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

(Mark One)
[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934 For the fiscal year ended June 30, 2005.

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

         For the transition period from ____________ to ____________.

         Commission file number 0-12697

                             DYNATRONICS CORPORATION
                 (Name of small business issuer in its charter)

           Utah                                        87-0398434
   ------------------------                      ----------------------
(State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

                             7030 Park Centre Drive
                         Salt Lake City, Utah 84121-6618
                         -------------------------------
               (Address of principal executive offices, Zip Code)

Issuer's telephone number  (801) 568-7000

Securities registered under Section 12(b) of the Exchange Act:   None

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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes   X     No
                                                            -------       -----

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

Indicate by check mark whether or not the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).    Yes             No   X
                                                   -------        -----

The issuer's revenues for the fiscal year ended June 30, 2005 were $20.4
million. The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the issuer was approximately $13.7 million as of
September 20, 2005, based on the average bid and asked price on that date.

As of September 20, 2005, there were 9,020,339 shares of the issuer's common
stock outstanding.

                       Documents Incorporated by Reference

The issuer hereby incorporates information required by Part III (Items 9, 10, 11
and 14) of this report by reference to the issuer's definitive proxy statement
to be filed pursuant to Regulation14A and provided to shareholders subsequent to
the filing of this report.

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


<PAGE>


                                TABLE OF CONTENTS

                                     PART I

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

                                   PART II

Item 5.     Market for Common Equity, Related Stockholder Matters and Small
            Business Issuer Purchases of Equity Securities.....................8
Item 6.     Management's Discussion and Analysis or Plan of Operation..........9
Item 7.     Financial Statements.............................................F-1
Item 8.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure..........................................18
Item 8A.    Controls and Procedures...........................................18
Item 8B.    Other Information.................................................18

                                  PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act.................18
Item 10.    Executive Compensation............................................18
Item 11.    Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters...................................18
Item 12.    Certain Relationships and Related Transactions....................18
Item 13.    Exhibits..........................................................18
Item 14.    Principal Accountants Fees and Services...........................19
Signatures    ................................................................20
Certifications  .........................................................Exhibit

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

                                       ii
<PAGE>
                                     PART I


Item 1. Description of the Business
        ---------------------------

         Dynatronics was organized as a Utah corporation on April 29, 1983. The
principal business of the Company is the design, manufacture, marketing and
distribution of physical medicine products and aesthetic products.

         Dynatronics currently sells approximately 2,000 physical medicine and
aesthetic products. We manufacture approximately 20% of the physical medicine
products and 16% of the aesthetic products in our product line. The remainder of
the products are manufactured by third parties for whom Dynatronics acts as a
distributor.

         Sales of manufactured physical medicine products in both fiscal years
2005 and 2004 represented approximately 75% of the Company's physical medicine
product sales with the balance each year sold by the Company as a distributor.
Sales of manufactured aesthetic products in fiscal years 2005 and 2004
represented approximately 96% and 97%, respectively of the Company's aesthetic
product sales with the balance each year sold by the Company as a distributor.

         We primarily distribute our products in three ways: 1) through a
network of independent dealers nationwide and internationally, 2) through direct
relationships with certain national accounts, and 3) through a full-line
catalog. Some of our aesthetic products are also sold through manufacturer
representatives or direct to the practitioner by Company representatives.

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

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

         In 2000, the Company expanded its offering of aesthetic products with
the introduction of the Synergie Peel(TM) microdermabrasion device. The Synergie
Peel device reduces fine lines, wrinkles, and other superficial skin damage by
gently peeling away the top layers of skin, exposing smoother, softer skin. In
conjunction with the Synergie Peel device, during fiscal year 2000 Dynatronics
introduced Calisse(TM) - a unique line of skin care products designed to enhance
the effects of the Synergie Peel treatments.

         In September 2003, the Company introduced the Dynatron Solaris(TM)
Series, a line of combination therapy devices. The Solaris product line consists
of five combination devices, four of which were part of the initial release with
the fifth device introduced in June 2004. The devices offer varying combinations
of electrotherapy modalities and ultrasound with the option of adding
Dynatronics' infrared light therapy technology. Various forms of infrared and
visible light therapy have been used for decades in Europe and Asia for treating
pain as well as a wide variety of soft tissue conditions. Light therapy has also
been used in tissue regeneration applications and in accelerating healing of
chronic wounds. During fiscal 2004, the Company received marketing clearance
from FDA for its low-power laser probe. This laser probe was introduced to the
market in August 2004 and provides 625mW of output at a wavelength of 875
nanometers ("nm"). The probe is 600 times more powerful than our first laser
probes introduced in the 1980's. The increased power allows treatment times to
be dramatically reduced. The Solaris Series devices are engineered to
accommodate future Dynatronics' laser or light therapy probes.

         In July 2005, we announced the introduction of eight new products over
the coming months. The products we expect to introduce first will be the
Dynatron Xp Infrared Light Pad and Dynatron XpB (Booster Box). With the
introduction of the Dynatron Xp and XpB, we believe practitioners will gain a
tool that will allow unattended therapy of large segments of the body such as

                                       1
<PAGE>


the back, thigh or shoulder. Another new product that is expected to be
introduced early in the second quarter of fiscal year 2006 is the Dynatron
Solaris X3, a stand-alone light therapy unit. The X3 is designed to have the
ability to operate two Xp Infrared Light Pads or two infrared light therapy
probes simultaneously. Two new probes are being developed for the X3 - one with
a much more powerful infrared output and the other with a combination infrared
and blue wavelength output.

         In the second quarter of fiscal year 2006, the Company anticipates
introducing the DX2 combination traction and light therapy device. We believe
that combining the pain relieving characteristics of infrared light therapy as
offered through our new Xp Light Pad, with the traditional benefits of
decompression therapy through traction will make our DX2 traction device one of
the most unique devices of its kind on the market. It is designed to provide
practitioners a more efficacious way to relieve pain using combination therapy.
To support this product, we also plan to introduce a new traction therapy table,
the Dynatron T4.

         Lastly, we will be introducing the Dynatron iBox, a new drug delivery
device for iontophoresis that we believe is the most technologically advanced
product of its kind on the market. We intend to use this device to leverage
sales of our iontophoresis electrodes.

Description of Products Manufactured and/or Distributed by Dynatronics

         Dynatronics manufactures and distributes a broad line of medical
equipment including therapy devices, medical supplies and soft goods, treatment
tables and rehabilitation equipment. In addition, we manufacture and distribute
a line of aesthetic equipment including aesthetic massage and microdermabrasion
devices as well as skin care products. Our products are used primarily by
physical therapists, chiropractors, sports medicine practitioners, podiatrists,
plastic surgeons, dermatologists, aestheticians and other aesthetic services
providers.

Physical Medicine Products
--------------------------

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

         Therapeutic Ultrasound - Ultrasound therapy is a process of providing
therapeutic deep heat to soft tissues through the introduction of sound waves
into the body. It is one of the most common modalities used in physical therapy
today for treating pain, muscle spasms and joint contractures.

         Dynatronics markets twelve devices that include electrotherapy,
ultrasound or a combination of both modalities in a single device. The Dynatron
125 ultrasound device and the Dynatron 525 electrotherapy device target the
low-priced segment of the market. The "50 Series Plus" products offer
combinations of electrotherapy and ultrasound modalities at a reasonable cost to
the practitioner. The Solaris products provide our most advanced technology in
combination therapy devices by adding infrared light therapy capabilities to
enhanced electrotherapy and ultrasound combination devices. (See "Schedule of
Therapy Products" below.) Dynatronics intends to continue development of its
electrotherapy and ultrasound technology and remain a leader in the design,
manufacture and sale of therapy devices.

         Infrared Light Therapy - The Company's five Dynatron Solaris units
feature infrared light therapy technology. These units are capable of powering a
cluster probe containing 32 infrared superluminous diodes ("SLD") at 880 nm
wavelength along with four red spectrum SLD's in the 640 to 660 nm wavelength
range. A laser probe was introduced in August 2004. It contains a laser diode
generating 625mW of output at 875nm wavelength. Two new light probes and a light
pad are currently being developed by the Company. These products are being
engineered to work with current Solaris devices and are scheduled to be
introduced in fiscal year 2006. The benefits of light therapy have been
documented by hundreds of research studies published over the past two decades.

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

                                       2
<PAGE>

         Iontophoresis - Since 1997, we have distributed Life-Tech's line of
iontophoresis products which are used in physical medicine applications
primarily for treating inflammation. In September 2004, we were named a master
distributor by Naimco Corp. for their new line of "IontoPlus" iontophoresis
electrodes. Iontophoresis uses electrical current to transdermally deliver drugs
such as lidocaine for localized treatment of inflammation without the use of
needles. The Company is currently developing its own proprietary iontophoresis
device - the Dynatron iBox - which is scheduled for introduction in the first
half of fiscal year 2006.

         The following chart lists the therapy device products manufactured
and/or distributed by the Company.

                          Schedule of Therapy Products
                 Manufactured and/or Distributed by Dynatronics

   Product Name                                 Description
   ------------                                 -----------

 Dynatron(R) 125                      Ultrasound
 Dynatron(R) 525                      Electrotherapy
 Iontophor II(R) & Microphor(R) +     Iontophoresis
 Dynatron(R) 150 Plus**               Ultrasound
 Dynatron(R) 550 Plus**               Multi-modality Electrotherapy
 Dynatron(R) 650 Plus**               Multi-modality Electrotherapy
 Dynatron(R) 850 Plus**               Combination Electrotherapy/Ultrasound
 Dynatron(R) 950 Plus**               Combination Electrotherapy/Ultrasound
 Dynatron(R) STS                      STS Chronic Pain Therapy
 Dynatron(R) STS Rx                   STS Chronic Pain Therapy
 Dynatron(R) STSi                     Combination Electrotherapy/STS Chronic
                                        Pain Therapy
 Dynatron Solaris(TM) 701             Ultrasound with Light Therapy
 Dynatron Solaris(TM) 705             Electrotherapy with Light Therapy
 Dynatron Solaris(TM) 706             Electrotherapy with Light Therapy
 Dynatron Solaris(TM) 708             Combination Electrotherapy/Ultrasound with
                                        Light Therapy
 Dynatron Solaris(TM) 709             Combination Electrotherapy/Ultrasound with
                                        Light Therapy
 Dynatron Solaris(TM) 880             Accessory Infrared Light Probe
 Dynatron Solaris(TM) 890             Accessory Infrared Laser Light Probe
---------------------

Dynatron(R) is a registered trademark (#1280629) owned by Dynatronics
Iontophor II(R) and Microphor(R) are registered trademarks owned by Life-Tech,
   Inc.

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

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

         Dynatronics markets its products through independent dealers and
through a product catalog. In April 2004, we introduced our latest catalog
featuring approximately 2,000 products. We continually seek to update our line
of manufactured and distributed medical supplies and soft goods.

