<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required] for the fiscal year ended JUNE 30, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] for the transition period from
____________ to ____________.
Commission file number 0-12697
DYNATRONICS CORPORATION
Utah 87-0398434
- - ---------------------------- ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
7030 Park Centre Drive
Salt Lake City, Utah 84121
(801) 568-7000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X or No ______
-------
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $8,130,000 as of September 15, 1995.
The number of shares outstanding of each of the registrant's classes of common
stock as of September 15, 1995:
Class Shares Outstanding
----- ------------------
Common Stock, no par value 7,943,897
The Company hereby incorporates the following document by reference into this
Report as indicated: (1) The Company's 1995 Proxy and Information Statement,
incorporated by reference into Items 11 and 12 of this Report on Form 10-K. The
statement will be provided to shareholders subsequent to the filing of this
Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
____________________________________________________________________________
Exhibit index at page 21.
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PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
---------------------------
Dynatronics Corporation, formerly Dynatronics Laser Corporation
("Dynatronics" or the "Company"), a Utah corporation, was organized April 29,
1983 to acquire its affiliates, Dynatronics Research Corporation, and
Dynatronics Marketing Company, which were incorporated in Utah in 1979 and 1980,
respectively. The principal business of the Company is the design, manufacture
and sale of medical devices for therapeutic use by medical practitioners.
The Company's current product line can be divided into three main categories:
(1) Therapy Devices, (2) Diagnostic Devices and (3) Rehabilitation Devices.
Therapy devices accounted for the majority of sales revenue in fiscal 1995. The
increase in sales of therapy devices is attributable to the Company's new "50
Series" product line. With the focus on health care reform in 1993 and the
associated emphasis on managed care, the Company anticipated an increased market
demand for lower cost devices that did not sacrifice important features. The
result was the introduction of the "50 Series" product line which incorporated
the latest in technology allowing the Company to reduce the size of devices by
50% compared to their predecessor devices and also reduce the price without
forfeiting key features.
The first "50 Series" device, the Dynatron 150, was introduced in February
1994. In August 1994, the Dynatron 550 and 850 were introduced. It is
anticipated that in September, 1995, the Company will introduce two additional
products, the Dynatron 650 and Dynatron 950. The "50 Series" product line has
been very well received by the market as evidenced by a 56% increase in unit
sales over fiscal 1994. Dynatronics intends to continue development of the "50
Series" and remain a leader in the design, manufacture and sale of therapy
devices.
The chart below lists the individual products now marketed by the Company
with information regarding each product. For more details of each product,
refer to the section entitled, "Description of Products Manufactured and
Distributed by the Company."
SCHEDULE OF PRODUCTS
DISTRIBUTED BY DYNATRONICS
<TABLE>
<CAPTION>
Type of Fiscal Year
Product Name Description Product Introduced
- - ---------------------------------- --------------------- ----------- ----------------
<S> <C> <C> <C>
Dynatron/(R)/ 1120 Low-power Laser Therapy 1st quarter 1980
Dynatron/(R)/ 500 Multi-modality Therapy 4th quarter 1987
Electrotherapy Redesigned and
upgraded in 1st
quarter 1992
Dynatron/(R)/ 2000 Patient Testing and Diagnostic 3rd quarter 1988
Management System
Dynatron/(R)/ Equalizer Body Balance Analyzer Diagnostic 3rd quarter 1989
- - -------------------
</TABLE>
Dynatron/(R)/ is a registered trademark (#1280629) owned by Dynatronics.
2
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<TABLE>
<S> <C> <C> <C>
Dynatron/(R)/ 360 Range of Motion Diagnostic 4th quarter 1989
Inclinometer
Dynatron/(R)/ 320 Grip Strength Analyzer Diagnostic 4th quarter 1989
Dynatron/(R)/ 330 Body Composition Analyzer Diagnostic 3rd quarter 1990
Dynatron/(R)/ 200 Microcurrent Electro- Therapy 3rd quarter 1990
therapy
Dynatron/(R)/ 350 Electromyography Diagnostic 4th quarter 1990
Dynatron/(R)/ 5000 Rehabilitation System Rehab. 3rd quarter 1991
Software Package
Dynatron/(R)/ 400 Interferential and Therapy 4th quarter 1992
Bi-polar Electrotherapy
Dynatron/(R)/ 800 Combination Electrotherapy/ Therapy 3rd quarter 1993
Ultrasound
Dynatron/(R)/ 100 Plus Interferential and Therapy 4th quarter 1993
Bi-polar Electrotherapy
Dynatron/(R)/ 500 Plus Multi-modality Therapy 2nd quarter 1994
Electrotherapy
Dynatron/(R)/ 150* Ultrasound Therapy 3rd quarter 1994
Dynatron/(R)/ 550* Multi-modality Therapy 1st quarter 1995
Electrotherapy
Dynatron/(R)/ 850* Combination Electrotherapy/ Therapy 1st quarter 1995
Ultrasound
</TABLE>
* 50 Series Product Line
With the exception of the Dynatron 330, all of the devices currently marketed
by the Company were developed by the Dynatronics' engineering staff. The
original Dynatron 100 and the Dynatron 500 were developed, under contract, by an
engineer who subsequently became a full-time employee.
The Dynatron 850, which was introduced in August, 1994, represented 27
percent of consolidated revenues in fiscal 1995. In fiscal years 1994 and 1993,
the Dynatron 800 represented approximately 24 percent and 27 percent of
revenues, respectively, while the combined revenues of the Dynatron 500 and
Dynatron 500 Plus combined represented approximately 17 percent and 18 percent,
respectively. No other product accounted for more than 15 percent of the
Company's revenues during any of the last three fiscal years.
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The Company's products, other than laser devices, are marketed in accordance
with provisions of section 510(k) of the U.S. Food and Drug Administration
regulations.
As a result of the introduction of the above-mentioned, advanced-technology
products, the Company has become a multi-product supplier in the physical
medicine market. The target markets for the Company are physical therapy,
chiropractic, podiatry, sports medicine, industrial medicine, family practice,
and the sub-groups of each of these specialties.
Description of Products Manufactured
and Distributed by the Company
THERAPY DEVICES
Electrotherapy
- - --------------
Realizing that greater simplicity as well as more versatility could be
achieved with microprocessor-based electrotherapy devices, in 1986 the Company
commissioned the development of two new multiple-modality devices (The Dynatron
100 and Dynatron 500). The market response to these devices placed the Company
in a leading position in this field. Features were developed that are currently
available in no other device in the world. The Company has been issued a patent
on the "target" feature of the Company's electrotherapy devices.
The therapeutic effects of electrical energy have occupied an important
position in physical medicine for over three decades. A wide area of
frequencies from direct current ("DC") to radio and even microwave frequencies
have been utilized. There has been an evolution through the years to use the
most effective and painless wave forms and frequencies for patient comfort and
for successful outcomes in the treatment of pain and related physical ailments.
Studies have shown that medium frequency alternating currents ("AC"), which are
available in the Company's electrotherapy devices, are the most effective and
comfortable for patients.
The most significant research pertaining to the development of therapeutic
electrical stimulation devices has for many years taken place in Europe and
Russia. The methodologies currently thought by many to be the most effective
and having the greatest patient acceptance have been developed in Germany and in
Russia. The Dynatron electrotherapy devices incorporate two or more of the
electrical currents listed below:
INTERFERENTIAL CURRENT has proven to be effective in reducing pain and
increasing local blood circulation. This modality superimposes a constant sine
wave over a variable sine wave. When these waves meet, the result is a "beat"
with greater therapeutic effect than that of either wave alone. Four electrode
pads are placed on the patient to facilitate this "crossing" of current. By
selecting a preset pulse range, the practitioner can choose the desired
treatment for each condition.
PREMODULATED CURRENT assists in reducing pain, increasing local blood
circulation and increasing range of motion. This therapy is a bi-polar system
as opposed to the quad-polar system of interferential current. The premodulated
therapy consists of mixing the interferential currents within the device rather
than in the body. A selection of pulse frequencies is also available in this
modality.
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RUSSIAN STIMULATION, so named because of the origin of its development, is a
rehabilitative therapy. This modality is used for the prevention or retardation
of atrophy. Using a 2500 Hz sinusoidal current in 10 millisecond bursts,
Russian stim current produces a strong muscle contraction with minimal patient
discomfort.
BIPHASIC STIMULATION is similar to Russian Stimulation but allows the
practitioner to select a lower range of pulse widths, ranging from 50 to 400
microseconds. Biphasic current is often used in the muscle re-education therapy
process.
MICROCURRENT THERAPY utilizes low-volt, pulsed microamp stimulation to
provide the most comfortable therapy available. Microcurrent is used to reduce
pain levels in patients.
Dynatron 100. The first of the Company's microprocessor-based Electrotherapy
------------
devices was the Dynatron 100. This device was originally introduced in January
1987. The Dynatron 100 has the capability of delivering either Interferential
or Premodulated current to one patient at a time. It is extremely simple to
operate. The introduction of microprocessor-based technology in the Dynatron
100 made the manner in which all competitive machines operated virtually
obsolete. In fiscal 1993, the Company redesigned the Dynatron 100 and increased
its functions and capabilities without increasing its selling price. The
redesigned unit (the Dynatron 100 Plus) was introduced in the fourth quarter of
fiscal 1993 and features Dynatronics' proprietary Target Sweep along with a
display screen to guide the practitioner through treatment setup.
Dynatron 500. The Dynatron 500 was originally introduced to the market in
------------
June of 1987. The "500" is a multiple-modality device that can treat up to four
patients at one time. It has the capability of delivering Interferential,
Premodulated, and Russian Stimulation currents. In the second quarter of fiscal
1994, the Company introduced the new Dynatron 500 Plus which has all the
features of the original Dynatron 500 with microcurrent therapy as an added
modality.
The Dynatron 500 Plus has a menu-driven software program that leads the
operator through each step of treatment setup. Because of its microprocessor
technology, the Dynatron 500 Plus can be upgraded very easily with the most
current features.
Dynatron 400. The Dynatron 400 was introduced in May of 1992. This
------------
electrotherapy device is a scaled-down version of the original Dynatron 500,
with a correspondingly reduced price. Simply put, the Dynatron 400 is a
Dynatron 500 without the Russian Stimulation modality for muscle rehabilitation
nor does it have the microcurrent therapy modality. Features of the Dynatron
400 include treatment of up to four patients simultaneously, menu-driven
operation, interferential and premodulated therapies, along with the patented
Target feature.
