UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-12697
Dynatronics Corporation
Utah | 87-0398434 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1200 Trapp Road, Eagan, Minnesota 55121
(Address of principal executive offices, Zip Code)
(801) 568-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
Common Stock, no par value per share | DYNT | The NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-TST (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑Yes
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednonaccelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-212b2 of the Exchange Act. (Check one)
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b2 of the Exchange Act).
Yes ☐ No ☑
Indicate the number of shares outstanding of each of the registrant’sissuer's classes of common stock, no par value, as of the latest practicable date:
As of February 2, 2018 was 7,934,262.
DYNATRONICS CORPORATION
FOR THE QUARTERLY PERIOD ENDED DecemberDECEMBER 31, 2017
TABLE OF CONTENTS
1 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, 2023 | June 30, 2023 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 401,107 | $ | 398,797 | ||
Restricted cash | 154,073 | 154,073 | ||||
Trade accounts receivable, less allowance for doubtful accounts of $99,630 and $131,403 as of December 31, 2023 and June 30, 2023, respectively | 3,737,876 | 3,721,677 | ||||
Other receivables | 483,561 | 39,678 | ||||
Inventories, net | 6,753,064 | 7,403,194 | ||||
Prepaid expenses | 1,364,912 | 701,456 | ||||
Total current assets | 12,894,593 | 12,418,875 | ||||
Property and equipment, net | 2,296,582 | 2,448,282 | ||||
Operating lease assets | 3,133,712 | 3,631,780 | ||||
Intangible assets, net | 3,309,125 | 3,618,275 | ||||
Goodwill | 7,116,614 | 7,116,614 | ||||
Other assets | 548,291 | 829,049 | ||||
Total assets | $ | 29,298,917 | $ | 30,062,875 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 3,974,681 | $ | 4,529,703 | ||
Accrued payroll and benefits expense | 602,964 | 877,781 | ||||
Accrued expense | 1,094,105 | 891,467 | ||||
Warranty reserve | 126,259 | 115,637 | ||||
Line of credit | 1,897,322 | - | ||||
Current portion of finance lease liability | 294,645 | 286,522 | ||||
Current portion of deferred gain | 150,448 | 150,448 | ||||
Current portion of operating lease liability | 1,019,638 | 1,075,690 | ||||
Other liabilities | 13,746 | 13,744 | ||||
Total current liabilities | 9,173,808 | 7,940,992 | ||||
Finance lease liability, net of current portion | 1,582,487 | 1,731,868 | ||||
Deferred gain, net of current portion | 702,090 | 777,314 | ||||
Operating lease liability, net of current portion | 2,114,075 | 2,554,450 | ||||
Other liabilities | 196,676 | 201,725 | ||||
Total liabilities | 13,769,136 | 13,206,349 | ||||
Commitments and contingencies | ||||||
Stockholders' equity: | ||||||
Preferred stock, no par value: Authorized 50,000,000 shares; 3,351,000 shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively | 7,980,788 | 7,980,788 | ||||
Common stock, no par value: Authorized 100,000,000 shares; 4,530,837 shares and 4,044,984 shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively | 34,758,943 | 34,355,315 | ||||
Accumulated deficit | (27,209,950 | ) | (25,479,577 | ) | ||
Total stockholders' equity | 15,529,781 | 16,856,526 | ||||
Total liabilities and stockholders' equity | $ | 29,298,917 | $ | 30,062,875 |
See accompanying notes to condensed consolidated financial statements.
2
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Net sales | $ | 8,151,351 | $ | 10,882,557 | $ | 17,503,266 | $ | 22,935,758 | ||||
Cost of sales | 6,331,496 | 7,820,371 | 13,377,345 | 16,230,732 | ||||||||
Gross profit | 1,819,855 | 3,062,186 | 4,125,921 | 6,705,026 | ||||||||
Selling, general, and administrative expenses | 2,721,567 | 3,861,706 | 5,267,122 | 7,979,539 | ||||||||
Operating loss | (901,712 | ) | (799,520 | ) | (1,141,201 | ) | (1,274,513 | ) | ||||
Other income (expense): | ||||||||||||
Interest expense, net | (110,443 | ) | (37,941 | ) | (190,126 | ) | (69,396 | ) | ||||
Other income, net | - | 624 | - | 1,146 | ||||||||
Net other income (expense) | (110,443 | ) | (37,317 | ) | (190,126 | ) | (68,250 | ) | ||||
Loss before income taxes | (1,012,155 | ) | (836,837 | ) | (1,331,327 | ) | (1,342,763 | ) | ||||
Income tax benefit (provision) | 739 | (4,030 | ) | (10,743 | ) | (4,030 | ) | |||||
Net loss | $ | (1,011,416 | ) | $ | (840,867 | ) | $ | (1,342,070 | ) | $ | (1,346,793 | ) |
Preferred stock dividend, in common stock, issued or to be issued | (191,244 | ) | (173,128 | ) | (388,302 | ) | (343,704 | ) | ||||
Net loss attributable to common stockholders | $ | (1,202,660 | ) | $ | (1,013,995 | ) | $ | (1,730,372 | ) | $ | (1,690,497 | ) |
Net loss per common share: | ||||||||||||
Basic and diluted | $ | (0.27 | ) | $ | (0.27 | ) | $ | (0.39 | ) | $ | (0.45 | ) |
Weighted average shares outstanding: | ||||||||||||
Basic and diluted | 4,524,965 | 3,794,333 | 4,393,279 | 3,750,930 |
See accompanying notes to condensed consolidated financial statements.
