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Kelvyn Cullimore - President and CEO

Analysts

Dynatronics Corporation (DYNT) F4Q 2013 Earnings Conference Call September 30, 2013 4:30 PM ET

Kelvyn Cullimore

Welcome to the Dynatronics Corporation Fiscal Year 2013 Financial Results Conference Call. The purpose of today's conference call is to discuss financial results for the year ended June 30, 2013. Before we begin, as a reminder, during the course of this conference call management may make forward-looking statements regarding the future events or the future financial performance of the Company. These statements involve risks and uncertainties that could cause the 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 on the Company's most recent filings with the SEC including its most recent Annual Report and Form 10-K which will be filed today.

Today, I will update you on our results for the fiscal year ended June 30th, and following my presentation, we will open the call up for some questions and answers.

First of all the results for fiscal year 2013, there is some good news and bad news, the bad news is that for the second year in a row the Company had just a little bit on the negative side of breakeven. That’s the first time in my recollection we had two years in a row of that. That was disappointing even though it was close to a breakeven. The good news is, is that our pretax loss decreased 31% when compared to 2012. It was reduced from 190,000 in 2012 to 131,000 in 2013. The main reason for that had to do with strategic reduction in expenses which were cut by about $935,000 during the course of the fiscal year.

The other good news is that as we had been forecasting we launched more new proprietary manufactured products in fiscal year 2013 than any other year in our history. As a result sales of proprietary manufactured products were actually up about 6%, compared to what was a 5% decline for the prior year. So the new products have made a significant difference.

Some products were late in the year however and did not have much of an impact on the fiscal year. They were introduced -- they began shipping in June which was the last month of the fiscal year. Despite the increased sales of our proprietary manufactured products, sales for the year were off about 6.7% to $29.538 million, compared to $31.664 million last year. That's about a $2.1 million reduction. In Q4 sales were off commensurately about 6.1% dropping from $7.738 million in the period last year to $7.264 million in the period this year.

The improved sales of our new SolarisPlus product line proprietary manufactured products were offset by lower sales of distributed capital equipment and medical supplies. And in fact an analysis of our results shows that the full amount of reduced sales for the year are attributable to distributed products, as opposed to those that we manufacture. Those that we manufacture were actually up, while those that we distribute were down.

Approximately 20% of the reduced sales for the year were attributable to a single capital equipment manufacturer that changed its distribution paradigm, basically eliminating us for a good part of the year as a distributor, which negatively impacted sales of their products that we distribute. The reductions in sales of distributed medical supplies during the year include the impact of a single large customer that discontinued operations in early 2012, which carried over an impact into 2013.

Finally, I would say that uncertainty surrounding healthcare reform in the country matched with a continuing economic weakness seems to be stifling expansion in our markets. There just does not seem to be a lot of growth and so the general concerns about healthcare reform seem to be sitting like a cloud over our particular industry, probably any industry that's involved in healthcare.

Our gross profit margins remain pretty steady at 37.5% for the year, compared to 37.7% last year. In the fourth quarter the one ending in June, gross profit margins were 36.6% of sales compared to 37.3% in the prior year period. With sales declining compared to the prior year, we generated about $857,000 less in gross profit for this year compared to last. Fortunately, we were also able to reduce expenses by 935,000 for the year. So we more than offset the lost margin by reducing our expenses.

As I mentioned before the pre-tax loss for the year result was improved 31% to 131,000 compared to 190,000 last year. However, in Q4 the pre-tax loss was 162,000 compared to pre-tax profit of 89,000. No question that the fourth quarter was significantly worse than it was the prior year and a big disappointment to us in that regard. Sales were down and we had some fairly significant onetime expenses during the quarter that contributed to that loss. We had over $100,000 onetime expenses, the biggest part of which was the introduction of our brand new catalog which we do about once every three years or so, and so that was a once in a three year expense that happened to hit in that quarter.

We did for the year have higher R&D tax credits. I mean we had higher R&D tax credits in 2012, which increased our tax benefit in the prior year. So as a result, because the tax benefit in 2012 was higher than the tax benefit in 2013, our net loss for the year actually ended up slightly higher in 2013 than 2012 despite the pre-tax loss being improved in 2013 over 2012. So the net was about a $44,000 loss this year compared to a $23,000 loss in 2012 and in Q4 the net loss was about 73,000 compared to the net profit of 116,000.