         Treatment Tables and Rehabilitation Equipment - In January 1997,
Dynatronics acquired a metal treatment table manufacturing operation in
Columbia, South Carolina. In July 1999, we consolidated this operation into our
Chattanooga facilities to improve efficiencies. We now manufacture and
distribute motorized and manually operated physical therapy treatment tables,
rehabilitation parallel bars, and other specialty rehabilitation products.

                                       3
<PAGE>

         With the acquisition of Superior and the treatment table manufacturing
operation, Dynatronics became a broad-line supplier to the physical medicine
market which includes physical therapy, chiropractic, podiatry, sports medicine,
industrial and occupational medicine, family practice, long-term care
facilities, and the sub-groups of each of these specialties.

Aesthetic Products
------------------

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

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

         In February 2000, we introduced the Synergie Peel microdermabrasion
device as a companion to the Synergie AMS device. The Synergie Peel device
gently exfoliates the upper layers of skin, exposing softer, smoother skin.

         In January 2004, we introduced the Synergie LT device which provides
light therapy for aesthetic applications. Light therapy is becoming popular in
spas and health clubs for improving skin tone and appearance. Combining elements
of the AMS vacuum massage techniques with microdermabrasion and Synergie LT for
light therapy has provided aestheticians with the ability to provide an enhanced
"ultimate facial" available only with the use of Synergie devices.

Allocation of Sales Among Key Products

         No product accounted for more than 10% of the Company's revenues during
fiscal years 2005 and 2004.

Patents and Trademarks

         Dynatronics holds a patent on the "Target" feature of its
electrotherapy products that will remain in effect until April 4, 2008, a patent
on the multi-frequency ultrasound technology that will remain in effect until
June 2013, and a patent on the microdermabrasion device that will remain in
effect until February 2020. In addition, we hold a patent on the STS technology
for treating chronic pain that will remain in effect until July 17, 2021 and a
patent on the combination of our aesthetic massage and microdermabrasion
technologies that will remain in effect until May 11, 2019. We also hold two
design patents on the microdermabrasion device that will remain in effect until
November 2015. An additional patent application pertaining to the Company's
Solaris light therapy technology has been filed with the U.S. Patent and
Trademark Office and is currently pending. Dynatronics owns the exclusive,
worldwide rights (under a license agreement) to a second existing patent on the
STS technology for the treatment of chronic pain.

         The trademark "Dynatron" has been registered with the United States
Patent and Trademark Office. In addition, U.S. trademark registrations have been
obtained for the trademarks: "Synergie," "Synergie Peel," "Sympathetic Therapy,"
and "Dynatron Solaris," and trademark registration has been obtained or is now
pending for various other product trademarks. Company materials are also
protected under copyright laws, both in the United States and internationally.

Warranty Service

         The Company warrants all products it manufactures for time periods
ranging in length from 90 days to five years from the date of sale. Warranty
service is provided from the Company's Salt Lake City and Chattanooga facilities
according to the service required. These warranty policies are comparable to
warranties generally available in the industry. Warranty claims as a percentage
of gross sales were not material in fiscal years 2005 and 2004.

         Products distributed by Dynatronics carry warranties provided by the
manufacturers of those products. We do not generally supplement these warranties
or provide warranty services for distributed products. We also sell accessory
items for our manufactured products that are supplied by other manufacturers.
These accessory products carry warranties from their original manufacturers
without supplement from Dynatronics.


                                       4
<PAGE>

Customers and Markets

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

         The Company has entered into direct sales relationships with national
and regional chains of physical therapy clinics and hospitals. We sell our
products directly to these clinics and hospitals pursuant to preferred pricing
arrangements. We also have preferred pricing arrangements with key dealers who
commit to purchase certain volumes and varieties of products. No single dealer
or national account or group of related accounts was responsible for 10% or more
of total sales in fiscal years 2005 or 2004.

         Dynatronics exports products to approximately 30 different countries.
International sales (i.e., sales outside North America) increased 63% to
approximately $1,035,686 in fiscal year 2005 compared to approximately $633,800
in fiscal year 2004. The Company is making progress in establishing effective
distribution for its products in international markets. Our Salt Lake City
facility is certified to the ISO 13485 quality standard for medical device
manufacturing. Many of the Company's therapy devices carry the CE Mark, a
designation required for marketing products in the European community that
signifies the device or product was manufactured pursuant to a certified quality
system. The Company has no foreign manufacturing operations. However, we do
purchase certain products and components from foreign manufacturers.

Competition

         Despite significant competition, Dynatronics has distinguished key
products by using the latest technology, such as its patented Target feature,
patented multi-frequency ultrasound technology, and patented STS technology. We
believe that these features, along with integration of advanced technology in
the design of each product, have distinguished Dynatronics' products in a
competitive market. Dynatronics was the first company to integrate light therapy
as part of a combination therapy device. The Company has applied for a patent on
its Solaris light therapy technology. In addition, by manufacturing many of the
medical supplies, soft goods and tables it sells, the Company can focus on
quality manufacturing at competitive prices. We believe these factors give
Dynatronics an edge over many competitors who are solely distributors of such
products.

         Electrotherapy/Ultrasound Competition. Competition in the clinical
market for electrotherapy and ultrasound devices comes from both domestic and
foreign companies. No fewer than a dozen companies produce electrotherapy and/or
ultrasound devices. Some of these competitors are larger and better established,
and have greater resources than the Company. Few companies, domestic or foreign,
provide multiple-modality devices. Furthermore, we believe no competitor offers
a true Target feature or the ultrasound feature of three frequencies on
multiple-sized soundheads for which Dynatronics holds patents. The Company's
primary domestic competitors in the sale of electrotherapy and ultrasound
products include: Encore Medical (Chattanooga Group division), Rich-Mar
Corporation and Mettler Electronics.

         Light Therapy. - Competitors that manufacture and market light therapy
devices include: Encore Medical, Microlight Corp., Erchonia, Thor Laser,
Rich-Mar and Medex, among others. These competitors offer units that are priced
significantly higher than our units or are not as powerful. We are aware of only
one other competitor, Encore Medical, offers a combination light therapy device
that includes electrotherapy and ultrasound capabilities.

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

         Medical Supplies & Soft Goods. The Company competes against various
manufacturers and distributors of medical supplies and soft goods, some of which
are larger, more established and have greater resources than Dynatronics.
Excellent customer service along with providing value to customers is of key
importance in this market. While there are many specialized manufacturers in
this area such as Encore Medical and Fabrication Enterprises, most competitors
are primarily distributors such as North Coast Medical, Ability-One (a division
of Patterson Dental), and Meyer Distributing.

         Iontophoresis. Competition in the iontophoresis market includes Iomed,
Inc., Encore Medical (EMPI division), Birch Point Medical and Naimco. Iomed and
Encore Medical enjoy the largest market share. While Naimco has named

                                       5
<PAGE>

Dynatronics a master distributor, it also distributes directly to the
iontophoresis market and is a competitor in some situations. We have distributed
the Life-Tech products since 1996, but are not an exclusive distributor of those
products. We believe that our strong distribution network is important to our
continued ability to compete in this increasingly competitive market. In
addition, our products target a lower selling price than the products of Iomed,
Encore Medical and Birch Point. We anticipate that the introduction of our new
Dynatron iBox iontophoresis device in fiscal year 2006 will allow us to gain
market share, while, at the same time, increasing profit margins on these
products.

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

         Aesthetic Products. The Company's two primary competitors in the
therapeutic massage industry are LPG Systems, and Silhouette Tone. The Synergie
AMS device utilizes proprietary technology that has been proven effective in a
research study. In addition, we provide a comprehensive training and
certification program for aestheticians. Dynatronics is developing a network of
domestic and international distributors and national accounts, which is expected
to provide another competitive advantage in the marketplace for these products.

         There are a number of competitors in the microdermabrasion market
including: Mega Peel, Diamond Peel, DermaGenesis, DermaMed, E-Med, Integremed,
Medical Alliance, Palomar, Slimtone USA and Soundskin Corp. The Synergie Peel
device incorporates a patented anti-clogging design for the crystals, which sets
it apart from competitors' units. In addition, the system has an innovative
disposable system for the abrasive material, which prevents unwanted contact
with the spent crystals following treatment.

         Many of the competitors in the light therapy segment of the aesthetic
market are relatively new to this segment of the industry and smaller in size
than Dynatronics. Competitors include Revitalite, Silhouette Tone, Photo Actif,
and DermaPulse. The Synergie LT device is the most powerful of all the units on
the market and features a computerized dosage calculation system. The Synergie
LT is also the least expensive of the table model units on the market.

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

Manufacturing and Quality Assurance

         Dynatronics manufactures therapy devices, soft goods and other medical
products at its facilities in Salt Lake City, Utah and Chattanooga, Tennessee.
The Company purchases some components for its manufactured products from
third-party suppliers. All parts and components purchased from these suppliers
meet specifications set by Dynatronics. Trained staff perform all sub-assembly,
final assembly and quality assurance procedures. All component parts used in
Dynatronics' device designs and all raw materials for medical supplies and soft
goods manufacturing are presently readily available from suppliers.

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

         The Company established the Quality First Program, a concept for total
quality management designed to involve each employee in the quality assurance
process. Under this program, employees are not only expected to inspect for
quality, but they are empowered to stop any process and make any changes
necessary to insure that quality is not compromised. An incentive program is
established to insure the continual flow of ideas and to reward those who show
extraordinary commitment to the Quality First concept. Quality First has not
only become the Company motto, but it is the standard by which all decisions are
made. We believe the Quality First Program reinforces employee pride, increases
customer satisfaction, and improves overall operations of Dynatronics.

         Dynatronics is certified to ISO 13485 standards for medical products.
ISO 13485 is an internationally recognized standard for quality systems and
manufacturing processes adopted by over 90 countries. In addition, the Company
has qualified for the CE Mark Certification on its electrotherapy, ultrasound,
light therapy and Synergie products. With the CE Mark Certification, we are able
to market these products throughout the European Union and in other countries
where CE Mark Certification and ISO 13485 certification are recognized.

                                       6
<PAGE>

Research and Development

         In fiscal years 2004 and 2005, Dynatronics focused its resources on an
aggressive R&D campaign to develop eight new products which are scheduled to
begin shipping in the first half of fiscal year 2006. Total R&D expenditures for
2005 were $1,302,722, compared to $1,146,715 in 2004. R&D expenses represented
approximately 6.4% and 5.6% of the revenues of the Company in 2005 and 2004,
respectively. Substantially all of the research and development expenditures
during 2004 and 2005 were for the development of new products, or the upgrading
of existing products.

Regulatory Matters

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

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

         During fiscal year 2003, Congress enacted the Medical Device User Fee
and Modernization Act (MDUFMA). Among other things, this act imposes for the
first time a user fee on medical device manufacturers. Under the provisions of
MDUFMA, manufacturers seeking clearance to market a new device must pay a fee to
the FDA in order to have their applications reviewed. Dynatronics primarily
submits new products for clearance under section 510(k) of the Medical Device
Amendment of the FDC Act. The fee per 510(k) submission in fiscal year 2005 was
$2,802. The fee per submission for new products in fiscal year 2006 will be
approximately $3,066.

