10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 0-12697

Dynatronics Corporation

(Exact name of registrant as specified in its charter)

Utah	87-0398434
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7030 Park Centre Drive, Cottonwood Heights, UT 84121

(Address of principal executive offices, Zip Code)

(801) 568-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  þ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company þ

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨ Yes  þ No

The number of shares outstanding of the registrant’s common stock, no par value, as of November 12, 2014 is 2,520,389.

DYNATRONICS CORPORATION

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited) As of September 30, 2014 and June 30, 2014	1
	Condensed Consolidated Statements of Operations (Unaudited)  hree Months Ended September 30, 2014 and 2013	2
	Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended September 30, 2014 and 2013	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II. OTHER INFORMATION
Item 5.	Other Information	13
Item 6.	Exhibits	14

DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
Assets	September 30, 2014			June 30,  2014
Current assets:
Cash and cash equivalents	$	677,829			332,800
Trade accounts receivable, less allowance for doubtful accounts of  $357,250 as of September 30, 2014 and $325,355 as of June 30, 2014		3,162,301			3,165,396
Other receivables		14,806			15,594
Inventories, net		6,021,575			6,157,848
Prepaid expenses and other		426,501			298,370
Current portion of deferred income tax assets		417,926			408,919
Total current assets		10,720,938			10,378,927
Property and equipment, net		5,426,367			2,980,677
Intangible assets, net		224,271			235,440
Other assets		716,734			396,456
Deferred income tax assets, net of current portion		1,187,244			303,644
Total assets	$	18,275,554			14,295,144
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	127,198			302,274
Current portion of capital lease		127,312			-
Current portion of deferred gain		101,484			-
Line of credit		1,172,071			3,521,209
Warranty reserve		157,753			157,753
Accounts payable		2,532,039			2,433,534
Accrued expenses		199,527			342,716
Accrued payroll and benefits expense		322,210			243,394
Income tax payable		938,022			30,452
Total current liabilities		5,677,616			7,031,332
Long-term debt, net of current portion		751,835			1,255,133
Capital lease, net of current portion		3,636,350			-
Deferred gain, net of current portion		2,142,697			-
Total liabilities		12,208,498			8,286,465
Commitments and contingencies
Stockholders' equity:
Common stock, no par value: Authorized 50,000,000 shares; 2,520,389 shares and 2,520,389 shares issued and outstanding at September 30, 2014 and June 30, 2014, respectively		7,167,266			7,149,812
Accumulated deficit		(1,100,210	)		(1,141,133	)
Total stockholders' equity		6,067,056			6,008,679
Total liabilities and stockholders' equity	$	18,275,554			14,295,144

See accompanying notes to condensed consolidated financial statements.

1

DYNATRONICS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
	Three Months Ended
	September 30
	2014			2013
Net sales	$	7,216,324			7,055,428
Cost of sales		4,648,752			4,474,359
Gross profit		2,567,572			2,581,069
Selling, general, and administrative expenses		2,251,629			2,379,369
Research and development expenses		216,827			314,823
Operating income (loss)		99,116			(113,123	)
Other income (expense):
Interest income		2,321			3
Interest expense		(48,293	)		(59,913	)
Other income, net		3,342			4,524
Net other income (expense)		(42,630	)		(55,386	)
Income (loss) before income taxes		56,486			(168,509	)
Income tax benefit (provision)		(15,563	)		60,725
Net income (loss)	$	40,923			(107,784	)
Basic and diluted net income (loss) per common share	$	0.02			(0.04	)
Weighted-average common shares outstanding:
Basic		2,520,389			2,518,904
Diluted		2,523,472			2,518,904

See accompanying notes to condensed consolidated financial statements.

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DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
	Three Months Ended
	September 30
	2014			2013
Cash flows from operating activities:
Net income (loss)	$	40,923			(107,784	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment		89,836			106,422
Amortization of intangible		66,001			35,384
Stock-based compensation expense		17,454			17,919
Change in deferred income tax assets		(892,607	)		(60,725	)
Provision for doubtful accounts receivable		24,000			24,000
Provision for inventory obsolescence		30,000			30,000
Deferred gain on UT building		(25,074	)		-
Change in operating assets and liabilities:
Receivables		(20,117	)		(29,832	)
Inventories		106,273			122,236
Prepaid expenses and other assets		(418,840	)		(83,052	)
Other assets		(333,121	)		-
Prepaid income taxes		-			20,248
Income tax payable		907,570			-
Accounts payable and accrued expenses		34,132			(171,668	)
Net cash provided by (used in)operating activities		(373,570	)		(96,852	)
Cash flows from investing activities:
Purchase of property and equipment		(17,551	)		(24,700	)
Proceeds from sale of property and equipment		3,800,000			-
Net cash provided by (used in) investing activities		3,782,449			(24,700	)
Cash flows from financing activities:
Principal payments on long-term debt		(714,712	)		(80,049	)
Net change in line of credit		(2,349,138	)		120,211
Net cash provided by (used in) financing activities		(3,063,850	)		40,162
Net change in cash and cash equivalents		345,029			(81,390	)
Cash and cash equivalents at beginning of the year		332,800			302,050
Cash and cash equivalents at end of the year	$	677,829			220,660
Supplemental disclosure of cash flow information:
Cash paid for interest	$	57,069			60,459
Supplemental disclosure of non-cash investing and financing activities:
Capital lease		3,800,000			-

See accompanying notes to condensed consolidated financial statements.

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DYNATRONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

September 30, 2014

NOTE 1.  PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2014 and June 30, 2014, and the condensed consolidated statements of operations and cash flows for the three months ended September 30, 2014 and 2013 were prepared by Dynatronics Corporation (the “Company”) without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all necessary adjustments, which consist only of normal recurring adjustments, to the financial statements have been made to present fairly the Company’s financial position, results of operations and cash flows.  The results of operations for the three months ended September 30, 2014 are not necessarily indicative of the results of operations for the fiscal year ending June 30, 2015.  The Company previously filed with the SEC an annual report on Form 10-K, as amended, which included audited financial statements for each of the two years ended June 30, 2014 and 2013.  It is suggested that the financial statements contained in this Form 10-Q be read in conjunction with the financial statements and notes thereto contained in the Company’s most recent Form 10-K.

Reverse Stock Split

On December 19, 2012, the Company completed a 1-for-5 reverse split of its common stock.  All common stock share and per share information in the accompanying condensed consolidated interim financial statements and notes thereto have been adjusted to reflect retrospective application of the reverse stock split, except for par value per share and the number of authorized shares, which were not affected by the reverse stock split.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, allowance for doubtful accounts, stock-based compensation and valuation allowance for deferred income taxes.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 2014.

NOTE 2.  NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive common stock equivalents outstanding during the period.  Stock options are considered to be common stock equivalents.  The computation of diluted net income (loss) per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic net income (loss) per common share is the amount of net income (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted net income (loss) per common share is the amount of net income (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period and to each common stock equivalent outstanding during the period, unless inclusion of common stock equivalents would have an anti-dilutive effect.

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The reconciliations between the basic and diluted weighted-average number of common shares outstanding for the three months ended September 30, 2014 and 2013 are as follows:

	Three Months Ended
	September 30
	2014		2013
Basic weighted-average number of common shares outstanding during the period		2,520,389		2,518,904
Weighted-average number of dilutive common stock options outstanding during the period		3,083		-
Diluted weighted-average number of common and common equivalent shares outstanding during the period		2,523,472		2,518,904

Outstanding options for common shares not included in the computation of diluted net income (loss) per common share, because they were anti-dilutive, for the three months ended September 30, 2014 and 2013 totaled 141,356 and 155,726, respectively.

NOTE 3. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the employee’s requisite service period. The Company recognized $17,454 and $17,919 in stock-based compensation expense during the three months ended September 30, 2014 and 2013, respectively.  These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options.  The Company maintains a 2005 equity incentive plan for the benefit of employees.  Incentive and nonqualified stock options, restricted common stock, stock appreciation rights, and other stock-based awards may be granted under the plan.  Awards granted under the plan may be performance-based.  As of September 30, 2014, there were 117,888 shares of common stock authorized and reserved for issuance, but not granted under the terms of the 2005 equity incentive plan, as amended.

The following table summarizes the Company’s stock option activity during the three-month period ended September 30, 2014.

	Number of Options			Weighted- Average Exercise Price
Outstanding at beginning of period		155,604		$	6.45
Granted		-			-
Exercised		-			-
Cancelled		(437	)		2.42
Outstanding at end of period		155,167			6.46
Exercisable at end of period		140,935			6.98

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company’s stock option plan. There were no options granted during the quarter ended September 30, 2014.

Expected option lives and volatilities are based on historical data of the Company. The risk-free interest rate is based on the U.S. Treasury Bills rate on the grant date for constant maturities that correspond with the option life. Historically, the Company has not declared dividends and there are no future plans to do so.

As of September 30, 2014, there was $371,901 of unrecognized stock-based compensation cost related to grants under the stock option plan that is expected to be expensed over a weighted-average period of four to ten years. There was $10,649 of intrinsic value for options outstanding as of September 30, 2014.

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NOTE 4.  COMPREHENSIVE INCOME (LOSS)

For the three months ended September 30, 2014 and 2013, comprehensive income (loss) was equal to the net income (loss) as presented in the accompanying condensed consolidated statements of operations.

NOTE 5.  INVENTORIES

Inventories consisted of the following:

	September 30, 2014			June 30, 2014
Raw materials	$	2,768,608			2,783,306
Finished goods		3,559,381			3,709,897
Inventory obsolescence reserve		(306,414	)		(335,355	)
	$	6,021,575			6,157,848

NOTE 6.  RELATED-PARTY TRANSACTIONS

The Company currently leases office and warehouse space in Detroit, Michigan and Hopkins, Minnesota from two shareholders and former independent distributors on an annual basis under operating lease arrangements. Management believes the lease agreements are on an arms-length basis and the terms are equal to or more favorable than would be available to third parties. The expense associated with these related-party transactions totaled $17,700 and $17,250 for the three months ended September 30, 2014 and 2013, respectively.