And we should also be noted that in the last half of the fiscal year we were subject to the new medical device tax that is part of the Affordable Care Act. For Q4, we paid about 40,000 in taxes and for the year we paid approximately $82,000 in medical device taxes. But for the medical device tax which added the $82,000 in expense during the year, our year-end results would have been much improved over the prior year, probably closer to a breakeven, possibly pushing us a little bit to the positive side.

So the medical device tax certainly has an impact. As part of the Affordable Care Act, we recognized that we didn’t have a lot of control over that, but the fact of that tax is assessed against sales and not profits is particularly detrimental to companies operating near the breakeven level or who are startup companies operating without a profit. It’s a fairly egregious tax that right now is actually being considered by Congress for repeal. In the House of Representatives they voted four times to repeal it and the Senate, they actually have voted to repeal it as well on several pieces of legislation. It was actually attached to the continuing resolution that is being considered in the Senate, was passed out of the House on Saturday. It was one of two amendments attached to that continuing resolution.

So there is certainly traction for repealing that onerous tax and we are confident that if not done as part of the continuing resolution, it may happen in the next few months with either Datsun legislation or other legislation that maybe moving through the House and Senate.

Obviously we’re anxious to reverse the trend of declining sales. We believe our new marketing strategy, will help sow improvements on the top-line and particularly the fact that we have isolated the declining sales to distributed products and not manufactured products gives us an opportunity to zero in on where our strengths are and to sure up the things that seem to be weak.

So let me talk just a minute about what our marketing strategies are going forward. Our marketing strategies have been based on two essential premises. Number one; was to introduce new products to the market. Even in a slow market you can generate sales by introducing new products and we saw that happen in the last year as our proprietary manufactured products actually turned from a 5% reduction to a 6% improvement and that was with only some of the new products being released. It’s tantamount if you will to going to the store and seeing a new car on the showroom floor and wanting to have that new car, even though your old one may still be functional, it does attract new interest and we believe that’s part of the reason why our new products are attracting the interest that they are.

We have in April -- we did introduce our new product catalog as I mentioned a minute ago, which contributed to a significant expense during the fourth quarter. That new catalog has been extremely well received. It has almost a 1,000 new distributed products included, and we believe that the updated catalog and additional new products that we have introduced or that we manufacture will help to reverse the trend of the last fiscal year of lower sales, particularly of the distributed products. In all, the catalog now contains over 13,000 products featuring over 600 pages of medical devices and supplies. It has been extremely well received and been complemented for its completeness and esthetic appeal.

The new products that we previously mentioned, that are manufactured proprietary products have also added significantly to our stable of product offerings. The SolarisPlus, which is the most technologically advanced product of its kind ever introduced, was introduced in the first quarter of the last fiscal year at four units, the Dynatronics 709, 708, 706, 705 along with powerful phototherapy accessories, Probes and Pads that were very well received by the market.

In December, we introduced the Ultra tables, the Ultra 2 and Ultra 3 which are new treatment tables that started out a little bit slow in their uptake, but are now starting to show significant movement. And then lastly in June of this last year, we began shipping the 25 Series. The 25 Series of products replaces our 50 Series line of products. It constitutes four combination therapy units that do electrotherapy and ultrasound. That stands in contrast to the SolarisPlus units that do ultrasound, electrotherapy and phototherapy and will soon offer a thermal therapy option. So the SolarisPlus is the premier line and the 25 Series represents a nice combination device, but does not have the same power or appeal that the SolarisPlus does.

And coming in the next quarter, ending in December, is this thermal therapy device that I referred to called the ThermoStim Probe. A little over a year ago, we introduced a ThermoStim Probe as a combination device with our Quad 7 product. The Quad 7 was a hot and cold therapy device that also did compression and we introduced a Probe that went the electrotherapy along with hot and cold therapy, but the hot and cold therapy was achieved by using circulating water into the electrode and had many challenges of its own. The new Probe we are introducing eliminates the need for water and instead uses a thermoelectric chip to achieve the thermal benefit, both heating and cooling, and becomes an accessory to the SolarisPlus line of products.

We have been showing the new product and it has been received extremely well. People are quite excited about it as it’s one of the most innovative new products in our market in many years. And we believe the introduction of that Probe will stimulate sales significantly starting in the second quarter of this fiscal year.

