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 March 31, 20222023

or

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________________to _______

Commission File Number: 0-12697012697

Dynatronics Corporation

(Exact name of registrant as specified in its charter)

Dynatronics CorporationUtah

870398434

(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) 568-70005687000

(Registrant’sRegistrant'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 S-TST (§ 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 non-accelerated 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.

Large accelerated filer

Accelerated filer

Non-accelerated Filer

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 issuer’sissuer's classes of common stock, as of the latest practicable date:

As of May 6, 2022,5, 2023, there were 18,198,3154,044,830 shares of the issuer’sissuer's common stock outstanding.


DYNATRONICS CORPORATION


FORM 10-Q

10Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

2023
TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

1

Condensed Consolidated Balance Sheets (Unaudited)

3

1

Condensed Consolidated Statements of Operations (Unaudited)

4

2

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

5

3

Condensed Consolidated Statements of Cash Flows (Unaudited)

6

4

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

5

Cautionary Note Regarding Forward-Looking Statements

10

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

11

9

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

16

14

Item 4.

Controls and Procedures

16

14

PARTII.OTHERINFORMATION

Item 1.

Legal Proceedings

17

15

Item 1A.

Risk Factors

17

15

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

15

Item 3.

Defaults Upon Senior Securities

17

15

Item 4.

Mine Safety Disclosures

17

15

Item 5.

Other Information

17

15

Item 6.

Exhibits

18

16

Signatures

19

17


    

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DYNATRONICS CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 Assets

 

March 31, 2022

 

 

June 30, 2021

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$2,321,640

 

 

$6,102,447

 

Restricted cash

 

 

151,207

 

 

 

151,197

 

Trade accounts receivable, less allowance for doubtful accounts of $242,534 and $398,887 as of March 31, 2022 and June 30, 2021, respectively

 

 

5,126,539

 

 

 

5,643,016

 

Other receivables

 

 

558,544

 

 

 

1,201,888

 

Inventories, net

 

 

11,631,165

 

 

 

6,526,095

 

Prepaid expenses

 

 

980,112

 

 

 

1,281,223

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

20,769,207

 

 

 

20,905,866

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

3,040,860

 

 

 

3,328,185

 

Operating lease assets

 

 

1,792,182

 

 

 

2,456,539

 

Intangible assets, net

 

 

4,399,450

 

 

 

4,928,875

 

Goodwill

 

 

7,116,614

 

 

 

7,116,614

 

Other assets

 

 

382,912

 

 

 

403,916

 

 

 

 

 

 

 

 

 

 

Total assets

 

$37,501,225

 

 

$39,139,995

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$6,699,169

 

 

$3,737,930

 

Accrued payroll and benefits expense

 

 

1,018,633

 

 

 

1,656,311

 

Accrued expenses

 

 

852,870

 

 

 

1,485,123

 

Warranty reserve

 

 

196,707

 

 

 

196,707

 

Current portion of long-term debt

 

 

8,788

 

 

 

13,448

 

Current portion of finance lease liability

 

 

338,205

 

 

 

335,444

 

Current portion of deferred gain

 

 

150,448

 

 

 

150,448

 

Current portion of operating lease liability

 

 

933,530

 

 

 

864,081

 

Other liabilities

 

 

23,856

 

 

 

33,194

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

10,222,206

 

 

 

8,472,686

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

0

 

 

 

5,362

 

Finance lease liability, net of current portion

 

 

2,007,569

 

 

 

2,260,815

 

Deferred gain, net of current portion

 

 

965,374

 

 

 

1,078,210

 

Operating lease liability, net of current portion

 

 

867,790

 

 

 

1,605,477

 

Other liabilities

 

 

206,150

 

 

 

203,920

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

14,269,089

 

 

 

13,626,470

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value: Authorized 50,000,000 shares; 3,351,000 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively

 

 

7,980,788

 

 

 

7,980,788

 

Common stock, no par value: Authorized 100,000,000 shares; 17,946,416 shares and 17,364,654 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively

 

 

33,321,575

 

 

 

32,621,471

 

Accumulated deficit

 

 

(18,070,227)

 

 

(15,088,734)

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

23,232,136

 

 

 

25,513,525

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$37,501,225

 

 

$39,139,995

 

  March 31,
2023
  June 30,
2022
 
Assets      
Current assets:      
Cash and cash equivalents$516,970 $550,110 
Restricted cash 152,627  151,207 
Trade accounts receivable, less allowance for doubtful accounts of $107,842 and $248,224 as of March 31, 2023 and June 30, 2022, respectively 4,366,953  5,416,044 
Other receivables 444,059  446,493 
Inventories, net 9,703,113  12,071,292 
Prepaid expenses 549,370  590,820 
       
Total current assets 15,733,092  19,225,966 
       
Property and equipment, net 2,623,953  2,911,420 
Operating lease assets 3,842,905  1,565,530 
Intangible assets, net 3,772,850  4,240,725 
Goodwill 7,116,614  7,116,614 
Other assets 350,135  373,740 
       
Total assets$33,439,549 $35,433,995 
       
Liabilities and Stockholders' Equity      
       
Current liabilities:      
Accounts payable$6,166,723 $6,168,961 
Accrued payroll and benefits expense 811,832  1,359,624 
Accrued expense 15,608  862,438 
Warranty reserve 115,637  197,156 
Current portion of long-term debt -  5,362 
Current portion of finance lease liability 284,681  321,085 
Current portion of deferred gain 150,448  150,448 
Current portion of operating lease liability 1,030,530  846,304 
Other liabilities 13,743  23,967 
       
