-----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, JbWkNDIzUt+NdehKqhXjUeuoTD80Q72tKVvA0iIiJMlrPCf47F+0WdIvMW381KZa 0O2hq9KxbviKKdtFxX1bxQ== 0000720875-97-000006.txt : 19971117 0000720875-97-000006.hdr.sgml : 19971117 ACCESSION NUMBER: 0000720875-97-000006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD 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: 97717739 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1997. [ ] 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. X Yes No ----- ----- The number of shares outstanding of the issuer's common stock, no par value, as of November 3, 1997 is 8,427,847 shares. Transitional Small Business Disclosure Format. Yes X No ----- ------ DYNATRONICS CORPORATION TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page Number ----------- Condensed Balance Sheet September 30, 1997 1 Condensed Statements of Income Three Months Ended September 30, 1997, and September 30, 1996 2 Condensed Statements of Cash Flows Three Months Ended September 30, 1997, and September 30, 1996 3 Notes to Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. OTHER INFORMATION 10 DYNATRONICS CORPORATION Condensed Balance Sheet (Unaudited) September 30 ASSETS 1997 ------------ Current assets: Cash and cash equivalents $ 154,599 Trade accounts receivable, less allowance for doubtful accounts of $66,828 2,302,224 Other receivables 121,225 Inventories 2,194,064 Prepaid expenses 81,249 Deferred tax asset-current 91,757 ----------- Total current assets 4,945,118 Net property and equipment 2,610,462 Excess of cost over book value, net of accumulated amortization of $235,734 1,203,440 Deferred tax asset-noncurrent 228,365 Other assets 517,732 ----------- $ 9,505,117 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 161,993 Current installments of capital lease obligations 3,143 Line of credit 312,617 Accounts payable 705,873 Accrued expenses 598,980 ----------- Total current liabilities 1,782,606 Long-term debt, excluding current installments 2,049,674 Deferred compensation 468,051 ----------- Total long-term liabilities, excluding current installments 2,517,724 ----------- Total liabilities 4,300,331 Stockholders' equity: Common stock, no par value. Authorized 50,000,000 shares; issued and outstanding 8,427,847 shares 1,984,026 Retained earnings 3,220,760 ----------- Total stockholders' equity 5,204,786 ----------- $ 9,505,117 =========== See accompanying notes to condensed financial statements. 1 DYNATRONICS CORPORATION Condensed Statements Of Income (Unaudited) Three Months Ended September 30 1997 1996 ----------- ----------- Net sales $ 3,027,779 2,382,671 Cost of sales 1,735,991 1,365,449 ----------- ----------- Gross profit 1,291,788 1,017,222 Selling, general, and administrative expenses 843,016 737,500 Research and development expenses 123,402 138,227 ----------- ----------- Operating income 325,370 141,495 Other income (expense): Interest income 68 2,986 Interest expense (44,468) (50,610) Other income, net 22,098 29,045 ----------- ----------- Total other income (expense) (22,302) (18,579) Income before income taxes 303,068 122,916 Income tax expense 110,843 47,464 ----------- ----------- Net income $ 192,225 75,452 =========== =========== Net income per common share and common share equivalents $ 0.02 0.01 =========== =========== Weighted average number of common shares and common share equivalents outstanding (note 2) 8,425,809 8,424,747 See accompanying notes to condensed financial statements. 2 DYNATRONICS CORPORATION Condensed Statements of Cash Flows (Unaudited) [CAPTION] Three Months Ended September 30 1997 1996 ----------- ----------- Cash flows from operating activities: Net income $ 192,225 75,452 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 41,779 44,730 Other amortization 17,319 21,718 Provision for doubtful accounts 3,000 3,000 Provision for inventory obsolescence 28,500 24,000 Provision for warranty reserve 38,130 26,950 Decrease (increase) in operating assets: Receivables (169,695) (392,052) Inventories (42,304) (96,374) Prepaid expenses and other assets (26,483) (22,868) Deferred tax assets (58,456) 14,447 Increase (decrease) in operating liabilities: Trade accounts payable and accrued expenses (88,784) 88,049 Deferred compensation 21,021 20,046 Income taxes payables (2,401) 32,674 ---------- ---------- Net cash provided by (used in) operating activities (46,149) (160,228) ---------- ---------- Cash flows from investing activities: Capital expenditures (46,314) (59,340) ---------- ---------- Net cash provided by (used in) investing activities (46,314) (59,340) ---------- ---------- Cash flows from financing activities: Principal payments under capital lease obligations (1,825) (9,061) Principal payments on long-term debt (37,817) (36,876) Net change in line of credit (257,911) (119,572) ---------- ---------- Net cash provided by (used in) financing activities (297,553) (165,509) ---------- ---------- Net increase (decrease) in cash and cash equivalents (390,016) (385,077) Cash and cash equivalents at beginning of period 544,615 416,854 ---------- ---------- Cash and cash equivalents at end of period $ 154,599 31,777 ========== ========== Supplemental cash flow information Cash paid for interest (net of amounts capitalized) 44,468 50,610 Cash paid for income taxes 171,700 0 See accompanying notes to condensed financial statements. 3
