UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C.  20549
                               FORM 10-KSB

(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange 
Act of 1934 for the fiscal year ended June 30, 1998.

[  ] Transition Report Under 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
                 (Name of Small Business Issuer in its Charter)
            Utah           	    					                      87-0398434   	
--------------------------                     ------------------------------
(State of Incorporation)	    		       			  (I.R.S. Employer Identification No.)
                           7030 Park Centre Drive
                        Salt Lake City, Utah  84121
                             (801) 568-7000
         (Address of Principal Executive Offices, Telephone Number)

         Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, no par value

Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 
during the past 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    X    or No 	    

The aggregate market value of the voting stock held by non-affiliates of 
the issuer was approximately $22,466,000 as of September 16, 1998.

The number of shares outstanding of each of the issuer's classes of 
common stock as of September 16, 1998 was:
              	Class								  	                 Shares Outstanding
        -------------------                     ------------------
    Common Stock, no par value					              	  8,681,402

The Company hereby incorporates by reference the Company's 1998 Proxy 
Statement into Items 11 and 12 of this Report on Form 10-KSB.  The Proxy 
Statement will be provided to shareholders subsequent to the filing of 
this Report.

Check if there is no disclosure of delinquent filers in response to Item 
405 of Regulation S-B contained herein, and no disclosure will be 
contained, to the best of issuer's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this 
Form 10-KSB or any amendment to this Form 10-KSB.  [X]
Transitional Small Business Disclosure
Format (Check One):
Yes 			No     X		

<PAGE>
                                  PART I

Item 1. Description of the Business
        
    	Dynatronics Corporation, formerly Dynatronics Laser Corporation 
("Dynatronics" or the "Company"), a Utah corporation, was organized 
April 29, 1983 to acquire its affiliates, Dynatronics Research 
Corporation, and Dynatronics Marketing Company which were incorporated 
in Utah in 1979 and 1980, respectively.  The principal business of the 
Company is the design, manufacture and sale of: 1) medical devices for 
therapeutic and aesthetic applications, 2) medical supplies and soft 
goods,  3) treatment tables and rehabilitation products for use by 
practitioners  and 4) nutritional supplements.  The Company distributes 
its products through independent dealers nationwide and internationally 
as well as through its own full-line catalog.  

    	On May 1, 1996, the Company acquired the assets of Superior 
Orthopaedics Supplies, Inc. ("Superior"), a manufacturer and distributor 
of medical soft goods, supplies, wood therapy tables and rehabilitation 
products for the physical medicine market. Superior is located in 
Ooltewah, Tennessee, a suburb of Chattanooga, Tennessee.  The addition 
of Superior's products to the Company's existing line of capital 
equipment significantly broadened the Company's product line and 
strengthened channels of distribution, allowing for greater market 
penetration both domestically and internationally. 

    	In August 1996, the Company entered into a five-year agreement 
with Life-Tech, Inc. of Houston, Texas, which appoints the Company as 
exclusive distributor of Life-Tech's iontophoresis products to the 
physical medicine market throughout the United States and Canada and as 
a non-exclusive distributor internationally.  Iontophoresis is a process 
by which anti-inflammatory drugs and local anesthetics are delivered 
transdermally without the use of injection needles. The acceptance of 
iontophoresis as a method of  treatment among physical therapists has 
grown significantly over the past decade.  

    	In December 1996, the Company acquired certain assets in Columbia, 
South Carolina to begin manufacturing physical therapy treatment tables, 
rehabilitation parallel bars, and other specialty rehabilitation 
products.  Agreements were signed with Mr. Charlton "Stoney" Floyd, 
founder and past president of Midland Table Company to lease equipment 
and real property for the venture as well as to provide consulting 
services.  In May 1997, Mr. Floyd was named General Manager of the 
Company's Columbia operations.  Mr. Floyd has an extensive background in 
the design, manufacture and sale of rehabilitation tables and equipment.  
The addition of treatment tables and related products is of strategic 
importance in that the Company believes it is now able to offer the 
broadest line of manufactured products in the industry.  

    	In fiscal year 1998, the Company developed a new product line 
called the Synergie Lifestyle System which combines therapeutic 
massage treatments using the new Synergie AMS device with diet, 
exercise and proper nutrition for improving health and skin tone 
quality.  This new product line has opened new market opportunities for 
the Company in the fields of plastic surgery, and dermatology, as well 
as related aesthetic markets.  Initial shipments of the new Synergie 
product line began in July 1998.
<PAGE>

                 Description of Products Manufactured
                  and/or Distributed by the Company

    	The Company's product line can be divided into four primary 
categories: (1) Therapy Devices including Electrotherapy and Therapeutic 
Ultrasound; (2) Medical Supplies and Soft Goods; (3) Treatment Tables 
and Rehabilitation Equipment; and (4) Aesthetic Products related to the 
Synergie Lifestyle System.  The Company's products are used primarily by 
physical therapists, chiropractors, sports medicine practitioners, 
podiatrists, plastic surgeons, dermatologists, and other aesthetic 
services providers.  

Therapy Devices

    	Electrotherapy - The therapeutic effects of electrical energy have 
occupied an important position in physical medicine for over three 
decades. There has been an evolution through the years to use the most 
effective and painless wave forms and frequencies for patient comfort 
and for success in the treatment of pain and related physical ailments.   
Medium frequency alternating currents, which are used in the Company's 
electrotherapy devices, are believed to be the most effective and 
comfortable for patients. Electrotherapy is commonly used for treating  
chronic, intractable pain and/or acute, post-traumatic pain, increasing 
local blood circulation, relaxation of muscle spasms, prevention or 
retardation of disuse atrophy, and muscle re-education.  

    	Therapeutic Ultrasound  - Ultrasound therapy is a process of 
providing therapeutic deep heat to muscle tissues through the 
introduction of soundwaves into the body.  It is the most common 
modality used in physical therapy today for the treatment of pain 
relief, muscle spasms and joint contractures.  

"50 Series" and "50 Series Plus" Products  

     With industry trends toward managed care, the Company anticipated 
an increased market demand for lower cost devices that did not sacrifice 
important features.  The result was the introduction in fiscal years 
1994-1996 of the "50 Series" product line.   This line incorporates the 
latest technology and allows the Company to reduce the size of these 
devices by 50% compared to their predecessor devices.  These changes 
also reduce the price of these products without eliminating key features 
of the more expensive models.  

    	During fiscal year 1997, the Company introduced seven new devices 
including the Dynatron 125 and 525 which target the low-priced segment 
of the market, together with five new "50 Series Plus" products which 
add additional features and capabilities to the popular "50 Series" line 
of products while at the same time reducing the cost of manufacturing 
the products.  (See Schedule of Therapy Products below.)  Dynatronics 
intends to continue development of its electrotherapy and ultrasound 
technology and remain a leader in the design, manufacture and sale of 
therapy devices.  Therapy devices and related products accounted for 
over half of total sales revenue in fiscal year 1998.  

Iontophoresis  

     In fiscal 1997, the Company added Life-Tech's line of 
iontophoresis products to its family of therapy devices offered to 
practitioners.  These products include the Iontophor II and Microphor 
devices which are used in physical medicine applications primarily for 
treating inflammation.  The devices use electrical current to deliver 
drugs such as lidocaine and dexamethasone through the skin for localized 
<PAGE>
treatment of inflammation.  The drug is placed in a disposable 
electrode.  The products sold by the Company include the electrical 
current generating device (Microphor and Iontophor II) and the 
disposable electrodes into which the drug of choice is placed by the 
practitioner.

          The chart below lists the therapy device products manufactured 
and marketed by the Company which materially contributed to total 
Company sales in fiscal year 1998.  

                      Schedule of Therapy Products
             Manufactured and/or Distributed by Dynatronics

                                            	  		 When
Product Name		      	Description	                 Introduced
------------         -----------                  ----------

Dynatron 150*	  	    Ultrasound	           			    3rd quarter fiscal year 1994

Dynatron 550*	  		   Multi-modality				           1st quarter fiscal year 1995
                     Electrotherapy 

Dynatron 850*	  	    Combination Electrotherapy/		1st quarter fiscal year 1995
                 				Ultrasound
				
Dynatron 650*	  		   Multi-modality 				          2nd quarter fiscal year 1996
                 				Electrotherapy

Dynatron 950*		  	   Combination Electrotherapy/		2nd quarter fiscal year 1996
                 				Ultrasound

Dynatron 125	  		    Ultrasound				               1st quarter fiscal year 1997

Dynatron 525	      		Electrotherapy				           1st quarter fiscal year 1997

Iontophor II &			    Iontophoresis				            1st quarter fiscal year 1997
Microphor +

Dynatron 150 Plus**	 Ultrasound				               3rd quarter fiscal year 1997

Dynatron 550 Plus**	 Multi-modality 	             3rd quarter fiscal year 1997
                     Electrotherapy

Dynatron 650 Plus**	 Multi-modality             		3rd quarter fiscal year 1997
                     Electrotherapy

Dynatron 850 Plus**	 Combination Electrotherapy/		3rd quarter fiscal year 1997
				                 Ultrasound

Dynatron 950 Plus**	 Combination Electrotherapy/		3rd quarter fiscal year 1997
				                 Ultrasound
_____________________
Dynatron is a registered trademark (#1280629) owned by Dynatronics
<PAGE>

	* "50 Series" Product Line
	** "50 Series Plus" Product Line
	+ Both Manufactured by Life-Tech



Medical Supplies and Soft Goods

   	In March 1998, the Company introduced its 1998 product catalog 
containing 300 new products effectively doubling the number of products 
offered in the 1997 catalog.  Some of the products which are new to the 
catalog this year include:  treadmills, wheelchairs, walkers, splinting 
supplies, wound care products, athletic trainer supplies, work hardening 
and exercise products, and occupational therapy tables.    With the 
introduction of the expanded 1998 catalog, the Company has created a 
virtual "one-stop shop" for rehabilitation professionals.

   	Medical supplies and soft goods currently manufactured by the 
Company include:  hot packs, therapy wraps, wrist splints, neoprene 
braces and supports, lumbar supports, cervical collars, slings, cervical 
pillows, back cushions, weight racks, and wood and metal treatment 
tables.  Products distributed by the Company include:  cold packs, skin 
cleanser, lotions and gels, paper products, athletic tape, canes and 
crutches, reflex hammers, stethoscopes, splints, elastic wraps, exercise 
weights, theraband tubing,  wheelchairs, walkers, treadmills, stair 
climbers, hydrocollators, whirlpools, gloves, electrodes, tens devices, 
and traction equipment.  The Company is continually seeking to expand 
its line of medical supplies and soft goods.  

Treatment Tables and Rehabilitation Equipment

   	In January, 1997, the Company acquired a treatment table 
manufacturing operation in Columbia, South Carolina.  The Company now 
manufactures and distributes a line of physical therapy treatment 
tables, rehabilitation parallel bars, and other specialty rehabilitation 
products.  The products manufactured at the Columbia operations are 
primarily of metal construction.  The product line includes motorized 
and manually-operated products.  The Company offers over 30 varieties of 
treatment tables and rehabilitation equipment.

    As a result of the acquisitions of Superior Orthopaedic Supplies 
and the treatment table manufacturing operation, the Company has become 
a broad-line supplier in the physical medicine market. The target 
markets for these products are physical therapy, chiropractic, podiatry, 
sports medicine, industrial and occupational medicine, family practice, 
long-term care facilities, and the sub-groups of each of these 
specialties.  

Synergie Lifestyle System

   	In June 1998, the Company introduced a new product line called the 
Synergie Lifestyle System which provides a comprehensive, non-invasive 
treatment program consisting of three elements:  1) Synergie treatments 
featuring the new Synergie AMS therapeutic massage device, 2), regular 
exercise, and 3) proper nutrition. 

    The Synergie AMS device provides massage treatments to skin and 
subcutaneous tissues in common problem areas where heredity, inactive 
lifestyle, or poor diet tend to create undesirable effects for women.  
According to the U.S. Food and Drug Administration ("FDA"), therapeutic 
massagers, like the Synergie AMS device, are considered Class I devices.  
<PAGE>
Dynatronics has complied with FDA requirements for marketing the Synergy 
AMS device and therefore began shipments in July 1998.  Recently, FDA 
expanded allowed claims for this type of treatment to include "temporary 
reduction in the appearance of cellulite".  Dynatronics has formally 
submitted documentation to the FDA to qualify the Synergie AMS device 
for this new expanded labeling.

    As part of the Synergie Lifestyle System, the Company, with the 
assistance of expert consultants, developed and introduced a line of 19 
nutritional supplements including such items as a Multivitamin/Mineral 
compound, St Johns Wort formulation, Anti Oxidant Complex, Herbal 
Calmative, and Calcium formula.  Trademarked "SynergieNSP" (Nutritional 
Supplement Program), these nutritional supplements will be marketed 
through clinics offering Synergie AMS treatments, and by other 
professionals interested in quality nutritional supplements.  Other 
components of the Synergie product line include a treatment body suit, 
treatment tables, and other related accessories.

