UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# Form 10-KSB

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

For the Fiscal year
ended April 30, 2005

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

# 

For the transition
period from _________ to _________

Commission
file number 0-22760

Elecsys Corporation(Name of small business
issuer in its charter)

|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|                                                               |                                     
|Kansas                                                         | 48-1099142                          
|(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer
Identification No.)
|                                                               |                                     

15301 West 109th Street, Lenexa, Kansas    66219
                            (Address of principal executive offices)       (Zip Code)

Issuer's telephone
number (913) 647-0158

Securities registered under Section
12(b) of the Exchange Act:              NoneSecurities registered under Section 12(g) of the Exchange Act:

Common Stock, $.01
par value(Title of class)



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.  [   ]

State
issuer's revenues for its most recent fiscal year.$12,307,272

The
aggregate market value of the voting stock held by  non-affiliates  of the issuer on July
15, 2005, based upon the average bid and ask prices for such stock on that date was
 $10,983,386.  The number of shares of Common Stock of the issuer  outstanding as of July
15, 2005 was 3,239,937.

# DOCUMENTS INCORPORATED
BY REFERENCE

The information contained in Items
9, 10, 11, 12, and 14 of Part III of this Form 10-KSB have been incorporated by reference
to our Proxy Statement for our Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal year
ended April 30, 2005.

|Transitional | Small
Business Disclosure Form (Check One): Yes ___       No X
|------------ | --------------------------------------------------------------

1

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|ELECSYS CORPORATION AND SUBSIDIARIES
             FORM 10-KSB
     Year Ended April 30, 2005
            INDEX | Page
|-------------------------------------------------------------------------------------------------------------- | ----
|PART I                                                                                                         |     
|                                                                                                               |     
|ITEM 1.  DESCRIPTION OF BUSINESS                                                                               |     
|                                                                                                               |     
|ITEM 2.  DESCRIPTION OF PROPERTY                                                                               |     
|                                                                                                               |     
|ITEM 3.  LEGAL PROCEEDINGS                                                                                     |     
|                                                                                                               |     
|ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                   |     
|                                                                                                               |     
|PART II                                                                                                        |     
|                                                                                                               |     
|ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED                                                     |     
|STOCKHOLDER MATTERS                                                                                            |     
|                                                                                                               |     
|ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                                                     |     
|CONDITION AND RESULTS OF OPERATIONS                                                                            |     
|                                                                                                               |     
|ITEM 7.  FINANCIAL STATEMENTS                                                                                  |     
|                                                                                                               |     
|ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                                                      |     
|ACCOUNTING AND FINANCIAL DISCLOSURE                                                                            |     
|                                                                                                               |     
|ITEM 8A.  CONTROLS AND PROCEDURES                                                                              |     
|                                                                                                               |     
|ITEM 8B.  OTHER INFORMATION                                                                                    |     
|                                                                                                               |     
|PART III                                                                                                       |     
|                                                                                                               |     
|ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL                                               |     
|PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE                                                                  |     
|EXCHANGE ACT                                                                                                   |     
|                                                                                                               |     
|ITEM 10.  EXECUTIVE COMPENSATION                                                                               |     
|                                                                                                               |     
|ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                                                  |     
|MANAGEMENT AND RELATED STOCKHOLDER MATTERS                                                                     |     
|                                                                                                               |     
|ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                       |     
|                                                                                                               |     
|ITEM 13.  EXHIBITS                                                                                             |     
|                                                                                                               |     
|ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                               |     
|                                                                                                               |     
|SIGNATURES                                                                                                     |     

2

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Part I

Item 1. DESCRIPTION OF
BUSINESS

General

Elecsys
Corporation (Elecsys, the Company, or we), through its
wholly owned subsidiaries, provides Electronic Interface Solutions and Remote Monitoring
Solutions to many diverse industries worldwide. Our customer base spans many markets
including the aerospace, medical, communications, safety systems, transportation,
industrial controls, and energy infrastructure industries. We operate two distinct
business segments: Electronic Interface Solutions (EIS) and Remote Monitoring Solutions
(RMS). Our EIS segment provides electronic manufacturing services and has specialized
capabilities to design and efficiently manufacture custom electronic assemblies which
integrate a variety of interface technologies such as custom liquid crystal displays
(LCDs), light emitting diode displays (LEDs), and custom controls
with circuit boards and other electronic assemblies. We offer a single source solution for
our customers custom electronic interface requirements. Our RMS segment designs,
markets, and provides wireless remote monitoring solutions for the gas and oil pipeline
industry as well as other industries requiring remote monitoring solutions.

We
operate our EIS segment through our DCI, Inc. (DCI) subsidiary. DCI designs,
manufactures, and integrates custom electronic interface solutions for original equipment
manufacturers (OEMs) in the aerospace, medical, communications, safety,
transportation, and other industrial product industries. DCI provides a unique range of
services to OEMs for the development and production of custom electronic assemblies that
integrate specialized interface technologies with flexible electronic production. We
design, manufacture, integrate, and test electronic assemblies, including circuit boards,
high-frequency electronic modules, microelectronic displays and assemblies and full
turn-key products, along with custom LCD devices and modules, and custom LED display
arrays. Our diverse capabilities, combined with our materials management expertise, make
us an attractive single resource for product development and production that allows
customers to integrate their supply chains and reduce their vendor bases at a lower
overall total cost.

We
operate our RMS segment through our Network Technologies Group, Inc. (NTG)
subsidiary. NTG designs, markets, and provides remote monitoring solutions for the gas and
oil pipeline industry as well as other industries requiring remote monitoring solutions.
With NTGs proprietary remote monitoring devices integrated with our ScadaNET
NetworkTM, we provide full-time system monitoring, periodic status information and prompt
notification of alarm conditions at remotely located systems via the internet. Through our
innovative use of the existing cellular telephone network control channels, the ScadaNET
NetworkTM delivers a combination of high reliability and immediacy of data at a
competitive cost.

Elecsys
was incorporated in Kansas in 1991, and from 1991 through September 2001, the Company
designed, manufactured and sold aircraft navigational aids (the Navaids
Business). In February 2000, the Company acquired DCI. In September 2001, we exited
the Navaids Business when we sold substantially all of the assets and operations, and
transferred certain liabilities of the Navaids Business, to a European joint venture.

In
August 2003, DCI invested $100,000 to become a 19% member of Network Technologies

3

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Group, LLC (NTG, LLC), a
limited liability company formed by a group of technical and management professionals who
purchased the Network Technologies Group business unit from LaBarge, Inc. DCI joined
several other anticipated key suppliers, key distributors, and independent investors in
capitalizing NTG, LLC and became the electronic manufacturing source for NTG, LLC. NTG,
LLC supplied remote monitoring solutions utilizing the digital control channels of the
nations cellular telephone network and established its initial market in the oil
and gas pipeline industry.

In
January 2004, DCI entered into an agreement with Pro-Tronix, Inc.
(Pro-Tronix), an Olathe, Kansas contract electronics manufacturer that was
preparing to cease operations, pursuant to which the customers of Pro-Tronix were referred
to DCI as their new manufacturing source. Through January 2007, a commission will be paid
to the owner of Pro-Tronix based on the completion of existing Pro-Tronix sales orders
that were transferred to DCI and additional sales orders awarded to DCI from the former
Pro-Tronix customer base. We have added several new customers with this initiative and
gained approximately $725,000 in new business from those customers during fiscal 2005.

On
November 24, 2004, the Company paid the holders of the other 81% interest in NTG, LLC
approximately $301,000 in cash and the Companys common stock. In exchange, the
Company acquired certain assets, including all of the proprietary technology, and assumed
certain liabilities of NTG, LLC. The acquired assets were transferred to the
Companys new RMS subsidiary, NTG. In addition to the cash and stock paid, the
selling members of NTG, LLC will receive quarterly cash payments equal to 4% of NTGs
net sales through November 2007.

We
are committed to continue growing and expanding the Company when an attractive opportunity
presents itself. Our recent acquisition of NTG and our agreement with Pro-Tronix are
examples of the type of growth opportunities we plan to pursue.

