================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-12697
Dynatronics Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0398434
---- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
------------------------------------------------
(Address of principal executive offices, Zip Code)
(801) 568-7000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). [ ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The number of shares outstanding of the registrant's common stock, no par value,
as of May 11, 2009 is 13,675,387.
i
Explanatory Note
----------------
This Amendment No. 1 is filed for the sole purpose of including currently dated
and signed certifications of the Company's Principal Executive Officer and
Principal Accounting and Financial Officer under Section 906 of the
Sarbanes-Oxley Act of 2002 (Exhibit 32). The certifications filed with the
original quarterly report for the period ended March 31, 2009 inadvertently
omitted the date the certifications were signed by the responsible officers.
This amendment also includes updated and currently signed certifications in
Exhibits 31.1 and 31.2. No other changes were made to the report as originally
filed.
DYNATRONICS CORPORATION
FORM 10-Q
QUARTER AND NINE MONTHS ENDED MARCH 31, 2009
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..............................................1
Condensed Consolidated Balance Sheets
March 31, 2009 and June 30, 2008 ..........................................1
Condensed Consolidated Statements of Operations
Three and Nine Months Ended March 31, 2009 and 2008........................2
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2009 and 2008..................................3
Notes to Condensed Consolidated Financial Statements.......................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........16
Item 4. Controls and Procedures...........................................16
PART II. OTHER INFORMATION
Item 5. Other Information.................................................16
Item 6. Exhibits..........................................................17
ii
DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
Assets 2009 2008
------------ -------------
Current assets:
Cash $ 259,595 $ 288,481
Trade accounts receivable, less allowance
for doubtful accounts of $420,861 at
March 31, 2009 and $411,057 at
June 30, 2008 4,969,319 5,151,235
Other receivables 22,181 63,487
Inventories, net 6,569,912 6,283,068
Prepaid expenses 238,605 619,471
Prepaid income taxes 35,432 98,644
Deferred income tax assets - current portion 451,799 477,300
------------ -------------
Total current assets 12,546,843 12,981,686
Property and equipment, net 3,357,280 3,527,153
Intangible assets, net 564,197 631,181
Other assets 178,610 359,748
Deferred income tax assets, net of current portion 897,527 928,051
------------ -------------
Total assets $ 17,544,457 $ 18,427,819
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 279,185 $ 297,413
Line of credit 5,684,566 5,818,320
Warranty reserve 209,168 209,168
Accounts payable 1,579,337 1,423,839
Accrued expenses 288,833 500,145
Accrued payroll and benefits 289,104 411,918
------------ -------------
Total current liabilities 8,330,193 8,660,803
Long-term debt, net of current installments 2,855,689 3,046,000
Deferred compensation - 455,377
------------ -------------
Total liabilities 11,185,882 12,162,180
------------ -------------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; authorized
50,000,000 shares; issued 13,675,387 shares
at March 31, 2009 and 13,670,807 shares at
June 30, 2008 7,901,626 7,865,913
Accumulated deficit (1,543,051) (1,600,274)
------------ -------------
Total stockholders' equity 6,358,575 6,265,639
------------ -------------
Total liabilities and stockholders' equity $ 17,544,457 $ 18,427,819
============ =============
See accompanying notes to condensed consolidated financial statements.
1
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
2009 2008 2009 2008
------------ ------------ ------------ -------------
Net sales $ 7,633,419 $ 7,781,871 $ 24,348,461 $ 24,534,934
Cost of sales 4,788,993 4,946,912 14,994,838 15,428,447
------------ ------------ ------------ -------------
Gross profit 2,844,426 2,834,959 9,353,623 9,106,487
Selling, general,
and administrative
expenses 2,256,795 3,325,765 8,060,869 10,240,809
Research and
development
expenses 247,293 368,994 775,040 1,070,993
------------ ------------ ------------ -------------
Operating
income (loss) 340,338 (859,800) 517,714 (2,205,315)
------------ ------------ ------------ -------------
Other income
(expense):
Interest income 2,724 3,823 4,521 9,210
Interest expense (135,706) (165,613) (426,334) (463,216)
Other income, net 5,948 2,033 16,492 8,865
------------ ------------ ------------ -------------
Net other
income
(expense) (127,034) (159,757) (405,321) (445,141)
------------ ------------ ------------ -------------
Income (loss)
before income
tax provision
(benefit) 213,304 (1,019,557) 112,393 (2,650,456)
Income tax provision
(benefit) 71,728 (390,782) 55,170 (970,686)
------------ ------------ ------------ -------------
Net income
(loss) $ 141,576 $ (628,775) $ 57,223 $ (1,679,770)
============ ============ ============ =============
Basic and diluted net
income (loss) per
common share $ 0.01 $ (0.05) $ 0.00 $ (0.12)
============ ============ ============ =============
Weighted-average
basic and diluted
common shares
outstanding (note 2)
Basic 13,669,933 13,579,328 13,665,423 13,616,237
Diluted 13,671,598 13,579,328 13,665,423 13,616,237
See accompanying notes to condensed consolidated financial statements.
