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 March 31,September 30, 2019
 
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)
 
 
Utah87-0398434
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
 
7030 Park Centre Drive, Cottonwood Heights, Utah 84121
(Address of principal executive offices, Zip Code)
 
(801) 568-7000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common Stock, no par value per share
DYNTNasdaq Capital Market
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 every Interactive Data File required to be submitted 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 such files). ☑Yes ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 ☑
 Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
 
Securities registered pursuant to Section 12(b)As of November 6, 2019, there were 8,849,928 shares of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common StockDYNTNasdaq Capital Market
As of May 3, 2019, the registrant had 8,417,793 shares ofregistrant’s common stock no par value per share, outstanding.
 

 
 
 
DYNATRONICS CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31,SEPTEMBER 30, 2019
TABLE OF CONTENTS
 
 
 
 
 
 
Page
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1. Financial Statements
  1 
 
    
Condensed Consolidated Balance Sheets (Unaudited)
  1 
 
    
Condensed Consolidated Statements of Operations (Unaudited)
  2 
 
    
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
  3

    
Condensed Consolidated Statements of Cash Flows (Unaudited)
 54
 
    
Notes to Condensed Consolidated Financial Statements (Unaudited)
 65
 
    
Cautionary Note Regarding Forward-Looking Statements
 1110
 
    
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 1110
 
    
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 1413
 
    
Item 4. Controls and Procedures
 1514
 
    
PART II. OTHER INFORMATION
 
    
Item 1. Legal Proceedings
14


Item 1A. Risk Factors
  14


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  14


Item 3. Defaults Upon Senior Securities
  14


Item 4. Mine Safety Disclosures
  14


Item 5. Other Information
  14


Item 6. Exhibits
 1514
 
    
Signatures
 1615
 
 
 
  
PART I. FINANCIAL INFORMATION
 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Balance Sheets
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 Assets
 
March 31, 2019
 
 
June 30, 2018
 
     Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $414,255 
 $1,696,116 
Trade accounts receivable, less allowance for doubtful accounts of $89,500 as of March 31, 2019 and $370,300 as of June 30, 2018
  6,853,624 
  7,810,846 
Other receivables
  5,659 
  52,819 
Inventories, net
  11,218,935 
  10,987,855 
Prepaid expenses
  706,584 
  778,654 
Income tax receivable
  59,983 
  95,501 
 
    
    
          Total current assets
  19,259,040 
  21,421,791 
 
    
    
Property and equipment, net
  5,814,836 
  5,850,899 
Intangible assets, net
  6,588,466 
  7,131,758 
Goodwill
  7,116,614 
  7,116,614 
Other assets
  516,345 
  532,872 
 
    
    
          Total assets
 $39,295,301 
 $42,053,934 
 
    
    
Liabilities and Stockholders' Equity
    
    
     Current liabilities:
    
    
Accounts payable
 $4,248,740 
 $3,412,960 
Accrued payroll and benefits expense
  1,468,821 
  1,929,465 
Accrued expenses
  1,147,296 
  830,243 
Warranty reserve
  205,850 
  205,850 
Line of credit
  4,793,505 
  6,286,037 
Current portion of long-term debt
  171,715 
  164,003 
Current portion of capital lease obligations
  282,415 
  226,727 
Current portion of deferred gain
  150,448 
  150,448 
Current portion of acquisition holdback and earn-out liability
  966,667 
  1,379,512 
 
    
    
          Total current liabilities
  13,435,457 
  14,585,245 
 
    
    
Long-term debt, net of current portion
  173,601 
  303,348 
Capital lease obligations, net of current portion
  2,987,736 
  2,972,540 
Deferred gain, net of current portion
  1,416,717 
  1,529,553 
Acquisition holdback and earn-out liability, net of current portion
  - 
  875,000 
Deferred tax liabilities, net
  236,829
  - 
Other liabilities
  171,489 
  411,466 
 
    
    
          Total liabilities
  18,421,829
  20,677,152 
Commitments and contingencies
    
    
 
    
    
     Stockholders' equity:
    
    
Preferred stock, no par value: Authorized 50,000,000 shares; 4,899,000 shares and 4,899,000 shares issued and outstanding as of March 31, 2019 and June 30, 2018, respectively
  11,641,816 
  11,641,816 
Common stock, no par value: Authorized 100,000,000 shares; 8,322,544 shares and 8,089,398 shares issued and outstanding as of March 31, 2019 and June 30, 2018, respectively
  20,996,558 
  20,225,107 
Accumulated deficit
  (11,764,902)
  (10,490,141)
 
    
    
          Total stockholders' equity
  20,873,472
  21,376,782 
 
    
    
          Total liabilities and stockholders' equity
 $39,295,301 
 $42,053,934 
 
    
    
See accompanying notes to condensed consolidated financial statements.
Item 1. Financial Statements
 
 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Balance Sheets
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 Assets
 
September 30, 2019
 
 
June 30, 2019
 
     Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $374,644 
 $155,520 
Restricted cash
  100,510 
  100,510 
Trade accounts receivable, less allowance for doubtful accounts of $89,500 as of September 30, 2019 and June 30, 2019
  7,299,975 
  7,495,309 
Other receivables
  6,809 
  2,776 
Inventories, net
  11,129,982
 
  11,527,521 
Prepaid expenses
  642,961 
  632,061 
Income tax receivable
  1,349 
  - 
 
    
    
          Total current assets
  19,556,230
  19,913,697 
 
    
    
Property and equipment, net
  5,499,584
 
  5,677,419 
Operating lease assets 
  3,534,949
 
  -
Intangible assets, net
  6,226,279 
  6,407,374 
Goodwill
  7,116,614 
  7,116,614 
Other assets
  509,891 
  516,841 
 
    
    
          Total assets
 $42,443,547
 
 $39,631,945 
 
    
    
Liabilities and Stockholders' Equity
    
    
     Current liabilities:
    
    
Accounts payable
 $4,923,221
 
 $3,989,546 
Accrued payroll and benefits expense
  1,229,353 
  1,373,481 
Accrued expenses
  1,050,917 
  1,038,726 
Warranty reserve
  207,988 
  207,988 
Line of credit
  5,076,906 
  6,540,639 
Current portion of long-term debt
  173,369 
  173,921 
Current portion of finance lease liability
  299,421 
  283,781 
Current portion of deferred gain
  150,448 
  150,448 
Current portion of operating lease liability
  897,209 
  - 
Acquisition earn-out liability
  375,000 
  500,000 
Income tax payable
  - 
  16,751 
 
    
    
          Total current liabilities
  14,383,832
 
  14,275,281 
 
    
    
Long-term debt, net of current portion
  83,363 
  129,428 
Finance lease liability, net of current portion
  2,830,489 
  2,915,241 
Deferred gain, net of current portion
  1,341,494 
  1,379,105 
Operating lease liability, net of current portion
  2,637,740 
  - 
Other liabilities
  182,289 
  177,181 
 
    
    
          Total liabilities
  21,459,207
 
  18,876,236 
Commitments and contingencies
    
    
 
    
    
     Stockholders' equity:
    
    
Preferred stock, no par value: Authorized 50,000,000 shares; 4,899,000 shares issued and outstanding as of September 30, 2019 and June 30, 2019
  11,641,816 
  11,641,816 
Common stock, no par value: Authorized 100,000,000 shares; 8,679,231 shares and 8,417,793 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively
  21,616,803 
  21,320,106 
Accumulated deficit
  (12,274,279)
  (12,206,213)
 
    
    
          Total stockholders' equity
  20,984,340
 
  20,755,709 
 
    
    
          Total liabilities and stockholders' equity
 $42,443,547
 
 $39,631,945 
 
    
    
See accompanying notes to condensed consolidated financial statements.
    