Business

Through
DCI, our EIS segment provides a range of design, manufacturing, integration and testing
services to OEMs that desire a cost-effective single source for the development and
production of custom electronic assemblies that integrate specialized interface
technologies with flexible electronic production. Our strategy is to leverage our
expertise as an electronic manufacturing services (EMS) provider that can
integrate specialized technologies, such as custom LCD fabrication, LED display
production, and microelectronic assembly, to provide solutions to our customers
electronic interface needs. We design, manufacture, integrate, and test electronic
assemblies, including circuit boards, high-frequency electronic modules, microelectronic
assemblies, and full turn-key products, along with custom LCD devices and modules, and
custom LED display arrays. The electronic interfaces, assemblies, and LCDs we produce, or
import, are used in medical, aerospace, communications, safety systems, industrial and
consumer products and other applications. DCI conducts its operations from a 33,000 square
foot facility located in Lenexa, Kansas. We are certified to the ISO 9001:2000 standard,
having received initial ISO 9001 certification in November 2000. We function as an
extension of our customers organizations and offer a single source solution that
encompasses design, manufacturing and support services from product conception through
volume production.

Sales
are made primarily to customers in the United States, Canada and a few other international
markets, which are serviced through a combination of in-house sales personnel and
independent sales representative firms. We view our OEM customers as strategic partners
and work to provide them with broad technical services and excellent customer care. A key
operating objective is to form long-term

4

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business relationships with our
customers by developing technological interdependence between the Company and the
customer.

Our
engineering staff provides hardware design, software design and component engineering
services to OEMs. Our manufacturing processes produce assemblies incorporating both
conventional electronic packaging and high-density configurations, including ball grid
array (BGA) and microelectronic technologies. We maintain manufacturing
capabilities which include automated surface mount technology component placement,
automated solder paste application and soldering, automated through-hole component
insertion, wire bonded chip on board microelectronic assembly, and complete in-circuit and
functional testing services. We integrate our customers electronic assemblies with
numerous specialized interface technologies such as custom LCDs and LED display arrays,
custom keypads and other user input devices as well as application specific backlights and
illumination sources.

Our
LCD fabrication process produces custom LCDs for numerous applications. An LCD is a low
power display device in which liquid crystal material is sealed in a cell between
specially etched plates of conductively coated glass. When an electric field is applied
across the glass plates, the liquid crystal material becomes polarized and the display is
activated. LCDs are used to display information in a variety of applications from
commercial and consumer to aerospace and medical products. We fabricate highly specialized
and low- to medium-volume custom LCD devices in our Class 10000 cleanroom located in our
Lenexa facility. The cleanroom includes automated photo-imaging and glass scribing process
equipment. We also maintain relationships with several offshore LCD manufacturers to
source our higher volume customer requirements. We are capable of designing and
manufacturing a complete display module involving both the custom LCD device and the
supporting electronics. A limited number of our competitors currently have the capability
to produce such complete modules.

We
believe our design, manufacturing, and integration capabilities, combined with materials
management expertise, make us an effective single resource for product development and
production that allows customers to integrate their supply chains and reduce their vendor
bases. We strive to form long-term partnerships with our customers and to maintain those
relationships through superior performance. We focus our marketing efforts on OEMs whose
products require the integration of custom electronic interface devices, such as LCDs, LED
displays, or custom input devices, with specialized electronic manufacturing. Our ideal
customer requires both design and manufacturing services and places a high value on
quality, reliable delivery and customer service. This strategy of focusing on specialized
display and interface technologies differentiates us from conventional domestic EMS
providers.

We
view the integration of electronic manufacturing services with specialized niche
technologies to be a large and growing market. It is our primary focus to grow internally
through our existing customer base and additions to our customer base for which our
expertise in EMS, displays, display integration, and customer service is a single-source
solution. To further develop our business and complement our internal growth strategy, we
will continue to selectively evaluate opportunities that would permit us to leverage our
capabilities. We will continue to explore complementary niche technologies in order to
expand our technological capabilities and drive our growth into additional sectors of the
EMS market. We will look at businesses where we see an opportunity to add complementary
customers and capabilities or purchase assets at reasonable prices.

Through
NTG, our RMS segment provides wireless, internet-based remote monitoring equipment and
network data services for industrial monitoring

5

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applications. Our strategy is to
focus product and market development on industrial monitoring applications that require
wide-area wireless networking technologies and proprietary field application hardware.
NTG provides various application specific remote monitoring units that are integrated
with centralized data services that operate using the companys proprietary ScadaNET
NetworkTM software and data center. In addition to the initial equipment revenue, each
remote monitor generates monthly network services revenue. NTG operates out of a 5,000
square foot facility located in Lenexa, Kansas that is leased by the Company through
September 2006. Sales are primarily conducted through established distributors and
equipment integrators in the pipeline corrosion protection market, in-house direct
marketing and sales efforts, and national and regional trade expositions. We currently
sell our RMS products and services throughout the United States, Canada, and Mexico.

The
ScadaNET NetworkTM is comprised of a variety of remote monitoring devices that use the
administrative control channels of the nations existing cellular network
infrastructure to link into an internet-based backend network and customer/user interface.
The remote devices, proprietary designs and technology pioneered by the Company, monitor
functions such as voltages, currents, temperatures, levels, and pressures, and allow
control activity to take place at remote sites. By utilizing the capacity, coverage, and
capability of the existing cellular-based wireless infrastructure, the ScadaNET NetworkTM
can receive data from and deliver information out to remote devices. When combined with
our internet-based front-end, our customers can directly access and control a large
population of field deployed remote monitoring devices at an attractive cost.

NTG
has initially targeted the cathodic protection (CP) market for North American
pipelines where numerous applications currently exist for our products and services. The
millions of miles of buried pipelines that carry gas, oil, water, and other products
throughout North America would corrode due to the interaction of the metals with
underground moisture. Pipeline operators constantly fight this natural corrosion process
to protect their pipeline asset and comply with strictly-enforced federal regulations that
require corrosion protection, assessment, and monitoring. Pipelines are generally
protected with CP rectifiers deployed along the pipeline that establish a voltage between
the pipeline and the surrounding soil to arrest corrosion activity. Historically, pipeline
organizations employ corrosion technicians who travel from site to site to verify the
operation of CP systems. There are currently over 500,000 manually tested CP-related
locations in North America, with 10,000 additional sites being installed each year. We
feel that the availability of cellular-borne digital control channels, and the low cost to
wirelessly send periodic, by-exception data is an ideal means to automate the monitoring
and data collection tasks required by the pipeline CP industry. To date, over 6,000
ScadaNET NetworkTMremote monitors have been deployed in various applications.

We
have been designing new remote monitoring devices that target the features and
installation requirements specifically for CP monitoring and control applications in order
to differentiate NTG from other remote monitoring systems. The complete family of CP
industry specific devices was available to the market in July 2005.

NTG
continues to explore opportunities to both expand into additional markets with our
proprietary product lines and to design new products. We will continue to focus product
and market development on niche applications that leverage complete client solutions,
wireless networking technologies, and proprietary field application hardware. We also plan
to integrate globally-compatible wireless communications techniques into our products
while using the same centralized, internet-centric

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ScadaNET NetworkTM to provide
network services from our data center in Lenexa, Kansas. This move into global
packet-data services will allow us to expand our markets from North America to a global
scale.

Competition

There
are numerous domestic and foreign EMS providers with which our EIS segment competes. Many
of these competitors are substantially larger than DCI, with greater financial, operating,
manufacturing and marketing resources, including Flextronics International Ltd.,
Sanmina-SCI Corporation, and Solectron Corporation. Many have broader geographic breadth,
a broader range of services, and established overseas operations. There are a limited
number of LCD manufacturers located in the United States. There are also numerous foreign
manufacturers who export LCD products into our primary customer markets. Our ability to
integrate custom LCDs, LED displays and other specialized electronic interface
technologies with electronic assemblies helps differentiate us from our competitors. Our
management team believes that the principal competitive factors in our target markets are
product quality, reliability in meeting product delivery schedules, flexibility and
timeliness in responding to design and schedule changes, pricing, and technological
sophistication. To remain competitive, we must provide technologically advanced
manufacturing services, maintain quality levels, deliver finished products on a reliable
basis, offer flexible delivery schedules, and compete effectively on price.

