Europe (filed in
December 2008).





We expect
to form strategic alliances for product development and to out license the
commercial rights to development partners for a number of our product
development candidates. By forming strategic alliances with large medical device
and or pharmaceutical companies, we believe that our technology can be more
rapidly developed and successfully introduced into the marketplace.








Aphthasol® and Aptheal®
(Amlexanox 5% Paste)





Amlexanox
5% paste is the first drug approved by the FDA for the treatment of canker
sores. A Phase IV clinical study conducted in Northern Ireland was completed in
November 2000 and results confirmed that amlexanox 5% paste was effective in
preventing the formation of an ulcer when used at the first sign or symptom of
the disease. If this label extension is approved by regulatory authorities, we
believe that it would provide a major marketing opportunity to expand use of the
product and to attract sufferers of canker sores to contact medical
practitioners to request the product.





The
exclusive United States rights for the sale and marketing of amlexanox 5% paste
for the treatment of canker sores is licensed to Discus Dental Inc., a specialty
dental company.


The
exclusive United Kingdom and Ireland rights for the sale and marketing of
amlexanox 5% paste were initially licensed to ProStrakan. Under the terms of
this license, ProStrakan was responsible for and assumed all costs associated
with the regulatory approval process, including product registration, for
amlexanox in the United Kingdom and the European Union.
 
 In
November 2008, Meda AB expanded their territorial rights to include the United
Kingdom, Ireland, France, Germany, Italy, Belgium, Netherland, Turkey, which
were in addition to their existing territories of Scandinavia, the Baltic
States, and Iceland. In addition to our license agreement with Meda AB,
licensing agreements have been executed with Laboratories Esteve for Spain,
Portugal and Greece; Pharmascience Inc. for Canada; EpiTan, Ltd. for Australia
and New Zealand; and Orient Europharma, Co., Ltd for Taiwan, Hong-Kong,
Philippines, Thailand and Singapore; and KunWha Pharmaceutical Co., LTD for
South Korea. Currently, Contract Pharmaceuticals Ltd. Canada is our contract
manufacturer for all markets including the United States.
 
 ProStrakan
received marketing authorization for amlexanox 5% paste in the United Kingdom in
September 2001under the trade name of Aptheal®. Approval to market was granted
in Austria, Germany, Greece, Finland, Ireland, Luxembourg, The Netherlands,
Norway, Portugal, and Sweden in conjunction with Meda AB. We plan to reapply for
approvals in countries where registration has not been received including
France, Italy and Belgium.
 
 The
therapeutic Products Programme, the Canadian equivalent of the FDA, has issued a
notice of compliance permitting the sale of amlexanox 5% paste, called Apthera®,
in Canada by Pharmascience Inc., our Canadian partner.







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OraDiscTM A





Treatment
of oral conditions generally relies upon the use of medications formulated as
gels and pastes that are applied to lesions in the mouth. The duration of
effectiveness of these medications is typically short because the applied dose
is worn away through the mechanical actions of speaking, eating, and tongue
movement, and is washed away by saliva flow. To address these problems, we have
developed a novel, cost-effective, adhesive film product that is bioerodible.
This technology, known as OraDiscTM, comprises a multi-layered film having an
adhesive layer, an optional pre-formed film layer, and a coated backing
layer.





OraDiscTM
A was initially developed as a drug delivery system to treat canker sores with
the same active ingredient (amlexanox) that is used in Aphthasol® paste. We
anticipate that higher amlexanox concentrations will be achieved at the disease
site, increasing the effectiveness of the product.  OraDiscTM A was
approved by the FDA in September 2004.





This
successful development was an important technology milestone which supports the
development of our OraDiscTM range of products. To achieve OraDiscTM A approval,
in addition to performing the necessary clinical studies to prove efficacy, an
irritation study, a 28-day safety study and drug distribution studies were
conducted. Additionally, safety in patients as young as 12 years of age was
demonstrated. Patients in a 700 patient clinical study and 28-day safety study
completed a survey which produced very positive results with regard to perceived
effectiveness, ease of application, ability of the disc to remain in place and
purchase intent. These data give strong support to our overall development
program. The survey data confirms market research studies which indicate a
strong patient acceptance of this delivery device.





In order
to expedite the commercialization of OraDiscTM A we reacquired the rights in 2008
and are aggressively pursuing another strategic partner. In the meantime, Discus
Dental is continuing to market Aphthasol® in the United States.




In
November 2008, we executed an expanded European Agreement with Meda AB, Sweden
for OraDisc A and Aphthasol (5% amlexanox) paste for distribution into most
major European markets. Meda AB paid us an upfront licensing fee and additional
milestone payments will be made upon regulatory approval and achievements of
commercial milestones.
 
 In June
2008, we executed a Licensing and Supply Agreement with KunWha Pharmaceutical
Co., Ltd, for OraDisc A and Aphthasol (5% amlexanox) paste in South Korea.
KunWha Pharmaceutical Co., Ltd paid us an upfront licensing fee and further
milestone payments are to be made on regulatory approval and achievement of
certain commercial milestones.





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OraDiscTMB





A second
mucoadhesive disc product has also been successfully developed for the treatment
and management of oral pain. This product contains 15 milligrams of benzocaine
which is the maximum allowable strength that falls under the classification of
an OTC monograph drug. This classification allows for an easier regulatory
pathway to market. The product has been optimized and is ready for commercial
scale-up.





In March
2007, we executed a Licensing and Supply Agreement for OraDisc B with Meldex
International, for the territories of Europe and the Middle East. We received an
upfront licensing fee and will receive additional payments based on regulatory
approval and commercial milestones.





Residerm® A gel - Zindaclin®
(Zinc-Clindamycin)





The
complexing of zinc to a drug has the effect of enhancing the penetration of the
drug into the skin and the retention to the drug in the skin. This phenomenon is
called the "reservoir effect," and it makes zinc potentially effective for the
delivery of dermatological drugs. We have a broad patent covering the use of
zinc for such purposes. This technology is called ResiDerm®.





We have
developed, in conjunction with ProStrakan, zinc clindamycin for the treatment of
acne which is marketed under the trade name Zindaclin®. Topical acne drugs
constitute an approximately $750 million per year market and clindamycin is a
widely prescribed drug for the treatment of acne. Clinical studies indicate that
the addition of zinc results in Zindaclin® being as effective applied once daily
as the market leading clindamycin product applied twice daily. The activity of
zinc and clindamycin, the improved stability of the product and the potential
for zinc to overcome certain bacterial resistance are other potential product
benefits.





Pursuant
to a license agreement, the exclusive worldwide rights for the manufacturing,
sales and marketing of zinc clindamycin were granted to
ProStrakan.  Under the terms of the license agreement, ProStrakan
agreed to fund the development costs of zinc clindamycin and any additional
compounds developed utilizing our zinc patent, including preclinical, clinical
development, and product registrations. We share equally in all milestone
payments received from the sublicensing of the compound. In addition, we receive
a royalty on sales of products utilizing this technology.





ProStrakan
sub-licensed to Crawford Healthcare Limited the marketing of zinc clindamycin in
the United Kingdom which is sold under the trade name
Zindaclin®.  Subsequently, in December 2006, ProStrakan signed a
Licensing Agreement to extend Crawford Healthcare Limited’s territory to include
all EU countries except Spain and Italy, the United States, and the CEE
countries.  Crawford Healthcare Limited was subsequently acquired by
York Pharma PLC, UK. The process to achieve marketing authorization for
Zindaclin® throughout Europe has now been completed, with approvals granted in
most European Union countries including the new member states and several
non-European Union countries.  In Spain and Italy, Zindaclin® is
licensed to Cantabria SA.  Additional licenses and/or distribution
agreements have been signed in other countries with other
companies.





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Patents





We
believe that the value of technology both to us and to our potential corporate
partners is established and enhanced by our broad intellectual property
positions. Consequently, we have already been issued and seek to obtain
additional U.S. and foreign patent protection for products under development and
for new discoveries. Patent applications are filed for our inventions and
prospective products with the U.S. Patent and Trademark Office and, when
appropriate, with authorities in countries that are part of the Paris
Convention’s Patent Cooperation Treaty (“PCT”) (most major countries in Western
Europe and the Far East) and with other authorities in major markets not covered
by the PCT.





One U.S.
and two European patents have been issued and one European patent is pending for
the use of zinc as a pharmaceutical vehicle for enhancing the penetration and
retention of drug in the skin. The patents and patent application cover the
method of inducing a reservoir effect in skin and mucous membranes to enhance
penetration and retention of topically applied therapeutic and cosmetic agents.
The patents and patent application also relate to topical treatment methods
including such reservoir effect enhancers and to pharmaceutical compositions
containing them.





We have
one U.S. patent and have filed two U.S. and two European patent applications for
our OraDiscTM technology. This oral delivery vehicle potentially overcomes the
difficulties encountered in using conventional paste and gel formulations for
conditions in the mouth. Utilizing this technology, we anticipate that higher
drug concentrations will be achieved at the disease site, increasing the
effectiveness of the product.  Our patent applications cover the
delivery of drugs through or into any mucosal surface and onto the surface of
teeth. The patent and patent applications cover our ability to control the
erosion time of the adhesive film and the subsequent drug release by adjusting
the ratio of hydrophobic to hydrophilic polymers in the outer layer of the
adhesive film.





With
regards to our NanoflexTM
technology, one U.S. patent has issued and three additional U.S. and four PCT
patent applications have been filed. The patent applications have a variety of
potential applications, such as wound management, burn care, dermal fillers,
breast implants, artificial discs and tissue scaffold.  In December
2006 we acquired from Access Pharmaceuticals Inc. all patent rights and all
intellectual properties associated with the NanoflexTM
technology.  We then licensed to Access certain specific applications
of the Nanoparticle Aggregate technology which include use in intraperotinial,
intratumoral, subscutaneous or intramuscular drug delivery implants, excluding
dermal or facial fillers.





We also
have a patent for amlexanox and the worldwide rights, excluding Japan, for the
use of amlexanox for oral and dermatological use.





We have a
strategy of maintaining an ongoing line of patent continuation applications for
each major category of patentable carrier and delivery technology. By this
approach, we are extending the intellectual property protection of our basic
technology to cover additional specific carriers and agents, some of which are
anticipated to carry the priority dates of the original
applications.




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Government
Regulation


We are
subject to extensive regulation by the federal government, principally by the
United States Food and Drug Administration (“FDA”), and, to a lesser extent, by
other federal and state agencies as well as comparable agencies in foreign
countries where registration of products will be pursued. Although a number of
our formulations incorporate extensively tested drug substances, because the
resulting formulations make claims of enhanced efficacy and/or improved side
effect profiles, they are expected to be classified as new drugs by the
FDA.
 The
Federal Food, Drug and Cosmetic Act and other federal, state and foreign statues
and regulations govern the testing, manufacturing, safety, labeling, storage,
shipping, and record keeping of our products. The FDA has the authority to
approve or not approve new drug applications and/or new medical devices and
inspect research, clinical and manufacturing records and
facilities.





In
Europe, the filing of a Technical File Dossier to a Notified Body allows the
medical device to receive a CE mark which allows commercialization of the
product in the European Union.





Among the
requirements for drug and medical device approval and testing is that the
prospective manufacturer’s facilities and methods conform to the Code of Good
Manufacturing Practices (“cGMP”) regulations, which establish the manufacturing
and quality requirements, and the facilities or controls to be used during, the
production process. Such facilities and manufacturing process are subject to
ongoing FDA inspection to insure compliance.





The steps
required before a pharmaceutical product or medical device product may be
produced and marketed in the U.S. can include preclinical tests, the filing of
an Investigational New Drug application ("IND") or an Investigational Device
Exemption (“IDE”) with the FDA, which must become effective pursuant to FDA
regulations before human clinical trials may commence.  Numerous
phases of clinical testing and the FDA approval of a New Drug Application
(“NDA”), a Product Marketing Authorization (“PMA”), or a 510(k) application
(“510(k)”) is also typically required prior to commercial sale.





Preclinical
tests are conducted in the laboratory, usually involving animals, to evaluate
the safety and efficacy of the potential product. The results of preclinical
tests are submitted as part of the IND and IDE application and are fully
reviewed by the FDA prior to granting the sponsor permission to commence
clinical trials in humans. All trials are conducted under International
Conference on Harmonization, good clinical practice guidelines. All investigator
sites and sponsor facilities are subject to FDA inspection to insure compliance.
Clinical trials typically involve a three-phase process.  In the case
of a pharmaceutical product, Phase I, the initial clinical evaluations, consists
of administering the drug and testing for safety and tolerated dosages. Phase II
involves a study to evaluate the effectiveness of the drug for a particular
indication and to determine optimal dosage and dose interval and to identify
possible adverse side effects and risks in a larger patient group. When a
product is found safe, an initial efficacy is established in Phase II and it is
then evaluated in Phase III clinical trials. Phase III trials consist of
expanded multi-location testing for efficacy and safety to evaluate the overall
benefit to risk index of the investigational drug in relationship to the disease
treated. The results of preclinical and human clinical testing are submitted to
the FDA in the form of an NDA, PMA, or 510(k) for approval to commence
commercial sales.





The
process of performing the requisite testing, data collection, analysis and
compilation of an IND, IDE, NDA, PMA, or 510(k) is labor intensive and costly
and may take a protracted time period.  In some cases, tests may have
to be redone or new tests instituted to comply with FDA
requests.  Review by the FDA may also take considerable time and there
is no guarantee that an NDA, PMA, or 510(k) will be
approved.  Therefore, we cannot estimate with any certainty the length
of the approval cycle.





We are
also governed by other federal, state and local laws of general applicability,
such as laws regulating working conditions, employment practices, as well as
environmental protection.




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Competition





The
medical device and pharmaceutical industry is characterized by intense
competition, rapid product development and technological
change.  Competition is intense among manufacturers of prescription
pharmaceuticals, medical devices, and other product areas where we may develop
and market products in the future.  Most of our potential competitors
in the wound care market such as ConvaTec Inc., Systagenix Wound Management,
Smith & Nephew - are large, well established medical device, pharmaceutical
or healthcare companies with considerably greater financial, marketing, sales
and technical resources than areavailable to us.
Additionally, many of our potential competitors have research and development
capabilities that may allow such competitors to develop new or improved products
that may compete with our product lines.  Our potential products could
be rendered obsolete or made uneconomical by the development of new products to
treat the conditions to be addressed by our developments, technological advances
affecting the cost of production, or marketing or pricing actions by one or more
of our potential competitors.  Our business, financial condition and
results of operation could be materially adversely affected by any one or more
of such developments.  We cannot assure you that we will be able to
compete successfully against current or future competitors or that competition
will not have a materially adverse effect on our business, financial condition
and results of operations.  Academic institutions, governmental
agencies and other public and private research organizations are also conducting
research activities and seeking patent protection and may commercialize products
on their own or with the assistance of major health care companies in areas
where we are developing product candidates.  We are aware of certain
developmental projects for products to treat or prevent certain disease targeted
by us.  The existence of these potential products or other products or
treatments of which we are not aware, or products or treatments that may be
developed in the future, may adversely affect the marketability of products
developed by us.





In the
area of wound management, burn care, breast implants, and dermal fillers, which
are the focus of our development activities, a number of companies are
developing or evaluating new technology approaches.  We expect that
technological developments will occur at a rapid rate and that competition is
likely to intensify as various alternative technologies achieve similar, if not
identical, advantages.





Wound
care products developed from our NanoflexTM technology, including AltrazealTM,
will compete with numerous well established products including Aquacel® marketed
by ConvaTec Inc., Silvercel and Promongran marketed by Systagenix Wound
Management, Acticoat and Allevyn marketed by Smith and Nephew, and Mepitel and
Mepliex marketing by Molnlycke Health Care.  There are numerous well
established companies that compete in the advanced wound care market including
ConvaTec Inc., Systagenix Wound Management, Smith & Nephew, Molnlycke Health
Care, 3M,and Healthpoint, Ltd.





Our
product, Aphthasol®, is the only product clinically proven to accelerate the
healing of canker sores.  There are numerous products, including
prescription steroids such as Kenalog in OraBase, and many over-the-counter pain
relief formulations that incorporate a local anesthetic used for the treatment
of this condition.





Products
developed from our Residerm® technology will compete for a share of the existing
market with numerous products which have become standard treatments recommended
or prescribed by dermatologists. Zindaclin®, which is a product developed
utilizing our Residerm® technology, competes with products including Benzamycin,
marketed by a subsidiary of Sanofi-Aventis; Cleocin-T and a generic topical
clindamycin marketed by Pfizer; Benzac, marketed by a subsidiary of L’Oreal; and
Triaz, marketed by Medicis Pharmaceutical Corp.


Even if
our products are fully developed and receive the required regulatory approval,
of which there can be no assurance, we believe that our products that require
extensive sales efforts directed both at the consumer and the general
practitioner can only compete successfully if marketed by a company having
expertise and a strong presence in the therapeutic area or in direct to consumer
marketing. Consequently, our business model is to form strategic alliances with
major or regional pharmaceutical companies for products to compete in these
markets.  Management believes that our development risks should be
minimized and that the technology potentially could be more rapidly developed
and successfully introduced into the marketplace by adopting this
strategy.


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Employees





As of
December 31, 2008, we had 30 full-time employees, including 13 in sales and
marketing, 10 in research and development of which five have advanced scientific
degrees, 5 in general and administration and 2 in manufacturing, quality, and
service.  In addition, we use three contract consultants for business
development, clinical administration, and regulatory
administration.  Our employees are not represented by a labor union
and are not covered by a collective bargaining agreement.  Management
believes that we maintain good relations with our personnel.  At
times, we may compliment our internal expertise with external scientific
consultants, university research laboratories and contract manufacturing
organizations that specialize in various aspects of drug development including
clinical development, regulatory affairs, toxicology, preclinical testing and
process scale-up.








Executive
Officers and Key Employees





The
following table sets forth the executive officers and key employees of the
Company, as of the date hereof, along with their respective ages and
positions.  Each of the officers listed below has been appointed to
hold the office listed opposite his respective name until the earlier to occur
of the death or resignation of such officer or until a successor has been duly
appointed by the board of directors of the Company.





Name
                  
                  Age
                  
                  PositionRenaat Van den Hooff
                  
                  
                  50
                  
                  Chief Executive Officer, PresidentTerrance K. Wallberg
                  
                  
                  54
                  
                  Vice President, Chief Financial Officer, Secretary,
    TreasurerDaniel G. Moro
                  
                  
                  62
                  
                  Vice President Polymer Drug DeliveryJohn V. St. John, Ph.D.
                  
                  
                  37
                  
                  Vice President Research and DevelopmentW. Eric Bowditch
                  
                  
                  62
                  
                  Vice President Business
Development.





The
following is a brief account of the business experience during the past five
years of each executive officer and key employee of the Company, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.





Renaat Van den Hooff led the
integration of the Johnson and Johnson (“J&J”) and Pfizer Consumer
Healthcare business for the Europe, Middle East and Africa
region.  Previously, from 2004 to 2006 Mr. Van den Hooff was President
of J&J Merck Consumer Pharmaceuticals and President of McNeil International,
having been President of J&J Merck from 2003 and Vice President for the U.S.
Joint Venture from 2001 to 2003.  Prior to that from 1997 to 2001, Mr.
Van den Hooff had been Managing Director United Kingdom and Ireland for J&J
MSD Consumer Pharmaceuticals.  From 1989 to 1996 Mr. Van den Hooff
held various positions at Janssen Pharmaceutica Belgium.  Prior to
joining the J&J family of companies, from 1983 to 1988 he held various
positions with IMS Belgium.




Terrance K. Wallberg, a
Certified Public Accountant, possesses an extensive and diverse background with
over 30 years of experience with entrepreneurial/start-up companies. Prior to
joining ULURU Inc., Mr. Wallberg was Chief Financial Officer with Alliance
Hospitality Management and previous to that was CFO for DCB Investments, Inc., a
Dallas, Texas based diversified real estate holding company. During his five
year tenure at DCB Investments, Mr. Wallberg acquired valuable experience with
several successful start-up businesses and dealing with the external financial
community. Prior to DCB Investments, Mr. Wallberg spent 22 years with Metro
Hotels, Inc., serving in several finance/accounting capacities and culminating
his tenure as Chief Financial Officer. Mr. Wallberg is a member of the American
Society and the Texas Society of Certified Public Accountants and is a graduate
of the University of Arkansas.





Daniel G. Moro was previously
Vice President, Polymer Drug Delivery at Access Pharmaceuticals, Inc. from
September 2000 until October 2005. He managed various drug delivery projects
related to Hydrogel polymers. He invented the mucoadhesive erodible drug
delivery technology (OraDiscTM) for the controlled administration of actives and
is the co-inventor of our hydrogel nanoparticle aggregate
technology.  Previously, Mr. Moro served as Vice President, Operations
for a Division of National Patent Development Corporation (“NPDC”) which
developed the soft contact lens. Prior to his operational experience, Mr. Moro
spent 20 years at the NPDC as a senior research scientist and invented and
commercialized several technologies, including a hydrogel burn and wound
dressing and a subcutaneous retrievable drug delivery implant to treat prostate
cancer. Mr. Moro has over twenty five years experience of pharmaceutical
development and holds nine patents related to drug delivery applications, four
of which have been commercialized.





Dr. John V. St. Johnwas
previously a Senior Scientist at Access Pharmaceuticals, Inc. from March 2000
until October 2005. He served as team leader during the early identification of
Access Pharmaceuticals’ oncology drug, AP5346. Dr. St. John served as team
leader for the hydrogel team from January 2002 to October 2005 during the
development of the Hydrogel Nanoparticle Aggregate Technology and is the
co-inventor of this technology.  He holds one patent. Dr. St. John has
served as an adjunct faculty member in the Department of Biomedical Engineering
at the University of Texas Southwestern Medical School while at Access
Pharmaceuticals. Previously, Dr. St. John served as a Dreyfus Fellow and
Assistant Professor in the Department of Chemistry of Southern Methodist
University from August 1998 to March 2000. He has earned a graduate certificate
in Marketing from the SMU Cox School of Business. Dr. St. John served as the
elected Chair of the Dallas Fort Worth American Chemical Society Section for
2005 and is a current member in the American Chemical Society, the Materials
Research Society, and the Controlled Release Society.





W. Eric Bowditch is a senior
international pharmaceutical executive with over 30 years experience in global
business development, licensing, marketing and strategic planning. He serves as
President, IntaPro LLC, a company focused on corporate business development,
licensing and partnering. Prior to this he was President & CEO, Strakan Life
Sciences, Inc. between 1998 and 2002. Between 1996 and 1998, he was Vice
President Business Development, Access Pharmaceuticals, Inc. From 1992 to 1996,
he was Head of Worldwide Business Development, Ohmeda Pharmaceuticals before the
acquisition by Baxter International. From 1984-1991, he was Worldwide Director,
Business Development & Strategic Marketing, Rhone-Poulenc Rorer. W. Eric
Bowditch has an MBA from the University of London, a Postgraduate Diploma in
Marketing and a Postgraduate Diploma in Management Studies.




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ITEM
1A.                      RISK
FACTORS







You
should carefully consider the following risk factors before you decide to invest
in our Company and our business because these risk factors may have a
significant impact on our business, operating results, financial condition, and
cash flows. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of the
following risks actually occurs, our business, financial condition and results
of operations could be materially and adversely affected.








Risks
Related to Our Operations







We do not have significant
operating revenue and we may never attain profitability.





Our
ability to achieve significant revenue or profitability depends upon our ability
to successfully complete the development of product candidates, to develop and
obtain patent protection and regulatory approvals for our product candidates and
to manufacture and commercialize the resulting products.  We may not
generate significant revenues or profits from the sale of these products in the
future.  Furthermore, we may not be able to ever successfully
identify, develop, commercialize, patent, manufacture, obtain required
regulatory approvals and market any additional products.  Moreover,
even if we do identify, develop, commercialize, patent, manufacture, and obtain
required regulatory approvals to market additional products, we may not generate
revenues or royalties from commercial sales of these products for a significant
number of years, if at all.  Therefore, our proposed operations are
subject to all the risks inherent in the establishment of a new business
enterprise. In the next few years, our revenues may be limited to minimal
product sales and royalties, amounts that we receive under strategic
partnerships and research or product development collaborations that we may
establish and, as a result, we may be unable to achieve or maintain
profitability in the future or to achieve significant revenues to fund our
operations.





Declining
general economic or business conditions may have a negative impact on our
business.





Concerns
over inflation, energy costs, geopolitical issues, the availability and cost of
credit, the U.S. mortgage market and a declining real estate market in the U.S.
have contributed to increased volatility and diminished expectations for the
global economy and expectations of slower global economic growth going forward.
These factors, combined with volatile oil prices, declining business and
consumer confidence and increased unemployment, have precipitated a global
economic slowdown. If the economic climate in the U.S. does not improve or
continues to deteriorate, our business, including our patient population, our
suppliers and our third-party payers, could be negatively affected, resulting in
a negative impact on our business.





A failure to obtain
necessary additional capital in the future could jeopardize our
operations.





We may
not be able to obtain additional financing on terms acceptable to us, if at all.
If we raise additional funds by selling equity securities, the relative equity
ownership of our existing investors would be diluted and the new investors could
obtain terms more favorable than previous investors.  A failure to
obtain additional funding to support our working capital and operating
requirements could prevent us from making expenditures that are needed to allow
us to maintain our operations.





Our financial condition may
limit our ability to borrow additional funds or to raise additional equity as
may be required to fund our future operations.





Our
ability to borrow funds or raise additional equity may be limited by our
financial condition.  Additionally, events such as our inability to
continue to reduce our loss from continuing operations, could adversely affect
our liquidity and our ability to attract additional funding as
required.





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Although we expect that any
future acquisitions we may complete will result in benefits to the combined
company, we may not realize such benefits because of integration and other
challenges.




We may
pursue strategic acquisitions as part of our efforts to grow our
business.  Although we expect that the consummation of any such
acquisitions will result in benefits to the combined company, we may not realize
such benefits because of integration and other challenges.  Any such
acquisition could also be expensive and could require us to use our limited cash
resources.




Our
ability to realize the anticipated benefits of any acquisition will depend, in
part, on the ability of the Company to integrate the business of the acquired
company with our business. The combination of two independent companies is a
complex, costly and time-consuming process. This process may disrupt the
business of either or both of the companies, and may not result in the full
benefits expected by the parties. The difficulties of combining the operations
of the companies include, among others:




§
              unanticipated
      issues in integrating information, communications and other
      systems;§
              retaining
      key employees;§
              consolidating
      corporate and administrative infrastructures;§
              the
      diversion of management’s attention from ongoing business concerns;
      and§
              coordinating
      geographically separate
organizations.





The success of our research
and development activities, upon which we primarily focus, is
uncertain.





Our
primary focus is on our research and development activities and the
commercialization of products covered by proprietary biopharmaceutical patents
and applications.  Research and development activities, by their
nature, preclude definitive statements as to the time required and costs
involved in reaching certain objectives.  Actual research and
development costs, therefore, could exceed budgeted amounts and estimated time
frames may require extension.  Cost overruns, unanticipated regulatory
delays or demands, unexpected adverse side effects or insufficient therapeutic
efficacy will prevent or substantially slow our research and development effort
and our business could ultimately suffer.





We may not successfully
commercialize our product candidates.





