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, 2006.

[ ]      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, 2006 were $19.5
million. The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the issuer was approximately $10.1 million as of
September 18, 2006, based on the average bid and ask price on that date.

As of September 18, 2005, there were 9,054,566 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..........................................7
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.............................17
Item 8A.      Controls and Procedures.........................................17
Item 8B.      Other Information...............................................17

                                    PART III

Item 9.       Directors, Executive Officers, Promoters and
              Control Persons; Compliance with Section 16(a)
              of the Exchange Act.............................................17
Item 10.      Executive Compensation..........................................17
Item 11.      Security Ownership of Certain Beneficial Owners
              and Management and Related Stockholder Matters..................17
Item 12.      Certain Relationships and Related Transactions..................17
Item 13.      Exhibits........................................................18
Item 14.      Principal Accountants Fees and Services.........................19
Signatures    ................................................................20
Certifications  ..............................................................

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
-----------------------------------

         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.

         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 15% 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
2006 and 2005 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 2006 and 2005
represented approximately 96% of the Company's aesthetic product sales each year
with the balance 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.

         The Company's primary product line, the Dynatron Solaris(TM) Series,
consists of five combination therapy devices. 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. The light probes used with our current devices are
several hundred times more powerful than our first laser probes introduced in
the 1980s. The increased power allows treatment times to be dramatically
reduced.

         During fiscal year 2006, the Company introduced the Dynatron Xp
Infrared Light Pad. With the introduction of the Dynatron Xp, practitioners
gained a tool that allows unattended therapy of large segments of the body such
as the back, thigh or shoulder. Two new probes were introduced during the year -
one with twice the power of our previous infrared light probe and the other with
a combination infrared and blue wavelength output. Other new products introduced
during fiscal year 2006 include the Dynatron 702 light therapy device, the
Dynatron XPb Booster Box, the iBox iontophoresis device and the DT4X motorized
therapy table.

         In August 2006, the Company began shipping the Dynatron X3, a
stand-alone light therapy unit capable of operating two Xp infrared light pads,
or one infrared light therapy probe and one Xp light pad simultaneously.

         In September 2006, the Company introduced the DX2 combination traction
and light therapy device. 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, makes 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, in December 2006.

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

                                       1
<PAGE>

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 can be
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 15 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, as
well as the new Dynatron 702 and Dynatron X3 devices, feature infrared light
therapy technology. These units are capable of powering various cluster probes
at different wavelengths for treating a variety of medical conditions including
pain and stiffness associated with arthritis, as well as muscle and joint pain.
The benefits of light therapy have been documented by thousands of research
studies published over the past four decades. In fiscal year 2006, the Company
introduced the Dynatron Xp light pad for treating larger areas of the body via
unattended infrared light therapy.

         Iontophoresis - Iontophoresis uses electrical current to transdermally
deliver drugs such as lidocaine for localized treatment of inflammation without
the use of needles. In fiscal year 2006, the Company developed its own
proprietary iontophoresis device - the Dynatron iBox - which is capable of
delivering two treatments simultaneously. In addition, the Company began
distribution in September 2006 of a line of proprietary iontophoresis electrodes
with the brand name of Dynatron Ion electrodes. These electrodes replace the
line of electrodes the Company previously distributed for Life-Tech and Naimco.

         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
         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                   Electrotherapy for Chronic Pain
         Dynatron(R) STS Rx                Electrotherapy for Chronic Pain
         Dynatron(R) STSi                  Multi-modality Electrotherapy for
                                           Chronic Pain
         Dynatron Solaris(TM) 701          Ultrasound with Infrared Light
                                           Therapy

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<PAGE>

         Dynatron 702                      Infrared Light Therapy
         Dynatron Solaris(TM) 705          Electrotherapy with Infrared Light
                                           Therapy
         Dynatron Solaris(TM) 706          Electrotherapy with Infrared Light
                                           Therapy
         Dynatron Solaris(TM) 708          Combination Electrotherapy/Ultrasound
                                           with Infrared Light Therapy
         Dynatron Solaris(TM) 709          Combination Electrotherapy/
                                           Ultrasound with Infrared Light
                                           Therapy
         Dynatron Solaris(TM) 880          Accessory Infrared Light Probe
         Dynatron Solaris(TM) 890          Accessory Infrared Laser Light Probe
         Dynatron X3                       Infrared Light Therapy
         DX2                               Combination Traction with Infrared
                                           Light Therapy
         Dynatron iBox                     Iontophoresis
         Dynatron TX900                    Traction Therapy
_____________________

Dynatron(R) is a registered trademark (#1280629) owned by Dynatronics
** "50 Series Plus" Product Line

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

         Treatment Tables and Rehabilitation Equipment - Dynatronics
manufactures and distributes motorized and manually operated physical therapy
treatment tables, rehabilitation parallel bars, and other specialty
rehabilitation products.

Aesthetic Products

         In July 1998, Dynatronics began shipping its 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 reducing 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
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 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 2006 and 2005.

                                       3
<PAGE>

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. Two additional patent applications pertaining to the Company's
infrared light therapy technology and combination traction/light therapy
technology have been filed with the U.S. Patent and Trademark Office and are
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, Utah and Chattanooga,
Tennessee 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 2006 and
2005.

         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.

Customers and Markets

         Dynatronics' products are sold to a network of over 450 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 a few
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 2006 or 2005.

         Dynatronics exports products to approximately 30 different countries.
International sales (i.e., sales outside North America) totaled $1,040,930 in
fiscal year 2006 compared to $1,035,686 in fiscal year 2005. The Company is
working to establish 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 infrared
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.

