================================================================================
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, 2007.
[ ] 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)
(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 ___
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act). Yes __ No X
The number of shares outstanding of the issuer's common stock, no par value, as
of February 12, 2008 is approximately 13.7 million.
Transitional Small Business Disclosure Format (Check one): Yes __ No X
DYNATRONICS CORPORATION
FORM 10-QSB
DECEMBER 31, 2007
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements...........................1
Condensed Consolidated Balance Sheets
December 31, 2007 and June 30, 2007 ..........................................1
Condensed Consolidated Statements of Operations
Three and Six Months Ended December 31, 2007 and 2006.........................2
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 2007 and 2006...................................3
Notes to Condensed Consolidated Financial Statements.........................4
Item 2. Management's Discussion and Analysis or Plan of Operation.............9
Item 3. Controls and Procedures..............................................17
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........18
Item 4. Submission of Matters to a Vote of Security Holders.................18
Item 6. Exhibits............................................................19
DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
Assets 2007 2007
------------- -------------
Current assets:
Cash $ 263,976 1,301,105
Trade accounts receivable, less allowance
for doubtful accounts of $333,752 at
December 31, 2007 and $330,857 at
June 30, 2007 6,617,570 3,757,484
Other receivables 114,965 282,741
Inventories, net 6,517,534 5,313,984
Prepaid expenses 678,806 507,755
Prepaid income taxes 82,844 92,702
Deferred tax asset - current 402,685 396,156
------------- -------------
Total current assets 14,678,380 11,651,927
Property and equipment, net 3,692,540 3,453,495
Goodwill, net 6,631,052 2,758,572
Intangible asset, net 675,837 356,792
Deferred tax asset - noncurrent 132,065 -
Other assets 347,941 346,830
------------- -------------
$ 26,157,815 18,567,616
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 334,734 271,979
Line of credit 5,598,351 250,000
Warranty reserve 208,000 208,000
Accounts payable 1,696,258 1,241,030
Accrued expenses 527,951 287,773
Accrued payroll and benefit expenses 552,942 276,754
Acquisition cash obligations - 1,000,000
------------- -------------
Total current liabilities 8,918,236 3,535,536
Long-term debt, excluding current
installments 3,176,226 3,251,631
Deferred compensation 436,580 420,470
Deferred tax liability - noncurrent - 289,335
------------- -------------
Total liabilities 12,531,042 7,496,972
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; issued 13,625,486
shares at December 31, 2007 and
10,308,522 shares at June 30, 2007 7,834,271 4,227,147
Retained earnings 5,792,502 6,843,497
------------- -------------
Total stockholders' equity 13,626,773 11,070,644
------------- -------------
$ 26,157,815 18,567,616
============= =============
See accompanying notes to condensed consolidated financial statements.
1
DYNATRONICS CORPORATION
Condensed Consolidated Statements Of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
2007 2006 2007 2006
----------- ----------- ------------ -----------
Net sales $ 8,861,633 $ 4,428,182 $ 16,753,063 $ 8,567,239
Cost of sales 5,522,417 2,796,992 10,481,535 5,443,892
----------- ----------- ------------ -----------
Gross profit 3,339,216 1,631,190 6,271,528 3,123,347
Selling, general, and
administrative expenses 3,339,548 1,308,868 6,915,044 2,570,013
Research and development
expenses 363,106 346,671 701,999 824,755
----------- ----------- ------------ -----------
Operating income
(loss) (363,438) (24,349) (1,345,515) (271,421)
----------- ----------- ------------ -----------
Other income (expense):
Interest income 470 4,662 5,386 11,344
Interest expense (162,356) (53,260) (297,602) (100,769)
Other income, net 3,668 2,075 6,832 5,407
----------- ----------- ------------ -----------
Net other income
(expense) (158,218) (46,523) (285,384) (84,018)
----------- ----------- ------------ -----------
Income (loss) before
income taxes (521,656) (70,872) (1,630,899) (355,439)
Income tax expense
(benefit) (182,864) (27,286) (579,904) (136,845)
----------- ----------- ------------ -----------
Net income (loss) $ (338,792) $ (43,586) $ (1,050,995) $ (218,594)
=========== =========== ============ ===========
Basic and diluted net
income (loss) per
common share $ (0.02) $ (0.00) $ (0.08) $ (0.02)
=========== =========== ============ ===========
Weighted average basic
and diluted common
shares outstanding
(note 2) 13,661,316 8,949,804 13,634,491 8,963,274
See accompanying notes to condensed consolidated financial statements.
2
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31
2007 2006
------------- -------------
Cash flows from operating activities:
Net loss $ (1,050,995) (218,594)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of
property and equipment 179,552 176,480
Amortization of intangible assets 47,355 3,662
Stock based compensation expense 274,329 4,367
Provision for doubtful accounts 160,000 24,000
Provision for inventory obsolescence 84,000 96,000
Provision for warranty reserve 127,174 134,557
Provision for deferred compensation 16,110 16,110
Change in operating assets and
liabilities:
Receivables (1,483,771) 43,521
Inventories (94,911) 289,671
Prepaid expenses and other assets (167,380) (56,412)
Deferred tax asset, net (603,117) (487,786)
Accounts payable and accrued expenses (652,381) (141,345)
Prepaid income taxes 9,859 -
------------- -------------
Net cash used in operating
activities (3,154,176) (115,769)
------------- -------------
Cash flows from investing activities:
Capital expenditures (215,699) (59,091)
Business acquisitions (1,847,250) -
------------- -------------
Net cash used in investing
activities (2,062,949) (59,091)
------------- -------------
Cash flows from financing activities:
Principal payments on long-term debt (102,784) (128,325)
Net change in line of credit 4,348,351 465,821
Proceeds from issuance of common stock 49,225 23,297
Redemption of common stock (114,796) (119,027)
------------- -------------
Net cash provided by
financing activities 4,179,996 241,766
------------- -------------
Net change in cash (1,037,129) 66,906
Cash at beginning of period 1,301,105 423,184
------------- -------------
Cash at end of period $ 263,976 490,090
============= =============
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 268,621 99,785
Cash paid for income taxes 7,000 4,500
Supplemental disclosure of non-cash
investing and financing activities:
Stock based compensation - see note 3
for details
Business acquisition disclosure - see
note 9 for details
Capital expenditures financed by long
term debt 90,134 -
Acquisition cash obligation financed
by line of credit 1,000,000 -
See accompanying notes to condensed consolidated financial statements.