Dynatron 550. The Dynatron 550 was introduced in the first quarter of
------------
fiscal 1995. Part of the Company's new line of products known as the "50
Series", this device incorporates virtually all of the features of the Dynatron
500 Plus yet is much smaller in size making it more portable for the
practitioners. In addition, the cost of manufacturing is significantly lower
than the Dynatron 500 Plus.
One of the outstanding characteristics of all Dynatronics electrotherapy
devices is the "Target" feature. With this exclusive patented feature, the
practitioner can actually target the treatment directly to the pain site with
near total accuracy and without having to maneuver the electrode pads multiple
times. The ease of use afforded by the target feature has contributed
significantly to the popularity of these units.
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Dynatron 200. The Dynatron 200 Microcurrent was introduced to the market in
------------
March of 1990. This menu-driven, user-friendly device offers attended or
unattended therapy along with the proprietary "Target Sweep" feature to bathe a
wide treatment area in the shortest amount of time. The practitioner can choose
from a broad range of pulse frequencies or from one of several presets for
treating patients.
Ultrasound and Combination Therapy Devices
- - ------------------------------------------
Ultrasound therapy provides therapeutic deep heat to muscle tissue and is the
most common device modality used in physical therapy today. In an effort to
reduce cost and provide value to customers, combination devices have been
introduced that offer both electrotherapy capabilities as well as ultrasound.
The Company's ultrasound devices utilize state-of-the-art technology which
incorporate a patented multi-frequency capability allowing practitioners to more
accurately pinpoint treatment of a patient's injuries. The patented feature
allows a practitioner, without changing soundheads, to select different
frequencies (1, 2 or 3 MHz), which determine the depth of treatment. This
feature is not available on any competitive unit and provides a convenience for
practitioners that has distinguished Dynatronics ultrasound products from
competitive models.
Dynatron 150. The Dynatron 150 was introduced in February, 1994. This
------------
device was the first in a series of new products known as the "50 Series."
Utilizing revolutionary new "microsize" technology, the Dynatron 150 is much
smaller in size and lower in price than most competitive units. The Dynatron
150 is ideally suited for the very cost conscious attitude currently existing in
the physical medicine marketplace.
Dynatron 800. The Dynatron 800 combines all the features of the Dynatron 500
------------
Electrotherapy device with those of the Dynatron 150 Ultrasound. Practitioners
can select between unattended therapy using electrotherapy, or attended therapy
using ultrasound. In addition, the practitioner can choose a combination
treatment utilizing both electrotherapy and ultrasound simultaneously which is
becoming popular among therapists.
Dynatron 850. The Dynatron 850 was the Company's top selling product in
------------
fiscal 1995. Incorporating the "50 Series" concept and technology, this device
is much smaller in size and lower in price than its predecessor - the Dynatron
800, while providing virtually all of the features of the Dynatron 800.
Low-Power Laser
- - ---------------
The use of low-power laser stimulation (biostimulation) in medicine is in
sharp contrast to the surgical, cauterizing, or cutting uses for which laser has
been most commonly known in the past. In biostimulation, the power output of
the laser emitting device is reduced to a point of providing a mild stimulation
to body tissues and functions. Biostimulation is a claimed therapeutic
application of laser as opposed to the surgical or burning effect achieved by
higher-power units.
Low-power laser therapy is used extensively in countries around the world as
an adjunctive therapy in pain management, wound healing and certain immune
system responses. However, the United States Food and Drug Administration has
not cleared these devices for general sale in the United States. The process by
which such clearance is granted is known as Pre-market Approval (PMA).
Obtaining a PMA requires a significant investment of time and resources.
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In the 1980's, Dynatronics filed a PMA with the FDA for its low-power laser.
After the expenditure of substantial effort and resources, the FDA refused to
clear the laser for general marketing due to inconclusive evidence of the
effectiveness of the device. Consequently, due to the subjective nature of the
process and the required commitment of human and monetary resources, the Company
is not currently seeking FDA clearance of its low-power laser device. Instead,
the Company continues to seek indications of efficacy that can be more easily
demonstrated in a PMA. Should such an indication of efficacy be identified, the
Company would again give consideration to actively seeking FDA approval of its
low-power laser devices.
The Dynatron 1120 is a low-power, helium-neon laser medical device which
-----------------
emits a red beam of light at 632.8 nanometer wavelength with a power of
approximately one milliwatt at the probe tip. The Dynatron 1120 also
incorporates the capability of delivering low power, electrical stimulation.
DIAGNOSTIC DEVICES
Dynatron 2000--Patient Testing and Management System
- - ----------------------------------------------------
The Dynatron 2000 is part strength tester, part computer, and part secretary.
It is designed to perform joint testing (functional orthopedic), myotome testing
(neurological involvement), and physical capacity testing (pre-employment
screening and injury testing).
While performing the tests, the Dynatron 2000 scans national normative data
provided by the National Institute for Occupational Safety and Health, and
automatically compares the patient being tested to that national data. Upon
command, the Dynatron 2000 will supply any one of a number of reports for
employers, insurance companies, or patient records. All of the pertinent test
data is then stored in the patient's file.
The Dynatron 2000 consists of a personal computer and software which are
linked to a data gathering transducer which measures physical force for computer
analysis. It is designed to determine the extent of injury as well as monitor
the patient's progress through the rehabilitation process. Whether used as a
screening tool or a comparative testing system, the Dynatron 2000 is intended as
a tool to resolve the estimated $40 billion annual cost of industrial work-
injury problems in the United States related to low back injuries.
The Dynatron 360 consists of an electronic inclinometer which sends data to a
----------------
wall-mounted receiver via infrared signals (similar to TV remote control) to
measure range of motion. This allows the physician to determine the extent of
many injuries to the neck and extremities in the most accurate manner possible
with automatic report development. It is also used for flexibility tests as
well as evaluating the point and angles of pain. This device may be sold as a
stand-alone unit or as a part of the Dynatron 2000 testing and management
system.
The Dynatron 320 consists of a hand-held grip device which measures a
----------------
person's grip strength. The data is transmitted via infrared signals to a
wall-mounted receiver and is useful in documenting hand injuries, upper
extremity weaknesses, and in some cases, malingering. The testing protocol
follows procedures recommended by the American Society of Hand Therapists. This
device may be sold on a stand-alone basis or as part of the Dynatron 2000
testing and management system.
The Dynatron 330. This portable, hand-held device which electronically
----------------
measures the body's proportions of lean, fat, and water via bioimpedance is a
simple method of determining body
7
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composition. Test results can be compared with ideal percentages to establish a
clearer picture of total patient health. This device can also be used in
conjunction with the Dynatron 2000.
The Dynatron 350 utilizes microprocessor-technology in conjunction with
----------------
remote probe electrodes to measure and document soft tissue injuries through
objective testing of electrical muscle activity. The software includes an
extensive normative data base for surface EMG (Electromyography) testing. This
normative study was commissioned by Dynatronics and can be found only in the
Dynatron 350 EMG. This device can also be used as a stand-alone or as part of
the Dynatron 2000 testing and management system.
The Dynatron Equalizer is a microprocessor-based bilateral scale which helps
----------------------
physicians analyze body posture and is a diagnostic tool for "short leg
syndrome". It is also used as a patient procurement tool for the chiropractic
profession. The computerization of the device makes it unique in the
marketplace.
REHABILITATION SYSTEM
The Dynatron 5000. The Dynatron 5000 Rehabilitation System was introduced in
-----------------
January of 1991 and incorporates the Dynatron 2000 patient testing module into
the rehabilitation process. Together, these software-driven systems objectively
measure performance, customize exercise regimens for the patient's specific
weakness or injury, establish baseline measurements of strength and endurance,
perform isotonic "weak-link" exercises, track and monitor performance, and even
modify exercise regimens according to the patient's abilities. The Dynatron
5000 prints reports with the testing results for insurance companies, employers,
or patient records.
Patents and Trademarks
- - ----------------------
The Company currently holds a patent on the "Target" feature of its
electrotherapy products which will remain in effect until July 18, 2006. During
1995, a patent application for the Company's multi-frequency ultrasound
technology received approval from the U.S. Patent and Trademark Office. The
formal patent is expected to issue before the end of calendar 1995 and will be
in effect until June, 2013. In addition, the Company is seeking international
patent rights to protect this proprietary feature in foreign countries. A
design patent is also held on the Dynatron Equalizer which will remain in effect
until July 21, 2006. This design patent covers the device's appearance. No
other patents exist on the Company's devices. The trademark "Dynatron" has been
registered with the United States Patent and Trademark Office and the
appropriate government offices in Japan. The Company's other copyrightable
material is protected under U.S. Copyright Laws.
Warranty Service
- - ----------------
The Company warrants all products it manufactures for at least one year from
the date of sale. The Company also sells accessory items supplied by other
manufacturers. These accessory products carry a warranty of from 90 days to one
year. All sales are serviced from the Salt Lake City facility. These warranty
policies are comparable to warranties generally available in the industry.
Customers/Market
- - ----------------
The Company has a dealer network of some 41 wholesale dealers throughout the
United States and internationally. These dealers are the primary customers of
the Company. The dealers actually purchase
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and take title to the products. Existing dealers sell primarily to
chiropractors, podiatrists, physical therapists, sports medicine specialists,
medical doctors, hospitals and other medical institutions.
During fiscal 1995, 1994 and 1993, no single customer accounted for more than
10 percent of total revenues.
The Company has exported product to approximately 20 different countries.
Excluding North American sales, international sales did not exceed 10 percent of
the Company's total sales in any of the last three years. However,
international markets outside North America are showing significant interest in
the "50 Series" product line. Sales in these regions of the world are up 45%
over the previous fiscal year. In May, 1995 the Company signed an agreement for
distribution of its "50 Series" products in Japan, which is one of the largest
medical device markets in the world. Sales to Japan should commence in early
1996 once all government approvals are obtained. Other emerging markets in 1995
included Australia, South Africa, Korea, Taiwan, Israel and Sweden.
Nevertheless, access to foreign markets is sometimes barred or made more
difficult for devices such as those manufactured by the Company because of
tariff restrictions, foreign currency fluctuations, currency control
regulations, competing or conflicting manufacturing standards, governmental
regulation and approval policies for medical testing and therapy devices and
licensing requirements. The Company has no foreign manufacturing operations.