Other Products

    	In addition to the products already mentioned, the Company 
continues to sell on a limited basis other products such as the Dynatron 
2000 Patient Testing and Management System, Dynatron 360 Range of Motion 
Inclinometer, Dynatron 320 Grip Strength Analyzer, and the Dynatron 330 
Body Composition Analyzer.  

Allocation of Sales Among Key Products

    	No product accounted for more than 15 percent of the Company's 
revenues during any of the last two fiscal years.  Therapy devices and 
related products represented approximately 64 percent and 52 percent of 
total sales in 1997 and 1998, respectively.  Medical supplies and soft 
goods accounted for 34 percent and 40 percent of total sales in 1997 and 
1998, respectively.  Metal therapy tables and related rehabilitation 
products represented approximately 3 percent and 8 percent of total 
sales in 1997 and 1998 respectively.

Low Power Laser

    	The use of low-power laser stimulation (biostimulation) in 
medicine is in sharp contrast to the surgical, cauterizing, or cutting 
uses for which laser has been most commonly known in the past.  In 
biostimulation, the power output of the laser emitting device is reduced 
to a point of providing a mild stimulation to body tissues and 
functions.  Biostimulation is a claimed therapeutic application of laser 
as opposed to the surgical or burning effect achieved by higher-power 
units.  

    	Low-power laser therapy is used extensively in countries around 
the world as an adjunctive therapy in pain management, wound healing and 
certain immune system responses.  However, the FDA has not cleared these 
devices for general sale in the United States.  The process by which 
such clearance is granted is known as Pre- market Approval (PMA).  
Obtaining a PMA requires a significant investment of time and resources.

    	In the 1980's, Dynatronics filed a PMA with the FDA for its 
Dynatron 1120 low-power laser device.  In spite of the Company's 
expenditure of substantial effort and resources, the FDA refused to 
clear the laser for general marketing due to inconclusive evidence of 
the effectiveness of the device.  Due to the subjective nature of the 
process and the required commitment of human and monetary resources, the 
Company is not currently seeking FDA clearance of its low-power laser 
device.  Instead, the Company continues to seek indications of efficacy 
<PAGE>
of the devices that can be more easily demonstrated in a PMA.  Should 
such an indication of efficacy be identified, the Company would again 
give consideration to actively seeking FDA approval of its low- power 
laser devices.  

    	The most current laser device developed by the Company is the 
Dynatron 1650.  This device is smaller and more compact in keeping with 
the "50 Series" design of products.  The Dynatron 1650 has the ability 
to deliver multiple wavelengths by simply changing the probe.  
Presently, the device is offered in 3 mW and 15 mW power outputs at 633 
nm wavelength (red) and at 50 mW and 100 mW power outputs at 830 nm 
wavelengths (infrared).  Since no low-power laser has been cleared for 
marketing in the United States, the Dynatron 1650 is only sold 
domestically for research purposes under approved Investigational Device 
Exemptions pursuant to FDA guidelines.  

                      Description of the Company's
                 Marketing and Manufacturing Operations

Patents and Trademarks

    	The Company currently holds a patent on the "Target" feature of 
its electrotherapy products which will remain in effect until July 18, 
2006 and a patent on the Company's multi-frequency ultrasound technology 
which will remain in effect until June, 2013.  A design patent is also 
held on the Dynatron Equalizer which will remain in effect until July 
21, 2006. This design patent covers the device's appearance.  The 
Company does not hold any other patents, however, a patent on the new 
Synergie AMS device is in process of being filed with the United States 
Patent Office.  

     The trademark "Dynatron" has been registered with the United 
States Patent and Trademark Office and the appropriate government 
offices in Japan.  In addition, registration applications have been 
filed for the trademark and service mark "Synergie," and for the 
trademark "Synergie NSP."  The Company's other copyrightable material is 
protected under U.S. copyright laws.

Warranty Service

    	The Company warrants all products it manufactures for time periods 
ranging in length from 90 days to five years after the sale.  The 
Company also sells accessory items supplied by other manufacturers.  
These accessory products carry warranties similar to those offered by 
the Company.  Warranty service is provided from the Salt Lake City, 
Chattanooga, and Columbia facilities, according to the service required.  
These warranty policies are comparable to warranties generally available 
in the industry.   Warranty claims as a percentage of gross sales were 
not material in fiscal years 1997 and 1998 and were covered by the 
Company's reserve for such claims.

Customers/Market

    	With the acquisition of Superior and the introduction of the new 
Synergie product line, the Company has expanded its dealer network to 
over 320 wholesale dealers throughout the United States and 
internationally. These dealers are the primary customers of the Company.  
The dealers purchase and take title to the products.  Products are sold 
by dealers primarily to chiropractors, podiatrists, physical therapists, 
sports medicine specialists, medical doctors, hospitals, plastic 
surgeons, dermatologists, aesthetic and cosmetic practitioners and other 
medical institutions.  
<PAGE>
    	In addition, the Company has entered into a number of preferred 
vendor relationships with certain national chains of physical therapy 
clinics and hospitals.  The national account market represents a strong 
growth segment within the physical medicine industry as national and 
regional companies acquire individual physical therapy clinics 
throughout the country.  No single dealer or national account or group 
of related accounts was responsible for 10% or more of total sales in 
fiscal years 1997 or 1998.

    	The Company exports products to approximately 25 different 
countries.  International sales (i.e., sales outside North America) 
represented approximately $717,194, or 7 percent of the Company's total 
sales in fiscal 1997 and $652,431, or 5 percent of sales in fiscal 1998.  
This reduction is directly related to Asia's economic and financial 
troubles which have affected sales in that region.  In January 1997, the 
Company began sales of two of its devices to Japan.  Efforts are 
currently underway to obtain marketing clearance for the Company's 
products in the European Union, as well as other countries. However, 
access to foreign markets is sometimes barred or more difficult for 
devices such as those manufactured by the Company because of tariff 
restrictions, foreign currency fluctuations, currency control 
regulations, competing or conflicting manufacturing standards, 
governmental regulation and approval policies for medical testing and 
therapy devices and licensing requirements.  The Company has no foreign 
manufacturing operations.  

Competition

    	Despite significant competition, the Company has distinguished key 
products by using the latest technology, such as its patented Target 
feature and patented multi-frequency ultrasound technology.  The Company 
believes that these features, along with integration of cutting edge 
technology in the design of each  product, have made the Company a 
leader in technologically advanced electrotherapy, ultrasound, and 
therapeutic massage devices.  In addition, manufacturing many of the 
medical supplies, soft goods and tables sold by the Company allows the 
Company to focus on quality manufacturing at competitive prices.  The 
Company believes this gives it an edge over many competitors who are 
solely distributors of such products.

    	Electrotherapy/Ultrasound.  The competition in the clinical market 
for electrotherapy and ultrasound devices is from both domestic and 
foreign companies.  No fewer than a dozen companies produce devices 
similar to those of the Company.  Some of these competitors are larger 
and better established, and have greater resources than the Company.  
Few companies, domestic or foreign, provide multiple-modality devices, 
and none offer all the features found in the Dynatron 950 Plus.  No 
competitor offers the ultrasound feature of three frequencies on 
multiple-sized soundheads for which the Company holds a patent.  The 
primary competitors in the electrotherapy and ultrasound products sales 
include: Chattanooga Group, Excel-Tech, Rich-Mar, Mettler Electronics, 
and Williams Healthcare.  

    	Medical Supplies & Soft Goods.  The Company competes against 
various manufacturers and distributors of medical supplies and soft 
goods, some of whom are larger, more established and have greater 
resources than the Company. Excellent customer service along with 
providing value to customers is of key importance in this segment of the 
market. While there are many specialized manufacturers in this area, 
only a few such as Chattanooga Group, Fabrication Enterprises, and 
Bailey Manufacturing actually manufacture a broad line of competitive 
products.  Other competitors are primarily distributors such as EMPI, 
Graham Field, Sammons Preston, Meyers Distributing and AliMed Inc.  

    	Iontophoresis.  Competition in the iontophoresis market is 
primarily from IOMED and EMPI.  Both of these competitors have a much 
larger market share than Life-Tech, the manufacturer of the 
iontophoresis products marketed and sold by the Company. The Company 
<PAGE>
believes that Dynatronics' strong distribution network is important to 
its continued ability to compete against these larger companies.  

    	Treatment Tables.  The primary competition in the treatment table 
market is from domestic manufacturers including Hausmaun Industries, 
Sammons Preston, Bailey Manufacturing, S&W Enterprises, Tri-W-G, 
Chattanooga Group, Henley Healthcare, Medfit, and Clinton Industries.  
Dynatronics' combination of industry experience, quality and competitive 
pricing provide the foundation for the Company to compete in this 
marketplace.  In addition, some foreign competitors may gain pricing 
advantages from time to time due to currency fluctuations related to the 
U.S. dollar.

    	Synergie.  The Company has two primary competitors in the 
therapeutic massage industry:  LPG Systems and Luxar Corporation.  The 
Synergie device is unique in that it is much less expensive than 
competitive units.   In addition, the Synergie Lifestyle System 
incorporates a complete program including treatments, exercise, and 
nutrition for optimal results.  Dynatronics' well-established network of 
distributors provides another competitive advantage in the marketplace 
for these products.  

    The distribution of nutritional supplements is highly competitive.  
The Company competes directly with other entities that manufacture 
and/or distribute similar products.  Many of these competitors are 
substantially larger than the Company and enjoy greater financial 
resources, broader name recognition and stronger market penetration.  
Leading distributors of nutritional supplements include Herbalife 
International, Inc., Nature's Sunshine Products, Inc., Rexall, Inc., 
Twinlab Corporation, Shaklee Corporation, NuSkin International, Inc., 
and General Nutrition Centers. 

    	Information necessary to determine or reasonably estimate the 
Company's, and its competitors', market share in any of these markets is 
not available.  

Manufacturing and Quality Assurance

    	Manufacturing of the Company's therapy devices, soft goods and 
other medical products is conducted at the Company's facilities in Salt 
Lake City, Utah, Chattanooga, Tennessee and Columbia, South Carolina.  
The Company sub-contracts the production of certain components, but all 
work is performed to Dynatronics' specifications.  Sub-assembly, final 
assembly and quality assurance procedures are all performed by trained 
staff at the Company's manufacturing facilities in Salt Lake City, 
Chattanooga, and Columbia.  All component parts used in Dynatronics' 
device designs and all raw materials for medical supplies and soft goods 
manufacturing are readily available from suppliers.  

    	Dynatronics conforms to Good Manufacturing Practices as outlined 
by the FDA.  This includes a comprehensive program for processing 
customer feedback and analyzing product performance trends.  By insuring 
prompt processing of timely information, the Company is better able to 
respond to customer needs and insure proper operation of its products.  
All products are marketed pursuant to FDA clearance regulations.  

    	The Company adheres to a Quality First Program, a concept for 
total quality management designed to involve each employee in the 
quality assurance process.  Under this program, employees are not only 
expected to inspect for quality, but they are empowered to stop any 
process and make any changes necessary to insure that quality is not 
compromised.  An incentive program is established to insure the 
continual flow of ideas and to reward those who show extraordinary 
commitment to the Quality First concept. Quality First has not only 
become the Company motto, but it is the standard by which all decisions 
are made.  The results of this program are manifested in the low 
warranty expense associated with the Company's "50 Series" and "50 
<PAGE>
Series Plus" products.  The Quality First Program reinforces employee 
pride, increases customer satisfaction, and improves overall operations 
of the Company.  

    	The Company is working to achieve ISO 9001 Certification which is 
an internationally recognized standard for quality systems adopted by 
over 90 countries.  In addition, the Company is in the process of 
obtaining CE Mark Certification on selected products.  Once certified, 
the Company will be able to market these products throughout the 
European Union and in other countries.  Management anticipates the 
Company will complete its ISO 9001 and CE Mark Certifications within the 
next 12 months. 

Research and Development

    	The Company has historically been very committed to research and 
development.  In 1997 and 1998 the Company expended $653,413 and 
$574,822, respectively, for research and development which represented 
approximately 5 to 6 percent of the gross revenues of the Company in 
those years.  Substantially all of the research and development 
expenditures were for the development of new products, including the new 
Synergie product line, or the upgrading of existing products.  Because 
of its strong commitment to the future and to providing the most current 
technology in its medical devices, the Company projects it will continue 
to invest in research and development at amounts similar to those 
indicated above.  

Regulatory Matters

    The manufacture, packaging, labeling, advertising, promotion, 
distribution and sale of the Company's products are subject to 
regulation by numerous national and local governmental agencies in the 
United States and other countries.  In the United States, the FDA 
regulates the Company's products under the Food, Drug, and Cosmetic Act 
("FDC Act") and regulations promulgated thereunder.  Advertising and 
other forms of promotion and methods of marketing of the Company's 
products are subject to regulation by the Federal Trade Commission 
("FTC") under the Federal Trade Commission Act ("FTC Act"). 

