Marc Hedrick - President and CEO Tiago Girao - CFO and VP of Finance Steven Kesten - Chief Medical Officer.

Joe Pantginis - ROTH Capital Partners Jason Kolbert - Maxim Group Yale Jen - Laidlaw & Company Dan Trang - Stonegate Securities Keay Nakae - Ascendiant Capital Markets.

Ladies and gentlemen, thank you for standing-by and welcome to the Cytori Therapeutics Third Quarter 2014 Financial Results Call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

(Operator Instructions) It is now my pleasure to turn the floor over to Mr. Marc Hedrick, President and CEO. Sir, you may now begin..

Thank you, Paula. Good afternoon everyone. Welcome to our third quarter 2014 conference call. My name is Marc Hedrick, I am the President and CEO. Very happy to have with me today our new CFO and VP of Finance, Tiago Girão. Tiago welcome, glad you are here and Steven Kesten, our Chief Medical Officer is joining us as well.

Our press release was issued today and it's been posted on our website and also a copy of the transcript can be found there as well. Just a brief overview of call today, I’d like to focus on first our change of strategy and update you on the progress of that implementation.

We particularly like to talk about some of the substantial expense reductions that and payment process over the last quarter so and are continuing today and I’ll ask Tiago to update you on our financials, dig in a little bit more on the expense reductions and then I’ll close out with an outlook for the remainder of the year and then we’ll go to Q&A.

So first on the strategic side, as I promised since the CEO transition, myself in conjunction with the management and the Board comprehensively conducted a full strategic review of the company’s activities and it's areas of focus. That review is complete and honestly we've been off and running on that now for a few months.

First let me be clear about how I feel and how management team feels about the technology. We really believe we have the winning return in medicine technology in Cytori's out there, never been more sure of that, that’s not the issue. The question has really always been how we’re going to unlock that value. And to us it's clear.

Going forward our principal strategic objective needs to be to generate Phase II clinical data or the equivalent as soon as possible. We do that, we'll build a clinical pipeline of indications that individually will have a sufficient IRR to warrant their pursuit and we’ll make that we do that before we commit to any clinical trial path.

To get positive data from trials that are rigorously performed, that’s going to be the best way to generate partner interest and ultimately attract institutional support for a company and all the good things that come with that.

Second, we do intend to maintain sales and marketing effort, but to do so it absolutely must be profitable cash flow positive in growing at least modestly in the near-term or at least until the time that we’re able to reach milestones of same data reimbursement and so forth and do the kind of things that are going to drive significant growth.

And Tiago and I are both committed to do what it takes to make sure that profitability happens. Third and a little more of a derivative of the other two, we recognize that as we develop our clinical pipeline, read out in our data that we’re going to make ourselves more attractive as a partner to other folks.

But we’re going to not be opportunistic; we’re going to be proactive and systematic today in a partner outreach which we've already begin on in order to lay the foundation for future partnerships when data is available or things change.

And really that's it, it's pretty simple, get the Phase II data as soon as possible, grow sales, makes sure it's profitable until we have some of the prospects of greater growth downstream and then we are proactive in how we put those partnerships together in outcome.

I’d like to make one other point based on what I mentioned on the last call and as I said our number one tactical goal is to strengthen our balance sheet by both adding additional capital and significantly lowering our cash burn. I think we made some substantial progress in that area thus far, although I mentioned there we got lot more to do.

I’ll tell you from a higher level we raised approximately 27 million in the last few months and we have received some important concessions from our lenders that have helped us along the way and that we have reduced our annualized expenses by approximately $8 million and it gets more there and Tiago is going to provide some more detail specifically in those areas during his remarks.

Now let me shift over to our clinical program, there have been a lot of changes here and I have a lot of updates to share with you.

By way of history, I think everyone should be completely aware that we stopped our enrollment in our ATHENA trial last summer based on hitting some of our internal staffing rule, so we explained that in detail on the last call.

In consultation with the FDA, the investigators on the trial, data monitoring committee and so forth, we reviewed all the clinical data on our technology in cardiovascular disease, we went back and reviewed all that (inaudible) top testing on the system and on a cellular output that we've done in the past and actually conducted some further preclinical testing based on some of the comments by FDA about our technology in a variety of areas and happy to discuss in Q&A if you'd like.

