UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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DYNATRONICS CORPORATION FORM 10Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
| 1 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
|
December 31, 2023 |
June 30, 2023 |
|||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | $ | ||||
| Restricted cash | ||||||
| Trade accounts receivable, less allowance for doubtful accounts of $ |
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| Other receivables | ||||||
| Inventories, net | ||||||
| Prepaid expenses | ||||||
| Total current assets | ||||||
| Property and equipment, net | ||||||
| Operating lease assets | ||||||
| Intangible assets, net | ||||||
| Goodwill | ||||||
| Other assets | ||||||
| Total assets | $ | $ | ||||
| Liabilities and Stockholders' Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | $ | ||||
| Accrued payroll and benefits expense | ||||||
| Accrued expense | ||||||
| Warranty reserve | ||||||
| Line of credit | ||||||
| Current portion of finance lease liability | ||||||
| Current portion of deferred gain | ||||||
| Current portion of operating lease liability | ||||||
| Other liabilities | ||||||
| Total current liabilities | ||||||
| Finance lease liability, net of current portion | ||||||
| Deferred gain, net of current portion | ||||||
| Operating lease liability, net of current portion | ||||||
| Other liabilities | ||||||
| Total liabilities | ||||||
|
Commitments and contingencies |
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| Stockholders' equity: | ||||||
| Preferred stock, |
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| Common stock, |
||||||
| Accumulated deficit | ( |
) | ( |
) | ||
| Total stockholders' equity | ||||||
| Total liabilities and stockholders' equity | $ | $ |
See accompanying notes to condensed consolidated financial statements.
2
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Net sales | $ | $ | $ | $ | ||||||||
| Cost of sales | ||||||||||||
| Gross profit | ||||||||||||
| Selling, general, and administrative expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other income (expense): | ||||||||||||
| Interest expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other income, net | ||||||||||||
| Net other income (expense) | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Income tax benefit (provision) | ( |
) | ( |
) | ( |
) | ||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Preferred stock dividend, in common stock, issued or to be issued | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net loss attributable to common stockholders | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Net loss per common share: | ||||||||||||
| Basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Weighted average shares outstanding: | ||||||||||||
| Basic and diluted | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
| Common stock | Preferred stock | Accumulated | Totalstockholders' | |||||||||||||||
| Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at September 30, 2022 | ( |
) | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at December 31, 2022 | ( |
) | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at March 31, 2023 | ( |
) | ||||||||||||||||
| Adjustment for fractional shares | - | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at June 30, 2023 | ( |
) | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at September 30, 2023 | ( |
) | ||||||||||||||||
| Stock-based compensation | ( |
) | - | ( |
) | |||||||||||||
| Preferred stock dividend, in common stock, issued or to be issued | - | ( |
) | |||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended December 31, | ||||||
| 2023 | 2022 | |||||
| Cash flows from operating activities: | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
| Depreciation and amortization of property and equipment | ||||||
| Amortization of intangible assets | ||||||
| Loss on sale of property | ||||||
| Stock-based compensation | ||||||
| Change in allowance for doubtful accounts receivable | ( |
) | ( |
) | ||
| Change in allowance for inventory obsolescence | ( |
) | ||||
| Amortization of deferred gain on sale/leaseback | ( |
) | ( |
) | ||
| Change in operating assets and liabilities: | ||||||
| Trade accounts receivable | ||||||
| Inventories | ||||||
| Prepaid expenses and other receivables | ( |
) | ||||
| Other assets | ||||||
| Accounts payable, accrued expenses, and other current liabilities | ( |
) | ( |
) | ||
| Net cash (used in) provided by operating activities | ( |
) | ||||
| Cash flows from investing activities: | ||||||
| Purchase of property and equipment | ( |
) | ( |
) | ||
| Net cash used in investing activities | ( |
) | ( |
) | ||
| Cash flows from financing activities: | ||||||
| Principal payments on long-term debt | ( |
) | ||||
| Principal payments on finance lease liability | ( |
) | ( |
) | ||
| Net change in line of credit | ||||||
| Net cash provided by (used in) financing activities | ( |
) | ||||
| Net change in cash and cash equivalents and restricted cash | ( |
) | ||||
| Cash and cash equivalents and restricted cash at beginning of the period | ||||||
| Cash and cash equivalents and restricted cash at end of the period | $ | $ | ||||
| Supplemental disclosure of cash flow information: | ||||||
| Cash paid for interest | $ | $ | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||
| Preferred stock dividend, in common stock, issued or to be issued | $ | $ | ||||
| Operating lease right-of-use assets obtained in exchange for lease obligations | ||||||
| Finance lease right-of-use assets obtained in exchange for lease obligations | ||||||
See accompanying notes to condensed consolidated financial statements.
5
DYNATRONICS CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2023
Note 1. Presentation and Summary of Significant Accounting Policies
Business
Dynatronics Corporation (the "Company," or "Dynatronics") is a leading medical device company committed to providing high-quality restorative products designed to accelerate achieving optimal health. The Company designs, manufactures, and sells a broad range of products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals.
Reverse Stock Split
On November 17, 2022, the Company's shareholders approved Articles of Amendment to the Company's Amended and Restated Articles of Incorporation (the "Articles of Amendment") to effect a reverse stock split at a ratio in the range of 1-for-2 to 1-for-5, with such ratio to be determined in the discretion of the Company's board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company's board of directors in its sole discretion. Thereafter, the Company's board of directors set the split ratio in the reverse stock split at 1-for-5 and approved and authorized the filing of the Articles of Amendment to effect the reverse stock split with the Utah Department of Commerce, Division of Corporations and Commercial Code. The Articles of Amendment and reverse stock split became effective at 5:00 p.m. Eastern Standard Time on February 1, 2023. At the effective time, every five issued and outstanding shares of common stock were converted into one share of common stock, with any fractional shares resulting from the reverse stock split rounded up to the nearest whole share. The reverse stock split did not affect the Company's authorized shares of common stock or preferred stock, which remained at
Unless noted, all common shares and per share amounts contained in the condensed consolidated financial statements and management's discussion and analysis have been retroactively adjusted to reflect a
Proposed 2023 Reverse Stock Split
On October 9, 2023, the board of directors unanimously approved and recommended that the Company's shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to the Amended and Restated Articles of Incorporation to effect a reverse stock split of the Company's common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (the "Condensed Consolidated Financial Statements") have been prepared by the Company in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10K for the fiscal year ended June 30, 2023 (the "Annual Report") filed with the SEC on September 28, 2023. The Condensed Consolidated Balance Sheet at June 30, 2023, has been derived from the Annual Report.
The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Basis of Presentation and Summary of Accounting Policies, of the Notes to Financial Statements included in the Company's Annual Report. In the opinion of management, the Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of December 31, 2023 and its results of operations and its cash flows for the periods presented. The results of operations for the first three months of the fiscal year are not necessarily indicative of results for the full year or any future periods.
The Company's fiscal year begins on July 1 and ends on June 30 and references made to "fiscal year 2024" and "fiscal year 2023" refer to the Company's fiscal year ending June 30, 2024 and the fiscal year ended June 30, 2023, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented.
The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.
Other Receivables
Other receivables consist of amounts due from our contract manufacturer for raw materials components provided for use in the production of our products. Payments are due from our contract manufacturer based on the usage of raw material components.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 202006, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2025 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. Public business entities classified as smaller reporting companies are required to apply the provision of ASU 2016-13 with annual reporting periods after December 15, 2022. The Company adopted the standard as of July 1, 2023 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) -Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for annual fiscal periods beginning after December 31, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
Note 2. Net Loss per Common Share
Net loss per common share is computed based on the weightedaverage number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an antidilutive effect.
Basic net loss per common share is the amount of net loss for the period available to each weightedaverage share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each weightedaverage share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an antidilutive effect.
All outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net loss per common share because they are antidilutive, which for the three months ended December 31, 2023 and 2022, totaled
Note 3. Convertible Preferred Stock
As of December 31, 2023, the Company had issued and outstanding a total of
In January 2024, the Company paid $
Note 4. Inventories
Inventories consisted of the following:
|
December 31, 2023 |
June 30, 2023 |
|||||
| Raw materials | $ | $ | ||||
| Work in process | ||||||
| Finished goods | ||||||
| Inventory reserve | ( |
) | ( |
) | ||
| $ | $ |
7
Note 5. Debt
As of December 31, 2023 and June 30, 2023, the line of credit was $
On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $
The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis.