NOTE 7.  LINE OF CREDIT

Interest on the line of credit is based on the 90-day LIBOR rate (.24% as of September 30, 2014) plus 3.5%.  The line of credit is collateralized by accounts receivable and inventories.  Borrowing limitations are based on approximately 45% of eligible inventory and up to 80% of eligible accounts receivable, up to a maximum credit facility of $2,435,880.  Interest payments on the line are due monthly.  As of September 30, 2014, the borrowing base was $2,435,880 resulting in $1,263,809 of available credit on the line.

The line of credit agreement includes covenants requiring us to maintain certain financial ratios.  As of September 30, 2014, we were in compliance with all loan covenants.  The line of credit matures on January 31, 2015.  We believe that amounts available under the line of credit as well as cash generated from operating activities will continue to be sufficient to meet our short-term operating requirements. However, we and our bank have agreed to not extend the line of credit beyond the current maturity date.  Therefore, we are seeking replacement financing for the line of credit.  Failure to obtain replacement financing would have a material adverse effect on our business operations. All borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet.

NOTE 8.  SALE OF UTAH FACILITY AND LEASE COMMITMENTS

The Company entered into a lease agreement on August 8, 2014 for the sale-leaseback of its Utah facility which houses its executive offices and manufacturing facility. The agreement provided for the sale of the Utah facility for a purchase price of $3,800,000 and the subsequent leaseback for 180 monthly payments starting at $26,917 with an annual increase of two percent. The Company recorded a deferred gain of approximately $2,250,000 that will be amortized into income over the term of the lease. The cash proceeds from the sale were used primarily to pay down the Company’s line of credit.

The lease will be accounted for under the capital lease method of accounting and will be amortized over the 15-year term of the lease. The capital lease required a 5-year security deposit of $323,000 which is classified as an “other asset.” The deferred gain also triggered an increase in the deferred income tax. The actual lease payments will be split between interest expense and the capital lease payable. Annual future maturities of the capital lease are as follows: 2016, $328,384; 2017, $334,950; 2018, $341,648; 2019, $348,478; 2020, $355,450 and thereafter $3,607,692.

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NOTE 9.  RECENT ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Stand Update (ASU) 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. This ASU requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards, but not currently in GAAP. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact that this ASU will have on its financial statements and believes no additional footnote disclosure will be required when adopted.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09 – Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted and companies can transition to the new standard under the full retrospective method or the modified retrospective method. The Company does not believe adoption of this ASU will have a material impact on its financial statements.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Dynatronics Corporation (“Company,” “Dynatronics,” “we”) design, manufacture, distribute, market and sell physical medicine and aesthetic products.  We offer a broad line of medical equipment including therapy devices, medical supplies and soft goods, treatment tables and rehabilitation equipment.  Our line of aesthetic products includes aesthetic massage and microdermabrasion devices, as well as skin care products.  We market and sell our products primarily to physical therapists, chiropractors, sports medicine practitioners, podiatrists, plastic surgeons, dermatologists and aestheticians.  We operate on a fiscal year ending June 30.  For example, reference to fiscal year 2015 refers to the year ending June 30, 2015.

Recent Developments

In June 2014, we signed an exclusive, sole-source agreement with Amerinet, one of the five largest group purchasing organizations, or GPO’s in the United States, to supply medical products to their acute care and alternate care members.  Amerinet is one of the nation’s leading healthcare GPOs, helping its members to reduce healthcare costs and improve healthcare quality.  The three-year agreement with Amerinet became effective July 1, 2014.

In August 2014, we sold our Cottonwood Heights facility housing our principal executive offices and manufacturing facilities to an investment group for $3,800,000 and leased the facility back for a 15-year term.  Profit from the sale was approximately $2,250,000.  We have capitalized the lease and are recognizing the gain ratably over the 15-year life of the lease as required by GAAP.  We used the proceeds from the sale to satisfy all mortgage obligations on the building, and to pay applicable taxes and closing and other transaction costs. We also used $2,100,000 of the proceeds to pay down our line of credit.  In the aggregate, we applied the proceeds from the sale of this building to pay down debt by approximately $2,750,000.  Due to the lease being capitalized, we are required to recognize approximately $11,000 in additional monthly expenses associated with the lease than we were recognizing prior to the lease becoming effective.  However, the impact on cash flow is negligible since our actual monthly rental payments of $27,000 will be offset by reductions in principal and interest payments previously required under the former mortgage and our line of credit.

In September 2014, we filed an S-3 Registration Statement with the Securities and Exchange Commission.  This document was filed to facilitate the possible need to raise additional capital to achieve our operational objectives and to possibly support other types of merger and acquisition activity we may pursue.  Before any stock may be sold pursuant to the S-3 Registration Statement, we are required to make additional filings and disclosures explaining our intent relative to any additional capital raise.

Business Outlook

In the last three years we have released more new and innovative products than during any other similar period in our history.  The introduction of the Solaris Plus family of combination electrotherapy/ultrasound/phototherapy units, the 25 Series combination electrotherapy/ultrasound units, the line of Ultra treatment tables, and the ThermoStim probe make up most of these innovative new products.

The introduction of these products has been a major strategic component of attracting new sales representatives and dealers in order to expand our distribution across North America and into international territories.  Adding these new sales reps and dealers along with removing some limitations on who can sell our proprietary products is part of our strategic plan for expanding our distribution reach and strengthening sales.

Our efforts to prudently reduce costs in the face of some economic uncertainty have made us a leaner operation.  Over the past two fiscal years, we implemented approximately $1,600,000 in annualized expense reductions.  We will continue to be vigilant in maintaining appropriate overhead costs and operating costs while still providing support for sales from our new products.

Based on our defined strategic initiatives, we are focusing our resources in the following areas:

· Increasing market share of manufactured capital products by promoting sales of our state-of-the-art Dynatron ThermoStim probe, SolarisPlus and 25 Series products.

· Seeking to improve distribution of our products through recruitment of additional qualified sales representatives and dealers attracted by the many new products being offered and expanding the availability of proprietary combination therapy devices.

· Developing sales through the recently acquired Amerinet contract.

· Continuing to seek ways of increasing business with regional and national accounts including other group purchasing organizations and the U.S. Government.

8

· Improving operational efficiencies by scaling costs to be reflective of current levels of sales.

· Strengthening pricing management and procurement methodologies.

· Focusing international sales efforts on identifying key distributors and strategic partners who could represent our product line, particularly in China, Japan, Southeast Asia, Central and South America as well as portions of Europe.

· Exploring strategic business alliances that will leverage and complement our competitive strengths, increase market reach and supplement capital resources.  We may also consider the acquisition of other businesses and technology.

Results of Operations

The following discussion and analysis of our financial condition and results of operations for the three months ended September 30, 2014, should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report, and our Annual Report on Form 10-K for the fiscal year ended June 30, 2014, as amended, which includes audited financial statements for the year then ended.  Results of operations for the first fiscal quarter ended September 30, 2014, are not necessarily indicative of the results that will be achieved for the full fiscal year ending June 30, 2015.

Net Sales

Net sales increased $160,896 or approximately 2.3% to $7,216,324 for the quarter ended September 30, 2014, compared to net sales of $7,055,428 for the quarter ended September 30, 2013.  Market conditions began to improve in June 2014 and the improvement continued through the quarter ended September 30, 2014.  While the gain in sales this quarter is modest, it is the first quarter since the quarter ended December 31, 2011 that we posted a quarter-over-quarter increase in sales.  Increased sales of our top-selling SolarisPlus therapy devices and ThermoStim probe led sales higher.  Partly offsetting this growth was lower sales of certain medical products and supplies, including traction units, exercise products, and nutritional supplements.  Also, uncertainty due to the Affordable Care Act continues to cast a shadow on our industry and to dampen sales demand.  However, based on the market’s performance this quarter, we believe that this uncertainty is decreasing.

Over the past two years, our management has undertaken efforts to (i) expand our distribution channels by adding several new dealers and sales representatives, and (ii) stimulate sales of the Dynatron ThermoStim probe and other new products.  The ThermoStim probe delivers thermal (hot and cold) therapy and/or electrotherapy in a targeted, attended treatment.  Because the probe is operated from the control console of the SolarisPlus units, we are seeing demand for SolarisPlus units rise commensurate with the demand for the ThermoStim probe.

Gross Profit

Gross profit decreased approximately $13,497 or about 0.5% to $2,567,572, or 35.6% of net sales, for the quarter ended September 30, 2014, compared to $2,581,069, or 36.6% of net sales, for the quarter ended September 30, 2013.  Higher sales of certain lower-margin distributed products during the quarter ended September 30, 2014, was a factor in the reduction in gross profit compared to the prior year period.  The balance was attributable to product mix favoring certain medical supply products and slightly increased cost of sales for manufactured capital products.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses decreased $127,740 to $2,251,629, or 31.2% of net sales, for the quarter ended September 30, 2014, from $2,379,369, or 33.7% of net sales, for the quarter ended September 30, 2013.  The decrease in SG&A expenses for the three-month period reflects lower selling expenses and lower labor costs.  The following factors impacted SG&A expenses for the three months ended September 30, 2014, compared to the three months ended September 30, 2013:

· $131,131 of lower labor and overhead expenses;

· $30,389 of lower selling expenses primarily associated with lower commission expense;

· $33,780 of higher general expenses primarily associated with higher legal fees.

Research and Development Expenses

Research and development (“R&D”) expenses decreased $97,996 to $216,827, or 3.0% of sales, in the quarter ended September 30, 2014, compared to $314,823, or 4.5% of sales in the quarter ended September 30, 2013.  The reduction in R&D expenses reflects the fact that in the same quarter last year we were incurring heavier R&D expenses associated with the Thermostim probe.  With its release in December 2013, and the completion of the development platforms for the Solaris Plus and 25 Series during the prior 12 months, our R&D costs have diminished while we take advantage of building on the platforms developed over the past three years.  Over the past three years, we have introduced more new products than any comparable period in our history and did incur significant R&D costs.  The new product introductions include the SolarisPlus line of electrotherapy/ultrasound/phototherapy units, the Ultra 2 and Ultra 3 motorized treatment tables, the 25 Series line of electrotherapy and ultrasound products, as well as the Dynatron ThermoStim probe.  We believe that developing new products is a key element in our strategy and critical to moving purchasing momentum in a positive direction.  Current R&D efforts are leveraging the work of the last three years to develop and introduce new products.  R&D costs are expensed as incurred and are expected to continue at current levels in the coming year as we have concluded a major R&D investment cycle incurred over the past three years.

