Utah
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87-0398434
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
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Smaller
reporting company ☑
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Emerging
growth company ☐
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Page
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1
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1
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2
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3
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4
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9
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9
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12
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13
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13
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14
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DYNATRONICS
CORPORATION
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||
Condensed
Consolidated Balance Sheets
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||
(Unaudited)
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||
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Assets
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September
30, 2018
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June
30, 2018
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Current
assets:
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Cash and cash
equivalents
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$436,697
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$1,696,116
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Trade accounts
receivable, less allowance for doubtful accounts of $357,817 as of
September 30, 2018 and $370,300 as of June 30, 2018
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8,529,395
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7,810,846
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Other
receivables
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60,457
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52,819
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Inventories,
net
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10,524,115
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10,987,855
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Prepaid
expenses
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866,027
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778,654
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Income tax
receivable
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97,285
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95,501
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Total
current assets
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20,513,976
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21,421,791
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Property and
equipment, net
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5,917,095
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5,850,899
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Intangible assets,
net
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6,950,872
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7,131,758
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Goodwill
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7,116,614
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7,116,614
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Other
assets
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533,141
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532,872
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Total
assets
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$41,031,698
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$42,053,934
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Liabilities
and Stockholders' Equity
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Current
liabilities:
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Accounts
payable
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$4,043,843
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$3,412,960
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Accrued payroll and
benefits expense
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1,529,276
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1,929,465
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Accrued
expenses
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1,111,742
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830,243
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Warranty
reserve
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205,850
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205,850
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Line of
credit
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5,029,712
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6,286,037
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Current portion of
long-term debt
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166,587
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164,003
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Current portion of
capital lease obligations
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225,801
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226,727
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Current portion of
deferred gain
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150,448
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150,448
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Current portion of
acquisition holdback and earn-out liability
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1,879,512
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1,379,512
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Total
current liabilities
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14,342,771
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14,585,245
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Long-term debt, net
of current portion
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260,719
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303,348
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Capital lease
obligations, net of current portion
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2,915,132
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2,972,540
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Deferred gain, net
of current portion
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1,491,941
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1,529,553
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Acquisition
holdback and earn-out liability, net of current
portion
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-
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875,000
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Other
liabilities
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285,094
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411,466
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Total
liabilities
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19,295,657
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20,677,152
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Commitments and
contingencies
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Stockholders'
equity:
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Preferred stock, no
par value: Authorized 50,000,000 shares; 4,899,000 shares and
4,899,000 shares issued and outstanding as of September 30, 2018
and June 30, 2018, respectively
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11,641,816
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11,641,816
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Common stock, no
par value: Authorized 100,000,000 shares; 8,161,029 shares and
8,089,398 shares issued and outstanding as of September 30, 2018
and June 30, 2018, respectively
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20,455,402
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20,225,107
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Accumulated
deficit
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(10,361,177)
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(10,490,141)
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Total
stockholders' equity
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21,736,041
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21,376,782
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Total
liabilities and stockholders' equity
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$41,031,698
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$42,053,934
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See accompanying
notes to condensed consolidated financial statements.
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DYNATRONICS
CORPORATION
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Condensed
Consolidated Statements of
Operations
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(Unaudited)
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Three
Months Ended
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September
30,
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2018
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2017
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$17,065,836
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$12,797,971
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Cost of
sales
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11,518,611
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8,458,580
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Gross
profit
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5,547,225
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4,339,391
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Selling, general,
and administrative expenses
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5,496,623
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4,074,550
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Operating
income
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50,602
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264,841
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Other income
(expense):
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Interest
expense, net
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(120,842)
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(76,808)
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Other
income, net
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385,841
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10,614
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Net other income
(expense)
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264,999
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(66,194)
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Income before
income taxes
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315,601
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198,647
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Income tax
provision
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-
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-
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Net
income
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315,601
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198,647
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Convertible
preferred stock dividend, in common stock
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(186,637)
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(187,061)
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Net income
attributable to common stockholders
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$128,964
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$11,586
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Net income per
common share
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Basic
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$0.02
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$0.00
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Diluted
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$0.02
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$0.00
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Weighted-average
common shares outstanding:
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Basic
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8,160,431
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4,748,049
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Diluted
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8,400,824
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4,748,309
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See
accompanying notes to condensed consolidated financial
statements.