Our
product candidates are subject to the risks of failure inherent in the
development of pharmaceuticals based on new technologies and our failure to
develop safe, commercially viable products would severely limit our ability to
become profitable or to achieve significant revenues.  We may be
unable to successfully commercialize our product candidates
because:





§
              some
      or all of our product candidates may be found to be unsafe or ineffective
      or otherwise fail to meet applicable regulatory standards or receive
      necessary regulatory clearances;§
              our
      product candidates, if safe and effective, may be too difficult to develop
      into commercially viable products;§
              it
      may be difficult to manufacture or market our product candidates in a
      large scale;§
              proprietary
      rights of third parties may preclude us from marketing our product
      candidates; and§
              third
      parties may market superior or equivalent
  products.








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If we are unable to
establish and maintain effective sales, marketing and distribution capabilities,
or to enter into agreements with third parties to do so, we will be unable to
successfully commercialize AltrazealTM.





We are
marketing and selling AltrazealTM ourselves in the United States but have only
limited experience thus far with marketing, sales or distribution of wound care
products. We have hired sales representatives for the commercialization of
AltrazealTM in the United States. If we are unable to establish the capabilities
to sell, market and distribute AltrazealTM, either through our own capabilities
or by entering into agreements with others, or to maintain such capabilities in
countries where we have already commenced commercial sales, we will not be able
to successfully sell AltrazealTM. In that event, we will not be able to generate
significant revenues. We cannot guarantee that we will be able to establish and
maintain our own capabilities or enter into and maintain any marketing or
distribution agreements with third-party providers on acceptable terms, if at
all. Even if we hire the qualified sales and marketing personnel we need in the
United States to support our objectives, or enter into marketing and
distribution agreements with third parties on acceptable terms, we may not do so
in an efficient manner or on a timely basis. We may not be able to correctly
judge the size and experience of the sales and marketing force and the scale of
distribution capabilities necessary to successfully market and sell AltrazealTM.
Establishing and maintaining sales, marketing and distribution capabilities are
expensive and time-consuming. Our expenses associated with building up and
maintaining the sales force and distribution capabilities may be disproportional
compared to the revenues we may be able to generate on sales of AltrazealTM. We
cannot guarantee that we will be successful in commercializing
AltrazealTM.





We may be unable to
successfully develop, market, or commercialize our products or our product
candidates without establishing new relationships and maintaining current
relationships.





Our
strategy for the research, development and commercialization of our potential
pharmaceutical products may require us to enter into various arrangements with
corporate and academic collaborators, licensors, licensees and others, in
addition to our existing relationships with other
parties.  Specifically, we may need to joint venture, sublicense or
enter other marketing arrangements with parties that have an established
marketing capability or we may choose to pursue the commercialization of such
products.  Furthermore, if we maintain and establish arrangements or
relationships with third parties, our business may depend upon the successful
performance by these third parties of their responsibilities under those
arrangements and relationships.  For our commercialized products, we
currently rely upon the following relationships in the following marketing
territories for sales, manufacturing and/or regulatory approval
efforts:





Amlexanox
      5% paste and OraDiscTM ADiscus Dental Inc.
              §
              United
      States;Meda AB
              §
              United
      Kingdom, Ireland, Scandinavia, the Baltic states, Iceland, Belgium,
      France, Germany, Italy, Luxembourg, Netherlands, Switzerland, Austria,
      Bulgaria, Cyprus, Czech Republic, Hungary, Malta, Poland, Romania,
      Slovenia, Turkey, Russia, and the Commonwealth of Independent
      States;EpiTan Pharmaceuticals
              §
              Australia
      and New Zealand;Kunwha Pharmaceutical
              §
              South
      Korea;Laboratories del Dr. Esteve SA
              §
              Spain,
      Portugal, Greece, and Andorra;Orient Europharma, Co., Ltd.
              §
              Taiwan,
      Hong-Kong, Malaysia, Philippines, Thailand and
  Singapore;Pharmascience Inc.
              §
              Canada.





OraDiscTM
    BMeldex International PLC
              §
              Europe,
      CEE and CIS countries, and the Middle
East.





Zindaclin® and
      Residerm®ProStrakan Ltd.
              §
              worldwide
      manufacturing, marketing and regulatory approval
rights;York Pharma
              §
              sublicensed
      United Kingdom, Ireland, continental Europe, and CEE countries marketing
      rights;Cantabria
              §
              sublicensed
      Italy and Spain marketing rights;EpiTan, Ltd.
              §
              sublicensed
      Australia and New Zealand marketing rights;Hyundai
              §
              sublicensed
      Korea marketing rights;Taro
              §
              sublicensed
      Israel marketing rights;Biosintetica
              §
              sublicensed
      Brazil marketing rights;Five companies for nine other smaller countries with sublicensed marketing
      rights.





Our
ability to successfully commercialize, and market our products and product
candidates could be limited if a number of these existing relationships were
terminated.







We may be unable to
successfully manufacture our products and our product candidates in clinical
quantities or for commercial purposes without the assistance of contract
manufacturers, which may be difficult for us to obtain and
maintain.





We have
limited experience in the manufacture of pharmaceutical products in clinical
quantities or for commercial purposes, and we may not be able to manufacture any
new pharmaceutical products that we may develop.  As a result, we have
established, and in the future intend to establish, arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical
trials and for the manufacture, packaging, labeling, and distribution of
finished pharmaceutical products.  If we are unable to contract for a
sufficient supply of our pharmaceutical products on acceptable terms, our
preclinical and human clinical testing schedule may be delayed, resulting in the
delay of our clinical programs and submission of product candidates for
regulatory approval, which could cause our business to suffer.  Our
business could suffer if there are delays or difficulties in establishing
relationships with manufacturers to produce, package, label and distribute our
finished pharmaceutical or other medical products, if any, and the market
introduction and subsequent sales of such products.  Moreover,
contract manufacturers that we may use must adhere to current Good Manufacturing
Practices, as required by FDA.  In this regard, the FDA will not issue
a pre-market approval or product and establishment licenses, where applicable,
to a manufacturing facility for the products until the manufacturing facility
passes a pre-approval plant inspection.  If we are unable to obtain or
retain third party manufacturing on commercially acceptable terms, we may not be
able to commercialize our products as planned.  Our potential
dependence upon third parties for the manufacture of our products may adversely
affect our ability to generate profits or acceptable profit margins and our
ability to develop and deliver such products on a timely and competitive
basis.





We may incur substantial
product liability expenses due to the use or misuse of our products for which we
may be unable to obtain insurance coverage.





Our
business exposes us to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. These risks
will expand with respect to our drug candidates, if any, that receive regulatory
approval for commercial sale, and we may face substantial liability for damages
in the event of adverse side effects or product defects identified with any of
our products that are used in clinical tests or marketed to the public. We
generally procure product liability insurance for product candidates that are
undergoing human clinical trials. Product liability insurance for the
biotechnology industry is generally expensive, if available at all, and as a
result, we may be unable to obtain insurance coverage at acceptable costs or in
sufficient amount in the future, if at all.





We may be
unable to satisfy any claims for which we may be held liable as a result of the
use or misuse of products which we have developed, manufactured or sold and any
such product liability could adversely affect our business, operating results or
financial condition.





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We may incur significant
liabilities if we fail to comply with stringent environmental
regulations.





Our
research and development processes involve the controlled use of hazardous
materials.  We are subject to a variety of federal, state and local
governmental laws and regulations related to the use, manufacture, storage,
handling, and disposal of such material and certain waste
products.  Although we believe that our activities and our safety
procedures for storing, using, handling and disposing of such material comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated.  In the event of such accident, we could be held liable
for any damages that result and any such liability could exceed our
resources.





Intense competition may
limit our ability to successfully develop and market commercial
products.





The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Our competitors in the
United States and elsewhere are numerous and include, among others, major
multinational pharmaceutical, device, and chemical companies, specialized
biotechnology firms and universities and other research
institutions.





The
following products may compete with Residerm® products:





§
            Benzamycin,
      marketed by a subsidiary of Sanofi-Aventis;§
            Cleocin-T
      and a generic topical clindamycin, marketed by Pfizer;§
            Benzac,
      marketed by Galderma; and§
            Triaz,
      marketed by Medicis Pharmaceutical
Corp.





Prescription
steroids such as Kenalog in OraBase, developed by Bristol-Myers Squibb, may
compete with our commercialized Aphthasol® product. OTC products including
Orajel (Church and Dwight) and Anbesol (Wyeth Consumer Healthcare) also compete
in the aphthous ulcer market.





In the
area of wound management and burn care, which is the primary focus of our
commercialization and development activities, a number of companies are
developing or evaluating new technology approaches.  Significantly
larger companies compete in this marketplace including Kinetic Concepts, Inc.,
Convatec, Systagenics, Smith and Nephew, 3M, and numerous other
companies.  We expect that technological developments will occur at a
rapid rate and that competition is likely to intensify as various alternative
technologies achieve similar if not identical advantages.





Many of
these competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing
organizations.  As a result, our competitors may successfully develop
technologies and drugs that are more effective or less costly than any that we
are developing or which would render our technology and future products obsolete
and noncompetitive.





In
addition, some of our competitors have greater experience than we do in
conducting preclinical and clinical trials and may obtain FDA and other
regulatory approvals for product candidates more rapidly than we
do.  Companies that complete clinical trials obtain required
regulatory agency approvals and commence commercial sale of their products
before their competitors may achieve a significant competitive
advantage.  Products resulting from our research and development
efforts or from our joint efforts with collaborative partners therefore may not
be commercially competitive with our competitors’ existing products or products
under development.





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Our ability to successfully
develop and commercialize our drug or device candidates will substantially
depend upon the availability of reimbursement funds for the costs of the
resulting drugs or devices and related treatments.





The
successful commercialization of, and the interest of potential collaborative
partners to invest in the development of our drug or device candidates, may
depend substantially upon the reimbursement at acceptable levels of the costs of
the resulting drugs or devices and related treatments from government
authorities, private health insurers and other organizations, including health
maintenance organizations, or HMOs.  To date, the costs of our
marketed products Aphthasol® and Zindaclin® generally have been reimbursed at
acceptable levels; however, the amount of such reimbursement in the United
States or elsewhere may be decreased in the future or may be unavailable for any
drugs or devices that we may develop in the future.  Limited
reimbursement for the cost of any drugs or devices that we develop may reduce
the demand for, or price of such drugs or devices, which would hamper our
ability to obtain collaborative partners to commercialize our drugs or devices,
or to obtain a sufficient financial return on our own manufacture and
commercialization of any future drugs or devices.





The market may not accept
any pharmaceutical products that we successfully develop.





The drugs
and devices that we are attempting to develop may compete with a number of
well-established drugs and devices manufactured and marketed by major
pharmaceutical companies.  The degree of market acceptance of any
drugs or devices developed by us will depend on a number of factors, including
the establishment and demonstration of the clinical efficacy and safety of our
drug candidates, the potential advantage of our drug candidates over existing
therapies and the reimbursement policies of government and third-party
payers.  Physicians, patients or the medical community in general may
not accept or use any drugs or devices that we may develop independently or with
our collaborative partners and if they do not, our business could
suffer.





Trends toward managed health
care and downward price pressure on medical products and services may limit our
ability to profitably sell any drugs or devices that we
develop.





Lower
prices for pharmaceutical products may result from:





§
            Third-party
      payers’ increasing challenges to the prices charged for medical products
      and services;§
            The
      trend toward managed health care in the Unites States and the concurrent
      growth of HMOs and similar organizations that can control or significantly
      influence the purchase of healthcare services and products;
      and§
            Legislative
      proposals to reform healthcare or reduce government insurance
      programs.





The cost
containment measures that healthcare providers are instituting, including
practice protocols and guidelines and clinical pathways, and the effect of any
healthcare reform, could limit our ability to profitably sell any drugs or
devices that we may successfully develop.  Moreover, any future
legislation or regulation, if any, relating to the healthcare industry or
third-party coverage and reimbursement, may cause our business to
suffer.





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Our business could suffer if
we lose the services of, or fail to attract, key personnel.





We are
highly dependent upon the efforts of our senior management and scientific
team.  The loss of the services of one or more of these individuals
could delay or prevent the achievement of our research, development, marketing,
or product commercialization objectives.  While we have employment
agreements with our senior management, their employment may be terminated at any
time.  We do not maintain any "key-man" insurance policies on any of
our senior management and we do not intend to obtain such
insurance.  In addition, due to the specialized scientific nature of
or business, we are highly dependent upon our ability to attract and retain
qualified scientific and technical personnel.  In view of the stage of
our development and our research and development programs, we have restricted
our hiring to a small sales team, research scientists and a small administrative
staff and we have made only limited investments in manufacturing, production or
regulatory compliance resources.  There is intense competition among
major pharmaceutical and chemical companies, specialized biotechnology firms and
universities and other research institutions for qualified personnel in the
areas of our activities, however, and we may be unsuccessful in attracting and
retaining these personnel.





Our future financial results
could be adversely impacted by asset impairments or other
charges.


Statement
of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets” requires that we test goodwill and other intangible assets
determined to have indefinite lives for impairment on an annual, or on an
interim basis if certain events occur or circumstances change that would reduce
the fair value of a reporting unit below its carrying value or if the fair value
of intangible assets with indefinite lives falls below their carrying value. In
addition, under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets with finite lives are
tested for impairment whenever events or changes in circumstances indicate that
its carrying value may not be recoverable. A significant decrease in the fair
value of a long-lived asset, an adverse change in the extent or manner in which
a long-lived asset is being used or in its physical condition or an expectation
that a long-lived asset will be sold or disposed of significantly before the end
of its previously estimated life are among several of the factors that could
result in an impairment charge.




We
evaluate intangible assets determined to have indefinite lives for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. These events or circumstances could
include a significant change in the business climate, legal factors, operating
performance indicators, competition, sales or disposition of a significant
portion of the business, or other factors such as a decline in our market value
below our book value for an extended period of time.




We
evaluate the estimated lives of all intangible assets on an annual basis, to
determine if events and circumstances continue to support an indefinite useful
life or the remaining useful life, as applicable, or if a revision in the
remaining period of amortization is required. The amount of any such annual or
interim impairment charge could be significant, and could have a material
adverse effect on reported financial results for the period in which the charge
is taken.





Failure to achieve and
maintain effective internal controls could have a material adverse effect on our
business.





Effective
internal controls are necessary for us to provide reliable financial
reports.  If we cannot provide reliable financial reports, our
operating results could be harmed.  All internal control systems, no
matter how well designed, have inherent limitations.  Therefore, even
those systems determined to be effective can only provide reasonable assurance
with respect to financial preparation and presentation.





While we
continue to evaluate and improve our internal controls, we cannot be certain
that these measures will ensure that we implement and maintain adequate controls
over our financial processes and reporting in the future.  Any failure
to implement required new or improved controls, or difficulties encountered in
their implementation, could harm our operating results or cause us to fail to
meet our reporting obligations.


If we
fail to maintain the adequacy of our internal controls, as such standards are
modified, supplemented or amended from time to time; we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act.  Failure to achieve and maintain an effective
internal control environment could cause investors to lose confidence in our
reported financial information, which could have a material adverse effect on
our stock price.


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Risks
Related to Development, Clinical Testing and Regulatory Approval







We are subject to extensive
governmental regulation which increases our cost of doing business and may
affect our ability to commercialize any new products that we may
develop.





The FDA
and comparable agencies in foreign countries impose substantial requirements
upon the introduction of pharmaceutical products through lengthy and detailed
laboratory, preclinical and clinical testing procedures and other costly and
time-consuming procedures to establish their safety and efficacy. Some of our
products and product candidates require receipt and maintenance of governmental
approvals for commercialization. Preclinical and clinical trials and
manufacturing of our product candidates will be subject to the rigorous testing
and approval processes of the FDA and corresponding foreign regulatory
authorities. Satisfaction of these requirements typically takes a significant
number of years and can vary substantially based upon the type, complexity and
novelty of the product. The status of our principal products are as
follows:





§
            AltrazealTM
      is a product approved for sale in the US;§
            Other
      AltrazealTM products are currently in clinical and development
      phases;§
            Nanoparticle
      aggregate product candidates are in the preclinical and clinical
      phase;§
            5%
      amlexanox paste is a product approved for sale in the US (Aphthasol®);
      approved in the UK, Canada, and ten EU countries but not yet
      sold;§
            OraDiscTM
      A is a product approved for sale in the U.S. as of September 2004; we are
      completing steps for manufacturing and sale of the product in
      2009;§
            Our
      other OraDiscTM products are currently in the development phase;
      and§
            Zindaclin®
      is a product approved for sale in the UK and extensively throughout
      European Union countries.







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Due to the time consuming
and uncertain nature of the drug and device candidate development process and
the governmental approval process described above, we cannot assure you when we,
independently or with our collaborative partners, might submit a New Drug
Application (“NDA”), or a 510(k), for FDA or other regulatory
review.





Government
regulation also affects the manufacturing and marketing of pharmaceutical and
medical device products. Government regulations may delay marketing of our
potential drugs or potential medical devices for a considerable or indefinite
period of time, impose costly procedural requirements upon our activities and
furnish a competitive advantage to larger companies or companies more
experienced in regulatory affairs. Delays in obtaining governmental regulatory
approval could adversely affect our marketing as well as our ability to generate
significant revenues from commercial sales. Our drug or device candidates may
not receive FDA or other regulatory approvals on a timely basis or at all.
Moreover, if regulatory approval of a drug or device candidate is granted, such
approval may impose limitations on the indicated use for which such drug or
device may be marketed. Even if we obtain initial regulatory approvals for our
drug or device candidates, our drugs or devices and our manufacturing facilities
would be subject to continual review and periodic inspection, and later
discovery of previously unknown problems with a drug, or device, manufacturer or
facility may result in restrictions on the marketing or manufacture of such drug
or device, including withdrawal of the drug or device from the market. The FDA
and other regulatory authorities stringently apply regulatory standards and
failure to comply with regulatory standards can, among other things, result in
fines, denial or withdrawal of regulatory approvals, product recalls or
seizures, operating restrictions and criminal prosecution.





The uncertainty associated
with preclinical and clinical testing may affect our ability to successfully
commercialize new products.





Before we
can obtain regulatory approvals for the commercial sale of our potential
products, the product candidates may be subject to extensive preclinical and
clinical trials to demonstrate their safety and efficacy in humans. In this
regard, for example, adverse side effects can occur during the clinical testing
of a new drug on humans which may delay ultimate FDA approval or even lead us to
terminate our efforts to develop the product for commercial use. Companies in
the biotechnology industry have suffered significant setbacks in advanced
clinical trials, even after demonstrating promising results in earlier trials.
The failure to adequately demonstrate the safety and efficacy of a product
candidate under development could delay or prevent regulatory approval of the
product candidate. A delay or failure to receive regulatory approval for any of
our product candidates could prevent us from successfully commercializing such
candidates and we could incur substantial additional expenses in our attempts to
further develop such candidates and obtain future regulatory
approval.





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Risks
Related to Our Intellectual Property





We may not be successful in
protecting our intellectual property and proprietary rights.





Our
success depends, in part, on our ability to obtain U.S. and foreign patent
protection for our drug and device candidates and processes, preserve our trade
secrets and operate our business without infringing the proprietary rights of
third parties.  Legal standards relating to the validity of patents
covering pharmaceutical and biotechnology inventions and the scope of claims
made under such patents are still developing and there is no consistent policy
regarding the breadth of claims allowed in biotechnology patents.  The
patent position of a biotechnology firm is highly uncertain and involves complex
legal and factual questions.  We cannot assure you that any existing
or future patents issued to, or licensed by, us will not subsequently be
challenged, infringed upon, invalidated or circumvented by others.  As
a result, although we, together with our subsidiaries, are the owner of U.S.
patents and U.S. patent applications now pending, and European patents and
European patent applications, we cannot assure you that any additional patents
will issue from any of the patent applications owned by
us.  Furthermore, any rights that we may have under issued patents may
not provide us with significant protection against competitive products or
otherwise be commercially viable.





Our
patents for the following technologies expire in the years and during the date
ranges indicated below:





§
            Zindaclin®
      and Residerm® between 2009 and 2020§
            5%
      amlexanox paste in 2011§
            Ora
      DiscTM in 2021§
            Hydrogel
      Nanoparticle Aggregate in 2022





In
addition, patents may have been granted to third parties or may be granted
covering products or processes that are necessary or useful to the development
of our product candidates.  If our product candidates or processes are
found to infringe upon the patents or otherwise impermissibly utilize the
intellectual property of others, our development, manufacture and sale of such
product candidates could be severely restricted or prohibited. In such event, we
may be required to obtain licenses from third parties to utilize the patents or
proprietary rights of others.  We cannot assure you that we will be
able to obtain such licenses on acceptable terms, if at all.  If we
become involved in litigation regarding our intellectual property rights or the
intellectual property rights of others, the potential cost of such litigation,
regardless of the strength of our legal position, and the potential damages that
we could be required to pay could be substantial.






Risks
Related to Our Common Stock






Provisions of our charter
documents could discourage an acquisition of our company that would benefit our
stockholders and may have the effect of entrenching, and making it difficult to
remove, management.





Provisions
of our Certificate of Incorporation and By-laws may make it more difficult for a
third party to acquire control of our company, even if a change in control would
benefit our stockholders.  In particular, shares of our preferred
stock may be issued in the future without further stockholder approval and upon
such terms and conditions, and having such rights, privileges and preferences,
as our Board of Directors may determine, including for example, rights to
convert into our common stock.  The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any of our preferred stock that may be issued in the future. The
issuance of our preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire control of
us.  This could limit the price that certain investors might be
willing to pay in the future for shares of our common stock and discourage these
investors from acquiring a majority of our common stock.





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Our
stockholders may experience substantial dilution in the value of their
investment if we issue additional shares of our capital
stock.





Our
charter allows us to issue up to 200,000,000 shares of our common stock and to
issue and designate the rights of, without stockholder approval, up to 20,000
shares of preferred stock. In the event we issue additional shares of our
capital stock, dilution to our stockholders could result. In addition, if we
issue and designate a class of preferred stock, these securities may provide for
rights, preferences or privileges senior to those of holders of our common
stock.





Substantial sales of our
common stock could lower our stock price.





The
market price for our common stock could drop as a result of sales of a large
number of our presently outstanding shares of common stock or shares that we may
issue or be obligated to issue in the future.





We
do not expect to pay dividends in the foreseeable future.





We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Any payment of cash dividends will depend on our financial condition, results of
operations, capital requirements and other factors and will be at the discretion
of our board of directors.  Accordingly, you will have to rely on
appreciation in the price of our common stock, if any, to earn a return on your
investment in our common stock. Furthermore, we may in the future become subject
to contractual restrictions on, or prohibitions against, the payment of
dividends.








ITEM
1B.                   UNRESOLVED
STAFF COMMENTS





None.








ITEM
2.                      DESCRIPTION
OF PROPERTY





As of
December 31, 2008, we did not own any real property.  We entered into
a lease on April 1, 2006 for approximately 9,000 square feet of administrative
offices and laboratories in Addison, Texas.  The lease agreement
expires in April 2013.  Additional space is available in the complex
for future expansion which we believe would accommodate growth for the
foreseeable future.  The minimum monthly lease obligation of $9,398,
which is inclusive of monthly operating expenses, continues for fifty-two months
as of December 31, 2008.





We
believe that our existing leased facilities are suitable for the conduct of our
business and adequate to meet our growth requirements.








ITEM
3.                      LEGAL
PROCEEDINGS





We are
aware of neither any pending nor threatened legal proceeding that, if adversely
determined, would have a material adverse effect on us nor of any proceeding
that a government agency is initiating against us.








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





No matter
was submitted to a vote of our shareholders during the fourth quarter of
2008.








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Part II








ITEM
5.                      MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES





Market for Common
Equity





Our
common stock began trading on the NYSE Alternext US exchange (formerly the
American Stock Exchange) under the symbol “ULU” on July 26, 2007. From March 31,
2006 to July 25, 2007 our common stock was quoted on the OTC Bulletin Board
under the symbol “ULUR.OB”.





The
following table sets forth, on a quarterly basis, the high and low per share
closing prices of our common stock as reported on the NYSE Alternext US exchange
(formerly the American Stock Exchange) from July 26, 2007 through
December 31, 2008 and the high and low per share closing prices of our
common stock as reported on the OTC Bulletin Board from January 1, 2007
through July 25, 2007:





Year Ended December 31,
      2008
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    2.88
                    
                    
                    $
                    2.19Second
      Quarter
                    
                    $
                    2.25
                    
                    
                    $
                    0.81Third
      Quarter
                    
                    $
                    1.95
                    
                    
                    $
                    0.95Fourth
      Quarter
                    
                    $
                    1.10
                    
                    
                    $
                    0.26Year Ended December 31,
      2007First
      Quarter
                    
                    $
                    5.25
                    
                    
                    $
                    3.00Second
      Quarter
                    
                    $
                    5.05
                    
                    
                    $
                    4.00Third
      Quarter
                    
                    $
                    4.90
                    
                    
                    $
                    4.22Fourth
      Quarter
                    
                    $
                    4.65
                    
                    
                    $
                    2.65


Record
Holders





As at
March 16, 2009, there are approximately 116 shareholders of record holding our
common stock.  On March 16, 2009, the closing price of our common
stock was $0.16 and there were 65,582,532 shares of our common stock issued and
outstanding.





Dividend
Policy





To date,
we have not declared or paid any cash dividends on our preferred stock or common
stock and we do not anticipate paying any cash dividends on them in the
foreseeable future.  The payment of dividends, if any, in the future
is within the discretion of our Board of Directors and will depend on our
earnings, capital requirements, and financial condition and other relevant
facts.  We currently intend to retain all future earnings, if any, to
finance the development and growth of our business.





Securities Authorized for
Issuance Under Equity Compensation Plans





We
adopted our 2006 Equity Incentive Plan (“Incentive Plan”) on March 27, 2006
authorizing 2,000,000 shares under the Incentive Plan. At our May 8, 2007 annual
meeting of shareholders our stockholders approved an amendment to the Incentive
Plan to increase the total number of shares issuable thereunder to
6,000,000.




As of
December 31, 2008, we had granted (i) options to purchase 4,135,000 shares of
Common Stock, of which 3,706,000 were outstanding at a weighted average exercise
price of $2.37 per share, and (ii) 154,918 shares of restricted
stock.  As of December 31, 2008, there were 2,139,082 shares that
remain available for future grant under our Incentive Plan.





The
following table sets forth the outstanding stock options or rights that have
been authorized under equity compensation plans as of December 31,
2008.





Plan Category
                      
                      Number of securities to
                        be issued upon exercise
                        of outstanding options,
                        warrants and rights
                      
                      
                      Weighted-average
                        exercise price of
                        outstanding options,
                        warrants and rights
                      
                      
                      Number of securities
                        remaining available for
                        future issuance under
                        equity compensation
                        plans (excluding
                        securities reflected in
                        column (a))(a)
                      
                      
                      (b)
                      
                      
                      (c)Equity compensation plans approved by security holders2006 Stock Option Plan
                      
                      
                      3,706,000
                      
                      
                      $
                      2.37
                      
                      
                      
                      2,139,082Equity compensation plans not approved by security holders
                      
                      
                      -0-
                      
                      
                      
                      n/a
                      
                      
                      
                      -0-Total
                      
                      
                      3,706,000
                      
                      
                      $
                      2.37
                      
                      
                      
                      2,139,082









ITEM
6.                      SELECTED
FINANCIAL DATA





Not
applicable.





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ITEM
7.                      MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 The
following discussion and other information in this Form 10-K contains
forward-looking statements that are subject to significant risks and
uncertainties. There are several important factors that could cause actual
results to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. We have sought to identify the
most significant risks to our business, but cannot predict whether or to what
extent any of such risks may be realized nor can there be any assurance that we
have identified all possible risks that might arise. Investors should carefully
consider all of such risks before making an investment decision with respect to
our stock.
 