DYNATRONICS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1997 (Unaudited) NOTE 1. PRESENTATION The financial statements as of September 30, 1997 and for the three months then ended were prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission. 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 to the financial statements have been made to present fairly the financial position and results of operations and cash flows. All adjustments were of a normal recurring nature. 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 Annual Reports on Form 10-KSB under the name of Dynatronics Corporation which included audited financial statements for the two years ending June 30, 1997 and 1996. 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. EARNINGS PER SHARE Earnings per common share and common share equivalents are computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents include shares issuable upon exercise of the Company's stock options. NOTE 3. INVENTORIES Inventories consisted of the following: September 30 1997 ------------- Raw Materials $ 1,143,767 Finished Goods 1,144,321 Inventory Reserve (94,024) ------------- $ 2,194,064 ============= 4 NOTE 4. PROPERTY AND EQUIPMENT Property and equipment were as follows: September 30 1997 ------------ Land $ 354,744 Buildings 2,080,509 Machinery and equipment, and equipment under capital lease 1,140,726 ------------ 3,575,979 Less accumulated depreciation and amortization. 965,517 ------------ $ 2,610,462 ============ 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Sales for the quarter ended September 30, 1997 reached a record high $3,027,779, up 27 percent as compared to $2,382,671 in the same period of the prior year. Net income from operations for the reporting quarter reached a first quarter record high of $192,225 up 155 percent over last year's first quarter results of $75,452. Over the past eighteen months, the Company has embarked on a strategic plan to broaden its product line and expand its distribution network. This has been accomplished through such activities as the May 1996 acquisition of Superior Orthopaedic Supplies, the introduction of the "50 Series Plus" line of electrotherapy and ultrasound products during fiscal year 1997, the January 1997 acquisition of assets to begin the manufacture of therapy tables and rehab equipment in Columbia, South Carolina and the exclusive marketing agreement with Life-Tech to distribute their iontophoresis products to the physical therapy market. These strategic achievements are the basis and cause for the increased sales and profitability during the reporting quarter. The Company continues to gain market share both domestically and internationally through increased sales of the new "50 Series Plus" line of electrotherapy and ultrasound products. By incorporating state-of-the-art technology to reduce manufacturing costs, profit margins for these products are the highest of any devices manufactured by the Company. Increased sales of medical supplies and soft goods accounts for the majority of increased revenues for the reporting period and continues to be a focal point of the Company's overall strategy. Sales of these products increased 51% over the same period last year. The publication of Dynatronics' first full-line catalogue in January, 1997, provided an important tool in effectively marketing these products and is expected to continue to fuel sales growth in future periods as new expanded catalogues are introduced. In January, 1997 the Company announced it had acquired assets to begin manufacturing physical therapy treatment tables, parallel bars, and other specialty rehabilitation equipment at a facility in Columbia, South Carolina. This facility currently manufactures over 30 varieties of products and plans to almost double the number of products offered during fiscal year 1998. These products are being manufactured under the direction of a seasoned management team with 30 years of experience in this industry. Based on current growth trends, management expects this division will generate $1 million in sales during fiscal 1998. The development of new marketing strategies emphasizing Dynatronics' position as the low-cost provider of iontophoresis products has been the main factor in increasing sales of iontophoresis products during the past three quarters. Iontophoresis is a process of transdermally delivering certain anti- inflammatory and anesthetic drugs into a localized area without the use of needles. Management anticipates sales of iontophoresis products in 1998 will exceed $1,000,000 - nearly double their fiscal year 1997 level. 