Dynatronics Corp (OTCQB:DYNT) Q4 2022 Earnings Conference Call September 22, 2022 8:00 AM ET Company Participants John Krier - CEO, President, CFO & Director Conference Call Participants Scott Henry - ROTH Capital Partners Jeffrey Cohen - Ladenburg Thalmann & Co. Operator Good morning, ladies and gentlemen, and welcome to the Dynatronics Fourth Quarter Fiscal Year 2022 Earnings Call. It is now my pleasure to turn the floor over to your host, John Krier, the company's President, Chief Executive Officer and C ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Dynatronics Corporation specializes in restorative medical devices for physical therapy, rehabilitation, and pain management, pursuing growth through organic expansion and strategic acquisitions - The company designs, manufactures, and sells restorative products for physical therapy, rehabilitation, pain management, and athletic training under brands like **Bird & Cronin**, **Solaris**, and **Hausmann**[20](index=20&type=chunk) - The business strategy targets significant growth via **organic expansion** and a **value-driven acquisition program**[23](index=23&type=chunk) - Sales of company-manufactured products increased significantly to **99% of total product sales in FY2022** from 79% in FY2021, indicating a strategic shift[30](index=30&type=chunk) - The company sells through **over 300 independent dealers** and a direct sales force to a diverse customer base, with no single customer accounting for **10% or more of net sales** in FY2022 or FY2021[39](index=39&type=chunk)[40](index=40&type=chunk) - As of June 30, 2022, the company employed **197 people**, with **69 employees** under a collective bargaining agreement expiring in February 2025[67](index=67&type=chunk) [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including reliance on third-party manufacturers, supply chain disruptions, a history of net losses, potential dilution, and NASDAQ delisting concerns - Reliance on **third-party manufacturers** for electrotherapy products poses risks of supply interruptions and cost overruns[69](index=69&type=chunk)[71](index=71&type=chunk) - The business is exposed to **supply chain disruptions**, **inflation**, and **geopolitical risks** like the Russia-Ukraine conflict, potentially increasing raw material costs[73](index=73&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk) - The company has a history of **net losses in 10 of the last 11 fiscal years**, indicating potential need for additional financing[84](index=84&type=chunk) - On February 24, 2022, NASDAQ issued a **deficiency notice** for failing to meet the minimum bid price, with potential delisting risk if a reverse stock split or other measures are unsuccessful[132](index=132&type=chunk)[133](index=133&type=chunk) - Investors face substantial **dilution risk** from the potential conversion of **3.35 million preferred shares** and exercise of warrants for **4.32 million common shares**[122](index=122&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments - Not applicable[142](index=142&type=chunk) [Properties](index=20&type=section&id=Item%202.%20Properties) The company leases three primary facilities in Minnesota, New Jersey, and Utah, totaling approximately 181,000 square feet, which are deemed adequate for current and future operations - Leases an **85,000 sq-ft** corporate headquarters in Eagan, Minnesota, with the lease extended through October 2024[143](index=143&type=chunk) - Leases a **60,000 sq-ft** manufacturing and office facility in Northvale, New Jersey, with the lease extended through April 2023[144](index=144&type=chunk) - Leases a **36,000 sq-ft** facility in Cottonwood Heights, Utah, under a finance lease agreement terminating in 2029[145](index=145&type=chunk) [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no pending legal proceedings of a material nature - There are no pending material legal proceedings to which the company is a party[148](index=148&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[149](index=149&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=20&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, with no cash dividends paid on common stock, preferred dividends typically paid in shares, and no common stock transactions in FY2022 Quarterly Stock Price (Fiscal Years 2022 & 2021) | Fiscal Quarter | 2022 High | 2022 Low | 2021 High | 2021 Low | | :--- | :--- | :--- | :--- | :--- | | 1st Quarter | $1.79 | $1.07 | $1.07 | $0.63 | | 2nd Quarter | $1.62 | $0.93 | $0.93 | $0.52 | | 3rd Quarter | $1.07 | $0.66 | $2.56 | $0.80 | | 4th Quarter | $0.76 | $0.43 | $1.38 | $1.01 | - As of September 16, 2022, **18,581,255 common shares** were outstanding, held by approximately **400 shareholders of record**[152](index=152&type=chunk) - The company has never paid cash dividends on common stock, intending to retain earnings, while preferred stock dividends accrue at **8% annually** and are typically paid in common shares[153](index=153&type=chunk)[155](index=155&type=chunk) - No common stock shares were sold or purchased by the company during the fiscal year ended June 30, 2022[156](index=156&type=chunk)[157](index=157&type=chunk) [Reserved](index=21&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2022 saw net sales decline to **$44.3 million** and a **$4.0 million net loss**, driven by discontinued products and higher costs, with cash significantly reduced to **$0.55 million** due to strategic inventory build-up [Results of Operations](index=21&type=section&id=7.1%20Results%20of%20Operations) FY2022 net sales decreased **7.2% to $44.3 million**, gross profit fell **17.2% to $10.7 million**, resulting in a **$4.0 million net loss** compared to FY2021's **$2.0 million net income** which included one-time gains Fiscal Year 2022 vs. 2021 Performance | Metric | FY 2022 | FY 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $44,338,000 | $47,799,000 | -7.2% | | Gross Profit | $10,673,000 | $12,886,000 | -17.2% | | Gross Margin | 24.1% | 27.0% | -2.9pp | | SG&A Expenses | $15,430,000 | $16,646,000 | -7.3% | | Net Income (Loss) | ($3,993,000) | $2,001,000 | -299.9% | - The decrease in net sales was primarily due to the reduction in sales of **discontinued third-party distributed products**[161](index=161&type=chunk) - The swing to a net loss in FY2022 was largely due to the absence of a **$3.5 million gain** from PPP loan extinguishment and a **$0.7 million gain** from property sale, which benefited FY2021[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=7.2%20Liquidity%20and%20Capital%20Resources) As of June 30, 2022, cash and equivalents decreased to **$0.55 million** from **$6.1 million**, and working capital declined to **$9.3 million**, largely due to an **85% increase in inventory to $12.1 million** to mitigate supply chain disruptions Key Balance Sheet Items (as of June 30) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $550 | $6,102 | | Inventories, net | $12,071 | $6,526 | | Total Assets | $35,434 | $39,140 | | **Liabilities & Equity** | | | | Total Liabilities | $13,735 | $13,626 | | Total Stockholders' Equity | $21,699 | $25,514 | - Inventories increased by **$5.5 million (85.0%)** as the company adjusted inventory management due to global supply chain impacts[181](index=181&type=chunk) - The company's line of credit matured on **January 15, 2022**, with **no outstanding borrowings** at expiration[183](index=183&type=chunk) - An at-the-market (ATM) offering agreement allows the company to sell common stock, through which it raised **$3.5 million** in net proceeds in February 2021[176](index=176&type=chunk)[177](index=177&type=chunk) [Business Plan and Outlook](index=27&type=section&id=7.3%20Business%20Plan%20and%20Outlook) Following a 2021 business optimization, the company's FY2023 focus is on driving profitability through strategic account partnerships, disciplined product management, M&A, and improved investor communication - In April 2021, the company initiated a business optimization plan, largely completed by August 2021, to eliminate **1,600 low-margin SKUs** and focus sales exclusively through dealers[208](index=208&type=chunk) - Fiscal 2023 strategic priorities include driving sales through **key accounts**, increasing **operating profitability**, pursuing **M&A**, and bolstering **investor communication**[209](index=209&type=chunk) - The company is actively pursuing an acquisition strategy targeting manufacturers in **physical therapy**, **rehabilitation**, **orthopedics**, and adjacent markets[210](index=210&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=27&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item is not applicable to the company - Not Applicable[211](index=211&type=chunk) [Financial Statements and Supplementary Data](index=27&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Audited consolidated financial statements for FY2022 and FY2021 are presented, showing a **$4.0 million net loss** in FY2022, total assets at **$35.4 million**, and cash at **$0.7 million**, with a Critical Audit Matter identified for goodwill and intangible asset valuation Consolidated Balance Sheet Data (as of June 30) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $550 | $6,102 | | Inventories, net | $12,071 | $6,526 | | Total Assets | $35,434 | $39,140 | | **Liabilities & Equity** | | | | Total Liabilities | $13,735 | $13,626 | | Total Stockholders' Equity | $21,699 | $25,514 | Consolidated Statement of Operations Data (for the year ended June 30) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net sales | $44,338 | $47,799 | | Gross profit | $10,673 | $12,886 | | Operating loss | ($4,756) | ($3,760) | | Net income (loss) | ($3,993) | $2,001 | Consolidated Statement of Cash Flows Data (for the year ended June 30) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,884) | $383 | | Net cash (used in) provided by investing activities | ($318) | $1,531 | | Net cash (used in) provided by financing activities | ($350) | $2,023 | | Net change in cash | ($5,552) | $3,937 | - The independent auditor, Tanner LLC, identified the estimation of **goodwill and intangible asset fair value** as a Critical Audit Matter due to significant subjective judgments[221](index=221&type=chunk)[222](index=222&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=44&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no changes in or disagreements with accountants on accounting and financial disclosure - None[326](index=326&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of June 30, 2022, with no material changes during the fiscal year - As of June 30, 2022, principal executive and financial officers concluded the company's **disclosure controls and procedures were effective**[328](index=328&type=chunk) - Management concluded that internal control over financial reporting was **effective as of June 30, 2022**, based on the **COSO 2013 framework**[330](index=330&type=chunk) [Other Information](index=44&type=section&id=Item%209B.