    With the exception of the Company's low power laser devices, all 
of the Company's therapeutic and aesthetic treatment devices as 
currently designed have been cleared for marketing under section 510(k) 
of the FDC Act or are considered 510(k) exempt.  If a device is subject 
to section 510 (k), the FDA must receive premarket notification from the 
manufacturer of its intent to market the device.  The FDA must find that 
the device is substantially equivalent to a legally marketed device 
before the agency will clear the device for marketing.  In addition, 
certain modifications to the Company's marketed devices may require a 
premarket notification and clearance under section 510(k) before the 
changed device may be marketed, if the change or modification could 
significantly affect safety or effectiveness.  All the Company's 
devices, unless specifically exempted by regulation, are subject to the 
FDC Act's general controls, which include, among other things, 
registration and listing, adherence to the Quality System Regulation 
requirements for manufacturing, Medical Device Reporting and the 
potential for voluntary and mandatory recalls.

    The Company's Synergie NSP products generally are regulated as 
dietary supplements under the FDC Act, and therefore are not subject to 
premarket approval by the FDA.  Dietary supplements are also regulated 
under the Dietary Supplement Health and Education Act of 1994 ("DSHEA").  
The DSHEA revised provisions of the FDC Act concerning the regulation of 
<PAGE>
these products, for the first time defining "dietary supplements" and 
establishing specific rules for their manufacture and labeling. 

    Statements of nutritional support or product performance, which 
are permitted on labeling of dietary supplements without FDA pre-
approval, are defined to include statements that: (i) claim a benefit 
related to a classical nutrient deficiency disease and discloses the 
prevalence of such disease in the United States; (ii) describe the role 
of a nutrient or dietary ingredient intended to affect the structure or 
function in humans; (iii) characterize the documented mechanism by which 
a dietary ingredient acts to maintain such structure or function; or 
(iv) describe general well-being from consumption of a nutrient or 
dietary ingredient.  

    The FDA issued final dietary supplement labeling regulations in 
1997 that require a new format for product labels and may necessitate 
revising dietary supplement product labels by March 23, 1999.  All 
companies in the dietary supplement industry are required to comply with 
these labeling regulations.   The Company believes its current labeling 
is substantially in compliance with this new regulation.

    Failure of the Company to comply with applicable FDA regulatory 
requirements may result in, among other things, injunctions, product 
withdrawals, recalls, product seizures, fines, and criminal 
prosecutions.  Any such action by the FDA could materially adversely 
affect the Company's ability to successfully market its products.

    The Company's advertising of its products is subject to regulation 
by the FTC under the FTC Act.  Section 5 of the FTC Act prohibits unfair 
methods of competition and unfair or deceptive acts or practices in or 
affecting commerce.  Section 12 of the FTC Act provides that the 
dissemination or the causing to be disseminated of any false 
advertisement pertaining to, among other things, drugs, cosmetics, 
devices or foods, which include dietary supplements, is an unfair or 
deceptive act or practice.  Pursuant to this FTC requirement, the 
Company is required to have adequate substantiation for all advertising 
claims made about its products.  The type of substantiation will be 
dependent upon the product claims made.  

    If the FTC has reason to believe the law is being violated (e.g., 
the manufacturer or distributor does not possess adequate substantiation 
for product claims), it can initiate an enforcement action.  The FTC has 
a variety of processes and remedies available to it for enforcement, 
both administratively and judicially, including compulsory process 
authority, cease and desist orders, and injunctions.  FTC enforcement 
could result in orders requiring, among other things, limits on 
advertising, consumer redress, divestiture of assets, rescission of 
contracts, and such other relief as may be deemed necessary.  Violation 
of such orders could result in substantial financial or other penalties.  
Any such action by the FTC could materially adversely affect the 
Company's ability to successfully market its products.

    The Company cannot predict the nature of any future laws, 
regulations, interpretations, or applications, nor can it determine what 
effect additional governmental regulations or administrative orders, 
when and if promulgated, would have on its business in the future.  They 
could include, however, requirements for the reformulation of certain 
products to meet new standards, the recall or discontinuance of certain 
products, additional record keeping, expanded documentation of the 
properties of certain products, expanded or different labeling, and 
additional scientific substantiation.  Any or all such requirements 
could have a material adverse effect on the Company.

<PAGE>
Environment

    	The Company's operations are not subject to material compliance 
with Federal, State and Local provisions enacted or relating to 
protection of the environment or discharge of materials into the 
environment.  

Employees

    	On June 30, 1998, the Company had a total of 124 full-time 
employees and 7 part-time employees, as compared to 97 full-time and 6 
part-time employees as of June 30, 1997.  This increase in number of 
employees is primarily the result of increased sales volumes of the 
Company's products as well as the hiring of employees for the new 
Synergie product line.  

Item 2.   Properties

    	The Company's headquarters and principal place of business is 
located at 7030 Park Centre Drive, Salt Lake City, Utah 84121.  The 
Company's headquarters consist of a single facility housing 
administrative offices and a plant facility totaling approximately 
36,000 square feet.  The Company owns the land and building, subject to 
a mortgage requiring a monthly payment of approximately $19,700.  The 
mortgage matures in 2013.  

    During 1997, the Company sold 2.25 acres of land in Salt Lake City 
and acquired 3.38 acres of land and the 22,500 sq. ft. facility 
previously leased in Ooltewah, Tennessee in a tax-free exchange.  In 
March 1998, the Company completed the construction of an additional 
20,000 sq. ft. warehouse facility at the Ooltewah, Tennessee location.  
This new facility was financed through a mortgage requiring monthly 
payments of $7,716.  The mortgage matures in 2013.  Incorporated in this 
construction was completion of site work for a 20,000 sq. ft. addition 
to the new building.  As part of the overall expansion, the wood shop 
operations were moved from a 4,000 sq. ft. leased facility to the 10,000 
sq. ft. building that formerly served as the warehouse.  This campus 
comprises the Company's Tennessee operations.  

    For its Columbia operations, the Company leases two facilities in 
Columbia, South Carolina with total manufacturing space of approximately 
12,000 sq. ft.    During 1998, the Company completed the construction of 
an addition to one of the buildings which increased the building's size 
from 5,800 sq. ft. to 8,200 sq. ft.  The lease payments for both 
facilities total approximately $1,900 per month.    The Company believes 
the expanded facilities together with the Company's existing facilities 
are adequate to accommodate presently expected growth and needs of the 
Company for its operations.  

    	The Company owns or leases equipment used in the manufacture and 
assembly of the Company's products.  During 1998, the Company purchased 
and/or leased approximately $376,200 of additional manufacturing and 
assembly equipment to meet increased demand for its products and to 
improve manufacturing efficiency.  The nature of this equipment is not 
specialized and replacements may be readily obtained from any of a 
number of suppliers.  The Company also owns and leases computer 
equipment and engineering and design equipment used in its research and 
development programs.

Item 3.   Legal Proceedings.

    	There are no material pending legal proceedings to which the 
Company is a party or of which any of its property is the subject.  

<PAGE>
Item 4.   Submission of Matters to a Vote of Security Holders.

Item 4.   Submission of Matters to a Vote of Security Holders.
    	No matter was submitted to a vote of security holders through the 
solicitation of proxies or otherwise during the fourth quarter of the 
fiscal year covered by this report.  

<PAGE>
                              PART II

Item 5.   Market for the Company's Common Equity and Related Stockholder 
Matters.  

    	Market Information.  The common stock of the Company is listed on 
the Nasdaq Small Cap Market (symbol:  DYNT).  The following table shows 
the range of high and low sale prices for the Company's common stock as 
quoted on the Nasdaq system for the quarterly periods indicated.  

                               					       Year Ended June 30,
                                							 1998	             		  1997
							
	 					                           High       Low         High       Low
 
1st Quarter (July-September)			   $1.40     $ .78       $1.25       $.62
2nd Quarter (October-December)		   1.47       .88        1.12        .84
3rd Quarter (January-March)			     1.47       .88        1.21        .78
4th Quarter (April-June)			     	  3.88      1.34        1.12        .65

   	Holders.  As of September 16, 1998, the approximate number of 
common stock shareholders of record was 537.  This number does not 
include beneficial owners of shares held in "nominee" or "street" name.  
Including beneficial owners, the Company estimates that the total number 
of shareholders exceeds 2,000.

   	Dividends.  The Company has never paid cash dividends on its 
common stock.  At the present time, the Company's anticipated capital 
requirements are such that it intends to follow a policy of retaining 
earnings in order to finance the development of its business.

   	Sale of Unregistered Securities.  The Company has not sold any 
securities during the past three years in a private or public offer and 
sale.  In connection with the acquisition of Superior on May 1, 1996, 
the Company issued a total of 440,000 shares of common stock to former 
Superior stockholders in exchange for their Superior shares.  These 
shares were restricted securities and were issued without registration 
in reliance upon exemption from registration under Section 4(2) and 
other provisions of the Securities Act of 1933, as amended and the rules 
and regulations promulgated thereunder.

   	Stock Options.  In 1997, the Company granted options to certain 
officers, directors and employees for the purchase of a total of 256,206 
shares of Common Stock.  These options are exercisable from time to time 
over the next seven years at an average price of $1.04.  The options 
were issued without registration under the Securities Act in reliance 
upon exemptions relating to grants of securities made pursuant to 
certain written plans.

   	In 1998, the Company granted options pursuant to stock option 
plans or employment or other agreements.  The total number of shares 
issuable under such options is 404,037 shares.  The options are 
exercisable at an average price of $1.00.

<PAGE>
Item 6.  

Management's Discussion and Analysis or Plan of Operation

Selected Financial Data

The table listed below summarizes selected financial data for the 
Company contained in the financial statements forming a part of this 
report.

                               SELECTED FINANCIAL DATA
                              Fiscal Year Ended June 30

[CAPTION]
<TABLE>
		                          1998	        1997         	1996        	1995        	1994	  
                       -----------------------------------------------------------------
<S>                    <C>            <C>           <C>          <C>          <C>
Net Sales              $	12,283,064	  10,160,467   	6,784,748   	6,112,241	   4,900,408	 
Net Income (loss) 	    $   	664,788     	612,539    	(193,892)    	217,083     	290,059	
Net Income (loss)             
 Per share (basic)	    $       	.08         	.07        	(.02)        	.03         	.04
Working Capital   	    $ 	3,502,777  	 3,027,119	   2,616,464   	3,319,272   	2,899,196	
Total Assets          	$	11,641,948 	  9,642,479	   8,508,609   	7,187,328   	7,176,641	
Long-term Obligations 	$ 	3,376,017  	 2,534,553	   2,856,302	   2,399,371	   2,454,148	

</TABLE>

Fiscal 1998 Compared to Fiscal 1997 

Results of Operations

    	Sales for the fiscal year ended June 30, 1998 increased 21 percent 
to a record $12,283,064 as  compared to $10,160,467 in fiscal year 1997.  
Strong increases in the sales of medical supplies, soft goods, and 
treatment tables were primarily responsible for the boost in sales for 
the fiscal year 1998.  Since being acquired in May, 1996, the Company's 
Tennessee operation has grown from $2.1 million in sales annually to 
approximately $5 million in fiscal year 1998.  In addition, the 
Company's Columbia operations exceeded the goal of $1 million in sales 
during its first full year of operations.  During fiscal year 1998, the 
Company introduced its new product catalog with over 300 new medical 
supply products which added impetus to sales for the year.   The Company 
anticipates fiscal year 1999 will be another record year for the Company 
with the introduction of the new Synergie product line.

    	The Company's gross margin as a percent of sales remained 
relatively constant at 42.3 percent in fiscal year 1998 compared to 42.5 
percent in fiscal year 1997.   Higher margins associated with the 
Company's "50 Series Plus" electrotherapy and ultrasound products during 
the year were offset by the increased sales of medical supplies, soft 
goods, and treatment tables which carry lower margins.  The Company 
anticipates margins will improve in fiscal year 1999 with sales of the 
new Synergie product line.

    	The Company's 1998 selling, general and administrative (SG&A) 
expenses were $3,542,531  compared to $2,989,431 in fiscal year 1997.  
SG&A expenses as a percentage of sales decreased from 29.4 percent in 
fiscal year 1997 to 28.8 percent in fiscal year 1998.  The increase in 
total SG&A expenses was associated with the increase in sales volumes 
and initial marketing efforts for the new Synergie product line.
<PAGE>
    	During fiscal year 1998, the Company maintained its commitment to 
research and development (R&D), expending $574,822 for the year, 
compared to $653,413 in fiscal year 1997. R&D expenses for fiscal year 
1998 were related primarily to sustaining engineering for existing 
products as well as the development of new products, including the new 
Synergie product line, which did not begin shipments until July 1998.  

    	Operating income in fiscal year 1998 increased 60 percent to a 
record $1,082,477 compared to $675,836 in fiscal year 1997.  This 
increase is due to the Company's higher sales volume together with 
management's containment of operating expenses at the higher sales 
level.

