UNITED STATES

SECURITIESANDEXCHANGECOMMISSION

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 ~~December~~March 31, ~~2022~~2023

☐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: ~~0-12697~~012697

Dynatronics Corporation

(Exact name of registrant as specified in its charter)

~~Dynatronics Corporation~~Utah	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) 5687000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

	~~1200 Trapp Road,~~~~Eagan,~~~~Minnesota~~~~55121~~ ~~(Address of principal executive offices, Zip Code)~~

~~(801) 568-7000~~ ~~(Registrant’s telephone number, including area code)~~

~~Securities registered pursuant to Section 12(b) of the Act:~~

Title of each class		Tradingsymbol		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-T~~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 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-2~~12b2 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-2~~12b2 of the Exchange Act). Yes ☐ No ☒

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

As of ~~February 6,~~May 5, 2023, there were ~~3,918,771~~4,044,830 shares of the ~~issuer’s~~issuer's common stock outstanding.

DYNATRONICS CORPORATION
FORM 10Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION

	~~DYNATRONICS~~~~CORPORATION~~ ~~FORM 10-Q~~ ~~FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2022~~ ~~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		17	19

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DYNATRONICS CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

	December 31, 2022			June 30, 2022				March 31, 2023			June 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	534,277		$	550,110		$	516,970		$	550,110
Restricted cash		151,217			151,207			152,627			151,207
Trade accounts receivable, less allowance for doubtful accounts of $197,477 and $248,224 as of December 31, 2022 and June 30, 2022, respectively		5,230,843			5,416,044
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		442,169			446,493			444,059			446,493
Inventories, net		10,745,937			12,071,292			9,703,113			12,071,292
Prepaid expenses		477,596			590,820			549,370			590,820

Total current assets		17,582,039			19,225,966			15,733,092			19,225,966

Property and equipment, net		2,750,058			2,911,420			2,623,953			2,911,420
Operating lease assets		3,252,923			1,565,530			3,842,905			1,565,530
Intangible assets, net		3,927,424			4,240,725			3,772,850			4,240,725
Goodwill		7,116,614			7,116,614			7,116,614			7,116,614
Other assets		357,636			373,740			350,135			373,740

Total assets	$	34,986,694		$	35,433,995		$	33,439,549		$	35,433,995

Liabilities and Shareholders’ Equity
Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	6,046,234		$	6,168,961		$	6,166,723		$	6,168,961
Accrued payroll and benefits expense		1,343,232			1,359,624			811,832			1,359,624
Accrued expense		387,795			862,438			15,608			862,438
Warranty reserve		115,637			197,156			115,637			197,156
Current portion of long-term debt		244			5,362			-			5,362
Current portion of finance lease liability		294,009			321,085			284,681			321,085
Current portion of deferred gain		150,448			150,448			150,448			150,448
Current portion of operating lease liability		934,451			846,304			1,030,530			846,304
Other liabilities		22,917			23,967			13,743			23,967

Total current liabilities		9,294,967			9,935,345			8,589,202			9,935,345

Finance lease liability, net of current portion		1,875,824			1,938,531			1,805,008			1,938,531
Deferred gain, net of current portion		852,538			927,762			814,926			927,762
Operating lease liability, net of current portion		2,321,167			727,310			2,812,375			727,310
Other liabilities		204,077			206,489			202,562			206,489

Total liabilities		14,548,573			13,735,437			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 December 31, 2022 and June 30, 2022, respectively		7,980,788			7,980,788
Common stock, no par value: Authorized 100,000,000 shares; 3,796,610 shares and 3,639,663 shares issued and outstanding as of December 31, 2022 and June 30, 2022, respectively		33,963,063			33,533,003
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		(21,505,730	)		(19,815,233	)		(22,926,096	)		(19,815,233	)

Total stockholders’ equity		20,438,121			21,698,558
Total liabilities and stockholders’ equity	$	34,986,694		$	35,433,995
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.