While
there are numerous competitors in the general remote monitoring market, some that are much
larger than NTG, we participate in specialized industrial sectors of the market where we
are a significant provider and possess certain technology protection in the form of
patents. In the CP remote monitoring market, American Innovations, Ltd. is a direct
competitor that is comparable to NTG in size. There are also several smaller firms that
participate in the CP remote monitoring market. Management believes the significant
competitive factors in our markets include reliability, features, performance, and price.
We believe that NTGs proprietary products and the ScadaNET NetworkTM compete
favorably with respect to these factors.

Sources and Availability
of Raw Materials and Principal Suppliers

The
raw materials used in the manufacture of our products are primarily electronic components
and parts. These components and parts are readily available from a number of sources in
the United States and abroad. From time to time, some components we use have been subject
to shortages, and suppliers have been forced to allocate available quantities among their
customers. We attempt to actively manage our business in a way that minimizes our exposure
to these potential shortages, but we may experience component shortages that could cause
us to delay shipments to customers, which could result in lower net sales and operating
results.

In
addition to manufacturing its own products, the Company has close working relationships
with companies both in the United States and in some foreign countries to provide
component assemblies and finished goods that are manufactured to the Companys
specifications. Although multiple suppliers are available for such items, if the Company
were to lose one or more of the current suppliers, some delay and additional costs may be
incurred while we obtain and qualify alternative sources.

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Patents, Trademarks and
Licenses

Through
NTG, the Company owns (or licenses in the case of some technology shared with the General
Electric Company) multiple patents dealing with control channel communication techniques
over the cellular network and other communication concepts. Four of these patents deal
specifically with the CP market currently being pursued by NTG and have direct positive
influence on the Companys competitive status. The Company intends to use these
intellectual property assets as competitive barriers to entry or for technology licensing
purposes.

The
Company holds federal trademark registrations for marks used in the Companys
business as follows: ScadaNET, ScadaNET Network, CellularRTU, ConfigRTU, CPi, CellularRMU,
RMUvi, and P2S.

Research and Development

For
the EIS segment, we design and manufacture custom products and assemblies for OEM
customers on a contract basis and thus are not engaged in any independent, self-funded
research and development programs. We develop proprietary remote monitoring products for
the RMS business segment. These products are targeted at specific industry applications
and involve electronic hardware and system software design. Total research and development
expenses for the RMS segment, which was acquired in the NTG acquisition, were
approximately $121,000 for fiscal year 2005. The Company believes that our internal
engineering resources combined with approved third-party engineering consultants will be
able to satisfy the current needs of our customer base.

Effect of Governmental
Regulations

Our
operations are subject to certain federal, state and local regulations concerning waste
management and health and safety matters. We believe that we operate in compliance with
all applicable requirements and do not anticipate any material expenditure in maintaining
compliance. New, modified, or more stringent requirements or enforcement policies could be
adopted in the future which could result in material costs and liabilities that could
adversely affect our business.

Effect of Environmental
Regulations

The
Company is not aware of any federal, state, or local provisions regulating the discharge
of materials into the environment or otherwise relating to the protection of the
environment with which compliance by the Company has had, or is expected to have, a
material effect upon the capital expenditures, earnings, or competitive position of the
Company.

Dependence on One or a
Few Major Customers

Sales
to our largest five customers accounted for 45% of total sales in fiscal 2005, with no
single customer exceeding 20%. The loss of one or more of these major customers would have
a substantial impact on our business. In order to minimize the impact the loss of any one
customer might have on our business, we seek to expand and diversify our customer base. We
are focusing our increased sales efforts on new market segments and are attempting to
increase our market penetration across all geographic areas in the United States, Canada
and selected international markets. The new market

8

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segments include additional
industrial controls and products, aerospace applications and medical devices. We were
successful in changing our manufacturing facility to meet the new ISO 9001:2000 standard
and we have registered with the U.S. Food and Drug Administration. We have also added
capacity for high-volume LCD products by increased outsourcing through our off-shore
manufacturing partners and have also added internal capacity to manufacture high-volume
custom LED display arrays. We continue to add, develop and transition our external
independent sales representatives in an effort to effectively provide nationwide sales
coverage in order to develop opportunities for new products in new markets. We continue
to see improvement in these efforts as demonstrated by an expanding customer base and a
smaller percentage of total sales to our top five customers in fiscal 2005 (45%) as
compared to fiscal 2004 (47%) and fiscal 2003 (59%).

Total Number of Employees

At
April 30, 2005, we had a total of 96 full time employees and 1 part-time employee. None of
our employees are represented by a labor organization or subject to a collective
bargaining agreement. Our management team believes that our relationship with our
employees is good.

Item 2. DESCRIPTION OF
PROPERTY

Our
two subsidiaries, DCI, Inc. and NTG, Inc., each have their own facility. DCI operates from
a 33,000 square foot building on approximately four acres located at 15301 West 109th
Street, Lenexa, Kansas. We have a leasehold interest in this property subject to City of
Lenexa, Kansas Variable Rate Demand Industrial Development Revenue Bonds (DCI Project)
Series 1998. The face amount of the Bonds outstanding at April 30, 2005 was $1,570,000 and
is due in annual payments beginning October 2005 and ranging from $100,000 to $200,000
through 2017. In connection with the acquisition of DCI in 2000, the face amount of this
IRB was discounted approximately $178,000. The discount totaled $130,000 and $140,000 as
of April 30, 2005 and 2004 respectively. We use approximately 25,000 square feet for
manufacturing operations while the remaining 8,000 square feet is used for engineering,
administration and marketing. Our DCI facility is in good working order. Upon repayment of
the Bonds in whole, we will hold title to the facility. NTG leases approximately 5,000
square feet of office space at 14833 West 95th Street, Lenexa, Kansas all of which is
used for engineering, marketing and administration. The facility is in good condition. The
total amount of lease payments for the NTG facility are approximately $51,000 and $22,000
for fiscal years 2006 and 2007, respectively, and the lease expires at the end of
September 2006.

Item 3. LEGAL
PROCEEDINGS

From
time to time, we are a party to routine litigation that is incidental to the business.
Currently there is no pending or outstanding litigation against the Company. The Company
is not aware of any proceedings pending or contemplated by a governmental authority.

Item 4.                  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We
did not submit any matter to a vote of security holders, through a solicitation of proxies
or otherwise, during the fourth quarter of our fiscal year ended April 30, 2005.

9

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Part II

Item 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS

Stock Trading

The Companys common stock
trades on the American Stock Exchange under the symbol ASY.

On October 27, 2003, the Company
received a notice from the American Stock Exchange (the Amex or
Exchange) Staff indicating that the Company no longer complied with the
Exchanges continued listing standards. Such standards include minimum levels of
stockholders equity and required net earnings in a minimum number of prior fiscal
years. The Company sustained losses in prior fiscal years as a result of the operations of
its subsidiaries, including its subsidiary that was sold in fiscal year 2002, and an
impairment loss on goodwill due to the adoption of Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The Company
submitted a plan to the Exchange Staff on November 26, 2003 that set forth definitive
actions that management expects will bring the Company into compliance with the continued
listing standards. On January 23, 2004, the Exchange Staff notified the Company that it
accepted the Companys plan and granted the Company an extension of time through
April 27, 2005 to pursue its plan and regain compliance with the AMEX continued listing
standards. As of January 31, 2005, the Companys operating income, net income and
stockholders equity were consistent with the plan submitted to the Exchange staff
and met the Exchanges continued listing requirements. The Company believes that the
audited financial results of fiscal 2005 will satisfy the continued listing standards of
the Exchange and that the Exchange Staff will notify the Company that it is in compliance.
If within twelve months of the Company coming back into compliance with the
Exchanges continued listing standards the Company again falls below the those
standards, the Exchange staff will review both incidents of the Company falling below the
continued listing standards. The Exchange staff may determine, based on the circumstances
that the incidents are related and the initial financial recovery was insufficient to meet
the continued listing standards. If the incidents are determined to be related, the
Exchange staff may or may not abbreviate the timing and procedures that the Company
utilized to meet the continued listing standards or the Exchange staff may begin delisting
procedures immediately. If the incidents are determined to be separate and unrelated, the
Company is allowed to submit a plan under the Exchange regulations that will bring the
Company back into compliance with the continued listing standards.

