Dynatronics
Annual Report 2013

Plain-text annual report

2013annual report Letter to Shareholders — 3 Poised to Make a Major Impact in the Market — 7 Board of Directors and Management Team — 8 Management’s Discussion and Analysis — 9 Report of Independent Registered Public Accounting Firms — 18 Financial Statements — 20 Notes to Financial Statements — 25 Corporate Information — 36 The SolarisPlus devices were introduced in August 2012, and quickly became our top–selling product line. 3 s r e d l o h e r a h s o t r e t t e l 2013letter to shareholders Years of increased R&D expenditures and practitioners with a variety of choices. strategic planning culminated in fiscal year Along with the four devices that comprise 2013 with the introduction of a record number the Dynatron SolarisPlus family of products, of innovative devices. We expect that these we introduced the new Tri–Wave Light Probe new investments will increase market interest and the Tri–Wave Light Pad. These devices in our product lines. While Dynatronics has include three wavelengths of light to deliver long been an innovation leader in our market, powerful phototherapy. The new probe and we have never introduced a greater number pad function as accessory devices to the of new devices during any other 12–month Dynatron SolarisPlus product family. period in our history. Even better, the An additional accessory introduced as part innovation did not stop in fiscal year 2013. of the SolarisPlus family is a transport cart on Early in 2013, we introduced the which the SolarisPlus unit can be positioned Dynatron Solaris®Plus family of products, for easy movement around practitioners’ updating and improving our premier Solaris brand family of products. The SolarisPlus family of products includes four therapy devices capable of delivering ...we have never introduced a greater number of new devices during any other 12-month period in our history. clinics. This attractive cart not only improves the aesthetic appeal of the SolarisPlus family of products, but is highly functional, providing three large drawers for storage and varying combinations of electrotherapy, a low center of gravity to eliminate tipping. ultrasound therapy and phototherapy all at The introduction of the Dynatron the same time, if desired. The top–of–the–line SolarisPlus products helped us reverse a 5 Dynatron SolarisPlus 709 is capable of percent decline in therapy device sales to delivering seven different forms of electro- produce a 6 percent sales improvement in therapy through five patient therapy channels, fiscal year 2013 compared to fiscal year 2012. three frequencies of ultrasound therapy and In addition to the Dynatron SolarisPlus multiple variations of phototherapy. The family of products, we brought new therapy other three SolarisPlus devices, which offer tables to the market in the second quarter fewer therapy channels or exclude ultrasound of fiscal year 2013. The Ultra 2 and Ultra therapy, are variations on these combinations. 3 are premium hi–lo segmented therapy The entire product line provides tables. As indicated by their names, the 4 Ultra 2 is a two–section table and the new probe will provide practitioners with a products increased this fiscal year over last 5 Ultra 3 is a three–section table. Both are tool that delivers thermal therapy and/or elec- year. The loss of sales has been exclusively heavy–duty, 550–pound capacity tables with trotherapy in a single device. A year ago we limited to decreased sales of distributed unique operator conveniences. Interest in introduced our first version of this probe as products produced by other manufacturers. these new therapy tables was slow at first, an accessory to our Quad 7 thermal therapy Our strategy of expanding our sales force but sales are now gaining momentum. device. The original Thermostim achieved by attracting new distributors and sales Besides the SolarisPlus devices, the heating and cooling of the probe face using persons with our innovative, new, proprietary Tri–Wave Light Probe and Pad, and the Ultra heated or cooled water circulated from the manufactured products will, we believe, also therapy tables, we also introduced a new line of Quad 7 device. The Dynatron Thermostim lead to an increase of sales of the products combination therapy devices branded the “25 Probe is a new, advanced–technology probe we distribute for other manufacturers. Series.” The 25 Series is intended to replace that achieves thermal therapy capabilities We continue to explore options for our aging 50 Series line of products. The 25 by use of a thermoelectric chip, instead of expanding relationships with national accounts Series products are similar to the SolarisPlus circulating water, eliminating the need for the and group purchasing organizations, and to product family, except that they offer only awkward hoses used on the predicate device. pursue international sales opportunities. For electrotherapy and ultrasound therapy, and The new Thermostim Probe, scheduled the first time in our history, we have significant do not include phototherapy, a transport for release before the end of calendar year interest in our new products from Asian cart or the ability to add future modalities. 2013, is a plug–and–play accessory to the and European distributors. While cultivating We expect the 25 Series products Dynatron SolarisPlus family of products. national accounts and international sales is a will open new doors of distribution for us. This exciting technology will further enhance more prolonged process, we remain engaged Throughout our history we have subscribed the innovative SolarisPlus brand. We also to bring those opportunities to fruition. to a sales philosophy of protected territories expect the introduction of the Thermostim In December 2012, we implemented for our proprietary devices. While this has Probe to significantly boost revenue through a one–for–five reverse split of our common attracted the best sales persons and the best sales of the probe itself, as well as increased stock. We are pleased that our overall dealers, it has also precluded our pursuit sales of the SolarisPlus products. of a significant part of our key market. We believe the introduction of a record With the advent of the 25 Series, we will, number of products this last year and in the market capitalization has actually improved since the implementation of that reverse stock split. In fact, on August 6, 2013 the for the first time in our history, offer proprietary new fiscal year, together with the anticipated stock price closed at $5.57 per share. combination therapy devices to all qualified introduction of the Thermostim Probe and We are confident that as we begin to distributors. We will continue to protect certain the new strategy for expanding distribution of implement the new sales strategy, backed distributors and sales persons by restricting the offer and sale of the Dynatron SolarisPlus products and associated accessories to be sold only by these exclusive distributors and repre- sentatives, or under their direction, within limited geographical territories. [we]... improved operating performance compared to fiscal year 2012, reducing pre-tax losses 31% from $190,241 last year to $131,125 this year. products, positions us well for a new growth phase. by our new proprietary products, we will see sustained growth in the sales both of That strategy is timely: Dynatronics–manufactured products as well as For the first time since we distributed products. Adding these improved began to offer commercialized sales and the resulting gross profits to our products, we reported net losses for two consecutive years. In fiscal year 2012, we reported a net loss of $23,535. In fiscal year 2013, we reported a net more austere platform of reduced expense and overhead should position us to return to profitability in the coming fiscal year. At the same time, we will make available the loss of $44,371. Despite the slightly larger net 25 Series of combination therapy products loss for fiscal year 2013, we actually improved generally to qualified sales persons, dealers operating performance compared to fiscal and distributors without geographic limitations. year 2012, reducing pre–tax losses 31% from Kelvyn H. Cullimore, Jr. Chairman, President and CEO We anticipate that this will broaden our stable $190,241 last year to $131,125 this year. of capable sales persons, many of whom may That improvement was achieved by cutting also be attracted to sell other Dynatronics expenses by just over $900,000 from fiscal products, including the Dynatron SolarisPlus year 2012 to fiscal year 2013. Those expense products, by working with the appointed sales reductions were offset by a 6.7 percent drop representative or dealer in their territories. in sales, resulting in a loss of approximately In the coming months we will introduce $850,000 in gross profit margin year over year. one of the most innovative and exciting new While we are concerned about these products we have engineered in years. It is declines in sales, we are encouraged by the called the Dynatron ThermostimTM Probe. This fact that sales of our proprietary manufactured l e t t e r t o s h a r e h o l d e r s s r e d l o h e r a h s o t r e t t e l Introduction of the ThermoStim Probe, promises to be one of the most significant contributions to the Physical Therapy market in the last decade. 7 4 1 0 2 n i t e k r a m e h t n o t c a p m i r o j a m a e k a m o t d e s o p i poised to make a major impact on the market in 2014 Poised to make a major impact on the market in 2014, a quick review of Dynatronics’ history reveals that two things have significantly moved the sales and profitability needle in the past—extending distribution and leveraging new technology. 1996—ACquisition of superior ortHopediC supplies, inC. The acquisition of Superior Orthopedic Supplies expanded Dynatronics’ manufactured product offerings by over 200 products, including hot/cold packs, supports, pillows, and therapy tables. Sales for fiscal year 1996 jumped 50%, following this major acquisition. 2004—introduCtion of solAris series Dynatronics once again raised the bar for technological innovation with the introduction of the Solaris Series of electrotherapy devices. After one year on the market, no other company had yet offered the unique combination of 7 electrotherapy modalities, 3-frequency ultrasound capabilities, and the option of adding light therapy. Leveraging this new technology, company profits jumped from $24,799 to $883,300. 2008—deAler ACquisitions The acquisition of 6 key dealers expanded Dynatronics’ influence and direct sales access nationwide. With improved sales margins, increased number of sales reps, and solid presence in 29 states across the nation, Dynatronics sales nearly doubled from $17.8 million to $32.6 million. 