<PAGE>
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 MARCH 31, 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
------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0398434
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 568-7000
----------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X No __
The number of shares outstanding of the issuer's common
stock, no par value, as of May 8, 2000 is 8,748,038.
Transitional Small Business Disclosure Format
(Check One):
Yes __ No X
<PAGE>
DYNATRONICS CORPORATION
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Balance Sheet
March 31, 2000 1
Unaudited Condensed Statements of Income
Three and Nine Months Ended March 31, 2000 and 1999 2
Unaudited Condensed Statements of Cash Flows
Nine Months Ended March 31, 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 13
<PAGE>
DYNATRONICS CORPORATION
Condensed Balance Sheet
(Unaudited)
[CAPTION]
<TABLE>
March 31
ASSETS 2000
--------------
<S> <C>
Current assets:
Cash and cash equivalents $ 50,022
Trade accounts receivable, less allowance for doubtful
accounts of $140,935 3,152,231
Related party and other receivables 142,606
Inventories 4,324,683
Prepaid expenses 152,382
Prepaid income taxes 243,632
Deferred tax asset-current 174,039
--------------
Total current assets 8,239,595
Net property and equipment 3,379,958
Excess of cost over book value, net of accumulated amortization
of $473,100 991,074
Deferred tax asset-noncurrent 89,093
Other assets 181,719
--------------
$ 12,881,439
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 230,773
Line of credit 2,197,461
Accounts payable 647,340
Accrued expenses 660,223
--------------
Total current liabilities 3,735,797
Long-term debt, excluding current installments 2,126,697
Deferred compensation 508,872
--------------
Total long-term liabilities, excluding current installments 2,635,569
--------------
Total liabilities 6,371,366
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 8,748,038 shares 2,452,009
Treasury stock, 35,584 shares (120,096)
Retained earnings 4,178,160
--------------
Total stockholders' equity 6,510,073
--------------
$ 12,881,439
==============
See accompanying notes to condensed financial statements.
</TABLE>
1
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements Of Income
(Unaudited)
[CAPTION]
<TABLE>
Three Months Ended Nine Months Ended
March 31 March 31
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 3,756,669 3,381,088 10,649,428 12,312,019
Cost of sales 2,138,100 2,018,165 6,353,397 6,930,035
------------ ------------ ------------- -------------
Gross profit 1,618,569 1,362,923 4,296,031 5,381,984
Selling, general, and administrative expenses 1,541,849 1,086,862 3,716,366 3,606,931
Research and development expenses 184,245 96,867 562,868 436,412
------------ ------------ ------------- -------------
Operating income (loss) (107,525) 179,194 16,797 1,338,641
Other income (expense):
Interest income 702 19 2,254 5,206
Interest expense (99,174) (103,218) (293,239) (288,686)
Other income, net 13,976 11,118 24,618 20,967
------------ ------------ ------------- -------------
Total other income (expense) (84,496) (92,081) (266,367) (262,513)
Income (loss) before income taxes (192,021) 87,113 (249,570) 1,076,128
Income tax expense (benefit) 5,542 31,634 (16,326) 419,668
------------ ------------ ------------- -------------
Net income (loss) $ (197,563) 55,479 (233,244) 656,460
============ ============ ============= =============
Basic and diluted net income (loss)
per common share $ (0.02) 0.01 (0.03) 0.08
============ ============ ============= =============
Weighted average basic and diluted common
shares outstanding (note 2)
Basic 8,754,196 8,685,347 8,738,989 8,668,400
Diluted 8,754,196 9,007,202 8,738,989 9,069,483
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
[CAPTION]
<TABLE>
Nine Months Ended
March 31
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (233,244) 656,460
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of property and equipment 165,436 193,576
Other amortization 69,163 69,162
Provision for doubtful accounts 27,000 27,000
Provision for inventory obsolescence 200,997 117,000
Provision for warranty reserve 202,994 144,953
Deferred compensation (110,576) 63,063
Decrease (increase) in operating assets:
Receivables (458,192) (768,920)
Inventories (33,406) (2,015,787)
Prepaid expenses and other assets 445,468 98,965