Common Stock Price Range
and Dividend Information

The prices in the table below
represent the high and low sales prices for Elecsys common stock as reported by the
American Stock Exchange for the two preceding fiscal years. No cash dividends were
declared during such time. As of April 30, 2005, the Company had approximately 200
stockholders of record.

|Fiscal Year 2005                            | High                | Low                
|------------------------------------------- | ------------------- | -------------------
|                                            |                     |                    
|First Quarter 
Second Quarter
Third Quarter | $1.82
  2.45
  5.30 | $1.15
  1.58
  2.34
|                                            |                     |                    
|                                            |                     |                    

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|                             |            |           
|---------------------------- | ---------- | ----------
|                             |            |           
|Fourth Quarter 
For the Year | 4.70
$5.30 | 3.20
$1.15
|                             |            |           
|                             |            |           

|Fiscal Year 2004                                                        | High                             | Low                             
|----------------------------------------------------------------------- | -------------------------------- | --------------------------------
|                                                                        |                                  |                                 
|First Quarter 
Second Quarter
Third Quarter
Fourth Quarter
For the Year | $1.90
  2.06
  1.40
  1.35
$2.06 | $1.50
  1.20
  1.00
  1.02
$1.00
|                                                                        |                                  |                                 
|                                                                        |                                  |                                 

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

             RESULTS
OF OPERATIONS

Overview

Elecsys
Corporation is a publicly traded holding company with two wholly owned subsidiaries, DCI
and NTG. DCI designs, manufactures, and integrates custom electronic interface solutions
for OEMs in the medical, aerospace, communications, safety systems, industrial product,
and other industries. DCI has specialized capabilities to design and efficiently
manufacture custom electronic assemblies which integrate a variety of interface
technologies, such as custom LCDs, LED displays, and keypads with circuit boards and other
electronic components. DCI seeks to become an extension of the OEMs organization by
providing key expertise that enables rapid development and manufacture of electronic
products from product conception through volume production. NTG designs, markets, and
provides remote monitoring solutions for the gas and oil pipeline industry as well as
other industries requiring remote monitoring solutions. NTG is one of the original
innovators of Internet-based, wireless remote monitoring over the existing cellular
infrastructure. NTGs Remote Monitoring Devices and its ScadaNET NetworkTM provide
full time, wireless status monitoring and alarm notification regarding the performance of
pipeline cathodic protection systems over the internet. This low cost, highly reliable
network provides prompt notification of power outages, rectifier problems, and
pipe-to-soil potentials at test points, using the internet, email, fax, and pager back-end
networks. Through its innovative use of the existing cellular telephone network the system
delivers a rare combination of high reliability and immediacy of data, at a reasonable
cost.

On
November 24, 2004, the Company paid the holders of the other 81% of Network Technologies
Group, L.L.C., (NTG, LLC) a limited liability company formed by a group of
technical and management professionals who purchased the Network Technologies business
from LaBarge, Inc., approximately $301,000 in cash and Company common stock. In exchange,
the Company acquired certain assets, including all of the proprietary technology, and
assumed certain liabilities of NTG, LLC. DCI originally invested $100,000 in August 2003
to become a 19% member of NTG, LLC and joined several other anticipated key suppliers, key
distributors, and independent investors in capitalizing the company. As part of this
transaction, the original $100,000 investment in NTG, LLC made by DCI was discounted and
transferred to NTG. Total consideration paid for the acquisition was approximately
$329,000 and included approximately $28,000 of acquisition costs. In addition to the cash
and stock paid, the selling members of NTG, LLC will receive quarterly cash payments equal
to 4% of NTGs net sales through November 2007.

11

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In
September 2004, the Company satisfied is obligations under the convertible subordinated
debentures held by the former owners of DCI. The $405,625 of principal due under the
convertible debentures and the associated interest were paid in a combination of the
Companys common stock and cash. The holders of the debentures elected to convert
approximately 60% of the principal value of the notes into 127,420 shares of common stock
at a conversion price of $1.93 per share. The remaining amount of the notes and interest,
$164,887, was paid from available cash and did not require the Company to draw on its line
of credit.

In
June 2004, individual management team members purchased all of the Companys common
stock held by KCEP Ventures II, L.P. (KCEP) and Eiger Investment Group, L.L.C.
(Eiger), which is owned by certain members of the Companys management
team, purchased the $500,000 10% convertible subordinated debenture from KCEP. In exchange
for non-monetary concessions made to the Company as a result of the transaction, the
warrant for the purchase of up to 45,635 shares of the Companys common stock was
amended to expire in August 2009. As part of this transaction, Mr. David J. Schulte
resigned from the Companys Board of Directors. On January 31, 2005, Eiger converted
the $500,000 subordinated debenture into 259,065 shares of the Companys common
stock. The accrued interest on the subordinated debenture was paid by the Company in cash.

On
March 29, 2005, KCEP and the Company amended the warrant agreement held by KCEP to allow
for the cashless exercise of the warrant. The warrant granted KCEP the right to purchase
45,635 shares of common stock at $1.93 per share. KCEP exercised the warrant on March 29,
2005 and purchased 23,223 shares of the Companys common stock at $1.93 per common
share in exchange for the surrender of the remaining 22,412 shares granted to KCEP under
the warrant. The cashless exercise price was based on the average daily closing price for
the 30 days prior to the exercise of the warrant of $3.93 per common share.

In
January 2004, DCI entered into an agreement with Pro-Tronix, Inc.
(Pro-Tronix), an Olathe, Kansas contract electronics manufacturer that was
preparing to cease operations, pursuant to which the customers of Pro-Tronix were referred
to DCI as their new manufacturing source. Some existing sales orders were transferred from
Pro-Tronix to DCI and production of those orders was completed at DCIs facility. A
commission was paid to the owner of Pro-Tronix based on the completion of existing
Pro-Tronix sales orders that were transferred to DCI and will be paid for any additional
sales orders awarded to DCI from the former Pro-Tronix customer base until January 2007.
This agreement also included some consigned inventory, for which DCI pays Pro-Tronix as it
is consumed. Some key Pro-Tronix employees were hired by DCI to assist in the transition
of the Pro-Tronix customer base.

On
October 27, 2003, the Company received a notice from the American Stock Exchange (the
Amex or Exchange) Staff indicating that the Company did not comply
with the Exchanges continued listing standards. Such standards include minimum
levels of stockholders equity and required net earnings in a minimum number of prior
fiscal years. The Company sustained losses in prior fiscal years as a result of the
operations of its subsidiaries, including its subsidiary that was sold in fiscal year
2002, and an impairment loss on goodwill due to the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The
Company submitted a plan to the Exchange Staff on November 26, 2003 that set forth
definitive actions that management expects will bring the Company into compliance with the
Exchanges continued listing

12

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standards. On January 23, 2004, the
Exchange Staff notified the Company that it accepted the Companys plan and granted
the Company an extension of time through April 27, 2005 to pursue its plan and regain
compliance with the AMEX continued listing standards. The Company is subject to periodic
review by Exchange Staff during the extension period. Failure to make progress consistent
with the plan or to regain compliance with the current listing standards by the end of
the extension period could result in the Company being delisted from the Exchange. In the
completed fifteen-month period ended January 31, 2005, the Companys operating
income, net income and stockholders equity were consistent with the plan submitted
to the Exchange Staff and met the continued listing requirements of the Exchange. The
Company believes that the audited financial results of fiscal 2005 will satisfy the
continued listing standards of the Exchange and that the Exchange Staff will notify the
Company that it is in compliance. If within twelve months of the Company coming back into
compliance with the Exchanges continued listing standards the Company again falls
below the those standards, the Exchange staff will review both incidents of the Company
falling below the continued listing standards. The Exchange staff may determine, based on
the circumstances that the incidents are related and the initial financial recovery was
insufficient to meet the continued listing standards. If the incidents are determined to
be related, the Exchange staff may or may not abbreviate the timing and procedures that
the Company utilized to meet the continued listing standards or the Exchange staff may
begin delisting procedures immediately. If the incidents are determined to be separate
and unrelated, the Company is allowed to submit a plan under the Exchange regulations
that will bring the Company back into compliance with the continued listing standards.

