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Executives

Barry Jenkins - Chief Financial Officer

Joseph Chiarelli - Chief Executive Officer

Dan Jorgensen - Chief Medical Officer

Pete Stegagno - VP, Operations and Regulatory Affairs

Iulian Cioanta - Vice President, Research and Development

Analysts

Brian Marckx - Zacks Investment Research

Thomas Pfister - RedChip

SANUWAVE Health, Inc. (OTCQB:SNWV) Q4 2013 Results Earnings Conference Call April 1, 2014 10:00 AM ET

Operator

Greetings. And welcome to SANUWAVE Health Reports 2013 Financial Results and Provide Clinical Trial and Funding Update. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instruction)

As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Barry Jenkins, Chief Financial Officer, SANUWAVE. Thank you, Mr. Jenkins. You may now begin.

Barry Jenkins

Thank you, Rob. Good morning. We appreciate your interest in SANUWAVE and in today’s call. Yesterday afternoon SANUWAVE announced our 2013 financial results and filed our Form 10-K. If you have not received the news release or like to be added to the company’s distribution list, please call SANUWAVE at (678) 578-0103 or go to the Investor Relations section of our website which is www.sanuwave.com.

Before we begin, I’d like to caution that comments made during this conference call by management will contain forward-looking statements that involve risk and uncertainties regarding the operations and future results of SANUWAVE.

We encourage you to review the company’s filings with the Securities and Exchange Commission, including without limitation our Forms 10-K and 10-Q, which identifies specific factors that could cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, April 1, 2014. SANUWAVE undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

That said, I’d like to turn the call over to our Chief Executive Officer, Joseph Chiarelli. Joe?

Joseph Chiarelli

Thanks, Barry, and welcome all of you and good morning. We have made great strides in achieving the goals that we set for SANUWAVE for the following 12 months, after I joined the company at the end of February 2013.

Our management team has accomplished much in a very difficult environment and I really do want to publicly thank them, as well as our entire staff for their effort and dedication to moving SANUWAVE forward, so that our technology can be ubiquitous within healthcare.

Now, I’ll briefly touch on a few of these key points, while the rest of our team expands on them. First, regarding our current Phase III U.S. clinical trial that uses our lead device the dermaPACE in patients with diabetic foot ulcers, DFUs as they are called.

We currently have over 90% of the minimum required patients enrolled in the trial. Now remember that the first patient was enrolled only in the middle of June 2013. So we've developed a very good enrollment pace.

However, the severity of the weather snow, ice storms and extreme cold at many of our trial site locations during the first quarter of 2014 seriously affected the rate of screening, run in and subsequent enrollment. That was a significant factor in not meeting our objective of minimum enrollment by the end of the quarter.

But screening, run in and randomization have in fact increase as the weather improved, so we expect to enroll to our minimum very soon and we continue to expect FDA enrollment in 2015, of course, assuming we meet our primary end point. Dan Jorgensen, our CMO will discuss the trial in more depth a little bit later.

Second, funding, we've raised or converted into common stock almost $14.5 million during the last 12 months. This includes our recent $10.1 million transaction in March. We now have sufficient funds to FDA approval. Assuming FDA has a reasonable review period, as well as to develop our growth strategies and accelerate moving to a national exchange.

Now we appreciate the support and confidence that existing shareholders showed throughout the past 12 months and we also want to welcome our capital support via this most recent transaction. It is our intention to do a conference call to update you on our goals and strategies, and our growth strategies within a short period of time, few weeks, maybe a little bit longer.

Third, we have significant -- we have signed an agreement with Wirthlin-Dentons to help us in establishing distribution of the dermaPACE device in the GCC, which is Saudi Arabia, Kuwait, Iran, UAE and Qatar.

To put this opportunity in perspective, the incidence of diabetes as a percentage of the population in this area is double that of the United States and over $40 billion is spent annually on this condition.

The region -- we expect initial device placement in this region somewhere in 2014. The region will add to more than 160 devices in major current countries around the world and we do continue to actively work with our distributors in South Korea, Australia, New Zealand and Europe to increase device use.

Now this process of increase use has been slower than I anticipated, but we are making progress. We will have more about the GCC and our other distributors as the year progresses, and Pete Stegagno, will review international later in the call.

Last point, patient, patents and non-healthcare use of the device, during the year, we received additional patent protection for the use of our device and technology in cardiovascular treatments and for blood sterilization.

