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, 2003.
[ ] 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
---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
7030 Park Centre Drive
Salt Lake City, Utah 84121-6618
(Address of principal executive offices, Zip Code)
Issuer's telephone number (801) 568-7000
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
par value
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 [ ]
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, 2003 were $16,896,992.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer was approximately $11,384,000 as of September 22, 2003, based on the
average bid and asked price on that date.
As of September 22, 2003, there were 8,819,935 shares of the issuer's common
stock outstanding.
Documents Incorporated by Reference
The issuer hereby incorporates information required by Part III (Items 11 and
12) of this report by reference to the issuer'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
----- -----
TABLE OF CONTENTS
PART I
Item 1. Description of Business..........................................1
Item 2. Description of Property..........................................8
Item 3. Legal Proceedings................................................8
Item 4. Submission of Matters to a Vote of Security Holders..............8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.........8
Item 6. Management's Discussion and Analysis or Plan of Operations.......9
Item 7. Financial Statements...........................................F-1
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure........................................18
Item 8A. Controls and Procedures.........................................18
PART III
Item 9. Directors and Executive Officers; Compliance with Section 16(a) of
the Exchange Act................................................18
Item 10. Executive Compensation..........................................20
Item 11. Security Ownership of Certain Beneficial Owners and Management..20
Item 12. Certain Relationships and Related Transactions..................20
Item 13. Exhibits and Reports on Form 8-K................................20
Signatures ................................................................22
Certifications ..............................................................23
Unless the context otherwise requires, all references in this report to "we,"
"us," "our," "Dynatronics" or the "Company" include Dynatronics Corporation, a
Utah corporation.
ii
PART I
Item 1. Description of the Business
Dynatronics was organized as a Utah corporation on April 29, 1983. The
principal business of the Company is the design, manufacture, market and
distribution of physical medicine products and aesthetic products.
Dynatronics currently sells more than 1,600 physical medicine and
aesthetic products. We manufacture approximately 25% of the physical medicine
products and 16% of the aesthetic products in our product line. The remainder of
the products are manufactured by third parties for whom Dynatronics acts as a
distributor.
Sales of manufactured physical medicine products in fiscal year 2003
and 2002 represented approximately 66% and 68%, respectively of the Company's
physical medicine product sales with the balance each year sold by the Company
as a distributor. Sales of manufactured aesthetic products in fiscal year 2003
and 2002 represented approximately 92% and 88%, respectively of the Company's
aesthetic product sales with the balance each year sold by the Company as a
distributor.
We distribute our products in three ways: 1) through a network of
independent dealers nationwide and internationally, 2) through direct
relationships with certain national accounts, and 3) through a full-line
catalog.
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. The Company retained the former location of
Superior in Ooltewah, a suburb of Chattanooga, Tennessee. The addition of
Superior's products to our existing line of capital equipment significantly
broadened our product offerings and strengthened channels of distribution,
allowing for greater market penetration both domestically and internationally.
In July 1998, the Company expanded into the aesthetic products market
with the introduction of the Synergie(TM) AMS device. This product incorporates
therapeutic massage technology to achieve, among other things, a temporary
reduction in the appearance of cellulite--a claim for which we received
clearance by the U.S. Food and Drug Administration ("FDA") during fiscal year
1999. This claim is supported by a Company-sponsored research study in which 91%
of participants reported favorable reductions in the appearance of cellulite. In
addition, this product is indicated for the temporary reduction in
circumferential body measurements of cellulite treated areas. This benefit was
also validated in the research study as participants reported cumulative
reductions of six inches in treated areas.
In February 2000, the Company expanded its offering of aesthetic
products with the introduction of the Synergie Peel(TM) 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 Dynatronics introduced Calisse(TM) - a unique
line of skin care products designed to enhance the effects of the Synergie Peel
treatments.
In August 2000, Dynatronics signed an agreement with Alan Neuromedical
Technologies (ANT) naming Dynatronics the exclusive licensee of ANT's patented
technology for treating chronic pain. Developed by doctors in Texas, this unique
technology has been incorporated into three unique electrotherapy devices - the
Dynatron STS (Sympathetic TherapyTM System), a dual patient device designed for
clinical use, the Dynatron STSi introduced in November 2002 for clinical use
offering standard interferential therapy on one channel and STS therapy on the
other channel, and the Dynatron STS Rx, a single channel prescription unit for
home use. According to the American Pain Society, over 70 million Americans
suffer from moderate to severe chronic pain. The STS technology offers a form of
relief to many suffering with chronic or sub-acute pain.
In September 2003, the Company introduced its new Dynatron Solaris(TM)
Series combination therapy devices. The Solaris product line consists of five
combination devices, four of which were part of the initial release. The devices
offer varying combinations of electrotherapy modalities and ultrasound, and all
feature new infrared light therapy technology. Various forms of infrared and
visible light therapy have been used for decades in Europe and Asia for treating
pain as well as a wide variety of soft tissue conditions. Light therapy has also
been used in tissue regeneration applications accelerating the body's healing
process. The Solaris Series devices are engineered to utilize any number of
Dynatronics' laser or light therapy probes that may be developed in the future.
1
Description of Products Manufactured and/or Distributed by Dynatronics
Dynatronics manufactures and distributes a broad line of medical
equipment including therapy devices, medical supplies and soft goods, treatment
tables and rehabilitation equipment. In addition, we manufacture and distribute
a line of aesthetic equipment including aesthetic massage and microdermabrasion
devices as well as skin care products. Our products are used primarily by
physical therapists, chiropractors, sports medicine practitioners, podiatrists,
plastic surgeons, dermatologists, estheticians and other aesthetic services
providers.
Physical Medicine Products
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 primarily 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 sound waves
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.
Dynatronics markets twelve devices that include 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 "50 Series Plus" products target the
mid-range market segment while the new Solaris products cater to the high-end
market. (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.
Light Therapy - The Company's four new Dynatron Solaris(TM) units
feature light therapy technology. These units are capable of powering a cluster
probe containing 32 infrared superluminous diodes ("SLD") at 880 nanometers
("nm") wavelength along with four red colored SLD's in the 640 to 660 nm
wavelength range. Light therapy delivers 500 mW of energy to the body's cells to
produce a therapeutic effect. Numerous clinical research studies have documented
the benefits of light therapy for patients.
STS Therapy - STS Therapy is a patented method of administering
therapeutic electrical current via peripheral nerves that are accessed through
the lower legs and feet as well as the arms and hands creating a unique form of
stimulation of the autonomic or sympathetic nervous system. It is a highly
effective, non-invasive and non-addictive treatment for many chronic pain
conditions. Doctors theorize that STS Therapy has a modulating effect on the
autonomic nervous system, thus resulting in symptomatic relief of chronic
intractable pain.
Iontophoresis - Since 1997, we have distributed Life-Tech's line of
iontophoresis products which are used in physical medicine applications
primarily for treating inflammation. The devices use electrical current to
deliver drugs such as lidocaine transdermally for localized treatment of
inflammation without the use of needles. In August 2003, the formal contract
between Dynatronics and Life Tech, Inc, expired. While Dynatronics continues to
distribute the Life Tech products on essentially the same terms as provided for
in the contract, it no longer is the exclusive distributor of the Life Tech
products. The Company is currently considering developing its own proprietary
line of iontophoresis products which would be scheduled for introduction toward
the end of fiscal year 2004.
The following chart lists the therapy device products manufactured
and/or distributed by the Company.
2
Schedule of Therapy Products
Manufactured and/or Distributed by Dynatronics
Product Name Description
Dynatron(R)125 Ultrasound
Dynatron(R)525 Electrotherapy
Iontophor II(R)& Microphor(R)+ Iontophoresis
Dynatron(R)150 Plus** Ultrasound
Dynatron(R)550 Plus** Multi-modality Electrotherapy
Dynatron(R)650 Plus** Multi-modality Electrotherapy
Dynatron(R)850 Plus** Combination Electrotherapy/Ultrasound
Dynatron(R)950 Plus** Combination Electrotherapy/Ultrasound
Dynatron(R)STS STS Chronic Pain Therapy
Dynatron(R)STS Rx STS Chronic Pain Therapy
Dynatron(R)STSi Combination Electrotherapy/STS Chronic Pain Therapy
Dynatron Solaris(TM)705 Electrotherapy with Light Therapy
Dynatron Solaris(TM)706 Electrotherapy with Light Therapy
Dynatron Solaris(TM)708 Combination Electrotherapy/Ultrasound with Light Therapy
Dynatron Solaris(TM)709 Combination Electrotherapy/Ultrasound with Light Therapy
---------------------
Dynatron(R) is a registered trademark (#1280629) owned by Dynatronics Iontophor
II(R) and Microphor(R) are registered trademarks owned by Life Tech, Inc.
** "50 Series Plus" Product Line
+ Both manufactured by Life-Tech
Medical Supplies and Soft Goods - Dynatronics markets its products
through independent dealers and through a product catalog containing an
extensive line of more than 1,600 products. This broad-line catalog has created
a virtual "one-stop shop" for rehabilitation professionals.