    In the year ended June 30, 1998, the Company's effective tax rate 
was 27.8 percent compared to 34.8 percent in fiscal year 1997.  Due to 
improved profitability, the Company determined in fiscal year 1998 that 
it would no longer maintain a reserve for deferred tax assets, which 
resulted in lower tax expense in 1998 than in fiscal year 1997.

    Net income for fiscal year 1998 increased 9 percent to $664,788, 
compared to $612,539 in fiscal year 1997.  Net income for fiscal year 
1998 included recognition of more than $200,000 in pre-tax expenses 
associated with the development of the new Synergie product line, which 
were first shipped after the end of the fiscal year.  Net income for 
fiscal year 1997 included gain recognition of approximately $349,000 
(pre-tax) from non-operating transactions associated with the sale of 
real property and the recapture of bad debt.  Excluding these one-time 
items, the Company's pre-tax profits from operations increased 
approximately 85 percent from $591,000 in 1997 to a record $1.1 million 
in 1998.  This improvement was a direct result of the strong increase in 
sales and containment of operating expenses at the higher sales level.

    	The Company has not been materially affected by seasonality 
factors in its business operations.

Liquidity and Capital Resources  

    Significant growth of the Company in 1998 also resulted in growth 
in inventories and capital expenditures.  The Company has financed its 
growth primarily through cash flow from operations.  With the addition 
of over 300 new products in the Company's 1998 product catalog, 
inventories increased during the year by $542,890 to $2,723,150 at June 
30, 1998.  Management expects that inventory levels will increase during 
fiscal 1999 as a result of the introduction of the new Synergie product 
line and an anticipated increase in overall sales.

    Capital expenditures during fiscal year 1998 totaled approximately 
$1.2 million and were related primarily to the Company's capital 
equipment purchases associated with the expansion of its facilities in 
Tennessee and South Carolina as discussed above.  In addition, line of 
credit balances, net of cash balances, increased approximately $341,600 
over the same period.  While the Company anticipates continued growth in 
fiscal year 1999, it is expected that revenues from operations, together 
with available sources of borrowing, will be adequate to meet the 
Company's working capital needs related to its business and its planned 
capital expenditures for the same period.

    Working capital at June 30, 1998, totaled $3,502,777.  The 
Company's current ratio at June 30, 1998 was 2.4 to 1.  
<PAGE>
    The Company maintains an open line of credit with a commercial 
bank in the amount of $2.5 million.  Interest on the line of credit is 
based on the bank's index rate plus one-half percent which at June 30, 
1998, equaled 9.0 percent.  The line of credit is collateralized by 
certain accounts receivable and inventories.  As of June 30, 1998, $1.1 
million was outstanding on the line of credit and the Company had $1.4 
million available under the line, which is renewable annually.   The 
current line is up for renewal in November, 1999.  The line of credit 
agreement also contains restrictive covenants requiring the Company to 
maintain certain financial ratios.  As of June 30, 1998, the Company was 
in compliance with these covenants.   

    	Long-term debt at June 30, 1998 was $2,844,903, a $757,380 
increase compared to June 30, 1997.  The increase is directly related to 
the expansion of facilities in Tennessee and South Carolina and capital 
equipment purchases made during fiscal year 1998 as discussed above.

    Accounts receivable represent amounts due from the Company's 
dealer network and from medical practitioners and clinics.  The 
historical relationship with these customers indicates that the 
allowance for doubtful accounts is adequate.  Accounts receivable are 
generally collected within 30 days of the terms extended.  Management 
anticipates accounts receivable will increase in future years with 
increased company sales.

    For additional information with respect to sources and uses of 
cash, refer to the statements of cash flows included in the Company's 
financial statements.  

    The Company's revenues and net income from continuing operations 
have not been unusually impacted by inflation or price increases for raw 
materials and parts from vendors.  

    	The Company believes that its current cash balances, amounts 
available under its line of credit and cash provided by operations will 
be sufficient to cover its operating needs in the ordinary course of 
business for the next twelve months.  If the Company experiences an 
adverse operating environment or unusual capital expenditure 
requirements, additional financing may be required;  however, no 
assurance can be given that additional financing, if required, would be 
available on favorable terms.

Outlook

    	Over the past four fiscal years, Dynatronics has experienced double 
digit growth in sales and increased profitability. This growth has been the 
result of business strategies targeted to position Dynatronics as a leading 
manufacturer in the various disciplines of physical medicine.

    	During this growth phase, Dynatronics has upgraded and redesigned 
its core product line of electrotherapy and ultrasound products to 
incorporate the latest technology.  Two acquisitions were made to 
broaden the Company's line of products, both manufactured and distributed.  
Strategic alliances were formed to give the Company proprietary access 
to valuable products that could further broaden the Company's product line.  

    	As a result, the Company introduced the most comprehensive catalog 
in its history in February 1998, offering more than 600 products.  The 
Company believes these strategies have laid the foundation for 
Dynatronics to become a one-stop supplier for physical medicine practitioners 
nationwide.  
<PAGE>
    	Maintaining manufacturing control over the most important products 
in the catalog has allowed Dynatronics to achieve higher customer 
satisfaction by insuring quality of product and competitive pricing. 
This has been a key to the successful growth of the Company. 

    	Going forward, the Company expects to continue to pursue the 
fundamental growth strategies that have yielded the success of the past 
four years.  Those strategies include: 
	- Continued expansion of the core physical medicine product line
	- Introduction of new, innovative products both in and out of the physical 
       medicine field
	- Increased distribution into international markets 
	- Pursuit of strategic acquisitions and business alliances

    	To further enhance the Company's position as a single source 
supplier to physical medicine practitioners, Dynatronics seeks to 
establish favorable terms as a master distributor of products for other 
manufacturers.  A team of product specialists negotiate these terms and 
seek to further expand the breadth of products offered through the 
Company's catalog.  In addition, the Company engineers new products and 
continually re-engineers old products in order to remain competitive and 
meet changing market needs.  The Company expects its catalog of physical 
medicine products to continue to grow each year as the team of product 
specialists identify new items that are most in demand by Dynatronics' 
customers.

    	The most exciting component of the Company's near-term growth is 
the recent introduction of the Synergie Lifestyle System.  This new product 
line incorporates a therapeutic massage device, the Synergie AMS, as the 
centerpiece of the line.  This type of device has become popular among 
aesthetic practitioners in treating certain problem areas around the 
thighs, hips and buttocks where heredity, inactive lifestyle and poor 
diet have caused an undesirable effect in the appearance and tone of the 
skin.  

    	Another part of the Synergie product line is the introduction of 
19 nutritional supplements that aesthetic practitioners can market as part 
of the overall Synergie Lifestyle System.  The popularity and use of 
nutritional supplements are growing rapidly as more and more people 
strive to maintain healthy lifestyles.  Other products that are included in the 
Synergie line are a special treatment table for practitioners and 
special treatment bodysuits.  The bodysuit, made of a thin nylon spandex 
material, is purchased by each client that receives Synergie treatments, thus 
providing an ongoing demand for accessory sales after the initial sale 
of the Synergie AMS device.

    As a result of the new Synergie product line, Dynatronics has been 
introduced to several new aesthetic medicine disciplines which are 
expected to lead to new ideas for future products and for sales of 
current products into new markets.  More importantly, the Company 
expects the increase in sales and profitability from the Synergie 
product line to make fiscal 1999 a record year, in both sales and 
profitability.  

    	As with any new product, there have been a few delays in the 
manufacturing process and unforseen challenges associated with the sales 
and marketing of the Synergie product line during the first quarter of 
fiscal 1999.  As a result, earnings may not be as strong as originally 
expected in that quarter.  Nevertheless, the Company remains optimistic 
that as production processes and sales methodologies smooth out over the 
first two quarters, the fiscal year will yield a strong increase in 
earnings, compared to 1998.

    	Providing additional impetus to the growth for the next fiscal 
year is the potential of opening more international markets.  With the 
anticipated successful completion of ISO 9001 and CE Mark Certifications 
during fiscal year 1999, the European markets can be accessed for the 
first time in the history of the Company.  The Company recognizes that some of 
these markets are slower to develop and must be approached with caution.  
Yet the tremendous potential of the global marketplace makes the effort 
worthwhile.  
<PAGE>
	    Finally, a key component of the Company's long-term growth 
strategy is the pursuit of strategic acquisitions and business alliances.  The 
growth of the past four years and the anticipation of profits from the 
Synergie product line have resulted in improved value of the Company's 
common stock.  This stock can become a currency with which to make 
acquisitions.  The Company utilizes very strict criteria in evaluating 
potential acquisitions and alliances.  This criteria insures that the 
acquisition candidate is a proper fit.  Acquisitions are viewed by the 
Company as a key component in maintaining long-term growth and achieving 
strategic marketing objectives.   

    	The business strategies of the Company have yielded steady growth 
over the past four years.  Greater growth is anticipated in fiscal year 
1999 primarily due to the introduction of the new Synergie product line.  
By pursuing its growth objectives, Dynatronics expects to become a 
leading supplier of physical medicine products and to maintain a strong growth 
rate into the future.  Of course, the business of the Company is subject to 
risks such as those outlined elsewhere in this report, many of which are 
outside the Company's control.  These and other risks may cause the 
actual operating results to vary from the Company's expectations.  

Forward-Looking Statements

    When used in this Report on Form 10-KSB, the words "believes", 
"anticipates", "expects", and similar expressions are intended to 
identify forward-looking statements.  Such statements are subject to 
certain risks and uncertainties that could cause actual results to 
differ materially from those described in the forward-looking 
statements.  Readers are cautioned not to place undue reliance on these 
forward-looking statements, which speak only as of the date hereof.  The 
Company undertakes no obligation to publicly release the results of any 
revisions to these forward-looking statements that may be made to 
reflect events or circumstances after the date of this Report or to 
reflect the occurrence of unanticipated events.   Risks and 
circumstances that may cause actual results to vary from the Company's 
expectations include, among others, the following:  

    Technological Obsolescence.  The business of designing and 
manufacturing medical products is characterized by rapid technological 
change.  Although the Company has obtained patents on certain aspects of 
its technology, there can be no assurance that the Company's competitors 
will not develop or manufacture products technologically superior to 
those of the Company.

    Extensive Government Regulation.  The manufacture, packaging, 
labeling, advertising, promotion, distribution and sale of the Company's 
products are subject to regulation by numerous national and local 
governmental agencies in the United States and other countries. For a 
discussion of government regulations affecting the Company's business, 
please see "Regulatory Matters," above.

    Health Care Reform.  Governments are continually reviewing and 
considering expansive legislation that may lead to significant reforms 
in health care delivery systems.  The pressure for reform stems largely 
from the rising cost of health care in recent years.  The Company cannot 
predict whether or when new or proposed legislation will be enacted and 
there can be no assurance that such legislation, when enacted, will not 
impose additional restrictions on part or all of the Company's business 
or its intended business, which might adversely affect such business.
<PAGE>
    Product Liability.  Manufacturers and distributors of products 
used in the medical device and nutritional supplements industries are 
from time to time subject to lawsuits alleging product liability, 
negligence or related theories of recovery, which have become an 
increasingly frequent risk of doing business in these industries.  
Although from time to time lawsuits may arise or claims asserted based 
on product liability or other legal theories against the Company, all 
such actions have been insured against.  Such claims and losses, and the 
expense of defending against such claims, would be costly and could have 
a material adverse effect on the Company's results of operations.  
Although the Company presently maintains product liability insurance 
coverage which it deems adequate based on historical experience, there 
can be no assurance that such coverage will be available for such risks 
in the future or that, if available, it would prove sufficient to cover 
potential claims or that the present amount of insurance can be 
maintained in force at an acceptable cost.  Furthermore, the assertion 
of such claims, regardless of their merit or eventual outcome, also may 
have a material adverse effect on the Company, its business reputation 
and its operations.

    Ability to Sustain and Manage Growth.  The Company has experienced 
significant growth in the last several years.  To effectively manage the 
challenges resulting from growth, the Company may be required to hire 
additional management and operations personnel  and make additional 
expenditures to improve and to expand its operational, financial, 
information and management systems and its production capacity, which 
may significantly increase its future operating expenses.  No assurance 
can be given that the Company's business will grow in the future or that 
the Company will be able to effectively manage such growth.  Any failure 
by the Company to appropriately manage its growth could have a material 
adverse effect on the Company's business, financial condition and 
results of operations.

    Risks Associated with Manufacturing.  The Company's results of 
operations are dependent upon the continued operation of its 
manufacturing facilities in Utah, Tennessee and South Carolina.  The 
operation of a manufacturing facility involves many risks, including 
power failures, the breakdown, failure or substandard performance of 
equipment, failure to perform by key suppliers, the improper 
installation or operation of equipment, natural or other disasters and 
the need to comply with the requirements or directives of government 
agencies, including the FDA.  There can be no assurance that the 
occurrence of these or any other operational problems at the Company's 
facility would not have a material adverse effect on the Company's 
business, financial condition and results of operations.