Deferred tax assets 66,513 0
Increase (decrease) in operating liabilities:
Trade accounts payable and accrued expenses (225,762) (255,618)
Income taxes payable (72,839) 11,305
------------ ------------
Net cash provided by (used in) operating activities 43,552 (1,658,841)
------------ ------------
Cash flows from investing activities:
Capital expenditures (126,755) (240,452)
Proceeds from sale of assets 111,046 0
------------ ------------
Net cash used in investing activities (15,709) (240,452)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (252,176) (172,633)
Net change in line of credit (414,177) 1,348,950
Proceeds from sale of common stock 60,183 125,091
------------ ------------
Net cash provided by (used in) financing activities (606,170) 1,301,408
------------ ------------
Net decrease in cash and cash equivalents (578,327) (597,885)
Cash and cash equivalents at beginning of period 628,349 748,099
------------ ------------
Cash and cash equivalents at end of period $ 50,022 150,214
============ ============
Supplemental cash flow information
Cash paid for interest (net of amounts capitalized) 293,239 288,686
Cash paid for income taxes 0 414,588
Supplemental disclosure of non-cash investing and financing activities
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 condensed financial statements.
3
<PAGE>
DYNATRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
NOTE 1. PRESENTATION
The financial statements as of March 31, 2000 and for the
nine months then ended 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, 1999. 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 nine months ended
March 31, 2000 and 1999 is summarized as follows:
<PAGE>
[CAPTION]
<TABLE>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic weighted average number
of common shares outstanding
during the period 8,754,196 8,685,347 8,738,989 8,668,400
Weighted average number of
dilutive common stock options
outstanding during the period -0- 321,855 -0- 401,483
Diluted weighted average number _________ _________ _________ _________
of common and common equivalent
shares outstanding during the
period 8,754,196 9,007,202 8,754,196 9,069,483
========== ========== ========== ==========
</TABLE>
Outstanding options not included in the computation of
diluted net income per share total 693,350 and 140,939 as of
March 31, 2000 and 1999 respectively, because to do so would
have been antidilutive.
NOTE 3. COMPREHENSIVE INCOME
For the periods ending March 31, 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:
March 31
2000
----------
Raw Material $2,923,429
Finished Goods 1,717,250
Inventory Reserve (315,996)
----------
$4,324,683
==========
<PAGE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
March 31
2000
-----------
Land $ 354,744
Buildings 2,792,744
Machinery and equipment 1,690,630
-----------
4,838,118
Less accumulated depreciation
and amortization 1,458,160
-----------
$ 3,379,958
===========
<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 March 31, 2000 increased 11%
to $3,756,669, compared to $3,381,088 for the same period
last year. During the quarter ended March 31, 2000, the
Company introduced and began shipping its new Synergie Peel
Microdermabrasion device which contributed to the increase
in sales. 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.
Sales during the nine-month period ended March 31, 2000 were
$10,649,428 compared to $12,312,019 during the nine months
ended March 31, 1999. The decline in sales during the nine
months ended March 31, 2000 reflects the transition from
initial sales of Synergie AMS products required to fill
channels of distribution following the introduction of those
products in the first two quarters of fiscal year 1999 to
more normalized sales in the current reporting periods.
Total gross profit during the quarter ended March 31, 2000
was $1,618,569 or 43.1% of sales compared to $1,362,923 or
40.3% of sales in the prior year period. Higher margins
associated with the new Synergie Peel Microdermabrasion
device improved gross margins for the quarter ended March
31, 2000 compared to the similar quarter in the prior year.
Increased sales of high margin electrotherapy devices also
contributed to the improved margin percentage for the
quarter. Gross profit during the nine-month period ended
March 31, 2000 was $4,296,031 or 40.3% of sales compared to
$5,381,984 or 43.7% of sales for the similar period in 1999.