Results of Operations

The
following table sets forth for the periods presented, certain statement of operations
data (in thousands) of the Company:

|                         | Years Ended
|------------------------ | -----------
|
|Sales                    |            
|Cost of products sold    |            
|                         |            
|Gross margin             |            
|Selling, general and     |            
|administrative expenses  |            
|                         |            
|Operating income         |            
|Interest expense         |            
|Impairment of original   |            
|investment in acquired   |            
|subsidiary               |            
|Other income, net        |            
|                         |            
|Income (loss) from       |            
|operations before income |            
|taxes                    |            

13

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|                   |  |  |   |    
|------------------ |  |  | - | ---
|
|
|Income tax benefit |  |  |   | 10 
|                   |  |  |   |    
|                   |  |  |   |    
|Net income         |  |  | $ | 699
|                   |  |  |   |    

|                       |  |  |   |     
|---------------------- |  |  | - | ----
|
|
|Net income per share - |  |  |   |     
|Basic                  |  |  | $ | 0.24
|                       |  |  |   |     
|Net income per share - |  | 
|Diluted                |  |  | $ | 0.23
|                       |  |  |   |     

Sales
for the year ended April 30, 2005 were $12,307,000, an increase of $1,695,000 or 16.0%
from $10,612,000 in fiscal 2004. The increase was primarily the result of increases in new
and existing customer orders at DCI in the electronic assembly, LCD production and LCD
resale product lines. These product lines had sales increases of approximately $3,175,000,
or 38.6%, as compared to fiscal 2004. These increases were partially offset by a decrease
of approximately $1,462,000 in sales in the LCD hybrids product line that was the result
of the permanent decision, made during the third fiscal quarter of 2004, by one of our
largest former customers to move the manufacture of its product to the offshore production
facility used by its parent company. Sales to this customer totaled approximately
$1,401,000 for fiscal year 2004 and represented the final sales to this customer. Sales
volumes at NTG were $182,000 for the fiscal year which also contributed to the overall
increase in sales shown in the consolidated financial results. We expect sales volumes at
DCI to continue to increase slightly in the next few quarters of fiscal 2006 as a result
of scheduled shipments to customers currently recorded in our backlog. Backlog represents
purchase orders in place from our customers that are scheduled for shipment in future
periods. Sales at NTG are expected to continue growing over the next few quarters as
development of new products proceeds and marketing efforts continue.

Total
backlog at April 30, 2005 was approximately $6,806,000, an increase of $2,656,000, or
64.0%, from a total backlog of $4,150,000 on April 30, 2004 and an increase of $535,000
from a total backlog of $6,271,000 on January 31, 2005.

Gross
margin can fluctuate from period to period due to a variety of factors including, but not
limited to, sales volume, product mix, and plant efficiency. Gross margin for the year
ended April 30, 2005 was 29.7%, or $3,656,000, compared to 28.0%, or $2,973,000, for the
year ended April 30, 2004. The increase in gross margin dollars of approximately $683,000
and gross margin percentage of 1.7% is primarily the result of product mix and increased
sales volumes in the electronic assembly, LCD production and LCD resale product lines. We
expect that gross margins over the next few quarters will continue at or near the
historical margins of 25%-30%.

Selling,
general and administrative (SG&A) expenses increased $47,000, or 1.7%, to
$2,814,000, or 22.9% of sales in the fiscal year ended April 30, 2005 compared to
$2,767,000, or 26.1% of sales in the fiscal year ended April 30, 2004. The increase in
SG&A expenses was mainly due to the acquisition of NTG during the year. SG&A
expenses at NTG were approximately $314,000 for the fiscal year which represents the
engineering and marketing personnel and personnel-related expenses at that subsidiary.
Corporate expenses and DCIs SG&A expenses were $68,000 and $198,000 less,
respectively, than in fiscal 2004. The decrease in our corporate expenses was due to
reductions of $28,000 in professional fees as a result of a change in the Companys
independent accountants and lower overall legal fees. Consulting fees were reduced by
$35,000 as a result of the expiration of a consulting agreement. The decrease in SG&A
expenses at DCI were the result of lower personnel

14

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related costs of approximately
$163,000 due to a reduction of SG&A personnel in the third and fourth quarters of
fiscal 2004 and a decrease in office related expenses of $15,000 and a decrease of
$35,000 in second facility expenses as a part of cost reduction efforts. We expect that
our SG&A expenses will continue at or near their current levels for the near term as
a result of our continuing efforts to invest in NTG product development and sales and to
control our corporate expenditures and manage our operating costs.

Interest
expense was $135,000 and $226,000 for the years ended April 30, 2005 and 2004,
respectively. This decrease of $91,000, or 40.3%, was the result of lower borrowings
outstanding during the recently completed fiscal year primarily due to the payment and
conversion of the Companys previously issued subordinated notes held by DCI in
September 2004 and lower fees and interest on the line of credit. There were no
outstanding borrowings from the operating line of credit as of April 30, 2005. We expect
to continue to utilize the operating line of credit periodically in the next few quarters.
These funds will be necessary as our business grows and capital is needed to meet operating requirements and industrial revenue bond principal
payments.

The
$19,000 impairment of original investment in acquired subsidiary is the result of
discounting the original investment in NTG, LLC. The Company accounted for the acquisition
of NTG, LLC as a purchase and determined that the original investment of $100,000 was
impaired based on the total consideration paid. The total amount of cash, Company common
stock and deal costs for the acquisition was approximately $329,000 for the remaining 81%
interest in NTG, LLC. In addition to the cash and common stock paid, the members of NTG,
LLC will also receive quarterly cash payments equal to 4% of NTGs net sales through
November 2007.

The
$10,000 income tax benefit for the year ended April 30, 2005 was the result of a refund
from property tax credits from the filing of the 2004 state tax return. The $39,000 income
tax benefit for the year ended April 30, 2004 was due to the filing of amended tax returns
claiming refunds of $36,000 for income taxes paid in prior years as a result of carry
backs of net operating losses and an additional tax expense of $4,000 related to
alternative minimum tax rules for the filing of fiscal year 2003 returns. No other income
tax provision or benefit was recorded for the years ended April 30, 2005 or 2004 due
primarily to the availability of net operating loss carry forwards which have been fully
reserved due to the continued uncertainty of their utilization.

Primarily
as a result of the above factors, net income for fiscal year 2005 was $699,000, or $0.23
per diluted share, as compared to net income of $23,000, or $0.01 per diluted share, in
fiscal year 2004.

Liquidity and Capital
Resources

Cash
and cash equivalents decreased $66,000 to $264,000 as of April 30, 2005 compared to
$330,000 at April 30, 2004. This decrease was the result of an increase in cash provided
by operating activities offset by purchases of equipment, the acquisition of certain
assets and liabilities of NTG LLC and the partial cash payment of the Companys
previously issued subordinated notes held by DCI.

Operating
activities. Our consolidated working capital increased approximately $1,069,000 for the
year ended April 30, 2005 primarily as a result of increasing levels of inventory as a
result of increasing sales and backlog. Operating cash receipts during the year ended
April 30, 2005 totaled approximately $12,721,000 while total cash disbursements for
operations were $11,975,000 for the

15

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fiscal year. The Company utilizes
its line of credit when necessary in order to pay suppliers and meet operating cash
requirements.

Investing
activities. The cash used of $618,000 in investing activities during the year ended April
30, 2005 was primarily the result of purchases of equipment for $311,000 and the
acquisition of certain assets and liabilities of NTG, LLC for $310,000. The purchases of
equipment were made by DCI and are intended to increase production capacity and improve
productivity as a result of the increase in sales and total backlog.

Financing
activities. For the year ended April 30, 2005 total borrowings and repayments on the
operating line of credit totaled $2,655,000. These borrowings were used to finance the
operations of DCI and NTG during the year as well as acquire certain assets and
liabilities of NTG, LLC. Principal payments on debt included the cash paid to the former
owners of DCI when the Company met its obligations on the subordinated notes. Total
principal payments on long-term debt totaled approximately $179,000, of which
approximately $165,000, or 40%, of the Companys previously issued subordinated notes
held by DCI were paid in cash. The remaining amounts of the subordinated notes held by DCI
were converted into the Companys common stock. An additional $35,000 in cash was the
result of the exercise of stock options during the period.

