DYNATRONICS CORPORATION POLICY REGARDING COMPLAINTS TO THE AUDIT COMMITTEE REGARDING ACCOUNTING AND AUDITING MATTERS

Effective August 2003

This “Policy regarding Complaints to the Audit Committee regarding Accounting and Auditing Matters” (the “Policy”) has been adopted by the Audit Committee (the “Committee”) of the Board of Directors of Dynatronics Corporation (the “Company”), effective as of the above date.  The Policy governs the manner in which the Committee will receive complaints and concerns from the Company’s employees or others regarding accounting and auditing matters.  A complaint or concern about an accounting, internal control, or auditing matter is hereafter referred to as a “Complaint,” and shall include any recording or documentation of the Complaint.

Background

In 2002, the Congress of the United States adopted Sarbanes-Oxley Act of 2002 (the “Act”).  Section 301 of the Act added new section 10A(m)(4) to the Securities and Exchange Act of 1934 (the “Exchange Act”), that is applicable to the Company and similar companies that are required to file reports regularly with the Securities and Exchange Commission (the “SEC”).  That section required the SEC to adopt rules directing public company audit committees to establish procedures for (i) the receipt, retention, and treatment of complaints that are received by the company regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by the company’s employees of concerns regarding questionable accounting and auditing matters.  The SEC, acting upon this mandate, adopted Rule 10A-3 (the “Rule”) and directed that “Each audit committee must establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.”  The SEC has intentionally refrained from providing detailed instructions or guidelines for the implementation of this Rule.

Implementation

In addressing its responsibility under the Rule, the Committee has adopted the following policy and procedure intending to satisfy the requirements of Section 10A(m)(4) and Section 301 of the Act.

Receipt of Complaints

In accordance with the requirements of the Exchange Act, the Committee shall at all times implement and maintain a system whereby the employees of the Company may submit confidential and/or anonymous Complaints to the Committee.  Further, the Committee and/or management of the Company shall regularly inform and remind employees of such system.  The system shall be designed in such a way that only members of the Committee and counsel selected by the Committee shall have access to the Complaints.  Separately, if any director, officer, or employee of the Company shall receive a Complaint from any of the Company’s employees or from a third party, that person shall promptly communicate the Complaint to the Committee.  All Complaints that are received by the Committee shall be sent to and considered first by the Chairperson of the Committee (the “Chairperson”).

Retention of Complaints

The Chairperson shall retain every Complaint for a period of five years from the date it is received by the Committee.  Upon any change of the Chairperson, the former Chairperson shall deliver the Complaints to his or her successor.

Treatment of Complaints

All Complaints shall be reviewed and considered by the Chairperson within a reasonable time from the receipt thereof.  The Chairperson shall determine initially whether the Complaint is worthy of the attention of the Committee as a whole.  If the Chairperson determines in his or her discretion that the Complaint is not worthy of the attention of the entire Committee, then the Chairperson shall not be required to take further action with respect to that Complaint.  If the Chairperson determines that the Complaint should be submitted to the Committee as a whole for their consideration, then the Complaint shall be submitted and distributed to all members of the Committee for their consideration within a reasonable time.  The Committee may determine that no remedial action is advisable with respect to a Complaint.  Alternatively, the Committee after consideration of a Complaint may determine that remedial action is advisable, in which case the Committee shall take such action as it determines to be reasonable and appropriate under the circumstances and shall implement that remedial action within a reasonable period of time.

Reports to the Board of Directors

The members of the Committee may consult with and report to the full Board of Directors of the Company (the “Board”) concerning any Complaint and the possible remedial action to be taken with regard to a Complaint if and when the Committee determines that such action is worthy of the attention of the Board.

Investigations

In responding to any Complaint, the Committee or the Chairperson may conduct an investigation.  In conducting an investigation, the Committee or the Chairperson shall have the authority to retain the services of persons who are not employees of the Company at the expense of the Company.  This authority shall include the authority to commit the Company to pay such outside consultants, including legal and accounting professionals, a reasonable fee for such service.  The Committee or the Chairperson shall also have the authority to incur other reasonable expenses in connection with the conduct of any investigation.