Now, I want to emphasis that the work in these areas by our R&D team is not distracting the company from its focus on completing the dermaPACE trial. Iulian Cioanta, will have more about the potential of these applications later in the call.

So, with that, Barry will now provide more details and the highlights of the financial results for 2013.

Barry Jenkins

Thank you, Joe. Two weeks ago we strengthened our balance sheet significantly by completing a private placement with aggregate gross proceeds of $10.1 million from the sale of our stock and warrants, and that included the conversion of our outstanding convertible notes at that time. As Joe noted, this transaction provides us the recourses to get to FDA approval in 2015 assuming the positive clinical results.

Now looking back at 2013, we remained very focus on keeping our cash expenses low, while we press forward with a very important enrollment phase of the dermaPACE clinical study.

Revenue for 2013 was $800,000 that compared to $769,000 in 2012, that was an increase of 4%. Revenue resulted primarily from sales in Europe, Asia, Asia/Pacific of our demaPACE and orthoPACE devices and related applicators. The increase in revenue for 2013 is primarily due to an increase in the sales of device applicators for 2013 as a result of more devices in use. The device applicator generates a significant recurring revenue stream as they must be refurbished roughly every three to four months by SANUWAVE of their usage.

We also had very high margins, which is why -- these also had very high margins which is why our gross margin increased to 76% in 2013 from 71% in 2012. Looking at expenses, our research and development expenses increased by $500,000 or 30% to $2.3 million for 2013 compared to $1.8 million in 2012. And this is due to the cost of a dermaPACE clinical study which started the patient enrollment phase in June of 2013.

This increase was offset by decreases -- by decrease of $600,000 or 12% in general and administrative expenses for 2013 which totaled $4 million compared with $4.5 million in 2012. Now if you take out the non-cash stock-based compensation and the non-cash cost for stock, which was issued for consulting services during 2013 and ‘12, general and administrative expenses, actually cash decreased by $800,000 or 26% to $2.3 million for 2013 as compared to $3.1 million for 2012. And really this decrease was due to significant reduction in headcount that we undertook in November of 2012 which then, of course, decreased expenses in 2013 as compared to 2012.

The net loss for 2013 was $11.3 million, or $0.40 per share, compared with net loss of $6.4 million or $0.30 per share in 2012. This discrete -- this increase in the net loss of $4.9 million was a result of the non cash below the line expenses of roughly $5.6 million in 2013 for the accounting treatment of the $2 million senior secured notes which we converted to equity in July of 2013.

So if you take away that non-cash charge, our above the line operating loss was $6 million, which compared to an operating loss of $6.1 million for 2012. So that was due to the increase in the dermaPACE clinical study cost for 2013, offset by the reduction in headcount that I talked about just a second ago.

We ended 2013 with cash on hand of $182,000 as compared to $70,000 at the end of 2012. On March 17, we completed a private placement of securities for an aggregate total purchase price of $9.3 million. And in addition, we raised $815,000 in the first quarter of 2014 through the issuance of unsecured convertible promissory notes which by their terms, converted into equity when we completed a private placement on March 17.

So looking at cash flow for 2013, the net cash used by operating activities for the year was $3.9 million which compared with $4.3 million for 2012. So we decreased our use of cash by 9%. Net cash provided by financing activities for 2013 was $4 million, which primarily consisted of the proceeds from the senior secured convertible promissory note, the net proceeds from the July 2013 public offering and the proceeds for some private offerings during the year.

We continue to project that our cash burn rate from operations will be approximately $550,000 to $650,000 per month in the first half of this year which is the remainder of the enrollment in follow-up phase of the dermaPACE clinical trials.

So now let me turn it back over to Joe Chiarelli for our business review. Joe?

Joseph Chiarelli

Thanks Barry. As you can see, we’re actually more accurately here. We've really made progress in improving the management of our existing business in 2013 versus 2012. Simply put, we significantly reduced our G&A expenses while cranking up our dermaPACE trial. That is just the start however, and we do intend to continue our change process as we move forward.

Okay. Now my preference is for each of our senior members of the management team to discuss their respective areas. So now, we will have Dan Jorgensen M.D. who is our Chief Medical Officer walk you through the importance and the status of our current dermaPACE trial. Dan?

