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Edited Transcript of SNWV earnings conference call or presentation 4-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 SANUWAVE Health Inc Earnings Call

ALPHARETTA Apr 4, 2017 (Thomson StreetEvents) -- Edited Transcript of SANUWAVE Health Inc earnings conference call or presentation Tuesday, April 4, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lisa Sundstrom

SANUWAVE Health, Inc. - CFO

* Kevin Richardson

SANUWAVE Health, Inc. - Chairman, CEO

* Pete Stegagno

SANUWAVE Health, Inc. - VP, Operations

* Andre Mouton

SANUWAVE Health, Inc. - VP, International Sales and Relations

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Conference Call Participants

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* Brian Marckx

Zacks Investment Research - Analyst

* James Terwilliger

Paulson Investment Company, LLC - Analyst

* Jim Miller

- Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to SANUWAVE's 2016 annual earnings call. (Operator Instructions) At this time, it is my pleasure to turn the floor over to Lisa Sundstrom. Ma'am, the floor is yours.

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Lisa Sundstrom, SANUWAVE Health, Inc. - CFO [2]

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Thank you. Good morning. We appreciate your interest in SANUWAVE and in today's call. SANUWAVE will now provide an update on our most recent activities as of our 2016 annual financial results.

Our annual report on Form 10-K was filed with the SEC on Friday, March 31, 2017. If you would like to be added to the Company's distribution list, please call SANUWAVE at 770-419-7525 or go to the Investor Relations section of our website at 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 risks 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 identify specific factors that may 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 4. SANUWAVE undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I'd like to turn the call over to our Chairman of the Board, Kevin Richardson. Kevin?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [3]

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Thank you, Lisa. Let me start by saying 2016 was the most eventful year in SANUWAVE's history. The journey we have been on has been one of fits and starts and optimism and disappointment, but the one thing everyone involved with the Company feels collectively is we see light at the end of the tunnel and we are fast approaching that point where great things can take hold.

On the call today is Lisa Sundstrom, our CFO; Pete Stegagno, our head of regulatory and manufacturing; Iulian Cioanta, head of R&D and technology; and our newest addition, Andre Mouton, head of international relations and sales.

The form of the call will be consistent with past calls. Lisa will review financial; Pete will update on manufacturing and the FDA; Andre will speak about international business; and I will conclude with a look back on 2016 and our goals for 2017.

To recap 2016, let me first list our accomplishments. International revenues grew 40% and we ended up shipping twice the number of devices in 2016 as we did in 2015. This was due to our renewed focus on international customers, which we began early last year. Andre, who will have more on this later, but the momentum is continuing to build in 2017.

We successfully submitted a de novo petition for the dermaPACE device in Q3. Pete will update you more on our communication with the FDA and why we remain confident of an approval this year.

We increased the number of patents received and/or applied from 53 to 66; we increased the number of universities, colleges and corporations we are working with doing research from 3 to 7, and that number continues to grow; we reduced the cost of our device through innovation by 18%; and we added Mike Stolarski as a Board member.

Mike runs Premier Shockwave, the largest provider of Orthotripsy shock wave services in the US. He has deep and intimate knowledge of the shock wave universe and his company has treated well over 50,000 patients in the past decade.

I will now turn it over to Lisa to discuss the financials. Lisa?

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Lisa Sundstrom, SANUWAVE Health, Inc. - CFO [4]

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Thank you, Kevin. Revenues for 2016 were $1.4 million, an increase of $410,000 or 43% from the prior year. Our revenues resulted primarily from sales in Europe, Asia and Asia Pacific of our orthoPACE and dermaPACE devices and related applicators. The increase in revenue for 2016 is primarily due to an increase in the sales of orthoPACE devices in the Asia Pacific region and the European community as compared to the prior year, as well as higher sales of new and refurbished applicators.

Research and development expenses for 2016 were $1.1 million, a decrease of $1 million or 48% from the prior year. The decrease in 2016 was the result of lower consulting expenses related to the calculation and analysis of the data that was performed in late 2015 and early 2016. In addition, there were no expenses in 2016 related to the clinical trial, as it was completed in 2015.

General and administrative expenses for 2016 were $2.7 million, a decrease of $61,000 or 2% from the prior year. The decrease in 2016 was primarily due to reduced salary benefits and travel expenses. This decrease was partially offset by increased consulting expenses related to the potential commercialization of dermaPACE and increased accounting fees in 2016 relating to consulting on complex financial transactions and SEC registration filings.

Net loss for 2016 was $6.4 million or $0.08 per share, compared with a net loss of $4.8 million or $0.08 per share in 2015, an increase in the net loss of $1.6 million or 34%. The increase in the net loss for 2016 was the result of increased noncash expense for the valuation of outstanding warrants, which was partially offset by the reduced operating expenses I just discussed.

Looking at cash flows, as of December 31, 2016, we had cash on hand of $134,000 compared with $153,000 at December 31, 2015. Net cash used by operating activities was $3.2 million for 2016 compared to $3.5 million for 2015. The decrease for 2016 in cash used for operations was primarily due to lower operating expenses in 2016.

