Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Mar. 31, 2017 | May 15, 2017 | |
Document and Entity Information: | ||
Entity Registrant Name | DYNATRONICS CORP | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Trading Symbol | dynt | |
Amendment Flag | false | |
Entity Central Index Key | 720,875 | |
Current Fiscal Year End Date | --06-30 | |
Entity Common Stock, Shares Outstanding | 3,683,090 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Mar. 31, 2017 | Jun. 30, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 3,352,694 | $ 966,183 |
Trade accounts receivable, less allowance for doubtful accounts of $459,700 as of March 31, 2017 and $389,050 as of June 30, 2016 | 2,925,080 | 3,523,731 |
Other receivables | 29,793 | 10,946 |
Inventories, net | 5,783,327 | 4,997,254 |
Prepaid expenses | 221,013 | 256,735 |
Prepaid income taxes | 1,072 | |
Total current assets | 12,312,979 | 9,754,849 |
Property and equipment, net | 4,578,087 | 4,777,565 |
Intangible assets, net | 137,113 | 160,123 |
Other assets | 693,408 | 580,161 |
Total assets | 17,721,587 | 15,272,698 |
Current liabilities: | ||
Current portion of long-term debt | 150,894 | 137,283 |
Current portion of capital lease | 191,134 | 183,302 |
Current portion of deferred gain | 150,448 | 150,448 |
Line of credit | 2,540,073 | |
Warranty reserve | 153,042 | 152,605 |
Accounts payable | 2,489,795 | 1,914,342 |
Accrued expenses | 322,373 | 358,787 |
Accrued payroll and benefits expense | 537,056 | 1,034,688 |
Income tax payable | 2,895 | |
Total current liabilities | 6,534,815 | 3,934,350 |
Long-term debt, net of current portion | 497,019 | 553,191 |
Capital lease, net of current portion | 3,137,202 | 3,281,547 |
Deferred gain, net of current portion | 1,717,613 | 1,830,449 |
Deferred rent | 113,501 | 85,151 |
Total liabilities | 12,000,150 | 9,684,688 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, no par value: Authorized 50,000,000 shares; 2,000,000 shares and 1,610,000 shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively | 4,636,706 | 3,708,152 |
Common stock, no par value: Authorized 100,000,000 shares; 3,047,345 shares and 2,805,280 shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively | 8,174,434 | 7,545,880 |
Accumulated deficit | (7,089,703) | (5,666,022) |
Total stockholders' equity | 5,721,437 | 5,588,010 |
Total liabilities and stockholders' equity | $ 17,721,587 | $ 15,272,698 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets Parenthetical - USD ($) | Mar. 31, 2017 | Jun. 30, 2016 |
Condensed Consolidated Balance Sheets Parenthetical | ||
Allowance for doubtful accounts | $ 459,700 | $ 389,050 |
Preferred stock par value | ||
Preferred stock shares authorized | 50,000,000 | 5,000,000 |
Preferred stock shares issued | 2,000,000 | 1,610,000 |
Preferred stock shares outstanding | 2,000,000 | 1,610,000 |
Common stock par value | ||
Common stock shares authorized | 100,000,000 | 50,000,000 |
Common stock shares issued | 3,047,345 | 2,805,280 |
Common stock shares outstanding | 3,047,345 | 2,805,280 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income - USD ($) | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Condensed Consolidated Statements of Income | ||||
Net sales | $ 7,715,955 | $ 7,408,990 | $ 24,592,043 | $ 22,281,107 |
Cost of sales | 5,014,175 | 4,922,570 | 16,022,269 | 14,606,877 |
Gross profit | 2,701,780 | 2,486,420 | 8,569,774 | 7,674,230 |
Selling, general, and administrative expenses | 3,153,257 | 2,620,238 | 8,768,851 | 7,445,023 |
Research and development expenses | 230,594 | 249,995 | 818,954 | 769,223 |
Operating loss | (682,071) | (383,813) | (1,018,031) | (540,016) |
Other income (expense): | ||||
Interest income | 124 | 175 | 488 | 2,658 |
Interest expense | (74,992) | (71,690) | (198,084) | (229,207) |
Other income, net | 2,208 | 4,640 | 79,943 | 9,635 |
Net other expense | (72,660) | (66,875) | (117,653) | (216,914) |
Loss before income taxes | (754,731) | (450,688) | (1,135,684) | (756,930) |
Income tax (provision) benefit | ||||
Net loss | (754,731) | (450,688) | (1,135,684) | (756,930) |
Deemed dividend on 8% convertible preferred stock | (375,858) | |||
8% Convertible preferred stock dividend | (93,979) | (80,500) | (271,756) | (241,500) |
Net loss attributable to common stockholders | $ (848,710) | $ (531,188) | $ (1,783,298) | $ (998,430) |
Basic and diluted net loss per common share | $ (0.28) | $ (0.19) | $ (0.61) | $ (0.37) |
Weighted-average common shares outstanding: | ||||
Basic | 3,022,443 | 2,731,282 | 2,914,229 | 2,681,493 |