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

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

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

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

                                       7
<PAGE>

Environment

         Environmental regulations are not material to our business. Dynatronics
does not discharge into the environment any pollutants that are regulated by a
governmental agency with the exception of the requirement to provide proper
filtering of discharges into the air from the painting processes at our
Tennessee location.

Employees

         On June 30, 2005, we had a total of 132 full-time employees and six
part-time employees, compared to 136 full-time and 11 part-time employees at
June 30, 2004.

Item 2.   Description of Property
          -----------------------

         The Company's headquarters and principal place of business are located
at 7030 Park Centre Drive, Salt Lake City, Utah, 84121. The headquarters consist
of a single facility housing administrative offices and manufacturing space
totaling approximately 36,000 square feet. The Company owns the land and
building, subject to mortgages requiring a monthly payment of approximately
$15,729. The mortgages mature in 2008 and 2013. The Company also owns a 43,200
sq. ft. manufacturing facility in Ooltewah, Tennessee, and accompanying
undeveloped acreage for future expansion subject to a mortgage requiring monthly
payments of $5,641 and maturing in 2017. During fiscal year 2006, the Company
plans to build a 10,000 sq. ft. addition next to its Tennessee facility due to
the anticipated expansion of its manufacturing operations at this location.

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

         The Company owns equipment used in the manufacture and assembly of its
products. The nature of this equipment is not specialized and replacements may
be readily obtained from any of a number of suppliers. The Company also owns
computer equipment and engineering and design equipment used in its research and
development programs.

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

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

Item 4.   Submission of Matters to a Vote of Security Holders.
          ---------------------------------------------------

         No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report. The Company's annual meeting of shareholders will
be held in November 2005.

                                     PART II

Item 5.   Market for Common Equity, Related Stockholder Matters and Small
          ---------------------------------------------------------------
          Business Issuer Purchases of Equity Securities.
          ----------------------------------------------

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

                                                    Year Ended June 30,
                                           2004                      2005
                                           ----                      ----
                                      High         Low         High        Low
                                      ----         ---         ----        ---
1st Quarter (July-September)          $1.59       $ .73        $2.42       $1.30
2nd Quarter (October-December)        $2.41       $1.25        $2.15       $1.40
3rd Quarter (January-March)           $4.08       $1.55        $2.82       $1.59
4th Quarter (April-June)              $3.35       $1.90        $2.24       $1.53

                                       8
<PAGE>

         Holders. As of September 20, 2005, the approximate number of common
stock shareholders of record was 444. This number does not include beneficial
owners of shares held in "nominee" or "street" name. Including beneficial
owners, we estimate that the total number of shareholders exceeds 2,000.

         Dividends. The Company has never paid cash dividends on its common
stock. Our anticipated capital requirements are such that we intend to follow a
policy of retaining earnings in order to finance the development of the
business.

         Sale of Unregistered Securities. The Company has not sold any
securities during the past three years in an unregistered offer and sale.

         Stock Options. In fiscal year 2005, Dynatronics granted options to
employees, officers and directors pursuant to stock option plans. The total
number of shares of common stock issuable under such options is 564,924 shares
with an average exercise price of $1.70 per share. In fiscal year 2004,
Dynatronics granted 118,712 stock options for shares of common stock at an
average exercise price of $1.81 per share.

         Stock Repurchase. On September 3, 2003, the Company announced a stock
repurchase program. The Board of Directors authorized the expenditure of up to
$500,000 to purchase the Company's common stock on the open market pursuant to
regulatory restrictions governing such repurchases. During fiscal year 2004, the
Company purchased 77,400 shares for approximately $89,000, leaving over $400,000
of authorized funds for future stock repurchases. No shares were repurchased
during fiscal year 2005. The stock repurchase program is conducted pursuant to
safe harbor regulations under Rule 10b-18 of the Exchange Act for the repurchase
by an issuer of its own shares.

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

Overview
--------

         Our principal business is the design, manufacture, marketing and
distribution of physical medicine products and aesthetic products. We currently
sell approximately 2,000 physical medicine and aesthetic products through a
network of national and international independent dealers, direct relationships
with certain national accounts, and a full-line catalog.

         Sales of all physical medicine products represented 85% of total
revenues in 2005 compared to 88% in 2004, while sales of aesthetic products
accounted for 9% of total revenues in 2005 and 6% of total revenues in 2004.
Chargeable repairs, billable freight revenue and other miscellaneous revenue
accounted for 6% of total revenues in both 2005 and 2004.

         The manufacture, packaging, labeling, advertising, promotion,
distribution and sale of our products are regulated by numerous national and
local governmental agencies in the United States and other countries, including
the FDA. In addition, the FTC regulates our advertising and other forms of
product promotion and marketing. Failure to comply with applicable FDA, FTC or
other regulatory requirements may result in, among other things, injunctions,
product withdrawals, recalls, product seizures, fines, criminal prosecutions,
limits on advertising, consumer redress, divestiture of assets, and rescission
of contracts.

Selected Financial Data
-----------------------

         The table below summarizes selected financial data contained in the
Company's audited financial statements for the past six fiscal years. The
financial statements for the fiscal years ended June 30, 2005 and 2004 are
included with this report.
<TABLE>
<CAPTION>

                             Selected Financial Data
                            Fiscal Year Ended June 30

                             2005             2004         2003          2002           2001          2000
                         ----------------------------------------------------------------------------------------
<S>                      <C>            <C>            <C>             <C>            <C>            <C>
Net Sales                $  20,404,368  $  20,587,273  $   16,896,992  $  17,133,953  $  17,460,789  $ 15,779,748
Net Income               $     728,816  $     883,300  $       24,799  $     316,101  $     334,179  $     35,910
Net Income
 per share (diluted)     $         .08  $         .10  $          .00  $         .04  $         .04  $        .00
Working Capital          $   7,043,854  $   6,300,582  $    5,516,720  $   5,484,167  $   4,971,946  $  4,550,747
Total Assets             $  13,459,723  $  14,272,579  $   12,713,029  $  12,508,202  $  13,560,347  $ 12,595,581
Long-term Obligations    $   1,914,490  $   2,034,854  $    2,203,779  $   2,331,698  $   2,174,348  $  2,330,501
</TABLE>

                                       9
<PAGE>

Fiscal Year 2005 Compared to Fiscal Year 2004
---------------------------------------------

         The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Audited Financial
Statements and Notes thereto appearing elsewhere in this report.

Net Sales

         For the second consecutive year, net sales for the Company exceeded $20
million. Total net sales for the year ended June 30, 2005 were $20,404,368,
compared to $20,587,273 during fiscal year 2004. Our ability to maintain sales
at this level reflects the popularity and staying power of the Solaris line of
products introduced in fiscal year 2004. The Dynatron Solaris Series is a family
of advanced technology combination therapy devices incorporating seven
electrotherapy waveforms and/or ultrasound therapy in combination with optional
infrared light therapy probes. Infrared light therapy is commonly used for
treating muscle and joint pain as well as arthritis pain and stiffness. Hundreds
of independent research studies have proven the efficacy of light therapy in
clinics around the world. Over the course of fiscal year 2005, we saw sales of
our legacy 50 Series products decline while sales of our Solaris products
increased. Sales of aesthetic products also continued to improve and experienced
a 42% increase in sales over last year.

Gross Profit

         While sales for fiscal year 2005 were consistent with last year, our
gross profit actually improved over fiscal year 2004. During fiscal year 2005,
gross profit was $8,299,289 or 40.7% of net sales compared to $8,200,295 or
39.8% of net sales in 2004. The improvement in gross margin in 2005 reflects the
42% increase in sales of high-margin Synergie devices and related products,
which carry an average gross margin in excess of 50%.

Selling, General and Administrative Expense

         Selling, general and administrative (SG&A) expenses for the year ended
June 30, 2005 were $5,748,529 or 28.2% of net sales compared to $5,528,835 or
26.9% of net sales in 2004. Total SG&A expenses in 2005 increased by $219,694 or
4.0% compared to 2004. Much of the added expense incurred during fiscal year
2005 was directed at enhancing the Company's infrastructure. For example, during
fiscal year 2005, we installed a new enterprise-wide software system to manage
sales orders, accounting functions, manufacturing processes and reporting. This
upgrade benefited every process, procedure, and major function in the Company
and required many overtime hours in the first few months of the fiscal year to
effectively implement this system. Even though the process was difficult and
expensive, we believe that migrating to a more powerful platform will support
future operations of the Company.

         The cost of the new enterprise-wide software system and the added
manpower to support this new system increased SG&A expenses during fiscal year
2005 and will continue to be an added expense in future years. We believe this
new system is improving manufacturing efficiencies due to better information
management offered by the new system.

         The three primary components affecting SG&A expenses in fiscal year
2005 compared to 2004 were:

         o    Approximately $191,500 in additional costs to install and support
              the new enterprise-wide software system including additional
              production labor expenses.
         o    Approximately $107,000 in increased Synergie advertising and
              tradeshow activities as well as higher labor expenses to support
              the higher sales of Synergie aesthetic products.
         o    Partially offsetting the increased SG&A expenses were $100,500 in
              lower incentive compensation expenses.

Research and Development

         The Company continues to pursue an aggressive R&D strategy. During
fiscal year 2005, we increased the size of our engineering department adding
capabilities in both mechanical and electrical engineering. Increasing our staff
of engineers has enabled us to develop new products at a more rapid pace. A
record number of new products are currently under development and are scheduled
to be introduced in the first half of fiscal year 2006. While this effort has
increased costs for fiscal year 2005, it has also positioned us to generate
growth in both sales and profitability in the near future. R&D expenses during
fiscal 2005 increased $156,007 to $1,302,722 compared to $1,146,715 in fiscal
2004. R&D expenses represented approximately 6.4% and 5.6% of the net sales of
the Company in the 2005 and 2004 periods, respectively. R&D costs are expensed
as incurred.

                                       10
<PAGE>

Pre-tax profit

         Pre-tax profit for the year ended June 30, 2005 was $1,150,856 compared
to $1,377,444 in 2004. Higher gross profit generated during fiscal year 2005 was
offset by higher costs related to the installation and operation of the new
enterprise-wide software system, together with higher selling and R&D costs.

Income Tax

         Income tax expense for the year ended June 30, 2005 was $422,040
compared to $494,144 in 2004. The effective tax rate for the year ended June 30,
2005 was 36.7% compared to 35.9% in 2004.

Net Income

         Net income for the year ended June 30, 2005 was $728,816 (approximately
$.08 per share), compared to $883,300 (approximately $.10 per share) in 2004.
The implementation of our new enterprise-wide software system, the addition of
new personnel, and the ramp up in new product development have all added cost to
the past year, but have provided a launching pad for future growth in sales and
profits.

Liquidity and Capital Resources
-------------------------------

         The Company has financed its operations through cash reserves,
available borrowings under its line of credit, and from cash provided by
operations. The Company had working capital of $7,043,854 at June 30, 2005,
inclusive of the current portion of long-term obligations and credit facilities,
as compared to working capital of $6,300,582 at June 30, 2004.