We continue to project that our cash burn rate from operations will be approximately $175,000 to $225,000 per month in 2017 as we continue to expand our international market, prepare for the commercialization of dermaPACE and continue research and development of nonmedical uses of our technology.

Now let me turn the call to Pete Stegagno for regulatory and manufacturing updates.

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Pete Stegagno, SANUWAVE Health, Inc. - VP, Operations [5]

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Thank you, Lisa, and good morning, everyone. Last July, SANUWAVE announced that it had submitted to the US Food and Drug Administration, affectionately known as the FDA, a de novo petition requesting agency review and classification of the dermaPACE device for treating diabetic foot ulcers, also known as DFUs, as a Class II device.

SANUWAVE believes that the dermaPACE device should appropriately be considered for classification into Class II as there is no legally marketed predicate device, and there is not an existing Class III classification regulation or one or more approved.

Through the course of two trials, 336 patients were randomized in double-blind, parallel group, sham-controlled, multisite, 24-week pivotal clinical trials that were designed to quantify the safety and effectiveness of noninvasive procedures with the dermaPACE.

Through our consultants, SANUWAVE has been in communication with FDA providing additional information per their request pertaining to various and numerous aspects of the clinical and technical information provided them in the de novo petition.

Some of you have called and have been asked -- when do you expect an answer? That's difficult to state. Unlike the PMA or 510(k) process in which FDA is under strict time guidelines to provide feedback, there is no comparable requirement on FDA in the de novo process for providing such feedback. However, we have been promptly replying to all FDA requests for additional information and we still anticipate a final decision later in 2017.

On the continuing clinical work involving dermaPACE, our Australian distributors collaborated with researchers in Melbourne on a series of case studies using dermaPACE to treat venous leg ulcers, or VLUs. We know that the work is ramping up and the researchers have been pleased with the results to date. SANUWAVE is anticipating formal feedback from the researchers later in this quarter.

On the other side of the world, our Belgian distributor is collaborating with a leading university in Brussels to further the understanding of dermaPACE impact on treating DFUs; this time extending the treatment to the home environment. The prospects of this are exciting since successful results can expand the business models associated with dermaPACE. In addition, this work will help provide further in-country clinical evidence towards possible reimbursement support.

In South Korea, our distributor is doing similar work using dermaPACE supplying Korean KOLs with devices to help gain acceptance of the device for treating DFUs. SANUWAVE's devices are the only extracorporeal shock wave technology devices, or ESWT devices, approved for treating DFUs in South Korea. With anticipated government approval for paying for ESWT DFU procedures, we are anticipating a rapid expansion of acceptance of our devices beginning later in Q2 and especially in the second half of 2017.

Here in the United States, we are in the early stages of planning a clinical trial with Dr. Robert Galiano of Northwestern University, using dermaPACE in the reduction of postoperative scarring. This is an exciting area of research as the potential for dermaPACE to reduce unsightly scarring after surgery can lead to an area currently not touched by medical devices.

Additionally, SANUWAVE is working with Dr. Maria Siemionow to perform animal studies to further our understanding of dermaPACE's mechanism of action in regard to vascularization. Such understanding will help us to continue to design innovative human clinical trials which, in turn, will help us to expand our current indications for use.

SANUWAVE is also pleased to have Dr. Ching-Jen Wang and Dr. Siemionow back as science advisors. I've touched on our work with Dr. Siemionow.

Dr. Wang is probably the preeminent researcher in the ESWT field and has provided SANUWAVE with invaluable clinical work in both dermatologic and orthopedic areas. Dr. Wang has opened a state-of-the-art research facility in Taipei, Taiwan, for the advancement of ESWT applications. SANUWAVE is making plans to visit Dr. Wang at his research facility in May to begin the process of continued collaboration in dermaPACE and orthoPACE research.

SANUWAVE sees this year as an exciting time in the clinical arena as we begin to shift clinical focus from the DFU treatment to other areas.

And with that said, I'll turn it over to Andre Mouton to provide international business update.

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Andre Mouton, SANUWAVE Health, Inc. - VP, International Sales and Relations [6]

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Thanks, Pete. Good morning, everyone. Thank you for all the warm introduction. I've been working with SANUWAVE since August 2016 and I'm very happy to be a member of the team.

I've been focusing in new markets and getting up to speed in our existing markets, and I will explain a bit around the international focus by covering both the existing markets as well as the potential new markets, and then also what we do with regards to the projected revenue stream.

The international focus will be to maximize findings and experiences where we are strong in sales already and to adapt to the future strategy around that. We are also in the process of reviewing specific markets to ensure we have the correct relationship within that specific market and to address the exact market need per country. We saw that certain market-related factors affect the behavior of the distributors and we must ensure internally that we streamline our product delivery in a fashion that is complementary to their exact need.

We have shipped 45 machines in 2016 versus the 16 in 2015 and then the 11 in 2014. We can process as we see this now being performed in over 15 countries.