                                       4
<PAGE>

         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, Erchonia, Anodyne and Medex, among others.
These competitors offer units that are not as powerful as our units. We are
aware of only one other competitor, Encore Medical, that 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, Sammons Preston (a
division of Patterson Dental), and Meyer Distributing.

         Iontophoresis. Competition in the iontophoresis market includes Iomed,
Inc., Encore Medical (EMPI division), Birch Point Medical, Vyteris and Naimco.
Iomed and Encore Medical enjoy the largest market share. 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 our new Dynatron iBox iontophoresis device will help us 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, Sammons Preston (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. Other
competitors include Cynosure, Inc., Diamond Systems, Palomar Medical and
Durmafirm. 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' aesthetic
massage equipment is priced lower than competitor's units, providing a
significant advantage in the marketplace. 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. Powered by the Synergie AMS device,
the Synergie Peel is one of the most powerful units on the market.

         Competitors in the light therapy segment of the aesthetic market
include Revitalite, Silhouette Tone, Photo Actif, and DermaPulse. We believe the
Synergie LT device is the most powerful of all the units on the market. It
features a computerized dosage calculation system and is competitively priced.

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<PAGE>

         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
qualified to market these products throughout the European Union and in other
countries where CE Mark Certification and ISO 13485 certification are
recognized.

Research and Development

         In fiscal years 2006 and 2005, Dynatronics focused its resources on an
aggressive R&D campaign to develop several new products. Total R&D expenditures
for 2006 were a record $1,756,281, compared to $1,302,722 in 2005. R&D expenses
represented approximately 9.0% and 6.4% of the revenues of the Company in 2006
and 2005, respectively. Substantially all of the research and development
expenditures during both years 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 U.S. Food and Drug Administration ("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

                                       6
<PAGE>

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 2006 was
$3,066. The fee per submission for new products in fiscal year 2007 will be
approximately $3,326.

         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.

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, 2006, we had a total of 141 full-time employees and 10
part-time employees, compared to 132 full-time and six part-time employees at
June 30, 2005.

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
$16,042. The mortgages mature in 2008 and 2013. The Company also owns a 53,200
sq. ft. manufacturing facility in Ooltewah, Tennessee, and accompanying
undeveloped acreage for future expansion subject to a mortgage requiring monthly
payments of $13,278 and maturing in 2021. During fiscal year 2006, the Company
built a 10,000 sq. ft. addition to its Tennessee facility to expand its
manufacturing and warehouse 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.

                                       7
<PAGE>

         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 2006.

                                     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 Capital 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,
                                            2006                    2005
                                            ----                    ----
                                     High         Low         High        Low
                                     ----         ---         ----        ---

1st Quarter (July-September)         $2.02       $1.55        $2.42       $1.30
2nd Quarter (October-December)       $1.70       $1.32        $2.15       $1.40
3rd Quarter (January-March)          $1.76       $1.36        $2.82       $1.59
4th Quarter (April-June)             $1.75       $1.12        $2.24       $1.53

         Holders. As of September 18, 2006, the approximate number of common
stock shareholders of record was 440. 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 2006, 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 236,374 shares
with an average exercise price of $1.49 per share. In fiscal year 2005,
Dynatronics granted 564,924 stock options for shares of common stock at an
average exercise price of $1.70 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. No shares were
repurchased during fiscal year 2005. During fiscal year 2006, the Company
purchased 46,393 shares for $59,449, leaving over $350,000 of original
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.



                                       8
<PAGE>

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. We manufacture
approximately 20% of the physical medicine products and 15% 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
2006 and 2005 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 2006 and 2005
represented approximately 96% of the Company's aesthetic product sales each year
with the balance sold by the Company as a distributor. The majority of the
Company's revenues are generated from the sale of its manufactured products
because demand for these products is much greater and because the average
selling price of our manufactured products is significantly higher than
distributed products.

         Sales of all physical medicine products represented 87% of total
revenues in 2006 compared to 85% in 2005, while sales of aesthetic products
accounted for 7% of total revenues in 2006 and 9% of total revenues in 2005.
Chargeable repairs, billable freight revenue and other miscellaneous revenue
accounted for 6% of total revenues in both 2006 and 2005.

         The manufacture, packaging, labeling, advertising, promotion,
distribution and sale of our products are regulated by both 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, 2006 and 2005 are
included with this report.
<TABLE>
<CAPTION>
                                                Selected Financial Data
                                               Fiscal Year Ended June 30

                             2006             2005          2004            2003              2002             2001

<S>                      <C>            <C>             <C>             <C>              <C>              <C>
Net Sales                $ 19,513,136   $  20,404,368   $  20,587,273   $  16,896,992    $  17,133,953    $ 17,460,789

Net Income               $    194,031   $     728,816   $     883,300   $      24,799    $     316,101    $    334,179
Net Income
 per share (diluted)     $        .02   $         .08   $         .10   $         .00    $         .04    $        .04
Working Capital          $  7,390,147   $   7,043,854   $   6,300,582   $   5,516,720    $   5,484,167    $  4,971,946
Total Assets             $ 14,523,655   $  13,459,723   $  14,272,579   $  12,713,029    $  12,508,202    $ 13,560,347
Long-term Obligations    $  2,637,263   $   1,914,490   $   2,034,854   $   2,203,779    $   2,331,698    $  2,174,348

</TABLE>

Fiscal Year 2006 Compared to Fiscal Year 2005
---------------------------------------------