Competition
- - -----------
In spite of significant competition, the Company has distinguished its
products by using the latest technology as evidenced by its patented Target
feature and patented multi-frequency ultrasound technology. These features,
along with the new "50 Series" concept, have made the Company a leader in
technologically advanced electrotherapy and ultrasound devices.
Electrotherapy/Ultrasound. The competition in the electrotherapy and
-------------------------
ultrasound markets is from both domestic and foreign companies. At least ten
companies produce devices similar to those of the Company. Few companies,
domestic or foreign, provide multiple-modality devices, and none offer all the
features of the Dynatron 850. No competitor offers the ultrasound feature of
three frequencies on a single soundhead for which the Company's patent
application was approved during fiscal 1995.
Patient Testing and Diagnosing Equipment. This category includes the
----------------------------------------
Dynatron 2000, Dynatron Equalizer, Dynatron 360 Range of Motion, Dynatron 320
Grip Strength, Dynatron 330 Body Composition, and Dynatron 350 EMG devices.
Competition in this area is primarily from a limited number of domestic
companies and some foreign manufacturers. There is no single company that
provides all of the diagnostic products which Dynatronics supplies.
Rehabilitation. The Dynatron 5000 Rehab System is a unique product without a
--------------
direct comparable competitor. While there are numerous exercise rehabilitation
devices on the market which address a broad range of needs and purposes, the
Company believes that none of the competitive systems combine rehab together
with diagnostic testing capabilities the way the Dynatron 5000 does.
Low-Power Laser. The Company believes that other companies may be sponsoring
---------------
efforts to obtain pre-market approval for a low-power laser device. However,
since there is a certain confidentiality to this process, applications could be
pending without the knowledge of the Company.
Information to determine or reasonably estimate the Company's, and its
competitor's, market share in any of these markets is not available.
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Manufacturing and Quality Assurance
- - -----------------------------------
Manufacturing is conducted exclusively at the Company's facility in Salt Lake
City, Utah. Over the years the Company has performed an increasing portion of
the manufacturing functions. While the Company sub-contracts the production of
mechanized parts and printed circuit boards all work is performed to Dynatronics
specifications. Sub-assembly, final assembly and quality assurance procedures
are all performed by trained staff at the Company's manufacturing facilities in
Salt Lake City.
Due to the advanced technology utilized in Dynatronics products, integrated
circuits are key components in the manufacturing process. Worldwide demand for
these and other related electronic components has increased to the point of
creating shortages and long lead times for some components. The Company has
taken steps to assure that its source of critical components is not interrupted.
There are no components used in Dynatronics products for which there are not
multiple sources of supply.
Dynatronics conforms to Good Manufacturing Practices as outlined by the U.S.
Food and Drug Administration. This includes a comprehensive program for
processing customer feedback and analyzing product performance trends. By
insuring prompt processing of timely information, the Company is better able to
respond to customer needs and insure proper operation of its products.
At the end of Fiscal 1994, the Company implemented the Quality First Program,
a concept for total quality management designed to involve each employee in the
quality assurance process. Under this program, employees are not only expected
to inspect for quality, but they are empowered to stop any process and make any
changes necessary to insure that quality is not compromised. An incentive
program is established to insure the continual flow of ideas and to reward those
who show extraordinary commitment to the Quality First concept. Quality First
has not only become the Company motto, but it is the standard by which all
decisions are made. The results of this program have been manifest in the low
warranty expense associated with the Company's "50 Series" products. The
Quality First Program has instilled renewed employee pride, increased customer
satisfaction, and improved overall operations of the Company.
Research and Development
- - ------------------------
The Company has historically been very committed to research and development-
- - - first with the laser devices, later with the additional high-technology
products it has introduced. In 1993, 1994, and 1995 the Company expended
$694,802, $664,250, and $566,891 respectively, for research and development
which represented approximately 9.3 to 13.6 percent of the gross revenues of the
Company in those years. Substantially all of the research and development
expenditures were for the development of new products or the upgrading of
existing non-laser products.
The Company has a strong commitment to the future, and to providing the most
current technology in its medical devices. The Company projects that it will
continue to spend approximately 9-12 percent of gross sales for research and
development. Research and development expenditures will continue to be for the
development of new products and for the continued upgrading of existing
products.
Environment
- - -----------
The Company's operations are not subject to material compliance with Federal,
State and Local provisions enacted or relating to protection of the environment
or discharge of materials into the environment.
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Seasonality
- - -----------
The Company has not been materially impacted by seasonality factors in its
business operations.
Employees
- - ---------
On June 30, 1995, the Company had a total of 46 full-time employees, as
compared to 47 as of June 30, 1994.
Investment in Affiliates
- - ------------------------
Pursuing a course of diversification, on June 3, 1986 the Company formed
International Tourist Entertainment Corporation ("ITEC Attractions" or "ITEC")
to develop tourist destination, giant screen theater complexes. ITEC's first
theater and retail mall located in Branson, Missouri opened in October, 1993.
Its second facility is planned to be located in St. Thomas in the United States
Virgin Islands.
The Company presently owns 2.3 million shares (approximately 36%) of the
common stock of ITEC Attractions. Such shares are restricted within the
definition of that term under Rule 144, promulgated under the Securities Act of
1933 as amended, and may only be sold in compliance with the provisions of such
Rule and said Act. ITEC's common stock is traded on the Nasdaq Small Cap Market
under the symbol "ITEC." On September 15, 1995, the ITEC common stock was
quoted at $1.00 per share. Certain members of the Company's board of directors
and executive officers are also officers and/or directors of ITEC. In fiscal
1995 the Company guaranteed a bank loan to ITEC in principal amount of $500,000.
In addition, the Company is carrying a receivable of approximately $228,824 from
ITEC. This receivable represents unpaid reimbursements for shared services
during the fiscal year. The guarantee and receivable are collateralized by a
security interest in ITEC's proprietary film entitled, "Ozarks: Legacy and
Legend." See "Certain Relationships and Related Transactions".
During the year, ITEC attempted to raise additional capital through a
secondary offering of stock. The failure of that offering created a shortage of
capital. ITEC has suffered recurring losses from operations, is in arrears on
certain lease payments, and current liabilities exceed current assets which
raise substantial doubt about its ability to continue as a going concern.
However, ITEC is currently working on restructuring its debt and securing
additional capital.
ITEM 2. PROPERTIES
----------
The Company's headquarters and principal place of business is located at 7030
Park Centre Drive, Salt Lake City, Utah 84121. The Company's headquarters
consist of administration offices and a plant facility combined totalling
approximately 36,000 square feet. The Company owns the land and building
housing its headquarters, subject to a mortgage requiring a monthly payment of
approximately $19,000. The facility was constructed in 1993 at a cost of
approximately $2.5 million of which 90 percent was financed through a local bank
and the Small Business Administration. These facilities are deemed by
management to be adequate to accommodate the expected growth and needs of the
Company for the coming year.
Equipment used in the manufacture and assembly of the Company's products is
owned by the Company. Manufacturing equipment includes electronic testing
equipment and production drills, saws, presses, etc. The manufacturing and
assembly equipment owned by the Company, as well as the production capacity of
the Company, is considered adequate to meet current levels of demand; however,
increased demand may necessitate additional expenditures. The nature of this
equipment is not specialized
11
<PAGE>
and may be readily obtained from any of a number of suppliers. The Company also
owns and leases computer equipment and engineering and design equipment
necessary for its research and development programs.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
There are no material pending legal proceedings to which the Company is a
party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
--------------------------------------------------------------
MATTERS.
Market Information. The common stock of the Company is traded in the Nasdaq
------------------
Small Cap Market (symbol: DYNT). The following table shows the range of high
and low bid prices for the Company's common stock as quoted on the NASDAQ system
for the quarterly periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
Fiscal Fiscal
1994 1995
Bid Prices Bid Prices
High Low High Low
----------------------------
<S> <C> <C> <C> <C>
1st Quarter (July-September) $3.50 $ .69 $2.56 $1.62
2nd Quarter (October-December) 3.12 2.00 2.06 .87
3rd Quarter (January-March) 4.50 2.25 1.31 1.00
4th Quarter (April-June) 2.75 1.94 1.31 .94
</TABLE>
Holders. The approximate number of shareholders of record as of September
-------
15, 1995 of the Company's common stock, was 562. This number does not include
beneficial owners of shares held in "nominee" or "street" name.
Dividends. The Company has not paid cash dividends on its common stock
---------
during the past two fiscal years. At the present time, the Company's
anticipated capital requirements are such that it intends to follow a policy of
retaining any earnings in order to finance the development of its business.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The table listed below summarizes selected financial data for the Company and
is qualified in its entirety by the more detailed financial statements included
herein.
SELECTED FINANCIAL DATA
Fiscal Year Ended June 30
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $6,112,241 $4,900,408 $5,970,379 $6,581,802 $6,263,328 $6,612,692 $7,340,838 $5,255,819 $2,454,380
Net Income 217,083 290,059 326,621 320,799 167,483 500,379 703,113 531,274 17,236
Net Income per .03 .04 .04 .04 .02 .06 .09 .07 .00
share (A)
Working Capital 3,319,272 2,899,196 2,608,604 2,883,349 2,468,590 1,911,738 1,551,721 1,192,245 564,535
Total Assets 7,187,328 7,176,641 5,617,775 4,122,527 3,612,928 3,441,137 3,870,952 2,488,347 1,472,446
Long-Term 2,399,371 2,454,148 1,287,189 128,754 13,150 33,541 36,414 40,397 22,051
Obligations
</TABLE>
(A) See Note 1(i) to Financial Statements.
13
<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- - --------------------------------------------------------------------------
OPERATIONS
- - ----------
RESULTS OF OPERATIONS
Fiscal 1995 Compared To Fiscal 1994
During fiscal 1995, the Company expanded its product line by introducing
two major products to the market -- the Dynatron 550 Electrotherapy device and
the Dynatron 850 Combination Electrotherapy/Ultrasound Therapy device. Sales of
these two products represented 13.6 percent and 27 percent of total sales,
respectively. These devices are part of a new line of products designated the
"50 Series" which incorporate "microsize" technology that not only allows the
size of the device to be reduced by over 50% when compared to the predecessor
Dynatron 800 and 500, but the costs of manufacturing are also reduced. The "50
Series" products have enabled the Company to capture an increased portion of the
market as evidenced by a 56 percent increase in unit sales over last year.