3
DYNATRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
NOTE 1. PRESENTATION
The condensed consolidated balance sheet as of December 31, 2007 and condensed
consolidated statements of operations and cash flows for the three and six
months ended December 31, 2007 and 2006 were prepared by Dynatronics Corporation
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, 2007 and 2006. 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
Form 10-KSB filing.
NOTE 2. NET INCOME PER COMMON SHARE
Net income (loss) 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. The computation of diluted earnings per share does not assume
exercise or conversion of securities that would have an anti-dilutive effect.
Basic net income (loss) per common share is the amount of net income (loss) for
the period available to each share of common stock outstanding during the
reporting period. Diluted net income (loss) per common share is the amount of
net income (loss) for the period available to each share of common stock
outstanding during the reporting period and to each common stock equivalent
outstanding during the period, unless inclusion of common stock equivalents
would have an anti-dilutive effect.
In calculating net income (loss) per common share, the net income (loss) was the
same for both the basic and diluted calculation for the three and six months
ended December 31, 2007 and 2006. A reconciliation between the basic and diluted
weighted-average number of common shares for the three and six months ended
December 31, 2007 and 2006 is summarized as follows:
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2007 2006 2007 2006
----------- ----------- ------------ ------------
Basic weighted average
number of common shares
outstanding during the
period 13,661,316 8,949,804 13,634,491 8,963,274
Weighted average number
of dilutive common stock
options outstanding
during the period -0- -0- -0- -0-
----------- ----------- ------------ ------------
Diluted weighted average
number of common and
common equivalent shares
outstanding during the
period 13,661,316 8,949,804 13,634,491 8,963,274
=========== =========== ============ ============
4
Outstanding options not included in the computation of diluted net loss per
share for the three month periods ended December 31, 2007 and 2006 total 56,050
and 85,148 and for the six month periods ended December 31, 2007 and 2006 total
127,438 shares and 94,807 respectively, because to do so would have been
anti-dilutive.
NOTE 3. STOCK BASED COMPENSATION
Stock-based compensation cost is measured at grant date, based on the fair value
of the award, and is recognized over the employee requisite service period. The
Company recognized $17,337 and $2,274 in stock-based compensation during the
three months ended December 31, 2007 and 2006, respectively, and recognized
$274,329 and $4,367 in stock-based compensation during the six months ended
December 31, 2007 and 2006, respectively, as selling, general, and
administrative expenses in the condensed consolidated statements of operations.
On July 1, 2007, the Company granted 220,000 shares of common stock to employees
with an estimated value of $1.08 per share. This stock had a ninety day vesting
period. On July 1, 2007, the Company also granted 80,000 shares of common stock
with an estimated value of $1.08 per share, which vested over a four-year period
in annual installments of 20,000 shares per year. The Company recognized $11,250
and $261,450 in stock-based compensation during the three and six month periods
ended December 31, 2007, respectively, from these shares. As of December 31,
2007, $63,900 in unrecognized stock-based compensation from the unvested shares
is expected to be recognized over the remainder of the four-year period.
NOTE 4. COMPREHENSIVE INCOME
For the periods ended December 31, 2007 and 2006, comprehensive income was equal
to the net income as presented in the accompanying condensed consolidated
statements of operations.
NOTE 5. INVENTORIES
Inventories consisted of the following:
December 31, June 30,
2007 2007
------------- -------------
Raw material $ 3,308,441 2,961,653
Finished goods 3,496,711 2,646,141
Inventory reserve
(287,618) (293,810)
------------- -------------
$ 6,517,534 5,313,984
============= =============
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
December 31, June 30,
2007 2007
------------- -------------
Land $ 354,743 354,743
Buildings 3,682,052 3,603,380
Machinery and equipment 1,648,004 1,521,601
Office equipment 1,268,164 1,147,667
Vehicles 188,148 95,124
------------- -------------
7,141,111 6,722,515
Less accumulated depreciation
and amortization 3,448,571 3,269,020
------------- -------------
$ 3,692,540 3,453,495
============= =============
5
NOTE 7. PRODUCT WARRANTY RESERVE
The Company adopted the provisions of FASB Interpretation No. 45, Guarantors'
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, as of December 31, 2002. The Company
accrues the estimated costs to be incurred in connection with its product
warranty programs as products are sold based on historical warranty rates. A
reconciliation of the changes in the warranty liability is as follows:
Three months Three months
ended ended
December 31, December 31,
2007 2006
------------- -------------
Beginning product warranty reserve balance $ 208,000 208,000
Warranty repairs (66,294) (64,424)
Warranties issued 134,200 63,560
Changes in estimated warranty costs (67,906) 864
------------- -------------
Ending product warranty liability balance $ 208,000 208,000
============= =============
Six months Six months
ended ended
December 31, December 31,
2007 2006
------------- -------------
Beginning product warranty reserve balance $ 208,000 208,000
Warranty repairs (127,174) (134,557)
Warranties issued 253,707 122,971
Changes in estimated warranty costs (126,533) 11,586
------------- -------------
Ending product warranty liability balance $ 208,000 208,000
============= =============
NOTE 8. COMMON STOCK
The Company received proceeds of $49,225 during the six months ended December
31, 2007 for 47,499 shares of common stock that were issued upon the exercise of
options for services.
NOTE 9. ACQUISITION AND NON-CASH DISCLOSURE
On July 2, 2007, the Company completed the acquisition of a 100% interest in
five of its key independent distributors, Responsive Providers, Inc. of Houston,
Texas, Therapy and Health Care Products, Inc. of Youngstown, Ohio, Cyman
Therapy, Inc. of Detroit, Michigan, Al Rice and Associates, Inc. of
Jeffersonville, Indiana and Theratech Inc. of Minneapolis, Minnesota. The total
consideration paid for the five separately-negotiated acquisitions was
approximately $5.6 million comprised of approximately $2.3 million in cash and
3,061,591 shares of common stock.
