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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1997.
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act for the
transition period from _________ to _________
Commission File Number: 0-12697
Dynatronics Corporation
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(Exact name of small business issuer as specified in its charter)
Utah 87-0398434
- ------------------------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
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(Address of principal executive offices) (Zip Code)
(801) 568-7000
---------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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.
X Yes No
----- -----
The number of shares outstanding of the issuer's common stock, no par value,
as of November 3, 1997 is 8,427,847 shares.
Transitional Small Business Disclosure Format.
Yes X No
----- ------
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DYNATRONICS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
-----------
Condensed Balance Sheet
September 30, 1997 1
Condensed Statements of Income
Three Months Ended September 30, 1997,
and September 30, 1996 2
Condensed Statements of Cash Flows
Three Months Ended September 30, 1997,
and September 30, 1996 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Part II. OTHER INFORMATION 10
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DYNATRONICS CORPORATION
Condensed Balance Sheet
(Unaudited)
September 30
ASSETS 1997
------------
Current assets:
Cash and cash equivalents $ 154,599
Trade accounts receivable, less allowance for doubtful
accounts of $66,828 2,302,224
Other receivables 121,225
Inventories 2,194,064
Prepaid expenses 81,249
Deferred tax asset-current 91,757
-----------
Total current assets 4,945,118
Net property and equipment 2,610,462
Excess of cost over book value, net of accumulated
amortization of $235,734 1,203,440
Deferred tax asset-noncurrent 228,365
Other assets 517,732
-----------
$ 9,505,117
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 161,993
Current installments of capital lease obligations 3,143
Line of credit 312,617
Accounts payable 705,873
Accrued expenses 598,980
-----------
Total current liabilities 1,782,606
Long-term debt, excluding current installments 2,049,674
Deferred compensation 468,051
-----------
Total long-term liabilities, excluding
current installments 2,517,724
-----------
Total liabilities 4,300,331
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 8,427,847 shares 1,984,026
Retained earnings 3,220,760
-----------
Total stockholders' equity 5,204,786
-----------
$ 9,505,117
===========
See accompanying notes to condensed financial statements.
1
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DYNATRONICS CORPORATION
Condensed Statements Of Income
(Unaudited)
Three Months Ended
September 30
1997 1996
----------- -----------
Net sales $ 3,027,779 2,382,671
Cost of sales 1,735,991 1,365,449
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Gross profit 1,291,788 1,017,222
Selling, general, and administrative expenses 843,016 737,500
Research and development expenses 123,402 138,227
----------- -----------
Operating income 325,370 141,495
Other income (expense):
Interest income 68 2,986
Interest expense (44,468) (50,610)
Other income, net 22,098 29,045
----------- -----------
Total other income (expense) (22,302) (18,579)
Income before income taxes 303,068 122,916
Income tax expense 110,843 47,464
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Net income $ 192,225 75,452
=========== ===========
Net income per common share and common
share equivalents $ 0.02 0.01
=========== ===========
Weighted average number of common shares
and common share equivalents
outstanding (note 2) 8,425,809 8,424,747
See accompanying notes to condensed financial statements.
2
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DYNATRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
[CAPTION]
<TABLE>
Three Months Ended
September 30
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 192,225 75,452
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization of property and equipment 41,779 44,730
Other amortization 17,319 21,718
Provision for doubtful accounts 3,000 3,000
Provision for inventory obsolescence 28,500 24,000
Provision for warranty reserve 38,130 26,950
Decrease (increase) in operating assets:
Receivables (169,695) (392,052)
Inventories (42,304) (96,374)
Prepaid expenses and other assets (26,483) (22,868)
Deferred tax assets (58,456) 14,447
Increase (decrease) in operating liabilities:
Trade accounts payable and accrued expenses (88,784) 88,049
Deferred compensation 21,021 20,046
Income taxes payables (2,401) 32,674
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Net cash provided by (used in) operating activities (46,149) (160,228)
---------- ----------
Cash flows from investing activities:
Capital expenditures (46,314) (59,340)
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Net cash provided by (used in) investing activities (46,314) (59,340)
---------- ----------
Cash flows from financing activities:
Principal payments under capital lease obligations (1,825) (9,061)
Principal payments on long-term debt (37,817) (36,876)
Net change in line of credit (257,911) (119,572)
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Net cash provided by (used in) financing activities (297,553) (165,509)
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Net increase (decrease) in cash and cash equivalents (390,016) (385,077)
Cash and cash equivalents at beginning of period 544,615 416,854
---------- ----------
Cash and cash equivalents at end of period $ 154,599 31,777
========== ==========
Supplemental cash flow information
Cash paid for interest (net of amounts capitalized) 44,468 50,610
Cash paid for income taxes 171,700 0
See accompanying notes to condensed financial statements.
