Utah
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87-0398434
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller
reporting company)
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Smaller
reporting company ☑
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Emerging
growth company ☐
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Orthopedic
Soft Goods and Medical Supplies
|
● Upper and Lower
Extremity Braces and Slings
● Belts, Wraps,
Straps
● Physician’s
Choice®
● Pillows and
Cushions
● Wedges, Bolsters,
Mats
● Hot and Cold
Packs
● Clinical
Accessories
● Aids to Daily
Living
● Exercise Balls and
Bands
● Sports Med and
Taping Products
● Lotions and
Gels
|
![]() |
Physical
Therapy and Rehabilitation
Equipment
|
● Therapeutic
Modality Devices (Electrotherapy, Ultrasound, Phototherapy, and
Thermal Therapy Modalities)
● Motorized and
Stationary Treatment Tables and Mat Platforms
● Custom Athletic
Training Equipment
● Strength and Cardio
Training Equipment
|
![]() |
Fiscal
Year Ended June 30,
|
2018
|
2017
|
||
|
High
|
Low
|
High
|
Low
|
1st Quarter
(July-September)
|
$3.15
|
$2.10
|
$2.99
|
$2.33
|
2nd Quarter
(October-December)
|
$3.05
|
$2.15
|
$2.90
|
$2.29
|
3rd Quarter
(January-March)
|
$3.55
|
$2.40
|
$3.35
|
$2.30
|
4th Quarter
(April-June)
|
$3.25
|
$2.80
|
$3.75
|
$2.70
|
2019
|
$373,702
|
2020
|
380,674
|
2021
|
387,790
|
2022
|
395,040
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2023
|
399,794
|
Thereafter
|
2,502,438
|
Total
|
$4,439,438
|
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Page
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30
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31
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32
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33
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34
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35
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DYNATRONICS
CORPORATION
|
||
Consolidated Balance Sheets
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||
As
of June 30, 2018 and 2017
|
||
|
|
|
|
|
|
Assets
|
2018
|
2017
|
Current
assets:
|
|
|
Cash and cash
equivalents
|
$1,696,116
|
$254,705
|
Trade accounts
receivable, less allowance for doubtful accounts of $370,300 as of
June 30, 2018 and $382,333 as of June 30, 2017
|
7,810,846
|
5,281,348
|
Other
receivables
|
52,819
|
33,388
|
Inventories,
net
|
10,987,855
|
7,397,682
|
Prepaid
expenses
|
778,654
|
503,800
|
Income tax
receivable
|
95,501
|
-
|
|
|
|
Total
current assets
|
21,421,791
|
13,470,923
|
|
|
|
Property and
equipment, net
|
5,850,899
|
4,973,477
|
Intangible assets,
net
|
7,131,758
|
2,754,118
|
Goodwill
|
7,116,614
|
4,302,486
|
Other
assets
|
532,872
|
562,873
|
|
|
|
Total
assets
|
$42,053,934
|
$26,063,877
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$3,412,960
|
$2,334,563
|
Accrued payroll and
benefits expense
|
1,929,465
|
1,472,773
|
Accrued
expenses
|
830,243
|
656,839
|
Income tax
payable
|
-
|
8,438
|
Warranty
reserve
|
205,850
|
202,000
|
Line of
credit
|
6,286,037
|
2,171,935
|
Current portion of
long-term debt
|
164,003
|
151,808
|
Current portion of
capital lease obligations
|
226,727
|
193,818
|
Current portion of
deferred gain
|
150,448
|
150,448
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Current portion of
acquisition holdback
|
1,379,512
|
294,744
|
|
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Total
current liabilities
|
14,585,245
|
7,637,366
|
|
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Long-term debt, net
of current portion
|
303,348
|
461,806
|
Capital lease
obligations, net of current portion
|
2,972,540
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3,087,729
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Deferred gain, net
of current portion
|
1,529,553
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1,680,001
|
Acquisition
holdback and earn out liability, net of current
portion
|
875,000
|
750,000
|
Other
liabilities
|
411,466
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122,585
|
|
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Total
liabilities
|
20,677,152
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13,739,487
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Commitments and
contingencies
|
|
|
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Stockholders'
equity:
|
|
|
Preferred stock, no
par value: Authorized 50,000,000 shares; 4,899,000 shares and
3,559,000 shares issued and outstanding as of June 30, 2018 and
June 30, 2017, respectively
|
11,641,816
|
8,501,295
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Common stock, no
par value: Authorized 100,000,000 shares; 8,089,398 shares and
4,653,165 shares issued and outstanding as of June 30, 2018 and
June 30, 2017, respectively
|
20,225,107
|
11,838,022
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Accumulated
deficit
|
(10,490,141)
|
(8,014,927)
|
|
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Total
stockholders' equity
|
21,376,782
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12,324,390
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Total
liabilities and stockholders' equity
|
$42,053,934
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$26,063,877
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|
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|
See accompanying
notes to consolidated financial statements.
|
|
|
DYNATRONICS
CORPORATION
|
||
Consolidated Statements of Operations
|
||
For
the Years Ended June 30, 2018 and 2017
|
||
|
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2018
|
2017
|
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Net
sales
|
$64,414,910
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$35,758,330
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Cost of
sales
|
43,994,235
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24,249,832
|
Gross
profit
|
20,420,675
|
11,508,498
|
|
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Selling, general,
and administrative expenses
|
20,477,556
|
12,101,539
|
Research and
development expenses
|
1,194,013
|
1,081,373
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Operating
loss
|
(1,250,894)
|
(1,674,414)
|
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Other income
(expense):
|
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Interest
expense, net
|
(428,462)
|
(277,630)
|
Other
income, net
|
6,786
|
85,649
|
Net other
expense
|
(421,676)
|
(191,981)
|
|
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Loss before income
taxes
|
(1,672,570)
|
(1,866,395)
|
|
|
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Income tax
benefit
|
70,314
|
-
|
|
|
|
Net
loss
|
(1,602,256)
|
(1,866,395)
|
|
|
|
Deemed dividend on
convertible preferred stock and accretion of discount
|
(1,023,786)
|
(1,944,223)
|
Preferred stock
dividend, cash
|
(104,884)
|
(16,241)
|
Convertible
preferred stock dividend, in common stock
|
(768,074)
|
(466,269)
|
|
|
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Net loss
attributable to common stockholders
|
$(3,499,000)
|
$(4,293,128)
|
|
|
|
Basic and diluted
net loss per common share
|
$(0.53)
|
$(1.36)
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
Basic and
diluted
|
6,622,429
|
3,152,425
|
|
|
|
See accompanying
notes to consolidated financial statements.
|
|
|
DYNATRONICS
CORPORATION
|
||||||
Consolidated Statements of Stockholders'
Equity
|
||||||
For
the Years Ended June 30, 2018 and 2017
|
||||||
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
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Total
|
|
Common stock
|
Preferred stock
|
Accumulated
|
stockholders'
|
||
|
Shares
|
Amount
|
Shares
|
Amount
|
deficit
|
equity
|
|
|
|
|
|
|
|
Balances as of June
30, 2016
|
2,805,280
|
$7,545,880
|
1,610,000
|
$3,708,152
|
$(5,666,022)
|
$5,588,010
|
|
|
|
|
|
|
|
Stock-based
compensation
|
143,054
|
419,925
|
-
|
-
|
-
|
419,925
|
|
|
|
|
|
|
|
Issuance of common
stock, net of issuance costs of $268,328
|
1,565,173
|
3,405,948
|
-
|
-
|
-
|
3,405,948
|
|
|
|
|
|
|
|
Issuance of
preferred stock and warrants, net of issuance costs of
$302,581
|
-
|
-
|
1,949,000
|
4,793,143
|
-
|
4,793,143
|
|
|
|
|
|
|
|
Preferred stock
dividend, in cash
|
-
|
-
|
-
|
-
|
(16,241)
|
(16,241)
|
|
|
|
|
|
|
|
Preferred stock
dividend, in common stock, issued or to be issued
|
139,658
|
466,269
|
-
|
-
|
(466,269)
|
-
|
|
|
|
|
|
|
|
Preferred stock
beneficial conversion feature
|
-
|
-
|
-
|
1,944,223
|
-
|
1,944,223
|
|
|
|
|
|
|
|
Dividend of
beneficial conversion feature
|
-
|
-
|
-
|
(1,944,223)
|
-
|
(1,944,223)
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(1,866,395)
|
(1,866,395)
|
|
|
|
|
|
|
|
Balances as of June
30, 2017
|
4,653,165
|
11,838,022
|
3,559,000
|
8,501,295
|
(8,014,927)
|
12,324,390
|
|
|
|
|
|
|
|
Stock-based
compensation
|
103,853
|
254,758
|
-
|
-
|
-
|
254,758
|
|
|
|
|
|
|
|
Issuance of
preferred stock and warrants, net of issuance costs of
$399,879
|
-
|
-
|
4,381,935
|
10,600,121
|
-
|
10,600,121
|
|
|
|
|
|
|
|
Preferred stock
dividend, in cash
|
-
|
-
|
-
|
-
|
(104,884)
|
(104,884)
|
|
|
|
|
|
|
|
Preferred stock
dividend, in common stock, issued or to be issued
|
290,445
|
768,074
|
-
|
-
|
(768,074)
|
-
|
|
|
|
|
|
|
|
Preferred stock
converted to common stock
|
3,041,935
|
7,459,600
|
(3,041,935)
|
(7,459,600)
|
-
|
-
|
|
|
|
|
|
|
|
Reduction in equity
retained for aquisition holdback
|
-
|
(95,347)
|
-
|
-
|
-
|
(95,347)
|
|
|
|
|
|
|
|
Preferred stock
beneficial conversion and accretion of discount
|
-
|
-
|
-
|
1,023,786
|
-
|
1,023,786
|
|
|
|
|
|
|
|
Dividend of
beneficial conversion and accretion of discount
|
-
|
-
|
-
|
(1,023,786)
|
-
|
(1,023,786)
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(1,602,256)
|
(1,602,256)
|
|
|
|
|
|
|
|
Balances as of June
30, 2018
|
8,089,398
|
$20,225,107
|
4,899,000
|
$11,641,816
|
$(10,490,141)
|
$21,376,782
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
|
|
|
|
|
DYNATRONICS
CORPORATION
|
||
Consolidated Statements of Cash Flows
|
||
For
the Years Ended June 30, 2018 and 2017
|
||
|
|
|
|
|
|
|
2018
|
2017
|
Cash flows from
operating activities:
|
|
|
Net
loss
|
$(1,602,256)
|
$(1,866,395)
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
Depreciation
and amortization of property and equipment
|
419,148
|
242,542
|
Amortization
of intangible assets
|
638,360
|
95,005
|
Amortization
of other assets
|
74,568
|
124,774
|
Amortization
of capital lease assets
|
254,418
|
251,934
|
Loss
(gain) on sale of property and equipment
|
20,438
|
(15,754)
|
Stock-based
compensation expense
|
254,758
|
419,925
|
Change
in allowance for doubtful accounts receivable
|
(20,033)
|
(6,717)
|
Change
in allowance for inventory obsolescence
|
55,652
|
(13,021)
|
Amortization
deferred gain on sale/leaseback
|
(150,448)
|
(150,448)
|
Change
in operating assets and liabilities:
|
|
|
Trade
accounts receivable
|
(292,090)
|
(81,321)
|
Inventories
|
491,356
|
(269,977)
|
Prepaid
expenses
|
(181,865)
|
(110,224)
|
Other
assets
|
(44,567)
|
(107,486)
|
Income
tax payable/receivable
|
(106,391)
|
5,543
|
Accounts
payable and accrued expenses
|
950,754
|
(46,708)
|
|
|
|
Net
cash provided by (used in) operating activities
|
761,802
|
(1,528,328)
|
|
|
|
Cash flows from
investing activities:
|
|
|
Purchase
of property and equipment
|
(242,911)
|
(117,876)
|
Net
cash paid in acquisitions - see Note 2
|
(9,063,017)
|
(9,116,089)
|
Proceeds
from sale of property and equipment
|
12,160
|
32,000
|
|
|
|
Net
cash used in investing activities
|
(9,293,768)
|
(9,201,965)
|
|
|
|
Cash flows from
financing activities:
|
|
|
Principal
payments on long-term debt
|
(146,263)
|
(152,668)
|
Principal
payments on long-term capital lease
|
(194,955)
|
(183,302)
|
Payment
of acquisition holdbacks
|
(294,744)
|
-
|
Net
change in line of credit
|
4,114,102
|
2,171,935
|
Proceeds
from issuance of preferred stock, net
|
6,600,121
|
8,199,091
|
Preferred
stock dividends paid in cash
|
(104,884)
|
(16,241)
|
|
|
|
Net
cash provided by financing activities
|
9,973,377
|
10,018,815
|
|
|
|
Net
change in cash and cash equivalents
|
1,441,411
|
(711,478)
|
|
|
|
Cash and cash
equivalents at beginning of the period
|
254,705
|
966,183
|
|
|
|
Cash and cash
equivalents at end of the period
|
$1,696,116
|
$254,705
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
Cash
paid for interest
|
$412,455
|
$271,254
|
Supplemental
disclosure of non-cash investing and financing
activity:
|
|
|
Deemed
dividend on convertible preferred stock and accretion of
discount
|
1,023,786
|
1,944,223
|
Preferred
stock dividends paid or to be paid in common stock
|
768,074
|
466,269
|
Preferred
stock issued to acquire "Bird & Cronin"
|
3,904,653
|
-
|
Acquisition
holdback
|
1,504,512
|
-
|
Conversion
of preferred stock to common stock
|
7,459,600
|
-
|
Capital
lease and note payable obligations incurred to acquire property and
equipment
|
112,675
|
75,808
|
Preferred
stock issuance costs paid in common stock
|
-
|
17,000
|
|
|
|
See accompanying
notes to consolidated financial statements.
