Misonix, Inc.
Q4 2014 Earnings Call Transcript

Published: 11 Sep 2014

[Operator:]

Good afternoon and welcome to the Misonix, Fourth Quarter Fiscal Year 2014 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead.

[Joe Diaz:]

Thank you Amy and I thank all of you for joining us to review the financial results of Misonix Incorporated for the fourth quarter and fiscal year 2014, which ended June 30, 2014. As the conference call operator indicated, my name is Joe Diaz. I’m with Lytham Partners. We are the Investor Relations consulting firm for Misonix. With us on the call representing the company today are Mr. Michael McManus, President and Chief Executive Officer; and Mr. Richard Zaremba, Senior Vice President and Chief Financial Officer. At the conclusion of today's prepared remarks we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can access it from the company's website at www.misonix.com or from numerous financial websites. Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Misonix Incorporated during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words expect, believe, anticipate, estimate, will and other statements of expectation identify these forward-looking statements. Investors are cautioned that forward-looking statements made during the course of this conference call are based on management's current expectations and involve risk and uncertainties that could cause actual results to different materially from the statements made. The company disclaims any obligations to update forward-looking statements. Risk factors include, but are not limited to factors discussed in the company’s Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q and current reports on Form 8-K. With that, let me turn the call over to Michael McManus, President and Chief Executive Officer of Misonix. Mike.

[Michael McManus:]

Thanks Joe and I welcome all of you that are on the call. We appreciate your participation always. As you’ve read in the release that came out at 4’O clock, fiscal 2014 was a very good year for Misonix. We grew each of our products across the board in both international and in U.S. markets. Our BoneScalpel continued to gain not only acceptance, but acclaim from surgeons around the world. Consigned units in the United States increased more than three fold, while disposable sales increased in both dollars and in units. We previously read about the recent meeting in Valencia, Spain where approximately 100 doctors from around the world attended a BoneScalpel workshop. This was a terrific event, a wonderful result. We are already receiving orders from many of those doctors. These kinds of workshops with our new marketing support apps will be given in a similar format by our distributors on a country-by-country basis around the world. We expect to see similar, enthusiastic participation and a meaningful vehicle for continued growth. Our SonicOne OR for the debridement of wounds is also gaining acceptance in the United States, where surgeons debriding serious wounds in the operating room recognize the benefits of SonicOne in creating a vibrant wound bed, while at the same time enhancing the proteins and growth factors required to allow a wound to heal faster. Professionals are recognizing and writing about the fact that remaining biofilm after debridement will prevent a wound from healing and prevent a graph from taking. The SonicOne has been reported to help reduce that biofilm in a way that other products cannot achieve. Recent cases are also showing that the SonicOne is effective in the debridement and healing in burn cases. The number of burn cases is significant in the United States and around the world and this particular use could be importantly incremental to our present work in diabetic and venous ulcers. You’ll be hearing and reading more about this exciting opportunities from burn centers. Our SonaStar aspirator sales also increased in both the domestic and international markets. The addition of new shavers and probes allow us to gain market share in this mature market where sales are really replacement sales, but the products are well known, the competition is well known and the reputation on a case by case basis, in the last couple of months particularly head-to-head with our competition has shown that the Misonix SonaStar aspirator is as good as any that’s available in the world. While the past reported growth is significant, the opportunities to expand in 2015 and beyond are I believe even greater. In 2015 fiscal year we plan to leverage off our strong foundation and sequential quarterly growth by continuing to invest in additional professionals and sales and training in both the international and domestic markets. We need more people to train doctors in international markets, as well as in the United States and we have found those people and will be bringing them on; some are already here. We will also be investing and increasing the depth of the scientific support for the benefits we provide in cutting bone, affecting certain bacteria using ultrasound and in enhancing cell growth to create healing. We’ll also be continuing to add to the substantial intellectual property portfolio we already have in place. We are comfortable at this time with the acceptance of our products to-date by key opinion leaders and high volume surgeons. We continue to grow our presence in the highest quality hospitals. Surgeon users are recommending our products to their fellow surgeons and to their residents and interns. We now have to pick up the pace. We have to train more doctors, we have to go back to doctors trained previously and train their colleagues, so there are more doctors using each system in a hospital. We also have to go back to check the doctors previously trained are now comfortable in using our products in more and more of their procedures. This is already happening and we track these metrics on a daily basis. We now will be accelerating the sales process and private approval process we are familiar with. We’ll be adding new distributors and where necessary replacing some. Your company is on an exciting growth path and we look forward to reporting to you more often in the future as the progress unfolds. Let me turn it over to Rich Zaremba, the CFO. Rich will talk about the financials and then we’ll be happy to take some questions.