3
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DYNATRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
NOTE 1. PRESENTATION
The financial statements as of September 30, 1997 and for the three months
then ended were prepared by the Company without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all necessary adjustments to
the financial statements have been made to present fairly the financial
position and results of operations and cash flows. All adjustments were of
a normal recurring nature. The results of operations for the respective
periods presented are not necessarily indicative of the results for the
respective complete years. The Company has previously filed with the SEC
Annual Reports on Form 10-KSB under the name of Dynatronics Corporation
which included audited financial statements for the two years ending June
30, 1997 and 1996. It is suggested that the financial statements contained
in this filing be read in conjunction with the statements and notes thereto
contained in the Company's 10-KSB filing.
NOTE 2. EARNINGS PER SHARE
Earnings per common share and common share equivalents are computed by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Common
stock equivalents include shares issuable upon exercise of the Company's
stock options.
NOTE 3. INVENTORIES
Inventories consisted of the following:
September 30
1997
-------------
Raw Materials $ 1,143,767
Finished Goods 1,144,321
Inventory Reserve (94,024)
-------------
$ 2,194,064
=============
4
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NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
September 30
1997
------------
Land $ 354,744
Buildings 2,080,509
Machinery and equipment, and
equipment under capital lease 1,140,726
------------
3,575,979
Less accumulated depreciation
and amortization. 965,517
------------
$ 2,610,462
============
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Sales for the quarter ended September 30, 1997 reached a record high
$3,027,779, up 27 percent as compared to $2,382,671 in the same period of the
prior year. Net income from operations for the reporting quarter reached a
first quarter record high of $192,225 up 155 percent over last year's first
quarter results of $75,452.
Over the past eighteen months, the Company has embarked on a strategic plan to
broaden its product line and expand its distribution network. This has been
accomplished through such activities as the May 1996 acquisition of Superior
Orthopaedic Supplies, the introduction of the "50 Series Plus" line of
electrotherapy and ultrasound products during fiscal year 1997, the January
1997 acquisition of assets to begin the manufacture of therapy tables and
rehab equipment in Columbia, South Carolina and the exclusive marketing
agreement with Life-Tech to distribute their iontophoresis products to the
physical therapy market. These strategic achievements are the basis and cause
for the increased sales and profitability during the reporting quarter.
The Company continues to gain market share both domestically and
internationally through increased sales of the new "50 Series Plus" line of
electrotherapy and ultrasound products. By incorporating state-of-the-art
technology to reduce manufacturing costs, profit margins for these products
are the highest of any devices manufactured by the Company.
Increased sales of medical supplies and soft goods accounts for the majority
of increased revenues for the reporting period and continues to be a focal
point of the Company's overall strategy. Sales of these products increased
51% over the same period last year. The publication of Dynatronics' first
full-line catalogue in January, 1997, provided an important tool in
effectively marketing these products and is expected to continue to fuel sales
growth in future periods as new expanded catalogues are introduced.
In January, 1997 the Company announced it had acquired assets to begin
manufacturing physical therapy treatment tables, parallel bars, and other
specialty rehabilitation equipment at a facility in Columbia, South Carolina.
This facility currently manufactures over 30 varieties of products and plans
to almost double the number of products offered during fiscal year 1998.
These products are being manufactured under the direction of a seasoned
management team with 30 years of experience in this industry. Based on
current growth trends, management expects this division will generate $1
million in sales during fiscal 1998.
The development of new marketing strategies emphasizing Dynatronics' position
as the low-cost provider of iontophoresis products has been the main factor in
increasing sales of iontophoresis products during the past three quarters.
