Dynatronics(DYNT) - 2025 Q4 - Annual Report

PART I Item 1. Business Dynatronics Corporation designs, manufactures, and sells restorative medical devices for physical therapy, rehabilitation, and pain management, operating under multiple brands and subject to extensive regulations - Dynatronics Corporation is a leading medical device company providing high-quality products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training[16] - The company markets products under well-known industry brands including Bird & Cronin, Solaris, Hausmann, PROTEAM, and Mammoth[16] - The business strategy prioritizes stable revenue streams, steady business operations, and ensuring continued value for clinicians, investors, and all stakeholders through consistent operational excellence and core strength maintenance[18] Company Background Dynatronics Corporation, founded in 1983 in Utah, is a medical device company operating through subsidiaries Bird & Cronin, LLC and Hausmann Enterprises, LLC - Dynatronics Corporation was founded in 1983 and is a Utah corporation[19] - The company's principal executive offices are located at 1200 Trapp Road, Eagan, Minnesota[19] - The company operates on a fiscal year ending June 30 and includes wholly-owned subsidiaries Bird & Cronin, LLC and Hausmann Enterprises, LLC[21] Business Strategy Dynatronics aims to maintain its market position by focusing on operational excellence, on-time delivery, and superior customer care to ensure stable revenue and stakeholder value - Dynatronics is committed to maintaining its position as a leading manufacturer of restorative products through consistent operational excellence and a focus on sustaining core strengths[18] - The company's strategy prioritizes stable revenue streams, steady business operations, and ensuring continued value for clinicians, investors, and all stakeholders[18] Corporate Information Dynatronics Corporation, founded in 1983, provides investor information including SEC filings and corporate governance documents via its website and investor portal - Dynatronics Corporation was founded in 1983 and its principal executive offices are in Eagan, Minnesota[19] - The company's website (www.dynatronics.com) and investor portal provide access to SEC filings, investor conference announcements, press releases, and corporate governance information[19][20][23] Our Products Dynatronics offers a diverse range of restorative products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training, with no single product exceeding 10% of total revenues and manufactured products comprising approximately 98% of sales - Dynatronics sells a broad range of restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training[24] - Product offerings include orthopedic soft bracing and supports, patient care products, treatment tables, rehabilitation equipment, therapeutic modalities, and related supplies[24] - No single product accounted for more than 10% of total revenues in fiscal years 2025 or 2024, and manufactured products represented approximately 98% of total product sales[31] Orthopedic Soft Bracing Products The company's orthopedic soft bracing products, marketed under brands like Bird & Cronin, are designed for pre- and post-surgical intervention, fracture recovery, and joint stabilization - Orthopedic soft bracing products are designed to accelerate health for patients pre- and post-surgical intervention, during fracture recovery, joint stabilization, and ligament injury[26] - Bird & Cronin 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[27] Physical Therapy and Rehabilitation Products Dynatronics offers physical therapy and rehabilitation products under brands such as Solaris, Hausmann, and PROTEAM, including treatment tables, rehabilitation equipment, and therapeutic modalities - Physical therapy and rehabilitation products are designed for use in physical therapy, rehabilitation, pain management, and athletic training[28] - Brands like Solaris, Hausmann, and PROTEAM include treatment tables, rehabilitation equipment, and therapeutic modalities such as electrotherapy, ultrasound, and phototherapy[28][29] Sales Mix among Key Products In fiscal years 2025 and 2024, no single product accounted for more than 10% of total revenues, with manufactured products representing approximately 98% of total product sales - No single product accounted for more than 10% of total revenues in fiscal years 2025 or 2024[31] - Sales of products manufactured by Dynatronics or its contract manufacturers represented approximately 98% of total product sales in both fiscal years 2025 and 2024[31] Patents and Trademarks Dynatronics holds U.S. patents for thermoelectric and combination traction/phototherapy technologies, along with significant trademarks like Dynatron® and Bird & Cronin®, actively protecting its intellectual property - Dynatronics owns a U.S. patent on thermoelectric technology (effective until February 2033) and another on combination traction/phototherapy technology (effective until December 2026)[32] - Significant U.S. trademark registrations include Dynatron®, Dynatron Solaris®, Bird & Cronin®, Hausmann®, and PROTEAM™[33] - The company protects trade secrets through confidentiality agreements with key employees and