2
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
2009 2008
------------ -------------
Cash flows from operating activities:
Net income (loss) $ 57,223 $ (1,679,770)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization of property
and equipment 270,193 276,844
Amortization of intangible assets 66,984 69,683
Gain on disposal of assets (2,182) -
Stock-based compensation expense 45,851 292,365
Decrease (increase) in deferred income
tax assets, net 56,025 (971,854)
Provision for doubtful accounts 36,000 190,000
Provision for inventory obsolescence 72,000 126,000
Provision for warranty reserve 201,452 209,137
(Reduction in) provision for deferred
compensation (455,377) 24,165
Change in operating assets and liabilities:
Receivables 187,222 (360,468)
Inventories (358,844) (572,356)
Prepaid expenses and other assets 562,004 (394,574)
Accounts payable and accrued expenses (380,080) (313,142)
Prepaid income taxes 63,212 (13,710)
------------ -------------
Net cash provided by (used in)
operating activities 421,683 (3,117,680)
------------ -------------
Cash flows from investing activities:
Capital expenditures (100,738) (238,138)
Business acquisitions - (1,839,794)
Proceeds from disposal of assets 2,600 -
------------ -------------
Net cash used in investing activities (98,138) (2,077,932)
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt (208,539) (184,952)
Net change in borrowings under line of
credit (133,754) 4,454,823
Proceeds from issuance of common stock - 49,225
Redemption of common stock (10,138) (211,919)
------------ -------------
Net cash (used in) provided
by financing activities (352,431) 4,107,177
------------ -------------
Net decrease in cash (28,886) (1,088,435)
Cash at beginning of period 288,481 1,301,105
------------ -------------
Cash at end of period $ 259,595 $ 212,670
============ =============
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 401,991 $ 438,872
Cash paid for income taxes 36,828 87,000
Supplemental disclosure of non-cash investing and
financing activities:
Capital expenditures financed by long-term debt - 90,134
Acquisition cash obligation financed by line
of credit - 1,000,000
Stock based compensation - see note 3 for
details
Business acquisitions disclosure - see note 8
for details
See accompanying notes to condensed consolidated financial statements.
3
DYNATRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. PRESENTATION
The condensed consolidated balance sheets as of March 31, 2009 and June 30,
2008, the condensed consolidated statements of operations for the three and nine
months ended March 31, 2009 and 2008, and the condensed consolidated statements
of cash flows for the nine months ended March 31, 2009 and 2008 were prepared by
Dynatronics Corporation without audit pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and
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 Company's financial position, results of operations and cash flows.
The results of operations for the three and nine months ended March 31, 2009 are
not necessarily indicative of the results for the fiscal year ending June 30,
2009. The Company has previously filed with the SEC an annual report on Form
10-KSB which included audited financial statements for each of the two years
ended June 30, 2008 and 2007. 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 most recent Form 10-KSB filing.
NOTE 2. NET INCOME (LOSS) 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 weighted-average 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 weighted-average
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.
The net income (loss) per share was the same for both the basic and diluted
calculation for the three and nine months ended March 31, 2009 and 2008. A
reconciliation between the basic and diluted weighted-average number of common
shares for the three and nine months ended March 31, 2009 and 2008 is summarized
as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
2009 2008 2009 2008
------------ ------------ ------------ -------------
Basic weighted-
average number
of common shares
outstanding
during the period 13,669,933 13,579,328 13,665,423 13,616,237
Weighted-average
number of dilutive
common stock
options outstanding
during the period 1,665 - - -
------------ ------------ ------------ -------------
Diluted weighted-
average number of
common and
common equivalent
shares outstanding
during the period 13,671,598 13,579,328 13,665,423 13,616,237
============ ============ ============ =============
Outstanding options not included in the computation of diluted net income (loss)
per share for the three-month periods ended March 31, 2009 and 2008 totaled
999,101 and 1,323,464, respectively, and for the nine-month periods ended March
31, 2009 and 2008 totaled 1,020,700 and 730,646, respectively, because they were
anti-dilutive.
4
NOTE 3. STOCK-BASED COMPENSATION
Stock-based compensation cost is measured at the grant date, based on the fair
value of the award, and is recognized over the employee's requisite service
period. The Company recognized $14,752 and $18,036 in stock-based compensation
during the three months ended March 31, 2009 and 2008, respectively, and
recognized $45,851 and $292,364 in stock-based compensation during the nine
months ended March 31, 2009 and 2008, respectively, as selling, general, and
administrative expenses in the condensed consolidated statements of operations.
Stock Options. The Company maintains a 2005 equity incentive plan for the
benefit of employees. Incentive and nonqualified stock options, restricted
common stock, stock appreciation rights, and other share-based awards may be
granted under the plan. Awards granted under the plan may be performance-based.
Effective November 27, 2007, the plan was amended to increase the number of
shares available by 1,000,000 shares as approved by the stockholders. At March
31, 2009, there were 1,009,082 shares of common stock authorized and reserved
for issuance, but were not granted under the terms of the 2005 equity incentive
plan, as amended.