%20Other%20Information) There is no other information to report - None[333](index=333&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=45&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[334](index=334&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=45&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) The information required for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[336](index=336&type=chunk) [Executive Compensation](index=45&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[337](index=337&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=45&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The information required for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[338](index=338&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=45&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[339](index=339&type=chunk) [Principal Accounting Fees and Services](index=45&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The information required for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[340](index=340&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=45&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements from Item 8 and provides an index of exhibits filed or incorporated by reference, with financial statement schedules omitted as not required - This section provides an index to the financial statements located in Item 8 and a list of exhibits filed with the report[342](index=342&type=chunk)[346](index=346&type=chunk) [Form 10-K Summary](index=47&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided - None[351](index=351&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q3 2022 were $10.3 million, a decrease from $11.5 million in the same quarter of the previous fiscal year, but exceeded the $9.25 million baseline set in April 2021 [34] - Gross profit for Q3 2022 was $2.3 million, representing 22.4% of net sales, compared to $3.3 million or 28.8% in the same quarter of the prior year [35] - The net loss for Q3 2022 was $1.5 million, compared to a net income of $0.1 million in Q3 2021, which benefited from employee retention credits [38] Business Line Data and Key Metrics Changes - The company has seen double-digit sales growth for four consecutive quarters, driven by business transformation and strategic inventory levels [11][12] - Inventory levels increased to $5.1 million, a 78% rise compared to the start of fiscal year 2022, to meet customer demand and offset supply chain disruptions [14][41] Market Data and Key Metrics Changes - The markets served by the company exhibit organic growth rates of 5% to 6% annually, with the company targeting to exceed this through market share gains and new product releases [9][24] - The company expects to maintain a distribution of net sales across quarters that aligns with historical trends, with the highest sales in the first quarter and a bounce back in the fourth quarter [10] Company Strategy and Development Direction - The company is focused on gross margin expansion, targeting a long-term gross margin of 40%, which is comparable to peers in the industry [17][22] - The strategy includes capturing market share, developing product innovations, and pursuing acquisitions to enhance growth [24][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook, raising the midpoint of fiscal year 2022 net sales guidance to a range of $44 million to $45 million, reflecting a 20.3% organic growth rate [9][20] - The company anticipates continued volatility due to COVID-19 and supply chain challenges but expects to improve throughput with elevated inventory levels [15][42] Other Important Information - The company has implemented a culture of accountability and is focused on organic sales growth and consistent profitability [29] - The cash balance was $2.5 million as of March 31, 2022, with no debt, indicating a stable financial position [45] Q&A Session Summary Question: Can you talk about the number of SKUs and any anticipated changes? - The company currently has around 5,000 SKUs, with no material change expected in the short term [49] Question: How are pricing and margins being affected by inflation? - Approximately 97% of sales growth in Q3 was driven by volume, with only 3% from price increases, indicating that price increases have not fully offset inflationary costs yet [50] Question: What are the key metrics to follow in the coming months? - The company is focused on consistent net sales growth, gross margin expansion, and positive operating cash flow as key metrics [63] Question: What new products are being launched? - The company has released seven new products since January 2021, with a strong pipeline of new products expected to contribute to revenue growth [65] Question: Will the growth show up in the revenue stream for 2023? - The company is projecting $44 million to $45 million in revenue for fiscal year 2022, which will serve as the baseline for future growth [79]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number: 0-12697 Dynatronics Corporation | --- | --- | --- | |---------------------------------------------------------- ...

Dynatronics Corporation (OTCQB:DYNT) Q2 2022 Results Earnings Conference Call February 10, 2022 10:00 AM ET Company Participants Skyler Black - Principal Accounting Officer, Corporate Controller John Krier - President and Chief Executive Officer Norm Roegner - Chief Financial Officer Conference Call Participants Scott Henry - Roth Capital Anthony Vendetti - Maxim Group Operator Good morning, ladies and gentlemen. And welcome to the Dynatronics Second Quarter Fiscal Year 2022 Earnings Call. It is now my plea ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited condensed consolidated financial statements for the periods ended December 31, 2021 [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) | Metric | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Cash and cash equivalents | 3,422,233 | 6,102,447 | | Total current assets | 20,514,473 | 20,905,866 | | Total assets | 37,673,738 | 39,139,995 | | Total current liabilities | 8,606,029 | 8,472,686 | | Total liabilities | 13,006,856 | 13,626,470 | | Total stockholders' equity | 24,666,882 | 25,513,525 | [Condensed Consolidated Statements of Operations (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) | Metric | Three Months Ended Dec 31, 2021 ($) | Three Months Ended Dec 31, 2020 ($) | Six Months Ended Dec 31, 2021 ($) | Six Months Ended Dec 31, 2020 ($) | |:---|---:|---:|---:|---:| | Net sales | 10,529,853 | 11,967,901 | 22,830,748 | 24,100,669 | | Cost of sales | 8,449,192 | 8,626,927 | 17,085,782 | 16,857,742 | | Gross profit | 2,080,661 | 3,340,974 | 5,744,966 | 7,242,927 | | Selling, general, and administrative expenses | 3,481,529 | 3,937,839 | 7,578,196 | 8,183,465 | | Operating loss | (1,400,868) | (596,865) | (1,833,230) | (940,538) | | Net loss | (1,441,267) | (672,832) | (958,627) | (1,050,536) | | Net loss attributable to common stockholders | (1,623,420) | (906,269) | (1,327,863) | (1,478,199) | | Net loss per common share Basic and diluted | (0.09) | (0.06) | (0.08) | (0.10) | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) | Metric | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Common Stock Amount | 33,102,691 | 32,621,471 | | Preferred Stock Amount | 7,980,788 | 7,980,788 | | Accumulated Deficit | (16,416,597) | (15,088,734) | | Total Stockholders' Equity | 24,666,882 | 25,513,525 | - Total stockholders' equity decreased from **$25,513,525** as of June 30, 2021, to **$24,666,882** as of December 31, 2021, primarily due to a net loss of $1,441,267 for the quarter ended December 31, 2021, partially offset by stock-based compensation and preferred stock dividends issued in common stock[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) | Cash Flow Activity | Six Months Ended Dec 31, 2021 ($) | Six Months Ended Dec 31, 2020 ($) | |:---|---:|---:| | Net cash provided by (used in) operating activities | (2,409,692) | 2,631,676 | | Net cash used in investing activities | (98,351) | (71,646) | | Net cash used in financing activities | (172,170) | (1,266,455) | | Net change in cash and cash equivalents and restricted cash | (2,680,213) | 1,293,575 | | Cash and cash equivalents and restricted cash at end of the period | 3,573,431 | 3,609,876 | - The company experienced a significant net cash outflow from operating activities of **$2,409,692** for the six months ended December 31, 2021, a reversal from a net inflow of $2,631,676 in the prior year, primarily driven by increased inventories[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) [Note 1. Presentation and Summary of Significant Accounting Policies](index=7&type=section&id=Note%201.