We concluded that none of the data that we reviewed or generated freshly supports the notion that there is any safety problem with our device to cellular output or the use of the cell in conjunction with the catheter into the heart.

The FDA came to a similar conclusion and noted that they have no safety concerns with us proceeding along with our ATHENA trial. Therefore we are free to continue enrollment. Since we've never really had a safety issue before to our technology such as this, we are obviously very happy to have worked through this issue successfully.

We had confidence in the technology but this is a good reminder that we believe our technology is safe and can be effective in a variety of indications.

However, I can tell you the delay on the trial has been very meaningful for us in terms of the lost time and in that time, progress has been made in a lot of other areas in the company including the development of the next generation CTX-2.

Also during that time, when ATHENA has been down, the clock has also been ticking on the Olympus system and recall that the Olympus system which is basically now obsolete has a limited number of consumables, no more will be made. The clock's been ticking on the shelf life of those.

Simultaneously to that and in parallel newer cardiovascular delivery technologies that are simpler than the ones that we have been using in our trials are showing promise and that their simplicity will lower cost, so we think rest of these patients in general.

When you mix all these factors up, and asses what they mean and the fact that we've already enrolled 31 patients so it will be at the definitive six month time point in late November. We decided to go ahead and wrap up enrollment and enblind the Phase IIA dataset.

We believe that data should be available for our internal review of Q1 of 2015, the 31st patient should be available later this month.

And based on that data, and the availability of the next generation CTX-2 system for intravascular cardiac therapy and based on what best delivery option is out there available to us, we'll make a decision about how to proceed with further cardiovascular studies at that time.

Relatively as we mentioned, since the last call, The National Heart, Lung, Blood Institute notified us that they would like us to use our technology for a heart failure trial for patients that have an indwelling Left Ventricular Assist Devices or LVAD. Now we've signed a contract for that trial and we are prepared to move forward.

But enrollment of that trial is now delayed based on concerns chiefly around the practicality of using the complex mapping technology and delivery catheter inside the ventricle in patients that have an active indwelling Left Ventricular Assist Device.

So, we are waiting on what the NIH will ultimately do with that trial, but we are prepared to move forward when and if they decide to proceed. Finally, just to tie up the cardiovascular program, advanced data will be presented in post reform at the forthcoming American Heart Association meeting by the PI doctors.

So now let me shift over to another area of clinical interest, a new area and as I mentioned, consistent with our strategy of getting the Phase IIA data as soon as possible and the indications that have a lower relative trial risk, let's say ATHENA but still with a strong IRR, we have sought out to receive FDA/IDE approval for pilot or Phase IIab study of Cytori cell therapy on patients with osteoarthritis of the knee.

That trial should begin enrollment early next year and we target having data in 2016. We've been working on this for several months. The trial is going to be called ACT-OA, it's going to be a randomized double blind trial of patients with symptomatic osteoarthritis of the knee. And to kind of put that in perspective, about 16% of U.S.

adults including probably three people in this room have OA of the knee and the estimated cost to the healthcare system is substantial. Pushing off knee replacement can actually lower healthcare costs.

So patients in this trial will receive either a low dose, high dose or placebo in a one-to-one-to-one randomization schedule and they'll receive a single intra-articular injection. The primary endpoint will be pain on walking and using validated scales for that. The PIs will be Dr. Brian Cole, from [indiscernible] in Chicago and Dr.

Wily Aufmann from [indiscernible] UCLA who is a leading rheumatologist in the area and we'll include up to about 15 centres in the U.S. Actually there is a lot of preliminary data supporting the use of ADRCs in this patient population.

It includes an extensive amount of veterinary data that uses really our process but scaled down for animals as well as independent data from academic investigators and then we have clinical experience in orthopaedic soft tissue repairs we've reported on previously in Australia and New York.

We estimate the external cost of that trial to be about $3.5 million, it’s not an expensive trial to run, 90 patients get a complete Phase II data set, so very attractive opportunity from us from our perspective.

Now also as we mentioned before we've had an active trial called RECOVER, we received IDE approval on that to start that via FDA about a year ago.