[Richard Zaremba:]

Thanks Mike. Revenue for the three months ended June 30, 2014 was $5.6 million, a 48% increase when compared to revenues of $3.8 million for the same period in fiscal 2013. BoneScalpel revenues increased 65% to $2.5 million; SonicOne revenues increased 15% of $494,000 and SonaStar revenues increased 75% to $2.4 million. If we look quarter-over-quarter, BoneScalpel, SonicOne and SonaStar revenues were $5.4 million or a 34% increase for the fourth fiscal quarter 2014 as compared to $4 million for the third fiscal quarter 2014. The company reported net income for the three months ended June 30, 2014 of $1.4 million or $0.18 earnings per diluted share, as compared to a net loss of $1.5 million or $0.22 loss per diluted share for the same period at fiscal 2013. Revenue for the 12 months ended June 30, 2014 were $17.1 million, a 15% increase when compared to $14.8 million for the same period in fiscal 2013. The company reported net income of $1.4 million or $0.19 earnings per diluted share for the 12 months ended June 30, 2014 compared to a net loss of $2.7 million or $0.38 loss per diluted share for the same period in fiscal 2013. The company's cash position as of June 30, 2014 was $7 million. Day sales outstanding is 79 days. Inventory turnover is 1.4 times and the company has no long-term debt. The company's backlog of unfilled orders as of June 30, 2014 was 358,000. Most orders are shipped when received. Mike?

[Michael McManus:]

Operator, we'd be happy to take some questions now if anybody has some.

[Operator:]

Thank you. (Operator Instruction). Our first question comes from Joe Munda at Sidoti & Co.

[Joe Munda:]

Good afternoon Rich and Mike.

[Michael McManus:]

Hey Joe, how are you doing?

[Joe Munda:]

Congrats on the quarter. I usually don’t say that, but that was a tremendous quarter. First off, the one thing that just sticks out of me before I get into the meat and potatoes here, the royalty income that you guys are deriving here, its now up to $1.2 million in the quarter. Is that a run rate that we can expect or model going forward?

[Michael McManus:]

We don’t know, because it’s dependant upon somebody else’s sales. It’s been flat. It was at something like 125,000, then it went about six, then it went to about eight, now it’s $1.2 million. I don’t have any reason to think that it will go down, but I don’t know that it’s going to go up a lot. It depends upon a third party’s sales.

[Joe Munda:]

No, I understand that. So the third party is obviously growing and gaining traction in the sale of that product. I’m just wondering, for our modeling purposes, is that a number to go with, that $1.2 million quarterly?

[Michael McManus:]

Well, we don’t have any other number. You could average what we’ve done over the last year for instance for modeling purposes. That would assume that the $1.2 million is not going to be consistent going forward. So, if you want it to be conservative, you might use an average over the year, but I don’t know what other number to give you, because we don’t have visibility.

[Joe Munda:]

Okay, that’s fine. First off, on BoneScalpel, I mean every product line here. What is really driving it? Is it the recurring revenue stream behind it or is it more, I’m just trying to get a sense, because it seems like there is a – I don’t know how to put it, a snow ball effect and it seems like the snow ball is running down hill here and you are increasing placements, disposable revenues are increasing. I mean how should we look at the model going forward, because you are talking about adding sales people and R&D. I mean a little bit more color on what you guys are experiencing in the market place would be very helpful to us? Thank you.

[Michael McManus:]

