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Dynatronics Corp. Reports Operating Results (10-Q)

May 17, 2010 | About:
10qk

10qk

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Dynatronics Corp. (DYNT) filed Quarterly Report for the period ended 2010-03-31.

Dynatronics Corp. has a market cap of $13.19 million; its shares were traded at around $0.97 with a P/E ratio of 32.33 and P/S ratio of 0.41.

Highlight of Business Operations:

Gross profit for the quarter ended March 31, 2010 increased by $270,837 to

$3,115,263, or 37.8% of net sales, compared to $2,844,426, or 37.3% of net

sales, for the quarter ended March 31, 2009. Gross profit was $9,621,982, or

38.5% of net sales, for the nine months ended March 31, 2010, compared to

$9,353,623, or 38.4% of net sales, for the nine months ended March 31, 2009. The

increase in gross margin as a percentage of sales for the quarter ended March

31, 2010 is attributable to product mix more favorable to some of our

higher-margin medical devices, including the new V-Force device and our top

selling Solaris products, together with certain medical supply products and

treatment tables. As economic conditions gradually improve, demand for higher

margin capital products is expected to increase, which we expect would further

improve gross margins in future periods.



Selling, general, and administrative ("SG&A") expenses for the quarter

ended March 31, 2010 increased $390,622, or 17.3%, to $2,647,417, or 32.1% of

net sales compared to $2,256,795, or 29.6% of net sales, for the third quarter

ended March 31, 2009. SG&A expenses decreased $1,726, to $8,059,143, or 32.2% of

net sales, for the nine months ended March 31, 2010, from $8,060,869, or 33.1%

of net sales, for the nine months ended March 31, 2009. SG&A expenses in the

quarter ended March 31, 2009 benefited from a one-time reversal of an accrued

liability of $472,398 resulting from the cancellation of retirement benefits

previously provided by contract to two executive officers, Kelvyn Cullimore, Jr.

and Larry Beardall. This one time reversal had the effect of lowering operating

expenses for the quarter ended March 31, 2009 by an equivalent amount. The

benefits were cancelled when the employment agreements in which they were

granted were terminated in March 2009. Both executives subsequently entered into

new agreements with the Company in June 2009. The new agreements do not include

retirement benefits such as those that had been a part of the terminated

agreements.



Research and development ("R&D") expenses decreased $25,231, or 10.2%, to

$222,062 for the quarter ended March 31, 2010, from $247,293 for the quarter

ended March 31, 2009. R&D expenses also decreased as a percentage of net sales

for the quarter ended March 31, 2010, to 2.7 % from 3.2% of net sales for the

quarter ended March 31, 2009. R&D expenses decreased $130,128, or 16.8%, to

$644,912 for the nine months ended March 31, 2010, from $775,040 for the nine

months ended March 31, 2009. R&D costs are expensed as incurred. We expect to

continue our commitment to developing innovative products for the physical

medicine market in fiscal year 2010 and in future periods in order to position

us for growth. We anticipate that R&D expenses as a percentage of net sales and

in absolute terms will increase over the coming quarters based on the schedule

of new products currently under development. Current year decreases reflect a

strategy shift to outsourcing some R&D functions, thus eliminating some

personnel costs.



Pre-tax income for the quarter ended March 31, 2010, totaled $160,905

compared to $213,304 for the quarter ended March 31, 2009. As noted above, the

quarter ended March 31, 2009 included the one time gain related to the reversal

of $472,398 in accrued retirement liability. Pre-tax income for the nine months

ended March 31, 2010, increased to $612,881 compared to $112,393 for the nine

months ended March 31, 2009. This improvement in pre-tax income was a result of

higher sales and margins and lower R&D and interest expenses for the nine months

ended March 31, 2010 compared to the nine months ended March 31, 2009.



Net income for the quarter ended March 31, 2010 was $96,099, or $.01 per

share, compared to $141,576, or $.01 per share, for the quarter ended March 31,

2009. Net income increased to $353,022, or $.03 per share, for the nine months

ended March 31, 2010, compared to $57,223, or $.00 per share, for the nine

months ended March 31, 2009. The decrease in net income in the quarter ended

March 31, 2010 compared to the quarter ended March 31, 2009, is due to the

reversal of the accrual for retirement benefits described above. The results of

operations for the quarter and nine months ended March 31, 2009 included the

one-time gain related to the reversal of $472,398 in accrued retirement

liability described above. Factors contributing to the improvement in net income

for the nine months ended March 31, 2010 were improved sales and margins and the

reductions in R&D and interest expenses.



The outstanding balance on our line of credit with a bank decreased

$713,086, to $3,889,565 as of March 31, 2010, compared to $4,602,651 as of June

30, 2009, and $6,208,338 as of March 31, 2009. Interest on the line of credit is

based on the 90-day LIBOR rate (0.29% as of March 31, 2010) plus 4% with a

minimum interest rate of 4.5% per annum. The line of credit is collateralized by

accounts receivable and inventories, as well as a security interest in our

headquarters facility in Cottonwood Heights, 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 March 31, 2010, the borrowing base

was approximately $6,142,000, resulting in approximately $2,250,000 available on

the line. The line of credit is renewable in December 2010 and includes

covenants requiring us to maintain certain financial ratios. As of March 31,

2010, we were in compliance with the loan covenants.



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10qk
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