Dynatronics Corp. has a market cap of $9.2 million; its shares were traded at around $0.69 with a P/E ratio of 17.3 and P/S ratio of 0.3.
Highlight of Business Operations:Gross profit decreased 7.2% to $2,951,833, or 37.3% of net sales, in the
quarter ended September 30, 2010, compared to $3,179,342, or 38.4% of net sales,
in the quarter ended September 30, 2009. The decrease in gross profit reflects a
mix of sales favoring the lower margin supplies and distributed products instead
of the higher margin capital equipment products. The diminishment in sales of
higher margin capital equipment is a reflection of the continuing weak economic
conditions in the United States where the majority of our sales are made. As
economic conditions begin to improve and credit facilities become more readily
available, we believe sales of capital equipment will increase.
Selling, general and administrative ("SG&A") expenses decreased $211,851
to $2,500,517, or 31.6% of net sales, in the quarter ended September 30, 2010,
from $2,712,368, or 32.7% of net sales, in the quarter ended September 30, 2009.
The following factors impacted SG&A expenses for the quarter ended September 30,
2010, as compared to the same period in 2009:
Research and development ("R&D") expenses increased $133,828 to $349,796,
or 4.4% of sales, in the quarter ended September 30, 2010, compared to $215,968,
or 2.6% of sales in the quarter ended September 30, 2009. We are developing a
number of important new therapy devices that are expected to be introduced in
calendar year 2011. These development efforts are directly responsible for the
increase in R&D expenses. It is anticipated that R&D expenses for fiscal year
2011 will be approximately $1,400,000. We believe that developing new products
is a key element in the Company's growth strategy. R&D costs are expensed as
Interest expense decreased by $41,325 to $77,669 in the quarter ended
September 30, 2010 compared to $118,994 in the quarter ended September 30, 2009
due to lower interest rates, decreased borrowings and lower carrying balances on
our bank line of credit compared to the prior year period. During fiscal year
2010, we renegotiated the interest rate on one of our mortgage loans, reducing
it from 9.1% to 5.6%.
Income tax expense was $12,725, or 42.8% of pre-tax income, in the quarter
ended September 30, 2010, compared to $73,150, or 51.6% of pre-tax income, in
the prior year comparable quarter. The differences between the federal statutory
rate of 34% and the effective rates are mainly related to state income taxes and
other permanent book to tax differences such as stock-based compensation and
meals and entertainment expenses.
Interest on the line of credit is based on the 90-day LIBOR rate (0.29% as
of September 30, 2010) plus 4%, with a minimum interest rate of 4.5%. The line
of credit is collateralized by accounts receivable and inventories, as well as a
security interest in our headquarters facility in Salt Lake City, Utah.
Borrowing limitations are based on approximately 45% of eligible inventory and
up to 80% of eligible accounts receivable, up to a maximum credit facility of
$7,000,000. Interest payments on the line are due monthly. As of September 30,
2010, the borrowing base was approximately $5,529,000, resulting in
approximately $2,840,000 available on the line. The line of credit includes
covenants requiring us to maintain certain financial ratios. As of September 30,
2010, we were in compliance with the loan covenants. The line of credit expires
on December 15, 2010 and we expect it will be renewed; however, there is no
assurance that it will be renewed or that, if renewed, it will be extended on
the same terms.
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