The
Company has a $2,000,000 revolving line of credit facility that is available for working
capital and is secured by accounts receivable and inventory. The line of credit expires on
December 31, 2005 and its borrowing capacity is calculated as a percentage of accounts
receivable and inventory. The line of credit accrues interest at the prime rate plus .75%
(6.5% at April 30, 2005) and contains certain financial covenants pertaining to the
maintenance of debt to net worth and minimum net worth ratios. We believe we are in
compliance with all such covenants. We utilized the line of credit for operating cash
during the 2005 fiscal year which at times resulted in a balance due on the line of
credit. As of April 30, 2005, all amounts due on the line-of-credit have been paid.

The
Company has a letter of credit with a bank related to the Industrial Revenue Bonds for its
Lenexa, Kansas facility which expires April 15, 2006. We expect to be able to renew the
letter of credit upon its expiration.

Although
there can be no assurances, we believe that existing cash, the cash expected to be
generated from the operations of DCI and NTG, amounts available under our line of credit,
and amounts available from trade credit, will be sufficient to finance our currently
anticipated working capital needs, our capital expenditures for the foreseeable future,
and our scheduled debt repayment.

The
following table summarizes our contractual obligations as of April 30, 2005 (in
thousands):

|                         | For the fiscal years ending April 30
|------------------------ | ------------------------------------
|
|                         |                                     
|Contractual obligations: |                                     
|Long-term debt           |                                     
|Operating lease          |                                     
|                         |                                     
|Total                    |                                     
|                         |                                     

|                   |                                        |                                |                  
|------------------ | -------------------------------------- | ------------------------------ | -----------------
|Other obligations: | Amount available at
    April 30, 2005 | Amount owed at
 April 30, 2005 | Expiration       
|Line of credit     | $2,000,000                             | $    --                        | December 31, 2005
|                   |                                        |                                |                  

16

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Critical Accounting
Policies

The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and related disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. We cannot assure you that actual
results will not differ from those estimates. We believe the following critical accounting
policies affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements.

Revenue
Recognition. We derive revenue from the manufacture of production units of electronic
assemblies, liquid crystal displays and remote monitoring equipment. We also derive
revenue from repairs and non-warranty services, engineering design services and remote
monitoring services. Production and repaired units are billed to the customer after they
are shipped. Remote monitoring services are billed and the revenue recognized at the end
of the month after the services are completed. For customers that utilize our engineering
design services, we bill the customer and recognize revenue after the design services or
tooling have been completed. We require our customers to provide a binding purchase order
to verify the manufacturing services to be provided. Typically, we do not have any
post-shipment obligations that would include customer acceptance requirements, training,
installation or other services.

Inventory
Valuation. Our inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market value. Our industry is characterized by rapid technological
change, short-term customer commitments and rapid changes in demand, as well as other
market considerations. We make provisions for estimated excess and obsolete inventory
based on our quarterly reviews of inventory quantities on hand and the latest forecasts of
product demand and production requirements from our customers. We review our inventory in
detail on a quarterly basis utilizing a 24-month time horizon. Individual part numbers
that have not had any usage in a 24-month time period are examined by manufacturing
personnel for obsolescence, excess and fair value. Parts that are not identified for
common use or are unique to a former customer or application are categorized as obsolete
and are discarded as part of our quarterly inventory write-down. If actual market
conditions or our customers product demands are less favorable than those projected,
additional inventory write-downs may be required. We typically accrue an amount into a
reserve for inventory excess and obsolescence each month. The reserve balance is analyzed
for adequacy along with the inventory review each quarter.

Allowance
for Doubtful Accounts. We perform ongoing credit evaluations of our customers
financial condition and make provisions for doubtful accounts based on the outcome of our
credit evaluations. We also evaluate the collectibility of our accounts receivable based
on specific customer circumstances, current economic trends, historical experience and the
age of past due receivables. Unanticipated changes in our customers liquidity or
financial position, which results in an impairment of their ability to make payments, may
require additional provisions for doubtful accounts.

Warranty
Reserve. We have established a warranty reserve for rework, product warranties and
customer refunds. We provide a limited warranty for a period of one year from the date of
receipt of our products and our standard warranties require us to repair or replace
defective products at no cost to

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the customer or refund the customers
purchase price. The warranty reserve is based on historical experience and analysis of
specific known and potential warranty issues. The product warranty liability reflects
managements best estimate of probable liability under our product warranties.

Selected Quarterly
Financial Data (Unaudited)

The
following table sets forth selected unaudited financial information for the Company for
the four fiscal quarters of the years ended April 30, 2005 and 2004. This unaudited
information has been prepared on the same basis as the annual financial statements
contained elsewhere herein, and in the opinion of the Company, reflects all adjustments
for a fair presentation thereof. The following table is qualified by reference to and
should be read in conjunction with the consolidated financial statements, related notes
thereto and other financial data included elsewhere herein.

|                           | Three Months Ended
|-------------------------- | ------------------
|
|
|Sales                      |                   
|Gross margin               |                   
|Operating income (loss)    |                   
|Income (loss) before       |                   
|income taxes               |                   
|Net income (loss)          |                   
|Net cash provided by (used |                   
|in) operating activities   |                   

|                     | Three Months Ended
|-------------------- | ------------------
|
|
|Sales                |                   
|Gross margin         |                   
|Operating income     |                   
|Income before income |                   
|taxes                |                   
|Net income           |                   
|Net cash provided by |                   
|operating activities |                   

# New Accounting
Pronouncements

In
December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of

18

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Financial Accounting Standard No. 153
(SFAS 153), Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29.SFAS 153 expanded the scope of APB Opinion No. 29 to require that
the nonmonetary exchange of similar productive assets should be measured based on the
fair value of the assets exchanged. The adoption of this statement is not anticipated to
have a material impact on our consolidated financial statements.

In
December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R
establishes standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods and services or incurs liabilities in exchange for goods or
services that are based on the fair value of the entitys equity instruments or that
may be settled by the issuance of those equity instruments. SFAS 123R requires a public
entity to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award and to recognize that
cost over the period during which an employee is required to provide service in exchange
for the award. Public entities filing as small business issuers will be required to apply
SFAS 123R in the first annual reporting period beginning after December 15, 2005. The
Company will adopt this statement after its next fiscal year ending April 30, 2006. The
adoption of SFAS 123R will likely have an impact on our consolidated financial statements.
The Company is unable to estimate the impact of adoption of this statement as the impact
will depend, in part, on stock option awards made prior to the adoption date of the
statement, whether awards granted were non-qualified or qualified, the vesting period of
those awards, and cancellation or forfeitures related to both existing awards and new
awards.

In
November 2004, the FASB issued Statement No. 151 (SFAS No. 151), Inventory
Costs. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that . . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to
require treatment as current period charges. . . . SFAS No. 151 requires that those
items be recognized as current-period charges regardless of whether they meet the
criterion of so abnormal. In addition, SFAS No. 151 requires that allocation
of fixed production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The requirements of SFAS No. 151 are effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The adoption of this
statement is not expected to have a material impact on the Companys consolidated
financial statements.

# Forward Looking
Statements

This
annual report on Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, but not limited to, our statements on
strategy, operating forecasts, and our working capital requirements and availability. In
addition, from time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking statements may be
included in, but are not limited to, various filings made by the Company with the
Securities and Exchange Commission, press releases or oral statements made by or with the
approval of an authorized executive officer of the Company. Forward-looking statements
consist of any statement other than a recitation of historical fact and can be identified
by the use of forward-looking terminology such as may, expect,
anticipate, estimate, or continue or the

19

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negative thereof or other variations
thereon or comparable terminology. Actual results could differ materially from those
projected or suggested in any forward-looking statements as a result of a wide variety of
factors and conditions, including, but not limited to, an inability on the part of the
Company to successfully integrate, market and grow NTG, Inc., the Companys
dependence on its top five customers, reliance on certain key management personnel, an
inability to grow the Companys customer base, potential growth in costs and
expenses, an inability to refinance the Companys existing debt on terms comparable
to those now in existence, potential deterioration of business or economic conditions for
the Companys customers products, price competition from larger and better
financed competitors, and the factors and conditions described in the discussion of Results
of Operations and Liquidity and Capital Resources as contained in
Managements Discussion and Analysis of Financial Condition and Results of
Operations of this annual report, as well as those included in other documents the
Company files from time to time with the Securities and Exchange Commission, including
the Companys quarterly reports on Form 10-QSB and current reports on Form 8-K.
Holders of the Companys securities are specifically referred to these documents
with regard to the factors and conditions that may affect future results. The reader is
cautioned that the Company does not have a policy of updating or revising forward-looking
statements and thus he or she should not assume that silence by management of the Company
over time means that actual events are bearing out as estimated in such forward-looking
statements.

