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, 2002.

[ ] 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 84121-6618
                                 (801) 568-7000
    (Address of principal executive offices, zip code, and 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 Exchange Act 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 No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant'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. [ ]

The issuer's revenues for the fiscal year ended June 30, 2002 were $16,337,318.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer was approximately $5,594,700 as of September 18, 2002, based on the
average bid and asked price on that date.

As of September 18, 2002, there were 8,928,774 shares of the issuer's common
stock outstanding.

                       Documents Incorporated by Reference

The issuer hereby incorporates information required by Part III (Items 11 and
12) of this report by reference to the issuer's definitive proxy statement to be
filed pursuant to Regulation14A and provided to shareholders subsequent to the
filing of this report.

Transitional Small Business Disclosure Format (Check one):  Yes        No    X
                                                                ----       -----


<PAGE>


                                TABLE OF CONTENTS

                                     PART I

Item 1.  Description of Business...............................................1
Item 2.  Description of Property...............................................8
Item 3.  Legal Proceedings.....................................................9
Item 4.  Submission of Matters to a Vote of Security Holders...................9

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters..............9
Item 6.  Management's Discussion and Analysis or Plan of Operations...........10
Item 7.  Financial Statements.................................................19
Item 8.  Changes in and Disagreements With Accountants on Accounting
              and Financial Disclosure........................................20

                                    PART III

Item 9.   Directors and Executive Officers; Compliance with Section 16(a) of
              the Exchange Act................................................20
Item 10. Executive Compensation...............................................22
Item 11. Security Ownership of Certain Beneficial Owners and Management
              and Related Stockholder Matters.................................22
Item 12. Certain Relationships and Related Transactions.......................22
Item 13. Exhibits and Reports on Form 8-K.....................................22
Item 14. Controls and Procedures..............................................23
Signatures 24...................................................................
Certifications  ..............................................................25

Unless the context otherwise requires, all references in this report to "we,"
"us," "our," "Dynatronics" or the "Company" include Dynatronics Corporation, a
Utah corporation.

<PAGE>


                                     PART I


Item 1. Description of the Business

         Dynatronics was organized April 29, 1983. The principal business of the
Company is the design, manufacture and sale of the following types of medical
and aesthetic products:

o medical devices for therapeutic and chronic pain applications o medical
supplies and soft goods o treatment tables and rehabilitation products for use
by practitioners, and o aesthetic products and devices.

We distribute our products in three ways: 1) through a network of independent
dealers nationwide and internationally, 2) by contract with certain national
accounts, and 3) through a 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. The Company retained the former location of
Superior in Ooltewah, Tennessee, a suburb of Chattanooga, Tennessee. The
addition of Superior's products to our existing line of capital equipment
significantly broadened our product offerings and strengthened channels of
distribution, allowing for greater market penetration both domestically and
internationally.

         In July 1998, the Company expanded into the aesthetic products market
with the introduction of the new Synergie(TM) AMS device. This product
incorporates therapeutic massage technology to achieve, among other things, a
temporary reduction in the appearance of cellulite--a claim for which
Dynatronics received clearance by the U.S. Food and Drug Administration ("FDA")
during fiscal year 1999. This claim is strongly supported by a Company-sponsored
research study in which 91% of participants reported favorable reductions in the
appearance of cellulite. In addition, this product is indicated for the
temporary reduction in circumferential body measurements of cellulite treated
areas. This benefit was also validated in the research study as participants
reported cumulative reductions of six inches in treated areas.

         In February 2000, the Company expanded its offering of aesthetic
products with the introduction of the Synergie Peel(TM) microdermabrasion
device. The Synergie Peel device reduces fine lines, wrinkles, and other
superficial skin damage by gently peeling away the top layers of skin, exposing
smoother, softer skin. Microdermabrasion is quickly becoming the new standard of
care in the aesthetics industry because of its distinct advantages over
traditional chemical and laser peels. In conjunction with the Synergie Peel
device, during fiscal year 2000 Dynatronics introduced Calisse(TM) - a unique
line of skin care products designed to enhance the effects of the Synergie Peel
treatments.

         In August 2000, Dynatronics signed an agreement with Alan Neuromedical
Technologies (ANT) naming Dynatronics the exclusive licensee of ANT's patented
technology for treating chronic pain. Developed by doctors in Texas, this unique
technology has been incorporated into two new devices - the Dynatron STS
(Sympathetic TherapyTM System), which is designed for clinical use, and the
Dynatron STS Rx, a prescription unit for home use. According to the American
Pain Society, over 70 million Americans suffer from moderate to severe chronic
pain. This large pain population presents significant sales potential for the
Dynatron STS and STS Rx devices.


                                       1

<PAGE>


Description of Products Manufactured and/or Distributed by Dynatronics

         Our product line can be divided into four general categories:

(1)      Therapy Devices including Electrotherapy, STS Therapy and Therapeutic
         Ultrasound;

(2)      Medical Supplies and Soft Goods;

(3)      Treatment Tables and Rehabilitation Equipment; and

(4)      Aesthetic Products.

         Our products are used primarily by physical therapists,
anesthesiologists, neurologists, orthopedists, 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 waveforms 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
effective in 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 soft tissues through the introduction of soundwaves
into the body. It is one of the most common modalities used in physical therapy
today for the treatment of pain relief, muscle spasms and joint contractures.

         Dynatronics markets seven devices that include electrotherapy,
ultrasound or a combination of both modalities in a single device. The Dynatron
125 ultrasound device and the Dynatron 525 electrotherapy device target the
low-priced segment of the market. The other five products comprise the "50
Series Plus" product line and provide additional features and capabilities to
its popular predecessor line, the "50 Series", while at the same time further
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.

         STS Therapy - STS Therapy is a patented new method of administering
therapeutic electrical current via peripheral nerves that are accessed through
the lower legs and feet as well as the arms and hands creating a unique form of
stimulation of the autonomic or sympathetic nervous system. It is a highly
effective, non-invasive and non-addictive treatment for many chronic pain
conditions. Doctors theorize that STS Therapy has a modulating effect on the
autonomic nervous system, thus resulting in symptomatic relief of chronic
intractable pain.

         Iontophoresis - In fiscal year 1997, we added Life-Tech's line of
iontophoresis products to the Dynatronics family of therapy devices offered to
practitioners. These products include the Iontophor II(R) and Microphor(R)
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 treatment of
inflammation through the use of a disposable electrode. The products sold by the


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<PAGE>

Company include the electrical current generating device (Microphor(R) and
Iontophor II(R)) and the disposable electrodes into which the practitioner
places the drug of choice.

         The following chart lists the therapy device products manufactured and
marketed by the Company, which materially contributed to total sales in fiscal
year 2002.

                          Schedule of Therapy Products
                 Manufactured and/or Distributed by Dynatronics

     Product Name                       Description

     Dynatron(R) 125                      Ultrasound
     Dynatron(R) 525                      Electrotherapy
     Iontophor II(R) &                    Iontophoresis
     Microphor(R)+
     Dynatron(R)150 Plus**               Ultrasound
     Dynatron(R)550 Plus**               Multi-modality Electrotherapy
     Dynatron(R)650 Plus**               Multi-modality Electrotherapy
     Dynatron(R)850 Plus**               Combination Electrotherapy/Ultrasound
     Dynatron(R)950 Plus**               Combination Electrotherapy/Ultrasound
     Dynatron(R)STS                      STS Chronic Pain Therapy
     Dynatron(R)STS Rx                   SSTS Chronic Pain Therapy
---------------------

Dynatron(R) is a registered trademark (#1280629) owned by Dynatronics Iontophor
II(R) and Microphor(R) are registered trademarks owned by Life Tech, Inc. ** "50
Series Plus" Product Line + Both manufactured by Life-Tech

Medical Supplies and Soft Goods

         Dynatronics markets its products through independent dealers and
through a product catalog containing an extensive line of more than 1,000
products. This broad-line catalog has created a virtual "one-stop shop" for
rehabilitation professionals.

         We manufacture the following medical supplies and soft goods: hot
packs, therapy wraps, wrist splints, ankle weights, lumbar supports, cervical
collars, slings, cervical pillows, back cushions, weight racks, parallel bars,
and wood and metal treatment tables. We also distribute products such as: cold
packs, skin cleanser, lotions and gels, paper products, athletic tape, canes and
crutches, reflex hammers, stethoscopes, splints, elastic wraps, exercise
weights, Thera-Band(R) (a registered mark of Hygenic Corp.) tubing, walkers,
treadmills, stair climbers, heating units for hot packs, whirlpools, gloves,
electrodes, TENS devices, and traction equipment.

         We continually seek to update our line of manufactured and distributed
medical supplies and soft goods.

Treatment Tables and Rehabilitation Equipment

         In January 1997, Dynatronics acquired a metal treatment table
manufacturing operation in Columbia, South Carolina. In July 1999, we
consolidated this operation into our Chattanooga facilities, a move intended to
improve efficiencies. We now manufacture and distribute motorized and manually


                                       3

<PAGE>

operated physical therapy treatment tables, rehabilitation parallel bars, and
other specialty rehabilitation products.

         With the acquisition of Superior and the treatment table manufacturing
operation, Dynatronics became a broad-line supplier to the physical medicine
market which includes 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.

Aesthetic Products

         In July 1998, Dynatronics began shipments of our new Synergie Aesthetic
Massage System (AMS). The Synergie AMS device applies therapeutic vacuum massage
to skin and subcutaneous tissues to achieve a temporary reduction in the
appearance of cellulite as well as the circumferential body measurements of the
cellulite treated areas.

         In December 1999, we released the results of a Company-sponsored study
reporting that 91% of participants experienced a reduction in the appearance of
cellulite. In addition, participants on average reported a cumulative reduction
of six-inches in girth around the hips, thighs, and waist.

