2015
ANNUAL
REPORT
Improving Outcomes
Letter to Shareholders
Market Expansion
International Expansion
Board of Directors and Management
Management’s Discussion and Analysis
Report of Independent Registered Public Accounting Firm
Financial Statements
Notes to Financial Statements
Corporate Information
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ImprovIng outcomes
Improving outcomes with Light Therapy is the focus for
therapy in the treatment of Plantar Fasciitis. Following the
Dynatronics’ 2016 marketing campaign. An avalanche of
study, Dr. Guffey stated: “Adding Light Therapy to traditional
research is now available substantiating that adding light
treatment protocols can make a
therapy to traditional treatment therapies improves outcomes.
significant difference on both function
Many of these research projects utilized Dynatronics’ devices.
and pain.” Results of Dr. Guffey’s study
Dr. J. Stephen Guffey, P.T., Ed., D., Professor of Physical
can be seen in a two minute video
Therapy at Arkansas State University, and his research team
accessed by scanning the accompanying
explored the use of Light Therapy when added to traditional
QR Code.
2
Letter to Shareholders
In fiscal year 2015 we opened a new chapter in the story of
Dynatronics. This chapter began near the end of fiscal year
2014. After experiencing consecutive years of declining sales
in fiscal years 2013 and 2014, management determined it was
necessary to take aggressive actions to change the direction
of the company.
Over our more than 30 years in business, we have shown
an ability to make strategic adjustments to changing market
conditions. This began in the 1980s when issues with the FDA
prevented the introduction of our original laser product. We
adapted by developing the first microprocessor-based elec-
trotherapy and ultrasound equipment in the physical therapy
market. In the 1990s our market showed a trend toward
consolidation of physical therapy clinics on a regional and
national basis. We responded by making acquisitions that
allowed us to broaden our product offering and become a more
complete supplier to the market. When a large competitor
began buying up distribution in our market at the beginning of
the new millennium, we responded by securing our distribution
channels by acquiring the best dealers and distributors in our
market. Recently, faced with changing market conditions
related to healthcare reform and recessionary pressures, we
felt it was once again time to adapt. But this time the change
is much more significant.
During the early part of the fiscal year, we embarked on
a strategy to acquire a new, exciting technology with the goal
of leveraging our sales force and expanding our presence into
the orthopedic market. This acquisition was terminated after
the completion of our due diligence revealed insurmountable
incompatibilities. However, during that process, we became
acquainted with Prettybrook Partners. When we terminated
the acquisition, Prettybrook indicated a willingness to consider
funding a new growth strategy for Dynatronics.
We are approached almost weekly by firms willing to
provide capital to the company … at a cost, of course. While
Prettybrook was willing to invest funds, the attraction was
far greater than simply receiving an infusion of capital for
Dynatronics. The principals of Prettybrook have a proven
track record of growth, knowledge of capital markets and
clear access to additional capital and deal flow. Months of due
diligence and negotiation culminated on June 30, 2015, when
we closed on the sale of Series A Preferred Convertible Stock
to affiliates of Prettybrook Partners.
That
investment
in Dynatronics’ preferred stock
raised $4,025,000 of new capital. The preferred stock was
purchased at $2.50 per share and is convertible into common
on a one-to-one basis. The stock earns an 8 percent dividend
payable in cash or stock. Each share of preferred stock was
coupled with a warrant to purchase another 1.5 shares of
Letter to Shareholders
3
2015LETTER TOSHAREHOLDERS common stock at $2.75 per share. The preferred stock also
down inventories by $830,000 in addition to the $120,000 we
features certain voting rights. The preferred shareholders as
had accrued during the year. These write-downs were taken
a group may appoint up to three members of the company’s
as a result of changing strategic plans finalized in the fourth
seven-member board of directors. We believe these were
quarter of the year associated with the sale of preferred stock,
equitable terms to not only help strengthen our company,
which resulted in some product lines such as the Synergie
but more importantly, to link us with new partners who had
line, Quad 7 and others being discontinued, de-emphasized
excellent ideas for strategic growth and a proven record to
or re-evaluated.
perform on those strategies.
In addition to the “beneficial conversion feature” and the
Stuart Essig, one of Prettybrook’s principals, guided
write-down of inventories, our 2015 results were affected by a
Integra Life Sciences from less than $20 million in sales in
required valuation allowance against the deferred tax assets
the late 1990s to more than $928 million in 2014. In that
recorded during the fourth quarter. Because we had incurred
process, he shepherded over 50 acquisitions. He remains
several years of operating losses and a significant loss for the
chairman of the board of Integra. Erin Enright, the other
fourth quarter, GAAP deems such losses to be substantial
principal of Prettybrook, spent 10 years as managing director
evidence that we may never be able to utilize net operating losses
of Equity Capital Markets for Citigroup and many years as an
and other tax attributes which had previously been recorded
executive of medtech companies. The business experience
as deferred tax assets. Therefore, in 2015 we recorded a 100
and credibility of these partners is of much greater value than
percent reserve (totaling approximately $1.4 million) against
the financial capital they have supplied.
all deferred tax assets resulting in approximately $849,000
Our growth strategy is simple. We will utilize the new
in a deferred income tax expense. If we achieve profitability
investment to fund initiatives for the legacy business and
in the future, this reserve will be removed and the value of the
pursue opportunities for new growth through mergers and
deferred tax assets will be restored.
acquisitions (“M&A”). The legacy management team has
Finally, we recorded expenses of approximately $260,000
the vision and ability to execute on organic growth. The new
during the year, associated with the terminated acquisition
investors, led by Prettybrook, bring the M&A expertise.
mentioned earlier.
This new strategy will not materialize overnight. In the
These extraordinary items contributed to a net loss of
early stages, costs will be incurred to build the platform for
$2.3 million and a $5.1 million net loss applicable to common
growth. M&A activity is unpredictable, but we conservatively
shareholders for fiscal year 2015. It is ironic that such a loss
anticipate doing an acquisition sometime in calendar year
actually bodes well for our future. In reality, when the one-time
2016 and closing one acquisition each year thereafter. While
adjustments are pushed aside, the loss before tax for the year
there can be no assurance we will hit these targets, they
was about $300,000 compared to $400,000 last year. This
remain the objectives we will work toward.
improvement was due to a 6 percent sales growth in fiscal year
This is a significant strategic change in the direction of the
2015 after two consecutive years of 7 percent sales declines.
company. However, it is a change we feel is important not only
With the dust of healthcare reform settling, sales improving
to preserve, but to assure future growth and enhancement of
and new capital investment in the company, we believe we are
shareholder value. It helps us break out of the historical trends
poised to see new growth that is potentially unprecedented in
and provide new interest in the future of the company.
our history. That growth is made possible by combining our
The financial statements presented for fiscal year
core infrastructure, management, innovative products and
2015 reflect the financial outcomes and related disclosures
sales force with the experience, capital and access to deal
associated with our initial investment in this change in
flow of Prettybrook Partners. It is an explosive combination
strategic direction.
that creates significant optimism for our future – a future with
The nature of the investment by the preferred shareholders
many more chapters left to write.
created what is known as a “beneficial conversion feature.” A
beneficial conversion feature arises when the conversion price
of a convertible instrument, such as the convertible preferred
stock we issued, is less than the per-share trading value of the
underlying stock into which it is converted on the date of the
transaction. The approximate $2.9 million difference in value
Kelvyn H. cullImore, Jr.
was recorded as a non-cash dividend that increased the net
Chairman, President and CEO
loss applicable to common shareholders in fiscal year 2015.
Also, at the end of fiscal year 2015, we decided to write
4
Letter to Shareholders
Kelvyn H. cullImore, Jr.
Chairman, President and CEO
Letter to Shareholders
5
mArKet eXpAnsIon
Leveraging cutting-edge technology in the field of Light
Therapy has given Dynatronics the momentum to expand
sales into new markets. Podiatry, Home Health, Long-Term
Care, Veterinary, and Cardiac Rehab markets, once thought
of as peripheral, are now beginning to play a major role
in Dynatronics’ market expansion. With public demand
increasing for each of these markets in their own right,
they are virtually untapped from the perspective of adding
Dynatronics’
technology
to
their
treatment regimes.
Increasing Dynatronics’ sales representatives to include
experts in these new markets will add to Dynatronics’
successful market expansion and subsequent profitability.
6
Letter to Shareholders InternAtIonAl eXpAnsIon
Substantial gains toward increasing 2016 International
Sales occurred when Dynatronics Solaris Plus and 25 Series
devices were recently awarded the international CE Mark.
This mandatory designation opens the sales portal to the 27
countries of the European Union as well as many countries
requiring the same rules of conformity, such as the Baltic
Nations, Scandinavia, Australia, and New Zealand.
In anticipation of this approval, substantial groundwork
was
laid, establishing qualified dealers and obtaining
additional import permission in countries with organizations
similar to the FDA. As a result, Dynatronics stands ready
to move forward in 2016 with dealers under contract in the
United Kingdom, Portugal and Spain, as well as in Mexico,
South America, and Asia. Products are already sold and
shipping to these international destinations and the response
to Dynatronics’ products has been very positive. These
relationships should prove profitable to Dynatronics for years
to come.
7
Letter to Shareholders BoArd of dIrectors
Pictured below, in order from left to right
Kelvyn H. cullimore, Jr.
Chairman, President and CEO
larry K. Beardall
Executive Vice President of Sales and Marketing
Howard l. edwards
Former General Attorney for Atlantic Richfield Company
r. scott Ward, ph.d.
