Stereotaxis Inc (STXS) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Stereotaxis Q2 2008 Earnings Conference Call on the 5th of August, 2008. Throughout today's presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions.

(OPERATOR INSTRUCTIONS)

I will now hand the conference over to Mr. Doug Sherk. Please go ahead, sir.

Thank you operator, and good morning everyone. Thank you, for joining us for the Stereotaxis conference call and webcast to review financial results for the second quarter of 2008.

Before we get started, we'd like to remind you that during the course of this conference call, the company may make projections and other forward-looking statements regarding future events and the future financial performance of the company including, without limitation, statements regarding operating results for calendar 2008 and 2009, growth opportunities and other statements that refer to Stereotaxis' plans, prospects, expectations, strategies, intentions and beliefs.

These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company's business and qualify the forward-looking statements made in this call, we refer you to the company's recent public filings with the SEC, specifically the Form 10-K for the fiscal year ended December 31, 2007.

The company's projections and forward-looking statements are based on factors that are subject to change, and therefore these statements speak only as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements.

Finally, during today's question-and-answer session, we'd like to ask each participant to limit themselves to two questions and then re-queue if you have additional questions. In advance, we thank you for your cooperation with this process. And now, I'd like to turn the call over to Bevil Hogg, Chief Executive Officer of Stereotaxis.

Thank you Doug, and good morning everyone. On the call with me this morning is Jim Stolze, our CFO. This morning, we reported excellent second quarter financial results. Our revenues grew 36% from the prior year's second quarter, a new second quarter record, and we also achieved $14 million in new orders ending June with a backlog of $72 million. Both our new orders and record backlog position us well for future revenue growth.

During the quarter, we recognized revenue on Niobe Magnetic Navigation Systems, and note that we achieved this increase as well as the increase in orders in backlog, despite the continued lack of availability of a magnetic irrigated catheter.

The visibility on the timing of the availability of this irrigated catheter has improved dramatically. Our partner, Biosense Webster, made very good progress during the quarter in resolving the specification conformance issues that caused the irrigated catheter to be withdrawn from the European market earlier this year.

During the week of July 7th, Biosense filed a PMA supplement with the U.S. Food and Drug Administration, immediately followed with a CE-Marked filing with the European regulators. These filings were approximately one month ahead of our expectations.

The PMA supplement filing is believed to provide the surest approval process for the return to market of the irrigated catheter in the United States. According to an FDA report, PMA supplement approvals took an average of 126 days in 2007, although this timeframe may not necessarily apply to the current application.

Pending regulatory approvals, we are optimistic that we will be able to resume shipments of the irrigated catheter in Europe in the fourth quarter of 2008 and shortly thereafter, in the United States.

Our collaboration with Biosense Webster has been successful in establishing a new standard for safe and effective treatment in electrophysiology. We believe this relationship has been further strengthened with our recently announced amended agreement.

Under its terms, Biosense Webster will provide Stereotaxis with $18 million, comprised of advances against royalties on catheter sales and deferrals of ongoing research and development costs associated with current and future products. This financial arrangement provides us with significant financial resources on very favorable terms.

In addition, we have agreed to co-promote and expand our Odyssey information management technology by permitting Biosense Webster the non-exclusive right to use the Odyssey network to provide its customers with clinical and technical support. We believe that the opportunity to co-market this technology to the Biosense customer base has the potential to significantly accelerate Odyssey's adoption across a broad spectrum of interventional labs.

Finally, Biosense and Stereotaxis have agreed to enter into negotiations regarding other matters related to our future relationship, including the possibility of Stereotaxis distributing certain Biosense magnetic ablation catheters. Negotiations will begin soon, and we will provide more details when appropriate.

Beyond electrophysiology, we remain cautiously optimistic about expanding the use of Niobe into interventional cardiology. We recently announced a very successful, first-of-its-kind procedure to treat a congenital heart defect in a ten-year-old boy in Bad Oeynhausen, Germany, using a Niobe system.