         In February 2000, we introduced the Synergie Peel microdermabrasion
device as a companion to the Synergie AMS device. The Synergie Peel device
gently exfoliates the upper layers of skin, exposing softer, smoother skin.
Microdermabrasion is becoming popular in the aesthetics industry for customers
who want the "ultimate facial" experience.

Allocation of Sales Among Key Products

         No single product accounted for more than 10% of the Company's revenues
during either of the last two fiscal years.

Patents and Trademarks

         Dynatronics holds a patent on the "Target" feature of its
electrotherapy products that will remain in effect until July 18, 2006, and a
patent on the multi-frequency ultrasound technology that will remain in effect
until June 2013. We also hold two design patents on the microdermabrasion device
that will remain in effect until November 2015. Additional patent applications
pertaining to the Synergie AMS device and Synergie Peel device have been filed
with the U.S. Patent Office and are currently pending.

         Dynatronics owns the exclusive, worldwide rights (under a license
agreement) to a patent on the STS technology for the treatment of chronic pain.
A second patent on the STS technology has been filed with the U.S. Patent Office
and is currently pending.

         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 trademarks
"Synergie," "Synergie Peel," and "Sympathetic Therapy," and for various other
product trademarks. 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. We also sell
accessory items supplied by other manufacturers. These accessory products carry
warranties similar to those offered by the Company. Warranty service is provided
from the Company's Salt Lake City and Chattanooga facilities, according to the
service required. These warranty policies are comparable to warranties generally


                                       4

<PAGE>

available in the industry. Warranty claims as a percentage of gross sales were
not material in fiscal years 2002 and 2001.

Customers and Markets

         Dynatronics products are sold to a network of over 300 independent
dealers throughout the United States and internationally. These dealers are the
Company's primary customers. The dealers purchase and take title to the
products, which they then sell to licensed practitioners such as physical
therapists, physiatrists, podiatrists, sports medicine specialists, medical
doctors, chiropractors, hospitals, plastic surgeons, dermatologists and
aestheticians.

         The Company has entered into preferred vendor relationships with
certain national chains of physical therapy clinics and hospitals. No single
dealer or national account or group of related accounts was responsible for 10%
or more of total sales in fiscal years 2002 or 2001.

         Dynatronics exports products to approximately 30 different countries.
International sales (i.e., sales outside North America) totaled approximately
$611,000 in fiscal year 2002 and approximately $658,400 in fiscal year 2001. The
Company is working to establish effective distribution for its products in the
international markets. During fiscal year 2001, the Dynatronics Salt Lake City
operation was designated an ISO 9001 approved facility, a designation required
for marketing products in the European community. The Company has no foreign
manufacturing operations, however, Dynatronics contracts with foreign
manufacturers for certain products.

Competition

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

         Electrotherapy/Ultrasound Competition. The competition in the clinical
market for electrotherapy and ultrasound devices comes from both domestic and
foreign companies. No fewer than a dozen companies produce devices similar to
those offered by Dynatronics. 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. Furthermore, no
competitor offers the ultrasound feature of three frequencies on multiple-sized
soundheads for which Dynatronics holds a patent. The Company's primary
competitors in the sale of electrotherapy and ultrasound products include:
Chattanooga Group (a division of Encore Medical), Rich-Mar, Mettler Electronics,
Excel Tech, Ltd., and Amrex.

         STS Therapy. The STS technology for treating chronic pain is protected
by a U.S. patent. The Company is not aware of any competitor that offers a
non-invasive, chronic pain treatment similar to the Dynatronics STS technology.
Other treatments for chronic pain include prescription narcotic drugs and
invasive procedures such as spinal cord stimulators, nerve block injections and
implanted drug pumps.

         Medical Supplies & Soft Goods. The Company competes against various
manufacturers and distributors of medical supplies and soft goods, some of which
are larger, more established and have greater resources than Dynatronics.
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, such as Chattanooga Group (a division of Encore


                                       5

<PAGE>

Medical), and Fabrication Enterprises, most competitors are primarily
distributors such as EMPI, North Coast Medical, Sammons Preston, and Meyer
Distributing.

         Iontophoresis. Competition in the iontophoresis market is primarily
from IOMED, Inc. 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 Dynatronics. We believe that our strong distribution network is
important to our continued ability to compete against these larger companies. In
addition, the Life-Tech products are priced significantly lower than the
products of these other two companies.

         Treatment Tables. The primary competition in the treatment table market
is from domestic manufacturers including Hill Laboratories Company, Hausmann
Industries, Sammons Preston, Bailey Manufacturing, S&W Enterprises, Tri-W-G,
Chattanooga Group (a division of Encore Medical), and Clinton Industries. We
believe we compete based on our industry experience and product quality. In
addition, certain components of the treatment tables are manufactured overseas
which allows for significant pricing advantages over competitors.

         Aesthetic Products. The Company's two primary competitors in the
therapeutic massage industry are LPG Systems and Angel Healing Corporation. The
Synergie AMS device utilizes unique processes and technology, which are the
subject of a patent applied for by the Company. Dynatronics is developing a
network of distributors, which is expected to provide another competitive
advantage in the marketplace for these products.

         There are a number of competitors in the microdermabrasion market
including: DermaGenesis, DermaMed, E-Med, Integremed, Medical Alliance, Palomar,
Slimtone USA and Soundskin Corp. The Synergie Peel device incorporates a
proprietary anti-clogging design for the crystals, which sets it apart from
competitors' units. In addition, the system has an innovative disposable system
for the abrasive material, which prevents unwanted contact with the spent
crystals following treatment. Patents covering the proprietary features of the
Synergie Peel technology have been submitted to the U.S. Patent Office.

         Information necessary to determine or reasonably estimate the market
share of Dynatronics or any competitor in any of these markets is not readily
available.

Manufacturing and Quality Assurance

         Dynatronics manufactures therapy devices, soft goods and other medical
products at its facilities in Salt Lake City, Utah and Chattanooga, Tennessee.
The Company sub-contracts the production of certain components, but all work is
performed to Dynatronics' specifications. Trained staff performs all
sub-assembly, final assembly and quality assurance procedures. All component
parts used in Dynatronics' device designs and all raw materials for medical
supplies and soft goods manufacturing are presently 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, we are better able to respond to customer needs and insure proper
operation of the products.

         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


                                       6

<PAGE>

made. The Quality First Program reinforces employee pride, increases customer
satisfaction, and improves overall operations of Dynatronics.

         During fiscal year 2001, the Company qualified for ISO 9001
Certification--an internationally recognized standard for quality systems and
manufacturing processes adopted by over 90 countries. In addition, the Company
has qualified for the CE Mark Certification on its electrotherapy and Synergie
products. Dynatronics is now able to market these products throughout the
European Union and in other countries where CE mark certification and ISO 9001
certification are recognized.

Research and Development

         Dynatronics historically has been very committed to research and
development. In 2002 and 2001, we spent $668,426 and $805,363, respectively, for
research and development, which represented approximately 4.1% and 4.8% of the
revenues of the Company in those years, respectively. Substantially all of the
research and development expenditures during 2002 were for the development of
new products or the upgrading of existing products. In fiscal year 2003 we
expect to introduce several new products, including a low-power laser device. In
addition, we are undertaking clinical research studies to provide further
support of the efficacy of the STS technology. As a result we have budgeted R&D
expenses for 2003 at nearly twice the fiscal year 2002 level, or approximately
$1.1 million.

Regulatory Matters

         The manufacture, packaging, labeling, advertising, promotion,
distribution and sale of our 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 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
products are subject to regulation by the Federal Trade Commission ("FTC") under
the Federal Trade Commission Act ("FTC Act").

         All of our 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 predicate device before the agency will clear the new
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 of 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.

         Failure 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.

         Advertising of our 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, is an unfair or deceptive act or practice. Pursuant to this
FTC requirement, the Company is required to have adequate substantiation for all


                                       7

<PAGE>

advertising claims made about its products. The type of substantiation required
depends 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.

         We 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.

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, 2002, we had a total of 111 full-time employees and 10
part-time employees, compared to 121 full-time and 15 part-time employees at
June 30, 2001.

Item 2.   Description of Property

         The Company's headquarters and principal place of business are located
at 7030 Park Centre Drive, Salt Lake City, Utah 84121. The headquarters consist
of a single facility housing administrative offices and manufacturing space
totaling approximately 36,000 square feet. The Company owns the land and
building, subject to a mortgage requiring a monthly payment of approximately
$16,253. The mortgage matures in 2013. The Company also owns a 43,200 sq. ft.
manufacturing facility in Ooltewah, Tennessee, and accompanying undeveloped
acreage for future expansion subject to a mortgage requiring monthly payments of
$5,641 and maturing in 2017. During fiscal year 2002, an expansion and
renovation of this facility was completed. In addition, the mortgage loan was
refinanced at a lower interest rate.

         We believe the facilities described above are adequate to accommodate
presently expected growth and needs of the Company for its operations. As
Dynatronics continues to grow, additional facilities or the expansion of
existing facilities will likely be required.

         The Company owns or leases equipment used in the manufacture and
assembly of its products. 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.


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<PAGE>


Item 3.   Legal Proceedings.
          -----------------

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

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. The Company's annual meeting of shareholders will
be held in November 2002.

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters.
          --------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                     Year Ended June 30,
                                                             2002                      2001
                                                             ----                      ----
                                                        High          Low             High          Low

<S>                                                     <C>          <C>             <C>           <C>
1st Quarter (July-September)                            $2.37        $  .81          $1.88         $ .75
2nd Quarter (October-December)                          $1.36        $  .99          $1.94         $ .94
3rd Quarter (January-March)                             $1.30        $ 1.02          $3.00         $1.47
4th Quarter (April-June)                                $1.16        $  .92          $2.95         $1.76
</TABLE>

         Holders. As of September 19, 2002, the approximate number of common
stock shareholders of record was 509. This number does not include beneficial
owners of shares held in "nominee" or "street" name. Including beneficial
owners, we estimate that the total number of shareholders exceeds 2,000.

         Dividends. The Company has never paid cash dividends on its common
stock. Our 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.