Diluted | 3,022,443 | 2,731,282 | 2,914,229 | 2,681,493 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows - USD ($) | 9 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash flows from operating activities: | ||
Net loss | $ (1,135,684) | $ (756,930) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization of property and equipment | 161,961 | 168,439 |
Amortization of intangible assets | 23,010 | 25,912 |
Amortization of other assets | 92,323 | 38,529 |
Amortization of building lease | 188,950 | 188,950 |
Gain on sale of property and equipment | (19,252) | |
Stock-based compensation expense | 171,798 | 81,075 |
Change in provision for doubtful accounts receivable | 70,650 | (50,558) |
Change in provision for inventory obsolescence | 7,028 | 18,422 |
Deferred gain on sale/leaseback | (112,836) | (112,836) |
Change in operating assets and liabilities: | ||
Change in Receivables, net | 509,154 | 58,447 |
Change in Inventories, net | (793,101) | 35,108 |
Change in Prepaid expenses | 35,722 | 47,192 |
Change in Other assets | (205,570) | 22,880 |
Change in Income tax payable | (3,967) | 269,826 |
Change in Accounts payable and accrued expenses | 255,194 | (706,208) |
Net cash used in operating activities | (754,620) | (671,752) |
Cash flows from investing activities: | ||
Purchase of property and equipment | (164,181) | (44,152) |
Proceeds from sale of property and equipment | 32,000 | |
Net cash used in investing activities | (132,181) | (44,152) |
Cash flows from financing activities: | ||
Principal payments on long-term debt | (42,561) | (92,631) |
Principal payments on long-term capital lease | (136,513) | (129,107) |
Net change in line of credit | 2,540,073 | (1,909,919) |
Proceeds from issuance of preferred stock, net | 928,554 | |
Preferred stock dividends paid in cash | (16,241) | |
Net cash provided by (used in) financing activities | 3,273,312 | (2,131,657) |
Net change in cash and cash equivalents | 2,386,511 | (2,847,561) |
Cash and cash equivalents at beginning of the period | 966,183 | 3,925,967 |
Cash and cash equivalents at end of the period | 3,352,694 | 1,078,406 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 198,572 | 247,545 |
Supplemental disclosure of non-cash investing and financing activity: | ||
Deemed dividend on 8% convertible preferred stock | 375,858 | |
8% Preferred stock dividend paid in common stock | 276,693 | $ 241,500 |
Accrued severance paid in common stock | $ 185,000 |
Note 1. Presentation and Summar
Note 1. Presentation and Summary of Significant Accounting Policies | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 1. Presentation and Summary of Significant Accounting Policies | NOTE 1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The condensed consolidated balance sheets as of March 31, 2017 and June 30, 2016, the condensed consolidated statements of operations for the three and nine months ended March 31, 2017 and 2016, and condensed consolidated statements of cash flows for the nine months ended March 31, 2017 and 2016, were prepared by Dynatronics Corporation (the Company) without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all necessary adjustments, which consist only of normal recurring adjustments, to the financial statements have been made to present fairly the Companys financial position, results of operations and cash flows. The results of operations for the three and nine months ended March 31, 2017, are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2017. The Company previously filed with the SEC an annual report on Form 10-K, as amended, which included audited financial statements for each of the two years ended June 30, 2016 and 2015. It is suggested that the financial statements contained in this Form 10-Q be read in conjunction with the financial statements and notes thereto contained in the Companys most recent Form 10-K, as amended. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, allowance for doubtful accounts, stock-based compensation and valuation allowance for deferred income taxes. Significant Accounting Policies There have been no changes to the Companys significant accounting policies as described in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2016. |
Note 2. Net Loss Per Common Sha
