Dynatronics Corp (DYNT) 2011 Q4 法說會逐字稿

(Audio in progress) Dynatronics Corporation's fourth-quarter and fiscal year-end 2011 financial results conference call. This is Kelvyn Cullimore, President and CEO of Dynatronics, and I'll be hosting the call today.

The purpose of the conference call is to discuss financial results for the quarter and year ended June 30, 2011.

And before we begin, as a reminder, during the course of this call management may make forward-looking statements regarding future events or the future financial performance of the Company. These statements involve risks and uncertainties that could cause actual results to differ perhaps materially from the results projected in such forward-looking statements. We caution you that any such statements should be considered in conjunction with the disclosures, including specific risk factors and financial data contained in the Company's most recent filings with the SEC, including its most recent annual report on Form 10-K.

Today, I'll update you on the results for the fourth quarter ended June 30, 2011, and the fiscal year-end, and when I'm done with my report, we will open the call for questions. The operator will handle those questions on a one-at-a-time basis.

First, let me address results of the fourth quarter. The headline for Q4 is that there was a 3% increase in sales and we have earnings roughly equivalent to the prior year. That was done in the face of increasing our R&D expenditures by $70,000 during the quarter, which was the major factor that inhibited increasing profits during the quarter. That higher R&D expense was offset by lower interest expense, the 3% improvement in sales, 1% improvement in margins, and slightly higher SG&A expense during the quarter, which was mostly associated with sales expense, trade shows, and ramp-up for servicing our new GPO customers.

So in summary, the fourth quarter was pretty equivalent to the prior year, despite the fact that we had $70,000 in additional R&D expense during the quarter.

The fiscal year shows a similar track. For the fiscal year, the sales and margin generated during the year were roughly equivalent to the prior year, down less than 1%. The big factor that was different is that the R&D expenditures for the year increased by $469,000 over the prior year. That increase more than offsets the $280,000 reduction in our pretax profitability and was the key factor, again, that inhibited our improving our performance over the prior year.

If you rationalize R&D expenditures to 2010 levels, for an even comparison of our basic operating profitability, you realized that we had a 27% increase in profits before accounting for that increase in R&D and we would've achieved about $890,000 in profits compared to last year's $700,000.

But R&D is critical. It's a critical component of our ongoing strategic plan, and I'll address that more in a minute, but suffice it to say that this is likely the most comprehensive R&D project we've ever undertaken in our history, and that is why it is costing us at the level it is.

Essentially the year can be summarized by the following factors -- $160,000 in lower margin due to the 1% reduction, combined with the $470,000 increase in R&D. Those two factors were offset by $200,000 lower in SG&A expense and $140,000 in lower interest expense due to lower borrowings and better negotiated rates. Again, we feel like we are posturing ourselves well for the future by the investments that we are making.

If you look back historically at our performance, the last three years we've sustained sales between $32 million and $33 million, and margins have maintained at just over 38% for each of those years. At the same time, pretax profits have risen from $139,000 in 2009 to $700,000 last year to $890,000 this year, rationalized to the 2010 R&D levels. So operationally, the profitability level continues to rise.

All of this was done in the face of less than perfect general economic conditions, and yet we are not satisfied with those results. While there are those who may say, well, gee, given the economics. To maintain and show improvement on your bottom line is still not satisfactory to current management, and we frankly do not expect to be rescued by general improvements in the United States and world economy. We don't see such improvements as a panacea. Rather, we feel we have to accept current market conditions as the new norm and find ways to grow in this less-than-fertile soil.

Let me articulate some of our strategic plans, which are a continuation from what we began in the last year. First of all, we introduced last year a product called STREAM, which is software as a service. It is a practice enhancement technology that we feel has great potential.

The current run rate for this product is generating about $100,000 to $150,000 in contribution margin per year. We expect that to double over the coming year. We've learned a lot about how best to market this product. We realize that several states only allow PTs to work from referrals, and those PTs are not really candidates for this kind of a product. So our focus has shifted to states that allow PTs more freedom in the marketing of their practice, to large groups that want better management tools, and to chiropractors who are more attuned to those kind of marketing tools.