2014—tHermostim probe Introduction of the ThermoStim Probe, promises to be one of the most significant contributions to the Physical Therapy market in the last decade. No other device on the market can supply a variety of Stim outputs combined with both heat (112°) and cold (35°) options in one device. Designed as an optional accessory to the SolarisPlus Series, this revolutionary tool facilitates the delivery of three different therapies in one treatment, significantly reducing the time typically required to administer separate treatments. By leveraging proprietary technology, the new ThermoStim Probe will be the catalyst to boost sales and attract new distributors, beginning midway through fiscal year 2014. 8 i b o a r d o f d r e c t o r s & m a n a g e m e n t t e a m boArd of direCtors Pictured above, in order from left to right Kelvyn H. Cullimore, Jr. Chairman, President and CEO Larry K. Beardall Executive Vice President of Sales and Marketing Joseph H. Barton Director Howard L. Edwards Director R. Scott Ward, Ph.D. Director mAnAgement teAm Kelvyn H. Cullimore, Jr. Chairman, President and CEO Larry K. Beardall Executive Vice President of Sales and Marketing Terry M. Atkinson, CPA Chief Financial Officer Robert J. (Bob) Cardon Vice President of Administration, Secretary/Treasurer Douglas G. Sampson Vice President of Production and R&D Bryan D. Alsop Vice President of Information Technology discussion & analysis MGMT The following discussion should be read in conjunction with our consolidated financial statements and notes to those consolidated financial statements, included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. overview—Our principal business is the distribution and marketing of physical medicine products and aesthetic products, many of which we design and manufacture. We offer a broad line of medical equipment including therapy devices, medical supplies and soft goods, treatment tables and rehabilitation equipment. Our line of aesthetic equipment includes aesthetic massage and microdermabrasion devices, as well as skin care products. Our products are sold to and used primarily by physical therapists, chiropractors, sports medicine practitioners, podiatrists, plastic surgeons, dermatologists, aestheticians and other aesthetic services providers. Our fiscal year ends on June 30. Reference to fiscal year 2013 refers to the year ended June 30, 2013. results of operAtions 20% of the reduced sales are due to a single Fiscal Year 2013 Compared to Fiscal Year 2012 manufacturer that changed their distribution paradigm negatively impacting our sales net sAles—Net sales in fiscal year of their products. The continued general 2013 were $29,538,275 compared to economic weakness in our primary markets $31,664,181 in fiscal year 2012. The combined with uncertainties over anticipation $2,125,906 decrease is characterized by of negative market impacts related to sales reductions evenly split between supplies provisions of the Affordable Care Act also and capital equipment distributed for other contributed to lower sales, particularly of manufacturers. Consolidated sales of capital equipment. The reductions in sales of proprietary manufactured products actually distributed medical supplies during the year increased over the prior year with more include the impact of a single large customer significant gains in sales of the new Dynatron that discontinued operations in early 2012. Solaris Plus family of products offsetting Sales of proprietary manufactured lower sales of other proprietary manufactured physical medicine products represented products. The decline in sales of products approximately 46% and 42% of total physical distributed for other manufacturers is medicine product sales in fiscal years 2013 attributable to several factors. Approximately and 2012, respectively. Distribution of 9 n o i t i d n o c l a c n a n i f i i f o s s y l a n a i & n o s s u c s d s i ’ t n e m e g a n a m products manufactured by other suppliers products increases in conjunction with the 2012. R&D expenses are expected to increase above, we have taken steps to reduce expenses accounted for the balance of our physical introduction of our new ThermoStim Probe in slightly in fiscal year 2014, as a result of the at an annualized amount of approximately medicine product sales in those years. the quarter ending December 31, 2013, sales introduction of the new ThermoStim Probe. $500,000 during fiscal year 2014. Sales of manufactured aesthetic products growth will resume and, as a result, gross profit However, those increases will mostly be incurred in fiscal years 2013 and 2012, represented will improve. In addition, as healthcare reform in the first two quarters of the next fiscal inCome tAx benefit—Income tax benefit approximately 78% and 73% of total progresses, we expect uncertainty in our market year. R&D costs are expensed as incurred. was $86,754 in fiscal year 2013, compared aesthetic product sales, respectively, with to diminish, confidence to increase and demand to $166,706 in fiscal year 2012. Due to tax distributed products making up the balance. for our products to begin to strengthen. interest expense—Interest expense benefits associated with R&D tax credits The majority of our sales revenues come decreased by $1,294, to $260,699 in fiscal and other credits, the effective income tax 10 from the sale of physical medicine products, selling, generAl And AdministrAtive year 2013 compared to $261,993 in fiscal year benefit rate in fiscal year 2013 was 66.2% 11 both manufactured and distributed. In expenses—Selling, General and Administra- 2012 due to lower balances on our long-term compared to an effective tax benefit rate fiscal years 2013 and 2012, sales of physical tive, or SG&A expenses were $9,860,964, debt compared to fiscal year 2012. During of 87.6% in 2012. The difference in the medicine products accounted for 91% or 33.4% of net sales, in fiscal year 2013, fiscal 2013, we paid off the first mortgage effective tax rates is attributable to lower of total sales in both years. Chargeable compared to $10,506,460, or 33.2% of net on our Cottonwood Heights facility. R&D tax credits in fiscal year 2013, as well as repairs, billable freight revenue, aesthetic sales, in fiscal year 2012. The $645,496 certain permanent book to tax differences. product sales and other miscellaneous decrease in SG&A expenses in fiscal year 2013 loss before inCome tAx benefit— revenue accounted for approximately as compared to 2012 is a result of the following: Pre-tax loss in fiscal year 2013 was $131,125, net loss—Net loss was $44,371 ($.02 9% of total revenues in both years. compared to $190,241 in fiscal year 2012, an per share) in fiscal year 2013, compared to During the fiscal year ended June 30, $396,178 of lower selling expenses due improvement of 31%. The decrease in pre-tax $23,535 ($.01 per share) in fiscal year 2012. 2013, we introduced more new proprietary primarily to lower sales commissions; loss for 2013 resulted from lower selling, As reported in the section above entitled Loss manufactured products than at any other time $154,872 of lower labor and overhead costs; labor, and R&D expenses. More specifically, Before Income Tax Benefit, operating losses in our history. However, the full impact of $94,446 of lower general expenses primarily an $856,631 reduction in gross margin was were reduced by nearly one third in fiscal year these new products will not likely be seen until related to a reduction in professional fees. offset by reducing SG&A and R&D expenses by 2013 compared to fiscal year 2012. Therefore, the next fiscal year. They do provide a strong foundation for a strategy to reverse the trend of declining sales experienced this past fiscal year. ...management identified over $500,000 of new annual cost reductions... During the first quarter of fiscal year 2014, management identified over $500,000 of new annual cost reductions which are $935,015 for the year ended June 30, 2013. It the reason net loss increased from $23,535 should be noted that during the year we paid last year to $44,371 this year is due to higher $81,736 in medical device taxes as required income tax benefits last year associated with by the Affordable Care Act. This Medical higher R&D tax credits compared to this year. Device Tax is assessed on sales regardless of We expect improved profitability in fiscal year profitability. Therefore, despite the fact we 2014 due to the planned introduction of an gross profit—Gross being implemented to further did not generate an operating profit we were important new product in the quarter ending profit totaled $11,086,602, or 37.5% of reduce labor and overhead costs and improve still required to pay these excise taxes as December 31, 2013 and with our planned net sales, in fiscal year 2013, compared to operating efficiencies in future periods. noted above which contributed to the losses expense reductions which are scheduled to $11,943,233, or 37.7% of net sales, in fiscal incurred during the fiscal year. As noted be implemented during the fiscal year 2014. year 2012. The decrease in gross profit reseArCH And development—Over the during the year directly reflects lower sales last three years, we have undertaken the most generated during the current fiscal year as extensive research and development (“R&D”) liquidity And CApitAl resourCes reported above. Lower sales and margins effort in our history. More new products have We have financed operations through available cash reserves and borrowings under a line of credit with a of distributed capital equipment and certain been introduced during this period of time than bank. Working capital was $3,516,011 as of June 30, 2013, inclusive of the current portion of long-term medical supplies were partially offset by higher any period since our formation. These new obligations and credit facilities, compared to working capital of $3,565,858 as of June 30, 2012. During sales and margins from the new SolarisPlus products include the Quad7 thermal therapy fiscal year 2013, we generated $643,106 in cash from operating activities, used $418,386 to pay down and Quad7 products. Overall, gross margin device, the Dynatron SolarisPlus line of four principal on long-term debt, paid $100,438 for capital expenditures primarily related to improving as a percent of sales, remained virtually electrotherapy/ultrasound devices enabled our e-commerce and IT infrastructure, and paid $99,997 to repurchase and retire common stock. unchanged. The implementation of the Medical to power two phototherapy accessories, the Device Tax on January 1, 2013, as required by Ultra 2 and Ultra 3 treatment tables, and the ACCounts reCeivAble—Trade accounts customers. Accounts receivable are generally the Affordable Care Act placed a 2.3% tax on 25 Series line of four therapy devices. With receivable, net of allowance for doubtful collected within 30 days of the agreed terms. sales of proprietary manufactured products the completion of development of the Quad7, accounts, decreased $420,374, or 11.5%, to and products imported by us for distribution Ultra tables and SolarisPlus product line, we $3,246,712 as of June 30, 2013, compared inventories—Inventories, net of reserves, in the United States. This tax had the effect were able to reduce research and development to $3,667,086 as of June 30, 2012. Trade increased $308,956, or 5.1%, to $6,407,553 of lowering gross profits during the year as it (“R&D”) expense during the early part of accounts receivable represent amounts as of June 