    

 
 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Statements of Operations
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 $14,551,519 
 $16,634,067 
 $47,057,320 
 $47,513,371 
Cost of sales
  10,146,361 
  11,342,518 
  32,425,066 
  32,112,451 
Gross profit
  4,405,158 
  5,291,549 
  14,632,254 
  15,400,920 
 
    
    
    
    
Selling, general, and administrative expenses
  4,818,093 
  6,455,796 
  15,087,393 
  16,193,643 
Operating loss
  (412,935)
  (1,164,247)
  (455,139)
  (792,723)
 
    
    
    
    
Other income (expense):
    
    
    
    
   Interest expense, net
  (124,477)
  (118,045)
  (387,107)
  (298,559)
   Other income, net
  6,905 
  4,859 
  390,459 
  26,845 
Net other (expense) income
  (117,572)
  (113,186)
  3,352 
  (271,714)
 
    
    
    
    
Loss before income taxes
  (530,507)
  (1,277,433)
  (451,787)
  (1,064,437)
 
    
    
    
    
Income tax provision
 (32,880)
  - 
  (236,829)
  - 
 
    
    
    
    
Net loss
  (563,387)
  (1,277,433)
  (688,616)
  (1,064,437)
 
    
    
    
    
Deemed dividend on convertible preferred stock and accretion of discount
  - 
  - 
  - 
  (1,023,786)
Preferred stock dividend, cash
  - 
  - 
  - 
  (104,884)
Convertible preferred stock dividend, in common stock
  (196,240)
  (190,523)
  (586,145)
  (578,178)
 
    
    
    
    
Net loss attributable to common stockholders
 $(759,627)
 $(1,467,956)
 $(1,274,761)
 $(2,771,285)
 
    
    
    
    
Basic and diluted net loss per common share
 $(0.09)
 $(0.18)
 $(0.16)
 $(0.45)
 
    
    
    
    
Weighted-average common shares outstanding:
    
    
    
    
Basic and diluted
  8,307,117
  7,962,179 
 8,189,890
  6,135,224 
 
    
    
    
    
See accompanying notes to condensed consolidated financial statements.


 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Statements of Operations
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
September 30
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
Net sales
 $16,389,549 
 $17,065,836 
Cost of sales
  11,235,542
 
  11,518,611 
Gross profit
  5,154,007
 
  5,547,225 
 
    
    
Selling, general, and administrative expenses
  4,924,692 
  5,496,623 
Operating income
  229,315
 
  50,602 
 
    
    
Other (expense) income:
    
    
   Interest expense, net
  (130,992)
  (120,842)
   Other income, net
  515 
  385,841 
Net other (expense) income
  (130,477)
  264,999 
 
    
    
Income before income taxes
  98,838
 
  315,601 
 
    
    
Income tax (provision) benefit
  - 
  - 
 
    
    
Net income
  98,838
 
  315,601 
 
    
    
Convertible preferred stock dividend, in common stock
  (166,904)
  (186,637)
 
    
    
Net (loss) income attributable to common stockholders
 $(68,066)
 $128,964 
 
    
    
Net (loss) income per common share
    
    
Basic
 $(0.01)
 $0.02 
Diluted
 $(0.01)
 $0.02 
 
    
    
Weighted-average common shares outstanding:
    
    
Basic
  8,576,961 
  8,160,431 
Diluted
  8,576,961 
  8,400,824
 
 
    
    
See accompanying notes to condensed consolidated financial statements.
 
 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Statements of Stockholders' Equity
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 Common stock
 
 
 Preferred stock
 
 
Accumulated
 
 
stockholders'
 
 
 
 Shares
 
 
Amount
 
 
 Shares
 
 
Amount
 
 
deficit
 
 
equity
 
Balance at June 30, 2017
  4,653,165 
 $11,838,022 
  3,559,000 
 $8,501,295 
 $(8,014,927)
 $12,324,390 
 
    
    
    
    
    
    
Stock-based compensation
  12,382 
  71,786 
 -
 -
 -
  71,786 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  72,042 
  187,061 
  -
 -
  (187,061)
  - 
 
    
    
    
    
    
    
Preferred stock converted to common stock
  75,000 
  187,500 
  (75,000)
  (187,500)
 -
  - 
 
    
    
    
    
    
    
Net income
 -
 -
  -
 -
  198,647 
  198,647 
 
    
    
    
    
    
    
Balance at September 30, 2017
  4,812,589 
  12,284,369 
  3,484,000 
  8,313,795 
  (8,003,341)
  12,594,823 
 
    
    
    
    
    
    
Stock-based compensation
  2,044 
  45,287 
 -
 -
  -
  45,287 
 
    
    
    
    
    
    
Issuance of preferred stock and warrants, net of issuance costs of $399,879
 - 
 -
  4,381,935 
  10,600,121 
 -
  10,600,121 
 
    
    
    
    
    
    
Preferred stock dividend, in cash
 - 
 -
 -
 -
  (104,884)
  (104,884)
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  83,147 
  200,595
 -
 -
  (200,595)
  - 
 
    
    
    
    
    
    
Preferred stock converted to common stock
  2,966,935 
  7,272,100 
  (2,966,935)
  (7,272,100)
 -
  - 
 
    
    
    
    
    
    
Preferred stock beneficial conversion and accretion of discount
 -
 -
 -
  1,023,786 
 -
  1,023,786 
 
    
    
    
    
 
    
Dividend of beneficial conversion and accretion of discount
 -
 -
 -
  (1,023,786)
  -
  (1,023,786)
 
    
    
    
    
    
    
Net income
 -
 -
 -
 -
  14,348 
  14,348 
 
    
    
    
    
    
    
Balance at December 31, 2017
  7,864,715 
  19,802,351
  4,899,000 
  11,641,816 
  (8,294,472)
  23,149,695 
 
    
    
    
    
    
    
Stock-based compensation
  88,974
  94,676
 -
 -
 -
  94,676
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  69,547 
  190,522
 -
 -
  (190,522)
  - 
 
    
    
    
    
    
    
Net loss
 -
 -
 -
 -
  (1,277,433)
  (1,277,433)
 
    
    
    
    
    
    
Balance at March 31, 2018
  8,023,236
 $20,087,549
  4,899,000 
 $11,641,816 
 $(9,762,427)
 $21,966,938
3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 Common stock
 
 
 Preferred stock
 
 
Accumulated
 
 
stockholders'
 
 
 
 Shares
 
 
Amount
 
 
 Shares
 
 
Amount
 
 
deficit
 
 
equity
 
Balance at June 30, 2018
  8,089,398 
 $20,225,107 
  4,899,000 
 $11,641,816 
 $(10,490,141)
 $21,376,782 
 
    
    
    
    
    
    
Stock-based compensation
  5,000 
  43,658 
 -
 -
 -
  43,658 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  66,631 
  186,637 
 -
 -
  (186,637)
  - 
 
    
    
    
    
    
    
Net income
 -
 -
 -
 -
  315,601 
  315,601 
 
    
    
    
    
    
    
Balance at September 30, 2018
  8,161,029 
  20,455,402 
  4,899,000 
  11,641,816 
  (10,361,177)
  21,736,041 
 
    
    
    
    
    
    
Stock-based compensation
  - 
  56,082 
 -
 -
 -
  56,082 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  65,494 
  203,268 
 -
 -
  (203,268)
  - 
 
    
    
    
    
    
    
Reduction in equity retained for acquisition holdback
  (37,708)
 -
 -
 -
 -
  - 
 
    
    
    
    
    
    
Net loss
 -
 -
 -
 -
  (440,830)
  (440,830)
 
    
    
    
    
    
    
Balance at December 31, 2018
  8,188,815 
  20,714,752 
  4,899,000 
  11,641,816 
  (11,005,275)
  21,351,293 
 
    
    
    
    
    
    
Stock-based compensation
  58,998
  85,566 
 -
 -
 -
  85,566 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  74,731 
  196,240 
 -
 -
  (196,240)
  - 
 
    
    
    
    
    
    
Net loss
 -
 -
 -
 -
  (563,387)
  (563,387)
 
    
    
    
    
    
    
Balance at March 31, 2019
  8,322,544
 $20,996,558 
  4,899,000 
 $11,641,816 
 $(11,764,902)
 $20,873,472
 
    
    
    
    
    
    
 
See accompanying notes to condensed consolidated financial statements.
 
