Dynatronics' Audit Committee (referred to as "we" and "us") is composed
entirely of independent directors, and operates under a written charter. The
Audit Committee assists the Board in fulfilling their responsibility to
shareholders, potential shareholders and the investment community relating to
accounting and financial reporting practices.
The Audit Committee meets with management periodically to consider the
adequacy of the Company's internal controls and the objectivity of its financial
reporting. The Audit Committee discusses these matters with the Company's
independent auditors and with appropriate Company financial personnel.
As needed, the Audit Committee meets privately with both the independent
auditors and the appropriate Company financial personnel, each of whom has
unrestricted access to the members of the Audit Committee. The Audit Committee
also recommends to the Board of Directors the appointment of the independent
auditors and reviews periodically the auditors' performance and independence
from management.
The directors who serve on the Audit Committee are all "independent" for
purposes of Rule 4200(a)(15) of The National Association of Securities Dealers'
listing standards and applicable Marketplace Rules. That is, the board of
directors has determined that none of the members of the Audit Committee has a
relationship to Dynatronics that may interfere with their independence from
Dynatronics and its management.
The committee has adopted a written charter setting out the functions of the
Audit Committee. A copy of that charter is attached to this Proxy Statement as
Appendix A.
Management has primary responsibility for the Company's financial statements
and the overall reporting process, including the Company's system of internal
controls. The independent auditors audit the annual financial statements
prepared by management, express an opinion as to whether those financial
statements fairly present the financial position, results of operations and cash
flows of the Company in conformity with accounting principles generally accepted
in the United States of America and discuss with us any issues they believe
should be raised with the committee.
This year, the Audit Committee reviewed the Company's audited financial
statements and met with both management and KPMG LLP, the Company's independent
auditors, to discuss those financial statements. Management has represented to
us that the financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America.
We have received from and discussed with KPMG LLP the written disclosure as
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). These items relate to that firm's
independence from the Company. We also discussed with KPMG LLP any matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
5
Based on these reviews and discussions, we recommended to the board
of directors that Dynatronics' audited consolidated financial statements be
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2001.
Management has advised us that for the year ended June 30, 2001, the Company
paid fees to KPMG LLP for services in the following categories:
We have considered and determined that the provision of the non-audit
services noted in the foregoing table is compatible with maintaining KPMG LLP's
independence.
Members of the Audit Committee
Howard L. Edwards, Chairman
Dr. E. Keith Hansen
Joseph H. Barton
Val J. Christensen
Litigation Matters
There are no material legal proceedings to which any director or
executive officer is a party adverse to the Company.
Remuneration of Directors
Directors who are otherwise employed by and receive remuneration as
officers of the Company, are paid $100 per meeting for attendance at regular and
special director's meetings. Outside directors are paid an annual director's fee
of $3,600. In addition, the Company pays all expenses incurred by directors in
connection with attendance at Board meetings.
Each outside director also participates in an annual bonus program. The
full annual bonus per director is an amount equal to one percent of the
Company's pre-tax profits. A total of $28,068 was paid to the outside directors
under this plan for the fiscal year ended June 30, 2001.
The following table contains information concerning the directors and
executive officers of the Company at October 13, 2001:
Director
or Officer Position
Name Age Since with Company
------------------------ --- ---------- ---------------------
Kelvyn H. Cullimore 66 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 45 1983 President, CEO and Director
Larry K. Beardall 45 1986 Executive Vice President of
Sales and Marketing and
Director
E. Keith Hansen, M.D. 56 1983 Director
Joseph H. Barton 73 1995 Director
Howard L. Edwards 70 1997 Director
Val J. Christensen 48 1999 Director
John S. Ramey 50 1992 Sr. Vice President
of Operations & R&D
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. No other
family relationships exist among officers and directors of the Company.
Kelvyn H. Cullimore has served as Chairman of the Board of the Company
since its incorporation in April 1983. From 1983 until 1992, Mr. Cullimore
served as President of the Company. Mr. Cullimore received a B.S. in Marketing
from Brigham Young University in 1957, and following graduation, worked for a
number of years as a partner in a family-owned home furnishings business
6
in Oklahoma City, Oklahoma. Mr. Cullimore has participated in the organization
and management of various enterprises, becoming the president or general partner
in several business entities, including real estate, motion picture, and
equipment partnerships. From 1979 until 1992, Mr. Cullimore served as Chairman
of the Board of American Consolidated Industries (ACI), the former parent
company of Dynatronics. From 1986 until 1999, Mr. Cullimore served as President
of ITEC Attractions, Inc. (ITEC) and from 1986 to 1997 he served as ITEC's
Chairman, President and CEO. Presently, Mr. Cullimore serves on the board of
directors of ITEC.