We manufacture the following medical supplies and soft goods: hot
packs, cold packs, therapy wraps, wrist splints, ankle weights, lumbar supports,
cervical collars, slings, cervical pillows, back cushions, weight racks, and
parallel bars. We also distribute products such as: hot and cold therapy
products, exercise balls, lotions and gels, paper products, athletic tape, canes
and crutches, reflex hammers, stethoscopes, splints, elastic wraps, exercise
weights, Thera-Band(R) (a registered mark of Hygenic Corp.) tubing, walkers,
treadmills, stair climbers, heating units for hot packs, whirlpools, gloves,
electrodes, TENS devices, and traction equipment.
We continually seek to update our line of manufactured and distributed
medical supplies and soft goods.
Treatment Tables and Rehabilitation Equipment - In January 1997,
Dynatronics acquired a metal treatment table manufacturing operation in
Columbia, South Carolina. In July 1999, we consolidated this operation into our
Chattanooga facilities, a move that improved efficiencies. We now manufacture
and distribute motorized and manually operated physical therapy treatment
tables, rehabilitation parallel bars, and other specialty rehabilitation
products.
With the acquisition of Superior and the treatment table manufacturing
operation, Dynatronics became a broad-line supplier to the physical medicine
market which includes 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
In July 1998, Dynatronics began shipments of our Synergie Aesthetic
Massage System (AMS). The Synergie AMS device applies therapeutic vacuum massage
to skin and subcutaneous tissues to achieve a temporary reduction in the
appearance of cellulite as well as the circumferential body measurements of the
cellulite treated areas.
3
In December 1999, we 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 reported a cumulative reduction
of six-inches in girth around the hips, thighs, and waist.
In February 2000, we 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.
Combining elements of the AMS vacuum massage techniques with microdermabrasion
has provided practitioners with the "ultimate facial" available only with the
use of Synergie devices.
Allocation of Sales Among Key Products
Sales of the Company's Dynatron 950Plus device accounted for 10.2% and
10.6% of total revenues for the years ended June 30, 2003 and 2002,
respectively. No other product accounted for more than 10% of the Company's
revenues during either of the last two fiscal years.
Patents and Trademarks
Dynatronics holds a patent on the "Target" feature of its
electrotherapy products that will remain in effect until April 4, 2008, a patent
on the multi-frequency ultrasound technology that will remain in effect until
June 2013, and a patent on the microdermabrasion device that will remain in
effect until February 2020. We also hold two design patents on the
microdermabrasion device that will remain in effect until November 2015. An
additional patent application pertaining to the Synergie AMS device and Synergie
Peel device has been filed with the U.S. Patent and Trademark Office and is
currently pending.
Dynatronics owns the exclusive, worldwide rights (under a license
agreement) to a patent on the STS technology for the treatment of chronic pain.
A second patent application on the STS technology has been filed with the U.S.
Patent and Trademark Office and is currently pending.
The trademark "Dynatron" has been registered with the United States
Patent and Trademark Office. In addition, U.S. trademark registrations have been
obtained for the trademarks "Synergie," "Synergie Peel," and "Sympathetic
Therapy," and trademark registration has been obtained or is now pending for
various other product trademarks. Company materials are also protected under
copyright laws, both in the United States and internationally.
Warranty Service
The Company warrants all products it manufactures for time periods
ranging in length from 90 days to five years from the date of sale. 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 2003 and 2002.
Products distributed by Dynatronics carry warranties provided by the
manufacturers of those products. We do not generally supplement these warranties
or provide warranty services for distributed products. We also sell accessory
items for our manufactured products that are supplied by other manufacturers.
These accessory products carry warranties from their original manufacturers
without supplement from Dynatronics.
Customers and Markets
Dynatronics products are sold to a network of over 300 independent
dealers throughout the United States and internationally. These dealers are the
Company's primary customers. The dealers purchase and take title to the
products, which they then sell to licensed practitioners such as physical
therapists, physiatrists, podiatrists, sports medicine specialists, medical
doctors, chiropractors, hospitals, plastic surgeons, dermatologists and
estheticians.
The Company has entered into direct sales relationships with national
chains of physical therapy clinics and hospitals. Under these arrangements, we
sell our products directly to the clinics and hospitals with preferred pricing
arrangements. We also have preferred pricing arrangements with key dealers who
commit to purchase certain volumes and varieties of products. No single dealer
or national account or group of related accounts was responsible for 10% or more
of total sales in fiscal years 2003 or 2002.
4
Dynatronics exports products to approximately 30 different countries.
International sales (i.e., sales outside North America) totaled approximately
$427,000 in fiscal year 2003 and approximately $611,000 in fiscal year 2002. A
significant factor affecting international sales in 2003 was the outbreak of the
SARS virus, which negatively impacted sales of our products in Asia. The Company
is working to establish effective distribution for its products in international
markets. Our Salt Lake City operation is an ISO 9001certified facility, a
designation required for marketing products in the European community. The
Company has no foreign manufacturing operations. However, we do purchase certain
products and components from foreign manufacturers.
Competition
Despite significant competition, Dynatronics has distinguished key
products by using the latest technology, such as its patented Target feature,
patented multi-frequency ultrasound technology, and patented STS technology. We
believe that these features, along with integration of advanced technology in
the design of each product, have made Dynatronics a leader in technologically
advanced therapy devices. Dynatronics was the first company to integrate light
therapy as part of a combination therapy device. As the only such devices
presently on the market, the Solaris Series products are clearly in a class of
their own. In addition, by manufacturing many of the medical supplies, soft
goods and tables it sells, the Company can focus on quality manufacturing at
competitive prices. We believe these factors give Dynatronics an edge over many
competitors who are solely distributors of such products.
Electrotherapy/Ultrasound Competition. The competition in the clinical
market for electrotherapy and ultrasound devices comes from both domestic and
foreign companies. No fewer than a dozen companies produce devices similar to
those offered by Dynatronics. 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. Furthermore, no
competitor offers a true Target feature or the ultrasound feature of three
frequencies on multiple-sized soundheads for which Dynatronics holds patents.
The Company's primary domestic competitors in the sale of electrotherapy and
ultrasound products include: Chattanooga Group (a division of Encore Medical),
Rich-Mar, Mettler Electronics, and Amrex.
Light Therapy. - Competitors that manufacture and market light therapy
devices include: Microlight Corp., Erchonia, and Medex, among others. These
competitors offer units that are priced significantly higher than our unit.
Management is not aware of any competitor that offers a combination light
therapy device that includes electrotherapy and ultrasound capabilities.
STS Therapy. The STS technology for treating chronic pain is protected
by a U.S. patent. The Company is not aware of any competitor that offers a
non-invasive, chronic pain treatment similar to the STS technology. Other
treatments for chronic pain include prescription narcotic drugs and invasive
procedures such as spinal cord stimulators, nerve block injections and implanted
drug pumps.
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 Dynatronics.
Excellent customer service along with providing value to customers is of key
importance in this market. While there are many specialized manufacturers in
this area, such as Chattanooga Group (a division of Encore Medical), and
Fabrication Enterprises, most competitors are primarily distributors such as
EMPI, North Coast Medical, Ability-One (a division of Patterson Dental), and
Meyer Distributing.
Iontophoresis. Competition in the iontophoresis market is primarily
from IOMED, Inc. 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 Dynatronics. We believe that our strong distribution network is
important to our continued ability to compete against these larger companies. In
addition, the Life-Tech products target a lower selling price than the products
of these other two competitors. We anticipate that the introduction of a new,
proprietary line of iontophoresis products in fiscal year 2004 will allow us to
gain market share, while, at the same time, increasing profit margins on these
products.
Treatment Tables. The primary competition in the treatment table market
is from domestic manufacturers including Hill Laboratories Company, Hausmann
Industries, Ability-One (a division of Patterson Dental), Bailey Manufacturing,
Tri-W-G, Chattanooga Group (a division of Encore Medical), and Clinton
Industries. We believe we compete based on our industry experience and product
quality. In addition, certain components of the treatment tables are
manufactured overseas which allows for significant pricing advantages over
competitors.
5
Aesthetic Products. The Company's two primary competitors in the
therapeutic massage industry are LPG Systems, and Silhouette Tone. The Synergie
AMS device utilizes proprietary technology that has been proven effective in a
research study. In addition, we provide a comprehensive training and
certification program for estheticians. Dynatronics is developing a network of
distributors and national accounts, which is expected to provide another
competitive advantage in the marketplace for these products.
There are a number of competitors in the microdermabrasion market
including: Mega Peel, Diamond Peel, DermaGenesis, DermaMed, E-Med, Integremed,
Medical Alliance, Palomar, Slimtone USA and Soundskin Corp. The Synergie Peel
device incorporates a patented 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 market
share of Dynatronics or any competitor in any of these markets is not readily
available.
Manufacturing and Quality Assurance
Dynatronics manufactures therapy devices, soft goods and other medical
products at its facilities in Salt Lake City, Utah and Chattanooga, Tennessee.