 The
following contains certain statements that are forward-looking within the
meaning of Section 27a of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, and that involve
risks and uncertainties, including, but not limited to penetration rates, the
uncertainties associated with research and development activities, clinical
trials, the timing of and our ability to achieve regulatory approvals,
dependence on others to market our licensed products, collaborations, future
cash flow, the timing and receipt of licensing and milestone revenues, our
ability to achieve licensing and milestone revenues, the future success of our
marketed products and products in development, and other risks described below
as well as those discussed elsewhere in this Form 10-K, documents incorporated
by reference and other documents and reports that we file periodically with the
Securities and Exchange Commission.


Business





ULURU
Inc. (hereinafter “we”, “our”, “us”, “ULURU”, or the “Company”) is a Nevada
corporation.  We are a diversified specialty pharmaceutical company
focused on establishing a market leadership position in the development of wound
management, plastic surgery and oral care products utilizing innovative drug
delivery solutions to improve the clinical outcome of patients and provide a
pharmacoeconomic benefit to healthcare providers.  Utilizing our
technologies, four of our products have been approved for marketing in various
global markets.  In addition, numerous additional products are under
development utilizing our Mucoadhesive Film and Nanoparticle Aggregate
technologies.  AltrazealTM, the first product developed from our
Nanoparticle Aggregate technology, was launched in the United States in June
2008.





Recent
Developments





On March
9, 2009, Kerry P. Gray resigned as President and Chief Executive Officer of the
Company.  Renaat Van den Hooff, the Company’s Executive Vice President
Operations, was appointed to serve as President and Chief Executive
Officer.




In
connection with Mr. Gray’s departure, the Company and Mr. Gray entered into a
Separation Agreement (the “Agreement”), dated March 9, 2009.  Pursuant
to the Agreement, the Company will provide certain benefits to Mr. Gray,
including: (i) $400,000 during the initial 12 months; (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 stock options with respect to 300,000 shares of common stock
previously held by him; and (iv) for a period of twenty-four (24) months the
Company will maintain and provide coverage under Mr. Gray’s existing health
coverage plan.  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.





On
January 5, 2009, the Company received a notice of termination from Bio Med
Sciences, Inc., of that certain Agreement and Plan Merger, dated as of July 9,
2008, among the Company, BioMed Sciences, Inc., Cardinia Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of the Company, and the members
of a certain Holders Representative Committee referenced therein.





On
November 17, 2008, the Company executed a License Agreement with Meda AB
(“MEDA”) to market Amlexanox 5% paste and OraDiscTM A throughout the European
Union, Eastern Europe and the Commonwealth of Independent States excluding
Spain, Portugal and Greece.  Amlexanox 5% paste and OraDiscTM A were
both developed for the treatment of canker sores.  Under the terms of
the agreement, MEDA made an upfront payment of € 525,000 (approximately
$680,000), will make future milestone payments, both event and success related,
of a maximum of € 4,775,000 (approximately $6.2 million), and will purchase both
products from the Company.




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LIQUIDITY AND CAPITAL
RESOURCES





We have
funded our operations primarily through the private sales of convertible
debentures and common stock.  Contract research, product sales,
royalty payments, licensing fees and milestone payments from our corporate
alliances have, and are expected in the future to also, provide funding for
operations.  As of December 31, 2008 our cash and cash equivalents
were $7,567,588 which is a decrease of $6,412,240 as compared to our cash and
cash equivalents at December 31, 2007 of $13,979,828.  Our working
capital (current assets less current liabilities) was $7,068,927 at December 31,
2008 as compared to our working capital at December 31, 2007 of
$14,146,157.





Consolidated
Cash Flow Data


Year
      Ended December 31,Net Cash Provided by (Used
    in)
                          
                          2008
                          
                          
                          2007Operating activities
                          
                          $
                          (6,012,026
                          )
                          
                          $
                          (2,182,993
                          )Investing activities
                          
                          
                          (447,714
                          )
                          
                          
                          (
      927,650
                          )Financing activities
                          
                          
                          47,500
                          
                          
                          
                          172,464Net (Decrease) in cash and cash equivalents
                          
                          $
                          (6,412,240
                          )
                          
                          $
                          (2,938,179
                          )








Operating
Activities





For the
year ended December 31, 2008, net cash used in operating activities was
$6,012,026.  The principal component of net cash used for the year
ended December 31, 2008 stems from our net loss of approximately
$9,783,000.  This net loss for the year ended December 31, 2008
included substantial non-cash charges in the form of share-based compensation,
amortization of patents, and depreciation.  These non-cash charges
totaled approximately $2,245,000.





Additional
uses of our net cash related to an increase of approximately $761,000 in
inventory of AltrazealTM related products, an increase of $68,000 for renewal
fees with the Food & Drug Administration, and a decrease of $90,000 in our
royalty advance for Aphthasol® as a result of earned royalties from domestic
sales by our Aphthasol® licensee.  These uses of net cash were
partially offset by a decrease of $641,000 in accounts receivable due to
customer collections, an increase of $652,000 in accounts payable due to costs
for product manufacturing, an increase in accrued liabilities of $224,000 due to
timing, and an increase in deferred revenues of $928,000 from the receipt of
licensing payments associated with our OraDiscTM technologies.





For the
year ended December 31, 2007, net cash used in operating activities was
$2,182,993.  The principal use of net cash for the year ended December
31, 2007 was our net loss of approximately $4,153,000, which included $1,734,000
of non-cash charges.  Additional cash uses resulted from an increase
in inventory in the amount of $319,000, an increase in accounts receivable of
$163,000, an increase in prepaid expense of $135,000, a decrease in accrued
liabilities of $115,000, and a decrease of $99,000 in our royalty advance for
Aphthasol®.  These cash uses were partially offset by an increase of
$517,000 in accounts payable due to timing, and an increase of $550,000 in
deferred revenues associated with the receipt of a licensing payment related to
the signing of a licensing agreement for OraDiscTMB.





Investing
Activities





Net cash
used in investing activities during the year ended December 31, 2008 was
$447,714 and consisted primarily of manufacturing equipment purchases for our
AltrazealTM and OraDiscTM products.





For the
year ended December 31, 2007, we purchased $927,650 of equipment, which was
comprised primarily of manufacturing equipment for the same two
products.




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Financing
Activities





Net cash
provided by financing activities during the year ended December 31, 2008 was
$47,500 from the exercise of stock options to purchase 50,000 shares of our
common stock.





For the
year ended December 31, 2007, the net cash provided by financing activities was
$172,464 and consisted of our receipt of $502,940 from the exercise of warrants
and $20,000 from the exercise of stock options.  These increases were
offset by a payment of $350,000 related to an asset purchase obligation from
2005 and $476 for the buy-back of odd-lot shares.





On
January 5, 2009, we received a notice of termination from Bio Med Sciences, Inc.
(“BioMed”), of that certain Agreement and Plan Merger, dated as of July 9, 2008,
among the Company, BioMed, Cardinia Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of the Company, and the members of a certain Holders
Representative Committee referenced therein.





Liquidity





As
discussed above, we had cash and cash equivalents totaling $7,567,588 as of
December 31, 2008.  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 will continue to search both domestically and internationally for
opportunities that will enable us to continue expanding our
business.  At this time, we cannot accurately predict the effect of
certain developments on the rate of sales growth in 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 in the near term. We do not
expect any material changes in our capital expenditure spending during 2009.
However, we cannot be sure that our anticipated revenue growth will be realized
or that we will continue to generate significant positive cash flow from
operations.





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.




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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.








Off-Balance
Sheet Arrangements





As of
December 31, 2008, we did not have any off balance sheet
arrangements.





Impact
of Inflation





We have
experienced only moderate price increases over the last three fiscal years under
our agreements with third-party manufacturers as a result of raw material and
labor price increases.  However, there can be no assurance that
possible future inflation would not impact our operations.





Contractual
Obligations





The
following table summarizes our outstanding contractual obligations as of
December 31, 2008, which consists primarily of 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.





Payments
      Due By PeriodContractual
      Obligations
                  
                  Total
                  
                  
                  Less
      Than
                    1
      Year
                  
                  
                  2-3
                    Years
                  
                  
                  4-5
                    Years
                  
                  
                  After
      5
                    YearsOperating leases
                  
                  $
                  470,628
                  
                  
                  $
                  110,736
                  
                  
                  $
                  221,472
                  
                  
                  $
                  138,420
                  
                  
                  $
                  ---Total contractual cash obligations
                  
                  $
                  470,628
                  
                  
                  $
                  110,736
                  
                  
                  $
                  221,472
                  
                  
                  $
                  138,420
                  
                  
                  $
                  ---







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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 year ended
December 31, 2008 and 2007





Total
Revenues





Our
revenues totaled $733,471 for the year ended December 31, 2008, as compared to
revenues of $1,465,744 for the year ended December 31, 2007, and were comprised
of licensing fees of approximately $84,000 for two OraDiscTM licensing agreements
and $146,000 for Zindaclin®, domestic royalties of approximately $90,000 from
the sale of Aphthasol® by our distributor, foreign royalties of approximately
$197,000 from the sale of Zindaclin®, sponsored research programs of
approximately $33,00, and product sales of approximately $184,000 for Aphthasol®
and AltrazealTM.





The year
ended December 31, 2008 revenues represent an overall decrease of approximately
$732,000 versus the comparative 2007 revenues.  Factors contributing
to the decrease were lower Zindaclin licensing fees of $713,000, as 2007
included a one-time payment that did not reoccur, and lower sponsored research
fees of $242,000, as 2007 included a one-time research program.  These
adverse factors were partially offset by an increase in licensing fees for
OraDiscTM technologies of $35,000, and an increase in product sales of
$184,000.





Costs and
Expenses





Cost
of Goods Sold





Our cost
of goods sold for the year ended December 31, 2008 was $140,822 , which included
$24,244 of depreciation associated with manufacturing equipment.  We
did not sell any finished goods in the year ended December 31, 2007; therefore
we had no direct cost of sales




Research
and Development





Research
and development expenses totaled $3,503,638 for the year ended December 31,
2008, which included $161,779 of share-based compensation, compared to
$2,211,698 for the year ended December 31, 2007, which included $135,881 of
share-based compensation.  The increase of approximately $1,292,000 in
research and development expenses was due primarily to increases in direct
research costs of $394,000, clinical testing expenses for our wound care
technologies of $206,000, regulatory consulting and expenses of $280,000, and
additional scientific personnel costs of approximately $420,000.  The
direct research and development expenses for the years ended December 31, 2008
and 2007 were as follows:





Year
      Ended
                      December
      31,Technology
                    
                    2008
                    
                    
                    2007Wound care & nanoparticle
                    
                    $
                    713,278
                    
                    
                    $
                    444,907OraDiscTM
                    
                    
                    456,812
                    
                    
                    
                    322,588Aphthasol® & other technologies
                    
                    
                    41,781
                    
                    
                    
                    50,142Total
                    
                    $
                    1,211,871
                    
                    
                    $
                    817,637







- 30
-




Selling,
General and Administrative





Selling,
general and administrative expenses totaled $5,992,097 for the year ended
December 31, 2008, which included $862,053 of share-based compensation, compared
to $3,045,065 for the year ended December 31, 2007, which included $446,797 in
share-based compensation.  The increase of approximately $2,947,000 in
selling, general and administrative expenses was due primarily to increased
administration salary and benefit expenses of approximately $749,000, which
included the recognition of additional share-based compensation of $509,000 and
an increase in executive personnel expenses due to hiring of our executive vice
president of operations.  Other factors affecting the increase were
costs of approximately $2,309,000 for the ramp-up of our sales and marketing
efforts.  We also incurred increases in our insurance costs of
$48,000, additional travel expenses of $33,000, due diligence costs of $40,000
for financing borrowing activities, and operating/occupancy expenses of
$50,000.





Each of
these adverse factors were partially offset by a decrease of $70,000 in expenses
associated with accounting and auditing services, decreased shareholder costs of
$93,000, and a decrease in expense of $144,000 for Director
compensation.





Amortization





Amortization
expense totaled $1,082,571 for the year ended December 31, 2008 as compared to
$1,078,351 for the year ended December 31, 2007.  The expense for each
period consists primarily of amortization associated with our
patents.  There were no additional purchases of patents during the
year ended December 31, 2008.





Depreciation





Depreciation
expense totaled $114,048 for the year ended December 31, 2008 as compared to
$72,942 for the year ended December 31, 2007.  The increase of
approximately $41,000 is attributable to our purchase of additional equipment,
primarily manufacturing items for AltrazealTM and OraDiscTM, during
2008.




Interest
and Miscellaneous Income
 
 Interest
and miscellaneous income totaled $317,070 for the year ended December 31, 2008,
as compared to $791,687 for the year ended December 31, 2007.  The
decrease of approximately $475,000 is attributable to a decrease in interest
income due to lower cash balances and interest yields in 2008.
 
 Interest
Expense
 
 There was
no interest expense for the year ended December 31, 2008 as compared to the
expense of $2,006 for the year ended December 31, 2007.  The interest
expense for the year ended December 31, 2007 consisted of financing costs for
our insurance policies.




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CRITICAL ACCOUNTING POLICIES
AND ESTIMATES





The
discussion and analysis of our financial condition and results of operations set
forth herein are based on 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.





We set
forth below those material accounting policies that we believe are the most
critical to an investor’s understanding of our financial results and condition
and which require complex management judgment.





Revenue
Recognition





We
recognize revenue in accordance with generally accepted accounting principles as
outlined in the Securities and Exchange Commission’s Staff Accounting Bulletin
No. 104, Revenue
Recognition (SAB 104), which requires that four basic criteria be met
before revenue can be recognized: (i) persuasive evidence of an arrangement
exists; (ii) the price is fixed or determinable; (iii) collectability is
reasonably assured; and (iv) product delivery has occurred or services have been
rendered. We recognize revenue as products are shipped based on FOB shipping
point terms when title passes to customers. We negotiate credit terms on a
customer-by-customer basis and products are shipped at an agreed upon price. All
product returns must be pre-approved.





We also
generate revenue from license agreements and research collaborations and
recognize this revenue when earned. In accordance with EITF Issue No. 00-21,
Revenue Arrangements with
Multiple Deliverables, for deliverables which contain multiple
deliverables, we separate the deliverables into separate accounting units if
they meet the following criteria: i) the delivered items have a stand-alone
value to the customer; ii) the fair value of any undelivered items can be
reliably determined; and iii) if the arrangement includes a general right of
return, delivery of the undelivered items is probable and substantially
controlled by the seller. Deliverables that do not meet these criteria are
combined with one or more other deliverables into one accounting unit. Revenue
from each accounting unit is recognized based on the applicable accounting
literature, primarily Staff Accounting Bulletin 104, Revenue
Recognition.




We
analyze the rate of historical returns when evaluating the adequacy of the
allowance for sales returns.  At December 31, 2008, this reserve was
nil as we have not experienced historically any product returns.  If
the historical data we use to calculate these estimates does not properly
reflect future returns, revenue could be overstated.





Accrued
Expenses





As part
of the process of preparing financial statements, we are required to estimate
accrued expenses.  This process involves identifying services which
have been performed on our behalf and estimating the level of service performed
and the associated cost incurred for such service as of each balance sheet date
in our financial statements.





In
accruing service fees, we estimate the time period over which services will be
provided and the level of effort in each period.  If the actual timing
of the provision of services or the level of effort varies from the estimate, we
will adjust the accrual accordingly.  The majority of our service
providers invoice us monthly in arrears for services performed.  In
the event that we do not identify costs that have begun to be incurred or we
underestimate or overestimate the level of services performed or the costs of
such services, our actual expenses could differ from such
estimates.  The date on which some services commence, the level of
services performed on or before a given date and the cost of such services are
often subjective determinations. We make judgments based upon facts and
circumstances known to us in accordance with GAAP.







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Share
based Compensation – Employee Share based Awards


We
primarily grant qualified stock options for a fixed number of shares to
employees with an exercise price equal to the market value of the shares at the
date of grant.  Under the fair value recognition provisions of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS
123R, share based compensation cost is based on the value of the portion of
share based awards that is ultimately expected to vest during the period. Share
based compensation expense includes amounts related to the share based awards
granted, based on the fair value on the grant date, estimated in accordance with
the provisions of SFAS 123R.
 
 We
selected the Black-Scholes option pricing model as the most appropriate method
for determining the estimated fair value for share based awards.  The
Black-Scholes model requires the use of assumptions which determine the fair
value of the share based awards.  Determining the fair value of share
based awards at the grant date requires judgment, including estimating the
expected term of stock options, the expected volatility of our stock, and
expected dividends. In accordance with SFAS 123R, we are required to estimate
forfeitures at the grant date and recognize compensation costs for only those
awards that are expected to vest.  Judgment is required in estimating
the amount of share based awards that are expected to be forfeited.
 
 If
factors change and we employ different assumptions in the application of SFAS
123R in future periods, the compensation expense that we record under SFAS 123R
may differ significantly from what we have recorded in the current
period.  Therefore, we believe it is important for investors to be
aware of the high degree of subjectivity involved when using option pricing
models to estimate share-based compensation under SFAS 123R.  There is
risk that our estimates of the fair values of our share-based compensation
awards on the grant dates may differ from the actual values realized upon the
exercise, expiration, early termination or forfeiture of those share-based
payments in the future.  Certain share-based payments, such as
employee stock options, may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally estimated on the grant
date and reported in our financial statements.  Alternatively, value
may be realized from these instruments that is significantly in excess of the
fair values originally estimated on the grant date and reported in our financial
statements.  Although the fair value of employee share-based awards is
determined in accordance with SFAS 123R using an option pricing model, that
value may not be indicative of the fair value observed in a willing
buyer/willing seller market transaction.
 Share
based Compensation – Non-Employee Share based Awards





We
occasionally grant stock option awards to our consultants and
directors.  Such grants are accounted for pursuant to EITF Issue No.
96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, and, accordingly, we
recognize compensation expense equal to the fair value of such awards and
amortize such expense over the performance period.  We estimate the
fair value of each award using the Black-Scholes model.  The unvested
equity instruments are revalued on each subsequent reporting date until
performance is complete, with an adjustment recognized for any changes in their
fair value.  We amortize expense related to non-employee stock options
in accordance with FASB Interpretation 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans.





Income
Taxes





The
carrying value of our net deferred tax assets assumes that we will be able to
generate sufficient taxable income in the United States based on estimates and
assumptions. We record a valuation allowance to reduce the carrying value of our
net deferred tax asset to the amount that is more likely than not to be
realized.  In the event we were to determine that we would be able to
realize our deferred tax assets in the future, an adjustment to the deferred tax
asset would increase net income in the period such determination is
made.  On a quarterly basis, we evaluate the realizability of our
deferred tax assets and assess the requirement for a valuation
allowance.





Allowance
for Doubtful Accounts





We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. This allowance is
regularly evaluated by us for adequacy by taking into consideration factors such
as past experience, credit quality of the customer base, age of the receivable
balances, both individually and in the aggregate, and current economic
conditions that may affect a customer’s ability to pay.  If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.





Inventory





We state
our inventory at the lower of cost (first-in, first-out method) or
market.  The estimated value of excess, obsolete and slow-moving
inventory as well as inventory with a carrying value in excess of its net
realizable value is established by us on a quarterly basis through review of
inventory on hand and assessment of future demand, anticipated release of new
products into the market, historical experience and product
expiration.  Our stated value of inventory could be materially
different if demand for our products decreased because of competitive conditions
or market acceptance, or if products become obsolete because of advancements in
the industry.





Asset
Valuations and Review for Potential Impairment





We review
our fixed assets and intangible assets at least annually or whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable.  This review requires that we make assumptions regarding
the value of these assets and the changes in circumstances that would affect the
carrying value of these assets.  If such analysis indicates that a
possible impairment may exist, we are then required to estimate the fair value
of the asset and, as deemed appropriate, expense all or a portion of the
asset.  The determination of fair value includes numerous
uncertainties, such as the impact of competition on future value.  We
believe that we have made reasonable estimates and judgments in determining
whether our long-term assets have been impaired; however, if there is a material
change in the assumptions used in our determination of fair value or if there is
a material change in economic conditions or circumstances influencing fair
value, we could be required to recognize certain impairment charges in the
future. As a result of our most recent reviews, no changes in asset values were
required.




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ITEM
7A.                    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.  During
2008, we utilized Bank of America and Bank of America Investments Services, Inc.
as our banking institutions.  At December 31, 2008 and December 31,
2007 our cash and cash equivalents totaled $7,567,588 and $13,979,828,
respectively.  However, because our 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 institutions.





Concentration
of credit risk with respect to trade accounts receivable are customers with
balances that exceed 5% of total consolidated trade accounts receivable at
December 31, 2008 and at December 31, 2007.  As of December 31, 2008,
two customers exceeded the 5% threshold.  Two customers exceeded the
5% threshold at December 31, 2007.  We believe that these customer
accounts are fully collectible as of December 31, 2008.





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 8.     FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA





The
information required by this Item is included in our Financial Statements and
Supplementary Data listed in Item 15 of Part IV of this annual report on Form
10-K.








ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





- 34
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ITEM
9A.                     CONTROLS AND PROCEDURES





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our management, including our principal
executive officer and principal financial officer, conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the
framework in Internal Control
- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on its evaluation
under the framework in Internal Control - Integrated Framework, our management
concluded that our internal control over financial reporting was effective as of
December 31, 2008.





Evaluation
of Disclosure Controls and Procedures





Based on
their evaluation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) as of December 31, 2008, our chief executive
officer and chief financial officer have concluded that our disclosure controls
and procedures are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms and is accumulated and communicated to the company's
management, as appropriate, to allow timely decisions regarding required
disclosure, and are operating in an effective manner.





Changes
in Internal Controls Over Financial Reporting





During
the fiscal quarter ended December 31, 2008, there were no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Management’s
Annual Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended.  The Company's
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures
that:





§
            Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;§
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with U.S. generally
      accepted accounting principles, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and§
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.





Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.  All internal control
systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.




Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on this assessment, management believes that as of
December 31, 2008 our internal control over financial reporting is effective
based on those criteria.
 
 This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only management's
report in this annual report.
 
 
 ITEM
9B.                      OTHER INFORMATION
 
 None.




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Part III








ITEM
10.                      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





Directors





The
following table sets forth the Directors and Named Executive Officers of the
Company along with their respective ages and positions.  Each of the
following directors has been elected to hold office until the next annual
meeting of the stockholders of the Company.





Name
                  
                  Age
                  
                  PositionWilliam W. Crouse (3)
                  
                  
                  66
                  
                  Chairman, DirectorJeffrey B. Davis (1)(2)
                  
                  
                  46
                  
                  DirectorKerry P. Gray
                  
                  
                  56
                  
                  DirectorW. Anthony Vernon(1)(2)(3)
                  
                  
                  53
                  
                  Director





(1)
                  Member
      of Audit Committee(2)
                  Member
      of Compensation Committee(3)
                  Member
      of Nominating and Governance
Committee







William W.
Crouse





Mr.
Crouse has served as one of our directors since March 2006 and is a General
Partner of HealthCare Ventures LLC, one of the world's largest biotech venture
capital firms. Mr. Crouse was formerly Worldwide President of Ortho Diagnostic
Systems and Vice President of Johnson & Johnson International. He also
served as Division Director of DuPont Pharmaceuticals and as President of Revlon
Health Care Group's companies in Latin America, Canada and Asia/Pacific.
Currently, Mr. Crouse serves as a Director of The Medicines Company and several
private biotechnology companies. Mr. Crouse formerly served as a Director of
Imclone Systems, BioTransplant, Inc., Dendreon Corporation, OraSure
Technologies, Inc., Human Genome Sciences, Raritan Bancorp, Inc., Allelix
Biopharmaceuticals, Inc. and several private biotechnology companies. Mr. Crouse
currently serves as Trustee of Lehigh University and as Trustee of the New York
Blood Center. Mr. Crouse is a graduate of Lehigh University (Finance and
Economics) and Pace University (M.B.A.).





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Jeffrey B.
Davis





Mr. Davis
has served as one of our directors since March 2006 and has extensive experience
in investment banking, and corporate development and financing for development
stage, life sciences companies. Mr. Davis is currently President of SCO
Financial Group LLC, and President and Financial Principal of SCO Securities
LLC, SCO's NASD-member broker-dealer. Additionally, Mr. Davis has served on many
boards of directors for life sciences companies, and currently sits on the
boards of MacroChem Corp., Virium Pharmaceuticals, Inc. and Access
Pharmaceuticals, Inc.  Previously, Mr. Davis served as Chief Financial
Officer of a publicly traded, NASDAQ-NM healthcare company. Prior to that, Mr.
Davis was Vice President, Corporate Finance, at Deutsche Bank AG and Deutsche
Morgan Grenfell, both in the U.S. and Europe. Mr. Davis also served in senior
marketing and product management positions at AT&T Bell Laboratories, where
he was also a member of the technical staff. Prior to that, Mr. Davis was
involved in marketing and product management at Philips Medical Systems North
America. Mr. Davis has an M.B.A. from the Wharton School of Business, University
of Pennsylvania, and a B.S. in Biomedical Engineering from the College of
Engineering, Boston University.





Mr. Kerry P.
Gray





Mr. Gray
has served as one of our directors since March 2006 and was the Company’s
President and Chief Executive Officer from October 2005 until March 9,
2009.  Previously, Mr. Gray was the President and CEO of Access
Pharmaceuticals and a director of Access Pharmaceuticals from June 1993 until
May 2005.  Mr. Gray served as Chief Financial Officer of
PharmaScience, Inc., a company he co-founded to acquire technologies in the drug
delivery area. From May 1990 to August 1991, Mr. Gray was Senior Vice President,
Americas, Australia and New Zealand for Rhone-Poulenc Rorer, Inc. Prior to the
Rhone-Poulenc Rorer merger, he had been Area Vice President Americas of Rorer
International Pharmaceuticals. From 1986 to May 1988, he was Vice President,
Finance of Rorer International Pharmaceuticals, having served in the same
capacity at Revlon Health Care Group of companies before the acquisition by
Rorer Group. Between 1975 and 1985, he held various senior financial positions
with the Revlon Health Care Group.





W.
Anthony Vernon





Mr.
Vernon has served as one of our directors since August 2007 and is the
Healthcare Industry Partner of Ripplewood Holdings Inc.  He is also a
director of several consumer, biotech and medical device companies, including
Medivation Inc., NovoCure Ltd., Cord Blood Registry, Disc Dynamics Inc., and
Axon Labs.  Mr. Vernon has previously led a number of Johnson and
Johnson's franchises during a 24 year career at Johnson and
Johnson.  He has served as President of McNeil Consumer Products and
Nutritionals, Worldwide President of The Johnson and Johnson-Merck Joint
Venture, President of Centocor, and Company Group Chairman of DePuy
Orthopedics.  He has also served as a member of Johnson and Johnson's
Group Operating Committees for Consumer Healthcare and Nutritionals,
Biopharmaceuticals, and Medical Devices and Diagnostics.  Mr. Vernon
holds a bachelor's degree in history from Lawrence University and an MBA from
Northwestern University's Kellogg School.








Executive
Officers





The
information concerning our executive officers is provided in Item 1 of Part I of
this Annual Report on Form 10-K under the caption “Executive Officers and Key
Employees”.