~~Table of Contents~~

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

Six Months

December 31,

December 31,

2022

2021

2022

2021

Net sales

$ 10,882,557

10,529,853

$ 22,935,758

$ 22,830,748

Cost of sales

7,820,371

8,449,192

16,230,732

17,085,782

Gross profit

3,062,186

2,080,661

6,705,026

5,744,966

Selling, general, and administrative expenses

3,861,706

3,481,529

7,979,539

7,578,196

Operating loss

(799,520 )

(1,400,868 )

(1,274,513 )

(1,833,230 )

Other income (expense):

Interest expense, net

(37,941 )

(40,233 )

(69,396 )

(80,333 )
Other income (expense), net

624

(166 )

1,146

954,936

Net other income (expense)

(37,317 )

(40,399 )

(68,250 )

874,603

Loss before income taxes

(836,837 )

(1,441,267 )

(1,342,763 )

(958,627 )

Income tax provision

(4,030 )

—

(4,030 )

—

Net loss

$ (840,867 )

$ (1,441,267 )

$ (1,346,793 )

$ (958,627 )

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

(173,128 )

(182,153 )

(343,704 )

(369,236 )

Net loss attributable to common stockholders

$ (1,013,995 )

$ (1,623,420 )

$ (1,690,497 )

$ (1,327,863 )

Net loss per common share:

Basic and diluted

$ (0.27 )

$ (0.46 )

$ (0.45 )

$ (0.38 )

Weighted average shares outstanding:

Basic and diluted

3,794,333

3,545,374

3,750,930

3,529,208

See accompanying notes to condensed consolidated financial statements.

~~Table of Contents~~

DYNATRONICS CORPORATION

~~DYNATRONICS~~~~CORPORATION~~

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

																									Total
	Common stock				Preferred stock				Accumulated			Total stockholders’			Common stock			Preferred stock				Accumulated			stockholders'
	Shares		Amount		Shares		Amount		deficit			equity			Shares		Amount	Shares		Amount		deficit			equity
Balance at June 30, 2021		3,472,931	$	32,621,471		3,351,000	$	7,980,788	$	(15,088,734	)	$	25,513,525		3,472,931	$	32,621,471	3,351,000	$	7,980,788	$	(15,088,734	)	$	25,513,525
Stock-based compensation		17,000		106,395		—		—		—			106,395		17,000		106,395	-		-		-			106,395
Preferred stock dividend, in common stock, issued or to be issued		30,928		187,083		—		—		(187,083	)		—		30,928		187,083	-		-		(187,083	)		-
Net income		—		—		—		—		482,640			482,640		-		-	-		-		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		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		-		5,589	-		-		-			5,589
Preferred stock dividend, in common stock, issued or to be issued		25,629		182,153		—		—		(182,153	)		—		25,629		182,153	-		-		(182,153	)		-
Net loss		—		—		—		—		(1,441,267	)		(1,441,267	)	-		-	-		-		(1,441,267	)		(1,441,267	)
Balance at December 31, 2021		3,546,488		33,102,691		3,351,000		7,980,788		(16,416,597	)		24,666,882		3,546,488		33,102,691	3,351,000		7,980,788		(16,416,597	)		24,666,882
Stock-based compensation		6,000		36,804		—		—		—			36,804		6,000		36,804	-		-		-			36,804
Preferred stock dividend, in common stock, issued or to be issued		36,795		182,080		—		—		(182,080	)		—		36,795		182,080	-		-		(182,080	)		-
Net loss		—		—		—		—		(1,471,550	)		(1,471,550	)	-		-	-		-		(1,471,550	)		(1,471,550	)
Balance at March 31, 2022		3,589,283		33,321,575		3,351,000		7,980,788		(18,070,227	)		23,232,136		3,589,283		33,321,575	3,351,000		7,980,788		(18,070,227	)		23,232,136
Stock-based compensation		322		29,360		—		—		—			29,360		322		29,360	-		-		-			29,360
Preferred stock dividend, in common stock, issued or to be issued		50,058		182,068		—		—		(182,068	)		—		50,058		182,068	-		-		(182,068	)		-
Net loss		—		—		—		—		(1,562,938	)		(1,562,938	)	-		-	-		-		(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		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		16,901		60,401	-		-		-			60,401
Preferred stock dividend, in common stock, issued or to be issued		59,687		170,576		—		—		(170,576	)		—		59,687		170,576	-		-		(170,576	)		-
Net loss		—		—		—		—		(505,926	)		(505,926	)	-		-	-		-		(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		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		11,521		25,955	-		-		-			25,955
Preferred stock dividend, in common stock, issued or to be issued		68,838		173,128		—		—		(173,128	)		—		68,838		173,128	-		-		(173,128	)		-
Net loss		—		—		—		—		(840,867	)		(840,867	)	-		-	-		-		(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		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

See accompanying notes to condensed consolidated financial statements.