Gross margins for the nine-month period were higher in the
1999 period as a result of the introduction of the Synergie
AMS product line. Another factor contributing to the
difference in gross profit as a percent of sales was an
expense of approximately $80,000 charged to cost of goods
sold during the nine-month period ended March 31, 2000
relating to the relocation of the Company's table
manufacturing operations from South Carolina to facilities
in Tennessee.
Selling, general and administrative (SG&A) expenses for the
three- and nine-month periods ended March 31, 2000,
increased to $1,541,849 and $3,716,366, respectively,
compared to $1,086,862 and $3,606,931, respectively in the
same periods in 1999. Several factors contributed to the
increase in SG&A expense. The most significant of these
factors was legal fees and related expenses associated with
litigation that was settled in the current reporting
quarter. (See discussion of Legal Proceedings in Part II,
Item 1) Approximately $500,000 in legal expense was
incurred in the nine-month period ended March 31, 2000, of
which $370,000 was expensed in the current reporting
quarter. Another contributing factor was $87,000 in
increased sales expense for the nine-month period related to
establishing more direct sales representatives who sell the
Company's line of aesthetic products. Increased advertising
expense for the new Synergie Peel device also contributed to
increased selling expense during the latest quarter. SG&A
<PAGE>
expenses for the nine-month period also included
approximately $72,000 related to the relocation of the
Company's table manufacturing operations from Columbia,
South Carolina to Ooltewah, Tennessee. Most of these
relocation expenses were incurred during the quarter ended
September 30, 1999. The relocation is expected to eliminate
over $400,000 of expense annually.
Research and development (R&D) expenses during the three
months ended March 31, 2000 totaled $184,245, compared to
$96,867 for the same period in 1999. R&D expenses during
the nine months ended March 31, 2000 were $562,868 compared
to $436,412 in the previous year. The increase in R&D
expenditures is directly related to the development of the
new Synergie Peel Microdermabrasion device. Plans for
developing other new products are expected to result in R&D
expenditures continuing at current levels.
Pre-tax loss for the quarter and nine months ended March 31,
2000 was $192,021 and $249,570, respectively, compared to
net income of $87,113 and $1,076,128, respectively during
the same periods of the prior year. The introduction of
Synergie products significantly improved profits during the
nine-month period ended March 31, 1999. Profits for the
current reporting periods were eroded by several factors
including legal expenses, consolidation of operations,
higher selling expenses related to establishing direct sales
representatives, increased research and development costs,
and costs associated with the initial implementation of the
Company's announced strategic growth plans. Costs
associated with consolidation of operations and legal
expenses combined exceeded $650,000 during the nine-month
period ended March 31, 2000. Absent these expenses,
Dynatronics would have reported pre-tax income of
approximately $400,000 for the nine-month period, even with
the increased R&D expenditures and the costs of implementing
strategic growth plans.
Income tax expense for the three months ended March 31, 2000
was $5,542 compared to $31,634 in the prior year period.
Income tax benefit for the nine months ended March 31, 2000
was $16,326 compared to income tax expense of $419,668 in
the prior year period.
During the quarter ended March 31, 2000, the company settled
a contractual obligation with Kelvyn Cullimore Sr., Chairman
of the Board of Directors. Under the agreement, the
Company was obligated 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 is in July, 2000. The obligation was funded
through an insurance policy owned by the Company on the life
of Mr. Cullimore and was recorded as a deferred compensation
expense on the books of the Company. Under the terms of the
settlement, the Company made a lump sum payment equivalent
to the accrued deferred compensation. The funding of the
settlement was obtained through surrendering the life
insurance policy on Mr. Cullimore's life. Under tax laws,
both the premiums paid by the Company on this policy and the
accumulated cash surrender value are excluded from the
calculation of taxable income. However, generally accepted
accounting principles require that the premium and the
increase in cash surrender value be recorded annually. At
the time of surrender of the policy, the cash surrender
value received by the Company exceeded the net premiums paid
by approximately $200,000. This increase had been
recognized on the books of the Company over the term of the
contract, but the tax calculations each year excluded this
<PAGE>
income. The settlement created a tax liability of
approximately $76,000, which is the tax on the book income
recognized over the life of the contract but excluded from
the tax calculation in prior years. Absent this charge, the
tax benefit for the quarter ended March 31, 2000 would have
been approximately $72,000.