partners, and intends to defend its intellectual property rights through legal action[36][38] Warranty Service Dynatronics provides warranties on all manufactured products, typically ranging from 90 days to fifteen years, with claims serviced at its Utah, New Jersey, and Minnesota facilities - The company provides a warranty on all manufactured products for periods generally ranging from 90 days to fifteen years[39] - Warranty claims are serviced at Utah, New Jersey, and Minnesota sites and are not material[39] Customers and Markets Dynatronics sells products to licensed practitioners, hospitals, and clinics through a network of over 100 independent dealers and direct sales representatives, with two to three major customers accounting for significant net sales - Customers include orthopedists, physical therapists, chiropractors, athletic trainers, professional sports teams, universities, hospitals, clinics, retail distributors, and OEM partners[40] - The company uses a network of over 100 core independent dealers and a combination of independent and targeted direct sales representatives[40] Major Customers' Contribution to Net Sales | Fiscal Year | Customer 1 (% of Net Sales) | Customer 2 (% of Net Sales) | Customer 3 (% of Net Sales) | | :---------- | :-------------------------- | :-------------------------- | :-------------------------- | | 2025 | 14.5% | 12.0% | N/A | | 2024 | 13.0% | 12.7% | 12.7% | Competition Dynatronics operates in a highly fragmented and competitive medical device industry, competing on trusted brands, on-time delivery, superior customer care, and advanced technology like infrared phototherapy integration - The industry is highly fragmented with numerous competitors, including larger and more established companies with greater resources[42][43] - Dynatronics competes on trusted high-quality brands, on-time product delivery, and superior customer care[45] - The company believes its integration of advanced technology, such as being the first to integrate infrared phototherapy in a combination therapy device, provides a competitive edge[44] Manufacturing and Quality Assurance Dynatronics manufactures products at facilities in New Jersey, Minnesota, and Utah, ensuring quality through internal component fashioning, third-party sourcing, and trained staff performing assembly and quality assurance testing - Products are manufactured at facilities in Northvale, New Jersey, Eagan, Minnesota, and Cottonwood Heights, Utah[46] - The manufacturing process involves custom components fashioned internally and purchased from third-party suppliers, all meeting established specifications[46] - Trained staff perform sub-assembly, final assembly, and quality assurance testing following established procedures to ensure products meet design requirements[46] Regulatory Matters Dynatronics' products are extensively regulated by the FDA and FTC, requiring compliance with Quality Systems Regulations and medical device reporting, with most therapeutic devices cleared under section 510(k) or exempt - The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of Dynatronics' products are subject to regulation by the FDA and FTC in the United States[47] - As a medical device manufacturer, Dynatronics must register with the FDA, comply with Quality Systems Regulations, and adhere to medical device reporting requirements[48] - Most therapeutic treatment devices are cleared for marketing under section 510(k) of the FD&C Act or are considered 510(k) exempt; certain Class II phototherapy devices were exempted from 510(k) in 2017, which is viewed positively for leveraging existing technology but also lowers competitive barriers[49][51] Foreign Government Regulation Future international expansion would subject Dynatronics' products to diverse foreign governmental regulations, including product standards, packaging, labeling, and import restrictions, with non-compliance risking severe penalties - Future expansion into international markets would subject products to diverse foreign governmental regulations, including product standards, packaging, labeling, and import restrictions[58][59] - Failure to comply with foreign regulations could lead to fines, suspension of approvals, product recalls, and criminal sanctions[59] 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 company's business[60] - Dynatronics believes it is compliant with laws like California's Proposition 65, which regulates products containing certain identified ingredients[60] Seasonality Dynatronics' business experiences seasonality, with sales typically higher in the first and fourth fiscal quarters (summer and spring) and lower in the second and third fiscal quarters (fall and winter) - The company's business is affected by seasonality, leading to fluctuations in operating results[61] - Sales are typically higher in the first and fourth fiscal quarters (summer and spring months) and lower in the second and third fiscal quarters (fall and winter months)[61] Employees As of June 30, 2025, Dynatronics employed 88 full-time individuals, with approximately 40% covered by a collective bargaining agreement expiring in February 2028, and reports satisfactory labor relations - As of June 30, 2025, Dynatronics employed 88 full-time