Good afternoon, and welcome to the Oculus Fiscal Third Quarter 2012 Conference Call. My name is Ally, and I will be your coordinator for today's call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Mr. Dan McFadden. Please proceed, sir.

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

Thank you. Good afternoon, everyone, and thanks for joining us on this call. This is obviously the earnings call for Oculus Innovative Sciences for the third quarter fiscal 2012 earnings conference call. I'm Hoji Alimi, President and Chief Executive Officer of the company. And I have Bob Miller, our Chief Financial Officer, who joins me today on this call as well. Our Q3 earnings information was released following the close of the market today, as we do. It's a standard. Our total revenues for the first 9 months of this fiscal year was $9.4 million. This shows a 37% or $2.4 million product revenue increase over the same 9-month period over the last year. Our operating expenses minus non-cash charges remained consistent in the range of the $3 million per quarter. And on EBITDAS basis, we had an improvement of $1.6 million for the 9 months ending this last December of 2011 versus last year. We anticipate that our revenue continue to grow. We will improve our earnings per share and cost threshold eventually to profitability. We are entering the fourth quarter with a great deal of excitement and we keep our eyes on 2 very important partner product launches that includes 9 SKUs or different products in the United States. Eloquest Healthcare and Quinnova Pharmaceuticals are preparing their launch of these products for dermatology and hospital wound care call points. As we continue to diversify our revenue sources, international, debt [ph] and Rx, we expect these new product launches to further modulate potential seasonality and reduce risks associated with other markets as we move forward. So let me take a moment and explain how we view internally the wound care hospital market opportunity that we have partnered with Eloquest. The wound care market is highly fragmented and is flooded…

Okay, thank you, Hoji. I'll first review the guidance we've provided for the third quarter of fiscal year 2012 followed by guidance for the fourth quarter, and then summarize our financial results for the third quarter and the 9 months. How did we do on our guidance for the third quarter ended December 31, 2011? First of all, our total revenue for the quarter was $2.8 million, above our guidance of greater than $2.6 million. Secondly, our cash operating expenses of $3.2 million were close to the $3 million range. And third, the actual EBITDAS is $1.3 million versus guidance in the range of $1.4 million. As we mentioned on the last earnings call, the quarter ending December was negatively impacted by the seasonality of the animal health care products. Our Innovacyn is expecting to reduce the impact of this seasonality moving forward by growing sales in such less seasonal animal markets as those to veterinarians in several large livestock applications. In addition, future sales to atopic dermatitis patients tends to increase during the winter months, partially offsetting the seasonality in animal health care. What is our guidance for the quarter ending March 31, 2012? We expect our revenue to be greater than $3 million, EBITDAS to be less than $1 million and our cash operating expenses to be in the $3 million range. The product revenue for the quarter ending March 31, 2012, will be positively impacted by product launches of our partners Ferndale/Eloquest and Quinnova, Amneal as Hoji described earlier. Moving now to the results of our third fiscal quarter. Total product revenues increased $594,000 or 30% with increases in the U.S., Mexico, Europe, China, India, partially offset by decline in the Middle East. Product revenues in the U.S. increased $528,000 or 111%, primarily due to increased unit…

[Operator Instructions] Our first question comes from Laura Engel of Stonegate Securities.

Okay, a few questions. I guess first related to the 2 launches. How certain are you that those will occur in the next quarter? And also, do you have any feel for the market opportunity as it relates to Oculus and how quickly you can add to the top line with those product launches?

Okay. So in regards to how certain we are, we actually have manufactured chips, trained their sales people. So I think on the Amneal, Quinnova, it's very certain that this quarter is taking place. We also have shipped partial product to Eloquest and begin all the training of the sales people have been done. Sampling of some of the hospitals have been in process and so on. So this has been a very active 6, 7 months collaboration between Oculus and Eloquest, as well as Amneal. So this is not just an overnight receiving a purchase order of your shipping product. So I think we are getting to the point that now -- that we're ready to start shipping products out. And as I said as of today, Amneal, Quinnova's dermatology conference, they already sampled a lot of dermatologists with fantastic feedback. As we would have guessed, they're coming back with more than atopic dermatitis indications that they can treat, but again overall extremely positive. In terms of adding to the top line, I will let Bob answer that. But let me just for a minute, overview. We mentioned that in any product launch, there will be an initial sampling. And we will be charging our partners for those samples. They've receive the samples. They're going to sample as many as they can in hospitals with their sales force behind it. Based on the feedback they get, then they're going to go ahead and continue, hopefully taking orders and we ship products. So I think it's going to be a ramp up over several quarters. But again, a lot of leg work has been done. Bob, do you want to add something there?