They treated athletes with hamstring injuries and we do have promising early data that that can work but as part of our strategic review I’ve decided to stop that trial as the IRR event opportunity really did not meet our new bar for any further support. So that trial will not enrol any patients and then we will wind that down.

We hope that the sites that we’re tend to be involved in that trial will become sites in the forthcoming OA trial. Now let me talk about our thermal and radiation injury program related to our ongoing funding support for BARDA.

In August, Cytori started drawing on a little over $12 million of R&D funding made available by the execution of option one of our contract with BARDA. The bulk of that money is earmarked for activities that we need to do to obtain FDA approval for a clinical trial and thermal burn injury; it's really clean up development work from the base period.

The trial will be executed using the version one, the first generation of our CTX2 which is a next generation system. We anticipate there will be ongoing iteration of that new system for different markets with new features and so forth and that will be available over time in 2015 and beyond.

However, the time frame for availability of that system could be accelerated with additional support from BARDA and discussions are underway in that regard. Of course we’ll update you if and when any supplemental funding is awarded.

We’ll discuss the specifics of the trial 2 once the CTX2 development plan has been completed and we know what our IDE approved trial will look like after we finish our discussions with FDA.

As mentioned previously, the trials can be funded in full by BARDA which is earmarked an additional 8.3 million for that purpose and the funding is released figured up on IDE approval. Now move on to a new indications scleroderma.

We’ve talked about this as a feasibility study for some time in France and back in July 2014, [indiscernible] who is the primary investigator, a very senior well respected hand surgeon in France and [indiscernible] his co-PI published initial Phase 1 data on the use of ADRCs in 12 patients with Sclerodactyly.

Sclerodactyly is a common hand manifestation of Scleroderma and the article was published in Annals of Rheumatic Diseases. On a small number of patients, the data was quite promising and the indications are true unmet clinical need and what really effectively constitutes an orphan indication.

So based on the data and our strategic reviews, Cytori has agreed to provide support for secondary confirmatory trial in Europe up on 40 patients with hand dysfunction related to scleroderma. That trial should begin enrollment next year depending on how quickly the French government moves and we may have data as early as 2016.

The trial will be called SCLERADEC II, the initial trial was SCLERADEC I. SCLERADEC II will be a randomized double blind trial on patients with symptomatic hand dysfunction and scleroderma.

This currently designed patients who will receive either single dose of ADRCs or Placebo in a one-to-one randomization schedule and the trial would include a crossover arm in the placebo arm using cryopreserved ADRCs, delivered subcutaneously along the neurovascular bundle, two injections per digit..

The primary end point of the evaluation of these patients would be the (inaudible) which is a validated tool that focuses specifically on the functioning and on the symptomatology of the hands. Substantial improvement in that measure was observed in initial study. The PI will be Dr. [indiscernible] and will include up to five centres in France.

Cytori anticipates the external cost of the trial approximately $0.5 million as the remainder of support will come from the institutions themselves and they've actually done a lot of work on their own based on the significant need of these patients support this trail so we’re very grateful for them for that effort particularly Dr. [indiscernible].

In the U.S., we are in perceptions with FDA and try to learn what a U.S. clinical pathway for this very narrow focused indication of hand disability in scleroderma might look like, trying to determine its cost and so forth and we’ll update you when we have information and a plan going forward.

And let me switch to urinary incontinence, this is another area that we’ve mentioned briefly on previous calls but this trial is beginning to take shape in Japan. Realigned with Nagoya University and the Japanese Ministry of Health, Labor and Welfare are in late stage discussion regarding the trial that we’ve mentioned before.

Based on the positive results from the 11 male patients published in the international journal of Urology back in 2013. As a reminder the data showed that Cytori held therapy led to improvements in leakage, urethral closure and patient quality-of-life.

The team at Nagoya has actually continued to treat patients with urinary incontinence including some women subsequent to publication under the old stem cell guidelines approved by MHLW, which are now passed away.

MHLW’s agreed to fund the pivotal trial in Japan which is anticipated to be a multicenter approval trial led by Nagoya using Cytori Cell Therapy for the treatment of male urinary incontinence at least at first.

