UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 

Form 10-KSB 

[X]      ANNUAL REPORT UNDER SECTION 13OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 

For the fiscalyear ended December 31, 2006 

[  ]      TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 

For thetransition period from ________ to ________ 

Commission filenumber:  000-25958 
| INTEGRITY MUTUAL FUNDS,INC.                   |
|-----------------------------------------------|
| (Name of small businessissuer in its charter) |
| North Dakota                                                  | 45-0404061                       |
|---------------------------------------------------------------|----------------------------------|
| (State or otherjurisdiction of incorporation or organization) | (IRS EmployerIdentification No.) |
| 1 Main Street North                     |
|-----------------------------------------|
| Minot, North Dakota58703                |
| (Address of principalexecutive offices) |
| Issuer'stelephone number:                                     | (701)852-5292                 |
|---------------------------------------------------------------|-------------------------------|
|                                                          |                          |
| Securitiesregistered under Section 12(b) of the Exchange Act: | None                          |
|                                                          |                          |
| Securitiesregistered under Section 12(g) of the Exchange Act: | Common Stock;$.0001 par value |

Check whether the issuer:  (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days.				YES [X]  NO [   ] 

Check if there is no disclosure ofdelinquent filers in response to Item 405 of Regulation S-Bcontained in this form, and no disclosure will be contained, tothe best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III ofthis Form 10-KSB or any amendment to this Form 10-KSB. [X] 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of theExchange Act). 				YES [   ]  NO [X] 

The issuer's revenues for the year endedDecember 31, 2006, were $26,786,964. 

Aggregate market value of voting andnon-voting common equity held by non-affiliates of the registrantas of February 28, 2007: $8,713,293. 

On February 28, 2007, there were 13,717,146shares of the issuer's common equity outstanding. 

DOCUMENTS INCORPORATED BY REFERENCE: 

Portions of the Company's definitive ProxyStatement for the Annual Meeting of Shareholders to be held onMay 23, 2007, are incorporated by reference in certain sectionsof Part III. 

Transitional Small Business DisclosureFormat:            YES [   ]  NO [X]

10-KSB 				INTEGRITY MUTUAL FUNDS,INC. 				INDEX 
|     |                                                                                                                                | Page # |
|----------|-------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART I   |                                                                                                                                |   |
|     |                                                                                                                                |   |
| Item 1.  | Description of Business                                                                                                             | 1      |
|     |                                                                                                                                |   |
| Item 2.  | Description of Property                                                                                                             | 6      |
|     |                                                                                                                                |   |
| Item 3.  | Legal Proceedings                                                                                                                   | 6      |
|     |                                                                                                                                |   |
| Item 4.  | Submission of Matters to a Vote of SecurityHolders                                                                                  | 6      |
|     |                                                                                                                                |   |
| PART II  |                                                                                                                                |   |
|     |                                                                                                                                |   |
| Item 5.  | Market for Common Equity and RelatedStockholder Matters                                                                             | 6      |
|     |                                                                                                                                |   |
| Item 6.  | Management's Discussion and Analysis ofFinancial Condition and Results of Operations                                                | 7      |
|     |                                                                                                                                |   |
| Item 7.  | Financial Statements                                                                                                                | 14     |
|     |                                                                                                                                |   |
| Item 8.  | Changes In and Disagreements withAccountants on Accounting and Financial Disclosure                                                 | 14     |
|     |                                                                                                                                |   |
| Item 8A. | Controls and Procedures                                                                                                             | 14     |
|     |                                                                                                                                |   |
| Item 8B. | Other Information                                                                                                                   | 14     |
|     |                                                                                                                                |   |
| PART III |                                                                                                                                |   |
|     |                                                                                                                                |   |
| Item 9.  | Directors, Executive Officers, Promoters,Control Persons and Corporate Governance; Compliance with Section16(a) of the Exchange Act | 14     |
|     |                                                                                                                                |   |
| Item 10. | Executive Compensation                                                                                                              | 14     |
|     |                                                                                                                                |   |
| Item 11. | Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters                                       | 14     |
|     |                                                                                                                                |   |
| Item 12. | Certain Relationships and RelatedTransactions, and Director Independence                                                            | 15     |
|     |                                                                                                                                |   |
| Item 13. | Exhibits                                                                                                                            | 15     |
|     |                                                                                                                                |   |
| Item 14. | Principal Accountant Fees and Services                                                                                              | 19     |
|     |                                                                                                                                |   |
|     | SIGNATURES                                                                                                                          | 20     |

PART I 

Item1.    Description of Business 

BUSINESSDEVELOPMENT 

Integrity Mutual Funds, Inc. ("theCompany"), is a holding company engaged, through varioussubsidiaries, in providing investment management, distribution,shareholder services, fund accounting, and other relatedadministrative services to the open-end investment companiesknown as "Integrity Mutual Funds," "Integrity ManagedPortfolios," and "The Integrity Funds," hereinafter collectivelyreferred to as "the Funds."  Integrity Mutual Fundscurrently consists of three open-end investment companiesincluding ND Tax-Free Fund, Inc. ("ND Tax-Free Fund"), MontanaTax-Free Fund, Inc. ("Montana Tax-Free Fund"), and Integrity Fundof Funds, Inc. ("Integrity Fund of Funds").  IntegrityManaged Portfolios consists of one open-end investment companycontaining six separate portfolios including the Kansas MunicipalFund, Kansas Insured Intermediate Fund, Nebraska Municipal Fund,Oklahoma Municipal Fund, Maine Municipal Fund, and New HampshireMunicipal Fund. The Integrity Funds currently consists of oneopen-end investment company containing seven separate portfoliosincluding the Integrity Value Fund, Integrity Small Cap GrowthFund, Integrity Health Sciences Fund, Integrity Technology Fund,Integrity High Income Fund, Integrity Growth & Income Fund,and Integrity All Season Fund.  The Company also sellsmutual funds, insurance products, and various other securitiesthrough another wholly owned subsidiary, Capital FinancialServices, Inc. ("CFS"). 

As of December 31, 2006, total assets undermanagement in the Funds were $442,008,564, compared to$381,914,392 as of December 31, 2005 and $360,055,850 as ofDecember 31, 2004. 

The Company has been engaged in thefinancial services business since 1987. The Company wasincorporated September 22, 1987, as a North Dakota corporation byRobert E. Walstad, founder and Chairman Emeritus of theCompany.  The Company's principal offices are located at 1Main Street North, Minot, North Dakota 58703.  The Companyalso has an office in Huntington, New York.  As of December31, 2006, the Company had 50 full-time employees and 2 part-timeemployees, consisting of officers, investment management,securities distribution, shareholder services, data processing,compliance, accounting, and clerical support staff. 

On February 12, 2004, the Company enteredinto a joint venture agreement with SMH Capital Advisors,Inc.  In accordance with the agreement, the Company set up aFund as a new series under the Integrity Funds called theIntegrity High Income Fund.  The Company's wholly ownedsubsidiary, Integrity Money Management, Inc., serves as theFund's investment advisor.  SMH Capital Advisors, Inc.,serves as the Fund's investment sub-advisor.  The Company'swholly owned subsidiary, Integrity Funds Distributor, Inc.,serves as distributor to the Fund, and the Company's wholly ownedsubsidiary, Integrity Fund Services, Inc., serves asadministrator, transfer agent, and fund accountant to theFund.  The initial set-up of the Fund did not require amaterial cash outlay by the Company.  The assets of theIntegrity High Income Fund were approximately $143 million as ofDecember 31, 2006. 

On January 27, 2005, the Company enteredinto a joint venture agreement with All Season FinancialAdvisors, Inc.  In accordance with the agreement, theCompany set up a Fund as a new series under the Integrity Fundscalled the Integrity All Season Fund.  The Company's whollyowned subsidiary, Integrity Money Management, Inc., serves as theFund's investment advisor.  All Season Financial Advisors,Inc., serves as the Fund's investment sub-advisor.  TheCompany's wholly owned subsidiary, Integrity Funds Distributor,Inc., serves as distributor to the Fund, and the Company's whollyowned subsidiary, Integrity Fund Services, Inc., serves asadministrator, transfer agent, and fund accountant to theFund.  The initial set-up of the Fund did not require amaterial cash outlay by the Company.  The assets of theIntegrity All Season Fund were approximately $17 million as ofDecember 31, 2006.

On April 22, 2005, the Company acquired themanagement rights to the IPS Millennium Fund and the IPS NewFrontier Fund from IPS Advisory, Inc. ("IPS Advisory"), andmerged them into a new Integrity Fund called the Integrity Growth& Income Fund.  The two funds had combined assets ofapproximately $57 million at the time of acquisition.  Thepurchase agreement called for total consideration ofapproximately 656,000 common shares of the Company.  TheCompany provided IPS Advisory with 250,000 common shares uponclosing.  The remaining consideration of approximately406,000 common shares, which is subject to adjustment based onretention of assets in the fund, is to be issued asfollows:  203,000 common shares at the one-year anniversaryof the closing date, and 203,000 common shares at the two-yearanniversary of the closing date.  The shares are subject toa put option, which will allow the holders of the shares to putthem back to the Company at a price equal to the market price ofthe Company's shares as of the closing date, which was $.36 pershare.  The put option is exercisable with respect toone-third of the shares per year starting on the thirdanniversary of the closing date.  The Company will alsoprovide IPS Advisory with a stock option incentive bonus based ongrowth in assets in the Fund based on the followingschedule:  150,000 options on the Company's common shareswhen assets of the Fund reach $100 million and 150,000 options onthe Company's common shares when the assets of the Fund reach$200 million.  The options will have a strike price of $.65per share and mature 10 years from the closing date.  Thesecurities issued in connection with this transaction will beissued on a private placement basis. In April of 2006, theone-year anniversary payment of approximately 158,603 commonshares was made, which reflected the assets of the acquired fundsat the one-year anniversary.  In December of 2006, theliability relating to this acquisition was valued atapproximately $199,000 to reflect the assets in the acquiredfunds as of December 31, 2006. 

THE COMPANY'SSUBSIDIARIES 

The Company derives most of its income fromtwo lines of business.  The first line of business providesinvestment management, distribution, shareholder services, fundaccounting, and other related administrative services to theFunds. The other provides order processing, regulatory oversight,concession processing, and other related services to registeredsecurities representatives transacting securities business fortheir clients. As a result, the Company is economically dependenton the Funds, the representatives, and others, for substantiallyall of its revenue and income. These businesses are conductedthrough the wholly owned subsidiary companies described below.Revenues generated by the subsidiaries' fund services are derivedprimarily from fees based on the level of assets undermanagement. Revenues generated by the broker-dealer's support ofsecurities sales are derived primarily through a sharing of salesconcessions paid by the products being sold to clients. 

Integrity MoneyManagement, Inc. 

Integrity Money Management, Inc. ("IntegrityMoney Management") is registered as an investment advisor withthe Securities and Exchange Commission ("SEC") under theInvestment Advisers Act of 1940 (the "Advisers Act"). Integrity Money Management provides investment advisory servicesunder investment advisory agreements with the Funds.  As ofDecember 31, 2006, Integrity Money Management managed$442,008,564 of assets under management. 

Integrity FundsDistributor, Inc. 

Integrity Funds Distributor, Inc.("Integrity Funds Distributor") is registered with the SEC as abroker-dealer and is also a member of the National Association ofSecurities Dealers, Inc. (the "NASD"). Integrity FundsDistributor serves as principal underwriter and distributor forthe Funds.  Integrity Funds Distributor earns theunderwriter's portion of front-end sales loads ("FESLs") inconnection with sales of shares of Funds subject to FESLs, Rule12b-1 fees pursuant to Rule 12b-1 plans adopted by certain of theFunds, and contingent deferred sales charges ("CDSCs") inconnection with redemptions of shares of Funds subject toCDSCs.  Effective October 1, 2004, Integrity FundsDistributor acquired and assumed all of the assets, liabilities,and business of ND Capital, Inc., a wholly owned broker-dealersubsidiary of the Company.  The reorganization was designedto increase operating efficiency and promote cost savings. 

Integrity Fund Services,Inc. 

Integrity Fund Services, Inc. ("IntegrityFund Services") is registered with the SEC as a transfer agentunder the Securities Exchange Act of 1934 (the "ExchangeAct").  Integrity Fund Services provides shareholderrecord-keeping services and acts as transfer agent anddividend-paying agent for the Funds.  Integrity FundServices also provides business management services, includingfund accounting, compliance, and other related administrativeactivities for the Funds.  Integrity Fund Services iscompensated for providing these services under agreements witheach Fund, and is reimbursed for certain out-of-pocketexpenses. 

Capital FinancialServices, Inc. 

Capital Financial Services, Inc. ("CFS") isa full-service brokerage firm.  CFS is registered with theSEC as an investment advisor and broker-dealer and also with theNASD as a broker-dealer.  CFS specializes in providinginvestment products and services to independent investmentrepresentatives, financial planners, and investment advisors andcurrently supports over 300 investment representatives andinvestment advisors. 

DESCRIPTION OFBUSINESS 

Investment AdvisoryServices 

Integrity Money Management acts asinvestment advisor to the Funds pursuant to investment advisoryagreements with such Funds.  Integrity Money Managementsupervises and implements the Funds' investment activities,including determining which securities to buy and sell, and whichbroker-dealers to effect Fund securities transactionsthrough. 

Generally, each Fund pays Integrity MoneyManagement an investment advisory fee, payable monthly and basedon the Funds' net assets.  Investment advisory fees aregenerally either voluntarily or contractually waived or reduced,and the investment advisor may absorb other Fund expenses for aperiod of time to ensure that the Funds have competitive feestructures. 

The investment advisory agreements pursuantto which Integrity Money Management provides investment advisoryservices continue in effect for successive annual periods as longas such continuance is approved annually by (a) either (i) therelevant Fund's Board of Directors or Trustees, or (ii) a vote ofthe holders of a majority of the relevant Fund's outstandingvoting securities, and (b) a majority of the relevant Funds'directors or trustees who are not parties to the investmentadvisory agreement or interested persons of a party to suchagreement within the meaning of the Investment Company Act of1940. 

Either party may terminate the investmentadvisory agreement without penalty after specified writtennotice.  Each investment advisory agreement alsoautomatically terminates in the event of its "assignment," asdefined in the Investment Company Act of 1940.  To date, nosuch investment advisory agreements have been terminated. 

Transfer Agency, FundAccounting, and Administrative Services 

Transfer agency, fund accounting, and othershareholder administrative services are provided to the Funds byIntegrity Fund Services.  Integrity Fund Services receivesfees from the Funds for providing such services pursuant tocontracts with the Funds.  The contracts generally providefor Integrity Fund Services to be paid its servicing fees basedon the net assets of each Fund, subject to certain minimum feesper Fund.  The Funds' board of directors or trusteesapproves the contracts between the Funds and Integrity FundServices annually. 

Distribution of FundShares 

Pursuant to distribution agreements,Integrity Funds Distributor acts as the principal underwriter anddistributor of shares of the Funds.  The distributionagreements generally provide that Integrity Funds Distributorshall distribute Fund shares and pay the expenses thereof. Fund shares are sold primarily by broker-dealers with whomIntegrity Funds Distributor has entered into dealer salesagreements. 

Integrity Funds Distributor earns theunderwriter's portion of FESLs received in connection with salesof Fund shares subject to FESLs effected by other broker-dealers,and also earns CDSCs in connection with redemptions of Fundshares subject to CDSCs. 

Each of the Funds (other than Kansas InsuredIntermediate Fund and Integrity Fund of Funds) has adopted a Rule12b-1 plan pursuant to which Integrity Funds Distributor earnsRule 12b-1 fees in connection with its distribution of Fundshares.  Integrity Funds Distributor pays otherbroker-dealers a portion of these fees and retains thebalance. 

The 12b-1 Plans are established for aninitial term of one year.  Thereafter, the Board ofDirectors or Trustees, including a majority of the disinteresteddirectors or trustees of each Fund, must approve themannually.  Each Plan is subject to termination at any timeby a majority of the Funds' disinterested directors or trusteesor by the Funds' shareholders. 

Brokerage Commissions 

CFS's primary source of revenue iscommission revenue in connection with sales of shares of mutualfunds, insurance products, and various other securities. CFS receives commission and Rule 12b-1 servicing revenuegenerated from the sale of investment products originated by itsregistered representatives. CFS also receives investment advisoryrevenue in connection with its registered investment advisor. CFSpays a portion of the revenue generated to its registeredrepresentatives and retains the balance. 

REGULATION 

Virtually all aspects of the Company'sbusinesses are subject to various complex and extensive federaland state laws and regulations.  Regulated areas include,but are not limited to, the effecting of securities transactions,the financial condition of the Company's subsidiaries,record-keeping and reporting procedures, relationships withclients, and experience and training requirements for certainemployees.  Certain of the Company's subsidiaries areregistered with various federal and state government agencies,including the SEC, as well as the NASD, a self-regulatoryindustry organization, as described below. 

Integrity Funds Distributor and CFS areregistered broker-dealers, subject to extensive regulation andperiodic examinations by the SEC, the NASD, and state agencies inthose states in which Integrity Funds Distributor and CFS conductbusiness.  As broker-dealers, Integrity Funds Distributorand CFS are subject to the Net Capital Rule promulgated by theSEC under the Exchange Act.  This rule requires that abroker-dealer must maintain certain minimum net capital and thatits aggregate indebtedness may not exceed specifiedlimitations.  Integrity Money Management is registered withthe SEC as an investment advisor under the Advisers Act and issubject to regulation thereunder, and is also subject toregulation under certain state laws.  The Funds are subjectto extensive regulation under the Investment Company Act of 1940(the "Investment Company Act") and, along with Integrity MoneyManagement, are subject to periodic examinations by the SEC. 

Federal and state laws and regulations, andthe rules of the NASD, grant broad powers to such regulatoryagencies and organizations.  These include the power tolimit, restrict, or prevent the Company from carrying on itsbusiness if it fails to comply with such laws, regulations andrules.  Other possible sanctions that may be imposed includethe suspension of individual employees, restrictions on theCompany expanding its business or paying cash dividends, therevocation of the investment advisor, broker dealer, or transferagent registrations, expulsions, censures, and/or fines. 

To the extent that existing or futureregulations affecting the sale of Fund shares or their investmentstrategies cause or contribute to reduced sales of Fund shares,or impair the investment performance of the Funds, the Company'saggregate assets under management and its revenues might beadversely affected. 

Since 1993, the NASD rules have limited theamount of aggregate sales charges which may be paid in connectionwith the purchase and holding of investment company shares soldthrough broker-dealers.  Congress and the SEC presently areconsidering amendments to Rule 12b-1 and other statutoryprovisions and rules that regulate the distribution of mutualfund shares.  The effect of the rule amendments and otherlegislative or regulatory actions might be to limit the amount offees that could be paid pursuant to a fund's 12b-1 Plan in asituation where a fund has no, or limited, new sales for aprolonged period of time, as well as the imposition of otherlimits on the use of fund assets to pay for distribution. 

The officers, directors, and employees ofthe Company may, from time to time, own securities that are alsoowned by one or more of the Funds.  The Company's internalpolicies with respect to individual investments by employees,including officers and directors who are employed by the Company,require prior clearance and reporting of some transactions andrestrict certain transactions so as to reduce the possibility ofconflicts of interest. 

COMPETITION 

The financial services industry is highlycompetitive.  Industry sources indicate that there areapproximately 8,000 open-end investment companies of varyingsizes, investment objectives and policies, which offer theirshares to the investing public in the United States.  Sinceits inception, the Company has competed with numerous larger,more established mutual fund management organizations.  TheCompany is also in competition with the financial services andinvestment alternatives offered by stock brokerage firms,insurance companies, banks, savings and loans associations, andother financial institutions, as well as investment advisoryfirms.  The Company sells Fund shares principally throughthird party broker-dealers.  The Company competes for theservices of such third party broker-dealers with other sponsorsof mutual funds who generally have substantially greaterresources than the Company.  Banks in particular haveincreased, and continue to increase, their sponsorship ofproprietary mutual funds distributed through third partydistributors.  Many broker-dealer firms also sponsor theirown proprietary mutual funds, which may limit the Company'sability to secure the distribution services of such broker-dealerfirms.  In seeking to sell Fund shares, the Company alsocompetes with increasing numbers of mutual funds that sell theirshares without the imposition of sales loads.  No-loadmutual funds are attractive to investors because they do not haveto pay sales charges on the purchase or redemption of such mutualfunds' shares. This competition may place pressure on the Companyto reduce the FESLs and CDSCs charged upon the sale or redemptionof Fund shares.  However, reduced sales loads would make thesale of Fund shares less attractive to the broker-dealers uponwhom the Company depends for the distribution of Fund shares. Inthe alternative, the Company might itself be required to payadditional fees, expenses, commissions, or charges in connectionwith the distribution of Fund shares which could have amaterially adverse effect on the Company's earnings. 