         Stock Options. In fiscal year 2002, Dynatronics granted options to
employees and directors pursuant to stock option plans. The total number of
shares of common stock issuable under such options is 90,861 shares with an
average exercise price of $1.12 per share. In fiscal year 2001, we granted
options pursuant to stock option plans for employment or other agreements. The
total number of shares of common stock issuable under such options is 446,321
shares with an average exercise price of $1.31 per share. In addition, the
Company granted options to purchase 80,000 shares of common stock at an average
price of $2.52 as part of the license agreement for the STS technology. These
options were issued without registration under the Securities Act in reliance
upon exemptions relating to grants of securities made pursuant to certain
written plans.

         Nasdaq Listing Maintenance Requirements. On July 29, 2002, we were sent
notice from The Nasdaq Stock Market that for 30 trading days the price of our
common stock had closed below the minimum $1.00 per share bid price required for
continued listing on the Nasdaq SmallCap Market by Marketplace Rule 4450(a)(5).


                                       9

<PAGE>

Under Marketplace Rule 4450(c)(2), we will be provided approximately one year,
or until July 27, 2003, to regain compliance with the $1.00 minimum bid price
requirement. We can regain compliance with the minimum bid price requirement if,
at any time before July 27, 2003, the bid price of our common stock closes at
$1.00 per share or more for a minimum of 10 consecutive trading days. Should we
fail to regain compliance, Nasdaq stated that it would provide us with written
notification that our common stock will be delisted from the Nasdaq SmallCap
Stock Market. Removal of our common stock from listing on the Nasdaq Stock
Market would likely have an adverse impact on the trading price and liquidity of
our common stock.

Item 6.  Management's Discussion and Analysis or Plan of Operation

Selected Financial Data

         The table below summarizes selected financial data contained in the
Company's audited financial statements for the past six fiscal years. The
financial statements for the fiscal years ended June 30, 2002 and 2001 are filed
with and form a part of this report.

<TABLE>
<CAPTION>
                             Selected Financial Data
                            Fiscal Year Ended June 30

                             2002            2001           2000            1999             1998             1997
                      -----------------------------------------------------------------------------------------------------


<S>                      <C>             <C>            <C>              <C>            <C>             <C>
Net Sales                $  16,337,318   $  16,757,821  $  15,173,050    $  15,956,798  $  12,283,064   $  10,160,467
Net Income               $     316,101   $     334,179  $      35,910    $     718,080  $     664,788   $     612,539
Net Income
 per share (diluted)     $         .04   $         .04  $         .00    $         .08  $         .07   $         .07
Working Capital          $   5,484,167   $   4,971,946  $   4,550,747    $   4,251,703  $   3,502,777   $   3,027,119
Total Assets             $  12,508,202$    13,560,347   $  12,595,581    $  13,854,197  $  11,641,948   $   9,642,479
Long-term Obligations    $   2,331,698     $  2,174,348 $   2,330,501    $   2,984,041  $   3,376,017   $   2,534,553
</TABLE>

Fiscal Year 2002 Compared to Fiscal Year 2001

Results of Operations

         Despite the slowing economy over the past year, Dynatronics' sales for
the fiscal year ended June 30, 2002, remained firm at near record levels. Sales
for the year were $16,337,318, compared to $16,757,821 in fiscal year 2001. As a
result of the challenges facing our nation during fiscal year 2002, including
the tragedies of September 11, 2001, we implemented a "Back to Basics" program
to review and refine key elements of our strategic business plan. Improvements
were made in several areas, including (1) the automation of certain
manufacturing processes to increase efficiencies; (2) shifting manufacturing of
some products overseas to improve margins; (3) the introduction of a "Quik Ship"
program to better meet customer needs; and (4) the transfer of manufacturing
operations for certain high-volume products in-house to increase profit margins.

         Gross profit for the year ended June 30, 2002, was $6,496,540, compared
to $7,045,346 in fiscal year 2001. Gross profit as a percentage of sales was
39.8% in fiscal year 2002 compared to 42.0% in fiscal year 2001. The decrease in
gross profit percentage is due primarily to two factors: 1) higher manufacturing
labor and overhead costs, and 2) costs associated with obtaining insurance
reimbursement approvals for the STS clinical treatments and home units. Interest
in the Dynatron STS products continues to be positive. These innovative devices
incorporate patented, non-invasive technology, which has been used successfully
in treating chronic pain patients across the country. We believe gross profit as
a percentage of sales will improve in the upcoming year as a result of the "Back
to Basics" strategic initiatives and the introduction of several new, high
margin products in fiscal year 2003.


                                       10

<PAGE>


         Selling, general and administrative (SG&A) expenses were $5,053,765, or
30.9% of sales in fiscal year 2002, compared to $5,419,935, or 32.3% of sales in
fiscal year 2001. The $366,170 decrease in SG&A expenses was primarily the
result of expense reduction initiatives implemented in the latter half of fiscal
year 2002. One such initiative has been the migration away from direct sales
representatives to the use of dealers for marketing our line of Synergie
products. Overall, the cost reduction initiatives are expected to eliminate over
$500,000 in expenses on an annual basis.

         During fiscal year 2002, Dynatronics maintained a strong commitment to
research and development (R&D), expending $668,426 for the year, compared to
$805,363 in fiscal year 2001. R&D expenses for fiscal year 2001 were higher due
to the development of the STS devices for treating chronic pain. R&D expenses in
2002 were primarily related to the development of new products planned for
introduction in 2003 as well as sustaining engineering of existing products. We
anticipate that R&D expenses in 2003 will be significantly higher than prior
years due to development plans for a low-power laser device, a redesign of the
current line of therapy devices, as well as plans for additional clinical
research studies related to the STS and laser technologies. We expect that R&D
expenses in fiscal year 2003 will be approximately $1.1 million.

         In the year ended June 30, 2002, the provision for income taxes was
$195,688 compared to $195,690 in fiscal year 2001. The effective tax rate in
fiscal year 2002 was 38% compared to 37% in fiscal year 2001.

         Net income for fiscal year 2002 was $316,101 (approximately $.04 per
share), compared to $334,179 (approximately $.04 per share) in fiscal year 2001.
Despite the economic difficulties facing the nation during the year, we have
been able to maintain profitability due to the stability in demand for our core
products and the success of the Dynatron STS and Dynatron STS Rx products. In
addition, we have worked to reduce operating expenses, which should improve
profitability going forward.

         The Company's business operations are not materially affected by
seasonality factors.

Liquidity and Capital Resources

         Dynatronics historically has financed its operations primarily through
cash flows from operations and from its line of credit facility.

         During fiscal year 2002, we set a goal to reduce inventory levels while
maintaining a high level of service to our customers. As a result, our
inventories at June 30, 2002 were decreased by over $900,000 to $3,836,751,
compared to $4,746,323 at June 30, 2001. In addition, we were able to reduce our
trade accounts receivable during fiscal year 2002 by nearly $270,000 to
$3,156,436, compared to $3,426,404 at June 30, 2001. These improvements along
with the profitability experienced during the year were the primary factors
which allowed us to decrease the outstanding balance on our line of credit by
$1.4 million during fiscal year 2002.

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

         Working capital at June 30, 2002, totaled $5,484,167 compared to
$4,971,946 at June 30, 2001. The increase in working capital is a result of
reducing the outstanding balance on our line of credit by $1.4 million with no


                                       11

<PAGE>

increase in accounts payable. The current ratio at June 30, 2002 increased to
3.1 to 1 compared to 2.2 to 1 at June 30, 2001.

         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 included in this report.

         The Company's revenues and net income from continuing operations have
not been unusually affected 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 we experience 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.

Commitments

         Long-term debt excluding current installments at June 30, 2002 was
$1,950,309 compared to $1,834,903 at June 30, 2002. Long-term debt is comprised
primarily of the mortgage loans on our office and manufacturing facilities in
Utah and Tennessee. The principal balance on the mortgage loans is approximately
$1.9 million with monthly principal and interest payments of approximately
$21,900.

         During fiscal year 2002, we refinanced the mortgage loan on our
Tennessee facility, lowering the interest rate from 8.65% to 5.25%.

         As of June 30, 2002, we had the following future contractual cash
commitments:

<TABLE>
<CAPTION>
                             Payments Due By Period

                                      Total        1 Year         2-3 Years         4-5 Years          After 5 Years
                                      -----        ------         ---------         ---------          -------------

<S>                               <C>               <C>             <C>              <C>                 <C>
Long-term debt*                   $2,175,913        225,60          406,440          443,143             1,100,726
Operating lease obligations       $   43,011        24,371           18,640                0                     0

Total                             $2,218,924        249,975          425,080          443,143             1,100,726
</TABLE>


* Consists primarily of mortgage loans.

Senior Credit Facility

         The Company maintains an open line of credit with a commercial bank in
the amount of $4.5 million. As of June 30, 2002, approximately $1.4 million was
outstanding on the line of credit compared to $2.9 million at June 30, 2001. The
$1.4 million reduction in the line of credit was accomplished through earnings
and by decreasing inventories by more than $900,000 and decreasing receivables
by $270,000.

         Interest on the line of credit is based on the bank's prime rate, which
at June 30, 2002, equaled 4.75%. The line of credit is collateralized by certain
accounts receivable and inventories. Borrowing limitations are based on 30% of
eligible inventory and up to 80% of eligible accounts receivable which results
in a borrowing base of approximately $2.8 million. The line of credit agreement
is renewable annually on December 1st and includes covenants requiring the
Company to maintain certain financial ratios. As of June 30, 2002, we were in
compliance with all loan covenants.


                                       12

<PAGE>


Critical Accounting Policies

         In Note #1 to the consolidated financial statements attached to this
Form 10-KSB, we discuss those accounting policies that are considered to be
significant in determining the results of operations and the Company's financial
position. In all material respects, the accounting principles utilized by the
Company conform with generally accepted accounting principles in the United
States of America.