|
|
|
Cash and cash
equivalent
|
$454
|
Trade accounts
receivable
|
2,232,703
|
Inventories
|
4,137,181
|
Prepaid
expenses
|
92,990
|
Property and
equipment
|
1,228,000
|
Intangible
assets
|
5,016,000
|
Goodwill
|
2,814,128
|
Warranty
reserve
|
(5,000)
|
Accounts
payable
|
(607,084)
|
Accrued
expenses
|
(247,611)
|
Accrued payroll and
benefits
|
(189,579)
|
Purchase
price
|
$14,472,182
|
October 2,
2018
|
$162,845
|
April 1,
2019
|
466,667
|
August 15,
2019
|
875,000
|
Acquisition
holdback
|
$1,504,512
|
Cash and cash
equivalents
|
$600
|
Trade accounts
receivable
|
1,691,420
|
Inventories
|
2,117,430
|
Prepaid
expenses
|
136,841
|
Property and
equipment
|
512,950
|
Intangible
assets
|
2,689,000
|
Goodwill
|
4,302,486
|
Warranty
reserve
|
(50,000)
|
Accounts
payable
|
(544,625)
|
Accrued
expenses
|
(33,981)
|
Accrued payroll and
benefits
|
(661,288)
|
Purchase
price
|
$10,160,833
|
|
2018
|
2017
|
Raw
materials
|
$6,216,150
|
$3,766,940
|
Work in
process
|
625,830
|
470,721
|
Finished
goods
|
4,604,264
|
3,562,758
|
Inventory
reserve
|
(458,389)
|
(402,737)
|
|
$10,987,855
|
$7,397,682
|
|
2018
|
2017
|
Land
|
$30,287
|
$30,287
|
Buildings
|
5,664,096
|
5,640,527
|
Machinery and
equipment
|
2,229,202
|
2,246,910
|
Office
equipment
|
318,613
|
283,805
|
Computer
equipment
|
2,136,078
|
2,194,119
|
Vehicles
|
115,233
|
195,001
|
|
10,493,509
|
10,590,649
|
Less accumulated
depreciation and amortization
|
(4,642,610)
|
(5,617,172)
|
|
$5,850,899
|
$4,973,477
|
|
Trade name - indefinite life
|
Trade name
|
Non-compete covenant
|
Customer relationships
|
Total
|
Gross carrying amount
|
|
|
|
|
|
June
30, 2017
|
$464,000
|
$389,800
|
$504,400
|
$2,030,800
|
$3,389,000
|
Additions
|
620,000
|
-
|
83,000
|
4,313,000
|
5,016,000
|
Disposals
|
-
|
(119,200)
|
(114,000)
|
(100,400)
|
(333,600)
|
June
30, 2018
|
1,084,000
|
270,600
|
473,400
|
6,243,400
|
8,071,400
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
June
30, 2017
|
$-
|
$266,149
|
$167,150
|
$201,583
|
$634,882
|
Additions
|
-
|
43,241
|
83,450
|
511,669
|
638,360
|
Disposals
|
-
|
(119,200)
|
(114,000)
|
(100,400)
|
(333,600)
|
June
30, 2018
|
-
|
190,190
|
136,600
|
612,852
|
939,642
|
Net
book value
|
$1,084,000
|
$80,410
|
$336,800
|
$5,630,548
|
$7,131,758
|
|
Trade name - indefinite life
|
Trade name
|
Non-compete covenant
|
Customer relationships
|
Total
|
Gross carrying amount
|
|
|
|
|
|
June
30, 2016
|
$-
|
$389,800
|
$149,400
|
$160,800
|
$700,000
|
Additions
|
464,000
|
-
|
355,000
|
1,870,000
|
2,689,000
|
Disposals
|
-
|
-
|
-
|
-
|
-
|
June
30, 2017
|
464,000
|
389,800
|
504,400
|
2,030,800
|
$3,389,000
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
June
30, 2016
|
$-
|
$241,087
|
$149,400
|
$149,390
|
$539,877
|
Additions
|
-
|
25,062
|
17,750
|
52,193
|
95,005
|
Disposals
|
-
|
-
|
-
|
-
|
-
|
June
30, 2017
|
-
|
266,149
|
167,150
|
201,583
|
634,882
|
Net
book value
|
$464,000
|
$123,651
|
$337,250
|
$1,829,217
|
$2,754,118
|
2019
|
$707,093
|
2020
|
707,093
|
2021
|
707,093
|
2022
|
676,893
|
2023
|
618,300
|
Thereafter
|
2,631,286
|
Total
|
$6,047,758
|
|
2018
|
2017
|
Beginning warranty
reserve balance
|
$202,000
|
$152,605
|
Warranty costs
incurred
|
(122,708)
|
(143,444)
|
Warranty expense
accrued
|
120,524
|
148,820
|
Warranty reserve
assumed in the Acquisition
|
5,000
|
50,000
|
Changes in
estimated warranty costs
|
1,034
|
(5,981)
|
Ending warranty
reserve
|
$205,850
|
$202,000
|
|
2018
|
2017
|
6.44% promissory
note secured by trust deed on real property, maturing January 2021,
payable in monthly installments of $13,278
|
$378,255
|
$508,633
|
5.99% promissory
note secured by a vehicle, payable in monthly installments of $833
through December 2020
|
23,162
|
31,500
|
6.04% promissory
note secured by copier equipment, payable monthly installments of
$924 through October 2022
|
43,099
|
43,989
|
3.99% promissory
note secured by equipment, payable in monthly installments of $247
through February 2023
|
12,403
|
14,822
|
3.97% promissory
note secured by equipment, payable in monthly installments of $242
through February 2021
|
7,325
|
9,878
|
7.56% promissory
note secured by copier equipment, payable in monthly installments
of $166 through February 2020
|
3,107
|
4,792
|
|
467,351
|
613,614
|
Less current
portion
|
(164,003)
|
(151,808)
|
|
$303,348
|
$461,806
|
2019
|
$164,003
|
2020
|
173,921
|
2021
|
110,617
|
2022
|
13,448
|
2023
|
5,362
|
Total
|
$467,351
|
2019
|
$646,800
|
2020
|
646,800
|
2021
|
189,000
|
Total
|
$1,482,600
|
|
2018
|
2017
|
Balance of capital
lease obligation
|
$3,199,267
|
$3,281,547
|
Less current
portion
|
(226,727)
|
(193,818)
|
|
$2,972,540
|
$3,087,729
|
2019
|
$373,702
|
2020
|
380,674
|
2021
|
387,790
|
2022
|
395,040
|
2023
|
399,794
|
Thereafter
|
2,502,438
|
Total
|
$4,439,438
|
|
|
Imputed
interest
|
$1,086,850
|
Deferred
rent
|
153,321
|
|
2018
|
2017
|
Balance of deferred
gain
|
$1,680,001
|
$1,830,449
|
Less current
portion
|
(150,448)
|
(150,448)
|
|
$1,529,553
|
$1,680,001
|
|
Current
|
Deferred
|
Total
|
2018:
|
|
|
|
U.S.
federal
|
$71,930
|
$-
|
$71,930
|
State and
local
|
(1,616)
|
-
|
(1,616)
|
|
$70,314
|
$-
|
$70,314
|
2017:
|
|
|
|
U.S.