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DYNATRONICS
CORPORATION
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Condensed
Consolidated Statements of Cash
Flows
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(Unaudited)
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Three
Months Ended
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September
30,
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2018
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2017
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Cash flows from
operating activities:
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Net
income
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$315,601
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$198,647
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization of property and equipment
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130,358
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67,822
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Amortization
of intangible assets
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180,886
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71,283
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Amortization
of other assets
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12,189
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86,245
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Amortization
of capital lease assets
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68,617
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62,983
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Gain
on sale of property and equipment
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-
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(5,197)
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Stock-based
compensation expense
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43,658
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71,786
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Change
in allowance for doubtful accounts receivable
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(12,483)
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(9,118)
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Change
in allowance for inventory obsolescence
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(31,046)
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(11,827)
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Amortization
of deferred gain on sale/leaseback
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(37,612)
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(37,612)
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Change
in fair value of earn-out liability
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(375,000)
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-
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Change
in operating assets and liabilities:
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Trade
accounts receivable
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(713,704)
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(652,811)
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Inventories
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255,680
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255,111
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Prepaid
expenses
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(87,373)
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(88,905)
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Other
assets
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(12,458)
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(152,637)
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Income
tax payable/receivable
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(1,784)
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1,152
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Accounts
payable and accrued expenses
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385,821
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601,901
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Net
cash provided by operating activities
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121,350
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458,823
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Cash flows from
investing activities:
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Purchase
of property and equipment
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(26,065)
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(24,779)
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Proceeds
from sale of property and equipment
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-
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10,905
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Net
cash used in investing activities
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(26,065)
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(13,874)
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Cash flows from
financing activities:
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Principal
payments on long-term debt
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(40,045)
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(35,485)
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(58,334)
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(47,446)
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Net
change in line of credit
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(1,256,325)
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4,931,491
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Net
cash (used in) provided by financing activities
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(1,354,704)
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4,848,560
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Net
change in cash and cash equivalents
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(1,259,419)
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5,293,509
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Cash and cash
equivalents at beginning of the period
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1,696,116
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254,705
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Cash and cash
equivalents at end of the period
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$436,697
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$5,548,214
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Supplemental
disclosure of cash flow information:
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Cash
paid for interest
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$133,811
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$78,301
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Supplemental
disclosure of non-cash investing and financing
activity:
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Preferred
stock dividends paid or to be paid in common stock
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186,637
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187,061
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Inventory reclassified to demonstration
equipment
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239,106
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-
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See accompanying
notes to condensed consolidated financial statements.
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October 2,
2018
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$162,845
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April 2,
2019
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466,667
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August 15,
2019
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500,000
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Acquisition
holdback and earn-out liability
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$1,129,512
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2018
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2017
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Basic
weighted-average number of common shares outstanding during the
period
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8,160,431
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4,748,049
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Weighted-average
number of dilutive potential common shares outstanding during the
period
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240,393
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260
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Diluted
weighted-average number of common and potential common shares
outstanding during the period
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8,400,824
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4,748,309
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September 30, 2018
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June 30, 2018
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Raw
materials
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$5,602,615
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$6,216,150
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Work in
process
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576,780
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625,830
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Finished
goods
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4,772,063
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4,604,264
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Inventory
obsolescence reserve
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(427,343)
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(458,389)
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$10,524,115
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$10,987,855
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2018
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2017
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Orthopedic
Soft Goods and Medical Supplies
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$7,692,115
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$2,195,788
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Physical
Therapy and Rehabilitation Equipment
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9,224,895
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10,418,155
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Other
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148,826
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184,028
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$17,065,836
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$12,797,971
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31.1
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31.2
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32.1
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32.2
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101.INS
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XBRL
Instance Document
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101.CAL
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XBRL
Taxonomy Extension Schema Document
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101.SCH
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XBRL
Taxonomy Extension Calculation Linkbase Document
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101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document
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|
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101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
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101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
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DYNATRONICS
CORPORATION
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Date:
November 13, 2018
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By:
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/s/
Christopher R. von Jako, Ph.D.
