UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended June 30,
1997.
[ ] Transition Report Under 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
(Name of Small Business Issuer in its Charter)
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
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was
required to file such reports), 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 issuer was approximately $9,000,000 as of September 24, 1997.
The number of shares outstanding of each of the issuer's classes of
common stock as of September 24, 1997 was:
Class Shares Outstanding
----- ------------------
Common Stock, no par value 8,427,847
The Company hereby incorporates the following document by reference into
this Report as indicated: (1) The Company's 1997 Proxy and Information
Statement, incorporated by reference into Items 11 and 12 of this Report
on Form 10-KSB. The statement will be provided to shareholders
subsequent to the filing of this Report.
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained herein, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. []
________________________________________________________________________
Transitional Small Business Disclosure
Format (Check One):
Yes _______ No X
----------
<PAGE>
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, medical supplies and soft goods, treatment tables and
rehabilitation products for use by practitioners. Over the years, the
Company has grown to become a leader in sales of these products. The
Company distributes its products through independent dealers nationwide
and internationally and through its full line catalogue.
On May 1, 1996, the Company acquired the assets of Superior
Orthopaedics Supplies, Inc. ("Superior"), a manufacturer and distributor
of medical soft goods, supplies and wood therapy tables and
rehabilitation products for the physical medicine market. Superior is
located in Ooltewah, Tennessee, a suburb of Chattanooga, Tennessee. The
addition of Superior's products to the Company's existing line of
capital equipment significantly broadened the Company's product line and
strengthened channels of distribution allowing for greater market
penetration both domestically and internationally.
In August 1996, the Company entered into of a five-
year agreement with Life-Tech, Inc. of Houston, Texas, which appoints
the Company as exclusive distributor of Life-Tech's iontophoresis
products to the physical medicine market throughout the United States
and Canada and as a non-exclusive distributor internationally.
Iontophoresis is a process by which anti-inflammatory drugs and local
anesthetics are delivered transdermally without the use of injection
needles. The acceptance of iontophoresis as a method of treatment among
physical therapists has grown significantly over the past decade.
In December, 1996, the Company acquired certain assets in
Columbia, South Carolina to begin manufacturing physical therapy
treatment tables, rehabilitation parallel bars, and other specialty
rehabilitation products. Agreements were signed with Mr. Charlton
"Stoney" Floyd, founder and past president of Midland Table Company to
lease equipment and real property for the new venture as well as to
provide consulting services. In May 1997, Mr. Floyd was named General
Manager of the Company's Columbia operations. Mr. Floyd has an extensive
background in the design, manufacture and sale of rehabilitation tables
and equipment. The addition of treatment tables and related products is
of strategic importance in the Company believes it is now able to offer
the broadest line of manufactured products in the industry.
Description of Products Manufactured
and/or Distributed by the Company
The Company's product line can be divided into three primary
segments: (1) Therapy Devices including Electrotherapy and Therapeutic
Ultrasound; (2) Medical Supplies and Soft Goods; and (3) Treatment
Tables and Rehabilitation Equipment. These products are used primarily
by physical therapists, chiropractors, sports medicine doctors and other
physical medicine practitioners.
Therapy Devices
- ---------------
Electrotherapy - The therapeutic effects of electrical energy have
occupied an important position in physical medicine for over three
<PAGE>
decades. There has been an evolution through the years to use the most
effective and painless wave forms and frequencies for patient comfort
and for success in the treatment of pain and related physical ailments.
Medium frequency alternating currents ("AC"), which are used in the
Company's electrotherapy devices, are believed to be the most effective
and comfortable for patients. Electrotherapy is commonly used for
treating chronic, intractable pain and/or acute, post-traumatic pain,
increasing local blood circulation, relaxation of muscle spasms,
prevention or retardation of disuse atrophy, and muscle re-education.
Therapeutic Ultrasound - Ultrasound therapy is a process of
providing therapeutic deep heat to muscle tissues through the
introduction of soundwaves into the body. It is the most common
modality used in physical therapy today for the treatment of pain
relief, muscles spasms and joint contractures.
"50 Series" and "50 Series Plus" Products
With recent industry trends toward managed care, the Company
anticipated an increased market demand for lower cost devices that did
not sacrifice important features. The result was the introduction in
fiscal years 1994-1996 of the "50 Series" product line which
incorporated the latest in technology allowing the Company to reduce the
size of these devices by 50% compared to their predecessor devices and
also reduce the price without forfeiting key features.
During fiscal 1997, the Company introduced seven new devices
including the Dynatron 125 and 525 which target the low-priced segment
of the market, together with five new "50 Series Plus" products which
add additional features and capabilities to the popular "50 Series" line
of products while at the same time reducing the cost of manufacturing
the products. (See Schedule of Therapy Products below.) Dynatronics
intends to continue development of its electrotherapy and ultrasound
technology and remain a leader in the design, manufacture and sale of
therapy devices. Therapy devices and related products accounted for
over half of sales revenue in fiscal 1997.
Iontophoresis
In fiscal 1997, the Company added Life-Tech's line of
iontophoresis products to its family of therapy devices offered to
practitioners. These products include the Iontophor II and Microphor
devices which are used in physical medicine applications primarily for
treating inflammation. The devices use electrical current to drive
drugs such as lidocaine and dexamethasone through the skin for localized
treatment of inflammation. The drug is placed in a disposable
electrode. The products sold by the Company include the electrical
current generating device (Microphor and Iontophor II) and the
disposable electrodes into which the drug of choice is placed by the
practitioner.
The chart below lists the therapy device products manufactured
and marketed by the Company which materially contributed to total
Company sales.
Schedule of Therapy Products
Manufactured and/or Distributed by Dynatronics
Fiscal Year
Product Name Description Introduced
- ------------ ----------- ------------
Dynatron 150* Ultrasound 3rd quarter 1994
Dynatron 550* Multi-modality 1st quarter 1995
Electrotherapy
<PAGE>
Fiscal Year
Product Name Description Introduced
- ------------ ----------- ------------
Dynatron 850* Combination Electrotherapy/ 1st quarter 1995
Ultrasound
Dynatron 650* Multi-modality 2nd quarter 1996
Electrotherapy
Dynatron 950* Combination Electrotherapy/ 2nd quarter 1996
Ultrasound
Dynatron 125 Ultrasound 1st quarter 1997
Dynatron 525 Electrotherapy 1st quarter 1997
Iontophor II & Iontophoresis 1st quarter 1997
Microphor +
Dynatron 150 Plus** Ultrasound 3rd quarter 1997
Dynatron 550 Plus** Multi-modality 3rd quarter 1997
Electrotherapy
Dynatron 650 Plus** Multi-modality 3rd quarter 1997
Electrotherapy
Dynatron 850 Plus** Combination Electrotherapy/ 3rd quarter 1997
Ultrasound
Dynatron 950 Plus** Combination Electrotherapy/ 3rd quarter 1997
Ultrasound
_____________________
Dynatron is a registered trademark (#1280629) owned by Dynatronics
* "50 Series" Product Line
** "50 Series Plus" Product Line
+ Manufactured by Life-Tech
Allocation of Sales Among Key Products
- --------------------------------------
The Dynatron 950 represented 25% of consolidated revenues in
fiscal 1996. No other product accounted for more than 15 percent of the
Company's revenues during any of the last two fiscal years.