Chairman of the Department of Physical Therapy at the University of Utah
erin s. enright
Managing Partner of Prettybrook Partners, LLC
Brian m. larkin
Senior Vice President of Acelity LP
richard J. linder
President and CEO of CoNextions
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
8
Board of Directors and Management
MANAGEMENT
DISCUSSION
AND ANALYSIS
The following discussion should be read in conjunction with our
consolidated financial statements and notes to those consolidated
financial statements, included elsewhere in our Annual Report
on Form 10-K filed with the Securities and Exchange Commision
on Sept. 29, 2015. 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. Factors that could cause or
contribute to those differences include, but are not limited to, those
identified below and those discussed in the section of the Annual
Report entitled “Item 1A. Risk Factors.”
overvIeW
Our principal business is the manufacturing, distribution and
marketing of physical medicine products. We offer a broad line of
medical equipment including therapy devices, medical supplies
and soft goods, treatment tables and rehabilitation equipment.
Our products are sold to and used primarily by physical
therapists, chiropractors, sports medicine practitioners, and
podiatrists. Our fiscal year ends on June 30. Reference to fiscal
year 2015 refers to the year ended June 30, 2015.
results of operAtIons
Fiscal Year 2015 Compared to Fiscal Year 2014
Net Sales
Net sales in fiscal year 2015 increased $1.7 million or 6.1%
to $29.1 million, compared to $27.4 million in fiscal year
2014. Net sales in the fourth quarter of fiscal year 2015
increased $0.9 million or 12% to $7.9 million, compared to
$7.1 million in the fourth quarter of 2014. The acceleration
in the rate of sales growth throughout fiscal 2015 was driven
Management’s Discussion and Analysis of Financial Condition
9
by new clinic openings and increased international orders as
Research and Development
well as strengthening demand in our core domestic market.
Research and development, or R&D expenses for 2015 were
Sales of therapeutic modality products (both proprietary
$0.9 million compared to $1.0 million in 2015. Over the
and distributed), exercise equipment and treatment tables
past three years, we have introduced more new products
were the leading growth categories in 2015. The upward
than any previous three-year period in our history. The
trend in sales indicates increased customer confidence in
new product introductions include the SolarisPlus line of
our markets.
electrotherapy/ultrasound/phototherapy units, the Ultra 2
Sales of proprietary manufactured physical medicine
and Ultra 3 motorized treatment tables, the 25 Series line
products represented approximately 46% and 47% of total
of electrotherapy and ultrasound products, as well as the
physical medicine product sales in fiscal years 2015 and 2014,
Dynatron ThermoStim Probe. We believe that developing
respectively. Distribution of products manufactured by other
new products is a key element in our strategy and critical to
suppliers accounted for the balance of our physical medicine
moving purchasing momentum in a positive direction. R&D
product sales in those years.
costs are expensed as incurred and are expected to remain
In fiscal years 2015 and 2014, sales of physical medicine
at current levels in the coming year. R&D expense decreased
products accounted for 91% of total sales in both years.
as a percentage of net sales in fiscal year 2015 to 3.2% from
Chargeable repairs, billable freight and a small amount of
3.6% of net sales in fiscal year 2014.
revenue from products outside of physical medicine accounted
for the balance of revenues in both years.
Interest Expense
Gross Profit
Interest expense increased by $0.1 million, to $0.3 million in
fiscal year 2015 compared to $0.2 million in fiscal year 2015,
Gross profit totaled $9.1 million, or 31.1% of net sales, in
due to a higher interest rate on our line of credit facility and
fiscal year 2015, compared to $10.0 million, or 36.5% of net
recording imputed interest from the sale/leaseback of our
sales, in fiscal year 2014. We recorded a $952,000 non-cash
corporate headquarters facility. In August 2014, we sold our
charge to write off inventory based on strategic decisions
Cottonwood Heights facility housing our principal executive
made during the fourth quarter to discontinue, re-evaluate or
offices and manufacturing facilities to an investment group
de-emphasize some product lines. These decisions created
and leased the facility back for a 15-year term. We used the
some obsolescence and slow moving inventory that upon
proceeds from this sale to retire the mortgage loan on the
analysis warranted the inventory write off charge. Excluding
property and to pay down our line of credit. Imputed interest
this charge, gross profit would have been reported as $9.9
related to the lease was $0.2 million in 2015.
million which as a percentage of net sales would have been
34.0%. Increased sales of distributed products, which carry
Loss Before Income Tax Benefit
lower-than-average margins, was a primary contributor to
Pre-tax loss in fiscal year 2015 was $1.4 million, compared to
the reduced gross profit as a percentage of net sales in 2015
$0.4 million in fiscal year 2014. The increase in pre-tax loss
compared to 2014.
is due to the $1.0 million non-cash inventory write offand $0.3
Management has developed plans for increasing gross
million increase in expenses associated with a terminated
profits by focusing sales on the company’s proprietary
acquisition, as discussed above. Excluding the inventory
therapeutic devices. Increasing sales of capital equipment
charge and terminated acquisition costs, pre-tax loss from
products will be one of the keys to improving gross profit
operations in 2015 was $0.3 million compared to $0.4 million
margins going forward.
in 2014.
Selling, General and Administrative Expenses
Income Taxes
Selling, general and administrative, or SG&A expenses
Income tax provision was $0.9 million in fiscal year 2015,
were $9.2 million, or 31.7% of net sales, in fiscal year 2015,
compared to income tax benefit of $0.1 million in fiscal
compared to $9.2 million, or 33.6% of net sales, in fiscal year
year 2014. In 2015, we recorded a full valuation allowance
2014. During fiscal year 2015, approximately $0.3 million
of $1.4 million on our net deferred tax assets. As a result
in expense was charged, primarily in the second and third
of the valuation allowance, we recorded a tax expense for the
quarters, related to a terminated acquisition. This increased
fiscal year 2015 despite reporting an operating loss making
expense was offset mostly by lower labor costs during the
the calculation of an effective tax rate incalculable. Our
fiscal year compared to fiscal year 2014.
effective tax benefit rate was 31.7% in 2014. See Note 9
10
Management’s Discussion and Analysis of Financial Condition
to the consolidated financial statements as well as “Critical
from non-GAAP financial measures used by other companies.
Accounting Policies and Estimates – Deferred Income Tax
The presentation of this financial information is not intended
Assets” for more information regarding the valuation allowance
to be considered in isolation of, or as a substitute for, the
and its impact on the effective tax rate for 2015.
financial information prepared and presented in accordance
Net Loss
with generally accepted accounting principles (GAAP). The
reconciliation of these non-GAAP financial measures is
Net loss for the year was $2.3 million, compared to $0.3 million
included in the Statement of Operations in this report.
for the year ended June 30, 2014. Our 2015 results include a
$1.4 million non-cash deferred tax asset valuation allowance,
a $1.0 million non-cash inventory write off and $0.3 million
lIquIdIty And cApItAl resources
increase in expenses associated with a terminated acquisition,
We have financed operations through cash from operations,
as discussed above.
available cash reserves, and borrowings under a line of credit
facility. Working capital increased by $4.8 million to $8.2
Net Loss Applicable to Common Shareholders
million as of June 30, 2015, inclusive of the current portion
Net loss Applicable to Common Shareholders was $5.1 million
of long-term obligations and credit facilities, compared to
for the year, compared to $0.3 million for the year ended June
working capital of $3.3 million as of June 30, 2014. As of June
30, 2014. An effect of the sale of preferred stock announced
30, 2015, we had approximately $0.7 million of available credit
on June 30, 2015, was the creation of a beneficial conversion
under a credit facility. The current ratio was 2.5 to 1 as of June
feature reflecting the difference between the conversion price of
30, 2015 compared to 1.5 to 1 as of June 30, 2014. Current
the preferred stock adjusted in compliance with accounting rules
assets were 69.5% of total assets as of June 30, 2015 and
and the actual trading price of the common stock on the date
73% of total assets as of June 30, 2014.
of the transaction into which the preferred is convertible. That
beneficial conversion feature totaled approximately $2.9 million
Cash and Cash Equivalents
and is reported as a one-time non-cash dividend during the
Our cash and cash equivalents position as of June 30, 2015,
fourth quarter of fiscal year 2015. In addition, the $1.4 million
was $3.9 million, compared to cash and cash equivalents of
valuation allowance recorded in fiscal year 2015 increased
$0.3 million as of June 30, 2014.
the net loss and net loss applicable to common shareholders.
Historically, our cash position varied throughout the year,
Exclusive of the effects of the beneficial conversion feature
but typically stayed within a range of $0.2 million to $0.4
and valuation allowance, net loss per common share in 2015
million. However, the sale of Preferred Stock to affiliates of
was $.32 per common share compared to $0.11 per common
Prettybrook partners as explained in this report infused
share in the same quarter last year. Additionally our results
approximately $4,000,000 of cash into our operations. We
include a $1.0 million inventory write off and $0.3 million
expect that cash flows from operating activities, together
increase in expenses associated with a terminated acquisition,
with the cash proceeds from the sale of preferred stock and
as discussed above.
amounts available through an existing line-of-credit facility, will
be sufficient to cover operating needs in the ordinary course of
business for at least the next 12 months. If we experience an
non-gAAp fInAncIAl meAsures
adverse operating environment, or unusual capital expenditure
This annual report on Form 10-k includes the following
requirements, additional financing may be required. No
“non-GAAP financial measures” as defined by the Securities
assurance can be given that additional financing, if required,
and Exchange Commission: 1) “Excluding this charge, gross
would be available on terms favorable to us, or at all.
profit would have been reported as $9.9 million which as a
percentage of net sales would have been 34.0%,” 2) “Excluding
Accounts Receivable
the inventory adjustment and terminated acquisition costs,
Trade accounts receivable, net of allowance for doubtful
pre-tax loss from operations in 2015 was $0.3 million
accounts, increased $0.2 million, or 5.7%, to $3.3 million as of
compared to $0.4 million in 2014,” and 3) “Exclusive of the
June 30, 2015, compared to $3.2 million as of June 30, 2014.
effects of the beneficial conversion feature and valuation
Trade accounts receivable represent amounts due from our
allowance, net loss per common share in 2015 was $0.32 per
customers including medical practitioners, clinics, hospitals,
common share compared to $0.11 per common share in the
colleges and universities and sports teams as well as dealers
same quarter last year.” These measures may be different
and distributors that purchase our products for redistribution.