During the year, the Company announced the signing of a distribution
agreement with Chowa Medical in Japan. Japan is one of the largest consumers of
medical products in the world and the "50 Series" represents a technological
advance for that market. Management expects to complete required governmental
testing in the second quarter of fiscal 1996 with sales to Japan beginning
immediately thereafter.
The Company plans to expand the "50 Series" product line during fiscal
1996. The new Dynatron 650 Electrotherapy and Dynatron 950 Combination
Electrotherapy/Ultrasound devices are scheduled to begin shipping in the first
quarter of fiscal 1996. These devices will be similar to the Dynatron 550 and
Dynatron 850 but will include additional capabilities for treating multiple
patients and will add an electrotherapy modality known as "Hi-Volt" which is
popular among some therapists and doctors. At September 15, 1995, the Company
has received orders in excess of $700,000 for these new products.
Sales for the fiscal year ended June 30, 1995 increased 25 percent to
$6,112,241 as compared to $4,900,408 in fiscal 1994. This increase was due
primarily to the introduction of the new Dynatron 550 and Dynatron 850 products.
Management believes that the introduction of the "50 Series" product line
positions the Company well to compete in a more price-sensitive market and will
continue to improve the Company's sales in fiscal 1996, and beyond, as
additional new products are introduced.
The Company's gross margins as a percent of sales decreased by one percent
from 43 percent in fiscal 1994 to 42 percent in fiscal 1995 due primarily to
lower overall net selling prices driven by increased competition, and a greater
percentage of sales coming from the Company's ultrasound products which generate
lower margins. It is anticipated that gross margins will increase in the future
based on the new products scheduled for introduction.
The Company's 1995 selling, general and administrative (SG&A) expenses
equalled $1,704,723 as compared to $1,979,032 in fiscal 1994. Included in the
fiscal 1994 SG&A expense is a one-time $180,000 bonus declared by the Board of
Directors payable to the Chairman of the Board in recognition of his efforts in
the development of ITEC Attractions. To fund this bonus, the Company sold
approximately one percent of the Company's holdings of ITEC stock. Exclusive of
this bonus, SG&A expenses in 1995 decreased by over 5 percent compared to 1994.
These decreases were a direct result of
14
<PAGE>
management efforts to reduce costs of overhead through department restructuring
and elimination of certain programs.
During fiscal 1995, the Company maintained its commitment to research and
development (R&D), expending approximately 9 percent of total sales, or
$566,891, for the year in this effort as compared to 13.6 percent or $664,250 in
fiscal 1994. This approximate $97,000 decrease is R&D expenses is due to a
reduction in personnel during the year. R&D expenses for fiscal 1995 were
related not only to the development of the new products introduced, but also to
continued development of the "50 Series" product line, part of which (the
Dynatron 650 and 950) are scheduled to begin shipping in the first quarter of
fiscal 1996.
Interest expense increased from $17,522 in fiscal 1993 to $104,258 in
fiscal 1994 and $164,925 in fiscal 1995 due to the mortgage payments on the
Company's new facility. During fiscal 1994, the Company moved into its new
office and manufacturing facility. This new facility is 80 percent larger than
the previous leased facility and will allow the Company to expand its operations
in the future. The 1995 figure reflects a full year of mortgage interest
payments whereas the 1994 amount reflects a partial year.
Operating profits for fiscal 1995 increased approximately $840,000 to
$322,551 as compared to a loss of $517,306 in fiscal 1994. This improvement is
a direct result of the Company's new "50 Series" product line, and efforts to
reduce expenses.
In fiscal years 1994 and 1993, the Company realized gains from the sale of
ITEC stock in the amounts of $403,743 and $199,985, respectively. No amounts
were recognized in fiscal 1995.
Pre-tax income for 1995 equalled $359,570 as compared to a loss of $105,275
in the previous year. The main contributing factors to this increase were the
25 percent increase in sales revenue and the reduction of SG&A and R&D expenses.
In 1995 the Company's income tax expense was $142,487 as compared to
$93,732 in income tax benefits for fiscal 1994. The 1994 tax benefit was a
result of three factors including: the reported operating loss for fiscal 1994,
the filing of amended tax returns for prior years, and the recognition of tax
credits related to R&D expenses.
Net income for the 1995 fiscal year totalled $217,083 as compared to
$290,059 in the prior year. During fiscal 1994 the Company was required to adopt
a new method of accounting for deferred taxes known as Financial Accounting
Standards Board Statement No. 109, which resulted in recognizing a one-time
cumulative effect benefit to net income of $301,602.
Fiscal 1994 Compared to Fiscal 1993
During fiscal 1994, the Company continued to upgrade and expand its product
line by introducing two products to the market -- the Dynatron 500 Plus
Electrotherapy device and the Dynatron 150 Ultrasound Therapy device.
The Dynatron 500 Plus, an upscale version of the Dynatron 500 with
microcurrent therapy as an added modality, was introduced in the second quarter
of fiscal 1994. Sales of this device represented 12 percent of sales for the
year.
15
<PAGE>
The Dynatron 150 Ultrasound Therapy device was introduced in February 1994,
and was the first in a series of new products known as the "50 Series." With
only five months of sales, the Dynatron 150 represented nearly 10 percent of
total sales for the entire year.
Notwithstanding the two new product introductions during fiscal 1994, sales
decreased to $4,900,408 as compared to $5,970,379 in fiscal 1993. This decrease
was due to several factors, the most prominent being health care reform and
increased competition. The uncertainties associated with health care reform
created some reluctance in the market to purchase capital equipment. With
demand for goods temporarily decreasing, competition for remaining business
became more intense and focused on pricing strategies. These pricing strategies
contributed to both lower overall sales and reduced margins.
The Company's gross margins as a percent of sales decreased by 3.8 percent
compared to fiscal 1993, due primarily to lower overall net selling prices
driven by increased competition, and a greater percentage of sales from the
Company's ultrasound products which generate lower margins. It is anticipated
that gross margins will improve in the future as additional, higher margin 50
Series products are introduced.
The Company's 1994 selling, general and administrative (SG&A) expenses
equalled $1,979,032 as compared to $1,922,847 in fiscal 1993. Included in the
fiscal 1994 SG&A expense is a one-time $180,000 bonus declared by the Board of
Directors payable to the Chairman of the Board in recognition of his efforts in
the development of ITEC Attractions. To fund this bonus, the Company sold
approximately one percent of the Company's holdings of ITEC stock. Exclusive of
this bonus, SG&A expenses in 1994 decreased by over 6% compared to 1993.
During fiscal 1994, the Company maintained its commitment to research and
development, expending approximately 13.6 percent of total sales, or $664,250,
for the year in this effort as compared to 11.6 percent or $694,802 in fiscal
1993. This expense was related not only to the development of the Dynatron 500
Plus and the Dynatron 150, but also to continued development of the "50 Series"
product line, part of which (the Dynatron 850 and 550) began shipping in the
first quarter of fiscal 1995.
The Company realized gains from the sale of ITEC stock in the amounts of
$403,743 and $199,985 in fiscal years 1994 and 1993, respectively. Of the
amount in fiscal 1994, $180,000 was used to pay the bonus to the Chairman of the
Board referred to above.
Pre-tax loss for the year equalled $105,275 as compared to income of
$466,621 in the previous year. The main contributing factors to this decrease
were the 3.8 percentage point decrease in gross margin as a percent of sales
(from 47.2 percent of sales in 1993 to 43.4 percent of sales in 1994) along with
the 18% decrease in sales revenues.
The Company recorded $93,732 in income tax benefits for fiscal 1994 due to
the reported operating loss, the filing of amended tax returns for prior years
and the recognition of tax credits related to R&D expenses. This compares with
$140,000 in income tax expense in fiscal 1993.
Net income for the 1994 fiscal year totalled $290,059 as compared to
$326,621 in the prior year. During fiscal 1994 the Company was required to adopt
a new method of accounting for deferred taxes known as Financial Accounting
Standards Board Statement No. 109, which resulted in recognizing a one-time
cumulative effect benefit of $301,602.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company expects that cash flows from operations, together with
available sources of borrowing, will be adequate to meet the Company's working
capital needs related to its business and its planned capital expenditures for
the upcoming operating period.
The Company's current ratio of 7.3:1 at June 30, 1995 increased 55% over
the ratio of 4.7:1 at June 30, 1994. Current assets increased during the year
by $168,780 and current liabilities decreased by $251,296.
The Company maintains a revolving line of credit in the amount of
$1,000,000 with a commercial bank. No amounts were outstanding on this line of
credit at June 30, 1995. The Company has not relied on borrowings against its
line of credit to meet its working capital needs.
Accounts receivable represent amounts due from the Company's dealer network
and a few select medical practitioners. The historical relationship with these
dealers indicates that the allowance for doubtful accounts is adequate.
Accounts receivable are generally collected within 30 days of the terms
extended.
Inventory levels at June 30, 1995 equalled $1,767,030 as compared to
$1,795,359 at June 30, 1994. With the introduction of additional new products
related to the "50 Series" product line, it is expected that inventories may
increase during fiscal 1996.
The Company moved into its new, larger office and manufacturing facility on
August 30, 1993, which replaced its previously leased facility. This new
facility was financed by cash invested and a mortgage obtained by the Company.
Working capital generated by operations is expected to be sufficient to service
the building mortgage payments. No other major capital expenditures are planned
for the Company in the near future.
On a short-term and long-term basis, cash balances and the available line
of credit are expected to be sufficient to meet the Company's working capital
needs.
The Company currently owns 2.3 million shares of the common stock of ITEC
Attractions. On September 15, 1995, the reported price of ITEC common stock on
the Nasdaq Small Cap Market was $1.00 per share. See "Investment in Affiliate"
above.
For additional information with respect to sources and uses of cash, refer
to the statements of cash flows included in the Company's financial statements.
The Company's revenues and net income from continuing operations have not
been unusually impacted by inflation or price increases for raw materials and
parts from vendors.
ITEM 8. FINANCIAL STATEMENTS
--------------------
Financial statements follow immediately and are listed in Item 14 of Part
IV of this form 10K.