Net loss for the quarter ended March 31, 2000 was $197,563,
compared to net income of $55,479 in the same period one
year ago. Net loss for the nine months ended March 31, 2000
was $233,244 compared to net income of $656,460 in the prior
year period. The decrease in net income is attributable to
lower sales and margins associated with the reduced sales of
Synergie AMS products during the nine months ended March 31,
2000, increased legal and other expenses and the tax
liability from the settlement of the deferred compensation
obligation.
Liquidity and Capital Resources
The Company expects revenues from operations, together with
amounts available under its bank line of credit to 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 March 31, 2000 was 2.2 to 1.
Current assets represent 64% of total assets.
Trade accounts receivable are from the Company's dealer
network and are generally considered to be within term. All
accounts payable are within term with the Company continuing
its policy of taking advantage of 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 March 31, 2000 was $2,197,461. The
line 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% per annum at
March 31, 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 March 31, 2000 totaled
$4,324,683, while net accounts receivable were $3,152,231.
During the last fiscal year, inventories and receivables
increased significantly to support the Company's
introduction of the Synergie AMS product line. In addition,
management has made a stronger effort to reduce backorders
by increasing inventory quantities. Financing for these
increases has been provided through cash flows from
operations together with amounts available under the
Company's line of credit facility. Levels of raw material
inventories for Synergie AMS products exceed amounts that
would normally be kept on hand. This surplus was generated
during the last year when inventories were increased to
support anticipated levels of sales that were not
subsequently achieved. The Company is confident the
inventories can be successfully reduced over the coming year
as sales increase as a result of the Company's strategic
initiatives discussed below.
<PAGE>
Long-term debt excluding current installments at March 31,
2000 totaled $2,126,697 comprised primarily of the mortgage
loans on the Company's office and manufacturing facilities.
The principal balance on the mortgage loans is approximately
$2.1 million with monthly principal and interest payments of
$26,900.
Business Plan
During the reporting quarter, management continued the
implementation of its strategic plans to reposition and
diversify the Company's product lines to guide future growth
in both sales and profits. The Company's board of directors
approved the initiatives, which 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 aesthetic products targeting the medical,
spa and beauty markets.
Included in these strategic plans is the expansion of
marketing efforts 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 is also in
the process of obtaining 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 addition, the Company has several innovative developments
relating to new physical therapy products which are
scheduled to be introduced during the current calendar year.
Continued innovation allows the Company to remain at the
forefront of technology in the physical medicine industry.
The other strategic component of these new initiatives is a
stronger commitment to diversification 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, the Company plans to introduce a new
line of advanced skin care products that further enhance the
results of the Synergie Peel treatment regimen and expand
the Company's aesthetic product offering. Based on the
Company's experiences in this new market during the past
year, 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.
Underscoring the importance of this new initiative is the
fact that the Company's chairman, Kelvyn H. Cullimore, is
personally managing the effort to establish this new channel
of distribution. The pace at which these direct sales
representatives are being hired has slowed somewhat due to
the success of some dealers in the distribution chain.
Presently, efforts to establish direct sales representatives
are focused on areas where the Company does not have a
strong dealer representing it. The Company expects that
<PAGE>
owning control over the channels of distribution of these
products will 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 the past quarter the Company allocated resources to
enhance its e-business presence. E-commerce is rapidly
becoming a reality in many aspects of business. Dynatronics
has undertaken to improve the appearance and application of
its website, and is researching ways to apply e-commerce
solutions to better serve customer needs, access new
business opportunities, reduce the cost of customer service,
and stay technologically current in the way business is
conducted. The Company believes the allocation of these
resources is critical to improving future performance.