federal
|
$-
|
$-
|
$-
|
State and
local
|
-
|
-
|
-
|
|
$-
|
$-
|
$-
|
|
2018
|
2017
|
Expected tax
benefit
|
$459,957
|
$634,574
|
State taxes, net of
federal tax benefit
|
45,817
|
57,176
|
Business tax
credits
|
45,000
|
40,000
|
Effect of corporate
income tax rate change
|
(784,860)
|
-
|
Valuation
allowance
|
332,193
|
(772,288)
|
Incentive stock
options
|
(9,977)
|
(11,284)
|
Other,
net
|
(17,816)
|
51,822
|
|
$70,314
|
$-
|
|
2018
|
2017
|
Net deferred income
tax assets (liabilities):
|
|
|
Inventory
capitalization for income tax purposes
|
$60,944
|
$92,681
|
Inventory
reserve
|
119,181
|
157,068
|
Accrued employee
benefit reserve
|
93,496
|
-
|
Warranty
reserve
|
53,522
|
78,780
|
Accrued product
liability and other
|
7,949
|
9,103
|
Allowance for
doubtful accounts
|
95,522
|
149,110
|
Property and
equipment, principally due to differences in
depreciation
|
(155,096)
|
(103,308)
|
Research and
development credit carryover
|
588,707
|
351,903
|
Other
intangibles
|
(98,067)
|
(45,256)
|
Deferred gain on
sale lease-back
|
548,026
|
846,061
|
Operating loss
carry forwards
|
1,317,887
|
1,428,119
|
Valuation
allowance
|
(2,632,071)
|
(2,964,261)
|
Total deferred
income tax assets (liabilities)
|
$-
|
$-
|
|
2018
|
2017
|
Expected dividend
yield
|
0%
|
0%
|
Expected stock
price volatility
|
43% - 45%
|
47% - 54%
|
Risk-free interest
rate
|
2.60% - 2.75%
|
1.84% - 2.02%
|
Expected life of
options
|
4 -5
years
|
6 - 8
years
|
|
2018
|
|
2017
|
||
|
|
|
Weighted
|
|
|
|
|
Weighted
|
average
|
|
Weighted
|
|
Number
|
average
|
remaining
|
Number
|
average
|
|
of
|
exercise
|
contractual
|
of
|
exercise
|
|
shares
|
price
|
term
|
shares
|
price
|
|
|
|
|
|
|
Options outstanding
at beginning of the year
|
166,990
|
$3.14
|
4.46
years
|
121,557
|
$3.33
|
Options
granted
|
70,000
|
2.88
|
5.90
years
|
49,500
|
2.83
|
Options canceled or
expired
|
(45,194)
|
5.00
|
|
(4,067)
|
4.86
|
|
|
|
|
|
|
Options outstanding
at end of the year
|
191,796
|
$3.04
|
5.38
years
|
166,990
|
$3.14
|
|
|
|
|
|
|
Options exercisable
at end of the year
|
56,843
|
$3.32
|
|
74,473
|
$4.46
|
|
|
|
|
|
|
Range of exercise
prices at end of the year
|
|
$1.75 – 4.25
|
|
|
$1.75 – 5.55
|
|
Shares
Designated
|
Shares
Outstanding
|
Liquidation
Value/ Preference
|
Series A
Preferred
|
2,000,000
|
2,000,000
|
$5,000,000
|
Series B
Preferred
|
1,800,000
|
1,459,000
|
3,647,500
|
Series C
Preferred
|
2,800,000
|
1,440,000
|
-
|
Exhibit Number
|
Description of Exhibit
|
Filing
Reference
|
3.1(a)
|
||
3.1(b)
|
||
3.1(c)
|
||
3.1(d)
|
||
3.1(e)
|
||
3.1(f)
|
||
4.2(a)
|
Specimen
Common Stock Certificate
|
Exhibit
4.1 to Registration Statement on Form S-1 (file no. 00-285045),
filed July 11, 1983
|
4.2(b)
|
||
4.2(c)
|
||
4.1(d)
|
||
4.1(e)
|
4.1(f)
|
||
4.1(g)
|
||
10.1
|
||
10.2
|
||
10.3
|
||
10.4
|
||
10.5
|
||
10.6
|
||
10.7
|
||
10.8
|
||
10.9
|
||
10.10
|
||
10.11
|
|
Filed
herewith
|
21
|
Filed
herewith
|
|
23.1
|
Filed
herewith
|
31.1
|
Filed
herewith
|
|
31.2
|
Filed
herewith
|
|
32.1
|
Filed
herewith
|
|
101.INS**
|
XBRL
Instance Document
|
Filed
herewith
|
101.SCH**
|
XBRL
Taxonomy Extension Schema Document
|
Filed
herewith.
|
101.CAL**
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
Filed
herewith
|
101.LAB**
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
Filed
herewith
|
101.PRE**
|
XBRL
Taxonomy Extension Label Linkbase Document
|
Filed
herewith
|
101.DEF**
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
Filed
herewith
|
|
DYNATRONICS
CORPORATION
|
|
|
|
|
|
|
Date:
September 27, 2018
|
By:
|
/s/
Christopher R. von Jako, Ph.D.
|
|
|
|
Christopher
R. von Jako, Ph.D.
|
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
Date:
September 27, 2018
|
By:
|
/s/
Christopher R. von Jako, Ph.D.
|
|
|
|
Christopher
R. von Jako, Ph.D.
|
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
David A. Wirthlin
|
|
|
|
David
A. Wirthlin
|
|
|
|
Chief
Financial Officer
(Principal
Accounting Officer and Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/
Kelvyn H. Cullimore, Jr.
|
|
|
|
Kelvyn
H. Cullimore, Jr.
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/
Erin S. Enright
|
|
|
|
Erin S.
Enright
|
|
|
|
Director,
Chairman
|
|
|
|
|
|
|
|
/s/
David B. Holtz
|
|
|
|
David
B. Holtz
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/
Scott A. Klosterman
|
|
|
|
Scott
A. Klosterman
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/
Brian M. Larkin
|
|
|
|
Brian
M. Larkin
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ R.
Scott Ward, Ph.D.
|
|
|
|
R.
Scott Ward, Ph.D.
|
|
|
|
Director
|
|
|
|
|
|
|
Borrower:
|
|
|
|
|
|
|
|
BIRD
& CRONIN,
LLC
|
|
|
|
|
|
|
|
By:
|
Dynatronics Corporation, its
Manager
|
|
|
|
|
|
|
By:
|
/s/ David
Wirthlin
|
|
|
|
David
Wirthlin
|
|
|
|
Chief Financial Officer |
|
|
DYNATRONICS CORPORATION |
|
|
|
|
|
|
|
By:
|
/s/ David
Wirthlin
|
|
|
|
David
Wirthlin
|
|
|
|
Chief Financial Officer |
|
|
HAUSMANN ENTERPRISES,
LLC
|
|
|
|
|
|
|
|
By:
|
Dynatronics Corporation, its
Manager
|
|
|
|
|
|
|
By:
|
/s/ David
Wirthlin
|
|
|
|
David
Wirthlin
|
|
|
|
Chief Financial Officer |
|
|
Accepted: Bank of the
West
|
|
|
|
|
|
|
|
By:
|
/s/ Kevin Gillette |
|
|
|
Kevin
Gillette
|
|
|
|
Director |
|
|
DYNATRONICS DISTRIBUTION COMPANY,
LLC
|
|
|
|
|
|
|
|
By:
|
Dynatronics Corporation, its
Manager
|
|
|
|
|
|
|
By:
|
/s/ David
Wirthlin
|
|
|
|
David
Wirthlin
|
|
|
|
Chief Financial Officer |
|
(1)
|
Dynatronics
Distribution Co. LLC, a Utah limited liability company formed to
facilitate the acquisition of six distribution businesses in
2007;
|
|
|
(2)
|
Hausmann
Enterprises, LLC, a Utah limited liability company, formed to
facilitate the acquisition and subsequent operation of a
manufacturing and distribution business in
2016;
|
|
|
(3)
|
Dynatronics
Medical Products, LLC, a Utah limited liability company, formed to
facilitate the acquisition of a manufacturing and distribution
business in 2017; and
|
|
|
(4)
|
Bird &
Cronin, LLC, a Utah limited liability company, formed to facilitate
the acquisition and subsequent operation of a manufacturing and
distribution business in 2017.
|
1.
|
I have reviewed this Annual Report
on Form 10-K 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(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(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 (the
registrant's fourth fiscal quarter in the case of an annual report)
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(s) 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: September 27,
2018
|
By:
|
/s/
Christopher R. von
Jako, Ph.D.
|
|
|
|
Christopher R. von Jako,
Ph.D.
|
|
|
|
Chief Executive Officer
|
|
1.
|
I have reviewed this Annual Report
on Form 10-K 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(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(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;
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(b)
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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;
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|
|
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(c)
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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
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(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 (the
registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
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5.
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The registrant's other certifying
officer(s) 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):
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(a)
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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
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|
|
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(b)
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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.
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Date: September 27,
2018
|
By:
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/s/ David A.
Wirthlin
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David A.
Wirthlin
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Chief Financial
Officer
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DYNATRONICS
CORPORATION
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Date: September 27,
2018
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By:
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/s/ Christopher R. von Jako,
Ph.D.
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Christopher R. von Jako,
Ph.D.
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Chief Executive
Officer
(Principal Executive
Officer)
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Date: September 27,
2018
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By:
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/s/ David A.
Wirthlin
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David A.
Wirthlin
|
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Jun. 30, 2018 |
Sep. 14, 2018 |
Dec. 31, 2017 |
|
Document and Entity Information: | |||
Entity Registrant Name | DYNATRONICS CORP | ||
Document Type | 10-K | ||
Document Period End Date | Jun. 30, 2018 | ||
Trading Symbol | dynt | ||
Amendment Flag | false | ||
Entity Central Index Key | 0000720875 | ||
Current Fiscal Year End Date | --06-30 | ||
Entity Common Stock, Shares Outstanding | 8,161,029 | ||
Entity Public Float | $ 12,400,000 | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Well-known Seasoned Issuer | No | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 370,300 | $ 382,333 |
Preferred stock shares authorized | 50,000,000 | 5,000,000 |
Preferred stock shares issued | 4,899,000 | 3,559,000 |
Preferred stock shares outstanding | 4,899,000 | 3,559,000 |
Common stock shares authorized | 100,000,000 | 50,000,000 |
Common stock shares issued | 8,089,398 | 4,653,165 |
Common stock shares outstanding | 8,089,398 | 4,653,165 |
(1) Basis of Presentation and Summary of Significant Accounting Policies |
12 Months Ended |
---|---|
Jun. 30, 2018 | |
Disclosure Text Block [Abstract] | |
(1) Basis of Presentation and Summary of Significant Accounting Policies | Description of Business
Dynatronics Corporation (“the Company,” “Dynatronics”) designs, manufactures, markets, and distributes orthopedic soft goods, medical supplies, and physical therapy and rehabilitation equipment. Through our various distribution channels, we market and sell to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals.
Principles of Consolidation
The consolidated financial statements include the accounts and operations of Dynatronics Corporation and its wholly owned subsidiaries, Hausmann Enterprises, LLC, Bird & Cronin, LLC (see Note 2) and Dynatronics Distribution Company, LLC. The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All significant intercompany account balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with maturities of three months or less at the date of purchase. Also included within cash and cash equivalents are deposits in-transit from banks for payments related to third-party credit card and debit card transactions. Cash and cash equivalents totaled approximately $1,696,000 and $255,000 as of June 30, 2018 and 2017, respectively.
Inventories
Finished goods inventories are stated at the lower of standard cost, which approximates actual cost using the first-in, first-out method, or net realizable value. Raw materials are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company periodically reviews the value of items in inventory and records write-downs or write-offs based on its assessment of slow moving or obsolete inventory. The Company maintains a reserve for obsolete inventory and generally makes inventory value adjustments against the reserve.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest, although finance charges may be applied to past due accounts. The Company maintains an allowance for doubtful accounts that is the Company’s estimate of credit risk in the Company’s existing accounts receivable. The Company determines the allowance based on a combination of statistical analysis, historical collection patterns, customers’ current credit worthiness, the age of account balances, and general economic conditions. All account balances are reviewed on an individual basis. Account balances are charged against the allowance when the potential for recovery is considered remote. Recoveries of accounts previously written off are recognized when payment is received.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over estimated useful lives that range from 5 to 31.5 years. Leasehold improvements are amortized over the remaining term of the respective building lease. Machinery, office equipment, computer equipment and software and vehicles are depreciated over estimated useful lives that range from 3 to 7 years.