%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - Dynatronics Corporation is a medical device company that designs, manufactures, and sells restorative products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training[24](index=24&type=chunk)[57](index=57&type=chunk) - The company's financial statements are prepared in accordance with GAAP and SEC rules, with the fiscal year ending on June 30[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - The company qualified for the Employee Retention Credit (ERC) under the CARES Act for qualified wages through September 30, 2021, recording a total of **$1,143,000 in credits** during the quarter ended September 30, 2021[30](index=30&type=chunk) - Other receivables primarily consist of amounts due from the contract manufacturer for raw material components[31](index=31&type=chunk) - The company is evaluating the impact of ASU 2020-06, effective for fiscal year 2025, which simplifies accounting for convertible instruments and contracts in an entity's own equity[35](index=35&type=chunk) [Note 2. Net Loss per Common Share](index=8&type=section&id=Note%202.%20Net%20Loss%20per%20Common%20Share) - Basic and diluted net loss per common share are calculated based on weighted-average common shares outstanding[36](index=36&type=chunk)[37](index=37&type=chunk) - Stock options, convertible preferred stock, and warrants were **anti-dilutive** and thus excluded from diluted EPS calculations for the periods presented[38](index=38&type=chunk) [Note 3. Convertible Preferred Stock](index=8&type=section&id=Note%203.%20Convertible%20Preferred%20Stock) - As of December 31, 2021, Dynatronics had **1,992,000 shares of Series A 8% Convertible Preferred Stock** and **1,359,000 shares of Series B Convertible Preferred Stock** outstanding, convertible into a total of 3,351,000 common shares[39](index=39&type=chunk) - Dividends on preferred shares accrue at 8% annually and are generally paid in common stock, with **$182,153 paid in January 2022** for the quarter ended December 31, 2021, by issuing 183,976 common shares[39](index=39&type=chunk)[40](index=40&type=chunk) [Note 4. Comprehensive Loss](index=8&type=section&id=Note%204.%20Comprehensive%20Loss) - For the three and six months ended December 31, 2021 and 2020, **comprehensive loss was equal to the net loss**[41](index=41&type=chunk) [Note 5. Inventories](index=8&type=section&id=Note%205.%20Inventories) | Inventory Category | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Raw materials | 5,270,792 | 3,863,212 | | Work in process | 906,871 | 784,460 | | Finished goods | 3,514,833 | 2,505,399 | | Inventory obsolescence reserve | (368,341) | (626,976) | | **Total Inventories, net** | **9,324,155** | **6,526,095** | - Net inventories **increased by $2,798,060 (42.9%)** from June 30, 2021, to December 31, 2021, primarily driven by increases in raw materials and finished goods[42](index=42&type=chunk)[44](index=44&type=chunk) [Note 6. Related-Party Transactions](index=9&type=section&id=Note%206.%20Related-Party%20Transactions) | Period | Related-Party Lease Expenses ($) | |:---|---:| | Three months ended Dec 31, 2021 | 248,952 | | Three months ended Dec 31, 2020 | 264,702 | | Six months ended Dec 31, 2021 | 497,905 | | Six months ended Dec 31, 2020 | 529,405 | - The company leases facilities from employees, shareholders, and entities controlled by shareholders, with related-party lease expenses decreasing slightly year-over-year[45](index=45&type=chunk) [Note 7. Line of Credit](index=9&type=section&id=Note%207.%20Line%20of%20Credit) - Borrowings on the line of credit were **$0** as of December 31, 2021, and June 30, 2021, and remained at $0 upon its expiration on January 15, 2022[46](index=46&type=chunk) [Note 8. Revenue](index=9&type=section&id=Note%208.%20Revenue) | Metric | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Rebate liability | 308,297 | 219,591 | | Allowance for sales discounts | 15,176 | 9,000 | | Product Category | Three Months Ended Dec 31, 2021 ($) | Three Months Ended Dec 31, 2020 ($) | Six Months Ended Dec 31, 2021 ($) | Six Months Ended Dec 31, 2020 ($) | |:---|---:|---:|---:|---:| | Orthopedic Soft Bracing Products | 5,076,785 | 5,082,484 | 10,650,259 | 10,642,401 | | Physical Therapy and Rehabilitation Products | 5,426,025 | 6,824,049 | 12,124,380 | 13,321,279 | | Other | 27,043 | 61,368 | 56,109 | 136,989 | | **Total Net Sales** | **10,529,853** | **11,967,901** | **22,830,748** | **24,100,669** | - Total net sales **decreased by 12.0%** for the three months and **5.3%** for the six months ended December 31, 2021, primarily due to a decline in Physical Therapy and Rehabilitation Products sales[48](index=48&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=9&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19 and factors detailed in the company's Form 10-K[50](index=50&type=chunk)[51](index=51&type=chunk) - The company does not guarantee the accuracy of forward-looking statements and assumes no obligation to update them after the report date[51](index=51&type=chunk)[52](index=52&type=chunk)[54](index=54&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=10&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance and condition, analyzing changes in sales, profit, and liquidity [Overview](index=10&type=section&id=Overview) - Dynatronics is a medical device company focused on high-quality restorative products for physical therapy, rehabilitation, pain management, and athletic training, marketed under brands like Bird & Cronin®, Solaris™, Hausmann®, Physician's Choice®, and PROTEAM™[57](index=57&type=chunk) [Results of Operations](index=10&type=section&id=Results%20of%20Operations) [Net Sales](index=10&type=section&id=Net%20Sales) | Period | Net Sales ($) | |:---|---:| | Quarter ended Dec 31, 2021 | 10,530,000 | | Quarter ended Dec 31, 2020 | 11,968,000 | | Six months ended Dec 31, 2021 | 22,831,000 | | Six months ended Dec 31, 2020 | 24,101,000 | - Net sales **decreased by $1,438,000 (12.0%)** for the quarter and **$1,270,000 (5.3%)** for the six months ended December 31, 2021, primarily due to the discontinuation of third-party distributed products, partially offset by increased customer demand compared to the prior year's COVID-19 impact[58](index=58&type=chunk) [Gross Profit](index=10&type=section&id=Gross%20Profit) | Period | Gross Profit ($) | Gross Margin (%) | |:---|---:|---:| | Quarter ended Dec 31, 2021 | 2,081,000 | 19.8% | | Quarter ended Dec 31, 2020 | 3,341,000 | 27.9% | | Six months ended Dec 31, 2021 | 5,745,000 | 25.2% | | Six months ended Dec 31, 2020 | 7,243,000 | 30.1% | - Gross profit **decreased by $1,260,000 (37.7%)** for the quarter and **$1,498,000 (20.7%)** for the six months ended December 31, 2021, mainly due to higher freight and raw material costs, increased personnel costs, and changes in product mix, partially offset by a $97,000 employee retention credit[60](index=60&type=chunk) [Selling, General and Administrative Expenses](index=11&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) | Period | SG&A Expenses ($) | |:---|---:| | Quarter ended Dec 31, 2021 | 3,482,000 | | Quarter ended Dec 31, 2020 | 3,938,000 | | Six months ended Dec 31, 2021 | 7,578,000 | | Six months ended Dec 31, 2020 | 8,183,000 | - SG&A expenses **decreased by $456,000 (11.6%)** for the quarter and **$605,000 (7.4%)** for the six months ended December 31, 2021, primarily due to lower commission expense, reduced salaries for the rehabilitation products sales force, and decreased support costs from the elimination of distributed products and direct sales channels[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) [Net Other Income (Expense)](index=11&type=section&id=Net%20Other%20Income%20(Expense)) | Period | Net Other Income (Expense) ($) | |:---|---:| | Quarter ended Dec 31, 2021 | (40,000) | | Quarter ended Dec 31, 2020 | (66,000) | | Six months ended Dec 31, 2021 | 875,000 | | Six months ended Dec 31, 2020 | (100,000) | - Net other income for the six months ended December 31, 2021, significantly increased to **$875,000** from a net other expense of $100,000 in the prior year, primarily due to a **$943,000 employee retention credit**[64](index=64&type=chunk) [Loss Before Income Tax](index=11&type=section&id=Loss%20Before%20Income%20Tax) | Period | Loss Before Income Tax ($) | |:---|---:| | Quarter ended Dec 31, 2021 | (1,441,000) | | Quarter ended Dec 31, 2020 | (663,000) | | Six months ended Dec 31, 2021 | (959,000) | | Six months ended Dec 31, 2020 | (1,041,000) | - Pre-tax loss **increased by $768,000** for the quarter ended December 31, 2021, due to decreased gross profit, partially offset by lower SG&A and other expenses[65](index=65&type=chunk) - For the six months, pre-tax loss **decreased by $82,000**, driven by increased other income offsetting decreased gross profit[65](index=65&type=chunk) [Income Tax Provision](index=11&type=section&id=Income%20Tax%20Provision) - Income tax provision was **$0** for the three and six months ended December 31, 2021, compared to $10,000 for the prior year periods, due to a **full valuation allowance** against net deferred income tax assets[67](index=67&type=chunk)[85](index=85&type=chunk) [Net Loss](index=11&type=section&id=Net%20Loss) | Period | Net Loss ($) | |:---|---:| | Quarter ended Dec 31, 2021 | (1,441,000) | | Quarter ended Dec 31, 2020 | (673,000) | | Six months ended Dec 31, 2021 | (959,000) | | Six months ended Dec 31, 2020 | (1,051,000) | - Net loss increased for the quarter but decreased for the six months ended December 31, 2021, consistent with the changes in loss before income tax[68](index=68&type=chunk) [Net Loss Attributable to Common Stockholders](index=11&type=section&id=Net%20Loss%20Attributable%20to%20Common%20Stockholders) | Period | Net Loss Attributable to