Dan Jorgensen

Thank you, Joe. In the last call, we gave an update on enrollment in the dermaPACE trial. We said we are on track to meet our minimum enrollment goal of 90 patients by the end of the first quarter of this year. As Joe mentioned, we missed this call but not by much. Despite the impact of bad weather and the typical slowdown around the Christmas holiday, we’re remarkably close to meeting this goal. As of March 31, the end of the first quarter, we’ve enrolled over 90% of our 90-patient goal and we have several patients in the running period.

Given enrollment patterns observed in the study, we expect to hit our 90-patient goal in matter of weeks. Enrollment is just one part of conducting a successful clinical trial. However, there is a more important component, one that is more difficult to measure unless visible to the public, that is the quality of the study. In fact, both the FDA and healthcare providers focused almost exclusively on quality. Without quality, the FDA will not approve a device nor will providers use the device. Quality is measured in many ways.

In our trial, first and foremost, it is the trial’s design. Our dermaPACE trial is a prospective, randomized, sham-controlled, double-blinded clinical study. It incorporates data from the original trial based on input and guidance from the FDA. We have the most rigorous trial that’s impossible.

Second, learnings from prior trials. To enhance the quality of this study, we had incorporated what was learned in our last step. Probably the most significant of these enhancements is the doubling of the number of dermaPACE applications from 4 to 8 which should increase the complete closure difference between the dermaPACE and sham arms of the study at our 12-week primary endpoint.

Third, closely monitoring patient data. We are using the top investigators in the field, one of the leading CROs and highly skilled team of clinical research associates or monitors, all of whom are experts in collecting and tracking data.

Fourth, adherence to the study protocol, very important. The team has taken great care in screening and enrolling the most appropriate patients. In fact, medical experts review patient data including digital photographs of wounds prior to randomization and at various times throughout the trial to ensure adherence to the protocol.

Finally, patient retention. By retaining patients in the trial to the fullest extent possible, we can ensure more complete study database. This provides greater confidence in the results of the study. As an example, when necessary, sites are providing transportation to patients to return for their follow-up visits. This increases patient retention.

In summary, we are pleased by both enrollment and the quality of the study. I am going to hand it back to you, Joe.

Joseph Chiarelli

Thanks, Dan. We really do believe that the quality and enrollment pace of the trial are due to the time that our team and our CRO have spent. Dan and Jennifer Peach on our side, they have all been working closely with the engaged sites and we really are appreciative of the efforts made by those sites in conducting the trial.

So now Pete Stegagno, our VP of Operations and Regulatory Affairs will summarize the progress we made internationally. Peter?

Pete Stegagno

Good morning. Thanks, Joe. We wanted to bring you up-to-date on our progress and working with our distributors in Europe and the Far East as a potential for enhancing or initiating our market presence in this area in 2014 is significant.

As we talked about in the previous conference call, the Korean Ministry of Food and Drug Safety approved orthoPACE for sale in South Korea in July of 2013. Our distributor there has already made purchases of orthoPACE devices as well as applicators. We have been working with this distributor to introduce a leasing program in this market. As Joe noted, progress has been slow and we will update you when we review SANUWAVE’s goals and strategies.

In Australia, our exclusive distributor continues to work with key opinion leaders for dermaPACE. Several important wound care facilities have been using dermaPACE under range of wounds that have been expressing satisfaction with the devices performance and we expect these uses to present their case studies at the upcoming Australian Wound Management Association Conference in May. Case studies continued to be developed for multiple wound in the cases in this said market.

In February we signed an agreement with Wirthlin, a Denton’s Innovation Group Partnership to provide strategic advisory services and to establish a joint venture company that will license our dermaPACE device and create a sales and distribution system for the Gulf Corporation Counsel or GCC, which is define as the Kingdom of Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Bahrain.

The venture arrangements expect to have a legal and organizational structure in place in 2014 with device rollout sometime thereafter. Again, we will provide greater detail in our business update.

We are also having productive discussions with our European distributors in Italy, Belgium and the Netherlands with regard to the possibilities of initiating collaborative efforts to expand their market penetration, as well as supporting SANUWAVE's ongoing needs for clinical experience. As these discussions are slow to progress, we will provide additional detail when significant progress is made. Back to you, Joe.

