Dan McFadden - VP, Public and Investor Relations Jim Schutz - Chief Executive Officer Bob Miller - Chief Operating Officer and CFO.

Dan Trang - Stonegate Securities.

Good afternoon. And welcome to the Oculus Innovative Sciences’ Fiscal Second Quarter 2015 Conference Call. My name is Kevin, and I'll be your coordinator for today's conference. At this time, all participants are in a listen-only mode. At the end of the call, we will be holding a question-and-answer session with the company management.

[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..

Thanks, Kevin, and thanks everyone for joining us. Good afternoon. With me on the call today are our CEO, Jim Schutz; and our CFO, COO, Bob Miller.

We will open the call with Bob Miller's review of the financial results for the quarter, followed by Jim Schutz’s update on current activities and -- future activities and then close with Bob Miller going into greater detail.

This afternoon Oculus issued a press release detailing fiscal second quarter 2015 financial results and recent corporate developments. A copy of the release can be downloaded from our website which is www.oculusis.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 such as expect, to expand, would, and anticipate, among others.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including risks inherent in the development and commercialization of potential products, the risks 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 I will now turn the call over to our CFO, Bob Miller.

Bob?.

Thank you, Dan. I'll first summarize our financial results for the second quarter and lastly, we will address some of the general revenue growth guidelines and new product initiatives for some of our business segments.

Moving now to the summary of the results of our second fiscal quarter ending September 30, 2014, instead of repeating the financial results, which are already provided in the press release, I will only cover the highlights of the financials and also talk about the initiatives we're working on to reignite our revenue growth.

Product revenues were down 20%, compared to the same period last year, with declines in U.S., Middle East and China, partially offset by increases in Europe and Mexico. The decline in product revenue for the quarter of $780,000, compared to the same period last year is mostly explained by the declined in the animal healthcare business of $922,000.

The decline is occurred because our foreign partner is transitioning to a less expensive and we believe lower quality source of HOCl. The silver lining in this product is that we are currently in the process of transitioning this business to two new U.S. animal healthcare partners, who are experts in this market.

This declined animal healthcare sales is further magnified by the fact that the quarter ending September is by far the largest quarter seasonally due to large sales in the summer months. Let me briefly cover the revenue growth of other segments.

First of all, in Europe, revenue growth for the quarter was 26% with new product launches and new country specific distributor partners. Secondly, in Mexico, our sales growth rate was 14% with a 34% unit growth, with strong increases in the hydrogel and 120 liquids units. Thirdly, the revenue growth from our U.S.

dermatology partner is down to the lower samples and flat trade unit growth. Lastly, Middle East orders were down for the quarter due to large regular orders which caused quarter-to-quarter comparisons to be erratic. The year-to-date revenue for the Middle East is up from the same period last year.

Gross profit margins were down 55% from 69% due to the climb in higher margin sales in the U.S. versus growth in the lower margin sales outside the U.S. Operating expenses minus non-cash expenses for the second quarter were $2.9 million down about $700,000 compared to the same period last year.

The decrease in the cash operating expenses was a result of lower expenses related to our former Ruthigen subsidiary, partially offset by higher sales, marketing and admin expenses in U.S. and Europe. On the balance sheet, our cash position at the end of September was $3.5 million and our total debt was $8,000 in effect no debt.

In general, we are not happy with our negative revenue growth for the quarter regardless of the reasons. To reverse this trend and to restore positive quarter-over-quarter growth, we have initiated three clinical projects. One is to reestablish our animal healthcare business and revenue with two new partners.

Two is to continue growing revenue in our advance tissue and wound care business via multiple new product launches in U.S., Europe and rest of world. And third, with the biggest impact is to transform Oculus into a specialty pharmaceutical company with the primary focus on the dermatology market.

Let me turn the call over to Jim, our CEO, to expand about this last initiative. After Jim has discussed our strategic plan, I will discuss some of the financial implications of this plan..

Thank you, Bob. As Bob said, I’d like to spend just a few minutes today on our plan to transform Oculus into a specialty pharmaceutical company, focused on dermatology and for our new shareholders, at least look back to explain why and how we're changing courses.

As many of you know, our Microcyn products have been used on more than 5 million patients around the world and have been clinically proven to be safe and cost effective in over 33 clinical studies.

To our knowledge, our advanced hypochlorous acid or Microcyn products are the only compounds in the world with a unique combination of the following characteristics.

One, safer saline and can be used around or in the mouth or nose without harm; two, it’s a broad spectrum antimicrobial killing bacteria, certain funguses, viruses and spores with a unique motive action that does not promote resistance.

And three, it’s therapeutic with clinical evidence showing reduction of inflammation, itch, pain, scarring, all while increasing oxygen.