We believe STREAM still has great potential, and we expect that the next year will allow us to refine that marketing model and hopefully double the kind of contribution that it's making right now.

We are introducing new products. As I mentioned earlier, we have significantly increased our R&D expenditures, as we've undertaken one of the most comprehensive R&D projects in our history. We anticipate that in the February to April timeframe of 2012, we'll introduce these new products. They will, we believe, revitalize interest in our manufactured modalities and give sales a boost hopefully in the third quarter and certainly in the fourth quarter of this fiscal year.

And as the new products are released, the intensity of R&D expenditures will begin to decline, thus also improving the bottom line.

We've also introduced and we've got a strategy for introducing some new tools. In the last year, we released our e-commerce site. Customers have been very pleased with that instrument, that tool, and virtually a third of all of our orders now are placed via our e-commerce website portal. And we continue to work on enhancements to make it easier for our customers to do business with us, which is critical not only for current customers, but for accessing and unlocking the potential of the GPO accounts.

We are ready to release a new integrated quoting tool for our reps and sales associates to use to more accurately and timely service customer requests for quotes, and we'll be releasing a new catalog in early 2012 that expands our product offering. Associated with that release will be a more focused marketing strategy in which we will have a more cohesive approach to the products we emphasize and better partners with our vendors.

Probably the most significant element of our strategic plan remains the pursuit of the potential with GPOs and national accounts. Over the last few years, we have been working hard to break the barrier to obtaining contracts with these major group purchasing organizations, which we believe contract for over $300 million in physical therapy and rehab products per year.

This last fiscal year was a breakthrough year in that regard as we signed more than four GPO contracts and numerous preferred vendor agreements with national accounts. The primary GPO contracts became effective between March and June. These contracts are basically a hunting license. They allow us access to tens of thousands of GPO members who purchase from these contracts.

While the progress has been a little tougher sledding than we anticipated, the potential remains great.

Let me give you a little bit of insight into the progress we've made so far. From March to September, through the end of September, we've seen about a 40% increase in sales to GPO customers over the prior year. But that belies the progress, and it's more obvious when you break down the metrics.

In March and April, we saw about a 20% increase. In May through July, that increased to 28%, and in August and September, it's jumped to 92%. So while the ramping has taken a little longer than we had hoped, the slope of the line is definitely increasing as the conversion rate of these GPO accounts accelerates.

At the current rate, we would realize approximately $1.2 million in increased sales with the GPOs. But that's assuming it doesn't increase at all beyond the current point. We definitely expect that it will increase, and we definitely expect that we will see an achievement of a sale level by the end of the year that's equivalent to about a 10% to 15% increase in overall Company sales.

We have staffed up to better handle the GPO business. While that adds to a little overhead in the short term, we think that infrastructure is needed to support the anticipated sales. Presently, we are in the process of bidding on another GPO contract, which is the largest GPO in the country. They anticipate making a decision on that sometime in early December. We believe we are very competitive in our bid and think we have a good shot at this.

We also believe there remains ample opportunity to hit our growth goals with or without this contract. Obviously, we hope to have it as it will certainly make achieving the goal easier, but with the contracts we've already signed and the preferred vendor arrangements that exist, we have enough on our plate, we believe, to achieve the goals that we have set. Obviously, it will make it easier to exceed those goals as we add additional GPO contracts, especially if we get this one that we're working on.

As far as the stock performance goes, in the last year we were able to cure the NASDAQ deficiency that had been overhanging us. We saw significant volume. We saw the stock increase from a low of $0.50 to $0.60 a share up to $2.00 a share.

The basis for that increase was several-fold. There was a recognition that our market cap as a multiple of sales was extremely low. There was a recognition of the potential from the GPO market in particular and the anticipation of the new products.