Accounts Receivable

         Trade accounts receivable, net of allowance for doubtful accounts,
decreased $731,105 to $3,006,315 at June 30, 2005 compared to $3,737,420 at June
30, 2004. Management anticipates accounts receivable could increase in future
periods due to the planned introduction of eight new products in fiscal year
2006 which are expected to increase sales.

         Trade accounts receivable represent amounts due from the Company's
dealer network and from medical practitioners and clinics. We estimate that the
allowance for doubtful accounts is adequate based on our historical knowledge
and relationship with these customers. Accounts receivable are generally
collected within 30 days of the agreed terms.

Inventories

         Inventories, net of reserves, at June 30, 2005 remained relatively
constant at $4,712,523 compared to $4,687,797 at June 30, 2004. Management
expects that inventories will likely increase over the course of the next fiscal
year based on the Company's planned new product introductions.

Prepaid Expenses

         Prepaid expenses decreased $65,819 to $386,935 at June 30, 2005
compared to $452,754 at June 30, 2004 due primarily to a reduction in advances
made to suppliers for various component parts.

Goodwill

         Goodwill at June 30, 2005 and June 30, 2004 was $789,422. Beginning
July 1, 2002, the Company adopted the provisions of SFAS No. 142 Goodwill and
other Intangible Assets. In compliance with SFAS 142, management utilized
standard principles of financial analysis and valuation including: transaction
value, market value and income value methods to arrive at a reasonable estimate
of the fair value of the Company in comparison to its book value. The Company
has determined it has one reporting unit. As of July 1, 2002 and June 30, 2005,
the fair value of the Company exceeded the book value of the Company. Therefore,
there was no indication of impairment upon adoption of SFAS No. 142 or at June
30, 2005. Management is primarily responsible for the FAS 142 valuation
determination and performed the annual impairment assessment during the
Company's fourth quarter.

                                       11
<PAGE>

Accounts Payable

         Accounts payable decreased by $75,547 to $605,788 at June 30, 2005
compared to $681,335 at June 30, 2004. The decrease in accounts payable is a
result of the timing of our weekly payments to suppliers and the timing of
purchases of product components. All accounts payable are within term. We
continue to take advantage of available early payment discounts when offered.

Accrued Expenses

         Accrued expenses increased by $127,466 to $571,940 at June 30, 2005
compared to $444,474 at June 30, 2004. The increase in accrued expenses is
related primarily to the timing of our June 2005 national dealer meeting and
accrued expenses for sales incentive programs. In 2004, the sales incentive
programs were completed earlier in the year.

Accrued Payroll & Benefit Expenses

         Accrued payroll & benefit expenses decreased by $55,805 to $368,167 at
June 30, 2005 compared to $423,972 at June 30, 2004. The decrease in accrued
payroll & benefit expenses is related to lower accrued bonuses for employees,
officers, and directors for fiscal year 2005 compared to 2004.

Income Taxes Payable

         Income taxes payable was -0- at June 30, 2005, compared to $200,294 at
June 30, 2004. As of June 30, 2005, the Company had paid all estimated income
taxes expected for its fiscal year 2005.

Cash

         The Company's cash position was $472,899 at June 30, 2005 compared to
$573,027 at June 30, 2004. The Company believes that its current cash balances,
amounts available under its line of credit and cash provided by operations will
be sufficient to cover its operating needs in the ordinary course of business
for the next twelve months. If we experience an adverse operating environment or
unusual capital expenditure requirements, additional financing may be required.
However, no assurance can be given that additional financing, if required, would
be available on favorable terms.

Line of Credit

         The Company maintains a revolving line of credit with a commercial bank
in the amount of $4,500,000. The outstanding balance on our line of credit was
$264,761 at June 30, 2005 compared to $1,604,535 at June 30, 2004. The $1.3
million reduction in the outstanding balance of the line of credit was
attributable primarily to improved collections of trade accounts receivable and
profits generated during the year. Interest on the line of credit is based on
the bank's prime rate, which at June 30, 2005, equaled 6.25%. The line of credit
is collateralized by accounts receivable and inventories. Borrowing limitations
are based on 30% of eligible inventory and up to 80% of eligible accounts
receivable. At June 30, 2005, the maximum borrowing base was calculated to be
$3.6 million. The line of credit is renewable annually on December 1st and
includes covenants requiring the Company to maintain certain financial ratios.
As of June 30, 2005, the Company was in compliance with all loan covenants.

         The current ratio was 4.5 to 1 at June 30, 2005 compared to 2.8 to 1 at
June 30, 2004. Current assets represent 67% of total assets at June 30, 2005.

Debt

         Long-term debt excluding current installments totaled $1,330,325 at
June 30, 2005 compared to $1,553,832 at June 30, 2004. Long-term debt is
comprised primarily of the mortgage loans on our office and manufacturing
facilities in Utah and Tennessee. The principal balance on the mortgage loans is
approximately $1.6 million with monthly principal and interest payments of
$21,370.

                                       12
<PAGE>

Stock Repurchase Program

         On September 3, 2003, the Company announced a stock repurchase program.
The Board of Directors authorized the expenditure of up to $500,000 to purchase
the Company's common stock on the open market pursuant to regulatory
restrictions governing such repurchases. During fiscal 2004, the Company
purchased $89,000 of stock leaving over $400,000 of authorized funds for future
stock repurchases. The stock repurchase program is conducted pursuant to safe
harbor regulations under Rule 10b-18 of the Exchange Act for the repurchase by
an issuer of its own shares. No shares were repurchased during fiscal year 2005.

Inflation and Seasonality

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

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

Critical Accounting Policies
----------------------------

         We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
risks related to these policies on our business operations are discussed in this
Management's Discussion and Analysis where such policies affect our reported and
expected financial results. For a detailed discussion of the application of
these and other accounting policies, see Notes to the Audited Financial
Statements contained in this annual report. In all material respects, management
believes that the accounting principles that are utilized conform to accounting
principles generally accepted in the United States of America.

         The preparation of this annual report requires us to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses reported in our Audited Financial Statements. By their
nature, these judgments are subject to an inherent degree of uncertainty. On an
on-going basis, we evaluate these estimates, including those related to bad
debts, inventories, intangible assets, warranty obligations, product liability,
revenue, and income taxes. We base our estimates on historical experience and
other facts and circumstances that are believed to be reasonable, and the
results form the basis for making judgments about the carrying value of assets
and liabilities. The actual results may differ from these estimates under
different assumptions or conditions.

Inventory Reserves

         The nature of our business requires that we maintain sufficient
inventory on hand at all times to meet the requirements of our customers. We
record finished goods inventory at the lower of standard cost, which
approximates actual costs (first-in, first-out) or market. Raw materials are
recorded at the lower of cost (first-in, first-out) or market. Inventory
valuation reserves are maintained for the estimated impairment of the inventory.
Impairment may be a result of slow moving or excess inventory, product
obsolescence or changes in the valuation of the inventory. In determining the
adequacy of reserves, we analyze the following, among other things:

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

         Any modifications to estimates of inventory valuation reserves are
reflected in the cost of goods sold within the statements of income during the
period in which such modifications are determined necessary by management. At
June 30, 2005 and 2004, our inventory valuation reserve balance, which
established a new cost basis, was $368,167 and $334,393, respectively, and our
inventory balance was $4,712,523 and $4,687,797 net of reserves, respectively.

Revenue Recognition

         Our products are sold primarily to customers who are independent
distributors and equipment dealers. These distributors resell the products,
typically to end users, including physical therapists, professional trainers,
athletic trainers, chiropractors, medical doctors and aestheticians. Sales
revenues are recorded when products are shipped FOB shipping point under an
agreement with a customer, risk of loss and title have passed to the customer,
and collection of any resulting receivable is reasonably assured. Amounts billed
for shipping and handling of products are recorded as sales revenue. Costs for
shipping and handling of products to customers are recorded as cost of sales.

                                       13
<PAGE>

Allowance for Doubtful Accounts

         We must make estimates of the collectibility of accounts receivable. In
doing so, we analyze historical bad debt trends, customer credit worthiness,
current economic trends and changes in customer payment patterns when evaluating
the adequacy of the allowance for doubtful accounts. Our accounts receivable
balance was $3,006,315 and $3,737,420, net of allowance for doubtful accounts of
$252,509 and $182,941, at June 30, 2005 and June 30, 2004, respectively.

Business Plan and Outlook
-------------------------

         Over the past seven years, annual net sales have grown from $12.6
million in fiscal year 1998 to $20.4 million in 2005. During fiscal year 2005,
we continued to focus our efforts on fueling and sustaining growth through the
development of new products for the rehabilitation and aesthetics markets while,
at the same time, strengthening our channels of distribution and improving
operating efficiencies.

         The fruits of our focused R&D campaign begun in 2002 were initially
manifest in September 2004 when we introduced the Solaris Series, a new product
line of advanced technology electrotherapy/ultrasound products featuring an
infrared light therapy probe. This new family of products has quickly become our
top selling line, due largely to the popularity of light therapy. Light therapy
is becoming widely recognized for its successful treatment of painful
conditions.

         In July 2005, we announced that we would be introducing eight new
products over the coming months. The first of those products will be the
Dynatron Xp Infrared Light Pad and Dynatron XpB, or Booster Box. With the
introduction of the Dynatron Xp and XpB, we are providing practitioners with a
tool that will allow unattended therapy of large segments of the body such as
the back, thigh or shoulder. We believe it will allow us to leapfrog competitors
who are just now catching up to the Solaris technology we introduced two years
ago.

         The Dynatron XpB is an accessory that will allow users of the thousands
of Solaris units sold over the last two years to add the new Xp Infrared Light
Pad as an accessory to their existing Solaris device. This compatibility of
technology not only opens a significant market segment for the new Xp Infrared
Light Pad, but assures users of Dynatronics products that we are working to make
these technologies affordable for them.

         Another new product that is expected to be introduced early in the
second quarter of fiscal year 2006 is the Dynatron Solaris X3, a unit that
offers only light therapy applications. The original Solaris series devices
offered light therapy as an added accessory to our popular combination
electrotherapy/ultrasound technology. However, there has been increasing market
demand for a stand-alone unit. The X3 has been designed to provide the ability
to operate two Xp Infrared Light Pads or two light therapy probes
simultaneously.

         The probes being offered with the X3 include not only the existing
Dynatron 880 and 890 probes but also two new probes - one with a much higher
infrared wavelength output and the other a combination infrared and blue
wavelength output.

         In the second quarter of fiscal year 2006, we also anticipate
introducing the DX2 combination traction and light therapy device. We believe
that combining the pain relieving characteristics of infrared light therapy as
offered through our new Xp Light Pad, with the traditional benefits of
decompression therapy through traction will make our DX2 traction device one of
the most unique devices of its kind on the market. It is designed to provide
practitioners a more efficacious way to relieve pain using combination therapy.
We anticipate this unique combination of modalities together with the benefits
of touch screen technology will create significant demand for this product.

