-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W0FBIGVc1lax/MrSIxBuSL/m0ZRXc1BMRRGjYIibfG7TVNvKb3P479ltAaMCdRgh CC6l6jSGKRIaConBkF87Rw== 0000720875-00-000003.txt : 20000516 0000720875-00-000003.hdr.sgml : 20000516 ACCESSION NUMBER: 0000720875-00-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNATRONICS CORP CENTRAL INDEX KEY: 0000720875 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 870398434 STATE OF INCORPORATION: UT FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-12697 FILM NUMBER: 632475 BUSINESS ADDRESS: STREET 1: 7030 PARK CENTRE DRIVE STREET 2: BLDG D CITY: SALT LAKE CITY STATE: UT ZIP: 84121 BUSINESS PHONE: 8014854739 MAIL ADDRESS: STREET 1: 7030 PARK CENTER DR CITY: SALT LAKE CITY STATE: UT ZIP: 84121 FORMER COMPANY: FORMER CONFORMED NAME: DYNATRONICS LASER CORP DATE OF NAME CHANGE: 19920703 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM _________ TO _________ Commission File Number: 0-12697 Dynatronics Corporation ------------------------------------------------------ (Exact name of small business issuer as specified in its charter) Utah 87-0398434 ---- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 7030 Park Centre Drive, Salt Lake City, UT 84121 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (801) 568-7000 ---------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ The number of shares outstanding of the issuer's common stock, no par value, as of May 8, 2000 is 8,748,038. Transitional Small Business Disclosure Format (Check One): Yes __ No X DYNATRONICS CORPORATION TABLE OF CONTENTS Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Balance Sheet March 31, 2000 1 Unaudited Condensed Statements of Income Three and Nine Months Ended March 31, 2000 and 1999 2 Unaudited Condensed Statements of Cash Flows Nine Months Ended March 31, 2000 and 1999 3 Notes to Unaudited Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis or Plan of Operation 7 PART II. OTHER INFORMATION 13 DYNATRONICS CORPORATION Condensed Balance Sheet (Unaudited) [CAPTION] March 31 ASSETS 2000 -------------- Current assets: Cash and cash equivalents $ 50,022 Trade accounts receivable, less allowance for doubtful accounts of $140,935 3,152,231 Related party and other receivables 142,606 Inventories 4,324,683 Prepaid expenses 152,382 Prepaid income taxes 243,632 Deferred tax asset-current 174,039 -------------- Total current assets 8,239,595 Net property and equipment 3,379,958 Excess of cost over book value, net of accumulated amortization of $473,100 991,074 Deferred tax asset-noncurrent 89,093 Other assets 181,719 -------------- $ 12,881,439 ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 230,773 Line of credit 2,197,461 Accounts payable 647,340 Accrued expenses 660,223 -------------- Total current liabilities 3,735,797 Long-term debt, excluding current installments 2,126,697 Deferred compensation 508,872 -------------- Total long-term liabilities, excluding current installments 2,635,569 -------------- Total liabilities 6,371,366 Stockholders' equity: Common stock, no par value. Authorized 50,000,000 shares; issued and outstanding 8,748,038 shares 2,452,009 Treasury stock, 35,584 shares (120,096) Retained earnings 4,178,160 -------------- Total stockholders' equity 6,510,073 -------------- $ 12,881,439 ============== See accompanying notes to condensed financial statements.
1 DYNATRONICS CORPORATION Condensed Statements Of Income (Unaudited) [CAPTION] Three Months Ended Nine Months Ended March 31 March 31 2000 1999 2000 1999 ------------ ------------ ------------- ------------- Net sales $ 3,756,669 3,381,088 10,649,428 12,312,019 Cost of sales 2,138,100 2,018,165 6,353,397 6,930,035 ------------ ------------ ------------- ------------- Gross profit 1,618,569 1,362,923 4,296,031 5,381,984 Selling, general, and administrative expenses 1,541,849 1,086,862 3,716,366 3,606,931 Research and development expenses 184,245 96,867 562,868 436,412 ------------ ------------ ------------- ------------- Operating income (loss) (107,525) 179,194 16,797 1,338,641 Other income (expense): Interest income 702 19 2,254 5,206 Interest expense (99,174) (103,218) (293,239) (288,686) Other income, net 13,976 11,118 24,618 20,967 ------------ ------------ ------------- ------------- Total other income (expense) (84,496) (92,081) (266,367) (262,513) Income (loss) before income taxes (192,021) 87,113 (249,570) 1,076,128 Income tax expense (benefit) 5,542 31,634 (16,326) 419,668 ------------ ------------ ------------- ------------- Net income (loss) $ (197,563) 55,479 (233,244) 656,460 ============ ============ ============= ============= Basic and diluted net income (loss) per common share $ (0.02) 0.01 (0.03) 0.08 ============ ============ ============= ============= Weighted average basic and diluted common shares outstanding (note 2) Basic 8,754,196 8,685,347 8,738,989 8,668,400 Diluted 8,754,196 9,007,202 8,738,989 9,069,483