30, 2013, compared to $6,098,597 effectively increased the cost of goods sold fiscal year 2013 to more normal levels. R&D due from our dealer network as well as as of June 30, 2012. During fiscal year on all items taxed. During the fiscal year expenses for 2013 were $1,120,887 compared from medical practitioners and clinics. We 2013, we increased our inventory of parts we paid $81,736 in medical device taxes. to $1,410,406 in 2012. R&D expense decreased believe that our estimate of the allowance for in conjunction with the introduction of the Management believes that as market as a percentage of net sales in fiscal year 2013 doubtful accounts is adequate based on our Dynatron SolarisPlus product line, Ultra demand for our proprietary manufactured to 3.8% from 4.5% of net sales in fiscal year historical knowledge and relationship with our Tables product line and the 25 Series product i & n o s s u c s d s i ’ t n e m e g a n a m n o i t i d n o c l a c n a n i f i i f o s s y l a n a m a n a g e m e n t ’ i s d s c u s s o n & i a n a l y s s o f i i f i n a n c a l c o n d i t i o n line. In addition, inventory levels fluctuate 3.5%. The line of credit is collateralized by inventory reserves—The nature of our customer, and collection of any resulting based on the timing of large inventory accounts receivable and inventories. Borrowing business requires that we maintain sufficient receivable is reasonably assured. Amounts purchases from overseas suppliers. limitations are based on approximately 45% inventory on hand at all times to meet the billed for shipping and handling of products of eligible inventory and up to 80% of eligible requirements of our customers. We record are recorded as sales revenue. Costs ACCounts pAyAble—Accounts payable accounts receivable, up to a maximum credit finished goods inventory at the lower of standard for shipping and handling of products to increased $338,693, or 14.0%, to $2,751,894 facility of $7,000,000. Interest payments cost, which approximates actual cost (first-in, customers are recorded as cost of sales. as of June 30, 2013, from $2,413,201 as of on the line are due monthly. As of June 30, first-out) or market. Raw materials are recorded June 30, 2012. The increase in accounts 2013, the borrowing base was approximately at the lower of cost (first-in, first-out) or market. AllowAnCe for doubtful ACCounts— payable is a result of increased inventories, $4,821,000, resulting in approximately Inventory valuation reserves are maintained We must make estimates of the collect- 12 the timing of our weekly payments to suppliers $1,325,000 available on the line. The line of for the estimated impairment of the inventory. ability of accounts receivable. In doing 13 and the timing of purchases of product credit is renewable on December 15, 2013 and Impairment may be a result of slow-moving so, we analyze historical bad debt trends, components. Accounts payable are generally includes covenants requiring us to maintain or excess inventory, product obsolescence customer credit worthiness, current economic not aged beyond the terms of our suppliers. certain financial ratios. As of June 30, 2013, or changes in the valuation of the inventory. trends and changes in customer payment We take advantage of available early payment we were in compliance with the loan covenants In determining the adequacy of reserves, we patterns when evaluating the adequacy of discounts when offered by our vendors. or had received waivers of compliance. If the analyze the following, among other things: the allowance for doubtful accounts. Our line of credit is not extended, we will need to accounts receivable balance was $3,246,712 CAsH And CAsH equivAlents—Our cash find additional sources of financing. Failure Current inventory quantities on hand; and $3,667,086, net of allowance for doubtful position as of June 30, 2013 was $302,050, to obtain additional financing would have Product acceptance in the marketplace; accounts of $247,708 and $201,349, as of compared to cash of $278,263 as of June a material adverse effect on our business 30, 2012. We expect that cash flows from operations. All borrowings under the line of operating activities, together with amounts credit are presented as current liabilities in the Customer demand; Historical sales; Forecast sales; June 30, 2013 and 2012, respectively. deferred inCome tAx Assets—In available through an existing line-of-credit accompanying consolidated balance sheet. Product obsolescence; assessing the deferred income tax assets, facility, will be sufficient to cover operating The current ratio remained constant Technological innovations; and management considers whether it is more needs in the ordinary course of business for at 1.5 to 1 as of June 30, 2013 and June Character of the inventory as a distributed likely than not that some portion or all of the the next twelve months. If we experience an 30, 2012. Current assets represented item, finished manufactured item or deferred income tax assets will not be realized. adverse operating environment, including a 72% of total assets as of June 30, 2013 raw material. The ultimate realization of deferred income tax further worsening of the general economy in the compared to 70% as of June 30, 2012. assets is dependent upon the generation of United States, or unusual capital expenditure Any modifications to estimates of future taxable income during the years in which requirements, additional financing may be debt—Long-term debt (excluding current inventory valuation reserves are reflected in those temporary differences become deductible. required. However, no assurance can be given installments) totaled $1,561,776 as of cost of goods sold within the statements of Management considers the scheduled reversal that additional financing, if required, would be June 30, 2013, compared to $1,916,315 operations during the period in which such of deferred income tax liabilities, projected available on terms favorable to us, or at all. as of June 30, 2012. Long-term debt is modifications are determined necessary future taxable income, and tax planning comprised primarily of the mortgage loans by management. As of June 30, 2013 and strategies in making this assessment. Based line of Credit—During fiscal year 2013, on our office and manufacturing facilities in 2012, our inventory valuation reserve balance, upon the level of historical taxable income the outstanding balance on our line of credit Utah and Tennessee. The principal balance which established a new cost basis, was and projections for future taxable income over remained steady with a balance outstanding on the mortgage loans is approximately $327,519 and $292,999, respectively, and the periods which the deferred income tax of $3,496,390 as of June 30, 2013, compared $1,762,255 with monthly principal and interest our inventory balance was $6,407,553 and assets are deductible, management believes to $3,497,597 as of June 30, 2012. Interest payments of $30,263. For a more complete $6,098,597, net of reserves, respectively. it is more likely than not that we will realize on the line of credit is based on the 90-day explanation of the long-term debt, see Note the benefits of these deductible differences. LIBOR rate (0.27% as of June 30, 2013) plus 7 to the consolidated financial statements. revenue reCognition— Our sales We have available at June 30, 2013 and CritiCAl ACCounting poliCies force and distributors sell our products to 2012 federal and state net operating loss end users, including physical therapists, (“NOL”) carry forwards of $499,614 and professional trainers, athletic trainers, $558,062, respectively. The federal NOLs Management’s discussion and analysis of financial condition and results of operations is based chiropractors, medical doctors and will expire in 2028. The state NOLs will upon our consolidated financial statements, which have been prepared in accordance with U.S. aestheticians. Sales revenues are recorded expire depending upon the various rules in generally accepted accounting principles. The preparation of these financial statements requires when products are shipped FOB shipping the states in which we operate. Our federal estimates and judgments that affect the reported amounts of our assets, liabilities, net sales point under an agreement with a customer, and state income tax returns for June 30, and expenses. Management bases estimates on historical experience and other assumptions it risk of loss and title have passed to the 2010, 2011, and 2012 are open tax years. believes to be reasonable given the circumstances and evaluates these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following critical accounting policies involve a high degree of judgment and business plAn And outlooK complexity. See Note 1 to our consolidated financial statements for fiscal year 2013, for a complete During the past three years, we have focused much of our resources and energy on developing new discussion of our significant accounting policies. The following summary sets forth information regarding and innovative products. The scope of that R&D effort has been more significant than at any time significant estimates and judgments used in the preparation of our consolidated financial statements. in our history. As a result, we have introduced several important new products over the past year. i & n o s s u c s d s i ’ t n e m e g a n a m n o i t i d n o c l a c n a n i f i i f o s s y l a n a m a n a g e m e n t ’ i s d s c u s s o n & i a n a l y s s o f i i f i n a n c a l c o n d i t i o n In June 2013, we began shipping our new part of the SolarisPlus product line, we also version of the catalog that is incorporated into many of the large GPO accounts. As a result, Dynatron® 25 Series electrotherapy/ultrasound introduced a new display cart specifically our e-commerce website. The new catalog has we have turned our attention more toward line of combination therapy devices. This designed for these units. The SolarisPlus been praised for its clarity and ease of use. accessible national and regional accounts where new line consists of four separate devices: line is expected to quickly become popular Over the past few years, consolidations in we can more easily prove our value proposition. the Dynatron 925, Dynatron 825, Dynatron for its power and versatility. The new units our market have changed the landscape of our While we have not abandoned efforts to secure 625 and Dynatron 525. These four units are capable of simultaneously powering five industry’s distribution channels. At the present GPO and large national account business, we provide seven different types of electrotherapy electrotherapy channels, ultrasound therapy, time, we believe that there remain only two have become more strategic in our approach to treatments and three frequencies of ultrasound, a phototherapy probe and phototherapy pad. companies with a national direct sales force such business. Last year we were successful including our proprietary three-frequency No other device on the market offers such selling proprietary and distributed products: in qualifying to be an approved vendor to the 14 ultrasound transducers. They