         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

         Total net sales for the year ended June 30, 2006 were $19,513,136,
compared to $20,404,368 during fiscal year 2005. The majority of the reduction
in sales in fiscal year 2006 was due to approximately $629,600 of lower sales of
the Company's Synergie aesthetic products. Reduced sales of aesthetic equipment
are primarily attributable to certain dealers deciding to drop high dollar

                                       9
<PAGE>

capital equipment from their product offerings. Strategies are being implemented
with the intention of restoring these lost sales, although there can be no
assurance that the strategies will be successful. In addition, we had
approximately $458,600 in lower sales of older "50 Series" products.
Approximately $469,000 in higher sales of traction equipment and metal treatment
tables during 2006 partially offset the decrease in overall sales. The increase
in sales of traction equipment and metal treatment tables was due to the new DX9
traction and light therapy package which was introduced during fiscal year 2006.
This package combines the Company's TX900 traction unit with the new Dynatron
702 Infrared Light Therapy device and the new DT4X motorized traction therapy
table.

Gross Profit

         During fiscal year 2006, gross profit was $7,291,761 or 37.4% of net
sales compared to $8,299,289 or 40.7% of net sales in 2005. The decrease in
gross margin in 2006 reflects lower sales of high-margin Synergie devices and
legacy "50 Series" products, which carry average gross margins in excess of 50%.
In addition, a shift in product mix toward sales of lower margin medical supply
products, traction equipment and treatment tables contributed to the decrease in
gross margin as a percent of sales.

Selling, General and Administrative Expense

         Selling, general and administrative (SG&A) expenses for the year ended
June 30, 2006 were $5,239,462 or 26.9% of net sales compared to $5,748,529 or
28.2% of net sales in 2005. Total SG&A expenses in 2006 decreased by $509,067 or
8.9% compared to 2005. The primary components affecting SG&A expenses in fiscal
year 2006 compared to 2005 were:

         o    Approximately $161,000 in lower labor costs.
         o    Approximately $187,600 in lower selling expenses.
         o    Approximately $247,500 in lower incentive compensation expenses.
         o    Partially offsetting the reduction in SG&A expenses were $42,000
              in higher health insurance premiums.

Research and Development

         In fiscal year 2006, we invested heavily in R&D in order to develop our
next-generation products. We spent a company record $1,756,281 developing new,
state-of-the-art equipment during the year. This compares to $1,302,722 spent in
fiscal year 2005. During fiscal year 2006, we increased the size of our
engineering department in order to develop several new products. Among the new
products developed during the year were the Dynatron Xp light pad, the Dynatron
702 light therapy device, the Dynatron iBox iontophoresis device, as well as two
light probes. We also spent time developing the Dynatron X3 and DX2 units, which
were introduced in the first quarter of fiscal 2007 and the T4 and T3 motorized
therapy tables scheduled for introduction in the second quarter of fiscal 2007.
Dynatronics intends to continue to develop several new products in fiscal year
2007 and beyond in order to position the Company for growth. R&D expenses
represented approximately 9.0% and 6.4% of the net sales of the Company in the
2006 and 2005, respectively. R&D costs are expensed as incurred.

Pre-tax profit

         Pre-tax profit for the year ended June 30, 2006 was $209,221 compared
to $1,150,856 in 2005. Lower sales and gross profit generated during fiscal year
2006, together with higher R&D costs decreased overall profits during the year.
These factors were partially offset by lower SG&A expenses.

Income Tax

         Income tax expense for the year ended June 30, 2006 was $15,190
compared to $422,040 in 2005. The effective tax rate for 2006 was 7.3% compared
to an effective tax rate for 2005 of 36.7%. The income tax accrual rate in
fiscal year 2006 was different than the prior year due to a change in the
valuation allowance for research and development credits and certain other
items.

Net Income

         Net income for the year ended June 30, 2006 was $194,031 ($.02 per
share), compared to $728,816 ($.08 per share) in fiscal 2005. The addition of
new R&D personnel and the ramp up in new product development have all added cost
to the past year, but we believe they have also provided a launching pad for
future growth in sales and profits.

                                       10
<PAGE>

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 $7,390,147 at June 30, 2006,
inclusive of the current portion of long-term obligations and credit facilities,
as compared to working capital of $7,043,854 at June 30, 2005.

Accounts Receivable

         Trade accounts receivable, net of allowance for doubtful accounts,
remained constant at $3,022,991 at June 30, 2006 compared to $3,006,315 at June
30, 2005. Management anticipates accounts receivable could increase in future
periods due to the planned introduction of new products in fiscal year 2007
which is 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, 2006 increased $270,467 to
$4,982,990 compared to $4,712,523 at June 30, 2005. Management expects that
inventories will likely be maintained at current levels over the course of the
next fiscal year.

Goodwill

         Goodwill at June 30, 2006 and June 30, 2005 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, 2006,
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, 2006. Management is primarily responsible for the FAS 142 valuation
determination and performed the annual impairment assessment during the
Company's fourth quarter.

Accounts Payable

         Accounts payable remained relatively constant at $593,016 at June 30,
2006 compared to $605,788 at June 30, 2005. All accounts payable are within
term. We continue to take advantage of available early payment discounts when
offered.

Accrued Expenses

         Accrued expenses decreased by $35,809 to $536,131 at June 30, 2006
compared to $571,940 at June 30, 2005. The decrease in accrued expenses is
related primarily to the timing of our June 2005 national dealer meeting and
accrued expenses for sales incentive programs. In 2006, the sales incentive
programs were completed earlier in the year. Our sales incentives are primarily
comprised of special pricing and/or discounts, which are recognized as a
reduction of revenue in the year incurred.