Total current liabilities 8,589,202  9,935,345 
       
Finance lease liability, net of current portion 1,805,008  1,938,531 
Deferred gain, net of current portion 814,926  927,762 
Operating lease liability, net of current portion 2,812,375  727,310 
Other liabilities 202,562  206,489 
       
Total liabilities 14,224,073  13,735,437 
       
Commitments and contingencies      
       
Stockholders' equity:      
Preferred stock, no par value: Authorized 50,000,000 shares; 3,351,000 shares issued and outstanding as of March 31, 2023 and June 30, 2022, respectively 7,980,788  7,980,788 
Common stock, no par value: Authorized 100,000,000 shares; 3,890,526 shares and 3,639,663 shares issued and outstanding as of March 31, 2023 and June 30, 2022, respectively 34,160,784  33,533,003 
Accumulated deficit (22,926,096) (19,815,233)
       
Total stockholders' equity 19,215,476  21,698,558 
       
Total liabilities and stockholders' equity$33,439,549 $35,433,995 

 

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

 

1


DYNATRONICS CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2023  2022  2023  2022 
Net sales$9,236,037 $10,316,253 $32,171,794 $33,147,001 
Cost of sales 7,027,630  8,005,146  23,258,363  25,090,927 
Gross profit 2,208,407  2,311,107  8,913,431  8,056,074 
             
Selling, general, and administrative expenses 3,429,001  3,746,646  11,408,537  11,324,798 
Operating loss (1,220,594) (1,435,539) (2,495,106) (3,268,724)
             
Other income (expense):            
Interest expense, net (24,385) (35,138) (93,782) (112,814)
Other income (expense), net (541) (873) 605  954,062 
Net other income (expense) (24,926) (36,011) (93,177) 841,248 
             
Loss before income taxes (1,245,520) (1,471,550) (2,588,283) (2,427,476)
             
Income tax (provision) benefit 27  -  (4,003) - 
             
Net loss$(1,245,493)$(1,471,550)$(2,592,286)$(2,427,476)
             
Preferred stock dividend, in common stock, issued or to be issued (174,873) (182,080) (518,577) (551,316)
             
Net loss attributable to common stockholders$(1,420,366)$(1,653,630)$(3,110,863)$(2,978,792)
             
Net loss per common share:            
Basic and diluted$(0.36)$(0.46)$(0.82)$(0.84)
             
Weighted average shares outstanding:            
Basic and diluted 3,929,577  3,587,857  3,809,610  3,548,472 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

Net sales

 

$10,316,253

 

 

$11,460,415

 

 

$33,147,001

 

 

$35,561,084

 

Cost of sales

 

 

8,005,146

 

 

 

8,155,454

 

 

 

25,090,927

 

 

 

25,013,197

 

Gross profit

 

 

2,311,107

 

 

 

3,304,961

 

 

 

8,056,074

 

 

 

10,547,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

3,746,646

 

 

 

3,905,055

 

 

 

11,324,798

 

 

 

12,088,520

 

Operating loss

 

 

(1,435,539)

 

 

(600,094)

 

 

(3,268,724)

 

 

(1,540,633)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Interest expense, net

 

 

(35,138)

 

 

(62,518)

 

 

(112,814)

 

 

(166,091)

   Other income (expense), net

 

 

(873)

 

 

780,821

 

 

 

954,062

 

 

 

784,218

 

Net other income (expense)

 

 

36,011)

 

 

718,303

 

 

 

841,248

 

 

 

618,127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

1,471,550)

 

 

118,209

 

 

 

2,427,476)

 

 

922,506)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

0

 

 

 

0

 

 

 

-

 

 

 

(9,821)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(1,471,550)

 

 

118,209

 

 

 

(2,427,476)

 

 

(932,327)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividend on convertible preferred stock and accretion of discount

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(51,352)

Preferred stock dividend, in common stock, issued or to be issued

 

 

(182,080)

 

 

(181,877)

 

 

(551,316)

 

 

(558,188)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$(1,653,630)

 

$(63,668)

 

$(2,978,792)

 

$(1,541,867)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$(0.09)

 

$(0.00)

 

$(0.17)

 

$(0.10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

17,939,283

 

 

 

15,827,808

 

 

 

17,742,361

 

 

 

14,829,216

 

See accompanying notes to condensed consolidated financial statements.

2

4

Table of Contents

DYNATRONICS CORPORATION

DYNATRONICS CORPORATION

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

 

 

 

 

 

 

 Total

 

                Total 

 

 Common stock

 

 

 Preferred stock

 

 

 Accumulated

 

 stockholders'

 

 Common stock  Preferred stock  Accumulated  stockholders' 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

 deficit

 

 

 equity

 

 Shares  Amount  Shares  Amount  deficit  equity 

Balance at June 30, 2020

 

13,803,855

 

$27,474,411

 

3,681,000

 

$8,770,798

 

$(16,349,328)

 

$19,895,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021 3,472,931 $32,621,471  3,351,000 $7,980,788 $(15,088,734)$25,513,525 

Stock-based compensation

 

84,661

 

47,470

 

-

 

0

 

0

 

47,470

 

 17,000  106,395  -  -  -  106,395 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

207,736

 

194,226

 

-

 

0

 

(194,226)

 

0

 

 30,928  187,083  -  -  (187,083) - 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income -  -  -  -  482,640  482,640 
Balance at September 30, 2021 3,520,859  32,914,949  3,351,000  7,980,788  (14,793,177) 26,102,560 
Stock-based compensation -  5,589  -  -  -  5,589 
Preferred stock dividend, in common stock, issued or to be issued 25,629  182,153  -  -  (182,153) - 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(377,704)

 

 

(377,704) -  -  -  -  (1,441,267) (1,441,267)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

14,096,252

 

27,716,107

 

3,681,000

 

8,770,798

 