The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing).
The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of
Note 6. Related-Party Transactions
The Company leases office, manufacturing and warehouse facilities in Northvale, New Jersey, and Eagan, Minnesota from shareholders and entities controlled by shareholders, who were previously principals of businesses acquired by the Company. The combined expenses associated with these relatedparty transactions totaled $
Note 7. Revenue
As of December 31, 2023 and June 30, 2023, the net rebate liability was $
The following table disaggregates revenue by major product category for the three and six months ended December 31:
| Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Physical Therapy and Rehabilitation Products | $ | $ | $ | $ | ||||||||
| Orthopedic Soft Bracing Products | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | $ | |||||||||
8
CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS
This report, including the disclosures contained in Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forwardlooking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forwardlooking statements include, but are not limited to: any projections of net sales, earnings, or other financial items; any statements of the strategies, plans and objectives of management for future operations; expectations in connection with the Company's previously announced business optimization plan; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forwardlooking statements can be identified by their use of such words as "may," "will," "estimate," "intend," "continue," "believe," "expect," or "anticipate" and similar references to future periods.
We have based our forwardlooking statements on management's current expectations and assumptions about future events and trends affecting our business and industry that are subject to risks and uncertainties. Although we do not make forwardlooking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forwardlooking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in any forwardlooking statement contained in this report. These risks and uncertainties include, but are not limited to, uncertainties related to the broader economic environment affecting communities and businesses globally, including ours, as well as those factors described in the section "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10K for the fiscal year ended June 30, 2023, filed with the SEC, as well as in our other public filings with the SEC. Actual results may differ from projections as a result of these risks, additional risks and uncertainties of which we are currently unaware or which we do not currently view as material to our business.
You should read this report in its entirety, together with the documents that we file as exhibits to this report and the documents that we incorporate by reference into this report, with the understanding that our future results may be materially different from what we currently expect. The forwardlooking statements contained in this report are made as of the date of this report and we assume no obligation to update them after the date hereof to revise or conform such statements to actual results or to changes in our opinions or expectations. If we do update or correct any forwardlooking statements, investors should not conclude that we will make additional updates or corrections.
We qualify all of our forwardlooking statements by these cautionary statements.
The terms "we," "us," "Dynatronics," or the "Company" refer collectively to Dynatronics Corporation and its whollyowned subsidiaries, unless otherwise stated.
| 9 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our Unaudited Condensed Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, with a narrative from the perspective of management. You should also consider this information with the information included in our Annual Report on Form 10K for the fiscal year ended June 30, 2023, and our other filings with the SEC, including our quarterly and current reports that we have filed since June 30, 2023 through the date of this report. In the following MD&A, we have rounded many numbers to the nearest one thousand dollars. These numbers should be read as approximate. All intercompany transactions have been eliminated. Our fiscal year ends on June 30. For example, reference to fiscal year 2024 refers to the year ending June 30, 2024. This report covers the three and six months ended December 31, 2023. Results of operations for the three and six months ended December 31, 2023 are not necessarily indicative of the results that may be achieved for the full fiscal year ending June 30, 2024.
Overview
Dynatronics is a leading medical device company committed to providing high-quality restorative products designed to accelerate achieving optimal health. The Company designs, manufactures, and sells a broad range of products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals. The Company's products are marketed under a portfolio of high-quality, well-known industry brands including Bird & Cronin®, Solaris™, Hausmann®, and PROTEAM™, among others. More information is available at www.dynatronics.com.
Results of Operations
Net Sales
Net sales decreased $2,732,000, or 25.1% to $8,151,000 for the quarter ended December 31, 2023, compared to net sales of $10,883,000 for the quarter ended December 31, 2022. Net sales decreased $5,433,000, or 23.7% to $17,503,000 for the six months ended December 31, 2023, compared to net sales of $22,936,000 for the six months ended December 31, 2022. The year-over-year decrease is primarily attributable 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.
| 10 |
Gross Profit
Gross profit for the quarter ended December 31, 2023 decreased $1,242,000, or about 40.6%, to $1,820,000, or 22.3% of net sales. By comparison, gross profit for the quarter ended December 31, 2022 was $3,062,000, or 28.1% of net sales. Gross profit for the six months ended December 31, 2023 decreased $2,579,000, or about 38.5%, to $4,126,000, or 23.6% of net sales. By comparison, gross profit for the six months ended December 31, 2022 was $6,705,000, or 29.2% of net sales. The decrease in gross profit as a percentage of net sales was driven evenly by the reduction in net sales we previously discussed and by lower product margin as the organization continues to seek efficiencies at the lower revenue levels.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased $1,140,000, or 29.5%, to $2,722,000 for the quarter ended December 31, 2023, compared to $3,862,000 for the quarter ended December 31, 2022. The decline in selling, general and administrative expenses was driven by a decrease of $801,000 in salaries and benefits with the balance of $339,000 spread across other professional services.
SG&A expenses decreased $2,713,000, or 34.0%, to $5,267,000 for the six months ended December 31, 2023, compared to $7,980,000 for the six months ended December 31, 2022. The overall reduction in SG&A expenses was led by a reduction of $1,930,000 in salaries and benefits, a $393,000 decrease in sales expenses, and the remaining $390,000 spread across other professional expenses.
Net Other Income (Expense)
Net other expense for the quarter ended December 31, 2023, was $110,000 compared to net other expense of $37,000 for the quarter ended December 31, 2022. Net other expense for the six months ended December 31, 2023, was $190,000 compared to net other expense of $68,000 for the six months ended December 31, 2022. The increase in net other expense is primarily due to increased interest expense as a result of the Company's line of credit.
| 11 |
Income Tax Benefit (Provision)
Income tax benefit (provision) was $1,000 and ($4,000) for the quarters ended December 31, 2023 and 2022, respectively, and ($11,000) and ($4,000) for the six months ended December 31, 2023 and 2022, respectively. For the six months ended December 31, 2023, the Company recorded an income tax provision for state income taxes and franchise taxes. See Liquidity and Capital Resources - Deferred Income Tax Assets below for more information.
Net Loss
Net loss for the quarter ended December 31, 2023 was $1,011,000 compared to a net loss of $841,000 for the quarter ended December 31, 2022. The $170,000 increase in net loss was attributable to a decrease in gross profit of $1,242,000, an increase of $73,000 in other expense, and offset by a decrease of $1,140,000 in SG&A expenses and a $5,000 decrease in income tax provision.
Net loss for the six months ended December 31, 2023 was $1,342,000 compared to a net loss of $1,347,000 for the six months ended December 31, 2022. The $5,000 decrease in net loss was attributable to a decrease of $2,713,000 in SG&A expenses and offset by a decrease in gross profit of $2,579,000, an increase of $122,000 in other expense, and a $7,000 increase to the income tax provision.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders increased $189,000 to $1,203,000 for the quarter ended December 31, 2023 compared to $1,014,000 for the quarter ended December 31, 2022. The increase in net loss attributable to common stockholders for the quarter is due primarily to a $170,000 increase in the net loss. On a per share basis, basic and diluted net loss attributable to common stockholders was $0.27 per share for the quarter ended December 31, 2023, compared to $0.27 per share for the quarter ended December 31, 2022.
Net loss attributable to common stockholders increased $40,000 to $1,730,000 for the six months ended December 31, 2023 compared to $1,690,000 for the six months ended December 31, 2022. On a per share basis, basic and diluted net loss attributable to common stockholders was $0.39 per share for the six months ended December 31, 2023, compared to $0.45 per share for the six months ended December 31, 2022.
Liquidity and Capital Resources
We have historically financed operations through cash from operating activities, available cash reserves, asset based lines of credit, and proceeds from the sale of our equity securities. As of December 31, 2023, we had $401,000 in cash and cash equivalents, compared to $399,000 as of June 30, 2023.
Working capital was $3,721,000 as of December 31, 2023, compared to working capital of $4,478,000 as of June 30, 2023. The current ratio was 1.4 to 1 as of December 31, 2023 and 1.6 to 1 as of June 30, 2023. Current assets were 44.0% of total assets as of December 31, 2023, and 41.3% of total assets as of June 30, 2023.