See accompanying notes to condensed financial statements. 2 DYNATRONICS CORPORATION Condensed Statements of Cash Flows (Unaudited) [CAPTION] Nine Months Ended March 31 2000 1999 ------------ ------------ Cash flows from operating activities: Net income (loss) $ (233,244) 656,460 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of property and equipment 165,436 193,576 Other amortization 69,163 69,162 Provision for doubtful accounts 27,000 27,000 Provision for inventory obsolescence 200,997 117,000 Provision for warranty reserve 202,994 144,953 Deferred compensation (110,576) 63,063 Decrease (increase) in operating assets: Receivables (458,192) (768,920) Inventories (33,406) (2,015,787) Prepaid expenses and other assets 445,468 98,965 Deferred tax assets 66,513 0 Increase (decrease) in operating liabilities: Trade accounts payable and accrued expenses (225,762) (255,618) Income taxes payable (72,839) 11,305 ------------ ------------ Net cash provided by (used in) operating activities 43,552 (1,658,841) ------------ ------------ Cash flows from investing activities: Capital expenditures (126,755) (240,452) Proceeds from sale of assets 111,046 0 ------------ ------------ Net cash used in investing activities (15,709) (240,452) ------------ ------------ Cash flows from financing activities: Principal payments on long-term debt (252,176) (172,633) Net change in line of credit (414,177) 1,348,950 Proceeds from sale of common stock 60,183 125,091 ------------ ------------ Net cash provided by (used in) financing activities (606,170) 1,301,408 ------------ ------------ Net decrease in cash and cash equivalents (578,327) (597,885) Cash and cash equivalents at beginning of period 628,349 748,099 ------------ ------------ Cash and cash equivalents at end of period $ 50,022 150,214 ============ ============ Supplemental cash flow information Cash paid for interest (net of amounts capitalized) 293,239 288,686 Cash paid for income taxes 0 414,588 Supplemental disclosure of non-cash investing and financing activities Treasury stock acquired in consideration for common stock issued as a result of a cashless stock option exercise. 0 120,096
See accompanying notes to condensed financial statements. 3 DYNATRONICS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS March 31, 2000 (Unaudited) NOTE 1. PRESENTATION The financial statements as of March 31, 2000 and for the nine months then ended were prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all necessary adjustments, which consist only of normal recurring adjustments, to the financial statements have been made to present fairly the financial position and results of operations and cash flows. The results of operations for the respective periods presented are not necessarily indicative of the results for the respective complete years. The Company has previously filed with the SEC an annual report on Form 10-KSB which included audited financial statements for the two years ended June 30, 1999. It is suggested that the financial statements contained in this filing be read in conjunction with the statements and notes thereto contained in the Company's 10-KSB filing. NOTE 2. NET INCOME PER COMMON SHARE Net income per common share is computed based on the weighted-average number of common shares and, as appropriate, dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. Basic net income per common share is the amount of net income for the period available to each share of common stock outstanding during the reporting period. Diluted net income per common share is the amount of net income for the period available to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the period. In calculating net income per common share, the net income was the same for both the basic and diluted calculation. A reconciliation between the basic and diluted weighted- average number of common shares for the nine months ended March 31, 2000 and 1999 is summarized as follows: [CAPTION] (Unaudited) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Basic weighted average number of common shares outstanding during the period 8,754,196 8,685,347 8,738,989 8,668,400 Weighted average number of dilutive common stock options outstanding during the period -0- 321,855 -0- 401,483 Diluted weighted average number _________ _________ _________ _________ of common and common equivalent shares outstanding during the period 8,754,196 9,007,202 8,754,196 9,069,483 ========== ========== ========== ==========