Accrued Payroll & Benefit Expenses

         Accrued payroll & benefit expenses decreased by $113,714 to $254,453 at
June 30, 2006 compared to $368,167 at June 30, 2005. The decrease in accrued
payroll & benefit expenses is related to lower accrued bonuses for employees and
officers, and amounts accrued for directors for their services for fiscal year
2006 compared to 2005.

Cash

         The Company's cash position was $423,184 at June 30, 2006 compared to
$472,899 at June 30, 2005. 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.

                                       11
<PAGE>

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
$577,232 at June 30, 2006 compared to $264,761 at June 30, 2005. Interest on the
line of credit is based on the bank's prime rate, which at June 30, 2006,
equaled 8.25%. 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, 2006, the maximum borrowing
base was calculated to be approximately $3.8 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, 2006, the Company was in
compliance with all loan covenants.

         The current ratio was 4.3 to 1 at June 30, 2006 compared to 4.5 to 1 at
June 30, 2005. Current assets represent 66% of total assets at June 30, 2006.

Debt

         Long-term debt excluding current installments totaled $2,023,410 at
June 30, 2006 compared to $1,330,325 at June 30, 2005. The Company expanded its
Tennessee facility and refinanced the property during fiscal year 2006.
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 $2.2 million with monthly principal and interest
payments of $29,006.

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.

                                       12
<PAGE>

         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, 2006 and 2005, our inventory valuation reserve balance, which
established a new cost basis, was $383,492 and $368,167, respectively, and our
inventory balance was $4,982,990 and $4,712,523 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.

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 $3,022,991 and $3,006,315, net of allowance for doubtful accounts of
$244,238 and $252,509, at June 30, 2006 and June 30, 2005, respectively.

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

         During fiscal year 2006, we continued to focus our efforts on 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.

         During the year, we introduced several new products including the
Dynatron Xp Infrared Light Pad which allows unattended therapy of large segments
of the body such as the back, thigh or shoulder. We also began shipping the
Dynatron iBox, a new transdermal drug delivery device for iontophoresis that we
believe is the most technologically advanced product of its kind on the market.
In addition, we began shipping the Dynatron 702, a stand-alone light therapy
device that simplifies infrared light therapy treatments. We also began offering
a unique package of Dynatron modalities referred to as the DX9 package. This
package includes a Dynatron TX900 traction device, related traction accessories,
a Dynatron 702 Infrared Light Therapy device and the DT4X motorized traction
therapy table. 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, has made our DX9 traction system one
of the most unique products of its kind on the market. It is designed to provide
practitioners a more effective way to relieve pain using combination therapy.

         We also introduced two new light probes to the market during fiscal
year 2006 - the Dynatron 880Plus light therapy probe which generates twice the
power output of its predecessor model and the Dynatron 405 combination blue/IR
light probe.

         In July 2006, we introduced the Dynatron X3, a unit that offers
multiple light therapy applications due to its ability to operate two Xp
Infrared Light Pads or a light therapy probe with a light pad simultaneously.
This device incorporates touch screen technology for easy interface with the
practitioner.

         In September 2006, we introduced the DX2 combination traction and light
therapy device. It is Dynatronics' first proprietary traction device and
incorporates not only touch screen technology, but other unique and proprietary
technology that will facilitate traction and decompression therapy. We believe
it is the only unit on the market that offers traction and infrared light
therapy from the same device. To support this product, we plan to introduce a
new traction therapy table, the Dynatron T4, which we expect will 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. We also plan to introduce
a new 3-section treatment table called the T3 in the quarter ending December 31,
2006.

                                       13
<PAGE>

         In fiscal year 2006, the Company developed its own proprietary
iontophoresis device - the Dynatron iBox - which is capable of delivering two
treatments simultaneously. In addition, the Company began distribution in
September 2006 of a line of proprietary iontophoresis electrodes with the brand
name of Dynatron Ion electrodes.

         Another important part of our strategic plan is the further expansion
of worldwide marketing efforts. Over the past two years, international sales
have been maintained above the $1 million level or approximately 5% of net sales
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 equipment which
includes the Synergie AMS device for dermal massage, the Synergie MDA device for
microdermabrasion, and the Synergie LT device, an infrared light therapy unit
designed specifically for aesthetic applications. In September 2006, we hired a
new, experienced sales manager for the aesthetic department. During fiscal year
2007, we plan to redesign our Synergie product line and make it more attractive
to the international market. We also plan to develop and introduce additional
products for the aesthetic market. 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. We are also considering new methods of distribution
to boost sales that have lagged due to reduced dealer interest in capital
equipment.

         Dynatronics continues to look for strategic business opportunities that
would enhance shareholder value. Such opportunities could take the form of
acquisitions, exclusive marketing agreements, mergers or asset acquisitions.
Such opportunities are unique and often difficult to structure. Nevertheless,
Dynatronics considers this an important potential avenue for growth.

         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 important new products, both high tech and
              commodity, in fiscal year 2007. However, it is expected that the
              intensity of R&D investment will diminish somewhat in 2007
              compared to 2006.

         o    Increasing sales of Solaris devices through the 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 products 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:

                                       14
<PAGE>

         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.

         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. In
addition, each patent owned by the Company expires after approximately 17 years
from its date of issuance. 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

                                       15
<PAGE>

these agreements will not be breached, that the Company would have adequate
remedies for any breach or that 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.

         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.