Management’s Discussion and Analysis of Financial Condition
11
We believe that our estimate of the allowance for doubtful
of approximately $700,000 by the end of July 2015. We believe
accounts is adequate based on our historical knowledge and
that amounts available under the new line of credit combined
relationship with these customers. Accounts receivable are
with the cash infused from the sale of preferred stock and cash
generally collected within 30 days of the agreed terms.
generated from operating activities will continue to be sufficient
Inventories
All borrowings under the line of credit are presented
Inventories, net of reserves, decreased $0.7 million, or
as current liabilities in the accompanying consolidated
to meet our annual operating requirements.
12.0%, to $5.4 million as of June 30, 2015, compared to
balance sheet.
$6.2 million as of June 30, 2014. During fiscal year 2015,
we recorded a $1.0 million non-cash write off of inventory
Debt
based on strategic decisions made during the fourth quarter
Long-term debt, excluding current installments decreased
to discontinue, re-evaluate or de-emphasize some product
$0.6 million to $0.7 million as of June 30, 2015, compared to
lines. These decisions created some obsolescence and slow
$1.3 million as of June 30, 2014. This reduction was achieved
moving inventory that upon analysis warranted the write off
through the sale of our Utah facility and the subsequent payoff
of inventory. Inventory levels fluctuate based on the timing of
of the mortgage on that building. The remaining long-term
large inventory purchases from overseas suppliers.
debt is comprised primarily of the mortgage loan on our
Accounts Payable
office and manufacturing facility in Tennessee. The principal
balance on the mortgage loan is approximately $0.7 million, of
Accounts payable increased $0.1 million, or 3.6%, to $2.5
which $0.6 million is classified as long-term debt, with monthly
million as of June 30, 2015, from $2.4 million as of June
principal and interest payments of $13,278. Our mortgage
30, 2014. We continue to take advantage of available early
loan matures in 2021.
payment discounts when offered by our vendors.
As discussed above, in conjunction with the sale and
Line of Credit
leaseback of our corporate headquarters in August 2014, we
entered into a $3.8 million lease for a 15-year term with an
In March 2015, we moved the line of credit to a new lender.
investor group. The building lease is recorded as a capital lease
The outstanding balance on our line of credit decreased $1.6
with the related amortization being recorded on a straight line
million to $1.9 million as of June 30, 2015, compared to $3.5
basis over 15 years. Lease payments of approximately $27,000
million as of June 30, 2014. This reduction was made possible
are payable monthly. Total accumulated amortization related
by the sale and leaseback of our Cottonwood Heights, Utah
to the leased building is $230,939 at June 30, 2015. Future
facility, which generated approximately $2.1 million in net cash
minimum gross lease payments required under the capital
to pay down our line of credit. Interest on the new line of credit
lease as of June 30, 2015 are as follows: 2016, $328,384;
is based on the prime rate plus 5%. The $3 million line of
2017, $334,950; 2018, $341,648; 2019, $348,478; 2020,
credit is collateralized by accounts receivable and inventories.
$355,450 and $3,607,692 thereafter. Included in the above
Borrowing limitations are based on 85% of eligible accounts
lease payments is $1,637,238 of imputed interest.
receivable and $0.7 million of eligible inventory. The current
borrowing base on the new line of credit is approximately $2.6
Inflation
million. Interest payments on the line are due monthly. All
Our revenues and net income have not been unusually
borrowings under the line of credit are presented as current
affected by inflation or price increases for raw materials and
liabilities in the accompanying consolidated balance sheet.
parts from vendors.
The line of credit matures on March 5, 2016. Management
expects to be able to renew this credit facility when it matures
Stock Repurchase Plans
with the current lender or another lender. Failure to renew
In 2011, our Board of Directors adopted a stock repurchase
this credit facility could have a material adverse effect on our
plan authorizing repurchases of shares in the open market,
business operations. The terms of this new credit facility are not
through block trades or otherwise. Decisions to repurchase
as favorable as our bank line of credit had been. The effective
shares under this plan are based upon market conditions, the
interest rate on borrowed money is approximately 10% including
level of our cash balances, general business opportunities,
interest and origination fees. The infusion of cash from the sale
and other factors. The Board periodically approves the dollar
of preferred stock the end of June, 2015, facilitated the line of
amounts for share repurchases under the plan. As of June
credit being paid down to its minimum borrowing requirement
30, 2015, $448,450 remained available under the Board’s
12
Management’s Discussion and Analysis of Financial Condition
authorization for purchases under the plan. There is no
Any modifications to estimates of inventory valuation
expiration date for the plan. No purchases were made under
reserves are reflected in cost of goods sold within the
this plan during the fiscal quarter and year ended June 30,
statements of operations during the period in which such
2015 or during the past three fiscal years.
modifications are determined necessary by management. As
of June 30, 2015 and 2014, our inventory valuation reserve
balance, which established a new cost basis, was $0.4 million
crItIcAl AccountIng polIcIes
and $0.3 million, respectively, and our inventory balance was
Management’s Discussion and Analysis of Financial Condition
$5.4 million and $6.2 million, net of reserves, respectively.
and Results of Operations is based upon our consolidated
During fiscal year 2015, we recorded a $1.0 million
financial statements, which have been prepared in accordance
non-cash write off of inventory based on strategic decisions
with U.S. generally accepted accounting principles. The
made during the fourth quarter to discontinue, re-evaluate or
preparation of these financial statements requires estimates
de-emphasize some product lines. These decisions created
and judgments that affect the reported amounts of our assets,
some obsolescence and slow moving inventory that upon
liabilities, net sales and expenses. Management bases estimates
analysis warranted the write off of inventory.
on historical experience and other assumptions it believes to
be reasonable given the circumstances and evaluates these
Revenue Recognition
estimates on an ongoing basis. Actual results may differ from
Our sales force and distributors sell our products to end users,
these estimates under different assumptions or conditions.
including physical therapists, professional trainers, athletic
We believe that the following critical accounting policies
trainers, chiropractors, and medical doctors. Sales revenues
involve a high degree of judgment and complexity. See Note
are recorded when products are shipped FOB shipping point
1 to our consolidated financial statements for fiscal year
under an agreement with a customer, risk of loss and title
2015, for a complete discussion of our significant accounting
have passed to the customer, and collection of any resulting
policies. The following summary sets forth information
receivable is reasonably assured. Amounts billed for shipping
regarding significant estimates and judgments used in the
and handling of products are recorded as sales revenue.
preparation of our consolidated financial statements.
Costs for shipping and handling of products to customers are
recorded as cost of sales.
Inventory Reserves
The nature of our business requires that we maintain sufficient
Allowance for Doubtful Accounts
inventory on hand at all times to meet the requirements of our
We must make estimates of the collectability of accounts
customers. We record finished goods inventory at the lower
receivable. In doing so, we analyze historical bad debt trends,
of standard cost, which approximates actual cost (first-in,
customer credit worthiness, current economic trends and
first-out) or market. Raw materials are recorded at the lower of
changes in customer payment patterns when evaluating
cost (first-in, first-out) or market. Inventory valuation reserves
the adequacy of the allowance for doubtful accounts. Our
are maintained for the estimated impairment of the inventory.
accounts receivable balance was $3.3 million and $3.2 million,
Impairment may be a result of slow-moving or excess
net of allowance for doubtful accounts of $0.4 million and $0.3
inventory, product obsolescence or changes in the valuation
million, as of June 30, 2015 and 2014, respectively.
of the inventory. In determining the adequacy of reserves, we
analyze the following, among other things:
Deferred Income Tax Assets
• Current inventory quantities on hand;
uncertainty as to the realizability of deferred tax assets.
• Product acceptance in the marketplace;
The ability to realize deferred tax assets is dependent upon
A valuation allowance is required when there is significant
• Customer demand;
• Historical sales;
• Forecast sales;
• Product obsolescence;
our ability to generate sufficient taxable income within the
carryforward periods provided for in the tax law for each
tax jurisdiction. We have considered the following possible
sources of taxable income when assessing the realization of
• Strategic marketing and production plans
our deferred tax assets:
• Technological innovations; and
• Character of the inventory as a distributed item, finished
• Future reversals of existing taxable temporary differences;
manufactured item or raw material.
• Future taxable income or loss, exclusive of reversing
Management’s Discussion and Analysis of Financial Condition
13
temporary differences and carryforwards;
Prettybrook will allow Dynatronics to not only strengthen
• Tax-planning strategies; and
the legacy business, but also to position the company for
• Taxable income in prior carryback years.
growth through strategic acquisitions.
In July 2015, we received the CE Mark approval for our
We considered both positive and negative evidence in
SolarisPlus and “25 Series” therapeutic modality products.
determining the continued need for a valuation allowance,
This approval allows us to sell these products in Europe and
including the following:
Positive evidence:
many other countries around the world. Over the past several
years, we have increased our emphasis on international sales.
During the fiscal year we also received clearance for these
• Current forecasts indicate that we will generate pre-tax
same products in Japan. Efforts are currently underway to
income and taxable income in the future. However, there
obtain approvals in Mexico, China, Peru, and other Southeast
can be no assurance that the new strategic plans will
Asian countries. With the CE Mark in hand, we can further
result in profitability.
expand throughout Europe and into areas of the world that
• A majority of our tax attributes have indefinite
recognize and require this distinguished mark of quality. As
carryover periods.
a result, we expect international sales growth to accelerate as
we extend our geographical reach and become a provider of
Negative evidence:
these products on a global basis.