The patient in this case had pulmonary atresia, a congenital malformation of the pulmonary valve, which obstructs the flow of blood from the heart to the lungs. A team of physicians led by Dr. Nikolaus Haas, Director of the Catheterization Laboratory in the Department of Congenital Heart Defects at the Heart and Diabetes Center, used the Niobe system to navigate the magnetic guide wire through a circuitous route of small, winding vessels to place a specialized stent that permits increased blood flow to the aorta -- from the aorta to the left lung.

Within two days of procedure, the patient was discharged from the hospital. His blood flow has improved, and he's been able to resume many normal physical activities. The success of this outcome demonstrates the potential of the Niobe system as a safe and effective tool for cardiology treatments outside the EP lab.

Also within the arena of cardiology treatments, we remain very excited about the potential of our new RF magnetic wireless ability to address the most difficult total occlusions. As you know, we have filed for regulatory approval for the wire, and the product continues to make its way through the regulatory approval process.

Moving on to Odyssey, our Odyssey Network continues its strong momentum with orders increasing to $2.1 million in the second quarter. We sold our first Odyssey for use outside a Niobe System lab during the quarter, and we expect this will be the first of many.

This first sale illustrates the potential we have to expand our current addressable opportunity beyond the replacement segment of the EP lab market and offer valuable solutions to the effective management of information within every EP lab.

Serving as the information and networking hub for the EP, and potentially other labs, the Odyssey platform allows clinicians to improve their efficiency and efficacy by making it possible to consolidate and better manage information and workflow. This information can then be stored or shared remotely for training or consultation purposes.

We introduced the Odyssey Cinema product at the Heart Rhythm Society Conference in May. Odyssey Cinema records interventional lab procedures, providing physicians with a high-definition, real-time view from many points in the network of Odyssey systems.

In addition, the Cinema Archiver feature allows clinicians to store and replay procedures in their entirety or in segments, often used as an effective tool for collaboration, remote consultation and training. The new product was extremely well received by the physicians in attendance at HRS, and we expect Odyssey Cinema to contribute meaningfully to our revenue in 2009.

While the current physical utilization rate among our installed base is constrained by the absence of the magnetic irrigated catheter, we expect strong procedure growth following its return. The irrigated catheter is expected to drive procedure growth, principally by facilitating the ability to do more complex, left-side procedures, including treatment for atrial fibrillation, and we anticipate this could increase weekly procedure volume to three or more procedures per system per week in the mid term, increasing over time to as many as one per day.

We further note that Cordis has recently announced their pursuit of an atrial fibrillation label in the United States for the Biosense Webster irrigated catheter, and we are optimistic that if successful, this will serve as a catalyst for accelerated growth in the treatment of complex arrhythmias.

The pending return of the magnetic irrigated catheter and the concomitant increase in procedure volume when combined with the higher ASPs of CardioDrive II, which is on schedule to be commercialized in the fourth quarter, and incremental royalties payable on the irrigated catheter should drive Stereotaxis' per-procedure revenue to well over $1,000 in 2009. These per-procedure revenues would be augmented by service and software licensing fees and in the future connection fees for our Odyssey users, allowing us to fully realize the potential of our recurring revenue model.

In addition to the favorable outlook for recurring revenue growth in 2009 and beyond, we expect to generate significant improvements in the sale of our Niobe and Odyssey systems. We also remain very focused on increasing our overall gross margins to 70% by the end of 2009 and in reducing our operating expenditures.

In this regard, we continued to make good progress in the second quarter with a $1.3 million decrease in operating expenses from the prior year, excluding our one-time contribution to the reengineering costs associated with the irrigated catheter remediation. Our goal is to set the stage for profitability.

We made very good progress towards achieving our financial model in the second quarter. For the remainder of 2008, we will be focused on continued execution of our plan. While the lack of availability of the irrigated catheter makes us reluctant to provide specific guidance for the remainder of the year, we can offer these observations.

First, we are heartened by our substantial growth in backlog, which augurs well for long-term revenue growth. Second, the absence of the irrigated catheter will continue to influence our revenue growth during the second half of the year.