(16,921,258)

 

19,565,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021 3,546,488  33,102,691  3,351,000  7,980,788  (16,416,597) 24,666,882 

Stock-based compensation

 

16,940

 

50,781

 

-

 

0

 

0

 

50,781

 

 6,000  36,804  -  -  -  36,804 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

276,519

 

182,085

 

-

 

0

 

(182,085)

 

0

 

 36,795  182,080  -  -  (182,080) - 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock converted to common stock

 

330,000

 

790,010

 

(330,000)

 

(790,010)

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock beneficial conversion and accretion of discount

 

-

 

0

 

-

 

51,352

 

0

 

51,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend of beneficial conversion and accretion of discount

 

-

 

0

 

-

 

(51,352)

 

0

 

(51,352)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(672,832)

 

 

(672,832) -  -  -  -  (1,471,550) (1,471,550)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

14,719,711

 

28,738,983

 

3,351,000

 

7,980,788

 

(17,776,175)

 

18,943,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022 3,589,283  33,321,575  3,351,000  7,980,788  (18,070,227) 23,232,136 

Stock-based compensation

 

30,000

 

30,106

 

-

 

0

 

0

 

30,106

 

 322  29,360  -  -  -  29,360 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

224,797

 

181,877

 

-

 

0

 

(181,877)

 

0

 

 50,058  182,068  -  -  (182,068) - 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock, net of issuance costs of $137,547

 

2,230,600

 

3,462,195

 

-

 

0

 

0

 

3,462,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

118,209

 

 

 

118,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

17,205,108

 

32,413,161

 

3,351,000

 

7,980,788

 

(17,839,843)

 

22,554,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss -  -  -  -  (1,562,938) (1,562,938)
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

 

-

 

25,843

 

-

 

0

 

0

 

25,843

 

 16,901  60,401  -  -  -  60,401 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

159,546

 

182,467

 

-

 

0

 

(182,467)

 

0

 

 59,687  170,576  -  -  (170,576) - 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

2,933,576

 

 

 

2,933,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021

 

17,364,654

 

32,621,471

 

3,351,000

 

7,980,788

 

(15,088,734)

 

25,513,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

85,002

 

106,395

 

-

 

0

 

0

 

106,395

 

 11,521  25,955  -  -  -  25,955 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

154,640

 

187,083

 

-

 

0

 

(187,083)

 

0

 

 68,838  173,128  -  -  (173,128) - 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

482,640

 

 

 

482,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

17,604,296

 

32,914,949

 

3,351,000

 

7,980,788

 

(14,793,177)

 

26,102,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-

 

5,589

 

-

 

0

 

0

 

5,589

 

 5,154  22,848  -  -  -  22,848 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

128,144

 

182,153

 

-

 

0

 

(182,153)

 

0

 

 88,762  174,873  -  -  (174,873) - 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(1,441,267)

 

 

(1,441,267) -  -  -  -  (1,245,493) (1,245,493)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

17,732,440

 

33,102,691

 

3,351,000

 

7,980,788

 

(16,416,597)

 

24,666,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

30,000

 

36,804

 

-

 

0

 

0

 

36,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend, in common stock, issued or to be issued

 

183,976

 

182,080

 

-

 

0

 

(182,080)

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(1,471,550)

 

 

(1,471,550)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

 

17,946,416

 

 

$33,321,575

 

 

 

3,351,000

 

 

$7,980,788

 

 

$(18,070,227)

 

$23,232,136

 

Balance at March 31, 2023 3,890,526 $34,160,784  3,351,000 $7,980,788 $(22,926,096)$19,215,476 

 

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

 

3


DYNATRONICS CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

  Nine Months Ended March 31, 
  2023  2022 
Cash flows from operating activities:      
Net loss$(2,592,286)$(2,427,476)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and amortization of property and equipment 540,103  543,899 
Amortization of intangible assets 467,875  529,425 
Amortization of other assets -  11,512 
Loss on sale of property and equipment -  903 
Stock-based compensation 109,204  148,788 
Change in allowance for doubtful accounts receivable (140,382) (156,353)
Change in allowance for inventory obsolescence (241) (219,664)
Amortization of deferred gain on sale/leaseback (112,836) (112,836)
Change in operating assets and liabilities:      
Trade accounts receivable 1,189,473  672,830 
Inventories 2,368,420  (4,885,406)
Prepaid expenses and other receivables 43,884  944,455 
Other assets 23,605  6,791 
Accounts payable, accrued expenses, and other current liabilities (1,492,530) 1,684,200 
       
Net cash provided by (used in) operating activities 404,289  (3,258,932)
       
Cash flows from investing activities:      
Purchase of property and equipment (177,086) (261,358)
       
Net cash used in investing activities (177,086) (261,358)
       
Cash flows from financing activities:      
Principal payments on long-term debt (5,362) (10,022)
Principal payments on finance lease liability (253,561) (250,485)
       
Net cash used in financing activities (258,923) (260,507)
       
Net change in cash and cash equivalents and restricted cash (31,720) (3,780,797)
       
Cash and cash equivalents and restricted cash at beginning of the period 701,317  6,253,644 
       
Cash and cash equivalents and restricted cash at end of the period$669,597 $2,472,847 
       
Supplemental disclosure of cash flow information:      
Cash paid for interest$135,047 $112,824 
Supplemental disclosure of non-cash investing and financing activities      
Preferred stock dividend, in common stock, issued or to be issued$174,873 $551,316 
Operating lease right-of-use assets obtained in exchange for lease obligations 2,973,474  - 
Finance lease right-of-use assets obtained in exchange for lease obligations 86,119  - 

 

 

Nine Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

       Net loss

 

$(2,427,476)