While the incontinence market demand is much smaller than those in women it is a very important lifestyle concern and limitation to defected patients and there is no good treatment. And there is obvious investigator and governmental interest in Japan.

If the trial's successful it very well may provide a path to approval in reimbursement in Japan and potentially expand the opportunity to move into the broader markets in women with some more feasibility data.

And we anticipate a meeting with the Japanese regulatory authorities as a follow up to several other meetings we’ve had in the past on the final trial design timeline in Q4 but this has been a slow process amongst these three entities working together.

So just to wrap up on the clinical side, we’re continuing to evaluate other indications for further study in putting it into our evaluation process.

One important thing to note is as I mentioned on the last call, Ramon Cugat an orthopaedic surgeon that treats many well-known European premier league soccer players just completed 20 patient study of the use of Cytori Cell Therapy for anterior cruciate ligament reconstruction in Spain.

That enrollment has been completed and expect data to be presented the first tranche of that data at the European Asian Workshop on Ligament and Tendon repair in soccer players this month. And we'll let shareholders know when that data is available and it’s ready for review.

So now let me shift gears and talk more briefly about product sales in a way from a clinical pipeline discussion. As part of our strategic revaluation we believe that there is value in continuing the sales efforts so long as it can be done profitably, which it has not been until now.

How we’re going to do that? First, we've reduced sales and marketing cost substantially, sales and marketing expenses which includes corporate marketing and our facility charges in Japan have been reduced from about 8 million to 4 million on an annualized basis primarily based on pretty significant reduction in headcount and restructuring.

Second, our team is committed to no longer pursuing sales that are not individually of sufficient profitability to warrant the activity. You can sell things for strategic reasons but we’re going to focus more on sales for profitability exclusively.

In the past, we incurred substantial travel expenses et cetera and identifying early adapters for our technology and attempting to convert these sales, many were not profitable to the company and/or resulted in the collections risk.

Our new policy is going to require that customers better support the sales with upfront cash, letter of credit or so forth. And this may have the short-term effect of lowering our sales temporarily, but it should increase our margins and increase the likelihood of getting the profitability and laying a more strong foundation for profitable growth.

Third, we’re going to do a better job leveraging our growing partner network to grow sales profitably and just to give you a few examples, Lorem Vascular, we know many of you are aware of is making steady progress in Malaysia and Singapore and Australia, the goal there is to help pull through the previously $2 million of product but also create some new opportunities for Cytori based on the signed contract terms.

We’re on track to do our part to help Lorem which is to file for Chinese FDA approval this year, our Welsh facility is open for business, it has one staff person but it’s been inspected and is prepared to assemble products will be officially designated as made overseas. That’s going to allow us then to obtain approval we hope in China.

Chinese FDA approval should trigger a very large order that’s contractually obligated in our Lorem Vascular contract of $5 million. Bimini Technologies is a U.S. private company that’s acquired a [indiscernible] product line and has received a global license for a solution for hair regrowth.

We anticipate continued growing contribution from these product sales through Bimini in 2015 and beyond. And then finally Okyanos, a distributor is an important customer and it’s – Okyanos has a U.S. quality medical facility in Freeport Bahamas.

They have recently begun to treat patients for specific indications for which Cytori has previously obtained approval in Europe and which Okyanos has obtained approval in its market. We anticipate continued growth primarily in consumables over the remainder of 2014 and thereafter from Okyanos.

So if you look at all these entities, they each had pretty robust growth forecast that they’ve shared with us so we see evidence and when we see evidence that milestones are being met and growth is actually happening, we’ll report that and update you, but we’re excited about those three partnerships.

On a direct basis we’re going to focus our activities on Japan.

Japan appeared simple because we’ve been there for a long time, our present sales produced a lot of public and institutional awareness about our technology and (inaudible) medicine more generally that there is a lot of legislative tailwind that's now blowing over there as we mentioned before.

We have reduced cost there as well and we’re going to continue to put pressure there. On the new law, we anticipate that on/or about November 27, we anticipate that the Governor will announce a law in its final form, we’ve been very well behind the scenes in this supporting the effort.

