U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission File Number: 0-12697
Dynatronics Corporation
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(Exact name of small business issuer as specified in its charter)
Utah 87-0398434
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
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(Address of principal executive offices) (Zip Code)
(801) 568-7000
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No __
The number of shares outstanding of the issuer's common stock, no par
value, as of November 9, 2000 is 8,785,038.
Transitional Small Business Disclosure Format
(Check One):
Yes __ No X
<PAGE>
DYNATRONICS CORPORATION
TABLE OF CONTENTS
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Balance Sheet
September 30, 2000 and June 30, 2000 1
Unaudited Condensed Statements of Income
Three Months Ended September 30, 2000 and 1999 2
Unaudited Condensed Statements of Cash Flows
Three Months Ended September 30, 2000 and 1999 3
Notes to Unaudited Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION 12
<PAGE>
DYNATRONICS CORPORATION
Condensed Balance Sheet
(Unaudited)
[CAPTION]
<TABLE>
September 30 June 30
ASSETS 2000 2000
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 194,009 233,756
Trade accounts receivable, less allowance for doubtful
accounts of $142,726 3,308,297 3,248,419
Other receivables 142,894 103,820
Inventories 4,124,925 4,038,845
Prepaid expenses 164,074 133,147
Prepaid income taxes 0 31,416
Deferred tax asset-current 241,260 241,260
------------- --------------
Total current assets 8,175,459 8,030,663
Net property and equipment 3,285,635 3,337,924
Excess of cost over book value, net of accumulated amortization
of $519,208 944,966 968,020
Other assets 333,060 258,974
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$ 12,739,120 12,595,581
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 241,503 241,503
Line of credit 1,521,236 1,893,214
Accounts payable 698,043 739,990
Accrued expenses 707,103 334,875
Accrued payroll and benefit expenses 258,754 270,333
Income tax payable 55,945 0
------------- --------------
Total current liabilities 3,482,584 3,479,915
Long-term debt, excluding current installments 2,015,154 2,073,894
Deferred compensation 239,818 233,398
Deferred tax liability - noncurrent 23,209 23,209
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Total liabilities 5,760,765 5,810,416
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 8,820,622 shares 2,531,187 2,457,947
Treasury stock, 35,584 shares (120,096) (120,096)
Retained earnings 4,567,264 4,447,314
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Total stockholders' equity 6,978,355 6,785,165
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$ 12,739,120 12,595,581
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements Of Income
(Unaudited)
[CAPTION]
<TABLE>
Three Months Ended
September 30
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 4,066,482 3,451,996
Cost of sales 2,368,497 2,104,478
------------ ------------
Gross profit 1,697,985 1,347,518
Selling, general, and administrative expenses 1,279,654 1,061,300
Research and development expenses 145,085 188,340
------------ ------------
Operating income 273,246 97,878
Other income (expense):
Interest income 1,061 800
Interest expense (80,510) (98,223)
Other income, net 3,963 6,246
------------ ------------
Total other income (expense) (75,486) (91,177)
Income before income taxes 197,760 6,701
Income tax expense 77,810 2,546
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Net income $ 119,950 4,155
============= ============
Basic and diluted net income per common share $ 0.01 0.00
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Weighted average basic and diluted common shares
outstanding (note 2)
Basic 8,774,821 8,714,994
Diluted 8,905,231 8,735,106
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
[CAPTION]
<TABLE>
Three Months Ended
September 30
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 119,950 4,155
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of property and equipment 70,319 68,141
Other amortization 23,664 23,055
Provision for doubtful accounts 9,000 9,000
Provision for inventory obsolescence 51,000 66,999
Provision for warranty reserve 52,947 79,228
Provision for deferred compensation 6,420 29,808
Changes in operating assets and liabilities:
Receivables (107,952) (360,280)
Inventories (137,080) 43,901
Prepaid expenses and other assets (32,383) (86,484)
Prepaid income tax 0 2,546
Trade accounts payable and accrued expenses 265,755 (521,988)
Income taxes payable 87,361 0
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Net cash provided by (used in) operating activities 409,001 (641,919)
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Cash flows from investing activities-capital expenditures (18,030) (24,597)
Cash flows from financing activities:
Principal payments on long-term debt (58,740) (59,504)
