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
DECEMBER 31, 2001.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission File Number: 0-12697
Dynatronics Corporation
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(Exact name of small business issuer as specified in its charter)
Utah 87-0398434
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
------------------------------------------------
(Address of principal executive offices)
(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 February 12, 2001 is 8,869,335.
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 Sheets
December 31, 2001 and June 30, 2001 1
Unaudited Condensed Statements of Income
Three and Six Months Ended December 31, 2001 and 2000 2
Unaudited Condensed Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000 3
Notes to Unaudited Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
DYNATRONICS CORPORATION
Condensed Balance Sheets
(Unaudited)
December 31, June 30,
ASSETS 2001 2001
-------------- --------------
Current assets:
Cash and cash equivalents $ 394,183 258,884
Trade accounts receivable, less allowance for doubtful accounts
of $164,735 at December 31, 2001 and $140,735 at June 30, 2001 3,650,014 3,426,404
Other receivables 207,816 191,845
Inventories 4,545,205 4,746,323
Prepaid expenses 370,716 212,429
Prepaid income taxes 20,288 26,003
Deferred tax asset-current 268,735 268,735
-------------- --------------
Total current assets 9,456,957 9,130,623
Net property and equipment 3,198,654 3,277,458
Excess of cost over book value, net of accumulated amortization
of $606,144 at December 31, 2001 and $568,640 at June 30, 2001 833,030 876,637
Other assets 282,874 275,629
-------------- --------------
$ 13,771,515 13,560,347
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 214,831 239,151
Line of credit 2,901,882 2,871,024
Accounts payable 654,380 407,727
Accrued expenses 330,147 424,257
Accrued payroll and benefit expenses 176,829 216,518
-------------- --------------
Total current liabilities 4,278,069 4,158,677
Long-term debt, excluding current installments 1,754,697 1,834,903
Deferred compensation 271,417 260,599
Deferred tax liability - noncurrent 78,846 78,846
-------------- --------------
Total liabilities 6,383,029 6,333,025
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued 8,913,774 shares at December 31, 2001
and 8,840,422 at June 30, 2001 2,623,326 2,565,926
Treasury stock, 59,439 shares at December 31, 2001
and 35,584 shares at June 30, 2001 (159,696) (120,096)
Retained earnings 4,924,856 4,781,492
-------------- --------------
Total stockholders' equity 7,388,486 7,227,322
-------------- --------------
$ 13,771,515 13,560,347
============== ==============
See accompanying notes to condensed financial statements.
1
DYNATRONICS CORPORATION
Condensed Statements Of Income
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 3,956,430 4,047,562 8,123,717 8,114,044
Cost of sales 2,360,452 2,362,754 4,795,800 4,731,250
----------- ---------- ---------- ----------
Gross profit 1,595,978 1,684,808 3,327,917 3,382,794
Selling, general, and administrative expenses 1,285,179 1,344,831 2,618,648 2,624,485
Research and development expenses 164,654 191,851 326,090 336,937
----------- ---------- ---------- ----------
Operating income 146,145 148,126 383,179 421,372
----------- ---------- ---------- ----------
Other income (expense):
Interest income 873 2,040 2,896 3,101
Interest expense (74,145) (79,838) (155,258) (160,347)
Other income, net 2,159 3,422 4,497 7,384
----------- ---------- ---------- ----------
Total other income (expense) (71,113) (74,376) (147,865) (149,862)
Income before income taxes 75,032 73,750 235,314 271,510
Income tax expense 28,512 28,025 91,950 105,835
----------- ----------- ---------- ----------
Net income $ 46,520 45,725 143,364 165,675
=========== =========== ========== ==========
Basic and diluted net income
per common share $ 0.01 0.01 0.02 0.02
----------- ----------- ---------- ----------
Weighted average basic and diluted common shares outstanding (note 2)
Basic 8,854,335 8,785,038 8,842,776 8,779,929
Diluted 8,883,477 8,948,872 8,918,139 8,925,898
See accompanying notes to condensed financial statements.