Note 2. Net Loss Per Common Share | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 2. Net Loss Per Common Share | 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. The reconciliations between the basic and diluted weighted-average number of common shares outstanding for the three and nine months ended March 31, 2017 and 2016, are as follows: Three Months Ended Nine Months Ended March 31, March 31, 2017 2016 2017 2016 Basic weighted-average number of common shares outstanding during the period 3,022,443 2,731,282 2,914,229 2,681,493 Weighted-average number of dilutive potential common stock outstanding during the period - - - - Diluted weighted-average number of common and potential common shares outstanding during the period 3,022,443 2,731,282 2,914,229 2,681,493 Outstanding options, warrants and convertible preferred stock for common shares not included in the computation of diluted net loss per common share because they were anti-dilutive totaled 5,165,008 and 4,167,814 for the three months ended March 31, 2017 and 2016, respectively, and 5,165,798 and 4,167,814 for the nine months ended March 31, 2017 and 2016, respectively. |
Note 3. Stock-based Compensatio
Note 3. Stock-based Compensation | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 3. Stock-based Compensation | NOTE 3. STOCK-BASED COMPENSATION Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the employees requisite service period. The Company recognized $68,809 and $51,453 in stock-based compensation expense during the three months ended March 31, 2017 and 2016, respectively, and recognized $171,798 and $81,075 in stock-based compensation expense during the nine months ended March 31, 2017 and 2016, respectively. These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations. Stock Options. The following table summarizes the Companys stock option activity under the 2005 and 2015 Plans during the nine-month period ended March 31, 2017: Number of Options Weighted-Average Exercise Price Outstanding at beginning of period 121,557 $ 3.57 Granted 49,500 2.83 Exercised - - Cancelled (2,639) 4.63 Outstanding at end of period 168,418 3.33 Exercisable at end of period 75,901 $ 4.47 The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Companys stock option plans. Expected option lives and volatilities are based on historical data of the Company. The risk-free interest rate is based on the U.S. Treasury Bills rate on the grant date for constant maturities that correspond with the option life. Historically, the Company has not declared dividends on common stock and there are no plans to do so. As of March 31, 2017, there was $267,641 of unrecognized stock-based compensation cost related to grants under the 2005 and 2015 Plans that is expected to be expensed over a weighted-average period of 4.97 years. There was $1,817 of intrinsic value for options outstanding as of March 31, 2017. |
Note 4. Convertible Preferred S
Note 4. Convertible Preferred Stock and Common Stock Warrants | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 4. Convertible Preferred Stock and Common Stock Warrants | NOTE 4. CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS On December 16, 2016 the shareholders approved an increase to the aggregate number of shares of preferred stock that the Company is authorized to issue from 5,000,000 shares to 50,000,000 shares. On December 28, 2016, the Company completed a private placement with affiliates of Prettybrook Partners, LLC (Prettybrook) and certain other purchasers (collectively with Prettybrook, the Preferred Investors) for the offer and sale of the remaining designated 390,000 shares of the Companys Series A 8% Convertible Preferred Stock (the Series A Preferred) for gross proceeds of approximately $975,000. Proceeds from the private placement were recorded net of offering costs incurred. The Series A Preferred is convertible to common stock on a 1:1 basis. A forced conversion can be initiated based on a formula related to share price and trading volumes as outlined in the Certificate Designating the Preferences, Rights and Limitations of the Series A Preferred (Series A Designation). The dividend is fixed at 8% and is payable in either cash or common stock subject to conditions contained in the Series A Designation. This dividend is payable quarterly and equates to an annual payment of $400,000 in cash or a value in common stock based on the trading price of the stock on the date the dividend is declared. Certain redemption rights are attached to the Series A Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate. The Series A Preferred includes a liquidation preference under which Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends. In accordance with the terms of the sale of the Series A Preferred, the Company was required to register the underlying common shares associated with the Series