We'll now take a look at the existing markets. As you are aware, South Korea is a large market for us and currently the market conditions caused by the political turmoil is affecting us. This has affected our planned Q1 shipments, but the full year is still expected to exceed 2016. This is due mainly to KOVE, our distributor, receiving reimbursements in quarter two for wound care, as alluded by Pete. We expect strong performance picking up in the late quarter two. We are in direct communication with the team in Korea to ensure we assist and we can help where possible.

We've also reworked our relationship in Europe to ensure we streamline refurbishments going forward and are enhancing our focus [to] identify a distributor for Europe in Belgium. (inaudible), a clinical study for wound [suites] will assist our efforts going forward. We will be at the [UMOR] conference in May and hope to see the momentum for medical continue with new regions and new shipments.

Italy is (inaudible) continues to exist and is also now trying a mobile model, as we refer to dermaPACE (inaudible).

Australia completed the critical venous leg ulcer study in February and results will be published later this summer. The results are looking positive and we anticipate this will be used to help carry our momentum in that market.

Canada was a disappointment so far so we've decided to change distributors with a group we are strongly licensed in connections and we expect to see a pickup very quickly later this year with them.

On the new market focus, the key focus will be the expansion around Southeast Asia and neighboring countries closer to South Korea. These markets have shown similarities with our business model and methodology, which the Korean distributor has been very successful; and it was just a logical step as well as the experience I bring from that part of the world to the Company.

We expect to sign three to five new regions in quarter two. We have been diligent in working on standardizing our process for screening and on-boarding of new distributors.

The regions we are focused on normally take three type of relationship. First one is a distributor where they effectively resell our product. The second one is a joint venture, or JV, where we share in the profits of the region, but also share some of the costs. And then the third one is the exclusivity where we effectively sell off a region for upfront cash in exchange for long-term low pricing and support, sort of like a well-known OEM scenario in the market.

We currently have discussions with companies under all three types of these deals in North America, like in Canada, South America, UK, Eastern Europe, Scandinavia, Asia and the Middle East. Our goal is to add seven to ten territories this year and, as mentioned, with three to five occurring in quarter two.

We have signed India as with various distributors covering Taiwan, Indonesia, Vietnam and are in the process of finalizing documentation with Thailand, Malaysia and Singapore. We are at final stage approval documents while identify a distributor in Romania. And in Africa, we are targeting very specific countries and companies via South Africa where we already have two signed (inaudible) in place with approved distributors.

We've added more interested parties in the Middle East to our historical associates with new groups in Saudi Arabia and Dubai with very strong government and private healthcare (inaudible).

Ongoing analysis and adaptations are happening in Europe by our current partners with new markets and distributors being explored. We have an identified target and country list; we'll follow up after the conference in May.

North America currently has a Canada-only focus with two groups in active discussions for representation rights in different market segments within Canada. We are also addressing the need for specific continent refurbishment centers within these areas as a separate business model add-on.

When we look at the typical projected revenue stream, I will explain a bit more because as we add new companies, they must purchase initial devices, both demo and clinical. As a team, we then work with them on identifying, entertaining an in-country key opinion leader as we have found local experts are by far the best salespeople per country.

This clinical test-out period normally lasts about 3 to 9 months, then we can assess a full-fledged product launch. It's important to note that the lead time between signing a country and sizable revenues -- and revenues starting to increase -- is about 9 months. This is exactly what happened in South Korea and we plan to replicate that across the globe as we grow with these specific countries.

I will now turn back to Kevin for the concluding remarks.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [7]

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Thank you, Andre; thank you, team. Well, as you just heard, 2016 was a really good year for SANUWAVE and has set the stage for further growth in 2017 and beyond. Not to beat a dead horse, but here is what we accomplished in 2016 and I will finish with our goals for 2017 before opening up to Q&A.

In 2016, the de novo application was submitted to the FDA; we reengineered our international focus, which led to record growth; patent portfolio of over 60 issued or pending; partnerships with seven colleges and institutions; product approved in South Korea; VLU study completed in Australia; met with every distributor and interviewed many new ones; hired Andre as head of international; we added a new Board member; and we reestablished our science advisory board.

So what should investors expect for 2017? Anticipated FDA approval later this year; record sales internationally; seven to ten new regions added with a minimum of 20 new devices sold; four to five publications or posters in 2017 to support the product; expanding the Board of Directors from four to six or seven; expanding the science advisory board from two to four to six; launching clinical work domestically in new tangential areas for growth; and then a general larger presence in the wound care community as we build the brand.

Now let's turn it over to Q&A and, operator, Jen, if you could queue people up.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Brian Marckx, Zacks.

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Brian Marckx, Zacks Investment Research - Analyst [2]

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Good morning, guys, and congrats on all the progress in 2016 and good luck going into 2017.

If we could start with dermaPACE in the US. If you could just talk about -- Pete, I think you mentioned that there has been some interaction with FDA. If you can talk about when was the last time that you had some feedback from FDA? It sounds like they may have had some additional questions, and if there is anything else that you can disclose relative to what FDA's inquiries have been.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [3]

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Sure; hey, it's Kevin. I'll just -- in general, just when we are talking about FDA, we are going to stick with some of our historic, Bill Belichick-approach to talking about things. If it's material, we'll have a full disclosure, announce it, have a press release.