Because of those unique technology characteristics, our products have applications in a wide range in different medical and industrial markets, including dermatology, wound care, surgical care, animal health, in the eye, in the nose, throat infectious diseases and so on.

As a result of these many market applications, we adopted a partnership strategy. In other words, a strategy defined sales partners in these markets and out licensed our products. Examples of these types of partnerships included Onset and Quinnova in dermatology.

Ferndale Eloquest in acute and wound care, Union Springs in the first responder market, Innovacyn in animal health care and many sales partners in acute and wound care outside the U.S. The benefits of this partnership strategy were that we established the safety and efficacy of our Microcyn products in multiple markets.

We gained knowledge in a wide variety of therapeutic areas and we eliminated the need for sales and marketing expenses, which theoretically would have allowed us to reach breakeven quicker. On the other hand, the disadvantages of this former partnership strategy were that we have little control of our sales process.

In fact, our partners control that process. Our partners also selected the priority of the products in their portfolio, not us. We had indirect contact with our customers and generally as a result, we found it difficult for us to maintain sustained control of the revenue growth.

So in March of 2014, following the IPO of our surgical drug company, Ruthigen, we constituted our Board of Directors and management team. As you may know or have read, our new Board has a strong background in sales and marketing strategy and in particular dermatology. After much homework, our new team commenced a strategic realignment of our business.

And in evaluating our various market opportunities, we concluded that our dermatology opportunity was the most attractive for a handful of reasons that I will go through now.

One, we’ve demonstrated safety and efficacy of our products in the dermatology space along these lines -- hypochlorous acid dermatology products have generated 145,000 prescriptions written since 2011 and are supported by four clinical studies, showing a reduction in itch and pain. Two, the addressable size of just the U.S.

atopic dermatitis market is estimated to be $500 million to $700 million per year. Three, dermatology co-points are concentrated. As an example, there are 3,000 to 5,000 dermatologists who right 75% of the total scripts written meaning that they can be covered by a relatively small sales force. Four, U.S.

dermatologists prescribe more products per visit than any other medical specialty except neurologists. On average, each dermatologist writes prescriptions for about a half a million U.S. dollars per year.

Five, dermatology patients tend to be more affluent and less reliant on Medicare and Medicaid, which translates into stronger product pricing and product margins. Six, IMS data shows that dermatology sales ramps are quick to peak in six to nine months meaning that we can quickly cover sales expenses.

Seven, as a result of all the first six items I just went through, dermatology companies tend to have higher valuations. And over the last several years, many of the small-to-medium dermatology companies that we studied have been acquired at very attractive valuations.

While our partnership strategy provided many benefits to us that we covered earlier, we think it’s time to transform into the following new direct sales strategy. For our core U.S. markets, dermatology is going to be our highest priority and advanced acute care is second.

We plan to build the direct sales force starting with our medical devices and using Microcyn as the cornerstone. We plan to diversify into non-hypochlorous acid base technologies via license, becoming a truly diversified healthcare company.

We will acquire or develop new drug candidates with low cost -- excuse no cost clinicals for our direct sales force to sell. For our non-core markets, such as the international and animal healthcare, we will continue to expand with new sales partnership.

We believe this shift in strategy will enable us to have direct contact with our customers, control our own sales process, set our own product priority, diversify into other technologies be in-licensing, and, most importantly, enable us to achieve fast, sustainable and consistent growth of revenue.

We think our new strategy is straightforward, well-thought through, and near and near to my heart, very exciting to the team. I will hand the microphone back to Bob to discuss several of the action items we’ve completed to-date as part of this transformation to a specialty pharmaceutical focused on dermatology..

Thank you, Jim. With this new strategy and transformation in mind, what have we done thus far to implement.

One, we recently hired an experienced dermatology management team and a relatively small sales force, most of who are seasoned sales veterans that have established relationships with dermatologists in the respective territories, supplemented by our already existing inside sales force.

Secondly, last month, in mid October, we launched two prescription dermatology products in the United States under the [Livercyn] [ph] brand name. And as a result, we have contracts with all the major wholesalers and are stocking the major pharmacies.

In early December, we plan to launch our scar product [indiscernible] into the prescription dermatology market. In addition, we have lined up a robust product pipeline, which we intend to launch over the next 12 months. To that end, we have licensed several proprietary non-Microcyn technologies, which diversify our product pipeline.

Number three, as a part of these launches, we have developed and executed a unique product pricing strategy, which we believe addresses many of the challenges associated with the current pricing and rebate programs in the prescription dermatology market.

Number four, in Europe, as we announced recently from several press releases, we received CE Mark approvals for acne atopic dermatitis, scar reduction and the treatment of skin procedures. Also, we have hired an experienced European Product Manager, who is in the process of assembling a European distributor network to launch these products.