Yes, the only thing I would add to that is that we recognize the samples as we ship them. And we already shipped some samples at this point, so there will be some impact on the bottom line fairly quickly. And we also recognize -- we don't recognize the trade units until it's actually blocked by the end user. We have data that shows that off our databases. So that it's a conservative approach, but it will give us fairly quick revenue on the samples and more extended revenue on the trade units.

Okay. And then on the -- I guess, the diabetic and weight-loss product as you mentioned was an FDA prescription approved product? Is that correct?

The product is just -- I'll let you get to one comment and then I answer the question. The reason we remain vague on this call because we are trying not to educate our competitors out there until this product is out in the market and our partners have a few steps ahead of the competition. So the product under FDA, the only thing that it required was a site inspection and enough clinical data to condense and that we can clinically demonstrate the effectiveness of the product. And this is from a physician from Harvard Medical School, 500,000-patient study that Federal respectively conducted. And so we have pretty solid data pass the FDA inspection. So we are ready to go. The only thing is we need to have the right partner focused on the prescription market because that's the market this product is going to be aimed at. It cannot be sold over-the-counter.

Okay. And I guess can you give us a little color on how this came to be and how you've made the decision to kind of add this third prong of your strategy as far as prescription drug products, expanding the portfolio in that direction as well.

Yes, I think the way I see the role of the entire management here at Oculus, be very candid. We are not going to clock-in and clock-out, 8 in the morning to 5, and then send products to our partners and say, "Let's see what are they going to do?" I think the market expects more of us, our families expect more of us, and I demand more of us. So the way we look at our business opportunity is the bottom line is how can we build a successful company that generally when you speak to Wall Street in Wall Street's languages, how fast can you accelerate revenue to close to $100 million? That's the market on "views" to look at the growth potential. So the way we are looking at it is the current platform that we have is the, we are maximizing that is paying off. It's like a black box, the input output, you can see, you're formulating, getting approvals, getting the right partners, they're putting into market and our revenues are increasing, our expense's remaining flat. But also, let's rely on our core competency. And our core competency is science and regulatory. And that's one of the reasons we are not raising money, $25 million and build a sales force and take the risk because we haven't done that in the past. We are not going to take that risk right now. And that's where the partners come in. So on the science part, is there are 2 approaches. Microcyn right now, we have a whole school of different formulations that gets very technical. Some are specific to surgical that is vastly different than the current products we have in the market because that's a drug that's [ph] much tighter, is a different PH and…

[Operator Instructions] Our next question comes from George Dahl of Newport Coast Securities.

Is there anything you can do to bring down your expenses instead of having them run continually at $3 million? Or is that just a fixed cost that can't be brought down?

We can. And in fact, we've had these discussions at the board level. So there are 2 things we are looking at, George, here, is we got R&D expense. We consolidated our European facility back into California. We squeezed literally as much as we could on the operational side. Where we are going to get into is whether we want to spend time penny-pinching or are we willing to spend a little bit of money and get additional upside potential such as this new compound for our investors to actually build a new catalyst. And I think building those kinds of catalysts is being the much faster ROI for office [ph] investors than if you don't do it. I don't know Bob, do you want to answer?

We look at -- and Hoji's covered a number of potential opportunities for the companies -- for the company we tend to adopt and look at ones that have relatively low-cost and high return, obviously. And so there are some things that -- so we kept our operating earnings to $3 million per quarter level even though we've looked at a number of opportunities that would cost more because we don't want to take our expenses up. So long way of saying is that we sort of maintained that level. We kept it to -- most of them an awful lot of the expenses that we look at are for growth of revenue either currently or in the future.

And, George, can I just add one more thing because this is a fantastic discussion because this is what we discussed at the board level. As evidenced by quarter ending September and I just came back from some several [indiscernible] in New York and Boston in meeting with several funds. We got to EBITDAS breakeven. I used to get calls from a lot of shareholders, "Oh my God, you guys hit EBITDAS breakeven. This is phenomenal." Your stock is going to jump, double, triple and so on. That didn't happen. And then you immediately speak to sophisticated people on Wall Street. They're not really only looking at EBITDAS and profitability because that's great for a privately held company. What they're looking for is a validated model that gets you to profitability, but more importantly, is there is growth. And if you cannot mention the growth and show that you have your own intact growth pattern and our partners cannot execute and bring that kind of growth, then other profitable company there are lots of companies that are profitable. So again I think if you look at how fast we can grow our revenues in the right channels. But again, don't get in a position that we need to raise $25 million.