employees[62] - 35 employees (approximately 40% of the workforce) are subject to a collective bargaining agreement expiring in February 2028[62] - The company believes its labor relations with both union and non-union employees are satisfactory[62] Item 1A. Risk Factors Dynatronics faces significant risks including substantial doubt about its going concern ability, reliance on third-party manufacturers, supply chain disruptions, inflation, and potential future losses, alongside regulatory, market, and stock-related challenges - The company has incurred significant recurring operating losses, negative cash flows, and reduced liquidity, raising substantial doubt about its ability to continue as a going concern[64] - Key business risks include reliance on third-party manufacturers, supply chain disruptions, inflation, geopolitical instability, and the potential for future non-cash impairment charges[65][68][69][72][78] - Risks related to common stock include price volatility, substantial dilution from preferred stock conversions and future issuances, and the challenges associated with trading on the OTCQB Venture Market[110][112][120] Substantial Doubt About Our Ability to Continue as a Going Concern Dynatronics faces substantial doubt about its ability to continue as a going concern due to recurring operating losses, negative cash flows, and reduced liquidity, despite implementing strategic improvement actions - The company has incurred significant recurring operating losses, recurring negative cash flows, and continued reduction in liquidity[64] - These factors have caused the company to determine there is substantial doubt about its ability to continue as a going concern[64] - Strategic actions are being implemented to improve liquidity, increase operating efficiency and revenues, and ensure business continuity, but success is not assured[64] Risks Related to Our Business and Industry Dynatronics faces business and industry risks including reliance on third-party manufacturers, supply chain disruptions, inflation, a history of net losses, extensive government regulations, and market access limitations from GPOs - Reliance on third-party manufacturers for electrotherapy products poses risks related to quality, effectiveness, and supply interruptions[65][66] - Supply chain disruptions due to weather, natural disasters, pandemics, government action, or geopolitical instability (e.g., Russia-Ukraine conflict, Middle East tensions) could impair manufacturing and sales[68][72][73] - The company has a history of net losses (13 out of 14 previous fiscal years) and may not sustain profitability, potentially requiring additional funding[77][79] - Extensive government regulations (FDA, FTC, anti-kickback, FCPA) and evolving data privacy laws (GDPR, CCPA, CSL) impose compliance burdens and risks of penalties[85][89][90][93][94] - Market access is limited by Group Purchasing Organizations (GPOs), with which the company has been relatively unsuccessful in securing significant contracts[95] Risks Related to Our Common Stock Dynatronics' common stock faces volatility, substantial dilution risks from preferred stock conversions and future issuances, and reduced liquidity due to its transition to the OTCQB Venture Market - The company's stock price has been volatile, ranging from $0.06 to $0.29 during the year ended June 30, 2025, and is expected to continue fluctuating due to various factors[111] - Investors may experience substantial dilution from the conversion of Series A and Series B Preferred Stock (convertible into 670,200 common shares) and future issuances of stock, options, or restricted stock[112] - The common stock ceased trading on NASDAQ and moved to the OTCQB Venture Market on July 9, 2024, which could lead to reduced liquidity, delayed transactions, and potential 'penny stock' designation[120][121] - The company is considering strategies that may result in deregistration under the Exchange Act, which would decrease disclosure and potentially negatively affect liquidity and trading prices[123] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments Item 1C. Cybersecurity Dynatronics relies on IT systems, making it vulnerable to cyber-attacks; it manages these risks through a program based on CIS Critical Security Controls, overseen by the Audit Committee - Failures, damage, or interruptions in information technology systems, including cyber-attacks, could materially affect business operations and results[125] - The company has a cybersecurity risk management program utilizing the CIS Critical Security Controls framework to protect critical systems and information[126] - Cybersecurity risk oversight is delegated to the Audit Committee, which receives reports from the Chief Information Officer[128] Cybersecurity Risk Management and Strategy Dynatronics' cybersecurity risk management program includes assessments, a dedicated IT security team, external providers, training, and an incident response plan, with no material threats identified to date - The cybersecurity risk management program includes risk assessments, a dedicated IT security team, external service providers, awareness training, and an incident response plan[130] - The company has not identified risks from known cybersecurity