The Company purchases some components for our manufactured products from
third-party suppliers. All parts and components purchased from these suppliers
meet specifications set by Dynatronics. Trained staff performs all sub-assembly,
final assembly and quality assurance procedures. All component parts used in
Dynatronics' device designs and all raw materials for medical supplies and soft
goods manufacturing are presently 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, we are better able to respond to customer needs and insure proper
operation of the products.
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 Dynatronics.
Dynatronics has been qualified for ISO 9001 Certification since 2001.
ISO 9001 is an internationally recognized standard for quality systems and
manufacturing processes adopted by over 90 countries. In addition, the Company
has qualified for the CE Mark Certification on its electrotherapy, ultrasound
and Synergie products. CE Mark Certification for the new Solaris Series is in
process. With the CE Mark Certification, we are able to market these products
throughout the European Union and in other countries where CE Mark Certification
and ISO 9001 certification are recognized.
Research and Development
In fiscal year 2003, Dynatronics focused its resources on an aggressive
R&D campaign to develop several new products. Total R&D expenditures for 2003
were 55% higher at $1,038,753, compared to $668,426 in 2002. R&D expenses
represented approximately 6% and 4% of the revenues of the Company in 2003 and
2002, respectively. As a result of our R&D focus, we were able to introduce the
Dynatron STSi device in November 2002 and four of five planned Solaris devices
along with the infrared light therapy probe in September 2003. In addition, we
introduced a new powered therapy table and a line of proprietary cold packs
during fiscal 2003. Substantially all of the research and development
expenditures during 2003 were for the development of new products, or the
upgrading of existing products.
6
Regulatory Matters
The manufacture, packaging, labeling, advertising, promotion,
distribution and sale of our 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 our products pursuant to the Medical Device Amendment of the Food,
Drug, and Cosmetic Act ("FDC Act") and regulations promulgated thereunder.
Advertising and other forms of promotion and methods of marketing of the
products are subject to regulation by the Federal Trade Commission ("FTC") under
the Federal Trade Commission Act ("FTC Act").
All of our therapeutic and aesthetic treatment devices as currently
designed are cleared for marketing under section 510(k) of the Medical Device
Amendment to the FDC 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 find that the
device is substantially equivalent to a legally marketed predicate device before
the agency will clear the new 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 of the Company's devices, unless specifically exempted by
regulation, are subject to the FDC 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.
During fiscal year 2003, Congress enacted the Medical Device User Fee
and Modernization Act (MDUFMA). Among other things, this act imposes for the
first time a user fee on medical device manufacturers. Under the provisions of
MDUFMA, manufacturers seeking clearance to market a new device must pay a fee to
FDA in order to have their applications reviewed. Dynatronics primarily submits
new products for clearance under section 510(k) of the Medical Device Amendment
of the Food, Drug and Cosmetic Act. The fee per 510(k) submission in fiscal year
2003 was $2187. That fee rises each year thus creating a new cost for the
Company when introducing new products. The fee for new products in fiscal year
2004 will be approximately $2700.
Failure 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.
Advertising of our 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 required
depends 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.
We cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can we determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on our 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
Environmental regulations are not material to our business. Dynatronics
does not discharge into the environment any pollutants that are regulated by a
governmental agency with the exception of the requirement to provide proper
filtering of discharges into the air from the painting processes at our
Tennessee location.
7
Employees
On June 30, 2003, we had a total of 122 full-time employees and 11
part-time employees, compared to 111 full-time and 10 part-time employees at
June 30, 2002.
Item 2. Description of Property
The Company's headquarters and principal place of business are located
at 7030 Park Centre Drive, Salt Lake City, Utah, 84121. The headquarters consist
of a single facility housing administrative offices and manufacturing space
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. The Company also owns a 43,200 sq. ft.
manufacturing facility in Ooltewah, Tennessee, and accompanying undeveloped
acreage for future expansion subject to a mortgage requiring monthly payments of
$5,641 and maturing in 2017. During fiscal year 2002, an expansion and
renovation of this facility was completed and the mortgage loan was refinanced
at a lower interest rate of 5.25%.
We believe the facilities described above are adequate to accommodate
presently expected growth and needs of the Company for its operations. As
Dynatronics continues to grow, additional facilities or the expansion of
existing facilities will likely be required.
The Company owns 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
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 Dynatronics 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. The Company's annual meeting of shareholders will
be held in November 2003.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
Market Information. The common stock of the Company is listed on the
Nasdaq SmallCap Market (symbol: DYNT). The following table shows the range of
high and low sale prices for the common stock as quoted on the Nasdaq system for
the quarterly periods indicated.
Year Ended June 30,
2002 2003
---- ----
High Low High Low
-------------------------------------------------
1st Quarter (July-September) $2.37 $ .81 $ .96 $.59
2nd Quarter (October-December) $1.36 $ .99 $ .93 $.53
3rd Quarter (January-March) $1.30 $ 1.02 $ .96 $.53
4th Quarter (April-June) $1.16 $ .92 $1.20 $.61
Holders. As of September 22, 2003, the approximate number of common
stock shareholders of record was 499. This number does not include beneficial
owners of shares held in "nominee" or "street" name. Including beneficial
owners, we estimate that the total number of shareholders exceeds 2,000.
8
Dividends. The Company has never paid cash dividends on its common
stock. Our anticipated capital requirements are such that we intend to follow a
policy of retaining earnings in order to finance the development of the
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 2003, Dynatronics granted options to
employees, officers and directors pursuant to stock option plans. The total
number of shares of common stock issuable under such options is 324,651 shares
with an average exercise price of $.77 per share. In fiscal year 2002,
Dynatronics granted options to employees and directors pursuant to stock option
plans. The total number of shares of common stock issuable under such options is
90,861 shares with an average exercise price of $1.12 per share.
Stock Repurchase. On September 3, 2003, the Company announced a stock
repurchase program. The Board of Directors authorized the expenditure of up to
$500,000 to purchase the Company's common stock on the open market pursuant to
regulatory restrictions governing such repurchases. The decision to initiate the
program was based on the management team's confidence in the company's future
growth - a confidence bolstered in part by the introduction of the Solaris line
- combined with a languishing stock price deemed to be undervalued.
Item 6. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Selected Financial Data
The table below summarizes selected financial data contained in the
Company's audited financial statements for the past six fiscal years. The
financial statements for the fiscal years ended June 30, 2003 and 2002 are filed
with and form a part of this report.
Selected Financial Data
Fiscal Year Ended June 30
2003 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------
Net Sales* $16,896,992 $17,133,953 $17,460,789 $15,779,748 $16,537,205 $12,587,397
Net Income $ 24,799 $ 316,101 $ 334,179 $ 35,910 $ 718,080 $ 664,788
Net Income
per share (diluted) $ .00 $ .04 $ .04 $ .00 $ .08 $ .07
Working Capital $ 5,516,720 $ 5,484,167 $ 4,971,946 $ 4,550,747 $ 4,251,703 $ 3,502,777
Total Assets $12,713,029 $12,508,202 $13,560,347 $ 12,595,581 $13,854,197 $11,641,948
Long-term Obligations $ 2,203,779 $ 2,331,698 $ 2,174,348 $ 2,330,501 $ 2,984,041 $ 3,376,017
* Sales figures have been reclassified to be consistent with the current year's
presentation.
Fiscal Year 2003 Compared to Fiscal Year 2002
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Audited Financial
Statements and Notes thereto appearing elsewhere in this report on Form 10-KSB.
Results of Operations
Over the past two years, our national economy has faced difficult
times. The rate of economic growth in the United States has slowed dramatically,
and in many sectors, even declined. In assessing the situation, we realized that
we could either continue with the status quo, or we could make a bold move to
grow the Company. We decided on the latter. Our major focus this fiscal year
centered on an aggressive research and development (R&D) campaign to develop
several new products including powered therapy tables, an infrared light therapy
device, the STSi combination device, proprietary iontophoresis products,
proprietary cold pack products and most importantly a redesign of our primary
line of electrotherapy and ultrasound therapy devices.
9
A new powered therapy tables was introduced in the first quarter of
fiscal year 2003. The STSi device was introduced in November 2002. This device
combines our innovative STS chronic pain technology with our well-established
interferential acute pain modality in order to target a much broader segment of
the pain market. In September 2003, we introduced the Dynatron Solaris Series,
our new line of advanced technology electrotherapy/ultrasound products featuring
an infrared light therapy probe. As the only combination therapy devices on the
market to include infrared light therapy, we expect our new Solaris Series
products to quickly gain acceptance and popularity in the physical medicine
market and increase our share of sales in that market.