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Christopher
R. von Jako, Ph.D.
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Chief
Executive Officer (Principal
Executive Officer)
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Date:
November 13, 2018
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By:
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/s/
David A. Wirthlin
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David
A. Wirthlin
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Chief
Financial Officer (Principal Financial and Accounting
Officer)
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1.
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I have reviewed this Quarterly
Report on Form 10-Q of Dynatronics
Corporation;
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2.
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Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
report;
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3.
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Based on my knowledge, the
financial statements, and other financial information included in
this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this
report;
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|
|
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4.
|
The registrant's other certifying
officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
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(b)
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Designed such internal control over
financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
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(c)
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Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
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(d)
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Disclosed in this report any change
in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
|
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5.
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The registrant's other certifying
officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
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|
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(a)
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All significant deficiencies and
material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and
report financial information; and
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|
|
|
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(b)
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Any fraud, whether or not material,
that involves management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
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Date: November 13,
2018
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By:
|
/s/
Christopher R. von
Jako, Ph.D.
|
|
|
|
Christopher R. von Jako,
Ph.D.
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Chief Executive Officer
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(Principal Executive
Officer)
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DYNATRONICS
CORPORATION
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Date: November 13,
2018
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By:
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/s/ Christopher R. von Jako,
Ph.D.
|
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Christopher R. von Jako,
Ph.D.
|
|
|
|
Chief Executive
Officer
(Principal Executive
Officer)
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|
1.
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I have reviewed this Quarterly
Report on Form 10-Q of Dynatronics
Corporation;
|
|
|
|
|
2.
|
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
report;
|
|
|
|
|
3.
|
Based on my knowledge, the
financial statements, and other financial information included in
this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this
report;
|
|
|
|
|
4.
|
The registrant's other certifying
officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
|
|
|
|
|
|
(a)
|
Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
|
|
|
|
|
(b)
|
Designed such internal control over
financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
|
|
(c)
|
Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
|
|
(d)
|
Disclosed in this report any change
in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
|
|
|
|
5.
|
The registrant's other certifying
officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
|
|
|
|
(a)
|
All significant deficiencies and
material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and
report financial information; and
|
|
|
|
|
(b)
|
Any fraud, whether or not material,
that involves management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
|
|
|
|
|
Date: November 13,
2018
|
By:
|
/s/ David A.
Wirthlin
|
|
|
|
David A.
Wirthlin
|
|
|
|
Chief Financial
Officer
|
|
|
|
(Principal Financial and Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
Date: November 13,
2018
|
By:
|
/s/ David A.
Wirthlin
|
|
|
|
David A.
Wirthlin
|
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Nov. 06, 2018 |
|
Document and Entity Information: | ||
Entity Registrant Name | DYNATRONICS CORP | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Trading Symbol | dynt | |
Amendment Flag | false | |
Entity Central Index Key | 0000720875 | |
Current Fiscal Year End Date | --06-30 | |
Entity Common Stock, Shares Outstanding | 8,188,815 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Current Reporting Status | Yes | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q1 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) |
Sep. 30, 2018 |
Jun. 30, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 357,817 | $ 370,300 |
Preferred stock shares authorized | 50,000,000 | 5,000,000 |
Preferred stock shares issued | 4,899,000 | 4,899,000 |
Preferred stock shares outstanding | 4,899,000 | 4,899,000 |
Common stock shares authorized | 100,000,000 | 50,000,000 |
Common stock shares issued | 8,161,029 | 8,089,398 |
Common stock shares outstanding | 8,161,029 | 8,089,398 |
Condensed Consolidated Statements of Income - USD ($) |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Income Statement [Abstract] | ||
Net sales | $ 17,065,836 | $ 12,797,971 |
Cost of sales | 11,518,611 | 8,458,580 |
Gross profit | 5,547,225 | 4,339,391 |
Selling, general, and administrative expenses | 5,496,623 | 4,074,550 |
Operating income | 50,602 | 264,841 |
Other income (expense): | ||
Interest expense, net | (120,842) | (76,808) |
Other income, net | 385,841 | 10,614 |
Net other income (expense) | 264,999 | (66,194) |
Income before income taxes | 315,601 | 198,647 |
Income tax provision | 0 | 0 |
Net income | 315,601 | 198,647 |
Convertible preferred stock dividend, in common stock | (186,637) | (187,061) |
Net income attributable to common stockholders | $ 128,964 | $ 11,586 |
Net income per common share | ||
Basic | $ 0.02 | $ 0.00 |
Diluted | $ 0.02 | $ .00 |
Weighted-average common shares outstanding: | ||
Basic | 8,160,431 | 4,748,049 |
Diluted | 8,400,824 | 4,748,309 |
Note 1. Presentation and Summary of Significant Accounting Policies |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 1. Presentation and Summary of Significant Accounting Policies | Basis of Presentation
The accompanying unaudited condensed consolidated balance sheets as of September 30, 2018 and June 30, 2018, the condensed consolidated statements of operations for the three months ended September 30, 2018 and 2017, and condensed consolidated statements of cash flows for the three months ended September 30, 2018 and 2017, should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended June 30, 2018 included in the Dynatronics Corporation and subsidiaries (the “Company”) Annual Report on Form 10-K (“Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 27, 2018. The accompanying financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of our management, the accompanying condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows. The September 30, 2018 condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year.