Common Stockholders ($) | Net Loss Per Common Share ($) | |:---|---:|---:| | Quarter ended Dec 31, 2021 | (1,623,000) | (0.09) | | Quarter ended Dec 31, 2020 | (906,000) | (0.06) | | Six months ended Dec 31, 2021 | (1,328,000) | (0.08) | | Six months ended Dec 31, 2020 | (1,478,000) | (0.10) | - Net loss attributable to common stockholders **increased by $717,000** for the quarter but **decreased by $150,000** for the six months ended December 31, 2021[69](index=69&type=chunk) [Liquidity and Capital Resources](index=11&type=section&id=Liquidity%20and%20Capital%20Resources) - The company's liquidity is historically financed through operating activities, cash reserves, a line of credit, and equity sales[70](index=70&type=chunk) - Management believes current resources are sufficient for the next 12 months, but acknowledges potential adverse effects from the COVID-19 pandemic[72](index=72&type=chunk) - The company has an at-the-market (ATM) offering program, with a replacement registration statement filed in May 2021, allowing for potential future sales of up to **$2,677,997 in common stock**[73](index=73&type=chunk) | Metric | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Cash & Restricted Cash | 3,573,000 | 6,254,000 | | Working Capital | 11,908,000 | 12,433,000 | | Current Ratio | 2.4 to 1 | 2.5 to 1 | [Cash and Cash Equivalents](index=12&type=section&id=Cash%20and%20Cash%20Equivalents) - Cash and cash equivalents and restricted cash **decreased by $2,681,000** to $3,573,000 as of December 31, 2021, with the primary use of cash being for inventories[75](index=75&type=chunk) [Accounts Receivable](index=12&type=section&id=Accounts%20Receivable) - Trade accounts receivable, net, **decreased by approximately $51,000 (0.9%)** to $5,592,000 as of December 31, 2021, primarily due to timing of collections[76](index=76&type=chunk) [Inventories](index=12&type=section&id=Inventories) - Inventories, net, **increased by $2,798,000 (42.9%)** to $9,324,000 as of December 31, 2021, reflecting adjustments to inventory management in response to global supply chain impacts and demand[77](index=77&type=chunk) [Accounts Payable](index=12&type=section&id=Accounts%20Payable) - Accounts payable **increased by approximately $944,000 (25.3%)** to $4,682,000 as of December 31, 2021, driven by increased inventory purchases and payment timing[78](index=78&type=chunk) [Line of Credit](index=12&type=section&id=Line%20of%20Credit) - The company had **no outstanding borrowings** on its line of credit as of December 31, 2021, and June 30, 2021, and at its expiration on January 15, 2022[79](index=79&type=chunk) [Debt](index=12&type=section&id=Debt) - Long-term debt **decreased by approximately $7,000** to $12,000 as of December 31, 2021, primarily consisting of equipment loans[80](index=80&type=chunk) [Finance Lease Liability](index=12&type=section&id=Finance%20Lease%20Liability) | Metric | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Finance Lease Liability | 2,431,000 | 2,596,000 | - The finance lease liability primarily relates to the Utah building lease, a 15-year finance lease from an August 2014 sale-leaseback, with a deferred gain of $1,153,000 as of December 31, 2021, recognized over the lease term[81](index=81&type=chunk)[82](index=82&type=chunk) [Operating Lease Liability](index=13&type=section&id=Operating%20Lease%20Liability) | Metric | Dec 31, 2021 ($) | Jun 30, 2021 ($) | |:---|---:|---:| | Operating Lease Liability | 2,028,000 | 2,470,000 | - Operating lease liability primarily consists of building leases for office, manufacturing, and warehouse space[84](index=84&type=chunk) [Deferred Income Tax Assets](index=13&type=section&id=Deferred%20Income%20Tax%20Assets) - A **full valuation allowance** was recorded against net deferred income tax assets as of December 31, 2021, and June 30, 2021, due to uncertainty regarding their realizability, resulting in no income tax expense for the periods presented[85](index=85&type=chunk) [Stock Repurchase Plans](index=13&type=section&id=Stock%20Repurchase%20Plans) - Approximately **$449,000 remained authorized** under the stock repurchase plan as of December 31, 2021, with no purchases made since September 2011[86](index=86&type=chunk) [Off-Balance Sheet Arrangements](index=13&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of December 31, 2021, the company had **no off-balance sheet arrangements**[87](index=87&type=chunk) [Critical Accounting Policies](index=13&type=section&id=Critical%20Accounting%20Policies) - There have been **no material changes** to the critical accounting policies previously disclosed in the company's Form 10-K for the year ended June 30, 2021[88](index=88&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=16&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk disclosures remain materially unchanged from the previous annual report for the year ended June 30, 2021 - No material changes in quantitative and qualitative disclosures about market risk from the information presented for the year ended June 30, 2021[90](index=90&type=chunk) [Item 4. Controls and Procedures](index=16&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls [Evaluation of Disclosure Controls and Procedures](index=16&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2021[91](index=91&type=chunk)[93](index=93&type=chunk) [Changes in Internal Control over Financial Reporting](index=16&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were **no material changes** in internal control over financial reporting during the quarter ended December 31, 2021[94](index=94&type=chunk) [PART II. OTHER INFORMATION](index=17&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=17&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no outstanding legal proceedings during the period - No legal proceedings to report[95](index=95&type=chunk) [Item 1A. Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) Risk factors remain materially consistent with those disclosed in the Annual Report on Form 10-K - The risk factors described in the Annual Report on Form 10-K for the year ended June 30, 2021, have **not materially changed**[97](index=97&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=17&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities and use of proceeds to report[98](index=98&type=chunk) [Item 3. Defaults Upon Senior Securities](index=17&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - No defaults upon senior securities to report[99](index=99&type=chunk) [Item 4. Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - No mine safety disclosures to report[100](index=100&type=chunk) [Item 5. Other Information](index=17&type=section&id=Item%205.%20Other%20Information) The company has no other material information to report for the period - No other information to report[101](index=101&type=chunk) [Item 6. Exhibits](index=18&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including officer certifications and XBRL data - Exhibits include certifications from principal executive and financial officers (31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[102](index=102&type=chunk)[103](index=103&type=chunk) [Signatures](index=19&type=section&id=Signatures) - The report was signed on **February 10, 2022**, by John A. Krier, President and Chief Executive Officer of Dynatronics Corporation[104](index=104&type=chunk)[105](index=105&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q1 fiscal year 2022 were $12.3 million, compared to $12.1 million in the same quarter of the prior fiscal year, indicating a slight increase [29] - Gross profit for Q1 fiscal year 2022 was $3.7 million, or 29.8% of net sales, down from $3.9 million, or 32.2% of net sales in the same quarter of the prior year, primarily due to inflation on raw materials and higher freight costs [30] - Net income for Q1 fiscal year 2022 was $0.5 million, compared to a net loss of $0.4 million in the first quarter of fiscal year 2021 [32] Business Line Data and Key Metrics Changes - The company has shifted its product sales mix to focus on higher-margin products, eliminating over 1,600 SKUs of low-margin third-party distributed products, which resulted in an approximate $11 million annual net sales reduction [15] - The transition to an exclusively dealer sales model in the rehabilitation market has received overwhelmingly positive feedback from dealers [17] Market Data and Key Metrics Changes - The rehabilitation and bracing and support markets are estimated to be approximately $4.9 billion in total addressable market size [43] - The markets are expected to exhibit organic growth of 5% to 6% per year, with potential for higher growth through market share gains [26] Company Strategy and Development Direction - The ongoing business transformation remains the top priority, focusing on improving gross margin, operating income, and cash flow from operations [12] - The company aims to achieve 40% gross margins over the long term, comparable to industry peers [21] - The M&A strategy focuses on acquiring companies with greater than 40% gross margin and cash flow contribution within the first year, targeting smaller acquisitions in the $5 million to $30 million revenue range [27] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the volatility in the operating environment due to COVID-19 and supply chain challenges, including rising raw material costs and extended handling times [22][37] - The company expects net sales in fiscal year 2022 to be in the range of $40 million to $45 million, assuming no significant adverse effects from COVID-19 [18] Other Important Information - The company ended the quarter with approximately $5.5 million in cash, no debt, and a borrowing base of approximately $5.2 million [14] - Cash used in operating activities was $0.65 million for the three months ended