During the year ended June 30, 2003, net sales were $16,896,992,
compared to $17,133,953 during 2002. Through the first nine months of fiscal
year 2003, sales were up 1% over the prior year. However, fourth quarter sales
lagged behind sales from the same quarter in fiscal year 2002 erasing any gains
and resulting in an overall 1.4% decline in sales for fiscal year 2003 compared
to fiscal year 2002. The reason for the fourth quarter sales decline was a delay
in shipment of the new Dynatron Solaris Series devices. Originally scheduled for
release in late June 2003, unanticipated delays by vendors and the Company's
requirement that all new products meet thorough validation standards prior to
release delayed introduction of these new products to September 2003. The
backlog of orders for these products had grown to over $800,000 by the time of
their release. Nevertheless, anticipating release of the new Solaris devices,
dealers reduced orders of 50 Series Plus products and cleared inventory while
waiting for the Solaris devices to become available. We believe this had the
effect of contraining sales in the months of June, July and August 2003, and
particularly on the fourth quarter of fiscal year 2003.
Sales of physical medicine products remained even at 86% of total
revenues for both years ended June 30, 2003 and 2002, while sales of aesthetic
products accounted for 7% and 8% of total revenues for the years ended June 30,
2003 and 2002, respectively. Chargeable repairs, billable freight revenue and
other miscellaneous revenue accounted for 7% and 6% of total revenues for the
years ended June 30, 2003 and 2002, respectively.
During fiscal year 2003, gross profit was $6,187,156 or 36.6% of net
sales compared to $6,496,540 or 37.9% of net sales in 2002. The 1.3% decrease in
gross margin as a percentage of net sales in 2003 reflects lower sales of high
margin therapy and aesthetic devices which have margins ranging from 40% to 80%
while sales of treatment tables, exercise products and supplies that have
margins ranging from 20% to 50% increased. The introduction of the new Solaris
products is anticipated to increase overall margins in fiscal year 2004 based on
the expectation of increased market share of these higher margin therapy
devices.
Selling, general and administrative (SG&A) expenses for the year ended
June 30, 2003, were $4,948,385 or 29.3% of net sales compared to $5,053,765 or
29.5% of net sales in 2002. In part, the decrease in SG&A expenses reflects the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," which was required as of July 1, 2002.
This pronouncement reduced the expense associated with the amortization of
goodwill and intangible assets for the year ended June 30, 2003, to $7,325
compared to $94,539 in 2002, resulting in a reduction of $87,214 in 2003. During
fiscal year 2003, the Company's premiums for medical, property and casualty, and
product liability insurance increased by approximately $76,000. In addition,
depreciation expense in 2003 increased by approximately $42,000 due primarily to
the addition of automated manufacturing equipment at our Tennessee facility. In
2003 we saved approximately $40,000 in telephone expense compared to 2002 by
negotiating lower rates with our phone company.
As a result of our focus on developing a record number of new products
this fiscal year, research and development expenses during the year ended June
30, 2003 increased 55% to $1,038,753, compared to $668,426 in 2002. R&D expenses
represented approximately 6.1% and 3.9% of the revenues of the Company in 2003
and 2002, respectively. Our increased R&D efforts reflected an intentional
effort to bring new products to market more rapidly. R&D costs are expensed as
incurred. Only limited revenue was recognized from these new products in fiscal
year 2003. Products introduced in fiscal year 2003 included the HLT3 powered
therapy table, the Dynatron STSi pain management device, and our proprietary
line of cold packs. The Dynatron Solaris Series devices were introduced in the
first quarter of fiscal year 2004 while other products will also be introduced
during fiscal year 2004. R&D expenses are expected to maintain at their current
level in 2004 and then decline thereafter.
Interest expense for the year ended June 30, 2003 decreased $104,713 to
$176,731 compared to $281,444 at June 30, 2002. The lower average outstanding
balances on the Company's line of credit in 2003 together with lower interest
rates resulted in reduced interest expense in 2003 compared to 2002.
10
Pre-tax profit for the year ended June 30, 2003 was $41,507 compared to
$511,789 in fiscal year 2002. The decline is primarily due to lower sales for
the year as dealers shifted their orders to the new Solaris units which were
delayed beyond year end as well as the $370,327 increase in R&D expense for the
year.
Income tax expense for the year ended June 30, 2003 was $16,708
compared to $195,688 in 2002. The effective tax rate for the year ended June 30,
2003 was 40.3% compared to 38.2% in 2002. The increase in effective tax rate in
2003 is due to state franchise tax expense remaining relatively constant
compared to 2002, but representing a higher percentage of book income in 2003.
Net income for the year ended June 30, 2003, was $24,799 (approximately
$.00 per share), compared to $316,101 (approximately $.04 per share) in 2002.
The large increase in R&D expenses, together with the delay in shipping the
Solaris units were the primary reasons for our decreased profits in 2003.
Liquidity and Capital Resources
The Company has financed its operations through cash reserves,
available borrowings under its credit line facility, and from cash provided by
operations. The Company had working capital of $5,516,720 at June 30, 2003,
inclusive of the current portion of long-term obligations and credit facilities,
as compared to working capital of $5,484,167 at June 30, 2002.
Trade accounts receivable represent amounts due from the Company's
dealer network and from medical practitioners and clinics. We estimate that the
allowance for doubtful accounts is adequate based on our historical knowledge
and relationship with these customers. Accounts receivable are generally
collected within 30 days of the terms extended.
Management has focused over the past year on improving collection times
by tightening credit in order to reduce the days to collection of outstanding
receivables. As a result, trade accounts receivable decreased over $873,365 from
June 30, 2002 to June 30, 2003. The days of net sales outstanding in accounts
receivable improved to 49 days at June 30, 2003 compared to 67 days at June 30,
2002. Management anticipates accounts receivable will increase in future years
concurrent with increased sales.
Inventories, net of reserves, increased during the year by $807,738 to
$4,644,489 at June 30, 2003 compared to $3,836,751 at June 30, 2002. Nearly half
of the increase in inventory levels is related to the bulk purchase of products
from overseas suppliers and the other half is due to a planned build up of 50
Series Plus products to carry us through several months while manufacturing
focuses on the new Solaris product line. Management expects that inventories
will increase with the introduction of Solaris and then return to more
traditional levels over the course of the coming fiscal year.
Prepaid expenses increased to $480,697 at June 30, 2003 compared to
$359,000 at June 30, 2002 primarily as a result of the Company's higher trade
show activities, software licensing, directors and officers' liability insurance
and other miscellaneous items.
Goodwill at June 30, 2003 and 2002 totaled $789,422. Beginning July 1,
2002, the Company adopted the provisions of SFAS No. 142. In compliance with FAS
142 Goodwill and other Intangible Assets, management utilized standard
principles of financial analysis and valuation including: transaction value,
market value and income value methods to arrive at a reasonable estimate of the
fair value of the Company in comparison to its book value. As of July 1, 2002
and June 30, 2003, the fair value of the Company exceeded the book value of the
Company. Therefore, there was no indication of impairment upon adoption of SFAS
No. 142 nor at our current fiscal year end. Management is primarily responsible
for the FAS 142 valuation determination and performed the annual impairment
assessment during the Company's fourth quarter.
Accounts payable increased by $278,206 to $597,111 at June 30, 2003
compared to $318,905 at June 30, 2002. The increase in accounts payable is a
result of the build up of our inventory levels and the timing of our weekly
payments to suppliers. All accounts payable are within term. We continue to take
advantage of available early payment discounts when offered.
11
Accrued expenses at June 30, 2003 increased $159,834 to $540,258
compared to $380,424 at June 30, 2002. The increase in accrued expenses relates
primarily to higher accrued professional fees, warranty expense reserves,
accrued commissions payable, and other miscellaneous expenses payable.
On September 3, 2003, the Company announced a stock repurchase program.
The Board of Directors authorized the expenditure of up to $500,000 to purchase
the Company's common stock on the open market pursuant to regulatory
restrictions governing such repurchases. The decision to initiate the program
was based on the management team's confidence in the company's future growth - a
confidence bolstered in part by the introduction of the Solaris line - combined
with a languishing stock price deemed to be undervalued.
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 we experience 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.
The current ratio at June 30, 2003 was 2.9 to 1 compared to 3.1 to 1 at
June 30, 2002. Current assets represent 66% of total assets at June 30, 2003.
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's business operations are not materially affected by
seasonality factors.
Commitments
Long-term debt excluding current installments totaled $1,754,066 at
June 30, 2003, compared to $1,950,309 at June 30, 2002. Long-term debt is
comprised primarily of the mortgage loans on our office and manufacturing
facilities in Utah and Tennessee. The principal balance on the mortgage loans is
approximately $1.8 million with monthly principal and interest payments of
$21,409.
As of June 30, 2003, we had the following future contractual cash
commitments:
Payments Due By Period
Total 1 Year 2-3 Years 4-5 Years After 5 Years
----- ------ --------- --------- -------------
Long-term debt* $1,952,672 198,606 425,087 425,289 903,690
Operating lease obligations $ 41,266 24,367 16,899 - -
----------------------------------------------------------------------------------
Total $1,993,938 222,973 441,986 425,289 903,690
------------------------
* Consists primarily of mortgage loans.
Senior Credit Facility
The Company maintains a revolving line of credit facility with a
commercial bank in the amount of $4,500,000. The outstanding balance on our line
of credit facility was $1.38 million at June 30, 2003 compared to $1.44 million
at June 30, 2002.