Goodwill
Goodwill resulted from the Hausmann and Bird & Cronin acquisitions (see Note 2). Goodwill in a business combination represents the purchase price in excess of identifiable tangible and intangible assets. Goodwill and intangible assets that have an indefinite useful life are not amortized. Instead they are reviewed periodically for impairment.
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the year resulted in no impairment losses.
Long-Lived Assets
Long–lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the difference between the carrying amount of the asset and the fair value of the asset. Assets to be disposed are separately presented in the balance sheet at the lower of net book value or fair value less estimated disposition costs, and are no longer depreciated.
Intangible Assets
Costs associated with the acquisition of trademarks, certain trade names, license rights and non-compete agreements are capitalized and amortized using the straight-line method over periods ranging from 3 months to 20 years. Trade names determined to have an indefinite life are not amortized, but are required to be tested for impairment and written down, if necessary. The Company assesses indefinite lived intangible assets for impairment each fiscal year or more frequently if events and circumstances indicate impairment may have occurred.
Revenue Recognition
The Company recognizes revenue when products are shipped FOB shipping point under an agreement with a customer, risk of loss and title have passed to the customer, and collection of any resulting receivable is reasonably assured. Amounts billed for shipping and handling of products are recorded as sales. Costs for shipping and handling of products to customers are recorded as cost of sales.
Research and Development Costs
Research and development costs are expensed as incurred.
Product Warranty Costs
The Company provides a warranty on all products it manufactures for time periods ranging in length from 90 days to five years from the date of sale. Costs estimated to be incurred in connection with the Company’s product warranty programs are charged to expense as products are sold based on historical warranty rates. The Company maintains a reserve for estimated product warranty costs to be incurred related to products previously sold.
Net Loss per Common Share
Net loss per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common shares outstanding during the year. Convertible preferred stock, stock options and warrants are considered to be potential common shares. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.
Basic net loss per common share is the amount of net loss for the year available to each weighted-average share of common stock outstanding during the year. Diluted net loss per common share is the amount of net loss for the year available to each weighted-average share of common stock outstanding during the year and to each potential common share outstanding during the year, unless inclusion of potential common shares would have an anti-dilutive effect.
Outstanding options, warrants and convertible preferred stock for common shares not included in the computation of diluted net loss per common share because they were anti-dilutive, totaled 11,222,589 as of June 30, 2018 and 9,029,080 as of June 30, 2017. These potential common shares are not included in the computation because they would be anti-dilutive.
Income Taxes
The Company recognizes an asset or liability for the deferred income tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. Accruals for uncertain tax positions are provided for in accordance with applicable accounting standards. The Company may recognize the tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in the financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact the Company’s financial position, results of operations and cash flows.
Income Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended. Among other items, the Tax Act permanently reduces the federal corporate tax rate to 21% effective January 1, 2018. As the Company’s fiscal year end falls on June 30, the statutory federal corporate tax rate for fiscal 2018 will be prorated to 27.5%, with the statutory rate for fiscal 2019 and beyond at 21%. As a result of the reduction in the corporate income tax rate from 35% to 21% under the Act, the Company revalued its net deferred tax assets at December 31, 2017 and included these estimates in our consolidated financial statements for the year ended June 30, 2018. The final transition impacts of the Tax Act may vary from the current estimate, possibly materially, due to, among other things, further clarification and changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act. In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), any necessary measurement adjustments will be recorded and disclosed within one year from the enactment date within the period the adjustments are determined.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award determined by using the Black-Scholes option-pricing model and is recognized as expense over the applicable vesting period of the stock award (zero to five years) using the straight-line method.
Concentration of Risk
In the normal course of business, the Company provides unsecured credit to its customers. Most of the Company’s customers are involved in the medical industry. The Company performs ongoing credit evaluations of its customers and maintains allowances for probable losses which, when realized, have been within the range of management’s expectations. The Company maintains its cash in bank deposit accounts which at times may exceed federally insured limits.
As of June 30, 2018 and 2017, the Company had approximately $1,575,000 and $242,000, respectively, in cash and cash equivalents in excess of federally insured limits. The Company has not experienced any losses in such accounts.
Certain of the Company's employees are covered by a collective bargaining agreement. As of June 30, 2018, approximately 17% of the Company's employees were covered by a collective bargaining agreement scheduled to expire in 2019.
Operating Segments
The Company operates in one line of business: the development, manufacturing, marketing, and distribution of a broad line of medical products for the orthopedic, physical therapy and similar markets. As such, the Company has only one reportable operating segment.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in accordance with U.S. GAAP. Significant items subject to such estimates and assumptions include the impairment and useful lives of long-lived assets; valuation allowances for doubtful accounts receivables, deferred income taxes, and obsolete inventories; accrued product warranty costs; and fair values of assets acquired and liabilities assumed in an acquisition. Actual results could differ from those estimates.
Reclassification
Certain amounts in the prior year's consolidated statement of operations have been reclassified for comparative purposes to conform to the presentation in the current year's consolidated statement of operations.
Recent Accounting Pronouncements
On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended. Among other items, the Tax Act permanently reduces the federal corporate tax rate to 21% effective January 1, 2018. The SEC issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (ASC) 740 - Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it can determine a reasonable estimate, it must record a provisional estimate in the consolidated financial statements. If a company cannot determine a provisional estimate to be included in the consolidated financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. Under the staff guidance in SAB 118, in the financial reporting period in which the Tax Act is enacted, the income tax effects of the Tax Act (i.e., only for those tax effects in which the accounting under ASC 740 is incomplete) would be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a “measurement period” until the accounting under ASC 740 is complete. The measurement period is limited to no more than one year beyond the enactment date under the staff's guidance. SAB 118 also describes supplemental disclosures that should accompany the provisional amounts, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the registrant was not able to complete the accounting required under ASC 740 in a timely manner. The impact of the Tax Act is reflected in Note 11.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this update on a prospective basis. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of July 1, 2017. This adoption did not have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842,) a new guidance on leases. This guidance replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The standard requires a modified retrospective approach, which includes several optional practical expedients. Accordingly, the standard is effective for the Company on July 1, 2019. The Company is currently evaluating the impact that this guidance will have on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customer (Topic 606). This authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company adopted this updated accounting guidance beginning July 1, 2018 using the modified retrospective method. This adoption has not had a material impact on the Company’s consolidated financial statements other than additional disclosures.
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(2) Acquisition |
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(2) Acquisition | Bird & Cronin
On October 2, 2017, the Company, through its wholly-owned subsidiary Bird & Cronin, LLC, a newly formed Utah limited liability company, completed the purchase of substantially all the assets of Bird & Cronin, Inc. (“Bird & Cronin”), a manufacturer and distributor of orthopedic soft goods and specialty patient care products. This acquisition has expanded the Company’s sales in the orthopedic and patient care markets by leveraging the products and distribution network offered by Bird & Cronin.
At the closing of the acquisition, the Company paid Bird & Cronin cash of $9,063,017 and delivered 1,397,375 shares of its Series D Non-Voting Convertible Preferred Stock (“Series D Preferred”) to Bird & Cronin valued at approximately $3,533,333. The purchase price is subject to customary representations, warranties, indemnities, working capital adjustment and an earn-out payment ranging from $500,000 to $1,500,000, based on future sales.
A holdback of cash totaling $933,334 and 184,560 shares of common stock (converted from Series D Preferred) valued at approximately $466,667 was retained for purposes of satisfying adjustments to the purchase price as may be required. Pursuant to a working capital adjustment and indemnification claim provisions, the purchase price was subsequently decreased $399,169. The cash portion of the holdback was also increased by $95,347 in exchange for a reduction in retained shares of common stock for the same value. In addition, the amount recognized for the earn-out liability was subsequently decreased by $625,000 to $875,000 as of June 30, 2018. The $875,000 is combined with the acquisition holdback in the accompanying consolidated balance sheets. As part of the acquisition, the Company assumed certain liabilities and obligations of Bird & Cronin related to its ongoing business (primarily trade accounts and similar obligations in the ordinary course).
In connection with the acquisition, the Company completed a private placement of Series C Non-Voting Convertible Preferred Stock (“Series C Preferred”) and common stock warrants to raise cash proceeds of $7,000,000 pursuant to the terms and conditions of a Securities Purchase Agreement entered into on September 26, 2017 (see Note 14). Certain principals of Bird & Cronin are holders of the Company’s issued and outstanding common stock and two of the principals, Michael Cronin and Jason Anderson, are employees of the Company.
Also in connection with the acquisition, the Company entered into a lease with Trapp Road Limited Liability Company, a Minnesota limited liability company controlled by the former owners of Bird & Cronin operation, to lease the facility in Eagan, Minnesota (the “Minnesota Facility”) effective as of the closing date with an initial three-year term. Annual rental payments of $600,000 are payable in monthly installments of $50,000. The lease term will automatically be extended for two additional periods of two years each, without any increase in the lease payment, subject to the Company’s right to terminate the lease or to provide notice not to extend the lease prior to the end of the term. The Company also offered employees of Bird & Cronin employment with Dynatronics at closing including the Co-Presidents of Bird & Cronin, Mike Cronin and Jason Anderson, who entered into employment agreements with the Company to serve as Co-Presidents of the acquired business.
The Acquisition has been accounted for under the purchase method as prescribed by applicable accounting standards. Under this method, the Company has allocated the purchase price to the assets acquired and liabilities assumed at estimated fair values. The total consideration transferred or to be transferred, totaled $14,472,182 (which is comprised of cash of $9,063,017, holdbacks of $1,504,512, and preferred stock of $3,904,653 net of offering costs). The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition:
Intangible assets subject to amortization include $4,313,000 that relate to customer relationships with a useful life of ten years and other intangible assets of $83,000 with a useful life of five years. Intangible assets not subject to amortization of $620,000 relate to trade names. The goodwill recognized from the acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies that do not qualify for separate recognition. The full amount of goodwill and intangible assets are expected to be deductible for tax purposes.
As of June 30, 2018, the earn-out liability and holdbacks of $1,504,512 come due, contingent upon the terms set forth in the purchase agreement, as follows:
Hausmann
On April 3, 2017, the Company, through its wholly-owned subsidiary Hausmann Enterprises, LLC, a newly formed Utah limited liability company, completed the purchase of substantially all the assets of Hausmann Industries, Inc., a New Jersey corporation (“Hausmann”) for $10,000,000 in cash. This acquisition has expanded Dynatronics’ sales in the physical therapy, athletic training and other markets by leveraging the products and distribution network offered by the Hausmann.
Financing was provided by proceeds from the sale of equity securities in a private offering to accredited investors and borrowings under a loan and security agreement (see Note 14). Closing of the private placement occurred concurrently with the closing of the acquisition. At closing, the Company paid Hausmann $9,000,000 of the $10,000,000 purchase price holding back $1,000,000 for purposes of satisfying adjustments to the purchase price as may be required and indemnification claims, if any. Pursuant to a working capital adjustment provision, the purchase price was subsequently increased $160,833 to $10,160,833. The Company paid an additional $116,089 to Hausmann and held back an additional $44,744. The $44,744 is combined with the acquisition holdback in the accompanying consolidated balance sheets. As part of the acquisition, the Company assumed certain liabilities and obligations of Hausmann related to its ongoing business (primarily trade accounts and similar obligations in the ordinary course).