The following table summarizes the Company's stock option activity during the
nine-month period ended March 31, 2009. There were 32,247 options granted during
the three-month period ended March 31, 2009:
Number of options Weighted-Average
Exercise Price
----------------- -----------------
Outstanding at beginning of period 1,101,603 $ 1.41
Granted 71,750 .49
Exercised - -
Cancelled (169,652) 1.21
-----------------
Outstanding at end of period 1,003,701 1.79
=================
Exercisable at end of period 491,605 1.57
=================
The Black-Scholes option-pricing model is used to estimate the fair value of
options under the Company's stock option plan. The weighted-average value of
stock options granted under the plan, as well as the assumptions used in
calculating those values for the nine months ended March 31, 2009 and 2008 were
based on estimates at the date of grant as follows:
Nine Months Ended
March 31,
2009 2008
------------ -------------
Expected dividend yield 0% 0%
Expected stock price volatility 56 - 59% 57 - 59%
Risk-free interest rate 2.59 - 4.14% 3.85 - 4.14%
Expected life of options 10 years 10 years
Expected option lives and volatilities are based on historical data of the
Company. The risk-free interest rate is based on the US Treasury bill rate on
the grant date for constant maturities that correspond with the option life.
Historically, the Company has not declared dividends and there are no future
plans to do so.
No options were exercised during the nine months ended March 31, 2009. As of
March 31, 2009, there was approximately $115,390 of total unrecognized
stock-based compensation cost related to grants under the stock option plan that
will be expensed over a weighted-average period of 5 years.
NOTE 4. COMPREHENSIVE INCOME (LOSS)
For the three and nine months ended March 31, 2009 and 2008, comprehensive
income (loss) was equal to the net income (loss) as presented in the
accompanying condensed consolidated statements of operations.
5
NOTE 5. INVENTORIES
Inventories consisted of the following:
March 31, June 30,
2009 2008
------------ -------------
Raw materials $ 2,818,631 $ 2,984,189
Finished goods 4,176,352 3,636,597
Inventory reserve
(425,071) (337,718)
------------ -------------
$ 6,569,912 $ 6,283,068
============ =============
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, June 30,
2009 2008
------------ -------------
Land $ 354,743 $ 354,743
Buildings 3,691,364 3,682,504
Machinery and equipment 1,692,245 1,661,962
Office equipment 1,317,810 1,283,821
Vehicles 214,919 188,148
------------ -------------
7,271,081 7,171,178
Less accumulated depreciation
and amortization (3,913,801) (3,644,025)
------------ -------------
$ 3,357,280 $ 3,527,153
============ =============
NOTE 7. PRODUCT WARRANTY RESERVE
The Company accrues the estimated costs to be incurred in connection with its
manufactured product warranty programs as products are sold based on historical
warranty claims. A reconciliation of the changes in the warranty reserve is as
follows:
Three months Three months
ended ended
March 31, March 31,
2009 2008
------------ -------------
Beginning product warranty reserve $ 209,168 $ 208,000
Warranty repairs (57,345) (81,962)
Warranty reserve additions 67,415 117,848
Changes in estimated warranty costs (10,070) (35,886)
------------ -------------
Ending product warranty reserve $ 209,168 $ 208,000
============ =============
Nine months Nine months
ended ended
March 31, March 31,
2009 2008
------------ -------------
Beginning product warranty reserve $ 209,168 $ 208,000
Warranty repairs (201,452) (209,137)
Warranty reserve additions 194,253 371,556
Changes in estimated warranty costs 7,199 (162,419)
------------ -------------
Ending product warranty reserve $ 209,168 $ 208,000
============ =============
NOTE 8. ACQUISITION AND NON-CASH DISCLOSURE
On July 2, 2007, the Company completed the acquisition of 100% interest in five
of its key independent distributors; namely, 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 $5,700,000, comprised of approximately $2,300,000 in cash and
3,061,591 shares of the Company's common stock.
6
The acquisition value of the five independent distributors 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
estimated fair values at the purchase date. The following table reflects the
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 112,764
Cash surrender value of life insurance 207,563
Intangible assets 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
=============
NOTE 9. INTANGIBLE ASSETS OTHER THAN GOODWILL
Identifiable intangible assets consist of the following:
March 31, June 30,
Asset and Useful Life 2009 2008
------------ -------------
Trade name - 15 years $ 339,400 $ 339,400
Domain name - 15 years 5,400 5,400
Non-compete agreement - 4 years 149,400 149,400
Customer relationships - 7-15 years 120,000 120,000
Trademark licensing agreement - 20 years 45,000 45,000
Backlog of orders - 3 months 2,700 2,700
Customer database - 7 years 38,100 38,100
License agreement - 10 years 73,240 73,240
------------ -------------
Total identifiable intangible assets 773,240 773,240
Less accumulated amortization (209,043) (142,059)
------------ -------------
Net carrying amount $ 564,197 $ 631,181
============ =============
NOTE 10. RELATED PARTY TRANSACTIONS
The Company leases office and warehouse space in Girard, Ohio, Detroit, Michigan
and Pleasanton, California from three of the Company's former independent
distributors on an annual basis. These operating lease arrangements are with
three employee/stockholders, however, management believes the lease agreements
are on an arms-length basis and the terms are equal to or more favorable than
would be available to other third parties. The expense associated with these
related party transactions total $49,500 for the three months ended March 31,
2009 and $148,500 for the nine months ended March 31, 2009.