Currently, we expect sequential revenue growth for the third quarter as compared to the second quarter we have reported today and in similar fashion for the fourth quarter over the third. In addition, we expect modest overall revenue growth in the second half of 2008 when compared to the second half of 2007 with this growth occurring in the fourth quarter.

Operating expenses are expected to decline in the third quarter as well as in the fourth quarter through our efforts to reduce R&D and G&A expenses while we continue to invest in sales and marketing and clinical resources. 2008, while a difficult year because of the withdrawal of the irrigated catheter, has enabled us to put in place the essential building blocks for growth in 2009 and beyond.

With the likely full availability of the irrigated catheter by 2009, the results beginning to emerge from our overall business strategy and recently bolstered capital resources, Stereotaxis has a clearly defined path to profitability. The company is no longer a start-up, and the management skills required to moving towards operations and execution rather than the skills required to create and build a company.

With this in mind, we are continuing to build and strengthen the senior management team. The recent appointments of Magnus Holm, Lou Ruggiero and Kevin Shifrin to leadership positions at Stereotaxis illustrate how we're expanding our management capability to foster the successful, profitable growth of the company. Now, I would like to turn the call over to Jim for a more detailed review of the second quarter financial results. Jim?

Thank you, Bevil. Stereotaxis reported total revenue of $10.7 million in the second quarter compared with $7.8 million in the second quarter last year. Total revenue included $7.9 million generated from sales of our systems with five Niobe systems recognized in the U.S. and three in Europe as well as four Odyssey systems recognized this quarter.

We also generated $2.8 million in revenue from disposables, services and accessories. This compared with $2.1 million recognized in the second quarter of 2007. The increase continues to reflect the growing installed base of our systems end usage across a broad range of applications.

Year-to-date 2008, we reported approximately $17.7 million in total revenue compared to approximately $17 million in 2007. Year-to-date revenue includes 12 Niobe systems and six Odyssey systems compared to 11 Niobe systems year-to-date 2007.

The second quarter 2008 Niobe systems revenue was unusually negatively impacted by several lower ASP transactions as well as the contractual deferral mentioned previously. However, I should note that our backlog average ASP exceeds $1.1 million and should hold us in good stead as we bring these systems to revenue in the coming months and quarters.

Gross margin for the quarter was $6.5 million, comprising 61% of revenue, compared to a gross margin of 45% of revenue in the comparable 2007 quarter. Gross margin for the 2008 second quarter was impacted by the sale of one Niobe I system from backlog, which carried a significant lower ASP than our current Niobe II systems as well as one contract, which contained terms requiring us to defer a higher than normal portion of the total revenue until the installation was complete, which occurred in July.

Margin was also impacted by the cost for Odyssey systems delivered and installed this quarter as we experienced the start-up production volumes and associated costs. Absent these items, margins would have been in the 65% range. Margin for the 2007 quarter was likewise impacted by an unusual charge for the Niobe I inventory evaluation adjustment, which reduced margin by approximately 23 percentage points down to the 45%.

Operating expenses in the first quarter were $18.7 million, a slight decreased compared to the $18.9 million recorded in the second quarter last year. Adjusting second quarter 2008 for the $1.1 million of spending related to the irrigated catheter issue, second quarter expenses were $17.6 million, $1.3 million or 7% lower than 2007 second quarter and $300,000 sequentially lower than the first quarter of 2008.

Research and development expenses adjusted for the $1.1 million were $3.7 million, or approximately 50% less than the prior-year quarter. Sales and marketing expenses increased compared to prior-year quarter while general and administrative expenses, exclusive of the training component included within G&A, remained flat.

Looking to the remainder of the year 2008, as we indicated in our release, we expect to see a sequential reduction in operating expenses and note that this quarter's adjusted $17.6 million run rate of operating expenses is more than $1 million favorable to each of the third and fourth quarter of 2007 operating expense levels. Thus, we are well on our way to achieving our goal of having operating expenses for 2008 be less than those for 2007.