We believe that our cash generated from operations, current capital resources, and proceeds of equity sales, if any, under the ATM described below will provide sufficient liquidity to fund operations for the next 12 months. However, the continuing effects of uncertainties in the broader economic environment on the global supply chain, higher personnel costs, and changes to customer or product mix, could have an adverse effect on our liquidity and cash and we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. Additionally, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.
We are parties to an equity distribution agreement (as amended, the "Equity Distribution Agreement") with Canaccord Genuity LLC and Roth Capital Partners LLC (the "Agents"), pursuant to which we may offer and sell up to $3,875,000 of our common stock in one or more "at the market offerings" through the Agents under our Registration Statement on Form S3 (File No. 333-256280), which was declared effective by the SEC on July 1, 2021 (the "2021 Registration Statement"), subject to applicable limitations on the aggregate market value of securities that may be sold during any 12 calendar month period imposed by Form S-3 on registrants having an aggregate market value of securities of less than $75 million. Under the terms of the Equity Distribution Agreement, we have agreed to pay the Agents a fixed commission rate equal to 3.0% of the gross sale price per share of common stock sold. On April 7, 2023, we filed a prospectus supplement to the base prospectus included in the 2021 Registration Statement for the sale of up to $2,672,000 of our common stock pursuant to the terms of the Equity Distribution Agreement (the "ATM"). As of the date hereof, we have not commenced any sales under the ATM.
Line of Credit
As of December 31, 2023 and June 30, 2023, the line of credit was $1,897,000 and $0, respectively.
On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $7,500,000 (the "Revolving Loan Commitment") and bear interest at SOFR plus 5.00%. The Company paid a closing fee of 1.00% of the Revolving Loan Commitment and the line is subject to a monthly unused line fee in an annualized amount equal to 0.50% on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the Revolving Loans for such month. The maturity date is three years from the date of the promissory note evidencing the Revolving Loans, subject to extension in accordance with the terms of the Loan Agreement.
The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis.
The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing).
The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of 1.0 to 1.0 if excess availability is less than $1,000,000 of the borrowing base.
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Reverse Stock Split
On November 17, 2022, the Company's shareholders approved Articles of Amendment to the Company's Amended and Restated Articles of Incorporation (the "Articles of Amendment") to effect a reverse stock split at a ratio in the range of 1-for-2 to 1-for-5, with such ratio to be determined in the discretion of the Company's board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company's board of directors in its sole discretion. Thereafter, the Company's board of directors set the split ratio in the reverse stock split at 1-for-5 and approved and authorized the filing of the Articles of Amendment to effect the reverse stock split with the Utah Department of Commerce, Division of Corporations and Commercial Code. The Articles of Amendment and reverse stock split became effective at 5:00 p.m. Eastern Standard Time on February 1, 2023. At the effective time, every five issued and outstanding shares of common stock were converted into one share of common stock, with any fractional shares resulting from the reverse stock split rounded up to the nearest whole share. The reverse stock split did not affect the Company's authorized shares of common stock or preferred stock, which remained at 100,000,000 and 50,000,000 shares, respectively. The par value of each share of common stock remained unchanged. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at February 1, 2023, which resulted in a proportional decrease in the number of shares of the Company's common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. Additionally, the reverse stock split had no impact on the number of shares of the Company's preferred stock issued and outstanding. However, the conversion price of the outstanding preferred stock increased and the number of shares of common stock issuable upon conversion of such preferred stock decreased in proportion to the 1-for-5 split ratio.
Unless noted, all common shares and per share amounts contained in the condensed consolidated financial statements and management's discussion and analysis have been retroactively adjusted to reflect a one-for-five reverse stock split.
Proposed 2023 Reverse Stock Split
On October 9, 2023, our board of directors unanimously approved and recommended that our shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to our Amended and Restated Articles of Incorporation to effect a reverse stock split of our common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023.
Cash and Cash Equivalents and Restricted Cash
Our cash and cash equivalents and restricted cash position increased $2,000 to $555,000 as of December 31, 2023, compared to $553,000 as of June 30, 2023. The primary source of cash for the six months ended December 31, 2023 was $1,897,000 of cash provided by the line of credit. The primary uses of cash included $1,523,000 of net cash used in operating activities, $141,000 of principal payments on finance lease liabilities, and $230,000 of purchases of property and equipment.
Accounts Receivable
Trade accounts receivable, net of allowance for doubtful accounts, increased approximately $16,000 or 0.4%, to $3,738,000 as of December 31, 2023, from $3,722,000 as of June 30, 2023. The increase was driven primarily by a reduction in overall revenue offset by differences in the timing of collections around the end date of each respective quarter. Trade accounts receivable represents amounts due from our customers including dealers and distributors that purchase our products for redistribution, medical practitioners, clinics, hospitals, colleges, universities, and sports teams. We believe that our estimate of the allowance for doubtful accounts is adequate based on our historical experience and relationships with our customers. Accounts receivable are generally collected within approximately 40 days of invoicing.
Inventories
Inventories, net of reserves, decreased $650,000 or 8.8%, to $6,753,000 as of December 31, 2023, compared to $7,403,000 as of June 30, 2023. The decrease was primarily due to steps taken to adjust inventory management in response to the impact of the uncertain operating environment on the global supply chain and right-sizing incoming material purchases to match demand. We believe that our allowance for inventory obsolescence is adequate based on our analysis of inventory, sales trends, and historical experience.
Accounts Payable
Accounts payable decreased approximately $555,000 or 12.3%, to $3,975,000 as of December 31, 2023, from $4,530,000 as of June 30, 2023. The decrease was driven primarily by a decrease in inventory purchases and timing of payments.
Line of Credit
The outstanding balance of the line of credit was $1,897,000 as of December 31, 2023, compared to $0 as of June 30, 2023.
Finance Lease Liability
Finance lease liability as of December 31, 2023 and June 30, 2023 totaled approximately $1,877,000 and $2,018,000, respectively. Our finance lease liability consists primarily of our Utah building lease. In conjunction with the sale and leaseback of our Utah building in August 2014, we entered into a 15year lease, classified as a finance lease, originally valued at $3,800,000. The building lease asset is amortized on a straightline basis over 15 years at approximately $252,000 per year. Total accumulated amortization related to the leased building is approximately $2,372,000 at December 31, 2023. The sale generated a profit of $2,300,000, which is being recognized straightline over the life of the lease at approximately $150,000 per year as an offset to amortization expense. The balance of the deferred gain as of December 31, 2023, is $853,000. Lease payments, currently approximately $32,000, are payable monthly and increase annually by approximately 2% per year over the life of the lease. Imputed interest for the three and six months ended December 31, 2023 was approximately $26,000 and $53,000, respectively. In addition to the Utah building, we have certain equipment leases that we have determined are finance leases.
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Operating Lease Liability
Operating lease liability as of December 31, 2023 and June 30, 2023 totaled approximately $3,134,000 and $3,630,000, respectively. Our operating lease liability consists primarily of building leases for office, manufacturing, and warehouse space.
Deferred Income Tax Assets
A valuation allowance is required when there is significant uncertainty as to the realizability of deferred income tax assets. The ability to realize deferred income tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have determined that we do not meet the "more likely than not" threshold that deferred income tax assets will be realized. Accordingly, a valuation allowance is required. Any reversal of the valuation allowance in future periods will favorably impact our results of operations in the period of reversal. As of December 31, 2023 and June 30, 2023, we recorded a full valuation allowance against our net deferred income tax assets.
Stock Repurchase Plans
We have a stock repurchase plan available to us at the discretion of the Board of Directors. Approximately $449,000 remained of this authorization as of December 31, 2023. No purchases have been made under this plan since September 2011.
Off-Balance Sheet Arrangements
As of December 31, 2023, we had no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable. Our critical accounting policies are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Annual Report on Form 10K for the fiscal year ended June 30, 2023. There have been no material changes to the critical accounting policies previously disclosed in that report.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information presented for the fiscal year ended June 30, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our reports filed under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), as appropriate, to allow timely decisions regarding any required disclosure. In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a15(e) promulgated under the Exchange Act, as of December 31, 2023. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2023, our disclosure controls and procedures were effective, at a reasonable assurance level, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is (a) recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms and is (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A.