The preparation of these unaudited condensed consolidated financial statements requires our management to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses for the three months ended September 30, 2018 and 2017 totaled $11,306 and $251,848, respectively. Research and development expenses are included in Selling, general, and administrative expenses in the condensed consolidated statement of operations.
Reclassification
Certain amounts in the prior year's condensed consolidated statement of operations have been reclassified for comparative purposes to conform to the presentation in the current year's condensed consolidated statement of operations.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842,) a new guidance on leases. This guidance replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The standard requires a modified retrospective approach, which includes several optional practical expedients. Accordingly, the standard is effective for the Company on July 1, 2019. The Company is currently evaluating the impact that this guidance will have on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customer (Topic 606). This authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company adopted this updated accounting guidance beginning July 1, 2018, using the modified retrospective method. This adoption did not have a material impact on the Company’s consolidated financial statements other than additional disclosures (see Note 10) as the timing of revenue recognition under the new standard is not materially different from our previous revenue recognition policy. Based on our analysis of open contracts as of July 1, 2018, the cumulative effect of applying the new standard was not material.
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Note 2. Acquisitions |
3 Months Ended | ||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||
Disclosure Text Block [Abstract] | |||||||||||||||||||||
Note 2. Acquisitions | Bird & Cronin
On October 2, 2017, the Company, through its wholly-owned subsidiary Bird & Cronin, LLC, completed the purchase of substantially all the assets of Bird & Cronin, Inc. (“Bird & Cronin”), a manufacturer and distributor of orthopedic soft goods and specialty patient care products. The purchase price is subject to an earn-out payment ranging from $500,000 to $1,500,000, based on sales in fiscal year 2019. The amount recognized for the earn-out liability was $875,000 as of June 30, 2018. The amount recognized for the earn-out liability was decreased by $375,000 to $500,000 as of September 30, 2018. The change in the fair value of the earn-out liability is included in other income in the accompanying condensed consolidated statements of operations. The earn-out liability is combined with the acquisition holdback in the accompanying condensed consolidated balance sheets.
In addition, the Company has withheld approximately 185,000 shares of common stock to be released to Bird & Cronin pursuant to the holdback provisions in the asset purchase agreement. These shares are included in common stock on the Company’s balance sheet at September 30, 2018. Certain principals of Bird & Cronin are holders of the Company’s issued and outstanding common stock and two of the principals, Michael Cronin and Jason Anderson, are employees of the Company.
As of September 30, 2018, the earn-out liability and holdbacks of $1,129,512 are payable, contingent upon the terms set forth in the purchase agreement, as follows:
On October 2, 2018, the Company released to Bird & Cronin $162,845 and 54,572 shares of common stock pursuant to the holdback provisions of the purchase agreement.
Hausmann
On April 3, 2017, the Company, through its wholly-owned subsidiary Hausmann Enterprises, LLC, completed the purchase of substantially all the assets of Hausmann Industries, Inc. (“Hausmann”), a manufacturer of physical therapy rehabilitation equipment.