With the new products introduced, we have laid the foundation for the second phase of our plan, which is to increase distribution. When you have a slow growth market such as we’re in, for the reasons I previously mentioned of healthcare reform and general economic weakness, we need to find ways of getting a bigger piece of a stagnant pie. The new 25 Series products that we just barely introduced are going to help us achieve that. They become generally available.

In the past, Dynatronics has maintained a strategy of protecting distribution territories and for our priority manufactured products, it only allowed certain distributors or sales persons to have those products. With the introduction of the 25 Series, it will be the first time in our history that Dynatronics has allowed the distribution of a combination therapy device generally in the market, meaning that any qualified distributor or sales person will be allowed to sell it regardless of geographic territory protections. This has generated a lot of interest in the market. It’s enabled us to bring on already 10 to 20 new distributors and sales people who are anxious and interested in selling the products.

In addition, the new ThermoStim Probe that will be added to the SolarisPlus line of products has further enhanced that line and created new interest on the part of our proprietary sales force and distribution channel, not only because it will generate new sales itself, but it will also pull through sales of our SolarisPlus products, which are the controlling console for this accessory. It will act as a catalyst for expanding the existing channels.

Not only will the ThermoStim and SolarisPlus be limited geographically, but we are encouraging now those who have the rights to those lines to start to find additional sub-dealers and sales people who can sell it for them as well. So the addition of new distributors to sell the 25 Series line of products and the enhanced value of the SolarisPlus through our existing channel both will help us to expand distribution of our most profitable proprietary products, the electrotherapy, phototherapy, thermal therapy and ultrasound therapy devices. We are anxious to continue this plan and as the new ThermoStim Probe becomes available in the coming months, we are confident that this plan will begin to bear fruit, starting with the second quarter of this fiscal year.

In addition, we have seen some significant interest internationally, given the new products that we have introduced. We have always tried to find niches within the international market and had some success, but have never seen sales of our products exceed much more than 10% in the international market.

With the introduction of the SolarisPlus products and the 25 Series, there has been significant interest expressed both in Asia and Europe, which are markets that we had limited success in, in the past. And so we recognize that these processes take time, anywhere from six to nine months to really develop, but we are confident that for the first time in many, many years, we have real interest, legitimate interest in the products for those markets.

Given the performance in Q4 where we saw a significant decline in sales beyond what we had expected and as a result, a greater pre-tax loss, we did institute additional expense cuts to the tune of about $500,000 a year in annual expense reductions. We believe those will carry over into fiscal year 2014. The better news is that the sales diminishment that we saw in the May and June timeframe have seem to reverse and we’re seeing improved sales now in the August-September timeframe.

As everyone is probably aware, in December of last year, we did do a -- our shareholders approved a one for five reverse split of our stock. So all share data in the reports have been adjusted to this new outstanding number of shares. The reverse split seems to have been a positive move as it has engendered additional interest in the stock, by having the stock trading a little bit higher price than below a dollar and we have seen the stock maintain a pretty decent market capitalization despite less than stellar results.

We believe however that the next year, fiscal year 2014 is the opportunity to capitalize on all the R&D expenditures that we have put in through the last couple of years and have set ourselves up to expand our distribution channels in a way that we have never done before.

So in summary, during 2013 we reported the second consecutive loss, barely on the loss side of a breakeven, but on the positive side, we introduced a record number of new products and those new products are laying the foundation for our new strategy in 2014. And sales of our proprietary manufactured products increased 6%, compared to a 5% decline last year, meaning that the reduced sales that we experienced a little over $2 million were attributable to weaker demand for products distributed for other manufacturers and not those that we manufacture for ourselves.

Lower expenses during the year did offset the reduction in gross profit attributable to lower sales for the year, resulting in an improved loss position for 2013 over 2012, although because 2012 had better tax benefits because of higher R&D tax credits in 2012, our net for the year ended up being about $44,000 compared to the $23,000 last year. Our strategic plan going forward is to capitalize on the introduction of the new products by aggressively expanding distribution and to gain a bigger piece of the currently stagnant pie.

The introduction of the new ThermoStim Probe in the current quarter will certainly stimulate those sales and increase profitability going forward, as will the austerity program of about a $0.5 million in savings and expense savings that were implemented during this quarter. We will continue to explore international sales opportunities but our focus on our proprietary manufactured products will certainly carry us forward but not to the exclusion of our distributed products business, as evidenced by the introduction of our new comprehensive catalog.