The Company also participates in two otherhighly competitive related sectors of the financial servicesindustry; retail brokerage and investment advisory services. TheCompany competes directly with full-service stock brokeragefirms, registered investment advisors, banks, regionalbroker-dealers, and other independent broker-dealers. Each ofthese competitors offers to the public many of the sameinvestment products and services offered by the Company. Further,other broker-dealers providing the same services heavily recruitthe representatives and advisors transacting business through theCompany. This competition forces the Company to maintain highlevels of support services and commission payouts for theserepresentatives and advisors. These high levels of services andpayouts could have a materially adverse effect on the Company'searnings. 

RECENTDEVELOPMENTS 

On January 24, 2007, Integrity Mutual Funds,Inc., announced that Robert E. Walstad, founder, Chief ExecutiveOfficer and Chairman of its Board of Directors is retiring fromhis positions with the Company, effective February 1, 2007. Concurrent with the retirement, the Company announced that MarkR. Anderson, President and Chief Operating Officer of theCompany, would succeed Mr. Walstad as Director and ChiefExecutive Officer of the Company. 

In connection with Mr. Walstad's retirement,the Company has entered into a Separation Agreement with Mr.Walstad, dated January 24, 2007 (the "SeparationAgreement").  Under the terms of the Separation Agreement,subject to Mr. Walstad meeting his obligations thereunder in allmaterial respects, Mr. Walstad is entitled to receive a cashpayment in the amount of $274,500, options to purchase 60,000common shares, and certain commission payments. These paymentsare more fully described in Exhibit 10.8f to this report. 

On February 16, 2007, Integrity MutualFunds, Inc. announced that it had signed an agreement to acquirecertain assets of United Heritage Financial Services(UHFS).  UHFS currently has 120 independent registeredrepresentatives and is a wholly owned subsidiary of UnitedHeritage Financial Group, Inc., of Meridian, Idaho.  UHFS'sregistered representatives will become part of Capital FinancialServices, Inc. (CFS), the retail brokerage division ofIntegrity. 

Pursuant to the agreement, in exchange forreceipt of the assets of UHFS set forth above, Integrity MutualFunds, Inc. agrees to pay to UHFS 500,000 restricted IMFD sharesand a deferred earn out cash payment totaling a maximum of$900,000 to be paid in 21 quarterly installments. 

AVAILABILITY OFSEC REPORTS 

All SEC reports are made available on theCompany's website at http://corp.integrityfunds.com.  Thesereports, including annual reports on Form 10-KSB, quarterlyreports of Form 10-QSB, and current reports on Form 8-K, areavailable on the same day they are filed with the SEC. 

Item2.           Description of Property 

The Company operates the majority of itsbusiness out of its location at 1 Main Street North, Minot, NorthDakota.  The Company owns the building and currentlyoccupies approximately 15,000 square feet of office space in the28,000 square foot building.  As of December 31, 2006, thebuilding has a $380,651 mortgage.  The Company alsocurrently leases approximately 800 square feet of office space inHuntington, New York for part of its investment advisoryservices. 

Item3.           Legal Proceedings 

The Company has no pending legal proceedingsthat are material to the financial affairs of the Company. 

Item4.           Submission of Matters to a Vote of Security Holders 

No matters were submitted to a vote ofsecurity holders during the fourth quarter ended December 31,2006. 

PART II 

Item5.           Market for Common Equity and Related Stockholder Matters 

Information about theCompany's Common Stock 

The Company's Common Stock is traded on the OTC Bulletin Board under the symbol IMFD.  The Company's stock began trading on the OTC Bulletin Board on November 7, 1997.  On May 31, 2002, the shareholders of the Company approved a two for one (2:1) stock split of the issued and outstanding common stock of the Company, which took effect on July 1, 2002.  On December 29, 2006, the closing price of the Company's Common Stock on the OTC Bulletin Board was $.60 per share. At February 28, 2007, there were approximately 771 shareholders of record. 

The following table sets forth the high andlow closing prices for the Company's common stock.  Thequotations reflect inter-dealer prices, without retail mark-up,mark-down, or commission, and may not represent actualtransactions. 
|           | 2006        | 2005        |
|----------------|-------------|-------------|
|           | Fiscal Year | Fiscal Year |
|           |        |        |   |   |
| Quarter        | High        | Low         | High | Low |
|           |        |        |   |   |
| First Quarter  | .400        | .310        | .460 | .360 |
| Second Quarter | .470        | .350        | .420 | .300 |
| Third Quarter  | .490        | .410        | .390 | .300 |
| Fourth Quarter | .600        | .460        | .390 | .300 |

The Company has not paid a dividend withrespect to its common stock, nor does the Company anticipatepaying dividends in the foreseeable future. 

The Company has issuedthe following securities in the past quarter without registeringthe securities under the Securities Act: 

On October 11, 2006, the Company issued a$950,000 convertible promissory note to PawnMart, Inc., in aprivate placement.  The unsecured note carries an interestrate of 6.5% per annum, payable semi-annually, and matures onOctober 15, 2016.  The holder of the note has the right, atany time after October 15, 2009, to convert the note in whole orin part, into $0.0001 par value common shares of theCompany.  The conversion price shall be equal to $0.50 pershare.  The entire principal amount of this note shall beautomatically converted into common shares at the conversionprice on October 15, 2016.  ** **Approximately$845,000 of the $950,000 in convertible promissory note proceedswas used to pay off an existing loan with First Western Bank. 

Small Business IssuerRepurchases of Equity Securities: 
| Period        | Total Number of SharesPurchased | Average Price PerShare | Total Number of SharesPurchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Valueof Shares that May Yet Be Purchased Under the Plans orPrograms |
|---------------|---------------------------------|------------------------|---------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
| October 2006  | -                               | -                      | -                                                                               | $597,754                                                                               |
| November 2006 | -                               | -                      | -                                                                               | $597,754                                                                               |
| December 2006 | -                               | -                      | -                                                                               | $597,754                                                                               |
| Total         | -                               | -                      | -                                                                               | $597,754                                                                               |

Item6.           Management's Discussion and Analysis of Financial Condition andResults of Operations 

The following information is provided inconnection with, and should be read in conjunction with, theconsolidated financial statements and notes appearing elsewherein this Form 10-KSB. 

GENERAL 

Integrity Mutual Funds, Inc., is a holdingcompany which operates its current business units in tworeportable segments, 1) as an investment advisor, distributor,and provider of administrative services to sponsored mutualfunds, and 2) as a broker-dealer. 

Integrity Mutual Funds, Inc., derives aportion of its revenues and net income from providing investmentmanagement, distribution, shareholder services, fund accounting,and related services to the Funds.  CFS provides anothersubstantial portion of revenue through sales of mutual funds,insurance products, and various other securities.  Themajority of the Company's assets under management consist ofsingle-state municipal bond funds for the states of North Dakota,Montana, Kansas, Nebraska, Oklahoma, Maine, and NewHampshire. 

ASSETS UNDERMANAGEMENT

By Investment Objective 
| As of December31,                    | 2006   | 2005        | 2004   |
|--------------------------------------|--------|-------------|--------|
| FIXED-INCOME                         |   |        |   |
| Tax-Free Funds                       | $      | 207,235,701 | $      | 213,405,941 | $ | 267,867,980 |
| Taxable Funds (Corporate/Government) |   | 143,385,144 |   | 62,121,269 |   | 20,983,945 |
| TOTAL FIXED-INCOME FUNDS             | $      | 350,620,845 | $      | 275,527,210 | $ | 288,851,925 |
|                                 |   |        |   |
|                                 |   |        |   |
| EQUITY                               |   |        |   |
| Fund of Funds                        | $      | 9,889,657   | $      | 6,029,000 | $ | 6,517,292 |
| Equity Funds                         |   | 81,498,062  |   | 100,358,182 |   | 64,686,633 |
| TOTAL EQUITY FUNDS                   | $      | 91,387,719  | $      | 106,387,182 | $ | 71,203,925 |
|                                 |   |        |   |
| TOTAL ASSETS UNDER MANAGEMENT        | $      | 442,008,564 | $      | 381,914,392 | $ | 360,055,850 |

A substantial portion of the Company'srevenues depends upon the amount of assets under itsmanagement.  Assets under management can be affected by theaddition of new funds to the group, the acquisition of anotherinvestment management company, purchases and redemptions ofmutual fund shares, and investment performance, which may dependon general market conditions.  Assets under the Company'smanagement increased by $60,094,172 (15.7%) in 2006 compared to2005 and increased by $21,858,542 (6.1%) in 2005 compared to2004.  Fixed income assets increased by 27.3% in 2006compared to 2005, and decreased by 4.6% in 2005 compared to2004.  Fixed income assets accounted for 79.3% of the totalassets under management in 2006 and 72.1% in 2005.  Equityassets decreased by 14.1% in 2006 compared to 2005, and increased49.4% in 2005 compared to 2004. Equity assets accounted for 20.7%of total assets under management in 2006 and 27.9% in 2005.

RESULTS OFOPERATIONS 

The following table sets forth, for theperiods indicated, amounts included in the Company's ConsolidatedStatements of Operations and the percentage change in thoseamounts from period to period.
|                                     |                               |     |       |      |       | Variance 2006 to 2005 | Variance 2005 to 2004 |
|------------------------------------------|------------------------------------|----------|------------|-----------|------------|-----------------------|-----------------------|
|                                     |                               |     |       |      |       |
|                                     | 2006                               |     | 2005       |      | 2004       |
|                                     |                               |     |       |      |       |                  |                  |
| OPERATING REVENUES                       |                               |     |       |      |       |                  |                  |   |
|                                     | Fee income                         | $        | 6,732,222  | $         | 4,788,853  | $                     | 4,382,788             | 40.6% | 9.3% |
|                                     | Commissionincome                   |     | 20,054,742 |      | 14,651,903 |                  | 12,607,783            | 36.9% | 16.2% |
|                                     | Total revenue                      | $        | 26,786,964 | $         | 19,440,756 | $                     | 16,990,571            | 37.8% | 14.4% |
|                                     |                               |     |       |      |       |                  |                  |   |
| OPERATING EXPENSES                       |                               |     |       |      |       |                  |                  |   |
|                                     | Compensation andbenefits           | $        | 3,729,425  | $         | 3,330,165  | $                     | 3,120,309             | 12.0% | 6.7% |
|                                     | Commissionexpense                  |     | 19,370,607 |      | 13,283,057 |                  | 11,405,775            | 45.8% | 16.5% |
|                                     | General andadministrative expenses |     | 2,242,721  |      | 2,139,042  |                  | 2,166,954             | 4.8% | (1.3)% |
|                                     | Sub-advisoryexpenses               |     | 887,896    |      | 432,534    |                  | 41,084                | 105.3% | 952.8% |
|                                     | Sales commissionsamortized         |     | 334,254    |      | 316,928    |                  | 321,942               | 5.5% | (1.6)% |
|                                     | Depreciation andamortization       |     | 157,361    |      | 143,155    |                  | 99,525                | 9.9% | 43.8% |
|                                     | Total operatingexpenses            | $        | 26,722,264 | $         | 19,644,881 | $                     | 17,155,589            | 36.0% | 14.5% |
|                                     |                               |     |       |      |       |                  |                  |   |
| OPERATING INCOME (LOSS)                  | $                                  | 64,700   | $          | (204,125) | $          | (165,018)             | 131.7%                | (23.7)% |
|                                     |                               |     |       |      |       |                  |                  |   |
| OTHER INCOME (EXPENSES)                  |                               |     |       |      |       |                  |                  |   |
|                                     | Interest and otherincome           | $        | 233,610    | $         | 54,896     | $                     | 66,155                | 325.6% | (17.0)% |
|                                     | Interestexpense                    |     | (346,606)  |      | (301,934)  |                  | (275,247)             | 14.8% | 9.7% |
|                                     | Net otherexpenses                  | $        | (112,996)  | $         | (247,038)  | $                     | (209,092)             | (54.3)% | 18.1% |
|                                     |                               |     |       |      |       |                  |                  |   |
| LOSS BEFORE INCOME TAX BENEFIT (EXPENSE) | $                                  | (48,296) | $          | (451,163) | $          | (374,110)             | (89.3)%               | 20.6% |
|                                     |                               |     |       |      |       |                  |                  |   |
| INCOME TAX BENEFIT (EXPENSE)             |                               | (11,091) |       | 118,750   |       | 124,110               | 109.3%                | 4.3% |
|                                     |                               |     |       |      |       |                  |                  |   |
| NET LOSS                                 | $                                  | (59,387) | $          | (332,413) | $          | (250,000)             | (82.1)%               | 33.0% |
|                                     |                               |     |       |      |       |                  |                  |   |
| LOSS PER COMMON SHARE:                   |                               | (.01)    |       | (.03)     |       | (.03)                 |                  |   |
|                                          |                                    |          |            |           |            |                       |                       |  |  |

Year EndedDecember 31, 2006, compared with Year Ended December 31,2005: 

**Operating Revenues***-* Totaloperating revenues for 2006 were $26,786,964, an increase of37.8% from $19,440,756 in 2005.  The increase results fromincreased fee income received from the Funds, as well asincreased commission and fee income relating to CFS. 

***Fee Income -*** Fee income for2006 was $6,732,222, a 40.6% increase from $4,788,853 in2005.  The increase was due to fees received in connectionwith new Funds that were acquired and/or opened during 2005, andfees derived from asset growth resulting from new sales incertain of the Funds.  The increase was also due to feesderived from additional assets under management in CFS'registered investment advisor, resulting from recruiting effortsduring 2005 and 2006.  

The Company receives fees for providinginvestment advisory services to the Funds.  In some cases,all or a portion of the investment advisory fees received by theCompany are paid to outside investment advisors for advisoryservices provided to the Funds.  These fees constituted 7%of the Company's consolidated revenues in 2006.  

The Company also earns investment advisoryfees in connection with CFS' registered investment advisor. The Company pays the registered representatives a portion of thisfee income as commission expense and retains the balance. These fees constituted 5% of the Company's consolidated revenuesin 2006. 

The Company receives fees from the Funds forproviding transfer agency, fund accounting, and otheradministrative services.  These fees constituted 8% of theCompany's consolidated revenues in 2006. 

The Company earns Rule 12b-1 fees inconnection with the distribution of Fund shares.  A portionof these fees are paid out to other broker-dealers, with theremaining amount retained by the Company to pay for expensesrelated to the distribution of the Funds.  These feesconstituted 5% of the Company's consolidated revenues in2006. 

***Commission Income -*** Commissionincome includes CFS commissions and 12b-1 fees associated withthe sale of mutual funds, insurance products, and various othersecurities.  The Company pays the registered representativesa percentage of this income as commission expense and retains thebalance.  Commission income also includes underwriting feesassociated with sales of Fund shares subject to front-end salesloads ("FESLs"), and the dealer commission associated with salesof Fund shares subject to FESLs, which is paid out to otherbroker-dealers as commission expense.  Commission income for2006 was $20,054,742, a 36.9% increase over $14,651,903 in2005.  The increase was due primarily to recruiting effortsfor new registered representatives in CFS during 2005 and2006.  Commission revenues constituted 75% of the Company'sconsolidated revenues in 2006. 

**Operating Expenses***-* Totaloperating expenses for 2006 were $26,722,264, a 36.0% increasefrom $19,644,881 in 2005.  The increase resulted primarilyfrom increased commission expense, which corresponds to increasesin fee and commission income. 

***Compensation and Benefits -***Compensation and benefits expense for 2006 was $3,729,425, a12.0% increase from $3,330,165 in 2005.  The increaseresults primarily from increased incentive overrides paid tocertain employees for the recruitment of new registeredrepresentatives in the Company's broker-dealer segment, and aseparation agreement entered into by the Company with a formeremployee. 

On July 13, 2006, Integrity Mutual Funds,Inc., entered into an agreement with Jerry J. Szilagyi, SeniorVice President of Business Development, the terms of whichprovide for the termination of Mr. Szilagyi's employmentagreement and his separation from the Company, effective as ofJuly 16, 2006.  Pursuant to the terms of the Agreement, theCompany agreed to pay Mr. Szilagyi $210,000 over a ten monthperiod and certain additional compensation, including amountswith respect to assets under management in certain of theCompany's mutual funds.  The $210,000 separation payment wasexpensed in July of 2006. 

The Company compensates a team ofemployee-status individuals to wholesale the Funds tonon-affiliated registered representatives and financialadvisors.  Employee-status individuals are paid a basesalary, plus an incentive override on sales.  The incentiveoverrides paid to the wholesalers are calculated on gross salesfor each individual.  These expenses can be expected toincrease in proportion to an increase in gross sales. Currently, the wholesaling team consists of fifteen wholesalers,eleven of which are employee-status.  Management expects tocontinue to maintain and support the wholesaling team at or nearcurrent levels in 2007. 

***Commission Expense -***Commission expense for 2006 was $19,370,607, a 45.8% increasefrom $13,283,057 in 2005. The increase corresponds with theincreases in fee and commission income. 

***General and Administrative Expenses-*** Total general and administrative expenses for 2006 were$2,242,721, an increase of 4.8% from $2,139,042 in 2005. The increase was due primarily to increased incentive overridespaid to the Company's contracted wholesalers resulting fromincreased sales in the Funds, as well as increased recruitingcosts in the Company's broker-dealer segment. 

The Company compensates a team ofindependent contractors to wholesale the Funds to non-affiliatedregistered representatives and financial advisors. Contracted individuals are paid on a straight commissionbasis.  The incentive overrides paid to the wholesalers arecalculated on gross sales for each individual.  Employeestatus and contracted wholesalers are allowed a monthly expenseaccount to cover costs required to support their saleseffort.  These expenses can be expected to increase inproportion to an increase in gross sales.  Currently, thewholesaling team consists of fifteen wholesalers, four of whichare independent contractors.  Management expects to continueto maintain and support the wholesaling team at or near currentlevels in 2007. 

***Sub-advisory Expenses* -**Sub-advisory expenses for 2006 were $887,896, a 105.3% increasefrom $432,534 in 2005.  The increase was due to sub-advisoryfees paid in connection with new Funds that were acquired and/oropened during 2005, and higher levels of fees paid due to assetgrowth resulting from new sales in certain of the Funds. Sub-advisory fees are paid to outside investment advisors foradvisory services provided to some of the Funds.  The amountof sub-advisory fees paid out will continue to increase as thenet asset levels in certain of the Funds continue toincrease. 

***Sales Commissions Amortized -***Sales commissions paid to broker-dealers in connection with thesale of shares of the sponsored mutual funds sold without afront-end sales charge (B and C shares), are capitalized andamortized on a straight-line basis over a period not exceedingeight years, which approximates the period of time during whichdeferred sales commissions are expected to be recovered fromdistribution plan payments received from various sponsored mutualfunds and potential contingent deferred sales charges receivedfrom shareholders of the various sponsored mutual funds. Contingent deferred sales charges received by the Company arerecorded as a reduction of unamortized deferred salescommissions. In accordance with Statement of Position 98-5, thecommissions paid for the sale of Integrity Fund of Funds, Inc.'sshares have been expensed as incurred.  The contingentdeferred sales charges received from early redemptions fromIntegrity Fund of Funds, Inc. have been recorded asrevenue.  Amortization of deferred sales commissions for2006 was $334,254, a 5.5% increase from $316,928 in 2005. These expenses can be expected to increase if sales of shares ofFunds sold without a FESL increase. 

***Depreciation and Amortization-*** Depreciation and amortization for 2006 was $157,361, a9.9% increase from $143,155 in 2005.  The primary reason forthe change was an increase in amortization of computer softwarecosts.  

Effective January 1, 2002, the Companyadopted Statement of Financial Accounting Standards (SFAS) No.142 - Goodwill and Other Intangible Assets.  Under SFAS No.142, the Company no longer amortizes its goodwill and certainother intangibles over their estimated useful lives. Rather, goodwill will be subject to at least an annual assessmentfor impairment by applying a fair value-based test.  Therewere no impairment adjustments made during 2006. 

***Interest and Other Income -***Interest and other income for 2006 was $233,610, a 325.6%increase from $54,896 in 2005.  Other income is comprised,in part, from income derived from mark-ups on services billedback to registered representatives. 

***Interest Expense*** - Interestexpense was $346,606 for 2006, a 14.8% increase from $301,934 in2005.  The increase was primarily the result of the issuanceof $2 million of 91⁄4% subordinated corporate notes during2005, which was used, in part, to retire $595,000 of 12%subordinated debentures that matured in June of 2005. 

Year EndedDecember 31, 2005, compared with Year Ended December 31,2004: 

**Operating Revenues***-* Totaloperating revenues for 2005 were $19,440,756, an increase of14.4% from $16,990,571 in 2004.  The increase results fromincreased fee income received from the funds, as well as anincrease in commission revenues relating to the broker-dealerservices segment. 

***Fee Income -*** Fee income for2005 was $4,788,853, a 9.3% increase from $4,382,788 in2004.  The increase was due primarily to fees received inconnection with new funds that were acquired and/or opened during2004 and 2005.  

The Company receives fees for providinginvestment advisory services to the Funds.  In some cases,all or a portion of the investment advisory fees received by theCompany are paid to outside investment advisors for advisoryservices provided to the Funds.  Investment advisory feesconstituted 8% of the Company's consolidated revenues in2005.  