A Preferred and the Series A Warrants issued to the Preferred Investors in the private placement, as described below. That registration statement was filed on Form S-3 on January 28, 2017 and amended on February 1, 2017. The registration statement became effective on February 10, 2017. The Series A Preferred votes on an as-converted basis, one vote for each share of common stock issuable upon conversion of the Series A Preferred, provided, however, that no holder of Series A Preferred shall be entitled to cast votes for the number of shares of common stock issuable upon conversion of such Series A Preferred held by such holder that exceeds the quotient of (x) the aggregate purchase price paid by such holder of Series A Preferred for its Series A Preferred, divided by (y) the greater of (i) $2.50 and (ii) the market price of the common stock on the trading day immediately prior to the date of issuance of such holders Series A Preferred. The market price of the common stock on the trading day immediately prior to the date of issuance of the Series A Preferred in December 2016 was $2.37 per share. Based on a $975,000 investment at $2.50 per share and a $2.37 per share market price, the number of shares of potential common stock eligible for voting by the Preferred Investors is 390,000. The Preferred Investors purchased a total of 390,000 shares of Series A Preferred, and received in connection with such purchase common stock purchase warrants (collectively, the Series A Warrants); (i) A-Warrants, exercisable by cash exercise only, to purchase 292,500 shares of common stock, and (ii) B-Warrants, exercisable by cashless exercise, to purchase 292,500 shares of common stock, but only after exercise of holders A-Warrants. The Series A Warrants are exercisable for 72 months from the date of issuance and carry a put feature in the event of a change in control. The put right is not subject to derivative accounting as all equity holders are treated the same in the event of a change in control. The Companys shareholders originally authorized the issuance of 2,000,000 shares of the Series A Preferred in June, 2015. The Company sold and issued 1,610,000 shares of Series A Preferred in June 2015, leaving 390,000 shares available for future issuance. Those remaining 390,000 shares were sold and issued in December 2016 as described in this Note 4. The only difference between the shares of Series A Preferred issued in June 2015 and those issued in December 2016 is that the formula determining voting rights for the shares issued in June 2015 indicated a cutback in the voting power of those shares as required by the Series A Designation. The shares of Series A Preferred issued in December 2016 were not subject to any cutback. For information regarding the original issuance of the Series A Preferred in June 2015, see the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2016. The Series A Preferred includes a conversion right at a price that creates an embedded beneficial conversion feature. A beneficial conversion feature arises when the conversion price of a convertible instrument is below the per share fair value of the underlying stock into which it is convertible. The conversion price is in the money and the holder realizes a benefit to the extent of the price difference. The issuer of the convertible instrument realizes a cost based on the theory that the intrinsic value of the price difference (i.e., the price difference times the number of shares received upon conversion) represents an additional financing cost. The conversion rights associated with the Series A Preferred issued by the Company do not have a stated life and, therefore, the total beneficial conversion feature amount of $375,858 associated with the shares issued in December 2016 was recorded as a deemed dividend on the date the shares were issued. The $375,858 dividend is added to the net loss to arrive at the net loss applicable to common stockholders for purposes of calculating loss per share for the nine months ended March 31, 2017. |
Note 5. Common Stock
Note 5. Common Stock | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 5. Common Stock | NOTE 5. COMMON STOCK On December 16, 2016, the shareholders approved an increase to the aggregate |
Note 6. Comprehensive Loss
Note 6. Comprehensive Loss | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 6. Comprehensive Loss | NOTE 6. COMPREHENSIVE LOSS For the three and nine months ended March 31, 2017 and 2016, comprehensive loss was equal to the net loss as presented in the accompanying condensed consolidated statements of operations. |