2
DYNATRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31
2001 2000
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 143,364 165,675
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of property and equipment 158,805 145,715
Other amortization 43,607 48,549
Provision for doubtful accounts 24,000 18,000
Provision for inventory obsolescence 102,000 102,000
Provision for warranty reserve 113,828 110,295
Deferred compensation 10,818 12,840
Compensation expense on stock options 0 7,000
Decrease (increase) in operating assets and liabilities:
Receivables (263,581) (144,444)
Inventories 99,118 238,506
Prepaid expenses and other assets (165,532) (106,927)
Deferred tax asset 0 0
Prepaid income tax 9,450 26,386
Trade accounts payable and accrued expenses (974) 53,720
----------- -----------
Net cash provided by operating activities 274,903 677,315
----------- -----------
Cash flows from investing activities-capital expenditures (80,001) (110,065)
Cash flows from financing activities:
Principal payments on long-term debt (104,526) (118,821)
Net change in line of credit 30,858 (445,549)
Proceeds from sale of common stock 14,065 0
----------- -----------
Net cash used in financing activities (59,603) (564,370)
----------- -----------
Net increase in cash and cash equivalents 135,299 2,880
Cash and cash equivalents at beginning of period 258,884 233,756
----------- -----------
Cash and cash equivalents at end of period $ 394,183 236,636
=========== ===========
Supplemental cash flow information
Cash paid for interest 148,130 163,475
Cash paid for income taxes 82,500 49,050
Supplemental disclosure of non-cash investing and financing activities
Common stock and options issued for license agreement 0 73,240
Common stock and options issued in exchange for mature stock 39,600 0
See accompanying notes to condensed financial statements.
3
DYNATRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 2001
(Unaudited)
NOTE 1. PRESENTATION
The financial statements as of December 31, 2001 and June 30, 2001 and
for the three and six months ended December 31, 2001 and 2000 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 accounting principles generally
accepted in the United States of America 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, 2001. It is suggested that the financial
statements contained in this filing be read in conjunction with the
statements and notes thereto contained in the Company's 10-KSB filing.
NOTE 2. NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted-average
number of common shares and, as appropriate, dilutive common stock
equivalents outstanding during the period. Stock options are
considered to be common stock equivalents.
Basic net income per common share is the amount of net income for the
period available to each share of common stock outstanding during the
reporting period. Diluted net income per common share is the amount of
net income for the period available to each share of common stock
outstanding during the reporting period and to each share that would
have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the period.
In calculating net income per common share, the net income was the same
for both the basic and diluted calculation. A reconciliation between
the basic and diluted weighted-average number of common shares for the
three and six months ended December 31, 2001 and 2000 is summarized as
follows:
4
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
Basic weighted average number
of common shares outstanding
during the period 8,854,335 8,785,038 8,842,776 8,779,929
Weighted average number of
dilutive common stock options
outstanding during the period 29,142 163,834 75,363 145,969
--------- --------- --------- ---------
Diluted weighted average number
of common and common
equivalent shares outstanding
during the period 8,883,477 8,948,872 8,918,139 8,925,898
========= ========= ========= =========
Outstanding options not included in the computation of diluted net
income per share for the six month periods ended December 31, 2001 and
2000 total 211,471 and 197,414 respectively, because to do so would
have been antidilutive.
NOTE 3. COMPREHENSIVE INCOME
For the periods ended December 31, 2001 and 2000, 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:
December 31 June 30
2001 2001
----------- ------------
Raw Material $ 2,965,792 2,914,710
Finished Goods 1,921,334 2,071,822
Inventory Reserve (341,921) (240,209)
------------ -----------
$ 4,545,205 4,746,323
============ ===========
5
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
December 31 June 30
2001 2001
------------- -----------
Land $ 354,743 354,743
Buildings 2,802,894 2,802,894
Machinery and equipment 1,367,172 1,335,828
Office equipment 337,008 288,351
Vehicles 61,771 61,771
----------- -----------
4,923,588 4,843,587
Less accumulated
depreciation and
amortization 1,724,934 1,566,129
----------- -----------
$ 3,198,654 3,277,458
=========== ===========
6
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of our 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 December 31, 2001 were $3,956,430,
compared to $4,047,562 during the same period last year. Sales for the
six-month period ended December 31, 2001 were $8,123,717 compared to
$8,114,044 during the six months ended December 31, 2000. During the
quarter and six-month period ended December 31, 2001, increased sales
of core medical products led by the company's new STSTM devices for
chronic pain were offset by decreased aesthetic products sales.