Most recently Ken Kleinhenz our Head of Regulatory Company the U.S. trades delegation led by U.S. Secretary of Commerce to Japan met with the Prime Minister Abe so forth, that’s a very high level meeting, it gave us a lot of comfort that this is indeed important initiative in the Japanese market.

And so we’re optimistic if this law is going to clear up some of the current confusion that's plagued us in Japan over the last year or so on the current stem cell guidelines and it's hampered our sales effort.

We’ll announce the implications of the new law when we know what they are for sure, we've had a chance to study it, in the meantime we’ll continue to look for additional ways to leverage our presence over there and improve the receptivity specifically to autologous cell therapy.

And then finally just a quick note, we are making progress on the next generation solution CTX-2 system. We anticipate availability next year for the U.S. clinical trial version and subsequent iterations to come, timeline is partially dependent on additional BARDA funding which would speed that development program.

Finally just a few words about business development and I’d like to give you some general guidelines based on our internal strategic discussions about what business development means to Cytori, and I want to be clear about our plans and provide a framework for folks based on what we are looking for in partnerships.

Process wise we tend to be a lot more systematic and proactive in our approach to partnerships, maybe more so that we’ve been in the past. In fact in the last few months, we’ve expanded significantly our BD outreach efforts including the hiring of a part-time but extremely experienced executive to lead our efforts internally.

She has a strong BC background, a healthcare background, and great connections globally and is based here in San Diego, her name is Akiko Shibata. Strategically in terms of BD, we’re going to target new partnerships in the following areas.

First, broad strategic partnerships with more likely Med TECH or possibly Pharma and I suspect that these partnerships were most likely be driven by the availability of Phase II data.

Second, we’re looking for limited commercial partnerships that could result in the meaningful commercial revenue, the favorable margins for the company or the access expanded networks of patients that could be beneficial for sales growth.

And then finally, we are not opposed to partnering around new technologies that could be synergistic and value add with our current technology, but of course we’ll update you when we have news to report as no deal has signed in(inaudible).

A quick note about our Board, we’ve streamlined our management team and our company over the last few months, the Board has also streamlined and I would like to just acknowledge and say a heartfelt thank you the two members of our Board that have or will be rotating after Board, Dr. Carmack Holmes and Lloyd Dean.

Both are incredibly accomplished professionals that have risen to the top of their fields but are great human beings and both are dedicated supporters of our company from many years, which I know will continue. We'll miss their service, but we're grateful for it and we wish them the best.

Now speaking of transitions, I'll introduce our new CFO, Tiago Girão who will give the financial results.

Tiago?.

Thank you, Marc and good afternoon everyone. In Q3 we recognized 1.1 million in product and contract revenues, compared to 2.7 million in Q3 of 2013. Product revenues were 0.5 million during this quarter, compared to 1.6 million in Q3 of last year.

In 2014, we refined our revenue recognition policy causing delay in timing for recognition of revenue specific to new customers. At 9/30/2014, we had approximately 1.7 million of unrecognized shipment, the majority of which we expect to recognize upon cash collection in Q4.

Product revenues are driven mostly by research, sales of solution equipment and has been heavily concentrated in Japan. As we have discussed, the Japanese government is in the process of finalizing new regulation for [indiscernible] medicine that are going to go into effect this month.

We believe that these regulations will provide clarity to our potential customers and could facilitate the sales process.

Contract revenues are driven by activities with BARDA, who recently exercised their first extension option resulting in a 12 million contract to continue to fund ongoing research and development activities required to enable a pilot clinical trial [internal burn]. We expect contract revenues to increase in Q4 and throughout 2015.

With respect to our operating costs, research and development expenses, excluding share based compensation were 3 million in Q3, compared to 4 million in Q3 of 2013. The decrease was primarily driven by study related expenses due to lack of enrollment in the ATHENA trial this quarter.

With our effort to turn our sales into profitability, we continue to limit down sales and marketing costs, which excluding share-based compensation were down to 1.3 million compared to 1.6 million in Q3 of 2013. G&A excluding share-based compensation decreased to 3.4 million compared to 3.8 million in Q3 2013.

We experienced G&A expense decreases across the Board with the main driver resulting from non-recurring bad debt charge for a couple aged accounts in the prior year offset by severance associated with our recent reduction in work force.