Note 7. Inventories
Note 7. Inventories | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 7. Inventories | NOTE 7. INVENTORIES Inventories consisted of the following: March 31, 2017 June 30, 2016 Raw materials $ 2,274,898 $ 2,059,048 Finished goods 3,931,215 $ 3,353,964 Inventory obsolescence reserve (422,786) (415,758) $ 5,783,327 4,997,254 |
Note 8. Related-party Transacti
Note 8. Related-party Transactions | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 8. Related-party Transactions | NOTE 8. RELATED-PARTY TRANSACTIONS The Company currently leases office and warehouse space in Detroit, Michigan and Hopkins, Minnesota from two shareholders and former independent distributors on an annual basis under operating lease arrangements. Management believes the lease agreements are on an arms-length basis and the terms are equal to or more favorable than would be available to the Company from third parties. The expense associated with these related-party transactions totaled $17,700 for the three months ended March 31, 2017 and 2016, and $53,100 for the nine months ended March 31, 2017 and 2016. Certain significant shareholders, officers and directors of the Company participated as investors in the private placement of the Companys Series A Preferred in December 2016 (see Note 4). The terms of the offering were reviewed and approved by the disinterested members of the Companys Board of Directors who did not invest in the private placement and who do not own any shares of Series A Preferred. Details of the private placement were included in the Companys Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 3, 2017. |
Note 9. Line of Credit
Note 9. Line of Credit | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 9. Line of Credit | NOTE 9. LINE OF CREDIT On March 31, 2017, the Company entered into a Loan and Security Agreement with a bank to provide asset-based financing to the Company to be used for funding the Acquisition (see Note 11) and for operating capital. This Loan and Security Agreement replaces the $1,000,000 line of credit previously put in place with an asset based lender in September, 2016. The Company paid an early termination fee of $14,000 associated with that previous line of credit. The Loan and Security Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of $8,000,000 and a borrowing base. The borrowing base is computed monthly and is equal to the sum of stated percentages of eligible accounts receivable and inventory, less a reserve. Amounts outstanding bear interest at LIBOR plus 2.25%. The Company paid a commitment fee of .25% and the line is subject to an unused line fee of .25%. The maturity date is two years from the date of the note. Obligations under the Loan and Security Agreement are secured by a first-priority security interest in substantially all of the Companys assets. The Loan and Security Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan and Security Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a maximum monthly consolidated leverage and a minimum monthly consolidated fixed charge coverage ratio. As of March 31, 2017, the Company had borrowed approximately $2.5 million under the Loan and Security Agreement compared to no borrowings as of June 30, 2016. Management believes that cash balances, cash generated from operating activities, and cash available pursuant to the line of credit will continue to be sufficient to meet the Companys annual operating requirements. The line of credit matures on April 1, 2019. Management expects to be able to renew this credit facility when it matures with the current lender or another lender. |
Note 10. Recent Accounting Pron
Note 10. Recent Accounting Pronouncements | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 10. Recent Accounting Pronouncements | NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business 1. require that a business set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and 2. remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework for evaluating whether both an input and a substantive process are present. Lastly, the amendments in this update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. This amendment will be effective for the Company in its fiscal year (including interim periods) beginning July 1, 2018. The Company is currently evaluating the impact the adoption of ASU 2017-01 will have on its consolidated financial statements and disclosures. |
Note 11. Subsequent Events