17
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Dynatronics Corporation:
We have audited the financial statements of Dynatronics Corporation as listed in
the accompanying index. In connection with our audits of the financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynatronics Corporation as of
June 30, 1995 and 1994, and the results of its operations and its cash flows for
each of the years in the three-year period ended June 30, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
August 8, 1995
F-1
<PAGE>
DYNATRONICS CORPORATION
Balance Sheets
June 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- ---------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 779,054 871,008
Trade accounts receivable, less
allowance for doubtful accounts of
$50,729 in 1995 and $45,844 in 1994 941,017 758,799
Income tax refund receivable 19,095 134,102
Related party and other receivables (note 10) 236,021 27,505
Inventories (note 3) 1,767,030 1,795,359
Prepaid expenses 48,300 32,926
Deferred tax asset - current (note 11) 53,006 55,044
----------- ---------
Total current assets 3,843,523 3,674,743
Property and equipment, net (notes 4 and 7) 2,663,171 2,799,439
Excess of cost over book value, net of
accumulated amortization
of $105,348 in 1995 and $96,569 in 1994 158,014 166,793
Deferred tax asset - noncurrent (note 11) 178,123 260,378
Other assets 344,497 275,288
$ 7,187,328 7,176,641
=========== =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt (note 7) $ 101,345 94,093
Current installments of capital
lease obligations (note 8) 44,742 61,348
Accounts payable 131,138 231,409
Accrued expenses (note 9) 247,026 388,697
----------- ---------
Total current liabilities 524,251 775,547
Long-term debt, excluding current installments (note 7) 2,086,438 2,187,783
Capital lease obligations, excluding
current installments (note 8) 22,671 49,363
Deferred compensation (note 15) 290,262 217,002
----------- ---------
Total liabilities 2,923,622 3,229,695
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 7,943,897 in
1995 and 7,916,957 shares in 1994 1,653,818 1,554,141
Retained earnings 2,609,888 2,392,805
----------- ---------
Total stockholders' equity 4,263,706 3,946,946
Commitments and contingencies (notes 5, 8, and 15)
----------- ---------
$ 7,187,328 7,176,641
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
DYNATRONICS CORPORATION
Statements of Income
Years ended June 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Net sales $6,112,241 4,900,408 5,970,379
Cost of sales 3,518,076 2,774,432 3,154,686
--------- --------- ---------
Gross profit 2,594,165 2,125,976 2,815,693
Selling, general, and administrative
expenses 1,704,723 1,979,032 1,922,847
Research and development expense 566,891 664,250 694,802
--------- --------- ---------
Operating income (loss) 322,551 (517,306) 198,044
Other income (expense):
Interest income 17,566 17,862 16,420
Interest expense (164,925) (104,258) (17,522)
Gain on sale of investment in ITEC
stock (note 5) - 403,743 199,985
Other income, net (note 10) 184,378 94,684 69,694
--------- --------- ---------
Total other income, net 37,019 412,031 268,577
Income (loss) before income taxes 359,570 (105,275) 466,621
Income tax expense (benefit) (note 11) 142,487 (93,732) 140,000
--------- --------- ---------
Income (loss) before cumulative effect
of accounting change 217,083 (11,543) 326,621
Cumulative effect at July 1, 1993 of
change in accounting for income taxes
(note 11) - 301,602 -
--------- --------- ---------
Net income $ 217,083 290,059 326,621
========= ========= =========
Income per common share and common
share equivalents (note 1(j)):
Before cumulative effect of change in
accounting for income taxes $ .03 - .04
Cumulative effect of accounting change - .04 -
--------- --------- ---------
$ .03 .04 .04
========= ========== =========
Weighted average number of common
shares and common share equivalents 7,928,818 8,316,294 7,685,093
outstanding
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DYNATRONICS CORPORATION
Statements of Stockholders' Equity
Years ended June 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Total
Common Retained stockholders'
stock earnings equity
--------- --------- ------------
<S> <C> <C> <C>
Balances at June 30, 1992 $1,506,572 1,776,125 3,282,697
Retirement of 98,543 shares of common
stock in merger with ACI (note 2) (68,495) - (68,495)
Issuance of 12,500 shares of common
stock to ACI stock option holder 1,513 - 1,513
Net income - 326,621 326,621
--------- --------- ------------
Balances at June 30, 1993 1,439,590 2,102,746 3,542,336
Issuance of 263,000 shares of common
stock upon exercise of employee stock
options (note 13) 89,420 - 89,420
Income tax benefit from nonemployee
exercise of stock options 25,131 - 25,131
Net income - 290,059 290,059
--------- --------- ------------
Balances at June 30, 1994 1,554,141 2,392,805 3,946,946
Issuance of 26,940 shares of common
stock upon exercise of employee stock
options (note 13) 23,572 - 23,572
Income tax benefit from nonemployee
exercise of stock options 76,105 - 76,105
Net income - 217,083 217,083
--------- --------- ------------
Balances at June 30, 1995 $1,653,818 2,609,888 4,263,706
========= ========= ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
DYNATRONICS CORPORATION
Statements of Cash Flows
Years ended June 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 217,083 290,059 326,621
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Cumulative effect of accounting
change - (301,602) -
Depreciation and amortization of 193,202 165,965 95,795
property and equipment
Other amortization 8,779 8,779 8,779
Loss on disposal of assets - 125 2,331
Gain on sale of investment in ITEC
stock - (403,743) (199,985)
Provision for doubtful accounts 12,000 21,331 28,362
Provision for inventory obsolescence 96,000 93,822 100,000
Provision for warranty reserve 159,636 106,244 78,296
Deferred compensation 73,260 70,188 80,396
Decrease (increase) in operating
assets:
Receivables (173,910) 389,956 (147,001)
Inventories (67,671) (539,117) (132,694)
Prepaid expenses and other assets (84,583) 12,011 (10,345)
Deferred tax assets 84,293 (13,820) -
Income taxes 191,112 (46,303) 34,200
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
expenses (360,372) (81,440) (139,412)
---------- -------- ---------
Net cash provided by (used in)
operating activities 348,829 (227,545) 125,343
---------- -------- ---------
Cash flows from investing activities:
Loan to affiliates (228,824) - -
Net cash from ACI merger - - 1,910
Proceeds from sale of investment in
ITEC stock - 403,743 199,985
Capital expenditures (78,150) (164,076) (549,458)
Refund from construction funding - 230,690 -
Proceeds from sale of assets - 125 7,868
---------- -------- ---------
Net cash provided by (used in)
investing activities (306,974) 470,482 (339,695)
---------- -------- ---------
Cash flows from financing activities:
Principal payments under capital
lease obligations (63,288) (71,612) (42,478)
Principal payments on long-term debt (94,093) (147,865) (71,678)
Proceeds from issuance of long-term
debt - 57,000 -
Proceeds from issuance of common
stock 23,572 89,420 1,513
---------- -------- ---------
Net cash used in financing
activities (133,809) (73,057) (112,643)
---------- -------- ---------
Net increase (decrease) in cash and
cash equivalents (91,954) 169,880 (326,995)
Cash and cash equivalents at beginning
of year 871,008 701,128 1,028,123
---------- -------- ---------
Cash and cash equivalents at end of
year $ 779,054 871,008 701,128
========== ======== =========
</TABLE>
F-5
<PAGE>
DYNATRONICS CORPORATION
Statements of Cash Flows (continued)
Years ended June 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
Supplemental Disclosures of Cash Flow Information
- - -------------------------------------------------
<S> <C> <C> <C>
Cash paid during the period for interest
(net of amounts capitalized) $ 164,925 104,258 17,521
Cash paid during the year for income taxes 250 103,000 105,800
<CAPTION>
Supplemental Disclosure of Noncash Investing and Financing Activities
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt incurred for fixed assets $ - 1,179,131 1,090,871
Capital lease obligations incurred for property and equipment 19,990 88,912 35,594
Long-term debt incurred for assets and retirement of
common stock in connection with ACI merger - - 169,847
Income tax benefit from nonemployee exercise of stock options 76,105 25,131 -
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 1995, 1994, and 1993
(1) Basis of Presentation and Summary of Significant Accounting Policies
--------------------------------------------------------------------
(a) Basis of Presentation
---------------------
Dynatronics Corporation (the Company) was incorporated as a Utah
corporation in 1983. The Company develops and markets products for the
physical medicine market, which constitutes a single line of business.
(b) Cash Equivalents
----------------
Cash equivalents include all cash and investments with original
maturities to the Company of three months or less.
(c) Inventories
-----------
Finished goods inventories are stated at the lower of standard cost,
which approximates actual costs (first-in, first-out), or market. Raw
materials are stated at the lower of cost (first-in, first-out) or
market.
(d) Property and Equipment
----------------------
Property and equipment are depreciated using the straight-line method
over the estimated useful lives of the related assets. Equipment under
capital leases are amortized using the straight-line method over the
lesser of the term of the related leases or the estimated useful lives
of the assets.
(e) Excess of Cost Over Book Value
------------------------------
The excess of cost over book value is being amortized on the straight-
line method over 30 years.
(f) Revenue Recognition
-------------------
Sales revenues are generally recorded at the time products are shipped
to the customer.
(g) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
F-7
<PAGE>
DYNATRONICS CORPORATION
Notes to Financial Statements
(h) Product Warranty Reserve
------------------------
Anticipated costs estimated to be incurred in connection with the
Company's product warranty programs are charged to expense as products
are sold.
(i) Income Taxes
------------
The Financial Accounting Standards Board Statement No. 109, Accounting
for Income Taxes (Statement 109) requires the use of the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement 109, the effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective July 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method for
accounting of income taxes in the 1994 statement of income.
Pursuant to the deferred method under APB Opinion 11, which was applied
in 1993 and prior years, deferred income taxes were recognized for income
and expense items that were reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable
for the year of the calculation. Under the deferred method, deferred
taxes were not adjusted for subsequent changes in tax rates.
(j) Income Per Share
----------------
Per share amounts are computed by dividing net income or loss by the
weighted average number of common shares outstanding and common share
equivalents outstanding (if dilutive). In 1994, there were 1,798,970
options granted which had a dilutive effect on net income per share, (see
note 13). Stock options had no effect on the calculation of such per
share data in 1995 and 1993 as the dilutive effect of such options was
not material.
(k) Reclassifications
-----------------
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to classifications adopted in 1995.
F-8
<PAGE>
DYNATRONICS CORPORATION
Notes to Financial Statements
(2) Business Combinations
---------------------
In November of 1992, the Company acquired American Consolidated Industries
(ACI), which was a 35 percent stockholder of the Company, under the
reorganization provisions of Internal Revenue Code Sections 368 (a)(l)(A)
and 368 (a)(2)(D). Related to this merger, 2,178,572 shares of the
Company's common stock formerly held by ACI were canceled and reissued to
former ACI stockholders in exchange for the Company assuming the
outstanding debt and acquiring the assets and tax attributes of ACI.