The risk factors described in our Annual Report on Form 10K for the fiscal year ended June 30, 2023 have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the fiscal quarter ended December 31, 2023, none of our directors or officers informed us of the adoption, modification or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.
| 16 |
Item 6. Exhibits
| 17 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DYNATRONICS CORPORATION | ||
| Date: February 7, 2024 | By: | /s/ Brian D. Baker |
| Brian D. Baker | ||
| President, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Gabe Ellwein | |
| Gabe Ellwein | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| 18 |
| EXHIBIT 10.1 |
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement"), dated as of the _____ day of __________, 202___, is entered into by and between DYNATRONICS CORPORATION, a Utah corporation (the "Company"), and ____________________ (the "Indemnitee"). Company and Indemnitee are sometimes referred to as a "Party" or collectively as the "Parties" in this Agreement.
RECITALS:
WHEREAS, Indemnitee is an officer of the Company and/or a member of the Company's Board of Directors (the "Board");
WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and executive officers of public companies;
WHEREAS, the Board is aware that because of the increased exposure to litigation and the costs associated with such litigation, talented and experienced Persons are increasingly reluctant to serve or continue serving as officers and directors of corporations unless they are protected by comprehensive liability insurance and indemnification;
WHEREAS, the Board has concluded that, in order to retain and attract talented and experienced individuals to serve as officers and directors of the Company and its subsidiaries and to encourage such individuals to take the business risks necessary for the success of the Company and its subsidiaries, the Company should contractually indemnify its officers and directors, and the officers and directors of its subsidiaries, in connection with claims against such officers and directors relating to their services to the Company and its subsidiaries and has further concluded that the failure to provide such contractual indemnification could be detrimental to the Company, its subsidiaries and shareholders; and
WHEREAS, Indemnitee's willingness to serve as an officer and/or director of the Company is predicated, in substantial part, upon the Company's willingness to indemnify Indemnitee in accordance with the principles reflected above, to the fullest extent permitted by law, and upon the other undertakings set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises made in this Agreement and for other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a) "Agent" with respect to the Company means any person who is or was a director, officer, employee or other agent of the Company or a subsidiary; or is or was serving at the request of, for the convenience of, or to represent the interests of, the Company or a subsidiary as a director, officer, employee or Agent of another corporation, partnership, joint venture, trust or other enterprise (including without limitation any employee benefit plan whether or not subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); or was a director, officer, employee or Agent of a predecessor corporation (or other predecessor entity or enterprise) of the Company or a subsidiary, or was a director, officer, employee or Agent of another corporation, partnership, joint venture, trust or other enterprise (including without limitation any employee benefit plan whether or not subject to the ERISA) at the request of, for the convenience of, or to represent the interests of such predecessor.
| EXHIBIT 10.1 |
(b) "Beneficial Owner" has the meaning given to the term "beneficial owner" in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Change in Control" means the occurrence after the date of this Agreement of any of the following events: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 30% or more of the Company's then outstanding Voting Securities; (ii) the consummation of a reorganization, merger or consolidation, unless immediately following such reorganization, merger or consolidation, all of the Beneficial Owners of the Voting Securities of the Company immediately prior to such transaction beneficially own, directly or indirectly, more than 60% of the combined voting power of the outstanding Voting Securities of the entity resulting from such transaction; (iii) during any period of two (2) consecutive years, not including any period prior to the execution of this Agreement, individuals who at the beginning of such period constituted the Board (including for this purpose any new directors whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the Board; or (iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Notwithstanding anything in this Agreement, however, it is agreed that a change in ownership of Prettybrook Partners, LLC or of Provco Partners I, LP, shall not be deemed a Change in Control for purposes of this Agreement.
(d) "Company" shall include, in addition to Dynatronics Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Dynatronics Corporation (or any of its whollyowned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, Agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, Agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, manager, employee, Agent or fiduciary of another corporation, partnership, limited liability company, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(e) "Expense Advance" means any payment of Expenses advanced to Indemnitee by the Company pursuant to Section 2 or Section 3 hereof.
(f) "Expenses" means any and all expenses, including attorneys' and experts' fees, court costs, transcript costs, travel expenses, duplicating, printing and binding costs, telephone charges, and all other costs and expenses incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness or participate in, any Proceeding. Expenses also shall include (i) expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 4 only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee's rights under this Agreement, by litigation or otherwise. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g) "Indemnifiable Event" means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director, officer, employee or Agent of the Company or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or Agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise or by reason of an action or inaction by Indemnitee in any such capacity (whether or not serving in such capacity at the time any Loss is incurred for which indemnification can be provided under this Agreement).
| EXHIBIT 10.1 |
(h) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently performs, nor in the past three (3) years has performed, services for either: (i) the Company or Indemnitee (other than in connection with matters concerning Indemnitee under this Agreement or of other indemnitees under similar agreements) or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement.
(i) "Losses" means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other), ERISA excise taxes, amounts paid or payable in settlement, including any interest, assessments, and all other charges paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness or participate in, any Proceeding.
(j) Other References. References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, Agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, Agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
(k) "Person" means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity and includes the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act.
(l) "Proceeding" means any threatened, pending, or completed claim, suit, action, proceeding or alternative dispute resolution mechanism, or any hearing or investigation, whether civil, criminal, administrative, investigative or otherwise, including without limitation any situation which Indemnitee believes in good faith might lead to the institution of any such proceeding.
(m) "Reviewing Party" shall mean, subject to the provisions of Section 2(e), any person or body appointed by the Board in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Board, Independent Counsel or any other person or body not a party to the particular Proceeding for which Indemnitee is seeking indemnification, as set forth in Section 2(g).
(n) "Utah Court" shall have the meaning ascribed to it in Section 8(e) below.
(o) "Voting Securities" means any securities of the Company that vote generally in the election of directors.
| EXHIBIT 10.1 |
2. Indemnification.
(a) Third Party Proceedings. The Company shall defend, indemnify and hold harmless Indemnitee to the fullest extent permitted by the Utah Revised Business Corporation Act (the "Act") if Indemnitee is or was a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was or is claimed to be an Agent of the Company or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an Agent of the Company, against all Expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld)) actually and reasonably incurred by Indemnitee in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall defend, indemnify and hold harmless Indemnitee to the fullest extent permitted by the Act if Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was or is claimed to be an Agent of the Company, all Expenses and liabilities of any type whatsoever (including, but not limited to, legal fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld)), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or Proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses, which such court shall deem proper.
(c) Actions Where Indemnitee Is Deceased. If Indemnitee was or is a party, or is threatened to be made a party, to any Proceeding by reason of the fact that Indemnitee is or was an Agent of the Company, or by reason of anything done or not done by Indemnitee in any such capacity, and prior to, during the pendency of, or after completion of, such Proceeding, Indemnitee shall die, then the Company shall defend, indemnify and hold harmless the estate, heirs and legatees of Indemnitee against any and all Expenses and liabilities reasonably incurred by or for such persons or entities in connection with the investigation, defense, settlement or appeal of such Proceeding on the same basis as provided for Indemnitee in Section 2(a) and Section 2(b) above.
(d) Extent of Insurance. The Expenses and liabilities covered hereby shall be net of any payments made by D&O Insurance (as defined in Section 14) carriers or others.
(e) Review of Indemnification Obligations. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law: (i) the Company shall have no further obligation under Section 2(a) or Section 2(b) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party; and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder under applicable law; provided, however, that if Indemnitee has commenced or thereafter commences legal Proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon.
| EXHIBIT 10.1 |
(f) Indemnitee Rights on Unfavorable Determination; Binding Effect. If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such Proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee.
(g) Selection of Reviewing Party; Change in Control. A determination, if required by applicable law, with respect to Indemnitee's entitlement to indemnification shall be made in accordance with the provisions of this Section 2(g). If there has not been a Change in Control, a Reviewing Party shall be selected by the Board, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Board who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Articles of Incorporation or Bylaws (collectively, the "Constituent Documents") as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to indemnify fully such counsel against any and all Expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Counsel in connection with all matters concerning a single Indemnitee, and such Independent Counsel shall be the Independent Counsel for any or all other Indemnitees unless: (i) the employment of separate counsel by one (1) or more Indemnitees has been previously authorized by the Board in writing; or (ii) an Indemnitee shall have provided to the Company a written statement that such Indemnitee has reasonably concluded that there may be a conflict of interest between such Indemnitee and the other Indemnitees with respect to the matters arising under this Agreement.