• We have several years of cumulative losses as of
In the last three years we have released more new and
June 30, 2015.
innovative products than during any other similar period in
our history. The introduction of the Solaris Plus family of
We place more weight on objectively verifiable evidence
combination electrotherapy/ultrasound/phototherapy units,
than on other types of evidence and management currently
the 25 Series combination electrotherapy/ultrasound units,
believes that available negative evidence outweighs the
the line of Ultra treatment tables, and the ThermoStim probe
available positive evidence. We have therefore determined
(an accessory to the Solaris Plus family of products) make up
that we do not meet the “more likely than not” threshold that
most of these innovative new products.
deferred tax assets will be realized. Accordingly, a valuation
The introduction of these products has been a major
allowance is required. Any reversal of the valuation allowance
strategic component of attracting new sales representa-
will favorably impact the Company’s results of operations in
tives and dealers in order to expand our distribution across
the period of reversal.
North America and into international territories. Adding
At June 30, 2015, we recorded a full valuation allowance
these new sales reps and dealers along with liberalizing
against our deferred tax assets and no valuation allowance at
policies of who can sell our proprietary products is part of
June 30, 2014.
our strategic plan for expanding our distribution reach and
We had available at June 30, 2014, estimated federal and
strengthening sales.
state net operating loss (“NOL”) carry forwards of $745,605,
Our efforts in past years to prudently reduce costs in
which were used for federal and state income tax purposes to
the face of some economic uncertainty made us a leaner
offset the gain on the sale leaseback transaction involving our
operation. Over the past two fiscal years, we implemented
Utah facility in August 2014(see Note 8).
approximately $1.6 million in annualized expense reductions.
The Company’s federal and state income tax returns for
We will continue to be vigilant in maintaining appropriate
June 30, 2012, 2013 and 2014 are open tax years.
overhead costs and operating costs while still providing
support for sales from our new products and supporting new
initiatives for growth.
BusIness plAn And outlooK
Based on our defined strategic initiatives, we are focusing
On June 30, 2015, we completed a private placement
our resources in the following areas:
of convertible preferred stock for gross proceeds of
approximately $4.0 million. The investors in the private
• Exploring strategic business acquisitions using the
placement were affiliates of Prettybrook Partners, LLC.
capital infusion from the sale of preferred stock. This
Combining the solid corporate infrastructure we have built
will leverage and complement our competitive strengths,
over the last three decades with the business acumen,
increase market reach and allow us to potentially expand
access to capital and access to deal flow provided by
into broader medical markets.
14
Management’s Discussion and Analysis of Financial Condition
• Improving gross profit margins by, among other
Stockholders
initiatives, increasing market share of manufactured
As of September 18, 2015, the approximate number of
capital products by promoting sales of our state-of-the-
shareholders of record was 383. This number does not include
art Dynatron ThermoStim probe, SolarisPlus and 25
beneficial owners of shares held in “nominee” or “street” name.
Series products.
Including such beneficial owners, we estimate that there are a
• Seeking to improve distribution of our products through
total of 2,200 beneficial owners of our common stock.
recruitment of additional qualified sales representatives
and dealers attracted by the many new products being
Dividends
offered and expanding the availability of proprietary
We currently have approximately 1.6 million of Series A
combination therapy devices.
preferred stock outstanding. Dividends payable on these
• Increasing international sales by 1) leveraging the CE Mark
shares accrue at the rate of 8% per year and are payable
approval in Europe and other countries by identifying
quarterly in stock or cash.
appropriate distributors for the approved products, 2)
We have never paid cash dividends on our common stock.
Finalizing regulatory approvals in countries such as China,
Our anticipated capital requirements are such that we intend
Mexico, Peru and other countries in Southeast Asia, and 3)
to follow a policy of retaining earnings, if any, in order to
further developing relationships with existing distributors
finance the development of the business.
in countries such as Japan in order to increase sales in
those countries where products are approved.
Purchases of Equity Securities
• Continuing to seek ways of increasing business with
In February 2011, the Board of Directors approved $1,000,000
regional and national accounts including group purchasing
for open market share repurchases of the Company’s
organizations, national accounts and the U.S. Government.
common stock. Approximately $0.5 million remained on this
• Strengthening pricing management and procurement
authorization as of June 30, 2015. We did not purchase any
methodologies.
shares of common stock during the fiscal quarter or the year
• Updating and improving our selling and marketing efforts
ended June 30, 2015 or in the prior three fiscal years.
including electronic commerce options, as well as developing
better tools for our sales force to improve their efficiency.
Preferred Stock
Market Information
On June 30, 2015, we completed a private placement with
affiliates of Prettybrook Partners, LLC (“Prettybrook”) and
As of September 18, 2015, we had approximately 2,643,583
certain other purchasers (collectively with Prettybrook, the
shares of common stock issued and outstanding. Our
“Preferred Investors”) for the offer and sale of shares of
common stock is included on the NASDAQ Capital Market
our Series A 8% Convertible Preferred Stock (the “Series
(symbol: DYNT). The following table shows the range of high
A Preferred”) in the aggregate amount of approximately
and low sales prices for our common stock as quoted on the
$4 million. The Preferred Investors purchased a total of
NASDAQ system for the quarterly periods indicated.
1,610,000 shares of Series A Preferred Stock, and received
Fiscal Year
Ended June 30:
in connection with such purchase, (i) A-Warrants, exercisable
by cash exercise only, to purchase 1,207,500 shares of our
common stock, and (ii) B-Warrants, exercisable by “cashless
2015
2014
exercise”, to purchase 1,207,500 shares of our common
stock. Proceeds from this private placement will be used to
High
Low
High
Low
promote organic growth through expansion of the Company’s
1st Quarter Jul-Sep
$5.00
$3.69
$7.94
$2.33
sales distribution channels both domestically and internation-
ally, improve our infrastructure and operating systems, and
2nd Quarter Oct-Dec
$5.76
$3.34
$4.85
$2.74
support strategic acquisition opportunities.
3rd Quarter Jan-Mar
$3.89
$2.78
$5.57
$2.94
price that creates an embedded beneficial conversion feature.
A beneficial conversion feature arises when the conversion
4th Quarter Apr-Jun
$3.51
$2.70
$4.44
$2.86
price of a convertible instrument is below the per share fair
The Series A Preferred includes a conversion right at a
value of the underlying stock into which it is convertible. The
conversion price is ‘in the money’ and the holder realizes
Management’s Discussion and Analysis of Financial Condition
15
a benefit to the extent of the price difference. The issuer
of the convertible instrument realizes a cost based on the
theory that the intrinsic value of the price difference (i.e.,
the price difference times the number of shares received
upon conversion) represents an additional financing cost.
The conversion rights associated with the Series A Preferred
do not have a stated life and, therefore, all of the beneficial
conversion feature amount of $2,858,887 was amortized to
dividends on the same date the preferred shares were issued.
The $2,858,887 dividend is added to the net loss to arrive at
the net loss applicable to common stockholders for purposes
of calculating loss per share for the year ended June 30, 2015.
On July 1, 2015, we filed a Current Report on Form 8-K
to disclose this transaction. Additional details regarding
the transaction, as well as the transaction documents, are
included in the Current Report.