Additionally, 98,543 shares of the Company's common stock formerly held by
ACI with a value of $68,495 were retired. This transaction was accounted
for under the purchase method of accounting.
(3) Inventories
-----------
Inventories consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Raw materials $ 1,201,587 1,378,036
Finished goods 611,207 460,709
Inventory reserve (45,764) (43,386)
---------- ---------
$ 1,767,030 1,795,359
========== =========
</TABLE>
(4) Property and Equipment
----------------------
Property and equipment is stated at cost and consisted of the following at
June 30:
<TABLE>
<CAPTION>
1995 1994
------------ ---------
<S> <C> <C>
Land $ 589,920 589,920
Building 1,935,297 1,935,297
Machinery and equipment 358,172 311,447
Office equipment 102,284 97,536
Equipment under capital leases 238,050 247,040
Vehicles 7,969 7,969
------------ ---------
3,231,692 3,189,209
Less accumulated depreciation
and amortization 568,521 389,770
------------ ---------
$ 2,663,171 2,799,439
=========== =========
Interest cost capitalized $ - 34,478
=========== =========
</TABLE>
F-9
<PAGE>
(5) Investment
-----------
The Company has an investment in International Tourist Entertainment
Corporation (ITEC). ITEC was organized for the purpose of developing
tourist-oriented giant screen theater complexes, the first of which is in
Branson, Missouri. ITEC commenced planned principal operations during
October 1993.
The Company's percentage ownership of ITEC's common stock at June 30, 1995
was approximately 36 percent. At June 30, 1995 and 1994, the Company has no
reported investment in ITEC due to previously recognized losses. The
Company has suspended the equity method of accounting with respect to its
ownership in ITEC stock. The Company's unrecorded share of ITEC's losses
through June 30, 1995 is approximately $1,489,000. During 1995, the Company
guaranteed a $500,000 bank loan for ITEC. The Company also advanced
$228,824 to ITEC. In consideration for the Company's guarantee and
advances, the Company received a security interest in ITEC's signature
giant screen film which jointly secures another loan from an individual in
the amount of $300,000. Based on the Company's share of equity in ITEC,
which exceeds the amount of the advances and the guarantee, no impairment
of its advance or recording of the guarantee is considered necessary. A
summary of financial information of ITEC is set forth below:
Balance Sheets
<TABLE>
<CAPTION>
June 30,
1995 1994
------------ ----------
<S> <C> <C>
Current assets $ 554,804 548,648
Noncurrent assets 13,304,842 10,300,332
----------- ----------
$13,859,646 10,848,980
=========== ==========
Current liabilities $ 2,465,912 523,480
Noncurrent liabilities 6,291,850 5,661,364
Stockholders' equity 5,101,884 4,664,136
----------- ----------
$13,859,646 10,848,980
=========== ==========
</TABLE>
Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
1995 1994 1993
------------ ---------- -------
<S> <C> <C> <C>
Revenues $ 2,834,670 1,263,505 -
Operating loss (927,930) (1,311,413) (599,977)
Other income (expense) (609,694) (311,511) 97,016
Net loss (1,537,624) (1,622,924) (502,961)
</TABLE>
F-10
<PAGE>
(5) Investment (continued)
----------
ITEC is currently experiencing cash flow deficiencies on an annual basis
and may not be able to meet all of its obligations as they become due. ITEC
is currently seeking additional equity financing and the restructuring of a
portion of its long-term debt. ITEC's ability to repay advances to the
Company and avoid default on the $500,000 bank loan guaranteed by the
Company is dependent on ITEC's ability to achieve sustained cash flow from
operating activities, to receive additional equity financing and/or to
restructure its debt, the outcome of which is currently indeterminable.
(6) Line of Credit
--------------
The Company has available with a commercial bank a revolving line of credit
agreement totaling $1,000,000, secured by accounts receivable and
inventory. The line of credit, which expires November 30, 1995, requires
the monthly payment of interest on outstanding balances at prime plus one-
half percent. The line is restricted by the guarantee amount ($500,000 at
June 30, 1995) in relation to the Company's guarantee on the bank's loan to
ITEC. There were no draws during 1995 on the line of credit, and no
outstanding balance as of June 30, 1995.
(7) Long-term Debt
--------------
Long-term debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
7.64% promissory note secured by a
trust deed on real property, payable
in monthly installments of $12,155
through November 1998 then adjusted
through November 2003 $ 1,221,937 1,272,329
6.21% promissory note secured by a
trust deed on real property, maturing
November 2013, payable in decreasing
installments beginning at $7,545 monthly 926,216 952,547
8.6% promissory note secured by
equipment, payable in monthly
installments of $1,806 through June 1997 39,630 57,000
----------- ---------
Total long-term debt 2,187,783 2,281,876
Less current installments 101,345 94,093
----------- ---------
Long-term debt, excluding
current installments $ 2,086,438 2,187,783
=========== =========
</TABLE>
The aggregate maturities of long-term debt for each of the years subsequent to
June 30, 1995 are as follow: 1996, $101,345; 1997, $109,163; 1998, $95,033;
1999, $102,069; 2000, $109,632; and thereafter $1,670,541.
F-11
<PAGE>
(8) Leases
------
The Company leases equipment and vehicles under noncancelable operating
lease agreements. The Company leased office space through August 1993. Rent
expense for the years ended June 30, 1995, 1994, and 1993 was $24,354,
$28,840, and $139,472, respectively. A schedule of future minimum rental
payments required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of June 30, 1995,
appears in the table below.
The Company is the lessee of computer and office equipment with a cost of
$238,050 under capital leases that expire at various times through October
1997. At June 30, 1995, accumulated amortization on such equipment totaled
$173,844. Related amortization charges are included in depreciation
expense.
A summary of noncancelable long-term lease commitments follows:
<TABLE>
<CAPTION>
Capi- Oper-
talized ating
leases leases
--------- --------
<S> <C> <C>
Years ending June 30:
1996 $ 48,408 22,466
1997 18,732 10,306
1998 5,154 -
--------- --------
Total minimum lease payments 72,294 $ 32,772
========
Less amount representing interest 4,881
---------
Present value of net minimum capital
lease payments 67,413
Less current installments
of capital lease obligations 44,742
---------
Capital lease obligations,
excluding current installments $ 22,671
=========
</TABLE>
F-12
<PAGE>
(9) Accrued Expenses
----------------
Accrued expenses consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
--------- -------
<S> <C> <C>
Warranty reserve $ 64,000 70,000
Bonuses payable 20,214 562
Commissions payable 6,620 2,384
Dealer incentive trip accrual 24,552 92,012
Payroll related accruals 78,251 84,442
Real property tax accrual 18,770 21,604
Common area charges on leased
property - 37,900
Other 34,619 79,793
--------- -------
$ 247,026 388,697
========= =======
</TABLE>
(10) Related Party Transactions
--------------------------
Included in other receivables is a promissory note for $228,824 due to the
Company from its subsidiary ITEC.
The Company shares certain office facilities, management, and accounting
personnel with ITEC. The entity bearing responsibility for payment of the
related costs, charges the other entity for its share of such expenses.
Management believes the method used to allocate the shared costs is
reasonable. Such charges resulted in other income to the Company of
$72,000, $60,000, and $44,000 in 1995, 1994, and 1993, respectively.
(11) Income Taxes
------------
As discussed in note 1(i), the Company adopted Statement 109 as of July 1,
1993. The cumulative effect of this change in accounting for income taxes
of $301,602 is determined as of July 1, 1993 and is reported separately in
the statement of income for the year ended June 30, 1994. Prior years'
financial statements have not been restated to apply the provisions of
Statement 109.
F-13
<PAGE>
(11) Income Taxes (continued)
------------
Income tax expense (benefit) for the years ended June 30 consists of:
<TABLE>
<CAPTION>
Stock
option
Current Deferred benefit Total
---------- -------- -------- -----
<S> <C> <C> <C> <C>
1995:
U.S. federal $ (24,318) 83,004 65,907 124,593
State and local 6,407 1,289 10,198 17,894
---------- -------- -------- -------
$ (17,911) 84,293 76,105 142,487
========== ======= ====== =======
1994:
U.S. federal $ (94,265) (12,597) 21,762 (85,100)
State and local (10,778) (1,223) 3,369 (8,632)
---------- -------- -------- -------
$ (105,043) (13,820) 25,131 (93,732)
========= ======= ====== =======
1993:
U.S. federal $ 116,800 - - 116,800
State and local 23,200 - - 23,200
---------- -------- -------- -------
$ 140,000 - - 140,000
========= ======= ====== =======
</TABLE>
Actual income tax expense (benefit) differs from the "expected" tax expense
(benefit) (computed by applying the U.S. federal corporate income tax rate of
34 percent to income (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Expected tax expense (benefit) $ 122,254 (35,794) 158,651
Reversal of unrecognized
deferred tax asset - - (14,525)
Refunds from amended returns - (27,802) -
State taxes, net of federal
tax benefit 11,810 (5,697) 15,312
Amortization of goodwill not
deductible 2,985 2,985 2,985
Research and development
credits (16,050) (25,108) (16,180)
Other, net 21,488 (2,316) (6,243)
------- ------- -------
$ 142,487 (93,732) 140,000
======= ======== =======
</TABLE>
F-14
<PAGE>
(11) Income Taxes (continued)
------------
Deferred income tax assets related to the tax effects of temporary
differences have been offset by a valuation allowance as presented below:
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Net deferred tax asset - current:
Inventory capitalization for income
tax purposes $ 7,716 10,269
Obsolete inventory reserve 17,070 16,183
Vacation reserve 3,730 3,730
Warranty reserve 23,872 26,110
Bad debt reserve 18,922 17,100
Valuation allowance (18,304) (18,348)
------ -------
Total deferred tax asset - current $ 53,006 55,044
====== =======
Net deferred tax asset - noncurrent:
Salary continuation agreements $ 108,268 80,942
Note receivable - basis difference 1,950 20,637
Net operating loss carryforward from
ACI 208,060 282,734
Property and equipment, principally
due to differences in depreciation (58,459) (27,857)
Valuation allowance (81,696) (96,078)
------- -------
Total deferred tax asset - noncurrent $ 178,123 260,378
======== =======
</TABLE>
The valuation allowance for deferred tax assets as of July 1, 1993 was
$100,000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the gross deferred tax assets, the
Company will need to generate future taxable income of approximately
$1,017,000 in increments sufficient to recognize net operating loss
carryforwards prior to expiration as described below. Based upon the level
of historical taxable income and projections for future taxable income over
the periods which the deferred tax assets are deductible, management believes
it is more likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowance at June 30,
1995.