    
    
    
    
    


 
 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Statements of Cash Flows
 
 
(Unaudited)
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
March 31,
 
 
 
2019
 
 
2018
 
Cash flows from operating activities:
 
 
 
 
 
 
       Net loss
 $(688,616)
 $(1,064,437)
       Adjustments to reconcile net loss to net cash provided by operating activities:
    
    
             Depreciation and amortization of property and equipment
  397,095 
  298,973 
             Amortization of intangible assets
  543,292 
  457,265 
             Amortization of other assets
  32,219 
  56,433 
             Amortization of capital lease assets
  253,194 
  188,950 
             Loss (gain) on sale of property and equipment
  2,177 
  (7,002)
             Stock-based compensation expense
  185,306 
  211,747 
             Change in allowance for doubtful accounts receivable
  (280,800)
  (1,561)
             Change in allowance for inventory obsolescence
  (58,268)
  162,528 
             Amortization deferred gain on sale/leaseback
  (112,836)
  (112,836)
             Deferred income taxes
  236,829
  - 
             Change in fair value of earn-out liability
  (375,000)
  - 
             Change in operating assets and liabilities:
    
    
                  Trade accounts receivable
  1,285,182 
  324,838 
                  Inventories
  (411,918)
  (1,017,052)
                  Prepaid expenses
  72,070 
  (124,079)
                  Other assets
  (15,692)
  (16,181)
                  Income tax receivable
  35,518 
  (3,896)
                  Accounts payable and accrued expenses
  452,212 
  750,894 
 
    
    
                              Net cash provided by operating activities
  1,551,964 
  104,584 
 
    
    
Cash flows from investing activities:
    
    
       Purchase of property and equipment
  (124,804)
  (131,040)
       Net cash paid in acquisitions
  - 
  (9,063,017)
       Proceeds from sale of property and equipment
  - 
  12,160 
 
    
    
                              Net cash used in investing activities
  (124,804)
  (9,181,897)
 
    
    
Cash flows from financing activities:
    
    
       Principal payments on long-term debt
  (122,035)
  (106,840)
       Principal payments on long-term capital lease
  (181,609)
  (144,345)
       Payment of acquisition holdback
  (912,845)
  (294,744)
       Net change in line of credit
  (1,492,532)
  4,370,755 
       Proceeds from issuance of preferred stock, net
  - 
  6,600,121 
       Preferred stock dividends paid in cash
  - 
  (104,884)
 
    
    
                              Net cash (used in) provided by financing activities
  (2,709,021)
  10,320,063 
 
    
    
                              Net change in cash and cash equivalents
  (1,281,861)
  1,242,750 
 
    
    
Cash and cash equivalents at beginning of the period
  1,696,116 
  254,705 
 
    
    
Cash and cash equivalents at end of the period
 $414,255 
 $1,497,455 
 
    
    
Supplemental disclosure of cash flow information:
    
    
       Cash paid for interest
 $392,039 
 $284,437 
Supplemental disclosure of non-cash investing and financing activity:
    
    
       Deemed dividend on convertible preferred stock and accretion of discount
  - 
  1,023,786 
       Preferred stock dividends paid or to be paid in common stock
  586,145 
  578,178 
       Inventory reclassified to demonstration equipment
  239,106 
  - 
       Preferred stock issued to acquire "Bird & Cronin"
  - 
  4,000,000 
       Acquisition holdback
  - 
  2,147,291 
       Conversion of preferred stock to common stock
  - 
  7,459,600 
       Capital lease obligations incurred to acquire property and equipment
 252,493
 -
 
    
    
See accompanying notes to condensed consolidated financial statements.
 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Statements of Stockholders' Equity
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total
 
 
 
 Common stock
 
 
 Preferred stock
 
 
 
 
 
 Accumulated
 
 
 stockholders'
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 deficit
 
 
 equity
 
Balance at June 30, 2018
  8,089,398 
 $20,225,107 
  4,899,000 
 $11,641,816 
 $(10,490,141)
 $21,376,782 
 
    
    
    
    
    
    
Stock-based compensation
  5,000 
  43,658 
  - 
  - 
  - 
  43,658 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  66,631 
  186,637 
  - 
  - 
  (186,637)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  315,601 
  315,601 
 
    
    
    
    
    
    
Balance at September 30, 2018
  8,161,029 
  20,455,402 
  4,899,000 
  11,641,816 
  (10,361,177)
  21,736,041 
 
    
    
    
    
    
    
Stock-based compensation
  - 
  56,082 
  - 
  - 
  - 
  56,082 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  65,494 
  203,268 
  - 
  - 
  (203,268)
  - 
 
    
    
    
    
    
    
Reduction in equity retained for acquisition holdback
  (37,708)
  - 
  - 
  - 
  - 
  - 
 
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
  (440,830)
  (440,830)
 
    
    
    
    
    
    
Balance at December 31, 2018
  8,188,815 
  20,714,752 
  4,899,000 
  11,641,816 
  (11,005,275)
  21,351,293 
 
    
    
    
    
    
    
Stock-based compensation
  58,998 
  85,566 
  - 
  - 
  - 
  85,566 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  74,731 
  196,240 
  - 
  - 
  (196,240)
  - 
 
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
  (563,387)
  (563,387)
 
    
    
    
    
    
    
Balance at March 31, 2019
  8,322,544 
 $20,996,558 
  4,899,000 
 $11,641,816 
 $(11,764,902)
 $20,873,472 
 
    
    
    
    
    
    
Stock-based compensation
  - 
  115,343 
  - 
  - 
  - 
  115,343 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  95,249 
  208,205 
  - 
  - 
  (208,205)
  - 
 
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
  (233,106)
  (233,106)
 
    
    
    
    
    
    
Balance at June 30, 2019
  8,417,793 
 $21,320,106 
  4,899,000 
 $11,641,816 
 $(12,206,213)
 $20,755,709 
 
    
    
    
    
    
    
Stock-based compensation
  135,244 
  129,793 
  - 
  - 
  - 
  129,793 
 
    
    
    
    
    
    
Preferred stock dividend, in common stock, issued or to be issued
  126,194 
  166,904 
  - 
  - 
  (166,904)
  - 
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
 98,838
 98,838
 
    
    
    
    
    
    
Balance at September 30, 2019
  8,679,231 
 $21,616,803 
  4,899,000 
 $11,641,816 
 $(12,274,279)
 $20,984,340
 
    
    
    
    
    
    
 
See accompanying notes to condensed consolidated financial statements.
 
    
    
    
    
    

 
DYNATRONICS CORPORATION
 
 
Condensed Consolidated Statements of Cash Flows
 
 
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
 
 
September 30
 
 
 
2019
 
 
2018
 
Cash flows from operating activities:
 
 
 
 
 
 
       Net income
 $98,838
 
 $315,601 
       Adjustments to reconcile net income to net cash provided by operating activities:
    
    
             Depreciation and amortization of property and equipment
  246,890 
  198,975
 
             Amortization of intangible assets
  181,095 
  180,886 
             Amortization of other assets
  11,218 
  12,189 
             Stock-based compensation expense
  129,793 
  43,658 
             Change in allowance for doubtful accounts receivable
  - 
  (12,483)
             Change in allowance for inventory obsolescence
  (1,740)
  (31,046)
             Amortization deferred gain on sale/leaseback
  (37,611)
  (37,612)
             Change in fair value of earn-out liability
  - 
  (375,000)
             Change in operating assets and liabilities:
    
    
                  Trade accounts receivable
  191,301 
  (713,704)
                  Inventories
  399,279
 
  255,680 
                  Prepaid expenses
  (10,900)
  (87,373)
                  Other assets
  (4,268)
  (12,458)
                  Income tax receivable
  (18,100)
  (1,784)
                  Accounts payable and accrued expenses
  806,846
 
  385,821 
 
    
    
                              Net cash provided by operating activities
  1,992,641
 
  121,350 
 
    
    
Cash flows from investing activities:
    
    
       Purchase of property and equipment
  (65,969)
  (26,065)
 
    
    
                              Net cash used in investing activities
  (65,969)
  (26,065)
 
    
    
Cash flows from financing activities:
    
    
       Principal payments on long-term debt
  (46,617)
  (40,045)
       Principal payments on finance lease liability
  (72,198)
  (58,334)
       Payment of acquisition holdbacks
  (125,000)
  - 
       Net change in line of credit
  (1,463,733)
  (1,256,325)
 
    
    
                              Net cash used in financing activities
  (1,707,548)
  (1,354,704)
 
    
    
                              Net change in cash and cash equivalents and restricted cash
  219,124 
  (1,259,419)
 
    
    
Cash and cash equivalents and restricted cash at beginning of the period
  256,030 
  1,696,116 
 
    
    
Cash and cash equivalents and restricted cash at end of the period
 $475,154 
 $436,697 
 
    
    
Supplemental disclosure of cash flow information:
    
    
       Cash paid for interest
 $141,424 
 $133,811 
Supplemental disclosure of non-cash investing and financing activity:
    
    
       Preferred stock dividends paid or to be paid in common stock
  166,904 
  186,637 
       Finance lease obligations incurred to obtain ROU assets
  3,086 
  - 
Operating lease obligations incurred to obtain ROU assets
  3,749,809
 
  -
 
Inventory reclassified to demonstration equipment
  -
 
  239,106
 
 
    
    
See accompanying notes to condensed consolidated financial statements.
    