 

$(932,327)

       Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

             Depreciation and amortization of property and equipment

 

 

543,899

 

 

 

662,945

 

             Amortization of intangible assets

 

 

529,425

 

 

 

543,288

 

             Amortization of other assets

 

 

11,512

 

 

 

19,209

 

             Loss on sale of property and equipment

 

 

903

 

 

 

27,192

 

             Stock-based compensation

 

 

148,788

 

 

 

128,357

 

             Change in allowance for doubtful accounts receivable

 

 

(156,353)

 

 

(17,319)

             Change in allowance for inventory obsolescence

 

 

(219,664)

 

 

(207,030)

             Amortization deferred gain on sale/leaseback

 

 

(112,836)

 

 

(112,836)

             Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

                  Trade accounts receivable

 

 

672,830

 

 

 

(892,286)

                  Inventories

 

 

(4,885,406)

 

 

355,276

 

                  Prepaid expenses and other receivables

 

 

944,455

 

 

 

(1,075,908)

                  Other assets

 

 

6,791

 

 

 

21,908

 

                  Accounts payable, accrued expenses, and other current liabilities

 

 

1,684,200

 

 

 

1,793,532

 

 

 

 

 

 

 

 

 

 

                              Net cash (used in) provided by operating activities

 

 

(3,258,932)

 

 

314,001

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

       Purchase of property and equipment

 

 

(261,358)

 

 

(88,745)

 

 

 

 

 

 

 

 

 

                              Net cash used in investing activities

 

 

(261,358)

 

 

(88,745)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

       Principal payments on long-term debt

 

 

(10,022)

 

 

(103,508)

       Principal payments on finance lease liability

 

 

(250,485)

 

 

(236,351)

       Net change in line of credit

 

 

0

 

 

 

(1,012,934)

       Proceeds from issuance of common stock, net

 

 

0

 

 

 

3,462,195

 

 

 

 

 

 

 

 

 

 

                              Net cash (used in) provided by financing activities

 

 

(260,507)

 

 

2,109,402

 

 

 

 

 

 

 

 

 

 

                              Net change in cash and cash equivalents and restricted cash

 

 

(3,780,797)

 

 

2,334,658

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents and restricted cash at beginning of the period

 

 

6,253,644

 

 

 

2,316,301

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents and restricted cash at end of the period

 

$2,472,847

 

 

$4,650,959

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

       Cash paid for interest

 

$112,824

 

 

$143,693

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

       Deemed dividend on convertible preferred stock and accretion of discount

 

 

0

 

 

 

51,352

 

       Preferred stock dividend, in common stock, issued or to be issued

 

 

551,316

 

 

 

558,189

 

       Conversion of preferred stock to common stock

 

 

0

 

 

 

790,010

 

See accompanying notes to condensed consolidated financial statements.

4

6

Table of Contents

DYNATRONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements

(Unaudited)

March 31, 20222023

Note 1. Presentation and Summary of Significant Accounting Policies

Business

Business

Dynatronics Corporation (“("Company,” “Dynatronics”" "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 restorative 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.

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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Condensed"Condensed Consolidated Financial Statements”Statements") have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”"SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Consolidated Financial Statements should be read in conjunction with the Company’sCompany's audited financial statements and accompanying notes included in its Annual Report on Form 10-K10K for the fiscal year ended June 30, 20212022 (the “Annual Report”"Annual Report") filed with the SEC on September 23, 2021.22, 2022. The Condensed Consolidated Balance Sheet at June 30, 2021,2022, 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’sCompany's Annual Report. In the opinion of management, the Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’sCompany's financial position as of March 31, 20222023 and its results of operations and its cash flows for the periods presented. The results of operations for the first nine months of the fiscal year are not necessarily indicative of results for the full year or any future periods.

The Company’sCompany's fiscal year begins on July 1 and ends on June 30 and references made to “fiscal"fiscal year 2022”2023" and “fiscal"fiscal year 2021”2022" refer to the Company’sCompany's fiscal year ending June 30, 20222023 and the fiscal year ended June 30, 2021,2022, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the 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 and assumptions.

Employee Retention Credit

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”"CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act extended and expanded the availability of the employee retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 extended the availability of the employee retention credit through December 31, 2021. This new legislation amended the employee retention credit to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. The Company qualifies for the employee retention credit for quarters that experience a significant decline in gross receipts, defined as quarterly gross receipts that are less than 80 percent of its gross receipts for the same calendar quarter in 2019. The Infrastructure Investment and Jobs Act retroactively ended the employee retention credit as of September 30, 2021. The Company qualified for the credit beginning on January 1, 2021 and received credits for qualified wages through September 30, 2021. During the quarter ended September 30, 2021, the Company recorded an employee retention credit totaling $1,143,000, of which, $97,000, $103,000, and $943,000 was recorded within cost of sales, selling, general, and administrative, and other income, respectively, on the Company’sCompany's condensed consolidated statements of operations. During the three months ended March 31, 2021, the Company recorded an employee retention credit totaling $963,000, of which, $75,000, $98,000, and $790,000 was recorded within cost of sales, selling, general, and administrative, and other income, respectively, on the Company’s condensed consolidated statements of operations

5


Other Receivables

Other receivables consist of amounts due from our contract manufacturer for raw materials components provided for use in the production of our products. Payments are due from our contract manufacturer based on the usage of raw material components.

7

Table of Contents

Reclassification

Certain amounts in the March 31, 2021 condensed consolidated statement of cash flows have been reclassified for comparative purposes to conform to the presentation in the March 31, 2022 condensed consolidated statement of cash flows.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—202006, Debt-Debt with Conversion and Other Options (Subtopic 470-20)47020) and Derivatives and Hedging—ContractsHedging-Contracts in Entity’sEntity's Own Equity (Subtopic 815-40)81540): Accounting for Convertible Instruments and Contracts in an Entity’sEntity'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’sentity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2025 and early adoption is permitted. The Company is evaluating the impact ofthe adoption of this guidance will have on its consolidated financial statements.