Our cost reduction initiatives implemented over the past several months includes the elimination and the consolidation of certain commercial and development activities and containment of outside professional services. Going forward, we are seeking additional reduction largely on changes to our fixed costs in physical locations.

We are pleased to share that our cost reduction measures are showing outstanding results. Our Q3 operating cash burn decreased to 7.2 million compared to 9.2 million in Q2 2014 and 8.1 million in Q3 2013, so $2 million quarter-over-quarter decrease.

Overall, we are aggressively working on spend reductions and operating efficiencies and we expect to deliver operating and cash burn savings of at least $8 million a year with anticipated average operating burn of $2 million or less per month starting 2015.

At September 30, Cytori had $7.8 million of cash or a little over $20 million pro forma after our recent registered direct offering. We are in need of additional cash burn, cash capital to fund both operations and debt obligations for the next 12 months and enable the company to meet the important near term objectives.

Management is pursuing both financial and strategic opportunities that we believe have the ability to fund the company to key near-term objectives and through target commercial and operational improvements in 2015. .

Thank you, Tiago.

So to wrap up and move to Q&A, I would like to just personally take a moment and acknowledge as a shareholder and a long-time employee of the company, that it's definitely been a tough year in many ways for Cytori, we've had big leadership changes, we've been trying to power through what's a weak balance sheet, the stock has obviously been under significant pressure, a clinical trial hold, you know the picture.

However, I think as of this call, we've now shown evidence of the changes to which we are fully committed. We are much leaner, more focused enterprise than we've ever been and we are working as rapidly as we can through a current range of challenges.

In the meantime, we've successfully completed many of the objectives I mentioned on our last call and for the remainder of the year and into early next year; we tend to do the following things. Report the final Japanese [indiscernible] laws discuss the implications once we understand it.

A report on the ATHENA Phase II data and provide the readouts on the ACL repair in the advanced studies. We will finalize and report this proposed clinical development plan for urinary incontinence in Japan as soon as we know what that is. We will get our filing for Chinese FDA approval.

We hope that will come quickly and trigger that key order for more. We're going to begin enrollment as soon as we can with a full focus on the ACT-OA trial, SCLERADEC II trial and complete the U.S. burn trial planning to coincide with the availability of the next generation of the system.

We are going to finish the core R&D related activities for that system, so it can be available for that trial. I mean a number of our other near term priorities that we are working on. So I'd like to go ahead now, thank you for your time, turn the call back over to the operator to moderate the Q&A portion of the call. Paula..

The floor is now open for questions. [Operator Instructions]. Your first question comes from Joe Pantginis of ROTH Capital Partners..

Hey, guys. Hey Marc, hey Tiago. Thanks for the update; it's very, very through. And Marc, you've really been very thoughtful in your approach to the company so thank you for that. Two questions really. First for Tiago.

You see guys and Marc your initiatives, you brought an expense of the lot but maybe you can just discuss a little more besides the sales and marketing expenses. How you might see managing the burn on the R&D side as you expect to see some increased clinical trial costs? And then the second question is regarding CTX 2.

Maybe Marc if you could provide a little more color regarding the differences and the improvements surrounding this system. .

All right, thank you, Joe. With respect to expense reduction, the critical areas that we targeted were certainly sales and marketing and G&A.

We did optimize a few spend profiles on the R&D side but the significant portion out of the $8 million that Marc alluded to a little bit ago almost half came from sales and marketing, another significant chunk is coming from G&A and then a little bit of R&D.

We do expect that R&D in 2015 is going to be over 50% of our total expenses, so the focus really is on G&A and sales and marketing..

Okay..

Marc Hedrick :.

And Joe on the CTX inside, a little bit careful about some of the specific technical aspects because the device is really a game changer, it substantially decreased the time, the volume range that it can process is very wide, so we can go down to very small volumes and do very large volumes, so it can accommodate really the full whatever you can imagine treating, the volume range will accommodate it.

It increases the number of cells per unit of tissue in place which effectively means that you can take less tissue from patients making it what is not very burdensome procedure, even less burdensome and pushing it more to the lunch time sort of harvest.