    

 
DYNATRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALFINANCIAL STATEMENTS
(Unaudited)
March 31,September 30, 2019
 
 
Note 1. Presentation and Summary of Significant Accounting Policies
 
Business

Dynatronics Corporation (“Company,” “Dynatronics”) is a leading medical device company committed to providing high-quality restorative products designed to accelerate optimal health. The Company designs, manufactures, and sells a broad range of restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, hospitals, and consumers.
Basis of Presentation
 
The accompanying unaudited condensed consolidated balance sheets as of March 31,September 30, 2019, and June 30, 2018,2019, condensed consolidated statements of operations for the three and nine months ended March 31,September 30, 2019 and 2018, and condensed consolidated statements of stockholders' equity and cash flows (“Financial Statements”) of Dynatronics Corporation and its wholly-owned subsidiaries (the “Company”) for the ninethree months ended March 31,September 30, 2019 and 2018, should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended June 30, 20182019 included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 27, 2018.25, 2019. In the opinion of management, the accompanying Financial Statements have been prepared by usthe Company in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of the Company's management, the Financial Statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state our financial position, results of operations, and cash flows. The March 31,September 30, 2019 condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The results of operations for the first ninethree months of the fiscal year are not necessarily indicative of results for the full year or any future periods.
 
The preparation of these Financial Statementsunaudited condensed consolidated financial statements requires the Company'sour management to make estimates and judgments that affect the amounts reported in the Financial Statementsfinancial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.

 
Research and Development Costs
Research and development ("R&D") costs are expensed as incurred. R&D expense for the three and nine months ended March 31, 2019 totaled $14,000 and $40,000, respectively. R&D expense for the three and nine months ended March 31, 2018 totaled $242,000 and $1,048,000, respectively. R&D expense is included in selling, general, and administrative expenses in the condensed consolidated statements of operations.
Reclassification
 
Certain amounts in the prior year's condensed consolidated statements of operationsbalance sheet have been reclassified for comparative purposes to conform to the presentation in the current year's condensed consolidated statements of operations.balance sheet.
 
Recent Accounting Pronouncements
 
In August 2018, the SEC adopted a final rule under SEC Release No. 33-10532, Disclosure Update and Simplification that amends certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments also expanded the disclosure requirements on the analysis of shareholders’ equity for interim financial statements, in which registrants must now analyze changes in shareholders’ equity, in the form of reconciliation, for the current and comparative year-to-date periods, with subtotals for each interim period. This final rule was effective on November 5, 2018. The Company has adopted all relevant disclosure requirements. The adoption of these SEC amendments did not have a material impact on the Company’s financial position, results of operations, cash flows or stockholders’ equity.
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")ASU No. 2016-02, Leases (Topic 842,) a new guidance on leases. This guidance replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of leaseright-of-use ("ROU") assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months.leases. The standard also requires additional quantitative and qualitative disclosures. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted.2018. The standard requires a modified retrospective approach, which includes several optional practical expedients. Accordingly, the standard is effective for the Company on July 1, 2019.

The Company adopted Topic 842 as of July 1, 2019 using a modified retrospective method. Under this method, financial results reported in periods prior to July 1, 2019 are unchanged. The Company elected the ‘package of practical expedients’ which permits the Company to carryforward the historical lease classification. Adoption of the standard resulted in the recording of additional ROU assets and lease liabilities for the fiscal year begining onoperating leases of $3,749,809 as of July 1, 2019. The Company is currently evaluating the impact thatadoption of this guidance will have on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company adopted this updated accounting guidance beginning July 1, 2018, using the modified retrospective method. This adoption did not have a materialan impact on the Company’s consolidated financial statements other than additional disclosures (see Note 10) as the timing of revenue recognition under the new standard is not materially different from our previous revenue recognition policy. Based on our analysis of open contracts as of July 1, 2018, the cumulative effect of applying the new standard was not material.net income.
 
6 5
 
 
Note 2. Acquisitions
 
Bird & Cronin
 
On October 2, 2017, the Company, through its wholly-owned subsidiary Bird & Cronin, LLC, completed the purchase of substantially all the assets of Bird & Cronin, Inc. (“Bird & Cronin”), a manufacturer and distributor of orthopedic soft goods and specialty patient care products. The purchase price is subject to an earn-out payment ranging from $500,000 to $1,500,000, based on sales in fiscal year 2019. The amount recognized for the earn-out liability was $875,000 as of June 30, 2018. The earn-out liability was reduced by $375,000 in the first fiscal quarter of 2019. The change in the fair value of the earn-out liability is included in other income in the accompanying condensed consolidated statements of operations.As of March 31,September 30, 2019, the earn-out liability was $500,000. The earn-out liability is combined with the acquisition holdback in the accompanying condensed consolidated balance sheets. 
A holdback of $647,291 cash and 184,560 shares of common stock was retained by the Company for purposes of satisfying adjustments to the purchase price, if any.$375,000. On October 2, 2018, the Company released to Bird & Cronin cash of $162,845 and 54,572 shares of common stock pursuant to the holdback provisions of the purchase agreement. In addition, the Company canceled 37,708 shares of common stock held back for the benefit of Bird & Cronin, pursuant to the settlement of working capital adjustments as provided in the purchase agreement. 
As of March 31, 2019, the remaining earn-out liability and holdback payable, contingent upon the terms set forth in the purchase agreement, and the maturity dates for such payments, are as follows:
April 2, 2019
$466,667
August 15, 2019
500,000
Acquisition holdback and earn-out liability
$966,667
On April 2,August 19, 2019, the Company releasedentered an agreement to Bird & Cronin cashpay the earn-out in four equal monthly payments of $466,667 and 92,280 shares of common stock pursuant to the holdback provisions of the purchase agreement.$125,000, beginning in September 2019. The first payment was made on September 4, 2019. Subsequent payments were made on October 4, 2019 and on November 4, 2019. The final payment will be made on December 4, 2019.
Hausmann
On April 3, 2017, the Company, through its wholly-owned subsidiary Hausmann Enterprises, LLC, completed the purchase of substantially all the assets of Hausmann Industries, Inc. (“Hausmann”), a manufacturer of physical therapy rehabilitation equipment.

The purchase price included a holdback of cash totaling $1,044,744 for purposes of satisfying adjustments to the purchase price and indemnification claims, if any. In the second and third fiscal quarters of 2018, the Company released $44,744 and $250,000, respectively, of the holdback to Hausmann. On October 3, 2018, the Company released the remaining holdback amount totaling $750,000. 
 
Note 3. Net LossIncome per Common Share
 
Net lossincome per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net lossincome per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.
 
Basic net lossincome per common share is the amount of net lossincome for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted net lossincome per common share is the amount of net lossincome for the period available to each weighted-average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.
 