Net change in line of credit (371,978) 173,264
Proceeds from sale of common stock 0 41,915
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Net cash provided by (used in) financing activities (430,718) 155,675
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Net decrease in cash and cash equivalents (39,747) (510,841)
Cash and cash equivalents at beginning of period 233,756 628,349
------------ -----------
Cash and cash equivalents at end of period $ 194,009 117,508
============ ===========
Supplemental cash flow information
Cash paid for interest (net of amounts capitalized) 85,449 99,622
Supplemental disclosure of non-cash investing and financing activities
Common stock and options issued for license agreement 73,240 0
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
DYNATRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
NOTE 1. PRESENTATION
The financial statements as of September 30, 2000 and June 30, 2000 and
for the three months ended September 30, 2000 and 1999 were prepared by
the Company without audit pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the
opinion of management, all necessary adjustments, which consist only of
normal recurring adjustments, to the financial statements have been
made to present fairly the financial position and results of operations
and cash flows. The results of operations for the respective periods
presented are not necessarily indicative of the results for the
respective complete years. The Company has previously filed with the
SEC an annual report on Form 10-KSB which included audited financial
statements for the two years ended June 30, 2000. It is suggested that
the financial statements contained in this filing be read in
conjunction with the statements and notes thereto contained in the
Company's 10-KSB filing.
NOTE 2. NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted-average
number of common shares and, as appropriate, dilutive common stock
equivalents outstanding during the period. Stock options are
considered to be common stock equivalents.
Basic net income per common share is the amount of net income for the
period available to each share of common stock outstanding during the
reporting period. Diluted net income per common share is the amount of
net income 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.
In calculating net income per common share, the net income was the same
for both the basic and diluted calculation. A reconciliation between
the basic and diluted weighted-average number of common shares for the
three months ended September 30, 2000 and 1999 is summarized as
follows:
<PAGE>
(Unaudited)
Three Months Ended
September 30,
2000 1999
---------- ----------
Basic weighted average number
of common shares outstanding
during the period 8,774,821 8,714,994
Weighted average number of dilutive
common stock options outstanding
during the period 130,410 20,112
---------- ----------
Diluted weighted average number
of common and common equivalent
shares outstanding during the period 8,905,231 8,735,106
========== ==========
Outstanding options not included in the computation of diluted net
income per share total 134,749 and 162,516 as of September 30, 2000 and
1999 respectively, because to do so would have been antidilutive.
NOTE 3. COMPREHENSIVE INCOME
For the periods ending September 30, 2000 and 1999, comprehensive
income was equal to the net income as presented in the accompanying
condensed statements of income.
NOTE 4. INVENTORIES
Inventories consisted of the following:
September 30
2000
------------
Raw Material $ 2,651,685
Finished Goods 1,739,162
Inventory Reserve (265,922)
------------
$ 4,124,925
============
<PAGE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
September 30
2000
------------
Land $ 354,744
Buildings 2,792,744
Machinery and equipment 1,516,817
------------
4,664,305
Less accumulated depreciation
and amortization 1,378,670
------------
$ 3,285,635
============
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with
the Condensed Financial Statements (unaudited) and Notes thereto
appearing elsewhere in this Form 10-QSB.
Results of Operations
---------------------
Sales during the quarter ended September 30, 2000 increased 18% to
$4,066,482, compared to $3,451,996 for the same period last year. Over
the past three quarters, the Company has experienced a resurgence of
sales of its rehabilitation products. Sales of core electrotherapy and
ultrasound devices have been particularly strong as a result of
improved market conditions and the Company's aggressive marketing
efforts. In addition, the new Synergie Peel Microdermabrasion devices
introduced in February, 2000, continue to meet expectations. The
Synergie Peel incorporates a unique new protocol that combines the
elements of a traditional facial treatment with Microdermabrasion and
vacuum massage to provide what the Company refers to as the "Ultimate
Facial." The Company has applied for three patents related to its
Synergie Peel device.