Joseph Chiarelli

Thanks, Pete. As we both, Pete and I have mentioned, a lot of this has been slower and all indicated it’s really been slower than I anticipated. I guess, I thought we can push people along a little bit quick than we have. But our efforts in these countries are really just begun and we do expect to accelerate process as we proceed through 2014, particularly in the GCC.

Now to complete our presentation, we did want to update you on our patents as we’ve recently filed some new patent applications and we do expect to have new -- two new patents issued in a very near future. Also, Iulian will present some other activities that R&D is currently performing. Iulian?

Iulian Cioant

Thank you, Joe, and good morning, everyone. SANUWAVE has now 38 patents or patent pending in its portfolio covering the application of shockwave or medical treatment, energy production, industrial water and food liquids cleaning, blood sterilization and stem cell stimulation.

On the medical research front, we continue our collaboration with the group from Harvard University which is performing stem cell study using our devices. They have successfully showed in both adult rat model and rabbit model that extracorporeal shockwaves represented rabbit ODF stimulating, proliferation of the periosteal cambium cells from tibia which are known as osteoprogenitor cells.

This work has already been published in two clear review journals by the Harvard team. The ongoing research is focused on a larger animal model growth to demonstrate a similar in vivo which means inside the body stem cells proliferations as observed in the rat and rabbit models.

Furthermore, successful tests were conducted and continue to be perform on the harvested perosteal following vitro, which means outside the body or laboratory all bench proliferation and differentiation into specific body cells before implantation.

For human application this pre-clinical work performance, Harvard will present the foundation for applying shockwaves to noninvasive in vivo proliferation of cambium cells that produces thicken periosteal layer. This thicken layer can be harvested as an autograph or as a source of progenitor cells for the treatment of bone loss, re-growing bone after two month resection and regenerating bone loss after size of bone reduction.

On the non-medical front, we continue the assembly and testing of our mobile small-scale model that can be easily transported and that made operational in any third-party testing facility or directly into the seed where the water cleaning process takes place. Joe?

Joseph Chiarelli

Thanks, Iulian. Bone loss and bone resorption, think osteoporosis and osteoarthritis, right, but all of our work in this area has been in-house and leverage our existing knowledge and patents very important. Iulian and his team have really done an excellent job of performing these research activities while staying within a very tight budget. So just to refresh you on what we set out to accomplish in 2013 and early 2014.

One, complete patient enrollment of the supplemental trial to obtain FDA approval for the use of the dermaPACE device to treat diabetic foot ulcers, as we said over 90% enrolled. Expand our distribution network in Europe, Asia and the Pacific for the two approved devices, dermaPACE and orthoPACE, Australia, New Zealand, Korea and the GCC. Identify opportunities for the use of our patented shockwave technology in other areas of regenerative medicine and other areas of healthcare and in industries outside of healthcare as Iulian has just indicated.

Initiate discussions with companies and individuals to develop the appropriate channels and business models that can initiate our technology in these areas, which can provide a satisfactory return to our shareholders on risks taken. We'll talk much about that and you’ll hear about that in the future call.

Now, I’m going to stop here and the team and I are more than happy to answer any questions that you may have. So, I'll open up the call for your questions. Rob?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Brian Marckx with Zacks Investment Research. Please go ahead with your question.

Brian Marckx - Zacks Investment Research

Good morning, guys. Congratulations on the progress and another good quarter. Q4 was -- I’ll call a relatively stellar quarter in terms of revenue and operating expense. I think revenue was the highest, maybe in company history, in operating expenses maybe the lowers. In terms of revenue, was there anything in the quarter that was maybe somewhat of an anomaly, or was there maybe stocking orders or favorable timing that contributed to the revenue?

Barry Jenkins

Yeah. Brian, it is Barry. The big tick for the fourth quarter was, it was really Korea and our Korea distributor had got an approval for this year and made some significant purchases during the quarter. And so it’s somewhat cyclical in European and we will purchase some a good number in one quarter and then probably last and four, one to two quarters after that. But that’s really what drove the revenue for the fourth quarter.

Brian Marckx - Zacks Investment Research

Okay.

Barry Jenkins

And then on the -- and I’m sorry. On the operating expenses, the same kind of thing, I mean, the issues of little bit of the fourth quarter. We’ve had a lot of really ramping up of things in the third quarter. We didn’t have to do as much work in some of those areas in the fourth quarter and so we saw little bit trend down that will continue little bit in the first quarter revised at this time. Now, we are really heavily into the dermaPACE study and so the costs are ramping up.