Item 7. FINANCIAL
STATEMENTS

The
information required by Item 310(a) of Regulation S-B is provided on pages F-1 through
F-19 of this filing on Form 10-KSB and is hereby incorporated by reference herein.

Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE

On
August 9, 2004, the Board of Directors of the Company, upon the recommendation of the
Companys Audit Committee, approved a resolution (i) replacing Ernst & Young LLP
(Ernst & Young) who were dismissed as the Companys independent
auditors effective August 9, 2004, and (ii) engaging Mayer Hoffman McCann P.C.
(Mayer Hoffman McCann) as the Companys independent auditors for purposes
of auditing the Companys financial statements for the fiscal year ending April 30,
2005.

The
audit reports of Ernst & Young on the financial statements of the Company for the
fiscal years ended April 30, 2004 and 2003 did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles, except for an additional paragraph noting the change in the
Companys method of accounting for goodwill and other intangible assets.

In
connection with its audits for the fiscal years ended April 30, 2004 and 2003, there have
been no disagreements with Ernst & Young on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Ernst & Young would have caused
them to make reference to them in their report on the financial statements for those
years.

20

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The
Company did not consult with Mayer Hoffman McCann regarding the application of accounting
principles to a specific transaction or the type of audit opinion that might be rendered
on the financial statements, and no written or oral advice was provided by Mayer Hoffman
McCann that was a factor considered by the Company in reaching a decision as to an
accounting, auditing or financial reporting issue prior to August 9, 2004.

We
have no disagreements with our independent registered public accounting firm through the
date of this filing.

Item 8A.   CONTROLS AND PROCEDURES

(a)        Evaluation
of disclosure controls and procedures. The Companys           Chief Executive
Officer and Chief Financial Officer have reviewed the           Companys disclosure
controls and procedures as of the end of the period           covered by this report.
Based on their evaluation, these officers have concluded           that the Companys
disclosure controls and procedures are adequate and           effective in ensuring that
material information relating to the Company that is           required to be included in
the Companys filings with the Securities and           Exchange Commission under
the Securities Exchange Act of 1934 is made known to           them.

(b)        Changes
in internal controls. There were no significant changes in the           Companys
internal controls or in other factors that in managements           estimates could
materially affect the Companys disclosure controls and           procedures
subsequent to the date of the evaluation, including any corrective           actions with
regards to significant deficiencies and material weaknesses.

Item 8B. OTHER INFORMATION

None.

21

---

Part III

Item 9.    DIRECTORS AND EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS;              COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

The
Company has adopted a Code of Ethics for the Companys officers and directors. A copy
of the Code of Ethics may be obtained without charge by contacting the Companys
Secretary at the Companys headquarters, 15301 West 109th Street, Lenexa, Kansas
66219.

The
remaining information required to be disclosed pursuant to this Item 9 (Items 401 and 405
of Regulation S-B) is incorporated by reference to our Proxy Statement for our Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120
days after the close of the year ended April 30, 2005.

Item 10. EXECUTIVE COMPENSATION

Incorporated
by reference to our Proxy Statement for our Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days after the close of the year
ended April 30, 2005.

Item 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND                MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated
by reference to our Proxy Statement for our Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days after the close of the year
ended April 30, 2005.

Item 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated
by reference to our Proxy Statement for our Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days after the close of the year
ended April 30, 2005.

Item 13.
EXHIBITS

The
list of exhibits following the signature page of this Annual Report on Form 10-KSB is
incorporated by reference herein.

Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES

22

---

Incorporated
by reference to our Proxy Statement for our Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days after the close of the year
ended April 30, 2005.

23

---

Signatures

Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

| |  | ELECSYS CORPORATIONBY: /s/ Karl B. Gemperli
Karl B. GemperliPresident and Chief Executive OfficerPrincipal Executive Officer
| |  | ------------------------------------------------------------------------------------------------------------------------------------------

In
accordance with 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 date
indicated:

|                                                                                                                                                                                                                                                                                                                                                                        |                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------
|/s/ Karl B. Gemperli
Karl B. Gemperli
President, Chief Executive Officer and Director
Principal Executive Officer/s/ Todd A. Daniels
Todd A. Daniels
Vice President and Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer/s/ Robert D. Taylor 
Robert D. Taylor
Chairman of the Board of Directors/s/ Stan Gegen
Stan Gegen
Director | Date:  July 29, 2005
Date:  July 29, 2005
Date:  July 29, 2005
Date:  July 29, 2005
|                                                                                                                                                                                                                                                                                                                                                                        |                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                        |                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                        |                                                                                    

24

---

# EXHIBIT INDEX

NUMBER
DESCRIPTION

|3.1 |  | ARTICLES
OF INCORPORATION
|--- |  | -------------------------

| | (a) | The
amended Articles of Incorporation of the Company dated September 14,                1994,
attached as Exhibit 3.1 pages 19-55 of the Companys Form                10-KSB,
filed July 31, 1995 with the Securities and Exchange                Commission is
incorporated herein by reference.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | An
amendment to the Articles of Incorporation of the Company dated November
               1, 2000, attached as Exhibit 4.2 of the Companys Form
S-8,                filed June 19, 2000 with the Securities and Exchange
Commission, is                incorporated herein by reference.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | BY-LAWS
|--- |  | -------

| | The
Restated By-Laws of the Company dated October 1, 1993, attached as Exhibit 3.2, of the
Companys Registration Statement, Form SB-2, filed November 29, 1993 with
the Securities and Exchange Commission, are incorporated herein by reference.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 |  | INSTRUMENTS DEFINING
THE RIGHTS OF SECURITY HOLDERS
|- |  | ---------------------------------------------------

| | A
specimen stock certificate representing shares of the common stock, par value $.01 per
 share, attached as Exhibit 4.1 of the Companys Registration Statement,
Form SB-2, filed  November 29, 1993 with the Securities and Exchange
Commission, is incorporated herein by  reference.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10 |  | MATERIAL
CONTRACTS
|-- |  | ------------------

| | (a) | Restated 1991 Stock Option Plan attached as Exhibit 10.5 of the
          Companys Registration Statement, Form SB-2, filed November  29,
          1993 with the Securities and Exchange Commission, is incorporated herein by
           reference.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Amendment
of the Companys Restated 1991 Stock Option Plan,                     increasing the
number of shares of Common Stock subject to  option                     thereunder from
375,000 shares to 475,000 approved by the shareholders at the                      annual
stockholders meeting held September 15, 1998, attached as                     Exhibit
10(cc) of the  Companys Form 10-KSB filed July 29, 1999                     with
the Securities and Exchange Commission,  is incorporated herein                     by
reference.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Form
of Stock Option Agreement for Restated 1991 Stock Option Plan,
                    attached as Exhibit 10(c) of the Companys Form 10-KSB  filed
                    July 29, 2002 with the Securities and Exchange Commission, is
incorporated                      herein by reference.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Form
of Non-Employee Director Stock Option Agreement for Restated 1991
                    Stock Option Plan attached as Exhibit 10(d) of the  Companys
                    Form 10-KSB filed July 29, 2002 with the Securities and Exchange
Commission,                      is incorporated herein by reference.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Employment
Agreement dated December 6, 1999, by and between the Company and                     Karl
Gemperli attached as Exhibit 10(cc) of the  Companys Form
                    10-KSB, filed July 28, 2000, with the Securities and Exchange
                    Commission is incorporated herein by reference.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