16
Management’s Discussion and Analysis of Financial Condition
BoArd of dIrectors And stocKHolders of
dynAtronIcs corporAtIon And suBsIdIAry
We have audited the accompanying consolidated balance
sheets of Dynatronics Corporation and subsidiary as of June
30, 2015 and 2014 and the related consolidated statements
of operations, stockholders’ equity, and cash flows for the
years then ended. These financial statements are the respon-
sibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and 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 engaged
to perform, an audit of its internal control over financial
reporting. Our audits 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 expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the
accounting principles used and significant 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.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Dynatronics Corporation as of June 30,
2015 and 2014, and the results of its operations and cash
flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Mantyla McReynolds, LLC
Salt Lake City, Utah
September 28, 2015
Report of Independent Registered Public Accounting Firm
17
Balance sheets
Years ended June 30:
Assets
Current assets:
2015
2014
Cash and cash equivalents
$
3,925,967
332,800
Trade accounts receivable, less allowance for doubtful accounts of
3,346,770
3,165,396
$417,444 and $325,355 as of June 30, 2015 and 2014 respectively
Other receivables
Inventories, net
Prepaid expenses and other assets
Prepaid income taxes
Current portion of deferred income tax assets
6,748
15,594
5,421,787
6,157,848
273,629
338,108
298,370
—
—
408,919
Total current assets
13,313,009
10,378,927
Property and equipment, net
Intangible asset, net
Other assets
Deferred income tax assets, net of current portion
5,025,076
2,980,677
190,803
623,342
—
235,440
396,456
303,644
Total assets
$
19,152,230
14,295,144
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
Current portion of capital lease
Current portion of deferred gain
Line of credit
Warranty reserve
Accounts payable
Accrued expenses
Accrued payroll and benefits expenses
Income tax payable
$
121,884
173,357
150,448
302,274
—
—
1,909,919
3,521,209
153,185
157,753
2,520,327
2,433,534
279,547
263,092
—
342,716
243,394
30,452
Total current liabilities
5,571,759
7,031,332
Long-term debt, net of current portion
Capital lease, net of current portion
Deferred gain, net of current portion
Deferred rent
Deferred income tax liabilities
651,118
1,255,133
3,464,850
1,980,897
41,150
136,128
—
—
—
—
Total liabilities
11,845,902
8,286,465
Commitments and contingencies
Stockholders’ equity:
“Preferred stock, no par value: Authorized 5,000,000 shares;
3,087,554
—
1,610,000 shares issued and outstanding at June 30, 2015”
“Common stock, no par value: Authorized 50,000,000 shares;
7,610,244
7,149,812
2,642,389 shares and 2,520,389 shares issued and outstanding at
June 30, 2015 and 2014, respectively”
Accumulated deficit
(3,391,470)
(1,141,133)
Total stockholders’ equity
7,306,328
6,008,679
Total liabilities and stockholders’ equity
$
19,152,230
14,295,144
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18
Dynatronics Corporation Consolidated Balance Sheets June 30, 2015 and 2014
statements of operations
Years ended June 30:
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Research and development expenses
2015
2014
$
29,117,528
27,444,223
20,048,069
17,423,851
9,069,459
10,020,372
9,229,405
9,213,433
926,954
992,729
Operating loss
(1,086,900)
(185,790)
Other Income (expense):
Interest income
Interest expense
Other income, net
4,920
44
(330,842)
(231,865)
13,577
20,446
Total other income (expense)
(312,345)
(211,375)
Loss before income tax benefit
(1,399,245)
(397,165)
Income tax benefit
Net loss
Deemed dividend on 8% convertible preferred stock
8% Convertible preferred stock dividend
(851,092)
126,023
$
(2,250,337)
(271,142)
(2,858,887)
(882)
—
—
Net loss applicable to common stockholders
(5,110,106)
(271,142)
Basic and diluted net loss per common share
$
( 2.03)
( 0.11)
Weighted-average basic and diluted common shares outstanding:
2,520,723
2,519,490
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Dynatronics Corporation Consolidated Statements of Operations Years Ended June 30, 2015 and 2014
19
statements of stockholders’ equity
Years ended June 30,
2015 and 2014
Common
Common
Preferred
Preferred
Total
Stock
Shares
Stock
Amount
Stock
Shares
Stock
Accumulated
Stockholders’
Amount
Deficit
Equity
Balances as of July 1, 2013
2,518,904
$
7,078,941
— $
Shares issued due to
1,485
70,871
stock split rounding
Net loss
—
—
Balances at June 30, 2014
2,520,389
7,149,812
Stock-based compensation
—
66,372
Issuance of common
122,000
394,060
—
—
—
—
—
—
—
—
—
—
—
(869,991) $ 6,208,949
—
70,871
(271,142)
(271,142)
(1,141,133)
6,008,679
—
—
66,372
394,060
stock in association
with capital raise
Issuance of preferred
stock and warrants,
net of issuance costs
Preferred stock dividend
Preferred stock beneficial
conversion feature
Dividend of beneficial
conversion feature
—
—
—
1,610,000
3,088,436
—
3,088,436
—
(882)
—
(882)
2,858,887
2,858,887
(2,858,887)
(2,858,887)
Net loss
—
—
—
—
(2,250,337)
(2,250,337)
Balances as of
June 30, 2015
2,642,389
7,610,244
1,610,000
3,087,554
(3,391,470)
7,306,328
*Reflects adjusted shares due to 1:5 reverse stock split
effective December 19, 2012
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20
Dynatronics Corporation Consolidated Statements of Stockholders’ Equity Year’s Ended June 30, 2015 and 2014
statements of cash flows
Years ended June 30:
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment
Amortization of intangible assets
Amortization of other assets
Amortization of building lease
Stock-based compensation expense
Change in deferred income taxes
Change in provision for doubtful accounts receivable
Change in provision for inventory obsolescence
Deferred gain on sale/leaseback
Change in operating assets and liabilities:
Receivables, net
Inventories, net
Prepaid expenses and other assets
Other assets
Prepaid income taxes
Income tax payable
2015
2014
$
(2,250,337)
(271,142)
350,959
44,637
51,372
230,939
66,372
433,014
96,529
51,372
—
70,871
848,691
(126,021)
92,089
23,190
(137,910)
(264,617)
712,871
(265,968)
(278,258)
—
(368,560)
96 ,000
120,000
—
(3,081)
129,705
216,324
—
20,248
—
Accounts payable and accrued expenses
79,022
(327,297)
Net cash provided by (used in) operating activities
(1,065,508)
506,522
Cash flows from investing activities:
Purchase of property and equipment
Proceeds from sale of property and equipment
(66,333)
(176,958)
3,800,000
—
Net cash used by (used in) investing activities
3,733,667
(176,958)
Cash flows from financing activities:
Principal payments on long-term debt
Principal payments on long-term capital lease
Net change in line of credit
Proceeds from issuance of preferred stock
(784,405)
(161,793)
(1,611,290)
3,482,496
(323,633)
—
24,819
—
Net cash provided by (used in) financing activities
925,008
(298,814)
Net change in cash and cash equivalents
3,593,167
30,750
Cash and cash equivalents at beginning of the year
332,800
302,050
Cash and cash equivalents at end of the year
3,925,967
332,800
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosures of non-cash flow investing and financing activities:
Capital lease - building
Deemed dividend on 8% convertible preferred stock
Preferred stock issuance costs paid in common stock
324,314
356,151
3,800,000
2,858,887
394,060
232,571
—
—
—
—
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Dynatronics Corporation Consolidated Statements of Cash Flows Years Ended June 30, 2015 and 2014
21
NOTES TO
FINANCIAL
STATEMENTS
(1) BAsIs of presentAtIon And summAry of
sIgnIfIcAnt AccountIng polIcIes
(a) Description of Business
Dynatronics Corporation (the Company), a Utah corporation,
distributes and markets a broad line of medical products,
many of which are designed and manufactured by the
Company. Among the products offered by the Company are
therapeutic, diagnostic, and rehabilitation equipment, medical
supplies and soft goods and treatment tables to an expanding
market of physical therapists, podiatrists, orthopedists,
chiropractors, and other medical professionals.
(b) Principles of Consolidation
The consolidated financial statements include the accounts
and operations of Dynatronics Corporation and its wholly
owned subsidiary, Dynatronics Distribution Company,
LLC. The consolidated financial statements are prepared in
conformity with accounting principles generally accepted
in the United States of America (U.S. GAAP). All significant
intercompany account balances and transactions have been
eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents include all highly liquid investments with
maturities of three months or less at the date of purchase.
Also included within cash equivalents are deposits in-transit
from banks for payments related to third-party credit card and
debit card transactions.
(d) Inventories
Finished goods inventories are stated at the lower of standard
cost (first-in, first-out method), which approximates actual
cost, or market. Raw materials are stated at the lower of
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
23
cost (first in, first out method) or market. The Company
(h) Intangible Assets
periodically reviews the value of items in inventory and
Costs associated with the acquisition of trademarks, trade
provides write-downs or write-offs of inventory based on its
names, license rights and non-compete agreements are
assessment of slow moving or obsolete inventory. Write-downs
capitalized and amortized using the straight-line method over
and write-offs are charged against the reserve.
periods ranging from 3 months to 20 years.
(e) Trade Accounts Receivable
(i) Revenue Recognition
Trade accounts receivable are recorded at the invoiced
The Company recognizes revenue when products are shipped
amount and do not bear interest, although a finance charge
FOB shipping point under an agreement with a customer, risk
may be applied to such receivables that are past the due
of loss and title have passed to the customer, and collection
date. The allowance for doubtful accounts is the Company’s
of any resulting receivable is reasonably assured. Amounts
best estimate of the amount of probable credit losses in
billed for shipping and handling of products are recorded as
the Company’s existing accounts receivable. The Company
sales revenue. Costs for shipping and handling of products to
determines the allowance based on a combination of
customers are recorded as cost of sales.
statistical analysis, historical collections, customers’
current credit worthiness, the age of the receivable
(j) Research and Development Costs
balance both individually and in the aggregate and general
Direct research and development costs are expensed as
economic conditions that may affect the customer’s ability
incurred.
to pay. All account balances are reviewed on an individual
basis. Account balances are charged off against the
(k) Product Warranty Costs
allowance when the potential for recovery is considered
Costs estimated to be incurred in connection with the
remote. Recoveries of receivables previously charged off are
Company’s product warranty programs are charged to
recognized when payment is received.
expense as products are sold based on historical warranty
(f) Property and Equipment
rates.
Property and equipment are stated at cost less accumulated
(l) Net Income (Loss) per Common Share
depreciation. Depreciation is computed using the straight
Net loss per common share is computed based on the
line method over the estimated useful lives of the assets.
weighted-average number of common shares outstanding
Buildings and their component parts are being depreciated
and, when appropriate, dilutive common stock equivalents
over their estimated useful lives that range from 5 to 31.5
outstanding during the year. Convertible preferred stock and
years. Estimated lives for all other depreciable assets range
stock options and warrants are considered to be common
from 3 to 7 years.
(g) Long-Lived Assets
stock equivalents. The computation of diluted net loss per
common share does not assume exercise or conversion of
securities that would have an anti-dilutive effect.
Long–lived assets, such as property and equipment, are
Basic net loss per common share is the amount of net
reviewed for impairment whenever events or changes in
loss for the year available to each weighted-average share of
circumstances indicate that the carrying amount of an
common stock outstanding during the year. Diluted net loss
asset may not be recoverable. Recoverability of assets to be
per common share is the amount of net loss for the year
held and used is measured by a comparison of the carrying
available to each weighted-average share of common stock
amount of an asset to estimated undiscounted future cash
outstanding during the year and to each common stock
flows expected to be generated by the asset. If the carrying
equivalent outstanding during the year, unless inclusion of
amount of an asset exceeds its estimated future cash flows,
common stock equivalents would have an anti-dilutive effect.
an impairment charge is recognized for the difference
The reconciliation between the basic and diluted weighted-
between the carrying amount of the asset and the fair
average number of common shares for the years ended June
value of the asset. Assets to be disposed of are separately
30, 2015 and 2014, is summarized as follows:
presented in the balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and are
no longer depreciated.