Note 2. Net Loss per Common Share

Net loss per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic net loss per common share is the amount of net loss for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each weighted-average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.

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 are anti-dilutive, which for the three months ended March 31, 2023 and 2022, totaled 1,555,615 and 2021, totaled 7,814,500 and 10,187,500,1,562,900 respectively, and for the nine months ended March 31, 2023 and 2022, totaled 1,562,900 and 2021, totaled 7,776,167 and 10,337,390,1,555,233, respectively.

Note 3.Convertible Preferred Stock

As of March 31, 2022,2023, the Company had issued and outstanding a total of 1,992,000 shares of Series A 8% Convertible Preferred Stock (“("Series A Preferred”Preferred") and 1,359,000 shares of Series B Convertible Preferred Stock ("Series B Preferred"). The Series A Preferred and Series B Preferred are convertible into a total of 3,351,000670,200 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 at the option of the Company. The Company generally pays the dividends on the preferred stock by issuing shares of its common stock. The formula for paying these dividends using common stock in lieu of cash can change the effective yield on the dividend to more or less than 8% depending on the market price of the common stock at the time of issuance.

In April 2022,2023, the Company paid $182,080$174,873 of preferred stock dividends with respect to the Series A Preferred and Series B Preferred that accrued during the three months ended March 31, 2022,2023, by issuing 250,28788,762 shares of common stock.

6


Note 4. Comprehensive LossInventories

For the three and nine months ended March 31, 2022 and 2021, comprehensive loss was equal to the net loss as presented in the accompanying condensed consolidated statements of operations.

8

Table of Contents

Note 5. Inventories

Inventories consisted of the following:

  March 31,
2023
  June 30,
2022
 
Raw materials$5,548,618 $6,536,951 
Work in process 98,619  313,549 
Finished goods 4,434,840  5,599,997 
Inventory reserve (378,964) (379,205)
 $9,703,113 $12,071,292 

 

 

March 31, 2022

 

 

June 30, 2021

 

Raw materials

 

$6,629,384

 

 

$3,863,212

 

Work in process

 

 

370,013

 

 

 

784,460

 

Finished goods

 

 

5,039,080

 

 

 

2,505,399

 

Inventory obsolescence reserve

 

 

(407,312)

 

 

(626,976)

 

 

$11,631,165

 

 

$6,526,095

 

Note 6.5. Related-Party Transactions

The Company leases office, manufacturing and warehouse facilities in Northvale, New Jersey;Jersey, and Eagan, Minnesota from employees, shareholders, and entities controlled by shareholders, who were previously principals of businesses acquired by the Company. The combined expenses associated with these related-party transactions totaled $248,952$249,366 and $264,702$248,952 for the three months ended March 31, 20222023 and 2021,2022, respectively, and $746,858$748,098 and $794,108$746,858 for the nine months ended March 31, 2023 and 2022, and 2021, respectively.

Note 7.6. Revenue

As of March 31, 20222023 and June 30, 2021,2022, the net rebate liabilityreceivable (liability) was $241,273$5,612 and $219,591,($217,158), respectively. The rebate receivable is included in other receivables and rebate liability is included in accrued expenses inwithin the accompanying condensed consolidated balance sheets. As of March 31, 20222023 and June 30, 2021,2022, the allowance for sales discounts was $15,239$12,946 and $9,000,$17,632, respectively. The allowance for sales discounts is included in trade accounts receivable, less allowance for doubtful accounts in the accompanying condensed consolidated balance sheets.

The following table disaggregates revenue by major product category for the three and nine months ended March 31:

  Three Months Ended March 31,  Nine Months Ended March 31, 
  2023  2022  2023  2022 
Physical Therapy and Rehabilitation Products$4,735,741 $4,810,043 $17,399,296 $16,934,423 
Orthopedic Soft Bracing Products 4,476,849  5,476,469  14,698,238  16,126,728 
Other 23,447  29,741  74,260  85,850 
 $9,236,037 $10,316,253 $32,171,794 $33,147,001 

7

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31, 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Orthopedic Soft Bracing Products

 

$5,476,469

 

 

$4,794,787

 

 

$16,126,728

 

 

$15,437,188

 

Physical Therapy and Rehabilitation Products

 

 

4,810,043

 

 

 

6,581,598

 

 

 

16,934,423

 

 

 

19,902,877

 

Other

 

 

29,741

 

 

 

84,030

 

 

 

85,850

 

 

 

221,019

 

 

 

$10,316,253

 

 

$11,460,415

 

 

$33,147,001

 

 

$35,561,084

 


9

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, including the disclosures contained in Part I Item 2 Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operation, contains “forward-looking statements”"forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"). These forward-looking statements include, but are not limited to: any projections of net sales, earnings, or other financial items;items; any statements of the strategies, plans and objectives of management for future operations;operations; expectations in connection with the company’scompany's previously announced business optimization plan;plan; any statements concerning proposed new products or developments;developments; any statements regarding future economic conditions or performance;performance; any statements of belief;belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements can be identified by their use of such words as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,”"may," "will," "estimate," "intend," "continue," "believe," "expect," or “anticipate”"anticipate" and similar references to future periods.