So Joe, I think there’s a couple of ways we look at it every day. One is, obviously you mentioned the disposable revenue and disposable revenue now is, something like 51%. So the economic model of the consignment of units and the generation then of disposables off of that is working. It’s continuing to grow and grow well off of our installed base and we would expect that to continue to go forward. We also would encourage you to notice that the traction in the United States, in all of our products seems to be picking up and what that means is that some of the work that we’ve been doing in the past with regard to generating interest among key opinion leaders, who are willing to talk about the BoneScalpel and talk to other doctors about the BoneScalpel. The acceptance in the market place, the quality of the clinical data showing the economic benefit for instance of the BoneScalpel, all of those things add to making it easier for us to get over what earlier had been a hurdle with regard to these value added assessment committees. So we also have better distributors, we have a few more distributors, but to your other point, in the future we are adding more people, because even though the growth is impressive, it’s off of a very small base and we need to accelerate our market penetration in my view, and to be able to do that we have to have people that can go to doctors quickly when they express interest and be able to train them, and as you know the sales cycle isn’t just walking in and selling, you have to stay with them for a couple of procedures, so that takes time. So we need more people that are capable of doing that with new doctors. And then an additional an exciting part of the equation is to go back to doctors that we trained the first time and make sure that they are comfortable with the product, so that they continue to use it in more procedures than they have used it in the past, because that will generate additional disposable use. That same kind of a process permeates through all three of the products and through both the international and domestic markets.

[Joe Munda:]

Okay, that’s very helpful. Rich, on the P&L side, kind of piggy backing off of what Mike just said, how many sales people are you currently at and how many are you looking to add or how many did you end the quarter with?

[Richard Zaremba:]

Well as you know in the United States we have what we call reps, so we have basically feet on the street and we have four on the spine and neuro side and we have now two on the wound side that are helping us through that and then again they have their representatives throughout the United States. And outside the United States as you know we are in 49 different countries. So we have distributors throughout the world that are stocking distributors that they have a specific territory that they feed the product to from a sales stand point.

[Michael McManus:]

So Joe, just to expand on that a bit. So we’ll be adding probably another person at the sales manager level. We’ll be adding three or four people at the trainer level, the kind of people that go out and actually work with the doctors sometimes with one of our sales people, sometimes with the distributor sales person and we’ll also be adding some people on the marketing side and we’ll be adding maybe two people on the training side in the international markets as well.

[Joe Munda:]

Okay, and how much does that equate to in your mind here on a quarterly basis. How much more would that add to the SG&A?

[Michael McManus:]

Well, we’re planning forward to enable us to grow at our better than the growth rate we realized this year.

[Joe Munda:]

Okay.

[Michael McManus:]

Let me add one other thing and that is as Rich said, we have two sales forces in the United States; one, is spine and neuro and the other is wound and wound is an area where we’ve only had a couple of people. We’ve added two new sales regional managers and we’ll add a couple of additional training people. We’ve also added more distributors in that area, because we are really starting to see a lot of interest in the SonicOne in the operating room, and we need to pay more attention to the interest being expressed by doctors to be trained to use that product.

[Joe Munda:]

Okay. Then Mike, you had touched on adding sales people to match the growth rate for the year, for the year you were at about what 15% a year, but for the last six months you’ve been plus 40. Is that what we’re looking at, plus 40 on a quarterly basis or 50%.

[Michael McManus:]

Joe, Joe, Joe, nice try. We don’t give guidance. I’m just suggesting to you that 15 was over the year. If you look sequentially quarter to quarter, we’ve shown that the traction that we have is enabling us to grow a little bit faster than that and that’s the number I’m referring to. I’m not referring to a dramatic increase over 40%, but I think if we add people, we can certainly look to grow faster than 15% and we think it’s important that we push hard and that we levered with additional people and invest in cash, because as I said the growth that you’re talking about is terrific, but it’s also a very small base. We’ve got to get market penetration.

[Joe Munda:]

Okay, that’s very helpful. And then as far as Rich, just one housekeeping item. What was CapEx for the year?

[Richard Zaremba:]

We were at approximately $1.5 million.

[Joe Munda:]

$1.5 million, okay. And how much of that was maintenance?

[Richard Zaremba:]

Most of the capital that we spend is on consigned and demo units that go out into the field. So when you say maintenance there, it’s just very little, but the capital expenditure is all basically generating either sales leads or generating income from a consigned unit that’s out in the field.

[Joe Munda:]

Okay, that’s all from me right now. I’ll hop back in the queue.

[Richard Zaremba:]

Thanks Joe.

[Michael McManus:]

Thanks Joe.

[Operator:]

(Operator Instructions) Our next question comes from Michael Kaufman at MK Investment.

[Michael Kaufman:]

Hi Mike and Rich. It looks like you finally hit the knee in the curve of the adoption rates.

[Michael McManus:]

Mike, coming from you, I appreciate that very much.

