10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

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.  ☑ 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). ☑ 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 ☑

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

The number of shares outstanding of the registrant's common stock, no par value, as of November 9, 2015 is 2,672,652.

DYNATRONICS CORPORATION

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

	Page Number
PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements	1
Condensed Consolidated Balance Sheets (Unaudited)
As of September 30, 2015 and June 30, 2015	1
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, 2015 and 2014	2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended September 30, 2015 and 2014	3
Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.  Controls and Procedures	14
PART II. OTHER INFORMATION
Item 6.  Exhibits	15

DYNATRONICS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
Assets	September 30, 2015			June 30, 2015
Current assets:
Cash and cash equivalents	$	2,080,775		$	3,925,967
Trade accounts receivable, less allowance for doubtful accounts of $423,076 as of September 30, 2015 and $417,444 as of June 30, 2015		3,172,939			3,346,770
Other receivables		8,533			6,748
Inventories, net		5,465,667			5,421,787
Prepaid expenses and other		358,928			273,629
Prepaid income taxes		334,508			338,108
Total current assets		11,421,350			13,313,009
Property and equipment, net		4,919,640			5,025,076
Intangible assets, net		183,133			190,803
Other assets		603,185			623,342
Total assets	$	17,127,308		$	19,152,230
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	123,588		$	121,884
Current portion of capital lease		175,792			173,357
Current portion of deferred gain		150,448			150,448
Line of credit		717,819			1,909,919
Warranty reserve		153,650			153,185
Accounts payable		1,955,898			2,520,327
Accrued expenses		159,468			279,547
Accrued payroll and benefits expense		384,656			263,092
Total current liabilities		3,821,319			5,571,759
Long-term debt, net of current portion		619,514			651,118
Capital lease, net of current portion		3,419,978			3,464,850
Deferred gain, net of current portion		1,943,285			1,980,897
Deferred rent		52,957			41,150
Deferred income tax liabilities		130,478			136,128
Total liabilities		9,987,531			11,845,902
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value: Authorized 5,000,000 shares; 1,610,000 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively		3,087,554			3,087,554
Common stock, no par value: Authorized 50,000,000 shares; 2,643,583 shares and 2,642,389 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively		7,625,255			7,610,244
Accumulated deficit		(3,573,032	)		(3,391,470	)
Total stockholders' equity		7,139,777			7,306,328
Total liabilities and stockholders' equity	$	17,127,308		$	19,152,230

See accompanying notes to condensed consolidated financial statements.

1

DYNATRONICS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
	Three Months Ended
	September 30
	2015			2014
Net sales	$	7,397,196		$	7,216,324
Cost of sales		4,886,367			4,648,752
Gross profit		2,510,829			2,567,572
Selling, general, and administrative expenses		2,355,655			2,251,629
Research and development expenses		265,361			216,827
Operating income (loss)		(110,187	)		99,116
Other income (expense):
Interest income		614			2,321
Interest expense		(80,243	)		(48,293	)
Other income, net		2,604			3,342
Net other expense		(77,025	)		(42,630	)
Income (loss) before income taxes		(187,212	)		56,486
Income tax (provision) benefit		5,650			(15,563	)
Net income (loss)	$	(181,562	)	$	40,923
8% Convertible preferred stock dividend		(80,500	)		-
Net income (loss) attributable to common stockholders		(262,062	)		40,923
Basic and diluted net income (loss) per common share	$	(0.10	)	$	0.02
Weighted-average common shares outstanding:
Basic		2,643,297			2,520,389
Diluted		2,643,297			2,523,472

See accompanying notes to condensed consolidated financial statements.

2

DYNATRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
	Three Months Ended
	September 30
	2015			2014
Cash flows from operating activities:
Net income (loss)	$	(181,562	)	$	40,923
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		55,103			89,836
Amortization of intangible assets		7,670			11,169
Amortization of other assets		12,843			12,843
Amortization of building lease		62,983			41,989
Stock-based compensation expense		15,011			17,454
Change in deferred income taxes		(5,650	)		(892,607	)
Change in provision for doubtful accounts receivable		5,632			24,000
Change in provision for inventory obsolescence		(1,782	)		30,000
Deferred gain on sale/leaseback		(37,612	)		(25,074	)
Change in operating assets and liabilities:
Receivables, net		166,414			(20,117	)
Inventories, net		(42,098	)		106,273
Prepaid expenses and other assets		(85,299	)		(418,840	)
Other assets		7,314			(333,121	)
Prepaid income taxes		3,600			907,570
Accounts payable and accrued expenses		(550,672	)		34,132
Net cash used in operating activities		(568,105	)		(373,570	)
Cash flows from investing activities:
Purchase of property and equipment		(12,650	)		(17,551	)
Proceeds from sale of property and equipment		-			3,800,000
Net cash provided by (used in) investing activities		(12,650	)		3,782,449
Cash flows from financing activities:
Principal payments on long-term debt		(29,900	)		(680,112	)
Principal payments on long-term capital lease		(42,437	)		(34,600	)
Net change in line of credit		(1,192,100	)		(2,349,138	)
Net cash used in financing activities		(1,264,437	)		(3,063,850	)
Net change in cash and cash equivalents		(1,845,192	)		345,029
Cash and cash equivalents at beginning of the period		3,925,967			332,800
Cash and cash equivalents at end of the period	$	2,080,775		$	677,829
Supplemental disclosure of cash flow information:
Cash paid for interest	$	98,274		$	57,069
Cash paid for income taxes		-			-
Supplemental disclosure of non-cash investing and financing activity:
Capital lease - building	$	-		$	3,800,000
Preferred stock dividend payable in common stock		80,500			-

See accompanying notes to condensed consolidated financial statements.

3

DYNATRONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

September 30, 2015

NOTE 1.  PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2015 and June 30, 2015, and the condensed consolidated statements of operations and cash flows for the three months ended September 30, 2015 and 2014 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 (U.S. GAAP) 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, 2015 are not necessarily indicative of the results of operations for the fiscal year ending June 30, 2016.  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, 2015 and 2014.  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.

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 for the fiscal year ended June 30, 2015.

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, convertible preferred stock and warrants 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, 2015 and 2014 are as follows:

4

	Three Months Ended
	September 30,
	2015		2014
Basic weighted-average number of common shares outstanding during the period		2,643,297		2,520,389
Weighted-average number of dilutive common stock equivalents outstanding during the period		-		3,083
Diluted weighted-average number of common and common equivalent shares outstanding during the period		2,643,297		2,523,472

Outstanding options, convertible preferred stock and warrants 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, 2015 and 2014 totaled 4,112,409 and 141,356, 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 $15,011 and $17,454 in stock-based compensation expense during the three months ended September 30, 2015 and 2014, respectively. These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options.  The Company maintained a 2005 equity incentive plan for the benefit of employees, no further grants will be made under the 2005 equity incentive plan. On June 29, 2015 the shareholders approved a new 2015 equity incentive plan setting aside 500,000 shares. The 2015 plan was filed with the SEC on September 3, 2015.   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, 2015, there were 500,000 shares of common stock authorized and reserved for issuance, but not granted under the terms of the 2015 equity incentive plan.

The Company granted no equity awards under either its 2005 or 2015 equity incentive plan during the three months ended September 30, 2015.

The following table summarizes the Company's stock option activity for the 2005 equity incentive plan during the three-month period ended September 30, 2015.

	Number of  Options			Weighted- Average  Exercise Price
Outstanding at beginning of period		91,152		$	5.07
Granted		-			-
Exercised		-			-
Cancelled		(1,200	)		5.15
Outstanding at end of period		89,952			5.31
Exercisable at end of period		87,188			5.39

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company's stock option plan.

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, 2015, there was $312,973 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 $2,802 of intrinsic value for options outstanding as of September 30, 2015.

5

NOTE 4.CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS

On June 30, 2015, the Company completed a private placement with affiliates of Prettybrook Partners, LLC ("Prettybrook") and certain other purchasers (collectively with Prettybrook, the "Preferred Investors") for the offer and sale of shares of the Company's Series A 8% Convertible Preferred Stock (the "Series A Preferred") in the aggregate amount of approximately $4 million. Offering costs incurred in conjunction with the private placement were recorded net of proceeds. The Series A Preferred is convertible to common stock on a 1:1 basis.  A Forced Conversion can be initiated based on a formula related to share price and trading volumes as outlined in the terms of the private placement.  The dividend is fixed at 8% and is payable in either cash or common stock.  This dividend is payable quarterly and equates to an annual payment of $322,000 or equivalent value in common stock.  Certain redemption rights are attached to the Series A Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate.  The Series A Preferred includes a liquidation preference under which Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends.  In accordance with the terms of the sale of the Series A Preferred, the Company was required to register the underlying common shares associated with the Series A Preferred and the warrants.  That registration statement filed on form S-3 went effective on August 13, 2015.

The Series A Preferred votes on an as-converted basis, one vote for each share of common stock issuable upon conversion of the Series A Preferred, provided, however, that no holder of Series A Preferred shall be entitled to cast votes for the number of shares of common stock issuable upon conversion of such Series A Preferred held by such holder that exceeds the quotient of (x) the aggregate purchase price paid by such holder of Series A Preferred for its Series A Preferred, divided by (y) the greater of (i) $2.50 and (ii) the market price of the common stock on the trading day immediately prior to the date of issuance of such holder's Preferred Stock. The market price of the common stock on the trading day immediately prior to the date of issuance was $3.19 per share. Based on a $4,025,000 investment and a $3.19 per share price the number of common stock equivalents eligible for voting by Preferred shareholders is 1,261,755.

The Preferred Investors purchased a total of 1,610,000 shares of Series A Preferred Stock, and received in connection with such purchase, (i) A-Warrants, exercisable by cash exercise only, to purchase 1,207,500 shares of common stock, and (ii) B-Warrants, exercisable by "cashless exercise", to purchase 1,207,500 shares of common stock.  The warrants are exercisable for 72 months from the date of issuance and carry a Black-Scholes put feature in the event of a change in control.  The put right is not subject to derivative accounting as all equity holders are treated the same in the event of a change in control.

The Company's Board of Directors has the authority to cause the Company to issue, without any further vote or action by the shareholders, up to 3,390,000 additional shares of preferred stock, no par value per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series.

The Series A Preferred includes a conversion right at a price that creates an embedded beneficial conversion feature.  A beneficial conversion feature arises when the conversion price of a convertible instrument is below the per share fair value of the underlying stock into which it is convertible. The conversion price is 'in the money' and the holder realizes a benefit to the extent of the price difference. The issuer of the convertible instrument realizes a cost based on the theory that the intrinsic value of the price difference (i.e., the price difference times the number of shares received upon conversion) represents an additional financing cost. The conversion rights associated with the Series A Preferred issued by the Company do not have a stated life and, therefore, all of the beneficial conversion feature amount of $2,858,887 was amortized to dividends on the same date the preferred shares were issued.  The $2,858,887 dividend is added to the net loss to arrive at the net loss applicable to common stockholders for purposes of calculating loss per share for the year ended June 30, 2015. 

6

NOTE 5.  COMPREHENSIVE INCOME (LOSS)

For the three months ended September 30, 2015 and 2014, comprehensive income (loss) was equal to the net income (loss) as presented in the accompanying condensed consolidated statements of operations.

NOTE 6.  INVENTORIES

Inventories consisted of the following:

	September 30, 2015			June 30, 2015
Raw materials	$	2,143,156			2,086,411
Finished goods		3,679,274			3,693,921
Inventory obsolescence reserve		(356,763	)		(358,545	)
	$	5,465,667			5,421,787

NOTE 7.  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 $17,700 for the three months ended September 30, 2015 and 2014, respectively.

NOTE 8.  LINE OF CREDIT

In March 2015, the Company moved its working capital line of credit to a new lender. Interest on the new line of credit is prime rate plus 5%. The $3 million line of credit is collateralized by accounts receivable and inventories.  Borrowing limitations are based on 85% of eligible accounts receivable and $0.7 million of eligible inventory.  The current borrowing base on the new line of credit is approximately $2.4 million.  Interest payments on the line are due monthly.  All borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet.

The line of credit matures on March 5, 2016.  Management expects to be able to renew this credit facility when it matures with the current lender or another lender. The effective interest rate on borrowed money is approximately 10% including interest and origination fees. The new line of credit requires that a minimum borrowing of approximately $700,000 be maintained during the term of the loan.

NOTE 9.  RECENT ACCOUNTING PRONOUNCEMENTS

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update, which is part of the FASB's larger Simplification Initiative project aimed at reducing the cost and complexity of certain areas of the accounting codification, requires that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined.  Furthermore, the acquirer should record in the same period's financial statements, the effect on earnings from any changes in depreciation, amortization, or other items impacting income. These changes resulting from adjustments to provisional amounts should be calculated as if the accounting had been completed at the actual acquisition date. Lastly, the update requires the acquirer to present separately on the face of the income statement or in the footnote disclosures the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the actual acquisition date. This update is effective for fiscal years beginning after December 15, 2016. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly, if the Company acquires any new businesses.

In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This update was issued to make some fairly minor wording adjustments to ASC 835-30. The new wording, presented as paragraph 835-30-S45-1, recognizes that ASU 2015-13 does not address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-13 requires companies to recognize debt issuance costs as a reduction of the carrying amount of the associated debt liability. ASU 2015-15 states that debt issuance costs related to line-of-credit arrangements may be recognized as an asset and amortized over the term of the line-of-credit arrangement, even if the line-of-credit does not carry a balance. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly.

7

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update was issued in response to feedback from preparers, practitioners, and users of financial statements to see the effective date of the new guidance on revenue recognition delayed in order to allow a smoother transition. This update pushes the effective date for the new guidance back for public entities, certain not-for-profit entities, and certain employee benefit plans to annual reporting periods beginning after December 15, 2017, along with any interim reporting periods in that same period. All other entities will be required to implement the new guidance to reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly; however, due to the extensive nature of the new revenue recognition standard, the Company is evaluating the impact this new guidance will have on its financials.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): simplifying the Measurement of Inventory. The objective of this update is to simplify Topic 330, which currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments in this update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The update will be effective for fiscal years beginning after December 15, 2017. The Company currently applies a lower of cost or market and is currently assessing the magnitude of the difference between using market value versus net realizable value; however, it is not anticipated to have a material effect on the Company's financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. This pronouncement is part of the FASB's perpetual project started in November 2010 to address feedback received from stakeholders regarding the codification standards. Like other such pronouncements issued from time to time, the purpose of this pronouncement is not to issue new guidance, but rather to clarify, correct unintended application of the standards, and make various minor improvements as deemed necessary. The updates made are effective immediately. These changes are not expected to have a significant impact on the financial statements of guidance users. While some of the changes made in this pronouncement impact standards applicable to the Company, no material impact was noted.

In May 2015, the FASB issued ASU 2015-08, Business Combinations (Topic 805): Pushdown Accounting. This Accounting Standards Update amends various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No.115. The Company notes the update is effective immediately and will apply to the Company if the Company acquires a business.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.

8

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

Overview

Dynatronics Corporation ("Company," "Dynatronics," "we") designs, manufactures, distributes, markets and sells physical medicine products.  We offer a broad line of medical equipment including therapy devices, medical supplies and soft goods, treatment tables and rehabilitation equipment.  We market and sell our products primarily to physical therapists, chiropractors, sports medicine practitioners and podiatrists.  We operate on a fiscal year ending June 30.  For example, reference to fiscal year 2016 refers to the year ending June 30, 2016.

Recent Events

In July 2015, we received the Conformité Européen Mark (CE Mark), granting approval for our SolarisPlus and "25 Series" therapeutic modality products.  The CE Mark is an indication that these products meet the requirements of applicable European Community directives for manufacturing.  This approval allows us to sell these products in Europe and many other countries around the world.  Distributors have been established in Great Britain and Portugal.  We also received clearance in Japan to sell our proprietary Solaris Plus line of products in the last year.  With distributors signed in Mexico, as well as China and other countries of Southeast Asia, we are actively seeking clearance for our Solaris Plus product line in those countries.  As a result of these recent approvals and agreements, we expect international sales growth to accelerate as we extend our geographical reach and become a provider of these products on a more global scale.

