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Products for the Olympic athletes and for all athletes, trainers and therapists worldwide

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Healthcare
Industry: Medical Equipment and Supplies
NASD: DYNT

Dynatronics Corporation

7030 Park Centre Drive
Salt Lake City, UT 84121
Phone: 801-568-7000

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Kelvyn H. Cullimore, Jr.
President and
Chief Executive Officer

Interview conducted by:
Diane Reynolds, Co Publisher

CEOCFOinterviews.com
May 2002

BIOGRAPHY OF PRESIDENT/CEO

Kelvyn H. Cullimore, Jr. was one of the founders of Dynatronics and has served on the company’s board of directors since its inception.  Over the years, Mr. Cullimore has held various positions in Dynatronics, including secretary/treasurer and vice president of administration.  Since 1992, he has served as president and ceo.  In addition to his involvement in Dynatronics, Mr. Cullimore has been a founder, director and leader of ACI, the former parent company of Dynatronics, Dynatronics Research Co., Dynatronics Marketing Company (predecessors of Dynatronics), and ITEC Attractions.  He has also played a key role in buying and selling such companies as Dunford Bakery, Salt Lake Donut, Ike’s Candy Co., and Superior Orthopedics.  Mr. Cullimore graduated from Brigham Young University with a degree in Financial and Estate Planning in 1980

Ceocfointerviews: If we can start out, this must have been an exciting past year for you with the Olympics being held in Salt Lake City, and since you are in that type of business, let’s talk about your company and what the Olympics has done for you?

Mr. Cullimore: It was exciting having the Olympics here in Salt Lake City.  Dynatronics has been headquartered here for over twenty years and we were able to participate in the Games as a silver-level donor.  That means we donated $500,000 worth of equipment and services to the Games.  We supplied therapy equipment and medical supplies at each of the venue sites and received very good exposure for our products among the Olympic athletes, trainers and therapists worldwide.  That is important because we have been undertaking an initiative the past couple of years to expand internationally.  This was some of the best exposure we could have had among foreign athletes. In the United States, Dynatronics is very dominant in the athletic training market.  Virtually every professional sports franchise whether it’s hockey, baseball, basketball, or football uses our equipment.  The Olympics gave us the opportunity to add international exposure to our strong domestic stature. 

Ceocfointerviews: Are you feeling the affects of the exposure that this has created for you?

Mr. Cullimore: Yes, we are.  We had strong demand from customers to purchase the equipment used at the Games.  We were able to sell all of that equipment and recover most of our donated cost to the Olympics.  We sold some equipment to Olympic teams and trainers who carried the products with them to their home countries.  We anticipate as a result of the positive Olympic exposure we will be able to expand distribution channels in several countries.  We are prepared for that because Dynatronics, a little over a year ago, received it’s ISO 9001 Certification, a quality systems certification required for entry into the European markets.  We now have that designation on a number of our key products.

Ceocfointerviews: Your company does it’s own manufacturing, and with the increased demand, do you see yourselves outsourcing the manufacturing?

Mr. Cullimore: We have ample manufacturing capacity to sustain significant growth before we would have to expand our facilities or before we would consider outsourcing.  Our facilities are located in Salt Lake City and in Chattanooga Tennessee.  In Salt Lake City we manufacture all of the electronic and high-tech products.  In Tennessee we manufacture the supplies, wood tables, metal tables, hot packs, cold packs and many other related items.  Controlling quality is essential.  When you outsource manufacturing, you can lose part of that quality control.  Therefore, until the volumes become significantly larger, we will continue manufacturing in-house to maintain quality and to keep costs down.

Ceocfointerviews: On the distribution end, is that done through dealers?

Mr. Cullimore: Yes, Dynatronics distributes its products domestically and internationally through a network of 50 “specialty dealers” and 200 to 300 general line dealers.  The specialty dealers have exclusive territories and can sell all of our product lines while the general line dealers are entitled to distribute supplies, soft goods and treatment tables only.  We also have a network of dealers that distribute our aesthetic products. 

Ceocfointerviews: Does this company do any of the distributing itself?

Mr. Cullimore: We do have some national accounts that we work with on a direct basis.  They are generally national chains of physical therapy clinics.  But, by far the majority of sales are done through dealers who actually purchase the equipment from us and distribute to the practitioners in their territories. 

Ceocfointerviews: Do you find that more and more people are turning to Chiropractors and Physical Therapists for their medical treatment?

Mr. Cullimore: Yes.  Physical medicine is a growing industry.  More and more patients are seeking physical therapy services as an adjunctive medical treatment.  The baby boomers have been a very active and exercise-oriented group.  They are moving into a phase of life where all of that activity is creating a lot of aches and pains, and thus demand for our products is expected to continue growing for many years.

Ceocfointerviews: You have over a thousand products, how do you grow as far as the product line is concerned?

Mr. Cullimore: We continue to add products every year. The majority of our revenue is from manufactured products rather than from distributed items.  The high-tech electronic products are our bread and butter.  The electrotherapy and ultrasound lines have always been our lead products.  Dynatronics has been the industry leader in innovation, particularly in the electronic side of the business.  That has helped us to establish a firm market for our products.  We continually update those products to maintain state-of-the-art offerings.  The newest version of these products will be introduced later this year and should boost our market share.