[Michael Kaufman:]

And congratulations. I guess at some point, are you going to provide cosmic financial metrics that you’re shooting for? Maybe it’s not mature enough to give quarterly outlooks but something to guide the investment community about what you are looking to do. And the other thing, is there anything R&D ancillary products in the pipeline that makes sense, that can kind of add to this surge you are getting in the interest rate and adoption?

[Michael McManus:]

Sure, so a couple of questions you asked. I guess on the first you’d have to explain to me what cosmic metrics are, because I may not...

[Michael Kaufman:]

Well, I mean gross margin that you’re shooting for, both the consumable and for new staff and then what do you think is the weighted average.

[Michael McManus:]

Where we are right now...

[Michael Kaufman:]

Kind of like an expanse to revenue ratio model that most companies would hold down as long term objective, it doesn’t have to next quarter, but something that you’re shooting for in terms of modeling the business.

[Michael McManus:]

Well yes, it’s important to us to be able to give visibility to our shareholder owners. At the same time we and most of our competitors don’t want to talk too much about pricing and too much detailed margins. We do have a 63%, 65% margin now; I kind of like that. The cosmic metrics that I focus on now are things like the fact that we have to grow our revenue base to be able to have things like sales and marketing at a percentage of that number that’s reasonable. So sales and marketing expenses at 50% or something like that, they ought to be between 25% and 30% I would say, and so those kinds of things are..

[Michael Kaufman:]

What do you expect to try to hit for a long time with R&D, sales and marketing, those kind of overall, in terms of your guiding principles. Right now you are in a transient state. You are not going to be there yet, but kind of what are you…

[Michael McManus:]

It’s a good question. I want to have our sales and marketing to be something around 25% 30% of sales and I’d like to have R&D depending upon what we have in the pipeline, some place between 8% to 10% depending upon exactly what we have as I say that we are working on. As far as R&D is concerned, we have to continue to improve these products, because it can’t be stagnant. You have to continue to allow people to add value to the platforms that we have, not only for the surgeries that they are doing now, but for the ability to move into additional surgeries. So we said all along that our emphasis right now is in spine and some spine surgeries are done open, some are done in a minimally invasive way. The opportunity still is to get more into Cranial-Maxillofacial and T-surgeries, ankle and foot surgeries, all of those things will give us an opportunity to add to our platform. Interestingly enough, in the wound care market for instance in very severe wounds, where they are deep or where they require a surgeon to go deep, we find a synergy with a need to have a blade to cut bone or to shave bone in those kinds of procedures. So there is a greater synergy perhaps between some of the wound procedures we are doing and our BoneScalpel. So building out those platforms is something that we have to do to continue to improve our products and we invest and review those every day. There’s only so many we can do. We are still a small company, so we have to prioritize and we do that. But we’ve added substantially to our SonaStar, because that’s a product that can be very competitive in the international market. We’ve also added to our BoneScalpel. We will be adding to our SonicOne and we’ll be doing things within the next 12 months to enhance all three of those products. So I don’t know how I can give you metrics on that, never mind the cosmic metrics, except to try to give you a sense of where we are headed in terms of our various markets and in terms of our financial basis, I think we have to bring down our expenses as a percentage of revenues, but for this company that has to be by driving revenues, because when you look at the number of people around this building, we don’t have a lot of people.

[Michael Kaufman:]

So I totally agree with you. One thing that as an internal exercise might be to say, okay, how would you staff the business for a $30 million run rate, which has – what kind of heads would you be adding and where would you add them?

[Michael McManus:]

That’s exactly what we did Mike to get to the answer that I gave Joe Munda with regard to the number of people that we were going to be adding. It is to accomplish a growth rate that is higher than the 15% plus average that Joe and I talked about.

[Michael Kaufman:]

And then still come up with some degree of profitability, but clearly you are investing for growth and long-term opportunity.

[Michael McManus:]

Yes and I think personally that’s the right way to look at it.

[Michael Kaufman:]

Yes, I would. So, good luck. I don’t want to keep you any longer and one of these days I’ll come by and we’ll break bread or something.

[Michael McManus:]

Okay, right. Thanks Mike, thanks for the question.

[Michael Kaufman:]

Take care.

[Michael McManus:]

Yes.

[Operator:]

Our next question comes from David Kruger (ph) at Foresight Investing.

[David Kruger (ph):]

Hi Mike, Hi Rich, a terrific quarter.