    Reliance on Information Technology.  The Company's success is 
dependent in large part on the accuracy, reliability and proper use of 
sophisticated and dependable information processing systems and 
management information technology.  The Company's information technology 
systems are designed and selected in order to facilitate order entry and 
customer billing, maintain records, accurately track purchases, accounts 
receivable and accounts payable, manage accounting, finance and 
manufacturing operations, generate reports and provide customer service 
and technical support. Any interruption in these systems could have a 
material adverse effect on the Company's business, financial condition 
and results of operations. 

    Competition.  The business of the Company is highly competitive.  
Numerous manufacturers, distributors and retailers compete actively for 
consumers and customers.  The Company competes directly with other 
entities that manufacture, market and distribute products in each of its 
product lines.  Many of the Company's competitors are substantially 
larger than the Company and have greater financial resources and broader 
name recognition.  The market is highly sensitive to the introduction of 
new products that may rapidly capture a significant share of the market.  
There can be no assurance that the Company will be able to compete in 
this intensely competitive environment.  
<PAGE>
    Dependence on Patents and Proprietary Rights.  The Company has 
three patents and is currently in the process of filing another patent 
relating to its products. In addition, certain of the Company's 
trademarks have been registered in the United States and in other 
countries.  There can be no assurance that the Company's patents will 
not be challenged or circumvented or will provide the Company with any 
competitive advantages or that any patents will issue from pending 
patent applications.  The Company also relies upon copyright protection 
for its proprietary software and other property.  There can be no 
assurance that any copyright obtained will not be circumvented or 
challenged.  The Company also relies on trade secrets that it seeks to 
protect, in part, through confidentiality agreements with employees and 
other parties.  There can be no assurance that these agreements will not 
be breached, that the Company would have adequate remedies for any 
breach or that the Company's trade secrets will not otherwise become 
known to or independently developed by competitors.  The Company may 
become involved from time to time in litigation to determine the 
enforceability, scope and validity of proprietary rights.  Any such 
litigation could result in substantial cost to the Company and divert 
the efforts of its management and technical personnel. 

    Limited Availability of Conclusive Clinical Studies.  The 
Company's products include nutritional supplements that are made from 
vitamins, minerals, herbs and other substances for which there is a long 
history of human consumption.   Although the Company believes all of its 
products to be safe when taken as directed, there is little long-term 
experience with human consumption of certain of these product 
ingredients or combinations of ingredients in concentrated form.  The 
Company relies primarily on the research of consultants and others for 
the formulation and manufacture of its products.  Some of these 
consultants and suppliers may have performed or sponsored only limited 
clinical studies relating to these products.  Furthermore, because these 
products are or will be highly dependent on consumers' perception of the 
efficacy, safety and quality of the supplement products, as well as 
similar products distributed by other companies, the Company could be 
adversely affected in the event such products should prove or be 
asserted to be ineffective or harmful to consumers or in the event of 
adverse publicity associated with illness or other adverse effects 
resulting from consumers' use or misuse of the Company's products or 
similar products.

    Foreign Duties and Import Restrictions.  Some of the Company's 
products are exported to the countries in which they ultimately are 
sold. The countries in which the Company operates may impose various 
legal restrictions on imports, impose duties of varying amounts, or 
enact regulatory requirements, adverse to the Company's products.  There 
can be no assurances that changes in legal restrictions, increased 
duties or taxes, or stricter health and safety requirements would not 
have a material adverse effect in the Company's ability to market its 
products in a given country.

    Effect of Exchange Rate Fluctuations.   Exchange rate fluctuations 
may have a significant effect on the Company's sales and gross margins 
in a given foreign country.  If exchange rates fluctuate dramatically, 
it may become uneconomical for the Company to establish or continue 
activities in certain countries.  Differences in the exchange rates may 
also create a marketing advantage for foreign competitors, making the 
purchase price of their products lower than prices originally 
denominated in U.S. dollars.  As the Company's business expands outside 
the United States, an increasing share of its revenues and expenses will 
be transacted in currencies other than the U.S. dollar.  Accounting 
practices require that the Company's non-U.S. sales and selling, general 
and administrative expenses be converted to U.S. dollars for reporting 
purposes.  Consequently, the reported earnings of the Company in future 
periods may be significantly affected by fluctuations in currency 
exchange rates, with earnings generally increasing with a weaker U.S. 
dollar and decreasing with a strengthening U.S. dollar.
<PAGE>
    Year 2000 Risks.  Please refer to the discussion entitled "Year 
2000 Issues" in "Management Discussion and Analysis or Plan of 
Operation."

    Volatility of Stock Price.  The trading price of the Common Stock 
has been and is likely to continue to be subject to wide fluctuations in 
response to the quarter-to-quarter variations in the Company's operating 
results, material announcements by the Company or its competitors, 
governmental regulatory action or other events or factors, many of which 
are beyond the Company's control.  The Company's operating results in 
future quarters may be below the expectations of securities analysts and 
investors.  In such event, the price of the Common Stock would likely 
decline, perhaps substantially.    Moreover, the Company's Common Stock 
may be even more prone to volatility than the securities of other 
businesses in similar industries in light of the relatively small number 
of shares of Common Stock not held by affiliates.  Given such a 
relatively small "public float," there can be no assurance that the 
prevailing market price of Common Stock will not be artificially 
inflated or deflated by trading even of relatively small amounts of 
Common Stock.

Year 2000 Issues

    Many existing computer programs use only two digits to identify a 
year in the date field and were designed, developed and modified without 
considering the impact of the upcoming change in the century. If not 
corrected, such computer applications could fail or create erroneous 
results by or after the Year 2000 by erroneously identifying the year 
"00" as 1900, rather than 2000.  The Company is in the process of 
insuring that all of its internal computer systems are Year 2000 
compliant.  The Company has selected a team of employees to assess the 
readiness of the Company for meeting the Year 2000 problem.  As a result 
of the assessment efforts of this team to date, the Company has 
identified one product component requiring modification and has engaged 
the services of a consultant to make this product Year 2000 compliant.  
It is expected that the assessment and remediation, if any, of Year 2000 
issues affecting the Company's internal systems or products, including 
any issues involving embedded technology, will be completed by June 30, 
1999.

    Independent of those efforts, the Company determined in fiscal 
year 1998 that certain efficiencies could be achieved by the purchase 
and installation of an upgrade to the Company's integrated enterprise 
resource planning ("ERP") system.  The upgraded ERP system will replace 
all of the Company's existing resource planning systems and will be Year 
2000 compliant.  Therefore, the Company does not expect any material 
Year 2000 compliance issues to arise related to its primary internal 
business information systems.  

    With respect to third-party providers whose services are critical 
to the Company, the Company intends to monitor the efforts of such 
providers as they become Year 2000 compliant.  The Company is presently 
not aware of any Year 2000 issues that have been encountered by any such 
third party which could materially affect the Company's operations.  
Notwithstanding the foregoing, there can be no assurance that the 
Company will not experience operational difficulties as a result of Year 
2000 issues, either arising out of internal operations or caused by 
third-party service providers, which individually or collectively could 
have a material adverse effect on the Company's business, financial 
condition or results of operations.

Recent Accounting Pronouncements

    In September 1997, the Financial Accounting Standards Board 
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS 
130).  SFAS 130 requires entities presenting a complete set of financial 
statements to include details of comprehensive income that arise in the 
<PAGE>
reporting period.  Comprehensive income consists of net earnings or loss 
for the current period and other comprehensive income, which consists of 
revenue, expenses, gains and losses that bypass the statement of 
earnings and are reported directly in a separate component of equity.  
Other comprehensive income includes, for example, foreign currency 
items, minimum pension liability adjustments and unrealized gains and 
losses on certain investment securities.

    SFAS 130 requires that components of comprehensive income be 
reported in a financial statement that is displayed with the same 
prominence as other financial statements.  SFAS is effective for fiscal 
years beginning after December 15, 1997 and requires restatement of 
prior period financial statements presented for comparative purposes.  
Adoption of SFAS 130 is not required for reporting on interim periods 
prior to the close of the fiscal year beginning after December 15, 1997.  
The Company will adopt SFAS 130 commencing with the year ending June 30, 
1999.

    During January 1998, the American Institute of Certified Public 
Accountants ("AICPA") issued Statement of Position 98-5 "Reporting on 
the Costs of Start-up Activities" ("SOP 98-5).  SOP 98-5 becomes 
effective for all fiscal years beginning after December 15, 1998.  The 
Company will adopt SOP 98-5 in its fiscal year beginning July 1, 1999.  
Because the current amortization periods of the product development 
costs and start-up costs averaging 12 months, the Company does not 
expect the adoption of SOP 98-5 to have a material impact on the 
Company's financial statements.

Item 7. Financial Statements

   	The Financial Statements of the Company required by this Item are attached
as a separate section of this report and are listed in Part IV, Item 13 of
this Form 10-KSB.
<PAGE>

Item 8. Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure

    	During the Company's two most recent fiscal years and the 
subsequent interim period, there have been no disagreements on financial 
disclosures or accounting matters and no resignation by or dismissal of 
the independent public accountants engaged by the Company.


                               PART III

Item 9. Directors and Executive Officers of the Company; Compliance With 
Section 16(a) of the Exchange Act

    	The directors and executive officers of the Company at September 
16, 1998 are:

        				       	            Director
				          	                or Officer            Position
Name				                 Age		    Since	             with Company

Kelvyn H. Cullimore		    63	     	1983	       Chairman of the Board
			
Kelvyn H. Cullimore, Jr.	42	     	1983 	      President, CEO and Director

Larry K. Beardall	      	42	     	1986	       Executive Vice President
                                       							of Sales and Marketing and 
                                              Director

E. Keith Hansen, M.D.	  	53	     	1983	       Director

V. LeRoy Hansen		        60	    	 1987       	Director

Joseph H. Barton		       70		     1996	       Director

Howard L. Edwards		      67	     	1997       	Director

John S. Ramey         			47	     	1992	       Sr. Vice President of Operations

John L. Hales		         	54     		1996       	Chief Financial Officer/Treasurer

    	Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr.  
LeRoy Hansen and Keith Hansen are cousins.

    	Directors of the Company hold office until the next annual meeting 
of the Company's shareholders and until their successors have been 
elected and duly qualified.  In the event of the resignation of a Board 
Member, the Board of Directors may elect an individual to fill the 
remainder of the term.  Executive officers are elected by the Board of 
Directors of the Company at the first meeting after each annual meeting 
of shareholders and hold office until their successors are elected and 
duly qualified.  The Company has an audit committee and a compensation 
committee composed of the outside directors of the board.  The 
compensation committee reviews and approves compensation matters for 
executive officers of the Company.
<PAGE>
   	Kelvyn H. Cullimore has served as Chairman of the Board of the 
Company since its incorporation in April, 1983.  From 1983 until 1992, 
Mr. Cullimore served as President of the Company.  Mr. Cullimore 
received a B.S. degree in Marketing from Brigham Young University in 
1957, and following graduation, worked for a number of years as a 
partner in a family-owned home furnishings business in Oklahoma City, 
Oklahoma.  Mr. Cullimore has participated in the organization and 
management of various enterprises, becoming the president or general 
partner in several business entities, including real estate, motion 
picture, and equipment partnerships. From 1979 until 1992, Mr. Cullimore 
served as Chairman of the Board of American Consolidated Industries 
(ACI), the former parent company of Dynatronics.  Since 1986, Mr. 
Cullimore has served as President of ITEC Attractions and from 1986 to 
1997, he served as ITEC's Chairman, President and CEO.  Presently, Mr. 
Cullimore serves as President/CEO of ITEC.

   	Kelvyn H. Cullimore, Jr. was elected President and Chief Executive 
Officer of the Company in December of 1992.  He has been a Director 
since the incorporation of the Company.  He served as 
Secretary/Treasurer of the Company from 1983 until 1992 and 
Administrative Vice President from 1988 until 1992.  Mr. Cullimore 
graduated from Brigham Young University with a degree in Financial and 
Estate Planning in 1980.  Mr. Cullimore has served on the board of 
directors of several businesses, including Dynatronics Marketing 
Company, ACI and currently serves on the board of ITEC Attractions.  In 
addition, he has served as Secretary/Treasurer of ACI and Dynatronics 
Marketing Company.  From 1983 until 1992 Mr. Cullimore served as 
Executive Vice President and Chief Operating Officer of ACI.  

    	Larry K. Beardall was elected Executive Vice President of the 
Company in December of 1992.  He has served as a Director and the Vice 
President of Sales and Marketing for the Company since July of 1986.  
Mr. Beardall joined Dynatronics in February of 1986 as Director of 
Marketing.  He graduated from Brigham Young University with a degree in 
Finance in 1979.  Prior to his employment with Dynatronics, Mr. Beardall 
worked with GTE Corporation in Durham, North Carolina as the Manager of 
Mergers and Acquisitions and then with Donzis Protective Equipment in 
Houston, Texas as National Sales Manager.  He also served on the Board 
of Directors of Nielsen & Nielsen, Inc., the marketing arm for Donzis, a 
supplier of protective sports equipment.

