Greetings and welcome to the Bacterin's 2013 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rich Cockrell. Thank you, sir. You may now begin.

Thanks Jesse and thank you guys for joining us today, with me today are Dan Goldberger, Bacterin's President and Chief Executive Officer, and John Gandolfo, Chief Financial Officer. Of course as most of you know we issued a press release yesterday announcing third quarter results, for the period ending September 30, 2013. If you have not received those results please feel free to visit the Investor Relations section at investor.bacterin.com. Following the remarks by management, we will open the call to questions. We anticipate the call to be approximately one hour. During the course of this call, management may make certain forward-looking statements regarding future events and the Company’s future performance. These forward-looking statements reflect Bacterin’s current perspective on existing trends and information can be identified by such words as expect, plan, may, anticipate, will, believe, should, intend and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance that involve certain risks and uncertainties, including those noted in the Risk Factor section on quarterly report form 10-Q which will be filed next week. Actual results may differ materially from those projected forward-looking statements. For the benefit of those of you who maybe listening to the replay this call is being held and recorded on November 8, 2013 at approximately 10:00 a.m. Eastern Time. Since then management may have made additional announcements related to these topic discussed, please reference the Company’s most recent press releases and current filings with the SEC. Bacterin declines any obligation to update these forward-looking statements except as maybe required by applicable Securities laws. And with that I’d like to turn the call over to Dan Goldberger, President and CEO go ahead Dan.

Good morning, my name's Dan Goldberger and as you may know earlier this year I was offered the opportunity to take on the role of President and Chief Executive Officer of Bacterin International, an offer that I was pleased to accept and for promising initial overview of the business, we appreciate your interest in the company and thank you for taking the time to join us on this call, I’d like to begin by thanking John Gandolfo, Darrel Holmes, Kent Swanson and the rest of the management team for their tireless work throughout this transition. Their hard work has allowed Bacterin to maintain an important foothold in the market, after Mr. Cook's departure John and Darrel did an admirable job preparing the company for the incoming CEO; their involvement in this process has been exceptional (Ph). In business, the two most important aspects of a company are its products and its people, after I was approached for this position I realized Bacterin was already blessed with world-class product and fantastic people. Our product line especially in biologics is widely accepted as a leader in both quality and value, throughout this process I visited with many of our key accounts and surgeons and the common thread in these meetings has been effusive praise of our allographs and clinical performance. While Bacterin's fundamentals are strong revenue growth has been stagnant over the last several quarters and I'm working closely with our management team to identify areas of concern throughout the organization. We found among other things that our approach to our sales force has been counter intuitive; the model that the company used to follow essentially punished our top performers incentivizing them to resign and sign up as distributors. We've decided to change that model to instead compensate our top performers in…

As I review our financial results, I would like to remind our listeners to refer to the third quarter earnings press release issued yesterday and also our Form 10-Q for the period which will be filed next week. For the third quarter, total revenues decreased approximately 10.7% from $8.9 million in the third quarter of 2012 to approximately $7.9 million reported for the third quarter of this year. The decrease was primarily attributed to $1.85 million in stocking orders reported in the third quarter of 2012. As Dan mentioned, excluding stocking orders, revenues increased 12.9% over 2012. Total revenues in the third quarter decreased 4% sequentially from the second quarter 2013 revenues, reflecting the seasonality of the market. It is important to note here that we're seeing strong indications of the stabilizations of revenues generated from our core hospital business as evidenced by the year-over-year growth of our core biologics business. Gross profit for the quarter was $4.6 million and this compared to $6.3 million for the third quarter of 2012. Gross margins for the period was 58% which compares to a gross margin of 71% reported in the same period last year. The decrease in gross margin was primarily due to a changing product mix, lower average prices due to increased competition as well as contract obligations with our GPOs. And the discarding of certain products as we improve our manufacturing process Excluding the impact that this product discards gross margins were 61.4% in the third quarter of 2013. We're currently in the process of analyzing in detail our manufacturing process as well as related inventory levels to determine the appropriate costing method and model as we go forward into 2014. Sales and marketing expense for the third quarter increased to $4.1 million as compared to $3.4 million for…