Dynatronics is currently working to strengthen the distribution network
for its aesthetic products by adding new aesthetic dealers throughout
the country to support future growth.
Interest in the Dynatron STS and STS Rx technology remains high. A
research study assessing the effectiveness of STS treatments was
published in the January 2002 edition of the American Journal of Pain
Management. According to study results, 85% of participants treated
with STS therapy experienced a reduction of pain, with 50% of the
patients becoming totally pain-free. Having the study published in a
peer-reviewed medical journal has been an important factor in improving
acceptance among medical practitioners and insurance carriers. The STS
devices incorporate patented, non-invasive technology, which
effectively provides relief for many chronic pain sufferers.
Total gross profit during the quarter ended December 31, 2001 was
$1,595,978 or 40.3% of sales compared to $1,684,808 or 41.6% of sales
in the quarter ended December 31, 2000. Gross profit during the six-
month period ended December 31, 2001 was $3,327,917 or 41.0% of sales
compared to $3,382,794 or 41.7% of sales in the six months ended
December 31, 2000. Sales during the quarter ended December 31, 2000
included a large order for Synergie AMS/MDA combination units filled
for an international distributor. The large volume of high margin
Synergie sales in the quarter ended December 31, 2000 increased gross
margins in that period.
Selling, general and administrative (SG&A) expenses for the three-month
period ended December 31, 2001, decreased to $1,285,179 or 32.5% of
sales compared to $1,344,831 or 33.2% of sales in the same period of
the prior year. SG&A expenses for the six-month period ended December
31, 2001 were $2,618,648 or 32.2% of sales compared to $2,624,485 or
32.3% of sales for the six months ended December 31, 2000. The decline
in SG&A reflects management's efforts to reduce expenses. The Company
has taken steps to increase its profitability through an expense
reduction program that it expects will generate future annual savings
of as much as $500,000. The company believes that the effect of these
expense reductions will begin to be reflected in the quarter ending
June 30, 2002.
Research and development (R&D) expenses during the three and six-month
periods ended December 31, 2001 totaled $164,654 and $326,090,
respectively compared to $191,851 and $336,937, respectively for the
7
same periods in 2000. The Company remains committed to its objective of
investing significantly in R&D to develop technological enhancements as
well as new technologies that address unmet patient and clinical needs.
Pre-tax profit for the quarter ended December 31, 2001 was $75,032
compared to $73,750 during the same period of the prior year. Pre-tax
profit for the six months ended December 31, 2000 was $235,314 compared
to $271,510 in the similar period in 2000. The success of the Dynatron
STS and Dynatron STS Rx has been primarily responsible for this
stability in profitability. In addition, the Company has worked to
reduce operating expenses.
Income tax expense for the three and six months ended December 31, 2001
was $28,512 and $91,950, respectively compared to $28,025 and $105,835,
respectively in the three and six months ended December 31, 2000.
Net income for the quarter ended December 31, 2001 was $46,520 ($.01
per share), compared to $45,725 ($.01 per share) in the same quarter in
2000. Net income for the six months ended December 31, 2001 was
$143,364 ($.02 per share) compared to $165,675 ($.02 per share) in the
six months ended December 31, 2000.
Liquidity and Capital Resources
We expect that revenues from operations, together with amounts
available under an existing bank line of credit will be adequate to
meet working capital needs related to our business and planned capital
expenditures for the next 12 months.
The current ratio at December 31, 2001 was 2.2 to 1. The current ratio
at June 30, 2001 was also 2.2 to 1. Current assets represent 69% of
total assets at December 31, 2001.
Net accounts receivable at December 31, 2001 were $3,650,014 compared
to $3,426,404 at June 30, 2001. Accounts receivable are from the
dealer network and are generally considered to be within term.
All accounts payable are within term. The Company continues to take
advantage of available payment discounts when possible.
During the quarter ended December 31, 2001, the Company increased its
revolving line of credit facility with a commercial bank to $4,500,000.
Borrowing limitations are based on 30% of eligible inventory and up to
80% of eligible accounts receivable. The outstanding balance on the
line of credit at December 31, 2001 was $2,901,882 compared to
$2,871,024 at June 30, 2001. The line of credit is secured by
inventory and accounts receivable. The line bears interest at the
bank's "Prime Rate," which was 4.75% per annum at December 31, 2001.