3. Advancement of Expenses. The Company shall advance, prior to the final disposition of any Proceeding by final adjudication to which there are no further rights of appeal, any and all Expenses actually and reasonably paid or incurred by Indemnitee in connection with any Proceeding arising out of an Indemnifiable Event. Indemnitee's right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within thirty (30) days after any request by Indemnitee, the Company shall, in accordance with such request, (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. In connection with any request for Expense Advances, Indemnitee shall not be required to provide any documentation or information to the extent that the provision thereof would undermine or otherwise jeopardize attorney-client privilege. Execution and delivery to the Company of this Agreement by Indemnitee constitutes an undertaking by the Indemnitee to repay any amounts paid, advanced or reimbursed by the Company pursuant to this Section 3 in respect of Expenses relating to, arising out of or resulting from any Proceeding in respect of which it shall be determined, pursuant to Section 8, following the final disposition of such Proceeding, that Indemnitee is not entitled to indemnification hereunder. No other form of undertaking shall be required other than the execution of this Agreement. Indemnitee's obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.
| EXHIBIT 10.1 |
4. Indemnification for Expenses in Enforcing Rights. To the full extent allowable under applicable law, the Company shall also indemnify against, and, if requested by Indemnitee, shall advance to Indemnitee subject to and in accordance with Section 2, any Expenses actually and reasonably paid or incurred by Indemnitee in connection with any action or Proceeding by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Proceedings relating to Indemnifiable Events, and/or (b) recovery under any directors' and officers' liability insurance policies maintained by the Company. However, in the event that Indemnitee is ultimately determined not to be entitled to such indemnification or insurance recovery, as the case may be, then all amounts advanced under this Section 4 shall be repaid. Indemnitee shall be required to reimburse the Company in the event that a final judicial determination is made that such action brought by Indemnitee was frivolous or not made in good faith.
5. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of any Losses in respect of a Proceeding related to an Indemnifiable Event but not for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6. Notification and Defense.
(a) Notification. Indemnitee shall notify the Company in writing as soon as practicable of any Proceeding which could relate to an Indemnifiable Event or for which Indemnitee could seek Expense Advances, including a brief description (based upon information then available to Indemnitee) of the nature of, and the facts underlying, such Proceeding. The failure by Indemnitee to timely notify the Company hereunder shall not relieve the Company from any liability hereunder unless such failure materially prejudices the Company.
(b) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 6(a) hereof, the Company has D&O Insurance (as defined in Section 14 below) in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
(c) Defense of Proceedings. The Company shall be entitled to participate in the defense of any Proceeding relating to an Indemnifiable Event at its own expense and, except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any such Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently directly incurred by Indemnitee in connection with Indemnitee's defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below.
| EXHIBIT 10.1 |
(d) Selection of Counsel. Indemnitee shall be entitled to retain one (1) or more counsel from time to time selected by Indemnitee in Indemnitee's reasonable discretion to act as its counsel in and for the investigation, defense, settlement or appeal of each Proceeding. The Company shall not waive any privilege or right available to Indemnitee in any such Proceeding. All Expenses related to such counsel incurred after notice from the Company of its assumption of the defense shall be at Indemnitee's own expense; provided, however, that if (i) Indemnitee's employment of its own legal counsel has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of such Proceeding, (iii) after a Change in Control, Indemnitee's employment of its own counsel has been approved by the Independent Counsel or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, then Indemnitee shall be entitled to retain its own separate counsel (but not more than one (1) law firm plus, if applicable, local counsel in respect of any such Proceeding) and all Expenses related to such separate counsel shall be borne by the Company.
7. Procedure upon Application for Indemnification. In order to obtain indemnification pursuant to this Agreement, Indemnitee shall submit to the Company a written request therefor, including in such request such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. Indemnification shall be made insofar as the Company determines Indemnitee is entitled to indemnification in accordance with Section 8 below.
8. Determination of Right to Indemnification.
(a) Mandatory Indemnification; Indemnification as a Witness.
(i) To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Proceeding relating to an Indemnifiable Event or any portion thereof or in defense of any issue or matter therein, including without limitation dismissal without prejudice, Indemnitee shall be indemnified against all Losses relating to such Proceeding in accordance with Section 2 to the full extent allowable by law.
(ii) To the extent that Indemnitee's involvement in a Proceeding relating to an Indemnifiable Event is to prepare to serve and serve as a witness, and not as a party, the Indemnitee shall be indemnified against all Losses incurred in connection therewith to the full extent allowable by law.
(b) Standard of Conduct. To the extent that the provisions of Section 8(a) are inapplicable to a Proceeding related to an Indemnifiable Event that shall have been finally disposed of, any determination of whether Indemnitee has satisfied the applicable standard of conduct set forth in Section 16-10a-902 of the Act that is a legally required condition to indemnification of Indemnitee hereunder against Losses relating to such Proceeding and any determination that Expense Advances must be repaid to the Company (a "Standard of Conduct Determination") shall be made as follows: (i) by a majority vote of the Disinterested Directors (as defined by the Act), even if less than a quorum of the Board; (ii) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum; or (iii) if there are no such Disinterested Directors, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee.
| EXHIBIT 10.1 |
(c) Making the Standard of Conduct Determination. The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 8(b) to be made as promptly as practicable. If the person or persons designated to make the Standard of Conduct Determination under Section 8(b) shall not have made a determination within thirty (30) days after the later of (A) receipt by the Company of a written request from Indemnitee for indemnification pursuant to Section 6(d) (the date of such receipt being the "Notification Date") and (B) the selection of an Independent Counsel, if such determination is to be made by Independent Counsel, then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such 30-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person or persons making such determination in good faith requires such additional time to obtain or evaluate information relating thereto. Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of any Proceeding.
(d) Payment of Indemnification. If, in regard to any Losses: (i) Indemnitee shall be entitled to indemnification pursuant to Section 8(a); (ii) no Standard of Conduct Determination is legally required as a condition to indemnification of Indemnitee hereunder; or (iii) Indemnitee has been determined or deemed pursuant to Section or Section 8(c) to have satisfied the Standard of Conduct Determination, then the Company shall pay to Indemnitee, within five (5) days after the later of (A) the Notification Date or (B) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) is satisfied, above, an amount equal to such Losses.
(e) Selection of Independent Counsel for Standard of Conduct Determination. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 8(b), the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected.
(f) Presumptions and Defenses.
(i) Indemnitee's Entitlement to Indemnification. In making any Standard of Conduct Determination, the person or persons making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the Company shall have the burden of proof to overcome that presumption and establish that Indemnitee is not so entitled. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the Utah Court. No determination by the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct may be used as a defense to any legal Proceedings brought by Indemnitee to secure indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.
(ii) Reliance as a Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith if the following circumstances do not exist, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee's actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board or by any other Person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, Agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.
| EXHIBIT 10.1 |
(iii) No Other Presumptions. In making any determination concerning Indemnitee's right to indemnification, there shall be a presumption that Indemnitee has satisfied the applicable standard of conduct, and the Company may overcome such presumption only by its adducing clear and convincing evidence to the contrary. For purposes of this Agreement, the termination of any Proceeding by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal Proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. Any determination concerning Indemnitee's right to indemnification that is adverse to Indemnitee may be challenged by Indemnitee in the courts of the State of Utah. No determination by the Company (including without limitation by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct shall be a defense to any claim by Indemnitee for indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.
(iv) Defense to Indemnification and Burden of Proof. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a Proceeding for Losses incurred in defending against a Proceeding related to an Indemnifiable Event in advance of its final disposition) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any related Standard of Conduct Determination, the burden of proving such a defense or that the Indemnitee did not satisfy the applicable standard of conduct shall be on the Company.