Outstanding options not included in the computation of diluted net income per share total 693,350 and 140,939 as of March 31, 2000 and 1999 respectively, because to do so would have been antidilutive. NOTE 3. COMPREHENSIVE INCOME For the periods ending March 31, 2000 and 1999, comprehensive income was equal to the net income as presented in the accompanying condensed statements of income. NOTE 4. INVENTORIES Inventories consisted of the following: March 31 2000 ---------- Raw Material $2,923,429 Finished Goods 1,717,250 Inventory Reserve (315,996) ---------- $4,324,683 ========== NOTE 5. PROPERTY AND EQUIPMENT Property and equipment were as follows: March 31 2000 ----------- Land $ 354,744 Buildings 2,792,744 Machinery and equipment 1,690,630 ----------- 4,838,118 Less accumulated depreciation and amortization 1,458,160 ----------- $ 3,379,958 =========== Item 2. Management's Discussion and Analysis or Plan of Operation The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Condensed Financial Statements (unaudited) and Notes thereto appearing elsewhere in this Form 10-QSB. Results of Operations Sales during the quarter ended March 31, 2000 increased 11% to $3,756,669, compared to $3,381,088 for the same period last year. During the quarter ended March 31, 2000, the Company introduced and began shipping its new Synergie Peel Microdermabrasion device which contributed to the increase in sales. The Synergie Peel incorporates a unique new protocol that combines the elements of a traditional facial treatment with Microdermabrasion and vacuum massage to provide what the Company refers to as the "Ultimate Facial." The Company has applied for three patents related to its Synergie Peel device. Sales during the nine-month period ended March 31, 2000 were $10,649,428 compared to $12,312,019 during the nine months ended March 31, 1999. The decline in sales during the nine months ended March 31, 2000 reflects the transition from initial sales of Synergie AMS products required to fill channels of distribution following the introduction of those products in the first two quarters of fiscal year 1999 to more normalized sales in the current reporting periods. Total gross profit during the quarter ended March 31, 2000 was $1,618,569 or 43.1% of sales compared to $1,362,923 or 40.3% of sales in the prior year period. Higher margins associated with the new Synergie Peel Microdermabrasion device improved gross margins for the quarter ended March 31, 2000 compared to the similar quarter in the prior year. Increased sales of high margin electrotherapy devices also contributed to the improved margin percentage for the quarter. Gross profit during the nine-month period ended March 31, 2000 was $4,296,031 or 40.3% of sales compared to $5,381,984 or 43.7% of sales for the similar period in 1999. Gross margins for the nine-month period were higher in the 1999 period as a result of the introduction of the Synergie AMS product line. Another factor contributing to the difference in gross profit as a percent of sales was an expense of approximately $80,000 charged to cost of goods sold during the nine-month period ended March 31, 2000 relating to the relocation of the Company's table manufacturing operations from South Carolina to facilities in Tennessee. Selling, general and administrative (SG&A) expenses for the three- and nine-month periods ended March 31, 2000, increased to $1,541,849 and $3,716,366, respectively, compared to $1,086,862 and $3,606,931, respectively in the same periods in 1999. Several factors contributed to the increase in SG&A expense. The most significant of these factors was legal fees and related expenses associated with litigation that was settled in the current reporting quarter. (See discussion of Legal Proceedings in Part II, Item 1) Approximately $500,000 in legal expense was incurred in the nine-month period ended March 31, 2000, of which $370,000 was expensed in the current reporting quarter. Another contributing factor was $87,000 in increased sales expense for the nine-month period related to establishing more direct sales representatives who sell the Company's line of aesthetic products. Increased advertising expense for the new Synergie Peel device also contributed to increased selling expense during the latest quarter. SG&A expenses for the nine-month period also included approximately $72,000 related to the relocation of the Company's table manufacturing operations from Columbia, South Carolina to Ooltewah, Tennessee. Most of these relocation expenses were incurred during the quarter ended September 30, 1999. The relocation is expected to eliminate over $400,000 of expense annually. Research and development (R&D) expenses during the three months ended March 31, 2000 