UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ________to _______
Commission File Number:
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Securities registered pursuant to Section 12(b) of the Act:
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DYNATRONICS CORPORATION
FORM 10Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
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1 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2024 |
June 30, 2024 |
|||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | $ | ||||
| Restricted cash | ||||||
| Trade accounts receivable, less allowance for credit losses of $ |
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| Other receivables | ||||||
| Inventories, net | ||||||
| Prepaid expenses | ||||||
| Total current assets | ||||||
| Property and equipment, net | ||||||
| Operating lease assets | ||||||
| Intangible assets, net | ||||||
| Goodwill | ||||||
| Other assets | ||||||
| Total assets | $ | $ | ||||
| Liabilities and Stockholders' Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | $ | ||||
| Accrued payroll and benefits expense | ||||||
| Accrued expense | ||||||
| Warranty reserve | ||||||
| Line of credit | ||||||
| Current portion of finance lease liability | ||||||
| Current portion of deferred gain | ||||||
| Current portion of operating lease liability | ||||||
| Total current liabilities | ||||||
| Finance lease liability, net of current portion | ||||||
| Deferred gain, net of current portion | ||||||
| Operating lease liability, net of current portion | ||||||
| Other liabilities | ||||||
| Total liabilities | ||||||
| Commitments and contingencies | ||||||
| Stockholders' equity: | ||||||
| Preferred stock, |
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| Common stock, |
||||||
| Accumulated deficit | ( |
) | ( |
) | ||
| Total stockholders' equity | ||||||
| Total liabilities and stockholders' equity | $ | $ |
See accompanying notes to condensed consolidated financial statements.
| 2 |
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | ||||||
| September 30, | ||||||
| 2024 | 2023 | |||||
| Net sales | $ | $ | ||||
| Cost of sales | ||||||
| Gross profit | ||||||
| Selling, general, and administrative expenses | ||||||
| Operating loss | ( |
) | ( |
) | ||
| Other expense: | ||||||
| Interest expense, net | ( |
) | ( |
) | ||
| Net other expense | ( |
) | ( |
) | ||
| Loss before income taxes | ( |
) | ( |
) | ||
| Income tax provision | ( |
) | ( |
) | ||
| Net loss | $ | ( |
) | $ | ( |
) |
| Preferred stock dividend, in common stock, issued or to be issued | ( |
) | ( |
) | ||
| Net loss attributable to common stockholders | $ | ( |
) | $ | ( |
) |
| Net loss per common share: | ||||||
| Basic and diluted | $ | ( |
) | $ | ( |
) |
| Weighted average shares outstanding: | ||||||
| Basic and diluted | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
| Common stock | Preferred stock | Accumulated | Total stockholders' |
|||||||||||||||
| Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at September 30, 2023 | ( |
) | ||||||||||||||||
| Stock-based compensation | ( |
) | - | ( |
) | |||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at December 31, 2023 | ( |
) | ||||||||||||||||
| Stock-based compensation | ( |
) | - | ( |
) | |||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at March 31, 2024 | ( |
) | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at June 30, 2024 | ( |
) | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( |
) | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended September 30, | ||||||
| 2024 | 2023 | |||||
| Cash flows from operating activities: | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
| Depreciation and amortization of property and equipment | ||||||
| Amortization of intangible assets | ||||||
| Loss on sale of property | ||||||
| Stock-based compensation | ||||||
| Change in allowance for credit losses | ( |
) | ||||
| Change in allowance for inventory obsolescence | ( |
) | ||||
| Amortization of deferred gain on sale/leaseback | ( |
) | ( |
) | ||
| Change in operating assets and liabilities: | ||||||
| Trade accounts receivable | ( |
) | ||||
| Inventories | ||||||
| Prepaid expenses and other receivables | ( |
) | ||||
| Other assets | ||||||
| Accounts payable, accrued expenses, and other current liabilities | ( |
) | ( |
) | ||
| Net cash provided by (used in) operating activities | ( |
) | ||||
| Cash flows from investing activities: | ||||||
| Purchase of property and equipment | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ||||
| Cash flows from financing activities: | ||||||
| Principal payments on finance lease liability | ( |
) | ( |
) | ||
| Net change in line of credit | ( |
) | ||||
| Net cash (used in) provided by financing activities | ( |
) | ||||
| Net change in cash and cash equivalents and restricted cash | ( |
) | ||||
| Cash and cash equivalents and restricted cash at beginning of the period | ||||||
| Cash and cash equivalents and restricted cash at end of the period | $ | $ | ||||
| Supplemental disclosure of cash flow information: | ||||||
| Cash paid for interest | $ | $ | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||
| Preferred stock dividend, in common stock, issued or to be issued | $ | $ | ||||
| Operating lease right-of-use assets obtained in exchange for lease obligations | ||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
DYNATRONICS CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2024
Note 1. Presentation and Summary of Significant Accounting Policies
Business
Dynatronics Corporation (the "Company," or "Dynatronics") is a leading medical device company committed to providing high-quality products designed to accelerate 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.