Note 11. Subsequent Events | 9 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note 11. Subsequent Events | NOTE 11. SUBSEQUENT EVENTS On March 21, 2017 the Company entered into a definitive agreement (the Asset Purchase Agreement) to acquire substantially all the assets of Hausmann Industries, Inc., a New Jersey corporation (Hausmann) for $10.0 million in cash, subject to adjustment, as provided in the Asset Purchase Agreement (the Acquisition). The Acquisition was effected through Hausmann Enterprises, LLC, a newly formed Utah limited liability company, wholly owned by the Company (the "Acquisition Subsidiary") and closed on April 3, 2017. Financing for the Acquisition was provided by proceeds from the sale of equity securities in a private offering to accredited investor (the Private Placement) and borrowings under the Loan and Security Agreement (see Note 9). Closing of the Private Placement occurred concurrently with the closing of the Acquisition. At the closing of the Acquisition, the Company paid Hausmann $9.0 million of the $10.0 million purchase price holding back $1.0 million for purposes of satisfying adjustments to the purchase price as may be required by the Asset Purchase Agreement and indemnification claims, if any. Subject to adjustments or claims as provided by the Asset Purchase Agreement, 25% of the holdback amount will be released to Hausmann on January 1, 2018, and the balance will be released to Hausmann 18 months after closing. As part of the Acquisition, the Company assumed certain liabilities and obligations of Hausmann related to its ongoing business (primarily trade accounts and similar obligations in the ordinary course). In connection with the Acquisition, the Company sold equity securities for gross proceeds of $7,795,000 in the Private Placement pursuant to the terms of a Securities Purchase Agreement dated March 21, 2017 (the "Securities Purchase Agreement") entered into with certain accredited investors, including institutional investors (the "Investors"). The securities sold in the Private Placement were a total of 1,559,000 Units at $5.00 per Unit, each Unit made up of: (1) one share of common stock priced at $2.50 per share, (2) one share of the Companys newly designated, no par value share Series B Convertible Preferred Stock ("Series B Preferred") priced at $2.50 per share, and a common stock purchase warrant (the Series B Warrants) to purchase 1.5 shares of common stock, exercisable at $2.75 per share for six years. Ladenburg Thalmann & Co. Inc. ("Ladenburg") acted as placement agent in connection with the Private Placement and the Company paid Ladenburg fees for its services for introducing Investors to the Company. In connection with the closing of the Private Placement, the Company agreed to file a registration statement with the SEC to register all shares of common stock issuable as part of the Units, as well as all shares of common stock underlying conversion of the Series B Preferred or payment of Series B dividends or issuable upon exercise of the Series B Warrants. The Company filed a registration statement on January 27, 2017 to fulfill these obligations and the registration statement became effective on February 10, 2017. Also in connection with the Acquisition, Acquisition Subsidiary entered into an agreement with Hausmann to lease the 60,000 square-foot manufacturing and office facility in Northvale, New Jersey (the "Facility") effective as of April 3, 2017 (the "Lease") with an initial two-year term, annual lease payments of $360,000 for the first year, and 2% increases in each subsequent year. The Lease grants Acquisition Subsidiary two options to extend the term of the Lease for two years per extension term, subject to annual 2% per year increases in base rent, and a third option at the end of the second option term for an additional five-years at fair market value. The Company also offered employment to Hausmanns employees at closing including David Hausmann, the primary stockholder of Hausmann and its former principal executive officer. Mr. Hausmann entered into an employment agreement with the Company effective as of April 3, 2017 to assist in the transition of the acquired business. In April 2017, the Company paid approximately $94,000 of preferred stock dividends with respect to Series A Preferred that accrued in the quarter ended March 31, 2017. The Company paid the dividends by issuing 32,975 shares of common stock and the payment of $15,600 cash. |
Note 1. Presentation and Summ17
Note 1. Presentation and Summary of Significant Accounting Policies: Basis of Presentation (Policies) | 9 Months Ended |
