Dynatronics (DYNT) 10-Q 16 Feb 16 2016 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2015	Feb. 12, 2016
Document and Entity Information:
Entity Registrant Name	DYNATRONICS CORP
Document Type	10-Q
Document Period End Date	Dec. 31, 2015
Trading Symbol	dynt
Amendment Flag	false
Entity Central Index Key	720,875
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding		2,742,355
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	2,016
Document Fiscal Period Focus	Q2

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($)	Dec. 31, 2015	Jun. 30, 2015
Current assets:
Cash and cash equivalents	$ 2,134,140	$ 3,925,967
Trade accounts receivable, less allowance for doubtful accounts of $446,867 as of December 31, 2015 and $417,444 as of June 30, 2015	3,016,545	3,346,770
Other receivables	8,088	6,748
Inventories, net	5,470,960	5,421,787
Prepaid expenses and other	331,125	273,629
Prepaid income taxes	340,908	338,108
Total current assets	11,301,766	13,313,009
Property and equipment, net	4,808,736	5,025,076
Intangible assets, net	175,463	190,803
Other assets	580,222	623,342
Total assets	16,866,187	19,152,230
Current liabilities:
Current portion of long-term debt	125,458	121,884
Current portion of capital lease	178,260	173,357
Current portion of deferred gain	150,448	150,448
Line of credit	733,316	1,909,919
Warranty reserve	154,015	153,185
Accounts payable	1,844,032	2,520,327
Accrued expenses	273,385	279,547
Accrued payroll and benefits expense	330,134	263,092
Total current liabilities	3,789,048	5,571,759
Long-term debt, net of current portion	587,413	651,118
Capital lease, net of current portion	3,374,476	3,464,850
Deferred gain, net of current portion	1,905,673	1,980,897
Deferred rent	63,688	41,150
Deferred income tax liabilities	136,128	136,128
Total liabilities	$ 9,856,426	$ 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 December 31, 2015 and June 30, 2015, respectively	$ 3,067,608	$ 3,087,554
Common stock, no par value: Authorized 50,000,000 shares; 2,672,652 shares and 2,642,389 shares issued and outstanding at December 31, 2015 and June 30, 2015, respectively	7,639,866	7,610,244
Accumulated deficit	(3,697,713)	(3,391,470)
Total stockholders' equity	7,009,761	7,306,328
Total liabilities and stockholders' equity	$ 16,866,187	$ 19,152,230

Consolidated Balance Sheets Par

Consolidated Balance Sheets Parenthetical - USD ($)	Dec. 31, 2015	Jun. 30, 2015
Consolidated Balance Sheets Parenthetical
Allowance for doubtful accounts	$ 446,867	$ 417,444
Preferred stock par value
Preferred stock shares authorized	5,000,000	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	2,672,652	2,642,389
Common stock shares outstanding	2,672,652	2,642,389

Consolidated Statements of Inco

Consolidated Statements of Income - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Consolidated Statements of Income
Net sales	$ 7,474,921	$ 7,303,189	$ 14,872,118	$ 14,519,513
Cost of sales	4,797,939	4,839,578	9,684,307	9,488,330
Gross profit	2,676,982	2,463,611	5,187,811	5,031,183
Selling, general, and administrative expenses	2,469,131	2,379,720	4,824,785	4,631,349
Research and development expenses	253,868	234,674	519,229	451,500
Operating loss	(46,017)	(150,783)	(156,203)	(51,666)
Other income (expense):
Interest income	1,869	1,280	2,482	3,601
Interest expense	(77,274)	(79,736)	(157,517)	(128,029)
Other income, net	2,391	3,113	4,995	6,455
Net other expense	(73,014)	(75,343)	(150,040)	(117,973)
Loss before income taxes	(119,031)	(226,126)	(306,243)	(169,639)
Income tax (provision) benefit	(5,650)	92,583		77,020
Net loss	(124,681)	(133,543)	(306,243)	(92,619)
8% Convertible preferred stock dividend	(80,500)		(161,000)
Net loss attributable to common stockholders	$ (205,181)	$ (133,543)	$ (467,243)	$ (92,619)
Basic and diluted net loss per common share	$ (0.08)	$ (0.05)	$ (0.18)	$ (0.04)
Weighted-average common shares outstanding:
Basic	2,670,124	2,520,389	2,656,711	2,520,389
Diluted	2,670,124	2,520,389	2,656,711	2,520,389