[Michael McManus:]

Thank you.

[David Kruger (ph):]

A couple of question; in the last two or three years the revenue in quarter one has declined sequentially from the Q4 level. Do you see that happening again this year or do you feel like you have got sufficient traction to achieve sequential growth from Q4 to Q1 of this coming fiscal year?

[Michael McManus:]

I think in the past we had those kinds of swings, more because of ordering patterns from the larger distributors that we had, people like Ascilac (ph) when they were distributing the BoneScalpel, the SonaStar for us. Right now we don’t seem to have the same kinds of seasonality in our ordering patterns. I mean this was a very good fourth quarter. Traditionally Europe’s closed in the summer and the world tends to slow down a bit. The world’s crazy these days in a lot of different ways and so you don’t know, we happened to have a very good quarter, but it was a bit different than the kinds of first quarters that we typically have and going forward I’ll always been a little concerned about the slowdown in some of our markets, particularly outside the United States, just because of the way different cultures take vacations and shut down their businesses.

[David Kruger (ph):]

Right. So you don’t have sufficient visibility here to give us some guidance on whether Q1 is – we are going to see same kind.

[Michael McManus:]

No, we don’t, and I guess I’d have to say that yes, I think I try to. That I think that the fourth quarter, because it ‘s the summer and because of what happens in different parts of the world, will be a tough quarter for us. We did very well this quarter and part of the reason for that is because of the hard work we’ve been doing and the traction that we are getting with the doctors. But whether that can overcome what’s happening in terms of people taking a month at the beach, I’m not sure; I don’t have visibility on that.

[David Kruger (ph):]

Yes, remind me what percentage of your revenue came from the U.S. in Q4?

[Michael McManus:]

Our revenue from the U.S. is typically – international is 50/50.

[David Kruger (ph):]

Is U.S. increasing its share at this point?

[Michael McManus:]

Sure.

[David Kruger (ph):]

And so the seasonal vacation pattern, I would think is stronger in Europe if I’m not mistaken.

[Michael McManus:]

Don’t tell the people in the Hampton’s and the places like that.

[David Kruger (ph):]

Well, yes of course, we all take vacation in the summer time and I think in Europe they tend to actually...

[Michael McManus:]

Yes, you know I guess the answer to your question is, when it comes to summer vacations, I don’t have a great visibility. It did cause us to have slow downs in the past and it may in the future.

[David Kruger (ph):]

Yes, okay. Can you comment on the length of the sales cycle and are you finding it easier and faster to get through the value assessment committees at this point. You’re getting traction there.

[Michael McManus:]

Well, I think the answer has to be yes with regard to the value assessment committees for a number of reasons. We have a process to deal with them. We provide them with a lot of information upfront, and the information they are getting suggests that they are not going to be the first ones to buy the product. There are a lot of fairly significant hospitals around the United States and some well know doctors have already made a commitment to the product and once that starts to happen, that process I find becomes a little bit easier when you couple it with more scientific evidence behind the economic benefit. On the front end of the sales cycle there is no question that we are asking doctors that are very prominent, well know, well practiced doctors to change the way they practice and so you have to get in to see them and right now we’ve got a great group of people that can get us in the door, you then typically want to have them do some sort of an evaluation, maybe on a cadaver or something like that. But then when they actually do their procedures, it takes one or two for even the best doctors to understand that you are cutting with a dull blade and it’s not a saw blade. So the method of the cut and the motion of the cut is different and you have to get used to that. So that’s why these training people that we talk about are so important, because they have to be with the doctor through that process, to make sure that they are comfortable with understanding the safety of the cut. You are asking to go all the way through, because they are protected and not cutting the spinal cord or doing other damage. They have to trust the blade and the method of the cut to do that. That takes three or four procedures and then there is an ah-ah moment and we’ve never had anybody that didn’t get to the ah-ah moment. Its not just drop by and drop off the BoneScalpel for instance, it takes a little bit more time. So the front end is still there, its still important and its critically important to us, because the better opportunity we have to train that doctor, the more likely it is that he is going to use it in the procedure that we teach him, but then also be comfortable to move on to some other things like some of the doctors who are going up and down the spine in severe deformity cases, using just the 20 millimeter BoneScalpel blade and the Micro Shaver, and that’s the kind of comfort level you want doctors to have.

[David Kruger (ph):]

So do you have any kind of measurement on the length of the sales cycle and how it’s changed over the last year or two?