Our next question comes from John Heerdink of Vista Partners.

Just one quick question here. It's kind of a loaded question in a sense that I was wondering if you could help us understand a little bit more maybe give us some color on each of the markets that you and your partners are targeting here over the next year and in the future? And possibly identify a market leader in each of these and the revenues that they generated in 2010 and possibly '11? And lastly, where do you see yourself playing? Will you be displacing them or will you simply be as a complement in these respective markets?

Well, let me take a shot and then I'll let Bob jump in too because that is a loaded question and this is going to be a half an hour discussion. So let's just highlight a few things. Let's go down the list. I think the simplest one I can talk about is our veterinarian market partner, Innovacyn. They've done a phenomenal job. And what they're really replacing is a whole host of new [ph] products. There is no standard of care again, in that market, either. So when you sit down or go to have vet, there's a whole different bunch of products that they're replacing. They're going in there with a unique product patented. But the question is what's the addressable market in that market? So the way we look at it is there is nothing like Microcyn, or it's called Vetericyn in that market. You're dealing with 10 million to 12 million horse owners, 170 million dog and cat owners and plus there's a cattle market that is much, much larger, beyond the small animal. So I think they have significant room for growth, but they need to -- again, just like any commercial partner, they have to go through all the ups and downs of regulations and investments, the right marketing places and so on. But they have a tremendous opportunity in front of them and we're 200% committed, right behind them to support them, as evidenced by all the SKUs we have given them. On the Eloquest Healthcare in the hospital, we really didn't have any presence in the U.S. hospitals so far. So this needs to be understood by our shareholders. This is a very unique opportunity for the first time that 40 sales people, very professionally trained on label, and what they are…

Our next question comes from Prashant Mehta [ph] of NetGain Financials.

I just have a follow-up on the earlier question on diabetes product. Can you give a little more detail in terms of is this product ready for commercialization or is it still under development? That's one. And the other question is what realistic market -- addressable market with this compound -- or this drug, on the new diabetes opportunity, if you can kindly elaborate on that please?

Okay. So question number one, it's ready to be marketed as of today. We have gone through -- one thing we have learned is we are not going to overpromise to the market. We are not going to say anything to the market as evidenced by this until we have gone full FDA inspection, development, we have all the trial data and then we come to the market and report to you guys that now we are looking at a multibillion dollar opportunity to be opened for our shareholders at no minimal [indiscernible] going back to George Dahl, in terms of cost versus opportunity. Now we have opened up additional multibillion dollar opportunity for our shareholders at almost single dilution. So this is something that gets me excited. And I don't mind saying this on the call because we are talking to investors. This is a product I personally use. And for the very first time I'm seeing no sugar spikes, I'm losing weight. And the doctors said I no longer need any medication in terms of controlling my diabetes. This is a product that I'm personally using and I'm seeing the impact of it. So this is ready for commercialization. We need a partner that understands that market, understands the branding and understands the doctor, the prescription, the pricing, all that. So it's another thing that I think -- endotracheal tube gets me excited, but I tell you, this compound gets me more excited than in the endotracheal tube strategy. Number two, real estate. As I told you, I mean the numbers are too big, 38% of a $10 billion market. I can tell you conservatively it's well over $1 billion. Been online to see a doctor -- I apologize, one patient [indiscernible] then I go to see my doctor, they have a whole bunch of products that they are not natural. So there's no long-term toxicity done. It's when you ask for safety, it's short-term, acute. They give it to patients to make them lose weight and then hopefully you manage your weight and your glucose. This is all natural. So it's almost half a million patients' retrospective data behind it. That's a rock solid product that we can sit across a partner and hopefully get a good partnership. So what I see and what gets me excited, I know I get calls from some investors, we are at $1.06, we are at $1.40. It really doesn't matter. I mean, what really matters to me is I can see long-term this product, a combination with this new compound with Microcyn, with dermatology, with our animal health care partner, international, all these, we are building a great platform for success.

Yes. As a quick follow-up, if I have a second. This is very refreshing to see that new direction Oculus is going in with this diabetes. It's exciting. It's no question. But going forward, how do we look upon it as we invest in Oculus? How do we look upon this company? As a microbiology company, as a veterinary company or as a diabetes company? Is there some directional theme that we are looking at?