         To support this product, we also plan to introduce a new traction
therapy table, the Dynatron T4, which we expect to be one of the best value
tables on the market for traction and decompression therapy. The T4 and DX2 will
typically be sold together as a package.

         Lastly, we have seen declining iontophoresis sales over the past two
years. To combat that trend, we will be introducing the Dynatron iBox, a new
drug delivery device for iontophoresis that we believe is the most
technologically advanced product of its kind on the market. We intend to use
this device to leverage sales of the iontophoresis electrodes we carry.

                                       14
<PAGE>

         Another important part of our strategic plan is the expansion of
worldwide marketing efforts. Over the past two years, international sales have
more than doubled and we continue to press forward seeking additional
opportunities for international expansion. The Company's Salt Lake City
operation, where all electrotherapy, ultrasound, STS devices, light therapy and
Synergie products are manufactured, is certified to ISO 13485, an
internationally recognized standard of excellence in medical device
manufacturing. This designation is an important requirement in obtaining the CE
Mark certification, which allows us to market our products in the European Union
and other foreign countries.

         We continue efforts to promote our line of aesthetic products. During
fiscal year 2005, sales of aesthetic products increased 42% over 2004, due in
part to strong interest in the international market for these products. In
January 2004, we introduced the Synergie LT device, an infrared light therapy
unit designed specifically for aesthetic applications. The introduction of the
Synergie LT device is positioning Dynatronics to compete more fully in the spa
and beauty market. We plan to develop and introduce additional light therapy
probes for the aesthetic market using different wavelengths of light. Recent
interest by medical spas in the use of other physical therapy modalities such as
electrotherapy, ultrasound and light therapy in aesthetic applications has
opened new potential for crossover of physical medicine modalities into the
aesthetics market. This presents a unique opportunity for us to grow sales of
new aesthetic products with little additional R&D effort since the products have
already been developed for the physical medicine markets.

         Based on our defined strategic initiatives, we are focusing our
resources in the following areas:

         o    Reinforcing our position in the physical medicine market through
              an aggressive research and development campaign that will result
              in the introduction of eight new products, both high tech and
              commodity, in fiscal year 2006.

         o    Increasing sales of Solaris devices through introduction of new
              light therapy accessories and by developing new markets for light
              therapy applications.

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

         o    Improving distribution of aesthetic products domestically and
              exploring the opportunities to introduce more light therapy
              devices and versions of our physical therapy modalities into the
              aesthetics market.

         o    Expanding distribution of both rehabilitation and aesthetic
              products internationally.

         o    Seeking strategic partnerships to further expand our presence in
              and market share of the physical rehabilitation and the aesthetics
              markets.

Forward-Looking Statements
--------------------------

         When used in this report, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements within the safe harbor provisions of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events. Risks and circumstances that may cause actual results to
vary from the Company's expectations include, among others, the following:

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

         Extensive Government Regulation. The manufacture, packaging, labeling,
advertising, promotion, distribution and sale of our products are subject to
regulation by numerous national and local governmental agencies in the United
States and other countries which adds to the expense of doing business and, if
violated, could adversely affect the Company's financial condition and results
of operations.

                                       15
<PAGE>

         Health Care Reform. Governments are continually reviewing and
considering expansive legislation that may lead to significant reforms in health
care delivery systems. The pressure for reform stems largely from the rising
cost of health care in recent years. We cannot predict whether or when new or
proposed legislation will be enacted and there can be no assurance that such
legislation, when enacted, will not impose additional restrictions on part or
all of the Company's business or its intended business, which might adversely
affect such business.

         Product Liability. Manufacturers and distributors of products used in
the medical device, aesthetics and related industries are from time to time
subject to lawsuits alleging product liability, negligence or related theories
of recovery, which have become an increasingly frequent risk of doing business
in these industries. Although from time to time lawsuits may arise or claims
asserted based on product liability matters, all such actions have been insured
against. Although we maintain product liability insurance coverage which we deem
to be adequate based on historical experience, there can be no assurance that
such coverage will be available for such risks in the future or that, if
available, it would prove sufficient to cover potential claims or that the
present amount of insurance can be maintained in force at an acceptable cost.
Furthermore, the assertion of such claims, regardless of their merit or eventual
outcome, also may have a material adverse effect on the Company, its business
reputation and its operations.

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

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

         Competition. Our industry is highly competitive. Numerous
manufacturers, distributors and retailers compete actively for consumers and
customers. The Company competes directly with other entities that manufacture,
market and distribute products in each of its product lines. Many of these
competitors are substantially larger than the Company and have greater financial
resources and broader name recognition. The market is highly sensitive to the
introduction of new products that may rapidly capture a significant share of the
market. There can be no assurance that the Company will be able to compete in
this intensely competitive environment.

         Dependence on Patents and Proprietary Rights. The Company has seven
patents issued and one patent pending relating to its products. In addition, we
have obtained by license the worldwide rights to the STS patent. The Company's
trademarks have also been registered in the United States and in other
countries. There can be no assurance that patents owned by or licensed to us
will not be challenged or circumvented or will provide us with any competitive
advantages or that a patent will issue from any pending patent application. We
also rely upon copyright protection for our proprietary software and other
property. There can be no assurance that any copyright obtained will not be
circumvented or challenged. In addition, we rely on trade secrets that we seek
to protect, in part, through confidentiality agreements with employees and other
parties. There can be no assurance that these agreements will not be breached,
that the Company would have adequate remedies for any breach or that the our
trade secrets will not otherwise become known to or independently developed by
competitors. The Company may become involved from time to time in litigation to
determine the enforceability, scope and validity of proprietary rights. Any such
litigation could result in substantial cost to the Company and divert the
efforts of its management and technical personnel.

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

                                       16
<PAGE>

         Effect of Exchange Rate Fluctuations. Exchange rate fluctuations may
have a significant effect on the Company's sales and gross margins in a given
foreign country. If exchange rates fluctuate dramatically, it may become
uneconomical for the Company to establish or continue activities in certain
countries. Differences in the exchange rates may also create a marketing
advantage for foreign competitors, making the purchase price of their products
lower than prices originally denominated in U.S. dollars. As the Company's
business expands outside the United States, an increasing share of its revenues
and expenses will be transacted in currencies other than the U.S. dollar.
Consequently, the reported earnings of the Company in future periods may be
significantly affected by fluctuations in currency exchange rates, with earnings
generally increasing with a weaker U.S. dollar and decreasing with a
strengthening U.S. dollar.

Item 7. Financial Statements
        --------------------

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


                                       17
<PAGE>



                                                REPORT OF INDEPENDENT REGISTERED
                                                          PUBLIC ACCOUNTING FIRM






To the Board of Directors of
Dynatronics Corporation


We have audited the balance  sheet of  Dynatronics  Corporation,  as of June 30,
2005 and 2004, and the related statements of income,  stockholders'  equity, and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Dynatronics  Corporation as of
June 30, 2005 and 2004, and the results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.



/s/  Tanner LC




Salt Lake City, Utah
August 30, 2005


                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                             DYNATRONICS CORPORATION
                                 Balance Sheets
                             June 30, 2005 and 2004


                  Assets                                         2005                 2004
                                                            --------------      ----------------
<S>                                                         <C>                 <C>
Current assets:
   Cash                                                     $      472,899               573,027
   Trade accounts receivable, less allowance for
     doubtful accounts of $252,509 June 30, 2005
     and $182,941 at June 30, 2004                               3,006,315             3,737,420
   Other receivables                                                91,129                76,213
   Inventories                                                   4,712,523             4,687,797
   Prepaid expenses                                                386,935               452,754
   Prepaid income taxes                                             21,701                     -
   Deferred tax asset-current                                      384,077               335,000
                                                            --------------      ----------------
          Total current assets                                   9,075,579             9,862,211


Property and equipment, net                                      3,221,944             3,310,083
Goodwill, net of accumulated amortization of $649,792
     at June 30, 2005 and at June 30, 2004                         789,422               789,422
Other assets                                                       372,778               310,863
                                                            --------------      ----------------
                                                            $   13,459,723            14,272,579
                                                            ==============      ================

            Liabilities and Stockholders' Equity

Current liabilities:
   Current installments of long-term debt                   $      221,069               207,019
   Line of credit                                                  264,761             1,604,535
   Accounts payable                                                605,788               681,335
   Accrued expenses                                                571,940               444,474
   Accrued payroll and benefit expenses                            368,167               423,972
   Income tax payable                                                    -               200,294
                                                            --------------      ----------------
          Total current liabilities                              2,031,725             3,561,629

Long-term debt, excluding current installments                   1,330,325             1,553,832
Deferred compensation                                              360,518               331,022
Deferred tax liability - noncurrent                                223,647               150,000
                                                            --------------      ----------------
          Total  liabilities                                     3,946,215             5,596,483
                                                            --------------      ----------------
Stockholders' equity:
   Common stock, no par value.  Authorized 50,000,000
     shares; issued 9,015,128 shares at June 30, 2005 and
     8,956,688 shares at June 30, 2004                           2,779,000             2,670,404
   Retained earnings                                             6,734,508             6,005,692
                                                            --------------      ----------------
          Total stockholders' equity                             9,513,508             8,676,096
                                                            --------------      ----------------
Commitments

                                                            $   13,459,723            14,272,579
                                                            ==============      ================

</TABLE>


See accompanying notes to financial statements.


                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                             DYNATRONICS CORPORATION
                              Statements of Income
                       Years Ended June 30, 2005 and 2004


                                                                2005                    2004
                                                            --------------      ----------------
<S>                                                         <C>                 <C>
Net sales                                                   $   20,404,368            20,587,273
Cost of sales                                                   12,105,079            12,386,978
                                                            --------------      ----------------
     Gross profit                                                8,299,289             8,200,295

Selling, general, and administrative expenses                    5,748,529             5,528,835
Research and development expenses                                1,302,722             1,146,715
                                                            --------------      ----------------
     Operating income                                           1,248,038              1,524,745
                                                            --------------      ----------------

Other income (expense):
   Interest income                                                   9,377                12,818
   Interest expense                                               (139,482)             (169,433)
   Other income, net                                                32,923                 9,314
                                                            --------------      ----------------
     Total other income (expense)                                  (97,182)             (147,301)
                                                            --------------      ----------------

     Income before income taxes                                  1,150,856             1,377,444

Income tax expense                                                 422,040               494,144
                                                            --------------      ----------------

     Net income                                             $      728,816               883,300
                                                            ==============      ================

     Basic net income per common share                      $         0.08                  0.10
                                                            ==============      ================

     Diluted net income per common share                    $         0.08                  0.10
                                                            ==============      ================

Weighted average basic and diluted common shares outstanding

     Basic                                                       8,973,911             8,871,214
     Diluted                                                     9,213,808             9,213,219


</TABLE>



See accompanying notes to financial statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                             DYNATRONICS CORPORATION
                       Statements of Stockholders' Equity
                       Years Ended June 30, 2005 and 2004


                                                                Common              Redeemed        Retained       Stockholders'
                                                                stock                stock          earnings         equity
                                                            --------------      -------------     ------------    --------------
<S>                                                         <C>                 <C>               <C>             <C>
Balances at June 30, 2003                                   $    2,478,981                  -        5,122,392         7,601,373