I want to state emphatically that nothing has changed in that regard. All those reasons are still valid as to a support of the stock price. I believe some may have expected faster results than are being reported. I think obviously we, as many companies, have been victimized by downturns generally in the stock market, but I also think that there may be those who expected the GPO contracts to yield a much quicker outcome than they have. I regret that that was a perception.

We are still very bullish on what we can accomplish with those GPO contracts over time. We are committed to our strategic plan. We believe the elements are in place to generate higher sales and profits and justify a higher price for the stock.

The potential described in today's call of the GPO and national account potential, including the new GPO we are working on, the development of STREAM technology, the new tools that we have described for the reps and customers, and the new focus in the marketing strategies, and the new products all add up to a circumstance where management believes we have more potential right now than perhaps at any other time.

Realizing that potential is going to take a little time. The conversion process with these GPOs is a challenge. But the door is open, and we are making efforts to walk through that door and to claim whatever sales we believe we are entitled to through that process.

We believe our future continues to be very bright. Obviously with the performance of the stock even today, there are those who are disappointed with the report, but again, we believe those are short-term perspectives. We believe the long-term perspective remains very bullish and very bright.

So with that, I will ask Carlos, our operator, to open the line for questions, and we'll be happy to respond to your questions.

(Operator Instructions). John.

Just a couple of questions. When we think about the STREAM opportunity, can you guys provide any update for investors on where you think the potential could be for the entire fiscal year with STREAM? I know you guys have been trying to work with the existing GPOs with some news releases you released in terms of making some progress there. Can you update us on that?

We are working with some very significant national and regional accounts. What we have found is some of the larger groups want better management tools to enhance their practices, and so we are focusing in that area.

We're also focusing with the chiropractors, and we have found that the individual physical therapy clinic has not turned out to be as fertile a market as the larger group physical therapy clinics and the chiropractors. And so, we are focusing our efforts there.

We still believe that it has got great potential. Those who are using it have been generally very satisfied with it and have seen the kind of results we expected. And we think that will germinate and germinate additional sales as they begin to talk about it as well and as we bring on some of the larger accounts.

My guess is, John, that we'll see this double, as I mentioned earlier, hopefully to bring in close to $300,000 in contribution margin for the year. And if it takes off the way we think it could, it should be even more than that. That should be the range that I think we can achieve, and that's a conservative estimate.

Okay, great, and in terms of assuming you guys are able to secure the new GPO contract, when do you think investors would hear something from the Company (technical difficulty)

If we are successful in retaining that contract, of course it will depend on whether or not that -- I believe that group does allow press releases, and so we would do a press release as soon as there was a confirmation. Right now, the guidance we are being given is that will be sometime in December.

In December.

Hopefully early December because the contract, I believe, would go effective March 1.

In terms of -- I know you guys early this year when you secured the other GPO contracts, you were confident that you were going to get those. Where's your confidence level in comparison to earlier this year before you were secured? Do you feel more confident that this big GPO is something that you guys are really confident in coming through?

Right now, we have learned a lot. As you know, we tried for the prior two years to get contracts and were unsuccessful.

We learned a lot from that failure, and we believe we have positioned ourselves as well with this GPO as we have with any. We feel like we understand the process better. We understand the expectations better. We understand this particular entity perhaps better than we have others when we have gone into contract.

So from that perspective, we are as optimistic as we have been with the others. I'm not sure we're more optimistic. I think we are as optimistic.

One thing we have learned is that the process, unfortunately, is not terribly transparent. You do the best you can. You trust the people that you're working with and you count on the feedback that you receive. All those right now are very positive. But in the end, the process by which the final decision is made unfortunately doesn't allow us access to those decision makers, and without that access, there is an element of the unknown there that makes it difficult for us to predict.

So all I can do is tell you from my perspective, our perspective, that we feel that we have positioned ourselves as well and worked this particular bid as well as we have any because we've taken everything we've learned from all the others and have applied it in this particular instance.