Interest on the line of credit is based on the bank's prime rate, which
at June 30, 2003, equaled 4.00%. The line of credit is collateralized by
accounts receivable and inventories. Borrowing limitations are based on 30% of
eligible inventory and up to 80% of eligible accounts receivable, which results
in a borrowing base of approximately $2.8 million. The line of credit agreement
is renewable annually on December 1st and includes covenants requiring the
Company to maintain certain financial ratios. As of June 30, 2003, we were in
compliance with all loan covenants.
12
Critical Accounting Policies
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any risks related to these policies on our business operations are discussed in
Management's Discussion and Analysis or Plan of Operations where such policies
affect our reported and expected financial results. For a detailed discussion of
the application of these and other accounting policies, see Notes to the
Financial Statements contained in this 10-KSB report. In all material respects,
the accounting principles that are utilized conform to generally accepted
accounting principles in the United States of America.
The preparation of this annual report on Form 10-KSB requires us to
make significant estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. By their nature, these judgments are
subject to an inherent degree of uncertainty. On an on-going basis, we evaluate
these estimates, including those related to bad debts, inventories, intangible
assets, warranty obligations, product liability, revenue, and income taxes. We
base our estimates on historical experience and other facts and circumstances
that are believed to be reasonable, and the results form the basis for making
judgments about the carrying value of assets and liabilities. The actual results
may differ from these estimates under different assumptions or conditions.
Inventory Reserves
The nature of our business requires that we maintain sufficient
inventory on hand at all times to meet the requirements of our customers. We
record finished goods inventory 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. Inventory
valuation reserves are maintained for the estimated impairment of the inventory.
Impairment may be a result of slow moving or excess inventory, product
obsolescence or changes in the valuation of the inventory. In determining the
adequacy of reserves, we analyze the following, among other things:
o Current inventory quantities on hand;
o Product acceptance in the marketplace;
o Customer demand;
o Historical sales;
o Forecast sales;
o Product obsolescence; and
o Technological innovations.
Any modifications to estimates of inventory valuation reserves are
reflected in the cost of goods sold within the statements of income during the
period in which such modifications are determined necessary by management. At
June 30, 2003 and June 30, 2002, our inventory valuation reserve balance, which
established a new cost basis, was $289,936 and $265,692, respectively and our
inventory balance was $4,644,489 and $3,836,751 net of reserves, respectively.
Revenue Recognition
Our products are sold primarily through a network of independent
distributors. Sales revenues are recorded when products are shipped FOB shipping
point under an agreement with a customer, risk of loss and title have passed to
the customer, and collection of any resulting receivable is reasonably assured.
Amounts billed for shipping and handling of products are recorded as sales
revenue. Costs for shipping and handling of products to customers are recorded
as cost of sales.
Allowance for Doubtful Accounts
We must make estimates of the collectibility of accounts receivable. In
doing so, we analyze accounts receivable and historical bad debts, customer
credit-worthiness, current economic trends and changes in customer payment
patterns when evaluating the adequacy of the allowance for doubtful accounts.
Our accounts receivable balance was $2,283,071 and $3,156,436, net of allowance
for doubtful accounts of $145,130 and $165,763, at June 30, 2003 and June 30,
2002, respectively.
13
Outlook
Over the past five years, annual net sales have grown from $12.6
million in fiscal year 1998 to $16.9 million in fiscal year 2003. During fiscal
year 2003, we focused our efforts on fueling and sustaining future growth
through the development of several new products for the rehabilitation markets
while, at the same time, strengthening our channels of distribution and
improving operating efficiencies.
As part of this year's R&D campaign, we introduced the Dynatron STSi
combination therapy device in November 2002. This device incorporates one
channel of our STS chronic pain treatment technology together with one channel
of our interferential therapy for treating patients with acute pain. In
September 2003, we introduced the new Solaris Series line of advanced technology
electrotherapy/ultrasound products featuring an infrared light therapy probe.
This new product line is expected to quickly become our top selling line. During
the fall of 2003, we expect to submit an application to FDA for clearance of a
low-power laser accessory probe to the Solaris Series products. Other probes
will be developed in the future as market needs are identified.
The Dynatron Solaris 701 device will be introduced in fiscal year 2004.
This device will complete the family of combination therapy devices that make up
the Solaris Series. The 701 will be a combination ultrasound and infrared light
therapy device. In addition, work is underway to develop a proprietary line of
iontophoresis products.
R&D efforts have not been limited to high tech products alone. During
the first quarter of fiscal 2003, Dynatronics introduced a new, more price
competitive powered therapy table. Demand for these tables quickly outstripped
supply and by January 2003, these tables were on backorder. Increased
manufacturing efforts eliminated that backlog and are now keeping up with
demand. At least two more powered therapy tables are scheduled for introduction
during fiscal year 2004. In addition, we introduced a new line of proprietary
cold packs in May 2003. These new cold packs are of higher quality than the
packs previously purchased from another vendor and carry higher gross margins.
They were well received when they were introduced at the Dealer Meeting held in
Park City, Utah in June 2003.
Going forward, we will continue to strengthen our manufacturing
capabilities with the goal of improving margins and gaining greater pricing
advantages over competitors. To that end, some products previously purchased
from other manufacturers are being converted to in-house manufacturing. Other
products are being purchased from overseas manufacturers or moved to more
competitive domestic manufacturers.
Another important part of our strategic plan is the expansion of
worldwide marketing efforts. In July 2002, our ISO 9001 certification was
renewed for our Salt Lake operation, where all electrotherapy, ultrasound, STS
devices, light therapy and Synergie products are manufactured. With this
designation, we can market products manufactured in this facility in any country
that recognizes the CE Mark. We are now working to establish effective
distribution of these products in the European Community. The inclusion of a
popular electrotherapy modality in the European version of the Solaris Series
along with the availability of light therapy products in combination with
electrotherapy and ultrasound modalities positions the Solaris devices for
greater acceptance in the European markets. It is hoped that these attractive
features will make foreign distribution channels more accessible.
We continue efforts to promote our line of aesthetic products.
Controlling and expanding the channels of distribution for these products is
expected to ultimately increase sales of these high margin products and allow us
to more fully access the potential of the aesthetics products market. We
perceive this market to be both lucrative and expanding, particularly as aging
baby boomers continue to look for ways to retain a youthful appearance. Despite
the expansion of the beauty and spa market, this is a segment of our business
that seems to be more directly impacted by general economic slow down as spa and
beauty services are purchased with discretionary dollars not as readily
available in slower economic times. Recent interest by medical spas in the use
of physical therapy modalities such as electrotherapy, ultrasound and light
therapy in aesthetic applications has opened new potential for crossover of
physical medicine modalities into the aesthetics market. This presents a unique
opportunity for us to grow sales of new aesthetic products with little R&D
effort since the products have already been developed for the physical medicine
markets.
Over the past two years, we have undertaken to improve the appearance
and application of our corporate website and are 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. Our website may be viewed at
www.dynatronics.com. This reference to our website is not intended to
incorporate the contents of the website into or as a part of this report.
14
Based on these strategic initiatives, we are focusing our resources in
the following areas:
o Increasing our share of the therapy device market with the
introduction of the new line of Solaris products. We will also
educate the market on the benefits of infrared light therapy for
treating pain.
o Reinforcing our position in the physical medicine market through
an aggressive research and development campaign that will result
in the introduction of several more new products over the coming
year.
o Improving sales and distribution of rehabilitation products
domestically through strengthened relationships with dealers,
particularly the high-volume specialty dealers.
o Developing a channel for distribution of aesthetic products
domestically and exploring the opportunities to introduce versions
of our physical therapy modalities into the aesthetics market.
o Expanding distribution of both rehabilitation and aesthetic
products internationally.
o Applying e-commerce solutions to improving overall performance.
Forward-Looking Statements
When used in this report, 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. These
statements are subject to 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:
Technological Obsolescence. The business of designing and manufacturing
medical and aesthetic products is characterized by rapid technological change.
Although Dynatronics has obtained patents on certain aspects of its technology,
there can be no assurance that our 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 our 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. We 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, aesthetics and related 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 we maintain product liability insurance coverage which we deem
to be 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.
15
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 our 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.
Our information technology systems are designed and selected in order to
facilitate order entry and customer billing, maintain records, accurately track
purchases, accounts 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. Our industry 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 these
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 five
patents issued and two patents pending relating to its products. In addition, we
have obtained by license the worldwide rights to the STS patent. The Company's
trademarks have also been registered in the United States and in other
countries. There can be no assurance that patents owned by or licensed to us
will not be challenged or circumvented or will provide us with any competitive
advantages or that a patent will issue from any pending patent application. We
also rely 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. In addition, we rely on trade secrets that we seek
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 our
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 of STS Technology.
The STS products represent a new approach to chronic pain therapy with few
clinical studies available to prove their effectiveness. The Company has
sponsored clinical studies by physicians, but these have been relatively limited
in size, scope and duration. As additional research studies are undertaken,
there can be no assurance of future favorable clinical results. The absence of
independent scientific review of the STS products may limit the acceptance of
and our ability to market these products. Furthermore, sales of these products
could be adversely affected if consumers fail to follow the proper protocols or
to properly use the products as recommended.
