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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 for the fiscal year ended June 30, 2000.
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________.
Commission file number 0-12697
DYNATRONICS CORPORATION
(Name of small business issuer in its charter)
Utah 87-0398434
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(State of Incorporation) (I.R.S. Employer Identification No.)
7030 Park Centre Drive
Salt Lake City, Utah 84121-6618
(801) 568-7000
(Address of principal executive offices, zip code,telephone number)
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 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 No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, 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. [X]
The issuer's revenues for the fiscal year ended June 30, 2000 were
$15,173,050. The aggregate market value of the voting common stock held
by non-affiliates of the issuer was approximately $8.7 million as of
September 20, 2000, based on the average bid and asked price on that
date.
The number of shares outstanding of each of the issuer's classes of
common stock as of September 20, 2000 was:
Class Shares Outstanding
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Common Stock, no par value 8,785,038
The Company hereby incorporates information required by Part III (Items
11 and 12) of this report by reference to the Company's definitive proxy
statement to be filed pursuant to Regulation14A and provided to
shareholders subsequent to the filing of this report.
Transitional Small Business Disclosure
Format (Check One):
Yes No X
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PART I
Item 1. Description of the Business
Dynatronics Corporation ("Dynatronics" or the "Company"), a Utah
corporation, was organized April 29, 1983. The principal business of the
Company is the design, manufacture and sale of medical and aesthetic
products including: 1) medical devices for therapeutic applications in
physical medicine, 2) medical supplies and soft goods, 3) treatment
tables and rehabilitation products for use by practitioners and, 4)
aesthetic products and devices. The Company distributes its products in
several ways: 1) a network of independent dealers nationwide and
internationally, 2) by contract with certain national accounts, 3) a
full-line catalog, 4) a staff of direct sales representatives employed
to sell the Company's aesthetic products and, 5) the Company's website
and associated e-commerce venues.
On May 1, 1996, the Company acquired the assets of Superior
Orthopaedics Supplies, Inc. ("Superior"), a manufacturer and distributor
of medical soft goods, supplies, 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 offering and
strengthened channels of distribution, allowing for greater market
penetration both domestically and internationally.
In August 1996, the Company entered into 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 January 1997, the Company acquired certain assets in Columbia,
South Carolina to begin manufacturing physical therapy treatment tables,
rehabilitation parallel bars, and other specialty rehabilitation
products. In July 1999, the Company consolidated this operation into
its Chattanooga, Tennessee facility to improve efficiencies.
In July 1998, the Company expanded into the aesthetic products
market with the introduction of the new Synergie AMS device. This new
product incorporates therapeutic massage technology to achieve, among
other things, a temporary reduction in the appearance of cellulite--a
claim for which the Company received clearance by the U.S. Food and Drug
Administration during fiscal year 1999. This claim is strongly
supported by a Company-sponsored research study in which 91% of
participants reported favorable reductions in the appearance of
cellulite. In conjunction with the Synergie AMS device, the Company
markets accessory items as well as a line of nutritional supplements
manufactured to proprietary specifications.
In February 2000, the Company expanded its offering of aesthetic
products with the introduction of the Synergie Peel microdermabrasion
device. The Synergie Peel device reduces fine lines, wrinkles, and
other superficial skin damage by gently peeling away the top layers of
skin, exposing smoother, softer skin. Microdermabrasion is quickly
becoming the new standard of care in the aesthetics industry because of
its distinct advantages over traditional chemical and laser peels. In
conjunction with the Synergie Peel device, during fiscal year 2000 the
Company introduced Calisse -- a unique line of skin care products
designed to enhance the effects of the Synergie Peel treatments.
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In August 2000, the Company signed an agreement with Alan
Neuromedical Technologies (ANT) naming Dynatronics the exclusive
licensee of ANT's patented technology for treating chronic pain. This
unique technology will be incorporated into Dynatronics' advanced
electrotherapy equipment resulting in the introduction of two new
electrotherapy devices scheduled for release in the third quarter of
fiscal year 2001. One device will be designed for clinicians. The
other will be designed for individual patients, and will be available on
a prescription basis for home use. According to the American Pain
Society, over 18 million Americans suffer from moderate to severe
chronic pain. This new technology has been successfully used by doctors
in treating more than 1,000 chronic pain patients.
Description of Products Manufactured
and/or Distributed by the Company
The Company's product line can be divided into four general
categories: (1) Therapy Devices including Electrotherapy and Therapeutic
Ultrasound; (2) Medical Supplies and Soft Goods; (3) Treatment Tables
and Rehabilitation Equipment; and (4) Aesthetic Products. The Company's
products are used primarily by physical therapists, chiropractors,
sports medicine practitioners, podiatrists, plastic surgeons,
dermatologists, and other aesthetic services providers.
Therapy Devices
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Electrotherapy - The therapeutic effects of electrical energy have
occupied an important position in physical medicine for over three
decades. There has been an evolution through the years to use the most
effective and painless waveforms and frequencies for patient comfort and
for success in the treatment of pain and related physical ailments.
Medium frequency alternating currents, which are used in the Company's
electrotherapy devices, are believed to be the most effective and
comfortable for patients. Electrotherapy is effective in 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 soft tissues through the introduction
of soundwaves into the body. It is one of the most common modalities
used in physical therapy today for the treatment of pain relief, muscle
spasms and joint contractures.
"50 Series Plus" Products
During fiscal year 1997, the Company introduced seven new devices
that included electrotherapy, ultrasound or a combination of both
modalities in a single device. The Dynatron 125 ultrasound device and
the Dynatron 525 electrotherapy device target the low-priced segment of
the market. The other five new products comprise the "50 Series Plus"
product line and provide additional features and capabilities to its
popular predecessor line, the "50 Series", while at the same time
further 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.
Iontophoresis
In fiscal year 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 deliver
drugs such as lidocaine and dexamethasone through the skin for localized
treatment of inflammation through the use of a disposable electrode.
The products sold by the Company include the electrical current
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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 in fiscal year 2000.
Schedule of Therapy Products
Manufactured and/or Distributed by Dynatronics
When
Product Name Description Introduced
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Dynatron 125 Ultrasound 1st quarter fiscal year 1997
Dynatron 525 Electrotherapy 1st quarter fiscal year 1997
Iontophor II & Iontophoresis 1st quarter fiscal year 1997
Microphor +
Dynatron 150 Plus** Ultrasound 3rd quarter fiscal year 1997
Dynatron 550 Plus** Multi-modality 3rd quarter fiscal year 1997
Electrotherapy
Dynatron 650 Plus** Multi-modality 3rd quarter fiscal year 1997
Electrotherapy
Dynatron 850 Plus** Combination Electrotherapy/ 3rd quarter fiscal year 1997
Ultrasound
Dynatron 950 Plus** Combination Electrotherapy/ 3rd quarter fiscal year 1997
Ultrasound
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Dynatron is a registered trademark (#1280629) owned by Dynatronics
Iontophor II and Microphor are registered trademarks owned by Life Tech,
Inc.
** "50 Series Plus" Product Line
+ Both manufactured by Life-Tech
Medical Supplies and Soft Goods
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In May 1999, the Company introduced its 1999-2000 product catalog
containing an extensive line of approximately 900 products. With the
introduction of the expanded 1999-2000 catalog, which included 300 new
entries, the Company has created a virtual "one-stop shop" for
rehabilitation professionals. The Company plans to update its catalog
every two years.
Medical supplies and soft goods currently manufactured by the
Company include: hot packs, therapy wraps, wrist splints, lumbar
supports, cervical collars, slings, cervical pillows, back cushions,
weight racks, and wood and metal 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, Thera-Band?
tubing, wheelchairs, walkers,
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Thera-Band is a registered trademark of Hygenic Corp.
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treadmills, stair climbers, hydrocollators, whirlpools, gloves,
electrodes, TENS devices, and traction equipment. The Company is
continually seeking to expand its line of medical supplies and soft
goods.
Treatment Tables and Rehabilitation Equipment
---------------------------------------------
In January 1997, the Company acquired a metal treatment table
manufacturing operation in Columbia, South Carolina. In July 1999, the
Company consolidated this operation into its Chattanooga facilities in
order to improve efficiencies. Products currently manufactured and
distributed include motorized and manually-operated physical therapy
treatment tables, rehabilitation parallel bars, and other specialty
rehabilitation products.