September 30, 2021, due to working capital investments and higher inventory spending [35] Q&A Session Summary Question: What is the current total addressable market (TAM) after restructuring? - The company competes in two markets: rehabilitation and bracing and supports, with a TAM of roughly $4.9 billion [43] Question: Are dealers noting gaps in their portfolio that the company aims to fill? - The company is actively engaging with dealers to understand market needs and is evolving its product portfolio based on their feedback, including potential acquisitions [44] Question: What are the favorable tailwinds for revenue moving into 2022? - The rehabilitation and bracing markets enjoy mid-single-digit organic growth, and the company can achieve higher growth by capturing market share [45] Question: How will SG&A be affected by the termination of the Millstone agreement? - The termination will shift activities to the Minnesota operation, and the current headcount is approximately 175, similar to the end of June [46] Question: Is the company prepared for future supply chain disruptions? - The company has made significant inventory investments and feels comfortable with its current supply levels to meet customer demand [55] Question: Are there mixed signals in the market regarding procedure volume? - There are mixed signals, with strong patient visits reported but concerns about potential slowdowns due to COVID-19 and staffing shortages [58]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Title of each class Trading symbol Name of each exchange on which registered Common Stock, no par value per share DYNT The NASDAQ Capital Market Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 or ☐ TRANS ...

Financial Data and Key Metrics Changes - Net sales for Q4 fiscal year 2021 were $12.2 million, up from $8.1 million in the same quarter last year, primarily due to increased overall procedures and activity compared to the prior year impacted by COVID-19 [40] - For the full fiscal year 2021, net sales were $47.8 million, down from $53.4 million in the prior fiscal year, mainly due to continued COVID-19 impacts including reduced demand and supply chain disruptions [41] - Gross profit for Q4 fiscal year 2021 increased to $2.3 million (19.1% of net sales) from $1.4 million (17.4% of net sales) in the same quarter last year [42] - Full fiscal year gross profit was $12.9 million (27% of net sales), down from $15.1 million (28.3% of net sales) in the prior year [44] Business Line Data and Key Metrics Changes - The company eliminated over 1,600 SKUs of low-margin third-party distributed products, which were expected to improve overall margins over time [23] - The introduction of the Hausmann 3D PROTEAM Builder product has received positive feedback, indicating successful product innovation [24] Market Data and Key Metrics Changes - The rehabilitation and bracing markets are expected to grow in the mid-single digits, providing a favorable environment for the company's growth strategy [35][66] - The company anticipates net sales for fiscal year 2022 to be in the range of $40 million to $45 million, representing a 15% growth from the previous baseline [29] Company Strategy and Development Direction - The company aims to streamline rehabilitation sales exclusively through existing and new dealers, focusing on higher-margin products manufactured by Dynatronics [16] - Goals include expanding margins and cash flow, strengthening the balance sheet, and maintaining a consistent cadence of new product introductions [18] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing challenges from COVID-19, including supply chain disruptions and potential impacts on procedure volumes, but remains optimistic about growth opportunities [56] - The company expects to achieve higher gross margins over time, contingent on navigating the current economic environment [64][75] Other Important Information - The company ended Q4 with a cash position of approximately $6.1 million and no drawn amounts on its asset-based line of credit, indicating a strong balance sheet [22][52] - Other income for Q4 included $5.1 million, primarily from PPP loan forgiveness and gains from the sale of the Tennessee facility [48] Q&A Session Summary Question: Clarification on employee retention credit - Management confirmed that the employee retention credit is a federal charge [24] Question: Discussion on revenue growth drivers - Management indicated that revenue growth is driven by strong reactions to the clarified strategy and the growth of the markets they operate in [60] Question: Expectations for gross margin in fiscal year 2022 - Management expects gross margins to migrate upwards, with a baseline of 28% for fiscal year 2021 [64] Question: Impact of COVID-19 on customer operations - Management noted that while customers have adapted to provide services during COVID-19, there are still delays and deferrals of procedures [77]

[FORM 10-K General Information](index=1&type=section&id=FORM%2010-K%20General%20Information) [Filing Details](index=1&type=section&id=Filing%20Details) This document is an Annual Report on Form 10-K for Dynatronics Corporation, filed for the fiscal year ended June 30, 2021, with its common stock trading on NASDAQ under DYNT - The report is an Annual Report on Form 10-K for the fiscal year ended June 30, 2021[2](index=2&type=chunk) - Dynatronics Corporation's common stock trades on The NASDAQ Capital Market under the symbol **DYNT**[2](index=2&type=chunk) [Registrant Information](index=1&type=section&id=Registrant%20Information) Dynatronics Corporation, a Utah corporation headquartered in Eagan, Minnesota, reported 17.57 million common shares outstanding as of September 20, 2021, and is classified as a smaller reporting company - Dynatronics Corporation is a Utah corporation[4](index=4&type=chunk) - Principal executive offices are located at 1200 Trapp Road, Eagan, Minnesota 55121[4](index=4&type=chunk) Shares Outstanding and Company Classification | Metric | Value | | :----- | :---- | | Common Stock Outstanding (as of Sep 20, 2021) | 17,574,296 shares | | Aggregate Market Value of Common Stock (non-affiliates, Dec 31, 2020) | ~$9.5 million | | Filer Status | Smaller reporting company | [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) [Forward-Looking Statements Disclosure](index=4&type=section&id=Forward-Looking%20Statements%20Disclosure) This section warns that the report contains forward-looking statements subject to inherent uncertainties and risks, including the COVID-19 pandemic, which may cause actual results to differ materially - The report contains 'forward-looking statements' as defined by the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act[15](index=15&type=chunk) - Forward-looking statements are based on current beliefs, expectations, and assumptions, and are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and often outside the company's control[16](index=16&type=chunk) - Key risks include the impact or duration of the COVID-19 pandemic, and other factors discussed in 'Business' (Part I, Item 1) and 'Risk Factors' (Part I, Item 1A)[16](index=16&type=chunk) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) [Company Background](index=4&type=section&id=Company%20Background) Dynatronics Corporation designs, manufactures, and sells physical therapy, rehabilitation, pain management, and athletic training products under brands like Bird & Cronin® and Hausmann™ - Dynatronics Corporation designs, manufactures, and sells products for clinical use in physical therapy, rehabilitation, pain management, and athletic training[18](index=18&type=chunk) - The company markets to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals[18](index=18&type=chunk) - Products are marketed under brands including Bird & Cronin®, Solaris™, Hausmann™, Physician's Choice®, and PROTEAM™[18](index=18&type=chunk) [Business Strategy](index=4&type=section&id=Business%20Strategy) Dynatronics aims for organic growth and value-driven acquisitions to become a recognized standard in restorative solutions, focusing on sustained revenue and strong financial performance - Dynatronics' strategy is to grow organically and through value-driven acquisitions to become the recognized standard in restorative solutions[20](index=20&type=chunk) - The core strategy focuses on sustained revenue growth, strong financial performance, and focused business development[20](index=20&type=chunk) [Corporate Information](index=5&type=section&id=Corporate%20Information) Founded in 1983, Dynatronics Corporation, a Utah corporation headquartered in Eagan, Minnesota, operates on a June 30 fiscal year and provides investor information online - Dynatronics Corporation was founded in 1983 and is headquartered in Eagan, Minnesota[22](index=22&type=chunk) - The company operates on a fiscal year ending June 30[24](index=24&type=chunk) - Investor information, including SEC filings, press releases, and corporate governance documents, is available on the company's website[22](index=22&type=chunk) [Recent Developments](index=6&type=section&id=Recent%20Developments) In fiscal year 2021, Dynatronics implemented a business optimization plan, sold its Tennessee manufacturing facility for a gain, and had its $3.5 million PPP loan forgiven - In April 2021, Dynatronics committed to a strategic business optimization plan to eliminate approximately **1,600 SKUs** of low-margin, third-party distributed products and streamline physical therapy and rehabilitation product sales exclusively to dealers[26](index=26&type=chunk) Business Optimization Costs (FY2021) | Category | Amount | | :------- | :----- | | Total Costs | $1,001,000 | | Cash Charges (severance, retention) | $158,000 | | Non-Cash Charges (inventory, doubtful accounts, impairment) | $843,000 | - The company sold