7 6
 
 
The reconciliations between the basic and diluted weighted-average number of common shares outstanding for the three months ended September 30 are as follows:
 
 
2019
 
 
2018
 
Basic weighted-average number of common shares outstanding during the period
  8,679,231
 8,160,431
Weighted-average number of dilutive potential common shares outstanding during the period
 -
 240,393
Diluted weighted-average number of common and potential common shares outstanding during the period
  8,679,231
 8,400,824
Certain outstanding options, warrants and shares ofconvertible preferred stock convertible intofor common shares are not included in the computation of diluted net lossincome per common share because they were anti-dilutive, which for the three months ended March 31,September 30, 2019, and 2018, totaled 11,744,08311,887,083 and 11,772,349, respectively and for the nine months ended March 31, 2019, and 2018, totaled 11,744,083 and 12,003,052,2,776,106, respectively.

 
Note 4. Convertible Preferred Stock and Common Stock Warrants
 
As of March 31,September 30, 2019, the Company had issued and outstanding a total of 2,000,000 shares of Series A 8% Convertible Preferred Stock (“Series A Preferred”) and 1,459,000 shares of Series B 8% Convertible Preferred Stock ("Series B Preferred"). The Series A Preferred and Series B Preferred are convertible into a total of 3,459,000 shares of common stock. Dividends payable on these preferred shares accrue at the rate of 8% per year and are payable quarterly in stock or cash at the option of the Company. The Company generally pays the dividends on the preferred stock by issuing shares of our common stock. The formula for paying these dividends using common stock in lieu of cash can change the effective yield on the dividend to more or less than 8% depending on the market price of the common stock at the time of issuance. As of March 31September 30, 2019, there were also issued and outstanding 1,440,000 shares of Series C Non-Voting Convertible Preferred Stock (“Series C Preferred”). The Series C Preferred shares are non-voting, do not receive dividends, and have no liquidation preferences or redemption rights.
 
Note 5. Comprehensive Loss
Income
 
For the three and nine months ended March 31,September 30, 2019 and 2018, comprehensive lossincome was equal to the net lossincome as presented in the accompanying condensed consolidated statements of operations.
 
Note 6. Inventories
 
Inventories consisted of the following:
 
 
March 31, 2019
 
 
June 30, 2018
 
 
September 30, 2019
 
 
June 30, 2019
 
Raw materials
 $5,484,244
 
 $6,216,150 
 $5,798,849
 
 $5,830,140
Work in process
 664,516
 
  625,830 
 840,147
 
 706,128
Finished goods
    5,470,296
  4,604,264 
  4,705,477
 
 5,129,806
Inventory obsolescence reserve
  (400,121)
  (458,389)
  (214,491)
  (138,553)
 $11,218,935
 
 $10,987,855
 
 $11,129,982
 
 $11,527,521
 
 
8 7
 
 
Note 7. Related-Party TransactionsLeases
Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Such assets are classified as ROU assets with a corresponding lease liability.

Finance and operating lease ROU assets and liabilities are recorded at commencement at the present value of future minimum lease payments over the expected lease term. As the implicit discount rate for the present value calculation is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at commencement of the lease. The expected lease terms include options to extend the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. Leases with an expected term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
 
The Company has operating and finance leases for various administrative, manufacturing, and distribution facilities and equipment.Most of the Company’s leases include one or more options to renew and extend the lease term 2 years to 5 years. The exercise of lease renewal options is typically at the Company's sole discretion, however, as a material economic incentive to exercise the option exists, the majority of renewals to extend the lease terms are included in the ROU assets and lease liabilities as they are reasonably certain of exercise. The Company’s lease agreements do not contain any material nonlease components, residual value guarantees, or material restrictive covenants.
Leases recorded on the balance sheet consist of the following:
LeasesClassification on the Balance Sheet
September 30, 2019
Assets
Operating lease assetsProperty and equipment, net
$3,534,949
Finance lease assetsProperty and equipment, net
$2,795,834
Liabilities
Current
OperatingCurrent portion of operating lease liability
$897,209
FinanceCurrent portion of finance lease liability
$299,421
Noncurrent
OperatingOperating lease liability, net of current portion
$2,637,740
FinanceFinance lease liability, net of current portion
$2,830,489
Other information related to lease term and discount rate is as follows:
September 30, 2019
Weighted Average Remaining Lease Term
Operating leases
3.8 years
Finance leases
9.3 years
Weighted Average Discount Rate
Operating leases
4.6%
Finance leases
5.8%
The components of lease expense are as follows:
Classification on the Statement of Operations
Three Months Ended
September 30, 2019
Operating lease cost:
Operating lease costCost of sales
$70,515
Operating lease costSelling, general, and administrative expenses
187,401
Short term lease costSelling, general, and administrative expenses
15,750
Finance lease cost:
Amortization of finance lease assetsCost of sales
$35,670
Amortization of finance lease assetsSelling, general, and administrative expenses
48,857
Interest on finance lease liabilitiesInterest expense, net
44,867
Total lease cost
$403,060
Supplemental cash flow information related to leases is as follows:
Three Months Ended
September 30, 2019
ROU assets obtained in exchange for lease liabilities:
Operating leases 
$3,749,809
Finance leases 
$3,086
Future minimum lease payments are summarized as follows:
 
 
Operating Leases
 
 
Finance Leases
 
Year ending June 30,
 
 
 
 
 
 
2020 (excluding the three months ended September 30, 2019)
 $486,000 
 $341,250 
2021
  190,000 
  462,286 
2022
  - 
  469,536 
2023
  - 
  443,056 
2024
  - 
  384,754 
Thereafter
  - 
  2,113,348 
Total future minimum lease payments
 $676,000 
 $4,214,230 
 
    
    
Imputed interest
    
  904,615 
Deferred rent
    
  177,181 
The Company leases office, manufacturing and warehouse facilities in Detroit, Michigan; Hopkins, Minnesota; Northvale, New Jersey; and Eagan, Minnesota from employees, shareholders, and entities controlled by shareholders, who were previously principals of businesses acquired by the Company. The combined expenses associated with these related-party transactions totaled $261,792$261,666 and $259,980$261,780 for the three months ended March 31,September 30, 2019 and 2018, respectively, and $785,353 and $626,140 for the nine months ended March 31, 2019 and 2018, respectively.

 8

Note 8. Line of Credit
 

On March 31, 2017, the
The Company entered into an $8,000,000has a line of credit (“Line of Credit”) available pursuant to a loan and security agreement (the “Loan and Security Agreement”), as amended, with Bank of the West, to provide asset-based financing tothat matures on December 15, 2020. The Company’s obligations under the Company for funding acquisitions and for working capital (“Line of Credit”).Credit are secured by a first-priority security interest in substantially all of the Company’s assets. The Line of Credit providedrequires a lockbox arrangement and contains affirmative and negative covenants, including covenants that restrict the Company's ability to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The agreement also contains financial covenants including a maximum monthly consolidated leverage and a minimum monthly consolidated fixed charge coverage ratio. As amended, the Loan and Security Agreement provides for revolving credit borrowings by the Company in an amount up to the lesser of $8,000,000$11,000,000 or the calculated borrowing base. The borrowing base is computed monthly and is equal to the sum of stated percentages of eligible accounts receivable and inventory, less a reserve. Amounts outstanding bear interest at LIBOR plus 2.25% (4.6% as of June 30, 2019). The Line of Credit is subject to an unused line fee of .25%.
 
On September 28, 2017,June 21, 2019, the Company modifiedentered into a Fifth Modification of the Loan and Security Agreement (the “Modification”). The Modification includes, among other things, an amendment to certain provisions of the Loan and Security Agreement, including changes to the financial covenants of the Line of Credit, to provide additional capital for fundingeliminates the Bird & Cronin acquisition and for operating capital. The Line of Credit, as amended, provides for revolving credit borrowings by the Company in an amount up to the lesser of $11,000,000 or the calculated borrowing base. On July 13, 2018, the Company further amended the Line of Credit to modify the maximum monthly consolidated leverage ratio and aamends the minimum monthly consolidated fixed charge coverage ratio. An additional modification was executed on November 9, 2018, to extendAs modified, the maturity date to December 15, 2020.fixed charge coverage ratio will apply only when the excess availability amount under the Line of Credit is less than the greater of $1,000,000 or 10% of the borrowing base. The Modification also adjusts upward the permissible limits of senior funded indebtedness and capital expenditures.
  