3
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Common stock | Preferred stock | Accumulated | Totalstockholders' | |||||||||||||||
Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||
Balance at June 30, 2022 | 3,639,663 | $ | 33,533,003 | 3,351,000 | $ | 7,980,788 | $ | (19,815,233 | ) | $ | 21,698,558 | |||||||
Stock-based compensation | 16,901 | 60,401 | - | - | - | 60,401 | ||||||||||||
Preferred stock dividend, in common stock, issued or to be issued | 59,687 | 170,576 | - | - | (170,576 | ) | - | |||||||||||
Net loss | - | - | - | - | (505,926 | ) | (505,926 | ) | ||||||||||
Balance at September 30, 2022 | 3,716,251 | 33,763,980 | 3,351,000 | 7,980,788 | (20,491,735 | ) | 21,253,033 | |||||||||||
Stock-based compensation | 11,521 | 25,955 | - | - | - | 25,955 | ||||||||||||
Preferred stock dividend, in common stock, issued or to be issued | 68,838 | 173,128 | - | - | (173,128 | ) | - | |||||||||||
Net loss | - | - | - | - | (840,867 | ) | (840,867 | ) | ||||||||||
Balance at December 31, 2022 | 3,796,610 | 33,963,063 | 3,351,000 | 7,980,788 | (21,505,730 | ) | 20,438,121 | |||||||||||
Stock-based compensation | 5,154 | 22,848 | - | - | - | 22,848 | ||||||||||||
Preferred stock dividend, in common stock, issued or to be issued | 88,762 | 174,873 | - | - | (174,873 | ) | - | |||||||||||
Net loss | - | - | - | - | (1,245,493 | ) | (1,245,493 | ) | ||||||||||
Balance at March 31, 2023 | 3,890,526 | 34,160,784 | 3,351,000 | 7,980,788 | (22,926,096 | ) | 19,215,476 | |||||||||||
Adjustment for fractional shares | 7,224 | - | - | - | - | - | ||||||||||||
Stock-based compensation | 156 | 22,132 | - | - | - | 22,132 | ||||||||||||
Preferred stock dividend, in common stock, issued or to be issued | 147,078 | 172,399 | - | - | (172,399 | ) | - | |||||||||||
Net loss | - | - | - | - | (2,381,082 | ) | (2,381,082 | ) | ||||||||||
Balance at June 30, 2023 | 4,044,984 | 34,355,315 | 3,351,000 | 7,980,788 | (25,479,577 | ) | 16,856,526 | |||||||||||
Stock-based compensation | 13,399 | 19,173 | - | - | - | 19,173 | ||||||||||||
Preferred stock dividend, in common stock, issued or to be issued | 201,656 | 197,059 | - | - | (197,059 | ) | - | |||||||||||
Net loss | - | - | - | - | (330,654 | ) | (330,654 | ) | ||||||||||
Balance at September 30, 2023 | 4,260,039 | 34,571,547 | 3,351,000 | 7,980,788 | (26,007,290 | ) | 16,545,045 | |||||||||||
Stock-based compensation | 8,080 | (3,848 | ) | - | - | - | (3,848 | ) | ||||||||||
Preferred stock dividend, in common stock, issued or to be issued | 262,718 | 191,244 | - | - | (191,244 | ) | - | |||||||||||
Net loss | - | - | - | - | (1,011,416 | ) | (1,011,416 | ) | ||||||||||
Balance at December 31, 2023 | 4,530,837 | $ | 34,758,943 | 3,351,000 | $ | 7,980,788 | $ | (27,209,950 | ) | $ | 15,529,781 |
See accompanying notes to condensed consolidated financial statements.
4
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended December 31, | ||||||
2023 | 2022 | |||||
Cash flows from operating activities: | ||||||
Net loss | $ | (1,342,070 | ) | $ | (1,346,793 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization of property and equipment | 342,367 | 368,557 | ||||
Amortization of intangible assets | 309,150 | 313,301 | ||||
Loss on sale of property | 41,389 | - | ||||
Stock-based compensation | 15,325 | 86,356 | ||||
Change in allowance for doubtful accounts receivable | (31,773 | ) | (50,777 | ) | ||
Change in allowance for inventory obsolescence | 89,687 | (75,304 | ) | |||
Amortization of deferred gain on sale/leaseback | (75,224 | ) | (75,224 | ) | ||
Change in operating assets and liabilities: | ||||||
Trade accounts receivable | 15,574 | 235,978 | ||||
Inventories | 560,443 | 1,400,659 | ||||
Prepaid expenses and other receivables | (1,107,339 | ) | 117,548 | |||
Other assets | 280,758 | 16,104 | ||||
Accounts payable, accrued expenses, and other current liabilities | (621,626 | ) | (698,743 | ) | ||
Net cash (used in) provided by operating activities | (1,523,339 | ) | 291,662 | |||
Cash flows from investing activities: | ||||||
Purchase of property and equipment | (230,415 | ) | (126,465 | ) | ||
Net cash used in investing activities | (230,415 | ) | (126,465 | ) | ||
Cash flows from financing activities: | ||||||
Principal payments on long-term debt | - | (5,118 | ) | |||
Principal payments on finance lease liability | (141,258 | ) | (175,902 | ) | ||
Net change in line of credit | 1,897,322 | - | ||||
Net cash provided by (used in) financing activities | 1,756,064 | (181,020 | ) | |||
Net change in cash and cash equivalents and restricted cash | 2,310 | (15,823 | ) | |||
Cash and cash equivalents and restricted cash at beginning of the period | 552,870 | 701,317 | ||||
Cash and cash equivalents and restricted cash at end of the period | $ | 555,180 | $ | 685,494 | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | 302,546 | $ | 93,789 | ||
Supplemental disclosure of non-cash investing and financing activities | ||||||
Preferred stock dividend, in common stock, issued or to be issued | $ | 388,303 | $ | 343,704 | ||
Operating lease right-of-use assets obtained in exchange for lease obligations | 35,181 | 2,148,738 | ||||
Finance lease right-of-use assets obtained in exchange for lease obligations | - | 86,119 |
See accompanying notes to condensed consolidated financial statements.
5
DYNATRONICS CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2023
Note 1. Presentation and Summary of Significant Accounting Policies
Business
Dynatronics Corporation (the "Company," or "Dynatronics") is a leading medical device company committed to providing high-quality restorative products designed to accelerate achieving optimal health. The Company designs, manufactures, and sells a broad range of products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals.