Kelvyn H. Cullimore, Jr. was elected President and Chief Executive
Officer of the Company in December of 1992. He has been a Director since the
incorporation of the Company. He served as Secretary/Treasurer of the Company
from 1983 until 1992 and Administrative Vice President from 1988 until 1992. Mr.
Cullimore graduated from Brigham Young University with a degree in Financial and
Estate Planning in 1980. Mr. Cullimore has served on the Board of Directors of
several businesses, including Dynatronics Marketing Company and ACI. He
currently serves on the Board of ITEC. In addition, he was Secretary/Treasurer
of ACI and Dynatronics Marketing Company. From 1983 until 1992 Mr. Cullimore
served as Executive Vice President and Chief Operating Officer of ACI.
Larry K. Beardall was elected Executive Vice President of the Company
in December of 1992. He has served as a Director and the Vice President of Sales
and Marketing for the Company since July of 1986. Mr. Beardall joined
Dynatronics in February of 1986 as Director of Marketing. He graduated from
Brigham Young University with a degree in Finance in 1979. Prior to his
employment with Dynatronics, Mr. Beardall worked with GTE Corporation in Durham,
North Carolina as the Manager of Mergers and Acquisitions and then with Donzis
Protective Equipment in Houston, Texas as National Sales Manager. He also served
on the Board of Directors of Nielsen & Nielsen, Inc., the marketing arm for
Donzis, a supplier of protective sports equipment.
E. Keith Hansen, M.D. has been a Director of the Company since 1983.
Dr. Hansen obtained a Bachelor of Arts degree from the University of Utah in
1966 and an M.D. degree from Temple University in 1972. He has been in private
practice in Sandy, Utah since 1976. Dr. Hansen was also a Director of ACI until
1992 and a Director of Mountain Resources Corporation from 1980 to 1988.
Currently, Dr. Hansen serves as a Director of Accent Publishers, a privately
held company, based in Salt Lake City, Utah.
Joseph H. Barton was elected a Director in November 1995, and began
serving in January 1996. Mr. Barton received a Civil Engineering degree from the
University of California at Berkeley and has held various executive positions
including President of J.H. Barton Construction Company, Senior Vice President
of Beverly Enterprises, and President of KB Industries, a building and land
development company. Most recently, Mr. Barton served as Senior Vice President
of GranCare, Inc. from 1989 to 1994 and currently is a consultant for Covenant
Care, a company that owns and manages long-term care facilities throughout the
United States.
Howard L. Edwards was elected a Director in January 1997. From 1968 to
1995 Mr. Edwards served in various capacities at Atlantic Richfield Company
(ARCO) and its predecessor, the Anaconda Company, including corporate secretary,
vice president, treasurer and general attorney. In addition, Mr. Edwards was a
partner in the law firm of VanCott, Bagley, Cornwall and McCarthy, in Salt Lake
City, Utah. He graduated from the George Washington University School of Law in
1959 and received a bachelor's degree in Finance and Banking from Brigham Young
University in 1955.
Val J. Christensen was appointed to the Board in January 1999. Since
1996, Mr. Christensen has served as Executive Vice President of Franklin Covey
Company, where he has also served as General Counsel since 1990. He also served
on Franklin's Board of Directors from 1991 to 1997. Prior to joining Franklin,
Mr. Christensen was engaged in the private practice of law with the
international law firm of LeBoeuf, Lamb, Leiby & MacRae, specializing in general
business and business litigation matters. Following graduation from law school
in 1980, Mr. Christensen served as a law clerk to the Honorable James K. Logan
of the United States Tenth Circuit Court of Appeals. He is an honors graduate of
the Brigham Young University School of Law and served as articles editor of the
BYU Law Review.
John S. Ramey joined the Company in December 1992 as Vice President of
Research and Development and currently serves as Senior Vice President of
Operations. Prior to joining the Company, Mr. Ramey worked for 16 years with
Phillips Semi- conductors--Signetics, an integrated circuit manufacturing
company as Manager of Product Engineering. From 1983 to 1989 Mr. Ramey also
served as President of Enertronix, a small public corporation. Since 1989 Mr.