With our transformation into the dermatology market, what will our financial future look like, or stated differently, how do we expect our financials to change over the next several years?. Currently for the quarter ending September, sales in Mexico were $1.5 million, and as a percentage of total product sales were 50%.

European and Western world was 18%, U.S. derm and tissue was 17% and animal healthcare was 15%. Over the next several years, we expect the revenue for the U.S. dermatology and tissue care segment to grow the fastest and we believe that that will surpass the revenue in Mexico.

Secondly, we expect that Europe and rest of world will continue to grow at a greater than 15% to 20%. And then some of that growth will be in dermatology as we are building a dermatology network in Europe. Third, Mexico is expected to have unit growth of about 10% to 15% annually.

And finally, we will reestablish our animal healthcare business, with two new partners starting in 2015. The bottomline on transformation plan is to grow the U.S. sales derm and tissue care segment from 17% this last quarter to over 50% of the total product revenue of Oculus over the next several years.

To complete this transformation however, we will need to raise some money to pay for the sales force and related expenses, which will create this growth of our sales into the dermatology market.

In addition to the normal funding alternatives, we have several potential sources of non-dilutive cash to assist us in financing the growth in dermatology business, including $8 million of milestone payments from Ruthigen and the possible sale of 2 million shares of Ruthigen, which are a current market value of $8 million to $9 million.

As you know, the shares of Ruthigen are not very liquid and any sale requires the approval of Ruthigen. The first milestone payment from Ruthigen is the $1.5 million upon enrollment over the last patient, in Phase 1 and 2, which is expected to occur before the end of June 2015.

In summary, our plan is to evolve into a leading dermatology advance tissue care company, providing innovative and cost-effective solutions to patients while generating strong consistent revenue growth and maximizing our long-term market capitalization. With those final comments, I will turn the call back over to the operator for questions..

[Operator Instructions] Our first question comes from Dan Trang with Stonegate Securities..

If one of you can provide a little more color behind your new direct selling model, and what are some of the advantages of going after that route?.

We’ve been in the dermatology market for a while at this point, two partners, through both Onset and Quinnova. And as Jim mentioned, we think it's the product margins and the pricing are a very strong in a dermatology market. It's a very concentrated market in terms of the 3000 to 5000 derms that can be covered by relatively small salesforce.

The ramp is generally six to nine months.

We’ve three or four ramps using our products in their markets and they’ve all been hit somewhat of -- peaking at six to nine months and then grow slow after that, which means it's really quick to cover the expenses within like couple of quarters to cover the expenses of the direct -- expenses of the sales group.

So we think there are huge number of benefits to doing this, one of which is controlling to growth of our revenue. When we have partnerships like for instance in number of our partnership that we had in the past, they were picking the priority of our product. And they would initially start out P1 and then drop again to P2 or P3.

And as a result, they gave less emphasis and our growth or product revenue would drop off. So with the partnership model, we found that we cannot sustain a growth in the revenue.

With a direct sales force model, we can -- we do believe we can sustain that growth and revenue overtime and enable us to diversify into different product lines, non-Microcyn product lines and become experts in both the dermatology products and the advanced tissue products..

Okay..

I may have answered, more than answered your question with that..

No. Thank you for the color. I appreciate it. Thank you..

That’s okay..

[Operator Instructions] Our next question comes from [Mile Smith] [ph], he is a private investor..

Hi, Bob..

Hey, Mile..

Hi. You introduce the throat infection product in Europe and Mexico, so I have two questions.

One, how is it going, two, when do you think you might get approval in Europe, and three, you didn't mention anything about this throat infection and infection products, where is that fitted in your scheme of things?.

So, what -- you’re right. The product was launched by More Pharma in the Mexico and it is still being launched, still it’s being sold, it’s growing and as part of that growth, which was 14% this quarter, unit growth was actually 34%.

So, as part of that growth, so that -- we expect that to continue to grow, we actually did receive a oral approvals in Europe, receive more oral approvals and we’ve actually had some of those that have been approved. We are working on the oral area and we would expect to see some announcements relating to the oral over the next six months.

We especially focused on both Europe and the United States.

Does that answer your question?.

How do you see this, one last thing, how do you see this application as opposed to dermatology, which do you think would grow faster?.

The dermatology, we are putting our entire -- our primary focus on dermatology and secondary on the advanced tissue. Oral would be a third that we would have. But that -- we don’t think that needs a complete direct sales force at this point. We think that can be done differently and without a lot of money..

Great. Thanks very much, Bob..

[Operator Instructions] And I’m not showing any further questions at this time. I’d like to turn the conference back over to our host for closing remarks..

Thank you all for joining us today. We look forward to speaking to you, signing off..

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day..