Ceocfointerviews: Other than the physical therapists, the chiropractors, the sports medicine, practitioners, there are other areas you can go into.  Some of your equipment can be used in hospitals and clinics, are you addressing that market too?

Mr. Cullimore: Certainly, those are very important markets for us-- particularly with our new pain management equipment.  Our new Dynatron STS device is utilized by various medical practitioners such as anesthesiologists, neurologists, physiatrists, orthopedists and even podiatrists to treat chronic pain patients. 

Ceocfointerviews: Are the physicians leasing your chronic pain equipment or are they buying it directly?

Mr. Cullimore: Most of our equipment is purchased directly from the dealer by the practitioner.  The pain management device was introduced in March 2001 and has great potential because of its efficacy helping patients manage chronic pain non-invasively.  It was approved by the FDA last year and is called the Dynatron STS.  It is used by practitioners to clinically treat chronic pain patients.  Once an effective protocol has been established, the practitioner can then prescribe a Dynatron Rx unit for patients to continue treatments at home.  This home unit is purchased directly from the dealer by the patient.  With over 70 million Americans suffering from chronic pain, the market potential for these products is vast.

Ceocfointerviews: Is this approved for Insurance coverage?

Mr. Cullimore: Insurance reimbursement is a challenge for us at present.  Some insurance companies do reimburse for STS treatments.  Presently, we are focusing primarily on workers’ compensation carriers where interest has been good.  Traditional health care providers have been a little slower in responding to this new technology.  That process takes some time.  Recently we made application to Medicare for a particular reimbursement code. That application was submitted in March, 2002 and we will hopefully have their response next year.  This is a long-term market for us.  We feel that over the next two years the market will develop significantly and demand for this new, non-invasive alternative for treating chronic pain will increase dramatically.

Our studies have shown that many patients see a significant reduction in their pain levels, use less pain medications and see improvement in their daily activities and sleep patterns which translates into significant savings for the insurance companies.  While not everyone benefits from STS treatments, those who do have achieved good relief.  The patients really like the Rx unit that allows them to treat at home whenever it is convenient and as often as necessary. 

Ceocfointerviews: How are you controlling inventory?

Mr. Cullimore: We feel we have struck a reasonable balance of maintaining enough products on hand in order to limit the number of back orders without being overstocked.  We feel good about the quality of our inventory and our inventory control methods.  Part of the ISO 9001 certification of quality systems requires that we maintain well-documented systems throughout the company.  We feel we have a well-documented inventory control system with employees fully trained on proper procedures. 

Ceocfointerviews: Can people easily access your products via the Internet?

Mr. Cullimore: Yes.  They can access information about the company and products at www.dynatronics.com and obtain current information on the company and our products.

Ceocfointerviews: How about online purchasing?

Mr. Cullimore: We do not yet have online purchasing available.  The demand for that service has not been high among our dealers.  Those dealers place large orders and are accustomed to the high level of service we provide.  However, we are working with them to set up programs online that can create greater efficiencies and reduce transaction costs for each side.

Ceocfointerviews: The products you have on hand, were they purchased from another companies or were they done internally through R&D?

Mr. Cullimore:  The majority of our revenue and profit margin is from manufactured products developed in-house.  However, most of the 1,200 products listed in our catalog are distributed items.  This helps us become a one-stop shop for our customers.  Distributed products are handled primarily by the Tennessee warehouse facility.

Ceocfointerviews: Acquisitions, partnerships, joint ventures, are these in your foreseeable future?

Mr. Cullimore: Yes, we acquired our Chattanooga facility in 1996 and we have other strategic partnerships that were entered into subsequent to that.  We certainly have high expectations that we will continue to perform well and that our performance will be recognized in the value of the stock.   As the stock price goes up, we will be able to use stock as currency for additional acquisitions.

Ceocfointerviews: Does this company have the cash and or credit to go forward with strategic plans?

Mr. Cullimore: We do.  We have a very strong balance sheet.  We have current ratio in excess of 2 to 1 and a significant amount of credit available to us from our lenders.  Dynatronics has been profitable fifteen out of the last sixteen years.  Our credit history is excellent and our performance history is good.  The company has tripled from just under $5 million in sales in 1994 to over $16 million in sales last year.  We are excited about the base we are building.

Ceocfointerviews: I think that the international area that you are now entering because of the Olympics is definitely a plus.

Mr. Cullimore: We anticipate our international sales will take time but ultimately add nicely to the bottom line.  We continue to be patient and work hard to develop product variations for the international market.

Ceocfointerviews: Is there anything that I may have missed or overlooked about the company?

Mr. Cullimore: Our management team is strong and experienced.  We have worked together well for many years.  Shareholders will probably want to be aware that I, as President of the company, am the largest shareholder in the company so my future and financial fortunes are inextricably linked to theirs.  Our goal is to insure we create shareholder value.

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