(g) The Parties acknowledge and agree that the Standard of Conduct Determination described in Section 8(b) is being conducted solely for purposes of compliance with applicable Utah state law. The standards to be utilized in making the Standard of Conduct Determination shall be those set forth in Section 16-10a-902 of the Act. Such Standard of Conduct Determination, when made, is expressly for use by the Company and shall not be used or relied upon in any way by any other person or entity nor shall any Standard of Conduct Determination made under or in connection with this Agreement be admissible in any judicial or administrative Proceeding for any purpose whatsoever other than the enforcement of this Agreement by the Parties to this Agreement.
| EXHIBIT 10.1 |
9. Exclusions from Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated to:
(a) indemnify or advance funds to Indemnitee for Expenses or Losses with respect to Proceedings initiated by Indemnitee, including any Proceedings against the Company or its directors, officers, employees or other indemnitees and not by way of defense, except: (i) Proceedings referenced in this Section 9(a) (unless a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such Proceeding was not made in good faith or was frivolous); or (ii) where the Company has joined in or the Board has consented to the initiation of such Proceedings.
(b) indemnify Indemnitee if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law.
(c) indemnify Indemnitee for the disgorgement of profits or the advancement or reimbursements of any Expenses incurred in connection with the purchase or sale by Indemnitee of securities of the Company in violation of Section 16(b) of the Exchange Act, or any similar successor statute.
(d) To indemnify Indemnitee for Expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such Expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors liability insurance maintained by the Company; or
(e) indemnify or advance funds to Indemnitee for Indemnitee's reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee, or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements under Section 304 of the Sarbanes-Oxley Act of 2002 in connection with an accounting restatement of the Company or under the Company's clawback policy under Rule 10D-1 under the Exchange Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the payment to the Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).
10. Settlement. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Proceeding related to an Indemnifiable Event effected without the Company's prior written consent, which shall not be unreasonably withheld. The Company shall not settle any Proceeding related to an Indemnifiable Event in any manner that would impose any Losses on the Indemnitee without the Indemnitee's prior written consent.
11. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.
| EXHIBIT 10.1 |
12. Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director or officer of the Company (or is serving at the request of the Company as a director, officer, employee, member, trustee or Agent of another enterprise) and shall continue thereafter (i) so long as Indemnitee may be subject to any possible Proceeding relating to an Indemnifiable Event (including any rights of appeal thereto) and (ii) throughout the pendency of any Proceeding (including any rights of appeal thereto) commenced by Indemnitee to enforce or interpret his or her rights under this Agreement, even if, in either case, he or she may have ceased to serve in such capacity at the time of any such Proceeding.
13. Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, the Act, any other contract or otherwise (collectively, "Other Indemnity Provisions"); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder.
14. Liability Insurance. For the duration of Indemnitee's service as a director or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending Proceeding relating to an Indemnifiable Event, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to continue to maintain in effect policies of directors' and officers' liability insurance ("D&O Insurance") providing coverage that is at least substantially comparable in scope and amount to that provided by the Company's current policies of D&O Insurance. In all policies of D&O Insurance maintained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is an officer (and not a director) by such policy. Upon request, the Company will provide to Indemnitee copies of all D&O Insurance applications, binders, policies, declarations, endorsements and other related materials.
15. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Losses to the extent Indemnitee has otherwise received payment under any insurance policy, the Constituent Documents, Other Indemnity Provisions or otherwise of the amounts otherwise indemnifiable by the Company hereunder.
16. Subrogation. In the event of payment to Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. Indemnitee shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
17. Amendments. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the Parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the Party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.
18. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the Parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form and substances satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
| EXHIBIT 10.1 |
19. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 19. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.
20. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, by postage prepaid, certified or registered mail:
if to Indemnitee, to the address set forth on the signature page hereto.
if to the Company, addressed to the Chairperson of the Board of Directors, with a copy to the Corporate Secretary at:
DYNATRONICS CORPORATION
1200 Trapp Road
Eagan, MN 55121
Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third (3rd) business day after mailing.
21. Governing Law and Forum. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Utah applicable to contracts made and to be performed in such state without giving effect to its principles of conflicts of laws. The Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or Proceeding arising out of or in connection with this Agreement shall be brought only in the Utah Court and not in any other state or federal court in the United States, (b) consent to submit to the exclusive jurisdiction of the Utah Court for purposes of any action or Proceeding arising out of or in connection with this Agreement, and (c) waive, and agree not to plead or make, any claim that the Utah Court lacks venue or that any such action or Proceeding brought in the Utah Court has been brought in an improper or inconvenient forum.
22. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.
23. Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall for all purposes be deemed to be an original, but all of which together shall constitute one and the same Agreement.
| EXHIBIT 10.1 |
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.
| DYNATRONICS CORPORATION | |
By:_________________________________ Name: ______________________________ Title: _______________________________ |
|
| INDEMNITEE _____________________________________________ |
|
____________________________________ Name: ______________________________ Address for Notice: ____________________________________ ____________________________________ |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian D. Baker, certify that:
1. I have reviewed this Quarterly Report on Form 10Q of Dynatronics Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: February 7, 2024 | By: | /s/ Brian D. Baker |
| Brian D. Baker | ||
| President, Chief Executive Officer | ||
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gabe Ellwein, certify that:
1. I have reviewed this Quarterly Report on Form 10Q of Dynatronics Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: February 7, 2024 | By: | /s/ Gabe Ellwein |
| Gabe Ellwein | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002, I, Brian D. Baker, the Chief Executive Officer, hereby certify, that, to my knowledge:
(1) The Quarterly Report on Form 10Q for the period ended December 31, 2023 (the "Report") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: February 7, 2024 | By: | /s/ Brian D. Baker |
| Brian D. Baker | ||
| President, Chief Executive Officer | ||
| (Principal Executive Officer) |
[A signed original of this written statement required by Section 906 has been provided to Dynatronics Corporation and will be retained by Dynatronics Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002, I, Gabe Ellwein, the Chief Financial Officer, hereby certify, that, to my knowledge:
(1) The Quarterly Report on Form 10Q for the period ended December 31, 2023 (the "Report") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: February 7, 2024 | By: | /s/ Gabe Ellwein |
| Gabe Ellwein | ||
|
Chief Financial Officer |
||
| (Principal Financial Officer and Principal Accounting Officer) |
[A signed original of this written statement required by Section 906 has been provided to Dynatronics Corporation and will be retained by Dynatronics Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Condensed Consolidated Balance Sheets | ||
| Allowance For Doubtful Accounts | $ 99,630 | $ 131,403 |
| Preferred Stock, Par Value | $ 0 | $ 0 |
| Preferred Stock, Shares Authorized | 50,000,000 | 50,000,000 |
| Preferred Stock, Shares Issued | 3,351,000 | 3,351,000 |
| Preferred Stock, Shares Outstanding | 3,351,000 | 3,351,000 |
| Common Stock, Par Value | $ 0 | $ 0 |
| Common Stock, Shares Authorized | 100,000,000 | 100,000,000 |
| Common Stock, Shares Issued | 4,530,837 | 4,044,984 |
| Common Stock, Shares Outstanding | 4,530,837 | 4,044,984 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Condensed Consolidated Statements of Operations (Unaudited) | ||||
| Net sales | $ 8,151,351 | $ 10,882,557 | $ 17,503,266 | $ 22,935,758 |
| Cost of sales | 6,331,496 | 7,820,371 | 13,377,345 | 16,230,732 |
| Gross profit | 1,819,855 | 3,062,186 | 4,125,921 | 6,705,026 |
| Selling, general, and administrative expenses | 2,721,567 | 3,861,706 | 5,267,122 | 7,979,539 |
| Operating loss | (901,712) | (799,520) | (1,141,201) | (1,274,513) |
| Other income (expense): | ||||
| Interest expense, net | (110,443) | (37,941) | (190,126) | (69,396) |
| Other income, net | 0 | 624 | 0 | 1,146 |
| Net other income (expense) | (110,443) | (37,317) | (190,126) | (68,250) |
| Loss before income taxes | (1,012,155) | (836,837) | (1,331,327) | (1,342,763) |
| Income tax benefit (provision) | 739 | (4,030) | (10,743) | (4,030) |
| Net loss | (1,011,416) | (840,867) | (1,342,070) | (1,346,793) |