are capable of powerful simultaneous combination therapies. Dynatronics and Patterson Medical. All other federal government, including the Veterans 15 delivering between three and five separate In the quarter ended December 31, 2013, distribution in our market is directed through Administration hospitals and medical facilities treatments simultaneously, depending on we anticipate introducing the ThermoStim catalog companies with a limited direct sales associated with military installations. These the model. The ability to provide multiple probe - one of the most innovative and force, or through independent local dealers that types of contracts are strategically more treatments simultaneously is expected to be revolutionary products in our history. The have limited geographical reach. In the past accessible for us than GPO business. very helpful in busy clinics and training rooms, ThermoStim probe will offer the ability to do year, we have reinforced our direct sales team Economic pressures from the recent or for patients needing treatment of multiple thermal therapy (hot and cold) and/or elec- that includes over 50 direct sales employees recession in the United States have affected areas of the body. This new product line was trotherapy in a targeted, attended treatment. and independent sales representatives. In available credit that would facilitate large capital specially designed to be sold through our The hand held probe is an accessory to the addition to these direct sales representatives, purchases, and have also reduced demand for expanding channel of general line distributors. Dynatron SolarisPlus family of products. Unlike we continue to enjoy a strong relationship with discretionary services such as those provided In December 2012, we introduced a new its predecessor, also called the ThermoStim scores of independent dealers. We believe we by the purchasers of our aesthetic products. line of motorized treatment tables. The Ultra 2 probe, this new probe does not require a water have the best trained and most knowledgeable As a result, we reduced our expenses in the and Ultra 3 are the first two of possibly several source to heat and cool the surface of the sales force in the industry. We are actively Synergie department. We believe that our other future treatment tables manufactured treatment face. Instead, a thermoelectric chip seeking to expand our market penetration aesthetic devices remain the best value on for us by Enraf-Nonius, a well-established powers the thermal therapy controlled by the through increased distribution. To accomplish the market and we are seeking innovative manufacturer of physical therapy products in Dynatron SolarisPlus console. This innovative this, we have, for the first time in our history, ways to market these products, including Europe. These tables offer features popular probe is expected to generate significant made available to all distributors and qualified strategic partnerships, both domestic and to the practitioner such as full-length foot demand not only for the probe, but also for the sales persons, a family of proprietary international, to help enhance sales momentum. bars that elevate and lower the table height new SolarisPlus units which serve as the control combination therapy devices, the Dynatron 25 We have long believed that international together with a unique wheel raising system console for the probe. It will be the catalyst Series. The availability of these products is markets present an untapped potential for that lifts the table allowing an easy change to boost sales and attract new distributors attracting new distributors and sales persons. growth and expansion. Adding new distributors between mobility and stability. Enraf tables beginning midway through fiscal year 2014. are known for their high quality standards and With most of the planned new products are competitively priced for the US market. now released, R&D costs cycled back to a lower In August 2012, we introduced to the level more in line with historical amounts during market our new Dynatron SolarisPlus line of fiscal year 2013. Those R&D costs are expected electrotherapy/ultrasound/ phototherapy units. to rise again during the first part of fiscal year This new product line consists of four new 2014 as the new ThermoStim Probe is finalized. units: the Dynatron SolarisPlus 709, 708, 706, Management is confident the investments In addition, where these sales persons have had limited or no access to premier lines like the Dynatron SolarisPlus products, they will now be able to access these products We are actively seeking to expand our market penetration through increased distribution. in several countries will be the key to this expansion effort. We remain committed to finding the most effective ways to expand our markets inter- nationally. Over the coming year, our efforts will be and 705. These attractive new units provide made in R&D will yield long-term benefits and in certain geographical areas through the focused on partnering with key manufacturers our most advanced technology in combination are important to assuring that we maintain authorized sales representative or dealer and distributors interested in our product line therapy devices by adding phototherapy our reputation in the industry for being an who has the rights to the products in those or technology. Our Utah facility, where all elec- capabilities to enhanced electrotherapy innovator and leader in product development. territories. Making these products more widely trotherapy, ultrasound, traction, phototherapy and ultrasound combination devices. The In April 2013, we began shipping the newly available will increase our ability to expand and Synergie products are manufactured, is Dynatron SolarisPlus line of products features updated version of our product catalog to distribution of not only our own proprietary certified to ISO 13485:2003, an internationally a Tri-Wave phototherapy probe and a Tri-Wave customers. This new catalog not only includes products, but also those we distribute on recognized standard of excellence in medical phototherapy pad. Tri-Wave phototherapy our new proprietary products previously behalf of other manufacturers. This strategic device manufacturing. This designation is an features infrared, red and blue wavelength discussed, but also expands our offering of expansion of distribution will begin to hit important requirement in obtaining the CE light. The new Dynatron Solaris Tri-Wave non-proprietary products by hundreds of stride as the new ThermoStim product is Mark certification, which allows us to market phototherapy pad is capable of treating large items in order to better service the broader released in the second fiscal quarter of 2014. our products in the European Union and in areas of the body via unattended infrared, needs of our customers. It also provides an Pursuit of national accounts, including other international locations. The introduction red and blue wavelength phototherapy. The excellent new sales tool for all of our sales Group Purchasing Organizations (GPO) of several important new products has Tri-Wave phototherapy probe allows the representatives in the field and the foundation continues to be a strategic endeavor. However, generated new interest on the part of some practitioner to treat specific, targeted areas for expanding our e-commerce platform. The securing such accounts has proven to be elusive foreign distributors in Asia, Europe and South of the body in an attended treatment. As new catalog includes an online electronic as entrenched suppliers seem to dominate America. As we secure CE Mark Certification i & n o s s u c s d s i ’ t n e m e g a n a m n o i t i d n o c l a c n a n i f i i f o s s y l a n a m a n a g e m e n t ’ i s d s c u s s o n & i a n a l y s s o f i i f i n a n c a l c o n d i t i o n for our products we will be better able to explore Seeking to improve distribution of the interest of these distributors. Refining our our products through recruitment of sHAreHolders business model for supporting sales representa- additional qualified sales representa- As of September 18, 2013, the approximate number of shareholders of record was tives and distributors will also be a focal point tives and dealers attracted by the many 393. This number does not include beneficial owners of shares held in “nominee” of operations. We will continue to evaluate the most efficient ways to maintain our satellite sales offices 16 Refining our business model for supporting sales representatives and distributors will also be a focal point of operations. new products being offered and expanding the availability of proprietary combination or “street” name. Including such beneficial owners, we estimate that the total number of beneficial owners of our common stock is approximately 2,200. dividends We have never paid cash dividends on our common stock. Our anticipated 17 therapy devices. capital requirements are such that we intend to follow a policy of retaining and warehouses. The ongoing refinement Increasing market share with our new earnings in order to finance the development of the business. of this model is expected to yield further 2013-14 product catalog featuring efficiencies that will better achieve sales goals a broader product offering. while, at the same time, reduce expenses. Continue to seek ways of increasing nAsdAq Our efforts to prudently reduce costs in business with GPOs, as well as through Minimum Bid Requirement the face of some economic uncertainty have GSA contracts with the U.S. Government made us a leaner operation. During fiscal year and to national and regional accounts. On January 8, 2013, we announced that we had received notification from NASDAQ that we 2013 we implemented almost $1,000,000 Improving operational efficiencies by scaling had regained compliance with the $1.00 minimum bid requirement for continued listing in expense reductions. So far in fiscal costs to be reflective of current levels of on that exchange as a result of a 1 for 5 reverse split of our common stock effected on 2014 we have identified another $500,000 sales. Strengthening pricing management December 19, 2012. All common share and per share information in the accompanying annually in cost savings that have been or and procurement methodologies. condensed consolidated financial statements and notes thereto have been adjusted to will be implemented to reduce expenses. We Minimizing expense associated in the reflect retrospective application of the reverse stock split, except for par value per share and will continue to be vigilant in maintaining Synergie department until demand the number of authorized shares, which were not affected by the reverse stock split. m a n a g e m e n t ’ i s d s c u s s o n & i a n a l y s s o f i i f i n a n c a l c o n d i t i o n appropriate overhead costs and operating costs for capital equipment re-emerges, while still providing support for anticipated and, in the meantime, seeking increases in sales from our new products. additional independent distributors Based on our defined strategic and strategic partnerships. initiatives, we are focusing our resources in the