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Income (Loss) Before Income Tax

Pre-tax profit for the quarter ended September 30, 2014, improved $224,995 to $56,486, compared to a pre-tax loss of $168,509 for the quarter ended September 30, 2013.  Given that gross profit from higher sales was approximately even with last year, the improvements in pre-tax profits for the quarter were primarily attributable to lower SG&A and R&D expenses, and a reduction in interest and other expense.  Efforts to further increase sales, while maintaining SG&A and R&D costs at current levels as a percentage of sales, should contribute to improved operating results in future periods.

Income Tax

Income tax expense was $15,563 for the quarter ended September 30, 2014, compared to income tax benefit of $60,725 for the quarter ended September 30, 2013.  The effective tax rate for the quarterended September 30, 2014 was 27.6%, compared to 36.0% for the same quarter of the prior year.  The difference in the effective tax rates for the quarter ended September 30, 2014, compared to the prior year period is attributable to reductions in R&D tax credits and other credits as well as certain permanent book to tax differences.

Net Income (Loss)

Net income was $40,923 ($.02 per share) for the quarter ended September 30, 2014, compared to a net loss of $107,784 ($.04 per share) for the quarter ended September 30, 2013.  Increased sales, together with lower SG&A and R&D expenses were the primary reasons for the improvement in net income for the quarter ended September 30, 2014.

Liquidity and Capital Resources

We have financed operations through cash from operations, available cash reserves, and borrowings under a line of credit with a bank.  Working capital increased $1,695,727 to $5,043,322 as of September 30, 2014, inclusive of the current portion of long-term obligations and credit facilities, compared to working capital of $3,347,595 as of June 30, 2014.  As of September 30, 2014, we had approximately $1,264,000 of available credit under a credit facility with a commercial bank.  The current ratio was 1.9 to 1 as of September 30, 2014 and 1.5 to 1 as of June 30, 2014.

Cash and Cash Equivalents

Our cash and cash equivalents position as of September 30, 2014, was $677,829, compared to cash and cash equivalents of $332,800 as of June 30, 2014.  Our cash position varies from quarter to quarter, but typically stays within a range of $200,000 to $400,000.  We have a line of credit with a bank that matures January 31, 2015.  In the event the line is not renewed, we will be required to replace the line with a new financing facility or source of funding.  We are actively pursuing alternative sources of financing that may be available to us in the event the line of credit is not renewed.    If we experience an adverse operating environment, or unusual capital expenditure requirements, additional financing may be required.  No assurance can be given that additional financing, if required, would be available on terms favorable to us, or at all.  Failure to obtain additional financing or a new line of credit facility could have a material, adverse impact on the Company’s financial condition.

Accounts Receivable

Trade accounts receivable, net of allowance for doubtful accounts, decreased $3,095, or 0.1%, to $3,162,301 as of September 30, 2014, compared to $3,165,396 as of June 30, 2014.  Trade accounts receivable represent amounts due from our customers including medical practitioners, clinics, hospitals, colleges and universities and sports teams as well as dealers and distributors that purchase our products for redistribution.  We believe that our estimate of the allowance for doubtful accounts is adequate based on our historical knowledge and relationship with these customers.  Accounts receivable are generally collected within 30 days of the agreed terms.

Inventories

Inventories, net of reserves, decreased $136,273, or 2.2%, to $6,021,575 as of September 30, 2014, compared to $6,157,848 as of June 30, 2014.  Inventory levels can fluctuate based on the timing of large inventory purchases from overseas suppliers.  We believe that our estimate of the allowance for inventory reserves is adequate based on our historical knowledge and product sales trends.

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Medical Device Tax

In January 2013, all medical device manufacturers, including the Company, became subject to the MDT provisions of the Affordable Care Act.  The MDT requires that medical device manufacturers and importers pay a 2.3% excise tax on sales of all qualified medical devices.  Some exemptions in the law allow us to exclude a large portion of sales from being subject to the MDT.  For instance, products that are sold internationally are not subject to the MDT. Some rehabilitation products that are generally sold at retail are not subject to the MDT.  Income from our distribution and sale of products manufactured by others is not taxable to us under the MDT (although many of the manufacturers of these products are raising prices to their customers, including the Company, to cover their cost of the MDT).  Given these exemptions, we estimate that approximately 20-30% of our total sales are subject to the MDT.  During the quarter ended September 30, 2014, we paid MDT of approximately $43,165 (approximately 0.6% of total sales for the quarter).

Accounts Payable

Accounts payable increased $98,505, or 4.0%, to $2,532,039 as of September 30, 2014, from $2,433,534 as of June 30, 2014.  Accounts payable are generally not aged beyond the terms of our suppliers.  We take advantage of available early payment discounts when offered by our vendors.

Line of Credit

The outstanding balance on our line of credit decreased $2,349,138 to $1,172,071 as of September 30, 2014, compared to $3,521,209 as of June 30, 2014.  This reduction was made possible by the sale and leaseback of our Cottonwood Heights, Utah facilities in which we generated approximately $2,100,000 in net cash to pay down our line of credit.  Interest on the line of credit is based on the 90-day LIBOR rate (0.24% as of September 30, 2014) plus 3.5%.  The line of credit is collateralized by accounts receivable and inventories.  Borrowing limitations are based on approximately 45% of eligible inventory and up to 80% of eligible accounts receivable, up to a maximum credit facility of approximately $2,435,880.  The maximum borrowing limit on our line of credit facility was reduced during the quarter from $4,500,000 to $2,435,880 to reflect the reduction achieved through the previously reported payment of $2,100,000 on the line from the sale-leaseback of our Utah facilities.  Interest payments on the line are due monthly.

In order to assure adequate availability of operating capital under our line of credit and to more fully take advantage of accumulated deferred tax assets, on August 8, 2014, we sold our building that houses operations in Utah and leased back the premises for a term of 15 years.  The sales price was $3,800,000.  We used the proceeds from the sale to pay off the mortgage on the property, pay down amounts outstanding on our line of credit and meet other transaction related costs including payment of estimated taxes.  The profit realized from the sale will be sufficient to utilize the majority, if not all of our deferred tax assets accrued to this point in fiscal year 2015.  As noted in the paragraph above, as a result of this repayment of debt our maximum credit facility under the line of credit was changed to $2,435,880 in August 2014.  Our outstanding balance under the line as of September 30, 2014 was $1,263,809.

The line of credit agreement includes covenants requiring us to maintain certain financial ratios.  As of September 30, 2014, we were in compliance with all loan covenants.  The line of credit matures on January 31, 2015.  We believe that amounts available under the line of credit as well as cash generated from operating activities will continue to be sufficient to meet our short-term operating requirements. However, we and our bank have agreed to not extend the line of credit beyond the current maturity date.  Therefore, we are seeking replacement financing for the line of credit.  Failure to obtain replacement financing would have a material adverse effect on our business operations. All borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet.

Debt

Long-term debt, excluding current installments decreased $503,298 to $751,835 as of September 30, 2014, compared to $1,255,133 as of June 30, 2014.  This reduction was achieved through the sale of our Utah facility and the subsequent payoff of the mortgage on that building.  The remaining long-term debt is comprised primarily of the mortgage loans on our office and manufacturing facility in Tennessee.  The principal balance on the mortgage loans is approximately $826,852, of which $719,324 is classified as long-term debt, with monthly principal and interest payments of $13,278.  Our mortgage loan matures in 2021.

Inflation

Our revenues and net income have not been unusually affected by inflation or price increases for raw materials and parts from vendors.

Stock Repurchase Plans

Our Board of Directors adopted a stock repurchase plan in 2003.  Purchases of shares may be made from time-to-time, in the open market, through block trades or otherwise, and decisions to repurchase shares under this plan are based among other criteria upon market conditions, the level of our cash balances, general business opportunities, and other factors.  Our Board of Directors periodically approves the dollar amounts for share repurchases under the plan.  As of September 30, 2014, $448,450 remained available for purchases under the plan.  There is no expiration date for the plan.  No purchases were made under this plan during the three months ended September 30, 2014.

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Critical Accounting Policies

The preparation of our financial statements requires that we make estimates and judgments.  We base these on historical experience and on other assumptions that we believe to be reasonable.  Our critical accounting policies are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended June 30, 2014, as amended.  There have been no material changes to the critical accounting policies previously disclosed in that report.

Cautionary Statement Concerning Forward-Looking Statements

The statements contained in this Form 10-Q, particularly the foregoing discussion in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not purely historical, are “forward-looking statements” within the safe harbors provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”).  These statements refer to our expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future.  They may be identified by the use of words or phrases such as “believes,” “expects,” “anticipates,” “should,” “plans,” “estimates,” “intends,” and “potential,” among others.  Forward-looking statements include, but are not limited to, statements regarding product development, market acceptance, financial performance, revenue and expense levels in the future and the sufficiency of existing assets to fund future operations and capital spending needs.  Actual results could differ materially from the anticipated results or other expectations expressed in such forward-looking statements.  The forward-looking statements contained in this report are made as of the date of this report and we assume no obligation to update them or to update the reasons why actual results could differ from those projected in such forward-looking statements, except as required by law.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to information from that presented for the year ended June 30, 2014.

Item 4.    Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods that are specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.  In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a- 15(e) under the Exchange Act).  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 5.  Other Information

Modification of Compensatory Arrangements of Certain Officers.

On March 24, 2014, the Audit Committee of the Board of Directors of the Company authorized the amendment of employment agreements previously entered into between the Company and our chief executive officer and an executive vice president of the Company.  On April 17, 2014, we also amended an agreement with our chief financial officer.  These changes are outlined below.