threats that have materially affected its operations, business strategy, results of operations, or financial condition[127] Cybersecurity Governance The Board of Directors delegates cybersecurity risk oversight to the Audit Committee, which monitors management's program and receives reports from the Chief Information Officer - The Board considers cybersecurity risk critical and delegates oversight to the Audit Committee[128] - The Audit Committee oversees management's cybersecurity risk management program and receives reports from the Chief Information Officer[128] Item 2. Properties Dynatronics leases three primary facilities in Minnesota, New Jersey, and Utah for manufacturing, warehousing, and offices, which are deemed adequate for current and future growth - Dynatronics leases a 57,000 square-foot manufacturing, warehouse, and office facility in Eagan, Minnesota, with a new lease commencing April 2025[129] - The company leases a 60,000 square-foot manufacturing and office facility in Northvale, New Jersey, with the lease extended through March 2028[130][131] - A 36,000 square-foot manufacturing, warehouse, and office facility in Cottonwood Heights, Utah, is leased back after being sold in 2014, with the lease terminating in 2029[132] Item 3. Legal Proceedings Dynatronics reports no pending legal proceedings of a material nature - There are no pending legal proceedings of a material nature to which Dynatronics is a party or subject[135] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to Dynatronics PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Dynatronics' common stock moved to the OTCQB Venture Market on July 9, 2024, experiencing volatility, with 16 million shares outstanding and no cash dividends paid, while preferred stock dividends are paid in common stock - Dynatronics' common stock began trading on the OTCQB Venture Market (symbol: DYNT) on July 9, 2024, after ceasing trading on the NASDAQ Capital Market[138] Common Stock Price Range (High/Low) by Quarter | Fiscal Year Ended June 30, | Quarter | High ($) | Low ($) | | :------------------------- | :------ | :------- | :------ | | 2025 | 1st | 0.29 | 0.11 | | 2025 | 2nd | 0.20 | 0.08 | | 2025 | 3rd | 0.19 | 0.10 | | 2025 | 4th | 0.17 | 0.06 | | 2024 | 1st | 0.91 | 0.69 | | 2024 | 2nd | 0.78 | 0.47 | | 2024 | 3rd | 0.73 | 0.42 | | 2024 | 4th | 0.65 | 0.25 | - As of October 6, 2025, there were 16,001,331 shares of common stock outstanding and approximately 387 shareholders of record[139] - The company has never paid cash dividends on common stock and intends to retain earnings to finance business development[140] - Dividends on Series A and Series B Preferred Stock accrue at 8% annually and are typically paid in common stock, which can result in significant dilution to common shareholders[141] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Dynatronics' financial condition, highlighting a 15.8% net sales decrease, substantial net loss increase due to impairment charges, and ongoing going concern doubts, alongside strategic plans and critical accounting policies - Net sales decreased by $5,141,000 (15.8%) to $27,393,000 in fiscal year 2025, primarily due to reduced OEM customer volume and lower demand for orthopedic soft bracing products[148] - Gross profit decreased by $1,624,000 (21.3%) to $6,011,000 in fiscal year 2025, with the gross profit margin falling from 23.5% to 21.9%[149] - The company recorded significant impairment charges in fiscal year 2025: $950,000 for intangible assets and $7,117,000 for goodwill, contributing to a net loss of $10,902,000[152][153][156] - Dynatronics faces substantial doubt about its ability to continue as a going concern due to recurring operating losses, negative cash flows, and reduced liquidity, with working capital decreasing from $2,853,000 in FY2024 to $718,000 in FY2025[159][160] - The business plan for fiscal 2026 focuses on driving profitability through business optimization, new product launches, enhancing strategic partnerships, disciplined product portfolio management, and pursuing merger and acquisition opportunities[194][197] Overview Dynatronics designs, manufactures, and sells a wide array of restorative products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training to various licensed practitioners and hospitals - Dynatronics designs, manufactures, and sells restorative products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training[146] - Products are marketed and sold to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals[146] Results of Operations Dynatronics' fiscal year 2025 saw a 15.8% net sales decrease and 21.3% gross profit decline, leading to a substantial net loss increase, primarily due to $8.07 million in impairment charges Key Financial Performance Indicators (FY2025 vs. FY2024) | Metric | FY2025 ($000) | FY2024 ($000) | Change ($000) | Change (%) | | :-------------------------------------- | :------------ | :------------ | :------------ | :--------- | | Net Sales | 27,393 | 32,534 | (5,141) | (15.8%) | | Gross Profit | 6,011 | 7,635 | (1,624) | (21.3%) | | Gross Profit (% of Net Sales) | 21.9% | 23.5% | (1.6 pp) | | | Selling, General, & Administrative Expenses | 8,464 | 9,908 | (1,444) | (14.6%) | | Interest Expense, net | 410 | 418 | (8) | (1.9%) | | Intangible Assets Impairment | 950 | 0 | 950 | N/A | | Goodwill Impairment | 7,117 | 0 | 7,117 | N/A | | Loss Before Income Taxes | (10,889) | (2,698) | (8,191) | (303.6%) | | Net Loss | (10,902) | (2,698) | (8,204) | (304.0%) | | Net Loss Attributable to Common Stockholders | (11,604) | (3,429) | (8,175) | (238.4%) | | Basic and Diluted EPS | (1.43) | (1.00) | (0.43) | (43.0%) | Fiscal Year 2025 Compared to Fiscal Year 2024 Fiscal year 2025 saw a significant deterioration in financial results compared to 2024, primarily driven by a 15.8% decrease in net sales and substantial impairment charges, leading to a net loss of $10.9 million Liquidity, Going Concern and Capital Resources Dynatronics' liquidity significantly deteriorated, with cash and working capital decreasing, raising substantial doubt about its going concern ability, prompting a comprehensive plan to improve performance and liquidity Liquidity and Working Capital (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :---------------------- | :------------------- | :------------------- | :------------ | :--------- | | Cash and Cash Equivalents | 326 | 484 | (158) | (32.6%) | | Working Capital | 718 | 2,853 | (2,135) | (74.8%) | | Current Ratio | 1.1:1 | 1.4:1 | (0.3) | | | Operating Losses | (2,453) | (2,273) | (180) | 7.9% | - The company's declining revenues, recurring operating losses, and negative cash flows raise substantial doubt about its ability to continue as a going concern[160] - A comprehensive plan is being implemented to address challenges, including cost reduction, operational streamlining, product diversification, and transitioning therapeutic modality production to internal operations[161] - Potential universal tariffs announced in April 2025 are expected to significantly increase the company's cost of goods sold, impacting future results of operations[162] Intangible Assets and Goodwill Impairment In fiscal year 2025, Dynatronics recorded approximately $950,000 in intangible asset impairment and $7,117,000 in goodwill impairment due to declining gross margins, sales, and negative EBITDA - Impairment charges of approximately $950,000 for intangible assets and $7,117,000 for goodwill were recorded in fiscal year 2025[165] - The impairment assessment was triggered by indicators such as declining gross margins, sales, and negative enterprise-wide EBITDA[164] - Fair value was measured using discounted cash flows, corroborated by other methods, and is sensitive to assumptions like discount rates, margins, and growth[164][165] Line of Credit Dynatronics secured an asset-based financing agreement with Gibraltar Business Capital, LLC on August 1, 2023, for up to $7,500,000, bearing interest at SOFR plus 5.00% and secured by company assets - On August 1, 2023, Dynatronics entered a Loan and Security Agreement with Gibraltar Business Capital, LLC for asset-based financing[166] - The revolving loans are subject to a borrowing base calculation, with a maximum availability of $7,500,000, and bear interest at SOFR plus 5.00%[166] - The obligations are secured by a first-priority security interest in substantially all of the company's assets and include various affirmative, negative, and financial covenants[168][169] Cash, Cash Equivalents and Restricted Cash Dynatronics' cash, cash equivalents, and restricted cash decreased by $157,000 to $377,000 as of June 30, 2025, primarily due to finance lease payments and line of credit repayments Cash, Cash Equivalents and Restricted Cash (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :---------------------------------------- | :------------------- | :------------------- | :------------ | :--------- | | Cash, Cash Equivalents and Restricted Cash | 377 | 534 | (157) | (29.4%) | - Primary uses of cash in FY2024 included $303,000 for finance lease principal payments and $125,000 for line of credit repayments[171] - Net cash provided by operations was $301,000 in FY2024[171] Trade Accounts Receivable, net Trade accounts receivable, net, decreased by $644,000 (18.7%) to $2,801,000 as of June 30, 2025, primarily due to reduced revenue and timing differences in collections, with receivables generally collected within 40 days Trade Accounts Receivable, net (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :---------------------------------------- | :------------------- | :------------------- | :------------ | :--------- | | Trade Accounts Receivable, net | 2,801 | 3,445 | (644) | (18.7%) | | Allowance for Credit Losses | 60 | 49 | 11 | 22.4% | - The decrease was driven primarily by a reduction in overall revenue and differences in the timing of collections[172] - Accounts receivable are generally collected within approximately 40 days of invoicing[172] Inventories, net Inventories, net of reserves, decreased by $520,000 (9.3%) to $5,074,000 as of June 30, 2025, aligning with sales trends, with an adequate allowance for obsolescence maintained Inventories, net (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :---------------------- | :------------------- | :------------------- | :------------ | :--------- | | Inventories, net | 5,074 | 5,594 | (520) | (9.3%) | | Inventory Valuation Reserve | 553 | 590 | (37) | (6.3%) | - The decrease