This line is subject to annual renewal and matures on December 1, 2002.
Accrued interest is payable monthly.
Inventory levels, net of reserves, totaled $4,545,205 at December 31,
2001, compared to $4,746,323 at June 30, 2001. The Company expects
inventory levels to decline over the course of the current fiscal year
as inventories are managed more closely, and as sales of the new STS
devices accelerate as a result of new marketing plans and initiatives.
Sustained sales of aesthetic devices will also contribute to a
reduction in overall inventories.
8
Long-term debt excluding current installments totaled $1,754,697 at
December 31, 2001, compared to $1,834,903 at June 30, 2001. 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 $1.9 million with monthly
principal and interest payments of $26,900.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial
Accounting Standards (SFAS) No. 141 Business Combinations, and SFAS No.
142 Goodwill and Other Intangible Assets. SFAS 141 prohibits the use of
the pooling-of-interests method of accounting and requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001 and is applicable to all purchase method
business combinations completed after June 30, 2001. SFAS No. 141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet in order to be recognized and reported
apart from goodwill. Effective for the Company beginning July 1, 2002,
SFAS No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested
for impairment at least annually in acceptance with the provisions of
SFAS No. 142. SFAS No. 142 will also require that intangible assets
with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and review for
impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.
As of the date of adoption, we expect to have unamortized goodwill and
other intangibles in the amount of $849,000, which will be subject to
the transition provision of SFAS Nos. 141 and 142. Amortization expense
related to goodwill and other intangibles was $43,607 for the six-month
period ended December 31, 2001. Because of the extensive effort needed
to comply with adopting SFAS Nos. 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on our
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principles.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development and/or normal use of the asset.
The Company is required and plans to adopt the provisions of SFAS No.
143 for the quarter ending September 30, 2002. To accomplish this, the
Company must identify legal obligations for asset retirement
obligations, if any, and determine the fair value of these obligations
on the date of adoption. Because of the effort necessary to comply
with the adoption of SFAS No. 143, it is not practicable for management
to estimate the impact of adopting this Statement at the date of this
report.
9
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes both
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a
business. SFAS No. 144 retains the fundamental provisions in SFAS
No. 121 for recognizing and measuring impairment losses on long-
lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues
associated with SFAS No. 121. SFAS No. 144 retains the basic
provisions of APB Opinion 30 on how to present discontinued
operations in the income statement but broadens that presentation
to include a component of an entity rather than a segment of a
business.
The Company is required and plans to adopt the provisions of SFAS
No. 144 for the quarter ending September 30, 2002. Management does
not expect the adoption of SFAS No. 144 for long-lived assets held
for use to have a material impact on the Company's financial
statements because the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121. The provisions of the
Statement for assets held for sale or other disposal generally are
required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, management cannot
determine the potential effects that adoption of SFAS No. 144 will
have on the Company's financial statements.
Business Plan
Over the past seven years, Dynatronics' annual net sales have more than
tripled from $4.9 million in fiscal year 1994 to $16.8 million in
fiscal year 2001. The Company believes that this growth is the result
of many factors including acquisitions, strategic alliances, the
introduction of new products and increasing market share. During the
quarter ended December 31, 2001, the Company continued to implement a
strategy of expanding product lines, strengthening channels of
distribution, and developing new products for the rehabilitation and
aesthetic markets.
As part of this strategy, in August 2000, the Company announced the
signing of an agreement with Alan Neuromedical Technologies (ANT)
granting Dynatronics the exclusive license for ANT's patented
technology for treating chronic pain. Two devices incorporating the
new technology - the Dynatron STS clinical unit and the Dynatron STS Rx
prescription unit for home use - were introduced in February 2001 to
distributors from around the world at meetings held in Salt Lake City,
Utah. Currently, many medical professionals are using STS therapy to
treat chronic pain associated with a variety of conditions in patients
who had previously experienced only marginal results with traditional
therapy regimens. According to the American Pain Foundation, millions
of people around the world suffer from chronic pain. The associated
costs in the United States alone are estimated to exceed $100 billion
annually. There is great demand for an effective treatment in the
battle against chronic pain.