7
NOTE 11. OTHER ASSETS AND DEFERRED COMPENSATION
Effective March 5, 2009, Kelvyn H. Cullimore, Jr. and Larry Beardall (officers
of the Company) canceled their Company-funded retirement programs which were
funded through life insurance polices owned by the Company. As a result,
$367,917 in cash value from the life insurance policies was paid to the Company.
As a result of these cancellations, the contractual liability to pay the
retirement benefits was removed, and selling, general and administrative
expenses during the quarter ended March 31, 2009, was reduced by $472,397.
NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, Statement of Financial Accounting Standards (SFAS) No. 141R,
Business Combinations, was issued which replaces SFAS No. 141. SFAS No. 141R
retains the purchase method of accounting for acquisitions, but requires a
number of changes, including changes in the way assets and liabilities are
recognized using purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS No. 141R
is effective for the Company beginning July 1, 2009 and will apply prospectively
to business combinations completed on or after that date.
In December 2007, SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements - an amendment of ARB No. 51, was issued which changes the
accounting and reporting for minority interests. Minority interests will be
recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parent's equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in net income and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value,
with any gain or loss recognized in net income. SFAS No. 160 is effective for
the Company beginning July 1, 2009 and will apply prospectively, except for the
presentation and disclosure requirements, which will apply retrospectively. The
Company believes the adoption of SFAS No. 160 will not have a material impact on
its financial statements.
In April 2008, the Financial Accounting Standards Board (FASB) issued FSP FAS
142-3, Determination of the Useful Life of Intangible Assets ("FSP FAS 142-3").
FSP FAS 142-3 amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS Statement No. 142, Goodwill and Other Intangible
Assets. FSP FAS 142-3 also requires expanded disclosure related to the
determination of intangible asset useful lives. FSP FAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company is currently
evaluating the impact that the adoption of FSP FAS 142-3 will have on its
consolidated results of operations, liquidity and financial position.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
--------
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the unaudited condensed
consolidated financial statements and notes thereto appearing in Part I, Item 1
of this report on Form 10-Q.
The operating results of the Company include the operations of its
subsidiaries on a consolidated basis. The Company manufactures and distributes
products in the physical medicine market through 46 direct sales representatives
covering 27 states and an expanding network of wholesale distributors that
provide coverage in other states.
On December 17, 2008, we entered into an agreement with Vici Capital
Partners to undertake an intensive effort to review and improve all aspects of
our operations. Through this process, we have developed a number of important
ideas to significantly improve operational efficiencies, lower manufacturing and
other costs, and create a leaner, more profitable organization. Once fully
implemented, we expect these improvements to generate between $1,500,000 and
$2,000,000 in sustainable earnings improvements annually. However, due to the
nature of some of the proposed changes it will require up to a year to fully
realize all benefits contemplated by this effort. Nevertheless, we expect many
of the ideas generated by this exercise with Vici will begin to have an impact
on operations beginning in our fourth fiscal quarter ending June 30, 2009.
Results of Operations
---------------------
The Company's fiscal year ends on June 30. This report covers the three
and nine-month periods ended March 31, 2009. Results of the period covered by
this report are not necessarily indicative of the results that may be realized
for the full fiscal year ending June 30, 2009.
Net Sales
For the quarter ended March 31, 2009 the Company's sales were
$7,633,419, compared to $7,781,871 for the quarter ended March 31, 2008. Sales
for the nine months ended March 31, 2009 were $24,348,461, compared to
$24,534,934 for the nine months ended March 31, 2008. Sales remained essentially
flat in the current period when compared with the prior year period,
notwithstanding significant turmoil in the credit and financial markets and the
general economic environment in the United States. We believe that the
introduction of our new product catalog in September 2008 contributed to the
success in holding sales during the fiscal third quarter within two percent of
the same period in the prior year. The new product catalog contains 437 pages of
products - more than double the size of the Company's previous catalog. The
expansion of our product offering is a direct result of the acquisitions of six
distributors completed in 2007. The new catalog is a major step in presenting
the Company's new image to the market after a year of assimilation and change.
In conjunction with the new catalog, we also implemented pricing incentives to
reward customers for placing larger orders.
Gross Profit
For the quarter ended March 31, 2009 gross profit was $2,844,426 or
37.3% of net sales, compared to $2,834,959 or 36.4% of net sales for the quarter
ended March 31, 2008. Gross profit for the nine months ended March 31, 2009 was
$9,353,623 or 38.4% of net sales, compared to $9,106,487 or 37.1% of net sales
for the nine months ended March 31, 2008. During the prior year nine-month
period, margins were diminished due to sales of higher basis inventory of the
six distributors acquired in 2007. That inventory was mostly liquidated during
the first half of fiscal year 2008, during the six months following the
acquisitions. Adjusting for the higher basis inventory, margins would have been
about 2 points higher for the nine-month period ended March 31, 2009. However,
the increase in gross margin percentage in the quarter ended March 31, 2009 over
the same period in the prior year is attributable primarily to price increases
implemented during the quarter ended December 31, 2008. The quarter ended March
31, 2009 was the first full quarter in which those price increases were
effective.