Redeemed 77,400 shares of common stock                                   -            (89,000)               -           (89,000)

Retired 77,400 shares of redeemed stock                            (89,000)            89,000                -                 -

Issuance of 164,753 shares of common stock
  upon exercise of employee stock options                          193,451                  -                -           193,451

Income tax benefit disqualifying disposition
  of employee stock options                                         86,972                  -                -            86,972

Net income                                                               -                  -          883,300           883,300
                                                            --------------      -------------     ------------    --------------

Balances at June 30, 2004                                        2,670,404                  -        6,005,692         8,676,096

Issuance of 58,440 shares of common stock
  upon exercise of employee stock options                           53,801                  -                -            53,801

Issuance of 25,000 common stock options for
   services                                                         29,700                  -                -            29,700

Income tax benefit disqualifying disposition
  of employee stock options                                         25,095                  -                -            25,095

Net income                                                               -                  -          728,816           728,816
                                                            --------------      -------------     ------------    --------------

Balances at June 30, 2005                                   $    2,779,000                  -        6,734,508         9,513,508
                                                            ==============      =============     ===========     ==============

</TABLE>


See accompanying notes to financial statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                             DYNATRONICS CORPORATION
                            Statements of Cash Flows
                       Years Ended June 30, 2005 and 2004

                                                                 2005                 2004
                                                            --------------      ----------------
<S>                                                         <C>                 <C>
Cash flows from operating activities:
  Net income                                                $      728,816               883,300
  Adjustments to reconcile net income to net cash provided
     by operating activities:
       Depreciation and amortization of property and
          equipment                                                372,332               321,007
       Other amortization                                            7,324                 7,324
       Provision for doubtful accounts                              96,000                96,000
       Provision for inventory obsolescence                        276,000               276,000
       Provision for warranty reserve                              169,321               164,574
       Provision for deferred compensation                          29,496                25,368
       Compensation expense on stock options                        29,700                     -
       Change in operating assets and liabilities:
          Receivables                                              620,189            (1,432,848)
          Inventories                                             (300,726)             (319,308)
          Prepaid expenses and other assets                         (3,420)                6,213
          Deferred tax asset                                        24,570               (16,512)
          Income tax receivable                                     21,701               105,804
          Accounts payable and accrued expenses                   (173,207)               58,031
          Income tax Payable                                      (218,601)              287,266
                                                            --------------      ----------------
               Net cash provided by operating
               activities                                        1,679,495               462,219
                                                            --------------      ----------------
Cash flows from investing activities:
  Capital expenditures                                            (284,162)             (428,537)
  Proceeds from sale of assets                                         (31)                    -
                                                            --------------      ----------------

               Net cash used in investing activities              (284,193)             (428,537)
                                                            --------------      ----------------

Cash flows from financing activities:
  Principal payments on long-term debt                            (209,457)             (191,822)
  Net change in line of credit                                  (1,339,774)              222,440
  Proceeds from issuance of common stock                            53,801               193,451
  Redemption of common stock                                             -               (89,000)
                                                            --------------      ----------------
               Net cash (used in) provided by financing
               activities                                       (1,495,430)              135,069
                                                            --------------      ----------------
               Net change in cash and cash
               equivalents                                        (100,128)              168,751

Cash at beginning of year                                          573,027               404,276
                                                            --------------      ----------------

Cash at end of year                                         $      472,899               573,027
                                                            ==============      ================
</TABLE>

                                      F-5
<PAGE>
<TABLE>
<CAPTION>

                                                                 2005                 2004
                                                            --------------      ----------------
<S>                                                         <C>                 <C>
Supplemental disclosures of cash flow information:
   Cash paid for interest                                   $      138,304               169,012
   Cash paid for income taxes                                      594,370               236,800
Supplemental disclosure of non-cash investing and
   financing activities:

        Income tax benefit from non-employee exercise
        of stock options                                            25,095                86,972


See accompanying notes to financial statements.
</TABLE>


                                      F-6
<PAGE>

                             DYNATRONICS CORPORATION
                          Notes to Financial Statements
                             June 30, 2005 and 2004


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

       (a)    Basis of Presentation

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

       (b)    Cash Equivalents

              For purposes of the combined  statements of cash flows, all highly
              liquid  investments  with  maturities  of three months or less are
              considered to be cash equivalents.  There were no significant cash
              equivalents as of June 30, 2005 and 2004.

       (c)    Inventories

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

       (d)    Trade Accounts Receivable

              Trade accounts  receivable are recorded at the invoiced amount and
              do not bear interest.  The allowance for doubtful  accounts is the
              Company's best estimate of the amount of probable credit losses in
              the Company's existing accounts receivable. The Company determines
              the  allowance  based  on  historical  write-off  experience.  The
              Company reviews its allowance for doubtful accounts  monthly.  All
              account  balances are  reviewed on an  individual  basis.  Account
              balances are charged off against the allowance  after all means of
              collection  have been  exhausted and the potential for recovery is
              considered remote. The Company does not have any off-balance-sheet
              credit exposure related to its customers.

       (e)    Property and Equipment

              Property  and  equipment  are  stated at cost and are  depreciated
              using the straight-line  method over the estimated useful lives of
              related  assets.  The building and its  component  parts are being
              depreciated over their estimated useful lives that range from 5 to
              31.5 years. Estimated lives for all other depreciable assets range
              from 3 to 7 years.

       (f)    Goodwill and Long-Lived Assets

              Goodwill  represents the excess of costs over fair value of assets
              of  businesses  acquired.  The Company  adopted the  provisions of
              Statement  of  Financial  Accounting  Standards  (SFAS)  No.  142,
              Goodwill and Other Intangible Assets, as of July 1, 2002. Goodwill
              and intangible assets acquired in a purchase business  combination
              and  determined  to  have  an  indefinite   useful  life  are  not
              amortized,  but instead tested for impairment at least annually in
              accordance  with the  provisions  of SFAS No. 142.  Management  is
              primarily   responsible   for   the   SFAS   No.   142   valuation
              determination.   In  compliance  with  SFAS  No.  142,  management
              utilizes standard  principles of financial  analysis and valuation
              including:  transaction  value,  market  value,  and income  value
              methods to arrive at a  reasonable  estimate  of the fair value of
              the  Company in  comparison  to its book  value.  The  Company has
              determined it has one reporting unit. As of July 1, 2002, the fair
              value  of the  Company  exceeded  the book  value of the  Company.
              Therefore, there was not an indication of impairment upon adoption
              of SFAS  No.  142.  Management  performed  its  annual  impairment
              assessment during the Company's fourth quarter of fiscal year 2005
              and  2004  and  has  determined  there  is  not an  indication  of
              impairment. SFAS No. 142 also requires that intangible assets with
              estimable   useful  lives  be  amortized  over  their   respective
              estimated  useful lives to their estimated  residual  values,  and
              reviewed  for   impairment  in  accordance   with  SFAS  No.  144,
              Accounting for Impairment or Disposal of Long-Lived Assets.

              In  accordance  with  SFAS No.  144,  long-lived  assets,  such as
              property,  plant, and equipment, and purchased intangibles subject
              to  amortization,  are reviewed for impairment  whenever events or
              changes in  circumstances  indicate that the carrying amount of an
              asset may not be recoverable.  Recoverability of assets to be held
              and used is measured by a comparison of the carrying  amount of an
              asset to estimated  undiscounted  future cash flows expected to be

                                      F-7


<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



              generated by the asset. If the carrying amount of an asset exceeds
              its  estimated   future  cash  flows,  an  impairment   charge  is
              recognized by the amount by which the carrying amount of the asset
              exceeds  the fair value of the  asset.  Assets to be  disposed  of
              would be separately presented in the balance sheet and reported at
              the lower of the carrying amount or fair value less costs to sell,
              and are no longer  depreciated.  The assets and  liabilities  of a
              disposed  group  classified  as held for sale  would be  presented
              separately in the appropriate asset and liability  sections of the
              balance sheet.

              Prior to the adoption of SFAS No. 142, goodwill was amortized on a
              straight-line basis over 15 and 30 years.

       (g)    Revenue Recognition

              Sales  are  generally  recorded  when  products  are  shipped  FOB
              shipping  point under an agreement  with a customer,  risk of loss
              and title  have  passed to the  customer,  and  collection  of any
              resulting  receivable is reasonably  assured.  Amounts  billed for
              shipping and  handling of products are recorded as sales  revenue.
              Costs for  shipping  and  handling of products  to  customers  are
              recorded as cost of sales.

       (h)    Research and Development Costs

              Research and development costs are expensed as incurred.

       (i)    Product Warranty Reserve

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

       (j)    Earnings per Common Share

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

              A  reconciliation  between the basic and diluted  weighted average
              number  of  common  shares  for  2005 and  2004 is  summarized  as
              follows:

                                                           2005           2004
                                                         ---------     ---------
             Basic weighted average number of
             common shares outstanding during
             the period                                  8,973,911     8,871,214

             Weighted average number of dilutive
             common stock options outstanding
             during the period                             239,897       342,005
                                                         ---------     ---------
             Diluted weighted average number of
             common and common equivalent shares
             outstanding during the period               9,213,808     9,213,219
                                                         =========     =========

              Outstanding options not included in the computation of diluted net
              income per share total 188,092 and 172,332 as of June 30, 2005 and
              2004, respectively, because to do so would have been antidilutive.

       (k)    Income Taxes

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

                                       F-8
<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



       (l)    Stock-Based Compensation

              The  Company  employs  the  footnote   disclosure   provisions  of
              Statement  of  Financial  Accounting  Standards  (SFAS)  No.  123,
              Accounting for  Stock-Based  Compensation,  as amended by SFAS No.
              148,  Accounting  for  Stock-Based  Compensation  - Transition and
              Disclosure.   SFAS  No.  123   encourages   entities  to  adopt  a
              fair-value-based method of accounting for stock options or similar
              equity instruments.  However, it also allows an entity to continue
              measuring compensation cost for stock-based compensation using the
              intrinsic-value  method of  accounting  prescribed  by  Accounting
              Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
              to  Employees  (APB 25).  The  Company  has  elected  to apply the
              provisions  of APB 25 and provide pro forma  footnote  disclosures
              required by SFAS No. 123. Accordingly, no compensation expense has
              been  recognized  for the stock  option  plan.  (See note 11). Had
              compensation  expense  for the  Company's  stock  option plan been
              determined  based on the fair value at the grant  date  consistent
              with the  provisions  of SFAS No. 123,  the  Company's  results of
              operations  would  have  been  reduced  to the pro  forma  amounts
              indicated below:
<TABLE>
<CAPTION>

                                                             Year ended    Year ended
                                                              June 30,      June 30,
                                                               2005           2004
                                                            -----------   -----------
            <S>                                             <C>           <C>
            Net income as reported                          $   728,816       883,300
            Less: pro forma adjustment for stock based
                compensation, net of income tax                 (44,042)     (114,656)
                                                            -----------   -----------
                           Pro forma net  income            $   684,774       768,644
                                                            ===========   ===========
            Basic net income per share:
                     As reported                            $      0.08          0.10
                     Effect of pro forma adjustment                   -         (0.01)
                                                            -----------   -----------
                     Pro forma                                     0.08          0.09

            Diluted net income per share:
                     As reported                                   0.08          0.10
                     Effect of pro forma adjustment               (0.01)        (0.02)
                                                            -----------   -----------
                     Pro forma                              $      0.07          0.08
                                                            ===========   ===========
</TABLE>

              The Company has no employee stock-based compensation expense since
              stock  options have  exercise  prices at least equal to the market
              price of the Company's stock on the grant date.