As a result of the acquisitions of Superior and the treatment
table manufacturing operation, the Company has become a broad-line
supplier in the physical medicine market. The target markets for these
products are physical therapy, chiropractic, podiatry, sports medicine,
industrial and occupational medicine, family practice, long-term care
facilities, and the sub-groups of each of these specialties.
Aesthetic Products
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In July 1998, the Company began shipments of its new Synergie
Aesthetic Massage (AMS) device. The Synergie AMS device applies
therapeutic vacuum massage to skin and subcutaneous tissues to, among
other things, achieve a temporary reduction in the appearance of
cellulite.
In December 1999, the Company released the results of a Company-
sponsored study reporting that 91% of participants experienced a
reduction in the appearance of cellulite. In addition, participants on
average showed a six-inch composite loss in girth around the hips,
thighs, and waist. The Synergie Lifestyle System incorporates Synergie
AMS treatments with proper exercise and nutrition to achieve optimal
results.
In February 2000, the Company introduced the Synergie Peel
microdermabrasion device as a companion to the Synergie AMS device. The
Synergie Peel device gently exfoliates the upper layers of skin,
exposing softer, smoother skin. Microdermabrasion is becoming popular
in the aesthetics industry for customers who want the "ultimate
facial" experience.
Allocation of Sales Among Key Products
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The Synergie AMS device and related products accounted for
approximately 11% and 23% of the Company's sales in fiscal years 2000
and 1999, respectively. No other single product accounted for more than
15% of the Company's revenues during any of the last two fiscal years.
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 that will remain in effect until July 18,
2006 and a patent on its multi-frequency ultrasound technology that will
remain in effect until June 2013. Patents pertaining to the Company's
new Synergie AMS device and Synergie Peel device have been filed with
the U.S. patent office and are currently pending. In addition, the
Company has filed for international patent protection for its Synergie
AMS and Synergie Peel technology.
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The trademark "Dynatron" has been registered with the United
States Patent and Trademark Office and the appropriate government
offices in Japan. In addition, registration applications have been
filed for the trademarks "Synergie," and "Synergie Peel" and for
various other product trademarks. 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 Company's Salt Lake City
and Chattanooga facilities, according to the service required. These
warranty policies are comparable to warranties generally available in
the industry. Warranty claims as a percentage of gross sales were not
material in fiscal years 2000 and 1999.
Customers/Market
----------------
With the acquisition of Superior and the introduction of the new
Synergie product line, the Company has expanded its dealer network to
over 300 wholesale dealers throughout the United States and
internationally. These dealers are the primary customers of the Company.
The dealers purchase and take title to the products, which they then
sell to licensed practitioners such as physical therapists,
chiropractors, podiatrists, sports medicine specialists, medical
doctors, hospitals, plastic surgeons, dermatologists and aestheticians.
The Company has entered into preferred vendor relationships with
certain national chains of physical therapy clinics and hospitals. No
single dealer or national account or group of related accounts was
responsible for 10% or more of total sales in fiscal years 2000 or 1999.
The Company exports products to approximately 25 different
countries. International sales (i.e., sales outside North America)
totaled approximately $659,700, or 4.3% of sales in fiscal year 2000 and
approximately $522,200, or 3.3% of the Company's total sales in fiscal
year 1999. International sales increased 26% in fiscal year 2000 over
fiscal year 1999 primarily as a result of improved sales of
electrotherapy devices and Synergie products in Asia. Sales of 50
Series Plus units and Synergie AMS units are beginning to ramp up in
Europe now that the Company has received CE Mark certification for these
products. The Company has no foreign manufacturing operations.
Competition
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Despite significant competition, the Company has distinguished key
products by using the latest technology, such as its patented Target
feature and patented multi-frequency ultrasound technology. The Company
believes that these features, along with integration of cutting edge
technology in the design of each product, have made the Company a leader
in technologically advanced electrotherapy, ultrasound and therapeutic
massage devices. In addition, manufacturing many of the medical
supplies, soft goods and tables it sells allows the Company to focus on
quality manufacturing at competitive prices. The Company believes this
gives it an edge over many competitors who are solely distributors of
such products.
Electrotherapy/Ultrasound. The competition in the clinical market
for electrotherapy and ultrasound devices is from both domestic and
foreign companies. No fewer than a dozen companies produce devices
similar to those of the Company. Some of these competitors are larger
and better established, and have greater resources than the Company.
Few companies, domestic or foreign, provide multiple-modality devices,
and none offer all the features found in the Dynatron 950 Plus. In
addition, the recently acquired technology for treating chronic pain is
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protected by a U.S. patent. Furthermore, no competitor offers the
ultrasound feature of three frequencies on multiple-sized soundheads for
which the Company holds a patent. The primary competitors in the
electrotherapy and ultrasound products sales include: Chattanooga Group,
Rich-Mar, Henley Healthcare, Mettler Electronics, Excel Tech, Ltd.,
Amrex 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.
Other competitors are primarily distributors such as EMPI, Graham Field,
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 is important to
its continued ability to compete against these larger companies. In
addition, the Life-Tech products are priced conspicuously lower than
either IOMED or EMPI.
Treatment Tables. The primary competition in the treatment table
market is from domestic manufacturers including Hausmaun Industries,
Sammons Preston, 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 provide the foundation for the Company to compete in this
marketplace. In addition, some foreign competitors may gain pricing
advantages from time to time due to currency fluctuations related to the
U.S. dollar.
Aesthetic Products. The Company has two primary competitors in
the therapeutic massage industry: LPG Systems and Luxar Corporation.
The Synergie AMS device is unique in that it is much less expensive than
competitive units. In addition, the Synergie Lifestyle System utilizes
unique processes and technology which are the subject of a patent
applied for by the Company, and also incorporates a complete program
including treatments, exercise, and nutrition for optimal results.
Dynatronics' well-established network of distributors along with its
burgeoning direct sales force provide another competitive advantage in
the marketplace for these products.
There are a number of competitors in the Microdermabrasion market
including: DermaGenesis, DermaMed, E-Med, Integremed, Medical Alliance,
Palomar, Slimtone USA and Soundskin Corp. Dynatronics is the only
company that combines dermal massage with microdermabrasion in one
machine, powering the microdermabrasion unit from the Synergie AMS
platform. The result of this state of the art technology is a unique,
high quality facial treatment. The Synergie Peel device incorporates a
proprietary anti-clogging design for the crystals which sets it apart
from competitors' units. In addition, the system has an innovative
disposable system for the abrasive material which prevents unwanted
contact with the spent crystals following treatment.
Information necessary to determine or reasonably estimate the
Company's, or its competitors', market share in any of these markets is
not readily available to the Company.
Manufacturing and Quality Assurance
-----------------------------------
Manufacturing of the Company's therapy devices, soft goods and
other medical products is conducted at the Company's facilities in Salt
Lake City, Utah and Chattanooga, Tennessee. The Company sub-contracts
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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. 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 regulations.
The Company adheres to a 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 Quality First Program reinforces employee pride,
increases customer satisfaction, and improves overall operations of the
Company.
During fiscal year 1999, the Company qualified for ISO 9002
Registration -- an internationally recognized standard for quality systems
and manufacturing processes adopted by over 90 countries. In addition,
the Company qualified for the CE Mark Certification on its 50 Series
Plus products. The Company is now able to market these products
throughout the European Union and in other countries. It is anticipated
that during fiscal year 2001, Dynatronics will qualify for full ISO 9001
certification -- a recognized worldwide standard for quality systems.
Research and Development
------------------------
The Company has historically been very committed to research and
development. In 2000 and 1999 the Company expended $702,754 and
$581,186, respectively, for research and development which represented
approximately 4.6% and 3.6% of the gross revenues of the Company in
those years, respectively. Substantially all of the research and
development expenditures were for the development of new products,
including the new Synergie Peel Microdermabrasion device, 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 in fiscal year
2001.
Regulatory Matters
------------------
The manufacture, packaging, labeling, advertising, promotion,
distribution and sale of the Company's products are subject to
regulation by numerous national and local governmental agencies in the
United States and other countries. In the United States, the Food and
Drug Administration (FDA) regulates the Company's products under the
Food, Drug, and Cosmetic Act ("FDC Act") and regulations promulgated
thereunder. Advertising and other forms of promotion and methods of
marketing of the Company's products are subject to regulation by the
Federal Trade Commission ("FTC") under the Federal Trade Commission
Act ("FTC Act").