So we believe that the introduction of a record number of products this last year and the new products yet to be introduced in this new fiscal year together with the anticipated introduction of the ThermoStim Probe and the new strategy for expanding distribution of products will position us for a new growth phase in this coming year and reverse the trend that we have seen of lower sales in the last 18 months.

With that, I will come up for air at this point and hopefully that gives you some feedback on what is happening with the Company and the direction that we are heading. And I would be happy at this time to open it up to take any questions. So we will turn that over to the operator to handle the questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question is from the line of Shane. Please go ahead.

Kelvyn Cullimore

Shane, go ahead with your question.

Unidentified Analyst

Couple of questions. First of all, on the new catalog, was the new catalog supposed to have made a impact on sales in the fourth quarter or it came out too late in the fourth quarter?

Kelvyn Cullimore

It didn’t get shipped till about midway through the fourth quarter. So we had hoped that it would have an impact on the fourth quarter but by the time the catalogs got into the hands of buyers and practitioners, we were well into the quarter. So it did not have the impact in the fourth quarter we had hoped, but believe that it does represent a great sales tool going forward.

Unidentified Analyst

In regard to the proprietary products, what percentage of sales are proprietary products versus distributed products?

Kelvyn Cullimore

Proprietary products account for almost half of our sales. The distributed products are little bit more than half. So it’s probably a 45-55 split, would be a close estimate.

Unidentified Analyst

Okay. And can you talk about your roadmap for new products in this coming year versus what you did this past year. Are there as many new products coming out or half as many or what’s your roadmap for new products?

Kelvyn Cullimore

The roadmap right now is primarily the ThermoStim Probe and related accessories associated with that, that will be coming out in this year, on this calendar year. Beyond that we have two or three additional products that are offshoots of the existing product line, variations on the products that have already been introduced, meaning that we’d probably see maybe two or three additional products before the end of the fiscal year or thereabout. They will not be game changers I would say, but they will be fillers.

Unidentified Analyst

Okay. And the ThermoStim product that you are coming out with, where is production going to take place and is there an ample workforce, if for some reason the product has much greater demand than expected?

Kelvyn Cullimore

Yes, we will be manufacturing those here at our ISO approved facility in Salt Lake City. It’s important that they be manufactured here because of that ISO approval. In order to have the CE Mark and other kinds of things they need to be manufactured in a facility that has a quality certification as we do here. So we will be manufacturing them here and in answer to your question, yes, there is ample capacity at the present time. We run a single shift and so we could, if necessary run three shifts to meet the demand. I would hope that would be our problem.

Unidentified Analyst

I would like that to be your problem. And the last two remaining questions, just short questions. One, in regard to your credit line, when is that credit line -- when does the terms run out or has it been extended and how large is it at this point?

Kelvyn Cullimore

The credit line, our line of credit right now expires on December 15th. It’s up for renewal at that point in time. The bank has indicated to us that they don’t see a problem renewing that as long as our performance remains in the area that it’s in right now. The balance on the line of credit runs about 3.5 million. Our borrowing base is about 5 million and our cap on the line of credit is about 7 million.

Unidentified Analyst

And the last question, do you have any 10% customers?

Kelvyn Cullimore

I am sorry I didn’t understand you.

Unidentified Analyst

Do you have any customers that are 10% of the revenue?

Kelvyn Cullimore

No, we do not.

Operator

(Operator Instructions) Our next question is from the line of Jeff. Please go head.

Unidentified Analyst

Quick question; do you have forecasted profitability for Q1? If not, when do you anticipate having your first returning to profit this fiscal year?

Kelvyn Cullimore

We do not anticipate profitability in Q1, but we do in Q2.

Unidentified Analyst

Okay. And you anticipate full year profitability I assume?

Kelvyn Cullimore

Yes absolutely.

Unidentified Analyst

Okay.

Kelvyn Cullimore

Yes, we believe the strategy that we’ve implemented, if absent something we don’t see coming, which obviously we don’t have a crystal ball that’s 100% clear. But we believe the strategy that we’re implementing with the reductions in expenses that we have accomplished should make us extremely better than what we have been in the last two years. So everything we have been doing in the last two years is build into this point. And so this year we should start to see the benefit, particularly the last half of Q2 into Q3 and Q4.