         The preparation of consolidated financial statements requires
management to make significant estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. By their nature, these
judgments are subject to an inherent degree of uncertainty. On an on-going
basis, the Company evaluates its estimates, including those related to bad
debts, inventories, intangible assets, warranty obligations, product liability,
revenue, and income taxes. The Company bases its estimates on historical
experience and other facts and circumstances that are believed to be reasonable,
and the results form the basis for making judgments about the carrying value of
assets and liabilities. The actual results may differ from these estimates under
different assumptions or conditions.

         With respect to inventory reserves, revenue recognition and allowance
for doubtful accounts, the Company applies the following critical accounting
policies in the preparation of its financial statements:

Inventory Reserves

         The nature of Dynatronics' business requires it to maintain sufficient
inventory on hand at all times to meet the requirements of its customers.
Dynatronics records finished goods inventory 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. Inventory
reserves are maintained for the estimated impairment of the inventory.
Impairment may be a result of slow moving or excess inventory, product
obsolescence or changes in the valuation of the inventory. In determining the
adequacy of its reserves, Dynatronics analyzes the following, among other
things:

           o Current inventory quantities on hand; o Product acceptance in the
           marketplace; o Customer demand; o Historical sales; o Forecast sales;
           o Product obsolescence; and o Technological innovations.

         Any modifications to Dynatronics' estimates of its reserves are
reflected in the cost of goods sold within the statement of operations during
the period in which such modifications are determined necessary by management.
At June 30, 2002 and 2001, our inventory reserve balance was $265,692 and
$240,209, respectively and our inventory balance was $3,836,751 and $4,746,323
net of reserves, respectively.

Revenue Recognition

         Dynatronics' products are sold primarily through a network of
independent distributors. Sales revenues are generally recorded when products
are shipped under an agreement with a distributor or customer, risk of loss and
title have passed and collection of any resulting receivable is reasonably
assured. The distributors, who sell the products to other customers, take title
to the products, have no special rights of return, and assume the risk for
credit and obsolescence.


                                       13

<PAGE>


Allowance for Doubtful Accounts

         Dynatronics must make estimates of the collectibility of accounts
receivables. In doing so, we analyze accounts receivable and historical bad
debts, customer credit-worthiness, current economic trends and changes in
customer payment patterns when evaluating the adequacy of the allowance for
doubtful accounts. Our accounts receivable balance was $3,156,436 and
$3,426,404, net of allowance for doubtful accounts of $165,763 and $140,735, at
June 30, 2002 and 2001, respectively.

Recent Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 prohibits the use of the pooling-of-interests method of accounting and
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and is applicable to all purchase
method business combinations completed after June 30, 2001. SFAS No. 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Effective for the Company beginning July 1, 2002, SFAS No. 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

         As of the date of adoption, the Company will have unamortized goodwill
and other intangibles in the amount of $849,234, which will be subject to the
transition provisions of SFAS Nos. 141 and 142. Amortization expense related to
goodwill and other intangibles was $94,539 for the year ended June 30, 2002.
Because of the effort needed to comply with adopting SFAS Nos. 141 and 142, it
is not practicable to reasonably estimate the impact of adopting these
statements on the Company's financial statements at the date of this report,
including whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle.

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development, and/or normal use of the asset.

         The Company is required and plans to adopt the provisions of SFAS No.
143 for the quarter ending September 30, 2002. To accomplish this, the Company
must identify legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption. The
Company believes that the adoption of SFAS No. 143 will not have material impact
on the Company's operating results or financial condition.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. SFAS No.
144 retains the fundamental provisions in SFAS No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. SFAS No. 144 retains the


                                       14

<PAGE>

basic provisions of APB Opinion 30 on how to present discontinued operations in
the income statement but broadens that presentation to include a component of an
entity rather than a segment of a business.

         The Company is required and plans to adopt the provisions of SFAS No.
144 for the quarter ending September 30, 2002. Management does not expect the
adoption of SFAS No. 144 for long-lived assets held for use to have a material
impact on the Company's financial statements because the impairment assessment
under SFAS No. 144 is largely unchanged from SFAS No. 121. The provisions of the
statement for assets held for sale or other disposal generally are required to
be applied prospectively after the adoption date to newly initiated disposal
activities.

Outlook

         Over the past five years, Dynatronics annual net sales have grown 60
percent from $10.2 million in fiscal year 1997 to $16.3 million in fiscal year
2002. During fiscal year 2002, Dynatronics continued to implement a strategy of
expanding product lines, strengthening channels of distribution, and developing
new products for the rehabilitation and aesthetic markets.

         To further strengthen our position in the core physical medicine
market, Dynatronics plans to introduce several new products in the coming year,
including a low power laser device. In the early 1980's Dynatronics attempted to
gain FDA approval for a low power laser device, but was unsuccessful. At that
time the laser device was the only product the company offered - a fact
reflected in the original name of the company, Dynatronics Laser Corporation.
When the Company was unable to obtain approval for the low power laser device,
the Company began pursuing the development of other physical medicine modalities
and subsequently changed its name to Dynatronics Corporation. A recent change in
the regulatory landscape now allows the introduction of low power laser devices
for the treatment of pain. Dynatronics enjoys a residual reputation as a pioneer
in this field and intends to capitalize on that by introducing a technologically
advanced, yet affordable, low power laser product in late fiscal year 2003.

         In addition to the low power laser device, over the course of the next
year Dynatronics will introduce a new line of electrotherapy and ultrasound
products incorporating advanced technology features and design. This new line of
products is expected to further enhance Dynatronics share of the electrotherapy
and ultrasound market

         The Company increased its efforts during the last half of fiscal year
2001 to enhance manufacturing capabilities with the goal of improving margins
and competitive pricing capability. To that end, some products previously
contracted to other manufacturers are being converted to in-house manufacturing.
Other products are being contracted for overseas manufacturing.

         In the course of the coming fiscal year there will be a major emphasis
on our "Back to Basics" plan. Resources are being allocated to strengthen our
core market emphasis and products. In fiscal year 2003 we will incur more
research and development expense than at any time since the early days of
seeking FDA approval for our first low power laser product. All of these efforts
are designed to increase market share and improve profitability in the coming
years.

          In August 2000, we acquired an exclusive license for the patented STS
technology for treating chronic pain. Two devices incorporating the new
technology - the Dynatron STS clinical unit and the Dynatron STS Rx prescription
unit for home use - were introduced in fiscal year 2001. The treatment delivered
by these devices is referred to as Sympathetic Therapy or STS Therapy. Medical
professionals have used this therapy to treat chronic pain associated with a
variety of conditions in patients who had previously experienced only marginal
results with traditional therapy regimens. According to the American Pain
Foundation, millions of people around the world suffer from chronic pain. The


                                       15

<PAGE>

associated costs in the United States alone are estimated to exceed $100 billion
annually. There is great demand for an effective treatment in the battle against
chronic pain.

         In a research study published in the January, 2002 edition of the
American Journal of Pain Management, test results showed 85% of STS-treated
patients suffering pain associated with peripheral neuropathies realized some
reduction of pain, with 50% of the patients becoming totally pain-free. We
believe that the fact these results were achieved with patients who had suffered
on average for eight years with their chronic pain condition further attests to
the effectiveness of this therapy. Additional research studies are underway to
further validate the efficacy of this innovative technology.

         As with many new medical therapies or technologies, insurance
reimbursement may influence the rate of growth of the STS technology. Presently,
limited reimbursement is available for STS treatments or home units. Most are
reviewed on a case-by-case basis. However, as medical practitioners experience
positive outcomes and further research supports the efficacy of this therapy, it
is anticipated that reimbursements will be more broadly established. It will
take time, perhaps years, to obtain broad acceptance and reimbursement for this
new therapy. Notably, this technology potentially holds the key to not only
relieving suffering for many chronic pain patients, but significantly reducing
the long-term costs of supporting chronic pain patients through reducing intake
of expensive narcotic medications or avoiding costly invasive procedures. We
believe that as these potential cost savings are realized, insurance companies
should begin to view STS treatments as an economical alternative to the
traditional treatments for chronic pain sufferers. STS treatments are not a
panacea and do not help every chronic pain sufferer. However, they seem to be
particularly effective with pain conditions that present with a sympathetic
bias.

         Dynatronics has perceived increasing interest in STS technology in the
workers compensation market. Workers' compensation carriers in several states
have adopted or are considering offering an STS trial program to their clients.
We believe the development of the workers compensation market represents an
important step in expanding STS treatment programs because a significant number
of chronic pain patients are covered under workers' compensation plans.

         During fiscal year 2002, the Company applied to Medicare seeking
coverage for STS treatments. While this approval process can often take years to
complete, Medicare patients represent a major segment of chronic pain sufferers.
There is no assurance that Medicare approval will be received.

         The development of the STS technology as an effective weapon in the
treatment of chronic pain remains a strategic objective of the Company. We
continue to receive reports of chronic pain sufferers who have attained
significant, if not total, relief from their pain even after years of suffering.
While the potential for a non-invasive, non-addictive, safe alternative for the
treatment of chronic pain would seem to be vast, the realities of accessing that
market will demand vigilance over the coming years to fully exploit that
potential.

         Another important part of our strategic plan is the expansion of
worldwide marketing efforts, particularly into the European Community. In March
2001, Dynatronics' Salt Lake operation, where all electrotherapy, ultrasound,
STS devices and Synergie products are manufactured, was designated an ISO 9001
certified facility. With this designation, the Company can market products
manufactured in this facility in any country that recognizes the CE Mark. We are
now working to establish effective distribution of these products in the
European Community.