its former manufacturing facility in Ooltewah, Tennessee, for **$1,750,000**, resulting in net proceeds of **$1,650,000** and a gain of **$812,000**[28](index=28&type=chunk) - The entire **$3,518,000** Paycheck Protection Program loan, including accrued interest, was forgiven by the SBA on June 29, 2021[29](index=29&type=chunk) [Our Products](index=7&type=section&id=Our%20Products) Dynatronics manufactures and distributes a broad range of restorative products, with Manufactured Products accounting for 79% of net sales in fiscal year 2021, and no single product exceeding 10% of total revenues - Dynatronics offers a broad range of restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training[32](index=32&type=chunk) - Manufactured Products accounted for approximately **79% of net sales** in fiscal year 2021, up from **75%** in fiscal year 2020[31](index=31&type=chunk)[41](index=41&type=chunk) - No single product accounted for more than **10% of total revenues** in fiscal years 2021 and 2020[41](index=41&type=chunk) [Orthopedic Soft Bracing Products](index=7&type=section&id=Orthopedic%20Soft%20Bracing%20Products) Bird & Cronin® orthopedic soft bracing products support pre- and post-surgical intervention, fracture recovery, joint stabilization, and ligament injury with various supports and immobilizers - Orthopedic soft bracing products are designed to accelerate health for patients pre- and post-surgical intervention, during fracture recovery, joint stabilization, and ligament injury[34](index=34&type=chunk) - Bird & Cronin® Manufactured Products include cervical collars, shoulder immobilizers, arm slings, wrist and elbow supports, abdominal and lumbosacral supports, maternity supports, knee immobilizers and supports, ankle walkers and supports, plantar fasciitis splints, and cold therapy[35](index=35&type=chunk) [Physical Therapy and Rehabilitation Products](index=8&type=section&id=Physical%20Therapy%20and%20Rehabilitation%20Products) Marketed under Solaris®, Hausmann™, and PROTEAM™ brands, these products include treatment tables, rehabilitation equipment, and therapeutic modalities for diverse clinical settings - Physical therapy and rehabilitation products are designed for use in physical therapy, rehabilitation, pain management, and athletic training[37](index=37&type=chunk) - These products are marketed under Solaris®, Hausmann™, and PROTEAM™ brands[37](index=37&type=chunk) [Therapeutic Modalities](index=8&type=section&id=Therapeutic%20Modalities) Dynatronics offers premium therapeutic modality devices, including electrotherapy, ultrasound, and phototherapy, effective for pain treatment, circulation, and muscle re-education - The company manufactures and distributes therapeutic modality devices such as electrotherapy, ultrasound, phototherapy, therapeutic laser, shortwave diathermy, radial pulse therapy, hot and cold therapy, compression therapy, and electrodes[38](index=38&type=chunk) - These modalities are effective in treating pain, increasing local blood circulation, promoting muscle relaxation, preventing disuse atrophy, and accelerating muscle re-education[38](index=38&type=chunk) [Treatment Tables, Exercise and Rehabilitation Equipment](index=8&type=section&id=Treatment%20Tables%2C%20Exercise%20and%20Rehabilitation%20Equipment) Dynatronics manufactures and distributes essential power and manually operated treatment tables, mat platforms, and exercise equipment for patient treatment in various clinical settings - The company manufactures and distributes power and manually operated treatment tables, mat platforms, work tables, parallel bars, training stairs, and weight racks[39](index=39&type=chunk) - These products are essential for treating patients in a variety of clinical settings[39](index=39&type=chunk) [Supplies](index=8&type=section&id=Supplies) Dynatronics manufactures and distributes various clinical supplies, including exercise bands and tubing, lotions and gels, orthopedic bracing, and paper products - The company manufactures and distributes clinical supplies such as exercise bands and tubing, lotions and gels, orthopedic bracing, and paper products[40](index=40&type=chunk) [Sales Mix of Manufactured Products](index=8&type=section&id=Sales%20Mix%20among%20Key%20Products) Manufactured Products comprised the majority of total product sales in fiscal years 2021 and 2020, with no single product representing over 10% of total revenues Sales Mix of Manufactured Products | Fiscal Year | % of Total Product Sales (excluding freight and other revenue) | | :---------- | :------------------------------------------------------------- | | 2021 | 79% | | 2020 | 75% | - No single product accounted for more than **10% of total revenues** in fiscal years 2021 and 2020[41](index=41&type=chunk) [Patents and Trademarks](index=8&type=section&id=Patents%20and%20Trademarks) Dynatronics holds U.S. patents for thermoelectric and phototherapy technologies, owns key trademarks like Dynatron® and Bird & Cronin®, and protects trade secrets through confidentiality agreements - Dynatronics owns U.S. patents for thermoelectric technology (until Feb 2033), combination traction/phototherapy technology (until Dec 2026), and phototherapy technology (until Aug 2025)[42](index=42&type=chunk) - Significant U.S. trademark registrations include Dynatron®, Dynatron Solaris®, Dynaheat®, BodyIce®, Powermatic®, Bird & Cronin®, Physician's Choice®, and the Hausmann designed logo[43](index=43&type=chunk) - The company protects trade secrets through confidentiality agreements with key employees and partners[46](index=46&type=chunk) [Warranty Service](index=9&type=section&id=Warranty%20Service) Manufactured Products carry warranties from 90 days to five years, serviced at company facilities, while Distributed Products are covered solely by original manufacturers' warranties - Manufactured Products come with warranties typically ranging from **90 days to five years**[48](index=48&type=chunk) - Warranty claims for Manufactured Products are serviced at the company's Utah, New Jersey, and Minnesota sites[48](index=48&type=chunk) - Distributed Products are covered by their original manufacturers' warranties, with no additional coverage from Dynatronics[49](index=49&type=chunk) [Customers and Markets](index=9&type=section&id=Customers%20and%20Markets) Dynatronics sells to licensed practitioners, sports teams, hospitals, and clinics through over 300 independent U.S. dealers, with international sales representing approximately 2.4% of net sales - Customers include orthopedists, physical therapists, chiropractors, athletic trainers, professional sports teams, universities, hospitals, clinics, retail distributors, and OEM partners[50](index=50&type=chunk) - The company utilizes a network of over **300 independent dealers** throughout the United States[50](index=50&type=chunk) International Sales Performance | Fiscal Year | International Sales | % of Net Sales | | :---------- | :------------------ | :------------- | | 2021 | ~$1,160,000 | ~2.4% | | 2020 | ~$1,286,000 | ~2.4% | [Competition](index=10&type=section&id=Competition) Operating in a fragmented industry, Dynatronics competes on trusted brands, on-time delivery, and superior customer care, distinguishing its therapeutic modality devices with integrated advanced technology - The industry is highly fragmented with numerous competitors of varying sizes, including personal care companies, branded consumer healthcare companies, and private label manufacturers[54](index=54&type=chunk) - Key competitive factors for Dynatronics are trusted high-quality brands, on-time product delivery, and superior customer care[57](index=57&type=chunk) - Dynatronics-branded therapeutic modality devices are distinguished by integrated advanced technology, such as being the first to integrate infrared phototherapy into a combination therapy device[56](index=56&type=chunk) [Manufacturing and Quality Assurance](index=10&type=section&id=Manufacturing%20and%20Quality%20Assurance) Dynatronics manufactures products in New Jersey, Minnesota, and Utah, adhering to FDA cGMP and ISO standards, with electrotherapy products assembled by Ascentron - Manufactured Products are produced at facilities in Northvale, New Jersey, Eagan, Minnesota, and Cottonwood Heights, Utah[58](index=58&type=chunk) - Electrotherapy products are manufactured and assembled by Ascentron to company specifications[59](index=59&type=chunk) - The company complies with FDA's Current Good Manufacturing Practices (cGMP) and International Organization for Standardization (ISO) standards, holding ISO 13485:2016 certification for its Utah facility[59](index=59&type=chunk)[60](index=60&type=chunk) [Research and Development](index=10&type=section&id=Research%20and%20Development) Research and development expenses for Dynatronics significantly decreased in fiscal year 2021 compared to fiscal year 2020 Research and Development Expenses | Fiscal Year | R&D Expenses | | :---------- | :----------- | | 2021 | $10,000 | | 2020 | $95,000 | - R&D expenses decreased by **$85,000 (89.5%)** from fiscal year 2020 to fiscal year 2021[61](index=61&type=chunk) [Regulatory Matters](index=11&type=section&id=Regulatory%20Matters) Dynatronics' products are subject to extensive U.S. and international regulations, including FDA registration, Quality Systems Regulations, and pre-market clearance, with non-compliance risking significant penalties - The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of products are regulated by national and local governmental agencies, including the FDA and FTC in the U.S[63](index=63&type=chunk) - As a medical device manufacturer, Dynatronics must register with the FDA, comply with Quality Systems Regulations (cGMP), and adhere to medical device reporting requirements[64](index=64&type=chunk)[68](index=68&type=chunk) - All