totaled $184,245, compared to $96,867 for the same period in 1999. R&D expenses during the nine months ended March 31, 2000 were $562,868 compared to $436,412 in the previous year. The increase in R&D expenditures is directly related to the development of the new Synergie Peel Microdermabrasion device. Plans for developing other new products are expected to result in R&D expenditures continuing at current levels. Pre-tax loss for the quarter and nine months ended March 31, 2000 was $192,021 and $249,570, respectively, compared to net income of $87,113 and $1,076,128, respectively during the same periods of the prior year. The introduction of Synergie products significantly improved profits during the nine-month period ended March 31, 1999. Profits for the current reporting periods were eroded by several factors including legal expenses, consolidation of operations, higher selling expenses related to establishing direct sales representatives, increased research and development costs, and costs associated with the initial implementation of the Company's announced strategic growth plans. Costs associated with consolidation of operations and legal expenses combined exceeded $650,000 during the nine-month period ended March 31, 2000. Absent these expenses, Dynatronics would have reported pre-tax income of approximately $400,000 for the nine-month period, even with the increased R&D expenditures and the costs of implementing strategic growth plans. Income tax expense for the three months ended March 31, 2000 was $5,542 compared to $31,634 in the prior year period. Income tax benefit for the nine months ended March 31, 2000 was $16,326 compared to income tax expense of $419,668 in the prior year period. During the quarter ended March 31, 2000, the company settled a contractual obligation with Kelvyn Cullimore Sr., Chairman of the Board of Directors. Under the agreement, the Company was obligated to pay a pre-retirement death benefit to Mr. Cullimore's beneficiaries in the event of his death prior to age 65, or upon reaching age 65 an annual retirement benefit of $75,000 per year. Mr. Cullimore's 65th birthday is in July, 2000. The obligation was funded through an insurance policy owned by the Company on the life of Mr. Cullimore and was recorded as a deferred compensation expense on the books of the Company. Under the terms of the settlement, the Company made a lump sum payment equivalent to the accrued deferred compensation. The funding of the settlement was obtained through surrendering the life insurance policy on Mr. Cullimore's life. Under tax laws, both the premiums paid by the Company on this policy and the accumulated cash surrender value are excluded from the calculation of taxable income. However, generally accepted accounting principles require that the premium and the increase in cash surrender value be recorded annually. At the time of surrender of the policy, the cash surrender value received by the Company exceeded the net premiums paid by approximately $200,000. This increase had been recognized on the books of the Company over the term of the contract, but the tax calculations each year excluded this income. The settlement created a tax liability of approximately $76,000, which is the tax on the book income recognized over the life of the contract but excluded from the tax calculation in prior years. Absent this charge, the tax benefit for the quarter ended March 31, 2000 would have been approximately $72,000. Net loss for the quarter ended March 31, 2000 was $197,563, compared to net income of $55,479 in the same period one year ago. Net loss for the nine months ended March 31, 2000 was $233,244 compared to net income of $656,460 in the prior year period. The decrease in net income is attributable to lower sales and margins associated with the reduced sales of Synergie AMS products during the nine months ended March 31, 2000, increased legal and other expenses and the tax liability from the settlement of the deferred compensation obligation. Liquidity and Capital Resources The Company expects revenues from operations, together with amounts available under its bank line of credit to be adequate to meet working capital needs related to its business and its planned capital expenditures for the next twelve months. The Company's current ratio at March 31, 2000 was 2.2 to 1. Current assets represent 64% of total assets. Trade accounts receivable are from the Company's dealer network and are generally considered to be within term. All accounts payable are within term with the Company continuing its policy of taking advantage of payment discounts available wherever possible. The Company has a $3,750,000 revolving line of credit with a