[Michael McManus:]

Yes, we do measure that and we measure or try to keep track of – as I said the front end, its important to me and anyway and to the company that we do the necessary training. So there is no shortcuts there. The difference is that earlier when we were a newer product and we didn’t have as many KOLs, we didn’t have as much scientific support behind us, it was difficult to get through some of these value assessment committees that were looking at a product that had never been ordered by the hospital before and in some cases they hadn’t heard of it. Well you go around the shows today and people are going to know what a BoneScalpel is. All of that together with doctors recommendations and the kind of information that we can give value assessment committees makes that process faster and I’d say, you know if I had to give you a number, I’d say that the process is probably improved by maybe a three month process to something that’s a couple of weeks shorter than or that or four, not week, month process to a three month process. So the thing that we don’t control is what happens within the hospital, because we are not even in the room. So we have to give them information that allows them to make a decision fast and we are getting much better at that, and so we know the entire process can be done faster, but from hospital to hospital the value assessment committees can move slowly, they can have a congested agenda, so maybe you don’t even make it to the first meeting. At the same time as we get to be better know and as more prominent doctors are recommending the purchase, in some cases we can avoid a value assessment committee. Those are all positive things.

[Michael McManus:]

This is an example, I would say and I really don’t have the numbers in front of me to give you that accurately, but the difference is that we used to – in some cases it would take three weeks to get through a value added committee or assessment committee. If you had to get to one now with the kind of tools that we have and the doctors support, it could take a week.

[David Kruger (ph):]

Okay. And then how about the time it takes the value assessment committee to act, to make a decision?

[Michael McManus:]

Well, that’s what I’m talking about. I mean by the time it gets there to the time that they say yes, is been shortened.

[David Kruger (ph):]

Okay, very good. Thank you.

[Michael McManus:]

You have to understand who these people are. They are administrators, they are nurses, they are representatives of different parts of the hospital. In a lot of cases they are not doctors and the doctor proponent isn’t in the room and that’s why we’ve gone out of our way to put together a book that basically says, hey look, if I were here, here’s what I’d give you, because I don’t want you to get it wrong. We’ve made it simple for you. Just take a look at it and it will lead you to the conclusion that you ought to say yes.

[David Kruger (ph):]

Okay. Thank you.

[Michael McManus:]

You bet.

[Operator:]

Our next question comes from Joe Munda at Sidoti & Company.

[Joe Munda:]

Yes Mike, just one quick follow-up. You touched on the burn market a couple of times here. Can you give us some sense of the size and scope and opportunity that you may have in that market place.

[Michael McManus:]

Yes, well I don’t have numbers on the burn market either in the United States or in the world, expect to say it is huge and these Burn Centers are places where every patient is critical, so the reimbursement, the cost aspects of the Burn Center are less critical than they are in other places in the hospital. You are going to spend what you have to spend to save somebody’s life or limb. We are just beginning to look at this at a couple of hospitals. You will see some really interesting work I think in the not too distant future. We are not talking about all burns, we are talking about very serious burns that go to operating rooms, where after a certain period of time the texture of the skin, of the burn, the remaining skin of the burn or the infected tissue on the burn becomes similar to what it is in a ulcer for instance and so the benefit of that harder tissue of the ultrasonic blade, of the SonicOne can provide a great benefit in removing that and allowing vibrant tissue to come to the surface and to generate better blood flow. And so we will be learning more about that, learning how many cases this applies to, but some very impressive doctors are doing some great work in a couple of Burn Centers in this country and are very excited about the SonicOne and we’ll be giving you more information on that when we get it.

[Joe Munda:]

Okay, thank you.

[Michael McManus:]

You bet.

[Operator:]

The next question comes from Louis Lubrano of Lubrano Financial Advisors.

[Louis Lubrano:]

(inaudible) out. Two quick questions. I didn’t get a good sense of a backlog number (inaudible). Could you just give me a sense of how it is relative to the past and some sense of your share of market down? In other words, what percent do you think you’ve tapped of your market? Thanks.

[Richard Zaremba:]

Okay well, for the backlog, the backlog number was $358,000. We are basically – as soon as we get an order, in 98% of the cases we are shipping out that order. So the backlog isn’t really indicative of future business, where years past where we had larger distributors selling our product, that would be a little bit more indicative. So right now the backlog is a very small number and as a matter of fact, with Q3 it was even lower than the $358,000 and we did the $5.6 million worth of sales. So it’s really not an indication of future performance in terms of sales.