              The fair value of each option  grant is  estimated  on the date of
              grant  using  the  Black-Scholes  option-pricing  model  with  the
              following assumptions:
                                                          June 30
                                                 -------------------------------
                                                     2005           2004
                                                 -------------------------------
             Expected dividend yield                  0%             0%
             Expected stock price volatility         86-89%         82-89%
             Risk-free interest rate             3.68 - 4.45%   3.31 - 4.34%
             Expected life of options             1 & 7 years    5 & 7 years




                                       F-9
<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



              The weighted average fair value of options granted during 2005 and
              2004 was $1.31 and $1.40, respectively.

       (m)    Concentration of Risk

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

       (n)    Operating Segments

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

              The Company groups their sales into physical medicine products and
              aesthetic products. Physical medicine products consisted of 85% of
              net sales for the year  ended  June 30,  2005 and 88% for the year
              ended June 30, 2004. Aesthetics products consisted of 9% and 6% of
              net sales for years  ended June 30,  2005 and 2004,  respectively.
              Chargeable  repairs,  billable  freight  and  other  miscellaneous
              revenue  account for the  remaining  6% of total  revenues in both
              years ended June 30, 2005 and 2004, respectively.

       (o)    Use of Estimates

              Management  of the  Company  has made a number  of  estimates  and
              assumptions  relating  to the  reporting  of assets,  liabilities,
              revenues, and expenses and the disclosure of contingent assets and
              liabilities  to prepare these  financial  statements in conformity
              with accounting principles generally accepted in the United States
              of  America.  Significant  items  subject  to such  estimates  and
              assumptions  include the carrying amount of property,  plant,  and
              equipment;  valuation  allowances for receivables and inventories;
              accrued product warranty reserve; and estimated  recoverability of
              goodwill. Actual results could differ from those estimates.

       (p)    Fair Value Disclosure

              The  carrying  value of  accounts  receivable,  accounts  payable,
              accrued expenses,  and line of credit approximates their estimated
              fair  value  due  to  the   relative   short   maturity  of  these
              instruments. The carrying value of long-term debt approximates its
              estimated  fair  value due to recent  issuance  of the debt or the
              existence of interest rate reset provisions.

       (q)    Advertising Cost

              Advertising  costs are expensed as incurred  except for  catalogs.
              Catalogs are recorded as prepaid supplies until they are no longer
              owned or expected to be used,  at which time they are  recorded as
              advertising expense.  Advertising expense for the years ended June
              30,  2005  and  2004  was  approximately  $232,000  and  $189,000,
              respectively. No prepaid supplies consisted of catalogs as of June
              30, 2005 and 2004.

(2)   Inventories

      Inventories consist of the following:

                                                   2005              2004
                                               --------------   --------------
             Raw materials                    $    2,653,005        2,906,721
             Finished goods                        2,409,435        2,115,469
             Inventory reserve                      (368,167)        (334,393)
                                               --------------   --------------
                                              $    4,712,523        4,687,797
                                               ==============   ==============

                                      F-10
<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



(3)    Property and Equipment

       Property and equipment consist of the following:

                                                      2005              2004
                                                ---------------   --------------
             Land                               $       354,743          354,743
             Buildings                                2,921,127        2,899,729
             Machinery and equipment                  1,560,010        1,753,220
             Office equipment                         1,011,101          801,297
             Vehicles                                    94,290           80,680
                                                ---------------   --------------
                                                      5,941,271        5,889,669
             Less accumulated depreciation and
                amortization                          2,719,327        2,579,586
                                                ---------------   --------------
                                                $     3,221,944        3,310,083
                                                ===============   ==============

(4)    Product Warranty Reserve

       A reconciliation of the changes in the product warranty reserve, which is
       include in accrued expenses, consists of the following:

                                                    2005               2004
                                                ---------------   --------------
           Beginning product warranty
             reserve balance                    $       184,000         160,000
           Warranty repairs                            (145,322)       (140,573)
           Warranties issued                            139,324         296,457
           Changes in estimated warranty costs           29,998        (131,884)
                                                ---------------   --------------

                Ending product warranty
                   reserve balance              $       208,000         184,000
                                                ===============   ==============

(5)    Line of Credit

       The Company has a revolving  line of credit  facility  with a  commercial
       bank in the amount of $4.5 million.  Borrowing  limitations  are based on
       30% of eligible inventory and up to 80% of eligible accounts  receivable.
       At June 30, 2005 and 2004,  the  outstanding  balance  was  approximately
       $265,000  and  $1.60  million,   respectively.  The  line  of  credit  is
       collateralized by inventory and accounts receivable and bears interest at
       the bank's  "prime  rate,"  (6.25%  and 4.25% at June 30,  2005 and 2004,
       respectively).  This line is subject  to annual  renewal  and  matures on
       December 1, 2005. Accrued interest is payable monthly.

(6)    Long-Term Debt

       Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                    2005           2004
                                                                                ------------    -----------
       <S>                                                                      <C>             <C>
       6.75% promissory note secured by building, maturing May 2017,
       payable in  monthly installments beginning at $5,641                     $    594,227    $   628,653
       6.21% promissory note secured by a trust deed on real
       property, maturing November 2013, payable in decreasing
       installments beginning at $7,545 monthly ($7,060 during
       2003 and 2002)                                                                550,191        599,099
       5.84% promissory note secured by a trust deed on real                                            50
       property, payable in monthly installments of $8,669
       through November 2008                                                         320,791        403,150
       8.87% promissory note secured by fixed assets, payable in
       monthly installments of $3,901 through May 2007                                83,683        123,053
       Other notes payable                                                             2,502          6,896

                                                                                ------------    -----------
                        Total long-term debt                                       1,551,394      1,760,851
      Less current installments                                                      221,069        207,019
                                                                                ------------    -----------
                        Long-term debt, excluding current installments          $  1,330,325    $ 1,553,832
                                                                                ============    ===========
</TABLE>

                                      F-11

<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



       The  aggregate  maturities  of  long-term  debt  for  each  of the  years
       subsequent to 2005 are as follow: 2006, $221,069;  2007, $229,370;  2008,
       $198,632; 2009, $147,980; 2010, $112,502 and thereafter $641,841.

(7)    Leases

       The  Company  leases   vehicles  under   noncancelable   operating  lease
       agreements.  Rent  expense for the years ended June 30, 2005 and 2004 was
       $23,664  and  $24,379,  respectively.   Future  minimum  rental  payments
       required  under  noncancelable  operating  leases  that have  initial  or
       remaining  lease  terms in excess of one year as of 2005 are as  follows:
       2006, $20,440; 2007, $14,269 and 2008, $8,118.

(8)    Goodwill and Other Intangible Assets

       Goodwill.  The cost of acquired  companies in excess of the fair value of
       the net assets and purchased  intangible  assets at  acquisition  date is
       recorded as goodwill. As of June 30, 2002, the Company had goodwill,  net
       of  $789,422  arising  from  the  acquisition  of  Superior   Orthopaedic
       Supplies,  Inc.  on May 1, 1996 and the  exchange  of  Dynatronics  Laser
       Corporation common stock for a minority interest in Dynatronics Marketing
       Corporation on June 30, 1983.

       License  Agreement.  Identifiable  intangible  assets,  included in other
       assets,  consist of a license  agreement  entered into on August 16, 2000
       for a certain  concept  and  process  relating  to a patent.  The license
       agreement is being amortized over ten years on a straight-line basis. The
       following  table  sets  forth  the  gross  carrying  amount,  accumulated
       amortization, and net carrying amount of the license agreement:

                                                      As of            As of
                                                  June 30, 2005    June 30, 2004
                                                 -------------------------------
       Gross carrying amount                    $     73,240           73,240
       Accumulated amortization                       35,400           28,076
                                                 -------------------------------
                  Net carrying amount           $     37,840           45,164
                                                 ===============================

       Amortization expense associated with the license agreement was $7,325 for
       2005 and 2004.  Estimated  amortization  expense for the existing license
       agreement  is expected to be $7,325 for each of the fiscal  years  ending
       June 30, 2006 through June 30, 2010.

(9)    Income Taxes

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

                                  Current         Deferred          Total
                                --------------  ---------------   -------------
      2005:
           U.S. federal        $      332,838           21,278         354,116
           State and local             64,632           3,292           67,924
                                --------------  ---------------   -------------
                               $      397,470           24,570         422,040
                                ==============  ===============   =============
      2004:
           U.S. federal        $      427,816         (14,298)         413,518
           State and local             82,840          (2,214)          80,626
                                --------------  ---------------   -------------
                               $      510,656         (16,512)         494,144
                                ==============  ===============   =============


                                      F-12
<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



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

                                                     2005             2004
                                                 -------------    -------------
      Expected tax expense                      $     391,291          468,000
      State taxes, net of federal tax benefit          64,632           53,778
      Meals and entertainment                           1,552            2,000
      Officers' life insurance                         (3,239)          (4,716)
      Extraterritorial income exclusion                (7,480)          (5,000)
      Other, net                                      (24,716)         (19,918)
                                                 -------------    -------------
                                                $     422,040          494,144
                                                 =============    =============

       Deferred income tax assets and liabilities  related to the tax effects of
       temporary differences are as follows:
<TABLE>
<CAPTION>

                                                                              2005             2004
                                                                         -------------   --------------
<S>                                                                     <C>              <C>
       Net deferred tax asset - current:
            Inventory capitalization for income tax purposes            $      64,640           58,000
            Inventory reserve                                                 137,326          125,000
            Vacation reserve                                                       --            4,000
            Warranty reserve                                                   77,584           69,000
            Accrued product liability                                          10,341           11,000
            Allowance for doubtful accounts                                    94,186           68,000
                                                                         -------------   --------------
                            Total deferred tax asset - current          $     384,077          335,000
                                                                         =============   ==============
       Net deferred tax asset (liability) - non-current:
            Deferred compensation                                       $     134,473          123,000
            Property and equipment, principally due to differences in
            depreciation                                                     (361,409)        (277,000)
            Non-compete and goodwill                                            3,289            4,000
                                                                         -------------   --------------
       Total deferred tax liability - non-current                       $    (223,647)        (150,000)
                                                                         =============   ==============
</TABLE>

       In  assessing  the  realizability  of  deferred  tax  assets,  management
       considers  whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent  upon the  generation of future  taxable
       income  during the periods in which those  temporary  differences  become
       deductible.  Management  considers the scheduled reversal of deferred tax
       liabilities, projected future taxable income, and tax planning strategies
       in making this  assessment.  Based upon the level of  historical  taxable
       income and  projections  for future taxable income over the periods which
       the deferred tax assets are  deductible,  management  believes it is more
       likely  than not that the  Company  will  realize  the  benefits of these
       deductible differences.