DYNATRONICS CORPORATION | ||
Condensed Consolidated Balance Sheets | ||
(Unaudited) | ||
Assets | December 31, 2017 | June 30, 2017 |
Current assets: | ||
Cash and cash equivalents | $3,652,342 | $254,705 |
Trade accounts receivable, less allowance for doubtful accounts of $383,356 as of December 31, 2017 and $382,333 as of June 30, 2017 | 7,385,608 | 5,281,348 |
Other receivables | 139,366 | 33,388 |
Inventories, net | 11,605,299 | 7,397,682 |
Prepaid expenses | 893,933 | 503,800 |
Total current assets | 23,676,548 | 13,470,923 |
Property and equipment, net | 5,970,836 | 4,973,477 |
Intangible assets, net | 7,516,028 | 2,754,118 |
Goodwill | 7,872,863 | 4,302,486 |
Other assets | 532,611 | 562,873 |
Total assets | $45,568,886 | $26,063,877 |
Liabilities and Stockholders' Equity | ||
Current liabilities: | ||
Accounts payable | $4,451,050 | $2,334,563 |
Accrued payroll and benefits expense | 1,358,754 | 1,472,773 |
Accrued expenses | 878,300 | 656,839 |
Income tax payable | 9,654 | 8,438 |
Warranty reserve | 205,850 | 202,000 |
Line of credit | 6,742,979 | 2,171,935 |
Current portion of long-term debt | 158,954 | 151,808 |
Current portion of capital lease | 199,300 | 193,818 |
Current portion of deferred gain | 150,448 | 150,448 |
Current portion of acquisition holdback | 430,624 | 294,744 |
Total current liabilities | 14,585,913 | 7,637,366 |
Long-term debt, net of current portion | 386,632 | 461,806 |
Capital lease, net of current portion | 2,986,689 | 3,087,729 |
Deferred gain, net of current portion | 1,604,777 | 1,680,001 |
Acquisition holdback and earn out liability, net of current portion | 2,716,667 | 750,000 |
Deferred rent | 138,513 | 122,585 |
Total liabilities | 22,419,191 | 13,739,487 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, no par value: Authorized 50,000,000 shares; 4,889,000 shares and 3,559,000 shares issued and outstanding as of December 31, 2017 and June 30, 2017, respectively | 11,641,816 | 8,501,295 |
Common stock, no par value: Authorized 100,000,000 shares; 7,864,715 shares and 4,653,165 shares issued and outstanding as of December 31, 2017 and June 30, 2017, respectively | 19,802,351 | 11,838,022 |
Accumulated deficit | (8,294,472) | (8,014,927) |
Total stockholders' equity | 23,149,695 | 12,324,390 |
Total liabilities and stockholders' equity | $45,568,886 | $26,063,877 |
See accompanying notes to condensed consolidated financial statements. |
DYNATRONICS CORPORATION | ||||
Condensed Consolidated Statements of Operations | ||||
(Unaudited) | ||||
Three Months Ended | Six Months Ended | |||
December 31 | December 31, | |||
2017 | 2016 | 2017 | 2016 | |
Net sales | $18,081,333 | $8,713,355 | $30,879,304 | $16,876,089 |
Cost of sales | 12,311,354 | 5,640,048 | 20,769,933 | 11,008,094 |
Gross profit | 5,769,979 | 3,073,307 | 10,109,371 | 5,867,995 |
Selling, general, and administrative expenses | 5,109,809 | 2,851,236 | 8,932,511 | 5,615,594 |
Research and development expenses | 553,487 | 309,476 | 805,336 | 588,360 |
Operating profit (loss) | 106,683 | (87,405) | 371,524 | (335,959) |
Other income (expense): | ||||
Interest expense, net | (103,706) | (63,408) | (180,514) | (122,728) |
Other income, net | 11,371 | 55,494 | 21,985 | 77,735 |
Net other expense | (92,335) | (7,914) | (158,529) | (44,993) |
Income (loss) before income taxes | 14,348 | (95,319) | 212,995 | (380,952) |
Income tax (provision) benefit | - | - | - | - |
Net income (loss) | 14,348 | (95,319) | 212,995 | (380,952) |
Deemed dividend on convertible preferred stock and accretion of discount | (1,023,786) | (375,858) | (1,023,786) | (375,858) |
Preferred stock dividend, cash | (104,884) | - | (104,884) | - |
Convertible preferred stock dividend, in common stock | (200,594) | (88,792) | (387,655) | (177,777) |
Net loss attributable to common stockholders | $(1,314,916) | $(559,969) | $(1,303,330) | $(934,587) |
Basic and diluted net loss per common share | $(0.23) | $(0.19) | $(0.25) | $(0.33) |
Weighted-average common shares outstanding: | ||||
Basic and diluted | 5,735,159 | 2,881,111 | 5,241,604 | 2,861,299 |
See accompanying notes to condensed consolidated financial statements. |
DYNATRONICS CORPORATION | ||
Condensed Consolidated Statements of Cash Flows | ||
(Unaudited) | ||
Six Months Ended | ||
December 31 | ||
2017 | 2016 | |
Cash flows from operating activities: | ||
Net income (loss) | $212,995 | $(380,952) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization of property and equipment | 184,010 | 106,098 |
Amortization of intangible assets | 254,090 | 15,340 |
Amortization of other assets | 40,681 | 60,069 |
Amortization of building capital lease | 125,967 | 125,967 |
Gain on sale of property and equipment | (5,197) | (19,252) |
Stock-based compensation expense | 117,073 | 102,989 |
Change in allowance for doubtful accounts receivable | (6,978) | 48,073 |
Change in allowance for inventory obsolescence | 49,739 | 42,751 |
Deferred gain on sale/leaseback | (75,224) | (75,224) |
Change in operating assets and liabilities: | ||
Receivables, net | 33,546 | 62,135 |
Inventories, net | (120,175) | (630,132) |
Prepaid expenses | (297,144) | (174,016) |
Other assets | (10,419) | (18,799) |
Income tax payable | (1,236) | 1,066 |
Accounts payable and accrued expenses | 1,175,114 | 684,319 |
Net cash provided by (used in) operating activities | 1,676,842 | (49,568) |
Cash flows from investing activities: | ||
Purchase of property and equipment | (84,494) | (36,818) |
Net cash paid in acquisition, net of cash received - see Note 2 | (9,063,017) | - |
Proceeds from sale of property and equipment | 10,355 | 32,000 |
Net cash provided by (used in) investing activities | (9,137,156) | (4,818) |
Cash flows from financing activities: | ||
Principal payments on long-term debt | (68,028) | (84,239) |
Principal payments on long-term capital lease | (95,558) | (90,373) |
Payment of acquisition holdbacks | (44,744) | - |
Net change in line of credit | 4,571,044 | - |
Proceeds from issuance of preferred stock, net | 6,600,121 | 928,554 |
Preferred stock dividends paid in cash | (104,884) | - |
Net cash provided by (used in) financing activities | 10,857,951 | 753,942 |
Net change in cash and cash equivalents | 3,397,637 | 699,556 |
Cash and cash equivalents at beginning of the period | 254,705 | 966,183 |
Cash and cash equivalents at end of the period | $3,652,342 | $1,665,739 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | $172,893 | $124,797 |
Supplemental disclosure of non-cash investing and financing activity: | ||
Deemed dividend on convertible preferred stock and accretion of discount | $1,023,786 | $375,858 |
Preferred stock dividends paid or to be paid in common stock | 387,655 | 187,901 |
Preferred stock issued to acquire "Bird & Cronin" | 4,000,000 | - |
Acquisition holdback | 2,147,291 | - |
Conversion of preferred stock to common stock | 7,459,600 | - |
Accrued compensation paid in common stock | - | 26,388 |
See accompanying notes to condensed consolidated financial statements. |
Reverse Stock Split
On November 17, 2022, the Company's shareholders approved Articles of Presentation
Unless noted, all common shares and per share amounts contained in the condensed consolidated financial statements and management's discussion and analysis have been retroactively adjusted to reflect a one-for-five reverse stock split.