Brian Marckx - Zacks Investment Research

Okay. Can you help a little bit with 2014, what we should expect in terms of operating expenses relative to 2013? Is it roughly the same level?

Barry Jenkins

I would say it’s roughly the same level, yes.

Brian Marckx - Zacks Investment Research

Yeah. Okay.

Barry Jenkins

And pretty much how we had said, will be anywhere from $550,000 to $650,000 and can earn for pretty much kind of the first half of this year and then we see that decreasing to the $450,000 to $550,000 per month after that.

Brian Marckx - Zacks Investment Research

Okay. Great. Relative to the timelines with the clinical trial, congratulations on you guys keeping the timelines pretty much intact and it’s slipped a little bit based on weather. But I think you guys have done a great job with that. Do you still expect to have the last patient follow-up by Q2 and PMA filed by the end of Q4 assuming everything goes to plan.

Joseph Chiarelli

Everything really rolls off, when the 90th patient is enrolled. It’s Joe, Brian because its 12 weeks after that 90th patient is enrolled and then you have the 12-week follow-up. So the best answer we can give you is we will indicate to everyone when that 90 patient is enrolled, which then starts according to clock ticking. Then you have the DSMB which will look at the data, after that 90 patient hits their 12 weeks. But then you stop to go through the 12-week follow-up.

Brian Marckx - Zacks Investment Research

Okay.

Joseph Chiarelli

Okay.

Brian Marckx - Zacks Investment Research

Yeah. Can you offer how many of the currently enrolled patients -- how many have completed the four course of treatment? Do you actually have that information?

Joseph Chiarelli

We have that information but we haven’t shared that and we would prefer not to, I mean…

Brian Marckx - Zacks Investment Research

Okay.

Joseph Chiarelli

…what we place our enrollment rate has been about 10 per month. So you can kind of look at that and figure out from there how we’re doing.

Brian Marckx - Zacks Investment Research

Yeah. Okay. The last one I had is kind of a more of a broad question related to the clinical trial. Have there been any issues that have risen whether its related to enrollment or patient backgrounds or drop out rates or any, I guess, anecdotal feedback from the investigators in the CRO, that would give you concern relative to timelines or potentially hitting the efficacy endpoints?

Joseph Chiarelli

Not that I’m aware of and Dan, you chime in here.

Dan Jorgensen

I’m not aware of anything either and we have constant conversations with the sites, with the investigators and the staff at the sites. And so they have not expressed concerns like that.

Joseph Chiarelli

Look, I do have to add to this. There is always something that could pop up that you don’t expect. This trial was designed to address those issues that occurred in the original trial, so that we believe, we’ve taken a lot of -- we’ve kind of used Dan’s paper work to confound us out to the extent we can. But something can always happen. Dan can speak to this much better than I can. Dan?

Dan Jorgensen

Right. yes, the clinical trials, by definition, aren’t always perfect and things can happen. And -- but as Joe mentioned, we control for as much as we can possibly control for. We do this through the design of the study and the selection of the right sites and having the right people working on the trial and learning from the last trial. And -- in those regards, everything has gone very well. And we can -- we’re at a good pace and people are coming back to their visits. And like I said earlier, we have not heard of any concerns from any of the sites.

Brian Marckx - Zacks Investment Research

Okay. That’s great. Thanks a lot guys.

Joseph Chiarelli

Thank you.

Dan Jorgensen

Thank you, Brian.

Operator

Thank you. (Operator Instructions) The next question is from the line of [Jerome] (ph) (Indiscernible). Please go ahead with your question.

Unidentified Analyst

Hey guys.

Joseph Chiarelli

Hi.

Unidentified Analyst

Can you hear me?

Joseph Chiarelli

Good.

Unidentified Analyst

I just wanted to congratulate -- first of all congratulations on a good quarter and also on taking a big risk factor out with the addition of RA Capital, but that actually generated at least one of my question. Now that they’ve taken a position, it seems like we’re still below the radar to most of Wall Street. We have great company selling at a ridiculous valuation, perhaps because we’re not that well known and well received or well received or well known.

I just wondered what the company’s plans are to maybe target other institutions or fund and that they will start taking a look at us, see the valuation and see our position as wound care or DFU company. Just wondered if you guys, what the plans were in that area or maybe even getting RA Capital to help now that they have got some skin in the game?