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Corporate
Governance





Corporate
Governance Practices and Board Independence





The Board
has adopted a number of corporate governance documents, including charters for
its Audit Committee, Compensation Committee and Nominating and Governance
Committee, corporate governance guidelines, a code of business conduct and
ethics for employees, executive officers and directors (including its principal
executive officer and principal financial officer) and a whistleblower policy
regarding the treatment of complaints on accounting, internal accounting
controls and auditing matters.  All of these documents are available
on the Company’s website at www.uluruinc.com under the heading “Investor
Relations,” and a copy of any such document may be obtained, without charge,
upon written request to ULURU Inc., c/o Investor Relations, 4452 Beltway Drive,
Addison, Texas, 75001.





Stockholder
Communications with the Board





The Board
has established a process for stockholders to send communications to it.
Stockholders may send written communications to the Board or individual
directors to ULURU Inc., Board of Directors, c/o Chief Executive Officer, 4452
Beltway Drive, Addison, Texas, 75001. Stockholders also may send communications
via email to rvdhooff@uluruinc.com with the notation “Attention: Chief Executive
Officer” in the Subject field. All communications will be reviewed by the Chief
Executive Officer of the Company, who will determine whether such communications
are relevant and/or for a proper purpose and appropriate for Board review and,
if applicable, submit such communications to the Board on a periodic
basis.





Attendance
of Directors at Annual Stockholder Meetings





Although
the Company currently does not require directors to attend annual stockholder
meetings, it does encourage directors to do so and welcomes their attendance.
The Company generally schedules a Board meeting in conjunction with the annual
stockholder meeting and plans to continue to do so in the future. The Company
expects that directors will attend annual stockholder meetings absent a valid
reason.





Nomination
and Election of Directors





When
seeking candidates for director, the Nominating and Governance Committee may
solicit suggestions from incumbent directors, management or others. After
conducting an initial evaluation of a candidate, the committee will interview
that candidate if it believes the candidate might be suitable to serve as a
director. The committee may also ask the candidate to meet with Company
management. If the committee believes a candidate would be a valuable addition
to the Board and there is either a vacancy on the Board or the committee
believes it is in the best interests of the Company and our stockholders to
increase the number of Board members to elect that candidate, it will recommend
to the full Board that candidate’s election.





Before
nominating a sitting director for reelection at an annual stockholder meeting,
the committee will consider the director’s performance on the Board and whether
the director’s reelection would be in the best interests of the Company’s
stockholders and consistent with the Company’s corporate governance guidelines
and the Company’s continued compliance with applicable law, rules and
regulations.





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The Board
believes that it should be comprised of directors with diverse and complementary
backgrounds, and that directors should have expertise that, at a minimum, may be
useful to the Company and may contribute to the success of the Company’s
business. Directors also should possess the highest personal and professional
ethics and should be willing and able to devote an amount of time sufficient to
effectively carry out their duties and contribute to the success of the
Company’s business. When considering candidates for director, the committee
takes into account a number of factors, including the following:





§
            Independence
      from management;§
            Age,
      gender and ethnic background;§
            Relevant
      business experience;§
            Judgment,
      skill and integrity;§
            Existing
      commitments to other businesses;§
            Potential
      conflicts of interest;§
            Corporate
      governance background;§
            Financial
      and accounting background;§
            Executive
      compensation background; and§
            Size
      and composition of the existing
Board.





The
Nominating and Governance Committee will consider candidates for director
suggested by stockholders by considering the foregoing criteria and the
additional information referred to below. Stockholders wishing to suggest a
candidate for director should write to ULURU Inc., c/o Investor Relations, 4452
Beltway Drive, Addison, Texas 75001 and include the following:





§
            The
      name and address of the stockholder and a statement that he, she or it is
      a stockholder of the Company and is proposing a candidate for
      consideration by the committee;§
            The
      class and number of shares of Company capital stock owned by the
      stockholder as of the Record Date for the annual stockholder meeting (if
      such date has been announced) and as of the date of the notice, and the
      length of time such stockholder has held such shares;§
            The
      name, age and address of the candidate;§
            A
      description of the candidate’s business and educational
      experience;§
            The
      class and number of shares of Company capital stock, if any, owned by the
      candidate, and length of time such candidate has held such
      shares;§
            Information
      regarding each of the foregoing criteria the Board generally considers,
      other than the factor regarding Board size and composition, sufficient to
      enable the committee to evaluate the candidate;§
            A
      description of any relationship between the candidate and any customer,
      supplier or competitor of the Company or any actual or potential conflict
      of interest;§
            A
      description of any relationship or understanding between the stockholder
      and the candidate; and§
            A
      statement that the candidate is willing to be considered and willing to
      serve as a director if nominated and
elected.








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Board
Committees





The
standing committees of the Board are the Audit Committee, the Compensation
Committee and the Nominating and Governance Committee.




As of
March 16, 2009, each committee of the Board is comprised as
follows:




Audit
                Committee
              
              Compensation
                Committee
              
              Nominating
      and Governance
                CommitteeJeffrey
      B. Davis, Chairman
              
              
              W.
      Anthony Vernon, Chairman
              
              
              William
      W. Crouse, ChairmanW.
      Anthony Vernon
              
              
              Jeffrey
      B. Davis
              
              
              W.
      Anthony Vernon





During
2008, the Audit Committee included Dr. David E. Reese from January 2008 to May
2008, William W. Crouse from May 2008 to August 2008, and Ronald A. Ahrens from
August 2008 to January 2009.





All
members of each committee have been determined by the Board to be independent
under applicable SEC and New York Stock Exchange Alternext US rules and
regulations





The Audit Committee has the
responsibility to engage the independent auditors, review the audit fees,
supervise matters relating to audit functions and review and set internal
policies and procedure regarding audits, accounting and other financial
controls.  The Board has determined that Jeffrey B. Davis meets the
definition of an "Audit Committee Financial Expert".  The charter of
the Audit Committee is available on the Company's website at www.uluruinc.com
under the heading "Investor Relations."





The Compensation Committee
has responsibility for approval of remuneration arrangements for executive
officers of the Company, review and approval of compensation plans relating to
executive officers and directors, including grants of stock options under the
Company's 2006 Equity Incentive Plan and other benefits and general review of
the Company's employee compensation policies.  The charter of the
Compensation Committee is available on the Company's website at www.uluruinc.com
under the heading "Investor Relations."




The Nominating and Governance
Committee is responsible for, among other things, considering potential
Board members, making recommendations to the full Board as to nominees for
election to the Board, assessing the effectiveness of the Board and implementing
the Company's corporate governance guidelines.  The charter of the
Nominating and Governance Committee is available on the Company's website at
www.uluruinc.com under the heading "Investor Relations.





Meetings
of the Board and Certain Committees





The Board
held a total of seven meetings either in person or by conference call during the
2008 fiscal year. The Board has a standing Audit Committee, Compensation
Committee, and Nominating and Governance Committee. During the 2008 fiscal year,
each Director attended at least 75% of the meetings of the Board that were held
while such Director served as a member of the Board and all meetings held by all
committees on which the individual Director served.  In addition to
the meetings held by the Board and Board committees, the directors and Board
committee members communicated informally to discuss the affairs of the Company
and, when appropriate, took formal Board and committee action by unanimous
written consent of all directors or committee members, in accordance with Nevada
law, in lieu of holding formal meetings.


From
January 1, 2008 to May 15, 2008, the Audit Committee was composed of Jeffrey B.
Davis, W. Anthony Vernon, and Dr. David E. Reese, all being independent
directors.  From May 15, 2008 to August 7, 2008, the Audit Committee
was composed of Jeffrey B. Davis, W. Anthony Vernon, and William W.
Crouse.  On August 7, 2008, the Audit Committee was reconstituted to
be composed of Jeffrey B. Davis, W. Anthony Vernon, and Ronald A. Ahrens, all
being independent directors.  During the 2008 fiscal year, the Audit
Committee held a total of four meetings either in person or by conference
call.
 
 From
January 1, 2008 to May 15, 2008, the Compensation Committee was composed of W.
Anthony Vernon, Jeffrey B. Davis, and Dr. David E. Reese.  On May 15,
2008 the Compensation Committee was reconstituted to be composed of W. Anthony
Vernon and Jeffrey B. Davis, both being independent
directors.    During the 2008 fiscal year, the Compensation
Committee met once.
 
 For the
entirety of 2008, the Nominating and Governance Committee was composed of
William W. Crouse and W. Anthony Vernon, both being independent directors. The
Nominating and Governance Committee met once during the 2008 fiscal
year.


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REPORT
OF THE AUDIT COMMITTEE





The Audit
Committee of the Board operates under a written charter adopted by the Board,
which charter is available on the Company’s website at www.uluruinc.com under
the heading “Investor Relations.” Presently, the Audit Committee is composed of
three non-employee directors.  The Board has determined that each of
Messrs. Davis and Vernon are independent under applicable SEC and New York Stock
Exchange Alternext US rules and regulations. In accordance with its written
charter, the Audit Committee assists the Board in fulfilling its responsibility
for oversight of the quality and integrity of the accounting, auditing and
financial reporting practices of the Company.





In
discharging its oversight responsibility as to the audit process, the Audit
Committee obtained from the Company’s independent accountants a formal written
statement describing all relationships between the accountants and the Company
that might bear on the accountants’ independence consistent with Public Company
Accounting Oversight Board Rule 3526,“Communication with Audit Committees
Concerning Independence.”The Audit Committee discussed with
the independent accountants any relationships that may impact their objectivity
and independence and satisfied itself as to that firm’s
independence.





The Audit
Committee discussed and reviewed with the independent accountants all
communications required by generally accepted accounting standards, including
those described in Statement on Auditing Standards No. 61, as amended,
“Communication with Audit Committees.” In addition, the Audit Committee met with
and without management present, and discussed and reviewed the results of the
independent accountants’ examination of the Company’s financial
statements.





Based
upon the Audit Committee’s discussion with management and the independent
accountants, and the Audit Committee’s review of the representation of
management, and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended to the Board that the Company include
the audited consolidated financial statements in its Annual Report on Form 10-K
for the 2008 fiscal year for filing with the SEC.





The Audit
Committee also recommended the appointment of Lane Gorman Trubitt, L.L.P. as our
independent accountants for the fiscal year 2009 and the Board concurred with
such recommendation.





AUDIT COMMITTEEJeffrey
      B. Davis, ChairmanW.
      Anthony Vernon




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Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) (“Section 16(a)”) of the Securities Exchange Act of 1934, as amended,
requires our directors, executive officers and holders of more than ten percent
of a registered class of our equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of such securities.
Directors, officers and 10% holders are required by SEC rules to furnish us with
copies of all of the Section 16(a) reports they file.





Based
solely on a review of reports furnished to us during the 2008 fiscal year or
written representatives from our directors and executive officers, none of our
directors, executive officers and, to our knowledge, 10% holders failed to file
on a timely basis reports required by Section 16(a) during the 2008 fiscal year
except that Messrs. Gray, Wallberg, Van den Hooff, Crouse, Davis, and Vernon
each filed one late Form 4.





Code
of Business Conduct and Ethics





On March
31, 2006 we adopted a written Code of Business Conduct and Ethics for Employees,
Executive Officers and Directors, applicable to all employees, management, and
directors, designed to deter wrongdoing and promote honest and ethical conduct,
full, fair and accurate disclosure, compliance with laws, prompt internal
reporting and accountability to adherence to the Code of Business Conduct and
Ethics.





Web
Availability





We make
available free of charge through our web site, www.uluruinc.com, our
annual reports on Form 10-K  and other reports required under the
Securities and Exchange Act of 1934, as amended, as soon as reasonably
practicable after such reports are filed with, or furnished to, the Securities
and Exchange Commission as well as certain of our corporate governance policies,
including the charters for the Board of Director's corporate governance
committees and our code of ethics, corporate governance guidelines and
whistleblower policy. We will provide to any person without charge, upon
request, a copy of any of the foregoing materials.  Any such request
must be made in writing to ULURU Inc., 4452 Beltway Drive, Addison, TX 75001,
Attn: Investor Relations.








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ITEM
11.                      EXECUTIVE COMPENSATION








Compensation Discussion and
Analysis





The
Compensation Committee operates under a written charter adopted by the Board and
is responsible for making all compensation decisions for the Company’s named
executives including determining base salary and annual incentive compensation
amounts and recommending stock option grants and other stock-based compensation
under our equity incentive plans.




Overview
and Philosophy





The goals
of our executive compensation program are to:





§
            provide
      competitive compensation that will help attract, retain and reward
      qualified executives, with a focus on talent from within the
      bio-pharmaceutical industry;§
            align
      management’s interests with our success by making a portion of the
      executive’s compensation dependent upon corporate performance;
      and§
            align
      management’s interests with the interests of stockholders by including
      long-term equity incentives.





To
achieve these goals, we focus on several key points in the design of our
executive compensation program.  First, retention is a very important
consideration in our compensation programs, and internal promotion and retention
of key executive talent has been a significant feature of our
company.  We believe that retention involves two interrelated
components – establishment of a working environment that provides intangible
benefits to our executives and encourages longevity and overall compensation
that is generally competitive within our industry and among companies of
comparable size and complexity.  Augmenting compensation with a
desirable working environment enables us to maintain an overall compensation
program that generally provides roughly average overall compensation to our
executive officers, as compared to companies with which we compete for talent,
but still remain competitive.  Our Compensation Committee has not
historically employed compensation consultants to assist it in designing our
compensation programs.  Instead, we rely on our familiarity with the
market and ongoing market intelligence, including occasional review of publicly
available compensation information of other companies, both those with which we
compete and those within our geographic labor market, to gauge the
competitiveness of our compensation programs.  In particular, our
Compensation Committee has considered market data from CollaGenex
Pharmaceuticals, DepoMed Inc., Durect Corp., Inspire Pharmaceuticals, Momenta
Pharmaceuticals, Noven Pharmaceuticals, and OraSure Technologies, Inc.
(collectively, the “Peer Group).  We use this data to help benchmark
our executive compensation policies. The companies in the Peer Group were
selected based upon various factors, including industry, number of employees,
number and type of commercialized products, depth of drug development pipeline,
annual spending on research and development activities, and market
capitalization.  The companies comprising the Peer Group are
periodically reviewed and updated each year.





The
Committee also seeks a compensation structure that is internally consistent and
provides appropriate compensation for our executives in relation to one
another.  Consequently, the Compensation Committee does not focus on
any particular benchmark to set executive compensation.  Instead, we
believe that a successful compensation program requires the application of
judgment and subjective determinations based on the consideration of a number of
factors.  These factors include the following:





§
            the
      scope and strategic impact of the executive officer’s responsibilities,
      including the importance of the job function to our
    business;§
            our
      past financial performance and future expectations;§
            the
      performance and experience of each individual;§
            past
      salary levels of each individual and of the officers as a
      group;§
            our
      need for someone in a particular position; and§
            for
      each executive officer, other than the Chief Executive Officer, the
      evaluations and recommendations of our Chief Executive Officer, in
      consultation with our Chief Financial
Officer.





The
Committee does not assign relative weights or rankings to these
factors.  Our allocation of compensation between cash and equity
awards, our two principal forms of compensation, is based upon our historical
practice and our evaluation of the cost of equity awards, as discussed in more
detail below.





Our Chief
Executive Officer works closely with the Committee to maintain an open dialogue
regarding the Committee’s goals, progress towards achievement of those goals and
expectations for future performance.  The Chief Executive Officer
updates the Committee regularly on results and compensation
issues.  Our Chief Executive Officer also provides the Committee, and
in particular, the Committee Chair, with recommendations regarding compensation
for our executive officers other than himself.  In part because the
Chief Executive Officer works closely with the Committee throughout the year,
the Committee is in a position to evaluate his performance and make its own
determinations regarding appropriate levels of compensation for the Chief
Executive Officer.





Tax
Considerations





Section
162(m) of the Internal Revenue Code limits ULURU’s tax deduction for
compensation over $1,000,000 paid to the Chief Executive Officer or to certain
other executive officers. Compensation that meets the requirements for qualified
performance-based compensation or certain other exceptions under the Internal
Revenue Code is not included in this limit. Generally, the Compensation
Committee desires to maintain the tax deductibility of compensation for
executive officers to the extent it is feasible and consistent with the
objectives of our compensation programs. To that end, our 2006 Equity Incentive
Plan and Incentive Bonus Plan were designed to meet the requirements so that
grants and annual incentive bonuses under those plans will be performance-based
compensation for Section 162(m) purposes. However, in the past, our executives’
compensation has not been high enough to make Section 162(m) a critical issue
for the company. Therefore, deductibility under Section 162(m) is only one
consideration in determining executive compensation, and the Compensation
Committee may approve compensation that is not deductible in order to compensate
executive officers in a manner consistent with performance and our need for
executive talent.





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Components
of Executive Compensation





Our
executive compensation program consists of base salary, an annual incentive
bonus program, and long-term equity incentives in the form of stock options and
restricted stock grants.  Executive officers also are eligible to
participate in certain benefit programs that are generally available to all of
our employees, such as medical insurance programs, life insurance programs and
our 401(k) plan.  The Compensation Committee of our Board of Directors
oversees our executive compensation program.





Base
Salary





Base
salaries are the most basic form of compensation and are integral to any
competitive employment arrangement.  Each named executive officer and
key employee’s employment agreement sets forth his salary, which varies with the
scope of his respective responsibilities. At the beginning of each fiscal year,
the Compensation Committee establishes an annual base salary for our executive
officers (other than the Chief Executive Officer) based on recommendations made
by our Chief Executive Officer, in consultation with our Chief Financial
Officer.  Consistent with our compensation objectives and philosophy
described above, the Compensation Committee attempts to set base salary
compensation, and adjust it when warranted, based on company financial
performance, the individual’s position and responsibility within our company and
performance in that position, the importance of the executive’s position to our
business, and the compensation of other executive officers of ULURU with
comparable qualifications, experience and responsibilities.  The
Committee also generally takes into account its perceived range of salaries of
executive officers with comparable qualifications, experience and
responsibilities at other companies with which we compete for executive talent
including but not limited to our Peer Group.  The Committee also
reviews historical salary information for each of the executive officers as part
of its analysis in setting base salary structures. The Committee uses this
information to review historical progression of each executive officer’s
compensation and to identify variations in compensation levels among the
executive officers.





On March
4, 2009, the Compensation Committee reviewed the base salaries of our named
executive officers and key employees, taking into account the considerations
described above. The Committee approved to maintain the current existing salary
for a majority of the named executive officers and key employees for 2009 as the
Company strives to improve financial performance during the upcoming
year.  The base salary amounts for 2008 and 2009 are as
follows:





Named Executive Officers & Key
      Employees
                    
                    2008
      Salary
                    
                    
                    2009
      Salary
                    
                    
                    %
      IncreaseKerry P. Gray (1)
                    
                    $
                    380,000
                    
                    
                    $
                    380,000
                    
                    
                    
                    0.0
                    %Renaat Van den Hooff (1)
                    
                    $
                    308,000
                    
                    
                    $
                    308,000
                    
                    
                    
                    0.0
                    %Terrance K. Wallberg
                    
                    $
                    200,000
                    
                    
                    $
                    200,000
                    
                    
                    
                    0.0
                    %Daniel G. Moro
                    
                    $
                    175,000
                    
                    
                    $
                    175,000
                    
                    
                    
                    0.0
                    %John V. St. John, Ph.D.
                    
                    $
                    140,000
                    
                    
                    $
                    160,000
                    
                    
                    
                    14.3
                    %





(1)
                  
                  On
      March 9, 2009 Mr. Gray resigned as the Company’s President and Chief
      Executive Officer and Mr. Van den Hooff, the Company’s Executive Vice
      President – Operations, was appointed as his successor in these
      capacities.








The
Committee also approved to maintain the existing 2008 salary amounts for all of
the Company’s employees for 2009, with the exception of Dr. St. John and one
other non-key employee.  Dr. St. John’s increase reflected his
responsibility and importance the Company as well as an increase to match market
conditions for scientific executives at other companies with which we compete
for executive talent, including but not limited to our Peer Group.





Annual
Bonus





We
provide annual bonuses under our Incentive Bonus Plan, which is designed to
motivate and reward executives for their contribution to the company’s
performance during the fiscal year.  A significant portion of the
total cash compensation that our executive officers and key employees could
receive each year is paid through this program, and thus is dependent upon our
corporate performance and individual performance. The Compensation Committee
established certain performance objectives for 2008, which were comprised of
revenue goals, operating expense control, product development objectives,
business development goals, regulatory filings, and a discretionary
component.  On March 4, 2009, the Compensation Committee determined
that the Company will forego the payment of annual cash bonus awards to our
named executive officers as well as all other employees (which related to their
performances in 2008) representing the following percentages of base salary
earned in 2008:





Named Executive Officers & Key
      Employees
                  
                  Target
      Bonus Level
                  
                  
                  2008
      Bonus (1)
                  
                  
                  Percentage
      of 2008 Base SalaryKerry P. Gray (2)
                  
                  
                  70
                  %
                  
                  $
                  ---
                  
                  
                  
                  0.0
                  %Renaat Van den Hooff (2)
                  
                  
                  40
                  %
                  
                  $
                  ---
                  
                  
                  
                  0.0
                  %Terrance K. Wallberg
                  
                  
                  30
                  %
                  
                  $
                  ---
                  
                  
                  
                  0.0
                  %Daniel G. Moro
                  
                  
                  30
                  %
                  
                  $
                  ---
                  
                  
                  
                  0.0
                  %John V. St. John, Ph.D.
                  
                  
                  30
                  %
                  
                  $
                  ---
                  
                  
                  
                  0.0
                  %





(1)
                
                Pertains
      to 2008 performance.(2)
                
                On
      March 9, 2009 Mr. Gray resigned as the Company’s President and Chief
      Executive Officer and Mr. Van den Hooff, the Company’s Executive Vice
      President – Operations, was appointed as his successor in these
      capacities.








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Restricted
Stock Awards





As part
of our Incentive Bonus Plan, we also granted restricted stock awards to our
executive officers and key employees in an amount to equal to the annual cash
bonus.  The Compensation Committee believes that restricted stock
awards are a valuable tool in linking the personal interest of our executives to
those of our stockholders.  Moreover, the vesting component of the
restricted stock awards provides a valuable retention tool, and retention is a
significant consideration in making these awards.  On March 4, 2009,
the Compensation Committee granted awards of restricted shares of Common Stock
to Messrs. Van den Hooff, Wallberg, Moro, and St. John of 180,000, 100,000,
80,000, and 80,000, respectively, based on the closing stock price of $0.20 on
such date.  The restricted stock awards granted on March 4, 2009 are
subject to a vesting schedule over two years.





Stock
Options





We
compensate our executive officers and key employees in part with annual grants
of stock option awards under our 2006 Equity Incentive Plan, which is described
in the narrative following the Summary Compensation Table.  Typically,
we grant stock options every year because these awards are consistent with our
compensation goals of aligning executives’ interests with that of our
stockholders in the long term, and because these grants are a standard form of
compensation among the companies with which we compete for executive talent
including but not limited to our Peer Group. The Compensation Committee believes
that stock option awards are an especially valuable tool in linking the personal
interests of executives to those of our stockholders, because executives’
compensation under these awards is directly linked to our stock price. These
awards give executive officers a significant, long-term interest in the
company’s success.  In addition, they can provide beneficial tax
treatment that executives value due to the fact that we have typically granted
incentive stock options to our executives to the maximum extent permitted under
the tax laws. Moreover, the vesting component of our stock option awards
provides a valuable retention tool, and retention is a significant consideration
in making these awards.





As part
of the March 4, 2009 annual review by the Compensation Committee, the Committee
did not grant any stock option awards.  On March 9, 2009Mr. Gray
forfeited stock options with respect to 300,000 shares of common stock upon his
resignation as President and Chief Executive Officer of the
Company.





As part
of the February 2008 annual review by the Compensation Committee, the Committee
approved the award of options to purchase Common Stock to Messrs. Gray, Van den
Hooff, Wallberg, Moro, and St. John of 800,000, 50,000, 80,000, 80,000, and
80,000, respectively.  The stock options awarded are subject to a
vesting schedule over four years.





Other
Compensation and Personal Benefits





We
maintain general broad-based employee benefit plans in which our executives
participate, such as health insurance plans, life insurance, and a 401(k)
plan.  These benefits are provided as part of the basic conditions of
employment for all of our employees. In addition, we believe that providing
these basic benefits is necessary for us to attract and retain high-level
executives working in our industry and in our geographic area.  We
believe that these benefits substantially enhance employee morale and
performance.  Our benefit plans may change over time as the
Compensation Committee determines what is appropriate.





The
Company’s 401(k) plan permits a contribution of up to 4% of salary to our 401(k)
plan and we match 100% of such contribution, subject to limitations established
by law.  Participation in the Company’s 401(k) plan and receipt of
matching contributions is available to all full-time employees.  We
consider the matching contribution feature to be an important aspect of our
compensation program because it is our only retirement program for our named
executive officers and key employees.





Retirement
Benefits





Our
executive officers and key employees do not participate in any defined benefit
retirement plans such as a pension plan.  We do not have any deferred
compensation programs.  As noted above, our executive officers and key
employees are eligible for our 401(k) plan, and we match those contributions as
described immediately above in “Other Compensation and Personal
Benefits”.





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DIRECTOR
COMPENSATION





Each
director who is not also our employee is entitled to receive options to purchase
a number of shares of our Common Stock, as determined by the Board, on the date
of each annual meeting of stockholders.  In addition, we reimburse
each director, whether an employee or not, the expenses of attending Board and
committee meetings.





Compensation





The
following table sets forth information regarding the compensation we paid to our
directors in 2008:





Name
                    
                    Fee
      Earned or Paid in Cash
                      ($)
                    
                    
                    Stock
      Awards
                      ($)
                    
                    
                    Option
                      Awards
                      ($)(1)(2)
                    
                    
                    Non-Equity
                      Incentive
      Plan
                      Compensation
                      ($)
                    
                    
                    All
                      Other
                      Compensation
                      ($)
                    
                    
                    TotalWilliam W. Crouse
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    53,141
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    53,141Jeffrey B. Davis
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    36,093
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    36,093W. Anthony Vernon
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    49,662
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    49,662David E. Reese, Ph.D. (3)
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    9,274
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    9,274Ronald A. Ahrens (4)
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    11,906
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    $
                    11,906




(1)
                
                On
      May 15, 2008 stock option grants were issued to Messrs. Crouse, Davis, and
      Vernon to purchase shares of Common Stock of 75,000, 50,000, and 50,000,
      respectively, with an exercise price of $1.38 per share and an expiration
      date of May 15, 2018.  On June 19, 2008 stock option grants were
      issued to Messrs. Crouse, Davis, and Ahrens to purchase shares of Common
      Stock of 45,000, 25,000, and 50,000, respectively, with an exercise price
      of $0.92 per share and an expiration date of June 19, 2018.  The
      stock option grants issued to our Directors during 2008 become fully
      vested on the one year anniversary of the date of
grant.(2)
                
                The
      amounts shown do not reflect compensation actually received by our
      directors or the actual value that may be recognized by the directors with
      respect to these awards in the future.  Instead, the amounts in
      this column represent the Black-Scholes fair value of options that we
      recorded as expense in 2008 and thus include amounts from awards prior to
      2008.  The grant date fair value for the annual stock option
      award made to the directors on May15, 2008 was $49,669 for Mr. Crouse and
      $33,113 for Messrs. Davis and Vernon, respectively. The grant date fair
      value for the stock option awards made to Messrs. Crouse, Davis, and
      Ahrens on June 19, 2008 was $20,057, $11,143, and $22,286,
      respectively.  For a description of the assumptions used to
      determine the fair value of options recorded as expense in 2008 and the
      grant date fair value of options granted in 2008, see Note 12 to our
      Consolidated Financial Statement in our Annual Report on Form 10-K for the
      year ended December 31, 2008, except that, as required by SEC regulations,
      the amounts included herein do not reflect any assumed
      forfeitures.(3)
                
                On
      May 15, 2008, David E. Reese, Ph.D. did not stand for re-election as a
      Director of the Company.(4)
                
                On
      January 5, 2009, Ronald A. Ahrens resigned as a Director of the
      Company.