We reported a net loss of $12.8 million in the quarter, or $0.35 per share. This compares with a net loss of $15 million, or $0.42 per share, in the prior year's first quarter. Average shares outstanding were 36.5 million compared with 36.2 million in the same period last year. Net loss to date 2008 was $26.3 million, or $0.72 per share, compared to $25.5 million, or $0.72 per share, in the 2007 period.

Cash and investments totaled $11.8 million at June 30. Total debt at the end of June was $30.6 million with $13 million drawn against our available credit, including $10 million against the $20 million commitment received from the two insiders in February of this year and includes approximately $6 million of amounts owed to Biosense Webster for ongoing research and development activities, which has been classified as long-term debt in the June balance sheet, as a result of the agreement we executed in July.

We used approximately $7 million of cash in operations in the second quarter, down significantly from the $12 million used in the first quarter, as we had previously anticipated. The June balance sheet does not reflect the advance received from Biosense Webster in July in connection with the execution of the agreement. We continue to believe that the cash on hand as well as the current availability under the bank and insider lines will provide sufficient liquidity to take the company into the first half of 2009.

As Bevil indicated, our backlog net of the systems taken to revenue, grew to $72 million at the end of June. We do not include orders for disposables, services or accessories in this data. As a reminder, there can be no assurance the company will recognize revenue related to its purchase orders and other commitments, because these purchase orders and other commitments are subject to contingencies that are outside of the company's control.

In addition, these orders and commitments may be revised, modified or canceled, either by their express terms, as a result of negotiations or by project changes or delays. Now, Bevil and I would be happy to answer any of your questions. Operator?

Thank you, sir. (OPERATOR INSTRUCTIONS). Thank you. The first question comes from Tao Levy. Please state your company name followed by your question.

Good morning. This is actually Imron in for Tao from Deutsche Bank. Thanks, for taking my questions. My first question is on the relaunch of the irrigated catheter. What's the latest thinking there as far as -- are you going to require another beta launch? Or, is this just going to be a full commercial launch post approval?

I believe that it is standard operating practice for Biosense Webster to undertake a beta launch for every product that is introduced to the market. So, this is likely to be the case with the return of the irrigated catheter, although we would anticipate an abbreviated beta launch.

Okay. And then a couple of housekeeping questions, you commented in the release and your prepared remarks about the sale of a legacy Niobe I system. Can you just comment on why you're still selling that -- that older generation system? And then, also maybe comment on the one contract that you said was -- where revenue was deferred to the third quarter. Was that just a function of when the construction was completed?

I'll answer the first question. Then, I'll hand the second question to Jim. We have a very small inventory of Niobe I systems, I believe two or three, and these systems have essentially been written down beyond the one that we sold so that every now and then, we have an opportunity to dispose of one of these systems through a sale to a customer who's looking for something less expensive than a Niobe II. And we avail ourselves of that opportunity.

Going forward, because the remaining two or so Niobe I systems in stock have been fully written down, they would -- the sale of one would contribute significantly to gross margin. But in this quarter, we sold the last Niobe I system that for some arcane accounting reason that I won't go into and don't fully comprehend was not completely written off, and therefore gave us low gross margins for that particular system.

And Imron, the other is just a function of how the contracts are written as -- and the amounts that are billable upon completion in separate phases. And this particular contract had a deferral that carried into July.

Okay. And then, can you give us a rough sense of what the number of procedures were in the quarter?

We've been running very roughly at around a procedure and a half per week, and this has been pretty static or, should I say, stable. We don't expect it to change substantially until the return of the irrigated catheter. And by 1.5 procedures per week, I mean per trained, installed system.

Okay. And then my last question, obviously you've had some challenges relative to the delay with the irrigated catheter, but can you just maybe comment on some of the external headwinds that you're facing relative to maybe hospital capital spending and then also maybe some -- your latest observations on the competitive landscape?

We have not felt significant headwinds related to hospital capital expenditures. We do have a very significant headwind. One could almost call it a gale-force wind, relating to the continued lack of availability of the irrigated catheter, which makes our performance in the second quarter all the more [heart neck].