We have based our forward-looking statements on management’smanagement'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 forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this report. These risks and uncertainties include, but are not limited to, uncertainties related to the uncertainty regarding the impact or duration of the Novel Coronavirus Disease 2019 ("COVID-19") virus pandemic that is adverselybroader economic environment affecting communities and businesses globally, including ours, as well as those factors described in the section “Risk Factors”"Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021,2022, filed with the SEC, as well as in our other public 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 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-looking 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 forward-looking statements, investors should not conclude that we will make additional updates or corrections.

We qualify all of our forward-looking statements by these cautionary statements.

The terms “we,” “us,” “Dynatronics,”"we," "us," "Dynatronics," or the “Company”"Company" refer collectively to Dynatronics Corporation and its wholly-owned subsidiaries, unless otherwise stated.

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

Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations (“("MD&A”&A") is designed to provide a reader of our Unaudited Condensed Consolidated Financial Statements and Notes 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 Annual Report on Form 10-K10K for the year ended June 30, 2021,2022, and our other filings with the SEC, including our quarterly and current reports that we have filed since June 30, 20212022 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 inter-companyintercompany transactions have been eliminated. Our fiscal year ends on June 30. For example, reference to fiscal year 20222023 refers to the year ending June 30, 2022.2023. This report covers the three and nine months ended March 31, 2022.2023. Results of operations for the three and nine months ended March 31, 20222023 are not necessarily indicative of the results that may be achieved for the full fiscal year ending June 30, 2022.2023.

Overview

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 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. The Company's products are marketed under a portfolio of high-quality, well-known industry brands including Bird & Cronin®, Solaris™, Hausmann®, and PROTEAM™, among others. More information is available at www.dynatronics.com.

Results of Operations

Net Sales

Net sales decreased $1,144,000,$1,080,000, or 10.0%10.5%, to $9,236,000 for the quarter ended March 31, 2023, compared to net sales of $10,316,000 for the quarter ended March 31, 2022,2022. Net sales decreased $975,000, or 2.9%, to $32,172,000 for the nine months ended March 31, 2023, compared to net sales of $11,460,000 for the quarter ended March 31, 2021. Net sales decreased $2,414,000, or 6.8%, to $33,147,000 for the nine months ended March 31, 2022, compared to net sales of $35,561,000 for the nine months ended March 31, 2021.2022. The year-over-year decrease is primarily dueattributable to the acquisition of a competitor by a rehabilitation product category customer, reduction in sales of third-party distributed products which have been discontinued. This was partially offset by an increaseoverall volume for OEM customers and a general reduction in customer demand compared to the prior year period in which we experienced the impact of COVID-19 precautions and associated deferral on elective procedures which reduced demand for our products.the orthopedic soft bracing product category.

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Gross Profit

Gross profit for the quarter ended March 31, 20222023 decreased $994,000,$103,000, or about 30.1%4.5%, to $2,311,000,$2,208,000, or 22.4%23.9% of net sales. By comparison, gross profit for the quarter ended March 31, 20212022 was $3,305,000,$2,311,000, or 28.8%22.4% of net sales. Gross profit for the nine months ended March 31, 2022 decreased $2,492,000,2023 increased $857,000, or about 23.6%10.6%, to $8,056,000,$8,913,000, or 24.3%27.7% of net sales. By comparison, gross profit for the nine months ended March 31, 20212022 was $10,548,000,$8,056,000, or 29.7%24.3% of net sales. The increase in gross profit as a percentage of net sales was driven by net price realization and overall product mix. The year-over-year decreaseincrease in gross profit was primarily attributable to higher freight anda reduction in freight-in expenses, stabilized raw material costs, due to the impact of COVID-19 on the global supply chain, higher personnel costs, and changes toin product mix.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses decreased $158,000,$318,000, or 4.1%8.5%, to $3,429,000 for the quarter ended March 31, 2023, compared to $3,747,000 for the quarter ended March 31, 2022, compared to $3,905,000 for the quarter ended March 31, 2021. Selling expenses decreased $117,000 compared to the prior year period, due primarily to lower commission expense and salaries for rehabilitation products sales force, partially offset by higher marketing salaries. General and administrative ("G&A") expenses decreased $41,000 compared to the prior-year period.2022. The decrease in SG&A was driven primarily by the elimination of distributed productsa reduction in salaries and our direct sales channel which has reduced complexity and associated support costs.benefits.

SG&A expenses decreased $764,000,increased $84,000, or 6.3%0.7%, to $11,409,000 for the nine months ended March 31, 2023, compared to $11,325,000 for the nine months ended March 31, 2022, compared to $12,089,000 for the nine months ended March 31, 2021. Selling expenses decreased $384,000 compared to the prior year period, due primarily to lower commission expense and salaries for rehabilitation products sales force, partially offset by higher marketing salaries. G&A expenses decreased $380,000 compared to the prior-year period.2022. The decreaseincrease in SG&A was driven primarily by the elimination of distributed productsan increase in marketing program expense offset by a reduction in salaries and our direct sales channel which has reduced complexity and associated support costs.benefits.

Net Other Income (Expense)

Net other expense for the quarter ended March 31, 2022,2023, was $25,000 compared to net other expense of $36,000 for the quarter ended March 31, 2022. The decrease in net other expense is primarily due to a $9,000 decrease in interest expense as a result of lower average borrowings on long-term debt. Net other expense for the nine months ended March 31, 2023, was $93,000 compared to net other income of $718,000$841,000 for the quarternine months ended March 31, 2021.2022. The decreaseincrease in net other incomeexpense is primarily due to a $790,000$943,000 employee retention credit for funds received or receivable from the U.S. federal government under the CARES Act in the prior year.