9
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the quarter
ended March 31, 2009 decreased $1,068,970 to $2,256,795, or 29.6% of net sales,
compared to $3,325,765, or 42.7% of net sales for the prior year period. The
decrease in SG&A expenses for the quarter ended March 31, 2009 was aided by the
following changes:
o $739,300 in lower labor and operating costs
o $239,500 in lower selling expenses
o $90,100 in lower general and administrative expenses
Approximately $472,000 of the reduction in labor and operating costs
for the quarter ended March 31, 2009 resulted from the reversal of an accrued
liability due to the cancellation of retirement benefits previously provided by
contract to two executive officers of the Company, Kelvyn Cullimore, Jr. and
Larry Beardall.
SG&A expenses for the nine months ended March 31, 2009 decreased
$2,179,940 to $8,060,869, or 33.1% of net sales, compared to $10,240,809, or
41.7% of net sales for the prior year period. The primary components of this
decrease in SG&A expenses for the nine months ended March 31, 2009 were the
following:
o $1,348,000 in lower labor and operating costs (including the
benefit from the termination of the retirement benefits described
above)
o $568,600 in lower stock option expense, acquisition costs, bad
debt expense and other general and administrative expenses
o $263,300 in lower selling expenses
The reduced SG&A expenses for the three and nine months ended March 31,
2009 were primarily the result of concentrated efforts implemented as part of
the Company's strategy to assimilate the acquisitions made in June and July
2007. Specifically, as part of the primary assimilation process and in response
to declining economic conditions, management implemented measures in March and
July 2008 and again in March 2009 to reduce annual operating expenses by an
aggregate of between $3,500,000 and $4,000,000. These measures included an
approximately 30 percent reduction in the Company's workforce and the
elimination of duplicative overhead expense. In addition, distribution
operations were consolidated from eight distribution points to three. Building
on these measures, the streamlining efforts currently underway with the
assistance of Vici Capital Partners are further improving operational
efficiencies and reducing costs. The results for the nine months ended March 31,
2009 also reflect the reversal of the accrued liability due to the cancellation
of the retirement programs.
Research and Development
Research and development ("R&D") expense for the quarter ended March
31, 2009 was $247,293, compared to $368,994 for the same quarter in 2008. R&D
expense for the nine months ended March 31, 2009 was $775,040, compared to
$1,070,993 in 2008. R&D expense represented approximately 3.2% and 4.7% of net
sales for the quarters ended March 31, 2009 and 2008, respectively. R&D costs
are expensed as incurred. Dynatronics intends to continue its commitment to
developing innovative products for the physical medicine market through the
balance of fiscal year 2009 and in future periods in order to position the
Company for growth.
Pre-tax Income/Loss
Pre-tax income for the quarter ended March 31, 2009 improved to
$213,304 compared to a pre-tax loss of $1,019,557 for the quarter ended March
31, 2008. Pre-tax income for the nine months ended March 31, 2009 was $112,393
compared to a pre-tax loss of $2,650,456 for the nine months ended March 31,
2008. These significant improvements are directly related to the large
reductions in SG&A expenses discussed above, including the savings associated
with assimilating the acquired distributors and cancellation of executive
retirement programs, along with improvements in gross margins and lower R&D
expenses.
Income Tax Provision/Benefit
The income tax provision for the quarter ended March 31, 2009 was
$71,728 compared to an income tax benefit of $390,782 for the quarter ended
March 31, 2008. The effective tax rate for the 2009 quarter was 33.6% compared
to 38.3% for the 2008 quarter. The lower effective tax rate for the quarter
ended March 31, 2009 reflects R&D tax credits available to the Company. The
income tax provision for the nine months ended March 31, 2009 was $55,170
compared to an income tax benefit of $970,686 in the prior year.
10
Net Income/Loss Per Share
Net income for the quarter ended March 31, 2009 was $141,576 ($.01 per
share), compared to a net loss of $628,775 ($.05 per share) for the quarter
ended March 31, 2008. Net income for the nine months ended March 31, 2009 was
$57,223 ($.00 per share), compared to a net loss of $1,679,770 ($.12 per share)
for the nine months ended March 31, 2008. The primary components contributing to
the improvement in operating results and the return to profitability in the
current quarter were sales and gross margins remaining level with the prior year
and the sharp reductions in SG&A expenses and lower R&D expenses.
Liquidity and Capital Resources
-------------------------------
The Company has financed its operations through available cash reserves
and borrowings on its line of credit. The Company had working capital of
$4,216,650 at March 31, 2009, inclusive of the current portion of long-term
obligations and credit facilities, compared to working capital of $4,320,883 at
June 30, 2008.
Accounts Receivable
Trade accounts receivable, net of allowance for doubtful accounts,
decreased $181,916 to $4,969,319 at March 31, 2009, compared to $5,151,235 at
June 30, 2008. Trade accounts receivable represent amounts due from the
Company's distributor network, medical practitioners and clinics. We estimate
that the allowance for doubtful accounts is adequate based on our historical
experience as well as our knowledge of and relationship with these customers.
Accounts receivable are generally collected within 30 days of the agreed terms.