Understood, okay. And in terms of -- can you quantify the total addressable market of that GPO? Could it potentially mean for you guys, assuming you get both sides of the contract -- I mean, this would kind of be the game changer. The other ones were obviously extremely important, but don't you guys match up better with this GPO potentially?

I think we match up with it very well. The potential with this particular GPO, this one has merged recently with another one, and they are much larger than any of the others we've dealt with.

And so, the potential for this particular GPO is double anything else we've looked at. And so, we would have a much broader field to cultivate if we are given this particular contract or this opportunity. And then, frankly, we'll take any portion of it they want to give us. If they want to split it, we'll take it. We just think right now the important thing is getting our foot in the door.

Okay. Well, good luck. Keep us posted, please.

(Operator Instructions). Paul.

Congratulations on achieving a modest but it was a sales growth during the last three-month quarter. I know it's a tough environment out there, but you were able to increase your sales in it. So congratulations.

I have a few questions. The first is I understand your comment why margins, the primary reason why profits were down in the latest fiscal year, it's because your $469,000 in R&D expenditures. So you're investing for the future. I understand that. Can you give us some color or preliminary guidance as to what your total budgeted -- what your plans are for spend on fiscal 2012 R&D?

Yes, we're still anticipating that it will be in the $400,000 range. Let me clarify that. We think that our R&D expenditures in fiscal 2012 will be fairly equivalent to what they were in fiscal 2011.

So, that would be around $900,000?

Yes. Well, it will be $1.3 million.

Oh, okay, so it's going to stay the same? So it's not going down next year?

We believe that as we ramp up to the product release in the February to April timeframe, you typically will see a last-minute increase in R&D expenditures as you work through prototypes and things of that nature. So what I expect to see is probably in the $1.2 million to $1.3 million for the year, but you'll see a lot of -- you'll see a drop-off in Q4 after the release of the products.

Am I right in assuming that your launch of these new products is a little bit later than you expected in February or April, you stated? I thought it was going to be the last three months of this year.

We revised that estimate probably three to four months ago. We are fairly confident of the February to April timeframe and believe that the February timeframe is achievable.

But when you're doing a project as comprehensive as this, the unknowns are the gotchas, and we had a couple of those and worked through them. We now are at a point with the product development team that there are no more unknowns that they are working on. Of course, that's kind of an ironic statement. If they knew them, they wouldn't be unknown. It's the unknowns that are the problem.

But we are conservatively optimistic that we'll be able to release in the February/March timeframe. And yes, you're right. We did push that back three months because of some unforeseen circumstances that occurred in the last six months.

And this investment you are making, it's greater than previous years, like you said. What is your internal forecast for increase in these new products in fiscal 2012 compared to fiscal 2011, if you just take your new product introductions? Do you follow what I mean?

I do, yes, and the new product lines that we're going to be -- the new products that we're going to be bringing out we think are going to revitalize interest in the manufactured modalities.

One of the things that happens with your product line is over time it becomes stale and people begin to say, well, I'll buy new equipment if I need it for growth. Well, there hasn't been much growth because of economic conditions. New clinics are not opening. It's been very static.

And so, to inspire new sales, you have to offer new products that have additional capabilities, better aesthetics, and things of that nature, and that's what we're targeting with this new product line. And we believe it will create some excitement. It will create some buzz. We hope that we'll see as much as $1 million increase over the first year in sales with that, just these new products.

So, the next year might be fiscal 2012, or would that straddle over fiscal 2012 and 2013?

Fiscal 2012 and 2013. Starting with Q3 and Q4 of this year, into Q1 and Q2 of next year.

Getting back to the GMOs, it sounds like real exciting things that you're doing there. I could not recall, the people that -- your sales reps for GMOs, is that -- can your regular sales staff call on GMOs or it's a separate sales organization where you're hiring people to just accommodate these new accounts that you have?

No, one of the strengths that we offer to the GPOs, and the reason that they -- we did get some of the contracts, is because we are one of only two companies left in this particular market segment that have actual salespeople in the field.