The acquisition value of the five dealers acquired was accounted for using the
purchase method of accounting. Accordingly, the purchase price was assigned to
the assets acquired and the liabilities assumed based on fair values at the
purchase date. The following table reflects the unaudited estimated fair values
of the assets acquired and the liabilities assumed as of the acquisition date:
Cash $ 651,828
Trade accounts receivable 1,160,976
Inventories 1,192,639
Prepaid expenses 4,782
Property and equipment, net 112,764
Cash surrender value of life insurance 207,563
Intangible assets - weighted average 9 years 366,400
Goodwill 3,512,779
-------------
Total assets acquired 7,209,731
Accounts payable and accrued expenses (1,496,800)
-------------
Net assets acquired $ 5,712,931
=============
6
The acquisition resulted in a $175,188 deferred income tax liability and a
corresponding increase to goodwill of $175,188.
Unaudited pro forma results of operations for the three and six months ended
December 31, 2007 and 2006, as though the five dealers had been acquired as of
July 1, 2006, are as follows:
Three months Three months
ended ended
December 31, December 31,
2007 2006
------------- -------------
Net sales $ 8,861,633 6,631,100
Net loss (338,792) (9,103)
Basic and diluted net income (loss)
per common share (.02) (.00)
Six months Six months
ended ended
December 31, December 31,
2007 2006
------------- -------------
Net sales $ 16,753,063 12,930,639
Net loss (1,050,995) (149,628)
Basic and diluted net income (loss)
per common share (.08) (.02)
NOTE 10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill. The cost of the acquired companies in excess of the fair value of the
net assets and purchased intangible assets at acquisition date is recorded as
goodwill. As of December 31, 2007 the Company had net goodwill of $6,631,052
arising from various acquisitions. Goodwill is subject to annual specified
impairment tests or more frequently if events or changes in circumstances
indicate that goodwill might be impaired. There were no goodwill impairment
losses recorded during the three and six month periods ended December 31, 2007
Identifiable Intangibles. Identifiable intangibles assets consists of the
following:
As of As of
December 31, June 30,
2007 2007
------------- -------------
Trade name - 15 years $ 339,400 118,000
Domain name - 15 years 5,400 1,200
Non-compete covenant - 4 years 149,400 114,000
Customer relationships - 7-15 years 120,000 89,000
Trademark licensing agreement - 20 years 45,000 -0-
Backlog of orders - 3 months 2,700 2,700
Customer database - 7 years 38,100 8,700
License agreement - 10 years 73,240 73,240
------------- -------------
Total identifiable intangibles 773,240 406,840
Accumulated amortization 97,403 50,048
------------- -------------
Net carrying amount $ 675,837 356,792
============= =============
7
NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes - An Interpretation of FASB No. 109, was issued. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a
company's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. The provisions of FIN 48 are effective for fiscal
years beginning after December 15, 2006. Accordingly, the Company adopted the
revised standard during the quarter ended September 30, 2007. The adoption of
this standard had no material impact on the Company's financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosure requirements regarding fair value measurement. Where
applicable, this statement simplifies and codifies fair value related guidance
previously issued within United States of America generally accepted accounting
principles. SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007 for financial assets and November 15,
2008 for non-financial assets, and interim periods within those fiscal years.
The Company is currently reviewing SFAS 157 and has not yet determined the
impact that the adoption of SFAS 157 will have on its results of operations or
financial condition.
In December 2007, the FASB Statement 141R, "Business Combinations" ("SFAS 141R")
was issued. SFAS 141R replaces SFAS 141. SFAS 141R requires the acquirer of a
business to recognize and measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest of the acquired company at
fair value. SFAS 141R also requires transactions costs related to the business
combination to be expensed as incurred. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The effective date for the Company will be January 1, 2009. We have
not yet determined the impact of SFAS 141R related to future acquisitions, if
any, on our consolidated financial statements.
8
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 Financial Statements
(unaudited) and Notes thereto appearing elsewhere in this report on Form 10-QSB.
Results of Operations
---------------------
The Company's fiscal year ends on June 30th. This report covers the three and
six months ended December 31, 2007, for the Company's fiscal year ending June
30, 2008.
Net Sales
During the quarter ended December 31, 2007, the Company's sales doubled to
$8,861,633, compared to $4,428,182 in the quarter ended December 31, 2006. For
the six months ended December 31, 2007, the Company's sales increased 96% to
$16,753,063, compared to $8,567,239 in the six month period ended December 31,
2006. The increase in sales is the result of the addition of revenues from the
Company's acquisition of six of its distributors of physical medicine products
completed on July 2, 2007. On June 30, 2007, we acquired our largest independent
distributor, Rajala Therapy Sales Associates of Pleasanton, California. On July
2, 2007, Dynatronics acquired five additional independent distributors:
Responsive Providers, Inc. of Houston, Texas; Therapy and Health Care Products,
Inc. of Girard, Ohio; Cyman Therapy, Inc. of Detroit, Michigan; Al Rice and
Associates, Inc. of Jeffersonville, Indiana; and Theratech, Inc. of Minneapolis,
Minnesota. The vertical integration of these distributors is a key strategic
step toward strengthening our distribution channels. We believe that these
acquisitions, as they are fully assimilated into our business operations, will
provide Dynatronics with more effective direct distribution of our products and
result in better margins on each product sold at the retail level compared to
the wholesale level. Subsequent to these acquisitions, we have added seven new
direct sales persons in other territories including Southern California,
Louisiana, Kansas, Oklahoma, Missouri and Wisconsin, expanding our direct sales
channels to now cover 24 states.
The six acquired distributors sell products from many manufacturers, including
Dynatronics. As a result of the transactions described above, the mix between
Company's sales of manufactured and distributed products during the quarter
covered by this report shifted toward distributed products with 47% of sales
attributed to sales of distributed products and the remaining 53% being
manufactured products. We anticipate the mix between manufactured and
distributed products in future periods will be similar to the mix experienced
during the first two quarters of fiscal year 2008.