Proposed 2023 Reverse Stock Split
On October 9, 2023, the board of directors unanimously approved and recommended that the Company's shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to the Amended and Restated Articles of Incorporation to effect a reverse stock split of the Company's common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (the "Condensed Consolidated Financial Statements") have been prepared by the Company in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "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 audited financial statements and accompanying notes included in its Annual Report on Form 10K for the fiscal year ended June 30, 2024 (the "Annual Report") filed with the SEC on September 24, 2024. The Condensed Consolidated Balance Sheet at June 30, 2024, 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 Consolidated Financial Statements included in the 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 financial position as of September 30, 2024 and its results of operations and its cash flows for the periods presented. The results of operations for the first three months of the fiscal year are not necessarily indicative of results for the full year or any future periods.
The Company's fiscal year begins on July 1 and ends on June 30 and references made to "fiscal year 2025" and "fiscal year 2024" refer to the Company's fiscal year ending June 30, 2025 and the fiscal year ended June 30, 2024, 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.
Other Receivables
Other receivables consist of amounts due from the Company's contract manufacturer for raw materials components provided for use in the production of the Company's products. Payments are due from the Company's contract manufacturer based on the usage of raw material components.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 202006, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The Company adopted the standard as of July 1, 2024 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) -Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for annual fiscal periods beginning after December 31, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
6
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 September 30, 2024 and 2023, totaled
Note 3. Convertible Preferred Stock
As of September 30, 2024, the Company had issued and outstanding a total of
In October 2024, the Company paid $
Note 4. Inventories
Inventories consisted of the following:
| September 30, 2024 |
June 30, 2024 |
|||||
| Raw materials | $ | $ | ||||
| Work in process | ||||||
| Finished goods | ||||||
| Inventory reserve | ( |
) | ( |
) | ||
| $ | $ |
Note 5. Debt
As of September 30, 2024 and June 30, 2024, the line of credit was $
On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $
The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis.
The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing).
The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of
Note 6. Related-Party Transactions
The Company leases office, manufacturing and warehouse facilities in Northvale, New Jersey, and Eagan, Minnesota from 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 $
7
Note 7. Revenue
As of September 30, 2024 and June 30, 2024, the net rebate liability was $
The following table disaggregates revenue by major product category for the three months ended September 30, 2024 and 2023, respectively:
| Three Months Ended September 30, | ||||||
| 2024 | 2023 | |||||
| Physical Therapy and Rehabilitation Products | $ | $ | ||||
| Orthopedic Soft Bracing Products | ||||||
| Other | ||||||
| $ | $ | |||||
| 8 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including the disclosures contained in Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "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"). 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 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," or "anticipate" and similar references to future periods.
We have based our forward-looking statements on management's current expectations and assumptions about future events and trends affecting our business and industry that are subject to risks and uncertainties. Although we do not make 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 broader economic environment affecting communities and businesses globally, including ours, as well as those factors described in the section "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10K for the fiscal year ended June 30, 2024, 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," or the "Company" refer collectively to Dynatronics Corporation and its wholly-owned subsidiaries, unless otherwise stated.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") 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 10K for the fiscal year ended June 30, 2024, and our other filings with the SEC, including our quarterly and current reports that we have filed since June 30, 2024 through the date of this report. In the following MD&A, we have rounded many numbers to the nearest one thousand dollars. These numbers should be read as approximate. All intercompany transactions have been eliminated. Our fiscal year ends on June 30. For example, reference to fiscal year 2025 refers to the year ending June 30, 2025. This report covers the three months ended September 30, 2024. Results of operations for the three months ended September 30, 2024 are not necessarily indicative of the results that may be achieved for the full fiscal year ending June 30, 2025.