We expect the irrigated catheter's return to substantially change our business dynamic across the full spectrum of our business, from system sales to device of recurring revenues and for all aspects of our business. With regard to the competitive landscape, we continue to see very little competitive activity in our space and have noted no changes in that regard.

Great, thanks so much for taking my questions.

Thank you. The next question comes from Mimi Pham. Please state your company name followed by your question.

Hi, J&P Securities, good morning. Bevil, you gave us color on system sales for second half of the year. Can you clarify, given what you're seeing in the pipeline, what your expectations are for new Niobe orders in the second half of the year?

: Mimi, I'm not prepared at this stage to talk to future Niobe orders other than to say that our order momentum has been pretty good. In the first quarter, it was good. In the second quarter, it was good, and clearly hospitals and institutions that are looking beyond the near term are continuing to show strong interest in our product.

I guess related to that, did you comment on your -- the mid to late-stage pipeline numbers? Is it still around 300 systems at the end of --

It is, perhaps gone up slightly, it -- but it has been hovering in that region, certainly hasn't gone down, and we -- when we look at -- Mimi, when we look at our current backlog of $72 million with no cancellations and a -- and an active and strong late to -- a mid to late-stage pipeline, we -- we're very confident about our longer-term prospects.

We have a hiatus that was generated, we believe, by the withdrawal of the irrigated catheter that is shortly going to come to an end, and we look beyond that to some very attractive growth prospects.

Good, thanks. And then the last question on the Odyssey agreement with J&J, does this hurt your ability to sell Odyssey into non-J&J EP labs?

Not at all, it's absolutely non-exclusive, and we expect that it will be additive to our opportunities and in no way subtract from them.

Thank you. The next question comes from Mr. Spencer Nam. Please state your company followed by your question.

Hi. This is Spencer Nam from Summer Street Research Partners, a couple of questions for you guys. In terms of the financing side, how does the -- with the cash position and with the debt, what kind of bond rate are we thinking about in the second half of this year? And what's -- what are the terms of the long-term debt that you guys currently carry?

The burn rate, as we had anticipated in the second quarter, decreased significantly in Q2 and should improve beyond that for the last half of the year. The amounts that are included in the long-term debt include $6 million that -- from an accounting perspective that's categorized out of the Biosense agreement. That is actually repaid out of future royalties and has no future cash impact in the near term. The other debt has a maturity in mid-2009.

Thanks. And then the second question is, in terms of the backlog that are building up, what are the thoughts -- how are the customers thinking about their decision to install Niobe here? Are they looking towards the irrigated catheter? Is that the kind of driver here for them? Or, is it more broad needs or the interest in Niobe system?

The irrigated catheter is an indirect but powerful component of a decision to purchase a system. Clearly, because our backlog is going up and our order rate has been strong, customers are very interested in the value we can bring to their labs.

However, until the irrigated catheter is returned, we do not have any demonstration sites where customers can go and see complex cases being done with our system, and that does serve to be -- does turn out to be a hindrance in the near term.

It's very important in closing a transaction to be able to have reference sites, which we don't have. However, that impact is a near-term impact, and we expect to be able to substantially build up our reference sites, beginning in the fourth quarter with the return of the irrigated catheter in Europe. And we expect that this problem will be behind us.

Customers who are placing orders for Niobe systems today are tending to look beyond the current irrigated catheter withdrawal, because J&J has expressed a strong confidence to them about the return of the irrigated catheter. And typically, these systems that are being ordered today would be for delivery next year anyway so that our customers don't see their deliveries being affected by the irrigated catheter temporary hiatus.

Thank you. The next question comes from Keay Nakae. Please state your company name followed by your question.

Yes, Keay Nakae, Collins Stewart. Jim, can you tell us what the revenue contribution from Odyssey was in the quarter?

Yes. It was about $700,000-plus.

Okay. As far as the sales and marketing number, that number is increasing. How should we think about that going forward? I think you mentioned that it will continue to increase, but at what type of rate?