24
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
Basic weighted-average number of common shares outstanding during the year
2,520,723
2,519,490
Weighted-average number of dilutive common stock equivalents outstanding during the year
—
—
Diluted weighted-average number of common and common equivalent shares
2,520,723
2,519,490
outstanding during the year
2015
2014
Outstanding common stock equivalents not included in
income over the periods which the deferred income tax assets
the computation of diluted net loss per common share totaled
are deductible. If management determines that it is more likely
4,105,290 as of June 30, 2015 and 145,987 as of June 30,
than not that the Company will not realize the benefits of these
2014. These common stock equivalents were not included in
deductible differences, a valuation allowance is recorded.
the computation because to do so would have been antidilutive.
(n) Stock-Based Compensation
(m) Income Taxes
The Company accounts for stock-based compensation
The Company recognizes an asset or liability for the deferred
in accordance with FASB ASC 718, Stock Compensation.
income tax consequences of all temporary differences between
Stock-based compensation cost is measured at the grant
the tax bases of assets and liabilities and their reported amounts
date based on the fair value of the award and is recognized as
in the consolidated financial statements that will result in
expense over the applicable vesting period of the stock award
taxable or deductible amounts in future years when the reported
(generally five years) using the straight-line method.
amounts of the assets and liabilities are recovered or settled.
Accounting standards require the consideration of a valuation
(o) Concentration of Risk
allowance for deferred tax assets if it is “more likely than not”
In the normal course of business, the Company provides
that some component or all of the benefits of deferred tax assets
unsecured credit to its customers. Most of the Company’s
will not be realized. Accruals for uncertain tax positions are
customers are involved in the medical industry. The Company
provided for in accordance with the requirements of Financial
performs ongoing credit evaluations of its customers and
Accounting Standards Board (FASB) Accounting Standards
maintains allowances for probable losses which, when
Codification (ASC) 740-10, Income Taxes. Under ASC 740-10, the
realized, have been within the range of management’s
Company may recognize the tax benefits from an uncertain tax
expectations. The Company maintains its cash in bank deposit
position only if it is more likely than not that the tax position will
accounts which at times may exceed federally insured limits.
be sustained on examination by the taxing authorities, based on
The Company believes it is not exposed to any significant
the technical merits of the position. The tax benefits recognized
credit risks with respect to cash or cash equivalents.
in the financial statements from such a position are measured
As of June 30, 2015, the Company has approximately
based on the largest benefit that has a greater than 50%
$3,675,950 in cash and cash equivalents in excess of the FDIC
likelihood of being realized upon ultimate settlement. ASC 740-10
limits. The Company has not experienced any losses in such
also provides guidance on derecognition of income tax assets
accounts.
and liabilities, classification of current and deferred income
tax assets and liabilities, accounting for interest and penalties
(p) Operating Segments
associated with tax positions, and income tax disclosures.
The Company operates in one line of business: the
Judgment is required in assessing the future tax consequences
development, marketing, and distribution of a broad line of
of events that have been recognized in the financial statements
medical products for the physical therapy markets. As such,
or tax returns. Variations in the actual outcome of these future tax
the Company has only one reportable operating segment.
consequences could materially impact the Company’s financial
Physical medicine products made up 91% of net sales for
position, results of operations and cash flows. The Company
both the years ended June 30, 2015 and 2014. Chargeable
evaluates the need for a valuation allowance on deferred taxes on
repairs, billable freight and other miscellaneous revenues
a quarterly and annual base. This evaluation considers the level
account for the remaining 9% of net sales for both the years
of historical taxable income and projections for future taxable
ended June 30, 2015 and 2014.
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
25
(q) Use of Estimates
warranty costs; and estimated recoverability of intangible
Management of the Company has made a number of estimates
assets. Actual results could differ from those estimates.
and assumptions relating to the reporting of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets
(r) Advertising Costs
and liabilities in accordance with US GAAP. Significant items
Advertising costs are expensed as incurred. Advertising
subject to such estimates and assumptions include the carrying
expense for the years ended June 30, 2015 and 2014 was
amount of property and equipment; valuation allowances for
approximately $93,700 and $111,900, respectively.
receivables, income taxes, and inventories; accrued product
(2) InventorIes
Included in ”Buildings” at June 30, 2015 are assets held
Inventories consist of the following as of June 30:
under a capital lease obligation totaling $3,800,000 (gross)
2015
2014
30, 2014. Depreciation and amortization expense for the
and $3,569,061 (net). There was no capital lease as of June
Raw materials
Finished goods
Inventory reserve
$
2,086,411
3,693,921
(358,545)
2,783,306
3,709,897
(335,355)
years ended June 30, 2015 and 2014 was $350,959 and
$433,686, respectively.
$
5,421,787
6,157,848
Identifiable intangible assets and their useful lives consist of
(4) IntAngIBle Assets
the following as of June 30:
Included in cost of goods sold for the years ended June 30, 2015
and 2014, is a write off of slow moving and obsolete inventory
Trade name—15 years
$
totaling $952,212 and $120,000, respectively. The $952,212
Domain name—15 years
non-cash charge reflects a write off of inventory related to strategic
Non-compete covenant
339,400
5,400
149,400
339,400
5,400
149,400
decisions made during the fourth quarter resulting in some
—4 years
product lines being discontinued, re-evaluated or de-emphasized.
Customer relationships
120,000
120,000
These decisions created additional obsolescence that upon
—7 years
analysis warranted the inventory write off.
Trademark licensing
45,000
45,000
2015
2014
(3) property And equIpment
agreement—20 years
Backlog of orders
—3 months
2,700
2,700
Property and equipment consist of the following as of June 30:
Customer database
38,100
38,100
2015
2014
License agreement
—
73,240
—7 years
Land
Buildings
$
30,287
354,743
—10 years
5,586,777
3,758,524
Total identifiable
700,000
773,240
Machinery and equipment
1,635,386
1,598,770
intangibles
Office equipment
273,420
266,563
Less accumulated
(509,197)
(537,800)
Computer equipment
1,984,046
1,980,746
amortization
Vehicles
247,571
236,987
Net carrying amount
$
190,803
235,440
Less accumulated depreciation
(4,732,411)
(5,215,656)
9,757,487
8,196,333
and amortization
$
5,025,076
2,980,677
assets was $44,637 and $96,529 for the fiscal years ended
June 30, 2015 and 2014, respectively. Estimated amortization
Amortization expense associated with the intangible
26
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
expense for the identifiable intangibles is expected to be as
(7) long term deBt
follows: 2016, $30,680; 2017, $30,680; 2018, $26,430; 2019,
Long term debt consists of the following as of June 30:
$26,430; 2020, $26,430 and thereafter $50,153.
2015
2014
(5) WArrAnty reserve
6.44% promissory
$
745,562
853,090
A reconciliation of the change in the warranty reserve consists
of the following for the fiscal years ended June 30:
2015
2014
Beginning warranty
$
157,753
178,148
reserve balance
Warranty repairs
Warranties issued
Changes in estimated
warranty costs
(145,698)
145,267
(4,137)
(141,471)
153,648
(32,572)
Ending warranty reserve $
153,185
157,753
note secured by trust
deed on real property,
maturing January 2021,
payable in monthly
installments of $13,278
5.235% promissory note
secured by building,
maturing December
2017, payable in monthly
installments of $16,985
Promissory note secured
by a vehicle, payable in
monthly installments of $639
through February 2019
8.49% promissory note
secured by equipment,
payable in monthly
installments of $2,097
through December 2014
5.887% promissory note
secured by a vehicle, payable
in monthly installments of
$390 through March 2017
—
644,962
27,168
33,913
—
12,279
—
12,140
(6) lIne of credIt
13.001% promissory note
272
1,023
Until March 2015, the Company maintained a line of credit
secured by equipment,
with a bank. In March 2015, the Company moved the line
of credit to a new lender. Interest on the new line of credit
is based on the prime rate plus 5%, with a minimum rate
of 8.25%. At June 30, 2015 the rate was 8.25%. Payments
payable in monthly
installments of $70
through October 2015
are due monthly, with minimum monthly interest of $5,000.
Less accumulated amortization
773,002
(121,884)
1,557,407
(302,274)
The borrowing base on the new line of credit is approximately
$2,600,000 and is collateralized by accounts receivable
and inventory. Borrowing limitations under the new line of
credit are based on 85% of eligible accounts receivable and
$700,000 of eligible inventory, up to a maximum credit facility
$
651,118
1,255,133
of $3,000,000. The new line of credit matures on March 5,
The aggregate maturities of long term debt for each of the
2016. The line of credit has no negative loan covenants,
years subsequent to June 30, 2015 are as follows: 2016,
however, there are affirmative covenants to provide accounts
$121,884; 2017, $129,428; 2018, $137,756; 2019, $144,707;
receivable ageing and financial statements within 90 days of
2020, $148,249 and thereafter $90,978.
month end and are in compliance with these covenants.
The outstanding balance on the line of credit decreased
(8) leAses
$1,611,290 to $1,909,919 as of June 30, 2015, compared to
Operating Leases
$3,521,209 as of June 30, 2014. This reduction was primarily
The Company leases vehicles under noncancelable operating
made possible by the sale and leaseback of the Company’s
lease agreements. Lease expense for the years ended June
Utah facility which provided approximately $2,100,000 in net
30, 2015 and 2014, was $16,106 and $16,106, respectively.
cash to pay down the line of credit (see Note 8).
Future minimum lease payments required under noncancelable
operating leases that have initial or remaining lease terms in
excess of one year as of 2015 is as follows: 2016, $7,403.
The Company rents office, warehouse and storage space
and office equipment under agreements which run one year
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
27
or more in duration. The rent expense for the years ended
Capital Leases
June 30, 2015 and 2014 was $188,498 and $203,361,
On August 8, 2014, the Company sold the building that houses
respectively. Future minimum rental payments required
its operations in Utah and leased back the premises for a term
under operating leases that have a duration of one year or
of 15 years. The sale price was $3.8 million. Proceeds from
more as of June 30, 2015 are as follows: 2016, $84,777;
the sale were primarily used to reduce debt obligations of the
2017, $54,852; 2018, $5,088 and 2019, $2,544.