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Income Tax (Provision) Benefit

Income tax (provision) benefit was $27 and a decrease in interest expense as a result of lower average borrowings on long-term debt. Net other income($4,000) for the three and nine months ended March 31, 2022, was $841,000 compared to net other income of $618,000 for the nine months ended March 31, 2021. The increase in net other income is primarily due to a $154,000 increase in the employee retention credit as a result of increased headcount2023, respectively and a decrease in interest expense as a result of lower average borrowings on long-term debt.

Income (Loss) Before Income Taxes

Pre-tax loss for the quarter ended March 31, 2022 was $1,472,000 compared to pre-tax income of $118,000 for the quarter ended March 31, 2021. The $1,590,000 increase in pre-tax loss was attributable to a decrease of $994,000 in gross profit and an increase of $754,000 in other expense partially offset by a decrease of $158,000 in SG&A. Pre-tax loss for the nine months ended March 31, 2022 was $2,427,000 compared to $923,000 for the nine months ended March 31, 2021. The $1,504,000 increase in pre-tax loss was attributable to a decrease of $2,492,000 in gross profit partially offset by a decrease of $764,000 in SG&A and an increase of $223,000 in other income.

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Income Tax Provision

Income tax provision was $0 for the three and nine months ended March 31, 2022 and $0 and $10,000 for the three and nine months ended March 31, 2021, respectively.2022. See Liquidity and Capital Resources - Deferred Income Tax Assets below for more information.

Net Loss

Net loss for the quarter ended March 31, 2023 was $1,246,000 compared to a net loss of $1,472,000 for the quarter ended March 31, 2022, compared2022. The $226,000 decrease in net loss was attributable to net incomea decrease of $118,000$318,000 in SG&A, a decrease of $11,000 in other expense, and offset by a decrease of $103,000 in gross profit. Net loss was $2,592,000 for the quarternine months ended March 31, 2021. Net2023, compared to a net loss wasof $2,427,000 for the nine months ended March 31, 2022, compared to $932,000 for the nine months ended March 31, 2021.2022. The reasons for the changes$165,000 increase in net loss are the same as explained above under the heading Income (Loss) Before Income Taxes.was attributable to an increase of $934,000 in other expense, increase of $84,000 in SG&A, increase of $4,000 in income tax provision, and offset by an increase of $857,000 in gross profit.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders increased $1,590,000decreased $234,000 to $1,420,000 for the quarter ended March 31, 2023, compared to $1,654,000 for the quarter ended March 31, 2022, compared2022. The decrease in net loss attributable to $64,000common stockholders for the quarter ended March 31, 2021.is due primarily to a $226,000 decrease in net loss. On a per share basis, basic and diluted net loss attributable to common stockholders was $0.09$0.36 per share for the quarter ended March 31, 2022,2023, compared to $0.00$0.46 per share for the quarter ended March 31, 2021.2022.

Net loss attributable to common stockholders increased $1,437,000$132,000 to $3,111,000 for the nine months ended March 31, 2023, compared to $2,979,000 for the nine months ended March 31, 2022, compared to $1,542,000 for the nine months ended March 31, 2021.2022. On a per share basis, basic and diluted net loss attributable to common stockholders was $0.17$0.82 per share for the nine months ended March 31, 2022,2023, compared to $0.10$0.84 per share for the nine months ended March 31, 2021.2022.

Liquidity and Capital Resources

We have historically financed operations through cash from operating activities, available cash reserves, and proceeds from the sale of our equity securities. As of March 31, 2022,2023, we had $2,473,000$670,000 in cash and cash equivalents and restricted cash, compared to $6,254,000$701,000 as of June 30, 2021.2022.

Working capital was $10,547,000$7,144,000 as of March 31, 2022,2023, compared to working capital of $12,433,000$9,291,000 as of June 30, 2021.2022. The current ratio was 2.0 to 1 and 2.51.8 to 1 as of March 31, 20222023 and 1.9 to 1 as of June 30, 2021, respectively.2022. Current assets were 55.4%47.0% of total assets as of March 31, 2022,2023, and 53.4%54.3% of total assets as of June 30, 2021.2022.

We believe that our cash generated from operations, and current capital resources, and proceeds of the equity proceedssales contemplated below will provide sufficient liquidity to fund operations for the next 12 months. However, the continuing effects of the COVID-19 pandemic on the global supply chain, higher personnel costs, and changes to 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.

In March 2020, we entered intoWe 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 arranged tomay offer and sell sharesup to $3,875,150 of our common stock in an at-the-market offering (“ATM”)one or more “at the market offerings” through the Agents under a registration statement previously filed by usour Registration Statement on Form S-3 with(File No. 333-256280), which was declared effective by the Securities and Exchange Commission. On March 13, 2020, we filed a Prospectus Supplement amendingSEC on July 1, 2021 (the “2021 Registration Statement”), subject to applicable limitations on the registration statement (as amended, the "Original Registration Statement") and commenced the ATM.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,Equity Distribution Agreement, we may sell shares of our common stock in an aggregate amount of uphave agreed to $10,000,000, with Canaccord Genuity LLC and Roth Capital Partners LLC acting as our sales agents, atpay the market prices prevailing on The Nasdaq Capital Market at the time of the sale of such shares. We will pay Canaccord Genuity LLC and Roth Capital Partners, LLCAgents a fixed commission rate equal to 3.0% of the gross sale price per share of common stock sold. In May 2021,On April 7, 2023, we filed a registration statement on Form S-3 together with a Prospectus Supplement,prospectus supplement to the base prospectus included in the 2021 Registration Statement for the purposesale of replacing the Original Registration Statement, which expired after three years,up to $2,671,513 of our common stock pursuant to applicable SEC rules.the terms of the Equity Distribution Agreement (the “ATM”). As of the date hereof, we have not commenced any sales under the ATM.