Option
Exercises in 2008





There
were no exercises of stock options by our directors during the 2008 fiscal
year.





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Outstanding
Equity Awards at 2008 Fiscal Year-End





The
following table sets forth information regarding all outstanding stock option
awards for each of our directors as of December 31, 2008.


Option
      AwardsName
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Number
      of
                                                                      Securities
                                                                      Underlying
                                                                      Unexercised
                                                                      Options
      (#)
                                                                      Exercisable
                                                                    
                                                                    
                                                                    Number
      of
                                                                      Securities
                                                                      Underlying
                                                                      Unexercised
                                                                      Options
      (#)
                                                                      Unexercisable
                                                                    
                                                                    
                                                                    Option
                                                                      Exercise
                                                                      Price
                                                                      ($)
                                                                    
                                                                    Option
                                                                      Expiration
                                                                      DateWilliam W. Crouse
                                                                    
                                                                    
                                                                    (1)
                                                                    
                                                                    
                                                                    
                                                                    200,000
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    $
                                                                    1.65
                                                                    
                                                                    12/13/2016(1)
                                                                    
                                                                    
                                                                    
                                                                    30,000
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    $
                                                                    4.95
                                                                    
                                                                    05/08/2017(2)
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    
                                                                    75,000
                                                                    
                                                                    
                                                                    $
                                                                    1.38
                                                                    
                                                                    05/15/2018(3)
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    
                                                                    45,000
                                                                    
                                                                    
                                                                    $
                                                                    0.92
                                                                    
                                                                    06/19/2018Jeffrey B. Davis
                                                                    
                                                                    
                                                                    (1)
                                                                    
                                                                    
                                                                    
                                                                    150,000
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    $
                                                                    1.65
                                                                    
                                                                    12/13/2016(1)
                                                                    
                                                                    
                                                                    
                                                                    25,000
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    $
                                                                    4.95
                                                                    
                                                                    05/08/2017(2)
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    
                                                                    50,000
                                                                    
                                                                    
                                                                    $
                                                                    1.38
                                                                    
                                                                    05/15/2018(3)
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    
                                                                    25,000
                                                                    
                                                                    
                                                                    $
                                                                    0.92
                                                                    
                                                                    06/19/2018W. Anthony Vernon
                                                                    
                                                                    
                                                                    (1)
                                                                    
                                                                    
                                                                    
                                                                    50,000
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    $
                                                                    4.29
                                                                    
                                                                    08/13/2017(2)
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    
                                                                    50,000
                                                                    
                                                                    
                                                                    $
                                                                    1.38
                                                                    
                                                                    05/15/2018Ronald A. Ahrens (4)
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    ---
                                                                    
                                                                    
                                                                    
                                                                    50,000
                                                                    
                                                                    
                                                                    $
                                                                    0.92
                                                                    
                                                                    06/19/2018(1)  The
      stock options are fully vested.(2)  The
      stock options will fully vest on May 15, 2009.(3)  The
      stock options will fully vest on June 19, 2009.(4)  On
      January 5, 2009, Ronald A. Ahrens resigned as a Director of the
      Company.









Compensation
Committee Report





The
following report is not deemed to be “soliciting material” or to be “filed” with
the SEC or subject to the SEC’s proxy rules or the liabilities of Section 18 of
the Exchange Act, and the report shall not be deemed to be incorporated by
reference into any prior or subsequent filing by us under the Securities Act of
1933, as amended, or the Exchange Act.





The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis included in this annual report. Based on
this review and discussion, the Compensation Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this annual report
on Form 10-K.








COMPENSATION COMMITTEEW.
      Anthony Vernon, ChairmanJeffrey
      B. Davis








Compensation
Committee Interlocks and Insider Participation





The
Compensation Committee is presently composed of two directors; W. Anthony Vernon
and Jeffrey B. Davis.  The Compensation Committee makes
recommendations to the Board regarding executive compensation matters, including
decisions relating to salary and annual incentive payments and grants of stock
options.  During the 2008 fiscal year, no executive officer of the
Company served as a member of the Board or compensation committee of any entity
that has one or more executive officers serving as members of the Board or our
Compensation Committee.











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Summary
Compensation Table





The
following table sets forth, for the fiscal years ended December 31, 2008 and
December 31, 2007, the total compensation earned by or paid to our Chief
Executive Officer, Chief Financial Officer, and each of our three other most
highly compensated named executive officers and key employees who were serving
as named executive officers and key employees as of December 31,
2008.





Name
      and Principal Position
                    
                    Fiscal
      Year
                    
                    
                    Salary
                      ($)
                    
                    
                    Bonus
                      ($)(2)
                    
                    
                    Stock
      Awards
                      ($)(3)(4)
                    
                    
                    Option
                      Awards
                      ($)(5)
                    
                    
                    Non
      Equity
                      Incentive
      Plan
                      Compensation
                      ($)(6)
                    
                    
                    All
      Other
                      Compensation
                      ($)(7)
                    
                    
                    Total
                      ($)Kerry
      P. Gray
                      President & Chief
      Executive Officer(1)
                    
                    
                    2008
                      2007
                    
                    
                    
                    377,500
                      345,833
                    
                    
                    
                    ---
                      ---
                    
                    
                    
                    42,761
                      25,999
                    
                    
                    
                    226,570
                      ---
                    
                    
                    
                    ---
                      95,000
                    
                    
                    
                    11,721
                      12,474
                    
                    
                    
                    658,552
                      479,306Renaat
      Van den Hooff
                      Executive Vice President –
      Operations (2)
                    
                    
                    2008
                      2007
                    
                    
                    
                    307,333
                      79,615
                    
                    
                    
                    ---
                      100,000
                    
                    
                    
                    2,646
                      ---
                    
                    
                    
                    351,522
                      89,516
                    
                    
                    
                    ---
                      15,000
                    
                    
                    
                    10,426
                      1,806
                    
                    
                    
                    671,927
                      285,937Terrance
      K. Wallberg
                      Vice
      President & Chief Financial Officer
                    
                    
                    2008
                      2007
                    
                    
                    
                    197,917
                      173,333
                    
                    
                    
                    ---
                      ---
                    
                    
                    
                    9,121
                      5,424
                    
                    
                    
                    43,230
                      19,706
                    
                    
                    
                    ---
                      20,956
                    
                    
                    
                    9,529
                      8,741
                    
                    
                    
                    259,797
                      228,160Daniel
      G. Moro
                      Vice
      President – Polymer Drug Delivery
                    
                    
                    2008
                      2007
                    
                    
                    
                    174,167
                      163,210
                    
                    
                    
                    ---
                      ---
                    
                    
                    
                    8,341
                      5,023
                    
                    
                    
                    43,230
                      19,706
                    
                    
                    
                    ---
                      18,810
                    
                    
                    
                    9,529
                      9,326
                    
                    
                    
                    235,267
                      216,075John
      V. St. John, Ph.D.
                      Vice
      President – Material Science
                    
                    
                    2008
                      2007
                    
                    
                    
                    138,333
                      120,000
                    
                    
                    
                    ---
                      ---
                    
                    
                    
                    5,743
                      3,360
                    
                    
                    
                    45,693
                      22,169
                    
                    
                    
                    ---
                      13,500
                    
                    
                    
                    7,227
                      6,536
                    
                    
                    
                    196,996
                      165,565





(1)
              
              The
      2007 salary amount listed does not include a payment of $62,500 made to
      Mr. Gray in February 2007 for compensation that was owed to him for
      services provided to the Company’s subsidiary, Uluru Delaware Inc., in the
      fourth quarter of 2005.  On March 9, 2009 Mr. Gray resigned as
      the Company’s President and Chief Executive Officer.(2)
              
              The
      2007 salary presented for Mr. Van den Hooff represents a partial year of
      employment with the Company from September 25, 2007 until December 31,
      2007.  Additionally, the bonus paid in 2007 was associated with
      Mr. Van den Hooff’s employment agreement.  On March 9, 2009 Mr.
      Van den Hooff was appointed as the Company’s President and Chief Executive
      Officer.(3)
              
              Restricted
      stock awards are subject to a five year vesting schedule from the date of
      grant.  The amounts in this column do not reflect compensation
      actually received by our named executives or the actual value that may be
      recognized by our named executives with respect to these awards in the
      future.  Instead, the amounts in this column represent the
      restricted stock awards that we recorded as expense in 2008 and thus
      include amounts from awards prior to 2008.(4)
              
              In
      February 2008, we calculated and granted restricted stock awards to
      Messrs. Gray, Van den Hooff, Wallberg, Moro, and St. John of 35,316,
      6,494, 9,072, 8,143, and 5,844 shares of Common Stock, respectively, with
      respect to 2007 performance achievements. The fair value on the date of
      grant for the restricted stock awards to Messrs. Gray, Van den Hooff,
      Wallberg, Moro, and St. John was $95,000, $15,001, $20,956, $18,810, and
      $13,500, respectively.  In February 2007, we calculated and
      granted restricted stock awards to Messrs. Gray, Wallberg, Moro, and St.
      John of 32,500, 6,781, 6,279, and 4,200 shares of Common Stock,
      respectively, with respect to 2006 performance achievements. The fair
      value on the date of grant for the restricted stock awards to Messrs.
      Gray, Wallberg, Moro, and St. John was $130,000, $27,124, $25,116, and
      $16,800, respectively.(5)
              
              The
      amounts shown do not reflect compensation actually received by our named
      executives or the actual value that may be recognized by the named
      executives with respect to these awards in the future.  Instead,
      the amounts in this column represent the Black-Scholes fair value of
      options that we recorded as expense in 2008 and thus include amounts from
      awards prior to 2008. During 2008, we granted stock option awards to
      Messrs. Gray and Van den Hooff to purchase 800,000 and 50,000 shares of
      Common Stock, respectively, and a stock option award to purchase 80,000
      shares of Common Stock to each of Messrs. Wallberg, Moro, and St.
      John.  The fair value on the date of grant for the stock option
      awards to Messrs. Gray, Van den Hooff, Wallberg, Moro, and St. John was
      $1,027,303, $66,662, $106,659, $106,659, and $106,659,
      respectively.  On March 9, 2009 Mr. Gray forfeited stock options
      with respect to 300,000 shares of common stock upon his resignation as
      President and Chief Executive Officer of the Company.  During
      2007, we granted a stock option award to Mr. Van den Hoof to purchase
      600,000 shares of Common Stock with a fair value on the date of grant of
      $1,347,275.  For a description of the assumptions used to
      determine the fair value of options recorded as expense in 2008 and the
      grant date fair value of options granted in 2008, see Note 12 to our
      Consolidated Financial Statement in our Annual Report on Form 10-K for the
      year ended December 31, 2008, except that, as required by SEC regulations,
      the amounts included herein do not reflect any assumed
      forfeitures.(6)
              
              For
      2008, we did not award or pay in March 2009 any bonuses with respect to
      2008 performance.  For 2007, we awarded this bonus with respect
      to 2007 performance, but we calculated and paid these amounts in February
      2008.(7)
              
              All
      Other Compensation includes the
following:




Name
                                      
                                      Fiscal
      Year
                                      
                                      401(k)
      Matching Contributions
                                      
                                      
                                      Life
      and Disability Insurance
                                      
                                      
                                      Other
                                      
                                      
                                      TotalKerry P. Gray
                                      
                                      2008
                                      
                                      $
                                      9,200
                                      
                                      
                                      $
                                      2,521
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      11,721Renaat Van den Hooff
                                      
                                      2008
                                      
                                      $
                                      9,200
                                      
                                      
                                      $
                                      1,226
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      10,426Terrance K. Wallberg
                                      
                                      2008
                                      
                                      $
                                      8,755
                                      
                                      
                                      $
                                      774
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      9,529Daniel G. Moro
                                      
                                      2008
                                      
                                      $
                                      7,719
                                      
                                      
                                      $
                                      1,477
                                      
                                      
                                      $
                                      333
                                      
                                      
                                      $
                                      9,529John V. St. John, Ph.D.
                                      
                                      2008
                                      
                                      $
                                      6,073
                                      
                                      
                                      $
                                      1,154
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      7,227Kerry P. Gray
                                      
                                      2007
                                      
                                      $
                                      9,000
                                      
                                      
                                      $
                                      3,474
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      12,474Renaat Van den Hooff
                                      
                                      2007
                                      
                                      $
                                      1,355
                                      
                                      
                                      $
                                      451
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      1,806Terrance K. Wallberg
                                      
                                      2007
                                      
                                      $
                                      8,018
                                      
                                      
                                      $
                                      723
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      8,741Daniel G. Moro
                                      
                                      2007
                                      
                                      $
                                      7,533
                                      
                                      
                                      $
                                      1,458
                                      
                                      
                                      $
                                      335
                                      
                                      
                                      $
                                      9,326John V. St. John, Ph.D.
                                      
                                      2007
                                      
                                      $
                                      5,472
                                      
                                      
                                      $
                                      1,064
                                      
                                      
                                      
                                      ---
                                      
                                      
                                      $
                                      6,536








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Grants
of Plan Based Awards During Fiscal Year 2008





The
following table sets forth information regarding grants of stock options and
grants of restricted stock awards under the Company’s 2006 Equity Incentive Plan
and under the Company’s Incentive Bonus Plan during 2008 to named executive
officers and key employees at the discretion of the Compensation
Committee.





Estimated
      Future Payouts Under Non-Equity Incentive Plan Awards (1)Name
                              
                              Grant
      Date
                              
                              
                              Threshold
                                ($)
                              
                              
                              Target
                                ($)
                              
                              
                              Maximum
                                ($)
                              
                              
                              All
      Other Stock Awards: Number of Shares of Stock on Units (#)
      (2)
                              
                              
                              All
      Other Option Awards: Number of Securities Underlying Options (#)
      (3)
                              
                              
                              Exercise
      or Base Price of Option Awards ($/Sh)
                              
                              
                              Grant
      Date Fair Value of Stock and Option Awards ($)(4)Kerry P. Gray (5)
                              
                              
                              n/a
                              
                              
                              $
                              -0-
                              
                              
                              $
                              266,000
                              
                              
                              $
                              532,000
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---02/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              35,316
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              $
                              95,00002/15/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              800,000
                              
                              
                              $
                              2.54
                              
                              
                              $
                              1,027,303Renaat Van den Hooff (5)
                              
                              
                              n/a
                              
                              
                              $
                              -0-
                              
                              
                              $
                              123,200
                              
                              
                              $
                              246,400
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---02/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              6,494
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              $
                              15,00002/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              50,000
                              
                              
                              $
                              2.31
                              
                              
                              $
                              66,662Terrance K. Wallberg
                              
                              
                              n/a
                              
                              
                              $
                              -0-
                              
                              
                              $
                              60,000
                              
                              
                              $
                              120,000
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---02/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              9,072
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              $
                              20,95602/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              80,000
                              
                              
                              $
                              2.31
                              
                              
                              $
                              106,659Daniel G. Moro
                              
                              
                              n/a
                              
                              
                              $
                              -0-
                              
                              
                              $
                              52,500
                              
                              
                              $
                              105,000
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---02/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              8,143
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              $
                              18,81002/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              80,000
                              
                              
                              $
                              2.31
                              
                              
                              $
                              106,659John V. St. John
                              
                              
                              n/a
                              
                              
                              $
                              -0-
                              
                              
                              $
                              42,000
                              
                              
                              $
                              84,000
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---02/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              5,844
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              $
                              13,50002/12/08
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              ---
                              
                              
                              
                              80,000
                              
                              
                              $
                              2.31
                              
                              
                              $
                              106,659


(1)
            
            The
      amounts shown reflect the range of possible bonuses payable in accordance
      with the Bonus Incentive Plan previously established by our Compensation
      Committee for our named executive officers and key
      employees.  The amounts shown in the “threshold” column reflect
      the lowest amount payable under the plan in the event our Compensation
      Committee determined that no corporate or individual goals were met by the
      individual with respect to the year ended December 31,
      2008.  The amounts shown in each of the “target” and “maximum”
      columns reflect the amount payable under the plan with respect to each of
      the named executive officers and key employees for services rendered
      during the year ended December 31, 2008.  For 2008, the “target”
      bonus percentage for Messrs. Gray, Van den Hooff, Wallberg, Moro, and St.
      John was 70%, 40%, 30%, 30%, and 30% of base salary,
      respectively.  The “maximum” bonus awards are capped at 200% of
      the “target” award opportunity.  The Summary Compensation Table
      includes the cash bonuses that were actually earned and paid under our
      Bonus Incentive Plan for 2008 performance.(2)
            
            Restricted
      stock awards vest over a five year period, with 25% vesting on the second
      anniversary of the date of grant and 25% vesting every twelve months for
      three years thereafter.(3)
            
            Stock
      option awards vest over a four year period, with 25% vesting on the first
      anniversary of the date of grant and 2.0833% vesting every month for three
      years thereafter.  The stock options expire ten years from date
      of grant.(4)
            
            Reflects
      the grant date fair value of each equity award in accordance with FAS
      123(R).  Assumptions used in the calculation of these amounts
      are included in Note 12 to our Consolidated Financial Statement in our
      Annual Report on Form 10-K for the year ended December 31,
      2008.(5)
            
            On
      March 9, 2009 Mr. Gray resigned as the Company’s President and Chief
      Executive Officer and Mr. Van den Hooff, the Company’s Executive Vice
      President – Operations, was appointed as his successor in these
      capacities.  Mr. Gray forfeited stock options with respect to
      300,000 shares of common stock upon his resignation as President and Chief
      Executive Officer of the Company.





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Outstanding
Equity Awards at 2008 Fiscal Year-End





The
following table sets forth information regarding grants of stock options and
grants of unvested restricted stock awards held by the named executive officers
and key employees at December 31, 2008.





Option
      Awards
                                    
                                    
                                    Stock
      AwardsName
                                    Grant
      Date
                                    
                                    Number
      of
                                      Securities
                                      Underlying
                                      Unexercised
                                      Options
      (#)
                                      Exercisable
                                    
                                    
                                    Number
      of
                                      Securities
                                      Underlying
                                      Unexercised
                                      Options
      (#)
                                      Unexercisable
                                    
                                    
                                    Option
      Exercise Price per Share ($)
                                    
                                    
                                    Option
      Expiration Date
                                    
                                    
                                    Number
      of Shares or Units of Stock That Have Not Vested (#)(2)
                                    
                                    
                                    Market
      Value of Shares or Units of Stock That Have Not Vested
    ($)(3)Kerry P. Gray (4)
                                    02/15/08
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    35,316
                                    
                                    
                                    $
                                    9,88802/12/08
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    800,000
                                    
                                    
                                    $
                                    2.54
                                    
                                    
                                    02/12/2013
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---01/25/07
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    32,500
                                    
                                    
                                    $
                                    9,100Renaat Van den Hooff (4)
                                    02/12/08
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    50,000
                                    
                                    
                                    $
                                    2.31
                                    
                                    
                                    02/12/2018
                                    
                                    
                                    
                                    6,494
                                    
                                    
                                    $
                                    1,81809/25/07
                                    
                                    
                                    150,000
                                    
                                    
                                    
                                    450,000
                                    
                                    
                                    $
                                    4.50
                                    
                                    
                                    09/25/2017
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---Terrance K. Wallberg
                                    02/12/08
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    80,000
                                    
                                    
                                    $
                                    2.31
                                    
                                    
                                    02/12/2018
                                    
                                    
                                    
                                    9,072
                                    
                                    
                                    $
                                    2,54001/25/07
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    6,781
                                    
                                    
                                    $
                                    1,89912/06/06
                                    
                                    
                                    100,000
                                    
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    0.95
                                    
                                    
                                    12/06/2016
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---Daniel G. Moro
                                    02/12/08
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    80,000
                                    
                                    
                                    $
                                    2.31
                                    
                                    
                                    02/12/2018
                                    
                                    
                                    
                                    8,143
                                    
                                    
                                    $
                                    2,28001/25/07
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    6,279
                                    
                                    
                                    $
                                    1,75812/06/06
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    0.95
                                    
                                    
                                    12/06/2016
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---John V. St. John
                                    02/12/08
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    80,000
                                    
                                    
                                    $
                                    2.31
                                    
                                    
                                    02/12/2018
                                    
                                    
                                    
                                    5,844
                                    
                                    
                                    $
                                    1,63601/25/07
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    4,200
                                    
                                    
                                    $
                                    1,17612/06/06
                                    
                                    
                                    112,500
                                    
                                    
                                    
                                    112,500
                                    
                                    
                                    $
                                    0.95
                                    
                                    
                                    12/06/2016
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---




(1)
              
              Stock
      option awards vest over a four year period, with 25% vesting on the first
      anniversary of the date of grant and 2.0833% vesting every month for three
      years thereafter.  The stock options expire ten years from date
      of grant.(2)
              
              Restricted
      stock awards vest over a five year period, with 25% vesting on the second
      anniversary of the date of grant and 25% vesting every twelve months for
      three years thereafter.(3)
              
              The
      market value of the stock awards is determined by multiplying the number
      of shares times $0.28, which represents the closing price of the Company’s
      Common Stock per share quoted on the New York Stock Exchange Alternext US
      on December 31, 2008.(4)
              
              On
      March 9, 2009 Mr. Gray resigned as the Company’s President and Chief
      Executive Officer and Mr. Van den Hooff, the Company’s Executive Vice
      President – Operations, was appointed as his successor in these
      capacities.  Mr. Gray forfeited stock options with respect to
      300,000 shares of common stock upon his resignation as President and Chief
      Executive Officer of the
Company.








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 Table of Contents








Option
Exercises and Stock Vested in 2008





The
following table summarized the option exercises and restricted stock awards
vesting for each of our named executive officers and key employees during the
2008 fiscal year.


Name
                      
                      Number
      of
                        Securities
                        Acquired
      on Exercise (#)
                      
                      
                      Value
      Realized on Exercise (1)
                      
                      
                      Number
      of Shares Acquired on Vesting(#)
                      
                      
                      Value
      Realized on Vesting ($)(2)Kerry P. Gray (3)
                      
                      
                      ---
                      
                      
                      $
                      0
                      
                      
                      
                      ---
                      
                      
                      $
                      0Renaat Van den Hooff (3)
                      
                      
                      ---
                      
                      
                      $
                      0
                      
                      
                      
                      ---
                      
                      
                      $
                      0Terrance K. Wallberg
                      
                      
                      ---
                      
                      
                      $
                      0
                      
                      
                      
                      ---
                      
                      
                      $
                      0Daniel G. Moro
                      
                      
                      50,000
                      
                      
                      $
                      64,500
                      
                      
                      
                      ---
                      
                      
                      $
                      0John V. St. John
                      
                      
                      ---
                      
                      
                      $
                      0
                      
                      
                      
                      ---
                      
                      
                      $
                      0
 
 (1)
                Represents
      the price at which shares acquired upon exercise of the stock options were
      sold net of the exercise price for acquiring shares.(2)
                Represents
      the closing market price of a share of our common stock on the date of
      vesting multiplied by the number of shares that have
    vested.(3)
                On
      March 9, 2009 Mr. Gray resigned as the Company’s President and Chief
      Executive Officer and Mr. Van den Hooff, the Company’s Executive Vice
      President – Operations, was appointed as his successor in these
      capacities.  Mr. Gray will continue to serve as a Director of
      the Company.


- 51
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 Table of Contents


Employment,
Severance and Change in Control Agreements





Chief Executive
Officer





Kerry
P. Gray





On March
9, 2009, Kerry P. Gray resigned as the President and Chief Executive Officer of
the Company and Renaat Van den Hooff, the Company’s Executive Vice President
Operations, was appointed to serve as President and Chief Executive
Officer.





In
connection with Mr. Gray’s departure, the Company and Mr. Gray entered into a
Separation Agreement (the “Separation Agreement”), dated March 9,
2009.  Pursuant to the Separation Agreement, the Company will provide
certain benefits to Mr. Gray, including: (i) $400,000 during the initial 12
months; (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 stock options with respect
to 300,000 shares of common stock previously held by him; and (iv) for a period
of twenty-four (24) months 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 Separation 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 Separation
Agreement contains a mutual release of claims, certain stock lock-up provisions,
and other standard provisions. The Separation Agreement also provides that Mr.
Gray will continue as a director of the Company.





The
Separation Agreement also provides for the termination of the employment
agreement we previously had with Mr. Gray.  The employment agreement
was for a period of three years and automatically renewed for one-year periods,
with the current term set to expire on January 1, 2010.  Mr. Gray
reported directly to, and was subject to the direction of, our
Board.  As a result of the Compensation Committee’s evaluation on
March 4, 2009, Mr. Gray's annual salary was maintained at
$380,000.  Mr. Gray was eligible to participate in all of our employee
benefits programs available to executives.  Mr. Gray was also eligible
to receive:





§
                  a
      bonus payable in cash and Common Stock related to the attainment of
      reasonable performance goals specified by our Board;
and§
                  stock
      options and restricted stock at the discretion of our
    Board.





Mr.
Gray's employment agreement contained non-solicitation, confidentiality and
non-competition covenants, and a requirement that Mr. Gray assign all invention
and intellectual property rights to us.  Pursuant to the terms of the
Separation Agreement, the non-competition and non-solicitation provisions of Mr.
Gray’s employment agreement will survive until March 9, 2010.





Pursuant
to his employment agreement, Mr. Gray was entitled to certain severance benefits
in the event that (i) we terminated his employment without cause, (ii) he
resigned with reason, (iii) we terminated his employment within six months
following a change of control under certain circumstances or (iv) he terminated
his employment following a change of control in certain
circumstances.  Upon any such event, Mr. Gray would have received two
times his base salary plus target bonus for the year in which his termination
occurs, all stock options held by Mr. Gray would have become immediately
exercisable and would have remained exercisable for three years after the date
of termination and Mr. Gray would continue to receive all health benefits for
two years after the date of termination. With respect to each of these
post-employment compensation provisions, the Board of Directors had determined
that both the terms and the payout levels of each provision are appropriate to
accomplish the objectives of attracting and retaining executive
talent.  Pursuant to the terms of the Separation Agreement, no
post-employment compensation was owing to Mr. Gray as a result of the provisions
of his employment agreement.  All such compensation was included in
the terms of the Separation Agreement.





The
following table describes the potential payments to Mr. Gray under the terms of
his then existing employment, assuming, for purposes of this presentation only,
that the Separation Agreement did not terminate the Company’s obligations with
respect to such payments, upon our terminating him without cause, his resigning
with reason, our terminating him following a change of control in certain
circumstances and his resigning following a change of control in certain
circumstances:





Severance
      Payment Upon Termination
                        (1)
                      
                      
                      Accelerated
      Vesting of Unvested Equity Awards
                        (2)
                      
                      
                      Continuation
      of Benefits
                        (3)
                      
                      
                      Total$
                      1,292,000
                      
                      
                      $
                      18,988
                      
                      
                      $
                      33,096
                      
                      
                      $
                      1,344,084





(1)
                
                Represents
      two years salary and target bonus based on salary as of December 31,
      2008.(2)
                
                Calculated
      based on a change of control taking place as of December 31,
      2008.  For purposes of valuing equity awards, the amounts noted
      are based on a per share price of $0.28, which was the closing price as
      reported on the New York Stock Exchange Alternext US on December 31,
      2008.(3)
                
                Represents
      two years of COBRA health
benefits.