Agreement with Chief Executive Officer

Pursuant to the Employment Agreement entered into by the Company and our chief executive officer, Kelvyn H. Cullimore, Jr. on March 1, 2012, we had granted to Mr. Cullimore a Restricted Stock Award (the “Cullimore Award”) under the Company’s 2005 Equity Incentive Award Plan (the “Plan”).  The original Cullimore Award provided for periodic vesting of the shares subject to such award.  By agreement with Mr. Cullimore, the Cullimore Award was amended and restated on effective February 28, 2014 to eliminate the periodic vesting of the unvested portion of the Cullimore Award.  As amended, the unvested portion of the Cullimore Award (approximately 72,000 shares of the Company’s Common Stock, will not vest unless and until such time as the employment of Mr. Cullimore is terminated as a result of his death or disability or upon the effective date of a Change of Control of the Company as defined in the Cullimore Award.  No other provisions of the Cullimore Award were amended or modified.  Mr. Cullimore has agreed to waive the Change of Control provision under certain circumstances.

Agreement with Executive Vice President

Effective March 24, 2014, we entered into an Amendment to the Employment Agreement of Larry K. Beardall, the executive vice president of the Company originally entered into on March 1, 2011 (the “Beardall Agreement”).  The purpose of the Amendment was to correct certain typographical errors in Section 6(b) of the Beardall Agreement and to provide for the amendment to a Restricted Stock Award granted under the Plan at the time the Beardall Agreement was originally entered into (the “Beardall Award”).  The amended Beardall Award eliminates the periodic vesting provisions of the original award and provides that the unvested portion of the shares subject to the Beardall Award, approximately 32,000 shares of the Company’s Common Stock, will not vest unless and until such time as Mr. Beardall’s employment is terminated as a result of his death or disability or upon the effective date of a Change of Control of the Company as defined in the Beardall Award.  No other provisions of the Beardall Award or of the Beardall Agreement were amended or modified.  Mr. Beardall has agreed to waive the Change of Control provision under certain circumstances

Death of Director

On November 12, 2014, we filed a Current Report on Form 8-K with the Securities and Exchange Commission to report the death of Joseph H. Barton, a member of our Board of Directors since 1996, except for a two-year period in 2002-2004.  As a result of Mr. Barton’s passing, we also informed the Nasdaq Stock Market that the Company is no longer in compliance with Marketplace Rule 5605(b) which requires that the Company have a board of directors comprised of a majority of directors who are independent under Rule 5605(a).  In addition, we are no longer in compliance with Rule 5605(c) which requires that we have an audit committee comprised of a minimum of three independent directors.  Upon Mr. Barton’s passing, our board is comprised of two independent and two non-independent directors and our audit committee is comprised of only two independent directors.  Under applicable rules, we have a period of one year, or until the next annual meeting of shareholders, whichever first occurs, to appoint a new independent director to fill the vacancy resulting from the death of Mr. Barton.

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Item 6.  Exhibits

(a)           Exhibits

3.1	Articles of Incorporation and Bylaws of Dynatronics Laser Corporation. Incorporated by reference to a Registration Statement on Form S-1 (No. 2-85045) filed with the SEC and effective November 2, 1984
3.2	Articles of Amendment dated November 21, 1988 (previously filed)
3.3	Articles of Amendment dated November 18, 1993 (previously filed)
10.1	Loan Agreement with Zions Bank (previously filed)
10.2	Amended Loan Agreement with Zions Bank (previously filed)
10.3	1992 Amended and Restated Stock Option Plan (previously filed)
10.4	Dynatronics Corporation 2005 Equity Incentive Award Plan (previously filed as Annex A to the Company’s Definitive Proxy Statement on Schedule 14A filed on October 27, 2006)
10.5	Form of Option Agreement for the 2005 Equity Incentive Plan for incentive stock options (previously filed as Exhibit 10.8 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006)
10.6	Form of Option Agreement for the 2005 Equity Incentive Plan for non-qualified options (previously filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006)
10.8	Executive Employment Agreement (Beardall) (previously filed as exhibit to Current Report on Form 8-K, filed with the Commission on March 7, 2011)
10.9	Executive Employment Agreement (Cullimore, Jr.) (previously filed as exhibit to Current Report on Form 8-K, filed with the Commission on March 28, 2013)
10.10	Amended Executive Employment Agreement (Beardall) (filed herewith)
10.11	Amended Restricted Stock Award (Beardall) (filed herewith)
10.12	Amended Restricted Stock Award (Cullimore) (filed herewith)
11	Computation of Net Income per Share (included in Notes to Consolidated Financial Statements)
31.1	Certification under Rule 13a-14(a)/15d-14(a) of principal executive officer (filed herewith)
31.2	Certification under Rule 13a-14(a)/15d-14(a) of principal financial officer (filed herewith)
32	Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith)
101 INS	XBRL Instance Document*
101 SCH	XBRL Schema Document*
101 CAL	XBRL Calculation Linkbase Document*
101 DEF	XBRL Definition Linkbase Document*
101 LAB	XBRL Labels Linkbase Document*
101 PRE	XBRL Presentation Linkbase Document*

*           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DYNATRONICS CORPORATION
	Registrant
Date        November 14, 2014	/s/ Kelvyn H. Cullimore, Jr.
	Kelvyn H. Cullimore, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date        November 14, 2014	/s/ Terry M. Atkinson, CPA
	Terry M. Atkinson, CPA
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

15

EX-10.10

Exhibit 10.10

AMENDMENT

TO

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AMENDMENT (“Amendment”) executed and effective the 24th day of March 2014, amends certain portions of the Executive Employment Agreement dated March 1, 2011 (the “Agreement”) by and between DYNATRONICS CORPORATION, a Utah corporation having its principal place of business in Salt Lake City, Utah (the "Company"), and LARRY K. BEARDALL, a resident of Utah (the “Executive” and, together with the Company, the “Parties”).

R E C I T A L S:

WHEREAS, the Parties desire to correct certain typographical errors in Section 6(b) of the original Agreement; and

WHEREAS, the Parties have agreed to modify the vesting provisions of the Restricted Stock Award granted to Executive pursuant to Section 4(j) of the Agreement; and

WHEREAS, all provisions of the Agreement not expressly amended and superseded by this Amendment are to remain in full force and effect.  Terms defined in the Agreement and used in this Amendment shall have the meaning given them in the Agreement.

NOW, THEREFORE, in consideration of the covenants contained herein, the above recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby amend the Agreement and Restricted Stock Award (Exhibit C to the Agreement) as follows:

1.           Corrections to Section 6(b).  Section 6(b) of the Agreement made references to “Section 5(h)”.  The proper reference should read “Section 5(g)”.  Section 6(b) is hereby amended and restated in its entirety as follows:

6.           Company’s Post-Termination Obligations.

(b)           Termination Under Sections 5(f) and 5(g).

(1)           If Executive’s employment terminates for any of the reasons set forth in Section 5(f) or Section 5(g) above, then the Company will pay Executive (i) all accrued but unpaid wages through the termination date, based on Executive’s then current Base Salary; (ii) a separation payment equal to twelve (12) months of Executive’s then current Base Salary; (iii) all accrued but unpaid vacation through the termination date, based on Executive’s then current Base Salary; (iv) all approved, but unreimbursed, business expenses, provided that a request for reimbursement of business expenses is submitted in accordance with the Company’s policies and submitted within five (5) business days of Executive’s termination date; and (v) all earned and accrued but unpaid Bonuses.

(2)           In addition, (i) the Company shall transfer to the Executive title, free and clear of all encumbrances, to either (a) the Company Vehicle used by the Executive at the time the Executive’s employment with the Company terminates, or (b) a vehicle of substantially similar market value as the market value of the Company Vehicle at the time Executive’s employment with the Company terminates; (ii) the Restricted Stock Award shall immediately vest to the extent any portion thereof remains unvested at such termination date, provided, however, no tax bonus as provided in 4(j) shall be paid on the accelerated vesting portion of the stock, but only on the portion that vests in the year of termination; and (iii) the Company shall make a cash payment to Executive in the amount of $400,000.

(3)           Fifty percent (50%) of the cash amounts or benefits payable under this Section 6(b) shall be paid on the first regularly scheduled payroll period occurring immediately following the expiration of the Severance Delay Period, with the balance to be paid ratably according to the scheduled payroll practices of the Company over the subsequent six (6) months; provided, however, that the amount payable under Section 6(b)(2)(iii), above, shall be payable in equal quarterly installments of $50,000 commencing at the end if the first calendar quarter from the date of termination and continuing until paid in full, and the amount payable under Section 6(b)(1)(iv) shall be paid in accordance with Company policy and practice.

(4)           Except as set forth in this Section 6(b), the Company shall have no other obligations to Executive for termination pursuant to Sections 5(f) and 5(g).

2.           Change to Vesting of Restricted Stock Award.  The vesting of the Restricted Stock Award is hereby amended as indicated in the Amended Restricted Stock Award attached to this Amendment.  As amended, the Restricted Stock Award shall vest immediately upon the death or disability of the Executive and in the event of a Change of Control as defined in Section 1 of the Agreement.

3.           No Additional Changes.  Except as expressly amended by Sections 1 and 2 above, the Agreement shall not be deemed to be modified or amended in any way.  The above amendments, together with the unchanged provisions of the Agreement constitutes the entire agreement between the Parties.  The Agreement, as amended, supersedes any prior communications, agreements or understandings, whether oral or written, between the Parties relating to the subject matter of the Agreement, including without limitation the Prior Agreements.  Other than the terms of this Agreement, no other representation, promise or agreement has been made with Executive to cause Executive to sign this Agreement.

Signatures on Following Page

IN WITNESS WHEREOF the Parties have executed this Amendment on the date first written above.

                                                                       DYNATRONICS CORPORATION,

                                                                       a Utah corporation

                                                                       By: /s / Kelvyn H. Cullimore, Jr.                                                                      

                                                                       Name:      Kelvyn H. Cullimore, Jr.                 