         To take full advantage of the opportunities of the aesthetics market,
Dynatronics will continue to refine its efforts to establish effective
distribution for its aesthetic products. The Company's Chairman, Kelvyn H.
Cullimore, is personally managing the effort to establish this distribution. We
recently shifted our distribution strategy to establishing dealers who are
uniquely focused on the aesthetics market and also to cultivating national
accounts and direct sales. Previously, we had attempted to establish a direct


                                       16

<PAGE>

sales force for Synergie products. We changed our strategy because we believe
that the dealer strategy requires less overhead expense, is more easily managed
and will result in better local control of sales. Controlling and expanding the
channels of distribution for these products is expected to ultimately increase
sales and allow us to more fully access the potential of the aesthetics products
market. We perceive this market to be both lucrative and expanding, particularly
as aging baby boomers continue to look for ways to retain a youthful appearance.

         Over the past two years, we have allocated resources to enhance the
Company's presence in the e-business arena. Dynatronics has undertaken to
improve the appearance and application of its corporate website and is
researching ways to apply electronic media and Internet solutions to better
serve customer needs, access new business opportunities, reduce cost of
operations, and stay technologically current in the way business is conducted.
We believe the allocation of resources to developing e-business capabilities is
critical to improving future performance and have made the establishment of
these capabilities a focal strategy for the next fiscal year. The site may be
viewed at www.dynatronics.com. This reference to the Company's website is not
intended to incorporate the contents of the website into or as a part of this
report.

         Based on these strategic initiatives, we are focusing the Company's
resources in the following areas:

        o     Reinforce our position in the physical medicine market through the
              introduction of new products and improving margins and competitive
              pricing through more strategic manufacturing processes and
              alliances.

        o     Maximize sales of the Dynatron STS technology in the face of
              limited reimbursement by focusing on specific target markets that
              will embrace STS treatments such as workers compensation programs
              and thus better educate the medical and insurance communities on
              the efficacy of STS treatments. This includes conducting
              additional research and other related activities to obtain broader
              support from the medical and insurance communities.

        o     Improve sales and distribution of rehabilitation products
              domestically through strengthened relationships with dealers,
              particularly the high-volume specialty dealers.

        o     Expand distribution of both rehabilitation and aesthetic products
              internationally.

        o     Apply e-commerce solutions to improving overall performance.

Forward-Looking Statements

         When used in this report, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements within the safe harbor provisions of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements are subject to 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 and aesthetic products is characterized by rapid technological change.
Although Dynatronics has obtained patents on certain aspects of its technology,


                                       17

<PAGE>

there can be no assurance that our 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 our products are subject to
regulation by numerous national and local governmental agencies in the United
States and other countries which adds to the expense of doing business and, if
violated, could adversely affect the Company's financial condition and results
of operations.

         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. We 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.

         Product Liability. Manufacturers and distributors of products used in
the medical device, aesthetics and related 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 matters, all such actions have been insured
against. Although we maintain product liability insurance coverage which we deem
to be 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.

         Risks Associated with Manufacturing. The Company's results of
operations are dependent upon the continued operation of its manufacturing
facilities in Utah and Tennessee. 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 our facilities 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.
Our 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. Our industry 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 these
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.


                                       18

<PAGE>


         Dependence on Patents and Proprietary Rights. The Company has two
patents issued and three patents pending relating to its products. In addition,
we have obtained by license the worldwide rights to the STS patent. The
Company's trademarks have also been registered in the United States and in other
countries. There can be no assurance that patents owned by or licensed to us
will not be challenged or circumvented or will provide us with any competitive
advantages or that a patent will issue from any pending patent application. We
also rely 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. In addition, we rely on trade secrets that we seek
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 our
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 of STS Technology.
The STS products represent a new approach to chronic pain therapy with few
clinical studies available to prove their effectiveness. The Company has
sponsored clinical studies by physicians, but these have been relatively limited
in size, scope and duration. As additional research studies are undertaken,
there can be no assurance of future favorable clinical results. The absence of
independent scientific review of the STS products may limit the acceptance of
and our ability to market these products. Furthermore, sales of these products
could be adversely affected if consumers fail to follow the proper protocols or
to properly use the products as recommended.

         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 we sell products 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 assurance 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.

Item 7. Financial Statements

         The consolidated financial statements and accompanying report of the
Company's auditors follow immediately and form a part of this report.


                                       19

<PAGE>


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

         During the 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; Compliance With Section 16(a) of the
Exchange Act

         The directors and executive officers of the Company at September 20,
2002 are:

                                Director
                               or Officer   Position
Name                      Age    Since    with Company

Kelvyn H. Cullimore        67     1983     Chairman of the Board
Kelvyn H. Cullimore, Jr.   46     1983     President, CEO and Director
Larry K. Beardall          46     1986     Executive Vice President
                                           of Sales and Marketing and Director
E. Keith Hansen, M.D.*     57     1983     Director
Joseph H. Barton*          74     1996     Director
Howard L. Edwards*         71     1997     Director
Val J. Christensen*        49     1999     Director
Ronald J. Hatch            57     2002     Vice President of Operations and R&D


* Member of Audit and Compensation Committees of the Board of Directors.

         Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr.  No other
family relationships exist among officers and directors.

         Directors hold office until the next annual meeting of the shareholders
and until their successors have been elected and duly qualified. In the event of
the resignation of a Board Member, the remaining members of the Board of
Directors may elect an individual to fill the remainder of the resigning
member's unexpired term. Executive officers are elected by the Board of
Directors 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. The compensation committee reviews and approves compensation matters
for executive officers.

         Kelvyn H. Cullimore has served as Chairman of the Board since 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, as 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. From
1986 until 1999, Mr. Cullimore served as President of ITEC Attractions, and from
1986 to 1997, he served as ITEC's Chairman, President and CEO. He currently
serves on the board of directors of ITEC.


                                       20

<PAGE>


         Kelvyn H. Cullimore, Jr. was elected President and Chief Executive
Officer in December  1992.  He has been a Director  since  incorporation  of the
Company.   He  served  as   Secretary/Treasurer   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 and ACI, and he currently serves on the
board of directors of ITEC. In addition, he 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 in December
1992. He has served as a Director and the Vice President of Sales and Marketing
since July 1986. Mr. Beardall joined Dynatronics in February 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. He
is also Vice  President  and Director of Mountain  Resources  Corporation  and a
Director of Accent Publishers, both based in Salt Lake City, Utah.

         Joseph H. Barton joined the Board 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 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.

         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. 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.

         Val J. Christensen was appointed to the Board in January 1999. Since
1990, Mr. Christensen has served as Executive Vice President and General Counsel
of Franklin Covey Company, a company with a class of securities listed on the
New York Stock Exchange. He also served on Franklin's Board of Directors from
1989 to 1996. Prior to joining Franklin Covey, Mr. Christensen was a partner in
the international law firm of LeBoeuf, Lamb, Leiby & MacRae, headquartered in
New York City. Following graduation from law school in 1980, Mr. Christensen
served as a law clerk to the Honorable James K. Logan of the United States Tenth
Circuit Court of Appeals. He is an honors graduate of the Brigham Young
University School of Law and served as articles editor of the BYU Law Review.

         Ronald J. Hatch - was appointed Vice President of Operations and R&D in
July 2002. Prior to joining the Company in June 2002, Mr. Hatch worked with
Lineo, Inc. as a Senior Project Manager from 1999 to 2002. From 1972 to 1998, he
served in various management responsibilities at Philips Semiconductors -
Signetics. He graduated from Brigham Young University with a degree in
Electronics Engineering Technology in 1970 and received an MBA degree from the
University of Phoenix (in Salt Lake City) in 1991.


                                       21

<PAGE>

            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 10% of the
Company's common stock ("Reporting Persons") to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Reporting
Persons are required by Rule 16a-3(e) of the Securities and Exchange Commission
to furnish the Company with copies of all Section 16(a) forms they file with the
Commission.

         Based solely on review of the copies of such forms furnished to the
Company during and with respect to the year ended June 30, 2002, the Company
believes that during the year then ended all Section 16(a) filings applicable to
these Reporting Persons were timely filed with the exception of Form 4 filings
for Kelvyn H. Cullimore, Kelvyn H. Cullimore, Jr. and Larry K Beardall who filed
their reports approximately one week late in September, 2001.

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 2002, 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 Thereof," contained in the
Company's definitive proxy statement for 2002, 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

         Except as otherwise disclosed in "Management's Discussion and Analysis
or Plan of Operation," during the two years ended June 30, 2002, the Company was
not a party to any transaction in which any director, executive officer or
shareholder holding more than 5% of the Company's issued and outstanding commons
tock had a direct or indirect material interest.

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 Sheets at June 30, 2002 and 2001......................F-2

              Statements of Income for years ended
              June 30, 2002 and 2001........................................F-3

              Statements of Stockholders'
              Equity for years ended June 30, 2002
              and 2001......................................................F-4


                                       22

<PAGE>


              Statements of Cash Flows for
              years ended June 30, 2002 and 2001 ...........................F-5

              Notes to Financial Statements.................................F-6

              Exhibits:
              --------

               Reg. S-B
              Exhibit No.            Description

                  3.1      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.

                  3.2      Articles of Amendment dated November 21, 1988
                           (previously filed).

                  4.1      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.

                  4.2      Amended and Restated 1992 Stock Option Plan,
                           effective November 28, 1996 (previously filed).

                  10.2     Employment contract with Kelvyn H. Cullimore, Jr.
                           (previously filed)

                  10.2     Employment contract with Larry K. Beardall
                           (previously filed)

                  10.3     Loan Agreement with Zion Bank (previously filed)

                  10.4     Settlement Agreement dated March 29, 2000 with Kelvyn
                           Cullimore, Sr. (previously filed)

                  99.1     Certifications of CEO and CFO.

         (b) Reports on Form 8-K. The Company did not file any report on Form
8-K during the last quarter of the fiscal year ended June 30, 2002.

Item 14.    Controls and Procedures

         Item 14 has been omitted pursuant to the transition provisions of
Exchange Act Release No. 34-46427.



                                       23

<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 26, 2002

         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.


