Dynatronics(US:DYNT)2020-09-24 13:27Part I Business Dynatronics designs and sells restorative medical products, focusing on acquisition-driven growth and operational efficiencies in a regulated market - The company's strategy aims for significant growth through a value-driven acquisition program to become a recognized standard in restorative solutions21 - Manufactured products comprised approximately 75% of net sales in fiscal year 2020, excluding freight and other revenue3648 - Significant operational changes include closing the Tennessee facility, outsourcing distribution to Millstone Medical Outsourcing, and outsourcing electrotherapy manufacturing to Ascentron to enhance profitability262734 - John Krier was appointed as the new CEO effective July 7, 2020, following Brian Baker's resignation2930 - Sales outside North America totaled approximately $1.3 million in fiscal year 2020, representing 2.4% of net sales60 Risk Factors The company faces significant operational, financial, and regulatory risks, including third-party reliance, COVID-19, delisting, and stock dilution - Reliance on a third-party logistics (3PL) provider and third-party manufacturers for electrotherapy products poses significant operational disruption risks8892 - The COVID-19 pandemic presents significant risks, including supply chain disruptions, increased material costs, and adverse impacts on sales and inventory valuation979899 - The company has a history of nine consecutive fiscal years of net losses and may require additional funding, which might not be available on favorable terms102103 - On May 15, 2020, Nasdaq issued a notice regarding the common stock's closing bid price falling below $1.00 for 30 consecutive days, risking delisting136 - Outstanding preferred shares and warrants, convertible into 3,681,000 and 6,738,500 common shares respectively as of September 21, 2020, pose significant dilution risk144 - As of June 30, 2020, Prettybrook Partners, LLC and affiliates held approximately 15% of voting power, granting significant influence and board appointment rights148 Unresolved Staff Comments This section is not applicable as the company has no unresolved staff comments from the SEC - There are no unresolved staff comments152 Properties The company operates from leased facilities in MN, NJ, and UT, and owns a TN facility currently for sale Company Properties Overview | Location | Size (sq-ft) | Type | Details | | :--- | :--- | :--- | :--- | | Eagan, MN | 85,000 | Leased | Corporate HQ. Lease extended through Oct 2022 | | Northvale, NJ | 60,000 | Leased | Hausmann operations. Lease extended through Apr 2023 | | Cottonwood Heights, UT | 36,000 | Leased | Finance lease-back agreement, terminates in 2029 | | Chattanooga, TN | 53,000 | Owned | Subject to mortgage, currently for sale | Legal Proceedings The company is not involved in any material legal proceedings, nor is any of its property subject to such actions - There are no pending legal proceedings of a material nature165 Mine Safety Disclosures This item is not applicable as the company has no mine safety disclosures - This item is not applicable159 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, with 14.1 million shares outstanding as of September 2020, and no cash dividends - The company's common stock is listed on the NASDAQ Capital Market under the symbol DYNT161 Common Stock Price Range (FY 2020) | Quarter (FY 2020) | High Price | Low Price | | :--- | :--- | :--- | | Q1 (Jul-Sep) | $1.86 | $1.00 | | Q2 (Oct-Dec) | $1.28 | $0.63 | | Q3 (Jan-Mar) | $3.70 | $0.81 | | Q4 (Apr-Jun) | $1.30 | $0.63 | - The company has never paid cash dividends on its common stock and plans to retain earnings for business development163 - In FY 2020, the company sold 3,200,585 common shares, generating net proceeds of $2.287 million167 Selected Financial Data This item is not applicable as the company is a smaller reporting company - This item is not applicable169 Management's Discussion and Analysis of Financial Condition and Results of Operations FY2020 saw a 14.6% sales decrease to $53.4 million and a widened net loss, with liquidity improving to $2.2 million cash Results of Operations FY2020 net sales decreased 14.6% to $53.4 million due to COVID-19, resulting in a $3.4 million net loss Consolidated Results of Operations (FY 2020 vs. FY 2019) | Metric | FY 2020 ($) | FY 2019 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 53,409,000 | 62,565,000 | (9,156,000) | -14.6% | | Gross Profit | 15,098,000 | 19,174,000 | (4,076,000) | -21.3% | | Gross Margin | 28.3% | 30.6% | -2.3 p.p. | N/A | | SG&A Expenses | 18,091,000 | 19,970,000 | (1,879,000) | -9.4% | | Net Loss | (3,425,000) | (922,000) | (2,503,000) | +271.5% | | Net Loss per Share | (0.42) | (0.21) | (0.21) | +100.0% | - The decrease in net sales was primarily due to COVID-19 related restrictions and a continued decline in physical therapy and rehabilitation product sales173 - The decrease in SG&A expenses resulted from lower commission expenses on