                                                                       Title:     President and CEO                            

                                                                       LARRY K. BEARDALL,

                                                                       an individual

                                                                       /s/ Larry K. Beardall                                                

                                                                       Larry K. Beardall

EXHIBIT C

FORM

OF

AMENDED RESTRICTED STOCK AWARD CERTIFICATE AND AGREEMENT

EX-10.11

Exhibit 10.11

AMENDED AND RESTATED RESTRICTED STOCK AWARD

DYNATRONICS CORPORATION

2005 EQUITY INCENTIVE AWARD PLAN

RESTRICTED STOCK AWARD CERTIFICATE

THIS AMENDED AND RESTATED RESTRICTED STOCK AWARD CERTIFICATE (THIS “CERTIFICATE”), is to certify that Dynatronics Corporation, a Utah corporation (the “Company”), has offered you (“Grantee”) the right to receive Common Stock (the “Stock” or “Shares”) of the Company under its 2005 Equity Incentive Award Plan (the “Plan”), and supersedes as amended, the Certificate originally dated March 1, 2011, as follows:

Name of Grantee: Larry Beardall

Number of Shares: 40,000 post-split shares

Grant Date: March 1, 2011

Vesting Commencement Date: March 1, 2012

Vesting Schedule: all shares remaining unvested as of February 28, 2014, totaling 32,000 shares of Common Stock shall vest only in the event of the death or disability of the Grantee or upon the effective date of a Change of Control, and as otherwise provided in Section 3 of the Restricted Stock Award Agreement attached hereto.

By your signature and the signature of the Company’s representative below, you and the Company agree to be bound by all of the terms and conditions of the Restricted Stock Award Agreement, which is attached hereto as Annex I, and the Plan (both incorporated herein by this reference as if set forth in full in this document). By executing this Certificate, you hereby irrevocably elect to accept the Restricted Stock Award rights granted pursuant to this Certificate and the related Restricted Stock Award Agreement and to receive the shares of Restricted Stock of Dynatronics Corporation designated above subject to the terms of the Plan, this Certificate and the Award Agreement.

GRANTEE:	DYNATRONICS CORPORATION
/s/ Larry K. Beardall	/s/ Kelvyn H. Cullimore, Jr.

ANNEX I

DYNATRONICS CORPORATION

2005 EQUITY INCENTIVE AWARD PLAN

AMENDED AND RESTATED

RESTRICTED STOCK AWARD AGREEMENT

This Amended and Restricted Stock Award Agreement (this “Agreement”), is made and entered into effective February 28, 2014 and amends the award originally granted on the Grant Date of the Restricted Stock Award Certificate to which it is attached (the “Certificate”), by and between Dynatronics Corporation, a Utah corporation (the “Company”), and the employee (“Grantee”) named in the Certificate.

Pursuant to the Dynatronics Corporation 2005 Equity Incentive Award Plan (the “Plan”), the Committee (as that term is defined in the Plan) has authorized the grant to Grantee of the right to receive shares of the Company’s Common Stock (the “Award”), upon the terms and subject to the conditions set forth in this Agreement and in the Plan. Except as otherwise provided herein, or unless the context clearly indicates otherwise, capitalized terms not otherwise defined herein shall have the same definitions as provided in the Plan.

NOW, THEREFORE, in consideration of the premises and the benefits to be derived from the mutual observance of the covenants and promises contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.           Basis for Award. This Award is made pursuant to the Plan for valid consideration provided to the Company by Grantee. By your execution of the Certificate, you agree to accept the Restricted Stock Award rights granted pursuant to the Certificate and this Agreement and to receive the shares of Restricted Stock of Dynatronics Corporation designated in the Certificate subject to the terms of the Plan, the Certificate and this Agreement.

2.           Restricted Stock Award. The Company hereby awards and grants to Grantee, for valid consideration with a value in excess of the aggregate par value of the Common Stock awarded to Grantee, the number of shares of Common Stock of the Company set forth in the Certificate, which shall be subject to the restrictions and conditions set forth in the Plan, the Certificate and in this Agreement (the “Restricted Stock”). One or more stock certificates representing the number of Shares specified in the Certificate shall hereby be registered in Grantee’s name (the “Stock Certificate”), but shall be deposited and held in the custody of the Company for Grantee’s account as provided in Section 8 hereof until such Restricted Stock becomes vested.

3.           Vesting and Termination. The Restricted Stock shall vest and restrictions on transfer shall lapse subject to the Vesting Schedule set forth in the Certificate. Upon the death or disability of Grantee or upon the occurrence of a Change in Control as defined in Grantee’s employment agreement with the Company dated March 1, 2011, as amended (“Executive Employment Agreement”), and as provided in Section 6(b) of the Executive Employment Agreement, the shares of Restricted Stock which have not vested in accordance with the Certificate (the “Unvested Shares”) shall become vested. Prior to vesting, all Unvested Shares shall be subject to the restrictions set forth in this Agreement.

4.           Compliance with Laws and Regulations. The issuance, transfer, vesting, and ownership of Common Stock shall be subject to compliance by the Company and Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance or transfer. Grantee agrees to cooperate with the Company to ensure compliance with such laws and requirements. Prior to issuance or transfer of Common Stock, the Company may require Grantee to execute and deliver a letter of investment intent in such form and containing such provisions as requested by the Committee.

5.           Tax Withholding.

(a)           Grantee agrees that, no later than the first to occur of (i) the date as of which the restrictions on the Restricted Stock shall lapse with respect to all or any of the Restricted Stock covered by this Agreement or (ii) the date required by Section 5(b) below, Grantee shall pay to the Company (in cash or by bank check) any federal, state, or local taxes of any kind required by law to be withheld, if any, with respect to the Restricted Stock for which restrictions shall lapse. The Company shall, to the extent permitted by law, also have the right to deduct from any payment of any kind otherwise due to Grantee any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock. Any gross-up payment made by the Company under Section 4(j) of the Executive Employment Agreement shall be, at the sole discretion of the Company, applied by the Company against any withholding obligation of the Company in connection with the Restricted Stock or payments made in relation to the Restricted Stock.

(b)           Grantee may elect, within thirty (30) days of the Grant Date, to include in gross income for federal income tax purposes an amount equal to the Fair Market Value of the Restricted Stock less the amount, if any, paid by Grantee (other than by prior services) for the Restricted Stock granted hereunder pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended. In connection with any such Section 83(b) election, Grantee shall pay to the Company, or make such other arrangements satisfactory to the Committee to pay to the Company based on the Fair Market Value of the Restricted Stock on the Grant Date, any federal, state or local taxes required by law to be withheld with respect to such Shares at the time of such election. If Grantee fails to make such payments, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to Grantee any federal, state or local taxes required by law to be withheld with respect to such Shares.

6.           No Right to Continued Service. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any right of the Company to terminate Grantee’s service at any time and for any reason.

7.           Representations and Warranties of Grantee. Grantee represents and warrants to the Company that:

(a)           Agrees to Terms of the Plan and the Agreement. Grantee has received a copy of the Plan, the Certificate, and the Agreement and has read and understands the terms thereof. Grantee acknowledges that there may be adverse tax consequences upon the vesting of Restricted Stock or disposition of the shares of Common Stock once vested, and that Grantee should consult a tax advisor prior to such time.

(b)           Stock Ownership. Grantee is the record and beneficial owner of the shares of Restricted Stock with full right and power to vote and receive dividends on such shares; provided, that, Grantee understands that the stock certificates evidencing the Restricted Stock will bear a legend referencing this Agreement. Any dividends which are paid in cash shall be distributed to Grantee as soon as practicable. If any dividends are paid in Common Stock during an applicable period of restriction, Grantee shall receive such shares subject to the same restrictions as the Restricted Stock with respect to which they were issued.

8.           Restrictions on Unvested Shares.

(a)           Deposit of the Unvested Shares. Grantee shall deposit all of the Unvested Shares with the Company to hold until the Unvested Shares become vested, at which time such vested shares shall no longer constitute Unvested Shares. Grantee shall execute and deliver to the Company, concurrently with the execution of this Agreement, blank stock powers for use in connection with the transfer to the Company or its designee of Unvested Shares. The Company will deliver to Grantee the Stock certificate for the shares of Common Stock that become vested upon vesting of such shares.

(b)           Restriction on Transfer of Unvested Shares. Grantee shall not sell, transfer, assign, grant a lien or security interest in, pledge, hypothecate as collateral for a loan or as security for the performance of any obligation or for any other purpose, encumber or otherwise dispose of any of the Unvested Shares, except as permitted by this Agreement.

9.           Adjustments. This Award is subject to the adjustment provisions set forth in the Plan.

10.           Restrictive Legends and Stop-Transfer Orders.

(a)           Legends. Grantee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Common Stock, together with any other legends that may be required by state or U.S. Federal securities laws, the Company’s Certificate of Incorporation or Bylaws, any other agreement between Grantee and the Company or any agreement between Grantee and any third party:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, AS SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

(b)           Stop-Transfer Instructions. Grantee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c)           Refusal to Transfer. The Company will not be required (i) to transfer on its books any shares of Common Stock that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares have been so transferred.

11.           Modification. Except as specifically provided in the Plan, the Agreement may not be modified except in writing signed by both parties.

12.           Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Grantee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Grantee.

13.           Entire Agreement. The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan, the Certificate, and this Agreement, the Plan shall govern and control. This Agreement, the Certificate and the Plan constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof.

14.           Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Grantee shall be in writing and addressed to Grantee at the address indicated on the signature page hereof or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: (a) personal delivery; (b) five (5) days after deposit in the United States mail by certified or registered mail (return receipt requested); (c) two (2) business days after deposit with any return receipt express courier (prepaid); or (d) one (1) business day after transmission by facsimile.

15.           Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Grantee and Grantee’s heirs, executors, administrators, legal representatives, successors and assigns.

16.           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without giving effect to its conflict of law principles. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.

EXHIBIT A

DYNATRONICS CORPORATION 2005 EQUITY INCENTIVE AWARD PLAN

EXHIBIT B

STOCK POWER

(To be left blank except for signature)

For value received, the undersigned does hereby sell, assign and transfer unto Dynatronics Corporation shares of Common Stock of Dynatronics Corporation represented by certificate number standing in the name of the undersigned.

The undersigned does hereby irrevocably constitute and appoint attorney to transfer the foregoing on the books of the within named company, with full power of substitution in the premises.

This stock power may only be used in accordance with the Restricted Stock Award Agreement by and between Dynatronics Corporation and the undersigned dated as of [], and any amendments thereto.

Dated:                                                                           

Signature:                                                                

Signature must correspond EXACTLY to the name shown in the certificate.