~~Table of Contents~~

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			-

Six Months Ended December 31,

2022

2021

Cash flows from operating activities:

Net loss

$ (1,346,793 )

$ (958,627 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization of property and equipment

368,557

363,990

Amortization of intangible assets

313,301

352,950

Amortization of other assets

—

10,658

Stock-based compensation

86,356

111,984

Change in allowance for doubtful accounts receivable

(50,777 )

(117,239 )
Change in allowance for inventory obsolescence

(75,304 )

(258,635 )
Amortization of deferred gain on sale/leaseback

(75,224 )

(75,224 )
Change in operating assets and liabilities:

Trade accounts receivable

235,978

168,398

Inventories

1,400,659

(2,539,425 )
Prepaid expenses and other receivables

117,548

458,080

Other assets

16,104

3,796

Accounts payable, accrued expenses, and other current liabilities

(698,743 )

69,602

Net cash provided by (used in) operating activities

291,662

(2,409,692 )

Cash flows from investing activities:

Purchase of property and equipment

(126,465 )

(98,351 )

Net cash used in investing activities

(126,465 )

(98,351 )

Cash flows from financing activities:

Principal payments on long-term debt

(5,118 )

(6,643 )
Principal payments on finance lease liability

(175,902 )

(165,527 )

Net cash used in financing activities

(181,020 )

(172,170 )

Net change in cash and cash equivalents and restricted cash

(15,823 )

(2,680,213 )

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

$ 685,494

$ 3,573,431

Supplemental disclosure of cash flow information:

Cash paid for interest

$ 93,789

$ 80,333

Supplemental disclosure of non-cash investing and financing activities

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

$ 173,128

$ 369,236

Operating lease right-of-use assets obtained in exchange for lease obligations

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.

~~Table of Contents~~

DYNATRONICS CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~December~~March 31, ~~2022~~2023

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 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~~Company's shareholders approved Articles of Amendment to the ~~Company’s~~Company's Amended and Restated Articles of Incorporation (the ~~“Articles~~"Articles of ~~Amendment”~~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~~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~~Company's board of directors in its sole discretion. Thereafter, the ~~Company’s~~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~~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~~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~~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~~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’s~~Company's audited financial statements and accompanying notes included in its Annual Report on Form ~~10-K~~10K for the fiscal year ended June 30, 2022 (the ~~“Annual Report”~~"Annual Report") filed with the SEC on September 22, 2022. The Condensed Consolidated Balance Sheet at June 30, 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’s~~Company'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’s~~Company's financial position as of ~~December~~March 31, ~~2022~~2023 and its results of operations and its cash flows for the periods presented. The results of operations for the first ~~six~~nine months of the fiscal year are not necessarily indicative of results for the full year or any future periods.

The ~~Company’s~~Company's fiscal year begins on July 1 and ends on June 30 and references made to ~~“fiscal~~"fiscal year ~~2023”~~2023" and ~~“fiscal~~"fiscal year ~~2022”~~2022" refer to the ~~Company’s~~Company's fiscal year ending June 30, 2023 and the fiscal year ended June 30, 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 7070% 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’s~~Company's condensed consolidated statements of operations.

~~Table of Contents~~

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.

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—Contracts~~Hedging-Contracts in ~~Entity’s~~Entity's Own Equity (Subtopic ~~815-40)~~81540): Accounting for Convertible Instruments and Contracts in an ~~Entity’s~~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~~entity'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 the 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 ~~December~~March 31, ~~2022~~2023 and ~~2021,~~2022, totaled 1,555,615 and ~~1,559,900,~~1,562,900 respectively, and for the ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~2022, totaled 1,562,900 and ~~1,551,400,~~1,555,233, respectively.

Note 3. Convertible Preferred Stock

As of ~~December~~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 ~~3,351,000~~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 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 ~~January~~April 2023, the Company paid ~~$173,128~~$174,873 of preferred stock dividends with respect to the Series A Preferred and Series B Preferred that accrued during the three months ended ~~December~~March 31, ~~2022,~~2023, by issuing ~~68,838~~88,762 shares of common stock.