Borrowings on the Line of Credit were $4,793,505$5,076,906 and $6,286,037$ 6,540,639 as of March 31,September 30, 2019 and June 30, 2018,2019, respectively. As of March 31,September 30, 2019, there was approximately $2,600,000$2,593,000 available to borrow.
 
Note 9. Accrued Payroll and Benefits Expense
 
As of March 31,September 30, 2019 and June 30, 2018, 2019, the accrued payroll and benefits expense balance included $358,654$167,308 and $473,146,$310,903, respectively, of accrued severance expense maturing in less than one year. As of March 31, 2019 and June 30, 2018, long-term severance accrual included in other liabilities was $0 and $258,145, respectively.expense. The Company recognized $54,778$68,750 and $185,831$103,858 in severance expense during the three and nine months ended March 31,September 30, 2019 respectively. The Company recognized $839,807 in severance expense during the three and nine months ended March 31, 2018.2018, respectively. Severance expense is included in selling, general, and administrative expenses.
 
Note 10.  Revenue
 
On July 1, 2018, the Company adopted ASC 606,Revenue from Contracts with Customers, which establishes principles for recognizing revenue and reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance was applied using the modified retrospective transition method. The adoption of this guidance had no material impact on the amount and timing of revenue recognized, therefore, no adjustments were recorded to the consolidated financial statements upon adoption. For the three and nine months ended March 31, 2019, revenue recognized pursuant to ASC 606 would not have differed materially had revenue continued to be recognized under ASC 605.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied which occurs upon the transfer of control of a product. This occurs either upon shipment or delivery of goods, depending on whether the contract is FOB origin or FOB destination.Revenue is measured as the amount of consideration expected to be received in exchange for transferring products to a customer.
9
Contracts sometimes allow for forms of variable consideration including rebates and incentives. In these cases, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring products to customers utilizing the most likely amount method. Rebates and incentives are estimated based on contractual terms or historical experience and a liability is maintained for rebates and incentives that have been earned but are unpaid. As of March 31,September 30, 2019 and June 30, 2018,2019, the rebate liability was $254,144$318,449 and $243,758,$287,430, respectively. The rebate liability is included in accrued expenses in the accompanying condensed consolidated balance sheets.
 
Revenue is reduced by estimates of potential future contractual discounts including prompt payment discounts. Provisions for contractual discounts are recorded as a reduction to revenue in the period sales are recognized. Estimates are made of the contractual discounts that will eventually be incurred. Contractual discounts are estimated based on negotiated contracts and historical experience. As of March 31,September 30, 2019 and June 30, 20182019, the allowance for sales discounts was $14,500 and $0, respectively.$14,500. The allowance for sales discounts is included in trade accounts receivable, less allowance for doubtful accounts in the accompanying condensed consolidated balance sheets.
The Company made an accounting policy election to account for shipping and handling activities as fulfillment activities. As such, shipping and handling are not considered promised services to our customers. Costs for shipping and handling of products to customers are recorded as cost of sales.
 
The following table disaggregates revenue by major product category:category for the three months ended September 30:
 
 
 
Three Months Ended
  March 31
 
 
Nine Months Ended
March 31  
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Orthopedic Soft Bracing Products
 $   5,510,461
 $5,681,928
 $17,182,340
 $11,380,235
Physical Therapy and Rehabilitation Products
 8,973,207
 10,694,000
 29,576,820
 35,479,422
Other
 67,851
 258,139
 298,160
 653,714
 
 $14,551,519
 $16,634,067
 $47,057,320
 $47,513,371
 
 
2019
 
 
2018
 
Orthopedic Soft Goods and Medical Supplies
 $6,279,026
 $5,872,168
Physical Therapy and Rehabilitation Equipment
 10,037,720
 11,044,841
Other
 72,803
 148,827
 
 $16,389,549
 $17,065,836

NOTENote 11. SUBSEQUENT EVENTSSubsequent Events
 
In AprilOctober 2019, the Company issued 95,249 sharespaid approximately $167,000 of commonpreferred stock as payment of dividends with a total value of approximately $196,000 with respect to the Series A Preferred and Series B Preferred that accrued during the three months ended March 31, 2019.
September 30, 2019, by issuing 165,251 shares of common stock.
 
10 9
 
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report, including “Management’sthe disclosures contained in Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2,Operation, contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company may also makeThese forward-looking statements in other reports filed with the SEC, in materials delivered to shareholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements. Forward-looking statements relate to future events and typically address our expected future business and financial performance, referring 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 relating to product development, market acceptance, financial performance, revenue and expense levels in the future, the scope, nature or impactto: any projections of acquisition, strategic alliance and divestiture activities, and the sufficiency of existing assets to fund future operations and capital spending needs. Actual results could differ materially from the anticipated resultsnet sales, earnings, or other expectations expressed infinancial items; any statements of the strategies, plans and objectives of management for future operations; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements can be identified by their use of such forward-looking statements.words as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate” and similar references to future periods.
 
We have based our forward-looking statements on management’s current expectations and assumptions about future events and trends affecting our business and industry that are subject to risks and uncertainties. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this report. Some of the risks and uncertainties that may cause actual results to differ from those expressed or implied in the forward-looking statements are described in the section “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018,2019, filed with the SEC, as well as in our other public filings with the SEC. In addition, actualActual results may differ as a result of additional risks and uncertainties of which we are currently unaware or which we do not currently view as material to our business.
 
You should read this report in its entirety, together with the documents that we file as exhibits to this report and the documents that we incorporate by reference into this report, with the understanding that our future results may be materially different from what we currently expect. The forward-looking statements contained in this report are made as of the date of this report and we assume no obligation to update them after the date hereof to revise or conform such statements to actual results or to changes in our opinions or expectations. If we do update or correct any forward-looking statements, investors should not conclude that we will make additional updates or corrections.
 
We qualify all of our forward-looking statements by these cautionary statements.
 
The terms “we,” “us,” “Dynatronics,” or the “Company” refer collectively to Dynatronics®, Corporation and its wholly-owned subsidiaries, unless otherwise stated. Bird & Cronin®, and Hausmann® are registered trademarks of the Company.
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our Unaudited Condensed Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, with a narrative from the perspective of management. You should also consider this information with the information included in our Annual Report on Form 10-K for the year ended June 30, 2018,2019, and our other filings with the SEC, including our quarterly and current reports that we have filed since June 30, 20182019 through the date of this report. In the following MD&A, we have rounded many numbers to the nearest one thousand dollars. These numbers should be read as approximate. All inter-company transactions have been eliminated. Our fiscal year ends on June 30. For example, reference to fiscal year 20192020 refers to the year ending June 30, 2019.2020. This report covers the three and nine months ended March 31,September 30, 2019. Results of operations for the three and nine months ended March 31,September 30, 2019 are not necessarily indicative of the results that may be achieved for the full fiscal year ending June 30, 2019.2020. 
 
Overview
 
DynatronicsCorporation (“Company,” “Dynatronics,” “we”) is a medical device company committed to providing high-quality restorative products designed to accelerate one to their optimal health. The Company designs, manufactures, and sells a broad range of restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through itsour distribution channels, Dynatronics marketswe market and sellssell to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, hospitals, and consumers.
 
Results of Operations
 10
 
Results of Operations

Net Sales
 
Net sales decreased $2,082,000,$676,000, or 12.5%4.0%, to $14,552,000$16,390,000 for the quarter ended March 31,September 30, 2019, compared to net sales of $16,634,00017,066,000 for the quarter ended March 31, 2018.September 30, 2018. The year-over-year decrease in net sales was driven primarily by lowera reduction in sales of physical therapy and rehabilitation products of approximately $1,721,000 compared to the prior year period. The lower sales are reflective of general softness in demand primarily in our direct sales channel, transitions in our sales force, and our product rationalization strategy.channel.
 