                                       16
<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, 2006
and 2005, 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.  We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audits included  consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the  circumstances,
but not for the purpose of  expressing  an opinion on the  effectiveness  of the
Company's internal control over financial reporting.  Accordingly, we express no
such opinion. An audit includes examining,  on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   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, 2006 and 2005, 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
September 27, 2006

                                      F-1
<PAGE>

                            DYNATRONICS CORPORATION
                                 Balance Sheets
                             June 30, 2006 and 2005


                 Assets                                2006             2005
                                                  -------------     ------------
Current assets:
   Cash                                           $     423,184         472,899
   Trade accounts receivable, less allowance
     for doubtful accounts of $244,238 at
     June 30, 2006 and $252,509 at June 30,
     2005                                             3,022,991       3,006,315
   Other receivables                                    216,847          91,129
   Inventories, net                                   4,982,990       4,712,523
   Prepaid expenses                                     505,786         386,935
   Prepaid income taxes                                  65,869          21,701
   Deferred tax asset - current                         387,830         384,077
                                                  -------------     -----------
          Total current assets                        9,605,497       9,075,579

Property and equipment, net                           3,671,216       3,221,944
Goodwill, net of accumulated amortization of
  $649,792 at June 30, 2006 and at June 30, 2005        789,422         789,422
Other assets                                            457,520         372,778
                                                  -------------     -----------
                                                  $  14,523,655      13,459,723
                                                  =============     ===========

      Liabilities and Stockholders' Equity

Current liabilities:
   Current installments of long-term debt         $     254,518         221,069
   Line of credit                                       577,232         264,761
   Accounts payable                                     593,016         605,788
   Accrued expenses                                     536,131         571,940
   Accrued payroll and benefit expenses                 254,453         368,167
                                                  -------------     ------------
          Total current liabilities                   2,215,350       2,031,725

Long-term debt, excluding current installments        2,023,410       1,330,325
Deferred compensation                                   388,250         360,518
Deferred tax liability - noncurrent                     225,603         223,647
                                                  -------------     ------------
          Total liabilities                           4,852,613       3,946,215
                                                  -------------     ------------
Stockholders' equity:
   Common stock, no par value.  Authorized
     50,000,000 shares; issued 9,034,566 shares
     at June 30, 2006 and 9,015,128 shares at
     June 30, 2005                                    2,746,503       2,779,000
   Deferred stock compensation                           (4,000)              -
   Retained earnings                                  6,928,539       6,734,508
                                                  -------------     -----------
Commitments
          Total stockholders' equity                  9,671,042       9,513,508

                                                  -------------     -----------
                                                  $  14,523,655      13,459,723
                                                  =============     ===========

See accompanying notes to financial statements.



                                       F-2
<PAGE>

                             DYNATRONICS CORPORATION
                              Statements of Income
                       Years Ended June 30, 2006 and 2005



                                                       2006              2005
                                                  -------------     ------------

Net sales                                         $  19,513,136      20,404,368
Cost of sales                                        12,221,375      12,105,079
                                                  -------------     ------------
          Gross profit                                7,291,761       8,299,289

Selling, general, and administrative expenses         5,239,462       5,748,529
Research and development expenses                     1,756,281       1,302,722
                                                  -------------     ------------
          Operating income                              296,018       1,248,038
                                                  -------------     ------------

Other income (expense):
   Interest income                                       10,714           9,377
   Interest expense                                    (163,287)       (139,482)
   Other income, net                                     65,776          32,923
                                                  -------------     ------------
          Total other income (expense)                  (86,797)        (97,182)
                                                  -------------     ------------

          Income before income taxes                    209,221       1,150,856

Income tax expense                                       15,190         422,040
                                                  -------------     ------------

          Net income                              $     194,031         728,816
                                                  =============     ============

          Basic net income per common share       $        0.02            0.08

          Diluted net income per common share     $        0.02            0.08

Weighted average basic and diluted common
  shares outstanding

          Basic                                       9,019,416       8,973,911
          Diluted                                     9,170,270       9,213,808





See accompanying notes to financial statements.




                                       F-3
<PAGE>

                             DYNATRONICS CORPORATION
                            Statements of Cash Flows
                       Years Ended June 30, 2006 and 2005

                                                      2006              2005
                                                  -------------     ------------
Cash flows from operating activities:
  Net income                                      $     194,031         728,816
  Adjustments to reconcile net income to net
    cash provided by (used in) operating
    activities:
      Depreciation and amortization of property
        and equipment                                   354,220         372,332
      Other amortization                                  7,324           7,324
      Provision for doubtful accounts                    48,000          96,000
      Provision for inventory obsolescence              252,000         276,000
      Provision for warranty reserve                    280,085         169,321
      Provision for deferred compensation                27,732          29,496
      Compensation expense on stock and options           4,000          29,700
      Change in operating assets and liabilities:
         Receivables                                   (190,394)        620,189
         Inventories                                   (522,467)       (300,726)
         Prepaid expenses and other assets             (210,916)         (3,420)
         Deferred tax asset, net                         (1,797)         24,570
         Accounts payable and accrued expenses         (442,381)       (173,207)
         Prepaid income taxes                           (41,013)         21,701
         Income tax payable                                   -        (218,601)
                                                  -------------     ------------

            Net cash provided by (used in)
            operating activities                       (241,576)      1,679,495
                                                  -------------     ------------

Cash flows from investing activities:
  Capital expenditures                                 (804,992)       (284,162)
  Proceeds from sale of assets                            1,500             (31)
                                                  -------------     ------------

              Net cash used in investing
              activities                               (803,492)       (284,193)
                                                  -------------     ------------