Mar. 31, 2017 | |
Policies | |
Basis of Presentation | Basis of Presentation The condensed consolidated balance sheets as of March 31, 2017 and June 30, 2016, the condensed consolidated statements of operations for the three and nine months ended March 31, 2017 and 2016, and condensed consolidated statements of cash flows for the nine months ended March 31, 2017 and 2016, were prepared by Dynatronics Corporation (the Company) without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all necessary adjustments, which consist only of normal recurring adjustments, to the financial statements have been made to present fairly the Companys financial position, results of operations and cash flows. The results of operations for the three and nine months ended March 31, 2017, are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2017. The Company previously filed with the SEC an annual report on Form 10-K, as amended, which included audited financial statements for each of the two years ended June 30, 2016 and 2015. It is suggested that the financial statements contained in this Form 10-Q be read in conjunction with the financial statements and notes thereto contained in the Companys most recent Form 10-K, as amended. |
Note 1. Presentation and Summ18
Note 1. Presentation and Summary of Significant Accounting Policies: Use of Estimates (Policies) | 9 Months Ended |
Mar. 31, 2017 | |
Policies | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, allowance for doubtful accounts, stock-based compensation and valuation allowance for deferred income taxes. |
Note 1. Presentation and Summ19
Note 1. Presentation and Summary of Significant Accounting Policies: Significant Accounting Policies (Policies) | 9 Months Ended |
Mar. 31, 2017 | |
Policies | |
Significant Accounting Policies | Significant Accounting Policies There have been no changes to the Companys significant accounting policies as described in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2016. |
Note 10. Recent Accounting Pr20
Note 10. Recent Accounting Pronouncements: New Accounting Pronouncements, Policy (Policies) | 9 Months Ended |
Mar. 31, 2017 | |
Policies | |
New Accounting Pronouncements, Policy | In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business 1. require that a business set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and 2. remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework for evaluating whether both an input and a substantive process are present. Lastly, the amendments in this update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. This amendment will be effective for the Company in its fiscal year (including interim periods) beginning July 1, 2018. The Company is currently evaluating the impact the adoption of ASU 2017-01 will have on its consolidated financial statements and disclosures. |
Note 2. Net Loss Per Common S21
Note 2. Net Loss Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Schedule of Earnings Per Share, Basic and Diluted | Three Months Ended Nine Months Ended March 31, March 31, 2017 2016 2017 2016 Basic weighted-average number of common shares outstanding during the period 3,022,443 2,731,282 2,914,229 2,681,493 Weighted-average number of dilutive potential common stock outstanding during the period - - - - Diluted weighted-average number of common and potential common shares outstanding during the period 3,022,443 2,731,282 2,914,229 2,681,493 |
Note 3. Stock-based Compensat22
Note 3. Stock-based Compensation: Summary of Stock Option Activity (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Summary of Stock Option Activity | Number of Options Weighted-Average Exercise Price Outstanding at beginning of period 121,557 $ 3.57 Granted 49,500 2.83 Exercised - - Cancelled (2,639) 4.63 Outstanding at end of period 168,418 3.33 Exercisable at end of period 75,901 $ 4.47 |
Note 7. Inventories_ Schedule o
Note 7. Inventories: Schedule of Inventory, Current (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Schedule of Inventory, Current | Inventories consisted of the following: March 31, 2017 June 30, 2016 Raw materials $ 2,274,898 $ 2,059,048 Finished goods 3,931,215 $ 3,353,964 Inventory obsolescence reserve (422,786) (415,758) $ 5,783,327 4,997,254 |
Note 2. Net Loss Per Common S24
Note 2. Net Loss Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Details | ||||
Basic weighted-average number of common shares outstanding during the year | 3,022,443 | 2,731,282 | 2,914,229 | 2,681,493 |