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 replacement registration statement provides for potential futures sales in conjunctionArticles 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 a prospectus supplement forany fractional shares resulting from the reverse stock split rounded up to $2,677,997 inthe 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 ATM.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.

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Cash and Cash Equivalents

Our cash and cash equivalents and restricted cash position decreased $3,781,000$31,000 to $2,473,000$670,000 as of March 31, 2022,2023, compared to $6,254,000$701,000 as of June 30, 2021.2022. The primary use of cash infor the nine months ended March 31, 2022,2023 was for inventories.to pay down existing vendor payables.

Accounts Receivable

Trade accounts receivable, net of allowance for doubtful accounts, decreased approximately $516,000,$1,049,000 or 9.2%19.4%, to $5,127,000$4,367,000 as of March 31, 2022,2023, from $5,643,000$5,416,000 as of June 30, 2021.2022. The decrease was driven primarily by a reduction in overall revenue and differences in the timing of collections around the end date of each respective quarter. Trade accounts receivable 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 40 days of invoicing.

Inventories

Inventories

Inventories, net of reserves, increased $5,105,000decreased $2,368,000 or 78.2%19.6%, to $11,631,000$9,703,000 as of March 31, 2022,2023, compared to $6,526,000$12,071,000 as of June 30, 2021.2022. The increasedecrease was primarily due to steps taken to adjust inventory management in response to the impact of COVID-19COVID19 on the global supply chain and right-size incoming material purchases to 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 $2,961,000$2,000 or 79.2%0.0%, to $6,699,000$6,167,000 as of March 31, 2022,2023, from $3,738,000$6,169,000 as of June 30, 2021. The increase was driven primarily by an increase in inventory purchases and timing of payments.2022.

Debt

Debt

Long-term debt decreased approximately $10,000 to approximately $9,000was $0 as of March 31, 2022,2023, compared to approximately $19,000$5,000 as of June 30, 2021. Our long-term debt is primarily comprised of loans related to equipment. 2022.

Finance Lease Liability

Finance lease liability as of March 31, 20222023 and June 30, 20212022 totaled approximately $2,346,000$2,090,000 and $2,596,000,$2,260,000, respectively. Our finance lease liability consists primarily of our Utah building lease. In conjunction with the sale and leaseback of our Utah building in August 2014, we entered into a 15-year15year lease, classified as a finance lease, originally valued at $3,800,000. The building lease asset is amortized on a straight-line basis over 15 years at approximately $252,000 per year. Total accumulated amortization related to the leased building is approximately $1,931,000$2,183,000 at March 31, 2022.2023. The sale generated a profit of $2,300,000, which is being recognized straight-line over the life of the lease at approximately $150,000 per year as an offset to amortization expense. The balance of the deferred gain as of March 31, 2022,2023, is $1,116,000.$965,000. Lease payments, currently approximately $31,000,$32,000, are payable monthly and increase annually by approximately 2% per year over the life of the lease. Imputed interest for the three and nine months ended March 31, 20222023 was approximately $32,000$29,000 and $99,000,$89,000, respectively. In addition to the Utah building, we have certain equipment leases that we have determined are finance leases.

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Operating Lease Liability

Operating lease liability as of March 31, 20222023 and June 30, 20212022 totaled approximately $1,801,000$3,843,000 and $2,470,000,$1,574,000, respectively. Our operating lease liability consists primarily of building leases for office, manufacturing, and warehouse space. The increase was primarily due to the Company's decision to exercise its third option and extend its operating lease for an additional five years in New Jersey.

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 March 31, 20222023 and June 30, 2021,2022, 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 nine months ended March 31, 2022.2023.

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 March 31, 2022.2023. No purchases have been made under this plan since September 2011.

Off-Balance Sheet Arrangements

As of March 31, 2022,2023, 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 Form 10-K10K for the year ended June 30, 2021.2022. There have been no material changes to the critical accounting policies previously disclosed in that report.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes from the information presented for the year ended June 30, 2021.2022.

Item 4. Controls and Procedures

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 SEC’sSEC'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.objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

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 March 31, 2022.2023. Based on this evaluation, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that as of March 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 March 31, 2022.appropriate to allow timely decisions regarding required disclosure.

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 March 31, 2022,2023, 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.

None.

Item 1A.

The risk factors described in our Annual Report on Form 10-K10K for the year ended June 30, 20212022 have not materially changed.

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

None.

None.

Item 3. Defaults Upon Senior Securities

None.

None.

Item 4. Mine Safety Disclosures

None.

None.

Item 5. Other Information

None.

None.15


Item 6. Exhibits

3.1Articles of Amendment to Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of registrant's Current Report on Form 8-K filed February 1, 2023)
 
174.1Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 of registrant's Current Report on Form 8-K filed February 1, 2023)
10.1

Lease Agreement dated as of March 1, 2017 between Hausmann Industries, Inc. and Hausmann Enterprises, LLC

Table10.2

Amendment to Lease Agreement dated as of ContentsJanuary 2018 between Hausmann Industries, Inc. and Hausmann Enterprises, LLC

Item 6. Exhibits

(a) Exhibits

10.3

Second Amendment to Lease Agreement dated effective as of April 1, 2023 between Hausmann Industries, Inc. and Hausmann Enterprises, LLC (incorporated by reference to Exhibit 10.1 of registrant’s Current Report on Form 8-K filed April 6, 2023)

31.1

Certification under Rule 13a-14(a)/15d-14(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 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) of principal executive officer

32.2

Certification under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) of and 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

 
18104Cover Page Interactive Data File - formatted as Inline XBRL and contained in Exhibit 101

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SIGNATURES

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: May 12, 2022

11, 2023

By:

/s/ John A. Krier

John A. Krier

President, and Chief Executive Officer,

and Chief Financial Officer

(Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)

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