All of the Company's therapeutic and aesthetic treatment devices
as currently designed have been cleared for marketing under section
510(k) of the FD&C Act or are considered 510(k) exempt. If a device is
subject to section 510(k), the FDA must receive premarket notification
from the manufacturer of its intent to market the device. The FDA must
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find that the device is substantially equivalent to a legally marketed
device before the agency will clear the device for marketing. In
addition, certain modifications to the Company's marketed devices may
require a premarket notification and clearance under section 510(k)
before the changed device may be marketed, if the change or modification
could significantly affect safety or effectiveness. All the Company's
devices, unless specifically exempted by regulation, are subject to the
FD&C Act's general controls, which include, among other things,
registration and listing, adherence to the Quality System Regulation
requirements for manufacturing, Medical Device Reporting and the
potential for voluntary and mandatory recalls.
Failure of the Company to comply with applicable FDA regulatory
requirements may result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines, and criminal
prosecutions. Any such action by the FDA could materially adversely
affect the Company's ability to successfully market its products.
The Company's advertising of its products is subject to regulation
by the FTC under the FTC Act. Section 5 of the FTC Act prohibits unfair
methods of competition and unfair or deceptive acts or practices in or
affecting commerce. Section 12 of the FTC Act provides that the
dissemination or the causing to be disseminated of any false
advertisement pertaining to, among other things, drugs, cosmetics,
devices or foods, is an unfair or deceptive act or practice. Pursuant
to this FTC requirement, the Company is required to have adequate
substantiation for all advertising claims made about its products. The
type of substantiation will be dependent upon the product claims made.
If the FTC has reason to believe the law is being violated (e.g.,
the manufacturer or distributor does not possess adequate substantiation
for product claims), it can initiate an enforcement action. The FTC has
a variety of processes and remedies available to it for enforcement,
both administratively and judicially, including compulsory process
authority, cease and desist orders, and injunctions. FTC enforcement
could result in orders requiring, among other things, limits on
advertising, consumer redress, divestiture of assets, rescission of
contracts, and such other relief as may be deemed necessary. Violation
of such orders could result in substantial financial or other penalties.
Any such action by the FTC could materially adversely affect the
Company's ability to successfully market its products.
General market trends were adversely affected from the
implementation of new Medicare guidelines in fiscal year 1999, which
restricted reimbursement for physical therapy services. Subsequent
legislation passed by Congress eliminated those reimbursement reductions
for a two-year period beginning in January 2000. As a result, market
conditions improved for the Company's rehabilitation and other physical
therapy products in fiscal year 2000. The Company cannot predict the
nature of any future laws, regulations, interpretations, or
applications, nor can it determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would
have on its business in the future. They could include, however,
requirements for the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products, additional
record keeping, expanded documentation of the properties of certain
products, expanded or different labeling, and additional scientific
substantiation. Any or all such requirements could have a material
adverse effect on the Company.
Environment
-----------
The Company's operations are not subject to material compliance
with Federal, state and local provisions enacted or relating to
protection of the environment or discharge of materials into the
environment.
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Employees
---------
On June 30, 2000, the Company had a total of 117 full-time
employees and 13 part-time employees, compared to 136 full-time and 8
part-time employees as of June 30, 1999. The decrease in the number of
employees is primarily the result of the consolidation of the Company's
South Carolina operations into its Tennessee facilities.
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 facility totaling approximately
36,000 square feet. The Company owns the land and building, subject to
a mortgage requiring a monthly payment of approximately $15,768. 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 Ooltewah, Tennessee in a tax-free exchange. In
March 1998, the Company completed the construction of an additional
20,000 sq. ft. warehouse facility at the Ooltewah, Tennessee location.
This new facility was financed through a mortgage requiring monthly
payments of $7,182. The mortgage matures in 2012. Incorporated in this
construction was completion of site work for a 20,000 sq. ft. addition
to the new building. As part of the overall expansion, manufacturing of
wood products was moved from a 4,000 sq. ft. leased facility to the
10,000 sq. ft. building that formerly served as the warehouse. This
campus comprises the Company's Tennessee operations.
The Company believes the facilities described above are adequate
to accommodate presently expected growth and needs of the Company for
its operations. As the Company continues to grow, additional
facilities or the expansion of existing facilities will likely be
required.
The Company owns or leases equipment used in the manufacture and
assembly of its products. The nature of this equipment is not
specialized and replacements 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 sale prices for the Company's common stock as
quoted on the Nasdaq system for the quarterly periods indicated.
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Year Ended June 30,
2000 1999
---- ----
High Low High Low
------------------------------------------
1st Quarter (July-September) $1.63 $ .98 $5.88 $2.31
2nd Quarter (October-December) $1.09 $ .66 $3.88 $1.88
3rd Quarter (January-March) $1.75 $ .69 $3.25 $1.50
4th Quarter (April-June) $1.13 $ .72 $1.72 $1.00
Holders. As of September 20, 2000, the approximate number of
common stock shareholders of record was 530. This number does not
include beneficial owners of shares held in "nominee" or "street"
name. Including beneficial owners, the Company estimates that the total
number of shareholders exceeds 2,000.
Dividends. The Company has never paid cash dividends on its
common stock. 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.
Sale of Unregistered Securities. The Company has not sold any
securities during the past three years in a private or public offer and
sale.
Stock Options. In fiscal year 2000, the Company granted options
pursuant to stock option plans for employment or other agreements. The
total number of shares of common stock issuable under such options is
185,299 shares with an average exercise price of $.95 per share. In
1999, the Company also granted options pursuant to stock option plans.
The total number of shares of common stock issuable under such options
is 195,791 shares with an average exercise price of $2.03 per share.
These options were issued without registration under the Securities Act
in reliance upon exemptions relating to grants of securities made
pursuant to certain written plans.
Item 6. Management's Discussion and Analysis or Plan of Operation
Selected Financial Data
-----------------------
The table below summarizes selected financial data for the Company
contained in its audited financial statements for the past five fiscal
years. The financial statements for the years 2000 and 1999 are filed
with and form a part of this report.
Selected Financial Data
Fiscal Year Ended June 30
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $15,173,050 $15,956,798 $12,283,064 $10,160,467 $ 6,784,748
Net Income (loss) $ 35,910 $ 718,080 $ 664,788 $ 612,539 $ (193,892)
Net Income (loss)
Per share (diluted) $ .00 $ .08 $ .07 $ .07 $ (.02)
Working Capital $ 4,550,747 $ 4,251,703 $ 3,502,777 $ 3,027,119 $ 2,616,464
Total Assets $ 12,595,581 $13,854,197 $11,641,948 $ 9,642,479 $ 8,508,609
Long-term Obligations $ 2,330,501 $ 2,984,041 $ 3,376,017 $ 2,534,553 $ 2,856,302
</TABLE>
<PAGE>
Fiscal 2000 Compared to Fiscal 1999
Results of Operations
---------------------
During the year ended June 30, 2000, the Company's operating
results were adversely affected by two significant factors totaling
approximately $700,000. These factors were: 1) expenses associated
with certain litigation, 2) expenses and charges incurred in connection
with the consolidation of the Company's South Carolina operations with
its Tennessee operations. The effect of these expenses on the
operations of the Company during the year ended June 30, 2000 is
described in greater detail in the following paragraph.
The litigation involved LPG USA, Inc. -- a company that
manufactures a competitive product to the Company's Synergie AMS device.
The litigation included actions filed in Florida by LPG and in federal
court in Utah by Dynatronics and continued for eight months before it
was resolved to the mutual satisfaction of both parties. Dynatronics
incurred over $500,000 in expenses associated with the litigation.
Residual expense incurred during the year ended June 30, 2000 associated
with relocating the Company's metal table manufacturing operations from
Columbia, South Carolina to its Tennessee operations totaled
approximately $200,000.
The fourth quarter of fiscal year 2000 was virtually free of any
significant impact from these expenses. Management believes that the
results of the quarter ended June 30, 2000 indicate a positive trend and
combine to provide a better picture of the Company's current direction
than the results of the first three quarters of the fiscal year then
ended. Sales for the fourth quarter were up 24% to $4.5 million
compared to the similar quarter in 1999. Net profits during the quarter
rose to approximately $269,000, a 436% increase over the fourth quarter
of the prior year.