F-15
<PAGE>
(11) Income Taxes (continued)
------------
The Company benefits from the tax net operating loss (NOL) carryovers
acquired in the merger with ACI. There is and annual limitation on the use
of the NOL carryovers which is $88,356. Amounts and expiration dates of
carryforwards are as follows:
<TABLE>
<CAPTION>
Expiration Amount
---------- --------
<S> <C>
2001 $ 80,440
2002 437,153
2004 63,383
2005 1,899
2006 60
2007 29,007
-------
$ 611,942
========
</TABLE>
(12) Major Customers
---------------
During the fiscal years ended June 30, 1995, 1994, and 1993, sales to any
single customer did not exceed ten percent of total revenues.
(13) Stock Options
-------------
The Company has had activity under two qualified stock option plans (the
1987 plan and the 1992 plan) whereby options are granted to officers,
directors, and employees to acquire shares of the Company's common stock.
The options are to be granted at not less than 100 percent of the market
price of the stock at the date of grant. Option terms are determined by
the Board of Directors, and exercise dates may range from six months to
five years from the date of grant.
During 1991, 263,000 options were granted under the 1987 plan with an
exercise price of $.34 and an expiration date of October 1995. No
transactions involving options occurred in 1993. In 1994, all 263,000 of
the options were exercised.
During 1994, 448,895 options under the 1992 plan were granted to
employees, officers, and directors of the Company with an exercise price
of $0.875 which are exercisable after August 19, 1994 and expire five
years from date of grant. During 1995, 26,940 of these options were
exercised. Under the terms of the plan an additional 51,105 shares of
common stock were authorized and reserved for issuance, but were not
granted as of June 30, 1995.
F-16
<PAGE>
(13) Stock Options (continued)
-------------
In 1994, the Board of Directors granted 1,350,075 options to a
nonemployee, 150,075 are exercisable at a price of $.875 per share. In
1995 the remaining 1,200,000 options were canceled.
(14) Employee Benefit Plan
---------------------
During 1991, the Company established a deferred savings plan which
qualifies under Internal Revenue Code Section 401(k). The plan covers all
employees of the Company who have at least six months of service and who
are age 20 or older. For 1995, 1994, and 1993, the Company made matching
contributions of 25 percent of the first $2,000 of each employee's
contribution. The Company's contributions to the plan for 1995, 1994, and
1993 were $13,517, $11,180, and $9,818, respectively. Company matching
contributions for future years are at the discretion of the Board of
Directors.
(15) Salary Continuation Agreements
------------------------------
The Company has Salary Continuation Agreements (the Agreements) with three
key employees. The Agreements provide for a preretirement salary
continuation income to the employee's designated beneficiary in the event
that the employee dies before reaching age 65. This death benefit amount is
the lesser of $75,000 per year or 50 percent of the employee's salary at
the time of death, and continues until the employee would have reached age
65. The Agreements also provide the employee with a supplemental retirement
benefit if the employee remains in the employment of the Company until age
65. Estimated amounts to be paid under the Agreements are being accrued
over the period of the employees' active employment. As of June 30, 1995,
the Company has accrued $290,262 of deferred compensation under the terms
of the Agreements.
F-17
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
During the Company's two most recent fiscal years and the subsequent interim
period, there have been no disagreements with and no resignation by or dismissal
of the independent accountants engaged by the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
The directors and executive officers of the Company at September 15, 1995,
are:
<TABLE>
<CAPTION>
Director
or Officer Position
Name Age Since with Company
--- ---------- -----------------------
<S> <C> <C> <C>
Kelvyn H. Cullimore 60 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 39 1983 President, CEO and Director
Larry K. Beardall 39 1986 Executive Vice President
of Sales and Marketing and Director
E. Keith Hansen, M.D. 50 1983 Director
V. LeRoy Hansen 57 1987 Director
Edward A. Loeser, M.D. 51 1983 Director
K. Fred Skousen 53 1987 Director
John S. Ramey 44 1992 Vice President of Operations
</TABLE>
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. LeRoy Hansen
and Keith Hansen are cousins. Fred Skousen and Larry Beardall are brothers-in-
law.
Directors of the Company hold office until the next annual meeting of the
Company's shareholders and until their successors have been elected and duly
qualified. In the event of the resignation of a Board Member, the Board of
Directors elects an individual to fill the remainder of the term. Executive
officers are elected by the Board of Directors of the Company at the first
meeting after each annual meeting of shareholders and hold office until their
successors are elected and duly qualified. The Company has a compensation
committee composed of the outside directors of the board which reviews and
approves compensation matters for executive officers of the Company.
Kelvyn H. Cullimore has served as Chairman of the Board of the Company since
-------------------
its incorporation in April, 1983. From 1983 until 1992, Mr. Cullimore served as
President of the Company. Mr. Cullimore received a B.S. in Marketing from
Brigham Young University in 1957, and following graduation, worked for a number
of years as a partner in a family-owned home furnishings business in Oklahoma
City, Oklahoma. Mr. Cullimore has participated in the organization and
management of
18
<PAGE>
various enterprises, becoming the president or general partner in several
business entities, including real estate, motion picture, and equipment
partnerships. Since 1986, Mr. Cullimore has served as Chairman and President of
ITEC Attractions. From 1979 until 1992, Mr. Cullimore served as Chairman of the
Board of ACI.
Kelvyn H. Cullimore, Jr. was elected President and Chief Executive Officer of
------------------------
the Company in December of 1992. He has been a Director since the incorporation
of the Company. He served as Secretary/Treasurer of the Company from 1983 until
1992 and Administrative Vice President from 1988 until 1992. Mr. Cullimore
graduated from Brigham Young University with a degree in Financial and Estate
Planning in 1980. Since graduation, Mr. Cullimore has served on the Board of
Directors of several businesses, including Dynatronics Marketing Company and
ACI. In addition, he has served as Secretary/Treasurer of ACI and Dynatronics
Marketing Company. From 1983 until 1992 Mr. Cullimore served as Executive Vice
President and Chief Operating Officer of ACI. Mr. Cullimore is a director of
ITEC, an affiliate of the Company.
Larry K. Beardall was elected Executive Vice President of the Company in
-----------------
December of 1992. He has served as a Director and the Vice President of Sales
and Marketing for the Company since July of 1986. Mr. Beardall joined
Dynatronics in February of 1986 as Director of Marketing. He graduated from
Brigham Young University with a degree in Finance in 1979. Prior to his
employment with Dynatronics, Mr. Beardall worked with GTE Corporation in Durham,
North Carolina as the Manager of Mergers and Acquisitions and then with Donzis
Protective Equipment in Houston, Texas as National Sales Manager. He also
served on the Board of Directors of Nielsen & Nielsen, Inc., the marketing arm
for Donzis, a supplier of sports protective equipment.
E. Keith Hansen, M.D. has been a Director of the Company since 1983. Dr.
---------------------
Hansen obtained a Bachelor of Arts degree from the University of Utah in 1966
and an M.D. from Temple University in 1972. He has been in private practice in
Sandy, Utah since 1976. Dr. Hansen was also a Director of ACI until 1992; and
he is Vice President and Director of Mountain Resources Corporation and a
Director of Accent Publishers, each of which is based in Salt Lake City, Utah.
V. LeRoy Hansen has been a Director of the Company since 1987. Mr. Hansen
---------------
received a Bachelor of Science degree in Economics from the University of Utah
in 1965. From 1960-1980, Mr. Hansen was employed by AT&T in numerous management
positions. From 1976-1978, he served at AT&T headquarters in Market Management
Concept Development and Implementation as well as Long Range Financial Planning.
From 1980 to 1988, he co-founded Mountain Resources Corporation, an energy
development company and served as vice president. Since 1988, Mr. Hansen
founded and serves as president of Associated Enterprises, Inc., a corporation
providing management and business development consulting services. In May of
1992, Mr. Hansen founded Silver Summit, L.C., a real estate development company.
Edward A. Loeser, M.D. has been a Director of the Company since 1983. Dr.
----------------------
Loeser holds an Honour's degree in Chemistry from Syracuse University and
obtained an M.D. from Upstate Medical College, State University of New York, in
1969. Dr. Loeser has extensive experience in medicine, particularly in the
field of anesthesiology. From 1978 to the present, he has acted as Clinical
Instructor, Department of Anesthesiology, at the University of Utah; Staff
Anesthesiologist and Chief Obstetrical Anesthesiologist, Cottonwood Hospital,
Murray, Utah; and has been a member of the Medical Advisory Board, Alta View
Hospital, Sandy, Utah.
K. Fred Skousen, Ph.D. has been a Director of the Company since 1987. Dr.
----------------------
Skousen earned a Bachelor of Science degree from Brigham Young University in
1965, and a Masters and Ph.D. degrees
19
<PAGE>
from the University of Illinois in 1966 and 1968, respectively. He obtained his
CPA designation in Utah in 1968. Until September of 1989, he was a professor at
the Brigham Young University School of Accountancy and was recipient of the KPMG
Peat Marwick Professorship. Dr. Skousen was appointed Dean of the School of
Management of Brigham Young University in September of 1989 and was the first
recipient of the J. Willard and Alice S. Marriott Chair of Management. Dr.
Skousen is the author or co-author of more than forty articles, research
reports, and books. He is a past President of the Utah Association of CPA's and
is a member of the AICPA Council. Dr. Skousen is also a member of the Board of
Directors of Life Re, a public company.
John S. Ramey joined the Company in December, 1992 as Vice President of
-------------
Research and Development and currently serves as Vice President of Operations.
Prior to joining the Company, Mr. Ramey worked for 16 years with Phillips Semi-
conductors--Signetics, an integrated circuit manufacturing company as Manager of
Product Engineering. From 1983 to 1989 Mr. Ramey also served as President of
Enertronix, a small public corporation. Since 1989 Mr. Ramey has served as Vice
President of JRH Technology, a private engineering firm. Mr. Ramey earned his
MBA degree in 1991 from the University of Phoenix (in Salt Lake City, Utah) and
a BS degree in electronics in 1977 from Brigham Young University.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
regulation of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms which they file.