Iontophoresis is a process of transdermally delivering certain anti-
inflammatory and anesthetic drugs into a localized area without the use of
needles. Management anticipates sales of iontophoresis products in 1998 will
exceed $1,000,000 - nearly double their fiscal year 1997 level.
6
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Gross Margins for the reporting quarter increased 27 percent to $1,291,788
as compared to $1,017,222 in the prior year period. This increase is
directly attributable to the increase in sales volume as mentioned above.
Gross margins as a percentage of sales remained constant at 42.7% when
compared to the same quarter in the prior year period.
Selling, General and Administrative (SG&A) expenses for the three-month
period increased to $843,016 as compared to $737,500 in the same period
last year. This increase is mostly related to additional SG&A expenses
associated with the new treatment table manufacturing operation acquired in
Columbia, South Carolina. Labor expense also increased due to staffing
needs created by the higher sales volume and the anticipation of and
preparation for further sales increases in the future.
Research and development expenses in the three-month period totaled
$123,402 compared to $138,227 in the prior year period. Management
anticipates R&D expenses for fiscal 1998 will not exceed fiscal year 1997
levels.
Operating income more than doubled to $325,370 in the three-month period
ended September 30, 1997 compared to $141,495 in the same period of the
prior year. The increased sales volumes and higher margins associated with
the new "50 Series Plus" products were the primary reason for increased
operating income during the quarter.
Income before tax for the quarter ended September 30, 1997 increased 147
percent to $303,068 compared to $122,916 during the similar period of the
prior year. Increased sales together with the higher margins associated
with the new "50 Series Plus" products contributed to the increased profit
from operations. Income tax expense for the three-month period ended
September 30, 1997 equaled $110,843 as compared to $47,464 in the prior
year period.
Net income for the three-month period increased 155 percent to $192,225
compared to $75,452 for the same period in the prior year. These increases
are a result of the factors discussed above and reflect the successful
implementation of the Company's strategic plan to broaden its product
offerings and increase distribution.
Liquidity and Capital Resources
- -------------------------------
The Company expects revenues from operations, together with available
sources of borrowing, will be adequate to meet its working capital needs
related to its business and its planned capital expenditures for the
upcoming operating year.
The Company continues to maintain a liquid position. The Company's current
ratio at September 30, 1997 was 2.8 to 1. Current assets represent 52
percent of total assets.
Trade accounts receivable are from the Company's dealer network and are
generally considered to be within term. All accounts payable are within
term with the Company continuing its policy of taking advantage of any and
all payment discounts available.
7
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The Company maintains a revolving line of credit in the amount of
$1,500,000 with a commercial bank. The outstanding balance on this line of
credit at September 30, 1997 was $312,617, with $1,187,383 available to the
Company.
Inventory levels, net of reserves, at September 30, 1997 totaled $2,194,064
while net accounts receivable were $2,302,224. Management anticipates
inventory and accounts receivable levels may increase in future quarters as
new products are introduced and sales volumes continue to grow.
Long-term debt excluding current installments at September 30, 1997 totaled
$2,049,674, comprised primarily of the mortgage loan on the Company's
office and manufacturing facility and the note payable associated with the
acquisition of Superior Orthopaedic Supplies. The balance on the mortgage
loan is approximately $2 million with monthly principal and interest
payments of $19,700.
Business Plan
- -------------
With the introduction of the new "50 Series Plus" product line the Company
increased its market share in the most profitable segment of its market.
This product line offers the greatest number of features at the lowest
price of any previous products offered by the Company.
With the acquisition of Superior Orthopaedic Supplies in May 1996, the
Company has been able to increase sales of Superior's product line of soft
goods and supply products through Dynatronics' distribution network. The
start-up of the treatment table manufacturing operation in South Carolina
has further broadened the Company's product line. Offering a broad product
line is of strategic importance as clinics continue to consolidate and
develop centralized purchasing which favors single source suppliers for
their medical device and supplies needs.
To capitalize on its broadened product line, the Company published its
first full-line catalogue in January, 1997. The distribution of this
catalogue boosted sales and is expected to support continued sales growth.