following areas: Focusing international sales efforts on identifying key distributors and strategic partners who could Increasing market share of manufactured represent the Company’s product line, capital products by promoting sales particularly in Europe and China. of our new state-of-the-art Dynatron Exploring strategic business alliances SolarisPlus and 25 Series products. that will leverage and complement Introducing additional new products such as our competitive strengths, increase the ThermoStim Probe to better capitalize market reach and supplement on opportunities in our core markets. capital resources. mArKet informAtion As of September 18, 2013, we had approximately 2,518,904 shares of common stock issued and outstanding. Our common stock is included on the NASDAQ Capital Market (symbol: DYNT). The following table shows the range of high and low sale prices for our common stock as quoted on the NASDAQ system for the quarterly periods indicated. All common stock share and per share information in the tables below have been adjusted to reflect retrospective application of the reverse stock split. Fiscal Year Ended June 30, 2013 2012 1st Quarter (July-September) 2nd Quarter (October-December) 3rd Quarter (January-March) 4th Quarter (April-June) High Low 3.25 2.35 4.24 2.00 3.95 2.30 2.86 2.45 $ $ $ $ High Low 8.85 4.00 4.15 3.11 4.65 3.33 4.00 2.36 $ $ $ $ i & n o s s u c s d s i ’ t n e m e g a n a m n o i t i d n o c l a c n a n i f i i f o s s y l a n a 18 p u b l i c a c c o u n t i n g f i r m r e p o r t o f i n d e p e n d e n t r e g s t e r e d i independent registered public accounting firm REPORT 19 to tHe boArd of direCtors And stoCKHolders, to tHe boArd of direCtors And stoCKHolders, We have audited the accompanying consolidated balance sheet of Dynatronics Corporation and subsidiary (collectively, the Company) as of June 30, 2013, and the related We have audited the consolidated balance sheet of Dynatronics Corporation and subsidiary (collectively, the Company) as of June 30, 2012, and the related consolidated consolidated statements of operations, stockholders’ equity, and cash flows for the year then statements of operations, stockholders’ equity, and cash flows for the year then ended. ended. These financial statements are the responsibility of the Company’s management. Our These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, reporting. Accordingly, we express no such opinion. An audit includes examining, on a on a test basis, evidence supporting the amounts and disclosures in the financial test basis, evidence supporting the amounts and disclosures in the financial statements. statements. An audit also includes assessing the accounting principles used and significant An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material In our opinion, the financial statements referred to above present fairly, in all respects, the financial position of Dynatronics Corporation and subsidiary as of June material respects, the financial position of Dynatronics Corporation and subsidiary as 30, 2013, and the results of its operations and its cash flows for the year then ended in of June 30, 2012, and the results of their operations and their cash flows for the year conformity with accounting principles generally accepted in the United States of America. then ended in conformity with U.S. generally accepted accounting principles. m r i f g n i t n u o c c a c i l b u p i d e r e t s g e r t n e d n e p e d n i f o t r o p e r Salt Lake City, Utah September 30, 2013 Salt Lake City, Utah September 28, 2012 dynAtroniCs CorporAtion ConsolidAted bAlAnCe sHeets dynAtroniCs CorporAtion ConsolidAted stAtements of operAtions June 30, 2013 and 2012 Years ended June 30, 2013 and 2012 Assets Current assets: Net sales Cost of sales 2013 2012 2013 2012 $ 29,538,275 31,664,181 18,451,673 19,720,948 Cash and cash equivalents $ 302,050 278,263 Trade accounts receivable, less allowance for doubtful accounts of Gross profit 11,086,602 11,943,233 $247,708 as of June 30, 2013 and $201,349 as of June 30, 2012 3,246,712 3,667,086 Other receivables Inventories, net Prepaid expenses and other assets Prepaid income taxes Current portion of deferred income tax asset 27,197 11,718 6,407,553 6,098,597 506,836 — 389,101 226,596 3,550 368,348 Total current assets 10,879,449 10,654,158 20 Selling, general, and administrative expenses Research and development expenses 9,860,964 10,506,460 1,120,887 1,410,406 Operating income 104,751 26,367 21 Property and equipment, net Intangible asset, net Other assets Deferred income tax assets, net of current portion 3,324,947 3,677,898 Other Income (expense): 280,078 422,672 197,441 324,715 482,719 131,440 Interest income Interest expense Other income, net 681 16,183 (260,699) (261,993) 24,142 29,202 Total assets $ 15,104,587 15,270,930 Total other income (expense) (235,876) (216,608) Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt $ 322,573 395,055 Line of credit Warranty reserve Accounts payable Accrued expenses Accrued payroll and benefits expenses Income tax payable 3,496,390 3,497,597 178,148 181,000 2,751,894 2,413,201 347,221 216,266 21,369 386,229 215,218 — Loss before income tax benefit (131,125) (190,241) Income tax benefit 86,754 166,706 Net loss Basic and diluted net loss per common share $ $ (44,371) (23,535) (0.02) (0.01) Total current liabilities 7,333,861 7,088,300 Weighted-average basic and diluted common shares outstanding: 2,526,533 2,562,203 Long-term debt, net of current portion 1,561,776 1,916,315 Total liabilities 8,895,637 9,004,615 Commitments and contingencies Stockholders’ equity: Common stock, no par value: Authorized 50,000,000 shares; issued 2,518,904 shares as of June 30, 2013 and 2,537,730 shares as of June 30, 2012 7,078,941 7,091,935 Accumulated deficit (869,991) (825,620) Total stockholders’ equity 6,208,950 6,266,315 Total liabilities and stockholders’ equity $ 15,104,587 15,270,930 See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 i d y n a t r o n c s c o r p o r a t i o n c o n s o l i d a t e d b a l a n c e s h e e t s n o i t a r o p r o c s c n o r t a n y d i 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j d e d n e s r a e y s n o i t a r e p o f o s t n e m e t a t s d e t a d i l o s n o c dynAtroniCs CorporAtion ConsolidAted stAtements of stoCKHolders' equity dynAtroniCs CorporAtion ConsolidAted stAtements of CAsH flows Years ended June 30, 2013 and 2012 Years ended June 30, 2013 and 2012 Number of shares* Common Accumulated Stockholders’ Total stock Deficit Equity Cash flows from operating activities: 2013 2012 Net loss $ (44,371) (23,535) Balances at July 1, 2011 2,612,078 $ 7,417,244 (802,085) 6,615,159 Adjustments to reconcile net loss to net cash Repurchase of common stock (79,857) (401,408) Stock based compensation 5,509 76,099 — — (401,408) 76,099 provided by operating activities: Depreciation & amortization of property & equipment Amortization of intangible and other assets Gain on sale of assets Stock-based compensation expense 435,366 118,335 (2,993) 86,639 404,374 44,637 — 76,099 Net loss — — (23,535) (23,535) Change in deferred income tax assets (86,754) (166,706) 22 Balances at June 30, 2012 2,537,730 7,091,935 (825,620) 6,266,315 Provision for inventory obsolescence Provision for doubtful accounts receivable Repurchase of common stock (32,786) (99,997) Stock-based compensation 13,689 86,639 — — (99,997) 86,639 Issuance of common stock upon exercise of employee stock options 208 364 — 364 Change in operating assets and liabilities: Receivables Inventories Prepaid expenses and other assets Prepaid income taxes Accounts payable and accrued expenses 23 180,000 206,460 224,895 (515,416) (281,855) 23,615 299,185 108,000 120,000 (100,512) (570,782) (148,607) 27,771 265,073 Net cash provided by operating activities 643,106 35,812 Shares issued due to stock split rounding Net loss 63 — — — — — Proceeds from sale of property and equipment 345 — Cash flows from investing activities: Purchase of property and equipment (100,438) (328,707) (44,371) (44,371) Net cash used in investing activities (100,093) (328,707) Balances at June 30, 2013 2,518,904 $ 7,078,941 (869,991) 6,208,950 Cash flows from financing activities: *Reflects adjusted shares due to 1:5 reverse stock split effective December 19, 2012 i d y n a t r o n c s c o r p o r a t i o n y e a r s e n d e d j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 c o n s o l i d a t e d s t a t e m e n t s o f s t o c k h o l d e r s ’ e q u i t y Proceeds from issuance of long-term debt Principal payments on long-term debt Net change in line of credit Proceeds from issuance of common stock — 45,341 (418,386) (371,339) (1,207) 364 913,660 — Purchase and retirement of common stock (99,997) (401,408) Net cash provided by (used in) financing activities (519,226) 186,254 Net change in cash and cash equivalents Cash and cash equivalents at beginning of the year 23,787 278,263 (106,641) 384,904 Cash and cash equivalents at end of the year 302,050 278,263 Supplemental disclosures of cash flow information: Cash paid for interest Cash paid for income taxes Supplemental disclosures of non-cash investing and financing activities: Long-term debt incurred for purchase of property and equipment 259,794 — — 263,491 2,100 44,334 n o i t a r o p r o c s c n o r t a n y d i 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j d e d n e s r a e y s W o l f h s a c f o s t n e m e t a t s d e t a d i l o s n o c See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. consolidated financial statements NOTES 25 (1) bAsis of presentAtion And summAry of signifiCAnt ACCounting poliCies (A) desCription of business— (d) inventories—Finished goods Dynatronics Corporation (the Company), a inventories are stated at the lower of Utah corporation, distributes and markets standard cost (first-in, first-out method), a broad line of medical and aesthetic which approximates actual cost, or market. products, many of which are designed and Raw materials are stated at the lower of manufactured by the Company. Among cost (first in, first out method) or market. the products offered by the Company are The Company periodically reviews the therapeutic, diagnostic, and rehabilitation value of items in inventory and provides equipment, medical supplies and soft goods, write-downs or write-offs of inventory treatment tables and aesthetic medical based on its assessment of slow moving devices to an expanding market of physical or obsolete inventory. Write-downs and therapists, podiatrists, orthopedists, write-offs are charged against the reserve. chiropractors, plastic surgeons, dermatolo- gists, and other medical professionals. (e) trAde ACCounts reCeivAble—Trade accounts receivable are recorded at the (b) prinCiples of ConsolidAtion— invoiced amount and do not bear interest, The consolidated financial statements although a finance charge may be applied include the accounts and operations of to such receivables that are past due. The Dynatronics Corporation and its wholly allowance for doubtful accounts is the owned subsidiary, Dynatronics Distribution Company’s best estimate of the amount of Company, LLC. All significant intercompany probable credit losses in the Company’s account balances and transactions have existing accounts receivable. The Company been eliminated in consolidation. determines the allowance based on a combination of statistical analysis, historical (C) CAsH equivAlents—Cash equivalents collections, customers’ current credit include all highly liquid investments with worthiness, the age of the receivable balance maturities of three months or less at the both individually and in the aggregate and date of purchase. Also included within cash general economic conditions that may affect equivalents are deposits in-transit from the customer’s ability to pay. All account banks for payments related to third-party balances are reviewed on an individual basis. credit card and debit card transactions. Account balances are charged off against 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j n o i t a r o p r o c s c n o r t a n y d i s t n e m e t a t s d e t a d i l o s n o c o t s e t o n the allowance when the potential for and handling of products to customers recovery is considered remote. Recoveries are recorded as cost of sales. 