In connection with the acquisition, the Company sold equity securities for gross proceeds of $7,795,000 in the private placement entered into with certain accredited investors, including institutional investors (see Note 14). Certain principals of Hausmann are holders of the Company’s Series B Preferred and one of the principals, David Hausmann, is an employee of the Company.
Also in connection with the acquisition, the Company entered into an agreement with Hausmann to lease the 60,000 square-foot manufacturing and office facility in Northvale, New Jersey (the "New Jersey Facility") effective as of the closing date with an initial two-year term, annual lease payments of $360,000 for the first year, and 2% increases in each subsequent year. The lease grants the Company two options to extend the term of the lease for two years per extension term, subject to annual 2% per year increases in base rent, and a third option at the end of the second option term for an additional five-years at fair market value. The Company also offered employment to Hausmann’s employees at closing including David Hausmann, the primary stockholder of Hausmann and its former principal executive officer. Mr. Hausmann entered into an employment agreement with the Company effective at the closing to serve as the President of the acquired business.
The acquisition has been accounted for under the purchase method as prescribed by applicable accounting standards. Under this method, the Company has allocated the purchase price to the assets acquired and liabilities assumed at estimated fair values. The total purchase price was $10,160,833. The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of acquisition:
The estimated purchase price included a holdback of cash totaling $1,044,744 for purposes of satisfying adjustments to the purchase price and indemnification claims, if any. In the second and third fiscal quarters of 2018, the Company released $44,744 and $250,000, respectively, of the holdback to the sellers. As of June 30, 2018, the Company retained a holdback of $750,000 due to be paid to the seller on October 3, 2018.
Financial Impact of Acquired Businesses
The acquired businesses purchased in fiscal year 2018 and 2017 noted above contributed revenues of $34,352,000 and $3,812,000, and a net income of $2,491,000 and $223,000, inclusive of $594,000 and $64,000 of acquired intangible amortization, to the Company for the years ended June 30, 2018 and 2017, respectively.
The unaudited pro forma financial results for the twelve months ended June 30, 2018 and 2017 combines the consolidated results of the Company, Bird & Cronin and Hausmann assuming the Bird & Cronin acquisition had been completed on July 1, 2016 and the Hausmann acquisition on July 1, 2015. The reported revenue and net loss of $64,414,910 and $1,602,256 would have been $70,870,000 and $1,556,000 for the twelve months ended June 30, 2018, respectively, on an unaudited pro forma basis. For 2017, the reported revenue and net loss of $35,758,330 and $1,866,395 would have been revenue and net income of $71,128,000 and $663,000 for the year ended June 30, 2017, respectively, on an unaudited pro forma basis.
The unaudited pro forma consolidated results are not to be considered indicative of the results if the acquisitions occurred in the periods mentioned above, or indicative of future operations or results. The unaudited supplemental pro forma earnings were adjusted to exclude $160,000 of acquisition-related costs incurred in fiscal year 2017.
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(3) Inventories |
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(3) Inventories | Inventories consist of the following as of June 30:
Included in cost of goods sold for the years ended June 30, 2018 and 2017, are inventory write-offs of $692,000 and $435,000, respectively. The write-off reflects inventories related to discontinued product lines, excess repair parts, product rejected for quality standards, and other non-performing inventories.
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(4) Property and Equipment | Property and equipment consist of the following as of June 30:
Depreciation and amortization expense for the years ended June 30, 2018 and 2017 was $419,148 and $242,542, respectively.
Included in the above caption, “Buildings” as of June 30, 2018 and 2017 is a building lease that is accounted for as a capital lease asset (see Notes 9 and 10) with a gross value of $3,800,000. The net book value of capital lease assets as of June 30, 2018 and 2017 was $2,923,449 and $3,065,193, respectively. Amortization of capital lease assets was $254,418 and $251,934 for the years ended June 30, 2018 and 2017.
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(5) Intangible Assets | Identifiable intangible assets, other than goodwill, consisted of the following as of and for the years ended June 30, 2018 and 2017:
As of June 30, 2018, as a result of discontinuing the use of one of our previously acquired dealers, the Company wrote-off the related trade name, non-compete covenants, and customer relationships of the dealer.
Amortization expense associated with the intangible assets was $638,360 and $95,005 for the fiscal years ended June 30, 2018 and 2017, respectively. Estimated future amortization expense for the identifiable intangible assets is expected to be as follows as of June 30:
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(6) Warranty Reserve |
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(6) Warranty Reserve | A reconciliation of the change in the warranty reserve consists of the following for the fiscal years ended June 30:
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(7) Line of Credit |
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(7) Line of Credit | On March 31, 2017, the Company entered into an $8,000,000, loan and security agreement with Bank of the West to provide asset-based financing to the Company for funding acquisitions and for working capital (“Line of Credit”). The Line of Credit replaced the $1,000,000 line of credit previously put in place with an asset based lender in September 2016, and closed prior to the Hausmann acquisition (see Note 2).
The Line of Credit provided for revolving credit borrowings by the Company in an amount up to the lesser of $8,000,000 or the calculated borrowing base. The borrowing base is computed monthly and is equal to the sum of stated percentages of eligible accounts receivable and inventory, less a reserve. Amounts outstanding bear interest at LIBOR plus 2.25% (4.32% as of June 30, 2018). The Company paid a commitment fee of .25% and the line is subject to an unused line fee of .25%.
On September 28, 2017, the Company modified the Line of Credit and entered into an amended credit facility to provide asset-based financing to be used for funding the Bird & Cronin acquisition and for operating capital. The amended credit facility provides for revolving credit borrowings by the Company in an amount up to the lesser of $11,000,000 or the calculated borrowing base. The Company paid a commitment fee of .25% for the modification. The Line of Credit, as amended, matures September 30, 2019.
On July 13, 2018, the Company further modified the Line of Credit and amended credit facility. The amended credit facility modifies the maximum monthly consolidated leverage and a minimum monthly consolidated fixed charge coverage ratio. The Company paid a commitment fee of .25% for the modification.
The Company’s obligations under the Line of Credit are secured by a first-priority security interest in substantially all of the Company’s assets. The Line of Credit requires a lockbox arrangement and contains affirmative and negative covenants, including covenants that restrict the ability of the Company 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 agreement also contains financial covenants applicable to the Company, including a maximum monthly consolidated leverage and a minimum monthly consolidated fixed charge coverage ratio.
As of June 30, 2018, the Company had borrowed $6,286,037 under the Line of Credit compared to $2,171,935 as of June 30, 2017. There was approximately $1,370,000 and $3,709,000 available to borrow as of June 30, 2018 and 2017.
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(8) Long-Term Debt |
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(8) Long-Term Debt | Long-term debt consists of the following as of June 30:
The aggregate maturities of long-term debt for each of the years subsequent to June 30, 2018 are as follows:
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(9) Leases |
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(9) Leases | Operating Leases
The Company rents office, manufacturing, warehouse and storage space and office equipment under agreements which run one year or more in duration. Rent expense for the years ended June 30, 2018 and 2017 was $961,886 and $289,323, respectively. Future minimum rental payments required under operating leases that have a duration of one year or more as of June 30, 2018 are as follows:
The Company leases office, manufacturing and warehouse facilities in Detroit, Michigan, Hopkins, Minnesota, Northvale, New Jersey and Eagan, Minnesota from employees, shareholders and entities controlled by shareholders, who were previously principals of businesses acquired by the Company. The leases are related-party transactions. The expense associated with these related-party transactions totaled $887,926 and $160,800 for the years ended June 30, 2018 and 2017, respectively.
Capital Leases
The Company leases certain equipment and the Utah building (see Note 10) that have been determined to be capital leases. The capital lease assets are included in Property and Equipment (see Note 4). The balance of the capital lease obligation was as follows as of June 30:
At June 30, 2018, future minimum gross lease payments required under the capital leases were as follows:
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(10) Deferred Gain |
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(10) Deferred Gain | On August 8, 2014, the Company sold the property that houses its operations in Utah and leased back the premises for a term of 15 years. The sale price was $3.8 million. Proceeds from the sale were primarily used to reduce debt obligations of the Company.
The sale of the building resulted in a $2,269,255 gain, which is recorded in the consolidated balance sheets as deferred gain that is being recognized in selling, general and administrative expenses over the 15 year life of the lease on a straight line basis. The balance of the deferred gain was as follows as of June 30:
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(11) Income Taxes |
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(11) Income Taxes | Income tax benefit (provision) are as follows for the years ended June 30:
The components of the Company’s income tax benefit (provision) are as follows for the years ended June 30:
The Company’s deferred income tax assets and liabilities related to the tax effects of temporary differences are as follows as of June 30:
Quarterly, the Company assesses the likelihood by jurisdiction that its net deferred income tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred income tax assets when it is more-likely-than-not that a future tax benefit will not be realized. When there is a change in judgment concerning the recovery of deferred income tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. As of June 30, 2018 and 2017, the Company has established a full valuation allowance.
The anticipated accumulated net operating loss carry forward from fiscal year 2018 is approximately $3,962,000 that will begin to expire in 2037. The Company has no uncertain tax positions as of June 30, 2018.
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(12) Major Customers and Sales By Geographic Location |
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(12) Major Customers and Sales By Geographic Location | During the fiscal years ended June 30, 2018 and 2017, no sales to any single customer exceeded 10% of total net sales.
The Company exports products to approximately 30 countries. Sales outside North America totaled approximately $3,606,000 or 5.6% of net sales, for the fiscal year ended June 30, 2018, compared to $814,000 or 2.3% of net sales, for the fiscal year ended June 30, 2017.
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(13) Common Stock and Common Stock Equivalents |
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(13) Common Stock and Common Stock Equivalents | On December 16, 2016, the shareholders approved an increase to the aggregate number of shares of common stock that the Company is authorized to issue from 50,000,000 shares to 100,000,000 shares.
For the year ended June 30, 2018, the Company granted 50,000 shares of restricted common stock to directors in connection with compensation arrangements and 53,853 shares to employees. For the year ended June 30, 2017, the Company granted 36,122 shares of restricted common stock to directors in connection with compensation arrangements and 106,932 shares to employees.
For the year ended June 30, 2018, the Company issued 3,041,935 shares of common stock in conversion of 3,041,935 shares of preferred stock.
For the year ended June 30, 2017, the Company issued 1,559,000 shares of common stock pursuant to the private placement with gross proceeds of $7,795,000 (see Note 14) used for the Hausmann acquisition and 6,173 shares for professional fees in conjunction with the acquisition.
The Company issued 290,445 shares of common stock during the fiscal year ended June 30, 2018 and 139,658 shares of common stock during the fiscal year ended June 30, 2017 as payment of preferred stock dividends.
The Company maintained a 2005 equity incentive plan for the benefit of employees. On June 29, 2015 the shareholders approved a new 2015 equity incentive plan setting aside 500,000 shares (“2015 Equity Plan”). The 2015 Equity Plan was filed with the SEC on September 3, 2015. Incentive and nonqualified stock options, restricted common stock, stock appreciation rights, and other share-based awards may be granted under the plan. Awards granted under the plan may be performance-based. As of June 30, 2018, 162,361 shares of common stock remained authorized and reserved for issuance, but were not granted under the terms of the 2015 Equity Plan.