If it's something that's just normal course of action with the FDA, then we -- again, which is what we are going through now -- a normal course of action with the FDA, we won't disclose until we get something that's, quote-unquote, material to talk about. So I just want to preface that just so expectations with questions are set the right way. But with that, Pete, go ahead and let them have it.

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Pete Stegagno, SANUWAVE Health, Inc. - VP, Operations [4]

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We've started actually having feedback from FDA from late January, early February, and we've been proceeding along the lines of responding to their questions, comments. It's all pertaining to the de novo that we sent in. They are asking for clarifications on clinical and statistical aspects as well as clarifications on technical performance and labeling. So it's just standard stuff along the lines of proceeding through the review process.

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Brian Marckx, Zacks Investment Research - Analyst [5]

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Okay. Yes, I understand that there is not really a set clock with FDA responding to -- final response to a de novo application, but when the agency does come back with questions like this, does it sort of potentially push back the clock in terms of when they would have a decision, do you think? Or how does that affect that in any way, based on your experience?

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Pete Stegagno, SANUWAVE Health, Inc. - VP, Operations [6]

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Unlike 510(k)s and PMAs -- a PMA is roughly a 180-day time clock; 510(k) is roughly 90 days. When they say they sent in a letter asking for information, the clock would stop. Unlike that, with the de novo process, there isn't a clock for them to follow, so we've -- our effort is to respond as quickly as possible to get information back to them and put the burden on them to continue to review and move forward.

So, I really can't say as to any particular timeline with de novo. That's still a type of process that FDA is still somewhat new with and they haven't established time frames with them.

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Brian Marckx, Zacks Investment Research - Analyst [7]

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Okay.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [8]

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But, Brian, one of the things I can say is that if you look -- we kind of -- we submitted to them in, call it August 1, just to make my math easy, and they got back to us in six months, right?

And so now we are in the period of responding to them, and I think that that's -- as long as we are completing our responses back to them, it's probably logical that it will be somewhere in that timeframe.

They gave us a time period of 180 days to respond to their questions and so if you did the [maximum] on the math, they took a 180 days to get back to us. If we took 180 days and then they took 180 days, the full process would be a year and a half.

We are responding faster than that so we are hoping we can get -- and completely, too. I think that's the key thing that Pete alluded to is that we are making sure that the questions all go, in working with our consultants, completely answered so there is no -- or at least in our opinion -- there is no vagueness about it or incompleteness so that we are being as responsive as possible.

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Brian Marckx, Zacks Investment Research - Analyst [9]

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Okay. Yes, thanks. That's helpful. So, assuming you get US FDA regulatory clearance, can you talk about your thoughts in terms of what the next steps are, where your thoughts are today in terms of next steps and, including in that, what were -- what are your thoughts in terms of selling the device? So direct or third party or -- maybe you could just address that. Thanks.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [10]

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Thanks, Brian. So a few things. One, in the meantime we are not sitting still. So as you've seen with the international revenue and with the international hires, the goal for us is to get to breakeven as fast as we can, and we are moving in that direction with the international business growing at the rate that it's growing.

And, as you heard from Andre, we'll be adding three to five new territories in the second quarter, hoping to add seven to ten by the end of the year. Some will be exclusivities, some will be joint ventures, some will be distributors.

So that's -- part of the business plan right now is to move forward and try to get as much revenue growth internationally as possible, begin to also, with some tangential studies that Pete alluded to, like the Galiano study.

But with the US, as you know, there is a process. Once you get an approval, that's kind of step one on your way to business success. We'll be bringing on someone for reimbursement [hopefully] over the summer. We'll probably bring in sales to help head domestic sales efforts. Whether that be working a distribution partner domestically or developing a sales force, that, I think, we are still playing out.

Right now I think the game plan would probably be to focus on having domestic folks working for SANUWAVE. And if we can find distributors, great; I think that's super.

We do have one that will help us in a specific channel out of the gate once we get approval and have indicated that they will have initial orders to deal with that channel specifically that are very encouraging if we get an approval, so that gives us a lot of -- at least near-term -- things to look forward to upon an approval domestically this year.

As far as the wound care market, as you know, Brian, it's evolved over the last decade. Wound centers make a larger and larger portion of wound management today. There's probably a handful of players in the wound management space that have control over close to 4,000, 5,000 wound centers; it's really concentrated among a few players.

So it's a little different business model than would've existed years ago where it was your classic med device sales program. I think a lot of it today you'll do something similar, but for our initial focus, part of it will be on what I'd call that national sales rep who is going to focus on the bigger wound centers.

And what we'll bring to the table is participating with them on a per-treatment basis. We've got a tracking code in place. We have, I think, decent coverage options in a good portion of the country covering a good portion of those that are impacted by diabetic foot ulcers, so we've done our research on this. We've done our homework with our consultants on this.