Proposed 2023 Reverse Stock Split
On October 9, 2023, the board of operations fordirectors unanimously approved and recommended that the threeCompany's shareholders (including holders of our Series A 8% Convertible Preferred Stock and six months endedSeries B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to the Amended and Restated Articles of Incorporation to effect a reverse stock split of the Company's common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 31, 20177, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and 2016,timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of cash flows for the six months ended December 31, 2017 and 2016, were(the "Condensed Consolidated Financial Statements") have been prepared by Dynatronics Corporationthe Company in accordance with generally accepted accounting principles in the United States ("GAAP") and its subsidiaries (collectively, the “Company”) without audit pursuant to the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”(the "SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to suchthe rules and regulations.regulations of the SEC. As such, these Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10K for the fiscal year ended June 30, 2023 (the "Annual Report") filed with the SEC on September 28, 2023. The Condensed Consolidated Balance Sheet at June 30, 2023, has been derived from the Annual Report.
The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Basis of Presentation and Summary of Accounting Policies, of the Notes to Financial Statements included in the Company's Annual Report. In the opinion of management, the Condensed Consolidated Financial Statements contain all necessary adjustments, which consistconsisting only of normal recurring adjustments, to the financial statements have been madenecessary to present fairly the Company’sCompany's financial position as of December 31, 2023 and its results of operations and its cash flows.flows for the periods presented. The results of operations for the first three and six months ended December 31, 2017,of the fiscal year are not necessarily indicative of the results of operations that may be expected for the full year or any future periods.
The Company's fiscal year begins on July 1 and ends on June 30 and references made to "fiscal year 2024" and "fiscal year 2023" refer to the Company's fiscal year ending June 30, 2018. The Company previously filed with2024 and the SEC an Annual Report on Form 10-K (the “2017 Form 10-K”) which included audited financial statements for each of the yearsfiscal year ended June 30, 2017 and 2016. It is suggested that the financial statements contained in this Form 10-Q be read in conjunction with the financial statements and notes thereto contained in the 2017 Form 10-K.2023, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuerevenues and expenses during the period.reporting periods presented.
The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates. Someestimates and assumptions.
Other Receivables
Other receivables consist of amounts due from our contract manufacturer for doubtful accounts, stock-based compensation and valuation allowanceraw materials components provided for deferred income taxes.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 202006, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company acquired substantially all of the assets of Bird & Cronin, Inc. (“B&C”), a manufacturer and distributor of orthopedic soft goods and specialty patient care products. The transaction is referred to as the “Acquisition”. The Acquisition will expand the Company’s sales in the orthopedicfirst quarter of fiscal year 2025 and patient care markets by leveraging the products and distribution network offered by B&C.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with Dynatronicsan expected credit loss model and requires a financial asset measured at Closing including the Co-Presidents of B&C, Mike Cronin and Jason Anderson, who entered into employment agreements to serve as Co-Presidents of Bird & Cronin, LLC, the Company’s wholly-owned subsidiary that conducts the operations acquired in the Acquisition.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) -Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for tax purposes.
Net Sales | Net Income (loss) | |
Unaudited supplemental pro forma July 1, 2017 to December 31, 2017 | $37,337,488 | $259,644 |
Unaudited supplemental pro forma July 1, 2016 to June 30, 2017 | $60,027,677 | $(285,951) |
Note 2. Net income (loss)Loss per Common Share
Net loss per common share is computed based on the weighted-averageweightedaverage 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 (loss)loss per common share does not assume exercise or conversion of securities that would have an anti-dilutiveantidilutive effect.
Basic net income (loss)loss per common share is the amount of net income (loss)loss for the period available to each weighted-averageweightedaverage share of common stock outstanding during the reporting period. Diluted net income (loss)loss per common share is the amount of net income (loss)loss for the period available to each weighted-averageweightedaverage 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-dilutiveantidilutive effect.
All outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net loss per common share because they were anti-dilutive,are antidilutive, which for the three months ended December 31, 2017,2023 and 2016,2022, totaled 13,838,859695,700 and 5,148,398,1,555,615 respectively, and for the six months ended December 31, 2017,2023 and 2016,2022, totaled 12,114,132695,700 and 5,148,398,1,562,900, respectively.
Note 3. Convertible Preferred Stock (the “Series B Preferred”).
As of December 31, 2017,2023, the Company had issued and outstanding a total of 3,459,0001,992,000 shares of Series A 8% Convertible Preferred Stock (the “("Series A Preferred") and 1,359,000 shares of Series B Convertible Preferred Stock ("Series B Preferred"). The Series A Preferred”) and Series B Preferred outstanding.are convertible into a total of 670,200 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.cash at the option of the Company. The Company generally pays the dividends inon the preferred stock by issuing shares of its common stock. The formula for paying this dividendthese dividends using common stock in common stocklieu 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.