in inventories was in line with sales trends as safety stock levels for key items are adjusted[173] Accounts Payable Accounts payable increased by $692,000 (25.5%) to $3,404,000 as of June 30, 2025, primarily due to the timing of payments Accounts Payable (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :-------------- | :------------------- | :------------------- | :------------ | :--------- | | Accounts Payable | 3,404 | 2,712 | 692 | 25.5% | - The increase was primarily driven by the timing of payments[175] Line of Credit The outstanding balance on the line of credit decreased by $124,711 to $1,997,000 as of June 30, 2025, compared to $2,122,000 in the prior year Line of Credit Outstanding Balance (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :-------------- | :------------------- | :------------------- | :------------ | :--------- | | Line of Credit | 1,997 | 2,122 | (125) | (5.9%) | Finance Lease Liability Finance lease liability decreased to $1,429,000 as of June 30, 2025, primarily related to the Utah building lease, with future minimum gross lease payments totaling $1,772,300 through 2030 Finance Lease Liability (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :---------------------- | :------------------- | :------------------- | :------------ | :--------- | | Finance Lease Liability | 1,429 | 1,732 | (303) | (17.5%) | - The finance lease obligations primarily consist of the Utah building lease, a 15-year sale-leaseback agreement[177] Future Minimum Gross Finance Lease Payments | Year | Amount ($) | | :--- | :--------- | | 2026 | 420,188 | | 2027 | 428,200 | | 2028 | 428,080 | | 2029 | 424,800 | | 2030 | 71,032 | | Total| 1,772,300 | Operating Lease Liability Operating lease liability increased to $3,205,000 as of June 30, 2025, primarily due to building leases for office, manufacturing, and warehouse space Operating Lease Liability (FY2025 vs. FY2024) | Metric | June 30, 2025 ($000) | June 30, 2024 ($000) | Change ($000) | Change (%) | | :----------------------- | :------------------- | :------------------- | :------------ | :--------- | | Operating Lease Liability | 3,205 | 2,834 | 371 | 13.1% | - The liability consists primarily of building leases for office, manufacturing, and warehouse space[178] Inflation Cost inflation, including increases in ocean container rates, raw material prices, labor rates, and domestic transportation, has negatively impacted Dynatronics' profitability, with price adjustments potentially lagging - Cost inflation (ocean container rates, raw material prices, labor rates, domestic transportation costs) has impacted profitability[179] - The ability to recover increased costs through price increases may lag, resulting in downward pressure on margins[179] Stock Repurchase Plan Dynatronics' Board adopted a stock repurchase plan in 2011, with approximately $449,000 remaining available as of June 30, 2025, though no purchases have been made since its inception - A stock repurchase plan was adopted in 2011, with approximately $449,000 remaining available as of June 30, 2025[180] - No purchases have been made under this plan since 2011[180] Critical Accounting Policies Dynatronics' critical accounting policies involve significant management estimates for inventory, revenue, credit losses, deferred taxes, and asset impairment, requiring subjective judgments that can materially impact financial statements - Critical accounting policies require management's difficult, subjective, or complex judgments and estimates, particularly for inventory valuation, revenue recognition, allowance for credit losses, deferred income taxes, and impairment of goodwill and long-lived assets[181] - The company maintains inventory valuation reserves for estimated impairment due to slow-moving, excess, or obsolete inventory[182] - Revenue is recognized when performance obligations are satisfied upon transfer of product control, with estimates for variable consideration like rebates and discounts[184] - A full valuation allowance is recorded against net deferred income tax assets due to significant uncertainty about their realizability, given the company's history of losses[190] Recent Accounting Pronouncements Dynatronics adopted ASU 2020-06 and ASU 2023-07 in fiscal year 2025 with no material impact, and is evaluating several upcoming ASUs for future periods - ASU 2020-06 (Accounting for Convertible Instruments) and ASU 2023-07 (Segment Reporting) were adopted in fiscal year 2025 with no material impact[246][247] - The company is evaluating the impact of several upcoming ASUs, including 2023-09 (Income Tax Disclosures), 2024-03 (Disaggregation of Income Statement Expenses), 2024-04 (Induced Conversions of Convertible Debt), and 2025-05 (Credit Losses for Accounts Receivable and Contract Assets)[248][249][250][251] Off-Balance Sheet Financing Dynatronics has no off-balance sheet debt, similar obligations, undisclosed related-party transactions, or third-party debt guarantees - The company has no off-balance sheet debt or similar obligations[193] - There are no undisclosed related-party transactions or guarantees of third-party debt[193] Business Plan and Outlook Dynatronics' past year focused on profitability through optimization and new products, while