Joseph Chiarelli

Let me answer that, its Joe. Number one, we will address some of that as I said once we do more of our quoted goals and strategy. But simply quick, this is I’ll call it the beginning of the next step. So one of the things that we will focus on is getting the SANUWAVE name out not only with investors but also in the marketplace, let’s call it brand recognition. But then also to a 10th events where from, I’ll call it an industry standpoint people look and recognize the benefit of the device.

But then also from an investor standpoint where they do recognize what the value is and the opportunities here as we go through the completion of our dermaPACE trial and do what we would like to do outside the United States.

We are putting a plan together is to how to address that and do it, but it does take a little time, it's kind of we want to get to the 10-K, get everything done associated with this last funding and then move forward between now and the next, I’ll call it 180 days.

So you will -- we will address this and we are addressing it. But we don't really want to get into too much detail at this point in time other than say, yeah, we do understand what you are saying and we are working on it.

Unidentified Analyst

Okay. Joe, just real quick, I noticed, RedChip was added as an IR firm in PR, if that’s been there for awhile, my bad I didn’t see it, but is that part of the plan or they are going to play a role or is there specific role help play and boosting revenues or shareholder valuation?

Joseph Chiarelli

Well, we have added RedChip as a PR firm as you can tell that is a fairly recent event that was done just around the time that we did the Bridge. And they will play a role prospectively and we are in the process of working with them right now. I actually was down with them on Friday, starting to layout what our strategy and plan is.

As I said, what we will do is, update everyone, once we have a chance to kind of get through this fourth quarter 10-K process, so that we can address where we are going prospectively.

Unidentified Analyst

Okay. I appreciate that. And I don't know if, Brian, going to tell us this in a future release, whether you guys can share it and I might be doing simple math? But there was a $0.20 raise and the stock ran to a $1.60, so that sounds like an eightfold increase over the raise amount, now we are raising money at $0.50? Can we count on a $4 stock or stock valuation because that’s another eight times or is that a question that just have to let the market decide?

Joseph Chiarelli

Your lips to the market ears Jerome, that’s not something we can predict or project.

Unidentified Analyst

But it -- but I assume that someone like, Brian, or other analyst maybe will be picking up the stock and putting out their own evaluations now that we've got a really sound balance sheet and we are in a little different position than we were last year?

Joseph Chiarelli

Very seriously, our balance sheet is far stronger. Our capital structure is stronger, right. We are progressed very seriously through the dermaPACE trial. We are actively working on expanding our existing operations outside the United States. It is a process to get all of that recognized the fact that we no longer have funding as an issue.

How it help analyst pick up on this, how the investor community looks at this relative to the other companies that are in the wound care space and are trading at significantly higher valuations. It’s not something that we have the ability to address or project, but it is something that is part of our plan, we will demonstrate to people and indicate to people the differences between I’ll call it them and us and our potential and that's really all we can say.

Unidentified Analyst

That makes sense. And last question, I think, you answered it but I want to double check. I’m guessing we are 81, 82, 83 patients enrolled, so let’s call at the back nine, in golfing terms you’ve got to pick-up up to nine more patients before you hit [P90] (ph)? Is it true that you really don't get to see any peak or any sense of how it's going until that 12 weeks after patient 90 has been under treatment?

Joseph Chiarelli

The answer is, yes, but I’ll let Dan, basically explain the process.

Dan Jorgensen

That’s true. I mean, we, obviously, close to monitor trial. It’s a blinded trial, just to remind everybody. And we track data through the trial and of course, as I mentioned earlier, our focus in doing so is to maintain and enhance the quality of the trial, the quality of the data that will be analyzed when we had completed our enrollment.

That being said, we know certain thing such as the adverse event rates. And we can say with confidence that there have been no related serious adverse events to our device. And that’s something we’d know for a while and could predict but it’s definitely reassuring to have tracked that data and to see that there are not any related adverse events. So -- but as far as efficacy and things like that, we’re basically going to have to wait until we get the 12 weeks after our 90th patient.

Unidentified Analyst

I was guessing more deeper.

Dan Jorgensen

Here is that once that 90th patient hits 12 weeks, there is an independent review committee that will look at the data and then tell us if we need to continue to enroll or if we can stop enrolling. Now the -- if we -- if they say you can stop enrolling that’s the indication we’ve met our primary endpoint. We will be able to put a press release out there that says, hey, we don’t have to enroll anymore patients.