<TABLE>
<CAPTION>
<S>                                         <C>                                           <C>
/s/ Kelvyn H. Cullimore                     Chairman of the Board                         September 17, 2002
-------------------------
Kelvyn H. Cullimore


/s/ Kelvyn H. Cullimore, Jr.                Director, President, CEO                      September 17, 2002
-------------------------------
Kelvyn H. Cullimore, Jr.                    (Principal Executive Officer
                                            and Principal Financial
                                            and Accounting Officer)


/s/ Larry K. Beardall                       Director, Executive                           September 17, 2002
------------------------------
Larry K. Beardall                                                                         Vice President


/s/ E. Keith Hansen, M.D.                   Director                                      September 17, 2002
-------------------------------
E.       Keith Hansen, M.D.


/s/ Joseph H. Barton                        Director                                      September 17, 2002
---------------------
Joseph H. Barton


/s/ Howard L. Edwards                       Director                                      September 17, 2002
-------------------------------
Howard L. Edwards


/s/ Val J. Christensen                      Director                                      September 17, 2002
-------------------------------
Val J. Christensen
</TABLE>


                                       24

<PAGE>


                                 CERTIFICATIONS

I, Kelvyn H. Cullimore, Jr., certify that:

        1.        I have reviewed this annual report on Form 10-KSB of
                  Dynatronics Corporation;

        2.        Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

        3.        Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report.

[Items 4, 5 and 6 omitted pursuant to the transition provisions of Release No.
34-46427.]

Date: September 26, 2002

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

                                       25


<PAGE>


                                                                    EXHIBIT 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Dynatronics Corporation on Form 10-KSB
for the period ending June 30, 2002, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I Kelvyn H. Cullimore, Jr., Chief
Executive Officer and Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

         (1)      The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.


                                          /s/ Kelvyn H. Cullimore, Jr.
                                        ----------------------------------------
                                        Kelvyn H. Cullimore, Jr.
                                        Chief Executive Officer and
                                        Chief Financial Officer
                                        Dynatronics Corporation








                                       26


<PAGE>





                          Independent Auditors' Report



The Board of Directors
Dynatronics Corporation:


We have audited the accompanying balance sheets of Dynatronics Corporation as of
June 30, 2002 and 2001, and the related statements of income, stockholders'
equity, and cash flows for each of the years in the two-year period ended June
30, 2002. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide 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, 2002 and 2001, and the results of its operations and its cash flows for
each of the years in the two-year period ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of America.


                                                     /s/ KPMG LLP
                                                     -------------

August 9, 2002


<PAGE>
                             DYNATRONICS CORPORATION
                                 Balance Sheets
                             June 30, 2002 and 2001
<TABLE>
<CAPTION>
                                    Assets                                               2002                 2001
                                                                                  -------------------   ------------------
Current assets:
<S>                                                                            <C>                          <C>
     Cash                                                                      $          396,803              258,884
     Trade accounts receivable, less allowance for doubtful accounts
        of $165,763 in 2002 and $140,735 in 2001                                        3,156,436            3,426,404
     Other receivables                                                                     58,202              191,845
     Inventories                                                                        3,836,751            4,746,323
     Prepaid expenses                                                                     359,000              212,429
     Prepaid income taxes                                                                     --                26,003
     Deferred tax asset - current                                                         276,905              268,735
                                                                                  -------------------   ------------------
                 Total current assets                                                   8,084,097            9,130,623
Property and equipment, net                                                             3,345,059            3,277,458
Goodwill, net of accumulated amortization of $649,752 in 2002
     and $562,536 in 2001                                                                 789,422              876,637
Other assets                                                                              289,624              275,629
                                                                                  -------------------   ------------------
                                                                               $       12,508,202           13,560,347
                                                                                  ===================   ==================
                     Liabilities and Stockholders' Equity
Current liabilities:
     Current installments of long-term debt                                    $          225,604              239,151
     Line of credit                                                                     1,435,689            2,871,024
     Accounts payable                                                                     318,905              407,727
     Income tax payable                                                                    30,804                  --
     Accrued expenses                                                                     380,424              424,257
     Accrued payroll and benefit expenses                                                 208,504              216,518
                                                                                  -------------------   ------------------
                 Total current liabilities                                              2,599,930            4,158,677
Long-term debt, excluding current installments                                          1,950,309            1,834,903
Deferred compensation                                                                     282,229              260,599
Deferred tax liability - noncurrent                                                        99,160               78,846
                                                                                  -------------------   ------------------
                 Total liabilities                                                      4,931,628            6,333,025
                                                                                  -------------------   ------------------
Stockholders' equity:
     Common stock, no par value. Authorized 50,000,000 shares;
        issued 8,928,774 shares in 2002 and 8,840,422 shares in 2001                    2,638,677            2,565,926
     Treasury stock, 59,439 common shares at cost in 2002 and
        35,584 shares in 2001                                                            (159,696)            (120,096)
     Retained earnings                                                                  5,097,593            4,781,492
                                                                                  -------------------   ------------------
                 Total stockholders' equity                                             7,576,574            7,227,322
Commitments and contingencies
                                                                                  -------------------   ------------------
                                                                               $       12,508,202           13,560,347
                                                                                  ===================   ==================
</TABLE>
See accompanying notes to financial statements.


                                       2


<PAGE>


                             DYNATRONICS CORPORATION
                              Statements of Income
                       Years ended June 30, 2002 and 2001
<TABLE>
<CAPTION>
                                                                                          2002                  2001
                                                                                   -------------------   -------------------
<S>                                                                             <C>                           <C>
Net sales                                                                       $       16,337,318            16,757,821
Cost of sales                                                                            9,840,778             9,712,475
                                                                                   -------------------   -------------------
                 Gross profit                                                            6,496,540             7,045,346
Selling, general, and administrative expenses                                            5,053,765             5,419,935
Research and development expense                                                           668,426               805,363
                                                                                   -------------------   -------------------
                                                                                   -------------------   -------------------
                 Operating income                                                          774,349               820,048
                                                                                   -------------------   -------------------
Other income (expense):
     Interest income                                                                         3,751                 7,964
     Interest expense                                                                     (281,444)             (320,522)
     Other income, net                                                                      15,133                22,379
                                                                                   -------------------   -------------------
                 Total other expense, net                                                 (262,560)             (290,179)
                                                                                   -------------------   -------------------
                 Income before income taxes                                                511,789               529,869
Income tax expense                                                                         195,688               195,690
                                                                                   -------------------   -------------------
                 Net income                                                     $          316,101               334,179
                                                                                   ===================   ===================
Basic net income per share                                                      $             0.04                  0.04
Diluted net income per share                                                                  0.04                  0.04
Weighted average basic and diluted common shares outstanding:
     Basic                                                                               8,855,083             8,786,205
     Diluted                                                                             8,898,422             9,150,310
</TABLE>

See accompanying notes to financial statements.


                                       3


<PAGE>


                             DYNATRONICS CORPORATION
                       Statements of Stockholders' Equity
                       Years ended June 30, 2002 and 2001
<TABLE>
<CAPTION>
                                                                                                                 Total
                                                         Common           Treasury           Retained        stockholders'
                                                         stock              stock            earnings           equity
                                                     ---------------   ----------------   ---------------   ----------------
<S>                                              <C>                           <C>          <C>                <C>
Balances at June 30, 2000                         $    2,457,947              (120,096)     4,447,313          6,785,164
Issuance of 20,000 shares of common stock
    and 80,000 options for license agreement              73,240                --                --              73,240
Issuance of 10,000 common stock options for
    services                                               7,000                --                --               7,000
Issuance of 19,800 shares of common stock
    upon exercise of employee stock options               20,090                --                --              20,090
Income tax benefit from disqualifying disposition
    of employee stock options and nonemployee
    exercise of stock options                              7,649                --                --               7,649
Net income                                                   --                 --            334,179            334,179
                                                     ---------------   ----------------   ---------------   ----------------
Balances at June 30, 2001                              2,565,926              (120,096)     4,781,492          7,227,322
Purchase of 23,855 shares of treasury stock                  --                (39,600)           --             (39,600)
Issuance of 88,352 shares of common stock
    upon exercise of employee stock options               68,364                --                --              68,364
Income tax benefit from disqualifying disposition
    of employee stock options and nonemployee
    exercise of stock options                              4,387                --                --               4,387
Net income                                                   --                 --            316,101            316,101
                                                     ---------------   ----------------   ---------------   ----------------
Balances at June 30, 2002                         $    2,638,677              (159,696)     5,097,593          7,576,574
                                                     ===============   ================   ===============   ================
</TABLE>

See accompanying notes to financial statements.


                                       4


<PAGE>


                             DYNATRONICS CORPORATION
                            Statements of Cash Flows
                       Years ended June 30, 2002 and 2001
<TABLE>
<CAPTION>
                                                                                           2002                 2001
                                                                                     ------------------   ------------------
Cash flows from operating activities:
<S>                                                                               <C>                            <C>
    Net income                                                                    $         316,101              334,179
    Adjustments to reconcile net income to net cash provided by
       (used in) operating activities:
          Depreciation and amortization of property and equipment                           333,077              312,806
          Other amortization                                                                 94,539               97,486
          Loss on disposal of assets                                                            --                 2,467
          Provision for doubtful accounts                                                    48,000               36,000
          Provision for inventory obsolescence                                              204,000              204,000
          Provision for warranty reserve                                                    248,576              212,029
          Provision for deferred compensation                                                21,630               27,201
          Compensation expense on stock options                                                 --                 7,000
          Changes in operating assets and liabilities:
             Receivables                                                                    355,611             (302,010)
             Inventories                                                                    705,572             (911,478)
             Prepaid expenses and other assets                                             (167,890)             (28,800)
             Deferred income taxes                                                           12,144               28,162
             Income taxes payable                                                            61,194               13,062
             Accounts payable and accrued expenses                                         (389,245)            (508,726)
                                                                                     ------------------   ------------------
                Net cash provided by (used in) operating activities                       1,843,309             (476,622)
                                                                                     ------------------   ------------------
Cash flows used in investing activities:
    Capital expenditures                                                                   (400,678)            (254,807)
                                                                                     ------------------   ------------------
Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                                919,715                  --
    Principal payments on long-term debt                                                   (817,856)            (241,343)
    Net change in line of credit                                                         (1,435,335)             977,810
    Proceeds from issuance of common stock                                                   28,764               20,090
                                                                                     ------------------   ------------------
                Net cash provided by (used in) financing activities                      (1,304,712)             756,557
                                                                                     ------------------   ------------------
                Net increase in cash and cash equivalents                                   137,919               25,128
Cash at beginning of year                                                                   258,884              233,756
                                                                                     ------------------   ------------------
Cash at end of year                                                               $         396,803              258,884
                                                                                     ==================   ==================
Supplemental disclosures of cash flow information:
    Cash paid during the year for interest, net of amounts capitalized            $         287,113              322,970
    Cash paid during the year for income taxes                                              122,350              164,000
Supplemental disclosures of noncash investing and financing activities:
    Common stock issued in exchange for cashless exercise of options
       using mature stock                                                         $          39,600                  --
    Income tax benefit from nonemployee exercise of stock options                             4,387                7,649
</TABLE>

See accompanying notes to financial statements.