6 Gross Margins for the reporting quarter increased 27 percent to $1,291,788 as compared to $1,017,222 in the prior year period. This increase is directly attributable to the increase in sales volume as mentioned above. Gross margins as a percentage of sales remained constant at 42.7% when compared to the same quarter in the prior year period. Selling, General and Administrative (SG&A) expenses for the three-month period increased to $843,016 as compared to $737,500 in the same period last year. This increase is mostly related to additional SG&A expenses associated with the new treatment table manufacturing operation acquired in Columbia, South Carolina. Labor expense also increased due to staffing needs created by the higher sales volume and the anticipation of and preparation for further sales increases in the future. Research and development expenses in the three-month period totaled $123,402 compared to $138,227 in the prior year period. Management anticipates R&D expenses for fiscal 1998 will not exceed fiscal year 1997 levels. Operating income more than doubled to $325,370 in the three-month period ended September 30, 1997 compared to $141,495 in the same period of the prior year. The increased sales volumes and higher margins associated with the new "50 Series Plus" products were the primary reason for increased operating income during the quarter. Income before tax for the quarter ended September 30, 1997 increased 147 percent to $303,068 compared to $122,916 during the similar period of the prior year. Increased sales together with the higher margins associated with the new "50 Series Plus" products contributed to the increased profit from operations. Income tax expense for the three-month period ended September 30, 1997 equaled $110,843 as compared to $47,464 in the prior year period. Net income for the three-month period increased 155 percent to $192,225 compared to $75,452 for the same period in the prior year. These increases are a result of the factors discussed above and reflect the successful implementation of the Company's strategic plan to broaden its product offerings and increase distribution. Liquidity and Capital Resources - ------------------------------- The Company expects revenues from operations, together with available sources of borrowing, will be adequate to meet its working capital needs related to its business and its planned capital expenditures for the upcoming operating year. The Company continues to maintain a liquid position. The Company's current ratio at September 30, 1997 was 2.8 to 1. Current assets represent 52 percent 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 any and all payment discounts available. 7 The Company maintains a revolving line of credit in the amount of $1,500,000 with a commercial bank. The outstanding balance on this line of credit at September 30, 1997 was $312,617, with $1,187,383 available to the Company. Inventory levels, net of reserves, at September 30, 1997 totaled $2,194,064 while net accounts receivable were $2,302,224. Management anticipates inventory and accounts receivable levels may increase in future quarters as new products are introduced and sales volumes continue to grow. Long-term debt excluding current installments at September 30, 1997 totaled $2,049,674, comprised primarily of the mortgage loan on the Company's office and manufacturing facility and the note payable associated with the acquisition of Superior Orthopaedic Supplies. The balance on the mortgage loan is approximately $2 million with monthly principal and interest payments of $19,700. Business Plan - ------------- With the introduction of the new "50 Series Plus" product line the Company increased its market share in the most profitable segment of its market. This product line offers the greatest number of features at the lowest price of any previous products offered by the Company. With the acquisition of Superior Orthopaedic Supplies in May 1996, the Company has been able to increase sales of Superior's product line of soft goods and supply products through Dynatronics' distribution network. The start-up of the treatment table manufacturing operation in South Carolina has further broadened the Company's product line. Offering a broad product line is of strategic importance as clinics continue to consolidate and develop centralized purchasing which favors single source suppliers for their medical device and supplies needs. To capitalize on its broadened product line, the Company published its first full-line catalogue in January, 1997. The distribution of this catalogue boosted sales and is expected to support continued sales growth. Work on the next generation catalogue is nearing completion. This