In June 2015, we completed a $4.0 million private placement led by affiliates of Prettybrook Partners, a strategic private equity investor focused on the healthcare industry.  The financing provides us with additional capital to promote organic growth and pursue potential strategic acquisitions.  With the notable experience of Dr. Stuart Essig and Erin Enright from Prettybrook, we believe we have added partners that can help us make transformative improvements that will benefit the Company and its shareholders.  Our goal is to transform Dynatronics into a platform for accelerated growth, both organically and through tactical and carefully-planned acquisitions in order to capitalize on important healthcare trends.  In the private placement, we issued accredited investors 1.6 million shares of Series A preferred stock (convertible share-for-share into common stock of the Company) and warrants to purchase 2.4 million shares of common stock.

Business Outlook

The strategic direction of the past few months, including the completion of the sale of preferred stock to affiliates of Prettybrook Partners, are designed to accelerate our growth in the coming years.  The financing has significantly strengthened our balance sheet and provides the resources to increase our market and geographic footprint while maintaining our status as the innovative leader in rehabilitation and physical therapy products.

Combining the solid corporate infrastructure we have built over the last three decades with the business acumen and access to capital and deal flow provided by Prettybrook should allow Dynatronics not only to strengthen our legacy business, but also position the Company for growth through strategic acquisitions.

Our M&A strategy is focused on acquiring businesses that simultaneously fit our criteria and enhance our product offering.  We are currently evaluating acquisition opportunities and anticipate executing on one of these in calendar year 2016.  We believe these actions will cause Dynatronics to grow faster than our market segment.

We are also focused on growing organically, both in the US and internationally.  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 (an accessory to the Solaris Plus family of products) 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 expanding into new markets such as podiatry, home health, hospitals and long-term care is part of our strategic plan for expanding our geographical reach and becoming a provider of therapeutic products globally.

As mentioned in the "recent events" section of this report, in July 2015, we received the CE Mark approval. The CE Mark approval of our SolarisPlus and "25 Series" therapeutic modality products allows us to sell these products in Europe and many other countries around the world.  Over the past several years, we have increased our emphasis on international sales.  In addition, during the past year, we also received clearance for these same products in Japan.  Efforts are currently underway to obtain clearance in Mexico, China and other Southeast Asian countries.  With the CE Mark, we can further expand sales throughout Europe and into areas of the world that recognize and require this distinguished mark of quality.

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Our efforts in past years to prudently reduce costs in the face of some economic uncertainty have made us a leaner operation.  We will continue to be vigilant in maintaining appropriate overhead costs and operating costs while still providing support for sales from our new products and supporting new initiatives for growth.

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

· Exploring strategic business acquisitions using the capital infusion from the sale of preferred stock.  We believe that this will leverage and complement our competitive strengths, increase market reach and allow us to potentially expand into broader medical markets.

· Improving gross profit margins by, among other initiatives, 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.

· Increasing international sales by 1) leveraging the CE Mark approval in Europe and other countries through appropriate distributors for the approved products, 2) finalizing regulatory approvals in Mexico, Peru, as well as China and other countries in Southeast Asia, and 3) further developing relationships with existing distributors in countries such as Japan in order to increase sales in those countries where products are approved.

· Continuing to seek ways of increasing business with regional and national accounts and the U.S. Government.

· Strengthening pricing management and procurement methodologies.

· Updating and improving our selling and marketing efforts including electronic commerce options, as well as developing better tools for our sales force to improve their efficiency.

Results of Operations

The following discussion and analysis of our financial condition and results of operations for the three months ended September 30, 2015, should be read in conjunction with the unaudited 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, 2015, as amended, which includes audited financial statements for the year then ended.  Results of operations for the first fiscal quarter ended September 30, 2015, are not necessarily indicative of the results that may be achieved for the full fiscal year ending June 30, 2016.

Three Months Ended September 30, 2015

Compared to Three Months Ended September 30, 2014

Net Sales

Net sales increased $0.2 million or approximately 2.5% to approximately $7.4 million for the quarter ended September 30, 2015, compared to net sales of approximately $7.2 million for the quarter ended September 30, 2014.  Higher sales of distributed capital exercise products and metal and wood treatment tables accounted for the majority of the increase in total sales for the quarter ended September 30, 2015.  The upward trend in sales reflects improving overall market conditions and increased customer confidence in our markets.

Gross Profit

For the quarter ended September 30, 2015, gross profit decreased $56,743 or about 2.2% to approximately $2.5 million, or 33.9% of net sales.  By comparison, gross profit for the quarter ended September 30, 2014 was approximately $2.6 million, or 35.6% of net sales.  A significant factor in the decrease in gross profit was product mix.  Sales during the quarter ended September 30, 2015 included higher sales of certain manufactured and distributed products for which our margins are lower.  In addition to the shift in sales mix, our network of dealers accounted for a higher percentage of sales during the quarter.  We sell to dealers at a wholesale price which has the effect of lowering gross profit margins.

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Despite increasing sales by 2.5%, the lower gross profit margin on the incremental sales was insufficient to match the gross profit generated on lower sales during the same period last year.  Management has developed plans for increasing gross profits by focusing sales on the Company's proprietary therapeutic devices which are primarily sold by our sales representatives and which carry higher gross margins in general.   These plans are focused on improving penetration into our primary markets as well as exploring distribution into medical markets we have not previously addressed.  Increasing sales of capital equipment products will be one of the keys to improving gross profit margins going forward.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased approximately $0.1 million to approximately $2.4 million, or 31.8% of net sales, for the quarter ended September 30, 2015, from approximately $2.3 million, or 31.2% of net sales, for the quarter ended September 30, 2014.  The following factors impacted SG&A expenses for the three months ended September 30, 2015:

· $76,746 of higher labor and overhead expenses;

· $32,282 of higher general expenses; and

· $5,002 of lower selling expenses primarily associated with lower commission expense.

The majority of the increase in expenses is related to implementation of our strategic plans to transform the Company into a platform for growth, both organically and through carefully-planned acquisitions.

Research and Development Expenses

Research and development, or R&D expenses for the quarter ended September 30, 2015 were approximately $0.3 million or 3.6% of sales compared to approximately $0.2 million or 3.0% of sales in the quarter ended September 30, 2014.  Over the past three years, we have introduced more new products than any previous three-year period in our history.  The new product introductions include the innovative 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.  Increased R&D expenses in the current quarter are related to development of new products and product enhancements scheduled for release later this fiscal year.  R&D costs are expensed as incurred and are expected to remain at current levels in the current fiscal year.

Income (Loss) Before Income Tax

Pre-tax loss for the quarter ended September 30, 2015, was approximately $187,212, compared to pre-tax income of $56,486 for the quarter ended September 30, 2014.  The increase in pre-tax loss for the quarter was primarily attributable to $56,743 of lower gross profit generated during the period and approximately $0.1 million in increased expenses related to implementation of strategic plans for organic growth and acquisitions, together with $31.950 of higher interest expense and $48,534 in increased R&D expense.

Income Tax Provision (Benefit)

Income tax benefit was $5,650 for the quarter ended September 30, 2015, compared to income tax provision of $15,563 for the quarter ended September 30, 2014.  In accordance with accounting rules, we recorded a full valuation allowance of approximately $62,600 on our net deferred tax assets for the quarter ended September 30, 2015.  Thus, the effective tax benefit rate for the quarter ended September 30, 2015 was 3.0%, compared to an effective tax rate of 27.6% for the same quarter of the prior year.  See "Liquidity and Capital Resources – Deferred Income Tax Assets" below for more information regarding the valuation allowance and its anticipated impact on the effective tax rate for 2016.

Net Income (Loss)

Net loss was approximately $181,562 for the quarter ended September 30, 2015, compared to net income of $40,923 for the quarter ended September 30, 2014.  The increase in net loss for the quarter was primarily attributable to lower gross profit generated during the period and increased expenses related to implementation of strategic plans to grow organically and through acquisitions.  Other factors included higher net interest expense and increased R&D expense.  It should also be noted that the valuation allowance mentioned above eliminated any tax benefit that would otherwise have been recorded during the quarter.  That tax benefit would have had the effect of reducing the net loss reported.

Net Loss Applicable to Common Shareholders

Net loss Applicable to Common Shareholders was approximately $0.3 million ($.10 per share) for the quarter ended September 30, 2015, compared to net income of $40,923 ($.02 per share) for the quarter ended September 30, 2014.  The Net loss Applicable to Common Shareholders includes the impact of the accrued payment of $80,500 of dividends to preferred shareholders for the quarter ended September 30, 2015.  The dividend was paid in the subsequent quarter by issuing shares of our common stock having a market value of $80,500.

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Liquidity and Capital Resources

We have historically financed operations through cash from operations, available cash reserves, and borrowings under a line of credit facility.  Working capital was $7.6 million as of September 30, 2015, inclusive of the current portion of long-term obligations and credit facilities, compared to working capital of $7.7 million as of June 30, 2015.  As of September 30, 2015, we had approximately $1.7 million of available credit under our credit facility.  The current ratio was 3.0 to 1 as of September 30, 2015 and 2.4 to 1 as of June 30, 2015.

Cash and Cash Equivalents

Our cash and cash equivalents position as of September 30, 2015, was $2.1 million, compared to cash and cash equivalents of $3.9 million as of June 30, 2015.  Approximately $0.6 million of cash was used during the quarter ended September 30, 2015 to reduce accounts payable, including approximately $0.2 million in costs related to the offer and sale of our preferred stock.  Approximately $1.2 million was used to reduce debt on the Company's line of credit.

Accounts Receivable

Trade accounts receivable, net of allowance for doubtful accounts, decreased approximately $0.2 million, or 5.2%, to $3.2 million as of September 30, 2015, compared to $3.3 million as of June 30, 2015.  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, increased $43,880, or 0.8%, to $5.5 million as of September 30, 2015, compared to $5.4 million as of June 30, 2015.  Inventory levels 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.

Accounts Payable

Accounts payable decreased approximately $0.6 million, or 22.4%, to $2.0 million as of September 30, 2015, from approximately $2.5 million as of June 30, 2015.  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 $1.2 million to $717,819 as of September 30, 2015, compared to $1.9 million as of June 30, 2015.  This reduction was made possible by the capital infusion from the sale of preferred stock on June 30, 2015 to affiliates of Prettybrook Partners.  Interest on the line of credit is based on the prime rate plus 5%.  The $3 million line of credit is collateralized by accounts receivable and inventories.  Borrowing limitations are based on 85% of eligible accounts receivable and $0.7 million of eligible inventory.  The current borrowing base on the new line of credit is approximately $2.4 million.  Minimum interest payments of $5,000 are due monthly.  All borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet.

The line of credit matures on March 5, 2016.  The Company may choose to pay off the line of credit when it matures using cash reserves.  The effective interest rate on borrowed money is approximately 10% including interest and origination fees.  We believe that cash balances, amounts available under the line of credit as well as cash generated from operating activities will continue to be sufficient to meet our annual operating requirements.

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Debt

Long-term debt, excluding current installments decreased $31,604 to about $0.6 million as of September 30, 2015, compared to approximately $0.7 million as of June 30, 2015.  Our long-term debt is comprised primarily of the mortgage loan on our office and manufacturing facility in Tennessee.  The principal balance on the mortgage loan is approximately $718,000, of which approximately $0.6 million is classified as long-term debt, with monthly principal and interest payments of $13,278.  Our mortgage loan matures in 2021.

In conjunction with the sale and leaseback of our corporate headquarters in August 2014, we entered into a $3.8 million capital lease for a 15-year term with an investor group.  Amortization associated with that lease is recorded on a straight line basis over 15 years.  Lease payments of approximately $27,000 are payable monthly.  Total amortization expense related to the leased building is approximately $25,300 (net of amortized gain on sale) for the quarter ended September 30, 2015.  The deferred gain on sale is being amortized over the 15-year life of the lease.  Total imputed interest related to the leased building is approximately $50,700 for the quarter ended September 30, 2015.

Deferred Income Tax Assets

A valuation allowance is required when there is significant uncertainty as to the realizability of deferred tax assets. The ability to realize deferred tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for eachtax jurisdiction.

We have determined that we do not meet the "more likely than not" threshold that deferred tax assets will be realized. Accordingly, a valuation allowance is required.  Any reversal of the valuation allowance in future periods will favorably impact the Company's results of operations in the period of reversal.

At September 30, 2015 and June 30, 2015, we recorded a full valuation allowance against our deferred tax assets and no valuation allowance at June 30, 2014.

Included in the deferred tax assets and valuation allowance is an estimated federal and state net operating loss ("NOL") of approximately $0.2 million for the quarter ended September 30, 2015.

The Company's federal and state income tax returns for June 30, 2012, 2013 and 2014 are open tax years.

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

In February 2011, the Board of Directors approved $1.0 million for open market share repurchases of the Company's common stock. Approximately $0.5 million remained of this authorization as of September 30, 2015.  No purchases were made under this plan during the three months ended September 30, 2015.  The last purchase under this plan was made on September 28, 2011.

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, 2015, as amended.  There have been no material changes to the critical accounting policies previously disclosed in that report.

13

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, 2015.

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, 2015.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2015 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 6.Exhibits

(a)	Exhibits
3.1	Articles of Incorporation of Dynatronics Laser Corporation, incorporated by reference to Registration Statement on Form S-1 (no. 2-85045) filed and effective November 2, 1984 November 2, 1984
3.2	Articles of Amendment to Articles of Incorporation dated November 18, 1993, incorporated by reference to Annual Report on Form 10-KSB, filed September 28, 1995
3.3	Articles of Amendment to Articles of Incorporation, incorporated by reference to Current Report on Form 8-K, filed December 18, 2012
3.4	Articles of Amendment to Articles of Incorporation, incorporated by reference to Current Report on Form 8-K, filed July 1, 2015
3.5	Amended and Restated Bylaws, adopted July 20, 2015, incorporated by reference to Current Report on Form 8-K, filed July 22, 2015
4.1	Form of certificate representing common stock, no par value, incorporated by reference to a Registration Statement on Form S-1 (No. 2-85045) filed with the Securities and Exchange Commission and effective November 2, 1984
4.2	Form of certificate representing Series A 8% Convertible Preferred Stock, incorporated by reference to Ex 4.2 to Form S-3 filed July 29, 2015
4.3	Form of certificate of designations for Series A 8% Convertible Preferred Stock, incorporated by reference to Current Report on Form 8-K filed on July 1, 2015
4.4	Form of A Warrant, incorporated by reference to Current Report on Form 8-K filed on July 1, 2015
4.5	Form of B Warrant, incorporated by reference to Current Report on Form 8-K filed on July 1, 2015
10.1	Securities Purchase Agreement, dated as of May 1, 2015, filed as Appendix C to the Registrant's Preliminary Proxy Statement as filed with the Commission on May 4, 2015 and incorporated herein by reference.
10.2	Form of Registration Rights Agreement, filed as Appendix F to the Registrant's Preliminary Proxy Statement as filed with the Commission on May 4, 2015 and incorporated herein by reference.
10.3	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)
10.4	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)
10.5	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)
10.6	Dynatronics Corporation 2015 Equity Incentive Award Plan and Forms of Statutory and Non-statutory Stock Option Awards (previously filed as exhibit to Registration Statement on Form S-8, effective September 3, 2015
10.7	Executive Employment Agreement (Cullimore) dated May 1, 2015 (filed herewith)
10.8	Executive Employment Agreement (Beardall) dated May 1, 2015 (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.

15

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 13, 2015	/s/ Kelvyn H. Cullimore, Jr.
	Kelvyn H. Cullimore, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date   November 13, 2015	/s/ Terry M. Atkinson, CPA
	Terry M. Atkinson, CPA
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EX-10.7

Exhibit 10.7

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") executed and effective the __ day of May 2015 (the "Effective Date"), by and between DYNATRONICS CORPORATION, a Utah corporation having its principal place of business in Salt Lake City, Utah (the "Company"), and KELVYN H. CULLIMORE, JR., a resident of Utah (the "Executive" and, together with the Company, the "Parties").

R E C I T A L S:

WHEREAS, Executive and the Company entered into that certain Executive Employment Agreement effective as of March 1, 2012 (the "Prior Agreement"); and

WHEREAS, Executive and the Company desire to amend and restate the Prior Agreement and continue Executive's employment with the Company on the terms and conditions set forth herein; and

WHEREAS, the Company has agreed to employ Executive in exchange for Executive's compliance with the terms and conditions contained herein.

A G R E E M E N T:

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 agree as follows:

1.Definitions.  For purposes of this Agreement, all initially capitalized words and phrases used in this Agreement have the following meanings:

"Affiliate" shall mean, with respect to any individual or entity, any other individual or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such individual or entity.

"Agreement" shall have the meaning set forth in the introductory paragraph above.