~~Table of Contents~~

Note 4. 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

December 31,
2022

June 30,
2022

Raw materials

$ 6,052,541

$ 6,536,951

Work in process

278,664

313,549

Finished goods

4,718,633

5,599,997

Inventory reserve

(303,901 )

(379,205 )

$ 10,745,937

$ 12,071,292

Note 5. Related-Party Transactions

The Company leases office, manufacturing and warehouse facilities in 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-party transactions totaled $249,366 and $248,952 for the three months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$498,732~~$748,098 and ~~$497,905~~$746,858 for the ~~six~~nine months ended ~~December~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Note 6. Revenue

As of ~~December~~March 31, ~~2022~~2023 and June 30, 2022, the net rebate receivable (liability) was ~~$51,606~~$5,612 and ($217,158), respectively. The rebate receivable is included in other receivables and rebate liability ~~are~~is included in accrued expenses inwithin the accompanying condensed consolidated balance sheets. As of ~~December~~March 31, ~~2022~~2023 and June 30, 2022, the allowance for sales discounts was ~~$12,950~~$12,946 and $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 ~~six~~nine months ended ~~December~~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

Three Months Ended December 31,

Six Months Ended December 31,

2022

2021

2022

2021

Physical Therapy and Rehabilitation Products

$ 6,365,220

$ 5,426,025

$ 12,663,556

$ 12,124,380

Orthopedic Soft Bracing Products

4,488,550

5,076,785

10,221,389

10,650,259

Other

28,787

27,043

50,813

56,109

$ 10,882,557

$ 10,529,853

$ 22,935,758

$ 22,830,748

~~Table of Contents~~

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, including the disclosures contained in Part I Item 2 ~~Management’s~~Management'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; any statements of the strategies, plans and objectives of management for future operations; expectations in connection with the ~~company’s~~company's previously announced business optimization plan; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; any statements of 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’s~~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 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 adversely~~broader 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, 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.

~~Table of Contents~~

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

~~Management’s~~Management'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-K~~10K for the year ended June 30, 2022, and our other filings with the SEC, including our quarterly and current reports that we have filed since June 30, 2022 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-company~~intercompany transactions have been eliminated. Our fiscal year ends on June 30. For example, reference to fiscal year 2023 refers to the year ending June 30, 2023. This report covers the three and ~~six~~nine months ended ~~December~~March 31, ~~2022.~~2023. Results of operations for the three and ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 are not necessarily indicative of the results that may be achieved for the full fiscal year ending June 30, 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 ~~increased $353,000,~~decreased $1,080,000, or ~~3.3%~~10.5%, to ~~$10,883,000~~$9,236,000 for the quarter ended ~~December~~March 31, ~~2022,~~2023, compared to net sales of ~~$10,530,000~~$10,316,000 for the quarter ended ~~December~~March 31, ~~2021.~~2022. Net sales ~~increased $105,000,~~decreased $975,000, or ~~0.5%~~2.9%, to ~~$22,936,000~~$32,172,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, compared to net sales of ~~$22,831,000~~$33,147,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. The year-over-year ~~increase~~decrease is primarily ~~due to an increase in customer demand compared~~attributable to the ~~prior year period~~acquisition of a competitor by a rehabilitation product category customer, reduction in ~~which we experienced the impact of COVID-19 precautions~~overall volume for OEM customers and ~~associated deferral on elective procedures which reduced~~a general reduction in demand for ~~our products.~~the orthopedic soft bracing product category.

~~Table of Contents~~

Gross Profit

Gross profit for the quarter ended ~~December~~March 31, ~~2022 increased $981,000,~~2023 decreased $103,000, or about ~~47.1%~~4.5%, to ~~$3,062,000,~~$2,208,000, or ~~28.1%~~23.9% of net sales. By comparison, gross profit for the quarter ended ~~December~~March 31, ~~2021~~2022 was ~~$2,081,000,~~$2,311,000, or ~~19.8%~~22.4% of net sales. Gross profit for the ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 increased ~~$960,000,~~$857,000, or about ~~16.7%~~10.6%, to ~~$6,705,000,~~$8,913,000, or ~~29.2%~~27.7% of net sales. By comparison, gross profit for the ~~six~~nine months ended ~~December~~March 31, ~~2021~~2022 was ~~$5,745,000,~~$8,056,000, or ~~25.2%~~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 increase in gross profit was primarily attributable to a reduction in freight-in expenses, stabilized raw material costs, and changes in product mix.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses ~~increased $380,000,~~decreased $318,000, or ~~10.9%~~8.5%, to ~~$3,862,000~~$3,429,000 for the quarter ended ~~December~~March 31, ~~2022,~~2023, compared to ~~$3,482,000~~$3,747,000 for the quarter ended ~~December~~March 31, 2021. Selling expenses increased $459,000 compared to the prior year period, due primarily to higher marketing program expenses and higher salaries. The increase in selling expenses was offset by a decrease in general and administrative (“G&A”) expenses of $79,000 compared to the prior-year period.2022. The decrease in GSG&A was driven primarily by a reduction in ~~professional services~~salaries and ~~salaries.~~benefits.