Total gross profit during the quarter ended September 30, 2000 was
$1,697,985 or 41.8% of sales compared to $1,347,517 or 39.0% of sales
in the prior year period. Increased sales of high margin
electrotherapy and ultrasound devices contributed to the improved gross
margin percentage for the reporting quarter. Also enhancing the gross
margin percentage were sales of the new Synergie Peel Microdermabrasion
device which carries the highest gross margin of any product the
Company manufactures.
Selling, general and administrative (SG&A) expenses for the three month
period ended September 30, 2000, increased to $1,279,654 or 31.5% of
sales compared to $1,061,301 or 30.7% of sales in the prior year
period. Increased selling expenses, including over $40,000 in costs
related to the ongoing effort to establish additional direct sales
representatives who sell the Company's aesthetic products, were
primarily responsible for the overall increase in costs. Some increase
in labor expenses associated with the increased sales for the quarter
also contributed to higher costs for the quarter.
Research and development (R&D) expenses during the three months ended
September 30, 2000 totaled $145,085, compared to $188,340 for the same
period in 1999. In 1999 the Company was in the final stages of
designing and introducing the new Synergie Peel Microdermabrasion
device. This caused R&D expenses for the same quarter last year to
exceed R&D expenses in the current quarter. This decrease in R&D
expense is expected to be temporary due to the Company's plans for
developing two major new devices for treating chronic pain, which are
scheduled to be introduced in the quarter ending March 31, 2001.
Pre-tax profit for the quarter ended September 30, 2000 was $197,760
compared to $6,701 during the same period of the prior year. This
improvement was primarily related to increased sales of higher margin
products during the quarter ended September 30, 2000. In addition,
<PAGE>
lower R&D and interest expenses, together with the elimination of
consolidation expenses related to the Company's eastern manufacturing
operations, increased profits for the reporting quarter.
Income tax expense for the three months ended September 30, 2000 was
$77,810 compared to $2,546 in the prior year period. The effective tax
rate for the quarter ended September 30, 2000 was 39.3% of pre-tax
profit compared to 38.0% in the prior year period.
Net income for the quarter ended September 30, 2000 was $119,950,
compared to $4,155 in the same period one year ago. Improving market
conditions, new product introductions, and controlling costs have all
been factors contributing to this improved profitability.
Liquidity and Capital Resources
-------------------------------
The Company expects revenues from operations, together with amounts
available under its bank line of credit, will be adequate to meet
working capital needs related to its business and its planned capital
expenditures for the next twelve months.
The Company's current ratio at September 30, 2000 and at June 30, 2000
was 2.3 to 1. Current assets represent 64% of total assets.
Net accounts receivable at September 30, 2000 were $3,308,297 compared
to $3,248,419 at June 30, 2000. Accounts receivable are from the
Company's dealer network and are generally considered to be within
term. All accounts payable are within term with the Company continuing
its policy of taking advantage of payment discounts available wherever
possible.
The Company has a $3,750,000 revolving line of credit with a commercial
bank. Borrowing limitations are based on 40% of inventory (up to a
maximum of $1.65 million) and up to 80% of eligible accounts
receivable. The outstanding balance on the line of credit at September
30, 2000 decreased to $1,521,236 compared to $1,893,214 at June 30,
2000. The line of credit is secured by the Company's inventory,
accounts receivable and a deed of trust on the Company's office
building in Salt Lake City, Utah. The line bears interest at the
bank's "Prime Rate," which was 9.5% per annum at September 30, 2000.
This line is subject to annual renewal and matures on November 30,
2000. Accrued interest is payable monthly.
Inventory levels, net of reserves, at September 30, 2000 totaled
$4,124,925, compared to $4,038,845 at June 30, 2000. The Company
expects inventory levels to increase modestly over the upcoming
quarters due to the anticipated introduction in the quarter ending
March 31, 2001, of two new devices for the chronic pain market.
Long-term debt excluding current installments at September 30, 2000
totaled $2,015,154 compared to $2,073,894 at June 30, 2000. Long-term
debt is comprised primarily of the mortgage loans on the Company's
office and manufacturing facilities. The principal balance on the
mortgage loans is approximately $2 million with monthly principal and
interest payments of $26,900.