Confidentiality

Persons submitting Complaints have the right to remain anonymous if they so choose.  The name and identity of persons making Complaints, if known, shall be kept confidential.  If any member of the Committee becomes aware of the name of a person who has made a Complaint, he or she shall at all times keep the identity of the complainant confidential unless the complainant first consents in writing to the disclosure of his or her identity.

Cooperation

The directors, officers, and employees of the Company shall cooperate fully with the Committee and/or the Chairperson in the conduct of any investigation or other action taken in response to a Complaint.

 

March 05, 2003

To all employees of Dynatronics Corporation:

I am the Chairperson of the Audit Committee (the “Committee”) of the Board of Directors of Dynatronics Corporation (the “Company”).  I am sending this letter to all employees of the Company on behalf of the Committee.  The purpose of this letter is to inform you of a confidential and anonymous way that you can contact me and the other members of the Committee if you ever have complaints about the way the Company maintains its accounting records, or its financial internal accounting controls, or as to other auditing matters affecting the accurate preparation of its financial statements.

Over the past few years, you have no doubt heard about various corporate scandals in the media involving companies such as Enron and Worldcom.  Most of these scandals involved public companies that had engaged in improper or fraudulent accounting as a means to make their financial results look better than they actually were.  In response to these scandals, the United States Congress last year adopted the Sarbanes-Oxley Act (the “Act”).  The Act imposes various requirements on public companies, many of which are intended to thwart or penalize accounting fraud.

One important requirement of the Act is that public companies, like Dynatronics, implement a system whereby employees or others may submit complaints or concerns in a confidential and anonymous manner regarding the company’s accounting practices to members of the company’s audit committee.  The audit committee of a company is a subset of the board of directors and has the responsibility to oversee the preparation of the company’s financial statements.  Another requirement of the Act is that the directors who serve as members of an audit committee must be “independent,” meaning that they cannot be an officer or employee of the company and cannot receive any compensation from the company other than for their service as a director.  Congress envisions that these requirements will work together to thwart accounting fraud.  If employees can submit their complaints or concerns to independent directors in a confidential and anonymous manner, they are more likely to submit complaints.  If the directors who receive such concerns or complaints are not only independent, but are also the ones with the responsibility to oversee preparation of the company’s financial statements, then they are more likely to take appropriate remedial action.

The current members of the Company’s Audit Committee are myself and Val J. Christensen.  The Committee has adopted the attached “Policy regarding Complaints to the Audit Committee regarding Accounting and Auditing Matters” (the “Policy”).  I encourage you to read this Policy.  It sets forth the manner in which the Committee will receive, retain, and respond to complaints. Most important is the fact that you may submit a complaint anonymously, if you choose.  Alternatively, you may make your name known only to members of the Committee.  In this instance, as provided by the Policy, the members of the Committee will keep your name confidential, unless you consent in writing.

You may submit a complaint directly to a member of the Committee.  If you wish to contact a member of the Committee directly, you may do so as follows:

Howard L. Edwards
P.O. Box 680934
Park City, UT 84068

Val J. Christensen
423 W. 300 S. #200
Salt Lake City, Utah 84101

If you have questions concerning the Policy or the procedure for submitting complaints, please contact me as described above or contact Bob Cardon, Corporate Secretary, at the Company’s headquarters.

In addition to the above, you should also know that Congress adopted a specific provision of the Act that protects whistle-blowers (people making complaints as described above).  The Act makes it illegal for a public company or any of its management personnel to fire, demote, or discriminate against a whistle-blower because he or she has made a complaint concerning the company.  If a company or its management does this, they can be subject to either fines or imprisonment.  Also, if a whistle-blower is fired, the Act gives the whistle-blower the right to sue the former employer for back pay under federal law.  Of course, by making an anonymous complaint pursuant to the above procedure, the fact that you have made the complaint will not be known.  Moreover, if you make a confidential complaint, your name will not be known outside the members of the Committee.  Nevertheless, this additional protection of the Act should bring you additional comfort that in the unlikely event that someone was able to figure out that you had made a complaint his or her retaliation against you would be illegal.

Very truly yours,

Howard L. Edwards
Chairman of the Audit Committee
Board of Directors
Dynatronics Corporation