- 52
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Other Named Executive
Officers and Key Employees


Renaat
Van den Hooff
 
 On March
9, 2009, Renaat Van den Hooff was appointed to service as President and Chief
Executive Officer.  Prior to his appointment, we had an employment
agreement with Mr. Van den Hooff to serve as our Executive Vice President –
Operations.  The agreement was for a period of two years and
automatically renewed for one-year periods, with the current term expiring
September 25, 2009.  As a result of the Compensation Committee’s
evaluation on March 4, 2009, Mr. Van den Hooff's annual salary was maintained at
$308,000.  Mr. Van den Hooff is eligible to participate in all of our
employee benefits programs available to executives.  Mr. Van den Hooff
is also eligible to receive:
 
 §
              a
      bonus payable in cash and common stock related to the attainment of
      reasonable performance goals specified by our Board;
and§
              stock
      options and restricted stock at the discretion of our
    Board.
 
 Mr. Van
den Hooff's employment agreement contains non-solicitation, confidentiality and
non-competition covenants, and a requirement that Mr. Van den Hooff assign all
invention and intellectual property rights to us.  The employment
agreement may be terminated by either party with or without cause with sixty
days' written notice.
 
 Mr. Van
den Hooff’s employment agreement also provides for reimbursement to Mr. Van den
Hooff for excise tax payments which may be due pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended (the “Code), if payments to Mr. Van
den Hooff are deemed “parachute payments” within the meaning of Section 280G of
the Code.


Mr. Van
den Hooff is entitled to certain severance benefits in the event that (i) we
terminate his employment without cause, (ii) he resigns with reason, (iii) we
terminate his employment within six months following a change of control under
certain circumstances or (iv) he terminates his employment following a change of
control in certain circumstances.  Upon any such event, Mr. Van den
Hooff would receive one times his base salary plus target bonus for the year in
which his termination occurs, all stock options held by Mr. Van den Hooff would
become immediately exercisable and would remain exercisable for two years after
the date of termination and Mr. Van den Hooff would continue to receive all
health benefits for one year after the date of termination.  With
respect to each of these post-employment compensation provisions, the Board of
Directors has determined that both the terms and the payout levels of each
provision are appropriate to accomplish the objectives of attracting and
retaining executive talent.





Terrance
K. Wallberg





We have
an employment agreement with our Vice President and Chief Financial Officer,
Terrance K. Wallberg, which renews automatically for successive one-year
periods, with the current term extending until December 31, 2009.  As
a result of the Compensation Committee’s evaluation of compensation on March 4,
2009, the Compensation Committee maintained Mr. Wallberg's annual salary at
$200,000.  Mr. Wallberg is eligible to participate in all of our
employee benefits programs available to executives.  Mr. Wallberg is
also eligible to receive:





§
            a
      bonus payable in cash and common stock related to the attainment of
      reasonable performance goals specified by our Board;
and§
            stock
      options and restricted stock at the discretion of our
    Board.





Mr.
Wallberg's employment agreement contains non-solicitation, confidentiality and
non-competition covenants, and a requirement that Mr. Wallberg assign all
invention and intellectual property rights to us.  The employment
agreement may be terminated by either party with or without cause with sixty
days' written notice.





Mr.
Wallberg is entitled to certain severance benefits in the event that (a) we
terminate his employment without cause or he resigns with reason, or (b) either
we or he terminate his employment within six months following a change of
control in certain circumstances.  Upon any such event, Mr. Wallberg
would receive one year of salary plus target bonus for the year in which his
termination occurs, he would continue to receive all health benefits for a
period of one year after the date of his termination and all stock options held
by Mr. Wallberg would become immediately exercisable and would remain
exercisable for (i) in the case of such termination without cause or resignation
with reason, two years after the date of his termination and (ii) in the case of
such termination following a change of control, one year after the date of his
termination. With respect to each of these post-employment compensation
provisions, the Board of Directors has determined that both the terms and the
payout levels of each provision are appropriate to accomplish the objectives of
attracting and retaining executive talent.





- 53
-
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Daniel
G. Moro





We have
an employment agreement with our Vice President-Polymer Drug Delivery, Daniel G.
Moro, which renews automatically for successive one-year periods, with the
current term extending until December 31, 2009.  As a result of the
Compensation Committee’s evaluation of compensation on March 4, 2009, the
Compensation Committee maintained Mr. Moro's annual salary at
$175,000.  Mr. Moro is eligible to participate in all of our employee
benefits programs available to executives.  Mr. Moro is also eligible
to receive:





§
            a
      bonus payable in cash and common stock related to the attainment of
      reasonable performance goals specified by our Board;
and§
            stock
      options and restricted stock at the discretion of our
    Board.





Mr.
Moro's employment agreement contains non-solicitation, confidentiality and
non-competition covenants, and a requirement that Mr. Moro assign all invention
and intellectual property rights to us.  The employment agreement may
be terminated by either party with or without cause with sixty days' written
notice.





Our
employment agreement with Mr. Moro provides that Mr. Moro is entitled to certain
severance benefits in the event that (a) we terminate his employment without
cause or he resigns with reason, or (b) either we or he terminate his employment
within six months following a change of control in certain
circumstances.  Upon any such event, Mr. Moro would receive one year
of salary plus target bonus for the year in which his termination occurs, he
would continue to receive all health benefits for a period of one year after the
date of his termination and all stock options held by Mr. Moro would become
immediately exercisable and would remain exercisable for (i) in the case of such
termination without cause or resignation with reason, two years after the date
of his termination and (ii) in the case of such termination following a change
of control, one year after the date of his termination.  With respect
to each of these post-employment compensation provisions, the Board of Directors
has determined that both the terms and the payout levels of each provision are
appropriate to accomplish the objectives of attracting and retaining executive
talent.





John
V. St. John, Ph.D.





We have
an employment agreement with our Vice President-Research and Development, John
V. St. John, Ph.D., which renews automatically for successive one-year periods,
with the current term extending until December 31, 2009.  As a result
of the Compensation Committee’s evaluation of compensation on March 4, 2009, the
Compensation Committee increased Dr. St. John's annual salary from $140,000 to
$160,000.  Dr. St. John is eligible to participate in all of our
employee benefits programs available to executives.  Dr. St. John is
also eligible to receive:





§
            a
      bonus payable in cash and common stock related to the attainment of
      reasonable performance goals specified by our Board;
and§
            stock
      options and restricted stock at the discretion of our
    Board.





Dr. St.
John's employment agreement contains non-solicitation, confidentiality and
non-competition covenants, and a requirement that Dr. St. John assign all
invention and intellectual property rights to us.  The employment
agreement may be terminated by either party with or without cause with sixty
days' written notice.




Our
employment agreement with Dr. St. John, our Vice President-Research and
Development, provides that Dr. St. John is entitled to certain severance
benefits in the event that (a) we terminate his employment without cause or he
resigns with reason, or (b) either we or he terminate his employment within six
months following a change of control in certain circumstances.  Upon
any such event, Dr. St. John would receive one year of salary plus target bonus
for the year in which his termination occurs, he would continue to receive all
health benefits for a period of one year after the date of his termination and
all stock options held by Dr. St. John would become immediately exercisable and
would remain exercisable for (i) in the case of such termination without cause
or resignation with reason, two years after the date of his termination and (ii)
in the case of such termination following a change of control, one year after
the date of his termination.  With respect to each of these
post-employment compensation provisions, the Board of Directors has determined
that both the terms and the payout levels of each provision are appropriate to
accomplish the objectives of attracting and retaining executive
talent.


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Potential
Payments upon Termination





The
following table describes the potential payments upon termination of employment
of our Named Executive Officers and Key Employees, other than our Chief
Executive Officer, by the Company as a result of termination without cause,
resigning with reason, termination following a change of control in certain
circumstances and resignation following a change of control in certain
circumstances, as further described in each individual employment agreement
discussed above.


Name
                  
                  Severance
      Payment Upon Termination (1)
                  
                  
                  Accelerated
      Vesting of Unvested Equity Awards(2)
                  
                  
                  Continuation
      of Benefits (3)
                  
                  
                  TotalRenaat Van den Hooff
                  
                  $
                  431,200
                  
                  
                  $
                  1,818
                  
                  
                  $
                  16,548
                  
                  
                  $
                  449,566Terrance K. Wallberg
                  
                  $
                  260,000
                  
                  
                  $
                  4,439
                  
                  
                  $
                  11,028
                  
                  
                  $
                  275,467Daniel G. Moro
                  
                  $
                  227,500
                  
                  
                  $
                  4,038
                  
                  
                  $
                  5,280
                  
                  
                  $
                  236,818John V. St. John, Ph.D.
                  
                  $
                  182,000
                  
                  
                  $
                  2,812
                  
                  
                  $
                  16,548
                  
                  
                  $
                  201,360





(1)
              
              Represents
      one year salary and target bonus based on salary as of December 31,
      2008.(2)
              
              Calculated
      based on a change of control taking place as of December 31,
      2008.  For purposes of valuing equity awards, the amounts noted
      are based on a per share price of $0.28, which was the closing price as
      reported on the New York Stock Exchange Alternext US on December 31,
      2008.(3)
              
              Represents
      one year of COBRA health
benefits.









Equity
Compensation Plan Information








2006
Equity Incentive Plan





We
adopted our 2006 Equity Incentive Plan (“Incentive Plan”) on March 27, 2006
authorizing 2,000,000 shares under the Incentive Plan. At our May 8, 2007 annual
meeting of shareholders our stockholders approved an amendment to the Incentive
Plan to increase the total number of shares issuable up to a maximum of
6,000,000.





As of
December 31, 2008, we had granted options to purchase 4,135,000 shares of Common
Stock, of which 3,706,000 were outstanding at a weighted average exercise price
of $2.33 per share and 154,918 shares of restricted stock.  As of
December 31, 2008, there were 2,139,082 shares that remain available for future
grant under our Incentive Plan.




The
following table sets forth the outstanding stock options or rights that have
been authorized under equity compensation plans as of December 31,
2008.




Plan Category
                        
                        Number of securities to
                          be issued upon exercise
                          of outstanding options,
                          warrants and rights
                        
                        
                        Weighted-average
                          exercise price of
                          outstanding options,
                          warrants and rights
                        
                        
                        Number of securities
                          remaining available for
                          future issuance under
                          equity compensation
                          plans (excluding
                          securities reflected in
                          column (a))(a)
                        
                        
                        (b)
                        
                        
                        (c)Equity compensation plans approved by security holders2006 Stock Option Plan
                        
                        
                        3,706,000
                        
                        
                        $
                        2.37
                        
                        
                        
                        2,139,082Equity compensation plans not approved by security holders
                        
                        
                        -0-
                        
                        
                        
                        n/a
                        
                        
                        
                        -0-Total
                        
                        
                        3,706,000
                        
                        
                        $
                        2.37
                        
                        
                        
                        2,139,082


The
Incentive Plan is administered by a committee of three non-employee members of
the Board, chosen by the Board, and is currently administered by the
Compensation Committee.  The Compensation Committee has the authority
to determine those individuals to whom stock options or other equity awards
should be granted, the number of shares to be covered by each award, the
exercise price, the type of award, the award period, the vesting restrictions,
if any, with respect to exercise of each award, the terms for payment of the
exercise price and other terms and conditions of each award.  The
Board has established the Employee Stock Option Committee and appointed Kerry P.
Gray as a member of the Employee Stock Option Committee.  The
committee shall have the authority to grant stock options to new hires of the
Company with the requirements that the new hire is a non-executive employee,
that no such stock option grant shall exceed 25,000 shares, that such stock
options shall have an exercise price of not less than the fair market value of
our Common Stock on the date of grant and such stock options shall have the same
terms as defined in our Incentive Plan.





The Board
or a committee of the Board has the authority to construe, interpret, amend and
modify our Incentive Plan as well as to determine the terms of an
award.  Our Board may amend or modify our Incentive Plan at any
time.  However, no amendment or modification shall adversely affect
the rights and obligations with respect to outstanding awards unless the holder
consents to that amendment or modification.





Our
Incentive Plan permits us to grant stock options, stock appreciation rights,
restricted stock and other stock-based awards to our employees, officers,
directors, and non-employee service providers.  A stock option may be
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code (“Code”) or a non-statutory stock option.




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In
general, the duration of a stock option granted under our Incentive Plan cannot
exceed ten years.  The exercise price of an incentive stock option
cannot be less than 100% of the fair market value of the Common Stock on the
date of grant.  A non-statutory stock option may be granted with an
exercise price as determined by the Board or a committee of the
Board.  An incentive stock option may not be transferred, but a
non-statutory stock option may be transferred as permitted in an individual
stock option agreement and by will or the laws of descent and
distribution.




Incentive
stock options may be granted only to our employees.  The aggregate
fair market value, determined at the time of grant, of shares of our Common
Stock with respect to which incentive stock options are exercisable for the
first time by an optionholder during any calendar year under our Incentive Plans
may not exceed $100,000 or such other amount permitted under Section 422 of the
Code.  An incentive stock option granted to a person who at the time
of grant owns or is deemed to own more than 10% of the total combined voting
power of all classes of our outstanding stock or any of our affiliates must have
a term of no more than five years and an exercise price that is at least 110% of
fair market value at the time of grant.





The
Incentive Plan administrator determines the term of stock options granted under
our Incentive Plan, up to a maximum of ten years, except in the case of certain
incentive stock options, as described above.  Unless the terms of an
optionee's stock option agreement or employment agreement provide otherwise, if
an optionee's relationship with us, or any of our affiliates, ceases for any
reason other than disability or death, the optionee may exercise any vested
options for a period of ninety days following the cessation of
service.  Unless the terms of an optionee's stock option agreement or
service agreement provide otherwise, if an optionee's service relationship with
us, or any of our affiliates, ceases due to disability or death, or an optionee
dies within a certain period following cessation of service, the optionee or a
beneficiary may exercise any vested options for a period of 12 months in the
event of disability or death.  The option term may be extended in the
event that exercise of the option following termination of service is prohibited
by applicable securities laws.  In no event, however, may an option be
exercised beyond the expiration of its term.





Stock
appreciation rights ("SARs") granted under our Incentive Plan entitle the holder
to receive, subject to the provisions of the Incentive Plan and an award
agreement, a payment having an aggregate value equal to the product of (i) the
excess of (A) the fair market value of a share of our Common Stock on the
exercise date over (B) the base price per share specified in the award
agreement, times (ii) the number of shares specified by the SAR, or portion
thereof, which is exercised.  Payment of the amount receivable by a
holder upon any exercise of a SAR may be made by the delivery of shares of our
Common Stock or cash, or any combination of shares and cash, as determined by
the plan administrator.  SARs are transferable only as provided for in
the award agreement.  No SARs were granted or are outstanding as of
December 31, 2008.





Restricted
stock awards and stock unit awards granted under our Incentive Plan entitle the
holder (i) in the case of restricted stock awards, to acquire shares of our
Common Stock and (ii) in the case of stock unit awards, to be paid the fair
market value of our Common Stock on the exercise date.  Stock unit
awards may be settled in shares of Common Stock, cash or a combination thereof,
as determined by the plan administrator.  Restricted stock awards and
stock unit awards may be subject to vesting periods and other restrictions and
conditions as the plan administrator may include in an award
agreement.  Unvested restricted stock awards and stock units may not
be transferred except as set forth in an award agreement.  As of
December 31, 2008, no stock unit awards were granted or outstanding and
restricted stock awards in an aggregate amount of 154,918 shares of restricted
Common Stock were outstanding.





Award
agreements for restricted stock awards specify the applicable restrictions on
the shares of Common Stock subject to a given award, the duration of such
restrictions and the times at which such restrictions lapse with respect to all
or a specified number of shares.  Notwithstanding the foregoing, the
plan administrator may reduce or shorten the duration of any restriction
applicable to any shares of Common Stock awarded to any holder.  A
holder's rights as a shareholder with respect to the shares of restricted stock
awarded are specified in an award agreement.





Award
agreements for stock unit awards specify the number and terms and conditions of
such stock units, as well as the manner in which such stock units may be
exercised and the holder's rights as a shareholder with respect to such stock
units.




Uluru
401(k) Plan
 
 We
maintain a defined contribution employee retirement plan, or 401(k) plan, for
our employees. Our executive officers are also eligible to participate in the
401(k) plan on the same basis as our other employees.  The plan is
intended to qualify as a tax-qualified plan under Section 401(k) of the Internal
Revenue Code.  The plan provides that each participant may contribute
up to the statutory limit, which is $15,500 for each of calendar years 2008 and
2007.  Participants who are 50 years or older can also make "catch-up"
contributions, which in calendar years 2008 and 2007 may be up to an additional
$5,000 above the statutory limit.  Under the plan, each participant is
fully vested in his or her deferred salary contributions, including any matching
contributions by us, when contributed.  Participant contributions are
held and invested by the participants in the plan's investment options. The plan
also permits us to make discretionary contributions and matching contributions,
subject to established limits and a vesting schedule.  In 2008, we
matched 100% of participant contributions up to the first four percent of
eligible compensation.  We intend to match participant contributions
at the same levels in 2009.  The Company incurs the administrative
costs of our 401(k) plan.


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ITEM
12.                     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS





Based
solely upon information made available to us, the following table sets forth
certain information with respect to the beneficial ownership of the Company’s
Common Stock as of March 16, 2009, as to (1) each person (or group of affiliated
persons) who is known by us to own beneficially more than 5% of the Company’s
Common Stock; (2) each of our directors; (3) each Named Executive Officer; and
(4) all directors and executive officers of the Company as a group.





We
believe that all persons named in the table have sole voting and investment
power with respect to all shares beneficially owned by them, except as noted.
Unless otherwise indicated, the address of each stockholder listed in the table
is c/o ULURU Inc., 4452 Beltway Drive, Addison, Texas 75001.





Beneficial
ownership is determined in accordance with SEC rules and includes voting or
investment power with respect to securities. All shares of Common Stock subject
to options or warrants exercisable within 60 days of March 16, 2009 are deemed
to be outstanding and beneficially owned by the persons holding those options or
warrants for the purpose of computing the number of shares beneficially owned
and the percentage ownership of that person. They are not, however, deemed to be
outstanding and beneficially owned for the purpose of computing the percentage
ownership of any other person.




Subject
to the paragraph above, percentage ownership of outstanding shares is based on
65,582,532 shares of Common Stock outstanding as of March 16, 2009.





Name
      and Address of Beneficial Owner
                              
                              Number
      of Shares
                                Beneficially
      Owned
                              
                              
                              %
      of Class5%
      or Greater Stockholders:Entities
      affiliated with O.S.S. Capital Management,  LP
    (1)
                              
                              
                              11,687,415
                              
                              
                              
                              17.8
                              %Entities
      affiliated with Brencourt Advisors LLC (2)
                              
                              
                              10,556,589
                              
                              
                              
                              16.1
                              %William
      L. Collins (3)
                              
                              
                              359,062
                              
                              
                              
                              0.5
                              %Kerry
      P. Gray (4)(5)
                              
                              
                              10,511,516
                              
                              
                              
                              15.9
                              %JANA
      Partners LLC (6)
                              
                              
                              9,409,410
                              
                              
                              
                              14.3
                              %Royce
      & Associates, LLC (7)
                              
                              
                              7,022,009
                              
                              
                              
                              10.7
                              %Fidelity
      Management & Research Company(8)
                              
                              
                              3,769,949
                              
                              
                              
                              5.7
                              %Directors
      and Named Executive Officers:Renaat
      Van den Hooff, Chief Executive Officer, President (5)(9)
                              
                              
                              277,126
                              
                              
                              
                              *Terrance
      K. Wallberg, Chief Financial Officer, Treasurer (10)
                              
                              
                              395,531
                              
                              
                              
                              *William
      W. Crouse, Chairman, Director (11)
                              
                              
                              355,000
                              
                              
                              
                              *Jeffrey
      B. Davis, Director (12)
                              
                              
                              225,000
                              
                              
                              
                              *Kerry
      P. Gray, Director (4)(5)
                              
                              
                              10,511,516
                              
                              
                              
                              15.9
                              %W.
      Anthony Vernon, Director (13)
                              
                              
                              100,000
                              
                              
                              
                              *Directors
      and Executive Officers as a Group (6 persons)
                              
                              
                              11,864,173
                              
                              
                              
                              17.7
                              %*  Less
      than 1% of the total outstanding Common Stock.





(1)
                The
      address for O.S.S. Capital Management, LP, Oscar S. Schafer & Partners
      I, LP ("OSS I"), Oscar S. Schafer & Partners II, LP ("OSS II"), and
      O.S.S. Overseas LTD (“OSS Overseas”) is 598 Madison Avenue, 10th Floor,
      New York, NY 10022.  OSS I, OSS II, and OSS Overseas are holders
      of Common Stock.  All investment decisions of, and control of,
      OSS I and OSS II are held by its general partner, O.S.S. Advisors
      LLC.  Oscar S. Schafer and Andrew J. Goffe are the managing
      members of O.S.S. Advisors LLC.  All investment decisions of,
      and control of OSS Overseas are held by its investment manager, O.S.S.
      Capital Management LP.  Schafer Brothers LLC is the general
      partner of O.S.S. Capital Management LP.  Oscar S. Schafer and
      Andrew J. Goffe are the managing members of Schafer Brothers
      LLC.  Each of Messrs. Schafer and Goffe disclaims beneficial
      ownership of the shares held by OSS I, OSS II, OSS Overseas, and OSS
      Focus, except to the extent of their pecuniary interest
      therein.(2)
                The
      address for Brencourt Advisors LLC is 600 Lexington Avenue, New York, NY
      10022.  Shares are owned directly by Brencourt Multi-Strategy
      Master LTD (3,960,697 shares), Brencourt Enhanced Multi-Strategy, L.P.
      (445,047 shares), Brencourt Multi-Strategy Enhanced Dedicated Fund, LP
      (365,901 shares), Brencourt Enhanced Multi-Strategy International, Ltd.
      (22,278 shares), Diadem IAM LTD (1,421,052), and Man Mac Shreckhorn 14B
      LTD (4,341,614 shares).  Brencourt Advisors LLC is the
      investment manager of each such entity.(3)
                The
      address for William L. Collins is c/o Brencourt Advisors LLC, 600
      Lexington Avenue, New York, NY 10022.  Shares are owned directly
      by Mr. Collins.  Mr. Collins is the Chairman and CEO of
      Brencourt Advisors LLC and makes investment decisions on behalf of
      Brencourt Advisors, LLC.  Mr. Collins expressly disclaims
      beneficial interest in shares owned and controlled by Brencourt Advisors
      LLC.(4)
                Includes
      1,500,000 shares held by Sally A. Gray, Trustee for benefit of Michael J.
      Gray and 1,500,000 shares held by Sally A. Gray, Trustee for benefit of
      Lindsay K. Gray. The beneficial ownership reported includes 500,000 shares
      of Common Stock issuable on exercise of stock options that are currently
      exercisable or will become exercisable within 60 days of March 16,
      2009.(5)
                On
      March 9, 2009 Mr. Gray resigned as the Company’s President and Chief
      Executive Officer and Mr. Van den Hooff, the Company’s Executive Vice
      President – Operations, was appointed as his successor in these
      capacities.  Mr. Gray will continue to serve as a Director of
      the Company.(6)
                The
      address for JANA Partners LLC is 200 Park Avenue, Suite 3300, New York, NY
      10166.  The beneficial ownership of our Common Stock by JANA
      Partners LLC is based upon a Schedule 13G filed with the SEC on February
      17, 2009.(7)
                The
      address for Royce & Associates, LLC is 1414 Avenue of the Americas,
      New York, NY 10019.  The beneficial ownership of our Common
      Stock by Royce and Associates, LLC is based upon a Schedule 13G filed with
      the SEC on January 30, 2009.(8)
                The
      address for Fidelity Management & Research Company (“Fidelity”) is 82
      Devonshire Street, Boston, MA 021099.  Fidelity is a wholly
      owned subsidiary of FMR LLC.  The ownership of one investment
      fund., Puritan Fund, amounted to 3,769,949 shares of Common
      Stock.  Edward C. Johnson 3rd,
      Chairman of FMR LLC, and FMR LLC, through its control of Fidelity, and the
      funds each has sole power to dispose of the 3,769,949 shares owned by the
      Funds.  Neither FMR LLC nor Edward C. Johnson 3rd
      has the sole power to vote or direct the voting of the shares owned
      directly by the Fidelity Funds, which power resides with the Funds’ Boards
      of Trustees.(9)
                Includes
      253,126 shares of Common Stock issuable on exercise of stock options that
      are currently exercisable or will become exercisable within 60 days of
      March 16, 2009.(10)
                Includes
      145,836 shares of Common Stock issuable on exercise of stock options that
      are currently exercisable or will become exercisable within 60 days of
      March 16, 2009.(11)
                Includes
      305,000 shares of Common Stock issuable on exercise of stock options that
      are currently exercisable or will become exercisable within 60 days of
      March 16, 2009.(12)
                Includes
      225,000 shares of Common Stock issuable on exercise of stock options that
      are currently exercisable or will become exercisable within 60 days of
      March 16, 2009.(13)
                Includes
      100,000 shares of Common Stock issuable on exercise of stock options that
      are currently exercisable or will become exercisable within 60 days of
      March 16, 2009.







Information
regarding securities authorized for issuance under equity compensation plans is
found above in Item 11 under “Equity Compensation Plan
Information”.








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ITEM
13.                      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





Certain
Relationships and Related Transactions





In
connection with Mr. Gray’s departure on March 9, 2009 as the Company’s President
and Chief Executive Officer, the Company and Mr. Gray entered into the
Separation Agreement whereby the Company will provide certain benefits to Mr.
Gray, including: (i) $400,000 during the initial 12 months; (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 stock options with respect to 300,000
shares of common stock previously held by him; and (iv) for a period of
twenty-four (24) months 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 Separation 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 Separation Agreement
contains a mutual release of claims, certain stock lock-up provisions, and other
standard provisions. The Separation Agreement also provides that Mr. Gray will
continue as a director of the Company.





As of
December 31, 2008 the Company was party to employment agreements with its named
executive officers, which include Kerry P. Gray, President and Chief Executive
Officer, Renaat Van den Hooff, Executive Vice President – Operations and
Terrance K. Wallberg, Vice President and Chief Financial Officer, as well as
other key executives to include Daniel G. Moro, Vice President – Polymer Drug
Delivery and John V. St. John, Vice President – Material Science.  The
employment agreement with Mr. Gray was terminated on March 9, 2009 pursuant to
the terms of the Separation Agreement.  The employment agreement with
Mr Van den Hooff has an initial term of two years and automatically renews for
one year each year thereafter.  The employment agreements with Messrs.
Wallberg, Moro, and St. John each have an initial term of one year and
automatically renew for one year 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 all invention
and intellectual property rights to the Company.  Pursuant to the
terms of the Separation Agreement, the non-competition and non-solicitation
provisions of Mr. Gray’s employment agreement will survive until March 9, 2010
notwithstanding the termination of the other provisions of such employment
agreement.





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ITEM
14.                      PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table summarizes the fees billed by our principal independent
auditors for each of our last two fiscal years.  For fiscal 2008,
audit fees include an estimate of amounts not yet billed.





