Dynatronics(DYNT) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents Dynatronics Corporation's unaudited condensed consolidated financial statements for Q3 2023, highlighting decreased net sales, reduced net loss, and a new line of credit Condensed Consolidated Balance Sheets Total assets slightly increased to $30.3 million as of September 30, 2023, driven by a new $1.8 million line of credit, while working capital and stockholders' equity decreased Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | September 30, 2023 (USD) | June 30, 2023 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $432,689 | $398,797 | | Inventories, net | $6,838,485 | $7,403,194 | | Total current assets | $13,224,504 | $12,418,875 | | Total assets | $30,347,169 | $30,062,875 | | Liabilities & Equity | | | | Line of credit | $1,803,906 | $0 | | Total current liabilities | $8,903,491 | $7,940,992 | | Total liabilities | $13,802,124 | $13,206,349 | | Total stockholders' equity | $16,545,045 | $16,856,526 | Condensed Consolidated Statements of Operations Despite a 22.4% decrease in net sales, the company reduced its net loss to $330,654 for Q3 2023, primarily due to a 38.2% reduction in SG&A expenses Three Months Ended September 30, (Unaudited) | Metric | 2023 (USD) | 2022 (USD) | Change | | :--- | :--- | :--- | :--- | | Net sales | $9,351,914 | $12,053,201 | -22.4% | | Gross profit | $2,306,067 | $3,642,840 | -36.7% | | Gross Margin | 24.7% | 30.2% | -5.5pp | | Selling, general, and administrative expenses | $2,545,556 | $4,117,832 | -38.2% | | Operating loss | ($239,489) | ($474,992) | +49.6% | | Net loss | ($330,654) | ($505,926) | +34.6% | | Net loss per common share (Basic and diluted) | ($0.12) | ($0.18) | +33.3% | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $16.55 million by September 30, 2023, primarily due to a net loss and preferred stock dividends, partially offset by stock-based compensation - Net loss of $330,654[14] - Preferred stock dividends paid in common stock valued at $197,059[14] - Stock-based compensation expense of $19,173[14] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $1.67 million for Q3 2023, a significant shift from the prior year, with a $1.8 million line of credit draw leading to a net cash increase of $33,892 Cash Flow Summary - Three Months Ended September 30, (Unaudited) | Cash Flow Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($1,665,272) | $364,247 | | Net cash used in investing activities | ($34,607) | ($19,785) | | Net cash provided by (used in) financing activities | $1,733,771 | ($90,965) | | Net change in cash | $33,892 | $253,497 | - The primary source of cash from financing activities was a net change in the line of credit of $1,803,906[17] Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, business operations, and financial items, including a 1-for-5 reverse stock split, a new $7.5 million asset-based loan, and declining revenue across product categories - The company designs, manufactures, and sells a broad range of products for physical therapy, rehabilitation, orthopedics, pain management, and athletic training[19] - A 1-for-5 reverse stock split was effective on February 1, 2023, with all common share and per-share amounts retroactively adjusted[20][21] - On August 1, 2023, the company secured a new three-year, asset-based revolving line of credit for up to $7.5 million with Gibraltar Business Capital[39] Revenue by Major Product Category (Three Months Ended Sep 30) | Product Category | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Physical Therapy and Rehabilitation Products | $4,829,737 | $6,298,070 | | Orthopedic Soft Bracing Products | $4,499,683 | $5,733,105 | | Other | $22,494 | $22,026 | | Total | $9,351,914 | $12,053,201 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 22.4% decline in net sales to customer acquisition and reduced demand, while a 38.2% reduction in SG&A expenses improved net loss, supported by a new $7.5 million line of credit Results of Operations Net sales declined 22.4% to $9.4 million for Q3 2023, and gross profit fell 36.7%, but a 38.2% reduction in SG&A expenses led to a smaller net loss of $331,000 - Net sales decreased by $2.7 million (22.4%) year-over-year, primarily due to a competitor acquiring a customer, reduced OEM volume, and lower demand for orthopedic soft bracing products[54] - Gross profit margin decreased from 30.2% to 24.7% year-over-year, attributed two-thirds to reduced net sales and one-third to lower product margin[56] - SG&A expenses decreased by $1.6 million (38.2%) year-over-year, led by a $1.3 million reduction in salaries and benefits[57] - Net loss decreased by $175,000 year-over-year, as the $1.6 million decrease in SG&A more than offset the $1.3 million decrease in gross profit[60] Liquidity and Capital Resources The company holds $433,000 in cash and $4.3 million in working capital, bolstered by a new $7.5 million asset-based line of credit, and anticipates sufficient liquidity for the next 12 months - The company believes cash from operations, current capital resources, and potential equity sales will provide sufficient liquidity for the next 12 months[64] - An equity distribution agreement is in place for "at the market offerings" of up to $3.875 million, though no sales have commenced under the current ATM prospectus[65] - On August 1, 2023, the company secured a new three-year, asset-based revolving line of credit for up to $7.5 million, with an outstanding balance of $1.8 million as of September 30, 2023[67][78] - Inventories decreased by 7.6% to $6.8 million due to adjusting inventory management to match demand[76] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's market risk from the information presented in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - No material changes from the information presented for the year ended June 30, 2023[86] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[88] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[89] PART II. OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - None[91] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended June 30, 2023 - The risk factors described in the Annual Report on Form 10-K for the year ended June 30, 2023 have not materially changed[92] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[93] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[94] Mine Safety Disclosures This item is not applicable as the company has no mining operations - None[95] Other Information The company reported no other information required to be disclosed under this item - None[96] Exhibits This section lists the exhibits filed with the Form 10-Q, including new employment and consulting agreements, CEO and CFO certifications, and XBRL data files - Employment Agreement with Brian D. Baker (CEO)[98] - Consulting Agreement with JKrier LLC[98] - Employment Agreement with Gabe Ellwein (CFO)[98] - CEO and CFO certifications (Rule 13a-14(a) and Section 906)[98] - Inline XBRL documents[98]