Gross Profit
During the quarter ended December 31, 2007, total gross profit increased 105% to
$3,339,216, or 37.7% of net sales, compared to $1,631,190, or 36.8% of net
sales, in the quarter ended December 31, 2006. For the six months ended December
31, 2007, total gross profit increased 101% to $6,271,528, or 37.4% of net
sales, compared to $3,123,347, or 36.5% of net sales, in the six months ended
December 31, 2006. The increase in gross profit in the three and six month
periods was primarily a result of the sales added by the recent acquisitions.
For the quarter ended December 31, 2007, gross profit as a percent of sales
improved nearly one full percentage point to 37.7% due to the higher margins
associated with selling at the retail level compared to the wholesale level.
Acquisition related items affecting gross profit for the quarter and six months
ended December 31, 2007 totaled approximately $114,000 and $444,000,
respectively and were due to inventories of Dynatronics manufactured products
added through the acquisitions which had a higher cost basis because they were
based on the dealer's cost of acquiring those products from us. The recognition
of these non-recurring higher costs effectively reduced margin for the six month
period by 7% or 2.65 percentage points and by 3.4% or 1.3 percentage points in
the reporting quarter. Going forward, gross profit is expected to improve now
that most of the higher cost basis inventory has been sold. This improvement in
gross profit will be partially offset by the change in the mix of product sales
toward an increase in the percentage of distributed products. Items manufactured
by third parties and distributed by the Company typically carry lower margins
than those that are both manufactured and sold by the Company. A change in the
mix of product sales toward a greater percentage of distributed products
decreases gross profit margins as a percent of sales.
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses for the quarter ended
December 31, 2007 increased $2,030,680 to $3,339,548, or 37.7% of net sales,
compared to $1,308,868, or 29.6% of net sales in the prior year period. SG&A
expenses for the six months ended December 31, 2007 increased $4,345,031 to
$6,915,044, or 41.3% of net sales, compared to $2,570,013, or 30.0% of net sales
in the prior year period. Substantially all of the increase in SG&A expenses for
the six months ended December 31, 2007 is related to the recent acquisitions and
includes the following:
9
o $2,234,100 in higher selling expenses primarily related to the new
direct sales force
o $1,224,500 in higher labor and operating costs to support the
higher sales volume
o $886,400 in higher general and administrative expenses associated
with the acquired companies
Transition expense items along with other costs related primarily to the
assimilation of the acquired entities totaled approximately $203,000 during the
quarter ended December 31, 2007 related primarily to personnel costs including
overtime costs, severance costs, temporary personnel and other personnel costs.
With the assimilation of the six acquisitions nearing completion, management has
identified $1.3 million in annualized labor costs, SG&A and other expenses that
we believe we will be able to eliminate over the coming months. We believe these
reductions in expenses will not negatively impact the Company's sales or
operations.
Research and Development
Research and Development ("R&D") expenses during the quarter ended December 31,
2007 increased to $363,106, compared to $346,671 in the prior year period. R&D
expenses during the six months ended December 31, 2007 decreased to $701,999,
compared to $824,755 in the prior year period. R&D expenses represented
approximately 4.1% and 7.8% of the net sales of the Company in the quarters
ended December 31, 2007 and 2006, respectively. R&D expenditures as a percentage
of sales were lower due to the large increase in sales during the quarter and
six month periods ended December 31, 2007 compared to the prior year periods.
R&D costs are expensed as incurred. Dynatronics intends to continue its
commitment to developing innovative products for the physical medicine market in
fiscal year 2008 and beyond in order to position the Company for growth.
Pre-tax Loss
Pre-tax loss for the quarter ended December 31, 2007 was $521,656 compared to a
pre-tax loss of $70,872 in the quarter ended December 31, 2006. Pre-tax loss for
the six months ended December 31, 2007 was $1,630,899 compared to a pre-tax loss
of $355,439 in the similar period ended December 31, 2006. As expected, the
pre-tax loss in the quarter ended December 31, 2007 was reduced to half of the
amount incurred in the quarter ended September 30, 2007. Costs related primarily
to the recent acquisitions totaled approximately $1.4 million during the six
month period and was a significant factor in the increase in pre-tax loss in the
quarter and six months ended December 31, 2007 compared to the prior year
periods.
Income Tax Benefit
Income tax benefit for the quarter ended December 31, 2007 was $182,864 compared
to income tax benefit of $27,286 in the quarter ended December 31, 2006. Income
tax benefit for the six months ended December 31, 2007 was $579,904 compared to
income tax benefit of $136,845 in the six months ended December 31, 2006. The
effective tax rate for the quarter ended December 31, 2007 was 35.6% compared to
38.5% for the prior year period. The effective tax rate for the six months ended
December 31, 2007 was 35.6% compared to 38.5% for the prior year period. The
lower tax rate for this quarter and six month period ended December 31, 2007
reflects the assumption of certain anticipated tax benefits that will be earned
during the year.
Net Loss
Net loss for the quarter ended December 31, 2007 was $338,792 ($.02 per share),
compared to net loss of $43,586 ($.00 per share) in the quarter ended December
31, 2006. Net loss for the six months ended December 31, 2007 was $1,050,995
($.08 per share), compared to net loss of $218,594 ($.02 per share) in the six
months ended December 31, 2006. As previously explained, costs related primarily
to the recent acquisitions totaled approximately $317,000 and $1.4 million
during the quarter and six month period, respectively, and contributed to the
increase in net loss in the periods ended December 31, 2007 compared to the
prior year periods.
Liquidity and Capital Resources
-------------------------------
The Company has financed its operations through available cash reserves and
available borrowings under its line of credit. The Company had working capital
of $5,760,144 at December 31, 2007, inclusive of the current portion of
long-term obligations and credit facilities, as compared to working capital of
$8,116,391 at June 30, 2007. The $2.4 million decrease in working capital is a
direct result of a $5,348,000 increase in the line of credit that was required
in part to finance a $4,000,000 increase in accounts receivable and inventory.
