Dynatronics(DYNT) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements, notes on accounting policies, reverse stock split impact, and disaggregated revenue Condensed Consolidated Balance Sheets (Unaudited) Total assets and stockholders' equity decreased, while total liabilities increased, driven by changes in current assets and lease liabilities | Category | March 31, 2023 | June 30, 2022 | Change | % Change | | :-------------------------------- | :------------- | :------------ | :----- | :------- | | Assets | | | | | | Total current assets | $15,733,092 | $19,225,966 | $(3,492,874) | -18.17% | | Property and equipment, net | $2,623,953 | $2,911,420 | $(287,467) | -9.87% | | Operating lease assets | $3,842,905 | $1,565,530 | $2,277,375 | 145.47% | | Total assets | $33,439,549 | $35,433,995 | $(1,994,446) | -5.63% | | Liabilities | | | | | | Total current liabilities | $8,589,202 | $9,935,345 | $(1,346,143) | -13.55% | | Operating lease liability, net | $2,812,375 | $727,310 | $2,085,065 | 286.68% | | Total liabilities | $14,224,073 | $13,735,437 | $488,636 | 3.56% | | Stockholders' Equity | | | | | | Total stockholders' equity | $19,215,476 | $21,698,558 | $(2,483,082) | -11.44% | - Trade accounts receivable decreased by $1,049,091 (19.4%) from $5,416,044 at June 30, 2022, to $4,366,953 at March 31, 2023, primarily due to reduced revenue and timing of collections[9][69] - Inventories, net, decreased by $2,368,179 (19.6%) from $12,071,292 at June 30, 2022, to $9,703,113 at March 31, 2023, reflecting adjustments to inventory management in response to supply chain impacts and demand[9][70] Condensed Consolidated Statements of Operations (Unaudited) Net sales decreased, but gross profit margin improved, leading to a reduced net loss for the quarter, while the nine-month net loss increased | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $9,236,037 | $10,316,253 | $32,171,794 | $33,147,001 | | Cost of sales | $7,027,630 | $8,005,146 | $23,258,363 | $25,090,927 | | Gross profit | $2,208,407 | $2,311,107 | $8,913,431 | $8,056,074 | | Selling, general, and administrative expenses | $3,429,001 | $3,746,646 | $11,408,537 | $11,324,798 | | Operating loss | $(1,220,594) | $(1,435,539) | $(2,495,106) | $(3,268,724) | | Net loss | $(1,245,493) | $(1,471,550) | $(2,592,286) | $(2,427,476) | | Net loss attributable to common stockholders | $(1,420,366) | $(1,653,630) | $(3,110,863) | $(2,978,792) | | Basic and diluted net loss per common share | $(0.36) | $(0.46) | $(0.82) | $(0.84) | - Net sales decreased by $1,080,000 (10.5%) for the three months ended March 31, 2023, and by $975,000 (2.9%) for the nine months ended March 31, 2023, primarily due to the acquisition of a competitor by a rehabilitation product category customer, reduction in overall volume for OEM customers, and a general reduction in demand for the orthopedic soft bracing product category[13][49] - Gross profit as a percentage of net sales increased to 23.9% for the three months ended March 31, 2023 (from 22.4% in 2022) and to 27.7% for the nine months ended March 31, 2023 (from 24.3% in 2022), driven by net price realization, product mix, reduced freight-in expenses, and stabilized raw material costs[13][51] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Stockholders' equity decreased due to accumulated deficits from net losses, partially offset by common stock increases from compensation and dividends | Item | June 30, 2022 | March 31, 2023 | Change | | :--------------------- | :------------ | :------------- | :----- | | Common stock (Amount) | $33,533,003 | $34,160,784 | $627,781 | | Preferred stock (Amount) | $7,980,788 | $7,980,788 | $0 | | Accumulated deficit | $(19,815,233) | $(22,926,096) | $(3,110,863) | | Total stockholders' equity | $21,698,558 | $19,215,476 | $(2,483,082) | - The accumulated deficit increased by $3,110,863 from June 30, 2022, to March 31, 2023, reflecting the net losses incurred during the period[16] - Common stock shares outstanding increased from 3,639,663 at June 30, 2022, to 3,890,526 at March 31, 2023, partly due to preferred stock dividends paid in common stock and stock-based compensation[16] Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow turned positive, while investing and financing activities remained stable, resulting in a net decrease in cash and equivalents | Cash Flow Activity | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $404,289 | $(3,258,932) | | Net cash used in