Cash flows from financing activities:
  Proceeds from issuance of long-term debt            1,530,000               -
  Principal payments on long-term debt                 (803,466)       (209,457)
  Net change in line of credit                          312,471      (1,339,774)
  Proceeds from issuance of common stock                 15,797          53,801
  Redemption of common stock                            (59,449)              -
                                                  -------------     ------------

              Net cash provided by (used in)
              financing activities                      995,353      (1,495,430)
                                                  -------------     ------------

              Net change in cash                        (49,715)       (100,128)

Cash at beginning of period                             472,899         573,027
                                                  -------------     ------------

Cash at end of period                             $     423,184         472,899
                                                  =============     ============

Supplemental disclosures of cash flow information:
  Cash paid for interest                          $     156,723         138,304
  Cash paid for income taxes                             58,000         594,370
Supplemental disclosure of non-cash investing
    and financing activities:
  Common stock issued for directors fees                  8,000               -
  Income tax benefit from non-employee exercise
    of stock options                                      3,155          25,095

See accompanying notes to financial statements.

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

                                             DYNATRONICS CORPORATION
                                        Statements of Stockholders' Equity
                                        Years Ended June 30, 2006 and 2005



                                                                    Deferred                          Total
                                                      Common         stock          Retained       stockholders'
                                                       stock       compensation     earnings          equity
                                                  -------------    ------------    ------------   ---------------
<S>                                               <C>                   <C>          <C>               <C>
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

Issuance of 14,238 shares of common stock
  upon exercise of employee stock options                15,797              -               -            15,797

Redeemed 46,393 shares of common stock                  (59,449)             -               -           (59,449)

Income tax benefit disqualifying disposition
  of employee stock options                               3,155              -               -             3,155

Issuance of 5,200 shares of restricted stock
  to outside directors                                    8,000              -               -             8,000

Deferred restricted stock compensation                        -         (4,000)              -            (4,000)

Net income                                                    -              -         194,031           194,031
                                                  -------------    ------------    ------------   ---------------

Balances at June 30, 2006                         $   2,746,503         (4,000)      6,928,539         9,671,042
                                                  =============    ============    ============   ===============

See accompanying notes to financial statements.
                                                                F-5
</TABLE>

<PAGE>

                             DYNATRONICS CORPORATION

                          Notes to Financial Statements

                             June 30, 2006 and 2005



(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   additional
              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, 2006 and 2005.

         (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

                                       F-6
<PAGE>

              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 2006
              and  2005  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
              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.


                                       F-7
<PAGE>

              A  reconciliation  between the basic and diluted  weighted average
              number  of  common  shares  for  2006 and  2005 is  summarized  as
              follows:

                                                           2006           2005
                                                       ------------- -----------
              Basic weighted average number of
              common shares outstanding during
              the year                                   9,019,416     8,973,911
              Weighted average number of
              dilutive common stock options
              outstanding during the year                  150,854       239,897
                                                       ------------- -----------
              Diluted weighted average number
              of common and common equivalent
              shares outstanding during the year         9,170,270     9,213,808
                                                       ============= ===========

              Outstanding options not included in the computation of diluted net
              income per share based on the treasury  stock method total 675,638
              and 188,092 as of June 30, 2006 and 2005, 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.

         (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:


                                       F-8
<PAGE>

                                                     Year ended       Year ended
                                                      June 30,         June 30,
                                                        2006             2005
                                                  --------------    ------------
              Net income as reported              $     194,031         728,816
              Less: pro forma adjustment for
                stock based compensation, net
                of income tax                          (563,489)        (44,042)
                                                  --------------    ------------
                           Pro forma net
                           income (loss)          $    (369,458)        684,774
                                                  ==============    ============
              Basic net income (loss) per
               share:
                     As reported                  $        0.02            0.08
                     Effect of pro forma
                       adjustment                         (0.06)             -
                                                  -------------     ------------
                     Pro forma                            (0.04)           0.08

              Diluted net income (loss)
                per share:
                     As reported                           0.02            0.08
                     Effect of pro forma
                       adjustment                         (0.06)          (0.01)
                                                  -------------     ------------
                     Pro forma                    $       (0.04)           0.07
                                                  =============     ============

              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
                                                  ------------------------------
                                                      2006             2005
                                                  ---------------  -------------
              Expected dividend yield                  0%                0%
              Expected stock price volatility         70-88%            86-89%
              Risk-free interest rate             4.14 - 4.98%      3.68 - 4.45%
              Expected life of options             5 - 10 years      5 - 7 years

              The weighted average fair value of options granted during 2006 and
              2005 was $1.22 and $1.31, respectively.

              On May 19, 2006 the Board of Directors  accelerated the vesting of
              certain  unvested stock options  awarded to employees and officers
              under the  Company's  stock  option  plan.  The Company  took this
              action to avoid an accounting charge (as compensation expense) for
              these options  starting in the quarter ending  September 30, 2006,
              as required by FAS 123(R).  A portion of the  increase in proforma
              compensation  expense in fiscal 2006, as shown above,  is a result
              of the vesting acceleration.

         (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.  The Company  maintains its cash in
              bank deposit accounts which at times may exceed federally  insured
              limits.  The  Company  has  not  experienced  any  losses  in such
              accounts.   The  Company   believes  it  is  not  exposed  to  any
              significant credit risks on cash or cash equivalents.