"Annual Payment" shall have the meaning set forth in Section 4(1).

"Application" shall have the meaning set forth in Section 9.

"Base Salary" shall have the meaning set forth in Section 4(a)

"Board" shall mean the Board of Directors of the Company.

"Bonus" shall have the meaning set forth in Section 4(b).

"Business" shall mean the business of the design, manufacture, marketing and distribution of physical medicine products and aesthetic products.

"Cause" shall mean that Executive has (a) been grossly negligent in the discharge of his duties to the Company (in any case, other than by reason of a Disability, physical or mental illness or analogous condition); or (b) been convicted of or pled nolo contendere to a felony or a misdemeanor with respect to which fraud or dishonesty is a material element; or (c) materially breached any material Company policy or agreement with the Company; provided, however, except for a failure, breach or refusal which, by its nature, cannot reasonably be expected to be cured, the Executive shall have ten (10) business days from the delivery of written notice by the Company within which to cure any acts constituting Cause.

1

"Change of Control" shall mean the first of the following events to occur after the Effective Date:

(a)any Person or group of Persons together with its Affiliates, but excluding (i) the Company or any of its Subsidiaries, (ii) any employee benefit plans of the Company or (iii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company);

(b)the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended;

(c)the consummation of a merger or consolidation of the Company or any direct or indirect Subsidiary of the Company with any other corporation or entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company, such surviving entity or any parent thereof outstanding immediately after such merger or consolidation;

(d)the stockholders of the Company approve a plan of complete liquidation or winding-up of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or

(e)the occurrence of any transaction or series of transactions deemed by the Board to constitute a change in control of the Company.

2

Notwithstanding the foregoing, (i) a "Change of Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions, and (ii) a "Change of Control" shall not occur for purposes of this Agreement as a result of any primary or secondary offering of Company common stock to the general public through a registration statement filed with the Securities and Exchange Commission.

In addition, notwithstanding the foregoing, to the extent that (i) any payment under this Agreement is payable solely upon or following the occurrence of a Change of Control and (ii) such payment is treated as "deferred compensation" for purposes of Code Section 409A, no event that would not qualify as a "change in the ownership of the Company," a "change in the effective control of the Company," or a "change in the ownership of a substantial portion of the assets of the Company" as such terms are defined in Section 1.409A-3(i)(5) of the Treasury Regulations, shall be treated as a "Change of Control" under this Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" shall have the meaning set forth in Section 4(a).

"Company" shall have the meaning set forth in the introductory paragraph above.

"Confidential Information" means (a) information of the Company or any Subsidiary thereof, to the extent not considered a Trade Secret under applicable law, that (i) relates to the Business of the Company or any Subsidiary thereof; (ii) possesses an element of value to the Company or any Subsidiary thereof; (iii) is not generally known to the Company's competitors; and (iv) would damage the Company, or any Subsidiary thereof, if disclosed, and (b) information of any third party provided to the Company which the Company is obligated to treat as confidential. Confidential Information includes, but is not limited to, future business plans, the composition, description, schematic or design of products, future products or equipment of the Company or any Subsidiary thereof, communication systems, audio systems, system designs and related documentation, advertising or marketing plans, information regarding independent contractors, Employees, clients and Customers of the Company or any Subsidiary thereof, and information concerning the Company's financial structure and methods and procedures of operation.  Confidential Information shall not include any information that is or becomes generally available to the public other than as a result of an unauthorized disclosure, has been independently developed and disclosed by others without violating this Agreement or the legal rights of any Party or otherwise enters the public domain through lawful means.

"Contact" means any interaction between Executive and a Customer which (a) takes place in an effort to establish, maintain and/or further a business relationship on behalf of the Company, or any Subsidiary thereof, and (b) occurs during the last year of Executive's employment with the Company.

"Customer" means any person or entity to which the Company or any Subsidiary thereof, has sold or has solicited to sell its products or services.

"Defense Costs" has the meaning set forth in Section 13.

"Disability" means a physical or mental condition entitling Executive to benefits under the applicable long-term disability plan of the Company or any of its Subsidiaries, or if no such plan exists, a "permanent and total disability" (within the meaning of Code Section 22(e)(3)) or as determined by the Company in accordance with applicable laws. Notwithstanding the foregoing, to the extent that (i) any payment under this Agreement is payable solely upon the Executive's Disability and (ii) such payment is treated as "deferred compensation" for purposes of Code Section 409A, Disability shall have the meaning provided in Section 1.409A-3(i)(4) of the Treasury Regulations.

3

"Duties" means, solely for purposes of Section 8 of this Agreement, functioning as the Company's President and Chief Executive Officer as specified in the attached Exhibit "A" and the Company's Bylaws, and as prescribed by the Board from time to time.

"Effective Date" shall have the meaning set forth in the introductory paragraph above.

"Employee" means any person who (a) is employed by the Company, or any Subsidiary thereof, at the time Executive's employment with the Company terminates; (b) was employed by the Company, or any Subsidiary thereof, during the last year of Executive's employment with the Company; or (c) is employed by the Company, or any Subsidiary thereof, during the Restricted Period.

"Employment Period" shall have the meaning set forth in Section 3.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"Executive" shall have the meaning set forth in the introductory paragraph above.

"Fiscal Year" shall mean the 12-month period ending June 30 each year or such other period as the Company may hereafter elect as its Fiscal Year for financial reporting purposes.

"Good Reason" means (a) a material diminution in Executive's duties or responsibilities; (b) a reduction of ten percent (10%) or more in Executive's annual Base Salary; (c) the failure to pay any Bonus earned for any year, including a year in which a Change of Control occurs pursuant to the terms of any applicable plan or arrangement in effect prior to such Change of Control; provided, that such failure to pay any Bonus is deemed to be a "material diminution" or material breach of the terms of this Agreement; (d) the failure to pay any Annual Payment, (e) the failure of Executive to be elected to the Company's Board of Directors, (f) the relocation of Executive's principal place of employment to a location more than fifty (50) miles from Executive's principal place of employment, except for required travel on the Company's business to an extent substantially consistent with Executive's historical business travel obligations; or (g) an election by Executive within forty-five (45) days following a Change of Control, to resign and terminate his employment.  Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder, provided that Executive provides the Company with a written notice of resignation within ninety (90) days following the occurrence of the event constituting Good Reason and the Company shall have failed to remedy such act or omission within thirty (30) days following its receipt of such notice.

"Incentive Plans" means the Company's (i) 1992 Amended and Restated Stock Option Plan, (ii) 2005 Equity Incentive Award Plan, as amended from time to time and (iii) 2015 Equity Incentive Award Plan.

"Licensed Materials" means any materials that Executive utilizes for the benefit of the Company (or any Subsidiary thereof), or delivers to the Company or the Company's Customers, which (a) do not constitute Work Product, (b) are created by Executive or of which Executive is otherwise in lawful possession and (c) Executive may lawfully utilize for the benefit of, or distribute to, the Company or the Company's Customers.

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"Mandatory Payment" shall have the meaning set forth in Section 4(1).

"Parties" shall have the meaning set forth in the introductory paragraph above.

"Person" shall mean a "person" as defined in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Company (or any Subsidiary thereof), (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (c) an underwriter temporarily holding securities pursuant to an offering of such securities, or (d) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

"Prior Agreement" shall have the meaning set forth in the recitals above.

"Restricted Period" means the period of time encompassing Executive's employment with the Company and one (1) year after termination of Executive's employment with the Company.

"Separation Conditions" shall have the meaning set forth in Section 6(c).

"Severance Delay Period" means, except as otherwise modified by the application of Section 26(a), the period beginning on the date of the Executive's termination of employment with the Company and ending on the thirtieth (30th) day thereafter.  Notwithstanding the foregoing, in the event that the Executive's termination of employment occurs in connection with an exit incentive program or other employment termination program offered to a group or class of employees, as defined under the Older Worker Benefit Protection Act, 29 U.S.C. Section 626, the Severance Delay Period shall mean the period beginning on the date of the Executive's termination of employment with the Company and ending on the sixtieth (60th) day thereafter.

"Subsidiary" means a corporation, partnership or other entity of which a majority of the voting interests of such corporation, partnership or other entity are at the time owned directly or indirectly through one or more intermediaries or Subsidiaries, or both, by the Company.

"Territory" means the continental United States.

"Trade Secrets" means information of the Company (or any Subsidiary thereof), and its licensors, suppliers, clients and Customers, without regard to form, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans or a list of actual or potential Customers or suppliers which is not commonly known by or available to the public and which information (a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

"Without Cause" shall mean any termination of employment by the Company which is not defined in Section 5(a) through Section 5(g) of this Agreement.

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"Work Product" means (a) any data, databases, materials, documentation, computer programs, inventions (whether or not patentable), designs and/or works of authorship, including but not limited to, discoveries, ideas, concepts, properties, formulas, compositions, methods, programs, procedures, systems, techniques, products, improvements, innovations, writings, pictures, audio, video, images of Executive and artistic works, and (b) any subject matter protected under patent, copyright, proprietary database, trademark, trade secret, rights of publicity, confidential information or other property rights, including all worldwide rights therein, that is or was conceived, created or developed in whole or in part by Executive while employed by the Company and that either (i) is created within the scope of Executive's employment; (ii) is based on, results from or is suggested by any work performed within the scope of Executive's employment and is directly or indirectly related to the Business of the Company or a line of business that the Company may reasonably be interested in pursuing; (iii) has been or will be paid for by the Company; or (iv) was created or improved in whole or in part by using the Company's time, resources, data, facilities or equipment.

2.Employment and Duties.

(a)The Company shall employ Executive as President and Chief Executive Officer.  Executive shall perform all duties that are consistent with this position and that may otherwise be assigned to Executive by the Board and shall report directly to the Board from time to time.

(b)Executive agrees to (i) devote all necessary working time required of Executive's position; (ii) devote Executive's best efforts, skill and energies to promote and advance the Business and/or interests of the Company and its Subsidiaries; and (iii) fully perform Executive's obligations under this Agreement.  Notwithstanding the foregoing, the Company acknowledges that Executive currently serves as the mayor of Cottonwood Heights, Utah, and agrees that the performance of Executive's duties in such elected office shall be permitted hereunder provided they do not unduly interfere with the performance of Executive's duties under this Agreement.

(c)During Executive's employment Executive may (i) engage in community, charitable and educational activities (including, as specifically permitted by Section 2(b)); (ii) manage Executive's personal investments; (iii) act as a consultant or advisor with or without pay, provided, however, that such activities do not conflict or interfere with the performance of Executive's obligations under this Agreement or conflict with the interests of the Company and (iv) with the prior written notice to the  Board (or a designated committee thereof), serve on corporate boards or committees of up to two (2) public companies other than the Company and a reasonable number of privately held companies including companies operated or controlled by the Executive or a relative or family member of the Executive, provided, however, that such activities do not conflict or interfere with the performance of Executive's obligations under this Agreement or conflict with the interests of the Company.

(d)Executive agrees to comply with the policies and procedures of the Company as may be adopted and changed from time to time, including without limitation, those described in the Company's employee handbook and Code of Business Conduct and Ethics. If this Agreement conflicts with such policies or procedures, this Agreement will control.

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(e)As an officer of the Company, Executive owes a duty of care and loyalty to the Company as well as a duty to perform such duties in a manner that is in the best interests of the Company.

3.Term of Agreement.  The term of this Agreement shall be for a period of ten (10) years, commencing on the Effective Date and terminating on the tenth anniversary of the Effective Date (together with any and all Renewal Terms, as defined below, the "Employment Period"), provided, however, that the restrictive covenants applicable to and all post-termination obligations of Executive contained in Section 8 of this Agreement shall survive termination of this Agreement; provided, that following the initial ten-year Employment Period, the term of this Agreement shall be automatically renewed for successive one-year terms (each a "Renewal Term") without action by either Party; and provided, however, that the Company may terminate its obligations hereunder at the end of the initial ten-year Employment Period and any Renewal Term thereafter by giving Executive written notice of termination at least thirty (30) days and no more than ninety (90) days before the end of the initial ten-year term or the subsequent Renewal Term, as the case may be. 

4.Compensation.  During the Employment Period, the compensation of the Executive shall be as provided by this Section 4.

(a)Base Salary.  Company will pay to the Executive an annual base salary ("Base Salary") as determined from time to time by the Compensation Committee of the Board (the "Committee"), minus applicable withholdings, payable in accordance with the Company's normal payroll practices.  Executive's Base Salary will be adjusted at least bi-annually at the discretion of the Committee based upon the performance of Executive and the Company.  At the Effective Date, Executive's Base Salary shall be Two Hundred Thousand Dollars ($200,000).

(b)Bonus.  During the Employment Period, Executive will be eligible to receive a bonus, in an amount as determined by the Committee in its sole discretion, for each quarter the Company's quarterly pre-tax profit exceeds Seventy-Five Thousand Dollars ($75,000) (the "Bonus"). The Bonus will be subject to all applicable withholdings and will be paid (to the extent earned) no later than 45 days from the end of the period in which the Bonus is earned.  .

(c)Discretionary Bonus Pool.  In any quarter that pre-tax earnings of the Company exceed $75,000, the Committee shall allocate a discretionary bonus pool in the amount of $3000 which bonus pool shall be distributable at the sole discretion of Executive to management and other employees of the Company as incentive or bonus compensation on terms and conditions that Executive shall deem appropriate.

(d)Incentive Savings and Retirement Plans. The Executive shall be entitled to participate, during the Employment Period, in all incentive (including annual and long-term incentive) savings and retirement plans, 401(k), practices, policies and programs generally available to other senior executives of the Company.

(e)Welfare Benefits. Executive and/or the Executive's family, as the case may be, shall be entitled to participate in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs generally provided by the Company (including without limitation, medical, prescription, dental, disability, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) at a level that is equal to other senior executives of the Company.

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(f)Fringe Benefits.  Executive shall be entitled to participate in all fringe benefit programs generally provided by the Company to its senior executives.  As of the Effective Date, those fringe benefits include (i) use of a luxury class Company vehicle ("Company Vehicle") or a corresponding automobile allowance, including the payment of gas, oil, maintenance and insurance in connection with such Company Vehicle or allowance, as the case may be, (ii) life insurance benefit with a minimum face value of $100,000, with premiums paid by the Company, (iii) disability insurance benefits paid by the Company for the present UNUM policy or its replacement, and (iv) a term life insurance policy in the face amount of $750,000 with Executive as owner of the policy and beneficiaries as designated by Executive.  Executive acknowledges that the payment of benefits under this Section 4 (f), including, without limitation, Executive's personal use of the Company Vehicle, may be subject in part or full to withholding and payment of income and other taxes for which Executive shall be responsible.

(g)Expenses.  Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses which are incurred by the Executive.  The Executive shall be reimbursed upon the Company's receipt of accountings in accordance with practices, policies and procedures applicable to senior executives of the Company.  Executive may retain all frequent traveler benefits accrued, including reimbursements as allowed by Company policy for the use of such benefits for work-related corporate travel. The Company will also provide a reasonable allowance to reimburse Executive for travel and lodging expenses for Executive's spouse to accompany him on a maximum of three (3) business trips per year made by Executive on Company business within the scope of his duties under this Agreement.

(h)Office and Support Staff.  Executive shall be entitled to an office, furnishings, supplies, and other appointments, commensurate with the position occupied by Executive, all of which shall be adequate for the performance of the Executive's duties. Executive may hire staff to assist Executive in his duties.  Executive may use furnished supplies and equipment for reasonable non-business purposes.

(i)Paid Time Off.  The Executive shall be entitled to up to six (6) weeks of paid time off ("PTO") per calendar year, with such additional PTO as approved by the Committee.  Such PTO shall accrue without cancellation, expiration or forfeiture, subject however to the policy of the Company that no PTO may be carried over from any prior year.

(j)Stock Options.  Executive currently holds separately issued and fully-vested options (the "Options") to purchase 6,000 shares of the Company's common stock par value $.001 per share ("Common Stock") at $7.10 per share with an expiration date of November 22, 2015, and 8,000 shares of Common Stock at $8.60 per share with an expiration date of May 24, 2015. Subject to (i) the terms of the Incentive Plans, and (ii) Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the Options shall be deemed qualified Incentive Stock Options under Section 422 of the Code.