new catalogue will carry nearly twice the number of products as compared to the Company's first catalogue and is expected to be ready for distribution in January, 1998. Another avenue to increase sales and profits being pursued by management is that of strategic business alliances such as the exclusive distribution agreement signed with Life-Tech, Inc. in August 1996. The Company continues to evaluate additional strategic alliances and acquisition opportunities which could enhance and broaden the Company's product line. The Company's sales are expanding internationally with the approval to market products in Japan being granted during fiscal year 1997. Management anticipates initial marketing efforts in Europe will begin in fiscal year 1998 which is expected to continue the Company's international expansion. 8 The Company recognizes the need to continually upgrade and re-engineer existing products as well as introduce new products. The Company's continuing commitment to Research and Development enables Dynatronics to be a technological leader in the market. New products and engineering improvements are constantly being evaluated and developed. The Company continues to evaluate research into areas of potential efficacy of its low-power laser device. Should any such research provide evidence deemed sufficient for submission to the U.S. Food and Drug Administration, the Company would give consideration to submitting a Pre-Market Approval Application for the laser to the FDA. Forward-looking Statements - -------------------------- This quarterly report contains forward-looking statements relating to anticipated financial performance, product development, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. With the exception of historical information, statements in this report are forward-looking within the meaning of the law, including statements regarding future products, product development, research and development spending, and the Company's business plan, as well as statements regarding the levels of future international sales The Company notes that risks inherent in its business and a variety of factors could cause or contribute to a difference between actual results and anticipated results. Those risks include, but are not limited to, such factors as market acceptance of Company products (particularly new product lines and re-designed product lines), the ability to hire and retain the services of trained personnel at cost-effective labor rates, the absence of new adverse government regulation of the Company's products, the actions of foreign regulators that may adversely affect the expansion of the Company's marketing activities in foreign markets, political or economic changes in the United States and abroad which may adversely affect the market for physical therapy devices or soft goods in general or the Company's products in particular, the Company's ability to keep pace with technological advances which can occur rapidly, the Company's ability to meet increasing demand, the ability to introduce new products on a timely basis, changing customer requirements, delays in new products qualifications, the timing and extent of research and development expenses, the Company's access to and ability to finance such changes. The foregoing and other factors, both within and outside the Company's control, may cause actual results to differ from those described in forward-looking statements made in this Report. 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- There are no material legal proceedings pending to which the Company or any of its subsidiaries is a party or of which any of their property is the subject which require disclosure in this statement. Item 2. Changes in Securities --------------------- Not applicable. Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not Applicable. Item 5. Other Information ----------------- Not Applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- A) Exhibits No. Description --- ----------- 27 Financial Data Schedule B) Reports on Form 8-K None 10 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 November 13, 1997 /s/ Kelvyn H. Cullimore, Jr. -------------------------- ------------------------------- Kelvyn H. Cullimore, Jr. President Chief Executive Officer Date November 13, 1997 /s/ John L. Hales -------------------------- ------------------------------- John L. Hales Chief Financial Officer and Principal Accounting Officer 11 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET AND STATEMENTS OF INCOME 9-30-97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JUN-30-1997 JUL-01-1997 SEP-30-1997 154,599 0 2,369,052 66,828 2,194,064 4,945,118 3,575,979 965,517 9,505,117 1,782,606 2,517,724 0 0 1,984,026 3,220,760 9,505,117 3,027,779 3,027,779 1,735,991 1,735,991 0 4,200 44,468 303,068 110,843 192,225 0 0 0 192,225 .023 .023
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