2013 2012 of receivables previously charged off are Basic weighted-average number of common shares outstanding during the year 2,526,533 2,562,203 recognized when payment is received. (J) reseArCH And development Weighted-average number of dilutive common stock Costs—Direct research and development options outstanding during the year — — (f) property And equipment— costs are expensed as incurred. Property and equipment are stated at Diluted weighted-average number of common and common cost less accumulated depreciation. (K) produCt wArrAnty Costs—Costs equivalent shares outstanding during the year 2,526,533 2,562,203 Depreciation is computed using the estimated to be incurred in connection with straight line method over the estimated the Company’s product warranty programs useful lives of the assets. The building are charged to expense as products are and its component parts are being sold based on historical warranty rates. Outstanding options not included in the The Company evaluates the need for a valuation depreciated over their estimated useful computation of diluted net loss per common allowance on deferred taxes on a quarterly and annual lives that range from 5 to 31.5 years. (l) net inCome (loss) per Common share totaled 161,454 as of June 30, 2013. basis. This evaluation considers the level of historical Estimated lives for all other depreciable sHAre—Net income (loss) per common These common stock equivalents were taxable income and projections for future taxable assets range from 3 to 7 years. share is computed based on the weighted- not included in the computation because income over the periods which the deferred income average number of common shares to do so would have been antidilutive. tax assets are deductible. If management determines 26 assets, such as property and equipment, are dilutive common stock equivalents (m) inCome tAxes—The Company will not realize the benefits of these deductible 27 (g) long-lived Assets—Long–lived outstanding and, when appropriate, that it is more likely than not that the Company reviewed for impairment whenever events outstanding during the year. Stock options recognizes an asset or liability for the deferred differences, a valuation allowance is recorded. or changes in circumstances indicate that are considered to be common stock income tax consequences of all temporary the carrying amount of an asset may not be equivalents. The computation of diluted net differences between the tax bases of assets (n) stoCK-bAsed CompensAtion—The recoverable. Recoverability of assets to be income (loss) per common share does not and liabilities and their reported amounts in Company accounts for stock-based compensation held and used is measured by a comparison assume exercise or conversion of securities the consolidated financial statements that will in accordance with FASB ASC 718, Stock of the carrying amount of an asset to that would have an anti-dilutive effect. result in taxable or deductible amounts in future Compensation. Stock-based compensation cost is estimated undiscounted future cash flows Basic net income (loss) per common years when the reported amounts of the assets measured at the grant date based on the fair value expected to be generated by the asset. If share is the amount of net income and liabilities are recovered or settled. Accruals of the award and is recognized as expense over the carrying amount of an asset exceeds its (loss) for the year available to each for uncertain tax positions are provided for in the applicable vesting period of the stock award estimated future cash flows, an impairment weighted-average share of common stock accordance with the requirements of Financial (generally five years) using the straight-line method. charge is recognized for the difference outstanding during the year. Diluted net Accounting Standards Board (FASB) Accounting between the carrying amount of the asset income (loss) per common share is the Standards Codification (ASC) 740-10, Income (o) ConCentrAtion of risK—In the normal and the fair value of the asset. Assets to be amount of net income (loss) for the year Taxes. Under ASC 740-10, the Company may course of business, the Company provides unsecured disposed of are separately presented in the available to each weighted-average share recognize the tax benefits from an uncertain credit to its customers. Most of the Company’s balance sheet and reported at the lower of of common stock outstanding during the tax position only if it is more likely than not customers are involved in the medical industry. The the carrying amount or fair value less costs year and to each common stock equivalent that the tax position will be sustained on Company performs ongoing credit evaluations of its to sell, and are no longer depreciated. outstanding during the year, unless examination by the taxing authorities, based customers and maintains allowances for probable inclusion of common stock equivalents on the technical merits of the position. The tax losses which, when realized, have been within the (H) intAngible Assets—Costs would have an anti-dilutive effect. benefits recognized in the financial statements range of management’s expectations. The Company associated with the acquisition of trademarks, On December 19, 2012, the Company from such a position are measured based maintains its cash in bank deposit accounts which trade names, license rights and non-compete completed a 1-for-5 reverse split of its on the largest benefit that has a greater than at times may exceed federally insured limits. The agreements are capitalized and amortized common stock. All common stock share 50% likelihood of being realized upon ultimate Company believes it is not exposed to any significant using the straight-line method over periods and per share information in the settlement. ASC 740-10 also provides guidance credit risks with respect to cash or cash equivalents. ranging from 3 months to 15 years. accompanying consolidated financial on derecognition of income tax assets and As of June 30, 2013, the Company has statements and notes thereto have liabilities, classification of current and deferred approximately $52,000 in cash and cash equivalents (i) revenue reCognition—The been adjusted to reflect retrospective income tax assets and liabilities, accounting in excess of the Federal Deposit Insurance Company recognizes revenue when application of the reverse stock split, for interest and penalties associated with Corporation (FDIC) limits. The Company has not products are shipped FOB shipping except for par value per share and the tax positions, and income tax disclosures. experienced any losses in such accounts. point under an agreement with a number of authorized shares, which were Judgment is required in assessing the future customer, risk of loss and title have not affected by the reverse stock split. tax consequences of events that have been (p) operAting segments—The Company passed to the customer, and collection The reconciliation between the recognized in the financial statements or tax operates in one line of business: the development, of any resulting receivable is reasonably basic and diluted weighted-average returns. Variations in the actual outcome of marketing, and distribution of a broad line of assured. Amounts billed for shipping number of common shares for the these future tax consequences could materially medical products for the physical therapy and and handling of products are recorded years ended June 30, 2013 and impact the Company’s financial position, aesthetics markets. As such, the Company has as sales revenue. Costs for shipping 2012 is summarized as follows: results of operations and cash flows. only one reportable operating segment. 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j n o i t a r o p r o c s c n o r t a n y d i s t n e m e t a t s d e t a d i l o s n o c o t s e t o n j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 i d y n a t r o n c s c o r p o r a t i o n n o t e s t o c o n s o l i d a t e d s t a t e m e n t s The Company groups its sales into and the disclosure of contingent assets and physical medicine products and aesthetic liabilities in accordance with US Generally (4) intAngible Assets products. Physical medicine products Accepted Accounting Principles (US GAAP). made up 91% of net sales for both the years Significant items subject to such estimates and Identifiable intangibles assets and their useful lives consist of the following as of June 30: ended June 30, 2013 and 2012. Aesthetics assumptions include the carrying amount of products made up 1% of net sales for both property and equipment; valuation allowances the years ended June 30, 2013 and 2012. for receivables, income taxes, and inventories; Chargeable repairs, billable freight and accrued product warranty costs; and estimated other miscellaneous revenues account for recoverability of intangible assets. Actual the remaining 8% of net sales for both the results could differ from those estimates. years ended June 30, 2013 and 2012. Trade name – 15 years Domain name – 15 years Non-compete covenant – 4 years Customer relationships – 7 years (r) Advertising Costs—Advertising Trademark licensing agreement – 20 years (q) use of estimAtes—Management of costs are expensed as incurred. Advertising the Company has made a number of estimates expense for the years ended June 30, and assumptions relating to the reporting of 2013 and 2012 was approximately assets, liabilities, revenues and expenses, $127,400 and $87,400, respectively. Backlog of orders – 3 months Customer database – 7 years License agreement – 10 years Total identifiable intangibles Less accumulated amortization 2013 2012 $ 339,400 5,400 149,400 120,000 45,000 2,700 38,100 73,240 339,400 5,400 149,400 120,000 45,000 2,700 38,100 73,240 773,240 773,240 (493,162) (448,525) 28 (2) inventories Inventories consist of the following as of June 30: Net carrying amount $ 280,078 324,715 29 j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 i d y n a t r o n c s c o r p o r a t i o n n o t e s t o c o n s o l i d a t e d s t a t e m e n t s Raw materials Finished goods Inventory reserve 2013 2012 Amortization expense associated identifiable intangibles is expected to be with the intangible assets was $44,637 as follows: 2014, $44,637; 2015, $30,680; $ 2,732,363 2,401,676 for both fiscal years 2013 and 2012. 