                                       F-9
<PAGE>

         (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 87% of
              net sales for the year  ended  June 30,  2006 and 85% for the year
              ended June 30, 2005. Aesthetics products consisted of 7% and 9% of
              net sales for years  ended June 30,  2006 and 2005,  respectively.
              Chargeable  repairs,  billable  freight  and  other  miscellaneous
              revenue  account for the  remaining  6% of total  revenues in both
              years ended June 30, 2006 and 2005, 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, income taxes, 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,  2006  and  2005  was  approximately  $186,000  and  $232,000,
              respectively. No prepaid supplies consisted of catalogs as of June
              30, 2006 and 2005.

 (2)   Inventories

       Inventories consist of the following:

                                                       2006            2005
                                                  --------------   ------------
             Raw materials                        $    3,034,919      2,671,255
             Finished goods                            2,331,563      2,409,435
             Inventory reserve                          (383,492)      (368,167)
                                                  --------------   ------------
                                                       4,982,990      4,712,523
                                                  ==============   ============

                                      F-10
<PAGE>

(3)    Property and Equipment

       Property and equipment consist of
          the following:

                                                       2006            2005
                                                  --------------   ------------
             Land                                 $      354,743        354,743
             Buildings                                 3,590,088      2,921,127
             Machinery and equipment                   1,481,796      1,560,010
             Office equipment                          1,059,664      1,011,101
             Vehicles                                     94,290         94,290
                                                  --------------   ------------
                                                       6,580,581      5,941,271
             Less accumulated depreciation
              and amortization                         2,909,365      2,719,327
                                                  --------------   ------------
                                                  $    3,671,216      3,221,944
                                                  ==============   ============
(4)      Product Warranty Reserve

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

                                                       2006             2005
                                                  --------------   -------------
             Beginning product warranty reserve
                balance                           $      208,000        184,000
             Warranty repairs                           (280,085)      (145,322)
             Warranties issued                           138,975        139,324
             Changes in estimated warranty costs         141,110         29,998
                                                  --------------   -------------

                        Ending product warranty
                         reserve balance          $      208,000        208,000
                                                  ==============   =============
(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,  2006 and 2005,  the  outstanding  balance was
         approximately $577,000 and $265,000,  respectively.  The line of credit
         is  collateralized  by  inventory  and  accounts  receivable  and bears
         interest at the bank's "prime rate," (8.25% and 6.25% at June 30,  2006
         and 2005,  respectively).  This line is subject to annual  renewal  and
         matures on December 1, 2006. Accrued interest is payable monthly.

(6)      Long-Term Debt

         Long-term debt consists of the following:

                                                       2006             2005
                                                  --------------   -------------

           6.44% promissory note secured by
           trust deed on real property, maturing
           January 2021, payable in monthly
           installments of $13,278                $   1,504,394               -
           6.21% promissory note secured by a
           trust deed on real property, maturing
           November 2013, payable in decreasing
           installments currently at $7,373             498,159         550,191
           5.84% promissory note secured by a
           trust deed on real property, payable
           in monthly installments of $8,669
           through November 2008                        233,422         320,791
           8.87% promissory note secured by
           fixed assets, payable in monthly
           installments of $3,901 through May
           2007                                          41,435          83,683
           6.75% promissory note secured by
           building, maturing May 2017, payable
           in  monthly installments beginning at
           $5,641                                             -         594,227
           Other notes payable                              518           2,502

                                                  --------------   -------------
                        Total long-term debt          2,277,928       1,551,394
      Less current installments                         254,518         221,069
                                                  --------------   -------------
                        Long-term debt, excluding
                        current installments      $   2,023,410       1,330,325
                                                  ==============   =============



                                      F-11
<PAGE>

         The  aggregate  maturities  of  long-term  debt for  each of the  years
         subsequent to 2006 are as follow: 2007, $254,518; 2008, $225,940; 2009,
         $177,300; 2010, $144,652; 2011, $154,080 and thereafter $1,321,438.

(7)      Leases

         The  Company  leases  vehicles  under  noncancelable   operating  lease
         agreements. Rent expense for the years ended June 30, 2006 and 2005 was
         $29,765 and  $23,664,  respectively.  Future  minimum  rental  payments
         required  under  noncancelable  operating  leases that have  initial or
         remaining  lease terms in excess of one year as of 2006 are as follows:
         2007, $28,729; 2008, $20,888 and 2009, $7,702.

(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 net goodwill
         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, 2006    June 30, 2005
                                                  --------------   -------------
        Gross carrying amount                     $      73,240          73,240
        Accumulated amortization                         42,724          35,400
                                                  --------------   -------------
                  Net carrying amount             $      30,516          37,840
                                                  ==============   =============

         Amortization  expense  associated with the license agreement was $7,324
         for 2006 and 2005.  Estimated  amortization  expense  for the  existing
         license agreement is expected to be $7,324 for each of the fiscal years
         ending June 30, 2007 through June 30, 2010.