Based solely on review of the copies of such forms furnished to the Company,
the Company believes that during its 1995 fiscal year all Section 16(a) filings
applicable to its officers, directors and greater than ten-percent beneficial
owners were made with the exception of Dr. Ed Loeser, a director, who failed to
timely file a Form 4 for certain stock transactions in March 1995. The Form 4
filing was due April 10, 1995 and was not filed until April 20, 1995.
ITEM 11. EXECUTIVE COMPENSATION. The Company hereby incorporates by reference
----------------------
into and makes a part of this Report the information and disclosure set forth
under Item 8 of Schedule 14A, "Compensation of Directors and Executive
Officers," contained in the Company's definitive proxy statement for 1995, to be
sent to shareholders of the Company subsequent to the filing of this Report on
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
--------------------------------------------------------------
Company hereby incorporates by reference into and makes a part of this Report
the information and disclosure set forth under Item 6 of Schedule 14A, "Voting
Securities and Principal Holders Thereof," contained in the Company's definitive
proxy statement for 1995, to be sent to shareholders of the Company subsequent
to the filing of this Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company provides ITEC, an affiliate, with office space and administrative
services at the Company's headquarters in Salt Lake City, Utah. Office space
consists of two offices totalling approximately 1,000 square feet and allocated
use of common and conference areas. Administrative services include
secretarial, administrative and accounting functions. During fiscal 1995 the
Company
20
<PAGE>
charged ITEC $72,000 for the space and services provided by the Company. In
fiscal 1995 the Company guaranteed a bank loan to ITEC in principal amount of
$500,000. In addition, the Company is carrying a receivable of approximately
$228,824 from ITEC. This receivable represents unpaid reimbursements for shared
services during the fiscal year. The guarantee and receivable are
collateralized by a security interest in ITEC's proprietary film entitled,
"Ozarks: Legacy and Legend."
In August, 1993, the Company entered into a consulting agreement with Gene
Morgan Financial ("GMF") in Los Angeles for providing financial consulting and
public relations services for the Company. Mr. Morgan, the principal owner of
GMF was a stockholder of the Company at the time of the original transaction.
Under the terms of the consulting agreement, GMF was granted a total of
1,350,075 options to acquire stock of the Company. Of such options, 150,075 are
exercisable at a price of $.875 per share. However, because GMF is no longer an
operating entity and is not capable of providing the services contemplated under
the consulting agreement, the remaining 1,200,000 options have been cancelled.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
--------------------------------------------------------------
(a) Documents filed as part of Form 10-K:
<TABLE>
<CAPTION>
1. Financial Statements (included in Part II,
--------------------
Item 8):
<S> <C>
Independent Auditors' Report................. F-1
Balance Sheets at June 30,
1995, and 1994 F-2
Statements of Income for
years ended June 30, 1995, 1994, and 1993.... F-3
Statements of Stockholders'
Equity for years ended June 30, 1995, 1994,
and 1993..................................... F-4
Statements of Cash Flows for
years ended June 30, 1995, 1994 and 1993..... F-5
Notes to Financial Statements................ F-7
2. Financial Statement Schedule (Included in Part IV of this report):
-----------------------------------------------------------------
Schedule II--Valuation and
Qualifying Accounts.......................... 24
</TABLE>
21
<PAGE>
3. Exhibits:
--------
Reg. S-K
Exhibit No. Description
----------- -----------
3 Articles of Incorporation and Bylaws of Dynatronics Laser
Corporation. Incorporated by reference to a Registration
Statement on Form S-1 (No. 2-85045) filed with the Securities and
Exchange Commission and effective November 2, 1984, as amended by
Articles of Amendment dated November 18, 1993, a copy of which is
attached.
4 Form of certificate representing Dynatronics Laser Corporation
common shares, no par value. Incorporated by reference to a
Registration Statement on Form S-1 (No. 2-85045) filed with the
Securities and Exchange Commission and effective November 2,
1984.
13 1995 Annual Report to Shareholders (to be filed within 120 days
of the date of this report.)
24.1 Consent of Independent Auditors
27 Finanial Data Schedule
28.1 "Business" and "Use of Proceeds" sections from Registration
Statement of International Tourist Entertainment Corporation
(Registration No. 33-48630)
28.2 The Financial Statements of International Tourist Entertainment
Corporation as of June 30, 1991 and 1992, and for each of the
years in the three-year period ended June 30, 1992
(b) Reports on Form 8-K: No report on Form 8-K has been filed by the Company
-------------------
during the last quarter of the period covered by this report.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DYNATRONICS CORPORATION
By /s/ Kelvyn H. Cullimore, Jr.
----------------------------------
Kelvyn H. Cullimore, Jr.
Date: September 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Kelvyn H. Cullimore Chairman of the Board 9/26/95
- - ---------------------------- -----------
Kelvyn H. Cullimore
/s/ Kelvyn H. Cullimore, Jr. Director, President, 9/26/95
- - ---------------------------- (Principal Executive Officer) -----------
Kelvyn H. Cullimore, Jr.
/s/ Keith E. Turner Treasurer, 9/26/95
- - ---------------------------- (Principal Financial and -----------
Keith E. Turner Accounting Officer)
/s/ Larry K. Beardall Director, Executive 9/26/95
- - ---------------------------- Vice President -----------
Larry K. Beardall
/s/ E. Keith Hansen, M.D. Director 9/26/95
- - ---------------------------- -----------
E. Keith Hansen, M.D.
/s/ Edward A. Loeser, M.D. Director 9/26/95
- - ---------------------------- -----------
Edward A. Loeser, M.D.
/s/ V. LeRoy Hansen Director 9/26/95
- - ---------------------------- -----------
V. LeRoy Hansen
Director , /95
- - ---------------------------- ------------
K. Fred Skousen, Ph.D.
23
<PAGE>
Schedule II
-----------
DYNATRONICS CORPORATION
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Allowance for doubtful Balance, beginning Additions charged Receivables charged
accounts receivable of year (credited) to expenses against allowance Balance, end of year
- - --------------------------- --------------------- ----------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995 $ 45,844 12,000 7,115 50,729
===================== ======================= ==================== ====================
Year ended June 30, 1994 $ 59,307 (7,789) 5,574 45,844
===================== ======================= ==================== ====================
Year ended June 30, 1993 $ 41,996 28,362 11,051 59,307
===================== ======================= ==================== ====================
</TABLE>
<TABLE>
<CAPTION>
Balance, beginning Additions Costs incurred for product
Warranty reserve of year charged to expenses warranty provisions Balance, end of year
- - --------------------------- --------------------- ----------------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995 $ 70,000 159,636 165,636 64,000
===================== ======================= ========================== ====================
Year ended June 30, 1994 $ 70,000 106,244 106,244 70,000
===================== ======================= ========================== ====================
Year ended June 30, 1993 $ 70,000 78,296 78,296 70,000
===================== ======================= ========================== ====================
</TABLE>
<TABLE>
<CAPTION>
Reserve for obsolete Balance, beginning Additions charged to
inventory of year expenses Deductions Balance, end of year
- - --------------------------- --------------------- ----------------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995 $ 43,386 96,000 93,622 45,764
===================== ======================= ========================== ====================
Year ended June 30, 1994 $ 34,076 73,823 84,512 23,387
===================== ======================= ========================== ====================
Year ended June 30, 1993 $ 33,921 100,000 99,845 34,076
===================== ======================= ========================== ====================
</TABLE>
<PAGE>
EXHIBIT 99.3(a)
ARTICLES OF AMENDMENT
OF
DYNATRONICS LASER CORPORATION
These articles of Amendment are made by and for DYNATRONICS LASER CORPORATION, a
Utah corporation, pursuant to Section 16-10a-1006 of the Utah Revised Business
Corporation Act, and in accordance with the provisions of such sections the
following information is set forth:
1. The name of the Corporation is DYNATRONICS LASER CORPORATION.
2. The Shareholders and the Board of Directors of the Corporation have
approved and adopted the following Amendments:
(a) The name of the Corporation is hereby changed to "DYNATRONICS
CORPORATION"
(b) The Corporation is authorized to issue, in addition to the Common
Stock authorized by the Articles of Incorporation, 5,000,000
shares of a second class of stock, no par value, to be designated
as "Preferred Stock" with such rights, preferences, limitations
and restrictions as the board of directors of the Corporation may
determine as provided by Section 16-10a-602 of the Utah Revised
Business Corporation Act.
3. The shareholders adopted the above Amendments to the Articles of
Incorporation at a meeting duly called on November 16, 1993. On the date of such
meeting, there were 7,678,957 shares of common stock issued and outstanding and
qualified to vote on the amendments. There were 6,079,305 or 79 percent of the
shares represented in person or by proxy at the meeting in which the vote was
taken.
4. There were 6,060,345 shares or 99 percent voted in favor of Amendment
--------- --
(a) and 3,675,879 shares or 60 percent voted in favor of Amendment (b).
--------- --
5. There were 18,960 shares or less than 1 percent voted against
-------- ---
Amendment (a) and 303,004 shares or 5 percent voted against Amendment (b).
------- -
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, executes these Articles of Incorporation and certifies to the truth
of the facts herein stated, this 18th day of November, 1993.
---- --------
DYNATRONICS CORPORATION
Formerly Dynatronics Laser Corporation
By: /S/ Kelvyn H. Cullimore
--------------------------------------
It's President
Attest:
/S/ Bob Cardon , Secretary
- - ---------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM BALANCE SHEET
AND STATEMENT OF INCOME 6-30-95 AND IS QUALIFIED IN ITS ENTIRETY BY SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 779,054
<SECURITIES> 0
<RECEIVABLES> 991,746
<ALLOWANCES> 50,729
<INVENTORY> 1,767,030
<CURRENT-ASSETS> 3,843,523
<PP&E> 3,231,692
<DEPRECIATION> 568,521
<TOTAL-ASSETS> 7,187,328
<CURRENT-LIABILITIES> 524,251
<BONDS> 2,187,783
<COMMON> 1,653,818
0
0
<OTHER-SE> 2,609,888
<TOTAL-LIABILITY-AND-EQUITY> 7,187,328
<SALES> 6,112,241
<TOTAL-REVENUES> 6,112,241
<CGS> 3,518,076
<TOTAL-COSTS> 3,518,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,925
<INCOME-PRETAX> 359,570
<INCOME-TAX> 142,487
<INCOME-CONTINUING> 217,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,083
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