Years
      Ended December 31,Nature
      of Service
                    
                    2008
                    
                    
                    2007Audit fees  (1)
                    
                    $
                    40,000
                    
                    
                    $
                    64,231Audit related fees  (2)
                    
                    $
                    14,659
                    
                    
                    $
                    16,267Tax fees (3)
                    
                    $
                    -0-
                    
                    
                    $
                    -0-All other fees  (4)
                    
                    $
                    -0-
                    
                    
                    $
                    -0-





(1)
              Consists
      of fees billed for the audit of our annual financial statements, review of
      our Form 10-K, and services that are normally provided by the accountant
      in connection with year end statutory and regulatory filings or
      engagements.  The audit fees for 2008 were billed entirely by
      Lane Gorman Trubitt, L.L.P.  Audit fees for 2007 are comprised
      of $35,693 billed by Lane Gorman Trubitt, L.L.P. and $28,538 paid to our
      predecessor independent auditor, Braverman International,
    P.C.(2)
              Consists
      of fees billed for the review of our quarterly financial statements,
      review of our Forms 10-Q and 8-K and services that are normally provided
      by the accountant in connection with non year end statutory and regulatory
      filings and engagements.(3)
              Consists
      of fees and professional services for tax compliance, tax advice, and tax
      planning.  The Company does not use its principal accountants to
      provide tax services.  McGuiness and Hodavance, CPAs billed
      $1,500 for tax return preparation for 2008 and 2007,
      respectively.(4)
              The
      services provided by our principal accountants within this category
      consisted of advice and other services relating to SEC matters,
      registration statement review, internal controls, accounting issues and
      client conferences.  In 2008 we paid $1,295 to Braverman
      International, P.C., the Company’s predecessor independent auditor, for
      auditor consents.  In 2007 we paid $24,971 to Saville Dodgen
      & Company, P.A. for consulting on internal
  controls.








Pre-Approval
Policy of Audit and Non-Audit Services





The Audit
Committee charter requires the Audit Committee to approve all audit engagement
fees and services and all permissible non-audit engagement fees and services
with the independent auditor.  The Audit Committee may delegate the
pre-approval of permissible non-audit services to a single member of the Audit
Committee.  The Audit Committee provides a general pre-approval of
certain audit and non-audit services on an annual basis.  The types of
services that may be covered by a general pre-approval include other audit
services, audit-related services, tax services and permissible non-audit
services.  If a type of service is not covered by the Audit
Committee’s general pre-approval, the Audit Committee, or one of its members,
must review the service on a specific case-by-case basis and pre-approve it if
such service is to be provided by the independent auditor.  Annual
audit services engagement fees and services require specific pre-approval of the
Audit Committee.  Any proposed services exceeding pre-approved costs
also require specific pre-approval by the Audit Committee or one of its
members.  For both types of pre-approval, the Audit Committee will
consider whether such services are consistent with the Securities and Exchange
Commission’s rules on auditor independence.  The Audit Committee may
delegate either type of pre-approval authority to one or more of its
members.








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Part IV





ITEM
15.                      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES








(a)
                  The
      following documents are filed as part of this report:1.
                  Financial
      StatementsReport of Independent Registered Public Accounting
      Firm
                  63Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                  64Consolidated
      Statements of Operations for the years ended December 31, 2008 and
      2007
                  65Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2008
      and 2007
                  66Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
                  67Notes
      to Consolidated Financial Statements
                  682.
                  Financial
      Statement SchedulesAll
      other schedules are omitted because they are not applicable or because the
      required information is shown in the consolidated financial statements or
      the notes thereto.3.
                  List
      of ExhibitsThe
      exhibits which are filed with this report or which are incorporated herein
      by reference are set forth in the Exhibit Index hereto.
                    
                    In
      reviewing the agreements included as exhibits to this annual report on
      Form 10-K, please remember they are included to provide you with
      information regarding their terms and are not intended to provide any
      other factual or disclosure information about the Company or the other
      parties to the agreements.  The agreements contain
      representations and warranties by each of the parties to the applicable
      agreement. These representations and warranties have been made solely for
      the benefit of the other parties to the applicable agreement
      and:§
                  should
      not in all instances be treated as categorical statements of fact, but
      rather as a way of allocating the risk to one of the parties if those
      statements prove to be inaccurate;§
                  have
      been qualified by disclosures that were made to the other party in
      connection with the negotiation of the applicable agreement, which
      disclosures are not necessarily reflected in the
agreement;§
                  may
      apply standards of materiality in a way that is different from what may be
      viewed as material to you or other investors; and§
                  were
      made only as of the date of the applicable agreement or such other date or
      dates as may be specified in the agreement and are subject to more recent
      developments. Accordingly, these representations and warranties may not
      describe the actual state of affairs as of the date they were made or at
      any other time. Additional information about the Company may be found
      elsewhere in this annual report on Form 10-K and the Company’s other
      public filings, which are available without charge through the SEC’s
      website at http://www.sec.gov.











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SIGNATURESPursuant
      to the requirements of Section 13 or 15(d) 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
  authorizedULURU
      Inc.Date:
      March 30, 2009
            By
            /s/ Renaat
      Van den HooffRenaat
      Van den HooffChief
      Executive OfficerPrincipal
      Executive OfficerDate:
      March 30, 2009
            By
            /s/
      Terrance K. WallbergTerrance
      K. WallbergChief
      Financial OfficerPrincipal
      Accounting Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.











Date:
      March 30, 2009
            /s/
      William W. CrouseWilliam
      W. Crouse, DirectorDate:
      March 30, 2009
            /s/
      Jeffrey B. DavisJeffrey
      B. Davis, DirectorDate:
      March 30, 2009
            /s/
      Kerry P. GrayKerry
      P. Gray, DirectorDate:
      March 30, 2009
            /s/
      W. Anthony VernonW.
      Anthony Vernon, Director








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INDEX TO FINANCIAL
    STATEMENTSPageFinancial
      StatementsReport
      of Independent Registered Public Accounting Firm
                  63Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                  64Consolidated
      Statements of Operations for the years ended December 31, 2008 and
      2007
                  65Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2008
      and 2007
                  66Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
                  67Notes
      to Consolidated Financial Statements
                  68








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REPORT OFINDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM








To the
Board of Directors and Stockholders


ULURU
Inc.


Addison,
Texas





We have
audited the consolidated balance sheets of ULURU Inc. (a Nevada corporation) as
of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the two years in
the period ended December 31, 2008.  These financial statements are
the responsibility of the Company’s management.  Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statement presentation.  We believe that our audits provide a reasonable
basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ULURU Inc. at
December 31, 2008 and 2007, and the consolidated results of its operations and
its cash flows for each of the two years in the period ended December 31, 2008,
in conformity with accounting principles generally accepted in the United States
of America.





We were
not engaged to examine management’s assertion about the effectiveness of ULURU
Inc.’s internal control over financial reporting as of December 31, 2008
included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting and, accordingly, we do not express an opinion
thereon.








/s/ Lane Gorman Trubitt,
L.L.P.


Lane
Gorman Trubitt, L.L.P.


Dallas,
TX





March 30,
2009







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ULURU Inc.


CONSOLIDATED
BALANCE SHEETS








December
      31,2008
                    
                    
                    2007ASSETSCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    7,567,588
                    
                    
                    $
                    13,979,828Accounts
      receivable
                    
                    
                    195,562
                    
                    
                    
                    836,075Inventory
                    
                    
                    1,080,266
                    
                    
                    
                    319,413Prepaid
      expenses and deferred charges
                    
                    
                    468,625
                    
                    
                    
                    400,830Total
      Current Assets
                    
                    
                    9,312,041
                    
                    
                    
                    15,536,146Property
      and Equipment, net
                    
                    
                    1,828,040
                    
                    
                    
                    1,532,881Other
      AssetsPatents,
      net
                    
                    
                    9,965,169
                    
                    
                    
                    11,033,477Deposits
                    
                    
                    20,819
                    
                    
                    
                    20,499Total
      Other Assets
                    
                    
                    9,985,988
                    
                    
                    
                    11,053,976TOTAL
      ASSETS
                    
                    $
                    21,126,069
                    
                    
                    $
                    28,123,003LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                    
                    $
                    1,441,986
                    
                    
                    $
                    790,412Accrued
      liabilities
                    
                    
                    648,546
                    
                    
                    
                    424,395Deferred
      revenue – current portion
                    
                    
                    122,164
                    
                    
                    
                    55,147Royalty
      advance
                    
                    
                    30,417
                    
                    
                    
                    120,035Total
      Current Liabilities
                    
                    
                    2,243,113
                    
                    
                    
                    1,389,989Long
      Term LiabilitiesDeferred
      revenue, net – less current portion
                    
                    
                    1,356,526
                    
                    
                    
                    495,281TOTAL
      LIABILITIES
                    
                    
                    3,599,639
                    
                    
                    
                    1,885,270COMMITMENTS
      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;65,509,481
      and 62,416,881 shares issued and outstanding at December 31, 2008 and
      December 31, 2007, respectively
                    
                    
                    65,510
                    
                    
                    
                    62,417Additional
      paid-in capital
                    
                    
                    44,057,757
                    
                    
                    
                    42,989,518Accumulated  (deficit)
                    
                    
                    (26,596,837
                    )
                    
                    
                    (16,814,202
                    )TOTAL
      STOCKHOLDERS’ EQUITY
                    
                    
                    17,526,430
                    
                    
                    
                    26,237,733TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    21,126,069
                    
                    
                    $
                    28,123,003The
      accompanying notes are an integral part of these consolidated financial
      statements.








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ULURU Inc.


CONSOLIDATED
STATEMENTS OF OPERATIONS








Years
      Ended December 31,2008
                    
                    
                    2007REVENUESLicense
      fees
                    
                    $
                    230,308
                    
                    
                    $
                    909,252Royalty
      income
                    
                    
                    286,303
                    
                    
                    
                    281,491Product
      sales
                    
                    
                    184,050
                    
                    
                    
                    ---Other
                    
                    
                    32,810
                    
                    
                    
                    275,001Total
      Revenues
                    
                    
                    733,471
                    
                    
                    
                    1,465,744COSTS
      AND EXPENSESCost
      of goods sold
                    
                    
                    140,822
                    
                    
                    
                    ---Research
      and development
                    
                    
                    3,503,638
                    
                    
                    
                    2,211,698Selling,
      general and administrative
                    
                    
                    5,992,097
                    
                    
                    
                    3,045,065Amortization
                    
                    
                    1,082,571
                    
                    
                    
                    1,078,351Depreciation
                    
                    
                    114,048
                    
                    
                    
                    72,942Total
      Costs and Expenses
                    
                    
                    10,833,176
                    
                    
                    
                    6,408,056OPERATING
      (LOSS)
                    
                    
                    (10,099,705
                    )
                    
                    
                    (4,942,312
                    )Other
      Income (Expense)Interest
      and miscellaneous income
                    
                    
                    317,070
                    
                    
                    
                    791,687Interest
      expense
                    
                    
                    ---
                    
                    
                    
                    (2,006
                    )(Loss)
      Before Income Taxes
                    
                    
                    (9,782,635
                    )
                    
                    
                    (4,152,631
                    )Income
      taxes
                    
                    
                    ---
                    
                    
                    
                    ---NET
      (LOSS)
                    
                    $
                    (9,782,635
                    )
                    
                    $
                    (4,152,631
                    )Basic
      and diluted net (loss) per common share
                    
                    $
                    (0.15
                    )
                    
                    $
                    (0.07
                    )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
                    
                    
                    63,775,653
                    
                    
                    
                    61,798,882The
      accompanying notes are an integral part of these consolidated financial
      statements.





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ULURU Inc.CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITYYears
      Ended December 31, 2008 and 2007Common
      Stock
                    
                    
                    Additional
      Paid-in
                    
                    
                    Accumulated
                    
                    
                    Stockholders’Shares
      Issued
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    (Deficit)
                    
                    
                    Equity
      (Deficit)Balance
      as of December 31, 2006
                    
                    
                    59,897,022
                    
                    
                    
                    59,897
                    
                    
                    
                    41,886,896
                    
                    
                    
                    (12,661,571
                    )
                    
                    
                    29,285,222Issuance
      of common stock – 1,571,073 shares for cashless exercise of warrants
      (1,589,400 shares)
                    
                    
                    1,571,073
                    
                    
                    
                    1,571
                    
                    
                    
                    (1,571
                    )
                    
                    
                    ---
                    
                    
                    
                    ---Issuance
      of common stock for exercises of warrants
                    
                    
                    943,933
                    
                    
                    
                    944
                    
                    
                    
                    501,996
                    
                    
                    
                    ---
                    
                    
                    
                    502,940Issuance
      of common stock for exercise of stock options
                    
                    
                    5,000
                    
                    
                    
                    5
                    
                    
                    
                    19,995
                    
                    
                    
                    ---
                    
                    
                    
                    20,000Repurchases
      of common stock
                    
                    
                    (147
                    )
                    
                    
                    ---
                    
                    
                    
                    (476
                    )
                    
                    
                    ---
                    
                    
                    
                    (476
                    )Share-based
      compensation of employees
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    211,854
                    
                    
                    
                    ---
                    
                    
                    
                    211,854Share-based
      compensation of non-employees
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    370,824
                    
                    
                    
                    ---
                    
                    
                    
                    370,824Net
      (loss) for the year
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    (4,152,631
                    )
                    
                    
                    (4,152,631
                    )Balance
      as of December 31, 2007
                    
                    
                    62,416,881
                    
                    
                    
                    62,417
                    
                    
                    
                    42,989,518
                    
                    
                    
                    (16,814,202
                    )
                    
                    
                    26,237,733Issuance
      of common stock – 3,042,600 shares for cashless exercise of warrants
      (3,066,667 shares)
                    
                    
                    3,042,600
                    
                    
                    
                    3,043
                    
                    
                    
                    (3,043
                    )
                    
                    
                    ---
                    
                    
                    
                    ---Issuance
      of common stock for exercise of stock options
                    
                    
                    50,000
                    
                    
                    
                    50
                    
                    
                    
                    47,450
                    
                    
                    
                    ---
                    
                    
                    
                    47,500Share-based
      compensation of employees
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    844,340
                    
                    
                    
                    ---
                    
                    
                    
                    844,340Share-based
      compensation of non-employees
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    179,492
                    
                    
                    
                    ---
                    
                    
                    
                    179,492Net
      (loss) for the year
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    (9,782,635
                    )
                    
                    
                    (9,782,635
                    )Balance
      as of December 31, 2008
                    
                    
                    65,509,481
                    
                    
                    $
                    65,510
                    
                    
                    $
                    44,057,757
                    
                    
                    $
                    (26,596,837
                    )
                    
                    $
                    17,526,430The
      accompanying notes are an integral part of these consolidated financial
      statements.








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ULURU Inc.


CONSOLIDATED
STATEMENTS OF CASH FLOWS








Years
      Ended December 31,2008
                                
                                
                                2007OPERATING
      ACTIVITIES :Net
      (loss)
                                
                                $
                                (9,782,635
                                )
                                
                                $
                                (4,152,631
                                )Adjustments
      to reconcile net (loss) to net cash used in operating
      activities:Amortization
                                
                                
                                1,082,571
                                
                                
                                
                                1,078,351Depreciation
                                
                                
                                138,292
                                
                                
                                
                                72,942Share-based
      compensation for stock and options issued to employees
                                
                                
                                844,340
                                
                                
                                
                                211,854Share-based
      compensation for options issued to non-employees
                                
                                
                                179,492
                                
                                
                                
                                370,824Change
      in operating assets and liabilities:Accounts
      receivable
                                
                                
                                640,513
                                
                                
                                
                                (163,541
                                )Inventory
                                
                                
                                (760,853
                                )
                                
                                
                                (319,413
                                )Prepaid
      expenses and deferred charges
                                
                                
                                (67,795
                                )
                                
                                
                                (134,895
                                )Deposits
                                
                                
                                (320
                                )
                                
                                
                                250Accounts
      payable
                                
                                
                                651,574
                                
                                
                                
                                516,878Accrued
      liabilities
                                
                                
                                224,151
                                
                                
                                
                                (114,807
                                )Deferred
      revenue
                                
                                
                                928,262
                                
                                
                                
                                550,428Royalty
      advance
                                
                                
                                (89,618
                                )
                                
                                
                                (99,233
                                )Total
                                
                                
                                3,770,609
                                
                                
                                
                                1,969,638Net
      Cash (Used in) Operating Activities
                                
                                
                                (6,012,026
                                )
                                
                                
                                (2,182,993
                                )INVESTING
      ACTIVITIES :Purchase
      of property and equipment
                                
                                
                                (447,714
                                )
                                
                                
                                (927,650
                                )Net
      Cash (Used in) Investing Activities
                                
                                
                                (447,714
                                )
                                
                                
                                (927,650
                                )FINANCING
      ACTIVITIES :Payment
      of asset purchase obligation
                                
                                
                                ---
                                
                                
                                
                                (350,000
                                )Proceeds
      from warrant exercises
                                
                                
                                ---
                                
                                
                                
                                502,940Proceeds
      from stock option exercises
                                
                                
                                47,500
                                
                                
                                
                                20,000Repurchases
      of common stock
                                
                                
                                ---
                                
                                
                                
                                (476
                                )Net
      Cash Provided by Financing Activities
                                
                                
                                47,500
                                
                                
                                
                                172,464Net
      Increase (Decrease) in Cash
                                
                                
                                (6,412,240
                                )
                                
                                
                                (2,938,179
                                )Cash,  beginning
      of period
                                
                                
                                13,979,828
                                
                                
                                
                                16,918,007Cash,  end
      of period
                                
                                $
                                7,567,588
                                
                                
                                $
                                13,979,828Supplemental
      Schedule of Noncash Investing and Financing Activities :Issuance
      of 3,042,600 shares of common stock pursuant to  cashless
      exercise of warrants to purchase 3,066,667 shares of common
      stock
                                
                                $
                                ---Issuance
      of 1,571,073 shares of common stock pursuant to  cashless
      exercise of warrants to purchase 1,589,400 shares of common
      stock
                                
                                
                                
                                
                                
                                $
                                ---OTHER
      SUPPLEMENTAL INFORMATIONCash
      paid for interest
                                
                                $
                                ---
                                
                                
                                $
                                2,006The
      accompanying notes are an integral part of these consolidated financial
      statements.








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ULURU Inc.





NOTES
TO


CONSOLIDATED
FINANCIAL STATEMENTS














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 pharmaceutical company focused on
establishing a market leadership position in the development of wound
management, plastic surgery and oral care products utilizing innovative drug
delivery solutions to improve the clinical outcome of patients and provide a
pharmacoeconomic benefit to healthcare providers.





Basis of
Presentation





The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United State of America (“U.S.
GAAP”) and include the accounts of ULURU Inc., a Nevada corporation, and its
wholly-owned subsidiary, Uluru Delaware Inc., a Delaware
corporation.  Both companies have a December 31 fiscal year
end.





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.








NOTE
2.                      SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





The
following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements:





Cash and Cash
Equivalents





Cash and
cash equivalents include highly liquid investments with original maturities of
three months or less.  The carrying value of these cash equivalents
approximates fair value.





We 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 taking into consideration the need for liquidity and
capital preservation.  These investments are not held for trading or
other speculative purposes.





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Trade Accounts Receivable
and Allowance for Doubtful Accounts





Trade
accounts receivable are recorded at the invoiced amount and do not bear
interest.  The Company estimates the collectibility of our trade
accounts receivable. In order to assess the collectibility of these receivables,
we monitor the current creditworthiness of each customer and analyze the
balances aged beyond the customer's credit terms. Theses evaluations may
indicate a situation in which a certain customer cannot meet its financial
obligations due to deterioration of its financial viability, credit ratings or
bankruptcy. The allowance requirements are based on current facts and are
reevaluated and adjusted as additional information is received. Trade accounts
receivable are subject to an allowance for collection when it is probable that
the balance will not be collected. As of December 31, 2008 and December 31,
2007, no allowance for collectibility was needed and there were no accounts
written off as uncollectible during the years ended December 31, 2008 and
2007.





Inventory





Inventories
are stated at the lower of cost or market value. Raw material inventory cost is
determined on the first-in, first-out method. Costs of finished goods are
determined by an actual cost method.





Property and
Equipment





Property
and equipment are recorded at cost. Depreciation is provided over the estimated
useful lives of the related assets using the straight-line
method.  Estimated useful lives for property and equipment categories
are as follows:





Furniture,
      fixtures, and laboratory equipment
                7
      yearsComputer
      and office equipment
                5
      yearsComputer
      software
                3
      yearsLeasehold
      improvements
                Lease
      term





Prepaid Expenses and
Deferred Charges





From time
to time fees are payable to the United States Food and Drug Administration
(“FDA”) in connection with new drug applications submitted by the Company and
annual prescription drug user fees. Such fees are being amortized ratably over
the FDA’s prescribed fiscal period of 12 months ending September
30th.





Additionally,
we amortize our insurance costs ratably over the term of each
policy.  Typically, our insurance policies are subject to renewal in
July and October of each year.





Patents and
Applications





We
expense internal patent and application costs as incurred because, even though
we believe the patents and underlying processes have continuing value, the
amount of future benefits to be derived from them are uncertain. Purchased
patents are capitalized and amortized over the life of the patent.





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Impairment of
Assets
 
 In
accordance with the provisions of Statement of Financial Accounting Standards
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, our policy is to evaluate
whether there has been a permanent impairment in the value of long-lived assets
and certain identifiable intangibles when certain events have taken place, or at
least annually, that indicate the remaining unamortized balance may not be
recoverable. When factors indicate that the intangible assets should be
evaluated for possible impairment, we use an estimate of undiscounted cash
flows.  Considerable management judgment is necessary to estimate the
undiscounted cash flows.  Accordingly, actual results could vary
significantly from management’s estimates.





On
October 12, 2005, we acquired certain patents and intangible assets from Access
Pharmaceuticals, Inc.  As part of the asset purchase, we assigned
certain values to each intangible asset acquired from Access based upon expected
future earnings for each technology taking into consideration criteria such as
patent life, approved products for sale, the existence of marketing,
manufacturing, and distribution agreements, and development
costs.  The Company derived each asset value based on a discount rate
of 10% and a unique risk rate based on the difficulty of achieving the
forecasted net cash flows to arrive at the net present value of expected
discounted cash flows from each technology.





During
the year ended December 31, 2008, we performed an evaluation of our intangible
assets for purposes of determining possible impairment.  Upon
completion of the evaluation, the undiscounted cash flows of our intangible
assets exceeded the recorded remaining book value, therefore there were no
impairment losses determined or recorded for the year ended December 31,
2008.





Income
Taxes





We use
the liability method of accounting for income taxes pursuant to Statement of
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes.  Under this method, deferred income taxes are recorded
to reflect the tax consequences in future periods of temporary differences
between the tax basis of assets and liabilities and their financial statement
amounts at year-end.





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 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 are 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.


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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.





Research and Development
Expenses





Pursuant
to SFAS No. 2, Accounting for
Research and Development Costs, our research and development costs are
expensed as incurred.





Research
and development expenses include, but are not limited to, salaries and benefits,
laboratory supplies, facilities expenses, preclinical development cost, clinical
trial and related clinical manufacturing expenses, contract services, consulting
fees and other outside expenses. The cost of materials and equipment or
facilities that are acquired for research and development activities and that
have alternative future uses are capitalized when acquired. There were no such
capitalized materials, equipment or facilities for the years ended December 31,
2008 and 2007.





We may
enter into certain research agreements in which we share expenses with a
collaborator. We may also enter into other collaborations where we are
reimbursed for work performed on behalf of our collaborative
partners.  We record the expenses for such work as research and
development expenses. If the arrangement is a cost-sharing arrangement and there
is a period during which we receive payments from the collaborator, we record
payments by the collaborator for their share of the development effort as a
reduction of research and development expense. If the arrangement is a
reimbursement of research and development expenses, we record the reimbursement
as sponsored research income.





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.





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Concentrations of Credit
Risk





Concentration
of credit risk with respect to financial instruments, consisting primarily of
cash and cash equivalents, that 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
(FDIC).  During 2008, we utilized Bank of America and Bank of America
Investments Services, Inc. as our banking institutions.  At December
31, 2008 and December 31, 2007 our cash and cash equivalents totaled $7,567,588
and $13,979,828, respectively.  However, because our 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
December 31, 2008 and at December 31, 2007.  As of December 31, 2008,
two customers exceeded the 5% threshold, one with 94% and the other with
5%.  Two customers exceeded the 5% threshold at December 31, 2007, one
with 92% and the other with 7%.  We believe that the customer accounts
are fully collectible as of December 31, 2008.





Fair Value of Financial
Instruments





In
accordance with SFAS No. 107 Disclosures about Fair Value of
Financial Instruments (“SFAS 107”), disclosure is required of the
estimated fair value of an entity’s financial instruments.  Such
disclosures, which pertain to our financial instruments, do not purport to
represent the aggregate net fair value of the Company.  The carrying
value of cash, accounts receivable, accounts payable, and accrued liabilities
are reflected in the consolidated financial statements at amounts which
approximate fair value, primarily because of the short-term maturity of these
instruments.





Derivatives





We
occasionally issue financial instruments that contain an embedded instrument. At
inception, we assess whether the economic characteristics of the embedded
derivative instrument are clearly and closely related to the economic
characteristics of the financial instrument (host contract), whether the
financial instrument that embodies both the embedded derivative instrument and
the host contract is currently measured at fair value with changes in fair value
reported in earnings, and whether a separate instrument with the same terms as
the embedded instrument would meet the definition of a derivative
instrument.





If the
embedded derivative instrument is determined not to be clearly and closely
related to the host contract, is not currently measured at fair value with
changes in fair value reported in earnings, and the embedded derivative
instrument would qualify as a derivative instrument, the embedded derivative
instrument is recorded apart from the host contract and carried at fair value
with changes recorded in current-period earnings.





We
determined that all embedded items associated with financial instruments during
2008 and 2007 which qualify for derivative treatment, were properly separated
from their host.  As of December 31, 2008 and 2007, we did not have
any derivative instruments.





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NOTE
3.                      THE
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS





Recently Adopted Accounting
Standards





In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value
Measurements (“SFAS No. 157”), which defines fair value, establishes
a framework for measuring fair value under GAAP, and expands disclosures about
fair value measurements. SFAS No. 157 will be effective for fiscal years
beginning after November 15, 2007, which is the Company’s fiscal year 2008.
The adoption did not have a material effect on our consolidated financial
statements.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement No.
115. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions of
SFAS No. 159 apply only to entities that elect the fair value option. However,
the amendment to SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provision of SFAS No. 157.  The adoption did not have a material
effect on our consolidated financial statements.





In
June 2007, the Emerging Issues Task Force (“EITF”) issued Issue
No. 07-3, Accounting for
Nonrefundable Advance Payments for Goods or Services To Be Used in Future
Research and Development Activities (“EITF 07-3”) which concluded that
nonrefundable advance payments for goods or services to be received in the
future for use in research and development activities should be deferred and
capitalized. The capitalized amounts should be expensed as the related goods are
delivered or services are performed. Such capitalized amounts should be charged
to expense if expectations change such that the goods will not be delivered or
services will not be performed. The provisions of EITF 07-3 are effective for
new contracts entered into during fiscal years beginning after December 15,
2007. The consensus on EITF 07-3 may not be applied to earlier periods and early
adoption is not permitted. The adoption did not have a material effect on our
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 is not
expected to 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.


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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 sales force
for the domestic sales of AltrazealTM.