(10)   Major Customers and Sales by Geographic Location

       During the fiscal years ended June 30, 2005 and 2004, sales to any single
       customer did not exceed 10% of total net sales.

       Sales in the United  States  and other  countries  were 95 percent  and 5
       percent for the fiscal year ended June 30, 2005, respectively and were 97
       percent  and  3  percent  for  the  fiscal  year  ended  June  30,  2004,
       respectively.

(11)  Common Stock

       On July 15, 2003, the Company  approved an open-market  share  repurchase
       program for up to $500,000 of the Company's common stock. During the year
       ended June 30, 2004, the Company  acquired and retired  $89,000 of common
       stock. There were no stock repurchases during fiscal year 2005.

       The  Company  granted  options to  acquire  common  stock  under its 1992
       qualified  stock option  plan.  The options are to be granted at not less
       than 100% of the market  price of the stock at the date of grant.  Option
       terms are  determined by the board of directors,  and exercise  dates may
       range from six months to five years from the date of grant.


                                      F-13
<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



       A summary of activity follows:
<TABLE>
<CAPTION>

                                                               2005                                    2004
                                                ------------------------------------    ------------------------------------
                                                                       Weighted                                Weighted
                                                   Number              average             Number              average
                                                  of shares         exercise price        of shares         exercise price
                                                --------------     -----------------    --------------     -----------------
       <S>                                      <C>            <C>                       <C>           <C>
       Options outstanding at
            beginning of year                         723,884  $         1.09                 903,645  $         1.09
       Options granted                                564,924            1.81                 118,712            1.81
       Options exercised                               56,880            1.17                 164,753            1.17
       Options canceled or expired                   (76,089)            1.33               (133,720)            1.33
                                                --------------                          --------------
       Options outstanding at end
            of year                                 1,155,839            1.15                 723,884            1.15
                                                ==============                          ==============
       Options exercisable at end
            of year                                   477,330            0.91                 550,953            1.06
                                                ==============                          ==============
       Range of exercise prices at
            end of year                                        $     0.66 - 3.00                       $     0.66 - 3.00
</TABLE>

       At June 30,  2005,  429,109  shares of common stock were  authorized  and
       reserved for issuance,  but were not granted under the terms of the stock
       option plan.

       The Company has 80,000 options outstanding that were not issued under the
       Company's  stock option plan.  The exercise  price of the options  ranges
       from $1.08 to $4.00. The options expire during fiscal 2007 through fiscal
       2010.

(12)   Employee Benefit Plan

       During  1991,  the  Company  established  a deferred  savings  plan which
       qualifies under Internal Revenue Code Section 401(k). The plan covers all
       employees  of the Company who have at least six months of service and who
       are age 20 or  older.  For 2005  and  2004,  the  Company  made  matching
       contributions of 25% of the first $2,000 of each employee's contribution.
       The  Company's  contributions  to the plan for 2005 and 2004 were $30,204
       and $26,530,  respectively.  Company  matching  contributions  for future
       years are at the discretion of the board of directors.

(13)   Salary Continuation Agreements

       As of June 30, 2005 the Company had salary  continuation  agreements with
       two  key  employees.  The  agreements  provide  a  pre-retirement  salary
       continuation income to the employee's designated beneficiary in the event
       that the employee dies before  reaching age 65. This death benefit amount
       is the lesser of $75,000 per year or 50% of the employee's  salary at the
       time of death,  and continues  until the employee  would have reached age
       65. The agreements also provide the employee with a 15-year  supplemental
       retirement  benefit  if the  employee  remains in the  employment  of the
       Company until age 65.  Estimated  amounts to be paid under the agreements
       are being accrued over the period of the employees' active employment. As
       of 2005  and  2004,  the  Company  has  accrued  $360,518  and  $331,022,
       respectively, of deferred compensation under the terms of the agreements.




                                      F-14
<PAGE>

                             DYNATRONICS CORPORATION
                    Notes to Financial Statements - Continued



(14)   Recent Accounting Pronouncements

       On December 16, 2004, the Financial  Accounting  Standards Board ("FASB")
       published  Statement of Financial  Accounting  Standards No. 123 (Revised
       2004),  Share  Based  Payment  ("SFAS  123R").  SFAS 123R  requires  that
       compensation  cost  related  to  share-based   payment   transactions  be
       recognized in the financial statements.  Share-based payment transactions
       within the scope of SFAS 123R include  stock  options,  restricted  stock
       plans,  performance-based awards, stock appreciation rights, and employee
       share purchase plans. The provisions of SFAS 123R are effective as of the
       first interim  period that begins after  December 15, 2005.  Accordingly,
       the Company will  implement the revised  standard in the third quarter of
       fiscal year 2006.  Currently,  the Company  accounts for its  share-based
       payment  transactions  under the  provisions  of APB 25,  which  does not
       necessarily require the recognition of compensation cost in the financial
       statements.  Management  is assessing  the  implications  of this revised
       standard  and the  effect of the  adoption  of SFAS 123R will have on our
       financial position, results of operations, or cash flow.

       In November of 2004, the FASB issued SFAS No. 151,  Inventory  Costs - An
       Amendment  of ARB No.  43,  Chapter  4 (SFAS  151).  SFAS  151  clarifies
       treatment of abnormal amounts of idle facility expense, freight, handling
       costs and  spoilage,  specifying  that such costs  should be  expensed as
       incurred and not included in overhead.  The new  statement  also requires
       that allocation of fixed production  overheads to conversion costs should
       be based on normal capacity of the production facilities.  The provisions
       in SFAS 151 are  effective  for inventory  costs  incurred  during fiscal
       years  beginning  after June 15, 2005.  Companies must apply the standard
       prospectively.  The Company  does not believe that the impact of this new
       standard  will have a  material  effect on our  financial  statements  or
       results of operations.




                                       F-15
<PAGE>

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

         None.

Item 8A.  Controls and Procedures
          -----------------------

         Based on their evaluation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period
covered by this Report, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures are effective at the
reasonable assurance level. There have been no significant changes in internal
controls over financial reporting or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Item 8B.  Other Information
          -----------------

         None.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        ------------------------------------------------------------------------
        With Section 16(a) of the Exchange Act
        --------------------------------------

         The Company hereby incorporates by reference into and makes a part of
this report the information and disclosure set forth under the headings
"Executive Officers and Directors," "Compliance with Section 16(a) of the
Securities Exchange Act of 1934," "Committees and Meetings of the Board of
Directors," "Audit Committee Financial Expert" and "Code of Ethics" contained in
the Company's definitive proxy statement for its 2005 Annual Meeting of
Shareholders, to be sent to shareholders of the Company subsequent to the filing
of this report on Form 10-KSB.

Item 10.  Executive Compensation.
          ----------------------

         The Company hereby incorporates by reference into and makes a part of
this report the information and disclosure set forth under the heading
"Executive Compensation and other Matters" and "Remuneration of Directors"
contained in the Company's definitive proxy statement for its 2005 Annual
Meeting of Shareholders, to be sent to shareholders of the Company subsequent to
the filing of this report on Form 10-KSB.

Item 11.  Security Ownership of Certain Beneficial Owners and Management and
          ------------------------------------------------------------------
          Related Stockholders Matters.
          -----------------------------

         The Company hereby incorporates by reference into and makes a part of
this report the information and disclosure set forth under the heading "Voting
Securities and Principal Shareholders" and "Equity Compensation Plan
Information" contained in the Company's definitive proxy statement for its 2005
Annual Meeting of Shareholders, to be sent to shareholders of the Company
subsequent to the filing of this report on Form 10-KSB.

Item 12.  Certain Relationships and Related Transactions
          ----------------------------------------------

         During the two years ended June 30, 2005, the Company was not a party
to any transaction in which any director, executive officer or shareholder
holding more than 5% of the Company's issued and outstanding common stock had a
direct or indirect material interest.

Item 13. Exhibits
         --------

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

       1. Financial Statements (included in Part II, Item 7):

           Report of Independent Registered Public Accounting Firms..........F-1

           Balance Sheets at June 30, 2005 and 2004..........................F-2

           Statements of Income for years ended
           June 30, 2005 and 2004............................................F-3

                                       18
<PAGE>

           Statements of Stockholders'
           Equity for years ended June 30, 2005
           and 2004..........................................................F-4

           Statements of Cash Flows for
           years ended June 30, 2005 and 2004 ...............................F-5

           Notes to Financial Statements.....................................F-7


       Exhibits:
       ---------

           Reg. S-B
           Exhibit No.            Description
           -----------            -----------

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

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

              3.3        Articles of Amendment dated November 18, 1993
                         (previously filed)

              4.1        Form of certificate representing Dynatronics Laser
                         Corporation common shares, no par value. Incorporated
                         by reference to a Registration Statement on Form S-1
                         (No. 2-85045) filed with the Securities and Exchange
                         Commission and effective November 2, 1984.

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

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

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

              10.3       Loan Agreement with Zion Bank (previously filed)

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

              23.1       Consent of Tanner LC

              31         Certification under Rule 13a-14(a)/15d-14(a) of
                         principal executive officer and principal financial
                         officer

              32         Certification under Section 906 of the Sarbanes-Oxley
                         Act of 2002 (18 U.S.C. SECTION 1350)

Item 14.    Principal Accountants Fees and Services
            ---------------------------------------

         The Company hereby incorporates by reference into and makes a part of
this report the information and disclosure set forth under the heading "Auditor
Fees" contained in the Company's definitive proxy statement for its 2005 Annual
Meeting of Shareholders, to be sent to shareholders of the Company subsequent to
the filing of this report on Form 10-KSB.


                                       19
<PAGE>

                                   SIGNATURES


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

                                        DYNATRONICS CORPORATION


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

Date:  September 27, 2005

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



/s/ Kelvyn H. Cullimore, Jr.     Chairman, President, CEO    September 27, 2005
-------------------------------  (Principal Executive
Kelvyn H. Cullimore, Jr.         Officer)


/s/ Terry M. Atkinson, CPA       Chief Financial Officer     September 27, 2005
-------------------------------  (Principal Financial
Terry M. Atkinson, CPA           Officer and Principal
                                 Accounting Officer)


/s/ Larry K. Beardall            Director, Executive         September 27, 2005
-------------------------------  Vice President
Larry K. Beardall


/s/ E. Keith Hansen, MD          Director                    September 27, 2005
-------------------------------
E. Keith Hansen, M.D.


/s/ Howard L. Edwards            Director                    September 27, 2005
-------------------------------
Howard L. Edwards


                                 Director                    September 27, 2005
-------------------------------
Val J. Christensen


/s/ Joseph H. Barton             Director                    September 27, 2005
-------------------------------
Joseph H. Barton




                                       20