Thank you. Ladies and gentlemen, we will now be conducting our question-and-answer session. (Operator Instructions) Our first question is coming from the line of Matthew O'Brien with William Blair. Please proceed with your question. Matthew O'Brien - William Blair & Co.: Good morning. Thanks for taking question, just hoping you guys can just start off with how we should be thinking about Q4 here given what we saw in the third quarter? And then I’m not sure if you want to even get into 2014 at this point, but just the general trajectory in the way to think about things next several quarters.

So Matt, thank you for joining the call. We’re quite a few weeks into the fourth quarter and we are tracking similar kinds of run rates that we’ve seen earlier in the year. There is some seasonality in the business as I mentioned. We’re making some changes in the sales force which will become affective in the first quarter ’14 and I’m very excited about ’14 but we still have a lot of work to do to build that foundation. Matthew O'Brien - William Blair & Co.: Okay, so along those lines Dan how should we think about the turnaround process going forward? It sounds like with some of those adjustments in the sales force Q1, Q2 could be fairly soft and then obviously Q3 of next year will have the seasonality in it. And then is it really kind of Q4 next year we should focus on in terms of how things are progressing?

I’d love to tell you that things will go faster but I think what you just outlined is a realistic conservative approach. Matthew O'Brien - William Blair & Co.: Okay, and then on the distribution agreements you guys have been doing at fair amount internationally in recent months. How should we think about that contributing next year and in the coming years?

When you say we’ll be doing at fair amount we’ve been doing some -- we've been working on it our revenues are [multiple speakers] our trailing revenues were immaterial from international just to clarify. And the international business especially our entrée into the European Union in partnership with DMP Spine is all upside to what we’ve been doing inside the company. So we’re not planning for it but we’re optimistic that that will be attraction ahead of schedule. Matthew O'Brien - William Blair & Co.: Okay, any sense for potential contribution from the revenue perspective next year, or two?

We shift over $100,000 to that channel so far this year, so. Matthew O'Brien - William Blair & Co.: Okay and then mentioning all these compensation changes and distribution commentary. Can you just provide a little bit more color on exactly what that means for your distribution going forward? How much is it going to be distributor how much is going to be direct reps, and then the impact to the operating expense line?

So, we’re going to continue to have a blended organization of direct sales reps where we have strength in that channel and distributor straight commission reps where we have strength in that channel and allow me to be a little bit big about the rest of the reorganization until I roll it out internally. Matthew O'Brien - William Blair & Co.: Okay, and then last one from me and this is probably for John. The cash balance that we’re looking at now and given the burn rate we saw in the quarter, would you stay at that confidence level that you won’t be needing cash in the next several quarters? And you said to meet your operational demands going forward. I mean over what time frame are you projecting there?

Well, I think that the statement was that with the revenues as well as with potential reductions as well as some additional capital resources we would meet our anticipated capital resources, we would meet our cash obligations. So, the same it was made looking out over the next 12 months or so but the cash need will totally be depended upon where the sales levels come in over the next few quarters. So, we’re analyzing now, what channels are available for us to get additional cash into the company.

Thank you. The next question is coming from the line of Suraj Kalia with Northland Securities. Please proceed with your questions.

What was the product mix in the quarter for direct versus distributors?

In terms of the percentage it was about one third coming through the direct sales force, two thirds coming from the distributors. Some of that distributor number was in certain markets the distributors working with that direct sales force.

To quantify the direct reps, where do we stand now and where will we be let say in the next six to eight months?

We’ve got 20 direct sales reps and then sales management organization above that and allow me to be vague about forward looking plans until I’ve had a chance to roll them all inside the company.

And how many distributors we currently have?

We have about 160 distributors currently marketing the product as well.