In connection with the Acquisition of B&C on October 2, 2017,January 2024, the Company issued 2,800,000 sharespaid $191,244 of preferred stock dividends with respect to the Series C Preferred with common stock warrants (“Series C Warrants”) and 1,581,935 shares of its Series D Preferred. The Series C Warrants have an exercise price of $2.75 per share of common stock and a term of six years. They may not be exercised unless and until shareholder approval has been obtained. Each share of Series CA Preferred and Series DB Preferred was convertible into one share of common stock of the Company automatically upon, but not before receipt of shareholder approval required under applicable Nasdaq Marketplace Rules. A holder of Series C Preferred was able elect to retain the Series C Preferred and not convert, subject to future beneficial ownership limitations and loss of preferential rights. At the Company’s 2017 Annual Meeting of Shareholders, held on November 29, 2017, the Company sought and obtained shareholder approval as described above. On November 29, 2017, the Company issued 1,360,000 shares of Common Stock in conversion of a portion of the Series C Preferred and 1,581,935 shares of Common Stock in conversion of all of the Series D Preferred. As of December 31, 2017, the Company had 1,440,000 shares of Series C Preferred outstanding. The Series C Preferred shares are non-voting, do not receive dividends, and have no liquidation preferences or redemption rights.
Note 4. Inventories
Inventories consisted of the following:
December 31, 2023 | June 30, 2023 | |||||
Raw materials | $ | 4,734,308 | $ | 4,693,634 | ||
Work in process | 53,813 | 66,359 | ||||
Finished goods | 2,550,560 | 3,139,131 | ||||
Inventory reserve | (585,617 | ) | (495,930 | ) | ||
$ | 6,753,064 | $ | 7,403,194 |
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December 31, 2017 | June 30, 2017 | |
Raw materials | $6,332,413 | $3,766,940 |
Work in process | 421,861 | 470,721 |
Finished goods | 5,303,501 | 3,562,758 |
Inventory obsolescence reserve | (452,476) | (402,737) |
$11,605,299 | $7,397,682 |
Note 5. Debt
As of December 31, 2023 and June 30, 2023, the line of credit was $1,897,322 and $0, respectively.
On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $7,500,000 (the "Revolving Loan Commitment") and bear interest at SOFR plus 5.00%. The Company paid a closing fee of 1.00% of the Revolving Loan Commitment and the line is subject to a monthly unused line fee in an annualized amount equal to 0.50% on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the Revolving Loans for such month. The maturity date is three years from the date of the promissory note evidencing the Revolving Loans, subject to extension in accordance with the terms of the Loan Agreement.
The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis.
The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing).
The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of 1.0 to 1.0 if excess availability is less than $1,000,000 of the borrowing base.
Note 6. 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-partyrelatedparty transactions totaled approximately $257,400$332,989 and $17,700$249,366 for the three months ended December 31, 20172023 and 2016,2022, respectively, and $365,400$666,938 and $35,400$498,732 for the six months ended December 31, 20172023 and 2016,2022, respectively.
Note 7. Revenue
As of December 31, 2017,2023 and June 30, 2017,2023, the holdbacknet rebate liability to Hausmann under the purchase agreement was $1,000,000$360,314 and $1,045,000,$191,459, respectively. Certain principals of Hausmann are holders of the Company’s Series B Preferred and one of the principals, David Hausmann,The rebate liability is an employee of the Company.
The following table disaggregates revenue by major product category for the three and six months ended December 31, 2017.The final transition impacts31:
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Physical Therapy and Rehabilitation Products | $ | 4,145,315 | $ | 6,365,220 | $ | 8,975,052 | $ | 12,663,556 | ||||
Orthopedic Soft Bracing Products | 3,984,668 | 4,488,550 | 8,484,352 | 10,221,389 | ||||||||
Other | 21,368 | 28,787 | 43,862 | 50,813 | ||||||||
$ | 8,151,351 | $ | 10,882,557 | $ | 17,503,266 | $ | 22,935,758 |
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CAUTIONARY NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS
This report, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the registrant was not able to complete the accounting required under ASC 740 in a timely manner. For discussion of the impacts of the Tax Act, refer to Note 9.
We have based our forwardlooking statements on management's current expectations and assumptions about future events and trends affecting our business and industry that are subject to risks and uncertainties. Although we do not make forwardlooking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forwardlooking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance revenue and expense levels in the future and the sufficiency of existing assets to fund future operations and capital spending needs. Actual results could differ materially from the anticipatedour historical results or those expressed or implied in any forwardlooking statement contained in this report. These risks and uncertainties include, but are not limited to, uncertainties related to the broader economic environment affecting communities and businesses globally, including ours, as well as those factors described in the section "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10K for the fiscal year ended June 30, 2023, filed with the SEC, as well as in our other expectations expressedpublic filings with the SEC. Actual results may differ from projections as a result of these risks, additional risks and uncertainties of which we are currently unaware or which we do not currently view as material to our business.
You should read this report in such forward-looking statements.its entirety, together with the documents that we file as exhibits to this report and the documents that we incorporate by reference into this report, with the understanding that our future results may be materially different from what we currently expect. The forward-lookingforwardlooking statements contained in this report are made as of the date of this report and we assume no obligation to update them after the date hereof to revise or conform such statements to actual results or to changes in our opinions or expectations. If we do update or correct any forwardlooking statements, investors should not conclude that we will make additional updates or corrections.
We qualify all of our forwardlooking statements by these cautionary statements.