    E. Keith Hansen, M.D. has been a Director of the Company since 
1983.  Dr. Hansen obtained a Bachelor of Arts degree from the University 
of Utah in 1966 and an M.D. from Temple University in 1972.  He has been 
in private practice in Sandy, Utah since 1976.  Dr. Hansen was also a 
Director of ACI until 1992; and he is Vice President and Director of 
Mountain Resources Corporation and a Director of Accent Publishers, each 
of which is based in Salt Lake City, Utah.

    	V. LeRoy Hansen has been a Director of the Company since 1987.  
Mr. Hansen received a Bachelor of Science degree in Economics from the 
University of Utah in 1965.  From 1960-1980, Mr. Hansen was employed by 
AT&T in numerous management positions.  From 1976-1978, he served at 
AT&T headquarters in Market Management Concept Development and 
Implementation as well as Long Range Financial Planning.  From 1980 to 
1988, he co-founded Mountain Resources Corporation, an energy 
development company and served as vice president.  Since 1988, Mr. 
Hansen founded and serves as president of Associated Enterprises, Inc., 
a corporation providing management and business development consulting 
services.  In May of 1992, Mr. Hansen founded Silver Summit, L.C., a 
real estate development company.

   	Joseph H. Barton was elected a Director in November, 1995 and 
began serving in January, 1996.  Mr. Barton received a Civil Engineering 
degree from the University of California at Berkeley and has held 
various executive positions including President of J.H. Barton 
<PAGE>
Construction Company, Senior Vice President of Beverly Enterprises, and 
President of KB Industries, a building and land development company.  
Most recently, Mr. Barton served as Senior Vice President of GranCare, 
Inc. from 1989 to 1994 and currently is a consultant for Covenant Care, 
a company which owns and manages long-term care facilities throughout 
the United States.

    	Howard L. Edwards was elected a Director in January, 1997.  From 
1968 to 1995 Mr. Edwards served in various capacities at Atlantic 
Richfield Company (ARCO) and its predecessor, the Anaconda Company, 
including corporate secretary, vice president, treasurer and general 
attorney.  In addition, Mr. Edwards served for a number of years as a 
partner in the law firm of VanCott, Bagley, Cornwall and McCarthy, based 
in Salt Lake City, Utah.  He graduated from the George Washington 
University School of Law in 1959 and received a bachelor's degree in 
Finance and Banking from Brigham Young University in 1955.
 
	   John S. Ramey joined the Company in December, 1992 as Vice 
President of Research and Development and currently serves as Vice 
President of Operations.  Prior to joining the Company, Mr. Ramey worked 
for 16 years with Phillips Semi-conductors--Signetics, an integrated 
circuit manufacturing company as Manager of Product Engineering.  From 
1983 to 1989 Mr. Ramey also served as President of Enertronix, a small 
public corporation.  Since 1989 Mr. Ramey has served as Vice President 
of JRH Technology, a private engineering firm.  Mr. Ramey earned his MBA 
degree in 1991 from the University of Phoenix (in Salt Lake City, Utah) 
and a BS degree in electronics in 1977 from Brigham Young University.

   	John L. Hales joined the Company and was elected Chief Financial 
Officer and Treasurer in November, 1996.  Prior to joining the Company, 
Mr. Hales worked as an independent management consultant from 1994 until 
1996.  From 1993 to 1994, he served as Chief Financial Officer of the 
Covey Leadership Center.  From 1980 to 1992, he was employed by the 
Hill-Rom Company, a subsidiary of Hillenbrand Industries, and served as 
Vice President of Finance and Administration for nine years.  Mr. Hales 
received his B.S. degree in Finance from Brigham Young University in 
1968 and his MBA from Utah State University in 1970.

	       Section 16 (a) Beneficial Ownership Reporting Compliance

   	Section 16(a) of the Securities Exchange Act of 1934 requires the 
Company's officers and directors, and persons who own more than ten 
percent of a registered class of the Company's equity securities, to 
file reports of ownership and changes in ownership with the Securities 
and Exchange Commission.  Officers, directors and greater than ten-
percent shareholders are required by regulation of the Securities and 
Exchange Commission to furnish the Company with copies of all Section 
16(a) forms which they file.

   	Based solely on review of the copies of such forms furnished to 
the Company during and with respect to the year ended June 30, 1998, the 
Company believes that during its 1998 fiscal year all Section 16(a) 
filings applicable to its officers, directors and greater than ten-
percent beneficial owners were filed.

Item 10.  Executive Compensation.  The Company hereby incorporates by 
reference into and makes a part of this Report the information and 
disclosure set forth under Item 8 of Schedule 14A, "Compensation of 
Directors and Executive Officers," contained in the Company's definitive 
proxy statement for 1998, to be sent to shareholders of the Company 
subsequent to the filing of this Report on Form 10-KSB.

Item 11.  Security Ownership of Certain Beneficial Owners and 
Management.  The Company hereby incorporates by reference into and makes 
a part of this Report the information and disclosure set forth under 
Item 6 of Schedule 14A, "Voting Securities and Principal Holders 
<PAGE>
Thereof," contained in the Company's definitive proxy statement for 
1998, to be sent to shareholders of the Company subsequent to the filing 
of this Report on Form 10-KSB.

Item 12.  Certain Relationships and Related Transactions

    	In April 1998, the Company concluded its services agreement with 
ITEC Attractions and no longer provides administrative services to ITEC 
which included secretarial, administrative, and accounting functions.  
During fiscal 1997 and 1998 the Company charged ITEC $72,000 and $61,500 
respectively for services provided by the Company.  In fiscal 1997, the 
Company received approximately $89,000 pursuant to ITEC's Plan of 
Reorganization payout to creditors.  The Company retains a nominal 
(approximately 3%) ownership in ITEC.  The Company's Chairman, Kelvyn H. 
Cullimore, is also the President and CEO of ITEC.  The Company's 
President and CEO, Kelvyn H. Cullimore, Jr., is also a director of ITEC.  

Item 13.	Exhibits and Reports on Form 8-K

	(a)	Exhibits and documents required by Item 601 of Regulation S-B:

	1.	Financial Statements (included in Part II, Item 8):

		  Independent Auditors' Report	                      F-1

  		Balance Sheet at June 30, 1998	                    F-2

  		Statements of Income for years ended 
		  June 30, 1998 and 1997	                            F-3

  		Statements of Stockholders'
		  Equity for years ended June 30, 1998
  		and 1997	                                          F-4

  		Statements of Cash Flows for
		  years ended June 30, 1998 and 1997 	               F-5

  		Notes to Financial Statements	                     F-7

  		Exhibits:
 
	  	 Reg. S-B
 	 	Exhibit No.            Description

		     	3	          Articles of Incorporation and Bylaws of Dynatronics 
                    Laser Corporation. Incorporated by reference to a 
                    Registration Statement on Form S-1 (No. 2-85045) filed 
                    with the Securities and Exchange Commission and 
                    effective November 2, 1984, as amended by Articles of 
                    Amendment dated November 18, 1993.

     			4	          Form of certificate representing Dynatronics Laser 
                    Corporation common shares, no par value.  Incorporated 
                    by reference to a Registration Statement on Form S-1 
                    (No. 2-85045) filed with the Securities and Exchange 
                    Commission and effective November 2, 1984.
		<PAGE>
     	 10.1         Employment contract with Kelvyn H. Cullimore, Jr.   

      	10.2         Employment contract with Larry K. Beardall

(b)  Reports on Form 8-K:  No report on Form 8-K has been filed by the 
Company during the last quarter of the period covered by this report.
<PAGE>
                                SIGNATURES

   	In accordance with Section 13 or 15(d) of the Exchange Act, the 
registrant caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

					                                        
                              DYNATRONICS CORPORATION


        					                                                      
                              By    /s/ Kelvyn H. Cullimore, Jr.
					                            ----------------------------------
                                 Kelvyn H. Cullimore, Jr.
					                            Chief Executive Officer and President

Date:  September 23, 1998

   	Pursuant to the requirements of the Securities Exchange Act of 
1934, this report has been signed below by the following persons on 
behalf of the registrant and in the capacities and on the dates 
indicated.


/s/ Kelvyn H. Cullimore       	Chairman of the Board           9/23    , 1998
---------------------------                                  ----------
Kelvyn H. Cullimore


/s/ Kelvyn H. Cullimore, Jr.	  Director, President, CEO        9/23    , 1998
---------------------------    (Principal Executive Officer) ----------
Kelvyn H. Cullimore, Jr.       


/s/ John L. Hales	             Chief Financial Officer	        9/23    , 1998
---------------------------    (Principal Financial and      ----------
John L. Hales                  Accounting Officer)


/s/ Larry K. Beardall         	Director, Executive             9/23    , 1998
---------------------------    Vice President                ----------
Larry K. Beardall                            


/s/ E. Keith Hansen, M.D.	     Director                  	     9/23    , 1998
---------------------------                                  ----------
E.  Keith Hansen, M.D.


/s/ V. LeRoy Hansen	           Director                   	    9/23    , 1998
---------------------------                                  ----------
V.  LeRoy Hansen


/s/ Joseph H. Barton          	Director                        9/23    , 1998
---------------------------                                  ----------
Joseph H. Barton


                 			          	Director                        9/23    , 1998
---------------------------                                  ----------
Howard L. Edwards


<PAGE>
                          
                            DYNATRONICS CORPORATION


                              Financial Statements

                             June 30, 1998 and 1997


                   (With Independent Auditors' Report Thereon)




<PAGE>

                          Independent Auditors' Report



The Board of Directors
Dynatronics Corporation:


We have audited the accompanying balance sheet of Dynatronics  Corporation as of
June 30, 1998 and the related  statements of income,  stockholders' equity, and
cash flows for each of the years in the  two-year  period  ended June 30, 1998.
These financial  statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial  statements 
based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present 
fairly, in all material respects,  the financial position of Dynatronics 
Corporation as of June 30, 1998,  and the results of its operations and its 
cash flows for each of the years in the two-year period ended June 30, 1998,
in  conformity  with generally accepted accounting principles.


                                                  KPMG Peat Marwick LLP
Salt Lake City, Utah
August 14, 1998




<PAGE>
<TABLE>
<CAPTION>


                             DYNATRONICS CORPORATION

                                  Balance Sheet

                                  June 30, 1998



                                               Assets

  <S>                                                                                                 <C>           
  Current assets:
      Cash and cash equivalents                                                                       $      748,099
      Trade accounts receivable, less allowance for doubtful accounts of $90,238 (note 5)                  2,215,974
      Related party and other receivables (note 9)                                                            28,204
      Inventories (notes 2 and 5)                                                                          2,723,150
      Prepaid expenses                                                                                       240,127
      Deferred tax asset - current (note 10)                                                                 119,614
                                                                                                        ------------
                                                                                                      
                    Total current assets                                                                   6,075,168

  Property and equipment, net (notes 3 and 6)                                                              3,583,841

  Excess of cost over fair value of net assets acquired, net of accumulated amortization of
     $311,722                                                                                              1,152,452
  Deferred tax asset - noncurrent (note 10)                                                                  180,410
  Other assets                                                                                               650,077
                                                                                                        ============

                                                                                                      $   11,641,948
                                                                                                        ============
                                Liabilities and Stockholders' Equity

  Current liabilities:
      Current installments of long-term debt (note 6)                                                 $      268,180
      Line of credit (note 5)                                                                              1,115,641
      Accounts payable                                                                                       501,328
      Accrued expenses (note 8)                                                                              687,242
                                                                                                        ------------
                    Total current liabilities                                                              2,572,391

      Long-term debt, excluding current installments (note 6)                                              2,844,903
      Deferred compensation (note 14)                                                                        531,114
                                                                                                        ------------
                    Total liabilities                                                                      5,948,408

  Stockholders' equity:
      Common stock, no par value.  Authorized 50,000,000 shares; issued and outstanding
         8,447,343 shares                                                                                  2,000,217
      Retained earnings                                                                                    3,693,323
                                                                                                        ------------
                    Total stockholders' equity                                                             5,693,540

  Commitments and contingencies (notes 7 and 14)                                                                   -
                                                                                                        ------------

                                                                                                      $   11,641,948
                                                                                                        ============

</TABLE>

See accompanying notes to financial statements.