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 we sell 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 assurance 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 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.
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.
16
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.
17
DYNATRONICS CORPORATION
Financial Statements
June 30, 2003 and 2002
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
Dynatronics Corporation:
We have audited the accompanying balance sheets of Dynatronics Corporation as of
June 30, 2003 and 2002 and the related statements of income, stockholders'
equity, and cash flows for each of the years in the two-year period ended June
30, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynatronics Corporation as of
June 30, 2003 and 2002 and the results of its operations and its cash flows for
each of the years in the two-year period ended June 30, 2003 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in note 1 to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangibles Assets, in 2002.
/s/ KPMG LLP
Salt Lake City, Utah
August 8, 2003
DYNATRONICS CORPORATION
Balance Sheets
June 30, 2003 and 2002
Assets 2003 2002
-------------- --------------
Current assets:
Cash $ 404,276 396,803
Trade accounts receivable, less allowance for doubtful accounts
of $145,130 in 2003 and $165,763 in 2002 2,283,071 3,156,436
Other receivables 193,713 58,202
Inventories 4,644,489 3,836,751
Prepaid expenses 480,697 359,000
Income tax receivable 105,804 --
Deferred tax asset - current 312,547 276,905
-------------- --------------
Total current assets 8,424,597 8,084,097
Property and equipment, net 3,202,553 3,345,059
Goodwill 789,422 789,422
Other assets 296,457 289,624
-------------- --------------
$ 12,713,029 12,508,202
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 198,606 225,604
Line of credit 1,382,095 1,435,689
Accounts payable 597,111 318,905
Income tax payable -- 30,804
Accrued expenses 540,258 380,424
Accrued payroll and benefit expenses 189,807 208,504
-------------- --------------
Total current liabilities 2,907,877 2,599,930
Long-term debt, excluding current installments 1,754,066 1,950,309
Deferred compensation 305,654 282,229
Deferred tax liability - noncurrent 144,059 99,160
-------------- --------------
Total liabilities 5,111,656 4,931,628
-------------- --------------
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000 shares;
8,869,335 and 8,928,774 shares issued in 2003 and 2002, respectively 2,478,981 2,638,677
Treasury stock, 59,439 common shares at cost in 2002 -- (159,696)
Retained earnings 5,122,392 5,097,593
-------------- --------------
Total stockholders' equity 7,601,373 7,576,574
Commitments and contingencies
-------------- --------------
$ 12,713,029 12,508,202
============== ==============
See accompanying notes to financial statements.
F-2
DYNATRONICS CORPORATION
Statements of Income
Years ended June 30, 2003 and 2002
2003 2002
-------------- --------------
Net sales $ 16,896,992 17,133,953
Cost of sales 10,709,836 10,637,413
-------------- --------------
Gross profit 6,187,156 6,496,540
Selling, general, and administrative expenses 4,948,385 5,053,765
Research and development expense 1,038,753 668,426
-------------- --------------
Operating income 200,018 774,349
-------------- --------------
Other income (expense):
Interest income 6,825 3,751
Interest expense (176,731) (281,444)
Other income, net 11,395 15,133
-------------- --------------
Total other expense, net (158,511) (262,560)
-------------- --------------
Income before income taxes 41,507 511,789
Income tax expense 16,708 195,688
-------------- --------------
Net income $ 24,799 316,101
============== ==============
Basic net income per share $ 0.00 0.04
Diluted net income per share 0.00 0.04
Weighted average basic and diluted common shares outstanding:
Basic 8,869,335 8,855,083
Diluted 8,869,335 8,898,422
See accompanying notes to financial statements.
F-3
DYNATRONICS CORPORATION
Statements of Stockholders' Equity
Years ended June 30, 2003 and 2002
Total
Common Treasury Retained stockholders'
stock stock earnings equity
-------------- -------------- ------------ ----------------
Balances at June 30, 2001 $ 2,565,926 (120,096) 4,781,492 7,227,322
Purchase of 23,855 shares of treasury stock -- (39,600) -- (39,600)
Issuance of 88,352 shares of common stock
upon exercise of employee stock options 68,364 -- -- 68,364
Income tax benefit from disqualifying disposition
of employee stock options and nonemployee
exercise of stock options 4,387 -- -- 4,387
Net income -- -- 316,101 316,101
-------------- -------------- ------------ ----------------
Balances at June 30, 2002 2,638,677 (159,696) 5,097,593 7,576,574
Retirement of 59,439 shares of treasury stock (159,696) 159,696 -- --
Net income -- -- 24,799 24,799
-------------- -------------- ------------ ----------------
Balances at June 30, 2003 $ 2,478,981 -- 5,122,392 7,601,373
============== ============== ============ ================
See accompanying notes to financial statements.
F-4
DYNATRONICS CORPORATION
Statements of Cash Flows
Years ended June 30, 2003 and 2002
2003 2002
-------------- --------------
Cash flows from operating activities:
Net income $ 24,799 316,101
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 374,864 333,077
Other amortization 7,325 94,539
Provision for doubtful accounts 72,000 48,000
Provision for inventory obsolescence 240,000 204,000
Provision for warranty reserve 199,718 248,576
Provision for deferred compensation 23,425 21,630
Changes in operating assets and liabilities:
Receivables 665,854 355,611
Inventories (1,047,738) 705,572
Prepaid expenses and other assets (135,855) (167,890)
Income tax receivable (105,804) --
Deferred income taxes 9,257 12,144
Income tax payable (30,804) 61,194
Accounts payable and accrued expenses 219,625 (389,245)
-------------- --------------
Net cash provided by operating activities 516,666 1,843,309
-------------- --------------
Cash flows used in investing activities:
Capital expenditures (232,358) (400,678)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 7,375 919,715
Principal payments on long-term debt (230,616) (817,856)
Net change in line of credit (53,594) (1,435,335)
Proceeds from issuance of common stock -- 28,764
-------------- --------------
Net cash used in financing activities (276,835) (1,304,712)
-------------- --------------
Net increase in cash 7,473 137,919
Cash at beginning of year 396,803 258,884
-------------- --------------
Cash at end of year $ 404,276 396,803
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 180,217 287,113
Cash paid during the year for income taxes 138,500 122,350
Supplemental disclosures of noncash investing and financing activities:
Common stock issued in exchange for cashless exercise of options
using mature stock $ -- 39,600
Income tax benefit from nonemployee exercise of stock options -- 4,387
See accompanying notes to financial statements.
F-5
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
(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) Inventories
Finished goods inventories are stated at the lower of standard
cost, which approximates actual cost (first-in, first-out), or
market. Raw materials are stated at the lower of cost (first-in,
first-out), or market.
(c) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and
do not bear interest. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in
the Company's existing accounts receivable. The Company determines
the allowance based on historical write-off experience. The
Company reviews its allowance for doubtful accounts monthly. All
account balances are reviewed on an individual basis. Account
balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance-sheet
credit exposure related to its customers.
(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) Goodwill and Long-Lived Assets
Goodwill represents the excess of costs over fair value of assets
of businesses acquired. The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, as of July 1, 2002. Goodwill
and intangible assets acquired in a purchase business combination
and determined to have an indefinite useful life are not
amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. Management is
primarily responsible for the SFAS No. 142 valuation
determination. In compliance with SFAS No. 142, management
utilizes standard principles of financial analysis and valuation
including: transaction value, market value, and income value
methods to arrive at a reasonable estimate of the fair value of
the Company in comparison to its book value. The Company has
determined it has one reporting unit. As of July 1, 2002, the fair
value of the Company exceeded the book value of the Company.
Therefore, there was not an indication of impairment upon adoption
of SFAS No. 142. Management performed its annual impairment
assessment during the Company's fourth quarter and determined
F-6
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
there was not an indication of impairment. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.
In accordance with SFAS No. 144, long-lived assets, such as
property, plant, and equipment, and purchased intangibles subject
to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets to be disposed of
would be separately presented in the balance sheet and reported at
the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the
balance sheet.
Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight-line basis over 15 and 30 years.
(f) Revenue Recognition
Sales are generally recorded when products are shipped FOB
shipping point under an agreement with a customer, risk of loss
and title have passed to the customer, and collection of any
resulting receivable is reasonably assured. Amounts billed for
shipping and handling of products are recorded as sales revenue.
Costs for shipping and handling of products to customers are
recorded as cost of sales.
(g) Research and Development Costs
Research and development costs are expensed as incurred.
(h) Product Warranty Reserve
Costs estimated to be incurred in connection with the Company's
product warranty programs are charged to expense as products are
sold based on historical warranty rates.
(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.
F-7
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
A reconciliation between the basic and diluted weighted average
number of common shares for 2003 and 2002 is summarized as
follows:
2003 2002
------------ -------------
Basic weighted average number of common shares
outstanding during the year 8,869,335 8,855,083
Weighted average number of dilutive common stock
options outstanding during the year -- 43,339
------------ -------------
Diluted weighted average number of common and
common equivalent shares outstanding during the
year 8,869,335 8,898,422
============ =============
Outstanding options not included in the computation of diluted net
income per share total 983,645 and 279,887 as of June 30, 2003 and
2002, respectively, because to do so would have been antidilutive.