fiscal year 2026 plans include enhancing partnerships, managing its portfolio, and pursuing M&A in core markets - The past year's focus was on driving profitability through business optimization initiatives and new product launches[194] - For fiscal year 2026, strategies include enhancing key strategic accounts, disciplined product portfolio management, and pursuing M&A opportunities in core markets (physical therapy, rehabilitation, orthopedics, pain management, and athletic training)[194][197] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This section states that quantitative and qualitative disclosures about market risk are not applicable Item 8. Financial Statements and Supplementary Data This section presents Dynatronics' audited consolidated financial statements for fiscal years 2025 and 2024, including the auditor's report highlighting going concern doubt and critical audit matters regarding goodwill and intangible asset impairment - The Report of Independent Registered Public Accounting Firm highlights substantial doubt about the company's ability to continue as a going concern[199] - A critical audit matter involved the complex and highly judgmental estimation of the fair value of goodwill and intangible assets, which resulted in significant impairment charges in fiscal year 2025[203][204][205] Consolidated Financial Statements Included | Document | Page | | :------------------------------------------------------------------------ | :--- | | Report of Independent Registered Public Accounting Firm | 21 | | Consolidated Balance Sheets as of June 30, 2025 and 2024 | 22 | | Consolidated Statements of Operations for the years ended June 2025 and 2024 | 23 | | Consolidated Statements of Stockholders' Equity for the years ended June 30, 2025 and 2024 | 24 | | Consolidated Statements of Cash Flows for the years ended June 30, 2025 and 2024 | 25 | | Notes to Consolidated Financial Statements | 26 | Report of Independent Registered Public Accounting Firm Tanner LLC issued an unqualified opinion on Dynatronics' financial statements but emphasized substantial doubt about the company's going concern ability and identified goodwill and intangible asset fair value estimation as a critical audit matter - Tanner LLC issued an unqualified opinion on the consolidated financial statements for June 30, 2025 and 2024[198] - The report highlights substantial doubt about the company's ability to continue as a going concern due to its financial situation[199] - A critical audit matter involved the complex and highly judgmental estimation of the fair value of goodwill and intangible assets, which resulted in impairment charges in fiscal year 2025[203][204][205] Consolidated Balance Sheets Dynatronics' consolidated balance sheets show total assets decreased from $25.9 million in 2024 to $15.4 million in 2025, primarily due to goodwill impairment, leading to a substantial decrease in total stockholders' equity Consolidated Balance Sheet Summary | Metric | June 30, 2025 ($) | June 30, 2024 ($) | | :-------------------------- | :---------------- | :---------------- | | Total Assets | 15,438,942 | 25,940,559 | | Total Liabilities | 12,176,738 | 11,780,115 | | Total Stockholders' Equity | 3,262,204 | 14,160,444 | - Goodwill decreased from $7,116,614 in 2024 to $0 in 2025 due to impairment[208] - Accumulated deficit increased from $(28,908,169) in 2024 to $(40,512,001) in 2025[208] Consolidated Statements of Operations Dynatronics reported a net loss of $10.9 million in fiscal year 2025, a significant increase from $2.7 million in 2024, driven by decreased net sales, lower gross profit, and substantial impairment charges Consolidated Statements of Operations Summary | Metric | 2025 ($) | 2024 ($) | | :-------------------------------------- | :------------ | :------------ | | Net sales | 27,393,163 | 32,533,965 | | Gross profit | 6,011,119 | 7,634,978 | | Selling, general, and administrative expenses | 8,464,424 | 9,908,026 | | Operating loss | (2,453,305) | (2,273,048) | | Intangible assets impairment | (950,293) | - | | Goodwill impairment | (7,116,614) | - | | Net loss | (10,901,609) | (2,697,719) | | Net loss attributable to common stockholders | (11,603,832) | (3,428,592) | | Basic and diluted net loss per common share | (1.43) | (1.00) | Consolidated Statements of Stockholders' Equity Dynatronics' total stockholders' equity significantly decreased from $14.2 million in 2024 to $3.3 million in 2025, primarily due to a $10.9 million net loss and common stock issuance for preferred dividends Consolidated Statements of Stockholders' Equity Summary | Metric | June 30, 2025 ($) | June 30, 2024 ($) | | :-------------------------- | :---------------- | :---------------- | | Common Stock Shares Outstanding | 10,619,543 | 5,308,519 | | Common Stock Amount | 35,793,417 | 35,087,825 | | Preferred Stock Amount | 7,980,788 | 7,980,788 | | Accumulated Deficit | (40,512,001) | (28,908,169) | | Total Stockholders' Equity | 3,262,204 | 14,160,444 | - Net loss of $10,901,609 was the primary driver for the decrease in total stockholders' equity[212] - Preferred stock dividends paid in common stock amounted to $702,223 in 2025 and $730,873 in 2024[212] Consolidated Statements of Cash Flows Dynatronics generated $300,583 in net cash from operating activities in fiscal year 2025, a significant improvement from a net cash use in 2024, largely due to non-cash impairment adjustments Consolidated Statements of Cash Flows Summary | Metric | 2025 ($) | 2024 ($) | | :---------------------------------------- | :------------ | :------------ | | Net cash provided by (used in) operating activities | 300,583 | (1,610,400) | | Net cash used in investing activities | (30,448) | (243,287) | | Net cash (used in) provided by financing activities | (427,709) | 1,835,145 | | Net change in cash, cash equivalents and restricted cash | (157,574) | (18,542) | | Cash, cash equivalents and restricted cash at end of period | 376,754 | 534,328 | - Operating cash flow improved significantly in 2025, turning positive due to large non-cash impairment adjustments[215] - Cash paid for interest was $253,014 in 2025, down from $276,742 in 2024[215] Notes to Consolidated Financial Statements The Notes provide detailed information on Dynatronics' accounting policies, financial statement line items, and significant events, including impairment details, going concern doubt, and subsequent events - Note 1 details significant accounting policies, including inventory valuation, trade accounts receivable, property and equipment, goodwill, intangible assets, leases, and revenue recognition[217][220][221][222][223][226][227][229][232] - Note 4 details intangible asset impairment of $950,293 and goodwill impairment of $7,116,614 in fiscal year 2025[258][260] - Note 13 reiterates substantial doubt about the company's ability to continue as a going concern due to recurring operating losses, negative cash flows, and reduced liquidity[288][289][290] - Note 16 discloses a subsequent event where the company received a notice of default from its lender for failing to comply with the fixed charge coverage ratio[299] Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosure This section states that there have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[300] Item 9A. Controls and Procedures Dynatronics' management concluded that disclosure controls and internal control over financial reporting were effective at a reasonable assurance level as of June 30, 2025, with no material changes during the year - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[302] - Management assessed and concluded that internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework[304] - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control over financial reporting during the year ended June 30, 2025[306] Item 9B. Other Information During the fiscal quarter ended June 30, 2025, no directors or officers informed the company of the adoption, modification, or termination of any Rule 10b-5 trading arrangements - No directors or officers informed the company of changes to Rule 10b-5 trading arrangements during the fiscal quarter ended June 30, 2025[307] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section states that disclosure regarding foreign jurisdictions that prevent inspections is not applicable PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information for this item is incorporated by reference to the definitive proxy statement for the 2025 Annual Meeting of Shareholders[310] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information for this item is incorporated by reference to the definitive proxy statement for the 2025 Annual Meeting of Shareholders[311] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information for this item is incorporated by reference to the definitive proxy statement for the 2025 Annual Meeting of Shareholders[312] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information for this item is incorporated by reference to the definitive proxy statement for the 2025 Annual Meeting of Shareholders[313] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Shareholders - Information for this item is incorporated by reference to the definitive proxy statement for the 2025 Annual Meeting of Shareholders[314] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements included in Item 8 and provides an index of exhibits incorporated by reference or filed with the Annual Report on Form 10-K, including corporate documents and agreements - Financial statements required by Item 8 are included in this Annual Report on Form 10-K[316] - An index of exhibits incorporated by reference or filed with the report is provided[319] - Exhibits include Amended and Restated Articles of Incorporation, Certificate Designating Preferred Stock, Equity Incentive Plans, Lease Agreements, Loan and Security Agreement, and various certifications[320][321] Item 16. Form 10-K Summary This section indicates that no Form 10-K Summary is provided SIGNATURES SIGNATURES The Annual Report on Form 10-K is duly signed on behalf of Dynatronics Corporation by Brian D. Baker, President, CEO, and CFO, along with other directors, all dated October 14, 2025 - The report is signed by Brian D. Baker, President, CEO, and CFO (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)[325][326] - Additional signatures include David B. Holtz, Andrew Hulett, Erin S. Enright (Director Chairperson), and R. Scott Ward, Ph.D., all dated October 14, 2025[326]