(9)      Income Taxes

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

                                  Current          Deferred          Total
                              ---------------   --------------    ------------
         2006:
           U.S. federal       $       (3,724)         (1,556)           (5,280)
           State and local            20,711            (241)           20,470
                              ---------------   --------------    ------------
                              $       16,987          (1,797)           15,190
                              ===============   ==============    ============
         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
                              ===============   ==============    ============


                                      F-12
<PAGE>

         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:

                                                        2006             2005
                                                  --------------   -------------
         Expected tax expense                     $      71,135         391,291
         State taxes, net of federal tax benefit         11,206          64,632
         Officers' life insurance                        (3,278)         (3,239)
         Extraterritorial income exclusion               (7,662)         (7,480)
         Other, net                                     (56,211)        (23,164)
                                                  --------------   -------------
                                                  $      15,190         422,040
                                                  ==============   =============

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

                                                       2006             2005
                                                  --------------   -------------
         Net deferred tax asset - current:
            Inventory capitalization for income
              tax purposes                        $      63,523          64,640
            Inventory reserve                           143,043         137,326
            Warranty reserve                             77,584          77,584
            Accrued product liability                    12,580          10,341
            Allowance for doubtful accounts              91,100          94,186
                                                  -------------    -------------
                            Total deferred tax
                             asset - current      $     387,830         384,077
                                                  =============    =============
        Net deferred tax asset (liability) -
         non-current:
            Deferred compensation                 $     144,817         134,473
            Property and equipment, principally
             due to differences in depreciation        (373,052)       (361,409)
            Non-compete and goodwill                      2,632           3,289
                                                  -------------    -------------
        Total deferred tax liability -
         non-current                              $    (225,603)       (223,647)
                                                  =============    =============

         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,  2006 and 2005,  sales to any
         single customer did not exceed 10% of total net sales.


                                      F-13
<PAGE>

         Sales in the United  States and other  countries  were 95 percent and 5
         percent  for  both   fiscal   years  ended  June  30,  2006  and  2005,
         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, 2006, the Company  acquired and retired  $59,449 of
         common stock. There were no stock repurchases during fiscal year 2005.

         The  Company  granted  options to acquire  common  stock under its 2005
         qualified  stock  option  plan  for  fiscal  2006  and  under  its 1992
         qualified  stock  option  plan for fiscal  2005.  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 ten years from the date
         of grant.

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

                                                   2006                             2005
                                     --------------------------------  ---------------------------------
                                                         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          1,155,839  $       1.41            723,884    $         1.15
         Options granted                   236,374          1.49            564,924              1.70
         Options exercised                  14,238          1.11             56,880              0.92
         Options canceled or expired      (248,117)         1.42            (76,089)             1.50
                                     -------------                     --------------
         Options outstanding at end
              of year                    1,129,858          1.42          1,155,839              1.41
                                     =============                     ==============
         Options exercisable at end
              of year                    1,129,858          1.42            477,330              0.91
                                     =============                     ==============
         Range of exercise prices at
              end of year                            $   0.66 - 3.00                   $     0.66 - 3.00
</TABLE>

         At June 30,  2006,  440,852 shares of common stock were  authorized and
         reserved  for  issuance,  but were not  granted  under the terms of the
         stock option plan.

         At June 30, 2006 and 2005, 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  2006 and  2005,  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 2006 and 2005
         were $34,120 and $30,204, respectively.  Company matching contributions
         for future years are at the discretion of the board of directors.


                                       F-14
<PAGE>

(13)     Salary Continuation Agreements

         As of June 30, 2006 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 2006 and 2005,  the  Company has
         accrued $388,250 and $360,518,  respectively,  of deferred compensation
         under the terms of the agreements.

(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 first  quarter  of fiscal  year  2007.  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.

         On July 13, 2006,  FASB  Interpretation  (FIN) No. 48,  Accounting  for
         Uncertainty  in Income Taxes - An  Interpretation  of FASB No. 109, was
         issued. FIN 48 clarifies the accounting for uncertainty in income taxes
         recognized in a company's financial  statements in accordance with FASB
         Statement No. 109,  Accounting for Income Taxes.  The provisions of FIN
         48 are effective for fiscal years  beginning  after  December 15, 2006.
         Accordingly,  the Company will  implement  the revised  standard in the
         first quarter of fiscal year 2008.


                                       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 2006 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 2006 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 2006
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, 2006, 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 Firm........F-1


                                       17
<PAGE>

              Balance Sheets at June 30, 2006 and 2005.......................F-2

              Statements of Income for years ended
              June 30, 2006 and 2005.........................................F-3

              Statements of Stockholders'
              Equity for years ended June 30, 2006
              and 2005.......................................................F-4

              Statements of Cash Flows for
              years ended June 30, 2006 and 2005 ............................F-5

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


       Exhibits:
       --------

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

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

              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)

              10.7          Dynatronics Corporation 2005 Equity Incentive Award
                            Plan (previously filed as Annex A to the Company's
                            Definitive Proxy Statement on Schedule 14A filed on
                            October 27, 2005)

              10.8          Form of Option Agreement for the 2005 Equity
                            Incentive Award Plan for incentive stock options
                            (filed herewith)

              10.9          Form of Option Agreement for the 2005 Equity
                            Incentive Award Plan for non-qualified options
                            (filed herewith)

              23.1          Consent of Tanner LC (filed herewith)

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

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



                                       18
<PAGE>

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 2006 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, 2006

         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 26, 2006
-----------------------------    (Principal Executive
Kelvyn H. Cullimore, Jr.         Officer)


 /s/ Terry M. Atkinson, CPA      Chief Financial Officer      September 26, 2006
-----------------------------    (Principal Financial Officer
Terry M. Atkinson, CPA           and Principal Accounting
                                 Officer)


 /s/ Larry K. Beardall           Director, Executive          September 26, 2006
-----------------------------    Vice President
Larry K. Beardall


                                 Director                     September 26, 2006
-----------------------------
E. Keith Hansen, M.D.


                                 Director                     September 26, 2006
-----------------------------
Howard L. Edwards


  /s/ Val J. Christensen
-----------------------------    Director                     September 26, 2006
Val J. Christensen


 /s/ Joseph H. Barton            Director                     September 26, 2006
-----------------------------
Joseph H. Barton



                                       20