Medical Supplies and Soft Goods
- -------------------------------
The Company's product line of therapy devices has been
significantly expanded by more than 200 new products through the
acquisition of Superior Orthopaedics Supplies in May, 1996. The Company
now offers nearly every major category of supplies and equipment used in
physical therapy clinics. These product categories include orthopedic
soft goods, cervical supports, exercise products, lumbar supports, hot
and cold therapy equipment, patient care supplies, neoprene supports,
wood treatment tables, whirlpool products, and various additional
supplies and soft goods.
<PAGE>
Medical supplies and soft goods now manufactured by the Company
include: hot packs, therapy wraps, wrist splints, neoprene braces and
supports, lumbar supports, cervical collars, slings, cervical pillows,
back cushions, weight racks, and wood treatment tables. Products
distributed by the Company include: cold packs, skin cleanser, lotions
and gels, paper products, athletic tape, canes and crutches, reflex
hammers, stethoscopes, splints, elastic wraps, exercise weights,
theraband tubing, hydrocollators, whirlpools, gloves, electrodes, tens
devices, and traction equipment. The Company is continually seeking to
expand the line of products it manufactures and distributes.
Treatment Tables and Rehabilitation Equipment
- ---------------------------------------------
In January, 1997, the Company expanded its product offering
through the acquisition of a treatment table manufacturing operation in
Columbia, South Carolina. The Company now manufactures and distributes
a line of physical therapy treatment tables, rehabilitation parallel
bars, and other specialty rehabilitation tables. The products
manufactured at the Columbia operations are primarily of metal
construction. The product line includes motorized and manually-operated
products. The Company offers over 30 varieties of treatment tables and
rehabilitation equipment.
As a result of the acquisitions of Superior Orthopaedic Supplies
and the treatment table manufacturing operation, the Company has become
a broad line 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.
Other Products
- --------------
In addition to the therapy products and medical supplies and soft
goods and treatment tables already mentioned, the Company continues to
sell on a limited basis other products such as the Dynatron 2000 Patient
Testing and Management System, Dynatron 360 Range of Motion
Inclinometer, Dynatron 320 Grip Strength Analyzer, and the Dynatron 330
Body Composition Analyzer.
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 (FDA) 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.
In the 1980's, Dynatronics filed a PMA with the FDA for its
Dynatron 1120 low-power laser device. In spite of 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
<PAGE>
efficacy be identified, the Company would again give consideration to
actively seeking FDA approval of its low- power laser devices.
The Dynatron 1120 was the primary low-power laser device
manufactured by the Company in the 1980's and early 1990's. The Dynatron
1120 emits a red beam of light at 632.8 nanometer wavelength with a
power of approximately one milliwatt at the probe tip. It also
incorporates the capability of delivering low-power, electrical
stimulation. This device was discontinued in 1994.
In recent years, the Company has developed the Dynatron 1650 laser
device. This device is smaller and more compact in keeping with the "50
Series" design of products. The Dynatron 1650 has the ability to
deliver multiple wavelengths by simply changing the probe. Presently,
the device is offered in 3 mW and 15 mW power outputs at 633 nm
wavelength (red) and at 50 mW and 100 mW power outputs at 830 nm
wavelengths (infrared).
Since no low-power laser has been cleared for marketing in the
United States, the Dynatron 1650 is only sold domestically for research
purposes under approved Investigational Device Exemptions pursuant to
FDA guidelines. There is growing interest, however, in the Dynatron
1650 in foreign markets. Recent changes in FDA export regulations of
investigational medical devices ease the regulatory burden for
accessing these foreign markets. However, the Company does not expect
these changes to materially affect sales in the next fiscal year.
Description of the Company's
Marketing and Manufacturing Operations
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 and a patent on the Company's multi-frequency ultrasound technology
which will remain in effect until June, 2013. 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. The Company
does not hold any other patents. 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 time periods
ranging in length from 90 days to two years after the sale. The Company
also sells accessory items supplied by other manufacturers. These
accessory products carry warranties similar to those offered by the
Company. Warranty service is provided from the Salt Lake City,
Chattanooga, and Columbia facilities, according to the service required.
These warranty policies are comparable to warranties generally available
in the industry.
Customers/Market
- ----------------
With the acquisition of Superior Orthopaedic Supplies, the Company
has expanded its dealer network to over 250 wholesale dealers throughout
the United States and internationally. These dealers are the primary
customers of the Company. The dealers actually purchase 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.
<PAGE>
During fiscal 1997 and 1996 no single customer accounted for more
than 10 percent of total revenues.
The Company exports products to approximately 25 different
countries. International sales (i.e. sales outside North America) did not
exceed 10 percent of the Company's total sales in any of the last two
years. In January, 1997, the Company began sales of two of its devices
to Japan. Efforts are currently underway to obtain marketing clearance
for the Company's products in the European Union, as well as other
countries. However, 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
- -----------
Despite significant competition, the Company has distinguished its
therapy 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" and "50
Series Plus" concepts, have made the Company a leader in technologically
advanced electrotherapy and ultrasound devices. In addition, being the
manufacturer of many of the medical supplies, soft goods and tables sold
by the Company allows the Company to focus on quality manufacturing at
competitive prices. This gives the Company an edge over many
competitors who are just distributors of such products.
Electrotherapy/Ultrasound. The competition in the electrotherapy
and ultrasound markets is from both domestic and foreign companies. No
fewer than a dozen companies produce devices similar to those of the
Company some of which are larger, more established and have greater
resources than the Company. Few companies, domestic or foreign, provide
multiple-modality devices, and none offer all the features of the
Dynatron 950 Plus. No competitor offers the ultrasound feature of three
frequencies on multiple-sized soundheads for which the Company holds a
patent. Some of the Companies which provide competitive products are:
Chattanooga Group, Excel-Tech, Rich-Mar, Mettler Electronics, and
Williams Healthcare.
Medical Supplies & Soft Goods. The Company competes against
various manufacturers and distributors of medical supplies and soft
goods, some of which are larger, more established and have greater
resources than the Company. Excellent customer service along with
providing value to customers is of key importance in this segment of the
market. While there are many specialized manufacturers in this area,
only a few such as Chattanooga Group, Fabrication Enterprises, and
Bailey Manufacturing actually manufacture a broad line of competitive
products. All other competitors are primarily distributors such as
EMPI, Graham Fields, Sammons Preston, Meyers Distributing and AliMed
Inc.
Iontophoresis. Competition in the iontophoresis market is primarily
from IOMED and EMPI. Both of these competitors have a much larger market
share than Life-Tech, the manufacturer of the iontophoresis products
marketed and sold by the Company. The Company believes that
Dynatronics' strong distribution network will be essential in order to
compete against these two larger companies.