(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.
F-8
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
(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, as amended by SFAS No.
148, Accounting for Stock-Based Compensation - Transition and
Disclosure. 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 apply the
provisions of APB 25 and provide pro forma footnote disclosures
required by SFAS No. 123. Accordingly, no compensation expense has
been recognized for the stock option plan. Had compensation
expense for the Company's stock option plan been determined based
on the fair value at the grant date for awards in 2003 and 2002,
consistent with the provisions of SFAS No. 123, the Company's
results of operations would have been reduced to the pro forma
amounts indicated below:
Year ended Year ended
June 30, June 30,
2003 2002
----------------- -------------
Net income as reported $ 24,799 316,101
Less: pro forma adjustment for stock based
compensation, net of income tax (36,469) (67,091)
----------------- -------------
Pro forma net (loss) income $ (11,670) 249,010
================= =============
Basic and diluted net (loss) income per share:
As reported 0.00 0.04
Effect of pro forma adjustment (0.00) (0.01)
Pro forma (0.00) 0.03
The Company has no employee stock-based compensation expense since
stock options have exercise prices at least equal to the market
price of the Company's stock on the grant date. The Company has
refined its methodology in calculating its pro forma footnote
disclosure and corrected its historical computations. In the
Company's previous footnotes, the pro forma net income per share
on a basic and diluted basis was $0.02 for the year ended June 30,
2002.
F-9
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
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
-----------------------------
2003 2002
------------ ------------
Expected dividend yield 0% 0%
Expected stock price volatility 88-91% 90 - 95%
Risk-free interest rate 2.89 - 4.42% 4.34 - 5.14%
Expected life of options 5 & 7 years 5 & 7 years
The weighted average fair value of options granted during 2003 and
2002 was $0.60 and $0.89, respectively.
(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
SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information.
The Company groups their sales into physical medicine products and
aesthetic products. Physical medicine products consisted of 93%
and 92% of net sales for the years ended June 30, 2003 and 2002,
respectively. Aesthetics products consisted of 7% and 8% of net
sales for the years ended June 30, 2003 and 2002, respectively.
(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 accounting principles generally accepted in the United States
of America. Significant items subject to such estimates and
assumptions include the carrying amount of property, plant, and
equipment; valuation allowances for receivables and inventories;
accrued product warranty reserve; and estimated recoverability of
goodwill. Actual results could differ from those estimates.
F-10
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
(o) Fair Value Disclosure
The carrying value of accounts receivable, accounts payable,
accrued expenses, and line of credit 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 or the
existence of interest rate reset provisions.
(p) Advertising Cost
Advertising costs are expensed as incurred except for catalogs.
Catalogs are recorded as prepaid supplies until they are no longer
owned or expected to be used, at which time they are recorded as
advertising expense. Advertising expense for the years ended June
30, 2003 and 2002 was approximately $172,300 and $172,500,
respectively. No prepaid supplies consisted of catalogs as of June
30, 2003 and 2002.
(q) Reclassifications
Amounts billed for shipping and handling of products are recorded
as sales revenues. Costs of shipping and handling of products to
customers are recorded as costs of sales. In prior years, the
Company recorded revenues from shipping and handling products net
of the related costs. Amounts recorded in 2002 have been
reclassified to conform with current year presentation. As a
result, net sales and cost of sales for 2002 have each increased
by $796,635.
(2) Inventories
Inventories consist of the following:
2003 2002
----------------- --------------
Raw materials $ 2,487,435 2,555,535
Finished goods 2,446,990 1,546,908
Inventory reserve (289,936) (265,692)
----------------- --------------
$ 4,644,489 3,836,751
================= ==============
F-11
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
(3) Property and Equipment
Property and equipment consist of the following:
2003 2002
----------------- --------------
Land $ 354,743 354,743
Buildings 2,897,447 2,871,286
Machinery and equipment 1,728,106 1,603,963
Office equipment 415,349 352,502
Vehicles 65,487 61,771
----------------- --------------
5,461,132 5,244,265
Less accumulated depreciation
and amortization 2,258,579 1,899,206
----------------- --------------
$ 3,202,553 3,345,059
================= ==============
(4) Product Warranty Reserve
A reconciliation of the changes in the product warranty reserve
consists of the following:
2003 2002
----------------- ---------------
Beginning product warranty
reserve balance $ 136,000 112,000
Warranty repairs (175,718) (224,575)
Warranties issued 243,317 235,592
Changes in estimated warranty
costs (43,599) 12,983
----------------- ---------------
Ending product warranty
reserve balance $ 160,000 136,000
================= ===============
(5) Line of Credit
The Company has a revolving line of credit facility with a commercial
bank in the amount of $4.5 million. Borrowing limitations are based on
30% of eligible inventory and up to 80% of eligible accounts
receivable. At June 30, 2003 and 2002, the outstanding balance was
$1.38 million and $1.44 million, respectively. The line of credit is
collateralized by inventory and accounts receivable and bears interest
at the bank's "prime rate," (4.0% and 4.75% at June 30, 2003 and 2002,
respectively). This line is subject to annual renewal and matures on
December 1, 2003. Accrued interest is payable monthly.
F-12
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
(6) Long-Term Debt
Long-term debt consists of the following:
2003 2002
--------------- --------------
7.11% promissory note with an interest rate reset in
November 2003 secured by a trust deed on real property,
payable in monthly installments of $8,708 through
November 2008 $ 468,643 537,154
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
2003 and 2002) 645,072 688,283
5.25% promissory note secured by building, payable in
monthly installments of $5,641 through May 2017 663,397 694,372
8.87% promissory note secured by fixed assets, payable in
monthly installments of $3,901 through May 2007 159,741 193,930
Other notes payable 15,819 62,174
--------------- --------------
Total long-term debt 1,952,672 2,175,913
Less current installments 198,606 225,604
--------------- --------------
Long-term debt, excluding current installments $ 1,754,066 1,950,309
=============== ==============
The aggregate maturities of long-term debt for each of the years
subsequent to 2003 are as follow: 2004, $198,606; 2005, $206,899; 2006,
$218,188; 2007, $227,458; 2008, $197,831; and thereafter $903,690.
(7) Leases
The Company leases vehicles under noncancelable operating lease
agreements. Rent expense for the years ended June 30, 2003 and 2002 was
$29,203 and $31,915, respectively. Future minimum rental payments
required under noncancelable operating leases that have initial or
remaining lease terms in excess of one year as of 2003 are as follows:
2004, $24,367; 2005, $10,728; and 2006, $6,171.
F-13
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
(8) Goodwill and Other Intangible Assets
Goodwill. The cost of acquired companies in excess of the fair value of
the net assets and purchased intangible assets at acquisition date is
recorded as goodwill. As of June 30, 2002, the Company had goodwill,
net of $789,422 from the acquisition of Superior Orthopaedic Supplies,
Inc. on May 1, 1996 and the exchange of Dynatronics Laser Corporation
common stock for a minority interest in Dynatronics Marketing
Corporation on June 30, 1983. Through June 30, 2002, goodwill was
amortized over a period of 15 and 30 years, respectively, on a
straight-line basis. The following table sets forth reported net income
and basic and diluted net income per share, as adjusted, to exclude
amortization of goodwill which would not have been recorded under SFAS
No. 142:
Year ended
June 30, 2002
-----------------
Net income, as reported $ 316,101
Amortization expense of goodwill, net of tax 57,018
-----------------
Net income, as adjusted $ 373,119
=================
Basic net income per share, as reported 0.04
Diluted net income per share, as reported 0.04
Amortization expense of goodwill per basic
and diluted share 0.01
Basic net income per share, as adjusted 0.04
Diluted net income per share, as adjusted 0.04
License Agreement. Identifiable intangible assets, included in other
assets, consist of a license agreement entered into on August 16, 2000
for a certain concept and process relating to a patent. The license
agreement is being amortized over ten years on a straight-line basis.
The following table sets forth the gross carrying amount, accumulated
amortization, and net carrying amount of the license agreement:
As of As of
June 30, 2003 June 30, 2002
--------------- --------------
Gross carrying amount $ 73,240 73,240
Accumulated amortization 20,752 13,427
--------------- --------------
Net carrying amount $ 52,488 59,813
=============== ==============
F-14
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
Amortization expense associated with the license agreement was $7,325
for 2003 and 2002. Estimated amortization expense for the existing
license agreement is expected to be $7,325 for each of the fiscal years
ending June 30, 2004 through June 30, 2010.