SG&A expenses increased ~~$402,000,~~$84,000, or ~~5.3%~~0.7%, to ~~$7,980,000~~$11,409,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, compared to ~~$7,578,000~~$11,325,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2021. Selling expenses increased $669,000 compared to the prior year period, due primarily to higher marketing program expenses and higher salaries.~~2022. The increase in ~~selling expenses was offset by a decrease in G&A expenses of $267,000 compared to the prior-year period. The decrease in G~~SG&A was driven primarily by an increase in marketing program expense offset by a reduction in ~~professional services~~salaries and ~~salaries.~~benefits.

Net Other Income (Expense)

Net other expense for the quarter ended ~~December~~March 31, ~~2022,~~2023, was ~~$37,000~~$25,000 compared to net other expense of ~~$40,000~~$36,000 for the quarter ended ~~December~~March 31, ~~2021.~~2022. The decrease in net other expense is primarily due to a ~~$2,000~~$9,000 decrease in interest expense as a result of lower average borrowings on long-term debt. Net other expense for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, was ~~$68,000~~$93,000 compared to net other income of ~~$875,000~~$841,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. The increase in net other expense is primarily due to a $943,000 employee retention credit for funds received or receivable from the U.S. federal government under the CARES Act in the prior year.

~~Table of Contents~~

Income Tax ~~Provision~~(Provision) Benefit

Income tax ~~provision~~(provision) benefit was ~~$4,000~~$27 and ($4,000) for the three and ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023, respectively and $0 for the three and ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. See Liquidity and Capital Resources - Deferred Income Tax Assets below for more information.

Net Loss

Net loss for the quarter ended ~~December~~March 31, ~~2022~~2023 was ~~$841,000~~$1,246,000 compared to a net loss of ~~$1,441,000~~$1,472,000 for the quarter ended ~~December~~March 31, ~~2021.~~2022. The ~~$600,000~~$226,000 decrease in net loss was attributable to ~~an increase of $981,000 in gross profit,~~ a decrease of ~~$3,000~~$318,000 in SG&A, a decrease of $11,000 in other expense, and offset by ~~an increase~~a decrease of ~~$380,000~~$103,000 in ~~SG&A.~~gross profit. Net loss was ~~$1,347,000~~$2,592,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, compared to a net loss of ~~$959,000~~$2,427,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. The ~~$388,000~~$165,000 increase in net loss was attributable to an increase of ~~$954,000~~$934,000 in other expense, increase of ~~$401,000~~$84,000 in SG&A, increase of $4,000 in income tax provision, and offset by an increase of ~~$960,000~~$857,000 in gross profit.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders decreased ~~$609,000~~$234,000 to ~~$1,014,000~~$1,420,000 for the quarter ended ~~December~~March 31, ~~2022,~~2023, compared to ~~$1,623,000~~$1,654,000 for the quarter ended ~~December~~March 31, ~~2021.~~2022. The decrease in net loss attributable to common stockholders for the quarter is due primarily to a ~~$600,000~~$226,000 decrease in net loss. On a per share basis, basic and diluted net loss attributable to common stockholders was ~~$0.27~~$0.36 per share for the quarter ended ~~December~~March 31, ~~2022,~~2023, compared to $0.46 per share for the quarter ended ~~December~~March 31, ~~2021.~~2022.

Net loss attributable to common stockholders increased ~~$362,000~~$132,000 to ~~$1,690,000~~$3,111,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, compared to ~~$1,328,000~~$2,979,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. On a per share basis, basic and diluted net loss attributable to common stockholders was ~~$0.45~~$0.82 per share for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, compared to ~~$0.38~~$0.84 per share for the ~~six~~nine months ended ~~December~~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 ~~December~~March 31, ~~2022,~~2023, we had ~~$685,000~~$670,000 in cash and cash equivalents and restricted cash, compared to $701,000 as of June 30, 2022.