Unidentified Analyst

And can you give maybe a range in your plan of where you see sales going. Obviously in your forecasting I would assume sales to increase. Is this 5%, 10%, can you give some kind of indication of what you’re thinking to achieve the profitability that you’re hoping for?

Kelvyn Cullimore

Do you want me to tell you what I’m thinking or what my sales manager is thinking? Yes, now let’s take what I am thinking because I tend to ratchet that down somewhat. The key to keep in mind is that the majority of the sales increase that we are contemplating over the next 8 months or so is going to be with proprietary products that carry the highest margin of any of the products that we produce. And so the average margin increase on the new products we are going to introduce should be in the 50% range and that is a conservative estimate.

On top of that, the estimate is that over the fiscal year what is remaining in the fiscal year is we would expect to see another $2 million in sales conservatively. So essentially on a very conservative basis, moving the needle back to where we were the prior year, in the $31 million to $32 million range on sales. But with products that carry 50% margins, and that is replacing sales that we lost that were in the 30% to 25% margin range. So it has a multiplier affect but that is kind of the range that we are hoping conservatively that we are looking at, barring some unforeseen issues that come up.

Operator

And our next question is a follow-up question from the line of Shane. Please go ahead.

Kelvyn Cullimore

How many questions do we give Shane here?

Unidentified Analyst

Well first of all it’s not Shane, it is Sam. It’s not Shane, its Sam though.

Kelvyn Cullimore

Okay, Sam go ahead.

Unidentified Analyst

And since this is a follow-up question and probably the last question, you got off easy tonight?

Kelvyn Cullimore

Yes, well I won’t hold you to this being your last question. You can come back.

Unidentified Analyst

No that is fine. The question I have on this is expanding overseas, what would be the cost to the Company in terms of sales and marketing when you are ready to that, and when it’s up and running. Is there much of a cost for marketing?

Kelvyn Cullimore

Yes there is and that is a fair question Sam. For instance right now one of the markets that we are working on fairly aggressively is China. It is a market that we have never been in, that we have for the first time a very legitimate distributor in that market. But getting through the Chinese FDA can take a couple of years to do and in the course of that, it will cost some money. I don’t know we are just learning now what that will be but I suspect in the next year, in the next 12 months we will probably spend anywhere from $50,000 to $75,000 on that.

Unidentified Analyst

Okay. And the distribution product, or distributed products you mentioned that was not available to you for -- what the first nine months. Has that come back to you and you are able to sell it and what is the difference in the terms now versus before?

Kelvyn Cullimore

Well, there is still limitations. The distributor who was allowing us to distribute them before cut us off during 2012 and into 2013. And then the early 2013 their paradigm changed and they began to allow us to start selling the product again, but it was still not anywhere near what the sales have been in the prior year. And so they are feeling their way. They are trying to regulate the distribution of their product to get the most out of it and as a result they felt like going to a sole distributor, might accomplish that better than having multiple distributors. I believe they realized that that didn’t necessarily create the magic they had hoped. And so they have loosened that up to allow certain parts of the market to also be addressed by multiple distributors instead of reserving it all for a sole distributor.

So we are working on some of those products, but when they did that we also -- it was kind of a mixed blessing because we felt like we didn’t want to give up all those sales. So we came out with a competitive product of our own called the Quad 7. It didn’t have the same success that we did with the competitor’s product, but it did lead us to this new ThermoStim product that we are going to be introducing this next quarter, so I guess that is the silver lining to that whole negative situation is that had they not done that we would probably would not have been in a position to do this ThermoStim product that we are going to be introducing.

I guess I am just trying to find a silver lining to that. I mean we don’t anticipate seeing -- maybe more to your question, we don’t anticipate seeing a significant rebound on that particular product line in the near future. It will have to be filled with other products.

Unidentified Analyst

So do you feel that the products that are distributed will still take away some of the momentum in sales that will occur with the new products or that will no longer have a negative effect in this coming year?

Kelvyn Cullimore

I believe that we will generate additional interest in our distributed products with the new distributors we are bringing on. And that is part of the secret sauce to that strategy, is as we bring on these new distributors, because in the past a lot of these distributors and sales people who are independent have wanted to have a combination therapy device to lead with, and we've never been willing to allow them to have that because we have been protecting our core channel distribution.