Treatment Tables. The primary competition in the treatment table
market is from domestic manufacturers including Hausmaun Industries,
Midland Table Co., Bailey Manufacturing, S&W Enterprises, Tri-W-G,
Chattanooga Group, Henley Healthcare, Medfit, and Clinton Industries.
Dynatronics' combination of industry experience, quality and competitive
pricing will provide the foundation for the Company to compete in this
marketplace.
<PAGE>
Information necessary to determine or reasonably estimate the
Company's, and its competitors', market share in any of these markets is
not available.
Manufacturing and Quality Assurance
- -----------------------------------
Manufacturing is conducted at the Company's facilities in Salt
Lake City, Utah, Chattanooga, Tennessee and Columbia, South Carolina.
The Company sub-contracts the production of certain components, but 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,
Chattanooga, and Columbia. All component parts used in Dynatronics'
device designs and all raw materials for medical supplies and soft goods
manufacturing are readily available from suppliers.
Dynatronics conforms to Good Manufacturing Practices as outlined
by the FDA. 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.
All products are marketed pursuant to FDA clearance regulations.
In 1994, the Company introduced 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" and "50
Series Plus" products. The Quality First Program has instilled renewed
employee pride, increased customer satisfaction, and improved overall
operations of the Company.
The Company is working to achieve ISO 9001 Certification which is
an internationally recognized standard of quality adopted by over 90
countries. Management anticipates the Company will complete its ISO
9001 certification within the next 18 months.
Research and Development
- ------------------------
The Company has historically been very committed to research and
development. In 1996 and 1997 the Company expended $565,697 and
$653,413, respectively, for research and development which represented
approximately 6 to 8 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 products. Because of its strong commitment to the future
and to providing the most current technology in its medical devices, the
Company projects it will continue to invest in research and development
at amounts similar to those indicated above.
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.
<PAGE>
Seasonality
- -----------
The Company has not been materially affected by seasonality
factors in its business operations.
Employees
- ---------
On June 30, 1997, the Company had a total of 103 full-time
employees, as compared to 72 as of June 30, 1996. This increase in
number of employees is primarily the result of increased sales volumes
and the acquisitions of Superior Orthopaedic Supplies and the treatment
table manufacturing operation in Columbia, South Carolina which began
operations in fiscal 1997.
Other Information
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. In December, 1992, ITEC made an initial public
offering of its common stock which resulted in Dynatronics' ownership
being reduced to 36% and ITEC beginning to operate as a separate entity
from Dynatronics. ITEC opened a theater and retail mall in Branson,
Missouri in October, 1993.
On January 25, 1996, ITEC filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy code. As a result,
in fiscal year 1996 Dynatronics was required to write-off a total of
$720,103, of which $228,824 represented a receivable due from
ITEC, and the balance of $491,279 was related to Dynatronics'
guarantee of an ITEC bank loan. These write-offs fully expensed all
costs associated with the Company's investment in ITEC.
In February, 1997, ITEC's Plan of Reorganization was confirmed by
the U.S. Bankruptcy Court. Pursuant to the Plan, Dynatronics received a
creditors dividend of approximately $89,000 and the Company's ownership
in ITEC was significantly reduced to approximately three percent of the
outstanding shares, the value of which is carried at zero on the books
of the Company.
Forward-Looking Statements
- --------------------------
When used in this Report on Form 10-KSB, the words
"believes", "anticipates", "expects", and similar expressions are
intended to identify forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements that may be made
to reflect events or circumstances after the date of this Report or
to reflect the occurrence of unanticipated events.
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 a single facility housing administrative
offices and a plant totaling 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 $19,700.
The mortgage matures in 2013. During 1997, the Company sold 2.25 acres
of land in Salt Lake City and acquired 3.38 acres of land and the 22,500
sq. ft. facility previously leased in
<PAGE>
Ooltewah, Tennessee in a tax-free exchange of property. The Company is
in the process of constructing an additional 20,000 sq. ft. facility at
the Ooltewah, Tennessee location. The Company leases approximately
6,000 sq. ft. of manufacturing space in Columbia, South Carolina, and is
in the process of securing additional space for this operation. This lease
commenced in December, 1996 and carries a 6 year term with monthly lease pay-
ments of $800. The Company may terminate the lease at any time, but must pay a
penalty equal to four month's rental payments if it terminates the lease during
1997.
Management believes these expansion plans together with the Company's
existing facilities are adequate to accommodate presently expected
growth and needs of the Company for its operations.
Equipment used in the manufacture and assembly of the Company's
products is owned or leased by the Company. The Company plans to
purchase and/or lease additional manufacturing and assembly equipment
during fiscal year 1998 to meet increased demand for its products. The
nature of this equipment is not specialized 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 used in 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 its 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 listed on
the Nasdaq Small Cap Market (symbol: DYNT). The following table shows
the range of high and low 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.
Year Ended June 30,
1996 1997
---- ----
High Low High Low
-------------------------------------
1st Quarter (July-September) $1.44 $.94 $1.25 $.62
2nd Quarter (October-December) 1.38 1.25 1.12 .84
3rd Quarter (January-March) 1.62 .87 1.21 .78
4th Quarter (April-June) 1.56 .81 1.12 .65
Holders. As of September 24, 1997, the approximate number of
common stock shareholders of record was 523. This number does not
include beneficial owners of shares held in "nominee" or "street" name.
Including these beneficial owners, the Company estimates total
shareholders exceed 2,000.
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 earnings in order to finance the
development of its business.
Recent Sales of Unregistered Securities
The Company has not sold any securities during the past three years. In
connection with the acquisition of Superior Orthopedic Supplies on May 1, 1996,
the Company issued a total of 440,000 shares of common stock. These shares
were restricted securities and were issued without registration in reliance
upon exemption from registration under Section 4(2) and other provisions
of the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder.
<PAGE>
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>
1997 1996 1995 1994 1993
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $10,160,467 6,784,748 6,112,241 4,900,408 5,970,379
Net Income (loss) $ 612,539 (193,892) 217,083 290,059 326,621
Net Income (loss) $ .07 (.02) .03 .04 .04
per share
Working Capital $ 3,027,119 2,616,464 3,319,272 2,899,196 2,608,604
Total Assets $ 9,642,479 8,508,609 7,187,328 7,176,641 5,617,775
Long-term Obligations $ 2,534,553 2,856,302 2,399,371 2,454,148 1,287,189
</TABLE>
Item 6.
Management's Discussion and Analysis or Plan of Operation
- ---------------------------------------------------------
Fiscal 1997 Compared to Fiscal 1996
Results of Operations
- ---------------------
Sales for the fiscal year ended June 30, 1997 increased 50 percent
to $10,160,467 as compared to $6,784,748 in fiscal year 1996. During fiscal
year 1997, the Company introduced seven new electrotherapy and ultrasound
products to the market. Two of these products, the Dynatron 125
Ultrasound and Dynatron 525 Electrotherapy device, were introduced in
the first quarter of the fiscal year. These units target the low-priced
segment of the market, a market segment in which Dynatronics has not
previously participated. Five additional devices known as the "50
Series Plus" product line were introduced during the third quarter of
the fiscal year. These new products carry higher margins than the
Company's previous units and were a main contributor to the Company's
improved operating profits during the year ended June 30, 1997.