therapeutic treatment devices are cleared for marketing under section 510(k) of the Medical Device Amendment to the FD&C Act or are 510(k) exempt[64](index=64&type=chunk) - The Affordable Care Act requires reporting of payments or transfers of value to certain healthcare providers, with potential significant penalties for non-compliance[66](index=66&type=chunk) [Foreign Government Regulation](index=12&type=section&id=Foreign%20Government%20Regulation) Future international expansion would subject Dynatronics' products to diverse foreign governmental regulations, including product standards, tariffs, and import restrictions, with potential severe penalties for non-compliance - Future international expansion would subject products to diverse foreign governmental regulations, including product standards, packaging, labeling, and import restrictions[74](index=74&type=chunk) - Each country has its own tariff regulations, duties, and tax requirements[74](index=74&type=chunk) - Failure to comply with foreign regulations could result in fines, suspension of approvals, product recalls, seizures, operating restrictions, and criminal prosecution[74](index=74&type=chunk) [Environment](index=12&type=section&id=Environment) Environmental regulations and compliance costs are not material to Dynatronics' business, and the company believes it complies with relevant laws like California's Proposition 65 - Environmental regulations and compliance costs are not material to the business[75](index=75&type=chunk) - The company believes it is compliant with laws like California's Proposition 65, which requires disclosure of specified ingredient chemicals and warning labels[75](index=75&type=chunk) [Seasonality](index=12&type=section&id=Seasonality) Dynatronics' business experiences seasonality, with higher sales in the first and fourth fiscal quarters (summer and spring) and lower sales in the second and third fiscal quarters (fall and winter) - Sales are typically higher in the first and fourth fiscal quarters (summer and spring months)[76](index=76&type=chunk) - Sales are generally lower in the second and third fiscal quarters (fall and winter months)[76](index=76&type=chunk) - Quarterly operating results are not necessarily indicative of full-year or future operating results due to seasonality[76](index=76&type=chunk) [Employees](index=13&type=section&id=Employees) As of June 30, 2021, Dynatronics employed 175 people, with 38 (22%) covered by a collective bargaining agreement expiring in February 2022, and labor relations are considered satisfactory Employee Statistics (as of June 30, 2021) | Metric | Count | | :----- | :---- | | Total Employees | 175 | | Full-time Employees | 170 | | Employees under Collective Bargaining Agreement | 38 (approx. 22% of workforce) | - The collective bargaining agreement is scheduled to expire in February 2022[78](index=78&type=chunk) - The company believes its labor relations with both union and non-union employees are satisfactory[78](index=78&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) [Risks Related to Our Business and Industry](index=13&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Dynatronics faces risks including reliance on third-party manufacturers, supply chain disruptions, a history of losses, potential funding needs, regulatory compliance, intense competition, and intellectual property litigation - Reliance on third-party manufacturers for electrotherapy products poses risks related to quality, manufacturing standards, and supply continuity[80](index=80&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - Disruption of the supply chain due to weather, natural disasters, pandemics (like COVID-19), or disputes with suppliers could adversely impact business operations and financial results[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) - The company has a history of net losses in nine of the last ten fiscal years, and future profitability is not guaranteed[90](index=90&type=chunk) - Additional funding may be required for business opportunities or acquisitions, and inability to raise capital on favorable terms could adversely affect operations[91](index=91&type=chunk) - The company's level of indebtedness could harm financial condition by dedicating cash flow to debt payments, increasing vulnerability to economic changes, and limiting future financing[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - Challenges in managing growth through acquisitions, including integration difficulties, unbudgeted costs, and potential dilution from equity financing, could harm operating results[96](index=96&type=chunk)[97](index=97&type=chunk) - Failure to establish or maintain sales and distribution relationships, or ineffective third-party distributors, could adversely impact results and growth[98](index=98&type=chunk) - Healthcare reform (e.g., Affordable Care Act) and increasing scrutiny by government agencies on product sales, marketing, and relationships with healthcare providers pose compliance risks and potential penalties[99](index=99&type=chunk)[100](index=100&type=chunk)[104](index=104&type=chunk) - Changing market patterns towards evidence-based practices could reduce demand for products lacking sufficient efficacy evidence[102](index=102&type=chunk) - Increased scrutiny on international commercial activities, particularly regarding corruption (FCPA, U.K. Anti-Bribery Act) and trade sanctions, presents heightened political, economic, and operational risks[105](index=105&type=chunk) - Significant tariffs or trade restrictions could materially harm revenue and results of operations by increasing costs or reducing demand[106](index=106&type=chunk) - Failure to obtain foreign regulatory approvals (e.g., CE Mark) would prevent market entry in those jurisdictions[108](index=108&type=chunk) - Complex and evolving privacy and data protection laws (e.g., CCPA, GDPR, CSL) could lead to increased compliance costs, investigations, and reputational damage[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - Failures, damage, or interruptions in IT systems, including cyber-attacks, could disrupt operations, lead to loss of sensitive information, and incur significant expenses[115](index=115&type=chunk) - Limited market access due to the emergence of Group Purchasing Organizations (GPOs) that control product flow to acute care customers[115](index=115&type=chunk) - A significant portion of the workforce is subject to a collective bargaining agreement expiring in February 2022, and inability to renew or work stoppages could adversely affect the business[116](index=116&type=chunk) - Inadequate protection of intellectual property (patents, trade secrets, agreements) could lead to infringement claims, significant expenses, or prevent product sales[117](index=117&type=chunk)[122](index=122&type=chunk) - Market and technological obsolescence of products, and inability to compete effectively against rivals, could negatively impact operating results[118](index=118&type=chunk) - Dependence on a limited number of third-party suppliers for components and raw materials creates risks of supply disruptions, higher costs, and reputational damage[120](index=120&type=chunk) - Exposure to product liability claims, unfavorable court decisions, or legal settlements could result in significant expenses and harm business reputation[121](index=121&type=chunk) [Risks Related to Our Common Stock](index=22&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The price of Dynatronics' common stock is volatile, and investors face potential dilution from preferred stock conversions, warrant exercises, and future equity issuances, while preferred stock can deter takeovers - The price of common stock is volatile, with a range from **$0.52 to $2.56** during the year ended June 30, 2021[125](index=125&type=chunk) - Volatility is driven by factors such as quarterly operating results, market expectations, strategic decisions, industry trends, and general economic/political conditions, including the COVID-19 pandemic[125](index=125&type=chunk)[126](index=126&type=chunk) - Investors may experience substantial dilution from the conversion of outstanding preferred stock (**3,351,000 shares**), exercise of warrants (**4,323,500 shares**), and future issuances of common or preferred stock[128](index=128&type=chunk) - The Board of Directors can issue preferred stock with greater rights and preferences than common stock, potentially delaying or preventing takeover attempts[130](index=130&type=chunk)[135](index=135&type=chunk) - Dividends on Series A and Series B Preferred Stock accrue at **8% annually** and can be paid in cash or common stock, potentially diluting existing shareholders[131](index=131&type=chunk) - Concentrated equity ownership by Prettybrook Partners, LLC and its affiliates (approx. **15% voting power** as of June 30, 2021) may limit other shareholders' ability to influence corporate matters and could discourage changes of control[132](index=132&type=chunk) [Item 1B. Unresolved Staff Comments](index=24&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) [Unresolved Staff Comments Status](index=24&type=section&id=Unresolved%20Staff%20Comments%20Status) This section confirms the absence of any unresolved staff comments from the SEC - Not applicable, indicating no unresolved staff comments[136](index=136&type=chunk) [Item 2. Properties](index=24&type=section&id=Item%202.