Ramey has served as Vice President of JRH Technology, a private engineering
firm. Mr. Ramey earned his MBA degree in 1991 from the University of Phoenix (in
Salt Lake City, Utah) and a BS degree in electronics in 1977 from Brigham Young
University.
7
Certain Relationships and Related Transactions
Except as described in this Proxy Statement under the captions,
"Employment Contracts" and "Salary Continuation Plan," during the two years
ended June 30, 2001 the Company was not a party to any transaction in which any
director, executive officer or shareholder holding more than 5% of the Company's
issued and outstanding common stock had a direct or indirect material interest.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
a registered class of the Company's equity securities ("Reporting Persons") to
file initial reports of ownership and report changes in ownership with the
Securities and Exchange Commission. Reporting Persons are required by regulation
of the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company during and with respect to the fiscal year ended June 30, 2001, the
Company believes that during its 2001 fiscal year all Section 16(a) filings
applicable to these Reporting Persons were filed timely except that due to a
clerical oversight by the Company, each of the Reporting Persons filed untimely
reports regarding stock options granted during the fiscal year.
Executive Compensation
The compensation of the Company's chief executive officer and all executive
officers whose total cash compensation during the fiscal year ended June 30,
2001 exceeded $100,000 (collectively, the "Named Executive Officers") is shown
below.
Summary Compensation Table
The following table summarizes the compensation of the Chief Executive
Officer of the Company and the Company's three most highly paid executive
officers at June 30, 2001, other than the Chief Executive Officer, whose salary
and bonus exceeded $100,000 during the year then ended (collectively the "Named
Executive Officers") and the amounts earned by each of them during the past
three fiscal years:
Summary Compensation Table
Long-term
Annual Compensation Compensation
----------------------------------- ------------------
Other Annual Securities All Other
Compensation Underlying Options Compensation($)
Position Year Salary ($) Bonus ($)(1) /SARs(#) (2)
------------------------ ---- ---------- ------- ------------ ------------------ ---------------
Kelvyn H. Cullimore, Jr. 1999 $109,011 $44,434 $10,757 0/0 $ -
CEO/President 2000 $109,011 $17,417 $10,414 0/0 $ -
2001 $109,011 $21,228 $11,232 30,000/0 $ -
Kelvyn H. Cullimore 1999 $ 56,108 $35,964 $ 6,828 0/0 $ -
Chairman of the Board 2000 $105,000 $28,633 $15,006 0/0 $481,894
2001 $131,250 $35,378 $16,363 30,000/0 $ -
Larry K. Beardall 1999 $ 99,483 $59,244 $10,402 0/0 $ -
Executive Vice President 2000 $ 99,483 $23,223 $ 9,944 0/0 $ -
2001 $ 99,483 $28,304 $10,762 25,000/0 $ -
John S. Ramey 1999 $ 84,300 $29,623 $ 8,918 0/0 $ -
Senior Vice President 2000 $ 84,300 $11,612 $ 7,872 0/0 $ -
2001 $ 84,300 $14,151 $ 8,124 20,000/0 $ -
(1) The Company provides automobiles for certain executive officers and pays all
vehicle operating expenses. The Company also provides life insurance for its
officers. The amount of this column includes the approximate value of these
benefits to the Named Executive Officer.
8
(2) Includes amounts received in settlement of compensation payable under a
salary continuation plan, as discussed below in greater detail.
During the most recent completed fiscal year, the Company made no
awards under any long-term incentive plan. The Company has never granted stock
appreciation rights.
Employment Contracts
The Company has entered into written employment contracts with two executive
officers, Kelvyn H. Cullimore, Jr., President and Chief Executive Officer, and
Larry K. Beardall, Executive Vice President. The initial terms of these
contracts run through the end of the Company's fiscal year in 2003. Both
contracts may be renewed automatically, subject to the right of either party to
terminate the agreements upon 90 days notice made prior to the last day of the
initial term or any renewal term. The contract extensions would extend each
contract for up to an additional ten years (five renewal terms of two years
each). The compensation package under each contract includes an auto allowance,
an annual bonus based on pre-tax operating profit of the Company (at rates
established by the Compensation Committee), and stock options granted under the
Company's 1992 Stock Option Plan, as amended and restated. Each officer also
participates in the salary continuation plan and receives other welfare and
employee benefits that are standard in such agreements, including, by way of
example, health insurance and disability coverage, paid vacation and
Company-paid life insurance. The contracts also contain a provision granting the
executives certain rights and protections in the event of a change in control of
the Company. Among other things, the change of control provision of the
contracts provide for severance payments to the executives if their employment
is discontinued as a result of the change of control of the Company.