<PAGE>


                             DYNATRONICS CORPORATION

                              Statements of Income

                       Years ended June 30, 1998 and 1997

<TABLE>
<CAPTION>


                                                                                               1998            1997
                                                                                          -------------   -------------
                                                                                     
<S>                                                                                      <C>                <C>       
Net sales                                                                                $  12,283,064      10,160,467
Cost of sales                                                                                7,083,234       5,841,787
                                                                                          -------------   -------------

           Gross profit                                                                      5,199,830       4,318,680

Selling, general, and administrative expenses                                                3,542,531       2,989,431
Research and development expense                                                               574,822         653,413
                                                                                          -------------   -------------

           Operating income                                                                  1,082,477         675,836

Other income (expense):
    Interest income                                                                                825           8,743
    Interest expense                                                                          (238,191)       (187,613)
    Other income, net (notes 3, 4, and 9)                                                       75,984         443,026
                                                                                          -------------   -------------
           Total other income (expense), net                                                  (161,382)        264,156
                                                                                          -------------   -------------
           Income before income taxes                                                          921,095         939,992

Income tax expense (note 10)                                                                   256,307         327,453
                                                                                          -------------   -------------
                                                                                         

           Net income                                                                    $     664,788         612,539
                                                                                          =============   =============
                                                                                        

           Basic net income per share                                                    $        0.08            0.07
                                                                                          =============   =============
                                                                                         

           Diluted net income per share                                                  $        0.07            0.07
                                                                                          =============   =============

Weighted  average  number of common  shares  and  potential  common
   stock outstanding                                                                         8,432,462       8,425,027

</TABLE>


See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

                             DYNATRONICS CORPORATION

                       Statements of Stockholders' Equity

                       Years ended June 30, 1998 and 1997



                                                                                                          Total
                                                                                                       stock-holders'
                                                                             Common       Retained        equity
                                                                             stock        earnings
                                                                         ------------   ------------   ------------

<S>                <C> <C>                                              <C>                <C>            <C>      
  Balances at June 30, 1996                                             $  1,981,204       2,415,996      4,397,200

  Issuance of 3,100 shares of common stock upon
     exercise of employee stock options (note 12)                              2,713               -          2,713

  Income tax benefit from disqualifying disposition of
     employee stock options                                                      109               -            109

  Net income                                                                       -         612,539        612,539
                                                                         ------------   ------------   ------------

  Balances at June 30, 1997                                                1,984,026       3,028,535      5,012,561

  Issuance of 19,496 shares of common stock upon
     exercise of employee stock options (note 12)                             14,279               -         14,279

  Income tax benefit from disqualifying disposition of
     employee stock options                                                    1,912               -          1,912

  Net income                                                                       -         664,788        664,788
                                                                         ============   ============   ============

  Balances at June 30, 1998                                             $  2,000,217       3,693,323      5,693,540
                                                                         ============   ============   ============

</TABLE>


See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

                             DYNATRONICS CORPORATION

                            Statements of Cash Flows

                       Years ended June 30, 1998 and 1997

                                                                                                1998         1997
                                                                                            -----------   -----------
                                                                  
<S>                                                                                      <C>                <C>    
Cash flows from operating activities:
    Net income                                                                           $     664,788       612,539
    Adjustments to reconcile net income to net cash provided by (used in)
       operating activities:
       Depreciation and amortization of property and equipment                                 195,518       182,757
       Other amortization                                                                       97,707        91,873
       Gain on disposal of assets                                                                    -       270,580
       Provision for doubtful accounts                                                          16,800        16,800
       Provision for inventory obsolescence                                                    114,000       108,000
       Provision for warranty reserve                                                          163,306       125,265
       Deferred compensation                                                                    84,084        80,184
       Changes in operating assets and liabilities:
           Receivables                                                                          (4,224)     (776,740)
           Inventories                                                                        (656,890)     (670,425)
           Prepaid expenses and other assets                                                  (347,106)      (96,625)
           Deferred tax assets                                                                 (38,358)       59,591
           Income taxes payable                                                                (99,250)      231,632
           Accounts payable and accrued expenses                                              (231,482)      429,922
                                                                                            -----------   -----------

                  Net cash provided by (used in) operating activities                          (41,107)      665,353
                                                                                            -----------   -----------

Cash flows from investing activities - capital expenditures                                   (135,286)     (406,658)
                                                                                            -----------   -----------

Cash flows from financing activities:
    Principal payments under capital lease obligations                                          (4,968)      (17,703)
    Principal payments on long-term debt                                                      (174,547)     (400,561)
    Net change in line of credit                                                               545,113       284,617
    Proceeds from issuance of common stock                                                      14,279         2,713
                                                                                            -----------   -----------

           Net cash provided by (used in) financing activities                                 379,877      (130,934)
                                                                                            -----------   -----------
                                                                                  

Net increase in cash and cash equivalents                                                      203,484       127,761

Cash and cash equivalents at beginning of year                                                 544,615       416,854
                                                                                            -----------   -----------
Cash and cash equivalents at end of year                                                 $     748,099       544,615
                                                                                            ===========   ===========

Supplemental Disclosures of Cash Flow Information

Cash paid during the period for interest, net of amounts capitalized                     $      229,552       187,613
Cash paid during the year for income taxes                                                      387,700       153,400

Supplemental Disclosures of Noncash Investing and Financing Activities

Long-term debt incurred for fixed assets                                                 $    1,038,146        16,785
Income tax benefit from nonemployee exercise of stock options                                     1,912           109


See accompanying notes to financial statements.

</TABLE>

<PAGE>




                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 1998 and 1997



(1)    Basis of Presentation and Summary of Significant Accounting Policies

       (a)  Basis of Presentation

            Dynatronics  Corporation  (the  Company)  manufactures  and  markets
            products for the  physical  medicine  market,  which  constitutes  a
            single line of  business.  The products  are  distributed  primarily
            through  dealers in the United  States and Canada,  with  increasing
            distribution in foreign countries.

       (b)  Cash Equivalents

            Cash  equivalents  include all cash and  investments  with  original
            maturities to the Company of three months or less. Cash  equivalents
            consist of money market funds of $352,547 at June 30, 1998.  At June
            30,  1998,  the book  value of cash  equivalents  approximates  fair
            value.

       (c)  Inventories

            Finished goods inventories are stated at the lower of standard cost,
            which approximates  actual costs (first-in,  first-out),  or market.
            Raw materials are stated at the lower of cost (first-in,  first-out)
            or market.

       (d)  Property and Equipment

            Property and equipment are stated at cost and are depreciated  using
            the straight-line  method over the estimated useful lives of related
            assets.  The building and its component parts are being  depreciated
            over their estimated  useful lives that range from 5 to 31. 5 years.
            Estimated lives for all other depreciable assets range from three to
            seven years.  Equipment  under capital leases is amortized using the
            straight-line  method  over the  lesser  of the term of the  related
            leases or the estimated useful lives of the assets.

       (e)  Excess of Cost Over Fair Value of Net Assets Acquired

            The excess of cost over fair value of net assets  acquired  is being
            amortized  on the  straight-line  method  over 15 and 30 years.  The
            Company  assesses the  recoverability  of this  intangible  asset by
            determining  whether  the  amortization  of  the  balance  over  its
            remaining  life  can  be  recovered  through   undiscounted   future
            operating  cash  flows of the  acquired  operations.  The  amount of
            impairment, if any, is measured based on projected discounted future
            operating cash flows using a discount rate  reflecting the Company's
            average cost of funds. The assessment of the  recoverability of this
            asset will be impacted if estimated  future operating cash flows are
            not achieved.

       (f)  Revenue Recognition

            Sales revenues are generally recorded at the time products are
            shipped to the customer.



<PAGE>
                                        2

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


       (g)  Research and Development Costs

            Research and development costs are expensed as incurred.

       (h)  Product Warranty Reserve

            Anticipated  costs  estimated to be incurred in connection  with the
            Company's  product  warranty  programs  are  charged  to  expense as
            products are sold.

       (i)  Income Taxes

            The Company  accounts for income taxes using the asset and liability
            method.  Under the asset and liability  method,  deferred tax assets
            and  deferred  tax  liabilities  are  recognized  for the future tax
            consequences  attributable  to  differences  between  the financial
            statement  carrying  amounts of existing  assets and liabilities and
            their  respective  tax bases.  Deferred  tax assets and deferred tax
            liabilities  are measured  using enacted tax rates expected to apply
            to taxable income in the years in which those temporary  differences
            are expected to be recovered or settled.  The effect on deferred tax
            assets  and  deferred  tax  liabilities  of a change in tax rates is
            recognized in income in the period that includes the enactment date.

       (j)  Net Income Per Share

            Per share amounts are computed by dividing net income or loss by the
            weighted  average number of common shares  outstanding and potential
            common stock outstanding (if dilutive).

       (k)  Use of Estimates

            Management  of the  Company  has  made a  number  of  estimates  and
            assumptions  relating  to  the  reporting  of  assets,  liabilities,
            revenues,  and expenses and the disclosure of contingent  assets and
            liabilities to prepare these financial statements in conformity with
            generally accepted accounting principles.
            Actual results could differ from those estimates.

       (l)  Financial Instruments

            The carrying value of accounts receivable, accounts payable, accrued
            expenses,  and notes payable approximates their estimated fair value
            due to  the  relative  short  maturity  of  these  instruments.  The
            carrying  value of long-term  debt  approximates  its estimated fair
            value due to recent issuance of the debt.

       (m)  Earnings Per Share

            In February 1997, the Financial  Accounting  Standards  Board issued
            Statement of Financial  Accounting  Standards No. 128,  Earnings per
            Share  (SFAS  128).  SFAS 128  establishes  a  different  method  of
            computing  earnings per share than is currently  required  under the
            provisions of Accounting Principles Board Opinion No. 15. Under SFAS
            128,  the  Company is required to present  both basic  earnings  per
            share and diluted earnings per share.



<PAGE>
                                       3

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


       (m)  Earnings Per Share (continued)

            The Company adopted SFAS 128 in the quarter ended December 31, 1997.
            Accordingly,  all  historical  earnings per share data presented has
            been restated to conform to the provisions of SFAS 128.


(2)    Inventories

       Inventories consist of the following:

       Raw materials                                         $ 2,132,310
       Finished goods                                            667,000
       Inventory reserve                                         (76,160)
                                                             -----------

                                                             $ 2,723,150
                                                             ===========


(3)    Property and Equipment

       Property and equipment consist of the following:

       Land                                                    $  354,744
       Buildings                                                2,783,679
       Leasehold improvements                                      15,312
       Machinery and equipment                                  1,310,401
       Office equipment                                           214,207
       Vehicles                                                    24,754
                                                               ----------
                                                                4,703,097
       Less accumulated depreciation and amortization           1,119,256
                                                               ----------
                                                               $3,583,841
                                                               ==========

       On March 25, 1997,  the Company  sold 2.25 acres of land  adjacent to its
       Utah  manufacturing  and office facility as part of a like-kind  tax-free
       exchange of property under Internal  Revenue Code Section 1031.  Proceeds
       from the land sale were used to acquire  3.4 acres of land and two 11,000
       square  foot  buildings  which  currently  house  part  of the  Company's
       Tennessee  manufacturing  and  distribution   operations.   Additionally,
       proceeds were used to reduce  long-term debt, pay expenses related to the
       sale,  and to provide  additional  working  capital for the Company.  The
       Company has expanded its Tennessee  operations on a portion of the vacant
       land  acquired  in  the  transaction  with  land  remaining  for  further
       expansion.


<PAGE>

                                       4

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

(3)    Property and Equipment (continued)

       A summary of the use of the proceeds from this transaction is as 
follows:

       Sale price                                            $ 1,000,000
       Commissions                                               (60,000)
       Reduction of long-term debt                              (239,000)
       Purchase of Tennessee property                           (575,000)
       Property taxes, title, and miscellaneous expense           (8,060)
                                                             ===========
                  Cash proceeds to Company
                                                             $   117,940
                                                             ===========

       A gain of  approximately  $260,000  resulting  from this  transaction  is
       included in other income, net in the fiscal 1997 statement of operations.


(4)    Investment

       Included  in  "other  income,  net"  in  the  fiscal  1997  statement  of
       operations  is $89,768  received as  bankruptcy  settlement  for $720,103
       which had been paid and  written  off in 1996  related  to the  Company's
       investment in International Tourist Entertainment Corporation (ITEC). The
       Company  currently holds three percent of ITEC and carries the investment
       at $-0-.


(5)    Line of Credit

       The Company has  available  with a  commercial  bank a revolving  line of
       credit  agreement  totaling  $2.5  million at June 30,  1998,  secured by
       accounts  receivable  and  inventories.  The line  requires  the  monthly
       payment of  interest  on  outstanding  balances  at prime  plus  one-half
       percent (9.0 percent at June 30, 1998).  The line expires on November 30,
       1998.