Because our overall goal, Keay, is to hold OpEx at a relatively flat level, you'll see it increase, but I think if you keep in mind our overall target and you see R&D coming down, as Bevil I mentioned I think in our last conference call, we're taking about $10 million really out of R&D for the year. And you'll see the mix between R&D, G&A and sales and marketing realign itself so that we can keep that sub-$73 million run rate going into 2009.

Thank you. The next question comes from Mr. Ed Shenkan. Please state your company name followed by your question.

Thank you, from Needham & Company, and the question is about the new irrigated catheter, which is being submitted. What did you change on it? What was the actual problem and the root cause that you identified? And just give us confidence that this has been fixed and that you've done all the necessary testing on that product.

Ted, hi. I don't know all the things that were changed on the irrigated catheter and what was under the category of modification and what was under the category of remediation. However, I do know that J&J has their most senior engineering managing on this project, that this project has the attention of the parent company all the way up to the Vice Chairman level at -- and that very, very strong representations have been made by our partners to their clinicians that they expect this catheter to be back and functional.

So, we have a very high level of confidence in our partners' engineering competency and dedication and commitment, and we believe that they have thoroughly and exhaustively identified the issues and are in the process of remediating them. They are -- they are now in the process of, we understand, ramping up the manufacturing capacity for these devices.

Can you tell us more about the ramp on manufacturing ahead of launch? And if it doesn't get approved as it stands and you have to make another modification, would those manufactured units need to be destroyed? Or, what's the plan there?

I don't think there's any expectation that it won't be approved. I think that we have a very capable, very senior team that's been able to dominate the ablation catheter landscape worldwide to the tune of having close to, we understand, three-quarters of the market share for ablation catheters. So, we think they know what they're doing, and we believe that this catheter will be successfully returned. And we're confident that they're going to have manufacturing in place in advance of the return.

Thank you. The next question comes from Lawrence Keusch. Please state your company name followed by your question.

Good morning, everyone. It's Charlie on for Larry. How are you?

All right.

I just had a quick question for you to begin with on the replacement of Niobe I. So just out of curiosity, how many of the system placements during for the quarter were for the replace -- were for replacements?

There are no replacements. In other words, we're not replacing Niobe Is with Niobe IIs. We have -- we made a transition from our first model, which was Niobe I, to Niobe II about three years ago -- two to three years ago.

And when we made that transition, we still had a small handful of Niobe Is in stock. We have, on occasion, sold Niobe Is, generally taking a hit to our gross margin in the process. In this instance, we sold a Niobe I to an academic site that did not have the resources for a Niobe II, and there was no replacement and nor do we anticipate there being any replacements ever.

Okay, thanks for the clarification. Well, maybe we can move on to just your cash position. So going forward here, as we think about 2009, and maybe this is a question for Jim, Jim, is 2009 going to be free cash flow negative for Stereotaxis because based on the current cash burn, it looks as if maybe you might have to tap additional financing before the end of 2008.

And even though you can tap into an additional $20 million, it just seems as if -- or into additional resources, it just seems as if that you might have to consider additional financing potentially by mid-2009. So with the stock at current levels, what other financing options are you considering?

There -- as you can see, we've considered and accomplished a couple of things. I think the Biosense transaction bodes well for us. The insider line has turned out to be a very good thing for us. I don't think we'd need to tap any financing in the rest of 2008. I would just continue to read where we are Charlie.

I think obviously, 2009 should be a much, much better cash flow year than 2008. I'm not prepared to say it'll be cash flow positive yet, but should be significantly better, and we'll review our situation as we move forward.

Thank you. The next question comes from Steve Ogilvie. Please state your company followed by your question.

Good morning. It's Steve Ogilvie at ThinkPanmure. Could you help me understand how the $18 million coming from J&J, how that impacts recurring revenue going forward? And then the second quarter would be, as you look to get to $1,000 per procedure in 2009, do you feel like you're going to lose your leverage on your cost-benefit argument versus your competition?