In March 2000, the Company introduced the Synergie Peel
microdermabrasion device. Within four months, this new product
generated sales of over $460,000. In addition, during the second half
of fiscal year 2000, the Company experienced a resurgence in sales of
its rehabilitation products. This trend has continued into the first
quarter of fiscal year 2001. Although the results of one or two
consecutive quarters is not necessarily an indication of the results
that might actually be realized for the entire fiscal year ending June
30, 2001, management believes that these improvements, together with the
planned introduction of new products for the chronic pain market, make
the outlook for the coming year very encouraging.
Sales for the fiscal year ended June 30, 2000, decreased 5% to
$15,173,050, compared to $15,956,798, in fiscal year 1999. The decline
in sales reflects a change in the product mix during the period and a
transition from initial sales of Synergie AMS products required to fill
channels of distribution in the first quarter of fiscal year 1999 to
more normalized sales in the current reporting year.
The Company's gross margin as a percent of sales decreased to
41.4% in fiscal year 2000 compared to 43.0% in fiscal year 1999. Lower
sales of the high margin Synergie AMS products was the primary
contributor to decreasing overall margins in fiscal year 2000. The
Company anticipates margins will improve in fiscal year 2001 due to
sales of the new Synergie Peel Microdermabrasion device -- the highest
margin product sold by the Company, as well as the anticipated
introduction of the two new devices for treating chronic pain.
Selling, general and administrative (SG&A) expenses were
$5,031,577 in fiscal year 2000 compared to $4,815,287 in fiscal year
1999. The increase in total SG&A expense during fiscal year 2000 can be
attributed to three factors: 1) the litigation expenses of
approximately $500,000 associated with the litigation between the
<PAGE>
Company and LPG USA, Inc., 2) the consolidation expenses of
approximately $200,000 in connection with the relocation of the
Company's South Carolina operations to its Tennessee operations in an
effort to lower fixed overhead, and 3) the investment of approximately
$120,000 in the Company's initial efforts to begin establishing a direct
sales team for its Synergie brand of products. The Company anticipates
that SG&A expenses as a percentage of sales will decrease in fiscal year
2001 due to the non-recurring nature of the legal and relocation
expenses.
During fiscal year 2000, the Company maintained its commitment to
research and development (R&D), expending $702,754 for the year,
compared to $581,186 in fiscal year 1999. The $120,000 increase in R&D
expenses for fiscal year 2000 is directly related to the development of
the new Synergie Peel Microdermabrasion device. Plans for developing
two major new products for treating chronic pain are expected to result
in R&D expenditures continuing at current levels during fiscal year
2001.
In the year ended June 30, 2000, the Company's provision for
income taxes was $144,981 compared to $439,975 in fiscal year 1999. As
a percentage of taxable income, tax expense in fiscal year 2000 was 80%
compared to 38% in fiscal year 1999. This increase in tax expense as a
percentage of taxable income is attributable to recognition of tax
expense associated with the surrender of an insurance policy as
explained below.
The Company entered into a salary continuation and benefit
agreement in fiscal year 1988 with Kelvyn Cullimore, Sr., the Chairman
and former President of the Company. During fiscal year 2000, the
Company entered into a settlement agreement with Mr. Cullimore. Under
the terms of the settlement agreement, the Company settled its
contractual obligations under the original agreement, which obligated
the Company to pay a pre-retirement death benefit to Mr. Cullimore's
beneficiaries in the event of his death prior to age 65, or upon
reaching age 65, an annual retirement benefit of $75,000 per year. Mr.
Cullimore's 65th birthday was in July 2000. The Company had funded its
obligation under the contract through an insurance policy owned by the
Company on the life of Mr. Cullimore. Under the terms of the
settlement, the Company made a lump sum payment funded by surrendering
the life insurance policy. At the time of surrender, the net proceeds
received by the Company exceeded the net premiums paid during the twelve
or so years the policy had been in effect by approximately $200,000.
During part of that time, premiums were subsidized by ITEC Attractions
as part of an agreement for services provided to ITEC by Dynatronics.
ITEC was a former affiliate of the Company. Generally accepted
accounting principles required the Company to report both the net
premiums paid each year as an expense and the cash value increase as
income. However, tax law did not permit either the premium expense or
the cash value increase to be recognized in calculating tax liability.
Therefore, over time the incremental differences between the net premium
expense and the cash value in the policy continued to grow until at the
time of surrender the cumulative difference was approximately $200,000.
This increase had already been recognized on the books of the Company
over the term of the contract, yet tax law deferred recognition of the
tax expense until the policy was surrendered. Thus, as a result of the
settlement, the Company was required to record a tax expense of
approximately $76,000. The settlement with Mr. Cullimore eliminates
approximately $500,000 in expenses over the next 15 years, the majority
of which would have been incurred in the next three years and would have
reduced net income of the Company in those future periods.
Net income for fiscal year 2000 decreased to $35,910, compared to
$718,080 in fiscal year 1999. The reduction in net income is
attributable to lower sales and margins associated with reduced sales of
Synergie AMS products, increased legal, consolidation, sales and R&D
expenses as explained above, and the additional tax liability from the
settlement of the deferred compensation obligation to Mr. Cullimore.
Absent the non-recurring legal, consolidation and tax expenses recorded
in fiscal year 2000, net income could have reasonably been expected to
approach $500,000.
The Company's business operations were not materially effected by
seasonality factors or year 2000 (Y2K) issues.
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations primarily through cash
flows from operations and from its line of credit facility.
Inventories at June 30, 2000 were $4,038,845. Over the past year,
management has made a concerted effort to reduce inventories, which
ballooned in fiscal year 1999 with the introduction of the Synergie AMS
product. Despite the introduction of the new Synergie Peel device and
stocking initial inventories for the manufacture of this new product,
the Company was able to reduce inventories by over $450,000 during
fiscal year 2000.
Trade accounts receivable during fiscal year 2000 increased
$468,933 to $3,248,419 primarily due to the introduction of the new
Synergie Peel Microdermabrasion device which, along with record sales of
rehabilitation products, helped significantly boost sales and
receivables during the fourth quarter of fiscal year 2000. Management
expects 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 year.
Working capital at June 30, 2000, totaled $4,550,747. The
Company's current ratio at June 30, 2000 was 2.3 to 1.
The Company maintains an open line of credit with a commercial
bank in the amount of $3.75 million. Interest on the line of credit is
based on the bank's prime rate which at June 30, 2000 equaled 9.5%. The
line of credit is collateralized by certain accounts receivable and
inventories. As of June 30, 2000, approximately $1.9 million was
outstanding on the line of credit and amounts available under the line
of credit totaled approximately $1.85 million. The line of credit
agreement is renewable annually in November and includes covenants
requiring the Company to maintain certain financial ratios. As of June
30, 2000, the Company was in compliance with all covenants.
Long-term debt excluding current installments at June 30, 2000 was
$2,073,894. This debt represents primarily the mortgages against real
property owned by the Company in Utah and Tennessee.
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. Management
anticipates accounts receivable will increase in future years in
connection with increased sales.
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 affected by inflation or price increases for raw
materials and parts from vendors.
The Company believes that its current cash balances, amounts
available under its line of credit and cash provided by operations will
be sufficient to cover its operating needs in the ordinary course of
business for the next twelve months. If the Company experiences an
adverse operating environment or unusual capital expenditure
requirements, additional financing may be required. However, no
assurance can be given that additional financing, if required, would be
available on favorable terms.
<PAGE>
Outlook
Over the past six years, Dynatronics tripled its sales from $4.9
million to $15.2 million. This growth is the result of many factors
including acquisitions, strategic alliances and the introduction of new
products.
During fiscal year 2000, management continued the implementation
of its strategic plans to reposition and diversify the Company's product
lines. The Company's board of directors has approved certain initiatives
that are designed to refocus Dynatronics' strategy for manufacturing and
distributing its popular line of rehabilitation products. The plans also
commit the necessary resources to strengthen distribution and develop
new products for the rehabilitation and aesthetic markets.
As part of this strategy, in August 2000, the Company announced
the signing of an agreement with Alan Neuromedical Technologies (ANT)
appointing Dynatronics the exclusive licensee of ANT's patented
technology for treating chronic pain. Preliminary case studies over the
past two years have shown this technology to be remarkably effective in
treating complex conditions where traditional treatments for pain have
yielded only marginal results. After treatments with the new protocol,
many patients have become totally pain free or sufficiently pain free to
resume daily living activities they had been unable to perform for
years, including walking without assistance.