                                       5


<PAGE>


                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



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

       (a)    Basis of Presentation

              Dynatronics Corporation (the Company) manufactures, markets, and
              distributes a broad line of therapeutic, diagnostic, and
              rehabilitation equipment, medical supplies, and soft goods,
              treatment tables, and aesthetic medical devices to an expanding
              market of physical therapists, podiatrists, orthopedists,
              chiropractors, plastic surgeons, dermatologists, and other medical
              professionals. The products are distributed primarily through
              dealers in the United States and Canada, with increasing
              distribution in foreign countries.

       (b)    Inventories

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

       (c)    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 2 to 7 years.

       (d)    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.

       (e)    Revenue Recognition

              Sales revenues are generally recorded when products are shipped
              under an agreement with a customer, risk of loss and title have
              passed to the customer and collection of any resulting receivable
              is reasonably assured.

       (f)    Research and Development Costs

              Research and development costs are expensed as incurred.

       (g)    Product Warranty Reserve

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


                                       6                                Coninued

<PAGE>


                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



       (h)    Earnings per Common Share

              Basic earnings per common share is the amount of earnings for the
              period available to each share of common stock outstanding during
              the reporting period. Diluted earnings per common share is the
              amount of earnings for the period available to each share of
              common stock outstanding during the reporting period and to each
              share that would have been outstanding assuming the issuance of
              common shares for all dilutive potential common shares outstanding
              during the period.

              A reconciliation between the basic and diluted weighted average
              number of common shares for 2002 and 2001 is summarized as
              follows:

<TABLE>
<CAPTION>
                                                                                         2002                  2001
                                                                                  -------------------   --------------------

             Basic weighted average number of common shares outstanding
<S>                                                                                      <C>                   <C>
                 during the year                                                         8,855,083             8,786,205

             Weighted average number of dilutive common stock options
                 outstanding during the year                                                43,339               364,105
                                                                                  -------------------   --------------------

             Diluted weighted average number of common and common equivalent
                 shares outstanding during the year                                      8,898,422             9,150,310
                                                                                  ===================   ====================
</TABLE>


              The weighted average number of options outstanding not included in
              the computation of diluted net income per share total 279,887 and
              194,017 as of June 30, 2002 and 2001, respectively, because to do
              so would have been antidilutive.

       (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.



                                       7                                Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



       (j)    Stock-Based Compensation

              The Company employs the footnote disclosure provisions of
              Statement of Financial Accounting Standards (SFAS) No. 123,
              Accounting for Stock-Based Compensation. SFAS No. 123 encourages
              entities to adopt a fair-value-based method of accounting for
              stock options or similar equity instruments. However, it also
              allows an entity to continue measuring compensation cost for
              stock-based compensation using the intrinsic-value method of
              accounting prescribed by Accounting Principles Board (APB) Opinion
              No. 25, Accounting for Stock Issued to Employees (APB 25). The
              Company has elected to apply the provisions of APB 25 and provide
              pro forma footnote disclosures required by SFAS No. 123.

       (k)    Concentration of Risk

              In the normal course of business, the Company provides unsecured
              credit terms to its customers. Most of the Company's customers are
              involved in the medical industry. The Company performs ongoing
              credit evaluations of its customers and maintains allowances for
              possible losses which, when realized, have been within the range
              of management's expectations.

       (l)    Operating Segments

              The Company operates in one line of business, the development,
              marketing, and distribution of a broad line of medical products
              for the physical therapy and aesthetics' markets. As such, the
              Company has only one reportable operating segment as defined by
              SFAS No. 131, Disclosures about Segments of an Enterprise and
              Related Information.

       (m)    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 accounting principles generally accepted in the United States
              of America. Actual results could differ from those estimates.

       (n)    Fair Value Disclosure

              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 or the
              existence of interest rate reset provisions.



                                       8                                Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



(2)    Inventories

       Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                                        2002                   2001
                                                                                 --------------------   --------------------

<S>                                                                           <C>                              <C>
      Raw materials                                                           $         2,555,535              2,914,710
      Finished goods                                                                    1,546,908              2,071,822
      Inventory reserve                                                                  (265,692)              (240,209)
                                                                                 --------------------   --------------------

                                                                              $         3,836,751              4,746,323
                                                                                 ====================   ====================
</TABLE>


(3)    Property and Equipment

       Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                        2002                   2001
                                                                                 --------------------   --------------------

<S>                                                                           <C>                                <C>
      Land                                                                    $           354,743                354,743
      Buildings                                                                         2,871,286              2,802,894
      Machinery and equipment                                                           1,603,963              1,335,828
      Office equipment                                                                    352,502                288,351
      Vehicles                                                                             61,771                 61,771
                                                                                 --------------------   --------------------

                                                                                        5,244,265              4,843,587

      Less accumulated depreciation and amortization                                    1,899,206              1,566,129
                                                                                 --------------------   --------------------

                                                                              $         3,345,059              3,277,458
                                                                                 ====================   ====================
</TABLE>


(4)    Line of Credit

       The Company has a revolving line of credit facility with a commercial
       bank in the amount of $4.5 million. Borrowing limitations are based on
       30% of eligible inventory and up to 80% of eligible accounts receivable.
       At June 30, 2002, the borrowing base was approximately $2.8 million and
       the outstanding balance was $1.4 million. The line of credit is
       collateralized by inventory and accounts receivable and bears interest at
       the bank's "prime rate," (4.75% and 6.75% at June 30, 2002 and 2001,
       respectively). This line is subject to annual renewal and matures on
       December 1, 2002. Accrued interest is payable monthly.



                                       9                                Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



(5)    Long-Term Debt

       Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                        2002                   2001
                                                                                 --------------------   --------------------

      7.11% promissory note secured by a trust deed on real property,
<S>                                                                           <C>                              <C>
          payable in monthly installments of $8,708 through November 2008     $           537,154                600,977
      6.21% promissory note secured by a trust deed on real property,
          maturing November 2013, payable in decreasing installments
          beginning at $7,545 monthly ($7,060 during 2002 and 2001)                       688,283                728,900
      8.65% promissory note secured by a trust deed on real property,
          payable in monthly installments of $7,182 through January 2012,
          this note was paid in full during 2002                                               --                595,930
      5.25% promissory note secured by building, payable in monthly
          installments of $5,641 through May 2017                                         694,372                     --
      8.87% promissory note secured by fixed assets, payable in monthly
          installments of $3,901 through May 2007                                         193,930                     --
      Other notes payable                                                                  62,174                148,247
                                                                                 --------------------   --------------------

                    Total long-term debt                                                2,175,913              2,074,054

      Less current installments                                                           225,604                239,151
                                                                                 --------------------   --------------------

                    Long-term debt, excluding current installments            $         1,950,309              1,834,903
                                                                                 ====================   ====================
</TABLE>


       The aggregate maturities of long-term debt for each of the years
       subsequent to 2002 are as follow: 2003, $225,604; 2004, $201,390; 2005,
       $205,050; 2006, $216,204; 2007, $226,940; and thereafter $1,100,725.

(6)    Leases

       The Company leases vehicles under noncancelable operating lease
       agreements. Rent expense for the years ended June 30, 2002 and 2001 was
       $31,915 and $29,488, respectively. Future minimum rental payments
       required under noncancelable operating leases that have initial or
       remaining lease terms in excess of one year as of 2002 are as follows:
       2003, $24,371; 2004, $16,140; and 2005, $2,500.



                                       10                               Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



(7)    Income Taxes

       Income tax expense for the years ended June 30 consists of:

<TABLE>
<CAPTION>
                                         Current               Deferred             Stock option              Total
                                                                                      benefit
                                    -------------------   --------------------   -------------------    -------------------

      2002:
<S>                              <C>                                <C>                     <C>                  <C>
          U.S. federal           $           135,582                21,248                  3,800                160,630
          State and local                     34,068                   403                    587                 35,058
                                    -------------------   --------------------   -------------------    -------------------

                                 $           169,650                21,651                  4,387                195,688
                                    ===================   ====================   ===================    ===================

      2001:
          U.S. federal           $           115,704                38,607                  6,655                160,966
          State and local                     34,657                  (927)                   994                 34,724
                                    -------------------   --------------------   -------------------    -------------------

                                 $           150,361                37,680                  7,649                195,690
                                    ===================   ====================   ===================    ===================
</TABLE>


       The stock option benefit represents the portion of the Company's income
       tax expense for financial reporting purposes that was not required to be
       paid due to the availability of a tax benefit upon employees exercising
       their options. The Company recognized an increase to stockholders' equity
       as a result of the stock option benefit.