[Michael McManus:]

On market share, I think the obvious is its too low. We are new products, we are new technology. When you look at the spine market you’ve got competing products that have been in the market for a long time, electrical saws and burrs and things like that. There are probably 9,000 doctors in the United States that could do a procedure in the spine and so when you look at those kinds of numbers it suggest to you a tremendous opportunity and a need to accelerate our market penetration from a very, very small base that doesn’t represent anything in terms of where we can be as a player. And so that doesn’t answer your question, but we are not at 5% of any market. We are probably, except for the SonaStar market, the SonaStar market in the United States is one where probably 80% of the market is (inaudible). Then you got Stryker and then you got us, (inaudible) Integra and our share of that market maybe 15%, but our share of that market is growing. That’s a replacement market and we’ve got a product that’s doing very well. But in the wound care market for instance, in the operating room, the major player except for scalpel is a product called Versajet and they had the best we can tell, about a $20 million business over the last couple of years. Our business is just started to pick up above over $1 million, but we think that’s going to grow very quickly and all I can tell you know is in terms of the market share, every time we come up against Versajet in a major hospital, we tend to win. So we are picking up dramatically in terms of growth and market share. But again, from the very small base it’s almost difficult to measure.

[Louis Lubrano:]

Thank you very much and keep at it. Thank you.

[Michael McManus:]

Thank you.

[Operator:]

Our next question is from Michael Kaufman at MK Investment.

[Michael Kaufman:]

Hi guys, just a quickie. Is there any exposure in Russia? I know that you are doing business there. I mean is any of our products blacklisted there or its still moving along.

[Michael McManus:]

That’s a good question, Mike. It’s interesting that we are in a medical device business and most embargos blacklist other kinds of no-sell lists, even products into Iran have allowance for medical devices. We don’t sell into Iran right now, but we do sell into Russia. So our sales are not being hindered at all in terms of sales in Russia. In fact they are growing well in Russia and we think Russia is going to be a good opportunity for us going forward.

[Michael Kaufman:]

I wasn’t thinking of a U.S. embargo. It’s the other way around where Frank Putin might say no U.S. product.

[Michael McManus:]

Well, he’s done that, but he’s done that with things like French cheese and stuff. I don’t think – he is not doing it with medical devices yet and Putin is a pretty smart guy. I mean he’s going to want to make sure that hospitals have good products, because he needs the people to support them.

[Michael Kaufman:]

I would agree. I guess we are not going into the cheese market yet. Okay, thanks very much guys. It was great.

[Michael McManus:]

Thank you.

[Richard Zaremba:]

Thank you, Mike.

[Operator:]

(Operator Instructions). This concludes our question and answer session. Would you like to make any closing remarks?

[Michael McManus:]

I would just like to say that I hope I don’t get a lot of criticism from our French investors. I didn’t mean that in a derogatory way at all with regard to French cheese. But I think you get a sense of the fact that we are enthusiastic about what we are doing. The numbers are starting to show it across the board. You look at some of the testimony comments that you would see in press releases, you had seen it in the past, you will see some in the future, where doctors that are recognized by everybody in their field are talking about the benefits of our BoneScalpel, the benefits of our SonicOne. You don’t see that happen a lot in terms of small medical device companies. It’s exciting, we are excited about it. We see it not only in the United States, we see it around the world, in China and other places where we have great opportunity and we are also excited about the fact that things like the Burn Centers, things like being able to take the BoneScalpel cutting capability into other markets, our ability to with our great engineering team to be able to add value to our products, to make them newer every day, to be able to prepare for competition that’s going to be coming into the market at some point. We are excited about all of that, but we are also challenged by the fact that we are small, the numbers are small. We have to jump on this. We have to be able to invest our money. We are fortunate to have more than $7 million in cash and no debt and so my view is, our view is, the board’s view is that for our shareholders to enhance the value of their shares, we have to continue to invest to accelerate this growth if we can, to get greater market penetration quickly, and that’s what we are going to be doing for our shareholders in fiscal 2015 and we look forward to talking to you about it on future calls. I thank you very much for your participation on this call. We always enjoy having the opportunity to talk with you and your questions. Have a good evening and good night. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.