The Company granted options for the purchase of 70,000 shares of common stock under its 2015 Equity Plan during fiscal year 2018 and options for purchase of 49,500 shares during fiscal year 2017. The options were granted at not less than 100% of the market price of the stock at the date of grant. Option terms are determined by the board of directors or the compensation committee of the board of directors, and exercise dates may range from 6 months to 10 years from the date of grant.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
The weighted average fair value of options granted during fiscal year 2018 was $1.11. The following table summarizes the Company’s stock option activity during the reported fiscal years:
The Company recognized $254,758 and $419,925 in stock-based compensation for the years ended June 30, 2018 and 2017, respectively, which is included in selling, general, and administrative expenses in the consolidated statements of operations. The stock-based compensation includes amounts for both restricted stock and stock options. Included in the stock-based compensation for fiscal year 2017 was $123,877, related to severance expenses that were settled with the issuance of common stock.
As of June 30, 2018, there was $203,014 of unrecognized stock-based compensation cost that is expected to be expensed over the next four years.
No options were exercised during fiscal years 2017 and 2018. The aggregate intrinsic value of the outstanding options as of June 30, 2018 and 2017 was $4,530 and $1,646, respectively.
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(14) Convertible Preferred Stock and Common Stock Warrants |
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(14) Convertible Preferred Stock and Common Stock Warrants | On December 16, 2016 the shareholders approved an increase to the aggregate number of shares of preferred stock that the Company is authorized to issue from 5,000,000 shares to 50,000,000 shares.
On December 28, 2016, the Company completed a private placement with affiliates of Prettybrook Partners, LLC (“Prettybrook”) and certain other purchasers (collectively with Prettybrook, the “Series A Preferred Investors”) for the offer and sale of the remaining designated 390,000 shares of the Company’s Series A 8% Convertible Preferred Stock (the “Series A Preferred”) for gross proceeds of approximately $975,000. Proceeds from the private placement were recorded net of offering costs incurred. The Series A Preferred is convertible to common stock on a 1:1 basis. A forced conversion can be initiated based on a formula related to share price and trading volumes as outlined in the Certificate Designating the Preferences, Rights and Limitations of the Series A Preferred (“Series A Designation”). The dividend is fixed at 8% and is payable in either cash or common stock subject to conditions contained in the Series A Designation. This dividend is payable quarterly and equates to an annual payment of $400,000 in cash or a value in common stock based on the trading price of the stock on the date the dividend is declared. Certain redemption rights are attached to the Series A Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate. The Series A Preferred includes a liquidation preference under which Series A Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends. The Company filed a registration statement to register the underlying common shares associated with the Series A Preferred and the Series A Warrants on Form S-3 on January 28, 2017 and amended on February 1, 2017. The registration statement became effective on February 10, 2017.
The Series A Preferred votes on an as-converted basis, one vote for each share of common stock issuable upon conversion of the Series A Preferred, provided the number of shares of potential common stock eligible for voting by the Preferred Investors is 390,000.
The Preferred Investors purchased a total of 390,000 shares of Series A Preferred and common stock purchase warrants (collectively, the “Series A Warrants”) as follows: (i) A-Warrants, exercisable by cash exercise only, to purchase 292,500 shares of common stock, and (ii) B-Warrants, exercisable by “cashless exercise”, to purchase 292,500 shares of common stock, but only after exercise of holder’s A-Warrants. The Series A Warrants are exercisable for 72 months from the date of issuance and carry a put feature in the event of a change in control. The put right is not subject to derivative accounting as all equity holders are treated the same in the event of a change in control.
The Company’s shareholders originally authorized the issuance of 2,000,000 shares of the Series A Preferred in June, 2015. The Company sold and issued 1,610,000 shares of Series A Preferred in June 2015, leaving 390,000 shares available for future issuance. The remaining 390,000 shares were sold and issued in December 2016 as described above. The only difference between the shares of Series A Preferred issued in June 2015 and those issued in December 2016 is that the formula determining voting rights for the shares issued in June 2015 indicated a cutback in the voting power of those shares as required by the Series A Designation. The shares of Series A Preferred issued in December 2016 were not subject to any cutback. For information regarding the original issuance of the Series A Preferred in June 2015, see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.
In April 2017, the Company closed the private placement in which it raised gross proceeds of $7,795,000 pursuant to the terms of a Securities Purchase Agreement dated March 21, 2017 (the “Securities Purchase Agreement”). Certain accredited investors, including institutional investors (the “Series B Preferred Investors”) participated in the private placement pursuant to which the Company issued a total of 1,559,000 units at $5.00 per unit, with each unit made up of one share of common stock at $2.50 per share, one share of Series B Convertible Preferred Stock (“Series B Preferred”) at $2.50 per share, and a warrant to purchase 1.5 shares of Common Stock, exercisable at $2.75 per share for six years. Ladenburg Thalmann & Co. Inc. (“Ladenburg”) acted as placement agent in connection with the private placement and the Company paid Ladenburg fees and expenses related to placing certain investors in the private placement. The Series B Preferred is convertible to common stock on a 1:1 basis. A forced conversion can be initiated based on a formula related to share price and trading volumes as outlined in the Certificate Designating the Preferences, Rights and Limitations of the Series B Preferred (“Series B Designation”). The dividend is fixed at 8% and is payable in either cash or common stock subject to conditions contained in the Series B Designation. This dividend is payable quarterly and equates to an annual payment of $311,800 in cash or a value in common stock based on the trading price of the stock on the date the dividend is declared. Certain redemption rights are attached to the Series B Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate. The Series B Preferred includes a liquidation preference, subject to the liquidation preference of the Series A Preferred, under which Series B Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends. On April 14, 2017, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to register the shares of common stock issued in this offering and the shares underlying conversion of the Series B Preferred and the exercise of warrants issued to the Series B Investors. The registration statement became effective on April 24, 2017.
In connection with the acquisition of Bird & Cronin on October 2, 2017, the Company issued 2,800,000 shares of Series C Convertible Preferred Stock (“Series C Preferred”) and warrants to purchase 1,400,000 shares of common stock (“Series C Warrants”), as well as 1,581,935 shares of its Series D Convertible Preferred Stock (the “Series D Preferred”). The Series C Warrants have an exercise price of $2.75 per share of common stock and a term of six years. The exercise of the Series C Warrants and the conversion of the Series C Preferred and Series D Preferred was subject to the prior approval of the Company’s shareholders as required under applicable Nasdaq Marketplace Rules. At the Company’s 2017 Annual Meeting of Shareholders, held on November 29, 2017, the Company sought and obtained that shareholder approval. Upon the receipt of the shareholder approval, each share of Series C Preferred and each share of Series D Preferred was automatically convertible into one share of common stock; provided, however, that the holders of the Series C Preferred were permitted to elect to retain the Series C Preferred and not convert, subject to future beneficial ownership limitations and forfeiture of preferential rights of their shares of Series C Preferred. On November 29, 2017, the Company issued 1,360,000 shares of common stock in conversion of 1,360,000 shares of Series C Preferred and 1,581,935 shares of common stock in conversion of all outstanding shares of the Series D Preferred.
During year ended June 30, 2018, the Company issued 100,000 shares of common stock upon conversion of 100,000 shares of Series B Preferred.
As of June 30, 2018, the Company currently had 2,000,000 shares of Series A Preferred and 1,459,000 shares of Series B Preferred outstanding, convertible into a total of 3,459,000 shares of common stock. Dividends payable on these shares accrue at the rate of 8% per year and are payable quarterly in stock or cash. The Company generally pays the dividends in stock. The formula for paying this dividend in common stock can change the effective yield on the dividend to more or less than 8% depending on the price of the stock at the time of issuance. As of June 30, 2018, the Company had 1,440,000 shares of Series C Preferred outstanding. The Series C Preferred shares are non-voting, do not receive dividends, and have no liquidation preferences or redemption rights.
In connection with each of the issuances of Series A Preferred, the Series B Preferred and the Series C Preferred, the Company recorded a deemed dividend related to a beneficial conversion feature, which reflects the difference between the underlying common share value of the Series A Preferred, the Series B Preferred, and the Series C Preferred shares as if converted, based on the closing price of the Company’s common stock on the date of the applicable transaction, less an amount of the purchase price assigned to the Series A Preferred, the Series B Preferred or the Series C Preferred, as applicable, in an allocation of purchase price between the preferred shares and common stock purchase warrants that were issued with the Series A Preferred, the Series B Preferred and the Series C Preferred. For the year ended June 30, 2018, the Company recorded deemed dividends of $1,023,786 associated with the Series C Preferred. For the year ended June 30, 2017, the Company recorded deemed dividends of $1,944,223 consisting of $375,858 associated with the Series A Preferred and $1,568,365 associated with the Series B Preferred. The deemed dividends are combined with net loss and payment of dividends on preferred stock to compute net loss applicable to common stockholders for purposes of calculating loss per share.
The Company chose to pay preferred stock dividends by issuing common shares valued at $772,719 in fiscal year 2018 and $370,672 in fiscal year 2017. At June 30, 2018, there was $189,869 in accrued dividends payable for the quarter ended June 30, 2018, which were paid by issuing 66,631 shares of common stock in July 2018. The Company also paid preferred stock dividends of $104,884 in cash in fiscal year 2018 and $16,241 in cash in fiscal year 2017.
In case of liquidation, dissolution or winding up of the Company, preferred stock has preferential treatment beginning with the Series A Preferred, then the Series B Preferred, followed by the Series C Preferred. After preferential amounts, if any, to which the holders of preferred stock may be entitled, the holders of all outstanding shares of common stock shall be entitled to share ratably in the remaining assets of the Company. Liquidation preference is as follows:
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(15) Accrued Payroll and Benefits Expense |
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Jun. 30, 2018 | |
Accrued Payroll And Benefits Expense | |
Accrued Payroll and Benefits Expense | As of June 30, 2018 and 2017, accrued payroll and benefits expense was $1,929,465 and $1,472,773, respectively. Included in the balance as of June 30, 2018 and 2017, was $473,146 and $200,000, respectively, of accrued severance expense for Company personnel including one executive officer. As of June 30, 2018 and 2017, long-term severance accrual included in other liabilities was $258,145 and $0, respectively. Payments will be made in cash over a two year period. The Company recognized $978,433 and $58,182 in severance expense during the year ended June 30, 2018 and 2017, respectively, related to the termination of Company personnel. Severance expense is included in selling, general, and administrative expenses.
On August 1, 2018, the Company implemented a reduction of its workforce by four employees to better align its resources with the needs of its business and focus on improving profitability. The Company expects that it will incur severance expense of approximately $85,000, in connection with this reduction in force, which will be recorded in the first fiscal quarter of 2019. |
(16) Employee Benefit Plan |
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Jun. 30, 2018 | |
Disclosure Text Block [Abstract] | |
(16) Employee Benefit Plan | The Company has three deferred savings plans which qualify under Internal Revenue Code Se ction 401(k).
The first plan covers all employees of Dynatronics Corporation, (the “Parent Company”), who have at least one month of service and who are age 20 or older. For fiscal years 2018, and 2017, the Parent Company made matching contributions of 25% of the first $2,000 of each employee’s contribution, with a six-year vesting schedule. Contributions to the plan for fiscal years 2018 and 2017 were $11,852 and $45,294, respectively. Matching contributions for future years are at the discretion of the board of directors.