Working capital was ~~$8,287,000~~$7,144,000 as of ~~December~~March 31, ~~2022,~~2023, compared to working capital of $9,291,000 as of June 30, 2022. The current ratio was 1.8 to 1 as of March 31, 2023 and 1.9 to 1 as of ~~December 31, 2022 and~~ June 30, 2022. Current assets were ~~50.3%~~47.0% of total assets as of ~~December~~March 31, ~~2022,~~2023, and 54.3% of total assets as of June 30, 2022.

We believe that our cash generated from operations, current capital resources, and proceeds of the equity ~~proceeds~~sales 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 into~~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 ~~arranged to~~may offer and sell ~~shares~~up 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 us~~our 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 amending~~SEC 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 up~~have agreed to ~~$10,000,000, with Canaccord Genuity LLC and Roth Capital Partners LLC acting as our sales agents at~~pay 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, LLC~~Agents 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 ~~purpose~~sale 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 replacement registration statement provides for potential futures~~the terms of the Equity Distribution Agreement (the “ATM”). As of the date hereof, we have not commenced any sales ~~in conjunction with a prospectus supplement for up to $2,677,997 in common stock in~~under the ATM.

Reverse Stock Split

~~Table of Contents~~

Cash and Cash Equivalents

Our cash and cash equivalents and restricted cash position decreased ~~$16,000~~$31,000 to ~~$685,000~~$670,000 as of ~~December~~March 31, ~~2022,~~2023, compared to $701,000 as of June 30, 2022. The primary use of cash for the ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 was to pay down existing vendor payables.

Accounts Receivable

Trade accounts receivable, net of allowance for doubtful accounts, decreased approximately ~~$185,000,~~$1,049,000 or ~~3.4%~~19.4%, to ~~$5,231,000~~$4,367,000 as of ~~December~~March 31, ~~2022,~~2023, from $5,416,000 as of June 30, 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, decreased ~~$1,325,000~~$2,368,000 or ~~11.0%~~19.6%, to ~~$10,746,000~~$9,703,000 as of ~~December~~March 31, ~~2022,~~2023, compared to $12,071,000 as of June 30, 2022. The decrease was primarily due to steps taken to adjust inventory management in response to the impact of ~~COVID-19~~COVID19 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 decreased approximately ~~$123,000~~$2,000 or ~~2.0%~~0.0%, to ~~$6,046,000~~$6,167,000 as of ~~December~~March 31, ~~2022,~~2023, from $6,169,000 as of June 30, 2022. ~~The decrease was driven primarily by a decrease in inventory purchases and timing of payments.~~

Debt

~~Debt~~

Long-term debt ~~decreased $5,118 to $244~~was $0 as of ~~December~~March 31, ~~2022,~~2023, compared to ~~$5,362~~$5,000 as of June 30, 2022. ~~Our long-term debt is primarily comprised of loans related to equipment.~~

Finance Lease Liability

Finance lease liability as of ~~December~~March 31, ~~2022~~2023 and June 30, 2022 totaled approximately ~~$2,170,000~~$2,090,000 and $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-year~~15year 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 ~~$2,120,000~~$2,183,000 at ~~December~~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 ~~December~~March 31, ~~2022,~~2023, is ~~$1,003,000.~~$965,000. Lease payments, currently approximately $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 ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 was approximately ~~$30,000~~$29,000 and ~~60,000,~~$89,000, respectively. In addition to the Utah building, we have certain equipment leases that we have determined are finance leases.

~~Table of Contents~~

Operating Lease Liability

Operating lease liability as of ~~December~~March 31, ~~2022~~2023 and June 30, 2022 totaled approximately ~~$3,256,000~~$3,843,000 and $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~~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 ~~December~~March 31, ~~2022~~2023 and June 30, 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 ~~six~~nine months ended ~~December~~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 ~~December~~March 31, ~~2022.~~2023. No purchases have been made under this plan since September 2011.

Off-Balance Sheet Arrangements

As of ~~December~~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-K~~10K for the year ended June 30, 2022. There have been no material changes to the critical accounting policies previously disclosed in that report.

~~Table of Contents~~

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, 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 specified in the ~~SEC’s~~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, 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 principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined under Rule ~~13a-15(e)~~13a15(e) promulgated under the Exchange Act, as of ~~December~~March 31, ~~2022.~~2023. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of ~~December~~March 31, ~~2022,~~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~~SEC's rules and forms and is (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as 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 ~~December~~March 31, ~~2022,~~2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

~~None.~~

Item 1A.