With the introduction of our new SolarisPlus and the high-end thermal therapy, we believe there is room now to allow for this lower-end combination device. By providing that to this segment of the market, they have been very interested in not only coming in and taking our product as the lead, because we have a great reputation for high quality products that are very reliable. And so being able to have those products has been very attractive to them. And then they say well gee, what else have you got? And we show them the whole catalog and what we do is allow them to distribute our catalog and put their label on it.

And so we think that by bringing on these additional distributors and sales persons that we will be able to increase sales of distributed products as well as our proprietary products. So while there has been a drag on sales because of the distributed products, I believe that drag will be relieved as we move forward with this strategy.

Unidentified Analyst

And this product is ready to go, with all the bugs and any issues that you had are gone?

Kelvyn Cullimore

On the ThermoStim Probe?

Unidentified Analyst

Yes.

Kelvyn Cullimore

No we're still, we're in beta testing right now. And so the beta testing will tell us if we are there yet or not. We believe we are. The engineers tell us we are, but my experience is until you do all the beta testing, don't count your chickens before they hatch.

Unidentified Analyst

So in other words, the promise of having that shipped in the second quarter, is that 90% assured or 50% assured?

Kelvyn Cullimore

I would say it's 90% assured that we will be shipping in the second quarter. It's just whether it will shift in October, November or December. Our goal is to get it shipped out as early in the quarter as we possibly can, but only when it's ready. We want to make sure it's right. Because the thing that kills the new product faster than anything is shipping it out pre-maturely and having quality issues with it, and we don't want that to happen. But I would have a very hard time believing we aren't shipping this by the end of December at the latest.

Unidentified Analyst

So that wouldn't give you a whole quarter of shipments with the new product if you ship it out in December?

Kelvyn Cullimore

It would not, although we would have momentum starting to build during the quarter with orders building for it. So while you would not get the repeat sales of getting several cycles in, you would get a pretty good hit on the first cycle.

Unidentified Analyst

And is there any seasonality to that product?

Kelvyn Cullimore

There is not. What we have seen is that there are some inflection points that we do experience. For instance, sales in July and August are always bad, doesn’t matter what year, it doesn't matter why, people on vacation, whatever the case might be, those are always bad months, and that you can count on. You can count on December always being a very good month. And then beyond that it just varies. But those are the things that we know for sure, which is part of the reason we’re targeting second quarter for release of this new product.

Unidentified Analyst

Will this new product take away market share from anybody else?

Kelvyn Cullimore

I don't believe that it will take market share away from anyone else as far as the product itself. What it will do, is that it will create interest in the controlling console. So the controlling console is the SolarisPlus unit, which is a combination, electrotherapy, ultrasound and phototherapy device. This new product is an accessory to that product. And so they have to have the base console to be able to operate the thermal therapy device. And so we believe that it will not only will people who have a current SolarisPlus product be interested in buying it, it will generate additional interest in the SolarisPlus, that they have to buy in order to use the thermal therapy product. So it becomes a pull through, and yes I believe then we are talking about additional market share of the core combination therapy devices.

If you have other questions feel free to call us directly or jump back on the call before we're done.

Operator

And there are no further questions.

Kelvyn Cullimore

That’s because Sam was still thorough. So anybody else have questions for us today?

Operator

And we do have an additional question from the line of Paul. Please go ahead.

Unidentified Analyst

Quick question, I heard your comments concerning Q1 of fiscal 2014. I got the impression that sales are turning around and today is the last day of the first quarter fiscal year, correct?

Kelvyn Cullimore

Right, correct.

Unidentified Analyst

And so sales are turning around. So is it possible that sales might instead of being down, the average 6% or 7% they have been over the previous year during the last year or so, they could be up 3% to 5%?

Kelvyn Cullimore

They won't be up. They just won't be down as much.

Unidentified Analyst

And that would be one of the reasons why you’re still forecasting a loss for the first quarter, this quarter of the fiscal year?

Kelvyn Cullimore

That’s correct.

Unidentified Analyst

How was your backlog at the end of this quarter compared to fiscal 2013?

Kelvyn Cullimore

I don’t know until the day is over. We try and push everything through we can at the end of the day and we’ll see where we stand after the day is over. But my expectation is that we will be a little bit -- no, we will be about the same because in September of last year is when we released our SolarisPlus product line. And so we began shipments of SolarisPlus and we did have some backlog of SolarisPlus at the end of September last year. So my guess is will be pretty comparable to where we were last year.