With the new strategic initiatives underway, the Company
will focus its resources in the following areas:
- Strengthening distribution of rehabilitation products
- Re-engineering key rehabilitation product lines and developing
new therapy products
- Expanding distribution of products in Europe
- Improving distribution in the aesthetic products market through
the hiring of direct sales representatives
- Introducing new aesthetic products
- Applying e-commerce solutions to improving overall performance
Forward-Looking Statements and Risks Affecting the Company
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
<PAGE>
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;
- 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;
- 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;
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
During the quarter ended March 31, 2000, the Company reached
a settlement of all litigation matters with LPG USA, Inc
disclosed in previous quarterly reports. The two companies
had filed lawsuits in Utah and Florida in May/June 1999
asserting claims against each other for unfair trade
practices. By agreement, specific terms of the settlement
were not released. The impact of this litigation and the
settlement on earnings and results of operations of the
Company are discussed in this report in Item 2 of Part I,
"Managements Discussion and Analysis or Plan of
Operation."
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
No. Description
- --- -----------
10. Settlement Agreement dated March 29, 2000, between Dynatronics and
Kelvyn H. Cullimore
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 5/15/00 /s/ Kelvyn H. Cullimore, Jr.
------------------ ----------------------------
Kelvyn H. Cullimore, Jr.
President, Chief Executive
Officer and Principal Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET & STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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<PERIOD-START> JUL-01-1999
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0
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<INTEREST-EXPENSE> 293,239
<INCOME-PRETAX> (249,570)
<INCOME-TAX> (16,326)
<INCOME-CONTINUING> (233,244)
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</TABLE>
March 29, 2000
Kelvyn H. Cullimore, Sr.
2249 Emerald Court
Salt Lake City, Utah 84121
RE: Termination of Salary Continuation Agreement
Dear Kelvyn:
As you are aware, you entered into a Salary Continuation Agreement with
Dynatronics Corporation (the "Company") on July 5, 1989 (the "Salary
Agreement"). The Salary Agreement was intended to provide your heirs
with continued payment of a portion of your salary as an employee of the
Company should you pass away prior to your 65th birthday. In addition,
the Salary Agreement included a retirement benefit commencing with the
second month following your 65th birthday.
We have agreed that the Salary Agreement should be terminated. This
letter sets forth our mutual agreement concerning the termination of
the Salary Agreement and is referred to hereafter as the "Termination
Agreement."
Upon your acceptance of this Termination Agreement, the Salary Agreement
shall be terminated and shall be of no further effect. You will have
no further claims under the Salary Agreement and the Company will have
no further obligation to you under the Salary Agreement.
This Termination Agreement is entered into in consideration of the following:
Cash payment of $481,894 as follows: $200,000 upon execution of
this Termination Agreement and the balance within 15 days following
the execution of this Termination Agreement;
By accepting the Company's agreement to make the payments required under
this Termination Agreement, you waive any and all claims for any additional
payments under the Salary Agreement or any policy or policies of insurance
obtained under the Salary Agreement. This Termination Agreement is not an
agreement relating to termination of your employment or any other rights
you may have as an employee of the Company not expressly modified or
addressed by this Termination Agreement.
You agree to bear all responsibility for payment of personal income taxes
associated with this settlement.
<PAGE>
This Termination Agreement will be interpreted in accordance with Utah
law. It may be modified only in writing signed by both the Company's
authorized representative and you. No waiver of any provision of this
Termination Agreement will be effective unless it is in writing and signed
by the party against whom it is to be enforced. This Termination Agreement
represents the entire agreement between you and the Company concerning the
Salary Agreement and its termination and it supercedes all other agreements.
If you are willing to accept this arrangement, please sign below and return
one signed copy of this letter to me. Payment of the first amounts owing
under this Termination Agreement will be made upon receipt of your signed
copy.
Very truly yours,
DYNATRONICS CORPORATION
By: /s/ Kelvyn H. Cullimore, Jr.
----------------------------
Kelvyn H. Cullimore, Jr.
Its: President and Chief Executive Officer
Agreed: /s/ Kelvyn H. Cullimore, Sr.
----------------------------
Kelvyn H. Cullimore, Sr.