The risk factors described in our Annual Report on Form ~~10-K~~10K for the year ended June 30, 2022 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

~~Table of Contents~~

Item 6. Exhibits

3.1		Articles 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)

4.1		Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 of ~~registrant’s~~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

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

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 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

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

~~Table of Contents~~

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: ~~February 9,~~May 11, 2023	By:	/s/John A. Krier
		~~John A. Krier~~
		John A. Krier
		President, Chief Executive Officer, and Chief Financial Officer
		(Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)

	Three Months						Six Months
	December 31,						December 31,
	2022			2021			2022			2021
Net sales	$	10,882,557			10,529,853		$	22,935,758		$	22,830,748
Cost of sales		7,820,371			8,449,192			16,230,732			17,085,782
Gross profit		3,062,186			2,080,661			6,705,026			5,744,966

Selling, general, and administrative expenses		3,861,706			3,481,529			7,979,539			7,578,196
Operating loss		(799,520	)		(1,400,868	)		(1,274,513	)		(1,833,230	)

Other income (expense):
Interest expense, net		(37,941	)		(40,233	)		(69,396	)		(80,333	)
Other income (expense), net		624			(166	)		1,146			954,936
Net other income (expense)		(37,317	)		(40,399	)		(68,250	)		874,603

Loss before income taxes		(836,837	)		(1,441,267	)		(1,342,763	)		(958,627	)

Income tax provision		(4,030	)		—			(4,030	)		—

Net loss	$	(840,867	)	$	(1,441,267	)	$	(1,346,793	)	$	(958,627	)

Preferred stock dividend, in common stock, issued or to be issued		(173,128	)		(182,153	)		(343,704	)		(369,236	)

Net loss attributable to common stockholders	$	(1,013,995	)	$	(1,623,420	)	$	(1,690,497	)	$	(1,327,863	)

Net loss per common share:
Basic and diluted	$	(0.27	)	$	(0.46	)	$	(0.45	)	$	(0.38	)

Weighted average shares outstanding:
Basic and diluted		3,794,333			3,545,374			3,750,930			3,529,208

	Six Months Ended December 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(1,346,793	)	$	(958,627	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		368,557			363,990
Amortization of intangible assets		313,301			352,950
Amortization of other assets		—			10,658
Stock-based compensation		86,356			111,984
Change in allowance for doubtful accounts receivable		(50,777	)		(117,239	)
Change in allowance for inventory obsolescence		(75,304	)		(258,635	)
Amortization of deferred gain on sale/leaseback		(75,224	)		(75,224	)
Change in operating assets and liabilities:
Trade accounts receivable		235,978			168,398
Inventories		1,400,659			(2,539,425	)
Prepaid expenses and other receivables		117,548			458,080
Other assets		16,104			3,796
Accounts payable, accrued expenses, and other current liabilities		(698,743	)		69,602

Net cash provided by (used in) operating activities		291,662			(2,409,692	)

Cash flows from investing activities:
Purchase of property and equipment		(126,465	)		(98,351	)

Net cash used in investing activities		(126,465	)		(98,351	)

Cash flows from financing activities:
Principal payments on long-term debt		(5,118	)		(6,643	)
Principal payments on finance lease liability		(175,902	)		(165,527	)

Net cash used in financing activities		(181,020	)		(172,170	)

Net change in cash and cash equivalents and restricted cash		(15,823	)		(2,680,213	)

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	$	685,494		$	3,573,431

Supplemental disclosure of cash flow information:
Cash paid for interest	$	93,789		$	80,333
Supplemental disclosure of non-cash investing and financing activities
Preferred stock dividend, in common stock, issued or to be issued	$	173,128		$	369,236
Operating lease right-of-use assets obtained in exchange for lease obligations		2,148,738			—
Finance lease right-of-use assets obtained in exchange for lease obligations		86,119			—

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Physical Therapy and Rehabilitation Products	$	6,365,220	$	5,426,025	$	12,663,556	$	12,124,380
Orthopedic Soft Bracing Products		4,488,550		5,076,785		10,221,389		10,650,259
Other		28,787		27,043		50,813		56,109
	$	10,882,557	$	10,529,853	$	22,935,758	$	22,830,748