However, the effects of weakening general economic conditions in the United
States are manifested through slower collections from some customers. If such
patterns persist, additional reserves may be required in the future. Also, as a
result of increased distribution activity of the Company following the
acquisitions completed in fiscal year 2008, the character of the accounts
receivable and collection patterns have changed from prior years. We will
continue to carefully monitor our collection practices to ensure the allowance
estimates are adequate. Allowances for the retail accounts assumed in the
acquisitions include consideration of the historical experience of the acquired
companies.
Inventories
Inventories, net of reserves, at March 31, 2009 increased $286,844 to
$6,569,912 compared to $6,283,068 at June 30, 2008. This increase is mostly a
result of expanding the number of products offered through the new catalog
introduced in September 2008. Another factor involves the timing of large
inventory purchases from overseas suppliers.
Accounts Payable
Accounts payable increased $155,498 to $1,579,337 at March 31, 2009,
compared to $1,423,839 at June 30, 2008. The increase in accounts payable is a
result of the timing of our weekly payments to suppliers and the timing of
purchases of product components. Accounts payable are generally not aged beyond
the terms of our suppliers.
Accrued Payroll and Benefits
Accrued payroll and benefits decreased $122,814 to $289,104 at March
31, 2009, compared to $411,918 at June 30, 2008. The decrease in accrued payroll
and benefits results from timing differences as well as the reductions in force
implemented by the Company during the period.
Cash
The Company's cash position at March 31, 2009 was $259,595, compared to
$288,481 at June 30, 2008. The Company believes that improved cash flows from
operating activities will be generated through higher sales, improved management
of accounts receivable, reduction of current inventory levels and reduction of
operating expenses. We expect that cash flows from operating activities,
together with amounts available through an existing line of credit facility,
will be sufficient to cover operating needs in the ordinary course of business
for the next twelve months. If we experience an adverse operating environment,
including a further worsening of the general economy in the United States, 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 terms favorable to the Company, or at all.
11
Line of Credit
The Company has an $8,000,000 revolving line of credit with a
commercial bank. At March 31, 2009, we owed $5,684,566 on this line compared to
$5,818,320 at June 30, 2008. At March 31, 2009, the borrowing base was
approximately $6.6 million, resulting in approximately $900,000 available to the
Company on the line. Interest on the line of credit is based on the 90-day LIBOR
rate plus 4%, which at March 31, 2009 equaled 5.1% per annum. The line of credit
is collateralized by accounts receivable and inventories as well as a security
interest in the Company's headquarters facility in Salt Lake City, Utah.
Borrowing limitations are based on approximately 45% 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 on October 31, 2009 and includes
covenants requiring the Company to maintain certain financial ratios. As of
March 31, 2009, the Company was in compliance with its loan covenants.
The current ratio was 1.5 to 1 at March 31, 2009 and 1.5 to 1 at June
30, 2008. Current assets represented 72% of total assets at March 31, 2009,
compared to 70% at June 30, 2008.
Debt
Long-term debt, net of current portion, totaled $2,855,689 at March 31,
2009, compared to $3,046,000 at June 30, 2008. 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
$3.0 million with monthly principal and interest payments of $40,707.
Inflation and Seasonality
The Company's revenues and net income have not been materially 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 an understanding of our results of operations. The impact and
risks related to these policies on our business operations are discussed 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 the condensed consolidated
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, deferred income
tax assets, 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 those 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 method) or market. Raw materials
are recorded at the lower of cost (first-in, first-out method) 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:
12
o Current inventory quantities on hand
o Product acceptance in the marketplace
o Customer demand
o Historical sales
o Forecasted sales
o Product obsolescence
o Technological innovations
o Character of the inventory as a distributed item, finished
manufactured item or raw material
Any modifications to estimates of inventory valuation reserves are
reflected in the cost of sales within the statements of operations during the
period in which such modifications are determined necessary by management. At
March 31, 2009 and June 30, 2008, our inventory valuation reserve, which
established a new cost basis, was $425,071 and $337,718, respectively, and our
inventories totaled $6,569,912 and $6,283,068 net of reserves, respectively.
Revenue Recognition
Prior to June 2007, the majority of our product sales were to
independent distributors. In fiscal 2008, through the acquisition of six of our
top distributors, we added a significant portion of sales through an in-house
direct sales force. Our sales force and distributors sell our manufactured
products to end users, including physical therapists, professional trainers,
athletic trainers, chiropractors, medical doctors and aestheticians. In
addition, with the acquisition of the distributors, we expanded our distribution
options to include direct distribution of products in some territories while
supporting independent distributor efforts in others.
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 collectability of accounts receivable. 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
$4,969,319 and $5,151,235, net of allowance for doubtful accounts of $420,861
and $411,057, at March 31, 2009 and June 30, 2008, 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
distributor balances. At the same time, the management of more customer accounts
presents a higher risk. These risks will be evaluated to determine if current
estimate policies are still applicable. In the meantime, allowance for doubtful
accounts associated with these acquired customers is based on the historical
experience of the distributors acquired as well as our nearly two years of
experience since the acquisition of these distributors. The decline in general
economic conditions in the United States is being manifest by slower payments by
some customers. As these general economic conditions persist or worsen, there is
a possibility that increased reserves will be required in the future.