The purchase price included a holdback of cash totaling $1,044,744 for purposes of satisfying adjustments to the purchase price and indemnification claims, if any. In the second and third fiscal quarters of 2018, the Company released $44,744 and $250,000, respectively, of the holdback to the sellers. As of September 30, 2018, the Company retained a holdback of $750,000 due to be paid to the seller. On October 3, 2018, the Company released the remaining holdback amount totaling $750,000. Certain principals of Hausmann are holders of the Company’s Series B Convertible Preferred Stock (the "Series B Preferred") and one of the principals, David Hausmann, is an employee of the Company.
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Note 3. Net Income per Common Share |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||
Disclosure Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||
Note 3. Net Income per Common Share | Net income per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net income per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.
Basic net income per common share is the amount of net income for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted net income per common share is the amount of net income for the period available to each weighted-average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.
The reconciliations between the basic and diluted weighted-average number of common shares outstanding for the three months ended September 30 are as follows:
Certain outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net income per common share because they were anti-dilutive, which for the three months ended September 30, 2018, and 2017, totaled 2,776,106 and 8,910,190, respectively.
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Note 4. Convertible Preferred Stock and Common Stock Warrants |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 4. Convertible Preferred Stock and Common Stock Warrants | During the three months ended September 30 2017, the Company issued 75,000 shares of common stock upon conversion of 75,000 shares of Series B Preferred. No conversions occurred during the quarter ended September 30, 2018. As of September 30, 2018, the Company had issued and outstanding a total of 2,000,000 shares of Series A 8% Convertible Preferred Stock (“Series A Preferred”) and 1,459,000 shares of Series B Preferred outstanding. The Series A Preferred and Series B Preferred are convertible into a total of 3,459,000 shares of common stock. Dividends payable on these preferred shares accrue at the rate of 8% per year and are payable quarterly in stock or cash at the option of the Company. The Company generally pay the dividends on the preferred stock by issuring shares of our common stock. The formula for paying this dividend using common stock in lieu of cash can change the effective yield on the dividend to more or less than 8% depending on the market price of the common stock at the time of issuance. As of September 30, 2018, there were also issued and outstanding 1,440,000 shares of Series C Non-Voting Convertible Preferred Stock (“Series C Preferred”). The Series C Preferred shares are non-voting, do not receive dividends, and have no liquidation preferences or redemption rights.
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Note 5. Comprehensive Income |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 5. Comprehensive Income | For the three months ended September 30, 2018 and 2017, comprehensive income was equal to the net income as presented in the accompanying condensed consolidated statements of operations.
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Note 6. Inventories |
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Note 6. Inventories | Inventories consisted of the following:
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Note 7. Related-party Transactions |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 7. Related-party Transactions | The Company leases office, manufacturing and warehouse facilities in Detroit, Michigan, Hopkins, Minnesota, Northvale, New Jersey and Eagan, Minnesota from employees, shareholders and entities controlled by shareholders, who were previously principals of businesses acquired by the Company. The combined expenses associated with these related-party transactions totaled $261,780 and $108,000 for the three months ended September 30, 2018 and 2017, respectively.
Certain significant shareholders, officers and directors of the Company have from time to time participated as investors in the private placements of the Company’s equity securities. The terms of these offerings were reviewed and approved by disinterested members of the Company’s Board of Directors who did not invest in the private placements in question. The affiliated investors who participated in these offerings did so on terms that were no more favorable than the terms granted to investors who were not affiliated with the Company.
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Note 8. Line of Credit |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 8. Line of Credit | On March 31, 2017, the Company entered into an $8,000,000, loan and security agreement with Bank of the West to provide asset-based financing to the Company for funding acquisitions and for working capital (“Line of Credit”). The Line of Credit provided for revolving credit borrowings by the Company in an amount up to the lesser of $8,000,000 or the calculated borrowing base. The borrowing base is computed monthly and is equal to the sum of stated percentages of eligible accounts receivable and inventory, less a reserve. Amounts outstanding bear interest at LIBOR plus 2.25%.
On September 28, 2017, the Company modified the Line of Credit to provide asset-based financing to be used for funding the Bird & Cronin acquisition and for operating capital. The Line of Credit, as amended, provided for revolving credit borrowings by the Company in an amount up to the lesser of $11,000,000 or the calculated borrowing base. The Line of Credit, as amended, matures September 30, 2019.