Game plan is, as we get more -- closer to an event with the FDA, we'd bring in reimbursement specialists to bring in head of sales, probably focus mainly on some of the bigger national accounts initially, focus on regional, where we can get coverage out of the gate.

And then part of it is to follow up these other studies that we are doing internationally and then domestically as well, so it's -- the Australian VLU study, it would be something out of Korea.

It's all of these coming together and it's something that we had not done five years ago that we are now -- got in place so that when we get an approval we are ready to launch with good support clinically, good support with sales, good support with reimbursement.

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Brian Marckx, Zacks Investment Research - Analyst [11]

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Okay, thanks. I have one more in the US and then I've got a couple that relate to the international business. Kevin, I think you or Pete mentioned a US study in postoperative scarring, if I got that correctly. If that's -- if I did get that correctly, if you can talk about that, what the scope of that study looked like.

And then why move into another US study? I assume it's not quite as robust as the DFU study, but nonetheless, why move into a different indication in the US without first having word back from FDA on DFUs?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [12]

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Yes, I'll let Pete answer the scope of it and then I'll answer the why.

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Pete Stegagno, SANUWAVE Health, Inc. - VP, Operations [13]

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Actually, it's quite a novel idea. It's not so much novel to want to reduce the scarring. The approach that's being taken is quite novel in that we will be recruiting patients for a tummy tuck procedure. The patients will be given a number of small incisions and serve as their own control, and we'll see what the results are as far as treatment versus non-treatment and the evidence of scarring. Once that's completed, the patient receives their actual tummy tuck and all goes away and they'll be happy.

The incidence of scarring is -- can be something that is quite -- makes someone quite conscientious and the ability to reduce the scarring we see as just another offshoot of dermatologic conditions.

Elsewhere in the world, our indications are for primarily treatment of skin conditions, so we have a large leeway in many other areas of the world. US is different, so we have to approach that one indication at a time. So this plays in primarily because of the expertise of the particular researcher, but applications wouldn't be just US; it would actually probably expand our ability elsewhere before actually going through anything in the US.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [14]

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So, Brian, part of it is we were approached by various clinicians out there on doing a study like this based on research that's been done on scarring internationally using shock wave. And part of it is that we promote good inflammation; we decrease bad inflammation. Bad inflammation is what causes a lot of the scarring, so that's kind of the genesis of it.

The novelty of the idea came exclusively from the doc that we'll be working with. We'll figure out the right dosages, the right timing, pre-surgery, post-surgery, things like that. So that's stage 1.

Stage 2, I would expect us to expand it internationally so we'd have some of the folks who are interested in Italy, Korea, other markets that we are now into where cosmetic applications, and that's private pay, are prevalent. So think of this as our first foray into private pay and using our dermaPACE device, or a device like dermaPACE, for that type of an application.

We don't know what the -- the economic model will work out until we figure out the right dosages, number of treatments needed and so forth, but the opportunity to reduce scarring -- I mean you see it in a lot of different -- on the cosmetic side these days. And one of the number one procedures out there is getting rid of tattoos.

Well, I think tattoos, scars, things like that, those are all things that aesthetically people are trying to get rid of, and if we can help and collect part of the fee as that process takes place, that would be the goal. We do not have a -- and this is early-stage still so I would not -- I would expect this initial study to probably be done this year.

The next phase would be next year with a broader group, but the benefit, as Pete pointed to, is with the tummy tuck model, you don't need -- we had 336 patients in our last trial. That's a lot of patients. With the tummy tuck model, we are probably going to need dramatically less; it's still going to cost money, but we'll need dramatically less.

Ideally we'll look for a distribution partner here that understands the cosmetic field really well and, fortunately, there's a lot of companies serving that dermatological and plastic surgery community with medical devices today, private pay-wise, that we can have conversations with and that we have already begun conversations with in sharing part of the development costs here.

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Brian Marckx, Zacks Investment Research - Analyst [15]

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So, Kevin, it sounds like you have at least some proof-of-concept in this potential indication anyway. Is that right?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [16]

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Yes, no -- it's -- yes, the answer is yes, we do. But one of the things that the industry -- the shock wave industry has not done well historically is followed proper clinical protocol in trying to develop ideas. And a lot of them throw spaghetti at the wall and see what sticks and then they'll come out with a case study and say, oh, shock wave cures this, it cures that, it cures this.

And the reality is that that sounds great, but to get something accepted by the public, by the medical community, especially in the US, and FDA approval, there's a process that you need to follow. And so we are going to be really strict about that in how we do things and try to, what I would say, elevate the industry's reputation and get away from some of the folks that are out there just throwing stuff at the wall.

So, yes, we know it works. The real question is refining it to a point where we know the right dosing and treatment, again pre-op, post-op, pre- and post-op, and so there is a series of studies that you go through, and same with dosages. And complications are going to come into play. BMI, blood flow -- there's other things to consider. Once we get that refined in this next step, then you would go with a full-fledged, broader study as well.