And so, it gives us a distinct advantage and a reason why they would consider us. And so, yes, our existing salespeople have all been given their list of accounts to call on in these new GPO markets.

Part of the challenge in fully cultivating that opportunity is your -- even though we've got 100 to 200 reps out there who are working on calling on all of these accounts, they also still have their existing business they need to maintain. And so, it's not as though they can just abandon everything they're doing right now and just go whole hog after the GPO business.

So, it's -- there is a ratable approach to this where they spend a certain amount of their time calling on the new customers and a certain amount of their time working with the old ones, and we're bringing on additional people to help cover more territory.

Okay, so in general your SG&A expense this year, fiscal 2011, it was I believe about $1.4 million. Is it going to be relatively flat into fiscal 2012 or is it going to increase because you're still trying to ramp up your GMO sales initiative.

The SG&A expense will increase commensurate with sales for one reason, because it also embodies -- our SG&A expense embodies the sales commissions that we pay. So as they increase sales, of course your selling expense goes up.

But as a percentage of whatever your revenue is, it shouldn't go up significantly at all.

No. No. You are correct. It actually should go down.

The first three months of your new fiscal year is completed. Can you give us your perception as to if you had a sales increase over the comparable period for fiscal 2011?

Well, first of all, it hasn't concluded. We don't consider it concluded until the last day.

Ironically, and I don't know why this is, but we will always see a significant portion of sales coming in in the last three days of any month. Whether it's just budgetary things or people waiting to make sure they are getting the best deal, whatever, we will see that.

Right now, Q1 for this fiscal year is not trending as well as we had hoped, and so I want to reserve my full judgment until I see the final numbers after Friday, but given where we stand right now, I don't expect our profitability to improve over last year.

Okay. And then the last question I have, I could look this up but I don't really know. Can you let us know what your credit-line facility size is and when that expires? I can't recall.

Sure. Our credit line maximum is $7 million, and that's based on a borrowing base of accounts receivable and inventory. Right now, that's roughly about $5.2 million, $5.3 million is the total borrowing base.

Our current line outstanding is about $2.5 million. That $2.5 million, by the way, would probably be lower except during the last six months we've repurchased over $0.5 million worth of stock in supporting our stock, particularly back in the spring and late spring when we felt the stock was significantly undervalued.

And so, the line of credit renews a year from December. So it's a two-year renewal setup for a year from December, and our bank is absolutely thrilled with us at the moment. They think we are doing very well under the circumstances of general economic conditions. I think they are comparing us to others that they have that maybe haven't done so well, because from our perspective holding flat and having the modest increases and profits that we've seen has been less than we had hoped.

But your capacity is $5.2 million at this time and you are actually at about $2.6 million. Am I right on that?

Yes. $2.5 million, right in that range.

$2.5 million, $2.6 million. And the reason for my call -- or the question on that is I noticed your APs were higher, 50% higher than last year, so I just wanted to confirm that there is no issue with the credit line.

Oh, no.

One last question, then. (Multiple speakers). Go ahead.

I was going to say, in fact we are in very good condition, and part of the reason for the borrowing base being down a little bit right now is because of July and August are always bad months for sales. So, sales have been a little bit lower in July and August compared to the rest of the year, as it is every year. So, typically, our receivables will be lower during that period, which brings that borrowing base down a little bit.

Any comments on your stock? You've got the $1 million. You spent $0.5 million, you said, on the stock. I assume your primary objective is to make sure that you're still in compliance with small NASDAQ, and it's over some period of time over $1.00 a share --

Correct.

Or at what point do you determine that it's a good investment to buy more? Are you (multiple speakers) in buying at these levels (multiple speakers)

Yes, we have been buying. We bought about $200,000 worth in the last month or so, and that's been our plan of supporting the stock.

Of course, the limits on what we can buy make it so that we're very -- we're not a huge buyer on the stock. But we do what we can. We believe that the current levels, especially with our stock as a multiple of sales, shows that we are somewhat undervalued, and we think that the long-term potential for our increased growth should merit a higher price.