EX-10.12

Exhibit 10.12

AMENDED AND RESTATED RESTRICTED STOCK AWARD

DYNATRONICS CORPORATION

2005 EQUITY INCENTIVE AWARD PLAN

RESTRICTED STOCK AWARD CERTIFICATE

THIS AMENDED AND RESTATED RESTRICTED STOCK AWARD CERTIFICATE (THIS “CERTIFICATE”), is to certify that Dynatronics Corporation, a Utah corporation (the “Company”), has offered you (“Grantee”) the right to receive Common Stock (the “Stock” or “Shares”) of the Company under its 2005 Equity Incentive Award Plan (the “Plan”), and supersedes as amended, the Certificate originally dated March 1, 2012, as follows:

Name of Grantee: Kelvyn H. Cullimore, Jr.

Number of Shares: 80,000 post-split shares

Grant Date: March 26, 2012

Vesting Commencement Date: March 26, 2012

Vesting Schedule: all shares remaining unvested as of February 28, 2014, totaling 72,000 shares of Common Stock shall vest only in the event of the death or disability of the Grantee or upon the effective date of a Change of Control, and as otherwise provided in Section 3 of the Restricted Stock Award Agreement attached hereto.

By your signature and the signature of the Company’s representative below, you and the Company agree to be bound by all of the terms and conditions of the Restricted Stock Award Agreement, which is attached hereto as Annex I, and the Plan (both incorporated herein by this reference as if set forth in full in this document). By executing this Certificate, you hereby irrevocably elect to accept the Restricted Stock Award rights granted pursuant to this Certificate and the related Restricted Stock Award Agreement and to receive the shares of Restricted Stock of Dynatronics Corporation designated above subject to the terms of the Plan, this Certificate and the Award Agreement.

GRANTEE:	DYNATRONICS CORPORATION
/s/ Kelvyn, H. Cullimore, Jr. Kelvyn H. Cullimore, Jr.	/s/ Bob Cardon                                                      Authorized Officer Signature

ANNEX I

DYNATRONICS CORPORATION

2005 EQUITY INCENTIVE AWARD PLAN

AMENDED AND RESTATED RESTRICTED STOCK AWARD AGREEMENT

This Restricted Stock Award Agreement (this “Agreement”), is made and entered into on the Grant Date of the Restricted Stock Award Certificate to which it is attached (the “Certificate”), by and between Dynatronics Corporation, a Utah corporation (the “Company”), and the employee (“Grantee”) named in the Certificate.

Pursuant to the Dynatronics Corporation 2005 Equity Incentive Award Plan (the “Plan”), the Committee (as that term is defined in the Plan) has authorized the grant to Grantee of the right to receive shares of the Company’s Common Stock (the “Award”), upon the terms and subject to the conditions set forth in this Agreement and in the Plan. Except as otherwise provided herein, or unless the context clearly indicates otherwise, capitalized terms not otherwise defined herein shall have the same definitions as provided in the Plan.

NOW, THEREFORE, in consideration of the premises and the benefits to be derived from the mutual observance of the covenants and promises contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.           Basis for Award. This Award is made pursuant to the Plan for valid consideration provided to the Company by Grantee. By your execution of the Certificate, you agree to accept the Restricted Stock Award rights granted pursuant to the Certificate and this Agreement and to receive the shares of Restricted Stock of Dynatronics Corporation designated in the Certificate subject to the terms of the Plan, the Certificate and this Agreement.

2.           Restricted Stock Award. The Company hereby awards and grants to Grantee, for valid consideration with a value in excess of the aggregate par value of the Common Stock awarded to Grantee, the number of shares of Common Stock of the Company set forth in the Certificate, which shall be subject to the restrictions and conditions set forth in the Plan, the Certificate and in this Agreement (the “Restricted Stock”). One or more stock certificates representing the number of Shares specified in the Certificate shall hereby be registered in Grantee’s name (the “Stock Certificate”), but shall be deposited and held in the custody of the Company for Grantee’s account as provided in Section 8 hereof until such Restricted Stock becomes vested.

3.           Vesting and Termination. The Restricted Stock shall vest and restrictions on transfer shall lapse subject to the Vesting Schedule set forth in the Certificate. Upon the death or disability of Grantee or upon the occurrence of a Change in Control as defined in Grantee’s employment agreement with the Company dated March 1, 2012 (“Executive Employment Agreement”), and as provided in Section 6(b) of the Executive Employment Agreement, the shares of Restricted Stock which have not vested in accordance with the Certificate (the “Unvested Shares”) shall become vested. Prior to vesting, all Unvested Shares shall be subject to the restrictions set forth in this Agreement.

4.           Compliance with Laws and Regulations. The issuance, transfer, vesting, and ownership of Common Stock shall be subject to compliance by the Company and Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance or transfer. Grantee agrees to cooperate with the Company to ensure compliance with such laws and requirements. Prior to issuance or transfer of Common Stock, the Company may require Grantee to execute and deliver a letter of investment intent in such form and containing such provisions as requested by the Committee.

5.           Tax Withholding.

(a)           Grantee agrees that, no later than the first to occur of (i) the date as of which the restrictions on the Restricted Stock shall lapse with respect to all or any of the Restricted Stock covered by this Agreement or (ii) the date required by Section 5(b) below, Grantee shall pay to the Company (in cash or by bank check) any federal, state, or local taxes of any kind required by law to be withheld, if any, with respect to the Restricted Stock for which restrictions shall lapse. The Company shall, to the extent permitted by law, also have the right to deduct from any payment of any kind otherwise due to Grantee any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock. Any gross-up payment made by the Company under Section 4(j) of the Executive Employment Agreement shall be, at the sole discretion of the Company, applied by the Company against any withholding obligation of the Company in connection with the Restricted Stock or payments made in relation to the Restricted Stock.

(b)           Grantee may elect, within thirty (30) days of the Grant Date, to include in gross income for federal income tax purposes an amount equal to the Fair Market Value of the Restricted Stock less the amount, if any, paid by Grantee (other than by prior services) for the Restricted Stock granted hereunder pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended. In connection with any such Section 83(b) election, Grantee shall pay to the Company, or make such other arrangements satisfactory to the Committee to pay to the Company based on the Fair Market Value of the Restricted Stock on the Grant Date, any federal, state or local taxes required by law to be withheld with respect to such Shares at the time of such election. If Grantee fails to make such payments, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to Grantee any federal, state or local taxes required by law to be withheld with respect to such Shares.

6.           No Right to Continued Service. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any right of the Company to terminate Grantee’s service at any time and for any reason.

7.           Representations and Warranties of Grantee. Grantee represents and warrants to the Company that:

(a)           Agrees to Terms of the Plan and the Agreement. Grantee has received a copy of the Plan, the Certificate, and the Agreement and has read and understands the terms thereof. Grantee acknowledges that there may be adverse tax consequences upon the vesting of Restricted Stock or disposition of the shares of Common Stock once vested, and that Grantee should consult a tax advisor prior to such time.

(b)           Stock Ownership. Grantee is the record and beneficial owner of the shares of Restricted Stock with full right and power to vote and receive dividends on such shares; provided, that, Grantee understands that the stock certificates evidencing the Restricted Stock will bear a legend referencing this Agreement. Any dividends which are paid in cash shall be distributed to Grantee as soon as practicable. If any dividends are paid in Common Stock during an applicable period of restriction, Grantee shall receive such shares subject to the same restrictions as the Restricted Stock with respect to which they were issued.

8.           Restrictions on Unvested Shares.

(a)           Deposit of the Unvested Shares. Grantee shall deposit all of the Unvested Shares with the Company to hold until the Unvested Shares become vested, at which time such vested shares shall no longer constitute Unvested Shares. Grantee shall execute and deliver to the Company, concurrently with the execution of this Agreement, blank stock powers for use in connection with the transfer to the Company or its designee of Unvested Shares. The Company will deliver to Grantee the Stock certificate for the shares of Common Stock that become vested upon vesting of such shares.

(b)           Restriction on Transfer of Unvested Shares. Grantee shall not sell, transfer, assign, grant a lien or security interest in, pledge, hypothecate as collateral for a loan or as security for the performance of any obligation or for any other purpose, encumber or otherwise dispose of any of the Unvested Shares, except as permitted by this Agreement.

9.           Adjustments. This Award is subject to the adjustment provisions set forth in the Plan.

10.           Restrictive Legends and Stop-Transfer Orders.

(a)           Legends. Grantee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Common Stock, together with any other legends that may be required by state or U.S. Federal securities laws, the Company’s Certificate of Incorporation or Bylaws, any other agreement between Grantee and the Company or any agreement between Grantee and any third party:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, AS SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

(b)           Stop-Transfer Instructions. Grantee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c)           Refusal to Transfer. The Company will not be required (i) to transfer on its books any shares of Common Stock that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares have been so transferred.

11.           Modification. Except as specifically provided in the Plan, the Agreement may not be modified except in writing signed by both parties.

12.           Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Grantee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Grantee.

13.           Entire Agreement. The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan, the Certificate, and this Agreement, the Plan shall govern and control. This Agreement, the Certificate and the Plan constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof.

14.           Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Grantee shall be in writing and addressed to Grantee at the address indicated on the signature page hereof or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: (a) personal delivery; (b) five (5) days after deposit in the United States mail by certified or registered mail (return receipt requested); (c) two (2) business days after deposit with any return receipt express courier (prepaid); or (d) one (1) business day after transmission by facsimile.

15.           Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Grantee and Grantee’s heirs, executors, administrators, legal representatives, successors and assigns.

16.           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without giving effect to its conflict of law principles. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.

EXHIBIT A

DYNATRONICS CORPORATION 2005 EQUITY INCENTIVE AWARD PLAN

[Copy of Plan Attached]

EXHIBIT B

STOCK POWER

(To be left blank except for signature)

For value received, the undersigned does hereby sell, assign and transfer unto Dynatronics Corporation shares of Common Stock of Dynatronics Corporation represented by certificate number standing in the name of the undersigned.

The undersigned does hereby irrevocably constitute and appoint attorney to transfer the foregoing on the books of the within named company, with full power of substitution in the premises.

This stock power may only be used in accordance with the Restricted Stock Award Agreement by and between Dynatronics Corporation and the undersigned dated as of [], and any amendments thereto.