Business Plan and Outlook
During fiscal year 2009, we have undertaken a focused strategy to
improve overall operations and sales that includes the following elements:
o refining operations by continuing to reduce overhead costs and
automating processes
o enhancing product profit margins through improved manufacturing
processes and negotiating better pricing of components with
vendors
o developing and introducing new, state-of-the-art products for
future growth
o strengthening distribution channels
Our goal in implementing this four-fold strategy is to enable the
Company to improve short-term profitability without jeopardizing long-term
growth.
13
Our primary market, the physical medicine marketplace, has experienced
significant change over the past few years, most notably with consolidation
among manufacturers and distributors. The main challenge presented by this
consolidation has been the loss of independent distributors and the narrowing of
distribution channels. In order to compete more favorably and effectively, we
moved aggressively to strengthen our channels of distribution by acquiring
certain of our key distributors in June and July 2007. We also began hiring
direct sales representatives in key locations around the country. We now have 46
direct sales representatives in 27 states. The creation of a direct distribution
channel through these key acquisitions and hiring direct sales representatives
has expanded our ability to sell at the retail level, which we believe improves
gross profit margins and enhances the Company's control over the distribution
process.
The September 2008 introduction of our first consolidated catalog and
pricing schedule provided a powerful sales tool that is helping our sales
efforts with our direct sales reps and independent distributors who use either a
private labeled version or the proprietary version of the catalog. This tool
should further enhance efforts to strengthen distribution channels. We are
focusing specific efforts on recruiting additional independent distributors and
seasoned direct sales reps in geographical areas where distribution has been
lost or diminished due to consolidation within our industry. With the broad line
of products now offered by the Company, we will undertake to develop
relationships with Group Purchasing Organizations (GPO's) and large chains of
hospitals and clinics that purchase only on contract. This is a segment of
business which was previously closed to us because the Company was not an
approved vendor with the various GPO's and national or regional chains of care
facilities. With the broader offering of products now available through our
catalog, the Company is better able to compete for this high volume business.
In April 2008, the Company introduced the new Synergie Elite aesthetic
product line, representing the first redesign of our popular aesthetic devices
since their original introduction almost 10 years ago. We believe that this new
line of products remains the best value on the market. While the current
economic conditions have dampened demand for large capital equipment purchases
like the Synergie Elite products, the Company plans to seek strategic
partnerships, both domestic and international, to help maintain the sales
momentum from the introduction of this revised product line.
We have long believed that international markets present an untapped
potential for growth and expansion. Adding new distributors in several countries
will be the key to this expansion effort. Our 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. Our Salt Lake City facilities, where all
electrotherapy, ultrasound, traction, light therapy and Synergie products are
manufactured, are 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.
Over the years, the Company has made significant investments in
research and development to bring important new products to market. In April
2008, Dynatronics introduced the DynaPro Spinal Health System, a non-surgical
treatment for back and neck pain. This innovative system combines the benefits
of decompression and light therapy with core-stabilization exercises and
nutrition forming a very effective tool for relieving pain associated with a
host of back problems including herniated discs, degenerative disc disease,
sciatica and pinched nerves. The DynaPro Spinal Health System features our
Dynatron DX2, T4 treatment table and other packaged accessories incorporating a
state-of-the-art marketing and patient-awareness program to help practitioners
promote this proven, non-surgical pain relief treatment.
Several new products are currently under development. The Company plans
to introduce an important new product in June 2009, called V-Force. The V-Force
system utilizes vibration therapy to help patients increase their strength,
improve balance and flexibility and improve muscle endurance. The neuromuscular
benefits, together with the significant improvements in range of motion and
balance/proprioception achieved through the use of vibration therapy, have been
well established through numerous clinical research studies. Additional new
products are scheduled for introduction in the spring of 2010. The commitment to
innovation of high quality products has been a hallmark of Dynatronics and will
continue to be throughout the coming year.
Refining our business model for supporting sales reps and distributors
also will be a focal point of operations. We will continue to evaluate the most
efficient ways to maintain our satellite sales offices and warehouses. The
ongoing refinement of this model is expected to yield further efficiencies that
will better achieve sales goals while at the same time reduce expenses. As
mentioned previously in this document, through our agreement with Vici Capital
Partners, we have identified between $1,500,000 to $2,000,000 of efficiency
improvements that will be implemented over the next few quarters to drive
greater profitability. This is particularly important given the soft market for
capital products associated with the weakening national economy.
14
While recent trends have seen increases in distributed products and
decreases in capital products, the sale of the Company's manufactured capital
products remains the largest contributor to margin generation. Therefore, we
have placed renewed emphasis on improving manufacturing operations including
considering more offshore manufacturing of components as well as streamlining
manufacturing operations in Utah and Tennessee. With thousands of new products
now being distributed by the Company, refinements in the methods of price
management will be implemented throughout the coming year to ensure margins are
properly maintained.