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Brian Marckx, Zacks Investment Research - Analyst [17]

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Okay, all right. Appreciate that. And I just have a couple internationally and then I'll jump back in queue.

If you could talk about South Korea, it sounds like that's been a fairly successful market for you guys, particularly fairly recently. It sounded like there is -- you are pursuing something there for pain, if I got that correctly, and if you could correct me if I'm wrong. And if I'm not, if you could just kind of provide a little more detail on that.

And then I think you mentioned Q1 may be -- or you alluded to Q1 may be a little bit softer in terms of revenue. If you could just talk a little bit about that. Thanks.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [18]

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Sure. So I'll discuss those. On things beyond South Korea, I'll let Andre talk.

But the South Korea, they got their approval last year to treat -- using shock wave to treat, with our device, wounds. And they are exactly how we want to roll out in the market.

It's -- you recruit your KOLs, you spend 3 to 9 months working with those KOLs. You place a bunch of machines treating those and then you gather those results and then you can launch at a big commercial kind of successful launch.

They, behind-the-scenes, have been working on getting reimbursement from the government. That should take place sometime in the next few weeks. Once they have that in place -- there's a big tradeshow in May in Korea where they will really make a big, big push. They've been seeding a lot of things over the -- in South Korea for the last year on this.

Where they have had success over the past year has also been in orthopedic where they treat musculoskeletal, tendons, and so they've used the orthoPACE device for that market, so we really haven't even seen the lift off of dermaPACE in South Korea.

A lot of what they have done is just replacing old, existing devices that competitors had placed back five, ten years ago. We are fortunate in that KOVE, our partner, had a partnership with a group that, quite frankly, went bankrupt, and so we are acting as the replacement vehicle for a lot of those that, again, didn't have financial success and failed in Korea. So we are the ones now replacing it.

He believes that there is between 1,500 and 2,000 orthopedic shock wave devices in Korea. He right now refurbishes about 500 of those. Over the next five years, his plan is to replace those with our device. I don't know if they will be able to do it as fast as he wants just because the devices tend to last longer than any of us ever imagined, but that's his plan on the orthopedic side.

On the dermaPACE side, it's getting this -- the KOLs work; that was last year, and now it's the reimbursement side, and really having a big launch for the remainder of the year.

As far as softness in Q1, he's kept us in touch ever since the political events unfolded in South Korea and has given us the highlight that, hey, things might slow down a little, people are just uncertain in South Korea.

He has told us in recent weeks that things are starting to loosen up again and he does expect, once the May vote takes place, that things will open up again. So he had good refurbishments in Q1, not a lot of orders, but I don't think there were a lot of orders mainly due to waiting on the DFU reimbursement side of it as well.

So we are expecting good things for Q2. His plans for 2017 are aggressive. Quite frankly, I'm not sure we'd be able to meet all of his [plans] anyways because they are so aggressive, but we'll see. So far he has had great success and we are using them as a role model as we move into other countries, especially in Southeast Asia.

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Brian Marckx, Zacks Investment Research - Analyst [19]

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Okay. All right. Thanks, guys. Appreciate it.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [20]

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Thank you, Brian.

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Operator [21]

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James Terwilliger, Paulson.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [22]

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Hey, Kevin. Can you hear me?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [23]

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I can.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [24]

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Okay. A couple quick questions here, and thanks for taking my questions. Very quickly, the first question is really some revenue visibility, so it's a two-part question.

One, what was the actual revenue growth in the fourth quarter? I may have missed it. I was a little bit late to the call.

And then, two, in the release and on some of the comments, we talk about seven to ten new regions. What type of -- where you sit today at 30,000 feet, what type of confidence and visibility do you have as it relates to the backlog going into 2017?

And then again, just for modeling purposes, what was the actual revenue growth in the fourth quarter?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [25]

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Sure, so I'll stall for a second while Lisa tries to calculate that. I know we had a record fourth quarter and I know it was a lot of shipments, so I think it was -- I'm guessing -- it was something like up 70%, but hopefully Lisa can answer that for you.

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Lisa Sundstrom, SANUWAVE Health, Inc. - CFO [26]

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No, I don't have those right in front of me. If we ship -- alone, we shipped 30 devices in November and December last year, and I think quarters before we had done maybe 10 to 15. So probably we're talking about close to a 50% growth quarter over quarter.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [27]

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Okay, no, that's a great number. And then just real quickly, Kevin, in terms of confidence and visibility going into 2017, seven to ten new regions. How should we think of these regions in terms of market size and any additional color you could provide.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [28]

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So I'll turn it over to Andre in a second because he's -- I'll deal with the existing business. A lot of it, again, we reignited last year. Korea will be substantial for us this year. It could be dramatically more than it was last year, but it will be at least flat to up. I can't imagine it being down at all in South Korea this year.

And again, based on his plans, it could be substantial. And that's really -- that's the kick-in effect you get after you've been, as Andre alluded to, nine months in a region and then it starts to take off.

Italy is reignited. Europe, I'm hoping mainland Europe can start to see some traction after the tradeshows in May. There have been a lot of outreach there so I would see that that is, again, up from last year.