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(k)Restricted Stock Award.  Executive has been granted a restricted stock award pursuant to that certain Amended and Restated Restricted Stock Award Agreement, originally dated March 1, 2012 (the "Restricted Stock Award"), of 80,000 shares of Common Stock.  In furtherance of the Restricted Stock Award, the Company shall gross up the Executive's salary to minimize the tax implications related to the vesting of the Restricted Stock Award, up to an amount not to exceed 20 percent (20%) of the taxable value of such award.  The gross-up amount, if any, under this Section 4(k) will not be paid to Executive, but it will be applied by the Company against payment of any withholding obligation it may have in connection with the grant or the payments to be made under this Section 4(k).

(l)Mandatory Payment.  Subject to the limitations set forth in this Section 4(l), Executive shall receive a mandatory payment in an aggregate amount of Five Hundred Thousand Dollars ($500,000)(the "Mandatory Payment").  Except as set forth below, the Mandatory Payment shall be paid to Executive in annual payments of Fifty Thousand Dollars ($50,000) during the Employment Period (collectively, the "Annual Payments"). Notwithstanding the foregoing, (i) if Executive's employment is terminated pursuant to Section 5(g), (A) before the fifth (5th) anniversary of the Effective Date, Executive shall be paid an amount equal to Two Hundred Fifty Thousand Dollars ($250,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination or (B) after the fifth (5th) anniversary of the Effective Date, Executive shall be paid an amount equal to Five Hundred Thousand Dollars ($500,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination; or (ii) if Executive's employment is terminated pursuant to Section 5(a), 5(b), 5(c), 5(d), 5(f) or 5(h) at any time during the Employment Period, Executive shall be paid the Mandatory Payment in an amount equal to Five Hundred Thousand Dollars ($500,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination.

5.Termination.  This Agreement and Executive's employment may be terminated by any of the following events:

(a)Expiration of the Employment Period;

(b)Mutual written agreement between Executive and the Company at any time;

(c)Executive's death;

(d)Executive's Disability which renders Executive unable to perform the essential functions of Executive's job even with reasonable accommodation;

(e)By the Company for Cause;

(f)By Executive for Good Reason;

(g)Resignation by Executive without Good Reason; or

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(h)Without Cause, which shall mean any termination of employment by the Company which is not defined in Section 5(a) through Section 5(g) above.

6.Company's Post-Termination Obligations.

(a)Termination under Sections 5(a), 5(b), 5(c), 5(d), 5(e) and 5(g).

(1)If Executive's employment terminates for the reasons set forth in Section 5(c), Section 5(d), Section 5(e) or Section 5(g) above, then the Company will pay Executive (i) all accrued but unpaid wages, based on Executive's then current Base Salary, through the termination date; (ii) 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; (iii) solely in the event this Agreement is terminated pursuant to either Section 5(c) or Section 5(d) during an annual Bonus period, all earned and accrued but unpaid Bonuses prorated to the date of Executive's death or Disability and the remaining balance of the Mandatory Payment in an amount equal to Five Hundred Thousand Dollars ($500,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination (such amount, the "Balance of the Mandatory Payment").  Amounts payable pursuant to this Section 6(a)(1) above shall be paid within thirty (30) days of the Executive's termination date.

(2)If Executive's employment terminates for any of the reasons set forth in Section 5(a) (due to a notice given by the Company pursuant to Section 3) or in Section 5(b) 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 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; (iv) all accrued but unpaid PTO through the termination date, based on Executive's then current Base Salary; (v) all earned and accrued but unpaid Bonuses; (vi) the Balance of the Mandatory Payment then unpaid pursuant to the terms of this Agreement; and (vii) such other benefits and compensation to be mutually negotiated by the Parties.  Fifty percent (50%) of the amounts or benefits payable under this Sections 6(a)(2)(i), (ii), (iv), (v),(vi) and (vii) 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. Payment of amounts or benefits under Section 6(a)(2)(iii) shall be made according to established policy of the Company.

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

(1)If Executive's employment terminates for any of the reasons set forth in Section 5(f) or Section 5(h) 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 PTO 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.

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(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 Section 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 the Balance of the Mandatory Payment.

(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 (as modified below) (the "Short Term Amount") to be paid ratably according to the regularly scheduled payroll practices of the Company over the period commencing with the second regularly scheduled payroll period occurring immediately following the expiration of the Severance Delay Period and ending on the earlier of (A) the date that is six (6) months after such second payroll period or (B) two and a half months after the end of the taxable year in which Executive's employment is terminated (the "Short Term Period"); provided, however, at the election of Executive,  the amount payable under Section 6(b)(2)(iii), above, may be payable in equal quarterly installments over the period commencing at the end of the first calendar quarter from the date of termination and continuing until the last day of Executive's second taxable year following Executive's taxable year in which the termination occurs (the "Two Year Period"); provided, further, however, that if the amount payable under Section 6(b)(2)(iii), above, exceeds the two-times, two (2) year exception amount as provided in Treasury Regulation 1.409A-1(b)(9)(iii) (the "Exception Amount"), such excess amount shall instead be included and paid to Executive as part of the Short Term Amount within the Short Term Period and the Exception Amount shall be paid to Executive in equal quarterly installments over the Two Year Period, 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(h).

(c)The Company's obligation to provide the payments set forth in Section 6(a) and Section 6(b) above shall be conditioned upon the following (the "Separation Conditions"):

(i)Executive's (or, in the case of Executive's death or Disability, Executive's estate or trustee, as applicable) execution prior to the expiration of the Severance Delay Period (and the expiration of any applicable revocation period) of a separation agreement in a form prepared by the Company, which will include a general release from liability so that Executive will release the Company and its Subsidiaries from any and all liability and claims of any kind as permitted by law; and

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(ii)Executive's compliance with the restrictive covenants (Section 8) and all post-termination obligations, including, but not limited to, the obligations contained in this Agreement.

(d)If Executive refuses to execute (or revokes) an effective separation agreement as set forth in Section 6(c) above prior to the expiration of the Severance Delay Period (or if any applicable revocation period has not yet ended prior to such time), the Company will not provide any payments or benefits to Executive under Section 6(a) and Section 6(b) until such separation agreement is fined.  The Company's obligation to make the separation payments set forth in Section 6(a) and Section 6(b) shall terminate immediately upon any breach by Executive of any post-termination obligations to which Executive is subject.

(e)Except as provided in this Section 6, following termination of Executive's employment pursuant to Section 5, and except as provided in Section 7 in the event of a Change of Control, the Company shall have no other obligations for compensation of Executive.

7.Change of Control.  Notwithstanding anything to the contrary in the Incentive Plans or any award agreement, upon a Change of Control, all of Executive's outstanding unvested equity-based awards (including, but not limited to, the Restricted Stock Award) granted pursuant to the Incentive Plans, at Executive's option, shall vest and become immediately exercisable and unrestricted, without any action by the Board or any committee thereof.

8.Executive's Post-Termination Obligations.

(a)Return of Materials.  Upon the termination of Executive's employment for any reason, Executive shall return to the Company all of the Company's property, including, but not limited to, keys, passcards, credit cards, customer lists, rolodexes, tapes, software, computer files, marketing and sales materials and any other property, record, document or piece of equipment belonging to the Company.

(b)Set-Off.  If Executive has any outstanding obligations to the Company upon the termination of Executive's employment for any reason, Executive hereby authorizes the Company to deduct any amounts owed to the Company from Executive's final paycheck and/or any amounts that would otherwise be due to Executive, including under Section 6 or Section 7 above, but only to the extent such set-off is made in accordance with Treasury Regulation 1.409A-3(j)(4)(xiii).  No other set-off shall be permitted under this Agreement.

(c)Non-Disparagement. During Executive's employment and upon the termination of Executive's employment with the Company for any reason, Executive shall not make any disparaging or defamatory statements, whether written or verbal, regarding the Company.

(d)Restrictive Covenants. Executive acknowledges that the restrictions contained in this Section 8 are reasonable and necessary to protect the legitimate business interests of the Company and will not impair or infringe upon Executive's right to work or earn a living after Executive's employment with the Company terminates.

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(e)Trade Secrets and Confidential Information.

(i)Executive represents and warrants that Executive (A) is not subject to any legal or contractual duty or agreement that would prevent or prohibit Executive from performing the duties contemplated by this Agreement or otherwise complying with this Agreement, and (B) is not in breach of any legal or contractual duty or agreement, including any agreement concerning trade secrets or confidential information owned by any other party.

(ii)Executive agrees that Executive will not (A) use, disclose or reverse engineer Trade Secrets or Confidential Information for any purpose other than the Company's Business, except as authorized in writing by the Company; (B) during Executive's employment with the Company, use, disclose or reverse engineer (1) any confidential information or trade secrets of any former employer or third party or (2) any works of authorship developed in whole or in part by Executive during any former employment or for any other party, unless authorized in writing by the former employer or third party; or (C) upon Executive's resignation or termination with the Company (1) retain Trade Secrets or Confidential Information, including any copies existing in any form (including electronic form), which are in Executive's possession or control or (2) destroy, delete or alter Trade Secrets or Confidential Information without the Company's prior written consent.

(iii)The obligations under this Section 8 shall remain in effect as long as Trade Secrets and Confidential Information constitute trade secrets or confidential information under applicable law.  The confidentiality, property and proprietary rights protections available in this Agreement are in addition to, and not exclusive of, any and all other rights to which the Company is entitled under federal and state law, including, but not limited to, rights provided under copyright laws, trade secret and confidential information laws and laws concerning fiduciary duties.

(f)Non-Competition.  During the Restricted Period, Executive agrees that Executive shall not perform services which are substantially similar and/or equivalent to the Duties, individually or on behalf of any person, firm, partnership, association, business organization, corporation or entity engaged in the Business within the Territory.  The Parties agree and acknowledge that (i) the periods of restriction and Territory of restriction contained in this Agreement are fair and reasonable in that they are reasonably required for the protection of the Company and that the Territory is the area in which Executive performs services for the Company and (ii) by having access to information concerning Employees and actual or prospective Customers of the Company or any of its Subsidiaries, Executive shall obtain a competitive advantage as to the Company.

(g)Non-Solicitation of Customers.  During the Restricted Period, Executive will not, directly or indirectly, solicit any Customer of the Company for the purpose of providing any goods or services competitive with the Business within the Territory.  The restrictions set forth in this Section 8(g) apply only to the Customers with whom Executive had Contact.

(h)Non-Recruitment of Employees.  During the Restricted Period, Executive will not, directly or indirectly, solicit, recruit or induce any Employee to (i) terminate his or her employment relationship with the Company or any of its Subsidiaries or (ii) work for any other person or entity engaged in the Business.

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(i)Resignation.  Upon the termination of Executive's employment with the Company for any reason and upon the request of the Company, Executive shall deliver to the Company a written resignation from all offices, membership on the Board and fiduciary positions in which Executive serves for the Company and each of its Subsidiaries and Affiliates.

9.Work Product.  Executive's employment duties may include creating, developing and/or inventing in areas directly or indirectly related to the Business of the Company or to a line of business that the Company may reasonably be interested in pursuing.  If ownership of all right, title and interest to the legal rights in and to the Work Product will not vest exclusively in the Company, then, without further consideration, Executive assigns all presently-existing Work Product to the Company and agrees to assign, and automatically assigns, all future Work Product to the Company.  The Company will have the right to obtain, and hold in its own name, copyrights, patents, design registrations, proprietary database rights, trademarks, rights of publicity and any other protection available in the Work Product. At the Company's request, Executive agrees to perform, during or after Executive's employment with the Company, any acts to transfer, perfect and defend the Company's ownership of the Work Product, including, but not limited to (a) executing all documents (including a formal assignment to the Company) necessary for filing an application or registration for protection of the Work Product (an "Application"); (b) explaining the nature of the Work Product to persons designated by the Company; (c) reviewing Applications and other related papers; or (d) providing any other assistance reasonably required for the orderly prosecution of Applications.  Executive agrees to provide the Company with a written description of any Work Product in which Executive is involved (solely or jointly with others) and the circumstances attendant to the creation of such Work Product.

10.License.  During Executive's employment and after Executive's employment with the Company terminates, Executive grants to the Company an irrevocable, nonexclusive, worldwide, royalty-free license to (a) make, use, sell, copy, perform, display, distribute or otherwise utilize copies of the Licensed Materials; (b) prepare, use and distribute derivative works based upon the Licensed Materials; and (c) authorize others to do the same.  Executive shall notify the Company in writing of any Licensed Materials Executive delivers to the Company.

11.Release.  During Executive's employment and after Executive's employment with the Company terminates, Company may, upon receiving written consent of Executive which consent will not be unreasonably withheld,  use  Executive's image, likeness, voice or other characteristics in the Company's products or services.  Executive releases the Company from any causes of action that Executive has or may have arising out of the use, distribution, adaptation, reproduction, broadcast or exhibition of such characteristics.

12.Injunctive Relief.  Executive agrees that, if Executive breaches Section 8 of this Agreement, (a) the Company would suffer irreparable harm; (b) damages would be difficult to determine, and money damages alone would be an inadequate remedy for the injuries suffered by the Company; and (c) if the Company seeks injunctive relief to enforce this Agreement, Executive hereby waives and will not (i) assert any defense that the Company has an adequate remedy at law with respect to the breach; (ii) require that the Company submit proof of the economic value of any Trade Secret or Confidential Information; or (iii) require the Company to post a bond or any other security.  Nothing contained in this Agreement shall limit the Company's right to any other remedies at law or in equity.

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13.Payment of Defense Costs.  If Executive is individually named as a defendant in a lawsuit relating to or arising out of Executive's employment with the Company, then the Company agrees to pay the reasonable attorneys' fees and expenses Executive incurs in defending such lawsuit (the "Defense Costs").  The Company will not pay any damages or any other sums or relief for which Executive is held personally liable.  If Executive is held liable, then Executive agrees to reimburse the Company for all Defense Costs the Company paid to Executive or on Executive's behalf.  The Company's obligation under this Section 13 shall not apply to any claim or lawsuit brought by the Company against Executive. Payment of the Defense Costs shall be the Company's only obligation under this Section 13; provided, however, that nothing in this Section 13 shall be construed to limit either Party's rights or obligations under any indemnification agreement or the Company's organizational documents, as applicable.

14.Clawback.  Notwithstanding anything contained herein to the contrary, any amounts paid or payable to Executive pursuant to this Agreement or otherwise by the Company, including, but not limited to, any equity compensation granted to Executive, may be subject to forfeiture or repayment to the Company in accordance with Code Section 409A and pursuant to any clawback policy as adopted by the Board from time to time, and Executive hereby agrees to be bound by any such policy.

15.Severability.  The provisions of this Agreement are severable.  If any provision of this Agreement is determined to be unenforceable, in whole or in part, then such provision shall be modified so as to be enforceable to the maximum extent permitted by law.  If such provision cannot be modified to be enforceable, the provision shall be severed from this Agreement to the extent unenforceable.  The remaining provisions and any partially enforceable provisions shall remain in full force and effect.

16.Attorneys' Fees.  In the event of litigation relating to this Agreement, the prevailing Party shall be entitled to recover attorneys' fees and costs of litigation in addition to all other remedies available at law or in equity.

17.Waiver.  Either Party's failure to enforce any provision of this Agreement shall not act as a waiver of that or any other provision.  Either Party's waiver of any breach of this Agreement shall not act as a waiver of any other breach.

18.Entire Agreement.  This Agreement constitutes the entire agreement between the Parties concerning the subject matter of this Agreement.  This Agreement supersedes any prior communications, agreements or understandings, whether oral or written, between the Parties relating to the subject matter of this 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.

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19.Amendments.  This Agreement may not be amended or modified except in a writing signed by both Parties.

20.Successors and Assigns.  This Agreement shall be assignable to, and shall inure to the benefit of, the Company's successors and assigns, including, without limitation, successors through merger, name change, consolidation or sale of a majority of the Company's stock or assets and shall be binding upon Executive. Executive shall not have the right to assign Executive's rights or obligations under this Agreement.  The covenants contained in Section 8 of this Agreement shall survive the termination of Executive's employment with the Company, regardless of which Party causes the termination or the reason for the termination.

21.Governing Law.  The laws of the State of Utah shall govern this Agreement. If Utah's conflict of law rules would apply another state's laws, the Parties agree that Utah law shall still govern.

22.No Strict Construction.  If there is a dispute about the language of this Agreement, the fact that one Party drafted this Agreement shall not be considered in its interpretation.