Of course, naysayers would say, well, your profits aren't there yet and I would have a hard time defending that. But I think as you look to the future and what our potential is, if the perspective of the investor is a short-term perspective, what they can get in the next three to six months, that's probably why we've seen some selloff today. But I think if they're looking at a long-term hold, 12 to 18 months, I can't believe that this isn't a great buy.

Thank you so much, and congratulations. Hopefully you'll have an extraordinary new fiscal year. Thank you (multiple speakers)

Appreciate your call, Paul. You had good questions.

We have no further questions for the moment.

Okay, let's make one last call for any other questions. I would say the first two callers did such a thorough job of asking questions maybe it answered everybody's, but are there any other questions before we terminate the call?

We appear to have another question from John. Please go ahead.

I just wanted to -- in terms of looking ahead here, with these new products that you've been investing so much time and energy on, it just seems like that $1 million figure, if that's just for the first fiscal year, is -- have all these investments been worth it if you are only going to get $1 million in sales out of it? Is there more potential there that you're not really speaking of?

We certainly hope that there is. The challenge that we face in this particular arena is -- and again, I'm trying to resist the temptation of blaming general economic conditions for a less-than-expected performance, but the reality is that current economic conditions have impacted the capital equipment market more than the supply side of our business, and these are capital equipment items that we are manufacturing.

And so when I say $1 million increase, it's probably actually better than that, mainly because over the last two years we've seen a decline in sales of manufactured modalities. To reverse that with a $1 million incline is -- has some more significance than that $1 million appears.

Now that's just the increase. That's not the total sales. I'm not saying it's just a $1 million of sales. It's a $1 million of increase on that. So I appreciate your concern about the investment that it's taken to get there, and is it really worth it? We look at this as an investment that will be amortized over the next five to seven years, and we think that it is worth it.

Okay. And in terms of -- I know you guys were individually buyers of your own stock in the spring. That was one of the things that kind of got me interested. That was around these levels. Correct me if I'm wrong, but you guys individually have not bought any stock since the spring. Is that correct?

That's correct.

Is there a certain window in terms of management being able to purchase the stock that we should look out for? I'm just curious if the stock, below $1.00, one of the ways you'll be able to help stabilize the stock is if you see insiders actually coming in and with their own money buying the stock. And the fact that we haven't seen that yet may be part of the reason why the stock is acting as crappy as it's acting. Obviously, you can't really comment on what you guys are going to do or not do, but when is the window for insider purchases or sales at the current time?

Obviously until we release earnings, you can't do anything. So today is kind of the first day that we've been able to do that, and then, unfortunately, we're going into a period where the first quarter is just closing. And the timing of your year-end release and your first-quarter release are so close, it creates very limited opportunity and therefore insider buying.

I guess I would just point, John, to the fact that as much as insider buying sends messages, it should also be viewed from the perspective of what does management and insiders uphold as far as stock holdings? And they are significant. There is no question that our positions are very closely aligned with our shareholders.

We just signed a contract with our Executive Vice President of Sales this year, and his biggest portion of his compensation incentive is a stock grant of 200,000 shares that he received with his new contract in March. And so, that contract incentivizes him through performance of the stock.

And so, we are -- it's not just a matter of whether we are stepping up and buying stock. It's a matter of whether we are incentivizing management with that particular asset, and that is what we are doing and focusing on. So I think you can rest assured that our focus remains very much on how to improve the performance of the stock.

Would you -- if you guys get this GPO contract, and let's say you get both sides of it, so it would be -- it would essentially be a game changer, right, if you were to get both sides of this GPO contract in early December, correct?

Let me clarify for those on the call when you say both sides. You're talking about the capital equipment, because with our Amerinet contract, they gave us capital equipment but they didn't give us supplies. And so, you're saying if we get supplies and capital equipment.

Exactly. That would, for all intents and purposes, be a game changer for you guys, even that would really overshadow the four previous GPO wins combined.

I think you are accurate in your statement.