Revenues
per geographic area for the year ended December 31 are summarized as
follows:





Revenues
                    
                    2008
                    
                    
                    %
                    
                    
                    2007
                    
                    
                    %Domestic
                    
                    $
                    268,668
                    
                    
                    
                    37
                    %
                    
                    $
                    374,234
                    
                    
                    
                    26
                    %International
                    
                    
                    464,803
                    
                    
                    
                    63
                    %
                    
                    
                    1,091,510
                    
                    
                    
                    74
                    %Total
                    
                    $
                    733,471
                    
                    
                    
                    100
                    %
                    
                    $
                    1,465,744
                    
                    
                    
                    100
                    %





A
significant portion of our revenues are derived from a few major
customers.  Customers with greater than 10% of total sales are
represented on the following table:





Customers
                          Product
                          
                          2008
                          
                          
                          2007ProStrakan, Ltd.
                          Zindaclin®
                          
                          
                          47
                          %
                          
                          
                          71
                          %Discus Dental, Inc.
                          Aphthasol®
                          
                          
                          35
                          %
                          
                          
                          7
                          %Meldex International
                          OraDiscTM
      B
                          
                          
                          11
                          %
                          
                          
                          *Wyeth Pharmaceuticals, Inc.
                          Sponsored
      research
                          
                          
                          *
                          
                          
                          
                          12
                          %Total
                          
                          
                          
                          93
                          %
                          
                          
                          90
                          %* Sales from these customers were less than 10% of total sales for the
      period reported.










NOTE
5.                      INVENTORY





As of
December 31, 2008, 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 December
31:





Inventory
                      
                      2008
                      
                      
                      2007Raw materials
                      
                      $
                      113,916
                      
                      
                      $
                      137,311Work-in-progress
                      
                      
                      344,921
                      
                      
                      
                      182,102Finished goods
                      
                      
                      621,429
                      
                      
                      
                      ---Total
                      
                      $
                      1,080,266
                      
                      
                      $
                      319,413








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NOTE
6.                      PROPERTY
AND EQUIPMENT





Property
and equipment, net, consisted of the following at December 31:





Property and equipment
                  
                  2008
                  
                  
                  2007Laboratory equipment
                  
                  $
                  427,888
                  
                  
                  $
                  412,683Manufacturing equipment
                  
                  
                  1,469,046
                  
                  
                  
                  1,071,173Computers, office equipment, and furniture
                  
                  
                  150,589
                  
                  
                  
                  115,953Computer software
                  
                  
                  4,108
                  
                  
                  
                  4,108Leasehold improvements
                  
                  
                  95,841
                  
                  
                  
                  95,8412,147,472
                  
                  
                  
                  1,699,758Less: accumulated depreciation and amortization
                  
                  
                  (
      319,432
                  )
                  
                  
                  (
      166,877
                  )Property and equipment, net
                  
                  $
                  1,828,040
                  
                  
                  $
                  1,532,881





Depreciation
and amortization expense on property and equipment was $152,555, of which
$24,244 was included in Cost of goods sold, and $85,901 for the years ended
December 31, 2008 and 2007, respectively.








NOTE
7.                      PATENTS





Patents,
net, consisted of the following at December 31:





Patents
                  
                  2008
                  
                  
                  2007Zindaclin®
                  
                  $
                  3,729,000
                  
                  
                  $
                  3,729,000Amlexanox (Aphthasol®)
                  
                  
                  2,090,000
                  
                  
                  
                  2,090,000Amlexanox (OraDiscTM A)
                  
                  
                  6,873,080
                  
                  
                  
                  6,873,080OraDiscTM
                  
                  
                  73,000
                  
                  
                  
                  73,000Hydrogel nanoparticle aggregate
                  
                  
                  589,858
                  
                  
                  
                  589,85813,354,938
                  
                  
                  
                  13,354,938Less: accumulated amortization
                  
                  
                  (
      3,389,769
                  )
                  
                  
                  (
      2,321,461
                  )Patents, net
                  
                  $
                  9,965,169
                  
                  
                  $
                  11,033,477





Amortization
expense on patents was $1,068,308 and $1,065,392 for the years ended December
31, 2008 and 2007, respectively.  The future aggregate amortization
expense for patent assets, remaining as of December 31, 2008, is as
follows:





Calendar
      Years
                  
                  Future
      Amortization
                    Expense2009
                  
                  
                  1,065,3902010
                  
                  
                  1,065,3902011
                  
                  
                  1,015,4362012
                  
                  
                  723,4282013
                  
                  
                  721,4522014 & Beyond
                  
                  
                  5,374,073Total
                  
                  $
                  9,965,169








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NOTE
8.                      ACCRUED
LIABILITIES





Accrued
liabilities consisted of the following at December 31:





Accrued Liabilities
                  
                  2008
                  
                  
                  2007Accrued taxes – payroll
                  
                  $
                  106,299
                  
                  
                  $
                  106,299Accrued compensation/benefits
                  
                  
                  430,583
                  
                  
                  
                  276,612Accrued insurance payable
                  
                  
                  ---
                  
                  
                  
                  ---Contract research/clinical payable
                  
                  
                  110,180
                  
                  
                  
                  40,000Other
                  
                  
                  1,484
                  
                  
                  
                  1,484Total accrued liabilities
                  
                  $
                  648,546
                  
                  
                  $
                  424,395








NOTE
9.                      ADVANCE
ROYALTY





As part
of the October 12, 2005 asset purchase from Access, we assumed the liability
associated with an advanced royalty payment of $500,000 to Access by Discus
Dental, our United States distributor for Aphthasol® paste.  Royalties
earned from the sale of Aphthasol® by the distributor will first be offset
against the advanced royalty.





Royalty
      Advance, April 2005
                  
                  $
                  500,000Royalties earned – 2005
                  
                  
                  30,944Royalties earned – 2006
                  
                  
                  249,788Royalties earned – 2007
                  
                  
                  99,233Royalty
      Advance, as of December 31, 2007
                  
                  
                  120,035Royalties earned – 2008
                  
                  
                  89,618Royalty
      Advance, as of December 31, 2008
                  
                  $
                  30,417




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NOTE
10.                      STOCKHOLDERS’
EQUITY





Common
Stock





As of
December 31, 2008, the Company had 65,509,481 shares of common stock issued and
outstanding.  The Company issued 3,092,600 shares of common stock for
the year ended December 31, 2008 pursuant to the exercise of warrants and stock
options.




Warrants





The
following table summarizes the warrants outstanding and the number of shares of
common stock subject to exercise as of December 31, 2008 and the changes therein
during the two years then ended:




Number
      of Shares of Common Stock Subject to Exercise
                    
                    
                    Weighted
      – Average
                      Exercise
      PriceBalance
      as of December 31, 2006
                    
                    
                    8,395,000
                    
                    
                    $
                    0.43Warrants
      issued
                    
                    
                    ---
                    
                    
                    
                    ---Warrants
      exercised
                    
                    
                    (2,533,333
                    )
                    
                    
                    0.23Warrants
      cancelled
                    
                    
                    ---
                    
                    
                    
                    ---Balance
      as of December 31, 2007
                    
                    
                    5,861,667
                    
                    
                    $
                    0.52Warrants
      issued
                    
                    
                    ---
                    
                    
                    
                    ---Warrants
      exercised
                    
                    
                    (3,066,667
                    )
                    
                    
                    0.01Warrants
      cancelled
                    
                    
                    ---
                    
                    
                    
                    ---Balance
      as of December 31, 2008
                    
                    
                    2,795,000
                    
                    
                    $
                    1.07







Of the
warrant shares subject to exercise as of December 31, 2008, 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








NOTE
11.                      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 December 31:





2008
                      
                      
                      2007Antidilutive
      warrants to purchase common stock
                      
                      
                      2,795,000
                      
                      
                      
                      5,861,667Antidilutive
      options to purchase common stock
                      
                      
                      3,706,000
                      
                      
                      
                      2,225,000Restricted
      vesting common stock
                      
                      
                      154,918
                      
                      
                      
                      55,195Total
                      
                      
                      6,655,918
                      
                      
                      
                      8,141,862




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NOTE
12.                      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 years ended December
31:





2008
                              
                              
                              2007Incentive Stock OptionsExpected
      volatility  (1)
                              
                              
                              68.2
                              %
                              
                              
                              52.3
                              %Risk-fee
      interest rate %  (2)
                              
                              
                              2.79
                              %
                              
                              
                              4.27
                              %Expected
      term (in years)
                              
                              
                              5.0
                              
                              
                              
                              5.0Dividend
      yield  (3)
                              
                              
                              0.0
                              %
                              
                              
                              0.0
                              %Nonstatutory Stock OptionsExpected
      volatility  (1)
                              
                              
                              69.4
                              %
                              
                              
                              49.9
                              %Risk-fee
      interest rate %  (2)
                              
                              
                              3.23
                              %
                              
                              
                              4.67
                              %Expected
      term (in years)
                              
                              
                              3.3
                              
                              
                              
                              1.0Dividend
      yield  (3)
                              
                              
                              0.0
                              %
                              
                              
                              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.





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 years ended December 31:





2008
                            
                            
                            2007Incentive Stock OptionsQuantity
                            
                            
                            1,550,000
                            
                            
                            
                            675,000Weighted
      average fair value per share
                            
                            $
                            1.19
                            
                            
                            $
                            2.22Fair
      value
                            
                            $
                            1,845,089
                            
                            
                            $
                            1,497,195Nonstatutory Stock OptionsQuantity
                            
                            
                            355,000
                            
                            
                            
                            205,000Weighted
      average fair value per share
                            
                            $
                            0.70
                            
                            
                            $
                            0.96Fair
      value
                            
                            $
                            249,375
                            
                            
                            $
                            196,576








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Stock Options (Incentive and
Nonstatutory)





The
following table summarizes share-based compensation related to stock options, in
accordance with SFAS 123(R), for the years ended December 31:





2008
                      
                      
                      2007Research
      and development
                      
                      $
                      144,757
                      
                      
                      $
                      123,208Selling,
      general and administrative
                      
                      
                      807,174
                      
                      
                      
                      414,811Total share-based compensation expense
                      
                      $
                      951,931
                      
                      
                      $
                      538,019








At
December 31, 2008, 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 $2,527,177.  The period
over which the unearned share-based compensation is expected to be recognized is
approximately four years.





The
following table presents the activity for stock options for the two years ended
December 31, 2008:





Stock
      Options
                  
                  
                  Weighted
      Average Exercise Price per ShareOutstanding
      as of December 31, 2006
                  
                  
                  1,350,000
                  
                  
                  $
                  1.29Granted
                  
                  
                  880,000
                  
                  
                  
                  4.46Forfeited/cancelled
                  
                  
                  ---
                  
                  
                  
                  ---Exercised
                  
                  
                  (5,000
                  )
                  
                  
                  4.00Outstanding
      as of December 31, 2007
                  
                  
                  2,225,000
                  
                  
                  
                  2.54Granted
                  
                  
                  1,905,000
                  
                  
                  
                  2.06Forfeited/cancelled
                  
                  
                  (374,000
                  )
                  
                  
                  1.99Exercised
                  
                  
                  (50,000
                  )
                  
                  
                  0.95Outstanding
      as of December 31, 2008
                  
                  
                  3,706,000
                  
                  
                  $
                  2.37








The
following table presents the stock option grants outstanding and exercisable as
of December 31, 2008:





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 Share945,000
                    
                    
                    $
                    0.94
                    
                    
                    
                    8.4
                    
                    
                    
                    325,000
                    
                    
                    $
                    0.95630,000
                    
                    
                    
                    1.57
                    
                    
                    
                    8.6
                    
                    
                    
                    350,000
                    
                    
                    
                    1.651,296,000
                    
                    
                    
                    2.45
                    
                    
                    
                    6.0
                    
                    
                    
                    ---
                    
                    
                    
                    ---835,000
                    
                    
                    
                    4.46
                    
                    
                    
                    8.6
                    
                    
                    
                    391,152
                    
                    
                    
                    4.423,706,000
                    
                    
                    $
                    2.37
                    
                    
                    
                    7.7
                    
                    
                    
                    1,066,562
                    
                    
                    $
                    2.45








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Restricted Stock
Awards





Restricted
stock awards, which typically vest over a period of five years, are issued to
certain 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 years ended December 31, 2008 and 2007, which were allocated as
follows:





2008
                      
                      
                      2007Research
      and development
                      
                      $
                      17,022
                      
                      
                      $
                      12,673Selling,
      general and administrative
                      
                      
                      54,879
                      
                      
                      
                      31,986Total share-based compensation expense
                      
                      $
                      71,901
                      
                      
                      $
                      44,659





At
December 31, 2008, the balance of unearned restricted share-based compensation
to be expensed in future periods is approximately $281,208.





The
following table presents the activity for non-vested restricted stock awards for
the two years ended December 31, 2008:





Restricted
      stock
                  
                  
                  Weighted
      Average Grant Date Fair ValueOutstanding
      as of December 31, 2006
                  
                  
                  ---
                  
                  
                  $
                  ---Granted
                  
                  
                  56,035
                  
                  
                  
                  4.00Forfeited/cancelled
                  
                  
                  (840
                  )
                  
                  
                  4.00Exercised
                  
                  
                  ---
                  
                  
                  
                  ---Outstanding
      as of December 31, 2007
                  
                  
                  55,195
                  
                  
                  $
                  4.00Granted
                  
                  
                  101,677
                  
                  
                  
                  2.01Forfeited/cancelled
                  
                  
                  (1,954
                  )
                  
                  
                  3.83Exercised
                  
                  
                  ---
                  
                  
                  
                  ---Outstanding
      as of December 31, 2008
                  
                  
                  154,918
                  
                  
                  $
                  2.70








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, 2007, 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 December 31, 2008, we had
granted options to purchase 4,135,000 shares of Common Stock, of which 3,706,000
were outstanding at a weighted average exercise price of $2.37 per share and
154,918 shares of restricted stock.  As of December 31, 2008, there
were 2,139,082 shares that remain available for future grant under our Incentive
Plan.








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NOTE
13.                      EMPLOYMENT
BENEFIT PLAN





The
Company maintains a defined contribution or 401(k) Plan for its qualified
employees.  Participants may contribute a percentage of their
compensation on a pre-tax basis, subject to a maximum annual contribution
imposed by the Internal Revenue Code.  The Company may make
discretionary matching contributions as well as discretionary profit-sharing
contributions to the 401(k) Plan.  The Company’s contributions to the
401(k) Plan vest immediately.  The Company contributed $78,365 and
$47,932 to the 401(k) Plan during the years ended December 31, 2008 and 2007,
respectively.





NOTE
14.                      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. Deferred tax assets as
of December 31, 2008, of approximately $10,187,027 were reduced to zero, after
considering the valuation allowance of $10,187,027, since there is no assurance
of future taxable income.  As of December 31, 2008 we have
consolidated net operating loss carryforwards and research credit carryforwards
for income tax purposes of approximately $26,934,828 and $320,749,
respectively.





The
following are the consolidated operating loss carryforwards and research credit
carryforwards that will begin expiring as follows:





Calendar
      Years
                    
                    Consolidated
      Operating Loss Carryforwards
                    
                    
                    Research
      Activities
                      Carryforwards2021
                    
                    $
                    34,248
                    
                    
                    $
                    ---2023
                    
                    
                    95,666
                    
                    
                    
                    ---2024
                    
                    
                    910,800
                    
                    
                    
                    13,5842025
                    
                    
                    1,687,528
                    
                    
                    
                    21,5632026
                    
                    
                    11,950,281
                    
                    
                    
                    60,7972027
                    
                    
                    3,431,365
                    
                    
                    
                    85,0522028
                    
                    
                    8,824,940
                    
                    
                    
                    139,753Total
                    
                    $
                    26,934,828
                    
                    
                    $
                    320,749








An
analysis of the tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2008 and 2007 are as follows:





2008
                        
                        
                        2007Deferred
      tax assets:Net
      operating loss carryforwards
                        
                        $
                        9,733,962
                        
                        
                        $
                        6,338,461Intangible
      assets
                        
                        
                        192,308
                        
                        
                        
                        130,016Other
                        
                        
                        320,749
                        
                        
                        
                        186,964Total
      gross deferred tax assets
                        
                        
                        10,247,019
                        
                        
                        
                        6,655,441Deferred
      tax liabilities:Property
      and equipment
                        
                        
                        59,992
                        
                        
                        
                        30,258Total
      gross deferred tax liabilities
                        
                        
                        59,992
                        
                        
                        
                        30,258Net
      total of deferred assets and liabilities
                        
                        
                        10,187,027
                        
                        
                        
                        6,625,182Valuation
      allowance
                        
                        
                        (10,187,027
                        )
                        
                        
                        (6,625,182
                        )Net
      deferred tax assets
                        
                        $
                        ---
                        
                        
                        $
                        ---








The
valuation allowance increased by $3,561,845 and $1,333,409 in 2008 and 2007,
respectively.





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The
following a reconciliation of the expected statutory federal income tax rate to
our actual income tax rate for the year ended December 31:





2008
                  
                  
                  2007Expected
      income tax (benefit) at federal statutory tax rate -35%
                  
                  $
                  (3,423,922
                  )
                  
                  $
                  (
      1,406,041
                  )Permanent
      differences
                  
                  
                  308,603
                  
                  
                  
                  205,063Research
      tax credits
                  
                  
                  (139,753
                  )
                  
                  
                  ---Amortization
      of deferred start up costs
                  
                  
                  ---
                  
                  
                  
                  (6,511
                  )Valuation
      allowance
                  
                  
                  3,255,072
                  
                  
                  
                  1,207,489Income
      tax expense
                  
                  $
                  ---
                  
                  
                  $
                  ---





Because
of the significant share issuances in 2003 and 2006, the net operating loss
carryforwards may be limited in their annual use when applied against taxable
earnings in future periods pursuant to Section 382 of the Internal Revenue
Code.








NOTE
15.                      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.  The future minimum lease payments are as follows as of
December 31, 2008:


Calendar
      Years
            
            Future
      Lease Expense2009
            
            $
            110,7362010
            
            
            110,7362011
            
            
            110,7362012
            
            
            110,7362013
            
            
            27,684Total
            
            $
            470,628





Rent
expense for our operating lease amounted to $107,093 and $112,529 for the years
ended December 31, 2008 and 2007, respectively.





Employment
Agreements





As of
December 31, 2008 the Company is party to employment agreements with its
officers, which include Kerry P. Gray, President and Chief Executive Officer,
Renaat Van den Hooff, Executive Vice President – Operations 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, Vice President – Material Science.  The employment
agreements with Mssrs. Gray and Van den Hooff are for three and two years,
respectively, and include an automatic renewal of one year.  The
employment agreements with Mssrs. Wallberg, Moro, and St. John are for one year
and include an automatic renewal of one year.  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 all invention and
intellectual property rights to 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 reached certain defined technology milestones including licensing
agreements and advancing products to clinical development.
 
 As of
December 31, 2008, the future milestone obligations that we are subject to
paying Access, if achieved, total $4,750,000; relating to milestones 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 for
Amlexanox related products in the United Kingdom and Ireland.  As part
of the termination, the Company agreed to pay ProStrakan 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.


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NOTE
16.                      SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)





The
following table contains condensed information from the Company’s Consolidated
Statements of Operations for each quarter of the years ended December 31, 2008
and 2007. The Company has derived this data from its unaudited quarterly
financial statements. We believe that the following information reflects all
normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. The operating results for any quarter are
not necessarily indicative of results for any future period.





First
      Quarter
                              
                              
                              Second
      Quarter
                              
                              
                              Third
      Quarter
                              
                              
                              Fourth
      Quarter2008Revenues
                              
                              $
                              255,818
                              
                              
                              $
                              95,699
                              
                              
                              $
                              125,437
                              
                              
                              $
                              256,517Costs
      and expenses
                              
                              
                              2,195,522
                              
                              
                              
                              2,508,283
                              
                              
                              
                              2,937,036
                              
                              
                              
                              3,192,335Operating
      (loss)
                              
                              
                              (1,939,704
                              )
                              
                              
                              (2,412,584
                              )
                              
                              
                              (2,811,599
                              )
                              
                              
                              (2,935,818
                              )Other
      income (expense)
                              
                              
                              125,045
                              
                              
                              
                              78,888
                              
                              
                              
                              65,868
                              
                              
                              
                              47,269Net
      (loss)
                              
                              $
                              (1,814,659
                              )
                              
                              $
                              (2,333,696
                              )
                              
                              $
                              (2,745,731
                              )
                              
                              $
                              (2,888,549
                              )Basic
      and diluted net (loss) per common share
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.04
                              )
                              
                              $
                              (0.04
                              )
                              
                              $
                              (0.04
                              )2007Revenues
                              
                              $
                              383,511
                              
                              
                              $
                              118,788
                              
                              
                              $
                              129,906
                              
                              
                              $
                              833,539Costs
      and expenses
                              
                              
                              1,442,893
                              
                              
                              
                              1,533,146
                              
                              
                              
                              1,566,846
                              
                              
                              
                              1,865,171Operating
      (loss)
                              
                              
                              (1,059,382
                              )
                              
                              
                              (1,414,358
                              )
                              
                              
                              (1,436,940
                              )
                              
                              
                              (1,031,632
                              )Other
      income (expense)
                              
                              
                              212,231
                              
                              
                              
                              205,825
                              
                              
                              
                              197,104
                              
                              
                              
                              174,521Net
      (loss)
                              
                              $
                              (847,151
                              )
                              
                              $
                              (1,208,533
                              )
                              
                              $
                              (1,239,836
                              )
                              
                              $
                              (857,111
                              )Basic
      and diluted net (loss) per common share
                              
                              $
                              (0.01
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.02
                              )








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NOTE
17.                      SUBSEQUENT
EVENTS





On
January 5, 2009, the Company received a notice of termination from Bio Med
Sciences, Inc. (“BioMed”), of that certain Agreement and Plan Merger, dated as
of July 9, 2008, among the Company, BioMed, Cardinia Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of the Company, and the members
of a certain Holders Representative Committee referenced therein.





On March
9, 2009, Kerry P. Gray resigned as President and Chief Executive Officer of the
Company.  Renaat Van den Hooff, the Company’s Executive Vice President
Operations, was appointed to serve as President and Chief Executive
Officer.  In connection with Mr. Gray’s departure, the Company and Mr.
Gray entered into a Separation Agreement (the “Agreement”), dated March 9,
2009.  Pursuant to the Agreement, the Company will provide certain
benefits to Mr. Gray, including: (i) $400,000 during the initial 12 months; (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 stock options with respect to 300,000
shares of common stock previously held by him; and (iv) for a period of
twenty-four (24) months the Company will maintain and provide coverage under Mr.
Gray’s existing health coverage plan.  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.








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EXHIBIT
INDEX





Exhibit
                  Number
                
                Description of Document3.1
                
                Restated
      Articles of Incorporation dated November 5, 2007 (8)3.2
                
                Amended
      and Restated Bylaws dated December 5, 2008 (11)10.1
                
                Warrant
      issued by the Registrant to Prenox, LLC, dated October 12, 2005.
      (1)10.2
                
                Agreement
      and Plan of Merger and Reorganization dated October 12, 2005 by and among
      the Registrant, Uluru Acquisition Corp., and ULURU Delaware Inc.
      (1)10.3
                
                Asset
      Sale Agreement dated October 12, 2005 by and between ULURU Delaware Inc.
      and Access Pharmaceuticals, Inc. (3)10.4
                
                Patent
      Assignment Agreement dated October 12, 2005 by and between ULURU Delaware
      Inc. and Access Pharmaceuticals, Inc. (3)10.5
                
                License
      Agreement dated October 12, 2005 by and between ULURU Delaware Inc. and
      Access Pharmaceuticals, Inc. (3)10.6
                
                Lease
      Agreement dated January 31, 2006 by and between ULURU Delaware Inc. and
      Addison Park Ltd. (3)10.7
                
                License
      Agreement dated August 14, 1998 by and between ULURU Delaware Inc. and
      Strakan Ltd. (3)10.8
                
                License
      and Supply Agreement dated April 15, 2005 by and between ULURU Delaware
      Inc. and Discus Dental. (3)10.9
                
                Amendment
      to License and Supply Agreement dated November 18, 2005 by and between
      ULURU Delaware Inc. and Discus Dental. (3)10.10
                *
                Employment
      Agreement dated January 1, 2006 by and between ULURU Delaware Inc. and
      Kerry P. Gray. (3)10.11
                *
                Employment
      Agreement dated January 1, 2006 by and between ULURU Delaware Inc. and
      Terrance K. Wallberg. (3)10.12
                *
                Employment
      Agreement dated January 1, 2006 by and between ULURU Delaware Inc. and
      Daniel G. Moro. (3)10.13
                
                Warrant
      to Purchase Common Stock of Uluru Inc. issued to Prenox, LLC, dated August
      20, 2006. (4)10.14
                
                Agreement
      dated August 30, 2006 by and between Uluru Inc. and ULURU Delaware Inc.
      (4)10.15
                *
                Uluru
      Inc. 2006 Equity Incentive Plan (2)10.16
                
                Agreement
      dated December 6, 2006 by and among the Registrant, ULURU Delaware Inc.,
      Prenox, LLC, and Cornell Capital, LP. (5)10.17
                
                Common
      Stock Purchase Agreement dated December 6, 2006 by and among the
      Registrant and the purchasers’ party thereto. (5)10.18
                
                Investor
      Rights Agreement dated December 6, 2006 by and among the Registrant and
      the purchasers’ party thereto. (5)10.19
                
                Amendment
      to Asset Sale Agreement dated December 8, 2006 by and between ULURU
      Delaware Inc. and Access Pharmaceuticals, Inc. (5)10.20
                *
                Employment
      Agreement dated December 1, 2006 by and between ULURU Delaware Inc. and
      John V. St. John, PhD. (6)10.21
                
                License
      and Supply Agreement dated February 6, 2007 by and between DexoBiopharm
      LTD and ULURU Inc. (7)10.22
                *
                Employment
      Agreement dated September 25, 2007 by and between ULURU Delaware Inc. and
      Renaat Van den Hooff. (9)10.23
                
                Agreement
      and Plan or Merger dated July 9, 2008 by and among ULURU Inc., Cardinia
      Acquisition Corp., BioMed Sciences, Inc., and the Holders Representative
      Committee referenced therein. (10)10.24
                **
                License and Supply Agreement dated November 17, 2008
      by and between Meda AB and ULURU Inc.31.1
                **
                Certification Pursuant to Rule 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as Amended31.2
                **
                Certification Pursuant to Rule 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as Amended32.1
                **
                Certification Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
                **
                Certification Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002-----------------------------------------(1)
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K filed on October
      18, 2005.(2)
                
                Incorporated
      by reference to the Company’s Definitive Schedule 14C filed on March 1,
      2006.(3)
                
                Incorporated
      by reference to the Company’s Form 8-K filed on March 31,
    2006(4)
                
                Incorporated
      by reference to the Company’s Form 10-QSB filed on November 20,
      2006(5)
                
                Incorporated
      by reference to the Company’s Form SB-2 Registration Statement filed on
      December 15, 2006(6)
                
                Incorporated
      by reference to the Company’s Form SB-2/A Registration Statement filed on
      February 9, 2007(7)
                
                Incorporated
      by reference to the Company’s Form 10-QSB filed on May 15,
      2007(8)
                
                Incorporated
      by reference to the Company’s Form 8-K filed on November 6,
      2007(9)
                
                Incorporated
      by reference to the Company’s Form 10-QSB filed on November 13,
      2007(10)
                
                Incorporated
      by reference to the Company’s Form 10-Q filed on August 8,
      2008(11)
                
                Incorporated
      by reference to the Company’s Form 8-K filed on December 11,
      2008*
                Management
      contract or compensation plan arrangements.**
                Filed
      herewith.








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