In a research study published in the January, 2002 edition of the
American Journal of Pain Management, test results showed 85% of chronic
pain patients receiving STS treatments realized some reduction of pain
- with 50% of the patients becoming totally pain-free. The Company
believes that the fact these results were achieved with patients who
10
had suffered on average for eight years with their chronic pain
condition further attests to the effectiveness of this therapy.
Additional research studies are planned to further validate the
efficacy of this innovative technology. Having the study published in
a peer-reviewed medical journal has been an important factor in
improving acceptance among medical practitioners and insurance
carriers.
Although the studies so far show that not every chronic pain sufferer
will benefit from this therapy, the results do support the Company's
belief that many who suffer from chronic pain conditions with a
sympathetic bias may benefit from STS treatments.
As with any new medical therapy or technology, we expect that insurance
reimbursement may influence the rate of growth of the STS technology.
Presently, limited reimbursement is available for STS treatments or
home units. Most are reviewed on a case-by-case basis. However, as
medical practitioners experience positive outcomes and further research
supports the efficacy of this therapy, it is anticipated that
reimbursements will be more broadly established. It will take time,
perhaps years, to obtain broad acceptance and reimbursement for this
new therapy. Notably, this technology potentially holds the key to not
only relieving suffering for many chronic pain patients, but
significantly reducing the long-term costs of supporting chronic pain
patients through reducing intake of expensive narcotic medications or
avoiding costly invasive procedures. We believe that as these
potential cost savings are realized, insurance companies should begin
to view STS treatments as an economical alternative to the traditional
treatments for chronic pain sufferers.
Interest in STS technology is experiencing particular growth in the
workers compensation market. Several workers' compensation groups have
instituted a program to expand the availability of STS treatments to
chronic pain sufferers throughout their systems. Management
believes the development of the workers compensation market represents
an important step in expanding STS treatment programs because a
significant number of chronic pain patients are covered under workers'
compensation plans.
Dynatronics began selling the Dynatron STS clinical device during the
quarter ended March 31, 2001, and the Dynatron STS Rx home unit during
the fourth quarter of fiscal year 2001. The home unit is available to
patients by prescription from their medical practitioner with financing
terms available through third party finance companies.
Another important part of our strategic plan is the expansion of
worldwide marketing efforts, particularly into the European Community.
In March 2001, Dynatronics' Salt Lake operations, where all
electrotherapy, ultrasound, STS devices and Synergie products are
manufactured, was designated an ISO 9001 certified facility. With this
designation in place, the Company 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 with additional human and capital resources
committed to this expansion effort.
A third strategic component of our growth plan is further expansion
into the aesthetics market. The Synergie Peel microdermabrasion device
was developed as a companion to the Synergie AMS (aesthetic massage
system). Microdermabrasion technology is very popular in the
aesthetics industry because of its distinct advantages over chemical
and laser peels. The Synergie Peel device has unique competitive
11
advantages in the market due to its patent-pending design, which
eliminates clogging. Furthermore, the combination of the Synergie AMS
and Synergie Peel make it not only unique, but the most affordable
combination device of its kind on the market.
To take full advantage of the opportunities of the aesthetics market,
Dynatronics has continued efforts to establish effective distribution
for its aesthetic products. The Company's Chairman, Kelvyn H.
Cullimore, is personally managing the effort to establish this
distribution. We recently shifted our distribution strategy to
establishing dealers who are uniquely focused on the aesthetics market
and also to cultivating national accounts. Previously, we had
attempted to establish a direct sales force for Synergie products. We
changed our strategy because we believe that the dealer strategy
requires less overhead expense, is more easily managed and will result
in better local control of sales. Controlling and expanding the
channels of distribution for these products is expected to ultimately
increase sales 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.
Over the past year, we have allocated resources to enhance the
Company's presence in the e-business arena. Dynatronics has undertaken
to improve the appearance and application of its corporate website and
is researching ways to apply electronic media and Internet solutions to
better serve customer needs, access new business opportunities, reduce
cost of operations, and stay technologically current in the way
business is conducted. We believe the allocation of resources to
developing e-business capabilities is critical to improving future
performance and have made the establishment of these capabilities a
focal strategy for the next fiscal year. In February 2001, we launched
a new website that we believe better reflects the quality of
Dynatronics' products and services. The site may be viewed at
www.dynatronics.com. This reference to the Company's website is not
intended to incorporate the contents of the website into or as a part
of this report.