Consolidated Statements of Cash

Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net income (loss)	$ (306,243)	$ (92,619)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment	110,912	175,318
Amortization of intangible assets	15,340	22,318
Amortization of other assets	25,686	25,686
Amortization of building lease	125,966	104,972
Stock-based compensation expense	29,622	33,911
Change in deferred income taxes		(985,190)
Change in provision for doubtful accounts receivable	29,423	48,000
Change in provision for inventory obsolescence	3,856	60,000
Deferred gain on sale/leaseback	(75,224)	(62,686)
Change in operating assets and liabilities:
Change in Receivables, net	299,462	165,522
Change in Inventories, net	(53,029)	117,189
Change in Prepaid expenses and other assets	(57,496)	(632,399)
Change in Other assets	17,434	(327,320)
Change in Income tax payable		545,496
Change in Prepaid income taxes	(2,800)
Change in Accounts payable and accrued expenses	(611,993)	(318,708)
Net cash used in operating activities	(449,084)	(1,120,510)
Cash flows from investing activities:
Purchase of property and equipment	(20,538)	(19,652)
Proceeds from sale of property and equipment		3,800,000
Net cash provided by (used in) investing activities	(20,538)	3,780,348
Cash flows from financing activities:
Principal payments on long-term debt	(60,131)	(715,852)
Principal payments on long-term capital lease	(85,471)	(78,675)
Net change in line of credit	(1,176,603)	(1,998,518)
Net cash used in financing activities	(1,322,205)	(2,793,045)
Net change in cash and cash equivalents	(1,791,827)	(133,207)
Cash and cash equivalents at beginning of the period	3,925,967	332,800
Cash and cash equivalents at end of the period	2,134,140	199,593
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 139,334	85,469
Cash paid for income taxes		356,151
Supplemental disclosure of non-cash investing and financing activity:
Capital lease - building		$ 3,800,000
Preferred stock dividend payable in common stock	$ 161,000

Note 1. Presentation and Summar

Note 1. Presentation and Summary of Significant Accounting Policies	6 Months Ended
	Dec. 31, 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 December 31, 2015 and June 30, 2015, and the condensed consolidated statements of operations and cash flows for the three and six months ended December 31, 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 and six months ended December 31, 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 Loss Per Common Sha

Note 2. Net Loss Per Common Share	6 Months Ended
	Dec. 31, 2015
Notes
Note 2. Net Loss Per Common Share	NOTE 2. NET LOSS PER COMMON SHARE Net loss per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive 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 loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect. Basic net loss per common share is the amount of net loss for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each 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 and six months ended December 31, 2015 and 2014 are as follows: Three Months Ended Six Months Ended December 31, December 31, 2015 2014 2015 2014 Basic weighted-average number of common shares outstanding during the period 2,670,124 2,520,389 2,656,711 2,520,389 Weighted-average number of dilutive common stock equivalents outstanding during the period - - - - Diluted weighted-average number of common and common equivalent shares outstanding during the period 2,670,124 2,520,389 2,656,711 2,520,389 Outstanding options for common shares not included in the computation of diluted net loss per common share, because they were anti-dilutive, for the three months ended December 31, 2015 and 2014 totaled 4,081,267 and 139,610, respectively, and for the six months ended December 31, 2015 and 2014 totaled 4,085,911 and 139,610, respectively.

Note 3. Stock-based Compensatio

Note 3. Stock-based Compensation	6 Months Ended
	Dec. 31, 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 $14,611 and $16,457 in stock-based compensation expense during the three months ended December 31, 2015 and 2014, respectively, and recognized $29,622 and $33,911 in stock-based compensation expense during the six months ended December 31, 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 granted 1,194 shares under its 2015 Plan during the six months ended December 31, 2015. There was no equity awards granted under its 2005 Plan during that period. The following table summarizes the Company’s stock option activity for the 2005 and 2015 Plans during the six-month period ended December 31, 2015. Number of Options Weighted-Average Exercise Price Outstanding at beginning of period 91,152 $ 5.07 Granted 80,000 3.34 Exercised - - Cancelled (23,395) 7.10 Outstanding at end of period 147,757 3.81 Exercisable at end of period 63,793 4.76 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 on common stock and there are no future plans to do so. As of December 31, 2015, there was $298,861 of unrecognized stock-based compensation cost related to grants under the 2005/2015 Plans that is expected to be expensed over a weighted-average period of four to ten years. There was $2,278 of intrinsic value for options outstanding as of December 31, 2015.

Note 4. Convertible Preferred S

Note 4. Convertible Preferred Stock and Common Stock Warrants	6 Months Ended
	Dec. 31, 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 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.

Note 5. Comprehensive Income (l

Note 5. Comprehensive Income (loss)	6 Months Ended
	Dec. 31, 2015
Notes
Note 5. Comprehensive Income (loss)	NOTE 5. COMPREHENSIVE LOSS For the three and six months ended December 31, 2015 and 2014, comprehensive loss was equal to the net loss as presented in the accompanying condensed consolidated statements of operations.