Obviously you’ve comment and as much as all of us would like to be gratified tomorrow, there is a certain time period that is needed for you to reshape the business correct what you perceive is wrong. Given that caveat and all of this will take time. Can you help us specifically for this quarter, help me reconcile the gross margins decreased, and from what we read to move to a direct sales more emphasis to its direct sales but then SG&A also increased to shift the distributors at higher commissions. If you could walk us through or reconcile those two and help us model it out for looking forward.

Let me address the distribution side first and I’ll hand it over to John on the gross margin question. It’s a little bit our nomenclature will be confusing. We’re moving away from the stocking orders that the Company did on occasion in the past. If you look at our history, there were a handful of large sort of lumpy stocking orders with some aggressive terms through them and that’s the kind of transaction that we will not be doing in the future. We are in the same track we are fully committed to the distributor relationships that we have and in our nomenclature those distributor relationships are a large number of dedicated professionals out there who get a straight commission kind of compensation from the company. I wanted to clarify that when we talk about our direct channel, it is a hybrid channel that has direct sales reps for employees of the company and then a larger number of professionals who represent the company and get a straight commission but are not technically employees of the company. So, that’s the channel that when the channel of direct sales reps and distributors rather straight commission representatives that we are focusing on going forward in order to support the brand to develop the relationships on behalf of the company and longer term generate growth in both aspects of the operations top line and contribution.

With respect to your question on the gross margin, in the quarter we did report roughly 58% gross margin, we are doing an in-depth analysis of our whole process at this point in time and we expect that to be completed probably over the next six to eight weeks or so. And we’re trying to ascertain is going forward what will the margin be without any of these extraordinary items that we’ve seen in the past. So, right now we believe that there is probably 5% to 7% more of gross margin that we expect to report as we look at 2014 and beyond somewhere 63% to 65% on a continuing basis. But we are refining our process for certain of our products and that’s reflected in roughly 3% of our gross margin. So, as I’d mentioned excluding the refinement that we’re doing we would have reported gross margin of about 61%. But I think the best way to look at it that assuming constant dollar pricing and that the sales price for the product remain stable. We do believe that there is probably another 3% to 5% of gross margin as we look to 2014 or beyond but we know much better as we complete this analysis that where in a process of doing.

Fair enough. And one last question Dan, I guess, somewhat tangential but nonetheless I hope but I can ask this then your views on all the tissue graft, you know, issues taken place with 361 letters and proposed package reimbursement, how do you all view it and if at all you’ll need to reject any of your products presumably in a newer environment? Thanks for taking my questions.

No, certainly and we’re watching both of those trends very carefully as know the FDA and other regulatory agencies have been looking carefully at this segment of the business. We’re working through the remaining of open items from the warning letter that we received. We do not anticipate any change in the classification of our flagship products OsteoSponge, OsteoSelect on the orthopedic side or hMatrix on the soft tissue side. We are pretty clear on the, what those classifications are? As far as your second question about the gradual change in reimbursement for those procedures, we’re watching it carefully. We are staying close to our physician advisors. The Company has had remarkable success building relationships with the GPOs, building relationships with various IDNs. In the short term that has challenged our pricing somewhat getting on those contracts, but in the long term gives us much broader reach and much more credibility as we call on larger numbers of physicians and institutions.

Thank you. Our next question is coming from the line of Greg Garner with Singular Research. Please proceed with your question.

Thanks for taking my question. It appears that most of them have been answered, but the very beginning of the call I was pulled away and so I didn’t hear the prepared remarks on the change of the marketing, but based on what been discussed so far I think I’ve got the gist of it that and I just want reiterate that to make sure I’m looking at properly is that; Daniel you’re considering refocusing the marketing structure, but it’s really focused on those internal sales people and external distributors that are performing well and compensating them at a higher level to incentivize their continued performance and readout lows who aren’t not performing well. Is that the right way to look at this, but the whole plan is not totally gelled yet, but that’s the direction you’re going in?