<PAGE>
Business Plan
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Over the past six years, Dynatronics' annual net sales have tripled
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 the reporting quarter, management
continued the implementation of its strategic growth plans to
reposition and diversify the Company's product lines, strengthen
channels of 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)
granting Dynatronics the exclusive license for 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 undertaking research studies to document the efficacy of
this innovative technology for treating chronic pain.
The Company is currently developing a clinical unit for practitioners
that 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 begin the process of redesigning and
enhancing its electrotherapy and ultrasound products during fiscal year
2001. This type of continued innovation will allow 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 has
recently obtained the necessary approvals to sell its aesthetic
products in the European market. The Company believes that Europe
presents a promising market for its 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. In February 2000, the Company
introduced its new Synergie Peel microdermabrasion device as a
companion to the Synergie AMS (aesthetic massage system).
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 skin care products further enhance the
results of the Synergie Peel treatment regimen and are generating
<PAGE>
ongoing sales of consumable products to practitioners and patients
alike. Based on the Company's experiences during the past two years,
management believes that there are many opportunities for growth in
this market.
To take full advantage of the opportunities of the broader aesthetics
market, Dynatronics has begun establishing 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. The Company is currently focusing its efforts
to establish direct sales representatives in 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 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. 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 current fiscal 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.
<PAGE>
Forward-Looking Statements
--------------------------
The statements contained in this Report on Form 10-QSB that are not
purely historical are "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act. These statements regard
the Company's expectations, hopes, beliefs, anticipations, commitments,
intentions and strategies regarding the future. They may be identified
by the use of words or phrases such as "believes," "expects,"
"anticipates," "should," "plans," "estimates," "intends," and
"potential," among others. Forward-looking statements include, but are
not limited to, statements contained in Management's Discussion and
Analysis or Plan of Operation regarding the Company's financial
performance, revenue and expense levels in the future and the
sufficiency of its existing assets to fund future operations and
capital spending needs. Actual results could differ materially from the
anticipated results or other expectations expressed in such forward-
looking statements for the reasons detailed in the Company's Annual
Report on Form 10-KSB under the headings "Description of Business" and
"Risk Factors." The fact that some of the risk factors may be the same
or similar to the Company's past reports filed with the Securities and
Exchange Commission means only that the risks are present in multiple
periods. The Company believes that many of the risks detailed here and
in the Company's other SEC filings are part of doing business in the
industry in which the Company operates and competes and will likely be
present in all periods reported. The fact that certain risks are
endemic to the industry does not lessen their significance.
The forward-looking statements contained in this Report are made as of
the date of this Report and the Company assumes no obligation to update
them or to update the reasons why actual results could differ from
those projected in such forward-looking statements. Among others, risks
and uncertainties that may affect the business, financial condition,
performance, development, and results of operations of the Company
include:
- Market acceptance of the Company's technologies, particularly
the new Synergie Lifestyle System product line and other new
or re-designed products including the anticipated benefits
from the new chronic pain devices expected to be introduced in
the quarter ending March 31, 2001;
- The ability to hire and retain the services of trained
personnel at cost-effective rates;
- Rigorous government scrutiny or the possibility of additional
government regulation of the industry in which the Company
markets its products;
- Reliance on key management personnel;
- Foreign government regulation of the Company's products and
manufacturing practices that may bar or significantly increase
the expense of expanding to foreign markets;
- Economic and political risks related to the Company's
expansion into international markets;
<PAGE>
- Failure of the Company to sustain or manage growth including
the failure to continue to develop new products or to meet
demand for existing products;
- The Company's reliance on information technology;
- The timing and extent of research and development expenses;
- The Company's ability to keep pace with technological
advances, which can occur rapidly;
- The loss of product market share to competitors;
- Potential adverse effect of taxation;
- The ability of the Company to obtain required financing to
meet changes or other risks described above;
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
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27. Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DYNATRONICS CORPORATION
----------------------------
Registrant
Date 11/14/00 /s/ Kelvyn H. Cullimore, Jr.
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Kelvyn H. Cullimore, Jr.
President, Chief Executive Officer
and Principal Accounting Officer