2016, $30,680; 2017, $30,680; 2018, 4,002,709 3,989,920 (327,519) (292,999) Estimated amortization expense for the $26,430 and thereafter $116,970. $ 6,407,553 6,098,597 (5) wArrAnty reserve A reconciliation of the change in the warranty reserve consists of the following for the fiscal years ended June 30: (3) property And equipment 2013 2012 Property and equipment consist of the following as of June 30: Beginning warranty reserve balance $ 181,000 185,245 Land Buildings Machinery and equipment Office equipment Computer equipment Vehicles Less accumulated depreciation 2013 2012 $ 354,743 354,743 3,746,472 3,745,404 1,550,633 1,521,896 263,861 263,861 1,963,414 1,905,332 266,946 289,678 8,146,069 8,080,914 (4,821,122) (4,403,016) Warranty repairs Warranties issued Changes in estimated warranty costs (160,267) (124,844) 127,863 29,552 127,059 (6,460) Ending warranty reserve $ 178,148 181,000 (6) line of Credit The Company has a revolving line-of-credit balance was approximately $3,496,000 and facility with a commercial bank in the amount of $3,498,000, respectively. Available borrowings Depreciation expense for the years ended June 30, 2013 and 2012 was $435,366 and $404,374, respectively. 45% of eligible inventory and up to 80% of eligible of credit is collateralized by inventory and accounts receivable resulting in a borrowing accounts receivable and bears interest at a rate limit of $4,821,000 as of June 30, 2013. As based on the lender’s 90-day LIBOR rate plus of June 30, 2013 and 2012, the outstanding 3%. The interest rate was 3.8% and 3.5% as of $ 3,324,947 3,677,898 $7,000,000. Borrowing limitations are based on as of June 30, 2013 were $1,325,000. The line 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j n o i t a r o p r o c s c n o r t a n y d i s t n e m e t a t s d e t a d i l o s n o c o t s e t o n June 30, 2013 and 2012, respectively. The line accompanying consolidated balance sheets. of credit is renewable on December 15, 2013. If Accrued interest is payable monthly. (8) leAses the line of credit is not extended, the Company The Company’s revolving line of credit will need to find additional sources of financing. agreement includes covenants requiring The Company leases vehicles under respectively. Future minimum lease payments Failure to obtain additional financing would have the Company to maintain certain financial noncancelable operating lease agreements. required under noncancelable operating leases a material adverse effect on the Company’s ratios. As of June 30, 2013, the Company Lease expense for the years ended June 30, that have initial or remaining lease terms in operations. All borrowings under the line of was in compliance with the loan covenants 2013 and 2012, was $15,076 and $7,812, excess of one year as of 2013 are as follows: credit are presented as current liabilities in the or had received waivers of compliance. 2014 2015 2016 (7) long term debt Future minimum lease payments $16,106 $16,106 $7,403 Long term debt consists of the following as of June 30: 2013 2012 storage space and office equipment under Future minimum rental payments required under agreements which run one year or more in duration. operating leases that have a duration of one The Company rents office, warehouse and and 2012 was $191,659 and $231,142, respectively. 6.44% promissory note secured by trust deed on real property, $ 953,929 1,048,496 The rent expense for the years ended June 30, 2013 year or more as of June 30, 2013 are as follows: maturing January 2021, payable in monthly installments of $13,278 30 5.649% promissory note secured by building, maturing 808,326 961,196 2014 2015 2016 2017 31 December 2017, payable in monthly installments of $16,985 Promissory note secured by a vehicle, payable in monthly 43,449 — Future minimum rental payments $138,164 $89,664 $79,689 $49,764 installments of $639 through February 2019 8.49% promissory note secured by equipment, payable in 35,332 56,515 monthly installments of $2,097 through December 2014 During fiscal year 2013, the office and have been conducted on an arms-length 14.305% promissory note secured by equipment, payable 23,965 46,781 warehouse spaces in Detroit, Michigan; basis and the terms are similar to those that in monthly installments of $2,338 through May 2014 Pleasanton, California; and Hopkins, Minnesota would be available to other third parties. In 5.887% promissory note secured by a vehicle, payable in 15,970 19,284 were leased on an annual/monthly basis from December, 2012, the Company moved its monthly installments of $390 through March 2017 employees/stockholders; or entities controlled Pleasanton operation to a new, larger location 5.75% promissory note secured by a vehicle, payable in 1,695 6,661 by stockholders, who were previously principals in Livermore, California and entered into a lease monthly installments of $435 through October 2013 of the dealers acquired in June and July, 2007. agreement with an unaffiliated third party. The 13.001% promissory note secured by equipment, payable 1,683 2,263 The leases are related-party transactions expense associated with these related-party in monthly installments of $70 through October 2015 6.21% promissory note secured by a trust deed on real property, maturing November 2013, payable in monthly installments of $7,240 4.75% promissory note secured by a vehicle, payable in monthly installments of $721 through May 2017 5.531% promissory note secured by a vehicle, payable in monthly installments of $482 through August 2016 10.15% promissory note secured by a vehicle, payable in monthly installments of $448 through December 2012 — — — — 108,243 37,859 21,460 2,612 with three employee/stockholders, however, transactions totaled $93,300 and $156,000 management believes the lease agreements for the years ended June 30, 2013 and 2012. (9) inCome tAxes Income tax provision (provision) for the years ended June 30 consists of: Total long-term debt Less current installments 1,884,349 2,311,370 2013: (322,573) (395,055) U.S. federal State and local Long-term debt, net of current installments $ 1,561,776 1,916,315 The aggregate maturities of long term debt for each of the years subsequent to 2013 are as follows: 2014 2015 2016 2017 2018 thereafter 2012: U.S. federal State and local Long Term Debt $322,573 $303,196 $308,491 $326,194 $240,387 $383,508 Current Deferred Total $ $ $ $ — — — — — — 83,198 3,556 83,198 3,556 86,754 86,754 159,921 6,785 159,921 6,785 166,706 166,706 j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 i d y n a t r o n c s c o r p o r a t i o n n o t e s t o c o n s o l i d a t e d s t a t e m e n t s 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j n o i t a r o p r o c s c n o r t a n y d i s t n e m e t a t s d e t a d i l o s n o c o t s e t o n The actual income tax benefit (provision) federal corporate income tax rate of 34% differs from the “expected” tax benefit to income (loss) before income taxes for (10) mAJor Customers And sAles by geogrApHiC loCAtion (provision) computed by applying the U.S. the years ended June 30, as follows: 2013 2012 and 2012, sales to any single customer or 2.2% of net sales, for the fiscal During the fiscal years ended June 30, 2013 outside North America totaled $647,047, Expected tax benefit (provision) $ 44,583 State taxes, net of federal tax benefit R&D tax credit Incentive stock options Other, net 2,359 55,000 (10,213) (4,975) 64,682 4,478 75,000 (14,246) 36,792 did not exceed 10% of total net sales. year ended June 30, 2013 compared The Company exports products to $896,887, or 2.8% of net sales, for to approximately 30 countries. Sales the fiscal year ended June 30, 2012. (11) Common stoCK And Common stoCK equivAlents $ 86,754 166,706 On July 15, 2003, the board of directors incentive plan for the benefit of employees. Deferred income tax assets and liabilities related to the tax effects of temporary differences are as follow as of June 30: (board) approved an open-market share Incentive and nonqualified stock options, repurchase program for up to $500,000 restricted common stock, stock appreciation of the Company’s common stock. On rights, and other share-based awards may November 27, 2007, the board approved an be granted under the plan. Awards granted additional $250,000 for the open-market under the plan may be performance-based. 32 2013 2012 share repurchase program after the original Effective November 27, 2007, the plan was 33 Net deferred income tax asset – current: Inventory capitalization for income tax purposes $ 72,058 Inventory reserve Warranty reserve Accrued product liability Allowance for doubtful accounts 127,732 69,477 23,228 96,606 75,127 114,270 70,590 29,835 78,526 $500,000 was used. In February 2011, the amended, as approved by the shareholders, board approved an additional $1,000,000 to increase the number of shares available for repurchases under the program. During by 1,000,000 shares. As of June 30, 2013, fiscal year 2010, the board authorized the 109,187 shares of common stock were repurchase of up to $100,000 of stock authorized and reserved for issuance, but annually for three years from each of two were not granted under the terms of the former distributors that were acquired by the 2005 equity incentive plan as amended. Company in 2007. During the year ended June The Company granted options to acquire Total net deferred income tax asset – current $ 389,101 368,348 30, 2013, the Company acquired and retired common stock under its 2005 equity incentive Net deferred income tax asset (liabilities) – non-current: Property and equipment, principally due 32,786 shares of common stock for $99,997. plan during fiscal years 2013 and 2012. The During the year ended June 30, 2012, the options are granted at not less than 100% of Company acquired and retired 79,857 the market price of the stock at the date of shares of common stock for $401,408. grant. Option terms are determined by the to differences in depreciation (262,726) (268,839) During the years ended June 30, 2013 board, and exercise dates may range from 6 Research and development credit carryover Other intangibles Operating loss carry forwards 383,226 (109,231) 186,172 328,927 (126,640) 197,992 and 2012, the Company granted 13,689 months to 10 years from the date of grant. and 5,509 shares, respectively, of restricted The fair value of each option grant common stock to directors and officers in was estimated on the date of grant using connection with compensation arrangements. the Black Scholes option pricing model Total net deferred income tax asset (liabilities) – non-current $ 197,441 131,440 The Company maintains a 2005 equity with the following assumptions: In assessing the realizability of deferred income over the periods which the deferred income income tax assets, management considers tax assets are deductible, management believes it Expected dividend yield whether it is more likely than not that some is more likely than not that the Company will realize Expected stock price volatility portion or all of the deferred income tax assets the benefits of these temporary differences. will not be realized. The ultimate realization of The Company has available at June 30, Risk-free interest rate Expected life of options deferred income tax assets is dependent upon 2013 and 2012 federal and state net operating 2013 2012 0% 69% 1.74% 10 years 0% 69% 2.09% 10 years the generation of future taxable income during loss (“NOL”) carry forwards of $499,614 and The weighted average fair value of options granted during fiscal the years in which those temporary differences $558,062, respectively. The federal NOLs years 2013 and 2012 was $2.03 and $3.10, respectively. 