And then some of the new regions that we're bringing on in Q2, they'll add some decent numbers for us. I think Q2, Q3, Q4, as we add those, they get initial clinical devices, demo devices.

But I'll turn it over to Andre just on -- from my standpoint, I think we feel comfortable that seven to ten regions will be added by the end of the year. They bring on a few new devices in each region and then that really starts to be the platform for -- if you think between 2 and 10 in year one and then multiples of that in year two, year three, as far as devices go, that's how to think of it. And last year we really only added one new one, and then it was really reigniting the old existing one. So Andre, I'll turn it over to you on your visibility.

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Andre Mouton, SANUWAVE Health, Inc. - VP, International Sales and Relations [29]

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Yes, thanks, Kevin; and, James, hi, morning. From our side, (inaudible) I'm very bullish and very confident that we will definitely in quarter two board three countries and then, as discussed, seven to ten for the rest of the year.

One of the things that we saw immediately once we reach out to specific people -- potential people and groups that we can work with in these countries is that all of them love the device. I just want the on-boarding process as quickly as possible.

So instead of doing the demo units like we used to for the (inaudible) and come back, what we've decided and agreed with these guys is that they effectively have to purchase the demo models to get things going into the market and, if they have skin in the game, things go a bit quicker.

So immediate focus for three countries and, as discussed -- as asked by you, Vietnam is looking very, very positive. They have got a very high incidence of both our indications that they need. They also have a very big Korean, South Korean, population so that is very positive.

In Taiwan, we've made good progress with two big groups. One of them used to use the OssaTron way back, so they launched the technology, they know the technology, so they may just a matter of how quickly can we get going.

And exactly the same with Canada where the two new groups that we have identified, one is very, very strong in the government segment and the other one is very, very strong on coast-to-coast distribution.

So, all of these guys are very keen to move quick; we've got all the documentation with them. It's now just a matter of completing that.

With regards to the rates of the countries, Southeast Asia will definitely contribute again due to the Korean model being successful. The countries around it like it, places like Indonesia, Thailand. All of them have big South Korean communities as well.

And then I think once Pete and I are in Europe next month, we will definitely have a much better indication per country what is going to happen there. Currently we are very reliant on what the current distributor is doing, but our internal research shows that there is a lot more momentum and speed we can get from them. But very confident that after that meeting at UMOR, we will definitely know per country for Europe as well.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [30]

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Okay. Thank you, Andre.

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Andre Mouton, SANUWAVE Health, Inc. - VP, International Sales and Relations [31]

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I hope that answers your question.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [32]

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No, thanks, that was very good, and thank you for the additional color and information.

Moving on, I've got my second question is really, Kevin, focused on manufacturing. Are you well-positioned from a manufacturing perspective to meet the international demand, and if or when you get US approval, are you positioned from a manufacturing capacity for the launch in the US, or is there any type of investment we would have to make in the manufacturing capacity of the Company?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [33]

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So I will give Pete a chance to answer this. We need lead times to ramp up to meet demand. But as far as capacity constraints, we don't really have any capacity constraints other than equipment and inventory, which again would need lead time and some capital to get the working capital needed to do that.

And then working with our suppliers, they just need some lead time to ramp up their staffing to meet demand. We did this last year successfully and I would expect us to be able to manage that again.

Pete, I'll turn it over to you -- and maybe, Pete, you can talk just longer-term what the goal might be as well or you can toss it back to me and I'll talk about it.

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Pete Stegagno, SANUWAVE Health, Inc. - VP, Operations [34]

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Sure. Kevin is absolutely right. Really the only limiting factor right now for us with the devices would be the lead time for scaling up to large numbers.

From a manufacturing capacity, both at our manufacturer in Switzerland who makes the console, as well as here internally where we assemble the applicators, manufacturing capacity, we've been ready for larger increases for longer than we would like to say, I guess.

Our manufacturer in Switzerland met our really unexpected demand last year without a hiccup, so they've -- we've actually visited them late last year. We've provided them with potential forecasts and actual numbers and what they could be, and so they are ready for us. It's just a matter of giving the go-ahead to go ahead and start purchasing larger-scale components.

And same thing here with us refurbishing here in the US. That's something -- just a matter of getting parts in the house.

Moving forward, there's a number of things on the table. We don't really see, especially from a refurbishment aspect, having a central location to be able to refurbish worldwide; it just doesn't make sense.

We've already started the process with our Korean distributor in setting up a refurbishment center for South Korea, and we don't see why they can't take over and help to refurbish that portion of the world.

We obviously would set up here in the US and also looking for opportunities for Middle East, for Europe, either combined or separate.

As far as manufacturing consoles, we are perfectly happy with what we have now. Obviously, innovation and increasing gadgets and/or functionality of devices is something that Iulian Cioanta, our R&D Vice President, will be jumping in.