%20Properties) [Leased Facilities](index=24&type=section&id=Leased%20Facilities) Dynatronics leases three primary facilities in Minnesota, New Jersey, and Utah for manufacturing, warehousing, and offices, which are deemed adequate for current and expected growth - Leases an **85,000 sq-ft** manufacturing, warehouse, and office facility in Eagan, Minnesota, serving as corporate headquarters. Lease extended through October 2022[137](index=137&type=chunk) - Leases a **60,000 sq-ft** manufacturing and office facility in Northvale, New Jersey, for Hausmann Enterprises, LLC operations. Lease extended through April 2023[138](index=138&type=chunk) - Leases a **36,000 sq-ft** manufacturing, warehouse, and office facility in Cottonwood Heights, Utah, under a finance lease arrangement that terminates in 2029[139](index=139&type=chunk) - The company believes current facilities are adequate for present needs and expected growth, but additional facilities or expansion may be required in the future[140](index=140&type=chunk) [Item 3. Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) [Legal Proceedings Status](index=25&type=section&id=Legal%20Proceedings%20Status) Dynatronics reports no pending legal proceedings of a material nature - There are no pending legal proceedings of a material nature to which the company is a party or to which any of its property is the subject[148](index=148&type=chunk) [Item 4. Mine Safety Disclosure](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) [Mine Safety Disclosure Status](index=25&type=section&id=Mine%20Safety%20Disclosure%20Status) This section indicates that mine safety disclosure is not applicable to Dynatronics Corporation - Mine Safety Disclosure is not applicable to the company[142](index=142&type=chunk) [PART II](index=25&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Dynatronics' common stock trades on NASDAQ with price volatility, 17.57 million shares outstanding as of September 20, 2021, no cash dividends paid, and $3.46 million net proceeds from common stock sales in FY2021 - Common stock is listed on the NASDAQ Capital Market (symbol: **DYNT**)[144](index=144&type=chunk) Common Stock Price Range (Fiscal Years 2020-2021) | Quarter | FY2021 High | FY2021 Low | FY2020 High | FY2020 Low | | :------ | :---------- | :--------- | :---------- | :--------- | | Q1 (Jul-Sep) | $1.07 | $0.63 | $1.86 | $1.00 | | Q2 (Oct-Dec) | $0.93 | $0.52 | $1.28 | $0.63 | | Q3 (Jan-Mar) | $2.56 | $0.80 | $3.70 | $0.81 | | Q4 (Apr-Jun) | $1.38 | $1.01 | $1.30 | $0.63 | Outstanding Common Shares and Shareholders (as of Sep 20, 2021) | Metric | Value | | :----- | :---- | | Common Stock Outstanding | 17,574,296 shares | | Shareholders of Record | ~400 | - The company has never paid cash dividends on its common stock and intends to retain earnings to finance business development[146](index=146&type=chunk) - Preferred stock (Series A and B) has senior rights and accrues **8% annual dividends**, payable quarterly in cash or common stock, which can dilute common shareholders[149](index=149&type=chunk) Equity Securities Sales and Purchases (FY2021) | Activity | FY2021 | | :------- | :----- | | Common Stock Sold | 2,230,600 shares | | Offering Costs | $138,000 | | Net Proceeds from Sales | $3,462,000 | | Common Stock Purchased | None | [Item 6. Selected Financial Data](index=26&type=section&id=Item%206.%20Selected%20Financial%20Data) This section states that selected financial data is not applicable for this report - Selected Financial Data is not applicable[152](index=152&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Dynatronics achieved a net income of $2.0 million in FY2021, a significant improvement from a loss in FY2020, driven by debt forgiveness and other income, despite a 10.5% sales decrease, while pursuing strategic optimization and acquisitions [Overview](index=26&type=section&id=Overview) Dynatronics designs, manufactures, and sells restorative products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training, distributing them to various medical practitioners and facilities - Dynatronics designs, manufactures, and sells a broad range of restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training[155](index=155&type=chunk) - Products are marketed and sold to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals through distribution channels[155](index=155&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) In fiscal year 2021, Dynatronics' net sales decreased by 10.5% to $47.8 million, but the company achieved a net income of $2.0 million, a significant turnaround from a $3.4 million net loss in FY2020, largely driven by a $3.5 million gain on debt extinguishment and a $2.4 million increase in other income [Net Sales](index=26&type=section&id=Net%20Sales) Net sales for fiscal year 2021 decreased by 10.5% compared to fiscal year 2020, primarily due to the ongoing impact of the COVID-19 pandemic Net Sales (FY2021 vs. FY2020) | Fiscal Year | Net Sales | | :---------- | :-------- | | 2021 | $47,799,000 | | 2020 | $53,409,000 | | Change | -$5,610,000 (-10.5%) | - The decrease was primarily due to the continued impact of COVID-19, including reduced demand, capacity, operating hours, supply chain disruptions, and extended handling times[156](index=156&type=chunk) [Gross Profit](index=27&type=section&id=Gross%20Profit) Gross profit decreased by 14.7% in fiscal year 2021, with the gross margin percentage declining to 27.0% from 28.3% in FY2020, mainly due to lower sales, business optimization costs, and higher freight Gross Profit (FY2021 vs. FY2020) | Fiscal Year | Gross Profit | Gross Margin % | | :---------- | :----------- | :------------- | | 2021 | $12,886,000 | 27.0% | | 2020 | $15,098,000 | 28.3% | | Change | -$2,212,000 (-14.7%) | -1.3 percentage points | - The decrease in gross margin percentage was primarily due to **$488,000** in costs from business optimization exit activities, higher freight and material costs, and lower production efficiency[158](index=158&type=chunk) - Partially offset by a **$175,000** employee retention credit under the CARES Act[158](index=158&type=chunk) [Selling, General, and Administrative Expenses](index=27&type=section&id=Selling%2C%20General%2C%20and%20Administrative%20Expenses) SG&A expenses decreased by 8.0% to $16.6 million in fiscal year 2021, driven by lower selling and G&A expenses, partially offset by business optimization costs SG&A Expenses (FY2021 vs. FY2020) | Fiscal Year | SG&A Expenses | | :---------- | :------------ | | 2021 | $16,646,000 | | 2020 | $18,091,000 | | Change | -$1,445,000 (-8.0%) | - Selling expenses decreased by **$1,383,000** due to lower commissions and sales management salaries[159](index=159&type=chunk) - G&A expenses decreased by **$62,000**, benefiting from a **$216,000** employee retention credit and headcount reductions, but offset by **$513,000** in business optimization exit costs[159](index=159&type=chunk) [Interest Expense](index=27&type=section&id=Interest%20Expense) Interest expense decreased by 50.5% to $216,000 in fiscal year 2021, primarily due to lower interest rates and reduced average borrowings on the line of credit Interest Expense (FY2021 vs. FY2020) | Fiscal Year | Interest Expense | | :---------- | :--------------- | | 2021 | $216,000 | | 2020 | $436,000 | | Change | -$220,000 (-50.5%) | - Decrease primarily related to lower interest rates and lower average borrowings on the line of credit[160](index=160&type=chunk) - Imputed interest from the Utah facility sale/leaseback was **$143,000** in FY2021 and **$156,000** in FY2020[160](index=160&type=chunk) [Gain on Extinguishment of Debt](index=27&type=section&id=Gain%20on%20Extinguishment%20of%20Debt) Dynatronics recognized a $3.5 million gain on extinguishment of debt in fiscal year 2021 due to the forgiveness of its Paycheck Protection Program loan Gain on Extinguishment of Debt (FY2021 vs. FY2020) | Fiscal Year | Gain on Extinguishment of Debt | | :---------- | :----------------------------- | | 2021 | $3,518,000 | | 2020 | $0 | - The gain resulted from the forgiveness of the Paycheck Protection Program loan[161](index=161&type=chunk) [Other Income (Expense)](index=27&type=section&id=Other%20Income%20%28Expense%29) Other income significantly increased to $2.4 million in fiscal year 2021, primarily driven by a $717,000 gain on property sale and a $1.7 million employee retention credit Other Income (Expense) (FY2021 vs. FY2020) | Fiscal Year | Other Income (Expense) | | :---------- | :--------------------- | | 2021 | $2,449,000 | | 2020 | -$7,000 | | Change | +$2,456,000 | - Increase primarily due to a **$717,000** gain on the sale of property and equipment (Tennessee property) and a **$1,726,000** employee retention credit[162](index=162&type=chunk) [Net Income (Loss) Before Income Tax](index=27&type=section&id=Net%20Income%20%28Loss%29%20Before%20Income%20Tax) Pre-tax income for fiscal year 2021 was $1.99 million, a substantial improvement from a $3.44 million loss in fiscal year 2020, mainly due to decreased expenses and increased other income Pre-Tax Income (Loss) (FY2021 vs. FY2020) | Fiscal Year | Pre-Tax Income (Loss) | | :---------- | :-------------------- | | 2021 | $1,991,000 | | 2020 | -$3,436,000 | | Change | +$5,427,000 | - Increase primarily attributable to a decrease of **$1,445,000** in SG&A, **$220,000** in interest expense, and an increase of **$5,974,000** in other income, offset by a decrease of **$2,212,000** in gross profit[163](index=163&type=chunk) [Income Tax](index=27&type=section&id=Income%20Tax) Income tax benefit remained consistent at $10,000 for both fiscal years 2021 and 2020 Income Tax Benefit (FY2021 vs. FY2020) | Fiscal Year | Income Tax Benefit | | :---------- | :----------------- | | 2021 | $10,000 | | 2020 | $10,000 | [Net Income (Loss)](index=27&type=section&id=Net%20Income%20%28Loss%29) Dynatronics reported a net income of $2.0 million in fiscal year 2021, a significant improvement from a net loss of $3.4 million in fiscal year 2020 Net Income (Loss) (FY2021 vs. FY2020) | Fiscal Year | Net Income (Loss) | | :---------- | :---------------- | | 2021 | $2,001,000 | | 2020 | -$3,425,000 | [Net Income (Loss) Attributable to Common Stockholders](index=28&type=section&id=Net%