The remaining reduction in working capital is accounted for by increased
accounts payable and accrued expenses.
10
Accounts Receivable
Trade accounts receivable, net of allowance for doubtful accounts, increased
$2,860,086 to $6,617,570 at December 31, 2007 compared to $3,757,484 at June 30,
2007. The majority of this increase in trade accounts receivable was a result of
certain billing practices adopted to process the increased volume of sales
associated with the recent acquisitions. During the first six months following
the acquisitions, new billing paradigms were implemented to accommodate large
orders from certain retail customers. These billing paradigms allowed extended
terms for payment until complete orders had been delivered. These extended terms
significantly delayed collection on some orders that had components delivered
over a three to four month period of time. We are modifying these arrangements
to require that all products subject to special term orders will be delivered
within 30 days or the customer will be required to pay monthly for product
shipped. These special term orders account for over $1,000,000 of accounts
receivable outstanding at December 31, 2007. As these accounts are collected and
the new policy implemented, we expect accounts receivable to decrease in coming
quarters.
Trade accounts receivable represent amounts due from the Company's dealer
network, from medical practitioners and clinics. We estimate that the allowance
for doubtful accounts is adequate based on our historical knowledge and
relationship with these customers. Except for those special accounts described
above, accounts receivable are generally collected within 30 days of the agreed
terms. However, as a result of the recent acquisitions, the character of the
accounts receivable and collection patterns have changed and will be carefully
monitored over the coming year to ensure the allowance estimates are adequate.
Allowances for the retail accounts assumed in the acquisitions are currently
calculated based on the historical experience of the acquired companies.
Inventories
Inventories, net of reserves, at December 31, 2007 increased $1,203,550 to
$6,517,534 compared to $5,313,984 at June 30, 2007. This increase is primarily a
result of the inventories acquired in connection with the six acquisitions.
Inventories are expected to generally remain at current levels during fiscal
year 2008 as we consolidate the inventories of the acquired companies into
central warehouses.
Goodwill
Goodwill at December 31, 2007 increased to $6,631,052 compared to $2,758,572 at
June 30, 2007, due to the acquisition of the distributors completed on July 2,
2007.
In compliance with Statement of Financial Accounting Standard ("SFAS") No. 142,
management utilized standard principles of financial analysis and valuation
including: transaction value, market value and income value methods to arrive at
a reasonable estimate of the fair value of the Company in comparison to its book
value. The Company has determined it has one reporting unit. As of July 1, 2002
and June 30, 2007, management believes the fair value of the Company exceeded
the book value of the Company. Therefore, there was no indication of impairment
at June 30, 2007. Management is primarily responsible for the SFAS No. 142
valuation determination and performed the annual impairment assessment during
the Company's fourth quarter.
Accounts Payable
Accounts payable increased $455,228 to $1,696,258 at December 31, 2007 compared
to $1,241,030 at June 30, 2007, primarily as a result of the recent acquisitions
and the increased level of sales associated with those acquisitions. Accounts
payable are generally within term with the exception of disputed or inadequately
documented payables that are associated with the transition and assimilation of
the acquired dealers. We continue to take advantage of available early payment
discounts when offered.
Accrued Expenses and Acquisition Cash Obligation
Accrued expenses increased $240,178 to $527,951 at December 31, 2007 compared to
$287,773 at June 30, 2007 primarily as a result of increased sales at the retail
level which generate higher sales tax liabilities in the 24 states where we now
sell on a direct basis.
Acquisition cash obligations decreased to $0 at December 31, 2007 compared to
$1,000,000 at June 30, 2007. This obligation at June 30 reflected the cash
amount that was placed into escrow in conjunction with the acquisition made on
June 30, 2007, which was paid subsequently.
11
Accrued Payroll & Benefit Expenses
Accrued payroll & benefit expenses increased $276,188 to $552,942 at December
31, 2007 compared to $276,754 at June 30, 2007. The increase in accrued payroll
& benefit expenses is related to timing differences as well as increased number
of employees resulting in higher accrued payroll at December 31, 2007 compared
to June 30, 2007.
Cash
The Company's cash position decreased to $263,976 compared to $1,301,105 at June
30, 2007 as a result of payments related to the acquisitions made on June 30,
2007 and July 2, 2007. The Company had deposited the financing proceeds in
anticipation of the acquisitions, which temporarily increased cash balances at
June 30, 2007. The Company believes that improved cash flow from operations
through improving management of accounts receivable, maintaining current
inventory levels and reducing expenses to further minimize operating losses and
return to profitability combined with balances under available lines of credit
will be sufficient to cover its operating needs in the ordinary course of
business for the next twelve months. If we experience an adverse operating
environment or unusual capital expenditure requirements, additional financing
may be required. However, no assurance can be given that additional financing,
if required, would be available on favorable terms.
Line of Credit
In February 2008, the Company temporarily increased its revolving line of credit
with a commercial bank from $6,000,000 to $6,500,000. On May 1, 2008, the line
of credit will return to $6,000,000. At December 31, 2007, the Company owed
$5,598,351 compared to $250,000 at June 30, 2007. Several components account for
the increase in the line of credit. First, the Company used approximately $3.3
million under the line of credit to finance the acquisitions after June 30,
2007. Second, receivables and inventory increased $4,000,000 while payables
increased only approximately $500,000. This imbalance of slower collections
while maintaining payables more current has required additional financing
demands from the line of credit. Third, operating losses and capital
expenditures mostly associated with the acquisitions required additional
financing provided by the line of credit.
Interest on the line of credit is based on the bank's prime rate, which at
December 31, 2007, equaled 7.75%. The line of credit is collateralized by
accounts receivable and inventories of the Company. Borrowing limitations are
based on 40% of eligible inventory and up to 80% of eligible accounts
receivable. Interest payments on the line are due monthly. The line of credit is
renewable biennially on December 15th and includes covenants requiring the
Company to maintain certain financial ratios. As of December 31, 2007, the
Company was in compliance with all loan covenants or had received waivers.
The current ratio was 1.6 to 1 at December 31, 2007 compared to 3.3 to 1 at June
30, 2007. Current assets represented 56% of total assets at December 31, 2007
compared to 63% at June 30, 2007.