commercial bank. Borrowing limitations are based on 40% of inventory (up to a maximum of $1.65 million) and up to 80% of eligible accounts receivable. The outstanding balance on the line of credit at March 31, 2000 was $2,197,461. The line is secured by the Company's inventory, accounts receivable and a deed of trust on the Company's office building in Salt Lake City, Utah. The line bears interest at the bank's "Prime Rate," which was 9% per annum at March 31, 2000. This line is subject to annual renewal and matures on November 30, 2000. Accrued interest is payable monthly. Inventory levels, net of reserves, at March 31, 2000 totaled $4,324,683, while net accounts receivable were $3,152,231. During the last fiscal year, inventories and receivables increased significantly to support the Company's introduction of the Synergie AMS product line. In addition, management has made a stronger effort to reduce backorders by increasing inventory quantities. Financing for these increases has been provided through cash flows from operations together with amounts available under the Company's line of credit facility. Levels of raw material inventories for Synergie AMS products exceed amounts that would normally be kept on hand. This surplus was generated during the last year when inventories were increased to support anticipated levels of sales that were not subsequently achieved. The Company is confident the inventories can be successfully reduced over the coming year as sales increase as a result of the Company's strategic initiatives discussed below. Long-term debt excluding current installments at March 31, 2000 totaled $2,126,697 comprised primarily of the mortgage loans on the Company's office and manufacturing facilities. The principal balance on the mortgage loans is approximately $2.1 million with monthly principal and interest payments of $26,900. Business Plan During the reporting quarter, management continued the implementation of its strategic plans to reposition and diversify the Company's product lines to guide future growth in both sales and profits. The Company's board of directors approved the initiatives, which are designed to refocus Dynatronics' strategy for manufacturing and distributing its popular line of rehabilitation products. The plans also commit the necessary resources to strengthen distribution and develop new aesthetic products targeting the medical, spa and beauty markets. Included in these strategic plans is the expansion of marketing efforts into the European Community. Dynatronics received approval to begin marketing its line of electrotherapy and ultrasound devices throughout Europe in August 1999. The Company believes that Europe presents a promising market for these products. The Company is also in the process of obtaining the necessary approvals to sell its aesthetic products in the European market. Management is confident that access to this vast market will over time result in increased sales of the Company's therapeutic and aesthetic devices, which are among its most profitable products. In addition, the Company has several innovative developments relating to new physical therapy products which are scheduled to be introduced during the current calendar year. Continued innovation allows the Company to remain at the forefront of technology in the physical medicine industry. The other strategic component of these new initiatives is a stronger commitment to diversification into the aesthetics market. During fiscal year 1999, the Company made its initial entry into this market with the introduction of its Synergie Lifestyle System product line. As a companion to the Synergie System, the Company recently introduced its new Synergie Peel Microdermabrasion device. Microdermabrasion technology is quickly becoming the new standard of care in the aesthetics industry because of its distinct advantages over chemical and laser peels. In conjunction with the Synergie Peel device, the Company plans to introduce a new line of advanced skin care products that further enhance the results of the Synergie Peel treatment regimen and expand the Company's aesthetic product offering. Based on the Company's experiences in this new market during the past year, management believes that there are many opportunities for growth in this field. To take full advantage of the opportunities of the broader aesthetics market, Dynatronics has begun to establish a direct sales force for marketing its aesthetic products. Underscoring the importance of this new initiative is the fact that the Company's chairman, Kelvyn H. Cullimore, is personally managing the effort to establish this new channel of distribution. The pace at which these direct sales