And then finally and this is really important and we got hung up on this when we started to try to sell the initial research based version in the [indiscernible] market, the cost in some of the other processing parameters didn’t really support profitable sales in that market.

The cost of this is such quick consumable and the device such that you really can contemplate a launch of this device into an aesthetic based market and be competitive with other treatments that are out there.

So it really is a game changer for us and then downstream, there is some unique connectivity technology that we can add that can make it more of a cloud based interactive system which opens up some new possibilities for us as well..

Your next question will from the Jason Kolbert of Maxim Group..

Hey Marc, thank you so much. I appreciate the refocusing and the efforts on the company. I have a couple of questions. Can we talk a little bit about BARDA milestones and when you think that next BARDA milestone could come to Cytori and how that milestone will be used, how should we kind of view that funding and that tranche of capital..

Marc Hedrick :.

Jason it’s actually pretty simple now, it was super complex in the base period. So I guess the more money you get the less complex it is.

But they freed up $12 million for development programs and as I mentioned that sort of clean up development to get us ready for what BARDA thinks we need for clinical for the FDA and that’s simply clinical and frankly some development work specifically related to delivery of cells into the burn environment and thus to be ancillary products downstream and other areas as well but that money has already been it’s been allocated and released.

The milestone relates to getting IDE approval of a trial and we've shown that we’re good at getting IDE approvals in the U.S. for trials so I don’t think that gating item, the gating item is really completing the CTX 2 development, getting through Phase 3 development locking design, finishing the documentation and then sending that file to FDA.

At the last minute the FDA, the BARDA pulled out some of the funding for BARDA, it’s a little bit of a challenge on the timeline to deliver the system on time without that additional funding, but we’re hoping for some additional funding that’s our really a milestone that would be really a separate funding but that will give (inaudible) speed up the timeline.

So really the key milestone in summary is when the device is ready and we’ll be able to file for IDE approval, we’ll get IDE approval and that frees up another 8 million and then that will be down to treat potential opportunities with further clinical studies..

Okay, great, thank you so much and let’s talk a little bit about Japan, I know you’re going after urinary incontinence there and we’re looking for revisions in regulations.

So how should we be thinking about clinical trial timelines and the reimbursement strategy associated with the outcome of that trial and what does that mean for the potential placement of units and/or therapeutics in Japan?.

Marc Hedrick :.

Yes, touch on a lot of things there. I want to be clear about the Scleroderma trial, that’s not a primarily Cytori response to trial, that’s a government sponsored trial. So our ability to move that thing forward on our timeline is limited.

The dialog with NHLW, PMDA and also with the university is that they would like to do an approval study that allows for reimbursement and specific claims for that using a device based pathway.

So we have device everywhere in the world, we have a class one approval in Japan and it would be potentially providing class three approval for that narrow group of patients, men with incontinence.

Part of that I hope would be some increasing feasibility work and women that have incontinence to work out the details of how we can make this therapy successful for them, that would be our goal but then again that’s not a Cytori responsive to trial.

We haven’t made any comments about any Cytori response to trial, we’re waiting to see what the device, the new regulation shows, we anticipate that there will be a new legislation around regenerative medicine products and there will be streamlining of the device related regulations, making it more like Europe with notified bodies and so forth.

That’s what we anticipate. But we don’t know for sure. For us, we’re locked in as a device. So we have class one approval, we do clinical trial, we get claims and then the claims come with reimbursement with the social system there.

We think we’ll have the option to go down regenerative medicine product pathway if it’s advantageous but right now it’s unclear whether that would be an advantage or disadvantage.

Right now, in terms of sales, the impact of that will be primarily that it will clear the table of all of the regulatory uncertainty of the past, provide a very clear regulatory pathway.

We should continue to have class one approval, that should allow physicians to buy the technology with relatively limited if not zero headache from the government and begin to use it clinically.

There’s going to be some sites in Japan and Osaka and around Haneda airport that will be tourist or medical tourism areas of interest that will have even more free reign about what they do clinically. And we hope to better to leverage those opportunities as well.

So it’s so complex, there is a lot of going on and I think we'll just kind of play read and react until we see what the rule is..

Your next question comes from Yale Jen of Laidlaw & Company..