On May 1, 1996, the Company acquired substantially all of the
assets and certain liabilities of Superior Orthopaedic Supplies, Inc. a
Tennessee-based manufacturer and marketer of medical soft goods, wood
therapy tables, and supplies. This acquisition has allowed the Company
to expand its product line by more than 200 medical supply-type
products. The combination of Superior's product line with Dynatronics'
distribution network, together with publication of Dynatronics' first
full-line catalogue in January, 1997, resulted in a 63% increase in the
sales of these products in fiscal year 1997 over annual sales at the time
Superior was acquired in 1996.
In August 1996, the Company entered into an agreement with Life-Tech,
Inc. which appointed Dynatronics as the exclusive distributor of Life-Tech
iontophoresis products to the physical medicine market. Iontophoresis is
a process of transdermally delivering certain anti-inflammatory and
anesthetic drugs into a localized area without the use of needles.
Sales of iontophoresis products accounted for 16 percent of the increase
in fiscal year 1997 sales over fiscal year 1996. The development of new
marketing strategies emphasizing Dynatronics' position as the low-cost
provider of iontophoresis products is expected to reinforce continued
sales growth.
<PAGE>
On January 1, 1997, the Company acquired assets to begin
manufacturing physical therapy treatment tables, rehabilitation parallel
bars and other specialty rehabilitation equipment. These products are
manufactured under the direction of a seasoned management team
with 30 years of combined experience in this industry. The Company was
able to lease real property and equipment and acquire other equipment
and inventory for approximately $75,000. During the start-up period and
through its first full quarter of manufacturing (quarter ended March 31,
1997) this operation lost $68,300 pre-tax. However, in its second
quarter of operations, this venture reported a pre-tax profit of $2,500.
The addition of these metal treatment tables and rehabilitation
equipment has added over 30 varieties of new products to the Company's
ever-broadening offering of products. This acquisition, together with
the acquisition of Superior Orthopaedic Supplies, and the strategic
alliance with Life-Tech enable the Company to provide the majority of
the physical medicine practitioner's clinical needs for medical devices
and products.
During 1997, the Company received government approval
to begin marketing two of its most popular products in Japan, the
Dynatron 650 Electrotherapy device and Dynatron 950 Combination
Electrotherapy and Ultrasound device. Management views this as an
important step in the Company's international expansion efforts and
expects sales to Japan will ultimately boost overall sales of capital
equipment by 10-20 percent over current levels. The process has,
unfortunately, been much more involved and slower than originally
anticipated. However, the Company now feels it has cleared all
major impediments and expects fiscal year 1998 to reflect significant
increases in sales to the Japanese market.
The Company's gross margin as a percent of sales remained relatively
constant at 42.5 percent in fiscal year 1997 compared to 42.8 percent in
fiscal year 1996. However, during fiscal year 1996, the Company booked a one-
time charge of $183,101 related to a write-off of certain obsolete
inventories. Exclusive of this write-off, gross margins in 1996 equaled
45.5 percent of sales. The relative decrease in gross margin in 1997 is
attributed to the addition of medical supplies and soft goods as well as
treatment tables which carry lower margins than the Company's
electrotherapy and ultrasound products which accounted for the majority
of sales in fiscal year 1996.
The Company's 1997 selling, general and administrative (SG&A)
expenses equaled $2,989,431 as compared to $2,073,223 in fiscal year 1996.
This increase is directly attributable to the additional SG&A and
expenses associated with the acquisitions of Superior Orthopaedic
Supplies and the treatment table manufacturing operation.
During fiscal year 1997, the Company maintained its commitment to
research and development (R&D), expending $653,413 for the year as
compared to $565,697 in fiscal year 1996. R&D expenses for fiscal year
1997 were primarily related to the development of the seven new therapy
products introduced during the fiscal year.
In March 1997, the Company sold 2.25 acres of land in Salt Lake
City, Utah for $1,000,000. Part of the proceeds from this sale were
used to purchase property which had been leased by the Company in Ooltewah,
Tennessee. The sale and purchase were structured as a tax-free exchange
under federal tax laws. In addition, the Company used the
balance of the proceeds from the land sale to reduce debt, pay sales
commissions, and to pay taxes on the transaction.
The Company received a bankruptcy dividend of approximately
$89,000 in connection with ITEC's Plan of Reorganization which was
confirmed by the U.S. Bankruptcy Court in February 1997. This dividend
was reported as income in the fourth quarter of fiscal 1997 since the
Company had previously expensed its investments in ITEC.
In the year ended June 30, 1997, the Company's income tax expense
was $327,453 as compared to $232,974 in income tax benefit for fiscal
year 1996. The 1996 tax benefit was related to the non-operating losses
incurred and the carry back of those losses to prior years which
generated tax refunds.
<PAGE>
Net income for the 1997 fiscal year totaled $612,539 as compared
to a net loss of $193,892 in fiscal year 1996. Net income for fiscal year
1997 included gain recognition of approximately $260,000 on the sale of the
Salt Lake City property described above as well as approximately $89,000
from the ITEC bankruptcy dividend. The net loss in fiscal 1996 included
$720,103 in write-offs associated with the bankruptcy of ITEC
Attractions. Exclusive of these non-operating items and their
associated tax attributes, net income from operations in 1997 increased
50 percent to approximately $394,000 as compared to $183,800 in fiscal year
1996. This improvement was a direct result of the 50 percent increase
in sales as well as and the higher margins associated with the "50
Series Plus" products.
Liquidity and Capital Resources
Associated with the significant growth of the Company was
commensurate growth in inventories, accounts receivable, and capital
expenditures. From June 30, 1996 to June 30, 1997, inventories increased
by $670,425, accounts receivable increased by $776,740, and capital
expenditures were $406,658. In addition, line of credit balances, net
of cash balances, increased approximately $120,000 over the same period.
While the Company anticipates continued growth in future years, it is
expected that revenues 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 at June 30, 1997 was 2.4 to 1.
The Company maintains an open line of credit with a commercial
bank in the amount of $1.5 million. Interest on the line of credit is
based on the bank's index rate plus one-half percent which at June 30,
1997, equaled 9.5 percent. The line of credit is collateralized by the
Company's accounts receivable and inventories. As of June 30, 1997,
$570,528 was outstanding on the line of credit.
Accounts receivable represent amounts due from the Company's
dealer network and from medical practitioners and clinics. The
historical relationship with these customers 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, 1997 equaled $2,180,260. With the
introduction of several new products in fiscal 1998 together with the
anticipated increase in sales, management expects that inventory levels
will increase during fiscal 1998.
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 7. Financial Statements
--------------------
The consolidated financial statements and accompanying report of the
Company's auditors follow immediately and form a part of this report.
