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

Business Overview

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

Our strategy is threefold:

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

Recent Developments

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

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

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

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

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

RESULTS OF OPERATIONS

Fluctuations in Operating Results

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

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

Total Revenues

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

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

Costs and Expenses

Cost of Goods Sold

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

Research and Development

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

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

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

Selling, General and Administrative

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

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

Amortization

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

Depreciation

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

Interest and Miscellaneous Income

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

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

Total Revenues

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

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

Costs and Expenses

Cost of Goods Sold

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

Research and Development

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

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

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

Selling, General and Administrative

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

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

Amortization

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

Depreciation

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

Interest and Miscellaneous Income

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

LIQUIDITY AND CAPITAL RESOURCES

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

Consolidated Cash Flow Data

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

Operating Activities

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

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

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

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

Investing Activities

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

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

Financing Activities

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

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

Liquidity

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

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

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

Based on our current level of operations, projected sales of our existing products and estimated sales from our product candidates, if approved, combined with other revenues and interest income, we believe that we will be able to meet our working capital and capital expenditure requirements at least through December 2009. We do not expect any material changes in our capital expenditure spending during the remainder of 2009. However, we cannot be sure that our anticipated revenue growth will be realized or that we will generate significant positive cash flow from operations.

As we continue to expend funds to advance our business plan, there can be no assurance that changes in our research and development plans, capital expenditures and/or acquisitions of products or businesses, or other events affecting our operations will not result in the earlier depletion of our funds. In appropriate situations, we may seek financial assistance from other sources, including contribution by others to joint ventures and other collaborative or licensing arrangements for the development, testing, manufacturing and marketing of products under development. Additionally, we may explore alternative financing sources for our business activities, including the possibility of loans from banks and public and/or private offerings of debt and equity securities; however we cannot be certain that funding will be available on terms acceptable to us, or at all.

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

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

Note Purchase Agreement

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

Contractual Obligations

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

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

Off-Balance Sheet Arrangements

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

Impact of Inflation

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations addresses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information. The preparation of our financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate these estimates and judgments. We base our estimates and . . .