Okay, so let me ask you this. In terms of how you guys are positioned, if you were to -- I'm just trying to look ahead in terms of just figuring out how confident you are that these new GPO contracts will actually make a big difference for you guys. If you guys at that point had gone through your -- the rest of your buyback with the stock as low as it is now, would your Board be open to considering another buyback of the stock, to buy back stock next year also?

My guess is that if we get that GPO contract, the stock will probably rise as a result of that. But I would think that if it doesn't (multiple speakers)

(Multiple speakers). But that's my point. Wouldn't you guys want to -- if that's going to be as much of a game changer as you think it is -- I'm assuming you guys when you first bought the first lot of stock back earlier this spring, you were pretty aggressive in doing that and getting the stock above $1.00. I guess my question is, would anything preclude you from -- you guys doing the same thing if you guys were in a position to buy back stock at that point to kind of get that stock bought for the rest of the buyback? Nothing would preclude you from buying it back after that GPO announcement, would it?

Probably not, except that we have to make a decision on where is the best use of the resources.

Depending upon what would be required, we would want to make sure that we had adequate resources to fully exploit that GPO opportunity if it comes. And if we have limited resources and have to decide between buying stock or exploring that, I would prefer to develop the business because that has the long-term potential of sustaining the stock on an ongoing basis.

And so, I would want to -- it would have to be measured -- I would guess the Board would measure between the immediate impact of the stock buyback, again keeping in mind that the amount that we are allowed to purchase is limited by NASDAQ rules, SEC rules, and so the amount we are allowed to purchase is limited, and weighing that against how those resources might also be deployed in further exploiting the GPO opportunities.

So, I'm just being as straightforward as I can and answering that, that would be my answer.

Okay, great. Well, listen, continued good luck with -- I know this GPO contract is going to be -- well, we'll probably actually have another earnings call before we find out. When is the next earnings call going to be? In early, mid-November?

Yes, we should have hopefully maybe some better insights by then as to where we stand.

Great. I've got to hop here, but thanks so much, guys. Continued good luck.

Joseph.

Since the Company has grown from about $18 million in sales to $33 million in sales now, in a period of five years, are you on anybody's radar as far as -- especially now with these GPO contracts and what it could mean for the future. Has anybody in the industry been looking at you as a possible acquisition target?

Nobody at the present time that has any active interest that I am aware of.

Of course, over the past years there have been strategic opportunities that have presented themselves, both for us to make additional acquisitions or for merger opportunities. Those are the kinds of things that business is made of. You explore things until you determine whether or not they are advantageous for your shareholders. And so, at the present time, I would -- I can honestly tell you there are none.

Okay. But you would be open if something came along and it was advantageous to all the shareholders?

We would have to be. I think our Board has a duty of loyalty to the shareholders that requires that they explore any legitimate overture for either a merger or something like that, or for us to make an acquisition. I think they have an equal duty of loyalty.

Okay, that's good. And there are certain signs that things are trending positively. The last two quarters showed comparable year-over-year increases, which sort of reverses a trend that took place in the first two quarters of the fiscal year that just ended. And I can see once these contracts begin kicking in, it should be very favorable and taking the new products. You know, I continue to feel that there's some very positive things coming out and I think you're on the right track.

Thank you, Joe. We share your optimism in that regard. We still are subject to the vicissitudes of the general economy, but we have dismissed that as an excuse and are trying, as I said earlier, to find ways of growing. The soil is not quite as fertile as maybe it's been in the past. But it doesn't mean you can't still have a good crop.

Yes, I agree. Good luck to you.

We have no further questions, sir.

Okay. We appreciate everyone being on the call today. This has been a very productive call. I really appreciate the questions that have been asked. They were very probing and hopefully help to give some perspective for everybody on the call. We appreciate you joining us today and look forward to talking to you again in about 45 days. Thanks for being on the call.

Ladies and gentlemen, that does conclude the call for today. We thank you for your participation and ask that you please disconnect your lines.