The second plan covers all employees of Hausmann Enterprises LLC, who have at least twelve months of service and who are age 21 or older. For the fiscal years 2018 and 2017, Hausmann Enterprises LLC made matching contributions of 50% of the first 6% of each employee’s deferred contribution up to a maximum of 3% of compensation, with a six-year vesting schedule. Contributions to the plan for fiscal years 2018 and 2017 were $104,347 and $93,000, respectively.
The third plan covers all employees of Bird & Cronin LLC, who have at least six months of service and who are age 21 or older. For the fiscal year 2018, Bird & Cronin LLC made matching contributions of 100% of the first 5% of each employee’s contribution up to a maximum of 5% of compensation, with a six-year vesting schedule. Contributions to the plan for fiscal year 2018 was $164,772.
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(17) Liquidity and Capital Resources |
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Jun. 30, 2018 | |
Disclosure Text Block [Abstract] | |
(16) Liquidity and Capital Resources | As of June 30, 2018, the Company had $1,696,116 in cash, compared to $254,705 as of June 30, 2017. During fiscal year 2018, the Company had positive cash flows from operating activities. The Company believes that its existing revenue stream, cash flows from consolidated operations, current capital resources, and borrowing availability under the Line of Credit provide sufficient liquidity to fund operations through at least September 30, 2019.
On March 31, 2017, the Company entered into a Line of Credit agreement (see Note 7). As of June 30, 2018 there was approximately $1,370,000 of additional borrowing capacity related to this Line of Credit. To fully execute on its business strategy of acquiring other entities, the Company will need to raise additional capital. Absent additional financing, the Company may have to curtail its current acquisition strategy.
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(1) Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2018 | |
Policy Text Block [Abstract] | |
Description of Business | Dynatronics Corporation (“the Company,” “Dynatronics”) designs, manufactures, markets, and distributes orthopedic soft goods, medical supplies, and physical therapy and rehabilitation equipment. Through our various distribution channels, we market and sell to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, and hospitals. |
Principles of Consolidation | The consolidated financial statements include the accounts and operations of Dynatronics Corporation and its wholly owned subsidiaries, Hausmann Enterprises, LLC, Bird & Cronin, LLC (see Note 2) and Dynatronics Distribution Company, LLC. The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All significant intercompany account balances and transactions have been eliminated in consolidation. |
Cash and Cash Equivalents | Cash and cash equivalents include all highly liquid investments with maturities of three months or less at the date of purchase. Also included within cash and cash equivalents are deposits in-transit from banks for payments related to third-party credit card and debit card transactions. Cash and cash equivalents totaled approximately $1,696,000 and $255,000 as of June 30, 2018 and 2017, respectively.
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Inventories | Finished goods inventories are stated at the lower of standard cost, which approximates actual cost using the first-in, first-out method, or net realizable value. Raw materials are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company periodically reviews the value of items in inventory and records write-downs or write-offs based on its assessment of slow moving or obsolete inventory. The Company maintains a reserve for obsolete inventory and generally makes inventory value adjustments against the reserve.
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Trade Accounts Receivable | Trade accounts receivable are recorded at the invoiced amount and do not bear interest, although finance charges may be applied to past due accounts. The Company maintains an allowance for doubtful accounts that is the Company’s estimate of credit risk in the Company’s existing accounts receivable. The Company determines the allowance based on a combination of statistical analysis, historical collection patterns, customers’ current credit worthiness, the age of account balances, and general economic conditions. All account balances are reviewed on an individual basis. Account balances are charged against the allowance when the potential for recovery is considered remote. Recoveries of accounts previously written off are recognized when payment is received. |
Property and Equipment | Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over estimated useful lives that range from 5 to 31.5 years. Leasehold improvements are amortized over the remaining term of the respective building lease. Machinery, office equipment, computer equipment and software and vehicles are depreciated over estimated useful lives that range from 3 to 7 years. |
Goodwill | Goodwill resulted from the Hausmann and Bird & Cronin acquisitions (see Note 2). Goodwill in a business combination represents the purchase price in excess of identifiable tangible and intangible assets. Goodwill and intangible assets that have an indefinite useful life are not amortized. Instead they are reviewed periodically for impairment.
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the year resulted in no impairment losses.
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Long-Lived Assets | Long–lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the difference between the carrying amount of the asset and the fair value of the asset. Assets to be disposed are separately presented in the balance sheet at the lower of net book value or fair value less estimated disposition costs, and are no longer depreciated.
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Intangible Assets | Costs associated with the acquisition of trademarks, certain trade names, license rights and non-compete agreements are capitalized and amortized using the straight-line method over periods ranging from 3 months to 20 years. Trade names determined to have an indefinite life are not amortized, but are required to be tested for impairment and written down, if necessary. The Company assesses indefinite lived intangible assets for impairment each fiscal year or more frequently if events and circumstances indicate impairment may have occurred.
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Revenue Recognition | The Company recognizes revenue when products are shipped FOB shipping point under an agreement with a customer, risk of loss and title have passed to the customer, and collection of any resulting receivable is reasonably assured. Amounts billed for shipping and handling of products are recorded as sales. Costs for shipping and handling of products to customers are recorded as cost of sales.
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Research and Development Costs | Research and development costs are expensed as incurred. |
Product Warranty Costs | The Company provides a warranty on all products it manufactures for time periods ranging in length from 90 days to five years from the date of sale. Costs estimated to be incurred in connection with the Company’s product warranty programs are charged to expense as products are sold based on historical warranty rates. The Company maintains a reserve for estimated product warranty costs to be incurred related to products previously sold. |
Net Income (loss) Per Common Share | Net loss per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common shares outstanding during the year. Convertible preferred stock, stock options and warrants are considered to be potential common shares. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.
Basic net loss per common share is the amount of net loss for the year available to each weighted-average share of common stock outstanding during the year. Diluted net loss per common share is the amount of net loss for the year available to each weighted-average share of common stock outstanding during the year and to each potential common share outstanding during the year, unless inclusion of potential common shares would have an anti-dilutive effect.
Outstanding options, warrants and convertible preferred stock for common shares not included in the computation of diluted net loss per common share because they were anti-dilutive, totaled 11,222,589 as of June 30, 2018 and 9,029,080 as of June 30, 2017. These potential common shares are not included in the computation because they would be anti-dilutive.
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Income Taxes | The Company recognizes an asset or liability for the deferred income tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. Accruals for uncertain tax positions are provided for in accordance with applicable accounting standards. The Company may recognize the tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in the financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact the Company’s financial position, results of operations and cash flows.
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Income Tax Reform | On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended. Among other items, the Tax Act permanently reduces the federal corporate tax rate to 21% effective January 1, 2018. As the Company’s fiscal year end falls on June 30, the statutory federal corporate tax rate for fiscal 2018 will be prorated to 27.5%, with the statutory rate for fiscal 2019 and beyond at 21%. As a result of the reduction in the corporate income tax rate from 35% to 21% under the Act, the Company revalued its net deferred tax assets at December 31, 2017 and included these estimates in our consolidated financial statements for the year ended June 30, 2018. The final transition impacts of the Tax Act may vary from the current estimate, possibly materially, due to, among other things, further clarification and changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act. In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), any necessary measurement adjustments will be recorded and disclosed within one year from the enactment date within the period the adjustments are determined. |
Stock-based Compensation | Stock-based compensation cost is measured at the grant date based on the fair value of the award determined by using the Black-Scholes option-pricing model and is recognized as expense over the applicable vesting period of the stock award (zero to five years) using the straight-line method.
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Concentration of Risk | In the normal course of business, the Company provides unsecured credit to its customers. Most of the Company’s customers are involved in the medical industry. The Company performs ongoing credit evaluations of its customers and maintains allowances for probable losses which, when realized, have been within the range of management’s expectations. The Company maintains its cash in bank deposit accounts which at times may exceed federally insured limits.
As of June 30, 2018 and 2017, the Company had approximately $1,575,000 and $242,000, respectively, in cash and cash equivalents in excess of federally insured limits. The Company has not experienced any losses in such accounts.
Certain of the Company's employees are covered by a collective bargaining agreement. As of June 30, 2018, approximately 17% of the Company's employees were covered by a collective bargaining agreement scheduled to expire in 2019. |
Operating Segments | The Company operates in one line of business: the development, manufacturing, marketing, and distribution of a broad line of medical products for the orthopedic, physical therapy and similar markets. As such, the Company has only one reportable operating segment.
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Use of Estimates | Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in accordance with U.S. GAAP. Significant items subject to such estimates and assumptions include the impairment and useful lives of long-lived assets; valuation allowances for doubtful accounts receivables, deferred income taxes, and obsolete inventories; accrued product warranty costs; and fair values of assets acquired and liabilities assumed in an acquisition. Actual results could differ from those estimates.