Good afternoon, and thanks for taking the questions. Just one question I have, first question I have is that for all of the studies, clinical studies, you plan to do are sponsored by others.

Do you anticipate any of the study may be able to use the next generation CDx or you think CDx will come out much later for complete that?.

Marc Hedrick :.

Thanks Yale. The BARDA related trial is predicated on the new system, so that will likely be the first trial that would use the new system. We anticipate it getting the osteoarthritis trial up and running long before that’s ready and we’ll use the current system for that Phase II.

We’re confident we’ll show equivalence in terms of out, but the performance obviously of the other system will be much greater. Any subsequent cardiovascular study would be with the new system. The scleroderma study will likely be with the current system but could be with the new system.

And then it depends on the time line of the Japanese study and how quickly we’re able to get class one approval and how the regulation shake out as to whether that would be.

So just the bottom line is we want to -- soon as we get the CTX2 ready, we'd like to do every trial with that but we won’t be able to do every one, but we’re just moving as fast as we can on that..

Okay, great. Thanks. And the next question I have is that from a recent 8-K I think the NASDAQ stock market has some concern about the listing of the stock.

Any plans that you guys may have to sort of resolving that?.

Marc Hedrick :.

The answer is yes. We think there is a lot of opportunity to hit milestones that will bring us above that level. But one can never predict what the future holds, so we’ll be ready for any eventuality. As you know, those things take long period of time as a launch year period, of about half a year before any decisions are being made.

So, we’re going to just continue to operate the company. We’ll be as fast as we can hitting as many key milestones as we can. Do everything we can to not make a stage in terms of a split or so forth. But we’ll be ready in any eventuality..

Your next question comes from Dan Trang of Stonegate Securities..

Hi guys. Thank you for taking my question.

Regarding the clinical pathway for the hand disability trial, wondering what are some of your concerns of sizing the cost, was there and is there some possibility for you to free up those costs possibly do a joint venture and just would like a little bit of color behind that?.

Marc Hedrick :.

I'll introduce Steve Kesten, our Chief Medical Officer, who has been very involved with the investigators in France and setting up that trial, Steve?.

So there is two areas where we’re exploring; one is the clinical trial that Marc described in France. And we are supplying scientific and some financial support to that. But it’s relatively modest when you consider the trial itself. So, that we think it is an efficient way to get a very, very high quality trial done from seasoned investigators.

Now in the U.S., you really have to wait some of the ongoing discussions with the FDA on defining the path forward in this and we think we have an infrequent if not rare indication here in that and if the path is streamlined and the number of patients required to show to satisfy safety and [efficacy] requirements in the FDA are modest, then that really impacts the efficiency and cost of trial.

On the other hand if they handle it more to regular routine pathway, the numbers are going to be quite a bit large, so we can’t really say until we really work with the FDA and get their guidance on the path forward..

[Operator Instructions]. Your next question comes from Keay Nakae of Ascendiant..

Yes, thank you.

Just wondering if you can give us a little more clarity on how the 12 million from BARDA for option one will be recognized as revenue starting in Q4 and over the next say several quarters?.

Sure, Keay, so this is Tiago. We have started already [indiscernible] on that 12 million, we expect that this coming quarter we'll have activities that will support roughly 1.5 million to $2 million worth of activity from BARDA and then in the coming year anywhere between six and eight.

So total 12 million is going to get mostly spent between 2014 and 2015..

Well, in 2015 you just said, you said 6 million to 8 million, can you help -- that’s for the full year?.

That’s for the full year, correct..

This concludes the Q&A session of today’s conference. I would now like to turn the floor back over to management for any additional or closing remarks..

Thank you, Paula. As always we really appreciate the thoughtful questions and the continued interest in our company and technology. If you remember from last quarter I said we would narrow our focus which we have. I said we'll reduce our expenses, we have and we’re substantially on track with regard to our forecast and milestones.

I hope you're beginning to see what I can see, which is a Cytori few quarters down the road that has multiple Phase II trials, that has substantial partnering potential, has profitable sales with growing contribution margin and has a much reduced cash burn in a substantially strengthened balance sheet.

We’ll keep you updated as we make progress towards that and really once again thanks for your continued interest and support. Have a good evening..

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful evening..