The employment agreements described above terminate upon the death or
disability of the executive or termination of the employment for cause. The
agreements also contain covenants of the executives that, during the term of
their employment and continuing for a specified period after the termination of
their employment for any reason, with or without cause, they will not compete
with the Company or make use of or disclose confidential information of the
Company.
Bonus Plan
The Company maintains a discretionary incentive bonus plan administered
by the Compensation Committee. Pursuant to the plan, the Compensation Committee
granted incentive bonuses to certain officers and employees of the Company
during the year ended June 30, 2001. The total amount of bonuses paid for the
fiscal year was $199,695 of which $99,061 was paid to Named Executive Officers,
and is included under the "Bonus" heading in the Summary Compensation Table.
Salary Continuation Plan
During fiscal year 1988, the Company's Board of Directors adopted a
Salary Continuation Agreement for certain Named Executive Officers of the
Company. This agreement provides for a pre-retirement benefit to be paid to the
officer's designated beneficiary in the event he dies before reaching age 65 and
a retirement benefit to be paid upon reaching age 65. The pre- retirement
benefit provides for payment of 50% of the officer's compensation at the time of
death up to $75,000 annually for a period of 15 years or until the officer would
have reached age 65, whichever is longer. The retirement benefit provides the
officer $75,000 annually for a period of 15 years. Presently, Kelvyn H.
Cullimore, Jr. and Larry K. Beardall are covered under this plan. Until April
2000, Kelvyn H. Cullimore, the Company's Chairman of the Board was also covered
under this plan.
Funding for obligations arising in connection with the Agreement is
provided by life insurance policies on the participating officers, of which the
Company is the owner and beneficiary. The face amounts of the policies have been
determined so that sufficient cash values and death benefits will be provided to
meet the obligations as they occur. In fiscal year 2001, the Company expensed
$19,185 relating to salary continuation obligations under the Agreement.
In April 2000, the Company entered into a settlement agreement with Kelvyn
H. Cullimore with respect to his Salary Continuation Agreement as Chairman of
the Board of Directors. Under the terms of the settlement, the Company made a
lump sum payment of $481,894 and terminated his Salary Continuation Agreement.
The payment was funded from the surrender of a life insurance policy that was
used as the funding vehicle for his Salary Continuation Agreement. The surrender
of the life insurance policy resulted in income tax expense of approximately
9
$79,000 since the tax basis of the policy was lower than the amount
received by the Company. The settlement with Mr. Cullimore eliminated
approximately $500,000 in expenses over the subsequent 15 years, and would have
reduced net income of the Company in those future periods.
401(k) Plan
The Company has adopted a 401(k) Plan. Employees who are age 20 and
have completed at least six months of service with the Company are eligible to
participate in the 401(k) Plan.
Eligible employees may make contributions to the 401(k) Plan in the
form of salary deferrals up to 15% of total compensation, not to exceed $10,500,
the maximum allowable amount of salary deferrals for calendar 2000. The Company
matches annual employee contributions at 25% of employee contributions, up to a
maximum of $500 per employee per year.
Participants under the 401(k) Plan are 100% vested in their salary
deferral contributions and vest 20% per year after 2 years of participation in
Company matching contributions. Amounts deferred by Named Executive Officers
under the 401(k) Plan are included under "Salary" in the Summary Compensation
Table. Amounts contributed by the Company for each Named Executive Officer are
included in the "Other Compensation" column in the table above.
Stock Option Grants in Fiscal Year 2001
During fiscal year 2001, options to purchase 446,321 common shares of
the Company's stock were granted under the 1992 Stock Option Plan to employees,
officers, outside directors and one non-employee of the Company. A total of
105,000 options were granted to the Named Executive Officers during the fiscal
year ended June 30, 2001. The options that were granted give the participant the
right to purchase common stock of the Company and are exercisable one year
(minimum) from the date of grant. The weighted average per share exercise price
of these options was $1.31. In addition, during fiscal year 2001, the Company
issued 80,000 options to purchase common stock in connection with a license
agreement with Alan Neuromedical Technologies ("ANT"). The exercise prices of
the options range from $1.08 to $4.00. The options granted to ANT were not
issued under the Company's stock option plan.