Net sales decreased $456,000, or 1.0%, to $47,057,000 for the nine months ended March 31, 2019, compared to net sales of $47,513,000for the nine months ended March 31, 2018. The year-over-year decrease in net sales included an increase of $5,803,000 attributable to the acquisition of Bird & Cronin offset primarily by lower sales of physical therapy and rehabilitation equipment products of approximately $5,903,000 compared to the prior year period. The lower sales are reflective of general softness in demand primarily in our direct sales channel, transitions in our sales force, and our product rationalization strategy.
11

Gross Profit
 
Gross profit for the quarter ended March 31,September 30, 2019 decreased $887,000,$393,000, or about 16.8%7.1%, to $4,405,000,$5,154,000, or 30.3% 31.4% of net sales.sales. By comparison, gross profitfor the quarter ended March 31, 2018was$5,292,000, or 31.8% of net sales.Gross profit for the quarter ended March 31, 2019September 30, 2018 was primarily adversely affected by $5,547,000, or 32.5% of net sales. The year-over-year decrease in gross profit was attributable to lower sales of physical therapy and rehabilitation products, which accounted for approximately $631,000$220,000 in lower gross profit, and by reduced gross margin percentage, which resulted in $255,000accounted for approximately $173,000 in lower gross profit. The year-over-year decrease in gross margin percentage to 30.3%31.4% from 31.8%32.5% was causeddue primarily by a change in channel mix forto lower sales of our physical therapy and rehabilitation products asequipment and to a higher portion of sales inbeing through our directdealer channels decreased proportionally more than in our distribution channels.
Gross profit for the nine months ended March 31, 2019 decreased $769,000, or about 5.0%, to $14,632,000, or 31.1% of net sales. By comparison,at lower pricing and lower gross profit for the nine months ended March 31, 2018 was $15,401,000, or 32.4 % of net sales. The year-over-yearmargin, with a corresponding decrease in gross profit included an increase of $1,844,000 attributable to the acquisition of Bird & Cronin, offset by lower sales, which accounted for approximately $1,963,000 in lower gross profit, and by reduced gross margin percentage resulting in $650,000 in lower gross profit. The year-over-year decrease in gross margin percentage to 31.1% from 32.4 % was caused primarily by a change in channel mix for our physical therapy and rehabilitation products as sales in our direct channels decreased proportionally more than in our distribution channels.selling costs.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative (“SG&A”) expenses decreased $1,638,000,$572,000, or 25.4%10.4%, to $4,818,000$4,925,000 for the quarter ended March 31,September 30, 2019, compared to $6,456,000$5,497,000 for the quarter ended March 31, 2018.September 30, 2018. Selling expenses represented $460,000$302,000 of the decrease in SG&A expenses due primarily due to lower fixedcommission expense on lower sales and lower sales management salaries and expenses and reduced commissions on lower sales induring the quarter. General and administrative (“G&A”) expenses decreased $950,000 compared torepresented $270,000 of the prior year period. decrease in SG&A expenses.The primary components of the decrease in G&A expenses included decreasesincluded: (1) a decrease of $785,000$39,000 in severance expenseexpense; and $165,000(2) decreases totaling $231,000 in other G&A expenses. Research and development (“R&D”) expenses

Net Income Before Income Tax
Pre-tax income for the quarter ended March 31,September 30, 2019 decreased $228,000, or 94.1%, to $14,000 from $242,000 in the quarter ended March 31, 2018. The decrease is primarily due to the re-purposing of our engineering resources to operational improvements.
               SG&A expenses decreased $1,107,000, or 6.8%, to $15,087,000 for the nine months ended March 31, 2019,was $99,000 compared to $16,194,000 for the nine months ended March 31, 2018. Selling expenses decreased $791,000 compared to the prior year period, which included an increase of $444,000 associated with the addition of Bird & Cronin operations, offset by $1,235,000 in lower selling expenses due primarily to lower fixed sales management salaries and reduced commissions. G&A expenses increased $692,000 compared to the prior-year period, driven primarily by: (1) a $1,265,000 increase associated with the addition of Bird & Cronin operations, (2) a $362,000 increase in other G&A expenses, (3) a decrease of $658,000 in severance expenses, and (4) a decrease of $277,000 in acquisition expenses. R&D expenses for the nine months ended March 31, 2019 decreased $1,008,000, or 96.2%, to $40,000 from $1,048,000 in the nine months ended March 31, 2018. The decrease is primarily due to the re-purposing of our engineering resources to operational improvements.
Net Loss Before Income Tax Provision
               Pre-tax loss for the quarter ended March 31, 2019 was $531,000 compared to pre-tax loss of $1,277,000316,000 for the quarter ended March 31,September 30, 2018. The $746,000 improvement$217,000 decline in pre-tax loss was primarily attributable to a decrease of $1,638,000 in SG&A expenses, partially offset by a reduction of $886,000 in gross profit. Pre-tax loss for the nine months ended March 31, 2019 was $452,000 compared to $1,064,000 for the nine months ended March 31, 2018. The $612,000 improvement in pre-tax lossincome was attributable to athe impact of (1) $393,000 decrease in gross profit and (2) $396,000 decrease in other income primarily due to the $375,000 change in the fair value of $1,107,000 in SG&A expenses and a $375,000 gain on revaluation ofthe earn-out payment related to the Bird & Cronin acquisition earn-out liability, recognized in the period ended September 30, 2018offset by athe $572,000 decrease of $769,000 in gross profit and an increase of $89,000 in interest expense caused primarily by higher borrowings on our line of credit.SG&A expenses.
 
Income Tax Provision
(Benefit)
 
Income tax provision was $33,000 and $237,000 for the quarter and nine months ended March 31, 2019, respectively. This compares to income tax provision of $0 for both the quarterquarters ended September 30, 2019 and nine months ended March 31, 2018. See Liquidity and Capital Resources - Deferred Income TaxesTax Assets below for more information.
 
Net Loss
Income
 
Net lossincome was $563,000 for the quarter ended March 31, 2019, compared to net loss of $1,277,00099,000 for the quarter ended March 31, 2018. Net loss was $689,000 for the nine months ended March 31,September 30, 2019, compared to net loss of $$1,064,00316,000 for the nine monthsquarter ended March 31,September 30, 2018. The reasons for the changechanges in net lossincome are the same as those givenexplained above under the heading Net LossIncome Before Income Tax and Income Tax Provision.
 
12 11
 
 
Net LossIncome Attributable to Common Stockholders
 
Net lossincome attributable to common stockholders decreased $708,000 to $760,000 for the quarter ended March 31, 2019, compared$197,000 to net loss attributable to common stockholders of $1,468,000$68,000 for the quarter ended March 31,September 30, 2019, compared to net income of $129,000 for the quarter ended September 30, 2018. The decrease in net lossincome attributable to common stockholders for the quarter is due primarily to a $714,000$217,000 decrease in net loss.income. On a per share basis, net lossincome attributable to common stockholders was $0.09(0.01) per share for the quarter ended March 31,September 30, 2019, compared to $0.180.02 per share for the quarter ended March 31, 2018. Net loss attributable to common stockholders decreased $1,497,000 to $1,275,000 for the nine months ended March 31, 2019, compared to net loss attributable to common stockholders of $2,771,000 for the nine months ended March 31, 2018. The decrease in net loss attributable to common stockholders for the nine months is due primarily to: (1) a $97,000 decrease in preferred stock dividends; and (2) a $1,024,000 decrease in deemed dividends and accretion of discounts partially offset by a $375,000 decrease in net loss. On a per share basis, net loss attributable to common stockholders was $0.16 per share for the nine months ended March 31, 2019, compared to $0.45 per share for the nine months ended March 31,September 30, 2018.
 
Liquidity and Capital Resources
 
We have historically financed operations through cash from operating activities, available cash reserves, borrowings under a line of credit facility (see, Line of Credit, below) and proceeds from the sale of our equity securities. During the quarter and nine months ended March 31,September 30, 2019, we had positive cash flows from operating activities. We believe that our existing revenue stream, cash flowsgenerated from operating activities,operations, current capital resources, and borrowing availability under the line ofavailable credit provide sufficient liquidity to fund operations through at least May 15, 2020.for the next 12 months.
 
Working capital was $5,824,000$5,172,000 as of March 31,September 30, 2019, compared to working capital of $6,837,000$5,638,000 as of June 30, 2018.2019. The current ratio was 1.4 to 1 as of March 31,September 30, 2019 and 1.5 to1.4 to 1 as of June 30, 2018.2019.
 