Diluted weighted-average number of common and common equivalent shares outstanding during the year | 3,022,443 | 2,731,282 | 2,914,229 | 2,681,493 |
Note 2. Net Loss Per Common S25
Note 2. Net Loss Per Common Share (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Details | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 5,165,008 | 4,167,814 | 5,165,798 | 4,167,814 |
Note 3. Stock-based Compensat26
Note 3. Stock-based Compensation (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Details | ||||
Allocated Share-based Compensation Expense | $ 68,809 | $ 51,453 | $ 171,798 | $ 81,075 |
Common Stock, Capital Shares Reserved for Future Issuance | 307,221 | 307,221 | ||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $ 267,641 | $ 267,641 | ||
Employee Service Share Based Compensation Unrecognized Compensation Costs On Nonvested Awards Weighted Average Period Of Recognition | 4.97 years | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value | $ 1,817 | $ 1,817 |
Note 3. Stock-based Compensat27
Note 3. Stock-based Compensation: Summary of Stock Option Activity (Details) | 9 Months Ended |
Mar. 31, 2017$ / sharesshares | |
Details | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance | shares | 121,557 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares | $ 3.57 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures | shares | 49,500 |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares | $ 2.83 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period | shares | (2,639) |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price | $ / shares | $ 4.63 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | shares | 168,418 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares | $ 3.33 |
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options | shares | 75,901 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price | $ / shares | $ 4.47 |
Note 4. Convertible Preferred28
Note 4. Convertible Preferred Stock and Common Stock Warrants (Details) - shares | Mar. 31, 2017 | Jun. 30, 2016 |
Details | ||
Preferred stock shares authorized | 50,000,000 | 5,000,000 |
Note 5. Common Stock (Details)
Note 5. Common Stock (Details) - shares | Mar. 31, 2017 | Jun. 30, 2016 |
Details | ||
Common stock shares authorized | 100,000,000 | 50,000,000 |
Note 7. Inventories_ Schedule30
Note 7. Inventories: Schedule of Inventory, Current (Details) - USD ($) | Mar. 31, 2017 | Jun. 30, 2016 |
Details | ||
Inventory, Raw Materials, Gross | $ 2,274,898 | $ 2,059,048 |
Inventory, Finished Goods, Gross | 3,931,215 | 3,353,964 |
Inventory Valuation Reserves | (422,786) | (415,758) |
Inventories, net | $ 5,783,327 | $ 4,997,254 |
Note 8. Related-party Transac31
Note 8. Related-party Transactions (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Details | ||||
Related Party Transaction, Expenses from Transactions with Related Party | $ 17,700 | $ 17,700 | $ 53,100 | $ 53,100 |
Note 9. Line of Credit (Details
Note 9. Line of Credit (Details) | 9 Months Ended |
Mar. 31, 2017USD ($) | |
Details | |
Early Termination Fee | $ 14,000 |
Line of Credit Facility, Description | The Loan and Security Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of $8,000,000 and a borrowing base. The borrowing base is computed monthly and is equal to the sum of stated percentages of eligible accounts receivable and inventory, less a reserve. Amounts outstanding bear interest at LIBOR plus 2.25%. The Company paid a commitment fee of .25% and the line is subject to an unused line fee of .25%. The maturity date is two years from the date of the note. Obligations under the Loan and Security Agreement are secured by a first-priority security interest in substantially all of the Company’s assets. The Loan and Security Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan and Security Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a maximum monthly consolidated leverage and a minimum monthly consolidated fixed charge coverage ratio. As of March 31, 2017, the Company had borrowed approximately $2.5 million under the Loan and Security Agreement compared to no borrowings as of June 30, 2016. Management believes that cash balances, cash generated from operating activities, and cash available pursuant to the line of credit will continue to be sufficient to meet the Company’s annual operating requirements. The line of credit matures on April 1, 2019. Management expects to be able to renew this credit facility when it matures with the current lender or another lender. |
Line of Credit Facility, Current Borrowing Capacity | $ 8,000,000 |