Debt
Long-term debt excluding current installments totaled $3,176,226 at December 31,
2007 compared to $3,251,631 at June 30, 2007. In June 2007, we obtained $1.5
million of long-term mortgage financing used to finance our acquisitions in June
and July 2007. The funding of this loan temporarily increased our cash balances
at the end of June 2007. 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 $3.5 million with
monthly principal and interest payments of $40,707.
Inflation and Seasonality
The Company's revenues and net income from continuing operations have not been
unusually affected by inflation or price increases for raw materials and parts
from vendors.
The Company's business operations are not materially affected by seasonality
factors.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and risks related to
these policies on our business operations are discussed in this Management's
12
Discussion and Analysis where such policies affect our reported and expected
financial results. In all material respects, management believes that the
accounting principles that are utilized conform to accounting principles
generally accepted in the United States of America.
The preparation of this quarterly report requires us to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses reported in our unaudited financial statements. By their
nature, these judgments are subject to an inherent degree of uncertainty. On an
on-going basis, we evaluate these estimates, including those related to bad
debts, inventories, and revenue recognition. We base our estimates on historical
experience and other facts and circumstances that are believed to be reasonable,
and the results form the basis for making judgments about the carrying value of
assets and liabilities. The actual results may differ from these estimates under
different assumptions or conditions.
Inventory Reserves
The nature of our business requires that we maintain sufficient inventory on
hand at all times to meet the requirements of our customers. We record finished
goods inventory at the lower of standard cost, which approximates actual costs
(first-in, first-out) or market. Raw materials are recorded at the lower of cost
(first-in, first-out) or market. Inventory valuation reserves are maintained for
the estimated impairment of the inventory. Impairment may be a result of slow
moving or excess inventory, product obsolescence or changes in the valuation of
the inventory. In determining the adequacy of reserves, we analyze the
following, among other things:
o Current inventory quantities on hand.
o Product acceptance in the marketplace.
o Customer demand. o Historical sales.
o Forecast sales.
o Product obsolescence.
o Technological innovations.
o Character of the inventory whether it is a distributed item,
finished manufactured item or raw material.
Any modifications to estimates of inventory valuation reserves are reflected in
the cost of goods sold within the statements of income during the period in
which such modifications are determined necessary by management. At December 31,
2007 and June 30, 2007, our inventory valuation reserve balance, which
established a new cost basis, was $287,618 and $293,810, respectively, and our
inventory balance was $6,517,534 and $5,313,984 net of reserves, respectively.
Revenue Recognition
The majority of our product sales for the prior year were to customers who are
independent distributors. Beginning in the quarter ended September 30, 2007, a
portion of our sales were generated through our new direct sales force. Our
sales force and distributors sell our products to end users, including physical
therapists, professional trainers, athletic trainers, chiropractors, medical
doctors and aestheticians. With the recent acquisition of six of our independent
distributors, we have reduced our dependence on distributor sales. Sales
revenues are recorded when products are shipped FOB shipping point under an
agreement with a customer, risk of loss and title have passed to the customer,
and collection of any resulting receivable is reasonably assured. Amounts billed
for shipping and handling of products are recorded as sales revenue. Costs for
shipping and handling of products to customers are recorded as cost of sales.
Allowance for Doubtful Accounts
We must make estimates of the collectibility of accounts receivable. In doing
so, we analyze historical bad debt trends, customer credit worthiness, current
economic trends and changes in customer payment patterns when evaluating the
adequacy of the allowance for doubtful accounts. Our accounts receivable balance
was $6,617,570 and $3,757,484, net of allowance for doubtful accounts of
$333,752 and $330,857, at December 31, 2007 and June 30, 2007, respectively. The
expansion of our customer base associated with more direct sales will spread bad
debt risk over a broader base of customers and reduce the concentration of large
dealer balances. At the same time, the management of more customer accounts
presents a higher risk. These risks will be evaluated over the coming year to
determine if current estimate policies are still applicable. In the meantime,
allowance for doubtful accounts associated with these acquired customers is
being based on the historical experience of the dealer acquired.
13
Business Plan and Outlook
During fiscal year 2008, we will continue to implement a four-fold strategy to
improve overall operations. This strategy focuses on (1) strengthening
distribution channels; (2) developing new, state-of-the-art products for future
growth; (3) refining operations associated with the acquired companies and
reducing overhead costs; and (4) enhancing product profit margins through
improved manufacturing processes. Our goal in implementing this four-fold
strategy is to enable the Company to address short-term profitability without
jeopardizing long-term growth.
Our primary market, the physical medicine marketplace, has experienced
significant change over the past few years, most notably with consolidation
among manufacturers and distributors. In order to compete more favorably and
effectively, we moved aggressively to strengthen our channels of distribution by
acquiring key distributors. We identified six key distributors with operations
in 20 states. On June 30, 2007, we acquired our largest independent distributor
headquartered in California. On July 2, 2007, we acquired five additional key
independent distributors headquartered in Texas, Ohio, Michigan, Indiana and
Minnesota. We also began hiring direct sales representatives in key locations
around the country resulting in direct sales representatives now in 24 states.
The creation of a direct distribution channel through these key acquisitions and
hiring direct sales representatives provides Dynatronics with expanded ability
to sell at the retail level, which we believe will improve gross profit margins
and enhance the Company's control over the distribution process. We expect these
changes will open new opportunities for improving future sales as we continue to
pursue our strategy of strengthening our distribution channels through
consideration of additional acquisitions, the expansion of our direct sales
force, and maximizing our relationships with strong independent dealers.
Over the past fiscal year, we introduced some important new products including
the Dynatron X3, a powerful light therapy device capable of powering a light
probe and two light pads simultaneously. This device incorporates touch screen
technology for easy interface with the practitioner. We also introduced the DX2
combination traction and light therapy device. The DX2 is Dynatronics' first
proprietary traction device and incorporates not only touch screen technology,
but other unique and proprietary technology that will facilitate traction and
decompression therapy. We believe it is the only unit on the market that offers
traction and infrared light therapy from the same device.