The Company receives fees from the Funds forproviding transfer agency, fund accounting, and otheradministrative services.  These fees constituted 10% of theCompany's consolidated revenues in 2005. 

The Company earns Rule 12b-1 fees inconnection with the distribution of Fund shares.  A portionof these fees are paid out to other broker-dealers, with theremaining amount retained by the Company to pay for expensesrelated to the distribution of the Funds.  These feesconstituted 7% of the Company's consolidated revenues in2005. 

***Commission Income -*** Commissionincome includes CFS commissions and 12b-1 fees associated withthe sale of mutual funds, insurance products, and various othersecurities.  The Company pays the registered representativesa percentage of this income as commission expense and retains thebalance.  Commission income also includes underwriting feesassociated with sales of Fund shares subject to front-end salesloads ("FESLs"), and the dealer commission associated with salesof Fund shares subject to FESLs, which is paid out to otherbroker-dealers as commission expense.  Commission income for2005 was $14,651,903, a 16.2% increase over $12,607,783 in2004.  The increase was due primarily to recruiting effortsfor new registered representatives in CFS during 2005. Commission revenues constituted 75% of the Company's consolidatedrevenues in 2005. 

**Operating Expenses***-* Totaloperating expenses for 2005 were $19,644,881, a 14.5% increasefrom $17,155,589 in 2004.  The increase resulted primarilyfrom increased commission expense, which corresponds to theincrease in commission income. 

***Compensation and Benefits -***Compensation and benefits expenses for 2005 were $3,330,165, a6.7% increase from $3,120,309 in 2004.  The increase resultsprimarily from the addition of several new employees to theCompany over the past twelve months, increased incentiveoverrides paid to certain employees for sales, the recruitment ofnew registered representatives and new business acquisitions, anda 401(k) match of up to 4% of employee deferrals that wasimplemented effective January 1, 2005. 

***Commission Expense -***Commission expense for 2005 was $13,283,057, a 16.5% increasefrom $11,405,775 in 2004. The increase corresponds to theincrease in commission income. 

***General and Administrative Expenses-*** Total general and administrative expense for 2005 were$2,139,042, a decrease of 1.3% from $2,166,954 in 2004. 

***Sub-advisory Expenses* -**Sub-advisory expenses for 2005 were $432,534, a 952.8% increasefrom $41,084 in 2004.  The increase was due to sub-advisoryfees paid in connection with new Funds that were acquired and/oropened during 2004 and 2005.  Sub-advisory fees are paid tooutside investment advisors for advisory services provided tosome of the Funds.  The amount of sub-advisory fees paid outwill continue to increase as the net asset levels in certain ofthe Funds continue to increase. 

***Depreciation and Amortization-*** Depreciation and amortization for 2005 was $143,155, a43.8% increase from $99,525 in 2004.  The primary reason forthe change was an increase in amortization of computer softwarecosts.  

***Interest and Other Income -***Interest and other income for 2005 was $54,896, a 17.0% decreasefrom $66,155 in 2004.  The decrease was primarily the resultof decreased dividend income earned on money market accounts. 

***Interest Expense*** - Interestexpense was $301,934 for 2005, a 9.7% increase from $275,247 in2004.  The increase was primarily the result of the issuanceof $2 million of 91⁄4% subordinated corporate notes duringthe year, which was used, in part, to retire $595,000 of 12%subordinated debentures that matured in June of 2005. 

FINANCIALCONDITION 

On December 31, 2006, the Company's assetsaggregated $15,466,130, an increase of 1.8% from $15,192,914 in2005, due to increases in cash and cash equivalents, securitiesavailable-for-sale, and accounts receivable, offset by decreasesin income taxes receivable, deferred tax assets, prepaids, netproperty and equipment, deferred sales commissions, goodwill, andother assets.  Stockholders equity was $9,398,208 onDecember 31, 2006, compared to $9,403,721 on December 31,2005. 

On December 31, 2005, the Company's assetsaggregated $15,192,914, an increase of 9.2% from $13,907,987 in2004, due to increases in cash and cash equivalents, accountsreceivable, income taxes receivable, deferred tax assets,prepaids, and goodwill, offset by decreases in securitiesavailable-for-sale, net property and equipment, deferred salescommissions, and other assets.  Stockholders equity was$9,403,721 on December 31, 2005, a decrease of 1.1% from$9,505,829 on December 31, 2004, primarily the result of the netloss of $332,413 and preferred dividends of $91,500, offset byincreased additional paid-in capital related to optioncompensation recorded in connection with the adoption of SFAS No.123R. 

Cash provided by operating activities was$547,699 in 2006, a 125.3% increase from $243,075 in 2005. Duringthe year ended December 31, 2006, the Company used net cash of$47,990 for investing activities.  The primary use of cashfor investing activities in 2006 was the purchase of property andequipment.  Net cash used by financing activities during theyear was $185,850, primarily the net effect of $301,866 inshort-term bank borrowings and the issuance of a $950,000convertible promissory note, offset by $250,000 paid to redeemconvertible debentures that matured in January of 2006,$1,124,866 paid to repay bank debt, and $68,625 of preferreddividends paid. 

Cash provided by operating activities was$243,075 in 2005, a 47.0% decrease from $458,825 in 2004. Duringthe year ended December 31, 2005, the Company used net cash of$308,119 for investing activities.  Cash provided frominvesting activities during the year included $5,281 in proceedsreceived from the sale of available-for-sale securities held bythe Company and $500 in proceeds received from the sale ofproperty and equipment.  Cash used for investing activitiesduring 2005 included $232,407 related to the acquisitions ofseveral new mutual funds, and $81,493, which was used primarilyto purchase computer equipment and remodel workspace. Net cashprovided by financing activities during the year was $734,907,primarily the net effect of $2,000,000 in proceeds received fromthe issuance of subordinated corporate notes and $650,025 inproceeds received from short-term bank borrowings, offset by$595,000 paid to redeem subordinated debentures that matured inJune of 2005, $116,440 in final payments relating to theacquisitions of several new mutual funds in 2003, $890,023 ofdebt repayment, $68,625 of preferred dividends paid, and $250,000to purchase the Company's common stock pursuant to a put optionin the purchase agreement by which CFS was acquired. 

LIQUIDITY ANDCAPITAL RESOURCES 

On December 31, 2006, the Company held$1,851,249 in cash and cash equivalents, as compared to$1,537,391 on December 31, 2005, and $867,528 on December 31,2004.  Liquid assets, which consist of cash and cashequivalents and securities available-for-sale, totaled $1,851,462at December 31, 2006, as compared to $1,537,599 on December 31,2005, and $873,017 on December 31, 2004.  The Company isrequired to maintain certain levels of cash and liquid securitiesin its broker-dealer subsidiaries to meet regulatory net capitalrequirements. 

In January of 2005, the Company repurchased500,000 common shares for $250,000 pursuant to a put optionrelated to its acquisition of CFS, which was paid by utilizing ashort-term bank loan.  The six-month bank loan carried aninterest rate of 2.00% over the prime rate and was repaid in Julyof 2005.  The Company received an additional $300,025 inshort-term bank debt in February of 2005 to be used primarily forworking capital.  This debt carried an interest rate of6.75% and was also repaid in July of 2005.  In June of 2005,the Company borrowed $100,000 on its revolving bank line ofcredit and made a final payment of approximately $26,000 relatingto its acquisition of the management rights to the CanandaiguaFunds.  The Company had $595,000 of subordinated debenturesthat matured on June 30, 2005.  These subordinateddebentures were repaid by utilizing a portion of the proceedsreceived from the issuance of the Company's new 91⁄4%subordinated corporate notes, which mature on January 1,2011.  As of December 31, 2005, the Company has $2 millionof subordinated corporate notes outstanding.  In Septemberof 2005, the Company made a final payment of approximately$90,000 relating to its acquisition of the management rights tothe Willamette Funds. 

In January of 2006, the Company repaid$250,000 in convertible debentures that matured pursuant to itsacquisition of CFS, which was paid by using available cash. In May of 2006, an existing loan with First Western Bank wasmodified.  The modification called for a $301,866 cashinjection to the outstanding balance of the loan.  After themodification, the loan carried an interest rate of 8.25%, andbased on the monthly payments of $23,200, would be paid in fullon May 10, 2010.  In June of 2006, the Company paid off its$100,000 revolving bank line of credit, which was paid byutilizing a portion of the proceeds received from the $301,866cash injection.  In October of 2006, the Company issued a$950,000 convertible promissory note to PawnMart, Inc., in aprivate placement.  The unsecured note carries an interestrate of 6.5% per annum, payable semi-annually, and matures onOctober 15, 2016.  The holder of the note has the right, atany time after October 15, 2009, to convert the note in whole orin part, into $0.0001 par value common shares of the Company. The conversion price is equal to $0.50 per share.  Theentire principal amount of the note will automatically convertinto common shares at the conversion price on October 15,2016.  Approximately $845,000 of the $950,000 in convertiblepromissory note proceeds was used to pay off the existing loanwith First Western Bank mentioned above. 

The Company has historically relied uponsales of its equity securities and debt instruments, as well asbank loans, for liquidity and growth.  Management believesthat the Company's existing liquid assets, along with cash flowfrom operations, will provide the Company with sufficientresources to meet its ordinary operating expenses during the nexttwelve months.  Significant, unforeseen or extraordinaryexpenses may require the Company to seek alternative financingsources, including common or preferred share issuance oradditional debt financing. 

In addition to the liabilities coming due inthe next twelve months, management expects that the principalneeds for cash may be to advance sales commissions on Fundssubject to CDSCs, acquire additional investment management orfinancial services firms, acquire the management rights toadditional outside mutual funds, repurchase shares of theCompany's common stock, and service debt.  Management alsoexpects to realize increases in expenses associated withregulatory compliance with Section 404 of the Sarbanes-Oxley Actof 2002, including increased legal, audit, staff, and consultantexpenses. 

Sales of fund shares with FESLs providecurrent distribution revenue to the Company in the form of theCompany's share of the FESLs, and distribution revenue, overtime, in the form of 12b-1 payments.  Sales of fund sharessubject to CDSCs provide distribution revenue, over time, in theform of 12b-1 fees and, if shares are redeemed within five years,CDSCs.  However, the Company pays commissions on sales ofFund shares subject to CDSCs, reflects such commissions asdeferred sales commissions on its balance sheet and amortizessuch commissions over a period of up to eight years, therebyrecognizing distribution expenses.  Therefore, to the extentthat sales of Fund shares subject to CDSCs increases over timerelative to sales of shares subject to FESLs, currentdistribution expenses may increase relative to currentdistribution revenues in certain periods, which would negativelyimpact the Company's cash flow in such periods.  Inaddition, the Company may need to find additional sources offunding if existing cash flow and debt facilities areinsufficient to fund commissions payable to sellingbroker-dealers on shares subject to CDSCs if sales of Fund sharessubject to CDSCs increase significantly. 

FORWARD-LOOKINGSTATEMENTS 

When used herein, in future filings by theCompany with the SEC, in the Company's press releases, and inother Company-authorized written or oral statements, the wordsand phrases "can be," "expects," "anticipates," "may affect,""may depend," "believes," "estimates," or similar expressions areintended to identify "forward-looking statements" within themeaning of the Private Securities Litigation Reform Act of 1995.The Company cautions readers not to place undue reliance on anysuch forward-looking statements, which speak only as of the datemade.  Such statements are subject to certain risks anduncertainties, including those set forth in this "Forward-LookingStatements" section, which could cause actual results for futureperiods to differ materially from those presently anticipated orprojected.  The Company does not undertake and specificallydisclaims any obligation to update any forward-looking statementto reflect events or circumstances after the date of suchstatements. 

The Company derives substantially all of itsrevenues from two sources; commission revenue earned inconnection with sales of shares of mutual funds, insuranceproducts, and various other securities, and fees relating to themanagement of, and provision of services to, the Funds.  Thefees earned by the Company are generally calculated as apercentage of assets under management/service.  If theCompany's assets under management/service decline, or do not growin accordance with the Company's plans, fee revenues and earningswould be materially adversely affected.  Assets undermanagement/service may decline because redemptions of Fund sharesexceed sales of Fund shares, or because of a decline in themarket value of securities held by the Funds, or a combination ofboth. 

In seeking to sell Fund shares and marketits other services, the Company operates in the highlycompetitive financial services industry.  The Companycompetes with approximately 8,000 open-end investment companiesthat offer shares to the investing public in the UnitedStates.  The Company also competes with the financialservices and other investment alternatives offered by stockbrokerage and investment banking firms, insurance companies,banks, savings and loan associations, and other financialinstitutions, as well as investment advisory firms.  Most ofthese competitors have substantially greater resources than theCompany.  The Company sells Fund shares principally throughthird-party broker-dealers.  The Company competes for theservices of such third party broker-dealers with other sponsorsof mutual funds who generally have substantially greaterresources than the Company.  Banks, in particular, haveincreased and continue to increase their sponsorship ofproprietary mutual funds distributed through third-partydistributors.  Many broker-dealer firms also sponsor theirown proprietary mutual funds, which may limit the Company'sability to secure the distribution services of such broker-dealerfirms.  In seeking to sell Fund shares, the Company alsocompetes with increasing numbers of mutual funds that sell theirshares without the imposition of sales loads.  No-loadmutual funds are attractive to investors because they do not haveto pay sales charges on the purchase or redemption of such mutualfund shares.  This competition may place pressure on theCompany to reduce the FESLs and CDSCs charged upon the sale orredemption of Fund shares.  However, reduced sales loadswould make the sale of Fund shares less attractive to thebroker-dealers upon whom the Company depends for the distributionof Fund shares.  In the alternative, the Company mightitself be required to pay additional fees, expenses, commissions,or charges in connection with the distribution of Fund shares,which could have a materially adverse effect on the Company'searnings. 

The fact that the investments of some Fundsare geographically concentrated within a single state makes themarket value of such investments particularly vulnerable toeconomic conditions within that state.  In addition, thestates in which the investments of such Funds, as a group, areconcentrated are themselves concentrated in certain regions ofthe United States.  The Company's fee revenues may,therefore, be adversely affected by economic conditions withinsuch regions. 

The following factors, among others, couldcause actual results to differ materially from forward-lookingstatements, and future results could differ materially fromhistorical performance: 
    - General political and economic conditionswhich may be less favorable than expected;
    - The effect of changes in interest rates,inflation rates, the stock markets, or other financialmarkets;
    - Unfavorable legislative, regulatory, orjudicial developments;
    - Incidence and severity of catastrophes,both natural and man-made;
    - Changes in accounting rules, policies,practices, and procedures which may adversely affect thebusiness;
    - Terrorist activities or other hostilitieswhich may adversely affect the general economy 

Item7.           Financial Statements 

The financial statements required by thisitem, the accompanying notes thereto, and the reports ofindependent registered public accounting firm are included aspart of this Form 10-KSB immediately following the signaturespage, beginning on page F-1. 

Item8.           Changes In and Disagreements with Accountants on Accounting andFinancial Disclosure 

None. 

Item8A.         Controls andProcedures

The Company's management, including theCompany's Chief Executive Officer and Chief Financial Officer,evaluated the effectiveness of the design and operation of theCompany's disclosure controls and procedures (as defined in Rule13a-14(c) and Rule 15c-14(c) under the Exchange Act as of the endof the period covered by this report.  Based upon thatevaluation, the Chief Executive Officer and Chief FinancialOfficer have concluded that the Company's disclosure controls andprocedures are effective as of December 31, 2006, and thatinformation required to be disclosed by the Company in reportsthat it files or submits under the Exchange Act is recorded,processed and summarized, and reported within the time periodsspecified by the SEC's rules and forms. 

There were no significant changes in theCompany's internal controls or in other factors that couldsignificantly affect these controls subsequent to the date oftheir evaluation, including any corrective actions with regard tosignificant deficiencies or material weaknesses. 

Item8B.         OtherInformation 

None. 

PART III 

Item9.           Directors, Executive Officers, Promoters, Control Persons andCorporate Governance; Compliance with Section 16(a) of theExchange Act 

Incorporated herein by reference is theinformation appearing under the headings "Election of Directors,""Executive Officers," and "Committees of the Board of Directorsand Meeting Attendance," in the Registrant's Proxy Statement,which the Registrant anticipates filing on or about April 13,2007. 

Item10.         ExecutiveCompensation 

Incorporated herein by reference is theinformation appearing under the heading "Executive Compensation",in the Registrant's Proxy Statement, which the Registrantanticipates filing on or about April 13, 2007. 

Item11.         SecurityOwnership of Certain Beneficial Owners and Management and RelatedStockholder Matters 

Incorporated herein by reference is theinformation appearing under the heading "Security Ownership ofBeneficial Owners and Management", in the Registrant's ProxyStatement, which the Registrant anticipates filing on or aboutApril 13, 2007. 

Item12.         CertainRelationships and Related Transactions, and DirectorIndependence 

Incorporated herein by reference is theinformation appearing under the heading "Certain Relationshipsand Related Transactions", in the Registrant's Proxy Statement,which the Registrant anticipates filing on or about April 13,2007. 

Item13.         Exhibits 

The followingexhibits are filed herewith or incorporated herein by referenceas set forth below: 

3.1          Restated Articles of Incorporation of the Company (incorporatedby reference to Exhibit 3.1 contained in the Company's QuarterlyReport on Form 10-QSB, (File No. 0-25958), filed with theCommission on November 10, 2004). 

3.2          Amended Bylaws of the Company (incorporated by reference toExhibit 3.2 contained in the Company's Quarterly Report on Form10-QSB, as amended (File No. 0-25958), filed with the Commissionon August 11, 2006). 

4.1                Specimen form of Common Stock Certificate (incorporated byreference to Exhibit 4.1 contained in the Company's RegistrationStatement on Form S-1, as amended (File No.33-96824), filed withthe Commission on September 12, 1995). 

4.2                Certificate of designation of Series A Convertible PreferredShares (incorporated by reference to Exhibit 4.1 contained in theCompany's Quarterly Report on Form 10-QSB, (File No. 0-25958),filed with the Commission on November 10, 2004). 

4.3                Instruments defining rights of holders of securities: (SeeExhibit 3.1 & 3.2) 

4.4                Subordinated Corporate Note Subscription Agreement (incorporatedby reference to Exhibit 4.4 contained in the Company's QuarterlyReport on Form 10-QSB, (File No. 0-25958), filed with theCommission on August 12, 2005). 

4.5                Form of Subordinated Corporate Note (incorporated by reference toExhibit 4.5 contained in the Company's Quarterly Report on Form10-QSB, (File No. 0-25958), filed with the Commission on August12, 2005). 

4.6                Form of Convertible Promissory Note (incorporated by reference toExhibit 4.1 contained in the Company's Current Report on Form8-K, (File No. 0-25958), filed with the Commission on October 13,2006.) 

10.1a       Investment AdvisoryContract - ND Tax-Free Fund, Inc. (incorporated by reference toExhibit 99.d contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 21 (File No.33-25138), filed with the Commission on April 27, 2004). 

10.1b       Investment AdvisoryContract - Montana Tax-Free Fund, Inc. (incorporated by referenceto Exhibit 99.d contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 16 (File No.33-63306), filed with the Commission on April 27, 2004). 

10.1c       Investment AdvisoryContract - Integrity Fund of Funds, Inc. (incorporated byreference to Exhibit 99.d contained in the Registration Statementon Form N-1A, as amended on Post-Effective Amendment 13 (File No.33-85332), filed with the Commission on April 27, 2004). 

10.1d       Management andInvestment Advisory Contract - Integrity Managed Portfolios onbehalf of the Kansas Municipal Fund (incorporated by reference toExhibit 99.d1a contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 51 (File No.33-36324), filed with the Commission on November 30, 2004). 

10.1e       Management andInvestment Advisory Contract - Integrity Managed Portfolios onbehalf of the Kansas Insured Intermediate Fund (incorporated byreference to Exhibit 99.d1b contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 51(File No. 33-36324), filed with the Commission on November 30,2004). 

10.1f        Management andInvestment Advisory Contract - Integrity Managed Portfolios onbehalf of the Maine Municipal Fund (incorporated by reference toExhibit 99.d1e contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 49 (File No.33-36324), filed with the Commission on September 29, 2003). 

10.1g       Management andInvestment Advisory Contract - Integrity Managed Portfolios onbehalf of the Nebraska Municipal Fund (incorporated by referenceto Exhibit 99.d1c contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 51 (File No.33-36324), filed with the Commission November 30, 2004). 

10.1h       Management andInvestment Advisory Contract - Integrity Managed Portfolios onbehalf of the New Hampshire Municipal Fund (incorporated byreference to Exhibit 99.d1f contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 49(File No. 33-36324), filed with the Commission on September 29,2003). 

10.1i        Management andInvestment Advisory Contract - Integrity Managed Portfolios onbehalf of the Oklahoma Municipal Fund (incorporated by referenceto Exhibit 99.d1d contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 51 (File No.33-36324), filed with the Commission November 30, 2004). 