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, PROTEAM, and Mammoth, among others. More information is available at www.dynatronics.com.
Results of Operations
Net Sales
Net sales decreased $1,750,000, or 18.7% to $7,602,000 for the quarter ended September 30, 2024, compared to net sales of $9,352,000 for the quarter ended September 30, 2023. The year-over-year decrease is attributable to a reduction in overall volume for OEM customers and a general reduction in demand for the orthopedic soft bracing product category.
Gross Profit
Gross profit for the quarter ended September 30, 2024 decreased $325,000, or about 14.1%, to $1,981,000, or 26.1% of net sales. By comparison, gross profit for the quarter ended September 30, 2023 was $2,306,000, or 24.7% of net sales. The increase in gross profit as a percentage of net sales was driven primarily by higher product margin rates in our physical therapy and rehabilitation products, partially offset by the reduction in net sales we previously discussed.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased $314,000, or 12.3%, to $2,232,000 for the quarter ended September 30, 2024, compared to $2,546,000 for the quarter ended September 30, 2023. The decline in selling, general and administrative expenses was driven by a reduction in salaries and benefits, a decrease in sales expenses, and a reduction in repairs and maintenance expenses.
| 9 |
Net Other Expense
Net other expense for the quarter ended September 30, 2024, was $106,000 compared to net other expense of $80,000 for the quarter ended September 30, 2023. The increase in net other expense is primarily due to a $27,000 increase in interest expense as a result of the Company's line of credit.
Income Tax Provision
Income tax provision was $9,000 and $11,000 for the quarters ended September 30, 2024 and 2023, respectively. See Liquidity and Capital Resources - Deferred Income Tax Assets below for more information.
Net Loss
Net loss for the quarter ended September 30, 2024 was $367,000 compared to a net loss of $331,000 for the quarter ended September 30, 2023. The $36,000 increase in net loss was attributable to a decrease in gross profit of $325,000 and an increase in net other expense of $27,000, offset partially by a decrease of $314,000 in SG&A expenses and a $2,000 decrease in the income tax provision.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders increased $6,000 to $534,000 for the quarter ended September 30,2024 compared to $528,000 for the quarter ended September 30, 2023. The increase in net loss attributable to common stockholders for the quarter is due primarily to a $36,000 increase in the net loss, partially offset by a $29,000 decrease in the deemed dividends on convertible preferred stock and accretion of discounts. On a per share basis, basic and diluted net loss attributable to common stockholders was $0.09 per share for the quarter ended September 30, 2024, compared to $0.12 per share for the quarter ended September 30, 2023.
Liquidity and Capital Resources
We have historically financed operations through cash from operating activities, available cash reserves, draws against the line of credit, and proceeds from the sale of our equity securities. As of September 30, 2024, we had $278,000 in cash and cash equivalents, compared to $484,000 as of June 30, 2024.
Working capital was $2,535,000 as of September 30, 2024, compared to working capital of $2,853,000 as of June 30, 2024. The current ratio was 1.3 to 1 as of September 30, 2024 and 1.4 to 1 as of June 30, 2024. Current assets were 39.2% of total assets as of September 30, 2024, and 40.7% of total assets as of June 30, 2024.
We believe that our cash generated from operations, current capital resources, and equity proceeds provide sufficient liquidity to fund operations for the next 12 months. However, the continuing effects of uncertainties in the broader economic environment on the global supply chain, higher personnel costs, and changes to customer or product mix, could have an adverse effect on our liquidity and cash and we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. Additionally, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we will 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.
Line of Credit
On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $7,500,000 (the "Revolving Loan Commitment") and bear interest at SOFR plus 5.00%. The Company paid a closing fee of 1.00% of the Revolving Loan Commitment and the line is subject to a monthly unused line fee in an annualized amount equal to 0.50% on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the Revolving Loans for such month. The maturity date is three years from the date of the promissory note evidencing the Revolving Loans, subject to extension in accordance with the terms of the Loan Agreement.