investing activities | $(177,086) | $(261,358) | | Net cash used in financing activities | $(258,923) | $(260,507) | | Net change in cash and cash equivalents and restricted cash | $(31,720) | $(3,780,797) | | Cash and cash equivalents and restricted cash at end of period | $669,597 | $2,472,847 | - The shift to positive cash flow from operating activities in 2023 was significantly influenced by changes in working capital, including a substantial increase in cash from inventories and trade accounts receivable[18] - The primary use of cash for the nine months ended March 31, 2023, was to pay down existing vendor payables[68] Notes to Condensed Consolidated Financial Statements (Unaudited) Notes detail business, reverse stock split impact, accounting policies, net loss per share, preferred stock, inventory, related parties, and revenue - Dynatronics Corporation is a medical device company that designs, manufactures, and sells restorative products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training[20] - A 1-for-5 reverse stock split became effective on February 1, 2023, converting every five issued and outstanding common shares into one, with proportionate adjustments to per share amounts and equity instruments. All common shares and per share amounts in the financial statements have been retroactively adjusted[21][22] Inventories Breakdown | Category | March 31, 2023 | June 30, 2022 | | :--------------- | :------------- | :------------ | | Raw materials | $5,548,618 | $6,536,951 | | Work in process | $98,619 | $313,549 | | Finished goods | $4,434,840 | $5,599,997 | | Inventory reserve | $(378,964) | $(379,205) | | Total Inventories, net | $9,703,113 | $12,071,292 | Revenue Disaggregation by Product Category | Product Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Physical Therapy and Rehabilitation Products | $4,735,741 | $4,810,043 | $17,399,296 | $16,934,423 | | Orthopedic Soft Bracing Products | $4,476,849 | $5,476,469 | $14,698,238 | $16,126,728 | | Other | $23,447 | $29,741 | $74,260 | $85,850 | | Total Net Sales | $9,236,037 | $10,316,253 | $32,171,794 | $33,147,001 | Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to risks and uncertainties, and the company assumes no obligation to update them - Forward-looking statements are identified by words like 'may,' 'will,' 'estimate,' 'intend,' 'continue,' 'believe,' 'expect,' or 'anticipate' and similar references to future periods[42] - These statements are subject to substantial risks and uncertainties, including those related to the broader economic environment and factors described in the company's Annual Report on Form 10-K[43] - The company assumes no obligation to update forward-looking statements after the report date to revise or conform them to actual results or changes in opinions or expectations[44] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, covering business overview, revenue, gross profit, expenses, net loss, liquidity, capital resources, and balance sheet changes Overview Dynatronics provides high-quality restorative medical devices for physical therapy, rehabilitation, orthopedics, pain management, and athletic training - Dynatronics is a leading medical device company providing high-quality restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training[48] - The company markets its products to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals[48] - Key product brands include Bird & Cronin®, Solaris™, Hausmann®, and PROTEAM™[48] Results of Operations Net sales decreased, but gross profit margin improved; SG&A decreased, reducing quarterly net loss, while nine-month net loss increased due to other expenses Key Financial Performance Indicators (YoY Change) | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | YoY Change (3M) | 9 Months Ended March 31, 2023 | 9 Months Ended March 31, 2022 | YoY Change (9M) | | :------------------------------------------ | :---------------------------- | :---------------------------- | :-------------- | :---------------------------- | :---------------------------- | :-------------- | | Net Sales | $9,236,000 | $10,316,000 | -10.5% | $32,172,000 | $33,147,000 | -2.9% | | Gross Profit | $2,208,000 | $2,311,000 | -4.5% | $8,913,000 | $8,056,000 | +10.6% | | Gross Profit Margin | 23.9% | 22.4% | +1.5 pp | 27.7% | 24.3% | +3.4 pp | | SG&A Expenses | $3,429,000 | $3,747,000 | -8.5% | $11,409,000 | $11,325,000 | +0.7% | | Net Other Income (Expense) | $(25,000) | $(36,000) | +$11,000 | $(93,000) | $841,000 | -$934,000 | | Net Loss | $(1,246,000) | $(1,472,000) | -$226,000 | $(2,592,000) | $(2,427,000) | +$165,000 | | Net Loss Attributable to Common Stockholders | $(1,420,000) | $(1,654,000) | -$234,000 | $(3,111,000) | $(2,979,000) | +$132,000 | | Basic and Diluted Net Loss Per Common Share | $(0.36) | $(0.46) | -$0.10 | $(0.82) | $(0.84) | -$0.02 | - The decrease in net sales was primarily due to the acquisition of a competitor by a rehabilitation product category customer, reduction in overall volume for OEM customers, and a general reduction in demand for the orthopedic soft bracing product category[49] - The increase in net other expense for the nine months ended March 31, 2023, was primarily due to a $943,000 employee retention credit received in the prior year that did not recur[54] Liquidity and Capital Resources Cash and working capital decreased; management expects sufficient liquidity from current resources and planned equity sales, despite supply chain and personnel risks Liquidity Metrics | Metric | March 31, 2023 | June 30, 2022 | Change | | :------------------------------------------ | :------------- | :------------ | :----- | | Cash and cash equivalents and restricted cash | $670,000 | $701,000 | $(31,000) | | Working capital | $7,144,000 | $9,291,000 | $(2,147,000) | | Current ratio | 1.8 to 1 | 1.9 to 1 | -0.1 | | Current assets as % of total assets | 47.0% | 54.3% | -7.3 pp | - The company has an equity distribution agreement to sell up to $2,671,513 of common stock through an 'at the market offering' (ATM) to raise additional funds, with no sales commenced as of the report date[63] - Operating lease liability significantly increased from $1,574,000 at June 30, 2022, to $3,843,000 at March 31, 2023, primarily due to exercising a third option to extend an operating lease for an additional five years in New Jersey[75] - A full valuation allowance is recorded against net deferred income tax assets, indicating significant uncertainty about their realizability, resulting in no reported income tax expense for the periods[76] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk disclosures from the prior Annual Report on Form 10-K - No material changes from the market risk information presented for the year ended June 30, 2022[81] Item 4. Controls and Procedures Management concluded disclosure controls were effective and no material changes occurred in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management concluded disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023 - Disclosure controls and procedures are designed to ensure required information is recorded, processed, summarized, and reported within SEC specified time periods[82] - As of March 31, 2023, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level[83] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2023 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2023[84] PART II. OTHER INFORMATION Item 1. Legal Proceedings No legal proceedings were reported for the period - There are no legal proceedings to report[87] Item 1A. Risk Factors Risk factors from the prior Annual Report on Form 10-K have not materially changed - The risk factors previously described in the Annual Report on Form 10-K for the year ended June 30, 2022, have not materially changed[88] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - There were no unregistered sales of equity securities or use of proceeds to report[89] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - There were no defaults upon senior securities to report[90] Item 4. Mine Safety Disclosures No mine safety disclosures were reported for the period - There are no mine safety disclosures to report[91] Item 5. Other Information No other information was reported for the period - There is no other information to report[92] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments, stock certificates, leases, and executive certifications - Key exhibits include Articles of Amendment to Amended and Restated Articles of Incorporation, Specimen Stock Certificate, Lease Agreements, and Certifications under Rule 13a-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act[94] Signatures The report is signed by John A. Krier, President, CEO, and CFO of Dynatronics Corporation - The report was signed by John A. Krier, President, Chief Executive Officer, and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) on May 11, 2023[98]