10.1j        InvestmentAdvisory Contract - The Integrity Funds on behalf of theIntegrity Value Fund (incorporated by reference to Exhibit 99.d1ccontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 21 (File No. 33-53698), filed withthe Commission on September 5, 2003). 

10.1k       Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity SmallCap Growth Fund (incorporated by reference to Exhibit 99.d1dcontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 21 (File No. 33-53698), filed withthe Commission on September 5, 2003). 

10.1l        InvestmentAdvisory Contract - The Integrity Funds on behalf of theIntegrity Health Sciences Fund (incorporated by reference toExhibit 99.d1e contained in the Registration Statement on FormN-1A, as amended on Post- Effective Amendment 21 (File No.33-53698), filed with the Commission on September 5, 2003). 

10.1m      Investment Advisory Contract- The Integrity Funds on behalf of the Integrity Technology Fund(incorporated by reference to Exhibit 99.d1f contained in theRegistration Statement on Form N-1A, as amended on Post-Effective Amendment 21 (File No. 33-53698), filed with theCommission on September 5, 2003). 

10.1n       Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity HighIncome Fund (incorporated by reference to Exhibit 99.d1gcontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 23 (File No. 33-53698), filed withthe Commission on April 27, 2004). 

10.1o       Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity Growth& Income Fund (incorporated by reference to Exhibit 99.d1icontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 26 (File No. 33-53698), filed withthe Commission on April 25, 2005). 

10.1p       Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity AllSeason Fund (incorporated by reference to Exhibit 99.d1jcontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 28 (File No. 33-53698), filed withthe Commission on July 29, 2005). 

10.2a       Sub-Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity HighIncome Fund (incorporated by reference to Exhibit 99.d2bcontained in the Registration Statement on Form N-1A, as amendedon Post-Effective Amendment 23 (File No. 33-53698), filed withthe Commission on April 27, 2004). 

10.2b       Sub-Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity HighIncome Fund (incorporated by reference to Exhibit 99.d2econtained in the Registration Statement on Form N-1A, as amendedon Post-Effective Amendment 28 (File No. 33-53698), filed withthe Commission on July 29, 2005). 

10.2c       Sub-Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity Growth& Income Fund (incorporated by reference to Exhibit 99.d2ccontained in the Registration Statement on Form N-1A, as amendedon Post-Effective Amendment 28 (File No. 33-53698), filed withthe Commission on July 29, 2005). 

10.2d       Sub-Investment AdvisoryContract - The Integrity Funds on behalf of the Integrity AllSeason Fund (incorporated by reference to Exhibit 99.d2dcontained in the Registration Statement on Form N-1A, as amendedon Post-Effective Amendment 28 (File No. 33-53698), filed withthe Commission on July 29, 2005). 

10.3a       Distribution Contract -ND Tax-Free Fund, Inc. (incorporated by reference to Exhibit99.e1 contained in the Registration Statement on Form N-1A, asamended on Post- Effective Amendment 21 (File No. 33-25138),filed with the Commission on April 27, 2004). 

10.3b       Distribution Contract -Montana Tax-Free Fund, Inc. (incorporated by reference to Exhibit99.e1 contained in the Registration Statement on Form N-1A, asamended on Post-Effective Amendment 16 (File No. 33-63306), filedwith the Commission on April 27, 2004). 

10.3c       Distribution Contract -Integrity Fund of Funds, Inc. (incorporated by reference toExhibit 99.e1 contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 13 (File No.33-85332), filed with the Commission on April 27, 2004). 

10.3d       Distribution andService Contract - Integrity Managed Portfolios on behalf of theKansas Municipal Fund  (incorporated by reference to Exhibit99.e1a contained in the Registration Statement on Form N-1A, asamended on Post-Effective Amendment 50 (File No. 33-36324), filedwith the Commission on December 22, 2003). 

10.3e       Distribution andService Contract - Integrity Managed Portfolios on behalf of theKansas Insured Intermediate Fund (incorporated by reference toExhibit 99.e1b contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 50 (File No.33-36324), filed with the Commission on December 22, 2003). 

10.3f        Distribution andService Contract - Integrity Managed Portfolios on behalf of theMaine Municipal Fund  (incorporated by reference to Exhibit99.e1e contained in the Registration Statement on Form N-1A, asamended on Post-Effective Amendment 49 (File No. 33-36324), filedwith the Commission on September 29, 2003). 

10.3g       Distribution andService Contract - Integrity Managed Portfolios on behalf of theNebraska Municipal Fund  (incorporated by reference toExhibit 99.e1c contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 50 (File No.33-36324), filed with the Commission on December 22, 2003). 

10.3h       Distribution andService Contract - Integrity Managed Portfolios on behalf of theNew Hampshire Municipal Fund (incorporated by reference toExhibit 99.e1f contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 49 (File No.33-36324), filed with the Commission on September 29, 2003). 

10.3i        Distribution andService Contract - Integrity Managed Portfolios on behalf of theOklahoma Municipal Fund  (incorporated by reference toExhibit 99.e1d contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 50 (File No.33-36324), filed with the Commission on December 22, 2003). 

10.3j        Distribution andService Contract - The Integrity Funds on behalf of the IntegrityValue Fund (incorporated by reference to Exhibit 99.e1c containedin the Registration Statement on Form N-1A, as amended on Post-Effective Amendment 21 (File No. 33-53698), filed with theCommission on September 5, 2003). 

10.3k       Distribution andService Contract - The Integrity Funds on behalf of the IntegritySmall Cap Growth Fund (incorporated by reference to Exhibit99.e1d contained in the Registration Statement on Form N-1A, asamended on Post- Effective Amendment 21 (File No. 33-53698),filed with the Commission on September 5, 2003). 

10.3l        Distribution andService Contract - The Integrity Funds on behalf of the IntegrityHealth Sciences Fund (incorporated by reference to Exhibit 99.e1econtained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 21 (File No. 33-53698), filed withthe Commission on September 5, 2003). 

10.3m      Distribution and ServiceContract - The Integrity Funds on behalf of the IntegrityTechnology Fund (incorporated by reference to Exhibit 99.e1fcontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 21 (File No. 33-53698), filed withthe Commission on September 5, 2003). 

10.3n       Distribution andService Contract - The Integrity Funds on behalf of the IntegrityHigh Income Fund (incorporated by reference to Exhibit 99.e1gcontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 23 (File No. 33-53698), filed withthe Commission on April 27, 2004). 

10.3o       Distribution andService Contract - The Integrity Funds on behalf of the IntegrityGrowth & Income Fund (incorporated by reference to Exhibit99.e1i contained in the Registration Statement on Form N-1A, asamended on Post- Effective Amendment 26 (File No. 33-53698),filed with the Commission on April 25, 2005). 

10.3p       Distribution andService Contract - The Integrity Funds on behalf of the IntegrityAll Season Fund (incorporated by reference to Exhibit 99.e1jcontained in the Registration Statement on Form N-1A, as amendedon Post- Effective Amendment 28 (File No. 33-53698), filed withthe Commission on July 29, 2005). 

10.4a       Transfer AgencyContract - ND Tax-Free Fund, Inc. (incorporated by reference toExhibit 99.h1 contained in the Registration Statement on FormN-1A, as amended on Post- Effective Amendment 21 (File No.33-25138), filed with the Commission on April 27, 2004). 

10.4b       Transfer AgencyContract - Montana Tax-Free Fund, Inc. (incorporated by referenceto Exhibit 99.h1 contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 16 (File No.33-63306), filed with the Commission on April 27, 2004). 

10.4c       Transfer AgencyContract - Integrity Fund of Funds, Inc. (incorporated byreference to Exhibit 99.h1 contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 13(File No. 33-85332), filed with the Commission on April 27,2004). 

10.4d       Transfer AgencyContract - Integrity Managed Portfolios (incorporated byreference to Exhibit 99.h1 contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 49(File No. 33-36324), filed with the Commission on November 30,2006). 

10.4e       Transfer AgencyContract - The Integrity Funds (incorporated by reference toExhibit 99.h1 contained in the Registration Statement on FormN-1A, as amended on Post- Effective Amendment 21 (File No.33-53698), filed with the Commission on September 5, 2003). 

10.5a       Accounting ServiceContract - ND Tax-Free Fund, Inc. (incorporated by reference toExhibit 99.h2 contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 21 (File No.33-25138), filed with the Commission on April 27, 2004). 

10.5b       Accounting ServiceContract - Montana Tax-Free Fund, Inc. (incorporated by referenceto Exhibit 99.h2 contained in the Registration Statement on FormN-1A, as amended on Post-Effective Amendment 16 (File No.33-63306), filed with the Commission on April 27, 2004). 

10.5c       Accounting ServiceContract - Integrity Fund of Funds, Inc. (incorporated byreference to Exhibit 99.h2 contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 13(File No. 33-85332), filed with the Commission on April 27,2004). 

10.5d       Accounting ServiceContract - Integrity Managed Portfolios (incorporated byreference to Exhibit 99.h2 contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 49(File No. 33-36324), filed with the Commission on September 29,2003). 

10.6a       Administration andAccounting Service Contract - The Integrity Funds (incorporatedby reference to Exhibit 99.h2 contained in the RegistrationStatement on Form N-1A, as amended on Post- Effective Amendment21 (File No. 33-53698), filed with the Commission on September 5,2003). 

10.6b       Administration ServiceContract - Integrity Managed Portfolios (incorporated byreference to Exhibit 99.h3 contained in the RegistrationStatement on Form N-1A, as amended on Post-Effective Amendment 49(File No. 33-36324), filed with the Commission on November 30,2006). 

10.7a       Stock PurchaseAgreement - ND Holdings, Inc. and Shareholders of Ranson Company,Inc. (incorporated by reference to Exhibit 10.13 contained in theCompany's Registration Statement on Form S-1, as amended (FileNo. 33-96824), filed with the Commission on September 12,1995). 

10.7b       Stock PurchaseAgreement - CFS Stock Purchase Agreement (incorporated byreference to Exhibit 10.53 contained in the Company's QuarterlyReport on Form 10-QSB, (File No. 0-25958), filed with theCommission November 10, 2004). 

10.8a       Employment Agreement -Robert E. Walstad (incorporated by reference to Exhibit 10.48contained in the Company's Quarterly Report on Form 10-QSB, (FileNo. 0-25958), filed with the Commission May 13, 2004).* 

10.8b       Employment Agreement -Bradley Wells (incorporated by reference to Exhibit 10.49contained in the Company's Quarterly Report on Form 10-QSB, (FileNo. 0-25958), filed with the Commission May 13, 2004).* 

10.8c       Employment Agreement -Jerry J. Szilagyi (incorporated by reference to Exhibit 10.51contained in the Company's Quarterly Report on Form 10-QSB, (FileNo. 0-25958), filed with the Commission May 13, 2004).* 

10.8d       Amendment to EmploymentAgreement - Bradley Wells (incorporated by reference to Exhibit10.54 contained in the Company's Current Report on Form 8-K,(File No. 0-25958), filed with the Commission December 20,2004).* 

10.8e       Separation Agreement -Jerry J. Szilagyi (incorporated by reference to Exhibit 10.1contained in the Company's Quarterly Report on Form 10-QSB, (FileNo. 0-25958), filed with the Commission August 11, 2006).* 

10.8f        SeparationAgreement - Robert E. Walstad.* 

14.1         Code ofEthics (incorporated by reference to Exhibit 14.1 contained inthe Company's Annual Report on Form 10-KSB, filed with theCommission on March 28, 2006). 

21.1         Subsidiariesof the Company (incorporated by reference to Exhibit 21.1contained in the Company's Annual Report on Form 10-KSB, filedwith the Commission on March 28, 2005). 

31.1         CEOCertification Pursuant to Section 302 of the Sarbanes-Oxley Actand Rules 13a-14(a) and 15d-14(a) of the Exchange Act. 

31.2         CFOCertification Pursuant to Section 302 of the Sarbanes-Oxley Actand Rules 13a-14(a) and 15d-14(a) of the Exchange Act. 

32.1         CEOCertification Pursuant to Section 906 of the Sarbanes-Oxley Actand 18 U.S.C. Section 1350. 

32.2             CFO Certification Pursuant to Section 906 of the Sarbanes-OxleyAct and 18 U.S.C. Section 1350. 

* IndicatesManagement Contract or Compensatory Plan. 

Item 14.        Principal AccountantFees and Services 

Incorporated herein by reference is theinformation appearing under the heading "Fees Billed for ServicesRendered by Independent Accountant" in the Registrant's ProxyStatement, which the Registrant anticipates filing on or aboutApril 13, 2007.

SIGNATURES 

In accordance with Section 13 or 15(d) ofthe Exchange Act, the Registrant has caused this report to besigned on its behalf by the undersigned, thereunto dulyauthorized. 

INTEGRITY MUTUAL FUNDS, INC.  
| Date: March 16, 2007 | By /s/ Mark R. Anderson       |
|----------------------|-------------------------------|
|                 | Mark R. Anderson              |
|                 | Chief Executive Officer,      |
|                 | President, and Director       |
|                 | (Principal Executive Officer) |

In accordance with the Exchange Act, thisreport has been signed below by the following persons on behalfof the registrant and in the capacities and on the datesindicated. 
| Date: March 16, 2007 | By /s/ Mark R. Anderson       |
|----------------------|-------------------------------|
|                 | Mark R. Anderson              |
|                 | Chief Executive Officer,      |
|                 | President, and Director       |
|                 | (Principal Executive Officer) |
| Date: March 16, 2007 | By /s/ Heather Ackerman       |
|----------------------|-------------------------------|
|                 | Heather Ackerman              |
|                 | Chief Financial Officer       |
|                 | and Controller                |
|                 | (Principal Financial Officer) |
| Date: March 16, 2007 | By /s/ Peter A. Quist       |
|----------------------|-----------------------------|
|                 | Peter A. Quist              |
|                 | Vice President and Director |
|                 |                        |
| Date: March 16, 2007 | By /s/ Vance A. Castleman   |
|                 | Vance A. Castleman          |
|                 | Director                    |
|                 |                        |
| Date: March 16, 2007 | By /s/ Myron D. Thompson    |
|                 | Myron D. Thompson           |
|                 | Director                    |
|                 |                        |
| Date: March 16, 2007 | By /s/ Richard H. Walstad   |
|                 | Richard H. Walstad          |
|                 | Director                    |
|                 |                        |
| Date: March 16, 2007 | By /s/ Steven D. Lysne      |
|                 | Steven D. Lysne             |
|                 | Director                    |
|                 |                        |
| Date: March 16, 2007 | By /s/ Vaune M. Cripe       |
|                 | Vaune M. Cripe              |
|                 | Director                    |
|                 |                        |
| Date: March 16, 2007 | By /s/ Jeffrey A. Cummer    |
|                 | Jeffrey A. Cummer           |
|                 | Director                    |

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES 

MINOT, NORTHDAKOTA

CONSOLIDATEDFINANCIAL STATEMENTS 				AS OF 				DECEMBER 31,2006, 2005 AND 2004 				AND 				REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES

TABLE OFCONTENTS 
|                                                   | Pages                                                   |
|--------------------------------------------------------|---------------------------------------------------------|
|                                                   |                                                    |
| REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM | F-1                                                     |
|                                                   |                                                    |
|                                                   |                                                    |
| CONSOLIDATED FINANCIAL STATEMENTS                      |                                                    |
|                                                   |                                                    |
|                                                   | Consolidated Balance Sheets                             | F-2 - F-3 |
|                                                   |                                                    |   |
|                                                   | Consolidated Statements of Operations                   | F-4 |
|                                                   |                                                    |   |
|                                                   | Consolidated Statements of Stockholders'Equity          | F-5 |
|                                                   |                                                    |   |
|                                                   | Consolidated Statements of Cash Flows                   | F-6 - F-7 |
|                                                   |                                                    |   |
|                                                   | Notes to Consolidated FinancialStatements               | F-8 - F-23 |
|                                                   |                                                    |
| ADDITIONAL INFORMATION                                 |                                                    |
|                                                   |                                                    |
|                                                   | Report of Independent Registered PublicAccounting Firm  | F-24 |
|                                                   |                                                    |   |
|                                                   | Selected Financial Data                                 | F-25 |
|                                                   |                                                    |   |
|                                                   | Quarterly Results of Consolidated Operations(Unaudited) | F-26 |
|                                                        |                                                         |  |

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM 

To the Stockholders and Directors of				Integrity Mutual Funds, Inc. andSubsidiaries				Minot, North Dakota 

We have audited the accompanyingconsolidated balance sheets of Integrity Mutual Funds, Inc. andSubsidiaries as of December 31, 2006 and 2005 and the relatedconsolidated statements of operations, stockholders' equity andcash flows for the years ended December 31, 2006, 2005 and2004.  These consolidated financial statements are theresponsibility of the Company's management.  Ourresponsibility is to express an opinion on these consolidatedfinancial statements based on our audits. 

We conducted our audits in accordance withstandards of the Public Company Accounting Oversight Board(United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whetherthe consolidated financial statements are free of materialmisstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in theconsolidated financial statements.  An audit also includesassessing the accounting principles used and significantestimates made by management, as well as evaluating the overallconsolidated financial statement presentation.  We believethat our audits provide a reasonable basis for our opinion. 

In our opinion, the consolidated financialstatements referred to above present fairly, in all materialrespects, the financial position of Integrity Mutual Funds, Inc.and Subsidiaries as of December 31, 2006 and 2005, and theresults of their operations and their cash flows for the yearsended December 31, 2006, 2005 and 2004 in conformity withaccounting principles generally accepted in the United States ofAmerica.

BRADY, MARTZ & ASSOCIATES, P.C.				Minot, North Dakota USA 

March 6, 2007

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES				CONSOLIDATEDBALANCE SHEETS				DECEMBER 31, 2006AND 2005

ASSETS 
|           | 2006                                         | 2005       |
|----------------|----------------------------------------------|------------|
|           |                                         |       |   |   |
| CURRENT ASSETS |                                         |       |   |   |
|           | Cash and cash equivalents                    | $          | 1,851,249 | $ | 1,537,391 |
|           | Securities available-for-sale                |       | 213 |   | 208 |
|           | Accounts receivable                          |       | 1,793,645 |   | 1,460,400 |
|           | Income taxes receivable                      |       | 780 |   | 154,966 |
|           | Deferred tax asset                           |       | 5,833 |   | 52,609 |
|           | Prepaids                                     |       | 88,894 |   | 95,116 |
|           |                                         |       |   |   |   |
|           | Total current assets                         | $          | 3,740,614 | $ | 3,300,690 |
|           |                                         |       |   |   |   |
|           | PROPERTY ANDEQUIPMENT                        | $          | 1,989,312 | $ | 1,941,613 |
|           | Less accumulated depreciation                |       | (811,854) |   | (731,016) |
|           |                                         |       |   |   |   |
|           | Net property and equipment                   | $          | 1,177,458 | $ | 1,210,597 |
|           |                                         |       |   |   |   |
|           | OTHER ASSETS                                 |       |   |   |   |
|           | Deferred sales commissions                   | $          | 168,686 | $ | 186,010 |
|           | Goodwill                                     |       | 9,792,801 |   | 9,830,389 |
|           | Deferred tax asset                           |       | 335,995 |   | 326,873 |
|           | Other assets (net of accumulatedamortization |       | 250,576 |   | 338,355 |
|           | of $253,961 for2006 and $177,720 for 2005)   |
|           |                                         |       |   |   |   |
|           | Total other assets                           | $          | 10,548,058 | $ | 10,681,627 |
|           |                                         |       |   |   |
| TOTAL ASSETS   | $                                            | 15,466,130 | $ | 15,192,914 |
|           |                                         |       |   |   |
|           |                                         |       |   |   |
|                |                                              |            |  |  |  |  |