reduced sales and decreased payroll and benefits due to headcount reductions176 Liquidity and Capital Resources As of June 30, 2020, liquidity significantly improved with cash increasing to $2.2 million, driven by operational cash flow, an ATM offering, and a $3.5 million PPP loan Liquidity and Capital Resources Metrics | Metric | June 30, 2020 ($) | June 30, 2019 ($) | | :--- | :--- | :--- | | Cash and Cash Equivalents | 2,216,000 | 156,000 | | Working Capital | 8,396,000 | 5,638,000 | | Current Ratio | 2.1 to 1 | 1.4 to 1 | - In April 2020, the company sold 3.2 million common shares in an ATM offering, raising net proceeds of $2.287 million187 - On April 29, 2020, the company received a PPP loan of $3,477,412, which it expects to use for qualified expenses and apply for forgiveness188189 - The line of credit balance was reduced to $1.0 million at year-end from $6.5 million in 2019, with approximately $5.0 million available to borrow197 Critical Accounting Policies Critical accounting policies involve significant judgments in inventory valuation, revenue recognition, allowance for doubtful accounts, and deferred income taxes - Key critical accounting policies involve significant estimates for inventory valuation, revenue recognition, allowance for doubtful accounts, and deferred income taxes206 - The inventory valuation reserve increased to $568,000 in FY2020 from $139,000 in FY2019, reflecting management's assessment of slow-moving or obsolete inventory208 - A full valuation allowance is required against net deferred tax assets due to a nine-year history of cumulative losses, as their realization is not more likely than not214216 Business Plan and Outlook The FY2021 business plan focuses on driving sales, increasing profitability, pursuing strategic acquisitions, and enhancing investor communications - The company's FY2021 strategy focuses on four main areas: * Driving sales through strategic accounts and channel optimization * Increasing operating profitability with cost discipline * Pursuing M&A opportunities in core markets * Enhancing communication with the investor community219 - The acquisition strategy targets manufacturers and distributors in core markets like physical therapy and orthopedics, focusing on candidates that extend geographic reach, provide channel access, or are value-oriented businesses220 Quantitative and Qualitative Disclosures about Market Risk This item is not applicable as the company is a smaller reporting company - This item is not applicable221 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2020 and FY2019, for which Tanner LLC issued an unqualified opinion - The independent auditor, Tanner LLC, provided an unqualified opinion on the company's consolidated financial statements for the years ended June 30, 2020 and 2019226 Key Consolidated Financial Metrics | Key Financial Metrics | June 30, 2020 ($) | June 30, 2019 ($) | | :--- | :--- | :--- | | Balance Sheet | | | | Total Assets | 37,596,317 | 39,631,945 | | Total Liabilities | 17,700,436 | 18,876,236 | | Total Stockholders' Equity | 19,895,881 | 20,755,709 | | Income Statement | | | | Net Sales | 53,409,046 | 62,565,117 | | Net Loss | (3,425,483) | (921,722) | - The company adopted the new lease accounting standard (Topic 842) on July 1, 2019, recognizing operating lease Right-of-Use (ROU) assets and liabilities of $4,203,925275 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with the company's accountants regarding accounting principles or financial disclosure - None reported342 Controls and Procedures As of June 30, 2020, management concluded that disclosure controls and internal control over financial reporting were effective - Management concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective344 - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2020346 - As a smaller reporting company, this report does not include an attestation report from the independent registered public accounting firm regarding internal control over financial reporting347 Other Information There is no other information to report for this item - None reported350 Part III Directors, Executive Officers, Corporate Governance, Compensation, and Related Party Transactions Information for Items 10 through 14 is incorporated by reference from the company's definitive proxy statement to be filed with the SEC - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive proxy statement352353354355356 Part IV Exhibits, Financial Statement Schedules This section provides an index of financial statements from Item 8 and a list of all exhibits filed or incorporated by reference - The financial statements are set forth under Item 8, and financial statement schedules have been omitted as not required or applicable359 - An index of exhibits is provided, including key agreements such as the Loan and Security Agreement with Bank of the West, the PPP Note, and various equity incentive plans362366369 Form 10-K Summary No Form 10-K summary was provided for this report - None374