| Preferred stock dividend, in common stock, issued or to be issued | (191,244) | (173,128) | (388,302) | (343,704) |
| Net loss attributable to common stockholders | $ (1,202,660) | $ (1,013,995) | $ (1,730,372) | $ (1,690,497) |
| Net loss per common share: | ||||
| Net loss per common share Basic | $ (0.27) | $ (0.27) | $ (0.39) | $ (0.45) |
| Net loss per common share Diluted | $ (0.27) | $ (0.27) | $ (0.39) | $ (0.45) |
| Weighted average shares outstanding: | ||||
| Weighted average shares outstanding Basic | 4,524,965 | 3,794,333 | 4,393,279 | 3,750,930 |
| Weighted average shares outstanding Diluted | 4,524,965 | 3,794,333 | 4,393,279 | 3,750,930 |
Presentation and Summary of Significant Accounting Policies |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Presentation and Summary of Significant Accounting Policies | |
| Presentation and Summary of Significant Accounting Policies [Text Block] |
Note 1. Presentation and Summary of Significant Accounting Policies Business Dynatronics Corporation (the "Company," or "Dynatronics") is a leading medical device company committed to providing high-quality restorative products designed to accelerate achieving optimal health. The Company designs, manufactures, and sells a broad range of products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals. Reverse Stock Split On November 17, 2022, the Company's shareholders approved Articles of Amendment to the Company's Amended and Restated Articles of Incorporation (the "Articles of Amendment") to effect a reverse stock split at a ratio in the range of 1-for-2 to 1-for-5, with such ratio to be determined in the discretion of the Company's board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company's board of directors in its sole discretion. Thereafter, the Company's board of directors set the split ratio in the reverse stock split at 1-for-5 and approved and authorized the filing of the Articles of Amendment to effect the reverse stock split with the Utah Department of Commerce, Division of Corporations and Commercial Code. The Articles of Amendment and reverse stock split became effective at 5:00 p.m. Eastern Standard Time on February 1, 2023. At the effective time, every five issued and outstanding shares of common stock were converted into one share of common stock, with any fractional shares resulting from the reverse stock split rounded up to the nearest whole share. The reverse stock split did not affect the Company's authorized shares of common stock or preferred stock, which remained at 100,000,000 and 50,000,000 shares, respectively. The par value of each share of common stock remained unchanged. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at February 1, 2023, which resulted in a proportional decrease in the number of shares of the Company's common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. Additionally, the reverse stock split had no impact on the number of shares of the Company's preferred stock issued and outstanding. However, the conversion price of the outstanding preferred stock increased and the number of shares of common stock issuable upon conversion of such preferred stock decreased in proportion to the 1-for-5 split ratio. Unless noted, all common shares and per share amounts contained in the condensed consolidated financial statements and management's discussion and analysis have been retroactively adjusted to reflect a one-for-five reverse stock split. Proposed 2023 Reverse Stock Split On October 9, 2023, the board of directors unanimously approved and recommended that the Company's shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to the Amended and Restated Articles of Incorporation to effect a reverse stock split of the Company's common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023. Basis of Presentation The accompanying unaudited condensed consolidated financial statements (the "Condensed Consolidated Financial Statements") have been prepared by the Company in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10K for the fiscal year ended June 30, 2023 (the "Annual Report") filed with the SEC on September 28, 2023. The Condensed Consolidated Balance Sheet at June 30, 2023, has been derived from the Annual Report. The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Basis of Presentation and Summary of Accounting Policies, of the Notes to Financial Statements included in the Company's Annual Report. In the opinion of management, the Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of December 31, 2023 and its results of operations and its cash flows for the periods presented. The results of operations for the first three months of the fiscal year are not necessarily indicative of results for the full year or any future periods. The Company's fiscal year begins on July 1 and ends on June 30 and references made to "fiscal year 2024" and "fiscal year 2023" refer to the Company's fiscal year ending June 30, 2024 and the fiscal year ended June 30, 2023, respectively. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions. Other Receivables Other receivables consist of amounts due from our contract manufacturer for raw materials components provided for use in the production of our products. Payments are due from our contract manufacturer based on the usage of raw material components. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 202006, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2025 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. Public business entities classified as smaller reporting companies are required to apply the provision of ASU 2016-13 with annual reporting periods after December 15, 2022. The Company adopted the standard as of July 1, 2023 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) -Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for annual fiscal periods beginning after December 31, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures. |
Net Loss per Common Share |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Earnings Per Share [Abstract] | |
| Net Loss per Common Share [Text Block] |
Note 2. Net Loss per Common Share Net loss per common share is computed based on the weightedaverage number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an antidilutive effect. Basic net loss per common share is the amount of net loss for the period available to each weightedaverage share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each weightedaverage share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an antidilutive effect. All outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net loss per common share because they are antidilutive, which for the three months ended December 31, 2023 and 2022, totaled 695,700 and 1,555,615 respectively, and for the six months ended December 31, 2023 and 2022, totaled 695,700 and 1,562,900, respectively. |
Convertible Preferred Stock |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Convertible Preferred Stock | |
| Convertible Preferred Stock [Text Block] |
Note 3. Convertible Preferred Stock As of December 31, 2023, the Company had issued and outstanding a total of 1,992,000 shares of Series A 8% Convertible Preferred Stock ("Series A Preferred") and 1,359,000 shares of Series B Convertible Preferred Stock ("Series B Preferred"). The Series A Preferred and Series B Preferred are convertible into a total of 670,200 shares of common stock. Dividends payable on these preferred shares accrue at the rate of 8% per year and are payable quarterly in stock or cash at the option of the Company. The Company generally pays the dividends on the preferred stock by issuing shares of its common stock. The formula for paying these dividends using common stock in lieu of cash can change the effective yield on the dividend to more or less than 8% depending on the market price of the common stock at the time of issuance. In January 2024, the Company paid $191,244 of preferred stock dividends with respect to the Series A Preferred and Series B Preferred that accrued during the three months ended December 31, 2023, by issuing 341,384 shares of common stock. |
Inventories |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||
| Inventories | |||||||||||||||||||||||||||||||||||||||||||
| Inventories [Text Block] |
Note 4. Inventories Inventories consisted of the following:
|
Debt |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| LongTerm Debt | |
| Debt [Text Block] |
Note 5. Debt As of December 31, 2023 and June 30, 2023, the line of credit was $1,897,322 and $0, respectively. On August 1, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Gibraltar Business Capital, LLC ("Lender"), to provide asset-based financing to the Company to be used for operating capital. Amounts available under the Loan Agreement (the "Revolving Loans") are subject to a borrowing base calculation of up to a maximum availability of $7,500,000 (the "Revolving Loan Commitment") and bear interest at SOFR plus 5.00%. The Company paid a closing fee of 1.00% of the Revolving Loan Commitment and the line is subject to a monthly unused line fee in an annualized amount equal to 0.50% on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the Revolving Loans for such month. The maturity date is three years from the date of the promissory note evidencing the Revolving Loans, subject to extension in accordance with the terms of the Loan Agreement. The Loan Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of the Revolving Loan Commitment and a borrowing base amount equal to the sum of stated percentages of eligible accounts receivable and inventory, less reserves, computed on a weekly basis. The obligations of the Company under the Loan Agreement are secured by a first-priority security interest in substantially all of the assets of the Company (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing). The Loan Agreement contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Loan Agreement also contains financial covenants applicable to the Company and its subsidiaries, including a minimum fixed charge coverage ratio of 1.0 to 1.0 if excess availability is less than $1,000,000 of the borrowing base. |
Related-Party Transactions |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| RelatedParty Transactions | |
| Related-Party Transactions [Text Block] |
Note 6. Related-Party Transactions The Company leases office, manufacturing and warehouse facilities in Northvale, New Jersey, and Eagan, Minnesota from shareholders and entities controlled by shareholders, who were previously principals of businesses acquired by the Company. The combined expenses associated with these relatedparty transactions totaled $332,989 and $249,366 for the three months ended December 31, 2023 and 2022, respectively, and $666,938 and $498,732 for the six months ended December 31, 2023 and 2022, respectively. |