The following table sets forth information concerning grants of stock
options made during the fiscal year ended June 30, 2001 to the Named Executive
Officers.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------- ----------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Name Granted (#) Fiscal Year Price Date (1) 5% 10%
------------------------ ------------ ----------- ----------- ---------- ------- -------
Kelvyn H. Cullimore 30,000 6.7% $1.13 11/17/05 $ 9,366 $20,696
Kelvyn H. Cullimore, Jr. 30,000 6.7% $1.13 11/17/05 $ 9,366 $20,696
Larry K. Beardall 25,000 5.6% $1.13 11/17/05 $ 7,805 $17,247
John S. Ramey 20,000 4.5% $1.13 11/17/05 $ 6,244 $13,798
--------------------------
(1) Options shall be 100% vested after one year from the date of
grant.
10
Stock Options Outstanding
The following table sets forth certain information, including the
fiscal year-end value of unexercised stock options held by the Named Executive
Officers. No Named Executive Officer exercised any options during the year ended
June 30, 2001.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at 6/30/2001 /SARs At 6/30/2001
Acquired on Value Realized (#) Exercisable/ ($) Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable (1)
------------------------- ----------- ------------ ---------------- ----------------
Kelvyn H. Cullimore, Jr. - $ - 125,000/30,000 $173,750/$35,400
Kelvyn H. Cullimore - $ - 10,000/30,000 $ 15,900/$35,400
Larry K. Beardall - $ - 120,000/25,000 $165,800/$29,500
John S. Ramey - $ - 30,000/20,000 $ 43,950/$23,600
(1) Value is based on the fair market value of the Company's common stock on
June 30, 2001. Values indicated reflect the difference between the exercise
price of the unexercised options and the market value of shares of common stock
on June 30, 2001. The closing bid price of the common stock on June 30, 2001,
the last trading date in the Company's fiscal year, as reported by NASDAQ, was
$2.31 per share. The exercise prices for the options listed above range between
$.72 and $1.13 per share.
PROPOSAL 2 - APPROVAL OF AN AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1992 STOCK OPTION PLAN
General Information
On August 18, 1992, the Company's Board of Directors adopted the
Dynatronics Corporation 1992 Stock Option Plan (the "Option Plan"). The Option
Plan was amended and restated in 1995 by the Board of Directors and the
shareholders. The purpose of the Option Plan is to attract and retain executives
and other key employees, directors and consultants, as well as to reward such
persons who contribute to the achievement of the Company's success, by giving
them a proprietary interest in the Company. The Option Plan authorizes the
granting of stock options and is administered by the Compensation Committee of
the Board of Directors.
Amendment to the Plan
The Company is submitting for shareholder approval an amendment to the
Option Plan to extend the term of the Option Plan from August 18, 2002 until
September 18, 2011. No other changes or modifications to the Plan are proposed
at this time.
The Option Plan currently authorizes the issuance of shares of common stock
pursuant to awards granted under the Option Plan. The Board of Directors has
amended the Option Plan, subject to shareholder approval, to extend the term of
the Option Plan to September 18, 2011 in order to continue to facilitate the
Company's goal of attracting and retaining executives and other key employees,
directors and consultants, as well as to reward those persons who contribute to
the Company's success.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE PLAN AS SET FORTH IN PROPOSAL #2.
11
PROPOSAL 3 - RATIFICATION OF SELECTION OF AUDITORS
The firm of KPMG LLP served as independent public accountants for the
Company for the fiscal year ended June 30, 2001. The Audit Committee of the
Board has recommended, and the Board of Directors has selected the firm to
continue in this capacity for the current fiscal year ending June 30, 2002,
subject to ratification by the shareholders. Accordingly, the shareholders have
been asked to approve and ratify the selection of KPMG LLP by the Board of
Directors as independent public accountants to audit the accounts and records of
the Company for the fiscal year ending June 30, 2002, and to perform other
appropriate services. If the stockholders fail to ratify the selection, the
Board of Directors will reconsider its decision.