Note 6. Inventories

Note 6. Inventories	6 Months Ended
	Dec. 31, 2015
Notes
Note 6. Inventories	NOTE 6. INVENTORIES Inventories consisted of the following: December 31, 2015 June 30, 2015 Raw materials $ 2,153,932 2,086,411 Finished goods 3,679,429 3,693,921 Inventory obsolescence reserve (362,401) (358,545) $ 5,470,960 5,421,787

Note 7. Related-party Transacti

Note 7. Related-party Transactions	6 Months Ended
	Dec. 31, 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 the Company from third parties. The expense associated with these related-party transactions totaled $17,700 for the three months ended December 31, 2015 and 2014, and $35,400 for the six months ended December 31, 2015 and 2014.

Note 8. Line of Credit

Note 8. Line of Credit	6 Months Ended
	Dec. 31, 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 3,000,000 $2,800,000 The line of credit matures on March 5, 2016. The Company plans 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. The new line of credit requires that a minimum borrowing of approximately $0.7 million be maintained during the term of the loan.

Note 9. Recent Accounting Prono

Note 9. Recent Accounting Pronouncements	6 Months Ended
	Dec. 31, 2015
Notes
Note 9. Recent Accounting Pronouncements	NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments in this update make the following eight improvements to GAAP: 1) Equity investments (except those accounted for under the equity method or that result in consolidation of the investee) are to be measured at fair value with changes in fair value included in net income. However, an entity may choose to measure equity investments without readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. 2) A qualitative assessment is required for investments without readily determinable fair values in order to identify impairment. If impairment is identified, the investment is to be measured at fair value. 3) The requirement to disclose the fair value of financial instruments measured at amortized cost is eliminated for non-public business entities. 4) The requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost is eliminated for public business entities. 5) Public entities are required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 6) An entity is required to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. 7) Separate presentation of financial assets and liabilities by measurement category and form of financial asset is required on the balance sheet or accompanying notes. 8) An entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively to equity investments that exist as of the date of adoption. . The Company notes this new guidance will apply to its reporting requirements and will implement the new guidance accordingly and is currently evaluating the impact this new guidance will have on its financials. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. 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 deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position, which eliminates the requirement that an entity separate deferred tax liabilities and assets into current and non-current amounts. This update does not affect the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount on the balance sheet. This amendment applies to all entities with a classified statement of financial position. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The Company notes this guidance will apply to its reporting requirements and will implement the new guidance accordingly. 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 . 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 . 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.

Note 10. Subsequent Events

Note 10. Subsequent Events	6 Months Ended
	Dec. 31, 2015
Notes
Note 10. Subsequent Events	NOTE 10. SUBSEQUENT EVENTS On January 7, 2016, the Company issued 31,301 shares of common stock as payment for the accrued “Preferred Stock Dividend.” On January 20, 2016, the Company issued 34,980 shares of common stock to the independent directors as compensation for calendar year 2016. On January 26, 2016 the Company issued 3,422 shares of common stock pursuant to an employment agreement.

Note 1. Presentation and Summ16

Note 1. Presentation and Summary of Significant Accounting Policies: Basis of Presentation (Policies)	6 Months Ended
	Dec. 31, 2015
Policies
Basis of Presentation	Basis of Presentation The condensed consolidated balance sheets as of December 31, 2015 and June 30, 2015, and the condensed consolidated statements of operations and cash flows for the three and six months ended December 31, 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 and six months ended December 31, 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.

Note 1. Presentation and Summ17

Note 1. Presentation and Summary of Significant Accounting Policies: Use of Estimates (Policies)	6 Months Ended
	Dec. 31, 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.

Note 1. Presentation and Summ18

Note 1. Presentation and Summary of Significant Accounting Policies: Significant Accounting Policies (Policies)	6 Months Ended
	Dec. 31, 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.