Absolutely, we are streamlining and clarifying our compensation plans for our direct employees. Our distributor relationships are going to remain in intact and we’re going to continue to expand those distributor relationships where it makes sense. The part of the call that you may have missed is specially looking at our Q3 financials, there was a large stocking order in the year ago period. And John and I are looking the Company as one that relies on day today sales from our own organization moving away from the onetime large stocking orders that make it very difficult to compare the business to the year ago period.

Okay, step to take here; what do you seeing up there in the market right now as far as any uptake from relatively new surgeons that are new to the Bacterin products, the OsteoSponge and OsteoBody (Ph) and such, or potentially the new hospitals that have signed up or, any flavor on that to where we can get a sense for the receptivity of the product in the marketplace?

I think, there are some positive signs. If you look at our core biologics business being up 13% year on year, I think that signals that our, and we look at two metrics in there, there is the existing accounts buying more per month, using more of our products per month and then on top of that there are some new accounts being added. So and then I think in my prepared comments, I take some comfort from looking at our core biologics business, the number of transactions we are doing, the average size of transactions, those metrics are going in the right direction.

So, it seems like the core biologics growth is good there. Is the hMatrix, is there any details you can tell on how that is ramping up?

We have got a significant number of trials and samples going on right now. And I’m salesman so I’m internally optimistic then I’ll close each and every one of them, but we need another four to six months to see if we can pull those, caught those accounts through to regular customers.

And then just one item on the gross margin, I guess it might be for you John. It sounds like there might be come production items that you can streamline or improve or is there, which makes me wonder that could happen potentially soon or is that pushed out few quarters? It sounds like it could happen soon when you mentioned how gross margin this third quarter could have been about three percentage points higher already.

Yeah I mean certainly we expect that to happen in 2014. You know the company's processing methodology has changed over the last four to five years. We initially started out basically producing much product as we could from each donor and what we have come to the realization is by doing that you are minimizing your waste and you're creating sellable inventory. But a lot of that inventory as we have found out and being low demand inventory. So as mentioned we’re doing this in depth analysis to determine what is the optimum type of products that we’re going to generating from each donor, and how can we do it in the most cost effective and cost efficient way as we get into 2014. So we do expect that the work that we're doing on this analysis and the gross margin to certainly kick in during beginning of 2014.

One thing also comes to mind, EU distributor, what countries are they focused on?

They are strongest in South Europe right now, but there are other partnerships developing with DMP as the master importer that will allow us to get into the UK and BENELUX and the larger Northern European territories.

So DMP would act as certainly to European name distributor that would then farm it out to other country specific distributors that generally.

There is a nuance to getting biologics into the EU. DMP is going to be our primary importer because of their standing as a tissue bank in that territory.

Thank you. Our next question is coming from the line of [indiscernible]. Please proceed with your question.

I know it's hard to discuss the changes that you are contemplating on the marketing side. But I guess from a summary point of view marketing has been the Achilles heel for this company for quite some time. So maybe on a high level you can help us get our arms around a metric that may give us some food for thought. John indicated that a third of the 7.7 million in sales came from your direct sales people. And you mentioned that you got 20 of them. So that means that in the quarter of the average sales guide you had about $125,000.

Yeah.

So on a yearly basis that's about 0.5 million. What should these guys be thinking about? What do you think a good salesman should be able to generate in revenues? I put it that way because we could address the sales issue by just hiring a bunch of more people, which maybe an option or we could address the sales issue by saying we need sales per rep to go up. So if I just look at the latter, the sales per rep, what should a good salesman in this industry do in terms of revenues? And what do you think you can do to stimulate that?