The introduction of the new T4 motorized treatment table in March 2007 and the
introduction of the new T3 treatment table in July 2007 round out the full
traction package concept originally conceived. These tables are designed with a
higher lift capacity and several unique features. The T4 therapy table is
specially designed for performing traction and decompression therapies with the
DX2 unit and has been very well received in the market.
In June 2007, we introduced the Dynatron X-5 Oscillation Therapy device. This
unique product effectively reduces pain through the creation of an electrostatic
field within the patient by combining the concepts of electrotherapy with
therapeutic massage. The X5 unit's gross profit margin as a percent of sales is
one of the highest of any of the therapy devices produced by Dynatronics.
The assimilation of the six acquired distributors remains the current focus of
management. Since the acquisitions were completed, four of the six local
operations have been closed and fully assimilated. One of the two remaining
distributors is being reduced in scope relative to operations and should be
mostly assimilated by the end of February. Warehousing functions are being
consolidated to our facilities in Tennessee and Utah as well as the new facility
established in California that was associated with the acquisition of Rajala
Therapy Sales Associates. The ability to timely service west coast customers was
deemed a critical point of service and warranted the continuance of the Rajala
operations. Other areas of the country could be adequately served from these
warehouse operations. Estimated costs related primarily to the Company's six
acquisitions totaled approximately $1.4 million during the first two quarters of
fiscal year 2008. We believe the process of full integration will be ongoing for
the next year, but the elimination of most duplicative expenses and the
achievement of economies of scale are anticipated to be more fully realized
during the third and fourth quarters of this fiscal year. Management has
identified $1.3 million in annualized cost reductions that will be implemented
over the new few months. We believe the third quarter of this fiscal year will
show a further decrease in acquisition related costs, but not a total
elimination. By implementing the planned cost reductions and further
assimilating operations, we anticipate a return to profitability in the coming 6
months.
In addition to reducing operating costs through better assimilation of the
acquired dealers, sales strategies are being implemented to capitalize on our
new direct sales force. While we continue to look for opportunities to add to
our direct sales force, we also are working with strong, independent dealers who
are well entrenched in their territories. The combination of strong dealers and
a direct sales force will allow us to continue to expand our sales network. In
support of that effort, Dynatronics will introduce the most comprehensive
14
product catalog in its history in the next six months. We expect that the
expanded catalog and new sales initiatives will provide additional impetus to
sales. In addition, we are currently negotiating strategic partnerships that we
expect will give us greater access to segments of the market not previously
pursued by Dynatronics. The consolidation of manufacturers and distributors that
has been occurring in our industry has presented some unique opportunities for
Dynatronics of which we intend to take full advantage.
International sales is viewed as having untapped potential for growth and
expansion. Adding new distributors in several countries will be the key to this
expansion effort. Past efforts to improve international marketing have yielded
only marginal improvements. We remain committed, however, to finding the most
cost effective ways to expand our markets internationally. The Company's Salt
Lake City operation, where all electrotherapy, ultrasound, traction, STS
devices, light therapy and Synergie products are manufactured, is certified to
ISO 13485, an internationally recognized standard of excellence in medical
device manufacturing. This designation is an important requirement in obtaining
the CE Mark certification, which allows us to market our products in the
European Union and other foreign countries.
Marketing efforts are being increased to promote our aesthetic products which
include the Synergie AMS device for dermal massage, the Synergie MDA device for
microdermabrasion, and the Synergie LT device, an infrared light therapy unit
designed specifically for aesthetic applications. In addition, we are
redesigning our Synergie AMS/MDA combination unit and plan to introduce this new
device to the market in March 2008. We also plan to develop and introduce
additional products for the aesthetic market. Kelvyn Cullimore Sr., who managed
the Synergie branded products until departing three years ago on a humanitarian
mission to Asia, has returned to again manage the department. Numerous strategic
partnerships, both domestic and international, are currently under consideration
that would help maintain the sales momentum that is being built.
Based on our defined strategic initiatives, we are focusing our resources in the
following areas:
o Reinforcing our position in the physical medicine market by
securing channels of distribution through a strategy of acquiring
dealers, recruiting direct sales representatives and working
closely with the most successful dealers of capital equipment.
o Securing our channels of distribution, focusing on development of
new sales strategies and promotional programs including the
introduction of the most comprehensive catalog in our history.
o Continuing development of new, state-of-the-art products, both
high tech and commodity, in fiscal year 2008, for both the
rehabilitation and aesthetic markets including the introduction of
the new Synergie AMS and MDA devices in the next few months.
o Improving efficiencies in conjunction with the assimilation of the
companies acquired.
o Improving distribution of aesthetic products domestically and
exploring the opportunities to introduce more products into the
aesthetics market.
o Expanding distribution of both rehabilitation and aesthetic
products internationally.
o Establishing strategic business alliances that will leverage and
complement the Company's competitive strengths.
Cautionary Statement Concerning Forward-Looking Statements
----------------------------------------------------------
The statements contained in this report on Form 10-QSB, particularly the
foregoing discussion in Part I Item 2, Management's Discussion and Analysis or
Plan of Operation, that are not purely historical, are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "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, 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 SEC 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.
15
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:
o Assimilating acquired companies in a timely and effective manner
including specific risks of:
o Failure to realize expected economies of scale and
efficiencies of operations
o Inability to achieve sales targets
o Loss of key sales personnel
o Inefficiencies in management of receivables
o Lack of controlling inventories and consolidation of
inventories
o Operational inefficiencies resulting in unmet customer
expectations
o market acceptance of our technologies, particularly our core
therapy devices, Synergie AMS/MDA product line, and the Solaris
infrared light therapy products;
o lack of available financing through lines of credit or other
financing sources to fully fund operating losses, expansion in
working capital, and necessary capital expenditures to support the
planned strategic initiatives.
o failure to timely release new products against market
expectations;
o the ability to hire and retain the services of trained personnel
at cost-effective rates;
o rigorous government scrutiny or the possibility of additional
government regulation of the industry in which we market our
products;
o reliance on key management personnel;
o foreign government regulation of our products and manufacturing
practices that may bar or significantly increase the expense of
expanding to foreign markets;
o economic and political risks related to expansion into
international markets;
o failure to sustain or manage growth, including the failure to
continue to develop new products or to meet demand for existing
products;
o reliance on information technology;
o the timing and extent of research and development expenses;
o the ability to keep pace with technological advances, which can
occur rapidly;
o the loss of product market share to competitors;
o potential adverse effect of taxation;
o additional terrorist attacks on U.S. interests and businesses;
o escalating costs of raw materials, particularly steel and
petroleum based materials; and
o increased competition from a consolidating market that could put
pressure on pricing and margin realization.