Based on these strategic initiatives, we are focusing the Company's
resources in the following areas:
- Introducing the new Dynatron STS and Dynatron STS Rx therapy
products to the billion-dollar chronic pain market. This includes
efforts to maximize sales in the face of limited reimbursement by
focusing on specific target markets that will embrace STS treatments
such as workers compensation programs and thus better educate the
medical and insurance communities on the efficacy of STS treatments.
Additional research and other related efforts will also be evaluated
to obtain broader support of the medical and insurance communities.
- Improving sales and distribution of rehabilitation products
domestically through strengthened relationships with dealers,
particularly the high-volume specialty dealers.
- Expanding distribution of both rehabilitation and aesthetic products
internationally.
- Introducing other new rehabilitation products and aesthetic products
that fit the Dynatronics distribution system.
- Applying e-commerce solutions to improving overall performance.
12
Cautionary Statement Concerning Forward-Looking Statements
The statements contained in this Report on Form 10-QSB that are not
purely historical are "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act. These statements refer
to our expectations, hopes, beliefs, anticipations, commitments,
intentions and strategies regarding the future. They may be identified
by the use of the words or phrases "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 product development, clinical
results, market acceptance, 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 our 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 past reports filed with the Securities
and Exchange Commission means only that the risks are present in
multiple periods. We believe that many of the risks detailed here and
in our other SEC filings are part of doing business in the industry in
which we operate and compete 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 we assume 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 include:
- The terrorist attacks in New York and Washington, D.C. on
September 11, 2001, and the subsequent anthrax attacks on the
East Coast of the United Sates appear to be having an adverse
effect on business, financial and general economic conditions
in the United States. At this time we cannot predict the
nature, extent, or duration of these effects on overall
economic conditions generally, or on our business and
operations specifically.
- Market acceptance of our technologies, particularly our core
therapy devices, Synergie AMS/MDA product line and the new
Dynatron STS and Dynatron STS Rx products;
- Insurance company reimbursement for STS treatments or the home
prescription Dynatron STS Rx device not materializing as
expected;
- 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 we market our
products;
- Reliance on key management personnel;
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- Foreign government regulation of our products and
manufacturing practices that may bar or significantly increase
the expense of expanding to foreign markets;
- Economic and political risks related to expansion into
international markets;
- Failure to sustain or manage growth including the failure to
continue to develop new products or to meet demand for
existing products;
- Reliance on information technology;
- The timing and extent of research and development expenses;
- The 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 to obtain required financing to meet changes or
other risks described above;
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders held on November
20, 2001, the shareholders of the Company voted on the following
proposals:
Proposal 1 - To elect the following seven directors, each to
serve until the next annual meeting of shareholders and until his
successor is elected and shall have qualified: Kelvyn H. Cullimore,
Kelvyn H. Cullimore, Jr., Larry K. Beardall, E. Keith Hansen MD, Joseph
H. Barton, Howard L. Edwards and Val J. Christensen.
Proposal 2 - To approve the extension of the termination date of
the Company's Stock Option Plan to September 18, 2011.
Proposal 3 - To approve the Board of Directors' selection of KPMG
LLP as the Company's independent auditors.
Each of the proposals was approved by the requisite majority of
the shares cast at the annual meeting. Voting results were as follows:
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For Against Abstain
Proposal 1: --- ------- -------
----------
Mr. Cullimore 7,834,782 2,100 85,500
Mr. Cullimore, Jr. 7,835,882 1,000 85,500
Mr. Beardall 7,836,882 0 85,500
Dr. Hansen 7,836,882 0 85,500
Mr. Christensen 7,835,682 1,200 85,500
Mr. Barton 7,836,782 100 85,500
Mr. Edwards 7,836,782 100 85,500
For Against Abstain
Proposal 2: --- ------- -------
----------
2,682,551 608,796 26,215
For Against Abstain
Proposal 3: --- ------- -------
----------
7,788,092 36,600 12,090
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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 2/13/02 /s/ Kelvyn H. Cullimore, Jr.
--------------------- ----------------------------
Kelvyn H. Cullimore, Jr.
President, Chief Executive Officer
and Principal Accounting Officer
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