The Company is currently developing a clinical unit for
practitioners which incorporates this new technology. In addition, a
prescription device for home use will also be developed. The Company
has received numerous inquiries from doctors and patients who are
interested in this new technology.
In addition, the Company plans to redesign and enhance its
electrotherapy products during 2001. Continued innovation allows the
Company to remain at the forefront of technology in the physical
medicine industry.
Included in the Company's strategic plans is the expansion of
worldwide marketing efforts particularly into the European Community.
Dynatronics received approval to begin marketing its line of
electrotherapy and ultrasound devices throughout Europe in August 1999.
The Company believes that Europe presents a promising market for these
products. The Company has also obtained the necessary approvals to sell
its aesthetic products in the European market. Management is confident
that access to this vast market will over time result in increased sales
of the Company's therapeutic and aesthetic devices, which are among its
most profitable products. In accordance with these expectations,
additional human and capital resources have recently been committed to
this expansion effort.
Another strategic component of the new initiatives involves
further expansion into the aesthetics market. During fiscal year 1999,
the Company made its initial entry into this market with the
introduction of its Synergie Lifestyle System product line. As a
companion to the Synergie System, the Company recently introduced its
new Synergie Peel microdermabrasion device. Microdermabrasion
technology is quickly becoming the new standard of care in the
aesthetics industry because of its distinct advantages over chemical and
laser peels. In conjunction with the Synergie Peel device, during
fiscal year 2000 the Company introduced a new line of advanced skin care
products under the brand name "Calisse." These unique skin care
products further enhance the results of the Synergie Peel treatment
regimen and are generating ongoing sales of consumable products to
practitioners and patients alike. Based on the Company's experiences in
this market during the past two years, management believes that there
are many opportunities for growth in this field.
To take full advantage of the opportunities of the broader
aesthetics market, Dynatronics has begun to establish a direct sales
force for marketing its aesthetic products. The Company's Chairman,
Kelvyn H. Cullimore, is personally managing the effort to establish this
new channel of distribution. Presently, efforts to establish direct
<PAGE>
sales representatives are focused on high yield areas where the Company
does not have strong dealer representation. Controlling and expanding
the channels of distribution for these products is expected to
ultimately increase sales and allow the Company to more fully access the
potential of the aesthetics products market. The Company perceives this
market to be both lucrative and expanding, particularly as aging baby
boomers continue to look for ways to retain a youthful appearance.
During fiscal year 2000, the Company allocated resources to
enhance its presence in the e-business arena. E-commerce is rapidly
becoming a reality in many aspects of business. Dynatronics has
undertaken to improve the appearance and application of its corporate
website and is researching ways in which to apply electronic media and
internet solutions to better serve customer needs, access new business
opportunities, reduce cost of operations, and stay technologically
current in the way business is conducted. During fiscal year 2000 the
Company established its first e-commerce offering by making its
nutritional products available for on-line direct purchase to two large
purchasing groups. The Company believes the allocation of resources to
developing e-business capabilities is critical to improving future
performance and management has made the establishment of such
capabilities a focal strategy for the coming year.
With the new strategic initiatives underway, the Company will
focus its resources in the following areas:
* Improving sales and distribution of rehabilitation products
domestically through strengthened relationships with our dealer
network, particularly the high volume specialty dealers.
* Developing new therapy products for the billion-dollar chronic
pain market by incorporating the patented technology licensed
by the Company in August 2000 from Alan Neuromedical
Technologies.
* Expanding distribution of both rehabilitation and aesthetic
products internationally.
* Strengthening distribution in the aesthetic products market
through the continued establishment of a direct sales force in
areas where dealer representation is lacking.
* Introducing other new rehabilitation products and aesthetic
products that fit the Company's distribution system.
* Applying e-commerce solutions to improving overall Company
performance.
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 within the safe harbor provisions of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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. Risks and
circumstances that may cause actual results to vary from the Company's
expectations include, among others, the following:
<PAGE>
Technological Obsolescence. The business of designing and
manufacturing medical and aesthetic products is characterized by rapid
technological change. Although the Company has obtained patents on
certain aspects of its technology, there can be no assurance that the
Company's competitors will not develop or manufacture products
technologically superior to those of the Company.
Extensive Government Regulation. The manufacture, packaging,
labeling, advertising, promotion, distribution and sale of the Company's
products are subject to regulation by numerous national and local
governmental agencies in the United States and other countries which
adds to the expense of doing business and, if violated, could adversely
affect the Company's financial condition and results of operations.
Health Care Reform. Governments are continually reviewing and
considering expansive legislation that may lead to significant reforms
in health care delivery systems. The pressure for reform stems largely
from the rising cost of health care in recent years. The Company cannot
predict whether or when new or proposed legislation will be enacted and
there can be no assurance that such legislation, when enacted, will not
impose additional restrictions on part or all of the Company's business
or its intended business, which might adversely affect such business.
Product Liability. Manufacturers and distributors of products
used in the medical device and nutritional supplements industries are
from time to time subject to lawsuits alleging product liability,
negligence or related theories of recovery, which have become an
increasingly frequent risk of doing business in these industries.
Although from time to time lawsuits may arise or claims asserted based
on product liability matters, all such actions have been insured
against. Although the Company presently maintains product liability
insurance coverage which it deems adequate based on historical
experience, there can be no assurance that such coverage will be
available for such risks in the future or that, if available, it would
prove sufficient to cover potential claims or that the present amount of
insurance can be maintained in force at an acceptable cost.
Furthermore, the assertion of such claims, regardless of their merit or
eventual outcome, also may have a material adverse effect on the
Company, its business reputation and its operations.
Ability to Sustain and Manage Growth. The Company has experienced
significant growth in the last several years. To effectively manage the
challenges resulting from growth, the Company may be required to hire
additional management and operations personnel and make additional
expenditures to improve and to expand its operational, financial,
information and management systems and its production capacity, which
may significantly increase its future operating expenses. No assurance
can be given that the Company's business will grow in the future or that
the Company will be able to effectively manage such growth. Any failure
by the Company to appropriately manage its growth could have a material
adverse effect on the Company's business, financial condition and
results of operations.
Risks Associated with Manufacturing. The Company's results of
operations are dependent upon the continued operation of its
manufacturing facilities in Utah and Tennessee. The operation of a
manufacturing facility involves many risks, including power failures,
the breakdown, failure or substandard performance of equipment, failure
to perform by key suppliers, the improper installation or operation of
equipment, natural or other disasters and the need to comply with the
requirements or directives of government agencies, including the FDA.
There can be no assurance that the occurrence of these or any other
operational problems at the Company's facilities would not have a
material adverse effect on the Company's business, financial condition
and results of operations.
Reliance on Information Technology. The Company's success is
dependent in large part on the accuracy, reliability and proper use of
sophisticated and dependable information processing systems and
management information technology. The Company's information technology
systems are designed and selected in order to facilitate order entry and
customer billing, maintain records, accurately track purchases, accounts
<PAGE>
receivable and accounts payable, manage accounting, finance and
manufacturing operations, generate reports and provide customer service
and technical support. Any interruption in these systems could have a
material adverse effect on the Company's business, financial condition
and results of operations.
Competition. The business of the Company is highly competitive.
Numerous manufacturers, distributors and retailers compete actively for
consumers and customers. The Company competes directly with other
entities that manufacture, market and distribute products in each of its
product lines. Many of the Company's competitors are substantially
larger than the Company and have greater financial resources and broader
name recognition. The market is highly sensitive to the introduction of
new products that may rapidly capture a significant share of the market.
There can be no assurance that the Company will be able to compete in
this intensely competitive environment.
Dependence on Patents and Proprietary Rights. The Company has two
patents and three patents pending relating to its products. In
addition, certain of the Company's trademarks have been registered in
the United States and in other countries. There can be no assurance
that the Company's patents will not be challenged or circumvented or
will provide the Company with any competitive advantages or that a
patent will issue from the pending patent application. The Company also
relies upon copyright protection for its proprietary software and other
property. There can be no assurance that any copyright obtained will
not be circumvented or challenged. The Company also relies on trade
secrets that it seeks to protect, in part, through confidentiality
agreements with employees and other parties. There can be no assurance
that these agreements will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known to or independently developed by
competitors. The Company may become involved from time to time in
litigation to determine the enforceability, scope and validity of
proprietary rights. Any such litigation could result in substantial
cost to the Company and divert the efforts of its management and
technical personnel.