The terms "we," "us," "Dynatronics," or the reasons why actual results could differ from those projected in such forward-looking statements, except as required by law.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") designs, manufacturesis designed to provide a reader of our Unaudited Condensed Consolidated Financial Statements and distributes advanced-technology therapeutic medical devices, therapeutic and medical treatment tables, rehabilitation equipment, custom athletic training treatment tables and equipment, institutional cabinetry, orthopedic soft goods, as well as other rehabilitation and therapy products and supplies. ThroughNotes thereto that are contained in this quarterly report, with a narrative from the perspective of management. You should also consider this information with the information included in our various distribution channels, we market and sell our products to physical therapists, chiropractors, athletic trainers, sports medicine practitioners, orthopedists, and other medical professionals, hospitals, and institutions. We operateAnnual Report on aForm 10K for the fiscal year endingended June 30, 2023, and our other filings with the SEC, including our quarterly and current reports that we have filed since June 30, 2023 through the date of this report. In the following MD&A, we have rounded many numbers to the nearest one thousand dollars. These numbers should be read as approximate. All intercompany transactions have been eliminated. Our fiscal year ends on June 30. For example, reference to fiscal year 20182024 refers to the year ending June 30, 2018.
Overview
Dynatronics is a leading medical device company committed to providing high-quality restorative products designed to accelerate achieving optimal health. The Company designs, manufactures, and sells a broad range of the newly acquiredproducts for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals. The Company's products are marketed under a portfolio of high-quality, well-known industry brands including Bird & Cronin®, Solaris™, Hausmann®, and Cronin division. In connection with that acquisition, we filed a Current Report on Form 8-K on October 6, 2017.
Results of Operations
Net Sales
Net sales increased $9,368,000,decreased $2,732,000, or 107.5%,25.1% to $18,081,000$8,151,000 for the quarter ended December 31, 2017,2023, compared to net sales of $8,713,000$10,883,000 for the quarter ended December 31, 2016. The year-over-year increase in net2022. Net sales for the quarter ended December 31, 2017 was driven by our acquisitions of Hausmann in April 2017 and Bird & Cronin in October 2017, that contributed $4,368,000 and $5,698,000, respectively, in net sales in the quarter ended December 31, 2017. These increases were partially offset by a decrease of approximately $699,000,decreased $5,433,000, or 8.0%, in net sales from Dynatronics’ legacy operations. Included in the quarter ended December 31, 2016 was a $517,000 non-recurring order that accounts23.7% to $17,503,000 for the majority of the $699,000 sales differential between the two comparative quarters.
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Gross Profit
Gross profit for the quarter ended December 31, 2017 increased
Selling, General and Administrative Expenses
Selling, general and administrative (“("SG&A”&A") expenses increased $2,259,000,decreased $1,140,000, or 79.2%29.5%, to $5,110,000$2,722,000 for the quarter ended December 31, 2017,2023, compared to $2,851,000$3,862,000 for the quarter ended December 31, 2016. Selling expenses in the current quarter represented $691,000 of the $2,259,000 increase in SG&A expenses. Increases2022. The decline in selling, expenses included the addition of $858,000 of expenses associated with Hausmann and Bird & Cronin operations, partially offset by $167,000 lower selling costs in Dynatronics’ legacy operations comprised primarily of reduced commissions on lower sales. Generalgeneral and administrative (“G&A”) expenses represented $1,567,000was driven by a decrease of $801,000 in salaries and benefits with the $2,259,000 increase in balance of $339,000 spread across other professional services.
SG&A expenses for the quarter ended December 31, 2017. Increases in G&A expenses included the addition of $1,623,000 in G&A expenses from Hausmann’s and Bird & Cronin’s operations, partially offset by $56,000 in decreased G&A expenses in Dynatronics’ legacy operations. G&A expenses included approximately $100,000 in acquisition related expenses during the current quarter.
Net Other Income (Expense)
Net other expense for the quarter ended December 31, 2023, was $110,000 compared to net other expense of selling expenses associated with Hausmann and Bird & Cronin operations, partially offset by $202,000 lower selling costs in Dynatronics’ legacy operations comprised primarily of lower commissions on lower sales. G&A expenses represented $2,349,000 of$37,000 for the $3,317,000 increase in SG&A expensesquarter ended December 31, 2022. Net other expense for the six months ended December 31, 2017. Included in G&A expenses were $2,263,000 from Hausmann’s operations and Bird & Cronin’s operations, and $86,000 from Dynatronics’ legacy operations. G&A expenses included $314,000 in acquisition expenses in the six months ended December 31, 2017.
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Income Tax Benefit (Provision)
Income tax benefit (provision) was $1,000 and ($4,000) for the quarters ended December 31, 2016. The increases in both the quarter2023 and six months ended December 31, 2017 were driven by $325,000 in costs incurred on a project which was abandoned during the quarter ended December 31, 2017, offset by a reduction in other R&D expenses of approximately $81,0002022, respectively, and $108,000 for the quarter($11,000) and six months, respectively, ended December 31, 2017.
Net Loss
Net loss for the quarter ended December 31, 2023 was approximately $213,000,$1,011,000 compared to a pre-taxnet loss of $381,000$841,000 for the quarter ended December 31, 2022. The $170,000 increase in net loss was attributable to a decrease in gross profit of $1,242,000, an increase of $73,000 in other expense, and offset by a decrease of $1,140,000 in SG&A expenses and a $5,000 decrease in income tax provision.
Net loss for the six months ended December 31, 2016. The $594,000 improvement in pre-tax income for the six months2023 was primarily attributable to $4,241,000 higher gross profit, offset by $3,317,000 in increased SG&A expenses and $217,000 higher research and development expenses. These changes in both the quarter and six months ended December 31, 2017 were primarily attributable to components of Hausmann’s and Bird & Cronin’s results of operations offset by the $325,000 in costs related to the abandoned project in the second fiscal quarter and transaction related costs of $100,000 and $314,000 in the quarter and six months ended December 31, 2017, respectively.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders was $1,314,916 ($0.23 per share)increased $189,000 to $1,203,000 for the quarter ended December 31, 2017,2023 compared to $560,000 ($0.19 per share)$1,014,000 for the quarter ended December 31, 2016.2022. The $755,000 year-over-year increase in net loss attributable to common stockholders for the quarter is due primarily to approximately $217,000 of additional preferred stock dividends associated with 390,000 shares of Series A Preferred Stock issueda $170,000 increase in December 2016, 1,559,000 shares of Series B Preferred issued in April 2017,the net loss. On a per share basis, basic and 2,800,000 of Series C Preferred shares and 1,581,935 shares of Series D Preferred Shares issued in October 2017. The increase was alsodiluted net loss attributable to approximately $454,000 in additional deemed dividends and approximately $194,000 in accretion of discounts associated with the Series C Preferred shares and warrants issued in connection with the Bird & Cronin Acquisition in comparison to deemed dividends associated with Series A Preferred in December 2016. These increases were partially offset by $109,000 in higher net income incommon stockholders was $0.27 per share for the quarter ended December 31, 2017,2023, compared to $0.27 per share for the same quarter of the prior year.