Dated:                                                                           

Signature:                                                                

Signature must correspond EXACTLY to the name shown in the certificate.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kelvyn H. Cullimore, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: November 14, 2014

/s/ Kelvyn H. Cullimore, Jr.

Kelvyn H. Cullimore, Jr.

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Terry M. Atkinson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: November 14, 2014

/s/ Terry M. Atkinson, CPA

Terry M. Atkinson, CPA

Chief Financial Officer

EX-32.1

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Dynatronics Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kelvyn H. Cullimore, Jr., Chief Executive Officer, and Terry M. Atkinson, CPA, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2014

/s/ Kelvyn H. Cullimore, Jr.

Kelvyn H. Cullimore, Jr.

President, Chief Executive Officer

(Principal Executive Officer)

Dynatronics Corporation

Date: November 14, 2014

/s/ Terry M. Atkinson, CPA

Terry M. Atkinson, CPA

Chief Financial Officer

(Principal Accounting and Financial Officer)

Dynatronics Corporation

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Note 3. Stock-based Compensation: Summary of Stock Option Activity (Details) (USD $)	3 Months Ended
	Sep. 30, 2014
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	155,604
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 6.45
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period	(437)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price	$ 2.42
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	155,167
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 6.46
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options	140,935
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 6.98

XML

Note 4. Comprehensive Income (loss)

3 Months Ended

Sep. 30, 2014

Notes

Note 4. Comprehensive Income (loss)

NOTE 4.  COMPREHENSIVE INCOME (LOSS)

For the three months ended September 30, 2014 and 2013, comprehensive income (loss) was equal to the net income (loss) as presented in the accompanying condensed consolidated statements of operations.

XML

Note 8. Sale Leaseback Transaction Disclosure: Leaseback transaction (Details) (USD $)	3 Months Ended
	Sep. 30, 2014
Details
Sale Leaseback Transaction, Date	August 8, 2014
Proceeds from sale of property and equipment	$ 3,800,000
Sale Leaseback Transaction, Monthly Rental Payments	$ 26,917

XML

Note 7. Line of Credit (Details) (USD $)	3 Months Ended
	Sep. 30, 2014
Details
Line of Credit Facility, Interest Rate Description	Interest on the line of credit is based on the 90-day LIBOR rate (.24% as of September 30, 2014) plus 3.5%.
Line of Credit Facility, Collateral	Borrowing limitations are based on approximately 45% of eligible inventory and up to 80% of eligible accounts receivable,
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,435,880
Line of Credit Facility, Current Borrowing Capacity	2,435,880
Line of Credit Facility, Remaining Borrowing Capacity	$ 1,263,809

XML

Note 8. Sale Leaseback Transaction Disclosure: Leaseback accounting description (Details) (USD $)	Sep. 30, 2014
Details
Sale Leaseback Transaction, Deferred Gain, Gross	$ 2,250,000
Security Deposit	323,000
Capital Leases, Future Minimum Payments Due, Next Twelve Months	328,384
Capital Leases, Future Minimum Payments Due in Two Years	334,950
Capital Leases, Future Minimum Payments Due in Three Years	341,648
Capital Leases, Future Minimum Payments Due in Four Years	348,478
Capital Leases, Future Minimum Payments Due in Five Years	355,450
Capital Leases, Future Minimum Payments Due Thereafter	$ 3,607,692

XML

Note 3. Stock-based Compensation

3 Months Ended

Sep. 30, 2014

Notes

Note 3. Stock-based Compensation

NOTE 3. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the employee’s requisite service period. The Company recognized $17,454 and $17,919 in stock-based compensation expense during the three months ended September 30, 2014 and 2013, respectively.  These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options.  The Company maintains a 2005 equity incentive plan for the benefit of employees.  Incentive and nonqualified stock options, restricted common stock, stock appreciation rights, and other stock-based awards may be granted under the plan.  Awards granted under the plan may be performance-based.  As of September 30, 2014, there were 117,888 shares of common stock authorized and reserved for issuance, but not granted under the terms of the 2005 equity incentive plan, as amended.

The following table summarizes the Company’s stock option activity during the three-month period ended September 30, 2014.

	Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	155,604	$	6.45
Granted	-		-
Exercised	-		-
Cancelled	(437)		2.42
Outstanding at end of period	155,167		6.46
Exercisable at end of period	140,935		6.98

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company’s stock option plan. There were no options granted during the quarter ended September 30, 2014.

Expected option lives and volatilities are based on historical data of the Company. The risk-free interest rate is based on the U.S. Treasury Bills rate on the grant date for constant maturities that correspond with the option life. Historically, the Company has not declared dividends and there are no future plans to do so.

As of September 30, 2014, there was $371,901 of unrecognized stock-based compensation cost related to grants under the stock option plan that is expected to be expensed over a weighted-average period of four to ten years. There was $10,649 of intrinsic value for options outstanding as of September 30, 2014.

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Consolidated Balance Sheets (USD $)	Sep. 30, 2014	Jun. 30, 2014
Current assets:
Cash and cash equivalents	$ 677,829	$ 332,800
Trade accounts receivable, less allowance for doubtful accounts of $357,250 as of September 30, 2014 and $325,355 as of June 30, 2014	3,162,301	3,165,396
Other receivables	14,806	15,594
Inventories, net	6,021,575	6,157,848
Prepaid expenses and other	426,501	298,370
Prepaid income taxes
Current portion of deferred income tax assets	417,926	408,919
Total current assets	10,720,938	10,378,927
Property and equipment, net	5,426,367	2,980,677
Intangible assets, net	224,271	235,440
Other assets	716,734	396,456
Deferred income tax assets, net of current portion	1,187,244	303,644
Total assets	18,275,554	14,295,144
Current liabilities:
Current portion of long-term debt	127,198	302,274
Current portion of capital lease	127,312
Current portion of deferred gain	101,484
Line of credit	1,172,071	3,521,209
Warranty reserve	157,753	157,753
Accounts payable	2,532,039	2,433,534
Accrued expenses	199,527	342,716
Accrued payroll and benefits expense	322,210	243,394
Income tax payable	938,022	30,452
Total current liabilities	5,677,616	7,031,332
Long-term debt, net of current portion	751,835	1,255,133
Capital lease, net of current portion	3,636,350
Deferred gain, net of current portion	2,142,697
Total liabilities	12,208,498	8,286,465
Commitments and contingencies
Stockholders' equity:
Common stock, no par value: Authorized 50,000,000 shares; 2,520,389 shares and 2,520,389 shares issued and outstanding at September 30, 2014 and June 30, 2014, respectively	7,167,266	7,149,812
Accumulated deficit	(1,100,210)	(1,141,133)
Total stockholders' equity	6,067,056	6,008,679
Total liabilities and stockholders' equity	$ 18,275,554	$ 14,295,144

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Note 1. Presentation and Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2014

Notes

Note 1. Presentation and Summary of Significant Accounting Policies

NOTE 1.  PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2014 and June 30, 2014, and the condensed consolidated statements of operations and cash flows for the three months ended September 30, 2014 and 2013 were prepared by Dynatronics Corporation (the “Company”) without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all necessary adjustments, which consist only of normal recurring adjustments, to the financial statements have been made to present fairly the Company’s financial position, results of operations and cash flows.  The results of operations for the three months ended September 30, 2014 are not necessarily indicative of the results of operations for the fiscal year ending June 30, 2015.  The Company previously filed with the SEC an annual report on Form 10-K, as amended, which included audited financial statements for each of the two years ended June 30, 2014 and 2013.  It is suggested that the financial statements contained in this Form 10-Q be read in conjunction with the financial statements and notes thereto contained in the Company’s most recent Form 10-K.

Reverse Stock Split

On December 19, 2012, the Company completed a 1-for-5 reverse split of its common stock.  All common stock share and per share information in the accompanying condensed consolidated interim financial statements and notes thereto have been adjusted to reflect retrospective application of the reverse stock split, except for par value per share and the number of authorized shares, which were not affected by the reverse stock split.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, allowance for doubtful accounts, stock-based compensation and valuation allowance for deferred income taxes.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 2014.

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Note 2. Net Income (loss) Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Details)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Basic weighted-average number of common shares outstanding during the year	2,520,389	2,518,904
Weighted-average number of dilutive common stock options outstandings during the year	3,083
Diluted weighted-average number of common and common equivalent shares outstanding during the year	2,523,472	2,518,904

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Note 3. Stock-based Compensation (Details) (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Allocated Share-based Compensation Expense	$ 17,454	$ 17,919
Common Stock, Capital Shares Reserved for Future Issuance	117,888
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	371,901
Employee Service Share Based Compensation Unrecognized Compensation Costs On Nonvested Awards Weighted Average Period Of Recognition	four to ten years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 10,649

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Note 2. Net Income (loss) Per Common Share

3 Months Ended

Sep. 30, 2014

Notes

Note 2. Net Income (loss) Per Common Share

NOTE 2.  NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive common stock equivalents outstanding during the period.  Stock options are considered to be common stock equivalents.  The computation of diluted net income (loss) per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic net income (loss) per common share is the amount of net income (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted net income (loss) per common share is the amount of net income (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period and to each common stock equivalent outstanding during the period, unless inclusion of common stock equivalents would have an anti-dilutive effect.

The reconciliations between the basic and diluted weighted-average number of common shares outstanding for the three months ended September 30, 2014 and 2013 are as follows:

	Three Months Ended
	September 30
	2014	2013
Basic weighted-average number of common shares outstanding during the period	2,520,389	2,518,904
Weighted-average number of dilutive common stock options outstanding during the period	3,083	-
Diluted weighted-average number of common and common equivalent shares outstanding during the period	2,523,472	2,518,904

Outstanding options for common shares not included in the computation of diluted net income (loss) per common share, because they were anti-dilutive, for the three months ended September 30, 2014 and 2013 totaled 141,356 and 155,726, respectively.

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Consolidated Balance Sheets Parenthetical (USD $)	Sep. 30, 2014	Jun. 30, 2014
Consolidated Balance Sheets Parenthetical
Allowance for doubtful accounts	$ 357,250	$ 325,355
Common stock par value
Common stock shares authorized	50,000,000	50,000,000
Common stock shares issued	2,520,389	2,520,389

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Note 1. Presentation and Summary of Significant Accounting Policies: Use of Estimates (Policies)

3 Months Ended

Sep. 30, 2014

Policies

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, allowance for doubtful accounts, stock-based compensation and valuation allowance for deferred income taxes.