Limited Availability of Conclusive Clinical Studies. The
Company's products include nutritional supplements that are made from
vitamins, minerals, herbs and other substances for which there is a long
history of human consumption. Although the Company believes all of its
products to be safe when taken as directed, there is little long-term
experience with human consumption of certain of these product
ingredients or combinations of ingredients in concentrated form. The
Company relies primarily on the research of consultants and others for
the formulation and manufacture of its products. Some of these
consultants and suppliers may have performed or sponsored only limited
clinical studies relating to these products. Furthermore, because these
products are or will be highly dependent on consumers' perception of the
efficacy, safety and quality of the supplement products, as well as
similar products distributed by other companies, the Company could be
adversely affected in the event such products should prove or be
asserted to be ineffective or harmful to consumers or in the event of
adverse publicity associated with illness or other adverse effects
resulting from consumers' use or misuse of the Company's products or
similar products.
Foreign Duties and Import Restrictions. Some of the Company's
products are exported to the countries in which they ultimately are
sold. The countries in which the Company sells its products may impose
various legal restrictions on imports, impose duties of varying amounts,
or enact regulatory requirements, adverse to the Company's products.
There can be no assurances that changes in legal restrictions, increased
duties or taxes, or stricter health and safety requirements would not
have a material adverse effect in the Company's ability to market its
products in a given country.
Effect of Exchange Rate Fluctuations. Exchange rate fluctuations
may have a significant effect on the Company's sales and gross margins
in a given foreign country. If exchange rates fluctuate dramatically,
it may become uneconomical for the Company to establish or continue
activities in certain countries. Differences in the exchange rates may
<PAGE>
also create a marketing advantage for foreign competitors, making the
purchase price of their products lower than prices originally
denominated in U.S. dollars. As the Company's business expands outside
the United States, an increasing share of its revenues and expenses will
be transacted in currencies other than the U.S. dollar. Accounting
practices require that the Company's non-U.S. sales and selling, general
and administrative expenses be converted to U.S. dollars for reporting
purposes. Consequently, the reported earnings of the Company in future
periods may be significantly affected by fluctuations in currency
exchange rates, with earnings generally increasing with a weaker U.S.
dollar and decreasing with a strengthening U.S. dollar.
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>
DYNATRONICS CORPORATION
Balance Sheet
June 30, 2000
[CAPTION]
<TABLE>
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 233,756
Trade accounts receivable, less allowance for
doubtful accounts of $141,897 (note 4) 3,248,419
Other receivables 103,820
Inventories (notes 2 and 4) 4,038,845
Prepaid expenses 133,147
Prepaid income taxes 31,416
Deferred tax asset - current (note 7) 241,260
-------------
Total current assets 8,030,663
Property and equipment, net (notes 3 and 5) 3,337,924
Excess of cost over fair value of net assets acquired, net
of accumulated amortization of $496,155 968,020
Other assets 258,974
-------------
$ 12,595,581
=============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt (note 5) $ 241,503
Line of credit (note 4) 1,893,214
Accounts payable 739,990
Accrued expenses 334,876
Accrued payroll and benefit expenses 270,333
-------------
Total current liabilities 3,479,916
Long-term debt, excluding current installments (note 5) 2,073,894
Deferred compensation (note 11) 233,398
Deferred tax liability - noncurrent (note 7) 23,209
-------------
Total liabilities 5,810,417
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 8,765,038 shares 2,457,947
Treasury stock, 35,584 common shares at cost (120,096)
Retained earnings 4,447,313
-------------
Total stockholders' equity 6,785,164
-------------
Commitments and contingencies (notes 6 and 11) $ 12,595,581
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DYNATRONICS CORPORATION
Statements of Income
Years ended June 30, 2000 and 1999
[CAPTION]
<TABLE>
2000 1999
-------------- --------------
<S> <C> <C>
Net sales $ 15,173,050 15,956,798
Cost of sales 8,894,080 9,087,933
-------------- --------------
Gross profit 6,278,970 6,868,865
Selling, general, and administrative expenses 5,031,577 4,815,287
Research and development expense 702,754 581,186
-------------- --------------
Operating income 544,639 1,472,392
Other income (expense):
Interest income 3,125 11,412
Interest expense (401,303) (384,577)
Other income, net 34,430 58,828
-------------- --------------
Total other income (expense), net (363,748) (314,337)
-------------- --------------
Income before income taxes 180,891 1,158,055
Income tax expense (note 7) 144,981 439,975
-------------- --------------
Net income $ 35,910 718,080
============== ==============
Basic net income per share $ - 0.08
============== ==============
Diluted net income per share $ - 0.08
============== ==============
Weighted average basic and diluted common shares outstanding:
Basic 8,745,465 8,676,641
Diluted 8,773,629 9,025,809
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DYNATRONICS CORPORATION
Statements of Stockholders' Equity
Years ended June 30, 2000 and 1999
[CAPTION]
<TABLE>
Total
Common Treasury Retained stockholders'
stock stock earnings equity
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at June 30, 1998 $ 2,000,217 0 3,693,323 5,693,540
Issuance of 291,235 shares of common stock upon
exercise of employee stock options (note 9) 260,628 0 0 260,628
Income tax benefit from disqualifying disposition
of employee stock options 130,981 0 0 130,981
Acquisition of 35,584 common shares 0 (120,096) 0 (120,096)
Net income 0 0 718,080 718,080
-------------- ------------- ------------ ------------
Balances at June 30, 1999 2,391,826 (120,096) 4,411,403 6,683,133
Issuance of 62,044 shares of common stock upon
exercise of employee stock options (note 9) 60,183 0 0 60,183
Income tax benefit from disqualifying disposition
of employee stock options 5,938 0 0 5,938
Net income 0 0 35,910 35,910
-------------- ------------- ------------ ------------
Balances at June 30, 2000 $ 2,457,947 (120,096) 4,447,313 6,785,164
============== ============= ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DYNATRONICS CORPORATION
Statements of Cash Flows
Years ended June 30, 2000 and 1999
[CAPTION]
<TABLE>
2000 1999
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 35,910 718,080
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of property and equipment 282,266 275,466
Other amortization 92,217 92,215
Gain (loss) on disposal of assets (4,216) 40,639
Gain on disposal of stock (10,167) 0
Provision for doubtful accounts 36,000 24,000
Provision for inventory obsolescence 267,996 38,839
Provision for warranty reserve 257,566 221,179
Provision for deferred compensation 95,844 88,334
Changes in operating assets and liabilities:
Receivables (524,594) (670,454)
Inventories 185,433 (1,807,963)
Prepaid expenses and other assets 387,448 110,635
Deferred income taxes 111,594 (29,621)
Income taxes payable 145,315 0
Accounts payable and accrued expenses (242,699) (92,242)
Deferred compensation (481,894) 0
------------- -------------
Net cash provided by (used in) operating activities 634,019 (990,893)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of fixed assets 79,083 0
Proceeds from sale of stock 10,167 0
Capital expenditures (138,436) (103,898)
------------- -------------
Net cash used in investing activities (49,186) (103,898)
------------- -------------
Cash flows from financing activities:
Principal payments on long-term debt (321,185) (661,488)
Net change in line of credit (718,424) 1,495,997
Proceeds from issuance of common stock 60,183 140,532
------------- -------------
Net cash provided by (used in) financing activities (979,426) 975,041
------------- -------------
Net decrease in cash and cash equivalents (394,593) (119,750)
Cash and cash equivalents at beginning of year 628,349 748,099
------------- -------------
Cash and cash equivalents at end of year $ 233,756 628,349
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest, net of amounts capitalized $ 402,109 376,309
Cash paid during the year for income taxes 0 489,800
Supplemental disclosures of noncash investing and financing activities:
Long-term debt incurred for fixed assets $ 26,936 158,051
Income tax benefit from nonemployee exercise of stock options 5,938 130,981
Treasury stock acquired in consideration for common stock issued as
a result of a cashless stock option exercise 0 120,096
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Independent Auditors' Report
The Board of Directors
Dynatronics Corporation:
We have audited the accompanying balance sheet of Dynatronics
Corporation as of June 30, 2000 and the related statements of income,
stockholders' equity, and cash flows for each of the years in the two-
year period ended June 30, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides 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, 2000, and the results of its operations and
its cash flows for each of the years in the two-year period ended June
30, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
Salt Lake City, Utah
August 3, 2000
<PAGE>
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2000 and 1999
(1) Basis of Presentation and Summary of Significant Accounting Policies
(a) Basis of Presentation
Dynatronics Corporation (the Company) manufactures, markets,
and distributes a broad line of therapeutic, diagnostic, and
rehabilitation equipment, medical supplies and soft goods,
treatment tables, and aesthetic medical devices to an expanding
market of physical therapists, podiatrists, orthopedists,
chiropractors, plastic surgeons, dermatologists, and other
medical professionals. 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 $2,783 at June 30,
2000. At June 30, 2000, 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 2 to 7 years.
(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. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the
balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired
operations. The amount of impairment, if any, is measured
based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of this asset will be
impacted if estimated future operating cash flows are not
achieved.