The recurring revenue, Steve, is not impacted at all. We'll continue to report the recurring revenue in the period that it occurs. This is -- think of it as a down payment, so the cash advances are just the cash side of the transaction. So, it won't disrupt the P&L from a normal recognition of revenue as they occur quarter by quarter.

The second part of your question, Steve, if we look at our current recurring revenues per procedure, we have a CardioDrive I catheter advancer device that now commands an ASP of greater than $600 to which we add the income from royalties that are payable on the catheter. Depending on the catheter, those royalties may range from, say, $200 to $500.

In the fourth quarter of this year, we will introduce a CardioDrive II version, which will carry a list of $1,500. It has many advantages over CardioDrive I. It's much faster. It comes pre-assembled, so it -- the set-up time is significantly lower, and we expect it to have an ASP for that device alone approximating $1,000 to which would be added royalties approaching $400 to $500 for a irrigated catheter, depending on the ASP of the irrigated catheter.

These are, of course, very rough, round numbers, but we don't expect this to change our value proposition at all because our understanding is that our competition, in as much as they are selling sheaths for their devices, are selling them for close to $1,000 more.

Thank you. The next question come from Mr. Charlie Jones. Please state your company name followed by your question.

Barrington Research, good morning, Jim. Good morning, Bevil.

Good morning, Charlie.

Bevil, I appreciate that you cut my first question down by a half. It centers around the CardioDrive, CardioDrive II, and you told us a little bit about the ASPs and list. Can you tell us whether or not it will be available in the U.S. and internationally at the same time? And will hospitals have a choice?

And I guess the final part of that question is, do you still believe you can charge hospitals a different price for using a competitive catheter opposed to a catheter you receive a royalty from? And if so, have you talked to your customers about that?

The first part of your question is that the CardioDrive II should be launched domestically and internationally in the fourth quarter, and we expect to be able to command a significantly higher ASP for it because it has significantly better features.

So, our customers are getting value for money with this device. It -- we won't differentiate between European launch and U.S. launch for this device. I did not fully understand the second part of your question.

So, will hospitals have a choice in using either one?

Oh, I see. Initially, yes, but over time the advantages of CardioDrive II will be that it is, in some ways, more connected to and more enhanced by our software so that as software evolves, CardioDrive II would evolve with the software, whereas CardioDrive I may not. And we would expect the bulk of our customers to shift their purchasing to CardioDrive II, certainly within about six months following the launch of CardioDrive II.

And perhaps really the part you didn't understand was regarding these European hospitals that may eventually start to use your system with a competitive irrigated catheter. Do you still think you're going to need to differentiate between those that are using it and those that are not? Or, do you think that the higher overall ASP of the CardioDrive is enough?

Yes. We think that the higher overall ASP of CardioDrive will put us in good stead with hospitals that may be using competitive devices.

Thank you. The next question comes from Klaus Von Stutterheim. Please state your company name followed by your question.

It's Deutsche Bank, and a lot of my questions have been answered. I must have missed one thing. What is the actual liquidity position, cash plus whatever credit facilities are available?

About $40 million.

Okay. Yes, that's all I needed to know. Thanks.

All right, thank you.

Thank you. (OPERATOR INSTRUCTIONS). Thank you. The next question comes from Mr. Gabe Hoffman. Please state your company name followed by your question.

Accipiter Capital Management, thanks for taking the question this morning. So just looking through the agreement with the Silicon Valley Bank, when you'd made the change earlier this year, it replaced the quick ratio covenant set forth with a requirement that the company maintain certain amounts of tangible net worth at the end of each month.

I was just curious, what is the amount of tangible net worth that you would need to have as of, let's say, June 30th. How was that calculated? And were you above that at that time?

I am above that, yes.

The balance sheet.

Yes, and it varies by month, very, very well in compliance with that number.

What is that number for -- that you would -- that you needed at that time in terms of tangible net worth?

I don't know if I put -- if that number's been disclosed in the financial -- in the 8-K, but I am well in compliance with the number.

Thank you. We've got a follow-up question from Mr. Charlie Jones. Please state your company name followed by your question.