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Document and Entity Information	3 Months Ended
	Sep. 30, 2014	Nov. 12, 2014
Document and Entity Information
Entity Registrant Name	DYNATRONICS CORP
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Entity Central Index Key	0000720875
Current Fiscal Year End Date	--06-30
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	2015
Document Fiscal Period Focus	Q1
Entity Common Stock, Shares Outstanding		2,520,389

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Note 1. Presentation and Summary of Significant Accounting Policies: Significant Accounting Policies (Policies)

3 Months Ended

Sep. 30, 2014

Policies

Significant Accounting Policies

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 2014.

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Consolidated Statements of Income (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Consolidated Statements of Income
Net sales	$ 7,216,324	$ 7,055,428
Cost of sales	4,648,752	4,474,359
Gross profit	2,567,572	2,581,069
Selling, general, and administrative expenses	2,251,629	2,379,369
Research and development expenses	216,827	314,823
Operating income (loss)	99,116	(113,123)
Other income (expense):
Interest income	2,321	3
Interest expense	(48,293)	(59,913)
Other income, net	3,342	4,524
Net other income (expense)	(42,630)	(55,386)
Income (loss) before income taxes	56,486	(168,509)
Income tax benefit (provision)	(15,563)	60,725
Net income (loss)	$ 40,923	$ (107,784)
Basic and diluted net income (loss) per common share	$ 0.02	$ (0.04)
Weighted-average common shares outstanding:
Basic	2,520,389	2,518,904
Diluted	2,523,472	2,518,904

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Note 7. Line of Credit

3 Months Ended

Sep. 30, 2014

Notes

Note 7. Line of Credit

NOTE 7.  LINE OF CREDIT

Interest on the line of credit is based on the 90-day LIBOR rate (.24% as of September 30, 2014) plus 3.5%.  The line of credit is collateralized by accounts receivable and inventories.  Borrowing limitations are based on approximately 45% of eligible inventory and up to 80% of eligible accounts receivable, up to a maximum credit facility of $2,435,880.  Interest payments on the line are due monthly.  As of September 30, 2014, the borrowing base was $2,435,880 resulting in $1,263,809 of available credit on the line.

The line of credit agreement includes covenants requiring us to maintain certain financial ratios.  As of September 30, 2014, we were in compliance with all loan covenants.  The line of credit matures on January 31, 2015.  We believe that amounts available under the line of credit as well as cash generated from operating activities will continue to be sufficient to meet our short-term operating requirements. However, we and our bank have agreed to not extend the line of credit beyond the current maturity date.  Therefore, we are seeking replacement financing for the line of credit.  Failure to obtain replacement financing would have a material adverse effect on our business operations. All borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet.

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Note 6. Related-party Transactions

3 Months Ended

Sep. 30, 2014

Notes

Note 6. Related-party Transactions

NOTE 6.  RELATED-PARTY TRANSACTIONS

The Company currently leases office and warehouse space in Detroit, Michigan and Hopkins, Minnesota from two shareholders and former independent distributors on an annual basis under operating lease arrangements. Management believes the lease agreements are on an arms-length basis and the terms are equal to or more favorable than would be available to third parties. The expense associated with these related-party transactions totaled $17,700 and $17,250 for the three months ended September 30, 2014 and 2013, respectively.

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Note 2. Net Income (loss) Per Common Share (Details)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	141,356	155,726

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Note 2. Net Income (loss) Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Earnings Per Share, Basic and Diluted

	Three Months Ended
	September 30
	2014	2013
Basic weighted-average number of common shares outstanding during the period	2,520,389	2,518,904
Weighted-average number of dilutive common stock options outstanding during the period	3,083	-
Diluted weighted-average number of common and common equivalent shares outstanding during the period	2,523,472	2,518,904

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Note 1. Presentation and Summary of Significant Accounting Policies: Basis of Presentation (Policies)

3 Months Ended

Sep. 30, 2014

Policies

Basis of Presentation

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2014 and June 30, 2014, and the condensed consolidated statements of operations and cash flows for the three months ended September 30, 2014 and 2013 were prepared by Dynatronics Corporation (the “Company”) without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all necessary adjustments, which consist only of normal recurring adjustments, to the financial statements have been made to present fairly the Company’s financial position, results of operations and cash flows.  The results of operations for the three months ended September 30, 2014 are not necessarily indicative of the results of operations for the fiscal year ending June 30, 2015.  The Company previously filed with the SEC an annual report on Form 10-K, as amended, which included audited financial statements for each of the two years ended June 30, 2014 and 2013.  It is suggested that the financial statements contained in this Form 10-Q be read in conjunction with the financial statements and notes thereto contained in the Company’s most recent Form 10-K.

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Note 8. Sale Leaseback Transaction Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Note 8. Sale Leaseback Transaction Disclosure

NOTE 8.  SALE OF UTAH FACILITY AND LEASE COMMITMENTS

The Company entered into a lease agreement on August 8, 2014 for the sale-leaseback of its Utah facility which houses its executive offices and manufacturing facility. The agreement provided for the sale of the Utah facility for a purchase price of $3,800,000 and the subsequent leaseback for 180 monthly payments starting at $26,917 with an annual increase of two percent. The Company recorded a deferred gain of approximately $2,250,000 that will be amortized into income over the term of the lease. The cash proceeds from the sale were used primarily to pay down the Company’s line of credit.

The lease will be accounted for under the capital lease method of accounting and will be amortized over the 15-year term of the lease. The capital lease required a 5-year security deposit of $323,000 which is classified as an “other asset.” The deferred gain also triggered an increase in the deferred income tax. The actual lease payments will be split between interest expense and the capital lease payable. Annual future maturities of the capital lease are as follows: 2016, $328,384; 2017, $334,950; 2018, $341,648; 2019, $348,478; 2020, $355,450 and thereafter $3,607,692.

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Note 9. Recent Accounting Pronouncements

3 Months Ended

Sep. 30, 2014

Notes

Note 9. Recent Accounting Pronouncements

NOTE 9.  RECENT ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Stand Update (ASU) 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. This ASU requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards, but not currently in GAAP. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact that this ASU will have on its financial statements and believes no additional footnote disclosure will be required when adopted.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09 – Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted and companies can transition to the new standard under the full retrospective method or the modified retrospective method. The Company does not believe adoption of this ASU will have a material impact on its financial statements.

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Note 1. Presentation and Summary of Significant Accounting Policies: Reverse Stock Split (Policies)

3 Months Ended

Sep. 30, 2014

Policies

Reverse Stock Split

Reverse Stock Split

On December 19, 2012, the Company completed a 1-for-5 reverse split of its common stock.  All common stock share and per share information in the accompanying condensed consolidated interim financial statements and notes thereto have been adjusted to reflect retrospective application of the reverse stock split, except for par value per share and the number of authorized shares, which were not affected by the reverse stock split.

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Note 5. Inventories: Schedule of Inventory, Current (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Inventory, Current

		September 30, 2014	June 30, 2014
Raw materials	$	2,768,608	2,783,306
Finished goods		3,559,381	3,709,897
Inventory obsolescence reserve		(306,414)	(335,355)
	$	6,021,575	6,157,848

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Note 5. Inventories: Schedule of Inventory, Current (Details) (USD $)	Sep. 30, 2014	Jun. 30, 2014
Details
Inventory, Raw Materials, Gross	$ 2,768,608	$ 2,783,306
Inventory, Finished Goods, Gross	3,559,381	3,709,897
Inventory Valuation Reserves	(306,414)	(335,355)
Inventories, net	$ 6,021,575	$ 6,157,848

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Consolidated Statements of Cash Flows (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net income (loss)	$ 40,923	$ (107,784)
Depreciation and amortization of property and equipment	89,836	106,422
Amortization of intangible	66,001	35,384
Stock-based compensation expense	17,454	17,919
Change in deferred income tax assets	(892,607)	(60,725)
Provision for doubtful accounts receivable	24,000	24,000
Provision for inventory obsolescence	30,000	30,000
Deferred gain on UT building	(25,074)
Change in Receivables	(20,117)	(29,832)
Change in Inventories	106,273	122,236
Change in Prepaid expenses and other assets	(418,840)	(83,052)
Change in Other assets	(333,121)
Change in Prepaid income taxes		20,248
Change in Income tax payable	907,570
Change in Accounts payable and accrued expenses	34,132	(171,668)
Net cash provided by (used in)operating activities	(373,570)	(96,852)
Cash flows from investing activities:
Purchase of property and equipment	(17,551)	(24,700)
Proceeds from sale of property and equipment	3,800,000
Net cash provided by (used in) investing activities	3,782,449	(24,700)
Cash flows from financing activities:
Principal payments on long-term debt	(714,712)	(80,049)
Net change in line of credit	(2,349,138)	120,211
Net cash provided by (used in) financing activities	(3,063,850)	40,162
Net change in cash and cash equivalents	345,029	(81,390)
Cash and cash equivalents at beginning of the year	332,800	302,050
Cash and cash equivalents at end of the year	677,829	220,660
Supplemental disclosure of cash flow information:
Cash paid for interest	57,069	60,459
Capital lease	$ 3,800,000

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Note 5. Inventories

3 Months Ended

Sep. 30, 2014

Notes

Note 5. Inventories

NOTE 5.  INVENTORIES

Inventories consisted of the following:          

		September 30, 2014	June 30, 2014
Raw materials	$	2,768,608	2,783,306
Finished goods		3,559,381	3,709,897
Inventory obsolescence reserve		(306,414)	(335,355)
	$	6,021,575	6,157,848

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Note 6. Related-party Transactions (Details) (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Details
Related Party Transaction, Expenses from Transactions with Related Party	$ 17,700	$ 17,250

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Note 3. Stock-based Compensation: Summary of Stock Option Activity (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Summary of Stock Option Activity

	Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	155,604	$	6.45
Granted	-		-
Exercised	-		-
Cancelled	(437)		2.42
Outstanding at end of period	155,167		6.46
Exercisable at end of period	140,935		6.98