SEE NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATEDBALANCE SHEETS (CONTINUED) 				LIABILITIES ANDSTOCKHOLDERS' EQUITY  
|   | 2006 | 2005 |
|--------|------|------|
| CURRENTLIABILITIES                        |                                                                     |       |        |       |
|-------------------------------------------|--------------------------------------------------------------------------|------------|-------------|------------|
|                                      | Service fees payable                                                     | $          | 115,225     | $          | 73,416 |
|                                      | Accounts payable                                                         |       | 261,767     |       | 265,165 |
|                                      | Other current liabilities                                                |       | 1,600,772   |       | 1,311,867 |
|                                      | Current portion of long-term debt                                        |       | 22,344      |       | 514,085 |
|                                      |                                                                     |       |        |       |   |
|                                      | Total current liabilities                                                | $          | 2,000,108   | $          | 2,164,533 |
|                                      |                                                                     |       |        |       |
| LONG-TERMLIABILITIES                      |                                                                     |       |        |       |
|                                      | Note payable                                                             | $          | 380,651     | $          | 1,103,651 |
|                                      | Subordinate commercial notes                                             |       | 561,000     |       | 561,000 |
|                                      | Subordinate corporate notes                                              |       | 2,000,000   |       | 2,000,000 |
|                                      | Convertible promissory note                                              |       | 950,000     |       | - |
|                                      | Convertible debentures                                                   |       | -           |       | 250,000 |
|                                      | Other long-term liabilities                                              |       | 198,507     |       | 224,094 |
|                                      | Less current portion of long-term debt                                   |       | (22,344)    |       | (514,085) |
|                                      |                                                                     |       |        |       |   |
|                                      | Total long-term liabilities                                              | $          | 4,067,814   | $          | 3,624,660 |
|                                      |                                                                     |       |        |       |
| TOTALLIABILITIES                          | $                                                                        | 6,067,922  | $           | 5,789,193  |
|                                      |                                                                     |       |        |       |
| STOCKHOLDERS'EQUITY                       |                                                                     |       |        |       |
|                                      | Series A Preferred stock - 5,000,000 sharesauthorized, $.0001 par value; | $          | 305         | $          | 305 |
|                                      | 3,050,000 and3,050,000 shares issued and outstanding, respectively       |
|                                      | Additional paid in capital - series Apreferred stock                     |       | 1,524,695   |       | 1,524,695 |
|                                      | Common stock - 1,000,000,000 sharesauthorized, $.0001 par value;         |       | 1,372       |       | 1,352 |
|                                      | 13,717,146 and13,518,543 shares issued and outstanding, respectively     |
|                                      | Additional paid in capital - commonstock                                 |       | 9,967,973   |       | 9,829,311 |
|                                      | Receivable - unearned ESOP shares                                        |       | (62,072)    |       | (68,765) |
|                                      | Accumulated deficit                                                      |       | (2,034,055) |       | (1,883,168) |
|                                      | Accumulated other comprehensive income(loss)                             |       | (10)        |       | (9) |
|                                      |                                                                     |       |        |       |
|                                      | TOTALSTOCKHOLDERS' EQUITY                                                | $          | 9,398,208   | $          | 9,403,721 |
|                                      |                                                                     |       |        |       |
| TOTAL LIABILITIESAND STOCKHOLDERS' EQUITY | $                                                                        | 15,466,130 | $           | 15,192,914 |
|                                           |                                                                          |            |             |            |  |  |

 

SEE NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES				CONSOLIDATEDSTATEMENTS OF OPERATIONS				FOR THE YEARSENDED DECEMBER 31, 2006, 2005 AND 2004

 
|                                    | 2006                                             | 2005     | 2004       |
|-----------------------------------------|--------------------------------------------------|----------|------------|
| OPERATINGREVENUES                       |                                             |     |       |   |   |   |
|                                    | Fee income                                       | $        | 6,732,222  | $ | 4,788,853 | $ | 4,382,788 |
|                                    | Commission income                                |     | 20,054,742 |   | 14,651,903 |   | 12,607,783 |
|                                    | Total revenue                                    | $        | 26,786,964 | $ | 19,440,756 | $ | 16,990,571 |
|                                    |                                             |     |       |   |   |   |
| OPERATINGEXPENSES                       |                                             |     |       |   |   |   |
|                                    | Compensation and benefits                        | $        | 3,729,425  | $ | 3,330,165 | $ | 3,120,309 |
|                                    | Commission expense                               |     | 19,370,607 |   | 13,283,057 |   | 11,405,775 |
|                                    | General and administrative expenses              |     | 2,242,721  |   | 2,139,042 |   | 2,166,954 |
|                                    | Sub-advisory expenses                            |     | 887,896    |   | 432,534 |   | 41,084 |
|                                    | Sales commissions amortized                      |     | 334,254    |   | 316,928 |   | 321,942 |
|                                    | Depreciation and amortization                    |     | 157,361    |   | 143,155 |   | 99,525 |
|                                    | Total operating expenses                         | $        | 26,722,264 | $ | 19,644,881 | $ | 17,155,589 |
|                                    |                                             |     |       |   |   |   |
| OPERATING INCOME(LOSS)                  | $                                                | 64,700   | $          | (204,125) | $ | (165,018) |
|                                    |                                             |     |       |   |   |   |
| OTHER INCOME(EXPENSES)                  |                                             |     |       |   |   |   |
|                                    | Interest and other income                        | $        | 233,610    | $ | 54,896 | $ | 66,155 |
|                                    | Interest expense                                 |     | (346,606)  |   | (301,934) |   | (275,247) |
|                                    | Net other expenses                               | $        | (112,996)  | $ | (247,038) | $ | (209,092) |
|                                    |                                             |     |       |   |   |   |
| LOSS BEFORE INCOMETAX BENEFIT (EXPENSE) | $                                                | (48,296) | $          | (451,163) | $ | (374,110) |
|                                    |                                             |     |       |   |   |   |
| INCOME TAX BENEFIT(EXPENSE)             |                                             | (11,091) |       | 118,750 |   | 124,110 |
|                                    |                                             |     |       |   |   |   |
| NET LOSS                                | $                                                | (59,387) | $          | (332,413) | $ | (250,000) |
|                                    |                                             |     |       |   |   |   |
| LOSS PER COMMONSHARE:                   |                                             |     |       |   |   |   |
|                                    | Basic                                            | $        | (.01)      | $ | (.03) | $ | (.03) |
|                                    | Diluted                                          | $        | (.01)      | $ | (.03) | $ | (.03) |
|                                    |                                             |     |       |   |   |   |   |
|                                    | SHARES USED IN COMPUTING LOSS PER

COMMON SHARE: |     |       |   |   |   |   |
|                                    | Basic                                            |     | 13,696,486 |   | 13,430,040 |   | 13,064,779 |
|                                    | Diluted                                          |     | 13,696,486 |   | 13,430,040 |   | 13,064,779 |
|                                         |                                                  |          |            |  |  |  |  |  |

SEE NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES				CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS' EQUITY				FOR THE YEARSENDED DECEMBER 31, 2006, 2005 AND 2004 
|                                                             | Amounts |        | Shares |
|------------------------------------------------------------------|---------|-------------|--------|
|                                                             |    | 2006        |   | 2005 |   | 2004 |   | 2006 | 2005 | 2004 |
| Preferred stock and

additional paid-in capital                  |    |        |   |   |   |   |   |   |   |   |
| Balance, beginningof year                                        | $       | 1,525,000   | $      | 1,525,000 | $ | 1,525,000 |   | 3,050,000 | 3,050,000 | 3,050,000 |
| Preferred stockissued                                            |    | -           |   | - |   | - |   | - | - | - |
| Balance, end ofyear                                              | $       | 1,525,000   | $      | 1,525,000 | $ | 1,525,000 |   | 3,050,000 | 3,050,000 | 3,050,000 |
|                                                             |    |        |   |   |   |   |   |   |   |   |
| Common stock and

additional paid-in capital                     |    |        |   |   |   |   |   |   |   |   |
|                                                             |    |        |   |   |   |   |   |   |   |
| Balance, beginningof year                                        | $       | 9,830,663   | $      | 9,515,283 | $ | 8,873,732 |   | 13,518,543 | 13,228,543 | 12,995,812 |
| Common stockissued                                               |    | 7,000       |   | 6,600 |   | 38,000 |   | 198,603 | 290,000 | 300,000 |
| Stock optionvaluation                                            |    | 132,600     |   | 310,500 |   | 634,000 |   | - | - | - |
| Warrants issued                                                  |    | -           |   | - |   | 3,000 |   | - | - | - |
| Purchase of commonstock                                          |    | (918)       |   | (1,720) |   | (33,449) |   | - | - | (67,269) |
| Balance, end ofyear                                              | $       | 9,969,345   | $      | 9,830,663 | $ | 9,515,283 |   | 13,717,146 | 13,518,543 | 13,228,543 |
|                                                             |    |        |   |   |   |   |   |   |   |   |
| Accumulated deficit                                              |    |        |   |   |   |   |   |   |   |   |
| Balance, beginningof year                                        | $       | (1,883,168) | $      | (1,459,255) | $ | (1,114,705) |   |   |   |   |
| Net income(loss)                                                 |    | (59,387)    |   | (332,413) |   | (250,000) |   |   |   |   |
| Preferreddividends                                               |    | (91,500)    |   | (91,500) |   | (94,550) |   |   |   |   |
| Disposal ofbusiness segment                                      |    | -           |   | - |   | - |   |   |   |   |
| Balance, end ofyear                                              | $       | (2,034,055) | $      | (1,883,168) | $ | (1,459,255) |   |   |   |   |
|                                                             |    |        |   |   |   |   |   |   |   |   |
| ESOP activity                                                    |    |        |   |   |   |   |   |   |   |   |
| Balance, beginningof year                                        | $       | (68,765)    | $      | (75,455) | $ | (82,148) |   |   |   |   |
| Repayments fromESOP                                              |    | 6,693       |   | 6,690 |   | 6,693 |   |   |   |   |
| Balance, end ofyear                                              | $       | (62,072)    | $      | (68,765) | $ | (75,455) |   |   |   |   |
|                                                             |    |        |   |   |   |   |   |   |   |   |
| Accumulated other

comprehensive income                          |    |        |   |   |   |   |   |   |   |   |
|                                                             |    |        |   |   |   |   |   |   |   |
| Balance, beginningof year                                        | $       | (9)         | $      | 256 | $ | (773) |   |   |   |   |
| Change inunrealized gain (loss) on available-for-sale securities |    | (1)         |   | (265) |   | 1,029 |   |
| Balance, end ofyear                                              | $       | (10)        | $      | (9) | $ | 256 |   |   |   |   |
|                                                             |    |        |   |   |   |   |   |   |   |   |
| Total stockholders' equity                                       | $       | 9,398,208   | $      | 9,403,721 | $ | 9,505,829 |   |   |   |   |
|                                                                  |         |             |        |  |  |  |  |  |  |  |  |  |  |

SEE NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES				CONSOLIDATEDSTATEMENTS OF CASH FLOWS				FOR THE YEARSENDED DECEMBER 31, 2006, 2005 AND 2004 
|                                 | 2006                                                                             | 2005   | 2004      |
|--------------------------------------|----------------------------------------------------------------------------------|--------|-----------|
| CASH FLOWS FROM OPERATING ACTIVITIES |                                                                             |   |      |   |   |   |
|                                 | Net loss                                                                         | $      | (59,387)  | $ | (332,413) | $ | (250,000) |
|                                 | Adjustments to reconcile net income to net cash provided byoperating activities: |   |      |   |   |   |   |
|                                 |                                                                             |   |      |   |   |   |
|                                 | Depreciation andamortization                                                     |   | 157,361   |   | 136,910 |   | 98,754 |
|                                 | Sales commissionsamortized                                                       |   | 334,254   |   | 316,928 |   | 282,948 |
|                                 | Compensationexpense - stock                                                      |   | -         |   | - |   | 38,000 |
|                                 | Compensationexpense - options                                                    |   | 132,600   |   | 310,500 |   | 634,000 |
|                                 | Recruiting expense- stock                                                        |   | 7,000     |   | 6,600 |   | - |
|                                 | Loss on disposal ofassets                                                        |   | -         |   | 3,007 |   | - |
|                                 | Gain (loss) on saleof available-for-sale securities                              |   | -         |   | (270) |   | 937 |
|                                 | Effects onoperating cash flows due to changes in:                                |   |      |   |   |   |   |
|                                 | Accountsreceivable                                                               |   | (333,245) |   | (275,116) |   | (137,793) |
|                                 | Income taxesreceivable                                                           |   | 154,186   |   | (154,966) |   | - |
|                                 | Prepaids                                                                         |   | 6,222     |   | (1,606) |   | (17,037) |
|                                 | Deferred salescommissions capitalized, net of CDSC collected                     |   | (316,930) |   | (86,030) |   | 28,030 |
|                                 | Deferred taxasset                                                                |   | 37,654    |   | (28,646) |   | (319,180) |
|                                 | Other assets                                                                     |   | 11,540    |   | (48,926) |   | 38,537 |
|                                 | Service feespayable                                                              |   | 41,809    |   | (24,609) |   | (5,473) |
|                                 | Accountspayable                                                                  |   | (14,270)  |   | 204,942 |   | (69,600) |
|                                 | Otherliabilities                                                                 |   | 388,905   |   | 216,770 |   | 136,702 |
|                                 |                                                                             |   |      |   |   |   |   |
|                                 | Net cash providedby operating activities                                         | $      | 547,699   | $ | 243,075 | $ | 458,825 |
|                                 |                                                                             |   |      |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES |                                                                             |   |      |   |   |   |
|                                 | Purchase ofproperty and equipment                                                | $      | (47,990)  | $ | (81,493) |   | (41,709) |
|                                 | Proceeds from saleof property and equipment                                      |   | -         |   | 500 |   | - |
|                                 | Purchase ofavailable-for-sale securities                                         |   | -         |   | - | $ | (5,030) |
|                                 | Proceeds from saleof available-for-sale securities                               |   | -         |   | 5,281 |   | 24,019 |
|                                 | Purchase ofgoodwill                                                              |   | -         |   | (232,407) |   | (48,652) |
|                                 |                                                                             |   |      |   |   |   |   |
|                                 | Net cash used byinvesting activities                                             | $      | (47,990)  | $ | (308,119) | $ | (71,372) |
|                                 |                                                                             |   |      |   |   |   |   |
|                                      |                                                                                  |        |           |  |  |  |  |  |

SEE NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATEDSTATEMENTS OF CASH FLOWS (CONTINUED) 
|   | 2006                                                               | 2005   | 2004        |
|--------|--------------------------------------------------------------------|--------|-------------|
|   | CASH FLOWS FROM FINANCING ACTIVITIES                               |   |        |   |   |   |   |
|   | Issuance ofsubordinated corporate notes                            | $      | -           | $ | 2,000,000 | $ | - |
|   | Issuance ofconvertible promissory note                             |   | 950,000     |   | - |   | - |
|   | Addition to notespayable                                           |   | 301,866     |   | - |   | - |
|   | Short-termborrowing                                                |   | -           |   | 650,025 |   | 300,000 |
|   | Sale of commonstock warrants                                       |   | -           |   | - |   | 3,000 |
|   | Repayments fromESOP                                                |   | 6,693       |   | 6,690 |   | 6,693 |
|   | Redemption ofcommon stock                                          |   | (918)       |   | (1,720) |   | (33,449) |
|   | Reduction ofshort-term borrowing                                   |   | (100,000)   |   | (650,025) |   | (200,000) |
|   | Reduction of otherdebt obligations                                 |   | -           |   | (366,440) |   | (903,068) |
|   | Dividends paid                                                     |   | (68,625)    |   | (68,625) |   | (71,675) |
|   | Reduction of notespayable                                          |   | (1,024,866) |   | (239,998) |   | (240,786) |
|   | Redemption ofsubordinate debentures                                |   | -           |   | (595,000) |   | - |
|   | Redemption ofconvertible debentures                                |   | (250,000)   |   | - |   | - |
|   | Redemption ofcorporate notes                                       |   | -           |   | - |   | (962,000) |
|   |                                                               |   |        |   |   |   |   |
|   | Net cash provided(used) by financing activities                    | $      | (185,850)   | $ | 734,907 | $ | (2,101,285) |
|   | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               | $      | 313,859     | $ | 669,863 | $ | (1,713,832) |
|   | CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                     |   | 1,537,391   |   | 867,528 |   | 2,581,360 |
|   | CASH AND CASH EQUIVALENTS AT END OF YEAR                           | $      | 1,851,249   | $ | 1,537,391 | $ | 867,528 |
|   | SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION                  |   |        |   |   |   |   |
|   | Cash paid duringthe year for:                                      |   |        |   |   |   |   |
|   | Interest                                                           | $      | 260,844     | $ | 244,919 | $ | 323,347 |
|   | Income taxes                                                       | $      | 1,739       | $ | 100,177 | $ | 386,970 |
|   | SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCINGACTIVITIES |   |        |   |   |   |   |
|   | Change inunrealized gain (loss) on available-for-sale securities   | $      | (1)         | $ | (265) | $ | 1,029 |
|   | Increase (decrease)in goodwill                                     | $      | (25,587)    | $ | 168,497 | $ | (150,601) |
|   | Increase (decrease)in other current liabilities                    | $      | -           | $ | (55,597) | $ | 69,392 |
|   | Increase (decrease)in other long-term liabilities                  | $      | (25,587)    | $ | 224,094 | $ | (219,993) |
|   | Recruiting expense- stock                                          | $      | 7,000       | $ | 6,600 | $ | - |
|   | Compensationexpense - stock                                        | $      | -           | $ | - | $ | 38,000 |
|   | Compensationexpense - options                                      | $      | 132,600     | $ | 310,500 | $ | 634,000 |
|   | Preferred stockdividends declared                                  | $      | 22,875      | $ | 22,875 | $ | 22,875 |
|   |                                                               |   |        |   |   |   |   |
|        |                                                                    |        |             |  |  |  |  |  |

SEE NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES				NOTES TOCONSOLIDATED FINANCIAL STATEMENTS				DECEMBER 31,2006, 2005 AND 2004 

NOTE 1 - **NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTINGPOLICIES** 

The nature ofoperations and significant accounting policies of IntegrityMutual Funds, Inc., and Subsidiaries are presented to assist inunderstanding the Company's consolidated financialstatements. 

**Nature ofoperations** - Integrity Mutual Funds, Inc., and Subsidiaries(the "Company") was established in September 1987 as a NorthDakota corporation.  The Company derives its revenueprimarily from providing investment management, distribution,shareholder services, fund accounting, and related services tosponsored mutual funds, as well as commissions earned from salesof mutual funds, insurance products, and various othersecurities.  Headquartered in Minot, North Dakota, theCompany is marketing its services throughout the UnitedStates. 

**Principles ofconsolidation** - The consolidated financial statements includethe accounts of Integrity Mutual Funds, Inc., and it's whollyowned subsidiaries, Integrity Money Management, Inc., IntegrityFund Services, Inc., Integrity Funds Distributor, Inc., andCapital Financial Services, Inc.  All significantinter-company transactions and balances have been eliminated inthe accompanying consolidated financial statements. 

**Concentrations** - The Company derives its revenue primarilyfrom investment advisory and administrative services provided toits sponsored mutual funds, as well as revenues derived fromretail brokerage activities.  Company revenues are largelydependent on the total value and composition of assets undermanagement, as well as the sales activity of registeredrepresentatives operating as independent contractors. Accordingly, fluctuations in financial markets and thecomposition of assets under management impact revenues andresults of operations. 

**Use ofestimates** - The preparation of consolidated financialstatements in conformity with accounting principles generallyaccepted in the United States of America requires management tomake estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statementsand the reported amounts of revenues and expenses during thereporting period.  Actual results could differ from thoseestimates. 

**Revenuerecognition** - Investment advisory fees, transfer agent fees,accounting service fees, and administrative service fees arerecorded as revenues as the related services are provided by theCompany to sponsored mutual funds.  Commission income andthe related clearing expenses are recorded on a trade-date basisas securities transactions occur. 

**Stock-basedcompensation -** In December of 2005, the Company adopted FASBStatement No. 123R, "Share-Based Payment," ("SFAS 123R") whichrequires the measurement and recognition of compensation expensefor all share-based payment awards made to employees anddirectors, including employee stock options, based on estimatedfair values.  SFAS 123R supersedes the Company's previousaccounting under Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees," ("APB 25"). 

The Company adoptedSFAS 123R using the modified retroactive restatement method,which requires the restatement of all periods presented toreflect stock-based employee compensation cost under the fairvalue-based accounting method for all employee awards granted,modified, or settled in fiscal years beginning after December 15,1994. 

**Cash and cashequivalents** - The Company's policy is to record all liquidinvestments with original maturities of three months or less ascash equivalents.  Liquid investments with maturitiesgreater than three months are recorded as investments. 

**Accountsreceivable -** The Company's receivables consist primarily offees charged to the affiliated funds for services rendered andconcessions related to registered representative activity. Management evaluates the need for an allowance for doubtfulaccounts by identifying troubled accounts and using historicalexperience.  Based on this analysis, management feels thatsubstantially all accounts are collectible and an allowance fordoubtful accounts is not considered necessary.  Accountsreceivable are written off when management deems themuncollectible.  Recoveries of accounts receivable previouslywritten off are recorded when received.  The Company doesnot charge interest on its receivables. 

**Investments**- Investments in equity securities that have readily determinablefair values are classified and accounted for asavailable-for-sale.  Available-for-sale securities consistof investments in the Company's sponsored mutual funds and arerecorded at fair value, with the change in fair value recorded asa component of other comprehensive income in the equity sectionof the balance sheet.  Cost of securities sold is recognizedusing the specific identification method.    

**Goodwill -**In January 2002, the Company adopted FASB Statement of FinancialAccounting Standards No. 142, "Goodwill and Other IntangibleAssets" ("FAS 142"), which required that goodwill, includinggoodwill included in the carrying value of investments accountedfor using the equity method of accounting and indefinite-livedother intangible assets deemed to have an indefinite useful life,cease amortizing.  The rules also required that goodwill ofconsolidated businesses and certain intangible assets be assessedfor impairment using fair value measurement techniques.  Asa result, a substantial portion of the Company's goodwill andintangible assets ceased amortizing. 