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j n o i t a r o p r o c s c n o r t a n y d i s t n e m e t a t s d e t a d i l o s n o c o t s e t o n j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 i d y n a t r o n c s c o r p o r a t i o n n o t e s t o c o n s o l i d a t e d s t a t e m e n t s become deductible. Management considers will expire in 2028. The state NOLs will expire the scheduled reversal of deferred income tax depending upon the various rules in the liabilities, projected future taxable income, states in which the Company operates. and tax planning strategies in making this The Company’s federal and state income tax assessment. Based upon the level of historical returns for June 30, 2010, 2011, and 2012 taxable income and projections for future taxable are open tax years. The following table summarizes the Company’s stock option activity during the fiscal years 2013 and 2012: 2013 2012 Weighted Weighted average average remaining Weighted average Number exercise contractual Number exercise of shares price terms of shares price Options outstanding at beginning of the year 173,089 $ Options granted Options exercised Options canceled 1,352 (208) 6.48 2.70 1.75 4.12 yrs 186,692 $ 10,455 — 6.63 4.10 — or expired (10,365) 5.69 (24,058) 6.56 (14) reCent ACCounting pronounCements In April 2013, the FASB issued ASU 2013-07, in net income if the amount being reclassified Presentation of Financial Statements (Topic in its entirety to net income. For those items 205) – Liquidation Basis of Accounting. This not reclassified in its entirety to net income, a update requires an entity to use the liquidation cross-reference to other disclosures providing basis of accounting when liquidation is information about those amounts. Furthermore, imminent. Liquidation is considered imminent information about amounts reclassified out if the likelihood is remote that the entity will of accumulated other comprehensive income return from liquidation and either (a) a plan must be shown by component. This update is for liquidation is approved or (b) a plan for effective prospectively for reporting periods liquidation is being imposed by other forces. beginning after December 15, 2012 for public The update also indicates that asset should companies. The Company doesn’t expect this be measured and presented at the expected update to impact its financials since it does amount of cash proceeds to be received upon not have any comprehensive income items. liquidation. The entity should also present any However, if any are noted in the future, the assets not previously recognized but expects appropriate disclosures will be incorporated. 34 Options outstanding to sell in liquidation or use in settling liabilities In January 2013, the FASB issued ASU 35 at end of the year 163,868 6.51 3.56 yrs 173,089 6.48 Options exercisable at end of the year 138,920 7.20 112,333 7.75 Range of exercise prices at end of the year $ 1.75 – 8.60 $ 1.75 – 9.45 (i.e. trademarks, etc.). This update is effective 2013-01, Balance Sheet (Topic 210) – Clarifying for periods beginning after December 15, 2013. the Scope of Disclosures about Offsetting Assets The Company doesn’t expect this update to and Liabilities. The main purpose of this update is impact its financials since it does not expect to clarify that the disclosures regarding offsetting liquidation to be imminent in the near future. assets and liabilities per ASU 2011-11 apply to In February 2013, the FASB issued ASU derivatives including embedded derivatives, 2013-04, Liabilities (Topic 405) – Obligations repurchase agreements and reverse repurchase Resulting from Joint and Several Liability agreements and securities borrowing and lending Arrangements for Which the Total Amount transactions that are offset or subject to a master j u n e 3 0 , 2 0 1 3 a n d 2 0 1 2 i d y n a t r o n c s c o r p o r a t i o n n o t e s t o c o n s o l i d a t e d s t a t e m e n t s The Company recognized $86,639 $450,823 of unrecognized stock-based of the Obligation is Fixed at the Reporting netting agreement. Other types of transactions and $76,099 in stock-based compensation compensation cost that is expected to be Date. The update requires a company to are not impacted. This update is effective for fiscal for the years ended June 30, 2013 and expensed over periods of four to nine years. measure obligations resulting from joint and years beginning on or after January 1, 2013 and 2012, respectively, which is included The aggregate intrinsic value on the date several liability arrangements for which the for all interim periods within that fiscal year. The in selling, general, and administrative of exercise of options exercised during the total amount of the obligation is fixed at the Company doesn’t expect this update to impact expenses in the consolidated statements of year ended June 30, 2013 was $386. No reporting date as the sum of the following: 1) the Company’s financials since it does not have operations. The stock-based compensation options were exercised during the fiscal year The amount the entity agreed to pay on the instruments noted in the update that are offset. includes amounts for both restricted stock 2012. The aggregate intrinsic value of the basis of its arrangement among its co-obligors In October 2012, the FASB issued ASU and stock options under ASC 718. outstanding options as of June 30, 2013 and and 2) Any additional amount the entity No 2012-04, Technical Corrections and As of June 30, 2013, there was 2012 was $734 and $1,281, respectively. expects to pay on behalf of its co-obligors. This Improvements. This update makes technical (12) employee benefit plAn update is effective retrospectively for fiscal corrections, clarifications, and limited-scope years beginning after December 15, 2013 improvements to various topics throughout for public companies. The Company doesn’t the Financial Accounting Standards Board expect this update to impact its financials Codification. The changes clarify the Codification The Company has a deferred savings plan which contributions of 25% of the first $2,000 of since it does not have any obligations from or correct unintended application of guidance qualifies under Internal Revenue Code Section each employee’s contribution. The Company’s joint and several liability arrangements. and are not expected to have a significant 401(k). The plan covers all employees of the contributions to the plan for 2013 and 2012 were In February 2013, the FASB issued ASU impact on current accounting practices. The Company who have at least six months of service $35,167 and $37,745, respectively. Company 2013-02, Comprehensive Income (Topic 220) majority of the amendments in this update and who are age 20 or older. For fiscal years matching contributions for future years are – Reporting of Amounts Reclassified Out of are effective immediately with a few limited 2013 and 2012, the Company made matching at the discretion of the board of directors. Accumulated Other Comprehensive Income. The scope amendments (mainly related to plan 2 1 0 2 d n a 3 1 0 2 , 0 3 e n u j n o i t a r o p r o c s c n o r t a n y d i s t n e m e t a t s d e t a d i l o s n o c o t s e t o n (13) subsequent events main purpose of this update is to improve the accounting) that will be effective for fiscal years reporting of reclassifications out of accumulated beginning after December 15, 2012 for public other comprehensive income. The update companies. This guidance had no significant requires that the effect of significant reclassifi- impact on the Company’s financials since it was In accordance with ASC 855-10, the date of this 10K report, there are no cations out of accumulated other comprehensive primarily issued to provide corrections and/ management determined that through material subsequent events to report. income be reported on the respective line items or clarifications of currently issued guidance. AvAilAbility of form 10-K Dynatronics Corporation files an annual report on Form 10-K each year with the Mr. Bob Cardon, Vice President of Administration Securities and Exchange Commission. A Dynatronics Corporation copy of the Form 10-K for the fiscal year 7030 Park Centre Drive, ended June 30, 2013, may be obtained at Cottonwood Heights, Utah 84121 no charge by sending a written request to: AnnuAl meeting The company’s annual shareholders meeting will be Monday, November 7030 Park Centre Drive, 25, 2013, at 3:00 p.m. MST at: Cottonwood Heights, Utah 84121 Dynatronics’ corporate headquarters: generAl informAtion 36 Dynatronics Corporation, a Utah corporation microdermabrasion devices to an expanding organized on April 29, 1983, manufactures, market of physical therapists, sports markets and distributes a broad line of medicine practitioners and athletic trainers, therapeutic, diagnostic and rehabilitation chiropractors, podiatrists, orthopedists, equipment, medical supplies and soft goods, plastic surgeons, dermatologists, aestheticians treatment tables, and aesthetic massage and and other medical professionals. offiCers And direCtors Kelvyn H. Cullimore, Jr., Chairman of the Board, President and CEO Larry K. Beardall, Executive Vice President of Sales & Marketing & Director Terry M. Atkinson, CPA, Chief Financial Officer Robert J. (Bob) Cardon, Vice President of Administration, Secretary & Treasurer Douglas Sampson, Vice President of Production and R&D Bryan D. Alsop, Vice President of Information Technology Joseph H. Barton, Director, Retired Sr. Vice President, GranCare Inc. Howard L. Edwards, Director, Retired Corporate Secretary, ARCO Company R. Scott Ward, PT PhD, Director, Chairman of Department of Physical Therapy, University of Utah c o r p o r a t e i n f o r m a t i o n ACCountAnts, legAl Counsel And trAnsfer Agent Independent Registered Public Accounting Firm, Larson & Company, Salt Lake City, Utah Corporate Legal Counsel, Durham Jones & Pinegar, Salt Lake City, Utah Intellectual Property Legal Counsel, Kirton & McConkie, Salt Lake City, Utah Transfer Agent, Interwest Transfer Company, P.O. Box 17136, Salt Lake City, Utah 84117 dynAtroniCs CorporAtion HeAdquArters 7030 Park Centre Drive, Cottonwood Heights, Utah 84121 1.800.874.6251, http://www.dynatronics.com Dynatronics Corporation 7030 Park Centre Dr., Cottonwood Heights, Utah 84121 1.800.874.6271 — www.dynatronics.com 

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