23.Notices.  Whenever any notice is required, it shall be given in writing addressed as follows:

If to the Company:	DYNATRONICS CORPORATION
	7030 Park Centre Drive
	Salt Lake City, Utah 84121
With a copy	DURHAM JONES & PINEGAR
(which shall not	Attn: Kevin R. Pinegar, Esq.
constitute notice) to:	111 East Broadway, Suite 900
	Salt Lake City, Utah 84111
If to the Executive:	Kelvyn H. Cullimore, Jr.
	2143 Worchester Drive Cottonwood Heights, UT 84121

Notice shall be deemed given and effective when deposited in the U.S. mail, sent to the receiving Party by electronic means or when actually received.  Either Party may change the address to which notices shall be delivered or mailed by notifying the other Party of such change in accordance with this Section.

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24.Consent to Jurisdiction and Venue.  Executive agrees that any claim arising out of or relating to this Agreement shall be brought in a state or federal court of competent jurisdiction in Utah.  Executive consents to the personal jurisdiction of the state and/or federal courts located in Utah.  Executive waives (a) any objection to jurisdiction or venue, or (b) any defense claiming lack of jurisdiction or improper venue in any action brought in such courts.

25.Affirmation.  Executive acknowledges that Executive has carefully read this Agreement, Executive knows and understands its terms and conditions and Executive has had the opportunity to ask the Company any questions Executive may have had prior to signing this Agreement.

26.Compliance with Code Section 409A and Other Applicable Provisions of the Code.

(a)It is intended that (i) each payment or installment of payments provided under this Agreement is a separate "payment" for purposes of Code Section 409A, and (ii) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two (2) year exception) and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay).  Notwithstanding anything to the contrary herein, if the Company determines (i) that on the date of Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) or at such other time that the Company determines to be relevant, Executive is a "specified employee" (as such term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Company, and (ii) that any payments to be provided to Executive pursuant to this Agreement are or may become subject to the additional tax under Code Section 409A(a)(1)(B) or any other taxes or penalties imposed under Code Section 409A if provided at the time otherwise required under this Agreement, then such payments shall be delayed until the date that is six (6) months after the date of Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) or, if sooner, the date of Executive's death.  Any payments delayed pursuant to this Section 26 shall be made in a lump sum on the first day of the seventh month following Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) or, if sooner, the date of Executive's death.  It is intended that Agreement shall comply with the provisions of Code Section 409A and the Treasury Regulations relating thereto so as not to subject Executive to the payment of additional taxes and interest under Code Section 409A. In furtherance of this intent, this Agreement shall be interpreted, operated, and administered in a manner consistent with these intentions.

(b)In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which Executive participates during the term of Executive's employment under this Agreement or thereafter provides for a "deferral of compensation" within the meaning of Code Section 409A, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to any reimbursement or in-kind benefit is not subject to liquidation or exchange for another benefit.

(c)Notwithstanding anything herein to the contrary, a termination of Executive's employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a "separation from service" within the meaning of Code Section 409A (and Treasury Regulation 1.409A-1(h)) (which, by definition, includes a separation from any other entity that would be deemed a single employer together with the Company for this purpose under Code Section 409A (and Treasury Regulation 1.409A-1(h)), and for purposes of any such provision of this Agreement, references to a "termination," "termination of employment," "termination date," or similar terms shall mean "separation from service."

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(d)For the avoidance of doubt, the Company shall pay any amounts that are due under this Agreement following Executive's termination of employment, death, Disability or other event within the periods of time that are specified in this Agreement, provided, however, that the Company, in its sole and absolute discretion, shall determine the date or dates on which any such payment shall be made during such specified period.

(e)By accepting this Agreement, Executive hereby agrees and acknowledges that neither the Company nor its Subsidiaries make any representations with respect to the application of Code Section 409A to any tax, economic or legal consequences of any payments payable to Executive hereunder.  Further, by the acceptance of this Agreement, Executive acknowledges that (i) Executive has obtained independent tax advice regarding the application of Code Section 409A to the payments due to Executive hereunder, (ii) Executive retains full responsibility for the potential application of Code Section 409A to the tax and legal consequences of payments payable to Executive hereunder and (iii) the Company shall not indemnify or otherwise compensate Executive for any violation of Code Section 409A that my occur in connection with this Agreement.  The Parties agree to cooperate in good faith to amend such documents and to take such actions as may be necessary or appropriate to comply with Code Section 409A.

[Signatures on Following Page]

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

DYNATRONICS CORPORATION,

a Utah corporation

By:

Name: ___________________________

Title: ____________________________

KELVYN H. CULLIMORE, JR.,

an individual

Kelvyn H. Cullimore, Jr.

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EXHIBIT A

Responsibilities and Authority of President and Chief Executive Officer (CEO)

· Overall strategic planning, corporate direction and implementation of strategic plan.

· General deployment of corporate assets.

· Hiring of Company officers and other employees.

o Establishment of incentive programs for Company officers and employees.

o Approves capital expenditures for budget categories (as approved by the Board) or up to $50,000 if not included in annual budget.

· Approval of major Company Policies and Procedures and exceptions to the same.

· Interfaces with stock brokerages.

· Approval of all corporate communications.

· Assures compliance with all applicable laws and regulations (domestic/international) pertinent to the Company.

· Review and Approval of all legal agreements to which the Company is a party.

o Represents Company in strategic business transactions subject to the approval of the Board.

· Management Team Chair.

· Oversees implementation and compliance with Quality Systems.

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EX-10.8

Exhibit 10.8

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") executed and effective the 1st day of May 2015(the "Effective Date"), 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, Executive and the Company entered into that certain Executive Employment Agreement effective as of March 1, 2011, amended by that certain First Amendment to Executive Employment Agreement, effective as of March 24, 2014 (as amended, the "Prior Agreement");

WHEREAS, Executive and the Company desire to amend and restate the Prior Agreement and continue Executive's employment with the Company on the terms and conditions set forth herein; and

WHEREAS, the Company has agreed to employ Executive in exchange for Executive's compliance with the terms and conditions contained herein.

A G R E E M E N T:

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 agree as follows:

1.Definitions.  For purposes of this Agreement, all initially capitalized words and phrases used in this Agreement have the following meanings:

"Affiliate" shall mean, with respect to any individual or entity, any other individual or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such individual or entity.

"Agreement" shall have the meaning set forth in the introductory paragraph above.

"Annual Payment" shall have the meaning set forth in Section 4(k).

"Application" shall have the meaning set forth in Section 9.

"Base Salary" shall have the meaning set forth in Section 4(a)

"Board" shall mean the Board of Directors of the Company.

"Bonus" shall have the meaning set forth in Section 4(b).

"Business" shall mean the business of the design, manufacture, marketing and distribution of physical medicine products and aesthetic products.

"Cause" shall mean that Executive has (a) been grossly negligent in the discharge of his duties to the Company (in any case, other than by reason of a Disability, physical or mental illness or analogous condition); or (b) been convicted of or pled nolo contendere to a felony or a misdemeanor with respect to which fraud or dishonesty is a material element; or (c) materially breached any material Company policy or agreement with the Company; provided, however, except for a failure, breach or refusal which, by its nature, cannot reasonably be expected to be cured, the Executive shall have ten (10) business days from the delivery of written notice by the Company within which to cure any acts constituting Cause.

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"Change of Control" shall mean the first of the following events to occur after the Effective Date:

(a)any Person or group of Persons together with its Affiliates, but excluding (i) the Company or any of its Subsidiaries, (ii) any employee benefit plans of the Company or (iii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company);

(b)the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended;

(c)the consummation of a merger or consolidation of the Company or any direct or indirect Subsidiary of the Company with any other corporation or entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company, such surviving entity or any parent thereof outstanding immediately after such merger or consolidation;

(d)the stockholders of the Company approve a plan of complete liquidation or winding-up of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or

(e)the occurrence of any transaction or series of transactions deemed by the Board to constitute a change in control of the Company.

Notwithstanding the foregoing, (i) a "Change of Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions, and (ii) a "Change of Control" shall not occur for purposes of this Agreement as a result of any primary or secondary offering of Company common stock to the general public through a registration statement filed with the Securities and Exchange Commission.

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In addition, notwithstanding the foregoing, to the extent that (i) any payment under this Agreement is payable solely upon or following the occurrence of a Change of Control and (ii) such payment is treated as "deferred compensation" for purposes of Code Section 409A, no event that would not qualify as a "change in the ownership of the Company," a "change in the effective control of the Company," or a "change in the ownership of a substantial portion of the assets of the Company" as such terms are defined in Section 1.409A-3(i)(5) of the Treasury Regulations, shall be treated as a "Change of Control" under this Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" shall have the meaning set forth in Section 4(a).

"Company" shall have the meaning set forth in the introductory paragraph above.

"Confidential Information" means (a) information of the Company or any Subsidiary thereof, to the extent not considered a Trade Secret under applicable law, that (i) relates to the Business of the Company or any Subsidiary thereof; (ii) possesses an element of value to the Company or any Subsidiary thereof; (iii) is not generally known to the Company's competitors; and (iv) would damage the Company, or any Subsidiary thereof, if disclosed, and (b) information of any third party provided to the Company which the Company is obligated to treat as confidential. Confidential Information includes, but is not limited to, future business plans, the composition, description, schematic or design of products, future products or equipment of the Company or any Subsidiary thereof, communication systems, audio systems, system designs and related documentation, advertising or marketing plans, information regarding independent contractors, Employees, clients and Customers of the Company or any Subsidiary thereof, and information concerning the Company's financial structure and methods and procedures of operation.  Confidential Information shall not include any information that is or becomes generally available to the public other than as a result of an unauthorized disclosure, has been independently developed and disclosed by others without violating this Agreement or the legal rights of any Party or otherwise enters the public domain through lawful means.

"Contact" means any interaction between Executive and a Customer which (a) takes place in an effort to establish, maintain and/or further a business relationship on behalf of the Company, or any Subsidiary thereof, and (b) occurs during the last year of Executive's employment with the Company.

"Customer" means any person or entity to whom the Company, or any Subsidiary thereof, has sold or has solicited to sell its products or services.

"Defense Costs" has the meaning set forth in Section 13.

"Disability" means a physical or mental condition entitling Executive to benefits under the applicable long-term disability plan of the Company or any of its Subsidiaries, or if no such plan exists, a "permanent and total disability" (within the meaning of Code Section 22(e)(3)) or as determined by the Company in accordance with applicable laws. Notwithstanding the foregoing, to the extent that (i) any payment under this Agreement is payable solely upon the Executive's Disability and (ii) such payment is treated as "deferred compensation" for purposes of Code Section 409A, Disability shall have the meaning provided in Section 1.409A-3(i)(4) of the Treasury Regulations.

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"Duties" means, solely for purposes of Section 8 of this Agreement, functioning as the Company's Executive Vice President of Business Development, Sales & Marketing. The Executive will exercise the authority and assume the responsibilities: (i) specified in the Company's Bylaws; (ii) of an Executive Vice President of a corporation of the size and nature of the Company; and (iii) prescribed by the Board from time to time, with the current description set forth in Exhibit A, attached hereto and by reference made a part hereof.

"Effective Date" shall have the meaning set forth in the introductory paragraph above.

"Employee" means any person who (a) is employed by the Company, or any Subsidiary thereof, at the time Executive's employment with the Company terminates; (b) was employed by the Company, or any Subsidiary thereof, during the last year of Executive's employment with the Company; or (c) is employed by the Company, or any Subsidiary thereof, during the Restricted Period.

"Employment Period" shall have the meaning set forth in Section 3.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"Executive" shall have the meaning set forth in the introductory paragraph above.

"Fiscal Year" shall mean the 12-month period ending June 30 each year or such other period as the Company may hereafter elect as its Fiscal Year for financial reporting purposes.

"Good Reason" means (a) a demotion of Executive, including his removal as an executive officer of the Company, provided, however, that a change in title shall not in and of itself constitute a "demotion" for purposes of this subsection (a); (b) a material diminution in Executive's duties or responsibilities; (c) a reduction of ten percent (10%) or more in Executive's annual Base Salary; (d) the failure to pay any Bonus earned for any year, including a year in which a Change of Control occurs pursuant to the terms of any applicable plan or arrangement in effect prior to such Change of Control; provided, that such failure to pay any Bonus is deemed to be a "material diminution" or material breach of the terms of this Agreement; (e) the failure to pay any Annual Payment, (f) the failure of Executive to be elected to the Company's Board of Directors (g) the relocation of Executive's principal place of employment to a location more than fifty (50) miles from Executive's principal place of employment, except for required travel on the Company's business to an extent substantially consistent with Executive's historical business travel obligations; or (h) an election by Executive within ninety (90) days following a Change of Control, to resign and terminate his employment.  Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder, provided that Executive provides the Company with a written notice of resignation within ninety (90) days following the occurrence of the event constituting Good Reason and the Company shall have failed to remedy such act or omission within thirty (30) days following its receipt of such notice.

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"Incentive Plans" means the Company's (i) 1992 Amended and Restated Stock Option Plan, (ii) 2005 Equity Incentive Award Plan, as amended from time to time, and (iii) 2015 Equity Incentive Award Plan.

"Licensed Materials" means any materials that Executive utilizes for the benefit of the Company (or any Subsidiary thereof), or delivers to the Company or the Company's Customers, which (a) do not constitute Work Product, (b) are created by Executive or of which Executive is otherwise in lawful possession and (c) Executive may lawfully utilize for the benefit of, or distribute to, the Company or the Company's Customers.

"Mandatory Payment" shall have the meaning set forth in Section 4(k).

"Parties" shall have the meaning set forth in the introductory paragraph above.

"Person" shall mean a "person" as defined in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Company (or any Subsidiary thereof), (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (c) an underwriter temporarily holding securities pursuant to an offering of such securities, or (d) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

"Prior Agreement" shall have the meaning set forth in the recitals above.

"Restricted Period" means the period of time encompassing Executive's employment with the Company and two (2) years after termination of Executive's employment with the Company.

"Separation Conditions" shall have the meaning set forth in Section 6(c).

"Severance Delay Period" means the period beginning on the date of the Executive's termination of employment with the Company and ending on the thirtieth day thereafter. Notwithstanding the foregoing, in the event that the Executive's termination of employment occurs in connection with an exit incentive program or other employment termination program offered to a group or class of employees, as defined under the Older Worker Benefit Protection Act, 29 U.S.C. Section 626, the Severance Delay Period shall mean the period beginning on the date of the Executive's termination of employment with the Company and ending on the sixtieth day thereafter.

"Subsidiary" means a corporation, partnership or other entity of which a majority of the voting interests of such corporation, partnership or other entity are at the time owned directly or indirectly through one or more intermediaries or Subsidiaries, or both, by the Company.

"Territory" means the continental United States.

"Trade Secrets" means information of the Company (or any Subsidiary thereof), and its licensors, suppliers, clients and Customers, without regard to form, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans or a list of actual or potential Customers or suppliers which is not commonly known by or available to the public and which information (a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

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"Without Cause" shall mean any termination of employment by the Company which is not defined in Section 5(a) through Section 5(g) of this Agreement.

"Work Product" means (a) any data, databases, materials, documentation, computer programs, inventions (whether or not patentable), designs and/or works of authorship, including but not limited to, discoveries, ideas, concepts, properties, formulas, compositions, methods, programs, procedures, systems, techniques, products, improvements, innovations, writings, pictures, audio, video, images of Executive and artistic works, and (b) any subject matter protected under patent, copyright, proprietary database, trademark, trade secret, rights of publicity, confidential information or other property rights, including all worldwide rights therein, that is or was conceived, created or developed in whole or in part by Executive while employed by the Company and that either (i) is created within the scope of Executive's employment; (ii) is based on, results from or is suggested by any work performed within the scope of Executive's employment and is directly or indirectly related to the Business of the Company or a line of business that the Company may reasonably be interested in pursuing; (iii) has been or will be paid for by the Company; or (iv) was created or improved in whole or in part by using the Company's time, resources, data, facilities or equipment.

2.Employment and Duties.

(a)The Company shall employ Executive as Executive Vice President of Business Development, Sales & Marketing.  Executive shall perform all duties that are consistent with Executive's position and that may otherwise be assigned to Executive by the Company from time to time.  Executive shall report directly to the Chief Executive Officer or any other executive designated by the Board from time to time.

(b)Executive agrees to (i) devote all necessary working time required of Executive's position; (ii) devote Executive's best efforts, skill and energies to promote and advance the Business and/or interests of the Company and its Subsidiaries; and (iii) fully perform Executive's obligations under this Agreement.