(6)    Long-term Debt

       Long-term debt consists of the following:
<TABLE>
         <S>                                                                                   <C>
 
         7.64% promissory note secured by a trust deed on real property, payable in monthly
            installments of $12,155 through November 1998 then adjusted through November
            2003                                                                               $    782,676

         6.21% promissory note secured by a trust deed on real property, maturing November
            2013, payable in decreasing installments beginning at
            $7,545 monthly                                                                          839,797

         7%  promissory  note  secured  by  fixed  assets,  payable  in  monthly
             installments of $6,386 through April 1999, then a balloon payment 
             of $427,012                                                                            457,375

         9.9% promissory note secured by a vehicle, payable in monthly installments of $534
            through April 2000                                                                       10,777

</TABLE>
<PAGE>
                                       5

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


(6)    Long-term Debt (continued)

<TABLE>
         <S>                                                                                     <C>
         8.65% promissory note secured by a trust deed on real property, payable in monthly
            installments of $7,182 through January 2012                                          $    688,145

         9.06% promissory note secured by fixed assets, payable in monthly installments of
            $483 through April 2001                                                                    14,394

         9.07% promissory note secured by fixed assets payable in monthly installments of
            $1,342 through April 2003                                                                  62,623

         9.07% promissory note secured by fixed assets payable in monthly installments of
            $1,026 through April 2003                                                                  47,862

         9.07% promissory note secured by fixed assets payable in monthly installments of
            $2,502 through July 2003                                                                  116,753

         8.96% promissory note secured by fixed assets payable in monthly installments of
            $938 through July 2001                                                                     29,448

         8.96% promissory note secured by fixed assets payable in monthly installments of
            $853 through July 2003                                                                     41,000

         8.96% promissory note secured by fixed assets payable in monthly installments of
            $245 through July 2003                                                                     11,753

         8.96% promissory note secured by fixed assets payable in monthly installments of
            $218 through July 2003                                                                     10,480
                                                                                                  -----------

                    Total long-term debt                                                            3,113,083

         Less current installments                                                                    268,180
                                                                                                  -----------

                    Long-term debt, excluding current installments                               $  2,844,903
                                                                                                  ===========
</TABLE>

       The  aggregate  maturities  of  long-term  debt  for  each  of the  years
       subsequent  to  June  30,  1998  are as  follow:  1999,  $268,180;  2000,
       $290,590; 2001, $307,592; 2002, $316,683; and thereafter $1,930,038.




<PAGE>
                                       



                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


(7)    Leases

       The Company leases equipment and vehicles under  noncancelable  operating
       lease  agreements.  Rent  expense  for the years  ended June 30, 1998 and
       1997, was $41,746 and $20,659, respectively. A schedule of future minimum
       rental  payments  required  under  operating  leases that have initial or
       remaining  noncancelable lease terms in excess of one year as of June 30,
       1998, appears in the table below.

          Years ending June 30:
              1999                                 $    31,504
              2000                                      24,559
              2001                                       9,600
              2002                                       9,600
              2003                                       4,800
                                                   -----------

              Total minimum lease payments         $    80,063
                                                   ===========


(8)    Accrued Expenses

       Accrued expenses consist of the following at June 30, 1998:

       Warranty reserve                                          $ 64,000
       Bonuses payable                                             82,964
       Commissions payable                                         63,516
       Dealer costs and incentives                                 43,034
       Payroll related accruals                                   208,694
       Real property tax accrual                                    5,750
       Professional fees accrued                                    8,835
       Other                                                      210,449
                                                                 --------
                                                                 $687,242
                                                                 ========


(9)    Related Party Transactions

       The Company had a services  agreement to provide  certain  administrative
       and  accounting  services  for ITEC.  Estimated  costs for  services  are
       prorated  based upon  personnel  time,  facilities,  and  services  used.
       Management  believes  the method used to  allocate  the costs of services
       provided is  reasonable.  Such  charges  resulted in other  income to the
       Company of $61,500 and $72,000 in 1998 and 1997, respectively.
       The agreement ended May 1998.




<PAGE>
                                       7

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


(10)   Income Taxes
<TABLE>
<CAPTION>


       Income tax expense for the years ended June 30 consists of:
                                                                                         Stock
                                                                                        option
                                                            Current      Deferred       benefit        Total
                                                           ----------   -----------   -----------   -----------
<S>                                                        <C>            <C>              <C>         <C>    
            1998:
                U.S. federal                               $  242,367     (29,192)         1,656       214,831
                State and local                                50,386      (9,166)           256        41,476
                                                           ----------   -----------   -----------   -----------

                                                           $  292,753     (38,358)         1,912       256,307
                                                           ==========   ===========   ===========   ===========
            1997:
                U.S. federal                               $  215,057      64,464             94       279,615
                State and local                                52,696      (4,873)            15        47,838
                                                           ----------   -----------   -----------   -----------
                                                           $  267,753      59,591            109       327,453
                                                           ==========   ===========   ===========   ===========
</TABLE>

       Actual  income  tax  expense  differs  from the  "expected"  tax  expense
       (computed by applying the U.S.  federal  corporate  income tax rate of 34
       percent to income or loss before income taxes) as follows:
<TABLE>
<CAPTION>
                                                                                         1998         1997
                                                                                     -----------   ----------
            <S>                                                                      <C>             <C>    
            Expected tax expense (benefit)                                           $ 313,172       319,598
            State taxes, net of federal tax benefit                                     27,374        31,583
            Amortization of goodwill not deductible                                      2,985         2,985
            Research and development credits                                           (22,942)      (20,509)
            Reduction in valuation allowance                                           (37,300)            -
            Other, net                                                                 (26,982)       (6,204)
                                                                                     -----------   ----------
                                                                                     $ 256,307       327,453
                                                                                     ===========   ==========
</TABLE>

       Deferred  income tax  assets  related  to the tax  effects  of  temporary
differences are as follows:

<TABLE>
<S>                                                                                  <C>       
            Net deferred tax asset - current:
                Inventory capitalization for income tax purposes                     $   29,946
                Obsolete inventory reserve                                               28,408
                Vacation reserve                                                          3,730
                Warranty reserve                                                         23,872
                Bad debt reserve                                                         33,658
                                                                                     ------------

                       Total deferred tax asset - current                            $  119,614
                                                                                     ============

            Net deferred tax asset - noncurrent:
                Salary continuation agreements                                       $  198,106
                Net operating loss carryforwards                                        107,545
                Property and equipment, principally due to
                  differences in depreciation                                          (129,950)
                Noncompete and goodwill amortization                                      4,709
                                                                                     ------------

                       Total deferred tax asset - noncurrent                         $  180,410
                                                                                     ============
</TABLE>
<PAGE>

                                       8

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


(10)   Income Taxes (continued)

       The valuation  allowance for deferred tax assets as of July 1, 1997,  was
       $100,000  and was reduced to $-0- as of June 30, 1998.  In assessing  the
       realizability of deferred tax assets,  management considers whether it is
       more likely than not that some  portion or all of the deferred tax assets
       will not be realized.  The ultimate realization of deferred tax assets is
       dependent upon the generation of future taxable income during the periods
       in  which  those  temporary  differences  become  deductible.  Management
       considers the scheduled  reversal of deferred tax liabilities,  projected
       future  taxable  income,  and tax  planning  strategies  in  making  this
       assessment.  In order to fully realize the gross deferred tax assets, the
       Company  will need to generate  future  taxable  income of  approximately
       $1,153,000  in increments  sufficient  to recognize  net  operating  loss
       carryforwards  prior to  expiration  as described  below.  Based upon the
       level of historical  taxable  income and  projections  for future taxable
       income over the periods  which the  deferred  tax assets are  deductible,
       management  believes it is more likely than not the Company  will realize
       the benefits of these deductible differences.

       The Company  benefits  from the tax net operating  loss (NOL)  carryovers
       acquired in the November  1992 merger with ACI, the former  parent of the
       Company.  There is an annual  limitation of $88,356 on the use of the NOL
       carryovers. Amounts and expiration dates of carryforwards are as follows:

       Expiration                                                  Amount
       -------------------------------------------               --------
       2002                                                      $221,961
       2004                                                        63,383
       2005                                                         1,899
       2006                                                            60
       2007                                                        29,007
                                                                 --------
                                                                 $316,310
                                                                 ========


(11)   Major Customers

       During the fiscal years ended June 30, 1998 and 1997, sales to any single
       customer did not exceed ten percent of total revenues.




<PAGE>
                                       9

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements


(12)   Common Stock

       The Company has had activity under two qualified  stock option plans (the
       1987 plan and the 1992 plan)  whereby  options are  granted to  officers,
       directors, and employees to acquire shares of the Company's common stock.
       The  options are to be granted at not less than 100 percent of the market
       price of the stock at the date of grant.  Option terms are  determined by
       the Board of Directors,  and exercise  dates may range from six months to
       five years from the date of grant.

       Summary of activity follows:
<TABLE>
<CAPTION>
                                                                     1998                          1997
                                                          ---------------------------   --------------------------
                                                                           Weighted                     Weighted
                                                                           average                       average
                                                             Number        exercise        Number       exercise
                                                           of shares        price        of shares        price
                                                          ------------   ------------   ------------   -----------

               <S>                                            <C>       <C>                 <C>       <C>     
               Options outstanding at beginning
                  of year                                     532,321   $     .91           525,641   $     .95
               Options granted                                404,037        1.00           256,206        1.04
               Options exercised                               19,496         .73             3,100        .875
               Options canceled or expired                     30,030        1.02           246,426        1.00
                                                          ============                  ============

               Options outstanding at end of year             886,832         .95           532,321        .94
                                                          ============                  ============

               Options exercisable at end of year             391,855         .86           274,655        .91
                                                          ============                  ============

               Range of exercise prices at end of year                   .72-1.28                     .72-1.28
</TABLE>

       Under the terms of the stock option plans,  20,072 shares of common stock
       were  authorized and reserved for issuance,  but were not granted at June
       30, 1998.

       In October 1995, the Financial Accounting Standards Board issued SFAS No.
       123, Accounting for Stock-Based Compensation (SFAS 123) which established
       financial    accounting   and   reporting   standards   for   stock-based
       compensation.  The new standard defines a fair-value method of accounting
       for an employee stock option or similar equity instrument. This statement
       gives  entities  the choice  between  adopting  the fair value  method or
       continuing to use the intrinsic-value  method under Accounting Principles
       Board (APB)  Opinion No. 25 with  footnote  disclosures  of the pro forma
       effects if the fair-value method had been adopted.  The Company has opted
       for the latter approach.  Accordingly,  no compensation  expense has been
       recognized for the stock option plans.




<PAGE>

                                       10

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

(12)   Common Stock (continued)

       Had  compensation  expense  for the  Company's  stock  option  plan  been
       determined  based on the fair  value at the grant date for awards in 1998
       and 1997,  consistent  with the  provisions  of SFAS 123,  the  Company's
       results of  operations  would have been reduced to the pro forma  amounts
       indicated below:
<TABLE>
<CAPTION>

                                                                                 June 30,
                                                                        --------------------------
                                                                            1998           1997
                                                                        ------------   -----------
<S>                                                                     <C>                <C>    
            Net income -  as reported                                   $   664,788        612,539
            Net income -  pro forma                                         624,957        597,218
            Earnings per share - as reported                                    .08            .07
            Earning per share - pro forma                                       .08            .07
</TABLE>

       The fair value of each  option  grant is  estimated  on the date of grant
       using  the   Black-Scholes   option  pricing  model  with  the  following
       assumptions:

<TABLE>
<CAPTION>
                                                                                      June 30,
                                                                        ------------------------------------
                                                                              1998                1997
                                                                        ----------------   -----------------
<S>                                                                     <C>                 <C>
            Expected dividend yield                                     $      0%                  0%
            Expected stock price volatility                                   90.4%              55.5%
            Risk-free interest rate                                           5.25%              6.39%
            Expected life of options                                     3.5 & 5.0 years    4.5 & 6.5 years
</TABLE>

       The weighted  average fair value of options  granted during 1998 and 1997
are $.725 and $.393, respectively.


(13)   Employee Benefit Plan

       During  1991,  the  Company  established  a deferred  savings  plan which
       qualifies under Internal Revenue Code Section 401(k). The plan covers all
       employees  of the Company who have at least six months of service and who
       are age 20 or  older.  For 1998  and  1997,  the  Company  made  matching
       contributions  of 25  percent  of the  first  $2,000  of each  employee's
       contribution.  The Company's  contributions to the plan for 1998 and 1997
       were $14,259 and $11,939,  respectively.  Company matching  contributions
       for future years are at the discretion of the Board of Directors.




<PAGE>

                                       11

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

(14)   Salary Continuation Agreements

       The Company has Salary  Continuation  Agreements  (the  Agreements)  with
       three key employees.  The Agreements provide for a pre-retirement  salary
       continuation income to the employee's designated beneficiary in the event
       that the employee dies before  reaching age 65. This death benefit amount
       is the lesser of $75,000 per year or 50 percent of the employee's  salary
       at the time of death, and continues until the employee would have reached
       age 65. The  Agreements  also  provide the employee  with a  supplemental
       retirement  benefit  if the  employee  remains in the  employment  of the
       Company until age 65.  Estimated  amounts to be paid under the Agreements
       are being accrued over the period of the employees' active employment. As
       of  June  30,  1998,  the  Company  has  accrued   $531,114  of  deferred
       compensation under the terms of the Agreements.







64