Based on our defined strategic initiatives, we are focusing our
resources in the following areas:
o Significantly improving operational efficiencies, lowering
manufacturing and other costs, automating processes and creating a
leaner, more profitable organization. This effort is supported by
retaining Vici Capital Partners to guide the effort company-wide.
o Further refining the operational model for supporting field sales
and improving product pricing methodologies.
o Improving sales by focusing on development of new sales strategies
and promotional programs including more fully leveraging the
introduction of the most comprehensive catalog in our history in
pursuing business with Group Purchasing Organizations.
o Reinforcing our position in the domestic physical medicine market
by securing channels of distribution through a strategy of
recruiting direct sales representatives and working closely with
the most successful distributors of capital equipment.
o Expanding distribution of our redesigned Synergie product line
through leveraging our current direct sales force, seeking
additional independent distributors and creating new sales tools
to attract customers.
o Renewing emphasis of international sales by identifying key
distributors who could represent the product line, particularly in
Europe.
o Continuing development of new, state-of-the-art products, both
high-tech and commodity, in fiscal year 2009, for both the
rehabilitation and aesthetic markets.
o Exploring strategic business alliances that will leverage and
complement the Company's competitive strengths, increase market
reach and supplement capital resources.
Cautionary Statement Concerning Forward-Looking Statements
----------------------------------------------------------
The statements contained in this report on Form 10-Q, particularly the
foregoing discussion in Part I Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, that are not purely historical,
are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934. These statements refer to our expectations,
hopes, beliefs, anticipations, commitments, intentions and strategies regarding
the future. They may be identified by the use of words or phrases such as
"believes," "expects," "anticipates," "should," "plans," "estimates," "intends,"
and "potential," among others. Forward-looking statements include, but are not
limited to, statements regarding product development, market acceptance,
financial performance, revenue and expense levels in the future and the
sufficiency of 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 under the headings "Risk Factors" in our Annual Report on Form 10-KSB
for the year ended June 30, 2008. 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.
15
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks. Market risk is the potential
risk of loss arising from adverse changes in market prices and rates. We do not
enter into derivative or other financial instruments for trading or speculative
purposes. There have been no material changes in our market risk during the
quarter ended March 31, 2009, although the weakening general economy is expected
to lead to greater discounting market-wide to stimulate sales in a declining
economic environment. We believe the worsening general economic conditions could
lead to significantly diminished demand for the Company's higher margin
manufactured capital products in coming quarters. In addition, further weakening
of the general economy could result in greater risks of collections of accounts
receivable.
Our primary market risk exposure is interest rate risk. As of March 31,
2009, approximately $7,000,000 of our debt bore interest at variable rates.
Accordingly, our net income (loss) is affected by changes in interest rates. For
every one hundred basis point change in the average interest rate under our
existing debt, our annual interest expense would change by approximately
$70,000.
In the event of an adverse change in interest rates, we could take
actions to mitigate our exposure. However, due to the uncertainty of the actions
that would be taken and their possible effects, this analysis assumes no such
actions.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As required by SEC Rule 13a-15(b), an evaluation was performed under
the supervision and with the participation of our management, including our
principal executive officer and our principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures are effective.
There has been no change in our internal control over financial
reporting during the quarter ended March 31, 2009 that has materially affected,
or that is reasonably likely to materially affect, our internal controls over
financial reporting.
PART II. OTHER INFORMATION
Item 5. Other Information
NASDAQ Minimum Bid Requirement
On June 25, 2008, we received a Deficiency Letter from the NASDAQ Stock
Market, notifying us that the Company fails to comply with the minimum bid
requirement for continued inclusion under Marketplace Rule 4310(c)(4). Under
that rule, the Company's common stock is required to maintain a minimum bid
price of $1.00. In accordance with Marketplace Rule 4310(c)(8)(D), we were
provided 180 days, or until December 22, 2008, to regain compliance with the bid
price deficiency rule. Subsequently, pursuant to the rules and regulations of
the Securities and Exchange Commission, NASDAQ submitted two notices of filing
and immediate effectiveness of changes to the rule governing the failure of
listed companies to meet the market value of listed securities requirement. The
effect of these new rule changes is to extend the time for the Company to comply
with the minimum bid price rule until approximately September 27, 2009.
16
We intend to use our best efforts to regain compliance with NASDAQ's
minimum bid requirement. However, there can be no assurance that compliance with
the minimum bid requirement will be achieved given recent historical performance
of the Company and the overall current condition of financial and capital
markets in the United States. If compliance is not achieved, the Company's stock
will likely be delisted from NASDAQ and begin trading on the OTC bulletin board.
Related Party Transaction
We lease office and distribution facilities in California owned by John
Rajala, our national sales manager. Mr. Rajala also owns 9.6% of our outstanding
common stock. The rental paid to Mr. Rajala for the leased facilities is
$120,000 per year under a written lease agreement. The term of the lease is 12
months with annual renewal periods and we believe that the rental payments are
in line with the market prices for similar facilities in the area in which the
leased premises are located. This transaction with a related party has been
approved by the audit committee of the Company's Board of Directors.
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)
10.10 Building Lease Agreement with The Rajala Family Trust dated June 30,
2008 (filed previously)
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 accounting
and financial officer (filed herewith)
32 Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. SECTION 1350) (filed herewith)
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
DYNATRONICS CORPORATION
Registrant
Date 8/27/09 /s/ Kelvyn H. Cullimore, Jr.
------------ -------------------------------------------
Kelvyn H. Cullimore, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date 8/27/09 /s/ Terry M. Atkinson, CPA
------------ -------------------------------------------
Terry M. Atkinson, CPA
Chief Financial Officer
(Principal Accounting and Financial Officer)
18
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