(c)During Executive's employment Executive may (i) engage in community, charitable and educational activities (including, as specifically permitted by Section 2(b)); (ii) manage Executive's personal investments; (iii) act as a consultant or advisor, provided, however, that such activities do not conflict or interfere with the performance of Executive's obligations under this Agreement or conflict with the interests of the Company and (iv) with the prior written consent of the Board (or a designated committee thereof), serve on corporate boards or committees of up to two (2) public companies other than the Company and a reasonable number of privately held companies including companies operated or controlled by the Executive or a relative or family member of the Executive, provided, however, that such activities do not conflict or interfere with the performance of Executive's obligations under this Agreement or conflict with the interests of the Company.

(d)Executive agrees to comply with the policies and procedures of the Company as may be adopted and changed from time to time, including without limitation, those described in the Company's employee handbook and Code of Business Conduct and Ethics. If this Agreement conflicts with such policies or procedures, this Agreement will control.

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(e)As an officer of the Company, Executive owes a duty of care and loyalty to the Company as well as a duty to perform such duties in a manner that is in the best interests of the Company.

3.Term of Agreement.  The term of this Agreement shall be for a period of ten (10) years, commencing on the Effective Date and terminating on the tenth anniversary of the Effective Date (together with any and all Renewal Terms, as defined below, the "Employment Period"), provided, however, that the restrictive covenants applicable to and all post-termination obligations of Executive contained in Section 8 of this Agreement shall survive termination of this Agreement; provided, that following the initial ten-year Employment Period, the term of this Agreement shall be automatically renewed for successive one-year terms (each a "Renewal Term") without action by either Party; and provided, however, that either Party may terminate its obligations hereunder at the end of the initial ten-year Employment Period and any Renewal Term thereafter by giving the other Party written notice of termination at least thirty (30) days and no more than ninety (90) days before the end of the initial ten-year term or the subsequent Renewal Term, as the case may be. 

4.Compensation.  During the Employment Period, the compensation of the Executive shall be as provided by this Section 4.

(a)Base Salary.  Company will pay to the Executive an annual base salary ("Base Salary") as determined from time to time by the Compensation Committee of the Board (the "Committee"), minus applicable withholdings, payable in accordance with the Company's normal payroll practices.  Executive's Base Salary will be adjusted annually at the discretion of the Committee based upon the performance of Executive and the Company. At the Effective Date, Executive's Base Salary shall be One Hundred and Sixty Thousand Dollars ($160,000).

(b)Bonus. During the Employment Period, Executive will be eligible to receive a bonus, in an amount as determined by the Committee in its sole discretion, for each quarter the Company's quarterly pre-tax profit exceeds Seventy-Five Thousand Dollars ($75,000) (the "Bonus"). The Bonus will be subject to all applicable withholdings and will be paid (to the extent earned) in quarterly installments or as otherwise determined by the Committee.

(c)Incentive Savings and Retirement Plans. The Executive shall be entitled to participate, during the Employment Period, in all incentive (including annual and long-term incentive) savings and retirement plans, 401(k), practices, policies and programs generally available to other senior executives of the Company.

(d)Welfare Benefits. Executive and/or the Executive's family, as the case may be, shall be entitled to participate in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs generally provided by the Company (including without limitation, medical, prescription, dental, disability, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) at a level that is equal to other senior executives of the Company.

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(e)Fringe Benefits.  Executive shall be entitled to participate in all fringe benefit programs generally provided by the Company to its senior executives.  As of the Effective Date, those fringe benefits include (i) use of a luxury class Company vehicle ("Company Vehicle") or a corresponding automobile allowance, including the payment of gas, oil, maintenance and insurance in connection with such Company Vehicle or allowance, as the case may be, (ii) life insurance benefit with a minimum face value of $100,000, with premiums paid by the Company, (iii) disability insurance benefits paid by the Company for the present UNUM policy or its replacement, and (iv) a term life insurance policy in the face amount of $750,000 with Executive as owner of the policy and beneficiaries as designated by Executive.  Executive acknowledges that the payment of benefits under this Section 4 (e), including, without limitation, Executive's personal use of the Company Vehicle, may be subject in part or full to withholding and payment of income and other taxes for which Executive shall be responsible.

(f)Expenses.  Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses which are incurred by the Executive.  The Executive shall be reimbursed upon the Company's receipt of accountings in accordance with practices, policies and procedures applicable to senior executives of the Company.  Executive may retain all frequent traveler benefits accrued, including reimbursements as allowed by Company policy for the use of such benefits for work-related corporate travel. The Company will also provide a reasonable allowance to reimburse Executive for travel and lodging expenses for Executive's spouse to accompany him on a maximum of two (2) business trips per year made by Executive on Company business within the scope of his duties under this Agreement.

(g)Office and Support Staff.  Executive shall be entitled to an office, furnishings, supplies, and other appointments, commensurate with the position occupied by Executive, all of which shall be adequate for the performance of the Executive's duties. Executive may hire staff to assist Executive in his duties.  Executive may use furnished supplies and equipment for reasonable and incidental non-business purposes.

(h)Paid Time Off.  The Executive shall be entitled to up to five (5) weeks of paid time off ("PTO") per calendar year. Such PTO shall accrue without cancellation, expiration or forfeiture, subject however to the policy of the Company that no PTO may be carried over from any prior year.

(i)Stock Options.  Executive holds separately issued and fully-vested options (the "Options") to purchase 5,000 shares of the Company's common stock par value $.001 per share ("Common Stock") at $7.10 per share with an expiration date of November 22, 2015, and 8,000 shares of Common Stock at $8.60 per share with an expiration date of May 24, 2015. Subject to (i) the terms of the Incentive Plans, and (ii) Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the Options shall be deemed qualified Incentive Stock Options under Section 422 of the Code.

(j)Restricted Stock Award.  Executive has been granted a restricted stock award ("Restricted Stock Award") of 40,000 shares of Common Stock.  In furtherance of the Restricted Stock Award, the Company shall gross up the Executive's salary to minimize the tax implications related to the vesting of the Restricted Stock Award, up to an amount not to exceed 20 percent (20%) of the taxable value of such award.  The gross-up amount, if any, under this Section 4(j) will not be paid to Executive, but it will be applied by the Company against payment of any withholding obligation it may have in connection with the grant or the payments to be made under this Section 4(j).

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(k)Mandatory Payment.  Subject to the limitations set forth in this Section 4(k), Executive shall receive a mandatory payment in an aggregate amount of Four Hundred Thousand Dollars ($400,000)(the "Mandatory Payment").  Except as set forth below, the Mandatory Payment shall be paid to Executive in annual payments of Forty Thousand Dollars ($40,000) during the Employment Period (collectively, the "Annual Payments"). Notwithstanding the foregoing, (i) if Executive's employment is terminated pursuant to Section 5(g), (A) before the fifth (5th) anniversary of the Effective Date, Executive shall be paid an amount equal to Two Hundred Thousand Dollars ($200,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination or (B) after the fifth (5th) anniversary of the Effective Date, Executive shall be paid an amount equal to Four Hundred Thousand Dollars ($400,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination; or (ii) if Executive's employment is terminated pursuant to Section 5(a), 5(b), 5(c), 5(d), 5(f) or 5(h) at any time during the Employment Period, Executive shall be paid the Mandatory Payment in an amount equal to Four Hundred Thousand Dollars ($400,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination.

5.Termination.  This Agreement and Executive's employment may be terminated by any of the following events:

(a)Expiration of the Employment Period;

(b)Mutual written agreement between Executive and the Company at any time;

(c)Executive's death;

(d)Executive's Disability which renders Executive unable to perform the essential functions of Executive's job even with reasonable accommodation;

(e)By the Company for Cause;

(f)By Executive for Good Reason;

(g)Resignation by Executive without Good Reason; or

(h)Without Cause, which shall mean any termination of employment by the Company which is not defined in Section 5(a) through Section 5(g) above.

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6.Company's Post-Termination Obligations.

(a)Termination under Sections 5(a), 5(b), 5(c), 5(d), 5(e) and 5(g).

(1)If Executive's employment terminates for the reasons set forth in Section 5(c), Section 5(d), Section 5(e) or Section 5(g) above, then the Company will pay Executive (i) all accrued but unpaid wages, based on Executive's then current Base Salary, through the termination date; (ii) 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 (iii) solely in the event this Agreement is terminated pursuant to either Section 5(c) or Section 5(d) during an annual Bonus period, all earned and accrued but unpaid Bonuses prorated to the date of Executive's death or Disability and the remaining balance of the Mandatory Payment in an amount equal to Four Hundred Thousand Dollars ($400,000) minus the aggregate amount of the Annual Payments paid to Executive during the Employment Period as of the date of termination (such amount, the "Balance of the Mandatory Payment").  Amounts payable pursuant to this Section 6(a)(1) above shall be paid within thirty (30) days of the Executive's termination date.

(2)If Executive's employment terminates for any of the reasons set forth in Section 5(a) (due to a notice given by the Company pursuant to Section 3) or in Section 5(b) 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 PTO 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; (v) all earned and accrued but unpaid Bonuses; (vi) the Balance of the Mandatory Payment; and (vii) such other benefits and compensation to be mutually negotiated by the Parties.  Fifty percent (50%) of the amounts or benefits payable under this Sections 6(a)(2)(i), (ii), (iii) (v), (vi) and (vii) 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. Payment of amounts or benefits under Section 6(a)(2)(iv) shall be made according to established policy of the Company.

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

(1)If Executive's employment terminates for any of the reasons set forth in Section 5(f) or Section 5(h) 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 PTO 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.

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(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 Section 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 the Balance of the Mandatory Payment.

(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).

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(c)The Company's obligation to provide the payments set forth in Section 6(a) and Section 6(b) above shall be conditioned upon the following (the "Separation Conditions"):

(i)Executive's (or, in the case of Executive's death or Disability, Executive's estate or trustee, as applicable) execution (and the expiration of any applicable revocation period) of a separation agreement in a form prepared by the Company prior to the expiration of the Severance Delay Period, which will include a general release from liability so that Executive will release the Company and its Subsidiaries from any and all liability and claims of any kind as permitted by law; and

(ii)Executive's compliance with the restrictive covenants (Section 8) and all post-termination obligations, including, but not limited to, the obligations contained in this Agreement.

(d)If Executive does not execute (or revokes) an effective separation agreement as set forth in Section 6(c) above prior to the expiration of the Severance Delay Period (or if any applicable revocation period has not yet ended prior to such time), the Company will not provide any payments or benefits to Executive under Section 6(a) and Section 6(b).  The Company's obligation to make the separation payments set forth in Section 6(a) and Section 6(b) shall terminate immediately upon any breach by Executive of any post-termination obligations to which Executive is subject.

(e)Except as provided in this Section 6, following termination of Executive's employment pursuant to Section 5, and except as provided in Section 7 in the event of a Change of Control, the Company shall have no other obligations for compensation of Executive.

7.Change of Control.  Notwithstanding anything to the contrary in the Incentive Plans or any award agreement, upon a Change of Control, (i) all of Executive's outstanding unvested equity-based awards (including, but not limited to, the Restricted Stock Award) granted pursuant to the Incentive Plans, at Executive's option, shall vest and become immediately exercisable and unrestricted, without any action by the Board or any committee thereof.

8.Executive's Post-Termination Obligations.

(a)Return of Materials.  Upon the termination of Executive's employment for any reason, Executive shall return to the Company all of the Company's property, including, but not limited to, keys, passcards, credit cards, customer lists, rolodexes, tapes, software, computer files, marketing and sales materials and any other property, record, document or piece of equipment belonging to the Company.

(b)Set-Off.  If Executive has any outstanding obligations to the Company upon the termination of Executive's employment for any reason, Executive hereby authorizes the Company to deduct any amounts owed to the Company from Executive's final paycheck and/or any amounts that would otherwise be due to Executive, including under Section 6 or Section 7 above, but only to the extent such set-off is made in accordance with Treasury Regulation 1.409A-3(j)(4)(xiii).  No other set-off shall be permitted under this Agreement.

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(c)Non-Disparagement. During Executive's employment and upon the termination of Executive's employment with the Company for any reason, Executive shall not make any disparaging or defamatory statements, whether written or verbal, regarding the Company.

(d)Restrictive Covenants. Executive acknowledges that the restrictions contained in this Section 8 are reasonable and necessary to protect the legitimate business interests of the Company and will not impair or infringe upon Executive's right to work or earn a living after Executive's employment with the Company terminates.

(e)Trade Secrets and Confidential Information.

(i)Executive represents and warrants that Executive (A) is not subject to any legal or contractual duty or agreement that would prevent or prohibit Executive from performing the duties contemplated by this Agreement or otherwise complying with this Agreement, and (B) is not in breach of any legal or contractual duty or agreement, including any agreement concerning trade secrets or confidential information owned by any other party.

(ii)Executive agrees that Executive will not (A) use, disclose or reverse engineer Trade Secrets or Confidential Information for any purpose other than the Company's Business, except as authorized in writing by the Company; (B) during Executive's employment with the Company, use, disclose or reverse engineer (1) any confidential information or trade secrets of any former employer or third party or (2) any works of authorship developed in whole or in part by Executive during any former employment or for any other party, unless authorized in writing by the former employer or third party; or (C) upon Executive's resignation or termination with the Company (1) retain Trade Secrets or Confidential Information, including any copies existing in any form (including electronic form), which are in Executive's possession or control or (2) destroy, delete or alter Trade Secrets or Confidential Information without the Company's prior written consent.

(iii)The obligations under this Section 8 shall remain in effect as long as Trade Secrets and Confidential Information constitute trade secrets or confidential information under applicable law.  The confidentiality, property and proprietary rights protections available in this Agreement are in addition to, and not exclusive of, any and all other rights to which the Company is entitled under federal and state law, including, but not limited to, rights provided under copyright laws, trade secret and confidential information laws and laws concerning fiduciary duties.

(f)Non-Competition.  During the Restricted Period, Executive agrees that Executive shall not perform services which are substantially similar and/or equivalent to the Duties, individually or on behalf of any person, firm, partnership, association, business organization, corporation or entity engaged in the Business within the Territory.  The Parties agree and acknowledge that (i) the periods of restriction and Territory of restriction contained in this Agreement are fair and reasonable in that they are reasonably required for the protection of the Company and that the Territory is the area in which Executive performs services for the Company and (ii) by having access to information concerning Employees and actual or prospective Customers of the Company or any of its Subsidiaries, Executive shall obtain a competitive advantage as to the Company.

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(g)Non-Solicitation of Customers.  During the Restricted Period, Executive will not, directly or indirectly, solicit any Customer of the Company for the purpose of providing any goods or services competitive with the Business within the Territory.  The restrictions set forth in this Section 8(g) apply only to the Customers with whom Executive had Contact.

(h)Non-Recruitment of Employees.  During the Restricted Period, Executive will not, directly or indirectly, solicit, recruit or induce any Employee to (i) terminate his or her employment relationship with the Company or any of its Subsidiaries or (ii) work for any other person or entity engaged in the Business.

(i)Post-Employment Disclosure.  During the Restricted Period, Executive shall provide a copy of this Agreement to persons and/or entities for whom Executive works or consults as an owner, partner, joint venturer, employee or independent contractor.  If, during the Restricted Period, Executive works or consults for another person or entity as an owner, partner, joint venturer, employee or independent contractor, Executive shall provide the Company with such person or entity's name, the nature of such person or entity's business, Executive's job title and a general description of the services Executive will provide.

(j)Resignation.  Upon the termination of Executive's employment with the Company for any reason and upon the request of the Company, Executive shall deliver to the Company a written resignation from all offices, membership on the Board and fiduciary positions in which Executive serves for the Company and each of its Subsidiaries and Affiliates.

9.Work Product.  Executive's employment duties may include creating, developing and/or inventing in areas directly or indirectly related to the Business of the Company or to a line of business that the Company may reasonably be interested in pursuing.  If ownership of all right, title and interest to the legal rights in and to the Work Product will not vest exclusively in the Company, then, without further consideration, Executive assigns all presently-existing Work Product to the Company and agrees to assign, and automatically assigns, all future Work Product to the Company.  The Company will have the right to obtain, and hold in its own name, copyrights, patents, design registrations, proprietary database rights, trademarks, rights of publicity and any other protection available in the Work Product. At the Company's request, Executive agrees to perform, during or after Executive's employment with the Company, any acts to transfer, perfect and defend the Company's ownership of the Work Product, including, but not limited to (a) executing all documents (including a formal assignment to the Company) necessary for filing an application or registration for protection of the Work Product (an "Application"); (b) explaining the nature of the Work Product to persons designated by the Company; (c) reviewing Applications and other related papers; or (d) providing any other assistance reasonably required for the orderly prosecution of Applications.  Executive agrees to provide the Company with a written description of any Work Product in which Executive is involved (solely or jointly with others) and the circumstances attendant to the creation of such Work Product.