Company. The sale of the building resulted in a $2,269,255
During fiscal year 2015, the office and warehouse spaces
gain, which is recorded in the consolidated balance sheet as
in Detroit, Michigan and Hopkins, Minnesota were leased
deferred gain and will be recognized in Selling, general and
on an annual/monthly basis from employees/stockholders;
administrative expense over the 15 year life of the lease.
or entities controlled by stockholders, who were previously
The building lease is recorded as a capital lease with
principals of the dealers acquired in July 2007. The leases are
the related amortization being recorded on a straight line
related-party transactions with two employee/stockholders,
basis over 15 years. Total accumulated amortization related
however, management believes the lease agreements have
to the leased building is $230,939 at June 30, 2015. Future
been conducted on an arms-length basis and the terms
minimum gross lease payments required under the capital
are similar to those that would be available to other third
lease as of June 30, 2015 are as follows: 2016, $328,384;
parties. The expense associated with these related-party
2017, $334,950; 2018, $341,648; 2019, $348,478; 2020,
transactions totaled $70,800 and $52,200 expense for the
$355,450 and $3,607,692 thereafter. Included in the above
fiscal years ended June 30, 2015 and 2014, respectively.
lease payments is $1,637,238 of imputed interest.
(9) Income tAXes
Income tax benefit (provision) for the ears ended June 30 consists of:
2015:
U.S. federal
State and Local
2014:
U.S. federal
State and Local
Current
(16,981)
14,580
Deferred
(678,953)
(169,738)
Total
(695,934)
(155,158)
(2,401)
(848,691)
(851,092)
Current
—
—
—
Deferred
107,439
18,584
Total
107,439
18,584
126,023
126,023
$
$
$
$
2015
2014
The actual income tax benefit (provision) differs from
Expected tax benefit
$
475,743
135,036
the “expected” tax benefit (provision) computed by applying
(provision)
the U.S. federal corporate income tax rate of 34% to income
State taxes, net of
58,661
12,265
(loss) before income taxes for the years ended June 30, are
federal tax benefit
as follows:
R&D tax credit
Valuation allowance
Incentive stock options
Other, net
28,916
(1,447,247)
(3,322)
36,157
—
—
(4,852)
(16,426)
$
(851,092)
126,023
28
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
Deferred income tax assets and liabilities related to the tax
A valuation allowance is required when there is significant
effects of temporary differences are as follow as of June 30:
uncertainty as to the realizability of deferred tax assets. The
2015
2014
Company’s ability to generate sufficient taxable income within
ability to realize deferred tax assets is dependent upon the
Net deferred income
tax assets – current:
the carryforward periods provided for in the tax law for each
tax jurisdiction. The Company has considered the following
possible sources of taxable income when assessing the
Inventory
$
67,324
68,748
realization of its deferred tax assets:
capitalization
for income tax
purposes
Inventory reserve
Warranty reserve
Accrued product
liability
Allowance for
doubtful accounts
139,832
59,742
9,918
130,788
61,524
20,970
162,803
126,889
• future reversals of existing taxable
temporary differences;
• future taxable income or loss, exclusive of reversing
• temporary differences and carryforwards;
• tax-planning strategies; and
• taxable income in prior carryback years.
The Company considered both positive and negative
Warranty reserve
(439,619)
—
evidence in determining the need for a valuation allowance,
Total deferred income
$
—
408,919
tax assets – current
Positive evidence:
including the following:
• Current forecasts indicate that the Company will
generate pre-tax income and taxable income in the
future. However, there can be no assurance that
the new strategic plans will result in profitability.
2015
2014
• A majority of the Company’s tax attributes
Net deferred income
tax assets (liabilities)
– non-current:
Property and
$
(67,158)
(255,835)
have indefinite carryover periods.
Negative evidence:
• The Company has several years of
cumulative losses as of June 30, 2015.
equipment,
principally due
to differences in
depreciation
Research and
development
credit carryover
Other intangibles
Deferred gain on
sale lease back
Operating loss
carry forwards
The Company places more weight on objectively verifiable
evidence than on other types of evidence and management
currently believes that available negative evidence outweighs
the available positive evidence. Management has therefore
133,393
370,757
determined that the Company does not meet the “more likely
than not” threshold that deferred tax assets will be realized.
Accordingly, a valuation allowance is required. Any reversal of
(68,970)
874,235
(91,822)
the valuation allowance will favorably impact the Company’s
—
results of operations in the period of reversal.
At June 30, 2015, the Company recorded a full valuation
—
280,544
allowance against its deferred tax assets.
The Company had available at June 30, 2014, estimated
Valuation allowance
(1,007,628)
—
federal and state net operating loss (“NOL”) carry forwards of
Total deferred income
$
(136,128)
303,644
purposes to offset the gain on the sale lease-back transaction
$745,605, which were used for federal and state income tax
tax assets (liabilities)
– non-current
(see Note 8).
The Company’s federal and state income tax returns for
June 30, 2012, 2013 and 2014 are open tax years.
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
29
(10) mAJor customers And
sAles By geogrApHIc locAtIon
Awards granted under the plan may be performance-based.
As of June 30, 2015, 500,000 shares of common stock were
During the fiscal years ended June 30, 2015 and 2014, sales
authorized and reserved for issuance, but were not granted
to any single customer did not exceed 10% of total net sales.
under the terms of the 2015 equity incentive plan. No further
The Company exports products to approximately 30
grants will be made under the 2005 plan.
countries. Sales outside North America totaled $880,500
The Company granted no options under its 2005 or 2015
or 3% of net sales, for the fiscal year ended June 30, 2015
equity incentive plan during fiscal year 2015. The Company
compared to $749,000, or 2.7% of net sales, for the fiscal year
granted 3,598 options to acquire common stock during fiscal
ended June 30, 2014.
year 2014. The options are granted at not less than 100%
of the market price of the stock at the date of grant. Option
terms are determined by the board, and exercise dates may
(11) common stocK And common stocK equIvAlents
range from 6 months to 10 years from the date of grant.
For the year ended June 30, 2015, the Company granted no
The fair value of each option grant was estimated on the
restricted common stock to directors or officers in connection with
date of grant using the Black Scholes option pricing model
compensation arrangements. For the year ended June 30, 2014,
with the following assumptions:
the Company granted 1,485 shares of restricted common stock to
directors in connection with compensation arrangements.
On June 30, 2015, the Company issued 122,000 shares
of restricted common stock to the exclusive placement agent
Expected dividend yield
and the financial advisor in conjunction with the $4 million
Expected stock price volatility
capital raise.
Risk-free interest rate
The Company maintained a 2005 equity incentive plan for
Expected life of options
the benefit of employees, on June 29, 2015 the shareholders
approved a new 2015 equity incentive plan setting aside
2014
0%
69%
2.53%
10 years
500,000 shares. The 2015 plan was filed with the SEC on
The weighted average fair value of options granted during
September 3, 2015. Incentive and nonqualified stock options,
fiscal year 2014 was $1.89.
restricted common stock, stock appreciation rights, and
The following table summarizes the Company’s stock
other share-based awards may be granted under the plan.
option activity during the reported fiscal years:
2015
Number of
shares
2015
Weighted
average
exercise price
Weighted
average
remaining
contractual
term
2014
Number of
shares
2014
Weighted
average
exercise price
Options outstanding at
beginning of the year
Options granted
Options exercised
Options canceled or expired
(64,452)
—
—
—
—
8.41
3,598
—
(11,862)
155,604 $
6.45
3.56 years
163,868 $
Options outstanding at
91,152
5.07
2.80 years
155,604
end of the year
6.51
2.42
—
6.01
6.45
Options exercisable at
90,520
5.48
137,804
7.09
end of the year
Range of exercise prices
at end of the year
$
1.75 – 7.10
$
1.75 – 8.60
30
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
The Company recognized $66,372 and $70,871 in
of shares of Common Stock issuable upon conversion of such
stock-based compensation for the years ended June 30, 2015
Series A Preferred held by such holder that exceeds the quotient
and 2014, respectively, which is included in selling, general,
of (x) the aggregate purchase price paid by such holder of Series
and administrative expenses in the consolidated statements
A Preferred for its Series A Preferred, divided by (y) the greater
of operations. The stock-based compensation includes
of (i) $2.50 and (ii) the market price of the Common Stock on
amounts for both restricted stock and stock options under
the trading day immediately prior to the date of issuance of such
ASC 718.
holder’s Preferred Stock. The market price of the Common Stock
As of June 30, 2015 there was $327,483 of unrecognized
on the trading day immediately prior to the date of issuance
stock-based compensation cost that is expected to be
was $3.19 per share. Based on a $4,025,000 investment and a
expensed over periods of four to nine years.