Work on the next generation catalogue is nearing completion. This new
catalogue will carry nearly twice the number of products as compared to the
Company's first catalogue and is expected to be ready for distribution in
January, 1998.
Another avenue to increase sales and profits being pursued by management is
that of strategic business alliances such as the exclusive distribution
agreement signed with Life-Tech, Inc. in August 1996. The Company
continues to evaluate additional strategic alliances and acquisition
opportunities which could enhance and broaden the Company's product line.
The Company's sales are expanding internationally with the approval to
market products in Japan being granted during fiscal year 1997. Management
anticipates initial marketing efforts in Europe will begin in fiscal year
1998 which is expected to continue the Company's international expansion.
8
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The Company recognizes the need to continually upgrade and re-engineer
existing products as well as introduce new products. The Company's
continuing commitment to Research and Development enables Dynatronics to be
a technological leader in the market. New products and engineering
improvements are constantly being evaluated and developed.
The Company continues to evaluate research into areas of potential efficacy
of its low-power laser device. Should any such research provide evidence
deemed sufficient for submission to the U.S. Food and Drug Administration,
the Company would give consideration to submitting a Pre-Market Approval
Application for the laser to the FDA.
Forward-looking Statements
- --------------------------
This quarterly report contains forward-looking statements relating to
anticipated financial performance, product development, and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. With the exception of
historical information, statements in this report are forward-looking
within the meaning of the law, including statements regarding future
products, product development, research and development spending, and the
Company's business plan, as well as statements regarding the levels of
future international sales The Company notes that risks inherent in its
business and a variety of factors could cause or contribute to a difference
between actual results and anticipated results. Those risks include, but
are not limited to, such factors as market acceptance of Company products
(particularly new product lines and re-designed product lines), the ability
to hire and retain the services of trained personnel at cost-effective
labor rates, the absence of new adverse government regulation of the
Company's products, the actions of foreign regulators that may adversely
affect the expansion of the Company's marketing activities in foreign
markets, political or economic changes in the United States and abroad
which may adversely affect the market for physical therapy devices or soft
goods in general or the Company's products in particular, the Company's
ability to keep pace with technological advances which can occur rapidly,
the Company's ability to meet increasing demand, the ability to introduce
new products on a timely basis, changing customer requirements, delays in
new products qualifications, the timing and extent of research and
development expenses, the Company's access to and ability to finance such
changes. The foregoing and other factors, both within and outside the
Company's control, may cause actual results to differ from those described
in forward-looking statements made in this Report.
9
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no material legal proceedings pending to which the
Company or any of its subsidiaries is a party or of which any
of their property is the subject which require disclosure in
this statement.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A) Exhibits
No. Description
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27 Financial Data Schedule
B) Reports on Form 8-K
None
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNATRONICS CORPORATION
-----------------------
Registrant
Date November 13, 1997 /s/ Kelvyn H. Cullimore, Jr.
-------------------------- -------------------------------
Kelvyn H. Cullimore, Jr.
President
Chief Executive Officer
Date November 13, 1997 /s/ John L. Hales
-------------------------- -------------------------------
John L. Hales
Chief Financial Officer and
Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENTS OF INCOME 9-30-97 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 154,599
<SECURITIES> 0
<RECEIVABLES> 2,369,052
<ALLOWANCES> 66,828
<INVENTORY> 2,194,064
<CURRENT-ASSETS> 4,945,118
<PP&E> 3,575,979
<DEPRECIATION> 965,517
<TOTAL-ASSETS> 9,505,117
<CURRENT-LIABILITIES> 1,782,606
<BONDS> 2,517,724
0
0
<COMMON> 1,984,026
<OTHER-SE> 3,220,760
<TOTAL-LIABILITY-AND-EQUITY> 9,505,117
<SALES> 3,027,779
<TOTAL-REVENUES> 3,027,779
<CGS> 1,735,991
<TOTAL-COSTS> 1,735,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,200
<INTEREST-EXPENSE> 44,468
<INCOME-PRETAX> 303,068
<INCOME-TAX> 110,843
<INCOME-CONTINUING> 192,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,225
<EPS-PRIMARY> .023
<EPS-DILUTED> .023
</TABLE>