Barrington Research, thanks, this is the second quarter. Could you tell us how many of the Niobes were sold in the U.S. and international and how many orders came from each geographic area?

Five of the Niobes were sold in the U.S., and the balance O-U.S.

And how about orders, sorry?

And on the order side, the percentage is very roughly half and half also.

And I was hoping, Bevil, you would just comment for us about whether or not you've -- your conversations with your customers have improved your confidence that you guys are going to move out of backlog and into revenue and whether or not, as a result of the difficulties that you have gone over the last six months, has started to actually give you a bit better clarity at where these customers are at with their final accepting of the order. Thanks.

When we put an order in backlog, we are pretty confident. In fact, we're extremely confident that that order is going to go to revenue, and there are only two questions of -- the first and the most obvious one is, when will it go to revenue? And there is a final one, and that is whether it will go to revenue.

And typically, it never goes into backlog unless we're absolutely certain that it will go to revenue. We have had a small cancellation rate of -- running around 7% of our backlog historically, although I note there were no cancellations in the last quarter.

So focusing on the question of when it will go to backlog -- excuse me, it will go to revenue, we continue to be influenced currently by the lack of availability of reference sites and the lack of availability of the irrigated catheter. And that does have a near-term drag on placements, not necessarily order generation, because people who are ordering systems are ordering them for delivery beyond the current fallow period.

We do expect that we will see a pick-up in placements as well as orders and, of course, also in terms of procedure volume following the return of the irrigated catheter. So, we're cautious about revenue recognition of systems being installed over the balance of the year, but cautiously optimistic. But, we're very optimistic beyond the end of this year and into 2009 and beyond.

Thank you, that's helpful, Bevil.

Thank you. We've got a follow-up question from Mr. Lawrence Keusch. Please state your company name followed by your question.

Hi everybody, it's Charlie again, just two follow-ups. First of all on the irrigated catheter, it seems as if Stereotaxis and Biosense Webster have a really strong conviction level on approvability here.

And to the extent that you can discuss this, what needs to happen to get to an approval? What are some of the required steps that we should be mindful of? I mean, are we talking about FDA, an inspection that will be required? And if so, then has an inspection date been scheduled? Is that's what's lending to all this confidence?

To my knowledge, there are not FDA inspections required, that all the data that needs to be provided to the FDA has been provided to the FDA. So, the FDA should have all the information they require to make a decision on the regulatory submission.

Of course, they could come back with a question about some data or a question about some wording in the filing. There are always reasons for FDA to ask for more information, but we're -- we are highly confident in the regulatory capacity and competency of our partner, their understanding of the process and we believe that the dossier is complete and that everything that needs to be done has been done.

Great, thanks for that clarity. And then just another follow-up to a question on the backlog conversion, as you interact with your accounts, especially here in the U.S. where they are just in the early stages of planning capital budgets for 2009, are you seeing customer commitments to move forward with installations, because we're coming across some disparate data points, some anecdote that some -- that as hospitals contemplate their 2009 budgets, that they are not approving, or at least deferring, some spending programs. I'm just wondering what you guys are seeing there?

Well, when we look at orders, our orders in the first quarter were very strong. Our orders in the second quarter were an all-time record for a second quarter. So our order rate is very strong, and that would point to hospitals continuing to embrace this technology for the future.

Our issue, inasmuch as we have an issue, is with near-term installations and revenue recognition around units that are being delivered and installed between now and the end of the year, and that's where we have added the word cautious to our cautiously optimistic statement.

But beyond that, we really see a strong demand and sustainable demand that we think, over time, will be augmented by the regulatory approach that Cordis has recently announced toward gaining an atrial fibrillation label for their catheter. And we think that that could serve to galvanize the industry as a whole.

Great, thank you very much.

Thank you, sir. We seem to have no further audio questions. Please, continue.

If there are no further questions, I would like to thank all of you for your attendance, appreciate your questions and look forward to talking to you again soon. Thank you.

Thank you, ladies and gentlemen. This concludes today's Stereotaxis Q2 2008 Earnings Conference Call. Thank you, for participating. You may now disconnect.