Unidentified Analyst

Okay, well hey good luck with the upcoming fiscal year.

Kelvyn Cullimore

Well, it’s just nice to have the last two years behind us and I think with things going the way they are and if we can get a little bit of help on this medical device tax being taken off, I think that will help a lot as well. So things seem to be moving in the right direction with the new products and the new strategies, despite the fact we’ve just finished two years of essentially a breakeven. We’re probably as optimistic right now about our future potential as we’ve been in many years, and I think it has to do with the new products and the new strategy that we’ve got coming out so.

Operator

And our next question is from the line of Bob. Please go ahead.

Unidentified Analyst

Yes, I was wondering could you explain a little more in Lehman’s terms what your new ThermoStim product does and who might use it?

Kelvyn Cullimore

You bet. Yes, the ThermoStim Probe is an accessory to our SolarisPlus device, which means it plugs in to that console as an accessory. It is dependent on that console for both the software drivers and the power to drive that product. What the product does itself, what the Probe itself does is it allows a practitioner, the physical therapist, an athletic trainer or such to deliver either cold, the face of the Probe will get down to in the range of 39 degrees, or heat getting up to about 112 degrees. And they can switch between the two with only about a minute to a two minute spread. And so they can go between hot and cold and at the same time they can use it as an electrotherapy electrode. So they can deliver electrotherapy at the same time as heat and cold therapy.

Heat and cold thermal therapies have been around for a long time in the use of physical therapy applications and electrotherapy has been around a long time. But to be able to do both at the same time with one Probe has never been available. The other thing that we have designed this Probe to do is what they call tissue mobilization. Often times when you have inflammation in a tissue, you manipulate that tissue in an aggressive fashion in order to stimulate that inflammation. At the same time when you can do that with cold or heat to stimulate the tissue and then treat it with cold or electrotherapy, it just gives the practitioner an array of options, all using one tool to address the injury or the problem that they may be trying to treat.

We expect this to be very popular among those who do a lot of sports therapy. We have two universities right now who are using it as part of our beta test program. And so the feedback we’ve gotten has just been phenomenal so far. I hope that explains it Lehman enough terms, basically a hot, cold electrotherapy and tissue mobilization all with one tool.

Unidentified Analyst

No I guess you did a good job. One more question, in the first week of August your stock went from roughly $2.5 to $7.75 in two days. Do you have any comment on that move?

Kelvyn Cullimore

I’d sure like to know how we did that so that we can do it again.

Unidentified Analyst

Yes, I would too.

Kelvyn Cullimore

We saw that happening and I have to be honest with you when it first started, I was out of town at the time and I got a call from one of our brokers who said hey, have you seen what your stock is doing, what’s happening with your stock this morning? I said nothing our stock’s pretty stagnant right now and he says you better look. And I looked and I saw it was running and we just announced the 25 Series product, but that was not nearly enough to drive this kind of interest in the stock. And so we watched it very, very, with a lot of interest and frankly got just a little panicked that maybe there was some effort to acquire a significant position in the Company, maybe even a controlling interest by someone. That proved not to be the case. And as we watched it over the following weeks there were no SEC filings, there was no contact with us. It appears that it was really nothing more than a day trader event where someone got ahead of the game and triggered some program trading or something and it just ran up and then it ran back down.

And so we really don’t have an answer as to what happened. It sure stirred a lot of interest around here for a couple of weeks, wondering what in the world was going on. And then I just kept telling our Investor Relations guy to figure out however you did that and to do it again. He couldn’t figure it out either so.

Operator

And there are no further questions.

Kelvyn Cullimore

Okay. Maybe we need to get Sam one more opportunity.

Operator

(Operator Instructions)

Kelvyn Cullimore

We will assume that means that that’s all the questions for today. We really do appreciate you taking the time and the by the way we do apologize for the mix up on the time for the call. We had an internal mix up on that. We appreciate you adjusting your schedules to join us with the rescheduled time. And would welcome any calls and if you have further questions, feel free to call me or our Vice President of Administration, Bob Cardon, who handles all the Investor Relations as well and we will be happy to answer any questions that you might have. Thanks again for joining us today and we look forward to talking to you on the next call. Thank you.

Operator

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

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