Recommendation of the Board
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL #3
RATIFYING THE SELECTION OF KPMG LLP AS AUDITORS FOR THE COMPANY FOR THE FISCAL
YEAR ENDING JUNE 30, 2002.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire and may be
available to respond to appropriate questions. During the two most recent fiscal
years, there has been no resignation or dismissal of the independent public
accountants engaged by the Company.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be
presented at the Annual Meeting. If, however, any further business should
properly come before the Annual Meeting, the persons named as proxies in the
accompanying form will vote on such business in accordance with their best
judgment.
SHAREHOLDER PROPOSALS
Regulations adopted by the Securities and Exchange Commission require
that shareholder proposals must be furnished to the Company a reasonable time in
advance of the meeting at which the action is proposed to be taken. Shareholder
proposals intended to be presented at next year's 2002 Annual Meeting of the
Company's Shareholders must be received by the Company at its corporate
headquarters on or before July 31, 2002, in order to be included in the Proxy
Statement and Form of Proxy relating to that meeting. Receipt of a shareholder
proposal does not necessarily guarantee that the proposal will be included in
the proxy. If a shareholder intends to propose any matter for a vote at the
Annual Meeting of Shareholders to be held in 2002, but fails to notify the
Company of such intention prior to the date indicated above, then a proxy
solicited by the Board of Directors may be voted on such matter in the
discretion of the proxy holder, without discussion of the matter in the proxy
statement soliciting such proxy and without such matter appearing as a separate
item on the proxy card.
ADDITIONAL INFORMATION
The Company will provide, without charge, to each shareholder to
whom this proxy statement is delivered, upon written or oral request, a copy of
the Company's annual report on Form 10-KSB for the year ended June 30, 2001,
including the financial statements and schedules thereto, as filed with the
Securities and Exchange Commission. Such document shall be sent by first class
mail or other equally prompt means. Written or oral requests for such
information should be directed to Mr. Bob Cardon, Corporate Secretary,
Dynatronics Corporation, 7030 Park Centre Drive, Salt Lake City, UT 84121.
DYNATRONICS CORPORATION
By order of the Board of Directors
/s/ Bob Cardon
-------------------------
Bob Cardon, Corporate Secretary
AUDIT COMMITTEE CHARTER
OF
DYNATRONICS CORPORATION
Organization
There shall be a committee of the board of directors to be known as the Audit
Committee. The Audit Committee shall be composed of directors who are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the board of directors, would interfere
with their exercise of independent judgment as a committee member.
Statement of Policy
The Audit Committee shall provide assistance to the directors of the corporation
in fulfilling their responsibility to the shareholders, potential shareholders
and investment community relating to corporate accounting, reporting practices
of the corporation and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors, and the financial management of the corporation.
Responsibilities
In carrying out its responsibilities, the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the corporation are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
- Review and recommend to the directors the independent auditors to be selected
to audit the financial statements of the corporation and its divisions and
subsidiaries.
- Meet with the independent auditors and management of the corporation at the
conclusion of the fiscal year to review the audit, including any comments or
recommendations of the independent auditors.
- Review with the independent auditors and the corporation's financial and
accounting personnel, the adequacy and effectiveness of the accounting and
financial controls of the corporation, and elicit any recommendations for the
improvement of such internal control procedures or particular areas where new
or more detailed controls or procedures are desirable. Particular emphasis
should be given to the adequacy of such internal controls to expose any
payments, transactions or procedures that might be deemed illegal or otherwise
improper. Further, the committee periodically should review the corporation's
policy statements to determine their adherence to the code of conduct.
- Review the financial statements contained in the annual report to shareholders
with management and the independent auditors to determine that the independent
auditors are satisfied with the disclosure and content of the financial
statements to be presented to the shareholders. Any changes in accounting
principles should be reviewed.
1
- Provide sufficient opportunity for the independent auditors to meet with the
members of the Audit Committee without members of management present. Among
the items to be discussed in these meetings are the independent auditors'
evaluation of the corporations' financial and accounting personnel, and the
cooperation that the independent auditors received during the course of the
audit.
- Review accounting and financial human resources and succession planning within
the corporation.
- Submit the minutes of all meetings of the Audit Committee to, or discuss the
matters discussed at each committee meeting with, the board of directors.
- Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in its
judgment, it is appropriate.
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