Dynatronics Corp.: Form 10-Q - Filed by newsfilecorp.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 September 30, 2023

☐ 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

(Exact name of registrant as specified in its charter)

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) 5687000

(Registrant's telephone number, including area code)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b2 of the Exchange Act.

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 12b2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of November 6, 2023, there were 4,530,837 shares of the issuer's common stock outstanding.

DYNATRONICS CORPORATION
FORM 10Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	2

Condensed Consolidated Balance Sheets (Unaudited)	2

Condensed Consolidated Statements of Operations (Unaudited)	3

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	4

Condensed Consolidated Statements of Cash Flows (Unaudited)	5

Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Cautionary Note Regarding ForwardLooking Statements	9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3. Quantitative and Qualitative Disclosures About Market Risk	15

Item 4. Controls and Procedures	15

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	16

Item 1A. Risk Factors	16

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3. Defaults Upon Senior Securities	16

Item 4. Mine Safety Disclosures	16

Item 5. Other Information	16

Item 6. Exhibits	17

Signatures	18

	September 30, 2023			June 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	432,689		$	398,797
Restricted cash		154,073			154,073
Trade accounts receivable, less allowance for doubtful accounts of $136,019 and $131,403 as of September 30, 2023 and June 30, 2023, respectively		4,259,815			3,721,677
Other receivables		215,636			39,678
Inventories, net		6,838,485			7,403,194
Prepaid expenses		1,323,806			701,456

Total current assets		13,224,504			12,418,875

Property and equipment, net		2,317,133			2,448,282
Operating lease assets		3,401,800			3,631,780
Intangible assets, net		3,463,700			3,618,275
Goodwill		7,116,614			7,116,614
Other assets		823,418			829,049

Total assets	$	30,347,169		$	30,062,875

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	3,872,780		$	4,529,703
Accrued payroll and benefits expense		488,295			877,781
Accrued expense		1,067,471			891,467
Warranty reserve		115,637			115,637
Line of credit		1,803,906			-
Current portion of finance lease liability		290,555			286,522
Current portion of deferred gain		150,448			150,448
Current portion of operating lease liability		1,100,653			1,075,690
Other liabilities		13,746			13,744

Total current liabilities		8,903,491			7,940,992

Finance lease liability, net of current portion		1,657,700			1,731,868
Deferred gain, net of current portion		739,702			777,314
Operating lease liability, net of current portion		2,301,147			2,554,450
Other liabilities		200,084			201,725

Total liabilities		13,802,124			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 September 30, 2023 and June 30, 2023, respectively		7,980,788			7,980,788
Common stock, no par value: Authorized 100,000,000 shares; 4,260,039 shares and 4,044,984 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively		34,571,547			34,355,315
Accumulated deficit		(26,007,290	)		(25,479,577	)

Total stockholders' equity		16,545,045			16,856,526

Total liabilities and stockholders' equity	$	30,347,169		$	30,062,875

	Three Months Ended
	September 30,
	2023			2022
Net sales	$	9,351,914		$	12,053,201
Cost of sales		7,045,847			8,410,361
Gross profit		2,306,067			3,642,840

Selling, general, and administrative expenses		2,545,556			4,117,832
Operating loss		(239,489	)		(474,992	)

Other income (expense):
Interest expense, net		(79,683	)		(31,456	)
Other income, net		-			522
Net other income (expense)		(79,683	)		(30,934	)

Loss before income taxes		(319,172	)		(505,926	)

Income tax provision		(11,482	)		-

Net loss		(330,654	)		(505,926	)

Preferred stock dividend, in common stock, issued or to be issued		(197,059	)		(170,576	)

Net loss attributable to common stockholders	$	(527,713	)	$	(676,502	)

Net loss per common share:
Basic and diluted	$	(0.12	)	$	(0.18	)

Weighted average shares outstanding:
Basic and diluted		4,261,593			3,707,528

	Common stock				Preferred stock				Accumulated			Total stockholders'
		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

	Three Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(330,654	)	$	(505,926	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		165,777			184,489
Amortization of intangible assets		154,575			158,725
Amortization of other assets		-			907
Loss on sale of property		1,619			-
Stock-based compensation		19,173			60,401
Change in allowance for doubtful accounts receivable		4,616			(50,514	)
Change in allowance for inventory obsolescence		31,492			12,451
Amortization of deferred gain on sale/leaseback		(37,612	)		(37,612	)
Change in operating assets and liabilities:
Trade accounts receivable		(542,754	)		(62,753	)
Inventories		533,217			160,839
Prepaid expenses and other receivables		(798,308	)		79,803
Other assets		5,631			7,501
Accounts payable, accrued expenses, and other current liabilities		(872,044	)		355,936

Net cash provided by (used in) operating activities		(1,665,272	)		364,247

Cash flows from investing activities:
Purchase of property and equipment		(34,607	)		(19,785	)

Net cash used in investing activities		(34,607	)		(19,785	)

Cash flows from financing activities:
Principal payments on long-term debt		-			(3,464	)
Principal payments on finance lease liability		(70,135	)		(87,501	)
Net change in line of credit		1,803,906			-

Net cash provided by (used in) financing activities		1,733,771			(90,965	)

Net change in cash and cash equivalents and restricted cash		33,892			253,497

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	$	586,762		$	954,814

Supplemental disclosure of cash flow information:
Cash paid for interest	$	145,109		$	234
Supplemental disclosure of non-cash investing and financing activities
Preferred stock dividend, in common stock, issued or to be issued	$	197,059		$	170,576
Operating lease right-of-use assets obtained in exchange for lease obligations		35,181			-

	September 30, 2023			June 30, 2023
Raw materials	$	4,424,747		$	4,693,634
Work in process		104,620			66,359
Finished goods		2,836,540			3,139,131
Inventory reserve		(527,422	)		(495,930	)
	$	6,838,485		$	7,403,194

10.1		Employment Agreement between the Company and Brian D. Baker, effective as of October 1, 2023 (incorporated by reference to Exhibit 10.1 of registrant's Current Report on Form 8-K filed October 2, 2023)

10.2		Consulting Agreement between the Company and JKrier LLC, effective as of October 1, 2023 (incorporated by reference to Exhibit 10.2 of registrant's Current Report on Form 8-K filed October 2, 2023)

10.3		Employment Agreement between the Company and Gabe Ellwein, effective as of October 30, 2023 (incorporated by reference to Exhibit 10.1 of registrant's Current Report on Form 8-K filed October 30, 2023)

31.1		Certification under Rule 13a14(a)/15d14(a) of principal executive officer

31.2		Certification under Rule 13a-14(a)/15d-14(a) of principal financial officer

32.1		Certification under Section 906 of the SarbanesOxley Act of 2002 (18 U.S.C. Section 1350) of principal executive officer

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		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

	DYNATRONICS CORPORATION

Date: November 13, 2023	By:	/s/ Brian D. Baker
		Brian D. Baker
		President, Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ Gabe Ellwein
		Gabe Ellwein
		Chief Financial Officer
		(Principal Financial Officer and Principal
		Accounting Officer)

	Three Months Ended September 30,
	2023		2022
Physical Therapy and Rehabilitation Products	$	4,829,737	$	6,298,070
Orthopedic Soft Bracing Products		4,499,683		5,733,105
Other		22,494		22,026
	$	9,351,914	$	12,053,201

SEC Form 10-Q filed by Dynatronics Corporation