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Reclassification | Certain amounts in the prior year's consolidated statement of operations have been reclassified for comparative purposes to conform to the presentation in the current year's consolidated statement of operations. |
Recent Accounting Pronouncements | On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended. Among other items, the Tax Act permanently reduces the federal corporate tax rate to 21% effective January 1, 2018. The SEC issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (ASC) 740 - Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it can determine a reasonable estimate, it must record a provisional estimate in the consolidated financial statements. If a company cannot determine a provisional estimate to be included in the consolidated financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. Under the staff guidance in SAB 118, in the financial reporting period in which the Tax Act is enacted, the income tax effects of the Tax Act (i.e., only for those tax effects in which the accounting under ASC 740 is incomplete) would be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a “measurement period” until the accounting under ASC 740 is complete. The measurement period is limited to no more than one year beyond the enactment date under the staff's guidance. SAB 118 also describes supplemental disclosures that should accompany the provisional amounts, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the registrant was not able to complete the accounting required under ASC 740 in a timely manner. The impact of the Tax Act is reflected in Note 11.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this update on a prospective basis. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of July 1, 2017. This adoption did not have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842,) a new guidance on leases. This guidance replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The standard requires a modified retrospective approach, which includes several optional practical expedients. Accordingly, the standard is effective for the Company on July 1, 2019. The Company is currently evaluating the impact that this guidance will have on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customer (Topic 606). This authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company adopted this updated accounting guidance beginning July 1, 2018 using the modified retrospective method. This adoption has not had a material impact on the Company’s consolidated financial statements other than additional disclosures. |
(2) Acquisition (Tables) |
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(4) Property and Equipment (Tables) |
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(5) Intangible Assets (Tables) |
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Identifiable intangible assets and their useful lives |
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Future amortization expense for the identifiable intangible assets |
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(6) Warranty Reserve (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Product Warranty Liability |
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(8) Long-Term Debt (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long -term Debt |
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Maturities of long-term debt |
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(9) Leases (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||
Future minimum rental payments operating leases |
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Capital lease obligation |
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Future minimum rental payments capital leases |
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(10) Deferred Gain (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of Deferred Gain on Sale of Building |
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(11) Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Income Tax Expense (Benefit) |
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Schedule of Effective Income Tax Rate Reconciliation |
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Schedule of Deferred Tax Assets and Liabilities |
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(13) Common Stock and Common Stock Equivalents (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Assumptions |
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Stock Option Activity |
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(14) Convertible Preferred Stock and Common Stock Warrants (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock by Class |
|
(1) Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 11,222,589 | 9,029,080 |
Cash and cash equivalents | $ 1,696,000 | $ 255,000 |
Building | Minimum | ||
Property, Plant and Equipment, Useful Life | 5 years | |
Building | Maximum | ||
Property, Plant and Equipment, Useful Life | 31 years 6 months | |
Other Capitalized Property Plant and Equipment | Minimum | ||
Property, Plant and Equipment, Useful Life | 3 years | |
Other Capitalized Property Plant and Equipment | Maximum | ||
Property, Plant and Equipment, Useful Life | 7 years |
(2) Acquisition (Details) |
12 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Cash and cash equivalents | $ 454 |
Trade accounts receivable | 2,232,703 |
Inventories | 4,137,181 |
Prepaid expenses | 92,990 |
Property and equipment | 1,228,000 |
Intangible assets | 5,016,000 |
Goodwill | 2,814,128 |
Warranty reserve | (5,000) |
Accounts payable | (607,084) |
Accrued expenses | (247,611) |
Accrued payroll and benefits | (189,579) |
Purchase price | 14,472,182 |
Hausmann | |
Cash and cash equivalents | 600 |
Trade accounts receivable | 1,691,420 |
Inventories | 2,117,430 |
Prepaid expenses | 136,841 |
Property and equipment | 512,950 |
Intangible assets | 2,689,000 |
Goodwill | 4,302,486 |
Warranty reserve | (50,000) |
Accounts payable | (544,625) |
Accrued expenses | (33,981) |
Accrued payroll and benefits | (661,288) |
Purchase price | $ 10,160,833 |
(2) Acquisition (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Acquisition holdback | $ (1,504,512) | $ 0 |
October 2, 2018 | ||
Acquisition holdback | 162,845 | |
April 1, 2019 | ||
Acquisition holdback | 466,667 | |
August 15, 2019 | ||
Acquisition holdback | $ 875,000 |
(3) Inventories (Details) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Text Block [Abstract] | ||
Raw Materials | $ 6,216,150 | $ 3,766,940 |
Work in process | 625,830 | 470,721 |
Finished goods | 4,604,264 | 3,562,758 |
Inventory reserve | (458,389) | (402,737) |
Inventories, net | $ 10,987,855 | $ 7,397,682 |
(3) Inventories (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Cost of sales | $ 43,994,235 | $ 24,249,832 |
Inventory Valuation and Obsolescence | ||
Cost of sales | $ 692,000 | $ 435,000 |
(4) Property and Equipment (Details) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Gross Property and Equipment | $ 10,493,509 | $ 10,590,649 |
Accumulated depreciation and amortization | (4,642,610) | (5,617,172) |
Property and equipment, net | 5,850,899 | 4,973,477 |
Land {1} | ||
Gross Property and Equipment | 30,287 | 30,287 |
Building | ||
Gross Property and Equipment | 5,664,096 | 5,640,527 |
Machinery and Equipment | ||
Gross Property and Equipment | 2,229,202 | 2,246,910 |
Office Equipment | ||
Gross Property and Equipment | 318,613 | 283,805 |
Computer Equipment | ||
Gross Property and Equipment | 2,136,078 | 2,194,119 |
Vehicles | ||
Gross Property and Equipment | $ 115,233 | $ 195,001 |
(4) Property and Equipment (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Depreciation and amortization of property and equipment | $ 419,148 | $ 242,542 |
Capital Leased Assets, Gross | 3,800,000 | |
Capital Leased Assets, Net | 2,923,449 | 3,065,193 |
Amortization of building capital lease | $ 254,418 | $ 251,934 |
(5) Intangible Assets (Details 1) |
Jun. 30, 2018
USD ($)
|
---|---|
Text Block [Abstract] | |
2019 | $ 707,093 |
2020 | 707,093 |
2021 | 707,093 |
2022 | 676,893 |
2023 | 618,300 |
Thereafter | 2,631,286 |
Total | $ 6,047,758 |
(5) Intangible Assets (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Amortization of intangible assets | $ 638,360 | $ 95,005 |
(6) Warranty Reserve (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Beginning warranty reserve | $ 202,000 | $ 152,605 |
Warranty costs incurred | (122,708) | (143,444) |
Warranty expense accrued | 120,524 | 148,820 |
Warranty reserve assumed in the Acquisition | 5,000 | 50,000 |
Changes in estimated warranty costs | 1,034 | (5,981) |
Ending warranty reserve | $ 205,850 | $ 202,000 |
(8) Long-Term Debt (Details) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Long-term Debt | $ 467,351 | $ 613,614 |
Less current portion | (164,003) | (151,808) |
Long-term debt, net of current portion | 303,348 | 461,806 |
Note 1 | ||
Long-term Debt | 378,255 | 508,633 |
Note 2 | ||
Long-term Debt | 23,162 | 31,500 |
Note 3 | ||
Long-term Debt | 43,099 | 43,989 |
Note 4 | ||
Long-term Debt | 12,403 | 14,822 |
Note 5 | ||
Long-term Debt | 7,325 | 9,878 |
Note 6 | ||
Long-term Debt | $ 3,107 | $ 4,792 |
(8) Long-Term Debt (Details 1) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Text Block [Abstract] | ||
2019 | $ 164,003 | |
2020 | 173,921 | |
2021 | 110,617 | |
2022 | 13,448 | |
2023 | 5,362 | |
Total | $ 467,351 | $ 613,614 |
(9) Leases (Details) |
12 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Text Block [Abstract] | |
Noncancelable Operating Leases 2019 | $ 646,800 |
Noncancelable Operating Leases 2020 | 646,800 |
Noncancelable Operating Leases 2021 | 189,000 |
Operating Leases, Rent Expense, Net | $ 1,482,600 |
(9) Leases (Details 1) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Leases Details 1Abstract | ||
Balance of capital lease obligation | $ 3,199,267 | $ 3,281,547 |
Less current portion | (226,727) | (193,818) |
Balance of capital lease obligation, less current portion | $ 2,972,540 | $ 3,087,729 |
(9) Leases (Details 2) |
Jun. 30, 2018
USD ($)
|
---|---|
Text Block [Abstract] | |
Future Minimum Rental Payments 2019 | $ 373,702 |
Future Minimum Rental Payments 2020 | 380,674 |
Future Minimum Rental Payments 2021 | 387,790 |
Future Minimum Rental Payments 2022 | 395,040 |
Future Minimum Rental Payments 2023 | 399,794 |
Future Minimum Rental Payments Thereafter | 2,502,438 |
Future Minimum Rental Payments Total | 4,439,438 |
Imputed Interest | 1,086,850 |
Deferred rent | $ 153,321 |
(9) Leases (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Noncancelable Operating Leases 2019 | $ 646,800 | |
Noncancelable Operating Leases 2020 | 646,800 | |
Noncancelable Operating Leases 2021 | 189,000 | |
Operating Leases, Rent Expense, Net | 1,482,600 | |
Related Party Transaction, Expenses from Transactions with Related Party | $ 887,926 | $ 160,800 |
(10) Deferred Gain (Details) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Text Block [Abstract] | ||
Balance of deferred gain | $ 1,680,001 | $ 1,830,449 |
Less current portion | (150,448) | (150,448) |
Deferred gain, net of current portion | $ 1,529,553 | $ 1,680,001 |
(11) Income Taxes (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Current Federal Tax Expense (Benefit) | $ 71,930 | $ 0 |
Deferred Federal Income Tax Expense (Benefit) | 0 | 0 |
Federal Income Tax Expense (Benefit), Continuing Operations | 71,930 | 0 |
Current State and Local Tax Expense (Benefit) | (1,616) | 0 |
Deferred State and Local Income Tax Expense (Benefit) | 0 | 0 |
State and Local Income Tax Expense (Benefit), Continuing Operations | (1,616) | 0 |
Current Income Tax Expense (Benefit) | 70,314 | 0 |
Deferred Income Tax Expense (Benefit) | 0 | 0 |
Income tax (provision) benefit | $ 70,314 | $ 0 |
(11) Income Taxes (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Expected tax benefit | $ 459,957 | $ 634,574 |
State taxes, net of federal tax benefit | 45,817 | 57,176 |
Business tax credits | 45,000 | 40,000 |
Effect of corporate income tax rate change | (784,860) | 0 |
Valuation allowance | 332,193 | (772,288) |
Incentive stock options | (9,977) | (11,284) |
Other, net | (17,816) | 51,822 |
Income tax (provision) benefit | $ 70,314 | $ 0 |
(11) Income Taxes (Details 2) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Text Block [Abstract] | ||
Inventory capitalization for income tax purposes | $ 60,944 | $ 92,681 |
Inventory reserve | 119,181 | 157,068 |
Accrued employee benefit reserve | 93,496 | 0 |
Warranty reserve | 53,522 | 78,780 |
Accrued product liability and other | 7,949 | 9,103 |
Allowance for doubtful accounts | 95,522 | 149,110 |
Property and equipment, principally due to differences in depreciation | (155,096) | (103,308) |
Research and development credit carryover | 588,707 | 351,903 |
Other intangibles | (98,067) | (45,256) |
Deferred gain on sale lease-back | 548,026 | 846,061 |
Operating loss carry forwards | 1,317,887 | 1,428,119 |
Valuation allowance | (2,632,071) | (2,964,261) |
Total deferred income tax assets (liabilities) | $ 0 | $ 0 |
(11) Income Taxes (Details Narrative) |
Jun. 30, 2018
USD ($)
|
---|---|
Text Block [Abstract] | |
Operating Loss Carryforwards | $ 3,577,000 |
(13) Common Stock and Common Stock Equivalents (Details) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Minimum | ||
Expected life of options | 4 years | 6 years |
Maximum | ||
Expected life of options | 5 years | 8 years |
(13) Common Stock and Common Stock Equivalents (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Text Block [Abstract] | ||
Stock-based compensation expense | $ 254,758 | $ 419,925 |
Severance Costs | 123,877 | |
Unrecognized stock-based compensation cost | $ 203,014 | |
Years over which unrecognized stock-based compensation expense is expected to be recognized | 4 years | |
Aggregate intrinsic value of options outstanding | $ 4,530 | $ 1,646 |
(14) Convertible Preferred Stock and Common Stock Warrants (Details) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
---|---|---|
Shares Outstanding | 4,899,000 | 3,559,000 |
Series A Preferred | ||
Shares Designated | 2,000,000 | |
Shares Outstanding | 2,000,000 | |
Liquidation Value/ Preference | $ 5,000,000 | |
Series B Preferred | ||
Shares Designated | 1,800,000 | |
Shares Outstanding | 1,459,000 | |
Liquidation Value/ Preference | $ 3,647,500 | |
Series C Preferred | ||
Shares Designated | 2,800,000 | |
Shares Outstanding | 1,440,000 | |
Liquidation Value/ Preference | $ 0 |
(16) Employee Benefit Plan (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Matching Contribution Percentage | 25.00% | 25.00% |
Employee Contribution upon which Match is Based | $ 2,000 | $ 2,000 |
Company Contributions | $ 11,852 | $ 45,294 |
Hausmann | ||
Matching Contribution Percentage | 3.00% | 3.00% |
Company Contributions | $ 104,347 | $ 93,000 |
Bird & Cronin | ||
Matching Contribution Percentage | 5.00% | 5.00% |
Company Contributions | $ 164,772 |
(17) Liquidity and Capital Resources (Details Narrative) - USD ($) |
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2016 |
---|---|---|---|
Text Block [Abstract] | |||
Cash and cash equivalents | $ 1,696,116 | $ 254,705 | $ 966,183 |
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