On July 13, 2018, the Company further amended the Line of Credit to modify the maximum monthly consolidated leverage and a minimum monthly consolidated fixed charge coverage ratio. An additional modification was executed on November 12, 2018, to extend the maturity date to December 15, 2020.
Borrowings on the Line of Credit were $5,029,712 and $6,286,037 as of September 30, 2018 and June 30, 2018, respectively. As of September 30, 2018, there was approximately $3,456,000 available to borrow.
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Note 9. Accrued Payroll and Benefits Expense |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 9. Accrued Payroll and Benefits Expense | As of September 30, 2018 and June 30, 2018, the accrued payroll and benefits expense balance included $499,038 and $473,146, respectively, of accrued severance expense. As of September 30, 2018 and June 30, 2018, long-term severance accrual included in other liabilities was $125,000 and $258,145, respectively. Quarterly payments will be made in cash through March 31, 2020. The Company recognized $103,858 in severance expense during the three months ended September 30, 2018 related to the termination of four employees on August 1, 2018. Severance expense is included in selling, general, and administrative expenses.
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Note 10. Revenue |
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Disclosure Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Note 10. Revenue | On July 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, which establishes principles for recognizing revenue and reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance was applied using the modified retrospective transition method. The adoption of this guidance had no material impact on the amount and timing of revenue recognized, therefore, no adjustments were recorded to the consolidated financial statements upon adoption. For the quarter ended September 30, 2018, revenue recognized would not have differed materially had revenue continued to be recognized under ASC 605.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied which occurs upon the transfer of control of a product. This occurs either upon shipment or delivery of goods, depending on whether the contract is FOB origin or FOB destination. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products to a customer.
Contracts sometimes allow for forms of variable consideration including rebates and incentives. In these cases, the Company estimate the amount of consideration to which it will be entitled in exchange for transferring products to customers utilizing the most likely amount method. Rebates and incentives are estimated based on contractual terms or historical experience and a liability is maintained for rebates and incentives that have been earned but are unpaid. As of September 30, 2018 and 2017, the rebate liability was $164,000 and $0, respectively. The rebate liability is included in accrued expenses in the accompanying condensed consolidated balance sheets.
Revenue is reduced by estimates of potential future contractual discounts including prompt payment discounts. Provisions for contractual discounts are recorded as a reduction to revenue in the period sales are recognized. Estimates are made of the contractual discounts that will eventually be incurred. Contractual discounts are estimated based on negotiated contracts and historical experience. As of September 30, 2018 and 2017, the allowance for sales discounts was $14,500 and $0, respectively. The allowance for sales discounts is included in trade accounts receivable, less allowance for doubtful accounts in the accompanying condensed consolidated balance sheets.
The Company made an accounting policy election to account for shipping and handling activities as fulfillment activities. As such, shipping and handling are not considered promised services to our customers. Costs for shipping and handling of products to customers are recorded as cost of sales.
The following table disaggregates revenue by major product category for the three months ended September 30:
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Note 11. Subsequent Events |
3 Months Ended |
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Sep. 30, 2018 | |
Disclosure Text Block [Abstract] | |
Note 11. Subsequent Events | In October 2018, the Company paid approximately $190,000 of preferred stock dividends with respect to the Series A Preferred and Series B Preferred that accrued during the three months ended September 30, 2018, by issuing 65,494 shares of common stock. |
Note 1. Presentation and Summary of Significant Accounting Policies (Policies) |
3 Months Ended |
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Sep. 30, 2018 | |
Policy Text Block [Abstract] | |
Basis of Presentation | The accompanying unaudited condensed consolidated balance sheets as of September 30, 2018 and June 30, 2018, the condensed consolidated statements of operations for the three months ended September 30, 2018 and 2017, and condensed consolidated statements of cash flows for the three months ended September 30, 2018 and 2017, should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended June 30, 2018 included in the Dynatronics Corporation and subsidiaries (the “Company”) Annual Report on Form 10-K (“Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 27, 2018. The accompanying financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of our management, the accompanying condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows. The September 30, 2018 condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year.
The preparation of these unaudited condensed consolidated financial statements requires our management to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.
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Research and Development Costs | Research and development costs are expensed as incurred. Research and development expenses for the three months ended September 30, 2018 and 2017 totaled $11,306 and $251,848, respectively. Research and development expenses are included in Selling, general, and administrative expenses in the condensed consolidated statement of operations.