<PAGE>
Independent Auditors' Report
The Board of Directors
Dynatronics Corporation:
We have audited the accompanying balance sheet of Dynatronics Corporation
as of June 30, 1997 and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the
two-year period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements 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, 1997, and the results of its operations
and its cash flows for each of the years in the two-year period ended
June 30, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
August 8, 1997
<PAGE>
DYNATRONICS CORPORATION
Balance Sheet
June 30, 1997
Assets
------
Current assets:
Cash and cash equivalents $ 544,615
Trade accounts receivable, less allowance for doubtful
accounts of $75,912 (note 6) 2,227,587
Related party and other receivables (note 10) 29,167
Inventories (notes 3 and 6) 2,180,260
Prepaid expenses 71,519
Deferred tax asset - current (note 11) 69,336
----------
Total current assets 5,122,484
Property and equipment, net (notes 4 and 7) 2,605,927
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $214,015 1,220,759
Deferred tax asset - noncurrent (note 11) 192,330
Other assets 500,979
----------
$9,642,479
==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt (note 7) $ 161,961
Current installments of capital lease obligations (note 8) 4,968
Line of credit (note 6) 570,528
Accounts payable 710,910
Accrued expenses (note 9) 646,998
----------
Total current liabilities 2,095,365
Long-term debt, excluding current installments (note 7) 2,087,523
Deferred compensation (note 15) 447,030
----------
Total liabilities 4,629,918
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 8,427,847 shares 1,984,026
Retained earnings 3,028,535
----------
Total stockholders' equity 5,012,561
Commitments and contingencies (notes 5, 8, and 15) ----------
$9,642,479
==========
See accompanying notes to financial statements.
<PAGE>
DYNATRONICS CORPORATION
Statements of Operations
Years ended June 30, 1997 and 1996
1997 1996
Net sales $10,160,467 6,784,748
Cost of sales 5,841,787 3,882,901
----------- ----------
Gross profit 4,318,680 2,901,847
Selling, general, and administrative expenses 2,989,431 2,073,223
Research and development expense 653,413 565,697
----------- ----------
Operating income 675,836 262,927
Other income (expense):
Interest income 8,743 35,006
Interest expense (187,613) (163,223)
Loss on write off of related party
notes receivable (note 5) - (720,103)
Other income, net (notes 4, 5, and 10) 443,026 158,527
----------- ----------
Total other income (expense), net 264,156 (689,793)
----------- ----------
Income (loss) before income taxes 939,992 (426,866)
Income tax benefit (expense) (note 11) (327,453) 232,974
----------- ----------
Net income (loss) $ 612,539 (193,892)
=========== ==========
Net income (loss) per share $ 0.07 (0.02)
=========== ==========
Weighted average number of common shares
and common share equivalents outstanding 8,425,027 8,040,710
See accompanying notes to financial statements.
<PAGE>
DYNATRONICS CORPORATION
Statements of Stockholders' Equity
Years ended June 30, 1997 and 1996
Total stock
holders'
Common Retained equity
stock earnings
---------- ---------- ----------
Balances at June 30, 1995 $1,653,818 2,609,888 4,263,706
Issuance of 40,850 shares of
common stock upon exercise of
employee stock options (note 13) 35,744 - 35,744
Income tax benefit from
nonemployee exercise of
stock options 5,642 - 5,642
Issuance of 440,000 shares of
common stock for
business acquired 286,000 - 286,000
Net loss - (193,892) (193,892)
--------- ---------- ---------
Balances at June 30, 1996 1,981,204 2,415,996 4,397,200
Issuance of 3,100 shares of
common stock upon exercise of
employee stock options (note 13) 2,713 - 2,713
Income tax benefit from
nonemployee exercise of stock
options 109 - 109
Net income - 612,539 612,539
--------- --------- ---------
Balances at June 30, 1997 $1,984,026 3,028,535 5,012,561
========== ========= =========
See accompanying notes to financial statements.
<PAGE>
DYNATRONICS CORPORATION
Statements of Cash Flows
Years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $612,539 (193,892)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property and equipment 182,757 177,211
Other amortization 91,873 22,628
Gain on disposal of assets 270,580 -
Write off of related party receivable - 720,103
Write off of inventory - 183,101
Provision for doubtful accounts 16,800 12,000
Provision for inventory obsolescence 108,000 99,000
Provision for warranty reserve - 107,749
Deferred compensation 80,184 76,584
Changes in operating assets and liabilities, net
of effects of business acquisition:
Receivables (776,740) (179,897)
Inventories (670,425) 141,818
Prepaid expenses and other assets (96,625) (63,910)
Deferred tax assets 59,591 (90,128)
Income taxes 231,632 (206,786)
Accounts payable and accrued expenses 555,187 (23,421)
-------- --------
Net cash provided by operating activities 665,353 782,160
-------- --------
Cash flows from investing activities:
Loan to affiliates - (591,278)
Capital expenditures (406,658) (73,300)
Payment for business acquisition - (652,172)
-------- ---------
Net cash used in investing activities (406,658)(1,316,750)
-------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligations (17,703) (44,742)
Principal payments on long-term debt (400,561) (104,523)
Net change in line of credit 284,617 285,911
Proceeds from issuance of common stock 2,713 35,744
-------- ---------
Net cash provided by (used in) financing
activities (130,934) 172,390
-------- ---------
Net increase (decrease) in cash and cash equivalents 127,761 (362,200)
Cash and cash equivalents at beginning of year 416,854 779,054
-------- ---------
Cash and cash equivalents at end of year $544,615 416,854
======== =========
<PAGE>
DYNATRONICS CORPORATION
Statements of Cash Flows (continued)
Years ended June 30, 1997 and 1996
1997 1996
-------- --------
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the period for interest $187,613 163,223
Cash paid during the year for income taxes 153,400 88,900
Supplemental Disclosure of Noncash Investing and Financing Activities
- ---------------------------------------------------------------------
Long-term debt incurred for fixed assets $ 16,785 -
Income tax benefit from nonemployee exercise of stock options 109 5,642
See accompanying notes to financial statements.
</TABLE>
<PAGE>
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 1997 and 1996
(1) Basis of Presentation and Summary of Significant Accounting Policies
--------------------------------------------------------------------
(a) Basis of Presentation
---------------------
Dynatronics Corporation (the Company) manufactures and markets
products for the physical medicine market, which constitutes a
single line of business. The products are distributed
primarily through dealers in the United States and Canada, with
increasing distribution in foreign countries.
(b) Cash Equivalents
----------------
Cash equivalents include all cash and investments with original
maturities to the Company of three months or less. Cash
equivalents consist of money market funds of $246,776 at
June 30, 1997. At June 30, 1997, the book value of cash
equivalents approximates fair value.
(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 stated at cost and are depreciated
using the straight-line method over the estimated useful lives
of related assets. The building and its component parts are
being depreciated over their estimated useful lives that range
from 5 to 31. 5 years. Estimated lives for all other
depreciable assets range from three to seven years. Equipment
under capital leases is 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 Fair Value of Net Assets Acquired
-----------------------------------------------------
The excess of cost over fair value of net assets acquired is
being amortized on the straight-line method over 15 and 30
years.