representatives are being hired has slowed somewhat due to the success of some dealers in the distribution chain. Presently, efforts to establish direct sales representatives are focused on areas where the Company does not have a strong dealer representing it. The Company expects that owning control over the channels of distribution of these products will allow the Company to more fully access the potential of the aesthetics products market. The Company perceives this market to be both lucrative and expanding, particularly as aging baby boomers continue to look for ways to retain a youthful appearance. During the past quarter the Company allocated resources to enhance its e-business presence. E-commerce is rapidly becoming a reality in many aspects of business. Dynatronics has undertaken to improve the appearance and application of its website, and is researching ways to apply e-commerce solutions to better serve customer needs, access new business opportunities, reduce the cost of customer service, and stay technologically current in the way business is conducted. The Company believes the allocation of these resources is critical to improving future performance. With the new strategic initiatives underway, the Company will focus its resources in the following areas: - Strengthening distribution of rehabilitation products - Re-engineering key rehabilitation product lines and developing new therapy products - Expanding distribution of products in Europe - Improving distribution in the aesthetic products market through the hiring of direct sales representatives - Introducing new aesthetic products - Applying e-commerce solutions to improving overall performance Forward-Looking Statements and Risks Affecting the Company The statements contained in this Report on Form 10-QSB that are not purely historical are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act. These statements regard the Company's expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future. They may be identified by the use of words or phrases such as "believes," "expects," "anticipates," "should," "plans," "estimates," "intends," and "potential," among others. Forward-looking statements include, but are not limited to, statements contained in Management's Discussion and Analysis or Plan of Operation regarding the Company's financial performance, revenue and expense levels in the future and the sufficiency of its existing assets to fund future operations and capital spending needs. Actual results could differ materially from the anticipated results or other expectations expressed in such forward-looking statements for the reasons detailed in the Company's Annual Report on Form 10-KSB under the headings "Description of Business" and "Risk Factors." The fact that some of the risk factors may be the same or similar to the Company's past reports filed with the Securities and Exchange Commission means only that the risks are present in multiple periods. The Company believes that many of the risks detailed here and in the Company's other SEC filings are part of doing business in the industry in which the Company operates and competes and will likely be present in all periods reported. The fact that certain risks are endemic to the industry does not lessen their significance. The forward-looking statements contained in this Report are made as of the date of this Report and the Company assumes no obligation to update them or to update the reasons why actual results could differ from those projected in such forward-looking statements. Among others, risks and uncertainties that may affect the business, financial condition, performance, development, and results of operations of the Company include: - Market acceptance of the Company's technologies, particularly the new Synergie Lifestyle System product line and other new or re-designed products; - The ability to hire and retain the services of trained personnel at cost-effective rates; - Rigorous government scrutiny or the possibility of additional government regulation of the industry in which the Company markets its products; - Reliance on key management personnel; - Foreign government regulation of the Company's products and manufacturing practices that may bar or significantly increase the expense of expanding to foreign markets; - Economic and political risks related to the Company's expansion into international markets; - Failure of the Company to sustain or manage growth including the failure to continue to develop new products or to meet demand for existing products; - The Company's reliance on information technology; - The timing and extent of research and development expenses; - The Company's ability to keep pace with technological