Good question. We had the same discussion at the board level. I sat across several funds in New York, they asked the same question. We are a health care company. How do you look at Johnson & Johnson? You want to get the multiples of the wound care company sales or do you want to get the multiples of their antibiotics? In our case -- and I am not doing a pitch on this call, I'm just a CEO and as I sit down with my wife and look at our financials and how I predict my personal wealth down the road is, I'm looking at multiples of premium products. And I'm talking about premium products, I'm talking about products, if I may, well over $100 that is going to be sold in dermatology field and replacing the significant product, which is steroid. You give it multiples down the road. This is a very, very healthy company with significant catalysts. So I would brand it as a health care company and primarily focused on Rx because our diabetic compound is oral. It's sold under Rx, dermatology is Rx, our Eloquest products are Rx, most of our products internationally are Rx, including in Europe. So I look at the company as a commercial health care company in the Rx products.

Our next question comes from Russ Huffington of Choice Investment.

I just want to get back to the expenses for a little bit, maybe you can clear something up for me. On the SG&A, increased $937,000. I know you're trying to decrease expenses. Can we look forward to some kind of decreases so we can get towards profitability in the future. I know it's a hard question but an increase of that magnitude kind of disturbs me.

Okay. We have said for many quarters at this point in time that we're going to maintain our operating expenses at about $3 million per quarter. And we've been pretty consistent. In our June quarter, pops up a little because we got audit costs and that type of thing. Now the increases that you're talking about, 6 -- of the $900,000, $618,000 of those expenses are a stock op charge. So I'm sure you're aware of the stock op charge, it's non-cash charge as a result of options that we issued. That's the predominant component of the increase. The other increases are related to year-over-year. And again, we maintained a pretty steady -- over almost 2-year period of about $3 million per quarter. We go up and down a little bit year-over-year, from $2.8 million to $3.2 million in the prior year. So most of those increases related to increases in costs, both the sales related costs in Mexico. We're introducing 3 new products down in Mexico [indiscernible] to maintain our growth in Mexico, which currently represents about 50% of our sales. And there's also some legal costs that were down in Mexico. Those are the predominant difference -- the difference between the 618 and the 937, 950. Does that answer your question?

Yes. And could you also answer, the interest expense increased $151,000 during the quarter. What was that?

As you probably know, we've increased our debt. We did a $2.5 million debt funding that we are paying over time. So we increased our debt position and the total debt position is over $4 million at this point. And because of the increase in the debt position, obviously your interest increases.

Okay. And that number, $151,000, hopefully be going down in the future?

Yes. We're paying -- the debt is over a 3-year period, we are paying down that debt each quarter, and so it's a pretty significant reduction in net debt each quarter. Yes, you'll see a decline in net debt over the next 3 years.

Russ, while I have you on the phone, I just add one more thing. And it's really good to have this kind of discussions on this call because we get to do it once every quarter. When I get called and [indiscernible] we have shareholders who investing in the company and they're looking at the stock price and they're hoping that as soon as we hit profitability then the stock is going to jump, in their opinion. And let me just give you a little bit feedback, I've been spending my time in front of sophisticated funds in New York and Boston and candidly that's what is going to eventually drive our stock price, is when they then get involved and start buying our shares. The way they're looking at it is the profitability is a two-edged sword. One is right now -- and I'm going to be blunt, if right now I decide to cut as much as expenses out, and take half of the management's salary and cut R&D out and get on the phone and say we're very profitable. The bad side of it is the market is going to say, "Okay, no U-turn. You know you're profitable, and now we're going to give you multiples of your earnings." If you have no growth, you've increased your earnings your debt company will pinch you [ph]. What we need to do -- and this is are big broad discussions we had on our board level is that, "Okay, how do we get the stock from $1.05 to $5 to $10. We used to be at $11 or $14. And based on those major cabinets that we can fund. And so that's the balance they're very tactfully trying to balance things out. Again I'm personally proud of the new compound which we will announce later, and the endotracheal tube. All the SKUs we are providing to our partners who are doing a fantastic job in the health care and [indiscernible] so on. So I think it's back to New York and Boston and show them what a great upside this company has now at $1.05. So I'll stop right there, but I'll welcome any comments if you have.

No, I think you all are trying to get this company going again, and I know you’re holding down expenses as much as possible. And the future, as we’ve seen many times in the past, does look better. So I commend you all for keeping everything together and look forward to couple of good years coming up, hopefully.

Thank you.

I'm showing no further questions at this time. I'd like to turn the conference back over to Hoji Alimi for any closing remarks.

We want to thank everybody's support and being with us on the call, giving us the opportunity to explain our quarter numbers and we definitely look forward to having the same discussion in the next 3 months. Hopefully, with much more accomplishments coming out of our R&D and partnerships and so we're definitely excited to be on the call next time. Thanks to everyone. Have a great afternoon.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.