(f) Revenue Recognition
-------------------
Sales revenues are generally recorded at the time products are
shipped to the customer.
<PAGE>
(g) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
(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 Company accounts for income taxes using the asset and
liability method. Under the asset and liability method,
deferred tax assets and deferred tax 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 deferred tax 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. The effect on deferred tax assets and
deferred tax liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(j) Net Income (Loss) 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).
(k) Use of Estimates
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues, and expenses and the disclosure of contingent assets
and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(l) Financial Instruments
---------------------
The carrying value of accounts receivable, accounts payable,
accrued expenses, and notes payable approximates their
estimated fair value due to the relative short maturity of
these instruments. The carrying value of long-term debt
approximates its estimated fair value due to recent issuance of
the debt.
<PAGE>
(m) Accounting Standard Not Yet Adopted
-----------------------------------
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS 128). SFAS 128 establishes a
different method of computing earnings per share than is
currently required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS 128, the Company
will be required to present both basic earnings per share and
diluted earnings per share. Basic earnings per share is
expected to be higher than the currently presented primary
earnings per share as the effect of dilutive stock options will
not be considered in computing basic earnings per share.
Diluted earnings per share is expected to be comparable or
slightly lower than the currently presented primary earnings
per share.
The Company plans to adopt SFAS 128 in the quarter ended
December 31, 1997, and at that time all historical earnings per
share data presented will be restated to conform to the
provisions of SFAS 128.
(2) Business Combinations
---------------------
On May 1, 1996, the Company purchased most of the assets and
assumed some of the liabilities of Superior Orthopedic Supplies,
Inc. (Superior). Superior manufactures and sells orthopedic and
other medical supplies throughout the United States. The cost of
the acquisition is as follows:
Fair value of assets $1,828,401
Liabilities assumed (340,229)
Note payable (550,000)
Common stock (286,000)
----------
Cash paid $ 652,172
==========
The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Superior have been
included in the Company's financial statements from May 1, 1996.
The excess of the purchase price over the fair value of the net
identifiable assets acquired of $1,171,412 has been recorded as
goodwill and is being amortized on a straight-line basis over 15
years.
<PAGE>
(2) Business Combinations (continued)
---------------------
The following unaudited pro forma financial information presents
the combined results of operations of the Company and Superior as
if the acquisition had occurred as of the beginning of 1996, after
giving effect to certain adjustments, including amortization of
goodwill, additional depreciation expense, increased interest
expense on debt related to the acquisition, and related income tax
effects. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the
Company and Superior constituted a single entity during such
periods.
Year ended
June 30,
1996
(unaudited)
-----------
Net sales $8,523,232
==========
Net loss $ (257,490)
==========
Loss per share $ (.03)
==========
(3) Inventories
-----------
Inventories consist of the following:
Raw materials $ 1,056,872
Finished goods 1,188,912
Inventory reserve (65,524)
-----------
$ 2,180,260
===========
(4) Property and Equipment
----------------------
Property and equipment consist of the following:
Land $ 354,183
Buildings 2,078,320
Leasehold improvements 1,450
Machinery and equipment 755,712
Office equipment 170,750
Equipment under capital leases 144,496
Vehicles 24,754
-----------
3,529,665
Less accumulated depreciation and
amortization 923,738
-----------
$ 2,605,927
===========
<PAGE>
(4) Property and Equipment (continued)
----------------------
On March 25, 1997, the Company sold 2.25 acres of land adjacent to
its Utah manufacturing and office facility as part of a like-kind
tax-free exchange of property under Internal Revenue Code Section
1031. Proceeds from the land sale were used to acquire 3.4 acres
of land and two 11,000 square foot buildings which currently house
the Company's Tennessee manufacturing and distribution operations.
Additionally, proceeds were used to reduce long-term debt, pay
expenses related to the sale, and to provide additional working
capital for the Company. The Company plans to expand its Tennessee
operations on the vacant land acquired in the transaction. A
summary of the use of the proceeds from this transaction is as
follows:
Sale price $1,000,000
Commissions (60,000)
Reduction of long-term debt (239,000)
Purchase of Tennessee property (575,000)
Property taxes, title, and
miscellaneous expense (8,060)
----------
Cash proceeds to Company $ 117,940
==========
A gain of approximately $260,000 resulting from this transaction is
included in (other income, net) in the fiscal 1997 statement of
operations.
(5) Investment
Prior to January 25, 1996, the Company used the equity method to
account for its approximately 36 percent interest in the common
stock of International Tourist Entertainment Corporation (ITEC) (a
company operating a tourist oriented giant screen theatre in
Branson, Missouri). At July 1, 1995, the Company reported no
investment in ITEC due to previously recognized losses. On January
25, 1996, ITEC filed for Chapter 11 bankruptcy. As a result of
this filing, the Company discontinued accounting for this
investment using the equity method because it was no longer in a
position to exercise significant influence over the operations of
ITEC. At the time of the bankruptcy, the Company was guarantor on
a $500,000 bank loan for ITEC. The Company incurred a loss of
$491,279 from payments made to the commercial bank in performance
on its guarantee, which represented the total obligation under the
guarantee including principal, interest, and bank charges. During
1996, the Company also wrote off $228,824 in advances and other
receivables due from ITEC relating to unpaid amounts under a
service agreement and other expenses. ITEC was reorganized and
emerged from bankruptcy during fiscal 1997. As a result of the
reorganization, the Company's 36 percent interest in the common
stock of ITEC was reduced to 3 percent and has been assigned an
accounting basis of $-0-. Additionally, during 1997 the Company
received $89,768 in final settlement of $720,103 paid and written
off during fiscal 1996. Such amount is included in "other income,
net" in the fiscal 1997 statement of operations.
<PAGE>
(6) Line of Credit
--------------
The Company has available with a commercial bank a revolving line
of credit agreement totaling $1,500,000 at June 30, 1997, secured
by accounts receivable and inventories. The line requires the
monthly payment of interest on outstanding balances at prime plus
one-half percent (9.5 percent at June 30, 1997). The line expires
on November 30, 1997.
(7) Long-term Debt
--------------
Long-term debt consists of the following:
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 $865,280
6.21% promissory note secured by a trust deed on real
property, maturing November 2013, payable in
decreasing installments beginning at $7,545 monthly 868,402
7% promissory note secured by fixed assets, payable in
monthly installments of $6,386 through April 1999,
then a balloon payment of $427,012 499,847
9.9% promissory note secured by a vehicle, payable in
monthly installments of $534 through April 2000 15,955
---------
Total long-term debt 2,249,484
Less current installments 161,961
---------
Long-term debt, excluding current installments $2,087,523
=========
The aggregate maturities of long-term debt for each of the years
subsequent to June 30, 1997 are as follow: 1998, $161,961; 1999,
$585,779; 2000, $137,050; 2001, $141,832; 2002, $152,472; and
thereafter $1,070,390.