(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) Earnings Per Common Share
Basic earnings per common share is the amount of earnings for
the period available to each share of common stock outstanding
during the reporting period. Diluted earnings per common share
is the amount of earnings for the period available to each
share of common stock outstanding during the reporting period
and to each share that would have been outstanding assuming the
issuance of common shares for all dilutive potential common
shares outstanding during the period.
A reconciliation between the basic and diluted weighted average
number of common shares for 2000 and 1999 is summarized as
follows:
June 30,
------------------------
2000 1999
--------- ---------
Basic weighted average number of common
shares outstanding during the period 8,745,465 8,676,641
Weighted average number of dilutive common
stock options outstanding during the period 28,164 349,168
Diluted weighted average number of common and
common equivalent shares outstanding during
the period 8,773,629 9,025,809
The weighted average number of options outstanding not included
in the computation of diluted net income per share total
226,029 and -0- as of June 30, 2000 and 1999, respectively,
because to do so would have been antidilutive.
<PAGE>
(j) 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.
(k) Stock Based Compensation
The Company employs the footnote disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock Based Compensation. SFAS No. 123
encourages entities to adopt a fair value based method of
accounting for stock options or similar equity instruments.
However, it also allows an entity to continue measuring
compensation cost for stock based compensation using the
intrinsic-value method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). The Company has elected to
continue to apply the provisions of APB 25 and provide pro
forma footnote disclosures required by SFAS No. 123.
(l) Concentration of Risk
In the normal course of business, the Company provides
unsecured credit terms to its customers. Most of the Company's
customers are involved in the medical industry. The Company
performs ongoing credit evaluations of its customers and
maintains allowances for possible losses which, when realized,
have been within the range of management's expectations.
(m) Operating Segments
The Company operates in one line of business, the development,
marketing, and distribution of a broad line of medical products
for the physical therapy and aesthetics' markets. As such, the
Company has only one reportable operating segment as defined by
the Financial Accounting Standards Board Statement No. 131,
Disclosures About Segments of an Enterprise and Related
Information.
(n) 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.
<PAGE>
(o) Fair Value Disclosure
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.
(2) Inventories
Inventories consist of the following:
Raw materials $ 2,470,979
Finished goods 1,785,588
Inventory reserve (217,722)
------------
$ 4,038,845
============
(3) Property and Equipment
Property and equipment consist of the following:
Land $ 354,743
Buildings 2,792,744
Machinery and equipment 1,205,159
Office equipment 231,858
Vehicles 61,771
------------
4,646,275
Less accumulated depreciation
and amortization 1,308,351
------------
$ 3,337,924
============
(4) Line of Credit
The Company has available with a commercial bank a revolving line
of credit agreement totaling $3.75 million at June 30, 2000. The
agreement requires letter of credit fees and is secured by trade
receivables and inventories. The line requires the monthly payment
of interest on outstanding balances at prime (9.50 percent at June 30,
2000). The line expires on December 1, 2000.
<PAGE>
(5) Long-term Debt
Long-term debt consists of the following:
7.11% promissory note secured by a trust deed on real
property, payable in monthly installments of $8,708
through November 2003 $ 660,431
6.21% promissory note secured by a trust deed on real
property, maturing November 2013, payable in decreasing
installments beginning at $7,545 monthly ($7,060 during
2000) 767,078
8.65% promissory note secured by a trust deed on real
property, payable in monthly installments of $7,182
through January 2012 629,310
8.96% - 9.07% term loans secured by fixed assets, payable
in monthly installments of $7,607 through April 2001 to
July 2003 129,110
8.87% promissory note secured by fixed assets payable in
monthly installments of $4,382 through July 2002 96,045
10.97% promissory note secured by fixed assets payable in
monthly installments of $654 through September 2001 8,558
8.75% promissory note secured by a vehicle, payable in
monthly installments on $346 through April 2004 13,444
9.35% promissory note secured by a vehicle, payable in
monthly installments of $365 through 2003 11,421
----------
Total long-term debt 2,315,397
Less current installments 241,503
----------
Long-term debt, excluding current installments $2,073,894
==========
The aggregate maturities of long-term debt for each of the years
subsequent to June 30, 2000 are as follow: 2001, $241,503; 2002,
$239,135; 2003, $196,601; 2004, $167,030; 2005, 174,833; and
thereafter $1,296,294.
(6) Leases
The Company leases building space, equipment, and vehicles under
noncancelable operating lease agreements. Rent expense for the
years ended June 30, 2000 and 1999, was $26,220 and $68,515,
respectively. Future minimum rental payments required under
noncancelable operating leases that have initial or remaining lease
terms in excess of one year as of June 30, 2000 are as follow:
2001, $25,265; 2002, $25,265; 2003, $18,377; and 2004, $10,140.
<PAGE>
(7) Income Taxes
Income tax expense for the years ended June 30, consists of:
Stock
option
Current Deferred benefit Total
--------- -------- -------- --------
2000:
U.S. federal $ - 116,326 3,700 120,026
State and local 9,024 15,331 600 24,955
--------- -------- -------- --------
$ 9,024 131,657 4,300 144,981
========= ======== ======== ========
1999:
U.S. federal $ 278,853 (21,625) 112,000 369,228
State and local 57,742 (7,995) 21,000 70,747
--------- -------- -------- --------
$ 336,595 (29,620) 133,000 439,975
========= ======== ======== ========
Actual income tax expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of
34 percent to income or loss before income taxes) as follows:
2000 1999
-------- --------
Expected tax expense (benefit) $ 61,503 393,739
State taxes, net of federal tax benefit 16,470 46,692
Meals and entertainment 2,138 2,315
Amortization of goodwill not deductible 2,985 2,985
Research and development credits - (11,820)
Redemption of officers' life insurance 63,728 -
Other, net (1,843) 6,064
-------- --------
$144,981 439,975
<PAGE>
Deferred income tax assets related to the tax effects of temporary
differences are as follows:
Net deferred tax asset - current:
Inventory capitalization for income tax purposes $ 54,147
Obsolete inventory reserve 81,210
Vacation reserve 3,730
Warranty reserve 32,824
Accrued product liability 16,421
Bad debt reserve 52,928
----------
Total deferred tax asset - current $ 241,260
==========
Net deferred tax asset (liability) - noncurrent:
Salary continuation agreements $ 87,057
Net operating loss carryforwards 60,860
Property and equipment, principally due to
differences in depreciation (180,438)
Noncompete and goodwill amortization 9,312
----------
Total deferred tax asset - noncurrent $ (23,209)
==========
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 $650,000 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 that the Company will realize the benefits of these
deductible differences.
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 of
$88,356 on the use of the NOL carryovers. Amounts and expiration
dates of carryforwards are as follows:
Expiration Amount
---------- ----------
2000 $ 84,652
2004 63,383
2005 1,899
2006 60
2007 29,007
----------
$ 179,001
==========
<PAGE>
(8) Major Customers
During the fiscal years ended June 30, 2000 and 1999, sales to any
single customer did not exceed ten percent of total revenues.