Now we will be enrolling during that period from the 90th patient to whenever to that -- in that 12-week period because there are patients who could drop out and we do want to protect of course the quality as well as the efficacy of the trial. So the next word you’ll hear on that will be number one, we’ve hit 90 and then number two, it will be -- and this is based upon what DSMB has said this is what we’re doing.

Unidentified Analyst

Okay. That makes perfect sense. And what -- I think what I’m hearing is that they come out and they say you’re done. You don’t need to add anymore. That’s when [grab on] (ph) and Katy bar the door and we do like all of the other competitors in the space because that’s that -- that message that everything looks good and we’re headed towards some really good PMA results?

Dan Jorgensen

I have no comments.

Unidentified Analyst

All right. I appreciate you guys. Thank you again so much and congratulations on the good work.

Dan Jorgensen

Thank you.

Joseph Chiarelli

Thank you, Jerome.

Operator

Thank you. (Operator Instructions) Our next question is from Robert (indiscernible). Please go ahead with your question.

Unidentified Analyst

Good morning gentlemen.

Joseph Chiarelli

Hey Bob.

Unidentified Analyst

Please forgive me if you covered this before, Joe. I apologize but I got a little late to the call. Could you discuss any plans as we continue the demaPACE trial to further expand the orthoPACE or Ossatron business?

Joseph Chiarelli

Okay. orthoPACE, we have a protocol which we’ve discussed with the FDA for plantar fasciitis for the orthoPACE. That would replace our FDA approved device which is the Ossatron which is approved for our plantar fasciitis and epicondylitis or it is more commonly known tennis elbow. We have basically put that trial that proceeding with that on hold until we have more clarity on the dermaPACE trial. Then we will decide how we want to proceed.

Again this will be part of how we do our business goal and strategies update. We have talked about and have not made a decision yet on what we’re going to do in so far as the tendonitis aspects, the tennis elbow that we want to address. That simultaneously, there are other tendons we want to address. We have made a decision and we would probably conduct some kind of Phase II trial to make sure we know what the dosage in the right tendon is to do. So that as I said is something that we’re looking at management needs to kind of focus on.

With regard to the Ossatron, there are currently 20 devices that are in use in the United States, many of them are owned by SANUWAVE. We have been talking to players in so far as how we could use some of the devices that we do have and have started conversations and that’s about as far as we’ve gotten so far. There is the potential when we back up. We do know that the device has been used on certain sport players and has been very successful. We’re trying, we’re exploring how we could work with that and I don’t really want to say much more than that other than to say that, yeah, it’s something that we are trying to address but we have not yet taken that to the level where we are comfortable speaking to investors.

Unidentified Analyst

Okay. And then just as far as the stock is concerned, has there been consideration to some type of the uplifting?

Joseph Chiarelli

The answer is yes. We have to make sure we meet criteria and that is something that we are working on. We would like to do that, but obviously we have to meet the different requirements to get to NASDAQ or to AMEX and as soon as we do that, we will address that issue.

Unidentified Analyst

Very good. Look forward to the next quarter, guys.

Joseph Chiarelli

Thank you, Brian.

Operator

(Operator Instructions) Your next question comes from the line of Thomas Pfister with RedChip. Please go ahead with your question.

Thomas Pfister - RedChip

Hey, guys. Great to see the fantastic results this year and thank you for taking my questions. My first question just results to, what we could expect pricing wise for the dermaPACE? Will there be any differences between what you would sell those for in the United States versus some of your international markets?

Joseph Chiarelli

The answer is yes, but that's a very complex question, which is really going to depend upon what approach we take. We've indicated here, it is our preference to lease versus sell. Of course, we will not walk away from someone who wants to buy the machines but our preference is definitely lease. We are also working with some of our distributors outside the United States to basically use the lease model to reacquire some older machines, that’s all we want to say right now.

Pricing is going to be, is still being discussed and we have not gotten far enough along on that to understand the best model to use. It is our intention though to structure this in such a way that the clinician has a sufficient profit, so that they want to use the device in preference over other things, while we make a sufficient profit that we provide the right return to shareholders.