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10.License.  During Executive's employment and after Executive's employment with the Company terminates, Executive grants to the Company an irrevocable, nonexclusive, worldwide, royalty-free license to (a) make, use, sell, copy, perform, display, distribute or otherwise utilize copies of the Licensed Materials; (b) prepare, use and distribute derivative works based upon the Licensed Materials; and (c) authorize others to do the same.  Executive shall notify the Company in writing of any Licensed Materials Executive delivers to the Company.

11.Release.  During Executive's employment and after Executive's employment with the Company terminates, Executive consents to the Company's use of Executive's image, likeness, voice or other characteristics in the Company's products or services.  Executive releases the Company from any causes of action that Executive has or may have arising out of the use, distribution, adaptation, reproduction, broadcast or exhibition of such characteristics.

12.Injunctive Relief.  Executive agrees that, if Executive breaches Section 8 of this Agreement, (a) the Company would suffer irreparable harm; (b) damages would be difficult to determine, and money damages alone would be an inadequate remedy for the injuries suffered by the Company; and (c) if the Company seeks injunctive relief to enforce this Agreement, Executive hereby waives and will not (i) assert any defense that the Company has an adequate remedy at law with respect to the breach; (ii) require that the Company submit proof of the economic value of any Trade Secret or Confidential Information; or (iii) require the Company to post a bond or any other security.  Nothing contained in this Agreement shall limit the Company's right to any other remedies at law or in equity.

13.Payment of Defense Costs.  If Executive is individually named as a defendant in a lawsuit relating to or arising out of Executive's employment with the Company, then the Company agrees to pay the reasonable attorneys' fees and expenses Executive incurs in defending such lawsuit (the "Defense Costs").  The Company will not pay any damages or any other sums or relief for which Executive is held personally liable.  If Executive is held liable, then Executive agrees to reimburse the Company for all Defense Costs the Company paid to Executive or on Executive's behalf.  The Company's obligation under this Section 13 shall not apply to any claim or lawsuit brought by the Company against Executive. Payment of the Defense Costs shall be the Company's only obligation under this Section 13; provided, however, that nothing in this Section 13 shall be construed to limit either Party's rights or obligations under any indemnification agreement or the Company's organizational documents, as applicable

14.Clawback.  Notwithstanding anything contained herein to the contrary, any amounts paid or payable to Executive pursuant to this Agreement or otherwise by the Company, including, but not limited to, any equity compensation granted to Executive, may be subject to forfeiture or repayment to the Company in accordance with Code Section 409A and pursuant to any clawback policy as adopted by the Board from time to time, and Executive hereby agrees to be bound by any such policy.

15.Severability.  The provisions of this Agreement are severable.  If any provision of this Agreement is determined to be unenforceable, in whole or in part, then such provision shall be modified so as to be enforceable to the maximum extent permitted by law.  If such provision cannot be modified to be enforceable, the provision shall be severed from this Agreement to the extent unenforceable.  The remaining provisions and any partially enforceable provisions shall remain in full force and effect.

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16.Attorneys' Fees.  In the event of litigation relating to this Agreement, the prevailing Party shall be entitled to recover attorneys' fees and costs of litigation in addition to all other remedies available at law or in equity.

17.Waiver.  Either Party's failure to enforce any provision of this Agreement shall not act as a waiver of that or any other provision.  Either Party's waiver of any breach of this Agreement shall not act as a waiver of any other breach.

18.Entire Agreement.  This Agreement constitutes the entire agreement between the Parties concerning the subject matter of this Agreement.  This Agreement supersedes any prior communications, agreements or understandings, whether oral or written, between the Parties relating to the subject matter of this 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.

19.Amendments.  This Agreement may not be amended or modified except in a writing signed by both Parties.

20.Successors and Assigns.  This Agreement shall be assignable to, and shall inure to the benefit of, the Company's successors and assigns, including, without limitation, successors through merger, name change, consolidation or sale of a majority of the Company's stock or assets and shall be binding upon Executive. Executive shall not have the right to assign Executive's rights or obligations under this Agreement.  The covenants contained in Section 8 of this Agreement shall survive the termination of Executive's employment with the Company, regardless of which Party causes the termination or the reason for the termination.

21.Governing Law.  The laws of the State of Utah shall govern this Agreement. If Utah's conflict of law rules would apply another state's laws, the Parties agree that Utah law shall still govern.

22.No Strict Construction.  If there is a dispute about the language of this Agreement, the fact that one Party drafted this Agreement shall not be considered in its interpretation.

23.Notices.  Whenever any notice is required, it shall be given in writing addressed as follows:

If to the Company:	DYNATRONICS CORPORATION
	7030 Park Centre Drive
	Salt Lake City, Utah 84121
With a copy	DURHAM JONES & PINEGAR
(which shall not	Attn: Kevin R. Pinegar, Esq.
constitute notice) to:	111 East Broadway, Suite 900
	Salt Lake City, Utah 84111
If to the Executive:	Larry K. Beardall
	8898 Cobblestone Way
	Sandy, UT 84093

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Notice shall be deemed given and effective when deposited in the U.S. mail, sent to the receiving Party by electronic means or when actually received.  Either Party may change the address to which notices shall be delivered or mailed by notifying the other Party of such change in accordance with this Section.

24.Consent to Jurisdiction and Venue.  Executive agrees that any claim arising out of or relating to this Agreement shall be brought in a state or federal court of competent jurisdiction in Utah.  Executive consents to the personal jurisdiction of the state and/or federal courts located in Utah.  Executive waives (a) any objection to jurisdiction or venue, or (b) any defense claiming lack of jurisdiction or improper venue in any action brought in such courts.

25.Affirmation.  Executive acknowledges that Executive has carefully read this Agreement, Executive knows and understands its terms and conditions and Executive has had the opportunity to ask the Company any questions Executive may have had prior to signing this Agreement.

26.Compliance with Code Section 409A and Other Applicable Provisions of the Code.

(a)It is intended that (i) each payment or installment of payments provided under this Agreement is a separate "payment" for purposes of Code Section 409A, and (ii) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two (2) year exception) and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay).  Notwithstanding anything to the contrary herein, if the Company determines (i) that on the date of Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) or at such other time that the Company determines to be relevant, Executive is a "specified employee" (as such term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Company, and (ii) that any payments to be provided to Executive pursuant to this Agreement are or may become subject to the additional tax under Code Section 409A(a)(1)(B) or any other taxes or penalties imposed under Code Section 409A if provided at the time otherwise required under this Agreement, then such payments shall be delayed until the date that is six (6) months after the date of Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) or, if sooner, the date of Executive's death.  Any payments delayed pursuant to this Section 26 shall be made in a lump sum on the first day of the seventh month following Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) or, if sooner, the date of Executive's death.  It is intended that Agreement shall comply with the provisions of Code Section 409A and the Treasury Regulations relating thereto so as not to subject Executive to the payment of additional taxes and interest under Code Section 409A. In furtherance of this intent, this Agreement shall be interpreted, operated, and administered in a manner consistent with these intentions.

(b)In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which Executive participates during the term of Executive's employment under this Agreement or thereafter provides for a "deferral of compensation" within the meaning of Code Section 409A, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to any reimbursement or in-kind benefit is not subject to liquidation or exchange for another benefit.

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(c)Notwithstanding anything herein to the contrary, a termination of Executive's employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a "separation from service" within the meaning of Code Section 409A (and Treasury Regulation 1.409A-1(h)) (which, by definition, includes a separation from any other entity that would be deemed a single employer together with the Company for this purpose under Code Section 409A (and Treasury Regulation 1.409A-1(h)), and for purposes of any such provision of this Agreement, references to a "termination," "termination of employment," "termination date," or similar terms shall mean "separation from service."

(d)For the avoidance of doubt, the Company shall pay any amounts that are due under this Agreement following Executive's termination of employment, death, Disability or other event within the periods of time that are specified in this Agreement, provided, however, that the Company, in its sole and absolute discretion, shall determine the date or dates on which any such payment shall be made during such specified period.

(e)By accepting this Agreement, Executive hereby agrees and acknowledges that neither the Company nor its Subsidiaries make any representations with respect to the application of Code Section 409A to any tax, economic or legal consequences of any payments payable to Executive hereunder.  Further, by the acceptance of this Agreement, Executive acknowledges that (i) Executive has obtained independent tax advice regarding the application of Code Section 409A to the payments due to Executive hereunder, (ii) Executive retains full responsibility for the potential application of Code Section 409A to the tax and legal consequences of payments payable to Executive hereunder and (iii) the Company shall not indemnify or otherwise compensate Executive for any violation of Code Section 409A that my occur in connection with this Agreement.  The Parties agree to cooperate in good faith to amend such documents and to take such actions as may be necessary or appropriate to comply with Code Section 409A.

Signatures on Following Page

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

DYNATRONICS CORPORATION,

a Utah corporation

By:

Name:      Kelvyn H. Cullimore, Jr.                 

Title:     President and CEO                            

LARRY K. BEARDALL,

an individual

Larry K. Beardall

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EXHIBIT A

Responsibilities and Authority of Executive Vice President of Business Development, Sales & Marketing

Responsibilities:

Manages and directs all Business Development and Marketing functions

Receives reports of General Sales Manager (or equivalent)

Hiring of personnel for his department

Develops and supervises execution of Marketing strategies

Develops product definition for all manufactured products

Drives for improvement of existing products

Evaluates products for distribution

Management Team Member

Receives reports on sales efforts of the Company from appropriate Sales executives

Authority:

Acts in full stead of President/CEO in the latter's absence

Fully empowered to decide and implement Marketing strategies

Development of Customer Incentive Programs within allowed budgets

Hires needed personnel to meet the Marketing business plan (compensation packages require advance approval of the President/CEO)

Approves expenditures for marketing travel, trade shows, advertising and other budget categories within his purview (as approved by the Board)

May grant exceptions to Company policies for employees under his management

Signs Purchase Orders for equipment, supplies, and services for his department: </= $50,000 (Higher amounts require approval of President/CEO)

Approves non-manufactured products for distribution

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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 13, 2015
	/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 13, 2015
	/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, 2015, 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 13, 2015	/s/ Kelvyn H. Cullimore, Jr.
	Kelvyn H. Cullimore, Jr.
	President, Chief Executive Officer
	(Principal Executive Officer)
	Dynatronics Corporation
Date: November 13, 2015	/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.

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Note 3. Stock-based Compensation: Summary of Stock Option Activity (Details)	3 Months Ended
	Sep. 30, 2015 $ / shares shares
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	91,152
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares	$ 5.07
Options canceled or expired	(1,200)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price | $ / shares	$ 5.15
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	89,952
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares	$ 5.31
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options	87,188
Weighted average exercise price - exercisable options | $ / shares	$ 5.39

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Note 4. Convertible Preferred Stock and Common Stock Warrants

3 Months Ended

Sep. 30, 2015

Notes

Note 4. Convertible Preferred Stock and Common Stock Warrants

NOTE 4.  CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS

On June 30, 2015, the Company completed a private placement with affiliates of Prettybrook Partners, LLC (“Prettybrook”) and certain other purchasers (collectively with Prettybrook, the “Preferred Investors”) for the offer and sale of shares of the Company’s Series A 8% Convertible Preferred Stock (the “Series A Preferred”) in the aggregate amount of approximately $4 million. Offering costs incurred in conjunction with the private placement were recorded net of proceeds. The Series A Preferred is convertible to common stock on a 1:1 basis.  A Forced Conversion can be initiated based on a formula related to share price and trading volumes as outlined in the terms of the private placement.  The dividend is fixed at 8% and is payable in either cash or common stock.  This dividend is payable quarterly and equates to an annual payment of $322,000 or equivalent value in common stock.  Certain redemption rights are attached to the Series A Preferred, but none of the redemption rights for cash are deemed outside the control of the Company. The redemption rights deemed outside the control of the Company require common stock payments or an increase in the dividend rate.  The Series A Preferred includes a liquidation preference under which Preferred Investors would receive cash equal to the stated value of their stock plus unpaid dividends.  In accordance with the terms of the sale of the Series A Preferred, the Company was required to register the underlying common shares associated with the Series A Preferred and the warrants.  That registration statement filed on form S-3 went effective on August 13, 2015. 

The Series A Preferred votes on an as-converted basis, one vote for each share of Common Stock issuable upon conversion of the Series A Preferred, provided, however, that no holder of Series A Preferred shall be entitled to cast votes for the number of shares of Common Stock issuable upon conversion of such Series A Preferred held by such holder that exceeds the quotient of (x) the aggregate purchase price paid by such holder of Series A Preferred for its Series A Preferred, divided by (y) the greater of (i) $2.50 and (ii) the market price of the Common Stock on the trading day immediately prior to the date of issuance of such holder’s Preferred Stock. The market price of the Common Stock on the trading day immediately prior to the date of issuance was $3.19 per share. Based on a $4,025,000 investment and a $3.19 per share price the number of Common Stock equivalents eligible for voting by Preferred shareholders is 1,261,755.

The Preferred Investors purchased a total of 1,610,000 shares of Series A Preferred Stock, and received in connection with such purchase, (i) A-Warrants, exercisable by cash exercise only, to purchase 1,207,500 shares of common stock, and (ii) B-Warrants, exercisable by “cashless exercise”, to purchase 1,207,500 shares of common stock.  The warrants are exercisable for 72 months from the date of issuance and carry a Black-Scholes put feature in the event of a change in control.  The put right is not subject to derivative accounting as all equity holders are treated the same in the event of a change in control.

The Company’s Board of Directors has the authority to cause us to issue, without any further vote or action by the shareholders, up to 3,390,000 additional shares of preferred stock, no par value per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series.

The Series A Preferred includes a conversion right at a price that creates an embedded beneficial conversion feature.  A beneficial conversion feature arises when the conversion price of a convertible instrument is below the per share fair value of the underlying stock into which it is convertible. The conversion price is ‘in the money’ and the holder realizes a benefit to the extent of the price difference. The issuer of the convertible instrument realizes a cost based on the theory that the intrinsic value of the price difference (i.e., the price difference times the number of shares received upon conversion) represents an additional financing cost. The conversion rights associated with the Series A Preferred issued by the Company do not have a stated life and, therefore, all of the beneficial conversion feature amount of $2,858,887 was amortized to dividends on the same date the preferred shares were issued.  The $2,858,887 dividend is added to the net loss to arrive at the net loss applicable to common stockholders for purposes of calculating loss per share for the year ended June 30, 2015. 

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Note 8. Line of Credit (Details)	3 Months Ended
	Sep. 30, 2015 USD ($)
Details
Line of Credit Facility, Interest Rate Description	Interest on the new line of credit is prime rate plus 5%
Line of Credit Facility, Maximum Borrowing Capacity	$ 3,000,000
Line of Credit Facility, Collateral	Borrowing limitations are based on 85% of eligible accounts receivable and $0.7 million of eligible inventory
Revolving Line of Credit	$ 2,400,000
Interest Rate	10.00%

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Note 3. Stock-based Compensation

3 Months Ended

Sep. 30, 2015

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 $15,011 and $17,454 in stock-based compensation expense during the three months ended September 30, 2015 and 2014, respectively. These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options.  The Company maintained a 2005 equity incentive plan for the benefit of employees, no further grants will be made under the 2005 equity incentive plan. On June 29, 2015 the shareholders approved a new 2015 equity incentive plan setting aside 500,000 shares. The 2015 plan was filed with the SEC on September 3, 2015.   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, 2015, there were 500,000 shares of common stock authorized and reserved for issuance, but not granted under the terms of the 2015 equity incentive plan.

The Company granted no equity awards under either its 2005 or 2015 equity incentive plan during the three months ended September 30, 2015.

The following table summarizes the Company’s stock option activity for the 2005 equity incentive plan during the three-month period ended September 30, 2015.

	Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	91,152	$	5.07
Granted	-		-
Exercised	-		-
Cancelled	(1,200)		5.15
Outstanding at end of period	89,952		5.31
Exercisable at end of period	87,188		5.39

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company’s stock option plan.

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, 2015, there was $312,973 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 $2,802 of intrinsic value for options outstanding as of September 30, 2015.