So you are thinking about it in the right direction. There are two parameters here; one, the one that you are identifying, the revenue per headcount; the other parameter is the revenue per transaction. And that starts to tell you how many transactions each individual in the sales force has to participate in. And there is a concept in this industry of covering cases, and we have to figure out cover those cases because each one of those cases represents another transaction and therefore some more revenue for the company. With respect to our sales organization, I can't share those numbers with you just yet. There is public domain information, for example like Medical has been reporting that their sales force is in 680,000 to 690,000 a head and their goal is 750,000 per head. And I think those are reasonable targets. But you are correct in looking at our numbers and seeing sort of that 500,000 per head.

The attraction along has been the size of the addressable market in the small penetration you have had in getting into that space. Wouldn’t it make sense at some point if you can’t get the traction you need to consider some kind of a joint venture with another company for helping jumpstart your revenues?

We are studying the business in some of the other segments where we are not strong in sports medicine and plastic surgery and wound therapy. We’ve got a variety of conversations going on. I’ll be real much more reluctant to do that in some of our core competencies in orthopedics and spine where we’re developing our brand, where we do have some recognition and respectability today. But absolutely, we are very open minded about how to drive market share.

My last question relates to the European opportunity. I guess the two ways for us to think about it would be what do you see as the market opportunity for the Southern European exposure that DMP gives you as market opportunity and then secondly what would you be comfortable dialing in as the kind of revenue that might be achievable in a year or 18 months from that source?

In terms of our models we are not putting anything in for revenue from that source. Even though we’re very optimistic about their ability to penetrate the channel we still have to build the reference accounts to establish the creditability of the product in those marketplaces. And in Europe those process is tend to take longer. That said and that’s the conservative view, it’s entirely possible that channel starts to generate material revenue as soon as the first half of 2014 we could get lucky.

And what you see as the market opportunity?

Longer term, the EU appetite for biologics is about two thirds of the U.S. appetite but the pricing is more challenging.

I think it comes around 50% of the U.S. opportunity.

On the dollar basis.

Thank you. (Operator Instructions). Our next question is coming from the line of Danny Frank, a private investor. Please proceed with your question.

John, in the last two 10-Qs there was a discussion about violation of long covenant and you look at the balance sheet with now no equity, losing money, all indications are you’re going to continue to have cash losses for at least the next quarter or two. Where do you stand on your covenants and what are the terms of the covenants and are you in violation again and will that be disclosed in the 10-Q?

We well in violation this quarter of the revenue covenant and we’re currently in discussions with [indiscernible] to get the waiver which will be included in 10-Q this quarter.

And what are conditions of the waiver?

We haven’t disclosed that yet and we haven’t even finalized that yet.

What the conditions on the last waiver?

I believe that was I think it might have been an exit fee of $200,000 but don’t quote me on that. It will be disclosed in the Q.

But then how do you address the absence of cash if you burnout cash in the next two quarters, how you’re going to address the unavailability of cash.

Well, we’re going, as I mentioned we’re going to have to look for number of capital resources going forward. And we’re doing that now, we’re exploring what are the communities are out there from a capital infusion standpoint.

And then Dan, one question, the big issue for the company has been for some reason never seems to be addressed, is you’re competing against Metronic that is selling a cage or screws or all the hardware also and the biologic and a package that’s going into a customer as a packaged account at a winner take all pricing which is the way they, purchasing managers or doing it all and you guys are walking into a market place with no, if you will, suitcase a products to sell in order to compete on head-to-head basis. How do you going to address that?

Well, you’re absolutely right, Metronic is the 800 pound gorilla in this space. But don’t underestimate their ability to leave some scenes for smaller players like us. We have four GPO contracts now. We have half a dozen IDN contracts now which just demonstrates that in spite of all of their marketing cloud, they continue to leave opportunities open for us to make inroads. We need to execute this, it’s not, for us to get material revenue growth, I don’t have to deal with Metronic I just have to execute on the relationships that the company has already put in place.

Ladies and gentlemen, it appears there are no further questions at this time; I would like to turn the floor back over to Mr. Goldberger for any concluding comments.

Thank you all for tuning in, as you know it's been a challenging transition, I'm optimistic about the future, have a great day.

Thank you ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.