The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis.
The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing).
The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of 1.0 to 1.0 if excess availability is less than $1,000,000 of the borrowing base.
Proposed 2023 Reverse Stock Split
On October 9, 2023, our board of directors unanimously approved and recommended that our shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to our Amended and Restated Articles of Incorporation to effect a reverse stock split of our common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023.
| 10 |
Cash and Cash Equivalents and Restricted Cash
Our cash and cash equivalents and restricted cash position decreased $205,000 to $329,000 as of September 30, 2024, compared to $534,000 as of June 30, 2024. The primary uses of cash included $74,000 of principal payments on finance lease liabilities and $232,000 repaid on the line of credit. The primary source of cash for the three months ended September 30, 2024 was $101,000 of cash provided by operating activities.
Trade Accounts Receivable, net
Trade accounts receivable, net of allowance for credit losses, decreased approximately $389,000 or 11.3%, to $3,056,000 as of September 30, 2024, from $3,445,000 as of June 30, 2024. 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 credit losses is adequate based on our historical experience and relationships with our customers. Accounts receivable are generally collected within approximately 40 days of invoicing.
Inventories, net
Inventories, net of reserves, decreased $123,000 or 2.2%, to $5,471,000 as of September 30, 2024, compared to $5,594,000 as of June 30, 2024. The decrease was primarily due to steps taken to adjust inventory management in response to the impact of the uncertain operating environment on the global supply chain and right-sizing incoming material purchases to match demand. We believe that our allowance for inventory obsolescence is adequate based on our analysis of inventory, sales trends, and historical experience.
Accounts Payable
Accounts payable increased approximately $27,000 or 1.0%, to $2,739,000 as of September 30, 2024, from $2,712,000 as of June 30, 2024. The increase was driven primarily by an increase in inventory purchases and timing of payments.
Line of Credit
The outstanding balance of the line of credit was $1,890,000 as of September 30, 2024, compared to $2,122,000 as of June 30, 2024.
Finance Lease Liability
Finance lease liability as of September 30, 2024 and June 30, 2024 totaled approximately $1,658,000 and $1,732,000, 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 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 $2,561,000 at September 30, 2024. 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 September 30, 2024, is $740,000. Lease payments, currently approximately $33,000, are payable monthly and increase annually by approximately 2% per year over the life of the lease. Imputed interest for the three months ended September 30, 2024 was approximately $23,000. In addition to the Utah building, we have certain equipment leases that we have determined are finance leases.
Operating Lease Liability
Operating lease liability as of September 30, 2024 and June 30, 2024 totaled approximately $3,025,000 and $2,834,000, respectively. Our operating lease liability consists primarily of building leases for office, manufacturing, and warehouse space.
Deferred Income Tax Assets
A valuation allowance is required when there is significant uncertainty as to the realizability of deferred income tax assets. The ability to realize deferred income tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have determined that we do not meet the "more likely than 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 September 30, 2024 and June 30, 2024, we recorded a full valuation allowance against our net deferred income tax assets.
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 September 30, 2024. No purchases have been made under this plan since September 2011.
Off-Balance Sheet Arrangements
As of September 30, 2024, 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 Discussion and Analysis of Financial Condition and Results of Operations" section of our Annual Report on Form 10K for the fiscal year ended June 30, 2024. There have been no material changes to the critical accounting policies previously disclosed in that report.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information presented for the fiscal year ended June 30, 2024.
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 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 13a15(e) promulgated under the Exchange Act, as of September 30, 2024. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2024, our disclosure controls and procedures were effective, at a reasonable assurance level, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is (a) recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms and (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 September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A.
The risk factors described in our Annual Report on Form 10K for the fiscal year ended June 30, 2024 have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the fiscal quarter ended September 30, 2024, none of our
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Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DYNATRONICS CORPORATION | ||
| Date: November 14, 2024 | By: | /s/ Brian D. Baker |
| Brian D. Baker | ||
| President, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Gabe Ellwein | |
| Gabe Ellwein | ||
| Chief Financial Officer | ||
| (Principal Financial Officer, and Principal Accounting Officer) | ||
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