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Consolidated Balance Sheets - USD ($)	Sep. 30, 2015	Jun. 30, 2015
Current assets:
Cash and cash equivalents	$ 2,080,775	$ 3,925,967
Trade accounts receivable, less allowance for doubtful accounts of $423,076 as of September 30, 2015 and $417,444 as of June 30, 2015	3,172,939	3,346,770
Other receivables	8,533	6,748
Inventories, net	5,465,667	5,421,787
Prepaid expenses and other	358,928	273,629
Prepaid income taxes	334,508	338,108
Total current assets	11,421,350	13,313,009
Property and equipment, net	4,919,640	5,025,076
Intangible assets, net	183,133	190,803
Other assets	603,185	623,342
Total assets	17,127,308	19,152,230
Current liabilities:
Current portion of long-term debt	123,588	121,884
Current portion of capital lease	175,792	173,357
Current portion of deferred gain	150,448	150,448
Line of credit	717,819	1,909,919
Warranty reserve	153,650	153,185
Accounts payable	1,955,898	2,520,327
Accrued expenses	159,468	279,547
Accrued payroll and benefits expense	384,656	263,092
Total current liabilities	3,821,319	5,571,759
Long-term debt, net of current portion	619,514	651,118
Capital lease, net of current portion	3,419,978	3,464,850
Deferred gain, net of current portion	1,943,285	1,980,897
Deferred rent	52,957	41,150
Deferred income tax liabilities	130,478	136,128
Total liabilities	$ 9,987,531	$ 11,845,902
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value: Authorized 5,000,000 shares; 1,610,000 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively	$ 3,087,554	$ 3,087,554
Common stock, no par value: Authorized 50,000,000 shares; 2,643,583 shares and 2,642,389 shares issued and outstanding at September 30, 2015 and June 30, 2015, respectively	7,625,255	7,610,244
Accumulated deficit	(3,573,032)	(3,391,470)
Total stockholders' equity	7,139,777	7,306,328
Total liabilities and stockholders' equity	$ 17,127,308	$ 19,152,230

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Note 1. Presentation and Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2015

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, 2015 and June 30, 2015, and the condensed consolidated statements of operations and cash flows for the three months ended September 30, 2015 and 2014 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, 2015 are not necessarily indicative of the results of operations for the fiscal year ending June 30, 2016.  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, 2015 and 2014.  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.

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 for the fiscal year ended June 30, 2015.

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Note 2. Net Loss Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - shares	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Details
Basic weighted-average number of common shares outstanding during the year	2,643,297	2,520,389
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	2,643,297	2,523,472

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Note 3. Stock-based Compensation (Details) - USD ($)	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Details
Allocated Share-based Compensation Expense	$ 15,011	$ 17,454
Common Stock, Capital Shares Reserved for Future Issuance	500,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 312,973
Employee Service Share Based Compensation Unrecognized Compensation Costs On Nonvested Awards Weighted Average Period Of Recognition	four to ten years
Aggregate intrinsic value of options outstanding	$ 2,802

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Note 2. Net Loss Per Common Share

3 Months Ended

Sep. 30, 2015

Notes

Note 2. Net 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, 2015 and 2014 are as follows:

	Three Months Ended
	September 30
	2015	2014
Basic weighted-average number of common shares outstanding during the period	2,643,297	2,520,389
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	2,643,297	2,523,472

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, 2015 and 2014 totaled 4,112,409 and 141,356, respectively.

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Consolidated Balance Sheets Parenthetical - USD ($)	Sep. 30, 2015	Jun. 30, 2015
Consolidated Balance Sheets Parenthetical
Allowance for doubtful accounts	$ 423,076	$ 417,444
Preferred stock par value
Preferred stock shares authorized	5,000,000
Preferred stock shares issued	1,610,000	1,610,000
Preferred stock shares outstanding	1,610,000	1,610,000
Common stock par value
Common stock shares authorized	50,000,000	50,000,000
Common stock shares issued	2,643,583	2,642,389
Common stock shares outstanding	2,643,583	2,642,389

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

3 Months Ended

Sep. 30, 2015

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 for the fiscal year ended June 30, 2015.

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Document and Entity Information - shares	3 Months Ended
	Sep. 30, 2015	Sep. 18, 2015
Document and Entity Information:
Entity Registrant Name	DYNATRONICS CORP
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Trading Symbol	dynt
Amendment Flag	false
Entity Central Index Key	0000720875
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding		2,643,583
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	2016
Document Fiscal Period Focus	Q1

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Note 9. Recent Accounting Pronouncements: New Accounting Pronouncements, Policy (Policies)

3 Months Ended

Sep. 30, 2015

Policies

New Accounting Pronouncements, Policy

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update, which is part of the FASB’s larger Simplification Initiative project aimed at reducing the cost and complexity of certain areas of the accounting codification, requires that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined.  Furthermore, the acquirer should record in the same period’s financial statements, the effect on earnings from any changes in depreciation, amortization, or other items impacting income. These changes resulting from adjustments to provisional amounts should be calculated as if the accounting had been completed at the actual acquisition date. Lastly, the update requires the acquirer to present separately on the face of the income statement or in the footnote disclosures the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the actual acquisition date. This update is effective for fiscal years beginning after December 15, 2016. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly, if the Company acquires any new businesses.

In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This update was issued to make some fairly minor wording adjustments to ASC 835-30. The new wording, presented as paragraph 835-30-S45-1, recognizes that ASU 2015-13 does not address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-13 requires companies to recognize debt issuance costs as a reduction of the carrying amount of the associated debt liability. ASU 2015-15 states that debt issuance costs related to line-of-credit arrangements may be recognized as an asset and amortized over the term of the line-of-credit arrangement, even if the line-of-credit does not carry a balance. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update was issued in response to feedback from preparers, practitioners, and users of financial statements to see the effective date of the new guidance on revenue recognition delayed in order to allow a smoother transition. This update pushes the effective date for the new guidance back for public entities, certain not-for-profit entities, and certain employee benefit plans to annual reporting periods beginning after December 15, 2017, along with any interim reporting periods in that same period. All other entities will be required to implement the new guidance to reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly; however, due to the extensive nature of the new revenue recognition standard, the Company is evaluating the impact this new guidance will have on its financials.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): simplifying the Measurement of Inventory. This objective of this update is to simplify Topic 330, which currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Update will be effective for fiscal years beginning after December 15, 2017. The Company currently applies a lower of cost or market and is currently assessing the magnitude of the difference between using market value versus net realizable value; however, it is not anticipated to have a material effect on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. This pronouncement is part of the FASB’s perpetual project started in November 2010 to address feedback received from stakeholders regarding the codification standards. Like other such pronouncements issued from time to time, the purpose of this pronouncement is not to issue new guidance, but rather to clarify, correct unintended application of the standards, and make various minor improvements as deemed necessary. The updates made are effective immediately. These changes are not expected to have a significant impact on the financial statements of guidance users. While some of the changes made in this pronouncement impact standards applicable to the Company, no material impact was noted.

In May 2015, the FASB issued ASU 2015-08, Business Combinations (Topic 805): Pushdown Accounting. This Accounting Standards Update amends various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No.115. The Company notes the Update is effective immediately and will apply to the Company if the Company acquires a business.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.

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Consolidated Statements of Income - USD ($)	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Consolidated Statements of Income
Net sales	$ 7,397,196	$ 7,216,324
Cost of sales	4,886,367	4,648,752
Gross profit	2,510,829	2,567,572
Selling, general, and administrative expenses	2,355,655	2,251,629
Research and development expenses	265,361	216,827
Operating income (loss)	(110,187)	99,116
Other income (expense):
Interest income	614	2,321
Interest expense	(80,243)	(48,293)
Other income, net	2,604	3,342
Net other expense	(77,025)	(42,630)
Income (loss) before income taxes	(187,212)	56,486
Income tax (provision) benefit	5,650	(15,563)
Net income (loss)	(181,562)	40,923
8% Convertible preferred stock dividend	(80,500)
Net income (loss) applicable to common stockholders	$ (262,062)	$ 40,923
Basic and diluted net income (loss) per common share	$ (0.10)	$ 0.02
Weighted-average common shares outstanding:
Basic	2,643,297	2,520,389
Diluted	2,643,297	2,523,472

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Note 7. Related-party Transactions

3 Months Ended

Sep. 30, 2015

Notes

Note 7. Related-party Transactions

NOTE 7.  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 $17,700 for the three months ended September 30, 2015 and 2014, respectively.

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Note 6. Inventories

3 Months Ended

Sep. 30, 2015

Notes

Note 6. Inventories

NOTE 6.  INVENTORIES

Inventories consisted of the following:          

		September 30, 2015	June 30, 2015
Raw materials	$	2,143,156	2,086,411
Finished goods		3,679,274	3,693,921
Inventory obsolescence reserve		(356,763)	(358,545)
	$	5,465,667	5,421,787

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Note 2. Net Loss Per Common Share (Details) - shares	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Details
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	4,112,409	141,356

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

3 Months Ended

Sep. 30, 2015

Tables/Schedules

Schedule of Earnings Per Share, Basic and Diluted

	Three Months Ended
	September 30
	2015	2014
Basic weighted-average number of common shares outstanding during the period	2,643,297	2,520,389
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	2,643,297	2,523,472

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

3 Months Ended

Sep. 30, 2015

Policies

Basis of Presentation

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2015 and June 30, 2015, and the condensed consolidated statements of operations and cash flows for the three months ended September 30, 2015 and 2014 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, 2015 are not necessarily indicative of the results of operations for the fiscal year ending June 30, 2016.  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, 2015 and 2014.  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. Line of Credit

3 Months Ended

Sep. 30, 2015

Notes

Note 8. Line of Credit

NOTE 8.  LINE OF CREDIT

In March 2015, the Company moved its working capital line of credit to a new lender. Interest on the new line of credit is prime rate plus 5%. The $3 million line of credit is collateralized by accounts receivable and inventories.  Borrowing limitations are based on 85% of eligible accounts receivable and $0.7 million of eligible inventory.  The current borrowing base on the new line of credit is approximately $2.4 million.  Interest payments on the line are due monthly.  All borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet.

The line of credit matures on March 5, 2016.  Management expects to be able to renew this credit facility when it matures with the current lender or another lender. The effective interest rate on borrowed money is approximately 10% including interest and origination fees. The new line of credit requires that a minimum borrowing of approximately $700,000 be maintained during the term of the loan. 

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Note 9. Recent Accounting Pronouncements

3 Months Ended

Sep. 30, 2015

Notes

Note 9. Recent Accounting Pronouncements

NOTE 9.  RECENT ACCOUNTING PRONOUNCEMENTS

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update, which is part of the FASB’s larger Simplification Initiative project aimed at reducing the cost and complexity of certain areas of the accounting codification, requires that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined.  Furthermore, the acquirer should record in the same period’s financial statements, the effect on earnings from any changes in depreciation, amortization, or other items impacting income. These changes resulting from adjustments to provisional amounts should be calculated as if the accounting had been completed at the actual acquisition date. Lastly, the update requires the acquirer to present separately on the face of the income statement or in the footnote disclosures the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the actual acquisition date. This update is effective for fiscal years beginning after December 15, 2016. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly, if the Company acquires any new businesses.

In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This update was issued to make some fairly minor wording adjustments to ASC 835-30. The new wording, presented as paragraph 835-30-S45-1, recognizes that ASU 2015-13 does not address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-13 requires companies to recognize debt issuance costs as a reduction of the carrying amount of the associated debt liability. ASU 2015-15 states that debt issuance costs related to line-of-credit arrangements may be recognized as an asset and amortized over the term of the line-of-credit arrangement, even if the line-of-credit does not carry a balance. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update was issued in response to feedback from preparers, practitioners, and users of financial statements to see the effective date of the new guidance on revenue recognition delayed in order to allow a smoother transition. This update pushes the effective date for the new guidance back for public entities, certain not-for-profit entities, and certain employee benefit plans to annual reporting periods beginning after December 15, 2017, along with any interim reporting periods in that same period. All other entities will be required to implement the new guidance to reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company notes that this guidance does apply to its reporting requirements and will implement the new guidance accordingly; however, due to the extensive nature of the new revenue recognition standard, the Company is evaluating the impact this new guidance will have on its financials.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): simplifying the Measurement of Inventory. This objective of this update is to simplify Topic 330, which currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Update will be effective for fiscal years beginning after December 15, 2017. The Company currently applies a lower of cost or market and is currently assessing the magnitude of the difference between using market value versus net realizable value; however, it is not anticipated to have a material effect on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. This pronouncement is part of the FASB’s perpetual project started in November 2010 to address feedback received from stakeholders regarding the codification standards. Like other such pronouncements issued from time to time, the purpose of this pronouncement is not to issue new guidance, but rather to clarify, correct unintended application of the standards, and make various minor improvements as deemed necessary. The updates made are effective immediately. These changes are not expected to have a significant impact on the financial statements of guidance users. While some of the changes made in this pronouncement impact standards applicable to the Company, no material impact was noted.

In May 2015, the FASB issued ASU 2015-08, Business Combinations (Topic 805): Pushdown Accounting. This Accounting Standards Update amends various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No.115. The Company notes the Update is effective immediately and will apply to the Company if the Company acquires a business.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.

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

3 Months Ended

Sep. 30, 2015

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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Note 6. Inventories: Schedule of Inventory, Current (Tables)

3 Months Ended

Sep. 30, 2015

Tables/Schedules

Schedule of Inventory, Current

		September 30, 2015	June 30, 2015
Raw materials	$	2,143,156	2,086,411
Finished goods		3,679,274	3,693,921
Inventory obsolescence reserve		(356,763)	(358,545)
	$	5,465,667	5,421,787

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Note 6. Inventories: Schedule of Inventory, Current (Details) - USD ($)	Sep. 30, 2015	Jun. 30, 2015
Details
Raw Materials	$ 2,143,156	$ 2,086,411
Finished Goods	3,679,274	3,693,921
Inventory Reserves	(356,763)	(358,545)
Inventories, net	$ 5,465,667	$ 5,421,787

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Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash flows from operating activities:
Net income (loss)	$ (181,562)	$ 40,923
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment	55,103	89,836
Amortization of intangible assets	7,670	11,169
Amortization of other assets	12,843	12,843
Amortization of building lease	62,983	41,989
Stock-based compensation expense	15,011	17,454
Change in deferred income taxes	(5,650)	(892,607)
Change in provision for doubtful accounts receivable	5,632	24,000
Change in provision for inventory obsolescence	(1,782)	30,000
Deferred gain on sale/leaseback	(37,612)	(25,074)
Change in Receivables, net	166,414	(20,117)
Change in Inventories, net	(42,098)	106,273
Change in Prepaid expenses and other assets	(85,299)	(418,840)
Change in Other assets	7,314	(333,121)
Change in Prepaid income taxes	3,600	907,570
Change in Accounts payable and accrued expenses	(550,672)	34,132
Net cash used in operating activities	(568,105)	(373,570)
Cash flows from investing activities:
Purchase of property and equipment	(12,650)	(17,551)
Proceeds from sale of property and equipment		3,800,000
Net cash provided by (used in) investing activities	(12,650)	3,782,449
Cash flows from financing activities:
Principal payments on long-term debt	(29,900)	(680,112)
Principal payments on long-term capital lease	(42,437)	(34,600)
Net change in line of credit	(1,192,100)	(2,349,138)
Net cash used in financing activities	(1,264,437)	(3,063,850)
Net change in cash and cash equivalents	(1,845,192)	345,029
Cash and cash equivalents at beginning of the period	3,925,967	332,800
Cash and cash equivalents at end of the period	2,080,775	677,829
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 98,274	$ 57,069
Cash paid for income taxes
Supplemental disclosure of non-cash investing and financing activity:
Capital lease - building		$ 3,800,000
Preferred stock dividend payable in common stock	$ 80,500

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Note 5. Comprehensive Income (loss)

3 Months Ended

Sep. 30, 2015

Notes

Note 5. Comprehensive Income (loss)

NOTE 5.  COMPREHENSIVE INCOME (LOSS)

For the three months ended September 30, 2015 and 2014, comprehensive income (loss) was equal to the net income (loss) as presented in the accompanying condensed consolidated statements of operations.

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Note 7. Related-party Transactions (Details) - USD ($)	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Details
Related Party Transaction, Expenses from Transactions with Related Party	$ 17,700	$ 17,700

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

3 Months Ended

Sep. 30, 2015

Tables/Schedules

Summary of Stock Option Activity

	Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	91,152	$	5.07
Granted	-		-
Exercised	-		-
Cancelled	(1,200)		5.15
Outstanding at end of period	89,952		5.31
Exercisable at end of period	87,188		5.39