Net loss attributable to common stockholders increased $368,000$40,000 to $1,303,330 ($0.25 per share)$1,730,000 for the six months ended December 31, 2017,2023 compared to $935,000 ($0.33 per share)$1,690,000 for the six months ended December 31, 2016. The decrease in2022. On a per share basis, basic and diluted net loss is dueattributable to approximately $594,000 in higher net income incommon stockholders was $0.39 per share for the six months ended December 31, 2017,2023, compared to $0.45 per share for the same period of the prior year, partially offset by $315,000 of additional preferred stock dividends associated with issuance of the same preferred shares described in the previous paragraph as well as an increase of approximately $454,000 in additional deemed dividends and approximately $194,000 in accretion of discounts associated with the Series C Preferred shares and warrants issued in connection with the Bird & Cronin Acquisition
Liquidity and Capital Resources
We have historically financed operations through cash from operating activities, available cash reserves, borrowings under a lineasset based lines of credit, facility (see, Line of Credit, below) and sales of equity securities. We expect to obtain capital for future acquisitions using borrowings and proceeds from debtthe sale of our equity securities. As of December 31, 2023, we had $401,000 in cash and equity offerings. cash equivalents, compared to $399,000 as of June 30, 2023.
Working capital was $9,091,000$3,721,000 as of December 31, 2017,2023, compared to working capital of $5,834,000$4,478,000 as of June 30, 2017.2023. The current ratio was 1.61.4 to 1 as of December 31, 20172023 and 1.81.6 to 1 as of June 30, 2017.
We believe that our cash generated from operations, current capital resources, and proceeds of equity sales, if any, under the ATM described below will provide sufficient liquidity to fund operations for the next 12 months. However, the continuing effects of uncertainties in the broader economic environment on the global supply chain, higher personnel costs, and changes to customer or product mix, could have an adverse effect on our liquidity and cash and we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. Additionally, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.
We are parties to an equity distribution agreement (as amended, the "Equity Distribution Agreement") with Canaccord Genuity LLC and Roth Capital Partners LLC (the "Agents"), pursuant to which we may offer and sell up to $3,875,000 of our common stock in one or more "at the market offerings" through the Agents under our Registration Statement on Form S3 (File No. 333-256280), which was declared effective by the SEC on July 1, 2021 (the "2021 Registration Statement"), subject to applicable limitations on the aggregate market value of securities that may be sold during any 12 calendar month period imposed by Form S-3 on registrants having an aggregate market value of securities of less than $75 million. Under the terms of the Equity Distribution Agreement, we have agreed to pay the Agents a fixed commission rate equal to 3.0% of the gross sale price per share of common stock sold. On April 7, 2023, we filed a prospectus supplement to the base prospectus included in the 2021 Registration Statement for the sale of up to $2,672,000 of our common stock pursuant to the terms of the Equity Distribution Agreement (the "ATM"). As of the date hereof, we have not commenced any sales under the ATM.
Line of Credit
As of December 31, 2023 and June 30, 2023, the line of credit was $1,897,000 and $0, respectively.
On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $7,500,000 (the "Revolving Loan Commitment") and bear interest at SOFR plus 5.00%. The Company paid a closing fee of 1.00% of the Revolving Loan Commitment and the line is subject to a monthly unused line fee in an annualized amount equal to 0.50% on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the Revolving Loans for such month. The maturity date is three years from the date of the promissory note evidencing the Revolving Loans, subject to extension in accordance with the terms of the Loan Agreement.
The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis.
The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing).
The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of 1.0 to 1.0 if excess availability is less than $1,000,000 of the borrowing base.
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Reverse Stock Split
On November 17, 2022, the Company's shareholders approved Articles of Amendment to the Company's Amended and Restated Articles of Incorporation (the "Articles of Amendment") to effect a reverse stock split at a ratio in the range of 1-for-2 to 1-for-5, with such ratio to be determined in the discretion of the Company's board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company's board of directors in its sole discretion. Thereafter, the Company's board of directors set the split ratio in the reverse stock split at 1-for-5 and approved and authorized the filing of the Articles of Amendment to effect the reverse stock split with the Utah Department of Commerce, Division of Corporations and Commercial Code. The Articles of Amendment and reverse stock split became effective at 5:00 p.m. Eastern Standard Time on February 1, 2023. At the effective time, every five issued and outstanding shares of common stock were converted into one share of common stock, with any fractional shares resulting from the reverse stock split rounded up to the nearest whole share. The reverse stock split did not affect the Company's authorized shares of common stock or preferred stock, which remained at 100,000,000 and 50,000,000 shares, respectively. The par value of each share of common stock remained unchanged. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at February 1, 2023, which resulted in a proportional decrease in the number of shares of the Company's common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. Additionally, the reverse stock split had no impact on the number of shares of the Company's preferred stock issued and outstanding. However, the conversion price of the outstanding preferred stock increased and the number of shares of common stock issuable upon conversion of such preferred stock decreased in proportion to the 1-for-5 split ratio.
Unless noted, all common shares and per share amounts contained in the condensed consolidated financial statements and management's discussion and analysis have been retroactively adjusted to reflect a one-for-five reverse stock split.
Proposed 2023 Reverse Stock Split
On October 9, 2023, our board of directors unanimously approved and recommended that our shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to our Amended and Restated Articles of Incorporation to effect a reverse stock split of our common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023.
Cash and Cash Equivalents
Our cash and cash equivalents and restricted cash position increased $3,397,000$2,000 to $3,652,000$555,000 as of December 31, 2017,2023, compared to $255,000$553,000 as of June 30, 2017.2023. The primary source of cash infor the six months ended December 31, 2017,2023 was approximately $1,677,000 net$1,897,000 of cash provided by the line of credit. The primary uses of cash included $1,523,000 of net cash used in operating activities, net borrowings$141,000 of $4,571,000 under our lineprincipal payments on finance lease liabilities, and $230,000 of creditpurchases of property and net proceeds of approximately $6,600,000 from sale of our Series C Preferred and warrants in connection with the Acquisition of Bird & Cronin.