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Reclassification | Certain amounts in the prior year's condensed consolidated statement of operations have been reclassified for comparative purposes to conform to the presentation in the current year's condensed consolidated statement of operations.
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Recent Accounting Pronouncements | In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842,) a new guidance on leases. This guidance replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The standard requires a modified retrospective approach, which includes several optional practical expedients. Accordingly, the standard is effective for the Company on July 1, 2019. The Company is currently evaluating the impact that this guidance will have on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customer (Topic 606). This authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company adopted this updated accounting guidance beginning July 1, 2018, using the modified retrospective method. This adoption did not have a material impact on the Company’s consolidated financial statements other than additional disclosures (see Note 10) as the timing of revenue recognition under the new standard is not materially different from our previous revenue recognition policy. Based on our analysis of open contracts as of July 1, 2018, the cumulative effect of applying the new standard was not material.
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Note 2. Acquisitions (Tables) |
3 Months Ended | ||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||
Acquisition |
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Note 3. Net Income per Common Share (Tables) |
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Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of Dilutive Shares |
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Note 6. Inventories (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of Inventory, Current |
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Note 10. Revenue (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Disaggregation of revenue |
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Note 1. Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
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Accounting Policies [Abstract] | ||
Research and development costs | $ 11,306 | $ 251,848 |
Note 2. Acquisitions (Details) |
3 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
Acquisition holdback and earn-out liability | $ 1,129,512 |
October 2, 2018 | |
Acquisition holdback and earn-out liability | 162,845 |
April 1, 2019 | |
Acquisition holdback and earn-out liability | 466,667 |
August 15, 2019 | |
Acquisition holdback and earn-out liability | $ 500,000 |
Note 3. Net Income per Common Share (Details) - shares |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
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Earnings Per Share [Abstract] | ||
Basic weighted-average number of common shares outstanding during the period | 8,160,431 | 4,748,049 |
Weighted-average number of dilutive potential common shares outstanding during the period | 240,393 | 260 |
Diluted weighted-average number of common and potential common shares outstanding during the period | 8,400,824 | 4,748,309 |
Note 3. Net Income per Common Share (Details Narrative) - shares |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
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Earnings Per Share [Abstract] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 2,776,106 | 8,910,190 |
Note 6. Inventories: Schedule of Inventory, Current (Details) - USD ($) |
Sep. 30, 2018 |
Jun. 30, 2018 |
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Inventory, Net [Abstract] | ||
Raw Materials | $ 5,602,615 | $ 6,216,150 |
Work in Process | 576,780 | 625,830 |
Finished Goods | 4,772,063 | 4,604,264 |
Inventory Obsolescence Reserve | (427,343) | (458,389) |
Inventories, Net | $ 10,524,115 | $ 10,987,855 |
Note 7. Related-party Transactions (Details Narrative) - USD ($) |
3 Months Ended | |
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Sep. 30, 2018 |
Sep. 30, 2017 |
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Related Party Transactions [Abstract] | ||
Related Party Transaction, Expenses from Transactions with Related Party | $ 261,780 | $ 108,000 |
Note 8. Line of Credit (Details Narrative) - USD ($) |
Sep. 30, 2018 |
Jun. 30, 2018 |
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Line of Credit Facility [Abstract] | ||
Line of Credit | $ 5,029,712 | $ 6,286,037 |
Line of Credit Facility, Current Borrowing Capacity | $ 3,456,000 |
Note 9. Accrued Payroll and Benefits Expense (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Jun. 30, 2018 |
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Accrued Liabilities [Abstract] | ||
Accrued Severance | $ 499,038 | $ 473,146 |
Long-term Accrued Severance | 125,000 | $ 258,145 |
Severance Costs | $ 103,858 |
Note 10. Revenue (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net sales | $ 17,065,836 | $ 12,797,971 |
Orthopedic Soft Goods and Medical Supplies | ||
Net sales | 7,692,115 | 2,195,788 |
Physical Therapy and Rehabilitation Equipment | ||
Net sales | 9,224,895 | 10,418,155 |
Other | ||
Net sales | $ 148,826 | $ 184,028 |
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