**Property andequipment** - Property and equipment is stated at cost lessaccumulated depreciation computed on straight-line andaccelerated methods over estimated useful lives as follows: 
| Equipment | 5-7 years      |
|-----------|----------------|
| Building  |  40 years |

**Deferred salescommissions** - Sales commissions paid to broker-dealers inconnection with the sale of shares of the sponsored mutual fundssold without a front-end sales charge (B and C shares), arecapitalized and amortized on a straight-line basis over a periodnot exceeding eight years, which approximates the period of timeduring which deferred sales commissions are expected to berecovered from distribution plan payments received from varioussponsored mutual funds and potential contingent deferred salescharges received from shareholders of the various sponsoredmutual funds.  Contingent deferred sales charges received bythe Company are recorded as a reduction of unamortized deferredsales commissions. In accordance with Statement of Position 98-5,the commissions paid for the sale of Integrity Fund of Funds,Inc.'s shares have been expensed as incurred.  Thecontingent deferred sales charges received from early redemptionsfrom Integrity Fund of Funds, Inc. have been recorded asrevenue.  Effective January 1, 2001, the Company isamortizing most of its sales commissions over 5 years for taxpurposes. 

**Other assets**- Other assets include debt issue costs, computer software costs,and other miscellaneous assets.  Debt issue costs areamortized over the life of the corresponding debt and computersoftware costs are amortized over an estimated useful life. 

**Advertising**- Costs of advertising and promotion are expensed as incurred.Advertising and promotion costs aggregated $46,232 in 2006,$66,409 in 2005 and $55,436 in 2004. 

**Earnings percommon share** - Basic earnings per common share was computedusing the weighted average number of shares outstanding of13,696,486 in 2006, 13,430,040 in 2005 and 13,064,779 in 2004. Diluted earnings per common share is computed using theweighted average number of shares outstanding adjusted for shareequivalents arising from unexercised stock warrants, stockoptions, and written put options.  The weighted averageshares outstanding used in computing diluted earnings per commonshare were 13,696,486 in 2006, 13,430,040 in 2005 and 13,064,779in 2004. 

**Income taxes**- The Company files a consolidated income tax return with itswholly owned subsidiaries.  The amount of deferred taxbenefit or expense is recognized as of the date of theconsolidated financial statements, utilizing currently enactedtax laws and rates.  Deferred tax benefits are recognized inthe financial statements for the changes in deferred tax assetsbetween years. 

**Reclassification** - Certain amounts from 2004 and 2005 havebeen reclassified to conform to the 2006 presentation. These reclassifications had no effect on the Company's netincome. 

**Impact of NewlyIssued and Proposed Accounting Standards -** The FinancialAccounting Standards Board ("FASB") has issued Interpretation No.48 ("FIN48"), "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in an enterprise's financial statements in accordancewith FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 also prescribes a recognition threshold and measurementstandard for the financial statement recognition and measurementof an income tax position taken or expected to be taken in a taxreturn.  In addition, FIN 48 provides guidance onderecognition, classification, interest and penalties, accountingin interim periods, disclosure and transition. 

The Companypresently recognizes income tax positions based on management'sestimate of whether it is reasonably possible that a liabilityhas been incurred for unrecognized income tax benefits byapplying FASB Statement No. 5, Accounting for Contingencies. 

The provisions ofFIN 48 will be effective for the Company on January 1,2007.  Earlier application by the Company is not permittedbecause the Company previously issued interim financialstatements during 2006.  The provisions of FIN 48 are to beapplied to all tax positions upon initial adoption of thisstandard.  Only tax positions that meet themore-likely-than-not recognition threshold at the effective datemay be recognized or continue to be recognized upon adoption. 

The cumulativeeffect of applying the provisions of FIN 48 will be reported asan adjustment to the opening balance of retained earnings (orother appropriate components of equity) for the fiscal year ofadoption.  The Company does not believe the adoption of FIN48 will have a significant effect on the Company's consolidatedfinancial statements. 

In February of2006, the Financial Accounting Standards Board ("FASB") issuedStatement of Financial Accounting Standards ("SFAS") No. 155,"Accounting for Certain Hybrid Financial Instruments," anamendment to FASB Statements No. 133 and 140.  SFAS No. 155amends SFAS No. 133, "Accounting for Derivative Instruments andHedging Activities," to resolve issues addressed in SFAS No. 133Implementation Issue No. D1, "Application of Statement 133 toBeneficial Interests in Securitized Financial Assets."  SFASNo. 155 also amends SFAS No. 140, "Accounting for Transfers andServicing of Financial Assets and Extinguishments ofLiabilities," to eliminate the prohibition on a qualifyingspecial purpose entity from holding a derivative financialinstrument that pertains to a beneficial interest other thananother derivative financial instrument.  SFAS No. 155 iseffective for all financial instruments acquired or issued afterthe beginning of an entity's first fiscal year that begins afterSeptember 15, 2006.  The Company has not issued nor does itcurrently hold any financial instruments that would be affectedby SFAS No. 155 and does not anticipate that SFAS No. 155 willhave any impact on its consolidated financial statements on thedate the statement becomes effective. 

In March of 2006,the Financial Accounting Standards Board ("FASB") issuedStatement of Financial Accounting Standards ("SFAS") No. 156,"Accounting for Servicing of Financial Assets - an amendment ofFASB Statement No. 140."  SFAS No. 156 amends FASB StatementNo. 140, "Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities," with respect to theaccounting for separately recognized servicing assets andservicing liabilities. 

SFAS No. 156: 

(a)     Requires an entity to recognize aservicing asset or servicing liability each time it undertakes anobligation to service a financial asset by entering into aservicing contract in certain situations.

(b)     Requires all separately recognizedservicing assets and servicing liabilities to be initiallymeasured at fair value, if practicable.

(c)     Permits an entity to choose eitherthe amortization method or the fair value measurement method foreach class of separately recognized servicing assets andservicing liabilities.

(d)     At its initial adoption, permits aone-time reclassification of available-for-sale securities totrading securities by entities with recognized servicing rights,without calling into question the treatment of otheravailable-for-sale securities under Statement 115, provided thatthe available-for-sale securities are identified in some manneras offsetting the entity's exposure to changes in fair value ofservicing assets or servicing liabilities that a servicer electsto subsequently measure at fair value.

(e)     Requires separate presentation ofservicing assets and servicing liabilities subsequently measuredat fair value in the statement of financial position andadditional disclosures for all separately recognized servicingassets and servicing liabilities. 

Adoption of SFASNo. 156 is required as of the beginning of the first fiscal yearthat begins September 15, 2006.  The Company does notanticipate that the adoption of SFAS No. 156 will have asignificant effect on the Company's consolidated financialstatements.  

In September of2006, the Financial Accounting Standards Board ("FASB") issuedStatement of Financial Accounting Standards ("SFAS") No. 157,"Fair Value Measurements."  SFAS No. 157 defines fair value,establishes a framework for measuring fair value in generallyaccepted accounting principles and expands disclosure about fairvalue measurements.  SFAS No. 157 is effective for fiscalyears beginning after November 15, 2007.  SFAS No. 157applies under other accounting pronouncements that require orpermit fair value measurements where fair value is the relevantmeasurement attribute.  Accordingly, SFAS No. 157 does notrequire any new fair value measurements.  The Company cannotpredict what, if any, impact SFAS No. 157 will have on itsconsolidated financial statements when it becomes effective in2008. 

NOTE 2 - **CASH AND CASHEQUIVALENTS** 

Cash and cashequivalents at December 31, 2006 and 2005 consist of thefollowing: 
|             | CurrentMaturity | Current InterestRate |   |      |   |
|------------------|-----------------|----------------------|--------|-----------|--------|
|             |            | Amount               |
|             |            | 2006                 | 2005   |
| Cash in checking | Demand          | -                    | $      | 1,850,563 | $      | 1,236,631 |
| Cash in savings  | Demand          | 0.19%                |   | 686       |   | 300,760 |
|             |            |                 | $      | 1,851,249 | $      | 1,537,391 |
|                  |                 |                      |        |           |        |  |  |  |  |

NOTE 3 - **INVESTMENTS IN AND TRANSACTIONSWITH SPONSORED MUTUAL FUNDS** 

The Company'sinvestments in sponsored mutual funds held as available-for-saleat December 31, 2006 and 2005: 
|                | AggregateCost       | Gross UnrealizedHolding Gains (Losses) |   |        |
|---------------------|---------------------|----------------------------------------|--------|--------|
|                |                     |
| Aggregate FairValue |                |
|                | 2006 - Mutual Funds |                                   | $      | 223    | $ | (10) | $ | 213 |   |   |
|                |                |                                   |   |   |   |   |   |   |   |   |
|                | 2005 - Mutual Funds |                                   | $      | 217    | $ | (9) | $ | 208 |   |   |
|                     |                     |                                        |        |        |  |  |  |  |  |  |  |  |   |

Dividends earned onthe Company's investments in sponsored mutual funds aggregated $7in 2006, $13 in 2005 and $326 in 2004.   

The Companyprovides services to the Funds, which had aggregate net assetsunder management at December 31, 2006 of $442,008,564.  Allservices rendered by the Company are provided under contractsthat definitively set forth the services to be provided and thefees to be charged.  The majority of these contracts aresubject to periodic review and approval by each of the Fund'sBoard of Directors, Trustees and Shareholders.  Revenuesderived from services rendered to the sponsored mutual funds were$5,461,110 in 2006, $4,657,953 in 2005 and $4,273,276 in2004. 

Accounts receivablefrom the sponsored mutual funds aggregated $475,000 and $409,000at December 31, 2006 and 2005, respectively. 

NOTE 4 - **PROPERTY AND EQUIPMENT** 

Property andequipment at December 31, 2006 and 2005, consists of thefollowing: 
|   | 2006                                     | 2005   |
|--------|------------------------------------------|--------|
|   | Office furniture and equipment           | $      | 709,208 | $ | 662,701 |
|   | Building and land                        |   | 1,280,104 |   | 1,278,912 |
|   |                                     | $      | 1,989,312 | $ | 1,941,613 |
|   | Accumulated depreciation andamortization |   | (811,854) |   | (731,016) |
|   |                                     | $      | 1,177,458 | $ | 1,210,597 |

Depreciationexpense totaled $81,120, $87,665and $85,964 in 2006, 2005 and2004, respectively. 

NOTE 5 - **BUSINESS ACQUISITIONS** 

**PurchaseCombinations** - 

On April 22, 2005,the Company acquired the management rights to the IPS MillenniumFund and the IPS New Frontier Fund from IPS Advisory, Inc. ("IPSAdvisory"), and merged them into a new Integrity Fund called theIntegrity Growth & Income Fund.  The two funds hadcombined assets of approximately $57 million at the time ofacquisition.  The purchase agreement called for totalconsideration of approximately 656,000 common shares of theCompany.  The Company provided IPS Advisory with 250,000common shares upon closing.  The remaining consideration ofapproximately 406,000 common shares, which is subject toadjustment based on retention of assets in the fund, is to beissued as follows:  203,000 common shares at the one-yearanniversary of the closing date, and 203,000 common shares at thetwo-year anniversary of the closing date.  The shares willbe subject to a put option, which will allow the holders of theshares to put them back to the Company at a price equal to themarket price of the Company's shares as of the closing date,which was $.36 per share.  The put option will beexercisable with respect to one-third of the shares per yearstarting on the third anniversary of the closing date.  TheCompany will also provide IPS Advisory with a stock optionincentive bonus based on growth in assets in the Fund based onthe following schedule:  150,000 options on the Company'scommon shares when assets of the Fund reach $100 million and150,000 options on the Company's common shares when the assets ofthe Fund reach $200 million.  The options will have a strikeprice of $.65 per share and mature 10 years from the closingdate.  The securities issued in connection with thistransaction will be issued on a private placement basis. . InApril of 2006, the one-year anniversary payment of approximately158,603 common shares was made, which reflected the assets of theacquired funds at the one-year anniversary.  In December of2006, the liability relating to this acquisition was valued atapproximately $199,000 to reflect the assets in the acquiredfunds as of December 31, 2006. 

On September 19,2003, the Company acquired the management rights to the fourstock funds in the Willamette Family of Funds.  The fourfunds had combined assets of approximately $63 million at thetime of acquisition.  The purchase agreement called fortotal consideration of approximately $1,400,000.  Themajority of the purchase price, or approximately $900,000, waspaid upon closing.  The remaining consideration ofapproximately $500,000, which was subject to adjustment based onretention of assets in the funds, was to be paid asfollows:  $350,000 within five business days of the one-yearanniversary of the closing date, and $150,000 within fivebusiness days of the two-year anniversary of the closingdate.  The total purchase price was paid by utilizing acommercial bank loan and lines of credit, as well as availablecash on hand.  In September of 2004, the one-yearanniversary payment of approximately $323,000 was made, whichreflected the assets of the acquired funds at the one-yearanniversary.  In September of 2005, the final payment ofapproximately $90,000 was made, which reflected the assets in theacquired funds at the two-year anniversary. 

On May 23, 2003,the Company acquired the management rights to the CNB Funds,which included the $13 million Canandaigua Equity Fund, alarge-cap growth fund, and the $1 million Canandaigua BondFund.  The purchase agreement called for total considerationof approximately $285,000.  The majority of the purchaseprice, or approximately $160,000, was paid upon closing. The remaining consideration of approximately $125,000, which wassubject to adjustment based on retention of assets in the funds,was to be paid as follows:  $62,500 at the one-yearanniversary of the closing date, and $62,500 at the two-yearanniversary of the closing date.  The total purchase pricewas paid by using available cash on hand.  In June of 2004,the one-year anniversary payment of approximately $44,000 waspaid, which reflected the assets in the acquired funds at theone-year anniversary.  In June of 2005, the final payment ofapproximately $26,000 was made, which reflected the assets in theacquired funds at the two-year anniversary. 

On January 15,2002, the Company acquired 100% of the equity stock of CapitalFinancial Services, Inc. ("CFS"), a full-service brokerage firmbased in Madison, Wisconsin.  CFS is registered with the SECas an investment advisor and broker-dealer and also with the NASDas a broker-dealer.  CFS specializes in providing investmentproducts and services to independent investment representatives,financial planners, and investment advisors and currentlysupports over 300 investment representatives and investmentadvisors.  The purchase consideration, taking into effectthe 2 for 1 (2:1) forward stock split effective July 1, 2002, wascomposed of $1,140,000 in cash, 1,500,000 shares of the Companycommon stock to be issued in three (3) annual installmentsbeginning at the date of purchase, a $250,000 convertibledebenture to be issued one year from the purchase date, and500,000 options to purchase common stock of the Company at anoption strike price of $0.50 per share. 

Pursuant to theterms of the purchase agreement whereby CFS was acquired,1,500,000 shares of $.0001 par value common stock of the Companywere issued in three (3) annual installments beginning at thedate of purchase.  The shares have a put right, whereby theinstallment shares may be put back to the Company at the rate of$0.50 per share.  The put right may be exercised at any timewithin the ninety-day period following the first, second, andthird anniversaries of the purchase.  The put rights arenon-accumulative and each installment will expire if notexercised during the scheduled redemption period.  InJanuary of 2003, 2004, and 2005, the put options on the threeinstallments of shares were exercised.  As a result, theCompany paid $250,000 to repurchase 500,000 shares in each of theyears 2003, 2004, and 2005. 

Also pursuant tothe terms of the purchase agreement whereby CFS was acquired, onJanuary 15, 2003, the Company issued convertible debenturesdivided among the prior shareholders of CFS in the total amountof $250,000, subject to certain provisions of the Stock PurchaseAgreement dated January 15, 2002, which may increase or decreasethe amount of the debenture to reflect undisclosed or unknownliabilities of CFS, loss of producing broker revenue base,recovery from third parties, and the costs of suchrecovery.  The debenture principal will be payable January15, 2006 and will pay interest on the principal sum from January15, 2003 at the rate of four percent (4%) per annum on asemi-annual basis beginning on July 15, 2003 and thereafter onJanuary 15th and July 15th of each yearuntil the principal balance is paid.  All payments will beapplied first to interest and any remainder to reduction ofprincipal.  The debenture will be convertible asfollows:  beginning on the date of issuance and until theprincipal is paid in accordance with the terms of this agreement,the holder of this convertible debenture shall have the option toconvert all or any portion of this convertible debenture to$.0001 par value common stock of the Company at the rate of twoshares for each one dollar of convertible debenture (2 shares per$1.00 converted) issued by the debenture holder.  In Januaryof 2006, the Company paid $250,000 to retire the convertibledebentures. 

The primary reasonsfor the acquisition were to acquire a full-service retailbrokerage distribution system as well as to acquire theinvestment advisory service operations of CFS.  The primaryfactors contributing to the purchase price were the presence ofan established group of approximately 90 investmentrepresentatives and investment advisors, the existingrelationship with a reputable clearing firm, the fact thatapproximately 95% of the business of CFS is processed as packagedproducts, i.e. mutual funds and insurance products, and tocapture the revenue stream of approximately $6.4 million. The estimated fair value of the equity of CFS was recorded at$78,392.  The excess of purchase price over the estimatedfair value of the equity of CFS was $2,117,711, which wasrecorded as goodwill. 

The operations andfinancial position of CFS were accounted for in the consolidatedfinancial statements of the Company beginning January 1,2002. 

NOTE 6 - **LONG-TERM DEBT** 

Long-term debt atDecember 31, 2006 and 2005 was as follows:

|   |                            | CurrentPortion |   |   |   |
|--------|---------------------------------|----------------|--------|--------|--------|
|   | Rate                            | 2006           | 2005   |   |
|   | Long-term debt:                 |           |   |   |   |   |   |   |
|   | First Western Bank              | 7.25%          |   | 22,344 |   | 380,651 |   | 401,483 |
|   | First Western Bank              | 8.25%          |   | -      |   | - |   | 702,168 |
|   | Subordinate commercial notes    | 9.00%          |   | -      |   | 561,000 |   | 561,000 |
|   | Subordinate corporate notes     | 9.25%          |   | -      |   | 2,000,000 |   | 2,000,000 |
|   | Convertible promissory note     | 6.50%          |   | -      |   | 950,000 |   | - |
|   | Convertible debenture           | 4.00%          |   | -      |   | - |   | 250,000 |
|   | Future payments on acquisitions |           |   | -      |   | 198,507 |   | 224,094 |
|   |                            |           |   |   |   |   |   |   |
|   | Totals                          |           | $      | 22,344 | $      | 4,090,158 | $ | 4,138,745 |
|        |                                 |                |        |        |        |  |  |  |  |  |  |  |  |

Summaries of theterms of the current long-term debt agreements follow: 

**First WesternBank** - In June of 1999, the Company converted its outstandingbalance of $500,000 borrowed on its bank line-of-credit tolong-term debt.  The debt was refinanced in October of 2005and currently carries an interest rate of 7.25%, with monthlypayments of $4,105.  On October 1, 2010, the remainingbalance will be due in full.  

In June of 2003,the Company borrowed $900,000 on a $1,200,000 line ofcredit.  The debt carried an interest rate of 1.25% abovethe prime rate, with monthly payments of $23,200.  InDecember of 2003, the Company borrowed the remaining $300,000 onthe line of credit.  The loan was modified in May of 2006,at which time an additional $301,866 was injected to theoutstanding balance of the loan.  After the modification,the loan carried an interest rate of 8.25%, and based on themonthly payments, would have been paid in full in May of2010.  In October of 2006, the loan was paid in full. 

**SubordinateCommercial Notes** - The Company approved a $1 millionintra-state subordinate commercial note offering limiting thesale in North Dakota, to North Dakota residents only.  Thesubordinate commercial notes do not represent ownership in theCompany.  As of December 31, 2006, $561,000 in subordinatecommercial notes was outstanding.  The subordinatecommercial notes carry an interest rate of 9% per annum, payablesemi-annually, and mature June 30, 2008.  The Company cancall the subordinate commercial notes at par anytime after July1, 2003. 

**SubordinateCorporate Notes**  - The Company approved a $2 millionintra-state subordinate corporate note offering limiting the salein North Dakota, to North Dakota residents only.  Thesubordinate corporate notes do not represent ownership in theCompany.  As of December 31, 2006, $2,000,000 in subordinatecorporate notes was outstanding.  The subordinate corporatenotes carry an interest rate of 9.25% per annum, payableannually, and mature January 1, 2011.  The Company can callthe subordinate corporate notes at par anytime after December 1,2007. 