Accounts Receivable
Trade accounts receivable, net of allowance for doubtful accounts, increased approximately $2,104,000,$16,000 or 39.8%0.4%, to $7,385,000$3,738,000 as of December 31, 2017,2023, from $5,281,000$3,722,000 as of June 30, 2017.2023. The increase was driven primarily due toby a reduction in overall revenue offset by differences in the additiontiming of collections around the Bird & Cronin that added $1,819,000 inend date of each respective quarter. Trade accounts receivable as of December 31, 2017.represents amounts due from our customers including dealers and distributors that purchase our products for redistribution, medical practitioners, clinics, hospitals, colleges, universities, and sports teams. We believe that our estimate of the allowance for doubtful accounts is adequate based on our historical experience and relationships with our customers. Accounts receivable are generally collected within approximately 3040 days of invoicing.
Inventories
Inventories, net of reserves, increased $4,207,000decreased $650,000 or 56.9%8.8%, to $11,605,000$6,753,000 as of December 31, 2017,2023, compared to $7,398,000$7,403,000 as of June 30, 2017.2023. The increasedecrease was driven byprimarily due to steps taken to adjust inventory management in response to the additionimpact of the Bird & Cronin subsidiary that had $4,707,000 of net inventory as of December 31, 2017. Inventory levels fluctuate baseduncertain operating environment on timing of large inventorythe global supply chain and right-sizing incoming material purchases from domestic and overseas suppliers as well as variations in sales and production activities.to match demand. We believe that our allowance for inventory obsolescence is adequate based on our analysis of inventory, sales trends, and historical experience.
Accounts Payable
Accounts payable increaseddecreased approximately $2,116,000$555,000 or 90.6%12.3%, to $4,451,000$3,975,000 as of December 31, 20172023, from $2,335,000$4,530,000 as of June 30, 2017.2023. The increasedecrease was driven primarily by the additiona decrease in inventory purchases and timing of the Bird & Cronin subsidiary that had $1,346,000 of accounts payable at December 31, 2017. The increase was also attributable to an increase in days payable from approximately 27 to 34.
Line of Credit
The outstanding balance of the line of credit balance increased $4,571,000 to $6,743,000was $1,897,000 as of December 31, 2017,2023, compared to $2,172,000$0 as of June 30, 2017. We drew $5,000,000 on September 29, 2017 in anticipation of closing the Acquisition of Bird & Cronin on October 2, 2017.
Finance Lease Liability
Finance lease liability as of December 31, 2017, compared to $462,000 as of2023 and June 30, 2017.2023 totaled approximately $1,877,000 and $2,018,000, respectively. Our long-term debt isfinance lease liability consists primarily comprised of the mortgage loan on our office and manufacturing facility in Tennessee and also includes loans related to equipment and a vehicle. The principal balance on the mortgage loan was approximately $445,000 of which $310,000 is classified as long-term debt, with monthly principal and interest payments of $13,278 through January 2021.
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Operating Lease Liability
Operating lease liability as of December 31, 2023 and June 30, 2023 totaled approximately $3,134,000 and $3,630,000, respectively. Our operating lease liability consists primarily of building leases for office, manufacturing, and warehouse space.
Deferred Income Tax Assets
A valuation allowance is required when there is significant uncertainty as to the realizability of deferred income tax assets. The ability to realize deferred income tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have determined that we do not meet the “more"more likely than not”not" threshold that deferred income tax assets will be realized. Accordingly, a valuation allowance is required. Any reversal of the valuation allowance in future periods will favorably impact our results of operations in the period of reversal. As of December 31, 20172023 and June 30, 2017,2023, we recorded a full valuation allowance against our net deferred income tax assets.This resulted in no reported income tax expense associated with the operating profit reported during the three and six months ended December 31, 2017.
Stock Repurchase Plans
We have a stock repurchase plan available to us at the discretion of the Board of Directors. Approximately $449,000 remained of this authorization as of December 31, 2017.2023. No purchases have been made under this plan since September 28, 2011.
Off-Balance Sheet Arrangements
As of December 31, 2017,2023, we had no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable. Our critical accounting policies are discussed in Item 7, “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" section of our Annual Report on Form 10-K10K for the fiscal year ended June 30, 2017.2023. There have been no material changes to the critical accounting policies previously disclosed in that report.
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There have been no material changes tofrom the information from that presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our reports filed under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized, and reported within the time periods that are specified in the Securities and Exchange Commission’s (“SEC”)SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), as appropriate, to allow timely decisions regarding any required disclosure. In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, we evaluated the effectivenessconducted an evaluation of the design and operation of our disclosure controls and procedures, (asas such term is defined inunder Rule 13a-15(e) and 15d-15(e) of13a15(e) promulgated under the Exchange Act)Act, as of December 31, 2017.2023. Based on this evaluation, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that as of December 31, 2023, our disclosure controls and procedures were effective, at a reasonable assurance level, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is (a) recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms and is (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as of December 31, 2017.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 20172023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A.
The risk factors described in our Annual Report on Form 10K for the fiscal year ended June 30, 2023 have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the fiscal quarter ended December 31, 2023, none of our directors or officers informed us of the adoption, modification or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.
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31.2 | |
32.1 | |
32.2 | Certification under Section 906 of the SarbanesOxley Act of 2002 (18 U.S.C. Section 1350) of principal financial officer |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Date File because its XBRL tags are embedded with the Inline XBRL document |
Inline XBRL Taxonomy Extension Schema Document | |
Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File - formatted as Inline XBRL and contained in Exhibit 101 |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DYNATRONICS CORPORATION | |||
Date: February 7, 2024 | By: | /s/ | Brian D. Baker |
Brian D. Baker | |||
President, | |||
(Principal Executive Officer) |
By: | /s/ | Gabe Ellwein | |
Gabe Ellwein | |||
Chief Financial Officer | |||
(Principal Financial Officer and Principal Accounting Officer) |
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