(8) Leases
------
The Company leases equipment and vehicles under noncancelable
operating lease agreements. Rent expense for the years ended June
30, 1997 and 1996, was $20,659 and $25,682, 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, 1997, appears in the table below.
<PAGE>
(8) Leases (continued)
------
The Company is the lessee of computer and office equipment with a
cost of $144,496 under capital leases that expire at various times
through October 1997. At June 30, 1997, accumulated amortization
on such equipment totaled $140,054. Related amortization charges
are included in depreciation expense.
A summary of noncancelable long-term lease commitments follows:
Capit- Oper-
alized ating
leases leases
---------- ----------
Years ending June 30:
1998 $ 5,154 22,146
1999 - 21,904
2000 - 14,959
--------- --------
Total minimum lease payments 5,154 $ 59,009
========
Less amount representing interest 186
---------
Present value of net minimum
capital lease payments $ 4,968
=========
(9) Accrued Expenses
Accrued expenses consist of the following at June 30:
Warranty reserve $ 64,000
Bonuses payable 74,604
Commissions payable 47,880
Dealer costs and incentives 75,763
Payroll related accruals 156,911
Real property tax accrual 20,421
Professional fees accrued 12,571
Other 194,848
---------
$ 646,998
=========
<PAGE>
(10) Related Party Transactions
The Company has a services agreement to provide certain
administrative and accounting services for ITEC. Estimated costs
for services are prorated based upon personnel time, facilities,
and services used. Management believes the method used to allocate
the costs of services provided is reasonable. Such charges
resulted in other income to the Company of $72,000 and $84,000 in
1997 and 1996, respectively.
(11) Income Taxes
Income tax benefit (expense) for the years ended June 30 consists of:
Stock
option
Current Deferred benefit Total
--------- --------- --------- --------
1997:
U.S. federal $(215,057) (64,464) (94) (279,615)
State and local (52,696) 4,873 (15) (47,838)
--------- --------- --------- --------
$(267,753) (59,591) (109) (327,453)
========= ========= ========= ========
1996:
U.S. federal $ 122,554 81,466 (4,886) 199,134
State and local 25,934 8,662 (756) 33,840
--------- --------- --------- --------
$ 148,488 90,128 (5,642) 232,974
========= ========= ========= ========
Actual income tax benefit (expense) differs from the "expected" tax
benefit (expense) (computed by applying the U.S. federal corporate
income tax rate of 34 percent to income or loss before income
taxes) as follows:
1997 1996
---------- ---------
Expected tax expense (benefit) $ (319,598) 145,134
State taxes, net of federal tax benefit (31,583) 22,334
Amortization of goodwill not deductible (2,985) (2,985)
Research and development credits 20,509 -
Write off of ITEC stock - 68,487
Other, net 6,204 4
---------- --------
$ (327,453) 232,974
========== ========
<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:
Net deferred tax asset - current:
Inventory capitalization for income tax purposes $ 9,666
Obsolete inventory reserve 24,440
Vacation reserve 3,730
Warranty reserve 23,872
Bad-debt reserve 28,314
Valuation allowance (20,686)
---------
Total deferred tax asset - current $ 69,336
=========
Net deferred tax asset - noncurrent:
Deferred gain (like-kind exchange) $ 38,295
Salary continuation agreements 166,742
Net operating loss carryforwards 137,586
Property and equipment, principally due
to differences in depreciation (73,514)
Noncompete and goodwill amortization 2,535
Valuation allowance (79,314)
---------
Total deferred tax asset - noncurrent $ 192,330
=========
The valuation allowance for deferred tax assets as of June 30, 1997
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 $1,064,000 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, 1997.
<PAGE>
(11) Income Taxes (continued)
------------
The Company benefits from the tax net operating loss (NOL)
carryovers acquired in the November 1992 merger with ACI, the
former parent of the Company. There is an annual limitation on the
use of the NOL carryovers which is $88,356. Amounts and expiration
dates of carryforwards are as follows:
Expiration Amount
---------- ----------
2002 $ 310,317
2004 63,383
2005 1,899
2006 60
2007 29,007
----------
$ 404,666
==========
(12) Major Customers
---------------
During the fiscal years ended June 30, 1997 and 1996, sales to any
single customer did not exceed ten percent of total revenues.
(13) Common Stock
------------
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.
Summary of activity follows:
1997 1996
--------------------------------------------
Number Price per Number Price per
of shares share of shares share
--------- --------- --------- ---------
Options outstanding at
beginning of year 525,641 $.72-1.28 403,175 $ .875
Options granted 256,206 .72-1.02 166,026 1.28
Options exercised 3,100 .875 40,850 .875
Options canceled or
expired 246,426 .72-1.28 2,710 .875
--------- ---------
Options outstanding at
end of year 532,321 .72-1.28 525,641 .875-1.28
========= =========
Options exercisable at
end of year 274,655 .72-1.28 354,830 .875
========= =========
<PAGE>
(13) Common Stock (continued)
------------
Under the terms of the stock option plans, 394,079 shares of common
stock were authorized and reserved for issuance, but were not
granted at June 30, 1997.
In addition to the stock option plans mentioned above, in 1993 the
Board of Directors granted options to a nonemployee of which
150,075 remain outstanding and are exercisable at a price of $.875
per share.
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
which established financial accounting and reporting standards for
stock-based compensation. The new standard defines a fair-value
method of accounting for an employee stock option or similar equity
instrument. This statement gives entities the choice between
adopting the fair value method or continuing to use the intrinsic-
value method under Accounting Principles Board (APB) Opinion No. 25
with footnote disclosures of the pro forma effects if the fair-
value method had been adopted. The Company has opted for the
latter approach. Accordingly, no compensation expense has been
recognized for the stock option plans. Had compensation expense
for the Company's stock option plan been determined based on the
fair value at the grant date for awards in 1997 and 1996,
consistent with the provisions of SFAS 123, the Company's results
of operations would have been reduced to the pro forma amounts
indicated below:
June 30,
--------------------------
1997 1996
---------- -----------
Net income (loss) - as reported $ 612,539 (193,892)
Net income (loss) - pro forma 597,218 (195,801)
Earnings (loss) per share - as reported .07 (.02)
Earning (loss) per share - pro forma .07 (.02)
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions:
June 30,
--------------------------
1997 1996
----------- -----------
Expected dividend yield $ - -
Expected stock price volatility 55.5% 55.5%
Risk-free interest rate 6.39% 6.39%
Expected life of options 4.5 & 6.5 3.5 year
years
The weighted average fair value of options granted during 1997 and
1996 are $.393 and $.454, respectively.
(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 1997 and 1996, 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 1997 and 1996 were $11,939 and
$9,146, 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 pre-
retirement 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, 1997, the Company has accrued $447,030
of deferred compensation under the terms of the Agreements.
<PAGE>
Item 8. 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 on financial
disclosure or accounting matters with and no resignation by or dismissal of
the independent public accountants engaged by the Company.