(9) Income Taxes
Income tax expense for the years ended June 30 consists of:
Stock option
Current Deferred benefit Total
---------------- ----------------- --------------- ------------
2003:
U.S. federal $ -- 8,016 -- 8,016
State and local 7,451 1,241 -- 8,692
---------------- ----------------- --------------- ------------
$ 7,451 9,257 -- 16,708
================ ================= =============== ============
2002:
U.S. federal $ 143,980 12,850 3,800 160,630
State and local 35,177 (706) 587 35,058
---------------- ----------------- --------------- ------------
$ 179,157 12,144 4,387 195,688
================ ================= =============== ============
The stock option benefit represents the portion of the Company's income
tax expense for financial reporting purposes that was not required to
be paid due to the availability of a tax benefit upon employees
exercising their options. The Company recognized an increase to
stockholders' equity as a result of the stock option benefit.
Actual income tax expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of 34%
to income before income taxes) as follows:
2003 2002
-------------- ---------------
Expected tax expense $ 14,112 174,009
State taxes, net of federal tax benefit 5,737 23,138
Meals and entertainment 1,558 2,247
Amortization of goodwill not deductible -- 2,985
Officers' life insurance (3,249) (2,927)
Extraterritorial income exclusion (2,237) (3,978)
Other, net 787 214
-------------- ---------------
$ 16,708 195,688
============== ===============
F-15
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
Deferred income tax assets and liabilities related to the tax effects
of temporary differences are as follows:
2003 2002
--------------- --------------
Net deferred tax asset - current:
Charitable contribution $ 10,614 --
Inventory capitalization for income tax purposes 64,385 47,689
Inventory reserve 107,778 99,103
Vacation reserve 3,730 3,730
Warranty reserve 59,680 50,728
Accrued product liability 12,227 13,825
Allowance for doubtful accounts 54,133 61,830
--------------- --------------
Total deferred tax asset - current $ 312,547 276,905
=============== ==============
Net deferred tax asset (liability) - noncurrent:
Deferred compensation $ 114,009 105,271
Property and equipment, principally due to differences in
depreciation (240,987) (216,170)
Noncompete and goodwill (17,081) 11,739
--------------- --------------
Total deferred tax liability - noncurrent $ (144,059) (99,160)
=============== ==============
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. 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.
(10) Major Customers
During the fiscal years ended June 30, 2003 and 2002, sales to any
single customer did not exceed 10% of total revenues.
(11) Common Stock
On July 15, 2003, the Company approved an open-market share repurchase
program for up to $500,000 of the Company's common stock.
The Company granted options to acquire common stock under its 1992
qualified stock option plan. The options are to be granted at not less
than 100% 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.
F-16
DYNATRONICS CORPORATION
Notes to Financial Statements
June 30, 2003 and 2002
A summary of activity follows:
2003 2002
------------------------------------- -------------------------------------
Weighted Weighted
Number of average Number of average
shares exercise price shares exercise price
--------------- ------------------ ---------------- -----------------
Options outstanding at
beginning of year 836,578 $ 1.19 930,906 $ 1.17
Options granted 324,651 0.77 90,861 1.12
Options exercised -- -- 88,352 0.77
Options canceled or expired (257,584) 1.00 (96,837) 1.34
--------------- ------------- --------------
Options outstanding at end
of year 903,645 1.09 836,578 1.19
=============== ============= ==============
Options exercisable at end
of year 466,506 1.25 682,891 1.15
Range of exercise prices at
end of year 0.66 - 2.70 0.72 - 2.70
At June 30, 2003, 959,816 shares of common stock were authorized and
reserved for issuance, but were not granted under the terms of the
stock option plan.
The Company has 80,000 options outstanding that were not issued under
the Company's stock option plan. The exercise price of the options
ranges from $1.08 to $4.00. The options expire during fiscal 2007
through fiscal 2010.
(12) 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 2003 and 2002, the Company made
matching contributions of 25% of the first $2,000 of each employee's
contribution. The Company's contributions to the plan for 2003 and 2002
were $19,451 and $12,451, respectively. Company matching contributions
for future years are at the discretion of the board of directors.
(13) Salary Continuation Agreements
As of June 30, 2003, the Company had salary continuation agreements
with two key employees. The agreements provide a preretirement 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% 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
15-year 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 2003 and 2002, the Company has
accrued $305,654 and $282,229, respectively, of deferred compensation
under the terms of the agreements.
F-17
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During the 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.
Item 8A. Controls and Procedures
Based on their evaluation, as of a date within 90 days of the filing
date of this Form 10-KSB, our Chief Executive Officer and principal accounting
officer have concluded that our disclosure controls and procedures (as defined
in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART III
Item 9. Directors and Executive Officers; Compliance With Section 16(a) of the
Exchange Act
The directors and executive officers of the Company at September 26,
2003 are:
Director
or Officer Position
Name Age Since with Company
Kelvyn H. Cullimore 68 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 47 1983 President, CEO and Director
Larry K. Beardall 47 1986 Executive Vice President
of Sales and Marketing and Director
E. Keith Hansen, M.D.* 58 1983 Director
Howard L. Edwards** 72 1997 Director
Val J. Christensen** 40 1999 Director
Ronald J. Hatch 58 2002 Vice President of Operations and R&D
* Member of Compensation Committee of the Board of Directors. ** Member of Audit
and Compensation Committee 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.
Retirement of Joseph H. Barton. Effective May 9, 2003, Joseph H.
Barton, a director and member of the Company's audit and compensation
committees, announced his retirement and resignation from the Board of
Directors. Under the Bylaws of the Company, the Board of Directors has the power
to appoint a replacement to serve the remainder of Mr. Barton's term, which
would ordinarily continue until the annual meeting of shareholders, scheduled to
be held in November 2003. As of the date of this report the Board had not taken
any action to replace Mr. Barton.
Directors hold office until the next annual meeting of the shareholders
and until their successors have been elected and duly qualified. Executive
officers are elected by the Board of Directors 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. The compensation
committee reviews and approves compensation matters for executive officers.
Kelvyn H. Cullimore has served as Chairman of the Board since 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, as 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.
18
Kelvyn H. Cullimore, Jr. was elected President and Chief Executive
Officer in December 1992. He has been a Director since incorporation of the
Company. He served as Secretary/Treasurer 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 and ACI, and he currently serves on the
board of directors of ITEC. 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. In June 2003, Mr.
Cullimore was elected to the board of the Medical Device Manufacturers
Association, a national medical device trade association headquartered in
Washington, D. C.
Larry K. Beardall was elected Executive Vice President in December
1992. He has served as a Director and the Vice President of Sales and Marketing
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. He
is also Vice President and Director of Mountain Resources Corporation and a
Director of Accent Publishers, both based in Salt Lake City, Utah.
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 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.
Ronald J. Hatch - was appointed Vice President of Operations and R&D in
July 2002. Prior to joining the Company in June 2002, Mr. Hatch worked with
Lineo, Inc. as a Senior Project Manager from 1999 to 2002. From 1972 to 1998, he
served in various management responsibilities at Philips Semiconductors -
Signetics. He graduated from Brigham Young University with a degree in
Electronics Engineering Technology in 1970 and received an MBA degree from the
University of Phoenix (in Salt Lake City) in 1991.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
the Company's common stock ("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.
19
Based solely on review of the copies of such forms furnished to the
Company during and with respect to the year ended June 30, 2003, 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 2003, 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 2003, 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
During the two years ended June 30, 2003, 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.
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 7):
Independent Auditors' Report..............................F-1
Balance Sheets at June 30, 2003 and 2002..................F-2
Statements of Income for years ended
June 30, 2003 and 2002....................................F-3
Statements of Stockholders'
Equity for years ended June 30, 2003
and 2002..................................................F-4
Statements of Cash Flows for
years ended June 30, 2003 and 2002 .......................F-5
Notes to Financial Statements.............................F-6
20
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)
31.1 Certification of President/CEO
31.2 Certification of Principal Accounting Officer
32.1 Certification under Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. SECTION 1350)
(b) Reports on Form 8-K. On May 16, 2003, we filed a Current Report on
Form 8-K to report that we had announced our financial results for the third
fiscal quarter ended March 31, 2003.
Item 14. Controls and Procedures
The Company hereby incorporates by reference into and makes a part of
this report the information and regarding fees paid and services provided by the
Company's independent auditors contained in the Company's definitive proxy
statement for 2003, to be sent to shareholders of the Company subsequent to the
filing of this report on Form 10-KSB.
21
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, 2003
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 September 25, 2003
-------------------------
Kelvyn H. Cullimore
/s/ Kelvyn H. Cullimore, Jr. Director, President, CEO September 25, 2003
-------------------------------
Kelvyn H. Cullimore, Jr. (Principal Executive Officer
/s/ Terry M. Atkinson, CPA Principal Accounting Officer September 25, 2003
-------------------------------
Terry M. Atkinson, CPA
/s/ Larry K. Beardall Director, Executive September 25, 2003
------------------------------
Larry K. Beardall Vice President
/s/ E. Keith Hansen, M.D. Director September 25, 2003
-------------------------------
E. Keith Hansen, M.D.
/s/ Howard L. Edwards Director September 25, 2003
-------------------------------
Howard L. Edwards
/s/ Val J. Christensen Director September 25, 2003
-------------------------------
Val J. Christensen
22