(9) Common Stock
The Company had activity under it's 1992 qualified stock option
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:
[CAPTION]
<TABLE>
2000 1999
-------------------- ---------------------
Weighted Weighted
average average
Number exercise Number exercise
of shares price of shares price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at beginning
of year 655,790 $ .93 886,832 $ .95
Options granted 185,299 .95 195,791 2.03
Options exercised 62,044 .97 291,235 .89
Options canceled or expired 100,556 1.34 135,598 1.41
-------- --------
Options outstanding at end of year 678,489 1.11 655,790 1.18
======== ========
Options exercisable at end of year 418,950 0.81 422,503 .93
======== ========
Range of exercise prices at end
of year .72-2.03 .72-2.03
</TABLE>
At June 30, 2000, 1,302,840 shares of common stock were authorized
and reserved for issuance, but were not granted under the terms of
the stock option plan.
The Company accounts for the Plan using the intrinsic-value method
under APB 25. 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 2000 and 1999,
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,
-------------------------------
2000 1999
---------- ----------
Net income - as reported $ 35,910 718,080
Net income (loss) - pro forma (40,279) 519,091
Earnings per share - as reported .00 .08
Earnings per share - pro forma (.00) .06
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,
------------------------------
2000 1999
---------- ----------
Expected dividend yield 0% 0%
Expected stock price volatility 67.90% 85.23%
Risk-free interest rate 6.71% 4.70%
Expected life of options 5.0 & 7.0 years 5.0 & 7.0 years
The weighted average fair value of options granted during 2000 and
1999 was $0.66 and $1.57, respectively.
(10) 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 2000 and 1999, 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 2000 and 1999 were $28,808 and
$20,537, respectively. Company matching contributions for future
years are at the discretion of the Board of Directors.
<PAGE>
(11) Salary Continuation Agreements
As of June 30, 2000, the Company had salary continuation agreements
with two key employees. A third employee's agreement was
terminated in April 2000. The agreements provide 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, 2000, the Company has accrued $233,398
of deferred compensation under the terms of the Agreements.
The agreement terminated in April 2000 was with the Chairman of the
Board of Directors. The Company paid $481,894 in order to
terminate his salary continuation agreement. The payment was
funded from the surrender of a life insurance policy on the
Chairman that had been used as a funding vehicle for the salary
continuation agreement. The surrender of the life insurance policy
resulted in income tax expense of approximately $79,000 since the
tax basis of the policy was lower than the amount received by the
Company.
(12) Columbia Operation Closure
During the last month of fiscal 1999, the Company's management
decided to close its Columbia, South Carolina manufacturing
facility in the first quarter of fiscal 2000. The operations were
moved to its Chattanooga facility or contracted to a third party.
As a result of the plan, during fiscal 1999 the Company expensed
$68,000 in prepaid lease costs related to a manufacturing facility
abandoned, and recorded an impairment loss for leasehold
improvements and manufacturing equipment of $39,000. The Company
communicated severance arrangements to affected employees in fiscal
2000. Severance costs and other costs in excess of original
estimates of approximately $200,000 were expensed during fiscal
2000. The closure related costs are included in selling, general,
and administrative expenses.
<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
disclosures or accounting matters 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
20, 2000 are:
Director
or Officer Position
Name Age Since with Company
Kelvyn H. Cullimore 65 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 44 1983 President, CEO and Director
Larry K. Beardall 44 1986 Executive Vice President
of Sales and Marketing and
Director
E. Keith Hansen, M.D.* 55 1983 Director
Joseph H. Barton* 72 1996 Director
Howard L. Edwards* 69 1997 Director
Val J. Christensen* 47 1999 Director
John S. Ramey 49 1992 Sr. Vice President of Operations
*Member of Audit and Compensation Committees of the Board of Directors.
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. No
other family relationships exist among officers and directors of the
Company.
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 remaining members of the Board of Directors may elect an
individual to fill the remainder of the resigning member's unexpired
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 an audit committee and a compensation committee composed
of the outside directors of the board. The compensation committee
reviews and approves compensation matters for executive officers of the
Company.
<PAGE>
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. degree 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. From 1986 until 1999,
Mr. Cullimore served as President of ITEC Attractions and from 1986 to
1997, he served as ITEC's Chairman, President and CEO. He currently
serves on the board of directors of ITEC.
Kelvyn H. Cullimore, Jr. was elected President and Chief Executive
Officer of the Company in December 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 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 1992. He has served as a Director and the Vice
President of Sales and Marketing for the Company since July 1986. Mr.
Beardall joined Dynatronics in February 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, both
based in Salt Lake City, Utah.
Joseph H. Barton joined the Board 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. 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.
Val J. Christensen was appointed to the Board in January 1999.
Since 1990, Mr. Christensen has served as Executive Vice President and
General Counsel of Franklin Covey Company, a company with a class of
securities listed on the New York Stock Exchange. He also served on
Franklin's Board of Directors from 1989 to 1996. Prior to joining
<PAGE>
Franklin Covey, Mr. Christensen was a partner in the international law
firm of LeBoeuf, Lamb, Leiby & MacRae, headquartered in New York City.
Following graduation from law school in 1980, Mr. Christensen served as
a law clerk to the Honorable James K. Logan of the United States Tenth
Circuit Court of Appeals. He is an honors graduate of the Brigham Young
University School of Law and served as articles editor of the BYU Law
Review.
John S. Ramey joined the Company in December 1992 as Vice President
of Research and Development and currently serves as Vice President of
Operations. Prior to joining the Company, Mr. Ramey worked for 16 years
with Phillips Semi-conductors -- Signetics, an integrated circuit
manufacturing company, as Manager of Product Engineering. From 1983 to
1989, Mr. Ramey also served as President of Enertronix, a small public
corporation. Since 1989, Mr. Ramey has served as Vice President of JRH
Technology, a private engineering firm. Mr. Ramey earned his MBA degree
in 1991 from the University of Phoenix (in Salt Lake City, Utah) and a
BS degree in electronics in 1977 from Brigham Young University.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities ("Reporting
Persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Reporting Persons are required
by Rule 16a-3(e) of the Securities and Exchange Commission to furnish
the Company with copies of all Section 16(a) forms they file with the
Commission.
Based solely on review of the copies of such forms furnished to the
Company during and with respect to the year ended June 30, 2000, the
Company believes that during the year then ended all Section 16(a)
filings applicable to these Reporting Persons were timely 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 2000, 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 2000, 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
Except as otherwise disclosed in "Management's Discussion and
Analysis or Plan of Operation," during the two years ended June 30,
2000 the Company was not a party to any transaction in which any
director, executive officer or shareholder holding more than 5% of the
Company's issued and outstanding commons tock had a direct or indirect
material interest.
<PAGE>
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, 2000 F-2
Statements of Income for years ended
June 30, 2000 and 1999 F-3
Statements of Stockholders'
Equity for years ended June 30, 2000
and 1999 F-4
Statements of Cash Flows for
years ended June 30, 2000 and 1999 F-5
Notes to Financial Statements F-6
Exhibits:
Reg. S-B
Exhibit No. Description
3.1 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.
3.2 Articles of Amendment dated November 21, 1988
(previously filed).
4.1 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.
4.2 Amended and Restated 1992 Stock Option Plan, effective
November 28, 1996 (previously filed).
10.2 Employment contract with Kelvyn H. Cullimore, Jr.
(previously filed)
10.2 Employment contract with Larry K. Beardall (previously
filed)
10.3 Loan Agreement with Zion Bank (previously filed)
10.4 Settlement Agreement dated March 29, 2000 with Kelvyn
Cullimore, Sr. (previously filed)
<PAGE>
(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 26, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Kelvyn H. Cullimore Chairman of the Board 9/26 , 2000
------------------------------ -----------
Kelvyn H. Cullimore
/s/ Kelvyn H. Cullimore, Jr. Director, President, CEO 9/26 , 2000
------------------------------ -----------
Kelvyn H. Cullimore, Jr. (Principal Executive
Officer and Principal
Financial and Accounting
Officer)
/s/ Larry K. Beardall Director, Executive 9/26 , 2000
------------------------------ -----------
Larry K. Beardall Vice President
/s/ E. Keith Hansen, M.D. Director 9/26 , 2000
------------------------------ -----------
E. Keith Hansen, M.D.
/s/ Joseph H. Barton Director 9/26 , 2000
------------------------------ -----------
Joseph H. Barton
/s/ Howard L. Edwards Director 9/26 , 2000
------------------------------ -----------
Howard L. Edwards
/s/ Val J. Christensen Director 9/26 , 2000
------------------------------ -----------
Val J. Christensen
<PAGE>