**ConvertiblePromissory Note  -** In October of 2006, the Companyissued a $950,000 convertible promissory note to PawnMart, Inc.,in a private placement.  The unsecured note carries aninterest rate of 6.5% per annum, payable semi-annually, andmatures on October 15, 2016.  The holder of the note has theright, at any time after October 15, 2009, to convert the note inwhole or in part, into $0.0001 par value common shares of theCompany.  The conversion price shall be equal to $0.50 pershare.  The entire principal amount of this note shall beautomatically converted into common shares at the conversionprice on October 15, 2016.  ** ** 

**ConvertibleDebentures** - see Note 5 - Business Acquisitions 

**Future Paymentson Acquisitions** - see Note 5 - Business Acquisitions 

The aggregateamount of required future payments on the above long-term debt atDecember 31, 2006, is as follows: 
| Year endingDecember 31, |   |
|-------------------------|--------|
| 2007                    | $      | 22,344 |
| 2008                    |   | 675,085 |
| 2009                    |   | 82,987 |
| 2010                    |   | 359,742 |
| 2011                    |   | 2,000,000 |
| Thereafter              |   | 950,000 |
|                    |   |   |
| Total due               | $      | 4,090,158 |

NOTE 7 - **INCOME TAXES** 

The provision forincome taxes is based on earnings before income taxes reportedfor financial statement purposes and consisted of thefollowing: 
|                            | 2006                                 | 2005   | 2004     |
|---------------------------------|--------------------------------------|--------|----------|
| Current income taxes:           |                                 |   |     |   |   |   |
|                            | Federal                              | $      | -        | $ | - | $ | 158,000 |
|                            | State                                |   | -        |   | - |   | 24,000 |
|                            | Total current payable                | $      | -        | $ | - | $ | 182,000 |
| Deferred tax benefit (expense): |                                 |   |     |   |   |   |
|                            | Federal                              | $      | (9,700)  | $ | 104,000 | $ | 268,000 |
|                            | State                                |   | (1,391)  |   | 14,750 |   | 38,110 |
|                            | Total deferred tax benefit (expense) | $      | (11,091) | $ | 118,750 | $ | 306,110 |
|                            |                                 |   |     |   |   |   |
| Total provision for income tax  |                                 |   |     |   |   |   |
|                            | benefit (expense)                    | $      | (11,091) | $ | 118,750 | $ | 124,110 |
|                                 |                                      |        |          |  |  |  |  |

Deferred taxesarise because of different tax treatment between financialstatement accounting and tax accounting, known as "temporarydifferences."  The Company records the tax effect of thesetemporary differences as "deferred tax assets" (generally itemsthat can be used as a tax deduction or credit in future periods)and "deferred tax liabilities" (generally items for which theCompany has received a tax deduction and has not yet beenrecorded in the consolidated statement of operations).  

Deferred tax assets(liabilities) were comprised of the following: 
|                      | 2006                                         | 2005    | 2004    |
|---------------------------|----------------------------------------------|---------|---------|
| Deferred tax assets:      |                                         |    |    |   |   |   |
|                      | Net operating and capital loss carryforwards | $       | 105,628 | $ | 133,648 | $ | 71,224 |
|                      | Stock option compensation                    |    | 552,916 |   | 500,935 |   | 375,135 |
|                      | Other                                        |    | -       |   | - |   | - |
|                      | Total deferred tax assets                    | $       | 658,544 | $ | 634,583 | $ | 446,359 |
|                      |                                         |    |    |   |   |   |
| Deferred tax liabilities: |                                         |    |    |   |   |   |
|                      | Accumulated depreciation                     | $       | 38,896  | $ | 51,406 | $ | 45,044 |
|                      | Accumulated amortization                     |    | 277,820 |   | 203,695 |   | 50,479 |
|                      | Total deferred tax liabilities               | $       | 316,716 | $ | 255,101 | $ | 95,523 |
|                      |                                         |    |    |   |   |   |
| Net deferred tax asset    | $                                            | 341,828 | $       | 379,482 | $ | 350,836 |
|                           |                                              |         |         |  |  |  |  |
| Net deferred tax asset - current     | $ | 5,833   | $ | 52,609  | $ | -       |
|--------------------------------------|---|---------|---|---------|---|---------|
| Net deferred tax asset - non-current | $ | 335,995 | $ | 326,873 | $ | 350,836 |
| Net deferred tax asset               | $ | 341,828 | $ | 379,482 | $ | 350,836 |

As of December 31,2006, the Company had federal and state net operating loss carryforwards of approximately $17,000 and $655,000, respectively,which will expire over the next six to twenty years ifunused. 

As of December 31,2006, the Company also has a capital loss carry forward ofapproximately $88,000 that will expire in 2008 if unused. 

A reconciliation ofthe difference between the expected income tax expense (benefit)computed at the U.S. statutory income tax rate of 35% and theCompany's income tax expense is shown in the following table: 
|                                            |     2006 |   2005 |     2004 |
|-------------------------------------------------|-------------------------|-------------|-------------------------|
| Federal benefit (taxes) at statutoryrates       | $                       | 17,000      | 35%                     | $ | 158,000 | 35% | $ | 131,000 | 35% |
| State benefit (taxes), net of federal taxeffect |                    | 2,000       | 5%                      |   | 23,000 | 5% |   | 19,000 | 5% |
| Other                                           |                    | (30,091)    | (63%)                   |   | (62,250) | (14%) |   | (25,890) | (7%) |
|                                            |                    |        |                    |   |   |   |   |   |   |
| Actual tax benefit (expense)                    | $                       | (11,091)    | (23%)                   | $ | 118,750 | 26% | $ | 124,110 | 33% |
|                                                 |                         |             |                         |  |  |  |  |  |  |  |  |

Included in "other"are amounts separately allocated to stockholders' equity torecognize the related tax effect of the change in net unrealizedgain or loss on securities available for sale, ESOP planactivity, and effects of stock-based employee compensation forthe years ended December 31, 2006, 2005 and 2004. 

NOTE 8 - **STOCK WARRANTS, STOCK SPLITS,AND STOCK OPTIONS** 

The Company hasauthorized 2,100,000 perpetual warrants to certain organizers,directors, officers, employees and shareholders of theCompany.  All of these warrants were issued between 1987 and1990 and were accounted for in accordance with the provisions ofAccounting Principles Board ("APB") Opinion No. 25, Accountingfor Stock Issued to Employees.  No compensation expense wasrecorded for these warrants as the exercise price exceeded themarket price of the stock at the date of issue.  The Companyplans to continue to apply APB Opinion No. 25 in accounting forthese warrants.   These warrants, at the date of issue,allowed for the purchase of shares of stock at $2.00 pershare.  The exercise prices of these warrants were adjustedto reflect stock splits of 2 for 1 in 2002, and 11 for 10 in 1990and 1989.  2,000 warrants (adjusted for the 2 for 1 stocksplit in 2002) were exercised in 1997, leaving an outstandingbalance of 2,098,000 warrants as of December 31, 2006. 

In addition to thewarrants discussed above, the Company has also issued warrants topurchase 600,000 common shares in March of 2004 at an exerciseprice of $.60 per share.  These options are considered to befully vested and have a contractual expiration date of September1, 2010. 

The Company hasentered into employment agreements with two key employees of theCompany.  Upon execution of these employment agreements, aone-time granting of stock options took effect.  Theseoptions are fully vested and have a perpetual life.  Eachemployment contract stated the strike price for which optionswere granted.  In addition, the contracts will grant optionsshould the employee reach specified performance goals.  Thenumber of shares authorized for granting of options under theseemployment agreements is limited only by continued employment andthe ability to reach these performance goals.  Theemployment contracts contain severance packages, buyout clauses,or other forms of commitments.  None of these commitmentsrequire payment of more than one year's salary. 

The Company hasalso issued options to directors as well as various otheremployees.  The options granted to employees were granted inconnection with reaching certain performance goals.  Theseoptions are considered to be fully vested and have a contractuallife of ten years. 

As part of theacquisition of Capital Financial Services, Inc. (see Note 5 -Business Acquisitions), 500,000 options were granted in Januaryof 2002 at a strike price of $.50.  These options are fullyvested and expire ten years from the acquisition date. 

The Company plansto issue additional common shares if any of its outstandingoptions are exercised.  There have been no options exercisedto date. 

In December of2005, the Company adopted the fair value recognition provisionsof SFAS No. 123R for stock-based employee compensation, using themodified retroactive restatement method.  In connection withthe use of the modified retroactive restatement method, financialstatement information was restated for all periodspresented.  Total compensation costs and deferred taxbenefits recognized for stock-based compensation awards were asfollows: 
|                             |   | 2006    |   | 2005    |   | 2004    |
|----------------------------------|--------|---------|--------|---------|--------|---------|
| Compensation costs               | $      | 132,600 | $      | 310,500 | $      | 634,000 |
| Less:  deferred tax benefit |   | 51,979  |   | 125,801 |   | 248,881 |
| Compensation costs, net of taxes | $      | 80,621  | $      | 184,699 | $      | 385,119 |

The fair value ofeach option was estimated on the date of the grant using theBlack-Scholes option-pricing model.  The expected life ofoptions granted range from 5 years to 10 years.  Thefollowing are the weighted average assumptions for each year: 
|                            | 2006    | 2005    | 2004    |
|---------------------------------|---------|---------|---------|
| Risk-free interest rate         | 4.85%   | 4.08%   | 3.78%   |
| Expected dividend yield         | 0%      | 0%      | 0%      |
| Expected stock price volatility | 82%     | 83%     | 79%     |
| Expected life of options        | 5 years | 5 years | 7 years |

Option activity forthe last three years was as follows: 
|                             | Number ofOptions | Weighted AverageExercise Price per Share | Weighted AverageGrant Date Fair Value | AggregateIntrinsic Value |
|----------------------------------|------------------|------------------------------------------|---------------------------------------|--------------------------|
|                             |
|                             |
| Outstanding on January 1, 2004   | 1,640,000        | $                                        | .45                                   | $                        | .30 |   |   |
|                             | Granted          | 2,195,613                                |                                  | .63                      |   | .29 |   |   |
|                             | Exercised        | -                                        |                                  | -                        |   | - |   |   |
|                             | Canceled         | -                                        |                                  | -                        |   | - |   |   |
| Outstanding on December 31, 2004 | 3,835,613        | $                                        | .55                                   | $                        | .29 | $ | 0 |
|                             | Granted          | 1,412,500                                |                                  | .49                      |   | .22 |   |   |
|                             | Exercised        | -                                        |                                  | -                        |   | - |   |   |
|                             | Canceled         | -                                        |                                  | -                        |   | - |   |   |
| Outstanding on December 31, 2005 | 5,248,113        | $                                        | .53                                   | $                        | .27 | $ | 0 |
|                             | Granted          | 510,000                                  |                                  | .49                      |   | .26 |   |   |
|                             | Exercised        | -                                        |                                  | -                        |   | - |   |   |
|                             | Canceled         | -                                        |                                  | -                        |   | - |   |   |
| Outstanding on December 31, 2006 | 5,758,113        | $                                        | .53                                   | $                        | .27 | $ | 608,000 |
|                                  |                  |                                          |                                       |                          |  |  |  |  |

Exercisable optionsat the end of 2006, 2005, and 2004 were 5,758,113, 5,248,113, and3,835,613, respectively.  The following table summarizesinformation concerning options outstanding and exercisable as ofDecember 31, 2006: 
| Range of ExercisePrices | NumberOutstanding | Weighted AverageRemaining Contractual Life (Years) | Weighted AverageExercise Price | NumberExercisable | Weighted AverageExercise Price |
|-------------------------|-------------------|----------------------------------------------------|--------------------------------|-------------------|--------------------------------|
| $ .00 to $ .49          | 1,380,000         | Perpetual                                          | $                              | .42               | 1,380,000                      | $ | .42 |
| $ .50 to $ .99          | 3,865,000         | 8*                                                 | $                              | .52               | 3,865,000                      | $ | .52 |
| $1.00 to $1.50          | 513,113           | 8*                                                 | $                              | 1.01              | 513,113                        | $ | 1.01 |
| $ .00 to $ 1.50         | 5,758,113         | 8*                                                 | $                              | .53               | 5,758,113                      | $ | .53 |

* Excludes optionswith a perpetual life 

NOTE 9 - **EMPLOYEE BENEFIT PLANS** 

The Companysponsors a 401(K) plan for all its employees. Effective January1, 2005, the Company implemented a match of up to 4% of employeedeferrals.  Plan expenses paid for by the Company were$7,796, $4,790, and $4,004 for the years ended December 31, 2006,2005, and 2004, respectively.  The matching contributionspaid by the Company were $92,825 and $91,991 for the years endedDecember 31, 2006 and 2005, respectively. 

The Companyestablished an employee stock ownership plan ("ESOP") effectiveJanuary 1, 1999.  Pursuant to the ESOP, each year theCompany will determine the amount to contribute to theplan.  Contributions are made at the discretion of the Boardof Directors.  To be eligible to participate in the plan, anemployee must have completed one year of service and haveattained age 21.  

During 2001, theESOP purchased 208,000 shares of the Company's common stock, at aweighted average price of $.48 per share.  The purchase wasfunded with a loan of $100,000 from the Company, which iscollateralized by the unallocated Company shares owned by theESOP.  The loan will be repaid primarily from Companycontributions.  The outstanding principal balance of theloan as of December 31, 2006, was $62,000 and the interest rateis 7% over a 15-year life.  All previous loans to the ESOPhave been paid in full and shares purchased by those loans havebeen allocated to employees.  

The shares owned bythe ESOP are held by a third party trustee and released forallocation to participants as repayments of the loan aremade.  The number of shares released for allocation in anyyear is based upon the ratio of current year principal andinterest payments to the total current year and projected futureyear's principal and interest payments.  Shares of commonstock are allocated to each employee based on the relationship oftheir total compensation to the total compensation of allparticipants. 

At December 31,2006 and 2005, cumulative allocated shares remaining in the trustwere 581,072 and 567,128 respectively, and unallocated shareswere 142,928 and 156,872 respectively, of which 13,944 and 13,944respectively, were committed-to-be allocated.  Total ESOPcontribution expense recognized was $10,131, $9,062 and $579 forthe years ended December 31, 2006, 2005, and 2004,respectively.  The fair value of unallocated shares was$85,757 at December 31, 2006. 

NOTE 10 - **NET CAPITAL REQUIREMENTS** 

The Company'sbroker-dealer subsidiaries (Integrity Funds Distributor, Inc. andCapital Financial Services, Inc.) are member firms of theNational Association of Securities Dealers, Inc. and areregistered with the Securities and Exchange Commission (SEC) asbroker-dealers.  Under the Uniform Net Capital Rule (Rule15c3-1 under the Securities Exchange Act of 1934), thesubsidiaries are required to maintain a minimum net capital and aratio of aggregate indebtedness to net capital, as defined, ofnot more than 15 to 1.  At December 31, 2006, thesesubsidiaries had net capital of $200,486 and $1,094,112; minimumnet capital requirements of $25,000 and $95,956; excess netcapital of $175,486 and $998,156 and ratios of aggregateindebtedness to net capital of .75 to 1, and 1.32 to 1,respectively.  The subsidiaries are exempt from the reserverequirements of Rule 15c3-3. 

NOTE 11 - **OPERATING SEGMENTS** 

Integrity MutualFunds, Inc., derives a portion of its revenues and net incomefrom providing investment advisory, distribution, transferagency, fund accounting, and other administrative services to theFunds.  Capital Financial Services, Inc. ("CFS") providesanother substantial portion of revenues through sales of mutualfunds, insurance products, and various other securities. CFS also earns investment advisory fees in connection with itsregistered investment advisor. 

The Companyorganizes its current business units into two reportablesegments: mutual fund services and broker-dealer services. Themutual fund services segment provides investment advisory,distribution, transfer agency, fund accounting, and otheradministrative services to the Funds.  The broker-dealersegment distributes securities and insurance products to retailinvestors through a network of registered representatives. 

The Company'sreportable segments are strategic business units that offerdifferent products and services. They are managed separatelybecause each business requires different technology and marketingstrategies. Most of the businesses were acquired as a unit, andthe management at the time of the acquisition was retained. The accounting policies are the same as those described in thesummary of significant accounting policies. 

As of, and for theyear ended, December 31, 2006: 
|   | Mutual FundServices                                                        | Broker-DealerServices | Total       |
|--------|----------------------------------------------------------------------------|-----------------------|-------------|
|   |
|   | Revenue from external customers                                            | $                     | 6,526,128   | $ | 20,260,836 | $ | 26,786,964 |
|   | Inter-segment revenues                                                     |                  | -           |   | 98,895 |   | 98,895 |
|   | Interest expense                                                           |                  | 346,606     |   | - |   | 346,606 |
|   | Stock-based employee compensation                                          |                  | 132,600     |   | - |   | 132,600 |
|   | Sales commissions amortized                                                |                  | 334,254     |   | - |   | 334,254 |
|   | Depreciation and amortization                                              |                  | 153,858     |   | 3,503 |   | 157,361 |
|   | Income (loss) from continued operationsbefore income tax benefit (expense) |                  | (1,034,533) |   | 986,237 |   | (48,296) |
|   | Income tax benefit (expense)                                               |                  | 375,509     |   | (396,600) |   | (11,091) |
|   | Income (loss) from continued operations                                    |                  | (659,024)   |   | 599,637 |   | (59,387) |
|   | Segment assets                                                             |                  | 12,724,714  |   | 2,819,808 |   | 15,544,522 |
|   | Expenditure for segment assets                                             |                  | 33,791      |   | 14,199 |   | 47,990 |

As of, and for theyear ended, December 31, 2005: 
|   | Mutual FundServices                                                        | Broker-DealerServices |            Total |
|--------|----------------------------------------------------------------------------|-----------------------|-------------------------------------------------------------------------|
|   |
|   | Revenue from external customers                                            | $                     | 5,319,221                                                               | $ | 14,121,535 | $ | 19,440,756 |
|   | Inter-segment revenues                                                     |                  | -                                                                       |   | 24,523 |   | 24,523 |
|   | Interest expense                                                           |                  | 301,934                                                                 |   | - |   | 301,934 |
|   | Stock-based employee compensation                                          |                  | 310,500                                                                 |   | - |   | 310,500 |
|   | Sales commissions amortized                                                |                  | 316,928                                                                 |   | - |   | 316,928 |
|   | Depreciation and amortization                                              |                  | 141,713                                                                 |   | 1,442 |   | 143,155 |
|   | Income (loss) from continued operationsbefore income tax benefit (expense) |                  | (1,113,101)                                                             |   | 661,938 |   | (451,163) |
|   | Income tax benefit (expense)                                               |                  | 382,150                                                                 |   | (263,400) |   | 118,750 |
|   | Income (loss) from continued operations                                    |                  | (730,951)                                                               |   | 398,538 |   | (332,413) |
|   | Segment assets                                                             |                  | 13,298,738                                                              |   | 1,972,568 |   | 15,271,306 |
|   | Expenditure for segment assets                                             |                  | 71,683                                                                  |   | 9,810 |   |  81,493 |

As of, and for theyear ended, December 31, 2004: 
|   | Mutual FundServices                                              | Broker-DealerServices | Total      |
|--------|------------------------------------------------------------------|-----------------------|------------|
|   |
|   | Revenue from external customers                                  | $                     | 4,942,676  | $ | 12,047,895 | $ | 16,990,571 |
|   | Interest expense                                                 |                  | 275,247    |   | - |   | 275,247 |
|   | Stock-based employee compensation                                |                  | 634,000    |   | - |   | 634,000 |
|   | Sales commissions amortized                                      |                  | 321,942    |   | - |   | 321,942 |
|   | Depreciation and amortization                                    |                  | 98,799     |   | 726 |   | 99,525 |
|   | Income (loss) from continued operationsbefore income tax expense |                  | (967,427)  |   | 593,317 |   | (374,110) |
|   | Income tax expense                                               |                  | 356,690    |   | (232,580) |   | 124,110 |
|   | Income (loss) from continued operations                          |                  | (610,737)  |   | 360,737 |   | (250,000) |
|   | Segment assets                                                   |                  | 12,527,689 |   | 1,458,690 |   | 13,986,379 |
|   | Expenditure for segment assets                                   |                  | 39,944     |   | 1,765 |   | 41,709 |

Reconciliation of SegmentInformation 
|   | 2006                                     | 2005   | 2004       |
|--------|------------------------------------------|--------|------------|
|   | Revenues                                 |   |       |   |   |   |   |
|   | Total revenues for reportable segments   |   | 26,885,859 |   | 19,465,279 |   | 16,990,571 |
|   | Elimination of inter-company revenues    |   | (98,895)   |   | (24,523) |   | - |
|   | Consolidated total revenue               | $      | 26,786,964 | $ | 19,440,756 | $ | 16,990,571 |
|   |                                     |   |       |   |   |   |   |
|   | Profit                                   |   |       |   |   |   |   |
|   | Total reportable segment profit (loss)   | $      | (59,387)   | $ | (332,413) | $ | (250,000) |
|   |                                     |   |       |   |   |   |   |
|   | Assets                                   |   |       |   |   |   |   |
|   | Total assets for reportable segments     | $      | 15,544,522 | $ | 15,271,306 | $ | 13,986,379 |
|   | Elimination of inter-company receivables |   | (78,392)   |   | (78,392) |   | (78,392) |
|   | Consolidated assets                      | $      | 15,466,130 | $ | 15,192,914 | $ | 13,907,987 |

NOTE 12 - **COMMITMENTS ANDCONTINGENCIES** 

The Company enteredinto a lease for office space located in Huntington, NewYork.  The monthly lease payments were $918.  The6-month lease, with the option to renew, expired on February 17,2004.  The lease was renewed for an additional 6-monthperiod ending August 31, 2004.  The Company entered into athree-year lease for new office space in Huntington, New York onJune 1, 2004.  The monthly lease payments are $1,500 for thefirst two years, and $1,545 for the third year.  Total rentexpense was $18,315, $18,000, and $18,090 for the years endedDecember 31, 2006, 2005, and 2004, respectively. 