As a public company, we are subject to the reporting requirements of the
Exchange Act and the Sarbanes-Oxley Act of 2002. These requirements may place a
strain on our systems and resources. The Exchange Act requires, among other
things, that we file annual, quarterly and current reports with respect to our
business and financial condition. The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and
internal controls over financial reporting. We are currently reviewing and
further documenting our internal control procedures. However, the guidelines for
the evaluation and attestation of internal control systems for small companies
continue to evolve. Therefore, we can give no assurances that our systems will
satisfy the new regulatory requirements. In addition, in order to maintain and
improve the effectiveness of our disclosure controls and procedures and internal
controls over financial reporting, significant resources and management
oversight will be required.
16
Item 3. Controls and Procedures
Based on evaluation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by
this Report, our principal executive and principal financial officers have
concluded that our disclosure controls and procedures are effective at the
reasonable assurance level. There were no changes in our internal control over
financial reporting that occurred during the quarter ended December 31, 2007
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
17
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes purchases of the Company's common stock made by
the Company during the quarter ended December 31, 2007, under a stock repurchase
program approved by the board of directors of the Company in September 2003.
Small Business Issuer Purchases of Equity Securities*
Approximate
Total # of Shares Dollar Value of
Total # of Purchased as part Shares that May
Shares Average Price of Publicly Announced Yet be Purchased
Period Purchased Paid per Share Plans or Programs Under Plan/Program
--------------------------------------------------------------------------------
10/1/07
to
10/31/07 4,000 $1.41 364,093 $313,299
11/1/07
to
11/30/07 33,918 $1.23 398,011 $271,557
12/1/07
to
12/31/07 26,701 $1.10 424,712 $242,073
* The Company's repurchase program was announced on Septmber 3, 2003. At
that time, the Company approved repurchases aggregating $500,000. In
November 2007, the Company added an additional $250,000 to the
repurchase plan.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on November 22, 2007, the
shareholders of the Company voted on the following proposals:
Proposal 1 - To elect seven directors, each to serve until the next
annual meeting of shareholders and until his successor is elected and
shall have qualified. Those nominated were all currently serving as
directors of the Company, i.e., Kelvyn H. Cullimore, Jr., Kelvyn H.
Cullimore, Larry K. Beardall, E. Keith Hansen MD, Howard L. Edwards,
Joseph H. Barton and Val J. Christensen.
Proposal 2 - To approve the Audit Committee's selection of Tanner LC as
the Company's independent registered public accountants for the year
ending June 30, 2008.
Proposal 3 - To amend the Company's 2005 Equity Incentive Award Plan to
add 1,000,000 additional shares to the Plan.
Each of the proposals was approved by the requisite majority of the shares cast
at the annual meeting. The following table summarizes the voting results:
For Against Abstain
--- ------- -------
Proposal 1:
Mr. Cullimore, Jr. 10,853,365 43,942 339,762
Mr. Cullimore 10,879,477 17,830 339,762
Mr. Beardall 10,884,807 12,500 339,762
Dr. Hansen 10,892,177 5,130 339,762
Mr. Christensen 10,892,177 5,130 339,762
Mr. Barton 10,891,177 6,130 339,762
Mr. Edwards 10,892,177 5,130 339,762
18
For Against Abstain
--- ------- -------
Proposal 2:
11,179,429 41,872 16,769
For Against Abstain
--- ------- -------
Proposal 3*:
6,147,203 607,061 3,800
* Excludes 4.5 million broker non-votes
Item 6. Exhibits
(a) Exhibits
--------
3.1 Articles of Incorporation and Bylaws of Dynatronics Laser
Corporation. Incorporated by reference to a Registration
Statement on Form S-1 (No. 2-85045) filed with the SEC and
effective November 2, 1984
3.2 Articles of Amendment dated November 21, 1988 (previously
filed)
3.3 Articles of Amendment dated November 18, 1993 (previously
filed)
10.1 Employment contract with Kelvyn H. Cullimore, Jr.
(previously filed)
10.2 Employment contract with Larry K. Beardall (previously
filed)
10.3 Loan Agreement with Zions Bank (previously filed)
10.5 Amended Loan Agreement with Zions Bank (previously filed)
10.6 1992 Amended and Restated Stock Option Plan (previously
filed)
10.7 Dynatronics Corporation 2006 Equity Incentive Award Plan
(previously filed as Annex A to the Company's Definitive
Proxy Statement on Schedule 14A filed on October 27, 2006)
10.8 Form of Option Agreement for the 2006 Equity Incentive Plan
for incentive stock options (previously filed as Exhibit
10.8 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2006)
10.9 Form of Option Agreement for the 2006 Equity Incentive Plan
for non-qualified options (previously filed as Exhibit 10.9
to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2006)
11 Computation of Net Income per Share (included in Notes to
Consolidated Financial Statements)
31.1 Certification under Rule 13a-14(a)/15d-14(a) of principal
executive officer (filed herewith)
31.2 Certification under Rule 13a-14(a)/15d-14(a) of principal
financial officer (filed herewith)
32 Certifications under Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. SECTION 1350) (filed herewith)
19
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 2/13/08 /s/ Kelvyn H. Cullimore, Jr.
-----------------------------------------------
Kelvyn H. Cullimore, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date 2/13/08 /s/ Terry M. Atkinson, CPA
-----------------------------------------------
Terry M. Atkinson, CPA
Chief Financial Officer
(Principal Financial Officer)
20
--------------------------------------------------------------------------------