advances, which can occur rapidly; - The loss of product market share to competitors; - Potential adverse effect of taxation; - The ability of the Company to obtain required financing to meet changes or other risks described above; PART II. OTHER INFORMATION Item 1. Legal Proceedings. During the quarter ended March 31, 2000, the Company reached a settlement of all litigation matters with LPG USA, Inc disclosed in previous quarterly reports. The two companies had filed lawsuits in Utah and Florida in May/June 1999 asserting claims against each other for unfair trade practices. By agreement, specific terms of the settlement were not released. The impact of this litigation and the settlement on earnings and results of operations of the Company are discussed in this report in Item 2 of Part I, "Managements Discussion and Analysis or Plan of Operation." Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits No. Description - --- ----------- 10. Settlement Agreement dated March 29, 2000, between Dynatronics and Kelvyn H. Cullimore 27. Financial Data Schedule SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DYNATRONICS CORPORATION ---------------------------- Registrant Date 5/15/00 /s/ Kelvyn H. Cullimore, Jr. ------------------ ---------------------------- Kelvyn H. Cullimore, Jr. President, Chief Executive Officer and Principal Accounting Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET & STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 50,022 0 3,293,166 140,935 4,324,683 8,239,595 4,838,118 1,458,160 12,881,439 3,735,797 2,126,697 0 0 2,331,913 4,178,160 12,881,439 10,649,428 10,649,428 6,353,397 6,353,397 0 27,000 293,239 (249,570) (16,326) (233,244) 0 0 0 (233,244) (0.03) (0.03)
EX-10 3 March 29, 2000 Kelvyn H. Cullimore, Sr. 2249 Emerald Court Salt Lake City, Utah 84121 RE: Termination of Salary Continuation Agreement Dear Kelvyn: As you are aware, you entered into a Salary Continuation Agreement with Dynatronics Corporation (the "Company") on July 5, 1989 (the "Salary Agreement"). The Salary Agreement was intended to provide your heirs with continued payment of a portion of your salary as an employee of the Company should you pass away prior to your 65th birthday. In addition, the Salary Agreement included a retirement benefit commencing with the second month following your 65th birthday. We have agreed that the Salary Agreement should be terminated. This letter sets forth our mutual agreement concerning the termination of the Salary Agreement and is referred to hereafter as the "Termination Agreement." Upon your acceptance of this Termination Agreement, the Salary Agreement shall be terminated and shall be of no further effect. You will have no further claims under the Salary Agreement and the Company will have no further obligation to you under the Salary Agreement. This Termination Agreement is entered into in consideration of the following: Cash payment of $481,894 as follows: $200,000 upon execution of this Termination Agreement and the balance within 15 days following the execution of this Termination Agreement; By accepting the Company's agreement to make the payments required under this Termination Agreement, you waive any and all claims for any additional payments under the Salary Agreement or any policy or policies of insurance obtained under the Salary Agreement. This Termination Agreement is not an agreement relating to termination of your employment or any other rights you may have as an employee of the Company not expressly modified or addressed by this Termination Agreement. You agree to bear all responsibility for payment of personal income taxes associated with this settlement. This Termination Agreement will be interpreted in accordance with Utah law. It may be modified only in writing signed by both the Company's authorized representative and you. No waiver of any provision of this Termination Agreement will be effective unless it is in writing and signed by the party against whom it is to be enforced. This Termination Agreement represents the entire agreement between you and the Company concerning the Salary Agreement and its termination and it supercedes all other agreements. If you are willing to accept this arrangement, please sign below and return one signed copy of this letter to me. Payment of the first amounts owing under this Termination Agreement will be made upon receipt of your signed copy. Very truly yours, DYNATRONICS CORPORATION By: /s/ Kelvyn H. Cullimore, Jr. ---------------------------- Kelvyn H. Cullimore, Jr. Its: President and Chief Executive Officer Agreed: /s/ Kelvyn H. Cullimore, Sr. ---------------------------- Kelvyn H. Cullimore, Sr. -----END PRIVACY-ENHANCED MESSAGE-----