And so there is opportunities for new boxes, upgrades to existing boxes, so there's a lot on the plate. We really see ourselves progressing every 12 to 18 months with some new feature and/or new devices to continue to expand our opportunities.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [35]

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Okay. Thank you. Then my last question is really -- I don't want to leave the CFO out, so it's really a question on the accounts receivables. We had a little bit of an increase looking year-over-year from 2015 to 2016, but we had a strong fourth quarter in shipments. We've got a lot of international business, which is a little bit longer, and we have a South Korea issue that's completely out of your control. But any comments on the increase in accounts receivables?

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [36]

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Sure, I'll go first and then have Lisa answer after that with specifics, but it really is timing, James, with a lot of the South Korean shipments.

What we typically do is have -- any time we ship a device, there's -- upon order, they have to put a payment up. Upon us getting -- before we ship it, they have to make another payment, and then the bulk of the payment comes 30 to 60 days, depending on their terms, after that.

And so we had a lot of -- as Lisa alluded to, there were 30 shipments in November and December versus around 10 to 15 the year before, or on average per quarter. We did 15 shipments in all of 2016, so we had a lot of shipments in November and December this year, specifically to South Korea, and so that's where a lot of the reflection on the collections are right now.

Lisa, I don't know if there is more to it, but that lays it out, I think.

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Lisa Sundstrom, SANUWAVE Health, Inc. - CFO [37]

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Yes, South Korea is our main reason for the increase 2015 over 2016. And, as Kevin mentioned, the payment strategy of deposit, secondary deposit upon receipt and then payment at the 30 to 60 days after shipment. That's a new policy that we instituted during 2016 as well.

Mainly started with our European distributors. It just made it a little bit easier for payment plans on them, and with that they were able to order the more devices, so that kind of stretched out our accounts receivable a little bit as well. So the combination of those two things, but the main thing is South Korea.

And, as we mentioned before, we are in constant communication with him. We fully expect to get those receivables paid; it's just a matter of timing at this point in time.

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James Terwilliger, Paulson Investment Company, LLC - Analyst [38]

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Okay, well thank you for the whole team. Thank you for taking my questions and I'll jump back in queue. Thank you.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [39]

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Great. Thanks, James.

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Operator [40]

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[Jim Miller].

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Jim Miller, - Analyst [41]

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Good morning, Kevin and team. In the press release leading up to today's conference call, there was a paragraph that made mention of licensing and partnership opportunities for nonmedical uses, I think, in the food, energy and industrial sectors.

The question that I have for you is, what specific types of applications would that be used in? And is it safe to say that given everything else you have going right now with the FDA that there is no immediate plans in 2017 to try and monetize those particular verticals? And, with that, I'll jump back in queue. Thanks.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [42]

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Sure, thanks, Jim. So as far as the nonmedical goes, there's -- I talked about in the past how we've worked with universities, specifically Montana State, and then also we've worked with the University of Georgia and Missouri on different applications.

We've had a number of tests with Fortune 500 companies where we've looked at different, again, applications. And I'll give one as an example. I won't name the company, but using the shock wave to help industrial cleaning.

And this was -- took a while to do the tests. We like the tests. And it sits kind of at their R&D level. Do they want to go to the prototype now? And so we have a number of what I would call corporate initiatives that are at that prototype stage, nothing that's going to press because the focus of the team really is on getting the DFU approval in international.

On the water cleaning side, we've got a relationship with a company in Europe that I would expect them to continue to work on this year. It could lead to something bigger on the water cleaning side later this year, but right now, again, we are still at that what I would call prototyping stage. We do not have anything ready for nonmedical industrial production yet.

That -- so we are taking, effectively medical devices where you have to worry about human interaction and applying them in industrial. So the way I've described it a lot of times when we are testing these things is we are taking like a dental drill and trying to drill for oil. Yes, you could probably find oil in 20 years or something, but it's not the most effective way.

So we've worked with a lot of these industrial companies just in proof-of-concept and then if (inaudible) work would scale up to a level where we could do cleaning, separation, biofilm eradication. There's a lot of different applications that the universities and colleges and corporations are working on. But, I would not put that as our top priority for this year.

With that said, if we had one of these corporations come back to us and say, okay, we are ready to prototype, we'll move pretty quickly. We continue to do the work. Some of the work we are seeing done at the university level is really fascinating, I mean on the nonmedical side; it's just eye-opening what we can use the technology for.

I'm hoping that maybe later this summer we can have more to talk about on that, but right now the focus has really been DFU, medical and the international expansion.

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Operator [43]

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(Operator Instructions) Okay. There appears to be no further questions at this time. I'll turn it over to the speakers.

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Kevin Richardson, SANUWAVE Health, Inc. - Chairman, CEO [44]

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Great. It's Kevin. I just want to thank everyone for joining us and then please feel free to reach out. Lisa gave the number earlier.

Also if anyone is in the Greater Atlanta area, hopefully not traveling on I-85, but in the Suwanee area of Georgia and you want to come visit, please give us a call. We'll give you a tour. You can check out the devices and see all the different posters and things that we are working on at the new headquarters.

So thank you, everyone, and feel free to give us a call with any questions. Thank you.

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Operator [45]

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Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.