       Actual income tax expense differs from the "expected" tax expense
       (computed by applying the U.S. federal corporate income tax rate of 34%
       to income before income taxes) as follows:

<TABLE>
<CAPTION>
                                                                                        2002                   2001
                                                                                 --------------------   --------------------

<S>                                                                           <C>                                <C>
      Expected tax expense                                                    $           174,009                180,155
      State taxes, net of federal tax benefit                                              23,138                 22,918
      Meals and entertainment                                                               2,247                  2,687
      Amortization of goodwill not deductible                                               2,985                  2,985
      Charitable contributions                                                                 --                (11,709)
      Officers' life insurance                                                             (2,927)                (2,726)
      Extraterritorial income exclusion                                                    (3,978)                    --
      Other, net                                                                              214                  1,380
                                                                                 --------------------   --------------------

                                                                              $           195,688                195,690
                                                                                 ====================   ====================
</TABLE>



                                       11                               Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



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

<TABLE>
<CAPTION>
                                                                                        2002                   2001
                                                                                 --------------------   --------------------

      Net deferred tax asset - current:
<S>                                                                           <C>                                <C>
          Inventory capitalization for income tax purposes                    $            47,689                 60,030
          Inventory reserve                                                                99,103                 89,598
          Vacation reserve                                                                  3,730                  3,730
          Warranty reserve                                                                 50,728                 41,776
          Accrued product liability                                                        13,825                 21,107
          Allowance for doubtful accounts                                                  61,830                 52,494
                                                                                 --------------------   --------------------

                    Total deferred tax asset - current                        $           276,905                268,735
                                                                                 ====================   ====================

      Net deferred tax asset (liability) - noncurrent:
          Deferred compensation                                               $           105,271                 97,204
          Net operating loss carryforwards                                                     --                 17,422
          Property and equipment, principally due to differences in
            depreciation                                                                 (216,170)              (206,140)
          Noncompete and goodwill                                                          11,739                 12,668
                                                                                 --------------------   --------------------

                    Total deferred tax liability - noncurrent                 $           (99,160)               (78,846)
                                                                                 ====================   ====================
</TABLE>


       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. 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 that the Company will realize the benefits of these
       deductible differences.

(8)    Major Customers

       During the fiscal years ended June 30, 2002 and 2001, sales to any single
       customer did not exceed 10% of total revenues.

(9)    Common Stock

       The Company granted options to acquire common stock under its 1992
       qualified stock option plan. The options are to be granted at not less
       than 100% 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.


                                       12                               Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



       A summary of activity follows:

<TABLE>
<CAPTION>
                                                           2002                                       2001
                                           --------------------------------------    ---------------------------------------
                                           Number of shares         Weighted         Number of shares        Weighted
                                                                    average                                   average
                                                                 exercise price                            exercise price
                                           -----------------    -----------------    -----------------    ------------------

      Options outstanding at
<S>                                               <C>           <C>                         <C>           <C>
          beginning of year                       930,906       $        1.17               678,489       $        1.11
      Options granted                              90,861                1.12               446,321                1.31
      Options exercised                            88,352                0.77                19,800                1.02
      Options canceled or expired                  96,837                1.34               174,104                1.28
                                           -----------------                         -----------------

      Options outstanding at end of
          year                                    836,578                1.19               930,906                1.17
                                           =================                         =================
      Options exercisable at end of               682,891                1.15               437,760                1.04
          year
      Range of exercise prices at end
          of year                                                    0.72-2.70                                 0.72-2.70
</TABLE>


       At June 30, 2002, 1,026,883 shares of common stock were authorized and
       reserved for issuance, but were not granted under the terms of the stock
       option plan.

       The Company accounts for the plan using the intrinsic-value method under
       APB 25. Accordingly, no compensation expense has been recognized for the
       stock option plan. Had compensation expense for the Company's stock
       option plan been determined based on the fair value at the grant date for
       awards in 2002 and 2001, consistent with the provisions of SFAS No. 123,
       the Company's results of operations would have been reduced to the pro
       forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                                                  June 30
                                                                                 -------------------------------------------
                                                                                        2002                   2001
                                                                                 --------------------   --------------------

<S>                                                                           <C>                                <C>
      Net income - as reported                                                $           316,101                334,179
      Net income - pro forma                                                              207,011                205,397
      Earnings per share - as reported                                                       0.04                   0.04
      Earnings per share - pro forma                                                         0.02                   0.02
</TABLE>



                                       13                               Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



       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:

                                                         June 30
                                             -----------------------------------
                                                  2002                2001
                                             ----------------   ----------------

       Expected dividend yield                     0%                  0%
       Expected stock price volatility          90 - 95%            69 - 74%
       Risk-free interest rate                 4.3 - 5.1%          4.9 - 6.2%
       Expected life of options                5 & 7 years         5 & 7 years

       The weighted average fair value of options granted during 2002 and 2001
       was $0.89 and $0.78, respectively.

       The Company granted 10,000 options in 2001 to a third party for the
       performance of services. The Company recognized the fair value of the
       options as compensation expense in 2001. The fair value of the options
       granted was estimated using the Black-Scholes option-pricing model with
       the following weighted average assumptions: risk-free interest rate of
       5.8%, expected dividend yield of 0%, life of 5 years, and expected
       volatility of 68%.

       During 2001, the Company purchased a license agreement for 20,000 shares
       of common stock and 80,000 options to purchase common stock. The options
       granted were not issued under the Company's stock option plan. The
       Company recorded the license agreement at the fair value of the equity
       instruments issued and is amortizing the asset over the 10-year life of
       the agreement. The exercise price of the options ranges from $1.08 to
       $4.00. The fair value of the options granted was estimated using the
       Black-Scholes option-pricing model with the following weighted average
       assumptions: risk-free interest rate of 6.1%, expected dividend yield of
       0%, life of 6 to 9 years, and expected volatility of 68%.

(10)   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 2002 and 2001, the Company made matching
       contributions of 25% of the first $2,000 of each employee's contribution.
       The Company's contributions to the plan for 2002 and 2001 were $12,451
       and $31,043, respectively. Company matching contributions for future
       years are at the discretion of the board of directors.

(11)   Salary Continuation Agreements

       As of June 30, 2002, the Company had salary continuation agreements with
       two key employees. The agreements provide a preretirement 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% 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 15-year 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 2002 and 2001, the Company has accrued $282,229 and $260,599,
       respectively, of deferred compensation under the terms of the agreements.



                                       14                               Coninued

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



(12)   Recent Accounting Pronouncements

       In July 2001, the Financial Accounting Standards Board (FASB) issued
       Statement of Financial Accounting Standards (SFAS) No. 141, Business
       Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
       SFAS No. 141 prohibits the use of the pooling-of-interests method of
       accounting and requires that the purchase method of accounting be used
       for all business combinations initiated after June 30, 2001 and is
       applicable to all purchase method business combinations completed after
       June 30, 2001. SFAS No. 141 also specifies criteria that intangible
       assets acquired in a purchase method business combination must meet to be
       recognized and reported apart from goodwill. Effective for the Company
       beginning July 1, 2002, SFAS No. 142 will require that goodwill and
       intangible assets with indefinite useful lives no longer be amortized,
       but instead be tested for impairment at least annually in accordance with
       the provisions of SFAS No. 142. SFAS No. 142 will also require that
       intangible assets with definite useful lives be amortized over their
       respective estimated useful lives to their estimated residual values and
       reviewed for impairment in accordance with SFAS No. 121, Accounting for
       the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
       Disposed Of.

       As of the date of adoption, the Company will have unamortized goodwill
       and other intangibles in the amount of $849,234, which will be subject to
       the transition provisions of SFAS Nos. 141 and 142. Amortization expense
       related to goodwill and other intangibles was $94,539 for the year ended
       June 30, 2002. Because of the effort needed to comply with adopting SFAS
       Nos. 141 and 142, it is not practicable to reasonably estimate the impact
       of adopting these statements on the Company's financial statements at the
       date of this report, including whether any transitional impairment losses
       will be required to be recognized as the cumulative effect of a change in
       accounting principle.

       In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
       Retirement Obligations, which addresses financial accounting and
       reporting for obligations associated with the retirement of tangible
       long-lived assets and the associated asset retirement costs. The standard
       applies to legal obligations associated with the retirement of long-lived
       assets that result from the acquisition, construction, development,
       and/or normal use of the asset.

       The Company is required and plans to adopt the provisions of SFAS No. 143
       for the quarter ending September 30, 2002. To accomplish this, the
       Company must identify legal obligations for asset retirement obligations,
       if any, and determine the fair value of these obligations on the date of
       adoption. The Company believes that the adoption of SFAS No. 143 will not
       have material impact on the Company's operating results or financial
       condition.

       In August 2001, the FASB issued SFAS No. 144, Accounting for the
       Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS
       No. 121, Accounting for the Impairment of Long-Lived Assets and for
       Long-Lived Assets to Be Disposed Of and the accounting and reporting
       provisions of APB Opinion No. 30, Reporting the Results of
       Operations-Reporting the Effects of Disposal of a Segment of a Business,
       and Extraordinary, Unusual and Infrequently Occurring Events and
       Transactions, for the disposal of a segment of a business. SFAS No. 144
       retains the fundamental provisions in SFAS No. 121 for recognizing and
       measuring impairment losses on long-lived assets held for use and
       long-lived assets to be disposed of by sale, while also resolving
       significant implementation issues associated with SFAS No. 121. SFAS No.
       144 retains the basic provisions of APB Opinion 30 on how to present
       discontinued operations in the income statement but broadens that
       presentation to include a component of an entity rather than a segment of
       a business.


                                       15                               Coninued

<PAGE>


                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2002 and 2001



       The Company is required and plans to adopt the provisions of SFAS No. 144
       for the quarter ending September 30, 2002. Management does not expect the
       adoption of SFAS No. 144 for long-lived assets held for use to have a
       material impact on the Company's financial statements because the
       impairment assessment under SFAS No. 144 is largely unchanged from SFAS
       No. 121. The provisions of the statement for assets held for sale or
       other disposal generally are required to be applied prospectively after
       the adoption date to newly initiated disposal activities.






                                       16