Cash and Cash Equivalents
 
Our cash and cash equivalents and restricted cash position decreased $1,282,000increased $219,000 to $414,000 as$475,000 as of March 31,September 30, 2019, compared to $1,696,000$256,000 as of June 30, 2018.2019. The primary source of cash in the ninethree months ended March 31,September 30, 2019, was approximately $1,552,000$1,993,000 of net cash provided by operating activities. The primary use of cash in the nine months ended March 31, 2019 was approximately $1,493,000 in net payments on the line of credit and $913,000 in payments of acquisition holdbacks.
 
Accounts Receivable
 
Trade accounts receivable, net of allowance for doubtful accounts, decreased approximately $957,000,$195,000, or 12.3%2.6%, to $6,854,000$7,300,000 as of March 31,September 30, 2019, from $7,811,000$7,495,000 as of June 30, 2018.2019. The decrease was driven primarily by a decrease in the time to collect receivables. Trade accounts receivable represents amounts due from our customers including dealers and distributors that purchase our products for redistribution, medical practitioners, clinics, hospitals, colleges, universities and sports teams. We believe that our estimate of the allowance for doubtful accounts is adequate based on our historical experience and relationships with our customers. Accounts receivable are generally collected within approximately 40 days of invoicing.
 
Inventories
 
Inventories, net of reserves, increased $231,000decreased $398,000 or 2.1%3.4%, to $11,219,000$11,130,000 as of March 31,September 30, 2019, compared to $10,988,000$11,528,000 as of June 30, 2018.2019. Inventory levels fluctuate based on timing of large inventory purchases from domestic and overseas suppliers as well as variations in sales and production activities. We believe that our allowance for inventory obsolescence is adequate based on our analysis of inventory, sales trends, and historical experience.
 
Accounts Payable
 
Accounts payable increased approximately $836,000$933,000 or 24.5%23.4%, to $4,249,000$4,923,000 as of March 31,September 30, 2019, from $3,413,000$3,990,000 as of June 30, 2018.2019. The increase in accounts payable was driven primarily by the timing of international purchases and payments.an increase in the average time to pay suppliers.
 
Line of Credit
 
Our line of credit balance decreased $1,493,000$1,464,000 to $4,793,000$5,077,000 as of March 31,September 30, 2019, compared to $6,286,000$6,541,000 as of June 30, 2018.2019. The decrease was driven primarily by the use of positive cash flows from operating activities.As of September 30, 2019, there was approximately $2,593,000 available to borrow.
 
13 12
 
 
Debt
 
Long-term debt excluding current installments, decreased $129,000approximately $47,000 to $174,000approximately $257,000 as of March 31,September 30, 2019, compared to $303,000approximately $303,000 as of June 30, 2018. 2019. Our long-term debt is primarily comprised of the mortgage loan on our office and manufacturing facility in Tennessee maturing in 2021, and also includes loans related to equipment and a vehicle. The principal balance on the mortgage loan is approximately $203,000, of which $52,000 is classified as long-term debt, with monthly principal and interest payments of $13,000.
 
Finance Lease Liability
Finance lease liability as of September 30, 2019 and June 30, 2019 totaled approximately $3,130,000 and $3,199,000, respectively. Our finance lease liability consists primarily of our Utah building lease. In conjunction with the sale and leaseback of our corporate headquartersUtah building in August 2014, we entered into a $3,800,00015-year lease, forclassified as a 15-year term with an investor group. That sale generated a profit of $2,300,000 which was deferred and is being recognized monthly over the life of thefinance lease, originally valued at $13,000 per month, or approximately $150,000 per year.$3,800,000. The building lease asset is recorded as a capital lease with the related amortization being recordedamortized on a straight linestraight-line basis over 15 years at approximately $252,000 per year. Total accumulated amortization related to the leased building is approximately $1,302,000 at September 30, 2019. The sale generated a profit of $2,300,000, which is being recognized straight-line over the life of the lease at approximately $150,000 per year as an offset to amortization expense. The balance of the deferred gain as of September 30, 2019 is $1,492,000. Lease payments, currently approximately $27,000, are payable monthly and increase annually by approximately 2% per year over the life of the lease. Total accumulated amortization related to the leased building is approximately $1,176,000 at March 31, 2019. Imputed interest for the quarterthree months ended March 31,September 30, 2019 was approximately $42,000.$40,000. In addition to the Utah building, we have certain equipment leases that we have determined are finance leases.
Operating Lease Liability
Operating lease liability as of September 30, 2019 and June 30, 2019 totaled approximately $3,535,000 and $0, respectively. The operating lease liability was recorded upon the adoption of ASU No. 2016-02, Leases. Our operating lease liability consists primarily of building leases for office, manufacturing, warehouse and storage space.

Acquisition Earn-Out Liability
Acquisition earn-out liability decreased $125,000 or 25.08%, to $375,000 as of September 30, 2019, from $500,000 as of June 30, 2019. The decrease is due to a $125,000 payment made in the quarter ended September 30, 2019.
 
Deferred Income Taxes
Tax Assets
 
A valuation allowance is required when there is significant uncertainty as to the realizability of deferred income tax assets. The ability to realize deferred income tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have determined that we do not meet the “more likely than not” threshold that deferred income tax assets will be realized. Accordingly, a valuation allowance is required. Any reversal of the valuation allowance in future periods will favorably impact our results of operations in the period of reversal. As of March 31,September 30, 2019 and June 30, 2018,2019, we recorded a full valuation allowance against our net deferred income tax assets. As a result of a temporary book toThis resulted in no reported income tax differenceexpense associated with the amortization of goodwill for tax purposes, income tax expense is $33,000 foroperating profit reported during the three months and $237,000 for the nine months ended March 31, September 30, 2019 and the balance of a related deferred tax liability is $237,000 as of March 31, 2019..
 
Stock Repurchase Plans
 
We have a stock repurchase plan available to us at the discretion of the Board of Directors. Approximately $449,000 remained of this authorization as of March 31,September 30, 2019. No purchases have been made under this plan since September 28, 2011.
 
Off-Balance Sheet Arrangements
 
As of March 31,September 30, 2019, we had no off-balance sheet arrangements.
 
Critical Accounting Policies
 
The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable. Our critical accounting policies are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K for the year ended June 30, 2018.2019. There have been no material changes to the critical accounting policies previously disclosed in that report.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
There have been no material changes from the information presented for the year ended June 30, 2018.2019.
 
14 13
 
 
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information that is required to be disclosed in our reports that we file with the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods that are specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer, (our principal financial and accounting officer), as appropriate, to allow timely decisions regarding any required disclosure. In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
 
AsUnder the supervision and with the participation of March 31, 2019,our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) under the supervision and with the participationas of our management, including our Chief Executive Officer and Chief Financial Officer.September 30, 2019. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31,September 30, 2019.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31,September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PARTPART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A.
The risk factors described in our Annual Report on Form 10-K for the year ended June 30, 2019 have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
 
ItemItem 6. Exhibits
 
(a) Exhibits.Unless indicated below, all exhibits are provided with this filing
 
 
Exhibit Number
Exhibit Description
31.1
Certification under Rule 13a-14(a)/15d-14(a) of principal executive officer
  
31.2
Certification under Rule 13a-14(a)/15d-14(a) of principal financial officer and principal accounting officer
  
32.1
Certificate pursuant to section 18 U.S.C. Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of principal executive officer*officer
  
               32.2
  
101.INSXBRL Instance Document
  
101.CALXBRL Taxonomy Extension Schema Document
  
101.SCHXBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
*This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference
 
1514
 
 
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 
    
Date: May 14,November 12, 2019By:/s/ Christopher R. von Jako, Ph.D.Brian D. Baker 
  Christopher R. von Jako, Ph.D.Brian D. Baker 
  President and Chief Executive Officer (Principal Executive Officer) 
 
   
    
Date: May 14,November 12, 2019By:/s/ David A. Wirthlin 
  David A. Wirthlin 
  Chief Financial Officer (Principal Financial and Accounting Officer) 
 
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