$3.19 per share price the number of Common Stock equivalents
No options were exercised during the fiscal years 2015
eligible for voting by Preferred shareholders is 1,261,755.
and 2014. The aggregate intrinsic value of the outstanding
The Preferred Investors purchased a total of 1,610,000
options as of June 30, 2015 and 2014 was $3,289 and
shares of Series A Preferred Stock, and received in connection
$8,732, respectively.
with such purchase, (i) A-Warrants, exercisable by cash
exercise only, to purchase 1,207,500 shares of common stock,
and (ii) B-Warrants, exercisable by “cashless exercise”, to
(12) serIes A 8% convertIBle preferred stocK And
purchase 1,207,500 shares of common stock. The warrants
common stocK WArrAnts
are exercisable for 72 months from the date of issuance and
On June 30, 2015, the Company completed a private
carry a Black-Scholes put feature in the event of a change in
placement with affiliates of Prettybrook Partners, LLC
control. The put right is not subject to derivative accounting
(“Prettybrook”) and certain other purchasers (collectively
as all equity holders are treated the same in the event of a
with Prettybrook, the “Preferred Investors”) for the offer and
change in control.
sale of shares of the Company’s Series A 8% Convertible
The Company’s Board of Directors has the authority to
Preferred Stock (the “Series A Preferred”) in the aggregate
cause us to issue, without any further vote or action by the
amount of approximately $4 million. Offering costs incurred
shareholders, up to 3,390,000 additional shares of preferred
in conjunction with the private placement were recorded
stock, no par value per share, in one or more series, to
net of proceeds. The Series A Preferred is convertible to
designate the number of shares constituting any series, and to
common stock on a 1:1 basis. A Forced Conversion can
fix the rights, preferences, privileges and restrictions thereof,
be initiated based on a formula related to share price and
including dividend rights, voting rights, rights and terms
trading volumes as outlined in the terms of the private
of redemption, redemption price or prices and liquidation
placement. The dividend is fixed at 8% and is payable in
preferences of such series.
either cash or common stock. This dividend is payable
The Series A Preferred includes a conversion right at a
quarterly and equates to an annual payment of $322,000
price that creates an embedded beneficial conversion feature. A
or equivalent value in common stock. Certain redemption
beneficial conversion feature arises when the conversion price of
rights are attached to the Series A Preferred, but none of the
a convertible instrument is below the per share fair value of the
redemption rights for cash are deemed outside the control
underlying stock into which it is convertible. The conversion price
of the Company. The redemption rights deemed outside the
is ‘in the money’ and the holder realizes a benefit to the extent
control of the Company require common stock payments
of the price difference. The issuer of the convertible instrument
or an increase in the dividend rate. The Series A Preferred
realizes a cost based on the theory that the intrinsic value of
includes a liquidation preference under which Preferred
the price difference (i.e., the price difference times the number
Investors would receive cash equal to the stated value of their
of shares received upon conversion) represents an additional
stock plus unpaid dividends. In accordance with the terms of
financing cost. The conversion rights associated with the Series
the sale of the Series A Preferred, the Company was required
A Preferred issued by the Company do not have a stated life
to register the underlying common shares associated with the
and, therefore, all of the beneficial conversion feature amount
Series A Preferred and the warrants.
of $2,858,887 was amortized to dividends on the same date
The Series A Preferred votes on an as-converted basis, one
the preferred shares were issued. The $2,858,887 dividend
vote for each share of Common Stock issuable upon conversion
is added to the net loss to arrive at the net loss applicable to
of the Series A Preferred, provided, however, that no holder of
common stockholders for purposes of calculating loss per share
Series A Preferred shall be entitled to cast votes for the number
for the year ended June 30, 2015.
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
31
In August 2014, the FASB issued Accounting Stand
(13) employee BenefIt plAn
Update (ASU) 2014-15, Presentation of Financial Statements
The Company has a deferred savings plan which qualifies
– Going Concern: Disclosure of Uncertainties About an Entity’s
under Internal Revenue Code Section 401(k). The plan covers
Ability to Continue as a Going Concern. This ASU requires
all employees of the Company who have at least six months of
management to assess an entity’s ability to continue as a
service and who are age 20 or older. For fiscal years 2015 and
going concern by incorporating and expanding upon certain
2014, the Company made matching contributions of 25% of the
principles that are currently in U.S. auditing standards, but
first $2,000 of each employee’s contribution. The Company’s
not currently in GAAP. Specifically, the amendments (1)
contributions to the plan for 2015 and 2014 were $34,099 and
provide a definition of the term substantial doubt, (2) require
$39,056, respectively. Company matching contributions for
an evaluation every reporting period including interim periods,
future years are at the discretion of the board of directors.
(3) provide principles for considering the mitigating effect of
management’s plans, (4) require certain disclosures when
substantial doubt is alleviated as a result of consideration of
(14) suBsequent events
management’s plans, (5) require an express statement and
On June 29, 2015 the shareholders approved a new 2015
other disclosures when substantial doubt is not alleviated,
equity incentive plan setting aside 500,000 shares. The 2015
and (6) require an assessment for a period of one year after
plan was filed with the SEC on September 3, 2015.
the date that the financial statements are issued (or available
to be issued). This ASU is effective for the annual period
ending after December 15, 2016, and for annual periods and
(15) recent AccountIng pronouncements
interim periods thereafter. Early application is permitted. The
In April, 2015, the FASB issued ASU 2015-03, Simplifying
Company is currently evaluating the impact that this ASU will
the Presentation of Debt Issuance Costs (Subtopic 835-30).
have on its financial.
This update requires debt issuance costs to be presented in
In May 2014, the Financial Accounting Standards Board
the balance sheet as a direct deduction from the associated
(FASB) issued Accounting Standard Update (ASU) 2014-09
debt liability. Under current standards, debt issuance costs
– Revenue from Contracts with Customers, which provides
are generally recorded as an asset and amortization of these
a single, comprehensive revenue recognition model for all
deferred financing costs is recorded in interest expense.
contracts with customers. The core principal of this ASU is
Under the new standard, debt issuance costs will continue
that an entity should recognize revenue when it transfers
to be amortized over the life of the debt instrument and
promised goods or services to customers in an amount
amortization will continue to be recorded in interest expense.
that reflects the consideration to which the entity expects
ASU 2015-03 is effective for the Company on January 1, 2016,
to be entitled in exchange for those goods or services. This
and will be applied on a retrospective basis. The Company is
ASU also requires additional disclosure about the nature,
currently evaluating the impact this guidance will have on our
amount, timing and uncertainty of revenue and cash flows
consolidated financial statements.
arising
from customer contracts,
including significant
In January 2015, the FASB issued ASU 2015-01, Income
judgments and changes in judgments and assets recognized
Statement – Extraordinary and Unusual Items (Subtopic
from costs incurred to obtain or fulfill a contract. This ASU
225-20) Simplifying Income Statement Presentation by
is effective for annual periods, and interim periods within
Eliminating the Concept of Extraordinary Items. This update
those annual periods, beginning after December 15, 2017.
eliminates from GAAP the concept of extraordinary items
Earlier application is permitted only as of annual reporting
as part of its initiative to reduce complexity. Therefore,
periods beginning after December 15, 2016, including interim
extraordinary classification on the income statement will
reporting periods within that reporting period. The Company
no longer be used. However, the presentation guidance for
is currently evaluating the impact that this ASU will have on its
items that are unusual in nature or occur infrequently will
financial statements.
be retained. The update is effective in fiscal years beginning
The Company has reviewed all other recently issued, but
after December 15, 2015 and early adoption is permitted.
not yet adopted, accounting standards in order to determine
This update is not applicable to the Company as it has no
their effects, if any, on its results of operations, financial
extraordinary items. However, if there are events that are
position or cash flows. Based on that review, the Company
unusual in nature or occur infrequently, the appropriate
believes that none of these pronouncements will have a
disclosures will be made.
significant effect on its consolidated financial statements.
32
Dynatronics Corporation Notes to Consolidated Statements June 30, 2015 and 2014
AvAIlABIlIty of form 10-K
generAl InformAtIon
Dynatronics Corporation files an annual report on Form 10-K
Dynatronics Corporation, a Utah corporation organized
each year with the Securities and Exchange Commission. A
on April 29, 1983, manufactures, markets and distributes
copy of the Form 10-K for the fiscal year ended June 30, 2015,
a broad line of therapeutic, diagnostic and rehabilita-
may be obtained at no charge by sending a written request to:
tion equipment, medical supplies and soft goods, and
treatment tables to an expanding market of physical
Mr. Bob Cardon, Vice President of Administration
therapists, sports medicine practitioners and athletic
Dynatronics Corporation
7030 Park Centre Drive,
Cottonwood Heights, Utah 84121
trainers, chiropractors, podiatrists, orthopedists, and
other medical professionals.
offIcers And dIrectors
Kelvyn H. cullimore, Jr.
AnnuAl meetIng
The company’s annual shareholder meeting will be held at
Chairman of the Board, President and CEO
Dynatronics’ corporate headquarters on December 16, 2015
larry K. Beardall
Executive Vice President of Sales & Marketing & Director
7030 Park Centre Drive,
at 3:00 pm MT.
Cottonwood Heights, Utah 84121
terry m. Atkinson, cpA
Chief Financial Officer
robert J. (Bob) cardon
AccountAnts, legAl counsel And trAnsfer Agent
Vice President of Administration, Secretary & Treasurer
Mantyla McReynolds LLC, Salt Lake City, Utah
douglas g. sampson
Independent Registered Public Accounting Firm
Durham Jones & Pinegar, Salt Lake City, Utah
Vice President of Production and R&D
Corporate Legal Counsel
Bryan d. Alsop
Kirton & McConkie, Salt Lake City, Utah
Intellectual Property Legal Counsel
Vice President of Information Technology
Interwest Transfer Company
P.O. Box 17136, Salt Lake City, Utah 84117
Transfer Agent
Howard l. edwards
Director, Former General Attorney for Atlantic Richfield Company
r. scott Ward, pt phd
7030 Park Centre Drive, Cottonwood Heights, Utah 84121
Director, Chairman of the Department of Physical Therapy
1.800.874.6251, http://www.dynatronics.com
dynAtronIcs corporAtIon HeAdquArters
at the University of Utah
erin s. enright
Director, Managing Partner of Prettybrook Partners, LLC
Brian m. larkin
Director, Senior Vice President of Acelity LP
richard J. linder
Director, President and CEO of CoNextions
Corporate Information
33
This annual report contains forward-looking statements
related to anticipated
financial performance, product
development and similar matters. Securities laws provide
a safe harbor for such statements. The company notes that
risks inherent in its business and a variety of factors could
cause or contribute to a difference between actual results
and anticipated results.
Dynatronics Corporation
7030 Park Centre Dr., Cottonwood Heights, Utah 84121
1.800.874.6271 — www.dynatronics.com