Revenue |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue [Text Block] |
Note 7. Revenue As of December 31, 2023 and June 30, 2023, the net rebate liability was $360,314 and $191,459, respectively. The rebate liability is included in accrued expenses within the accompanying condensed consolidated balance sheets. As of December 31, 2023 and June 30, 2023, the allowance for sales discounts was $15,539 and $13,589, respectively. The allowance for sales discounts is included in trade accounts receivable, less allowance for doubtful accounts in the accompanying condensed consolidated balance sheets. The following table disaggregates revenue by major product category for the three and six months ended December 31:
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Presentation and Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Presentation and Summary of Significant Accounting Policies | |
| Business [Policy Text Block] |
Business Dynatronics Corporation (the "Company," or "Dynatronics") is a leading medical device company committed to providing high-quality restorative products designed to accelerate achieving optimal health. The Company designs, manufactures, and sells a broad range of products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals. |
| Reverse Stock Split [Policy Text Block] |
Reverse Stock Split On November 17, 2022, the Company's shareholders approved Articles of Amendment to the Company's Amended and Restated Articles of Incorporation (the "Articles of Amendment") to effect a reverse stock split at a ratio in the range of 1-for-2 to 1-for-5, with such ratio to be determined in the discretion of the Company's board of directors and with such reverse stock split to be effected at such time and date, if at all, as determined by the Company's board of directors in its sole discretion. Thereafter, the Company's board of directors set the split ratio in the reverse stock split at 1-for-5 and approved and authorized the filing of the Articles of Amendment to effect the reverse stock split with the Utah Department of Commerce, Division of Corporations and Commercial Code. The Articles of Amendment and reverse stock split became effective at 5:00 p.m. Eastern Standard Time on February 1, 2023. At the effective time, every five issued and outstanding shares of common stock were converted into one share of common stock, with any fractional shares resulting from the reverse stock split rounded up to the nearest whole share. The reverse stock split did not affect the Company's authorized shares of common stock or preferred stock, which remained at 100,000,000 and 50,000,000 shares, respectively. The par value of each share of common stock remained unchanged. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at February 1, 2023, which resulted in a proportional decrease in the number of shares of the Company's common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. Additionally, the reverse stock split had no impact on the number of shares of the Company's preferred stock issued and outstanding. However, the conversion price of the outstanding preferred stock increased and the number of shares of common stock issuable upon conversion of such preferred stock decreased in proportion to the 1-for-5 split ratio. Unless noted, all common shares and per share amounts contained in the condensed consolidated financial statements and management's discussion and analysis have been retroactively adjusted to reflect a one-for-five reverse stock split. |
| Proposed 2023 Reverse Stock Split [Policy Text Block] |
Proposed 2023 Reverse Stock Split On October 9, 2023, the board of directors unanimously approved and recommended that the Company's shareholders (including holders of our Series A 8% Convertible Preferred Stock and Series B Convertible Preferred Stock) approve at our annual meeting of shareholders the adoption of an amendment (the "Amendment") to the Amended and Restated Articles of Incorporation to effect a reverse stock split of the Company's common stock (the "Proposed Reverse Stock Split") at any whole number between, and inclusive of, one-for-five to one-for-ten. On December 7, 2023, during the "2023 Annual Meeting" the shareholders approved a resolution granting the board of directors the authority, but not the obligation, to file the Amendment to effect the Proposed Reverse Stock Split at any time within one year from the date of shareholder approval, with the exact ratio and timing of the Proposed Reverse Stock Split to be determined at the discretion of the board of directors. For additional information about the 2023 Annual Meeting and the Proposed Reverse Stock Split, please see the Company's Definitive Proxy Statement filed with the SEC on October 24, 2023. |
| Basis of Presentation [Policy Text Block] |
Basis of Presentation The accompanying unaudited condensed consolidated financial statements (the "Condensed Consolidated Financial Statements") have been prepared by the Company in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10K for the fiscal year ended June 30, 2023 (the "Annual Report") filed with the SEC on September 28, 2023. The Condensed Consolidated Balance Sheet at June 30, 2023, has been derived from the Annual Report. The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Basis of Presentation and Summary of Accounting Policies, of the Notes to Financial Statements included in the Company's Annual Report. In the opinion of management, the Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of December 31, 2023 and its results of operations and its cash flows for the periods presented. The results of operations for the first three months of the fiscal year are not necessarily indicative of results for the full year or any future periods. The Company's fiscal year begins on July 1 and ends on June 30 and references made to "fiscal year 2024" and "fiscal year 2023" refer to the Company's fiscal year ending June 30, 2024 and the fiscal year ended June 30, 2023, respectively. |
| Use of Estimates [Policy Text Block] |
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions. |
| Other Receivables [Policy Text Block] |
Other Receivables Other receivables consist of amounts due from our contract manufacturer for raw materials components provided for use in the production of our products. Payments are due from our contract manufacturer based on the usage of raw material components. |
| Recent Accounting Pronouncements [Policy Text Block] |
Recent Accounting Pronouncements In August 2020, the FASB issued ASU 202006, Debt-Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2025 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. Public business entities classified as smaller reporting companies are required to apply the provision of ASU 2016-13 with annual reporting periods after December 15, 2022. The Company adopted the standard as of July 1, 2023 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) -Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for annual fiscal periods beginning after December 31, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures. |
Inventories (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||
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| Inventories [Table Text Block] |
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Revenue (Tables) |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Revenue [Table Text Block] |
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Presentation and Summary of Significant Accounting Policies (Narrative) (Details) - shares |
6 Months Ended | ||
|---|---|---|---|
Dec. 31, 2023 |
Jun. 30, 2023 |
Nov. 17, 2022 |
|
| Common stock shares authorised | 100,000,000 | 100,000,000 | 100,000,000 |
| Preferred stock shares authorised | 50,000,000 | 50,000,000 | 50,000,000 |
| Reverse stock split | one-for-five |
Net Loss per Common Share (Narrative) (Details) - shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Earnings Per Share [Abstract] | ||||
| Antidilutive securities excluded from computation of earnings per share | 695,700 | 1,555,615 | 695,700 | 1,562,900 |
Convertible Preferred Stock (Narrative) (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Jun. 30, 2023 |
|
| Preferred stock outstanding | 3,351,000 | 3,351,000 |
| Common stock upon conversion of preferred stock | 670,200 | |
| Dividend rate | 8.00% | |
| Preferred stock dividends | $ 191,244 | |
| Common stock shares issued | 341,384 | |
| Series A Preferred [Member] | ||
| Preferred stock outstanding | 1,992,000 | |
| Dividend rate | 8.00% | |
| Series B Preferred [Member] | ||
| Preferred stock outstanding | 1,359,000 |
Inventories - Schedule of Inventories (Details) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Inventories | ||
| Raw materials | $ 4,734,308 | $ 4,693,634 |
| Work in process | 53,813 | 66,359 |
| Finished goods | 2,550,560 | 3,139,131 |
| Inventory reserve | (585,617) | (495,930) |
| Inventories, net | $ 6,753,064 | $ 7,403,194 |
Debt (Narrative) (Details) - USD ($) |
Aug. 01, 2023 |
Dec. 31, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|---|
| Debt Instrument [Line Items] | ||||
| Line of credit | $ 1,897,322 | $ 0 | $ 0 | |
| Gibraltar Business Capital, LLC [Member] | Loan and Security Agreement [Member] | ||||
| Debt Instrument [Line Items] | ||||
| Revolving loan commitment, maximum availability | $ 7,500,000 | |||
| Interest rate description | bear interest at SOFR plus 5.00%. | |||
| Closing fee of revolving loan commitment | 1.00% | |||
| Annualized monthly unused line fee | 0.50% | |||
| Description of minimum fixed charge coverage ratio | 1.0 to 1.0 if excess availability is less than $1,000,000 of the borrowing base |
Related-Party Transactions (Narrative) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| RelatedParty Transactions | ||||
| Related-party transactions | $ 332,989 | $ 249,366 | $ 666,938 | $ 49,873 |
Revenue (Narrative) (Details) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Revenue | ||
| Rebate receivable (liability) | $ 360,314 | $ 191,459 |
| Allowance for sales discounts | $ 15,539 | $ 13,589 |
Revenue - Schedule of Revenue (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Net Sales | $ 8,151,351 | $ 10,882,557 | $ 17,503,266 | $ 22,935,758 |
| Physical Therapy and Rehabilitation Products [Member] | ||||
| Net Sales | 4,145,315 | 6,365,220 | 8,975,052 | 12,663,556 |
| Orthopedic Soft Bracing Products [Member] | ||||
| Net Sales | 3,984,668 | 4,488,550 | 8,484,352 | 10,221,389 |
| Other [Member] | ||||
| Net Sales | $ 21,368 | $ 28,787 | $ 43,862 | $ 50,813 |
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