Thomas Pfister - RedChip

Okay. Great. Thank you for the color there. My next question regards is in regards to manufacturing. You guys have definitely given a lot of color with regards to your distribution agreements here on the call. But assuming with a successful trial and things of that nature, an increase in eventual volume sales, do you have the manufacturing agreements in place to be able to ramp-up volume?

Joseph Chiarelli

We are going to have Pete on your answer.

Pete Stegagno

Yes. This is Pete. The short answer is yes. We've actually in anticipation of putting dermaPACE on the market sooner. We had a ramp-up plan in place a few years ago and that continues to be in place. It's not that we haven't been building units and obviously refurbishing and building new applicators. So, we have our current line of suppliers online with us. We're in constant contact with them and we basically have full confidence that any ramp up can occur almost seamlessly.

Thomas Pfister - RedChip

Okay. Great. Thank you for that. And just my last question, you guys already reporting very good gross margins here at 76%. Just in the 2014, should we assume that number will hold or is there any variation there?

Joseph Chiarelli

If we maintain our current model to somewhere in that range there, the margin will hold. To be cognizant though, that as prospectively, we may swap that higher gross margin for higher volume and that decision is not made. We are nowhere near being able to figure out what we are doing.

Thomas Pfister - RedChip

Okay. Great. That’s all the questions I have for today and again congratulations on the excellent results and progress this year and thank you for taking my questions.

Joseph Chiarelli

Thanks a lot, Tom.

Operator

Thank you. (Operator Instructions) The next question comes from the line of [John Perry] (ph), a Private Investor. Please proceed with your question.

Unidentified Analyst

Hey, guys. Great job.

Joseph Chiarelli

Hey, John.

Barry Jenkins

Hi, John.

Unidentified Analyst

I’ve got a couple of quick questions for Dan. In the wound care trial, some of the patients in the placebo area will heal naturally by cleaning the wounds. What is SANUWAVE doing to minimize or address the fact that they will heal naturally versus those being treated with dermaPACE?

Dan Jorgensen

That’s a very good question. Basically, we’re doing a few things. We know that the area of the wound is predictive of spontaneous healing of the wound and so we are very careful in measuring that area at the very first visit, the screening visit. And if it’s less than 1-centimeter squared that patient cannot be in the trial because that patient is likely to heal spontaneously very quickly. So you will see…

Unidentified Analyst

So you’re looking for more severe cases then?

Dan Jorgensen

I am sorry.

Unidentified Analyst

So you’re looking for the more severe cases?

Dan Jorgensen

Yes. More severed as measured by area.

Unidentified Analyst

Right.

Dan Jorgensen

So something bigger than -- bigger than 1-centimeter squared, but we’re also doing something else which I feel is very important. That is we’re tracking the patients who do get in that is they have a lesion that’s greater than 1-centimeter squared. We track them during the run-in period for two weeks and we then measure the lesion again and we calculate the percent change or reduction in size of that lesion. And if it’s greater than 50% in terms of reduction of area, then that patient cannot be randomized into the study. So there is basically two safeguards there in terms of having the right patients in the trial.

Unidentified Analyst

Okay. Great. The question regarding financing, I mean, you guys have been to the [Wall] (ph) a couple of times to get financing. And I was wondering, Barry, you say you have enough money to get through FDA approval. Would you have to go back to the [Wall] again to get money post-FDA approval?

Barry Jenkins

It depends upon how we decide to move forward, who our partners are, and what our strategy is. Remember there are number of warrants out there that as the stock price rises would come in the money. So there are a lot of variables with regard to what our cash needs would be as well as how cash can flow into the company that will be addressed over the course of next 12 months or so.

Unidentified Analyst

Another quick question. In the process of doing, getting ready to get listed right, would you ever consider doing a reverse in order to meet the requirement?

Barry Jenkins

It depends upon where the stock price is and how far we are from the requirements.

Unidentified Analyst

Okay. All right. Great. Thanks, guys.

Barry Jenkins

Thanks.

Operator

Thank you. At this time, I will turn the floor back to management for closing comments.

Joseph Chiarelli

Well, we want to thank you for taking the time and paying attention to SANUWAVE. We have achieved during the process of completing everything that we strive to do in 2013 and early 2014 and we are simultaneously laying the foundation for the next steps of SANUWAVE’s growth. It’s a challenge, and we believe this management team is definitely up to that challenge and can deliver results. So I do want to thank you for joining the call and we wish you all a good day and good week.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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