Note 9. Recent Accounting Pro19

Note 9. Recent Accounting Pronouncements: New Accounting Pronouncements, Policy (Policies)	6 Months Ended
	Dec. 31, 2015
Policies
New Accounting Pronouncements, Policy	In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments in this update make the following eight improvements to GAAP: 1) Equity investments (except those accounted for under the equity method or that result in consolidation of the investee) are to be measured at fair value with changes in fair value included in net income. However, an entity may choose to measure equity investments without readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. 2) A qualitative assessment is required for investments without readily determinable fair values in order to identify impairment. If impairment is identified, the investment is to be measured at fair value. 3) The requirement to disclose the fair value of financial instruments measured at amortized cost is eliminated for non-public business entities. 4) The requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost is eliminated for public business entities. 5) Public entities are required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 6) An entity is required to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. 7) Separate presentation of financial assets and liabilities by measurement category and form of financial asset is required on the balance sheet or accompanying notes. 8) An entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively to equity investments that exist as of the date of adoption. . The Company notes this new guidance will apply to its reporting requirements and will implement the new guidance accordingly and is currently evaluating the impact this new guidance will have on its financials. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. 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 deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position, which eliminates the requirement that an entity separate deferred tax liabilities and assets into current and non-current amounts. This update does not affect the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount on the balance sheet. This amendment applies to all entities with a classified statement of financial position. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The Company notes this guidance will apply to its reporting requirements and will implement the new guidance accordingly. 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 . 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 . 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.

Note 2. Net Loss Per Common S20

Note 2. Net Loss Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Tables)	6 Months Ended
	Dec. 31, 2015
Tables/Schedules
Schedule of Earnings Per Share, Basic and Diluted	Three Months Ended Six Months Ended December 31, December 31, 2015 2014 2015 2014 Basic weighted-average number of common shares outstanding during the period 2,670,124 2,520,389 2,656,711 2,520,389 Weighted-average number of dilutive common stock equivalents outstanding during the period - - - - Diluted weighted-average number of common and common equivalent shares outstanding during the period 2,670,124 2,520,389 2,656,711 2,520,389

Note 3. Stock-based Compensat21

Note 3. Stock-based Compensation: Summary of Stock Option Activity (Tables)	6 Months Ended
	Dec. 31, 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 80,000 3.34 Exercised - - Cancelled (23,395) 7.10 Outstanding at end of period 147,757 3.81 Exercisable at end of period 63,793 4.76

Note 6. Inventories_ Schedule o

Note 6. Inventories: Schedule of Inventory, Current (Tables)	6 Months Ended
	Dec. 31, 2015
Tables/Schedules
Schedule of Inventory, Current	December 31, 2015 June 30, 2015 Raw materials $ 2,153,932 2,086,411 Finished goods 3,679,429 3,693,921 Inventory obsolescence reserve (362,401) (358,545) $ 5,470,960 5,421,787

Note 2. Net Loss Per Common S23

Note 2. Net Loss Per Common Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - shares	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Details
Basic weighted-average number of common shares outstanding during the year	2,670,124	2,520,389	2,656,711	2,520,389
Diluted weighted-average number of common and common equivalent shares outstanding during the year	2,670,124	2,520,389	2,656,711	2,520,389

Note 2. Net Loss Per Common S24

Note 2. Net Loss Per Common Share (Details) - shares	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Details
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	4,081,267	139,610	4,085,911	139,610

Note 3. Stock-based Compensat25

Note 3. Stock-based Compensation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Details
Allocated Share-based Compensation Expense	$ 14,611	$ 16,457	$ 29,622	$ 33,911
Common Stock, Capital Shares Reserved for Future Issuance	418,806		418,806
Stock Granted, Value, Share-based Compensation, Net of Forfeitures			$ 1,194
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 298,861		298,861
Employee Service Share Based Compensation Unrecognized Compensation Costs On Nonvested Awards Weighted Average Period Of Recognition	four to ten years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 2,278		$ 2,278

Note 3. Stock-based Compensat26

Note 3. Stock-based Compensation: Summary of Stock Option Activity (Details)	3 Months Ended
	Dec. 31, 2015$ / sharesshares
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance | shares	91,152
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares	$ 5.07
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures | shares	80,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares	$ 3.34
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period | shares	(23,395)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price | $ / shares	$ 7.10
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | shares	147,757
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares	$ 3.81
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options | shares	63,793
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price | $ / shares	$ 4.76

Note 6. Inventories_ Schedule27

Note 6. Inventories: Schedule of Inventory, Current (Details) - USD ($)	Dec. 31, 2015	Jun. 30, 2015
Details
Inventory, Raw Materials, Gross	$ 2,153,932	$ 2,086,411
Inventory, Finished Goods, Gross	3,679,429	3,693,921
Inventory Valuation Reserves	(362,401)	(358,545)
Inventories, net	$ 5,470,960	$ 5,421,787

Note 7. Related-party Transac28

Note 7. Related-party Transactions (Details) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Details
Related Party Transaction, Expenses from Transactions with Related Party	$ 17,700	$ 17,700	$ 35,400	$ 35,400

Note 8. Line of Credit (Details

Note 8. Line of Credit (Details)	3 Months Ended
	Dec. 31, 2015USD ($)
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	$ 2,800,000
Interest Rate	10.00%