PART III
Item 9. Directors and Executive Officers of the Company; Compliance With
Section 16(a) of the Exchange Act
The directors and executive officers of the Company at September
23, 1997, are:
Director
or Officer Position
Name Age Since with Company
- ---- ----- ------------ -----------------------
Kelvyn H. Cullimore 62 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 41 1983 President, CEO and Director
Larry K. Beardall 41 1986 Executive Vice President
of Sales and Marketing and
Director
E. Keith Hansen, M.D. 52 1983 Director
V. LeRoy Hansen 59 1987 Director
Joseph H. Barton 69 1996 Director
Howard L. Edwards 66 1997 Director
John S. Ramey 46 1992 Sr. Vice President of
Operations
John L. Hales 53 1996 Chief Financial Officer/
Treasurer
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr.
LeRoy Hansen and Keith Hansen are cousins.
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 may elect 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 various
enterprises, becoming the president or general partner in several
business entities, including real estate, motion picture, and equipment
partnerships. From 1979 until 1992, Mr. Cullimore served as Chairman of
the Board of American Consolidated Industries (ACI), the former parent
company of Dynatronics. Since 1986, Mr. Cullimore has served as
President of ITEC Attractions and from 1986 to 1997, he served as ITEC's
Chairman, President and CEO. Presently, Mr. Cullimore serves as
President/CEO of ITEC.
<PAGE>
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. Mr. Cullimore has served on the Board of
Directors of several businesses, including Dynatronics Marketing
Company, ACI and currently serves on the Board of ITEC Attractions. 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.
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 protective sports 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.
Joseph H. Barton was elected a Director in November, 1995 and began
serving in January, 1996. Mr. Barton received a Civil Engineering
degree from the University of California at Berkeley and has held
various executive positions including President of J.H. Barton
Construction Company, Senior Vice President of Beverly Enterprises, and
President of KB Industries, a building and land development company.
Most recently, Mr. Barton served as Senior Vice President of GranCare,
Inc. from 1989 to 1994 and currently is a consultant for Covenant Care,
a company which owns and manages long-term care facilities throughout
the United States.
Howard L. Edwards was elected a Director in January, 1997. From
1968 to 1995 Mr. Edwards served in various capacities at Atlantic
Richfield Company (ARCO) and its predecessor, the Anaconda Company,
including corporate secretary, vice president, treasurer and general
attorney. In addition, Mr. Edwards served for a number of years as a
partner in the law firm of VanCott, Bagley, Cornwall and McCarthy, based
in Salt Lake City, Utah. He graduated from the George Washington
University School of Law in 1959 and received a bachelor's degree in
Finance and Banking from Brigham Young University in 1955.
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
<PAGE>
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.
John L. Hales joined the Company and was elected Chief Financial Officer
and Treasurer in November, 1996. Prior to joining the Company, Mr. Hales
worked as an independent management consultant from 1994 to 1996. From
1993 to 1994, he served as Chief Financial Officer of Covey Leadership
Center. From 1980 to 1992, he was employed by the Hill-Rom Company, a
subsidiary of Hillenbrand Industries, and served as Vice President of Finance
and Administration for nine years. Mr. Hales received his B.S. degree
in Finance from Brigham Young University in 1968 and his MBA from Utah State
University in 1970.
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 1997 fiscal year all
Section 16(a) filings applicable to its officers, directors and greater
than ten-percent beneficial owners were filed.
Item 10. 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 1997, to be sent to shareholders of the Company
subsequent to the filing of this Report on Form 10-KSB.
Item 11. 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
1997, to be sent to shareholders of the Company subsequent to the filing
of this Report on Form 10-KSB.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
The Company provides ITEC Attractions with contracted
administrative services from the Company's headquarters in Salt Lake
City, Utah. Administrative services include secretarial, administrative
and accounting functions. During fiscal 1997 the Company charged ITEC
$72,000 for services provided by the Company. In fiscal 1996 the
Company wrote-off $720,103 related to a bank loan to ITEC which was
guaranteed by Dynatronics and a note receivable. In fiscal 1997, the
Company received approximately $89,000 pursuant to ITEC's Plan of
Reorganization payout to creditors. The Company retains a nominal
(approximately 3%) ownership interest in ITEC. The Company's Chairman,
Kelvyn H. Cullimore, is also the President and CEO of ITEC. The Company's
President and CEO, Kelvyn H. Cullimore, Jr., is also a director of ITEC.
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits and documents required by Item 601 of Regulation S-B:
1. Financial Statements (included in Part II, Item 8):
Independent Auditors' Report F-1
Balance Sheet at June 30, 1997 F-2
Statements of Operations for years ended
June 30, 1997 and 1996 F-3
Statements of Stockholders'
Equity for years ended June 30, 1997
and 1996 F-4
Statements of Cash Flows for
years ended June 30, 1997 and 1996 F-5
Notes to Financial Statements F-7
Exhibits:
--------
Reg. S-B
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.
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.
(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.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant 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.
Chief Executive Officer
and President
Date: September 24, 1997
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 9/24, 1997
- ----------------------------- ------------
Kelvyn H. Cullimore
/s/ Kelvyn H. Cullimore, Jr. Director, President, 9/24, 1997
- ----------------------------- (Principal Executive Officer) ------------
Kelvyn H. Cullimore, Jr.
/s/ John L. Hales Chief Financial Officer 9/24, 1997
- ----------------------------- (Principal Financial ------------
John L. Hales and Accounting Officer)
/s/ Larry K. Beardall Director, Executive 9/24, 1997
- ----------------------------- Vice President ------------
Larry K. Beardall
/s/ E. Keith Hansen, M.D. Director 9/24, 1997
- ----------------------------- ------------
E. Keith Hansen, M.D.
/s/ V. LeRoy Hansen Director 9/24, 1997
- ----------------------------- ------------
V. LeRoy Hansen
/s/ Joseph H. Barton Director 9/24, 1997
- ----------------------------- ------------
Joseph H. Barton
/s/ Howard L. Edwards Director 9/24, 1997
- ----------------------------- ------------
Howard L. Edwards
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF INCOME 6-30-97 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 544,615
<SECURITIES> 0
<RECEIVABLES> 2,303,499
<ALLOWANCES> 75,912
<INVENTORY> 2,180,260
<CURRENT-ASSETS> 5,122,484
<PP&E> 3,529,665
<DEPRECIATION> 923,738
<TOTAL-ASSETS> 9,642,479
<CURRENT-LIABILITIES> 2,095,365
<BONDS> 2,087,523
0
0
<COMMON> 1,984,026
<OTHER-SE> 3,028,535
<TOTAL-LIABILITY-AND-EQUITY> 9,642,479
<SALES> 10,160,467
<TOTAL-REVENUES> 10,160,467
<CGS> 5,841,787
<TOTAL-COSTS> 5,841,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,800
<INTEREST-EXPENSE> 187,613
<INCOME-PRETAX> 939,992
<INCOME-TAX> 327,453
<INCOME-CONTINUING> 612,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 612,539
<EPS-PRIMARY> .072
<EPS-DILUTED> .072
</TABLE>