The Company hasvarious leases for office equipment that expire over the nextseveral years through 2008.  The total rent expense forthese leases was $33,000, $30,000, and $27,000 for December 31,2006, 2005 and 2004 respectively.  

The following is aschedule by years of future minimum rental payments on operatingleases as of December 31, 2006. 
|   | Years ending December 31,            |   |   |
|--------|--------------------------------------|--------|--------|
|   | 2007                                 | $      | 39,421 |
|   | 2008                                 |   | 11,174 |
|   | 2009                                 |   | -      |
|   | Total minimum future rental payments | $      | 50,595 |

NOTE 13 - **GOODWILL** 

The changes in thecarrying amount of goodwill for the years ended December 31,2006, 2005, and 2004, are as follows: 
|   | Mutual FundServices                                                 | Broker-DealerServices | Total     |
|--------|---------------------------------------------------------------------|-----------------------|-----------|
|   |
|   | Balance as of January 1, 2004                                       | $                     | 7,071,584 | $ | 2,459,850 | $ | 9,531,434 |
|   | Goodwill acquired during the period                                 |                  | -         |   | 18,902 |   | 18,902 |
|   | Goodwill disposed of during the period                              |                  | (120,851) |   | - |   | (120,851) |
|   | Impairment losses                                                   |                  | -         |   | - |   | - |
|   | Balance as of December 31, 2004                                     | $                     | 6,950,733 | $ | 2,478,752 | $ | 9,429,485 |
|   | Goodwill acquired during the period                                 |                  | 468,656   |   | - |   | 468,656 |
|   | Goodwill acquisition price adjustment duringthe period (see Note 5) |                  | (67,752)  |   | - |   | (67,752) |
|   | Impairment losses                                                   |                  | -         |   | - |   | - |
|   | Balance as of December 31, 2005                                     | $                     | 7,351,637 | $ | 2,478,752 | $ | 9,830,389 |
|   | Goodwill acquired during the period                                 |                  | -         |   | - |   | - |
|   | Goodwill acquisition price adjustment duringthe period (see Note 5) |                  | (37,588)  |   | - |   | (37,588) |
|   | Impairment losses                                                   |                  | -         |   | - |   | - |
|   | Balance as of December 31, 2006                                     | $                     | 7,314,049 | $ | 2,478,752 | $ | 9,792,801 |

Goodwill impairmentis determined using a multi-step process.  The first step ofthe goodwill impairment test is to determine the fair value of areporting unit, including goodwill.  The estimates of fairvalue of a reporting unit, generally the Company's businesssegments, are determined using various valuation techniques. Thetwo main techniques include the use of industry valuationbenchmarks for comparable publicly traded companies andacquisition transaction multiples of comparable companies. Foreach method, valuation benchmarks are collected from third partysources such as independent investment banks or reportingservices. Various industry average valuation multiples arecalculated. Examples include value to revenue, value to assetsunder management and value to operating income. The averageindustry valuation multiples are then applied to the Company'soperating characteristics to determine an estimate of theCompany's business segment fair value. For example, the industryaverage multiple of value to assets under management is appliedto the Company's assets under management. The business segmentsfair value is then calculated as a weighted average of thedifferent industry valuation multiples. 

The next step is tocalculate the implied fair value of goodwill by determining thefair value of equity for each business segment and substitutingit for the book value of equity on the balance sheet. The impliedfair value of goodwill is then calculated. 

The final step isto compare the implied fair value of goodwill as calculated tothe book value of goodwill for each business segment. If theimplied fair value of goodwill is equal to or greater than thebook value of goodwill, there is no impairment. If the impliedfair value of goodwill is less than the book value of goodwill,there is impairment and the goodwill is written down to the fairvalue number. 

The Company testsgoodwill for impairment annually during the second quarter ofeach fiscal year.  Testing is done at the reporting unitlevel using a fair value approach, in accordance with theprovisions of SFAS 142.  The annual testing resulted in noimpairment charges to goodwill in 2004, 2005, or 2006.  Ifan event occurs or circumstances change that would more likelythan not reduce the fair value of a reporting unit below itscarrying value, goodwill will be evaluated for impairment betweenannual tests. 

NOTE 14 - **EARNINGS PER SHARE** 

Basic earnings pershare are computed by dividing earnings available to commonstockholders by the weighted average number of common sharesoutstanding during the period.  Diluted earnings per sharereflect per share amounts that would have resulted if dilutivepotential common stock had been converted to common stock. The following reconciles amounts reported in the financialstatements: 
|                                                                | For the YearEnded December 31, 2006 |
|---------------------------------------------------------------------|-------------------------------------|
|                                                                |                                | Income(Numerator) | Shares(Denominator) |   | Per-shareAmount |
| Loss from continuing operations                                     | $                                   | (59,387) |   |   |   |
| Less: preferred stock dividends                                     |                                | (91,500) |   |   |   |
| Loss available to commonstockholders - Basic earnings per share     |                                | (150,887) | 13,696,486 | $ | (.01) |
| Effect of dilutive securities:                                      |                                |   |   |   |   |
| Put options                                                         |                                | - |   |   |   |
| Income available to commonstockholders - Diluted earnings per share | $                                   | (150,887) | 13,696,486 | $ | (.01) |
|                                                                | For the YearEnded December 31, 2005 |
|---------------------------------------------------------------------|-------------------------------------|
|                                                                |                                | Income(Numerator) | Shares(Denominator) |   | Per-shareAmount |
| Loss from continuing operations                                     | $                                   | (332,413) |   |   |   |
| Less: preferred stock dividends                                     |                                | (91,500) |   |   |   |
| Loss available to commonstockholders - Basic earnings per share     |                                | (423,913) | 13,430,040 | $ | (.03) |
| Effect of dilutive securities:                                      |                                |   |   |   |   |
| Put options                                                         |                                | - |   |   |   |
| Income available to commonstockholders - Diluted earnings per share | $                                   | (423,913) | 13,430,040 | $ | (.03) |
|                                                                       | For the YearEnded December 31, 2004 |
|----------------------------------------------------------------------------|-------------------------------------|
|                                                                       |                                | Income(Numerator) | Shares(Denominator) |   | Per-shareAmount |
| Loss from continuing operations                                            | $                                   | (250,000) |   |   |   |
| Less: preferred stock dividends                                            |                                | (94,550) |   |   |   |
| Loss available to commonstockholders -							 Basic earnings per share     |                                | (344,550) | 13,064,779 | $ | (.03) |
| Effect of dilutive securities:                                             |                                |   |   |   |   |
| Put options                                                                |                                | - | - |   |   |
| Income available to commonstockholders -							 Diluted earnings per share | $                                   | (344,550) | 13,064,779 | $ | (.03) |

In December of2003, the Company issued 3,050,000 Series A preferred shares fortotal proceeds of $1,525,000.  The holders of the Series Apreferred shares are entitled to receive cumulative dividends ata rate of 6% per year, payable quarterly.  These dividendsare in preference and priority to any payment of any dividend onthe Company's common shares.  The holders of the Series Apreferred shares are also entitled to a liquidation preference of$.50 per share.  The Series A preferred shares areconvertible to the Company's common shares at the rate of oneshare of common shares for one share of Series A preferred sharesat any time after issuance.  At any time after five yearsfrom issuance, the Company has the right to redeem any or all ofthe Series A preferred shares after a sixty day notice uponpayment of the liquidation preference of $.50 per share to theholders, for a total of $1,525,000. 

Additionally, theCompany had outstanding warrants and options exercisable for atotal of 8,456,113 common shares as of December 31, 2006, aspresented in Note 8 - Stock Warrants, Stock Splits, and StockOptions, all of which were antidilutive. 

NOTE 15 - **COMPREHENSIVE INCOME(LOSS)** 

Comprehensiveincome (loss) is reported on the accompanying consolidatedstatement of shareholders' equity as a component of retainedearnings (accumulated deficit) and consists of net income (loss)and other gains and losses affecting shareholders' equity that,under accounting principles generally accepted in the UnitedStates of America, are excluded from net income (loss).  Forthe Company, such items consist primarily of unrealized gains andlosses on available-for-sale equity investments. 

The followingsummary sets forth the components of other comprehensive income(loss), net of tax, accumulated in shareholders' equity:
|                                    | For the Year EndedDecember 31, 2006 |
|-----------------------------------------|-------------------------------------|
| Net Loss                                | $                                   | (59,387) |
| Other Comprehensive Income, net of tax: |                                |   |
| Unrealized loss onsecurities            |                                | (1) |
| Total Comprehensive Loss                | $                                   | (59,388) |
|                                    | For the Year EndedDecember 31, 2005 |
|-----------------------------------------|-------------------------------------|
| Net Loss                                | $                                   | (332,413) |
| Other Comprehensive Income, net of tax: |                                |   |
| Unrealized loss onsecurities            |                                | (265) |
| Total Comprehensive Loss                | $                                   | (332,678) |
|                                    | For the Year EndedDecember 31, 2004 |
|-----------------------------------------|-------------------------------------|
| Net Loss                                | $                                   | (250,000) |
| Other Comprehensive Income, net of tax: |                                |   |
| Unrealized gainson securities           |                                | 1,029 |
| Total Comprehensive Loss                | $                                   | (248,971) |

NOTE 16 - **RISKS AND UNCERTAINTIES** 

The Company has aconcentration of credit risk for cash deposits at variousfinancial institutions.  These deposits may at times exceedamounts covered by insurance provided by the U.S. Federal DepositInsurance Corporation (FDIC).  The maximum loss that couldhave resulted from the risk totaled approximately $1,598,114 asof December 31, 2006. 

NOTE 17 **- RELATED PARTY TRANSACTIONS** 

Mr. Jeffrey A.Cummer was elected a director of Integrity Mutual Funds, Inc. onJune 1, 2006.  Mr. Cummer is president and senior portfoliomanager of SMH Capital Advisors, Inc.  Integrity MutualFunds, Inc. pays monthly sub-advisory fees to SMH CapitalAdvisors, Inc. for advisory services provided to the IntegrityHigh Income Fund and Integrity All Season Fund. Sub-advisory payments made to SMH Capital Advisors, Inc. totaled$386,826 in 2006 and $144,636 in 2005.  

In May of 2006,Xponential, Inc. issued a tender offer to purchase up to3,000,000 shares of Integrity Mutual Funds, Inc. common shares ata purchase price of $0.40 per share.  At the close of thetender offer, Xponential, Inc. had obtained 1,323,642 shares,representing approximately 9.76% of the outstanding IntegrityMutual Funds, Inc. common shares.  Mr. Cummer is Chairman ofthe Board and an executive officer of Xponential, Inc.  

In October of 2006,Integrity Mutual Funds, Inc. issued a $950,000 convertiblepromissory note to PawnMart, Inc., in a private placement. The unsecured note carries an interest rate of 6.5% per annum,payable semi-annually, and matures on October 15, 2016.  Theholder of the note has the right, at any time after October 15,2009, to convert the note in whole or in part, into $0.0001 parvalue common shares of the Company.  The conversion priceshall be equal to $0.50 per share.  The entire principalamount of this note shall be automatically converted into commonshares at the conversion price on October 15, 2016.  PawnMart, Inc. is a wholly owned subsidiary of Xponential,Inc.   Mr. Cummer is Chairman of the Board andExecutive Vice President of PawnMart, Inc. 

Mr. Steven D. Lysnewas elected a director of Integrity Mutual Funds, Inc. on May 27,2005.  Mr. Lysne is CEO and general manager of SRTCommunications, Inc.  Integrity Mutual Funds, Inc. pays SRTCommunications, Inc. for telephone and internet services. Payments made to SRT Communications, Inc. totaled $60,333 in2006, $60,348 in 2005, and $53,769 in 2004. 

NOTE 18 - **SUBSEQUENT EVENTS** 

On January 24,2007, Integrity Mutual Funds, Inc., announced that Robert E.Walstad, founder, Chief Executive Officer and Chairman of itsBoard of Directors is retiring from his positions with theCompany, effective February 1, 2007.  Concurrent with theretirement, the Company announced that Mark R. Anderson,President and Chief Operating Officer of the Company, wouldsucceed Mr. Walstad as Director and Chief Executive Officer ofthe Company. 

In connection withMr. Walstad's retirement, the Company has entered into aSeparation Agreement with Mr. Walstad, dated January 24, 2007(the "Separation Agreement").  Under the terms of theSeparation Agreement, subject to Mr. Walstad meeting hisobligations thereunder in all material respects, Mr. Walstad isentitled to receive a cash payment in the amount of $274,500,options to purchase 60,000 common shares, and certain commissionpayments. 

On February 16,2007, Integrity Mutual Funds, Inc. announced that it had signedan agreement to acquire certain assets of United HeritageFinancial Services (UHFS).  UHFS currently has 120independent registered representatives and is a wholly ownedsubsidiary of United Heritage Financial Group, Inc., of Meridian,Idaho.  UHFS's registered representatives will become partof Capital Financial Services, Inc. (CFS), the retail brokeragedivision of Integrity. 

Pursuant to theagreement, in exchange for receipt of the assets of UHFS setforth above, Integrity Mutual Funds, Inc. agrees to pay to UHFS500,000 restricted IMFD shares and a deferred earn out cashpayment totaling a maximum of $900,000 to be paid in 21 quarterlyinstallments.

 

ADDITIONALINFORMATION

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM				ON ADDITIONALINFORMATION

To the Stockholders and Directors				Integrity Mutual Funds, Inc. andSubsidiaries				Minot, North Dakota

Our report on our audit of the basicconsolidated financial statements of Integrity Mutual Funds, Inc.and Subsidiaries for the years ended December 31, 2006, 2005 and2004, appears on page F-1.  Those audits were made for thepurpose of forming an opinion on such consolidated financialstatements taken as a whole.  The information on page F-25,related to the 2006, 2005 and 2004 consolidated financialstatements, is presented for purposes of additional analysis andis not a required part of the basic consolidated financialstatements.  Such information, has been subjected to theauditing procedures applied in the audits of the basicconsolidated financial statements, and, in our opinion, theinformation is fairly stated in all material respects in relationto the basic consolidated financial statements for the yearsended December 31, 2006, 2005 and 2004, taken as a whole. 

We also have previously audited, inaccordance with standards of the Public Company AccountingOversight Board (United States), the consolidated balance sheetsof Integrity Mutual Funds, Inc. and Subsidiaries as of December31, 2003 and 2002, and the related consolidated statements ofoperations, stockholders' equity, and cash flows for each of thetwo years in the periods ended December 31, 2003 and 2002, noneof which is presented herein, and we expressed unqualifiedopinions on those consolidated financial statements.  In ouropinion, the information on page F-25 relating to the 2003 and2002 consolidated financial statements is fairly stated in allmaterial respects in relation to the basic consolidated financialstatements from which it has been derived.

BRADY, MARTZ & ASSOCIATES, P.C.				Minot, North Dakota USA

March 6, 2007

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES

SELECTEDFINANCIAL DATA*

FOR THE YEARSENDED DECEMBER 31, AS INDICATED
|                              | 2006   | 2005       | 2004   | 2003       | 2002   |
|-----------------------------------|--------|------------|--------|------------|--------|
| Operating revenue                 | $      | 26,786,964 | $      | 19,440,756 | $      | 16,990,571 | $ | 13,956,173 | $ | 14,443,661 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Operating income (loss)           | $      | 64,700     | $      | (204,125)  | $      | (165,018) | $ | 496,009 | $ | 434,467 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Income tax benefit (expense)      | $      | (11,091)   | $      | 118,750    | $      | 124,110 | $ | (144,330) | $ | (73,298) |
|                              |   |       |   |       |   |   |   |   |   |   |
| Basic earnings (loss) per share   | $      | (.01)      | $      | (.03)      | $      | (.03) | $ | .01 | $ | .03 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Diluted earnings (loss) per share | $      | (.01)      | $      | (.03)      | $      | (.03) | $ | .01 | $ | .03 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Total assets                      | $      | 15,466,130 | $      | 15,192,914 | $      | 13,907,987 | $ | 15,675,216 | $ | 12,693,909 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Long-term obligations             | $      | 4,090,158  | $      | 4,138,745  | $      | 2,749,649 | $ | 4,422,427 | $ | 2,894,511 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Shareholders' equity              | $      | 9,398,208  | $      | 9,403,721  | $      | 9,505,829 | $ | 9,201,106 | $ | 7,152,773 |
|                              |   |       |   |       |   |   |   |   |   |   |
| Dividends paid                    | $      | 0          | $      | 0          | $      | 0 | $ | 0 | $ | 0 |

*Excludes discontinued operations of MagicInternet Services, Inc.

INTEGRITY MUTUAL FUNDS,INC., AND SUBSIDIARIES

QUARTERLY RESULTSOF CONSOLIDATED OPERATIONS (UNAUDITED)
|                         | Quarter Ended                |
|------------------------------|------------------------------|
|                         | 3-31-06                      | 6-30-06 | 9-30-06 | 12-31-06 |
| Revenues                     | $                            | 6,347,664 | $ | 6,356,201 | $ | 7,015,276 | $ | 7,067,823 |
| Operating income (loss)      |                         | (78,763) |   | 93,472 |   | (168,118) |   | 218,109 |
| Other income (expense)       |                         | (69,398) |   | 16,534 |   | (7,090) |   | (53,042) |
| Income tax benefit (expense) |                         | 30,097 |   | (23,140) |   | 56,406 |   | (74,454) |
| Net income (loss)            |                         | (118,065) |   | 86,867 |   | (118,801) |   | 90,612 |
|                         |                         |   |   |   |   |   |   |   |
| Per Share(1)                 |                         |   |   |   |   |   |   |   |
|                         | Operating income (loss)      |   | (0.01) |   | 0.01 |   | (0.01) |   | 0.01 |
|                         | Other income (expense)       |   | (0.01) |   | 0.00 |   | (0.00) |   | (0.00) |
|                         | Income tax benefit (expense) |   | 0.00 |   | (0.00) |   | 0.00 |   | (0.00) |
|                              |                              |  |  |  |  |  |  |  |  |
|                    |                    |
|-------------------------|-------------------------|
|                    | **Quarter Ended**       |
|                    | 3-31-05                 | 6-30-05 | 9-30-05 | 12-31-05 |
| Revenues                | $                       | 4,548,021 | $ | 4,631,193 | $ | 5,070,069 | $ | 5,191,473 |
| Operating income (loss) |                    | 34,650 |   | (71,269) |   | (82,531) |   | (84,975) |
| Other expense           |                    | (49,672) |   | (51,413) |   | (80,578) |   | (65,375) |
| Income tax benefit      |                    | 9,457 |   | 45,759 |   | 12,198 |   | 51,336 |
| Net loss                |                    | (5,565) |   | (76,923) |   | (150,911) |   | (99,014) |
|                    |                    |   |   |   |   |   |   |   |
| Per Share(1)            |                    |   |   |   |   |   |   |   |
|                    | Operating income (loss) |   | 0.00 |   | (0.00) |   | (0.01) |   | (0.01) |
|                    | Other expense           |   | (0.00) |   | (0.00) |   | (0.01) |   | (0.01) |
|                    | Income tax benefit      |   | 0.00 |   | 0.00 |   | 0.00 |   | 0.01 |
|                         |                         |  |  |  |  |  |  |  |  |
|                         | **Quarter Ended**            |
|------------------------------|------------------------------|
|                         | 3-31-04                      | 6-30-04 | 9-30-04 | 12-31-04 |
| Revenues                     | $                            | 4,306,668 | $ | 4,251,239 | $ | 4,136,926 | $ | 4,295,738 |
| Operating income (loss)      |                         | 324,678 |   | (152,156) |   | 21,273 |   | (358,813) |
| Other expenses               |                         | (66,475) |   | (61,652) |   | (29,523) |   | (51,442) |
| Income tax benefit (expense) |                         | (110,580) |   | 78,461 |   | 2,397 |   | 153,832 |
| Net income (loss)            |                         | 147,623 |   | (135,347) |   | (5,853) |   | (256,423) |
|                         |                         |   |   |   |   |   |   |   |
| Per Share(1)                 |                         |   |   |   |   |   |   |   |
|                         | Operating income (loss)      |   |  0.03 |   |  (0.01) |   | 0.00 |   | (0.03) |
|                         | Other expense                |   | (0.01) |   | (0.01) |   | (0.00) |   | (0.00) |
|                         | Income tax benefit (expense) |   | (0.01) |   |  0.01 |   | 0.00 |   | 0.01 |
|                              |                              |  |  |  |  |  |  |  |  |  |

The abovefinancial information is unaudited.  In the opinion ofmanagement, all adjustments (which are of a normal recurringnature) have been included for a fair presentation.