---

| | (f) | Supplemental
Agreement dated February 28, 2001, between the Company and                     Karl
Gemperli, attached as Exhibit 10(mm) of the  Companys Form
                    10-QSB, filed March 19, 2001, with the Securities and Exchange
                    Commission, is incorporated herein by reference.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Commercial
Loan Agreement dated July 18, 2002 between the Company and Gold                     Bank
attached as Exhibit 10.1 of the Companys  Form 10-QSB,                     filed
September 13, 2002 with the Securities and Exchange Commission, is
                    incorporated herein by reference.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Form of Agreement
for the purchase of assets of Network Technologies Group, LLC by                     NTG,
Inc., a subsidiary of Elecsys Corporation,  dated November 22,
                    2004.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 |  | SUBSIDIARIES
OF THE COMPANY
|-- |  | ---------------------------

|23.1 |  | Consent
of Mayer Hoffman McCann P.C.
|---- |  | ------------------------------------

|23.2 |  | Consent
of Ernst & Young LLP
|---- |  | ----------------------------

|31.1 |  | Rule
13a-14(a)/15d-14(a) Certification of President and Chief Executive
                    Officer  (Principal Executive Officer)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------

|31.2 |  | Rule
13a-14(a)/15d-14(a) Certification of Vice President and Chief
                    Financial Officer  (Principal Financial and Accounting Officer)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 |  | Section
1350 Certification of President and Chief Executive Officer
                    (Principal Executive Officer)
|---- |  | ---------------------------------------------------------------------------------------------------------------------

|32.2 |  | Section
1350 Certification of Vice President and Chief Financial Officer
                     (Principal Financial and Accounting Officer)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------

26

---

# FINANCIAL
STATEMENTS INDEX

|                                                          | 
|--------------------------------------------------------- | 
|
|
|Reports of Independent Registered Public Accounting Firms | 
|                                                          | 
|Consolidated Balance Sheets as of April 30, 2005 and 2004 | 
|                                                          | 
|Consolidated Statements of Operations                     | 
|Years Ended April 30, 2005 and 2004                       | 
|                                                          | 
|Consolidated Statements of Stockholders' Equity           | 
|Years Ended April 30, 2005 and 2004                       | 
|                                                          | 
|Consolidated Statements of Cash Flows                     | 
|Years Ended April 30, 2005 and 2004                       | 
|                                                          | 
|Notes to Consolidated Financial Statements                | 
|                                                          | 

All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and, therefore, have
been omitted.

F-1

---

# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and StockholdersElecsys Corporation and Subsidiaries

We have audited the accompanying
consolidated balance sheet of Elecsys Corporation and Subsidiaries (the Company) as of
April 30, 2005, and the related consolidated statements of operations,
stockholders equity and cash flows for the year 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 audit.

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

In our opinion, the financial
statements referred to above present fairly, in all material respects, the consolidated
financial position of Elecsys Corporation and Subsidiaries at April 30, 2005, and the
consolidated results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.

/s/ Mayer Hoffman McCann
P.C.Leawood, Kansas

June 28, 2005

F-2

---

`Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Elecsys Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of Elecsys
Corporation and Subsidiaries (the Company) as of April 30, 2004, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended April 30, 2004. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Elecsys
Corporation and Subsidiaries at April 30, 2004, and the consolidated results of
their operations and their cash flows for the year ended April 30, 2004 in
conformity with U.S. generally accepted accounting principles.


/s/ Ernst & Young LLP
Kansas City, Missouri
June 18, 2004`

F-3

---

# Elecsys Corporation
and SubsidiariesConsolidated Balance
Sheets(In thousands, except
share data)

|                                                              | April 30, 2005 | April 30, 2004
|------------------------------------------------------------- | -------------- | --------------
|
|
|ASSETS                                                        |                |               
|Current assets:                                               |                |               
|Cash and cash equivalents                                     |                |               
|Accounts receivable, less allowances of $76 in 2005           |                |               
|and $52 in 2004                                               |                |               
|Inventories                                                   |                |               
|Prepaid expenses                                              |                |               
|                                                              |                |               
|Total current assets                                          |                |               
|Property and equipment, at cost:                              |                |               
|Land                                                          |                |               
|Building and improvements                                     |                |               
|Equipment                                                     |                |               
|                                                              |                |               
|                                                              |                |               
|Accumulated depreciation and amortization                     |                |               
|                                                              |                |               
|                                                              |                |               
|Goodwill                                                      |                |               
|Investment in NTG, LLC                                        |                |               
|Intangible assets, net                                        |                |               
|Other assets, net                                             |                |               
|                                                              |                |               
|Total assets                                                  |                |               
|                                                              |                |               
|LIABILITIES AND STOCKHOLDERS' EQUITY                          |                |               
|Current liabilities:                                          |                |               
|Accounts payable                                              |                |               
|Accrued expenses                                              |                |               
|Current portion of long-term debt                             |                |               
|                                                              |                |               
|Total current liabilities                                     |                |               
|Long-term debt, less current portion                          |                |               
|Stockholders' equity:                                         |                |               
|Preferred stock, $.01 par value, 5,000,000 shares authorized; |                |               
|none issued and outstanding                                   |                |               
|Common stock, $.01 par value, 10,000,000 shares authorized;   |                |               
|issued and outstanding - 3,239,937 and 2,791,331 at           |                |               
|April 30, 2005 and 2004, respectively                         |                |               
|Additional paid-in capital                                    |                |               
|Accumulated deficit                                           |                |               
|                                                              |                |               
|Total stockholders' equity                                    |                |               
|                                                              |                |               
|Total liabilities and stockholders' equity                    |                |               
|                                                              |                |               

See Notes to Consolidated
Financial Statements.

F-4

---

# Elecsys Corporation
and SubsidiariesConsolidated
Statements of Operations(In thousands, except
per share data)

|                                                         | Years Ended April 30, | 
|-------------------------------------------------------- | --------------------- | 
|
|
|Sales                                                    |                       | 
|Cost of products sold                                    |                       | 
|                                                         |                       | 
|Gross margin                                             |                       | 
|Selling, general and administrative expenses             |                       | 
|                                                         |                       | 
|Operating income                                         |                       | 
|Other income (expense):                                  |                       | 
|Interest expense                                         |                       | 
|Impairment of original investment in acquired subsidiary |                       | 
|Other income, net                                        |                       | 
|                                                         |                       | 
|Income (loss) from operations before income taxes        |                       | 
|Income tax benefit                                       |                       | 
|                                                         |                       | 
|Net income                                               |                       | 
|                                                         |                       | 
|Net income per share information:                        |                       | 
|Basic                                                    |                       | 
|Diluted                                                  |                       | 
|Weighted average common shares outstanding:              |                       | 
|Basic                                                    |                       | 
|Diluted                                                  |                       | 

See Notes to Consolidated
Financial Statements.

F-5

---

# Elecsys Corporation
and SubsidiariesConsolidated
Statements of Stockholders Equity (In thousands)

|                              | Common Stock (# of shares) | CommonStock | Additional
 Paid-In  Capital | AccumulatedDeficit | Total
Stockholders'Equity
|----------------------------- | -------------------------- | ----------- | ---------------------------- | ------------------ | -------------------------
|
|
|Balance at April 30, 2003     |                            |             |                              | 2,791              |                          
|Net income                    |                            |             |                              | --                 |                          
|                              |                            |             |                              |                    |                          
|Balance at April 30, 2004     |                            |             |                              | 2,791              |                          
|Net income                    |                            |             |                              | --                 |                          
|Exercise of stock options     |                            |             |                              | 35                 |                          
|Conversion of subsidiary's    |                            |            
|subordinated debt             |                            |             |                              | 128                |                          
|Stock issued for NTG, Inc.    |                            |            
|acquisition                   |                            |             |                              | 4                  |                          
|Conversion of subordinated    |                            |            
|debt                          |                            |             |                              | 259                |                          
|Cashless exercise of warrants |                            |             |                              | 23                 |                          
|                              |                            |             |                              |                    |                          
|Balance at April 30, 2005     |                            |             |                              | 3,240              |                          
|                              |                            |             |                              |                    |                          

See Notes to Consolidated
Financial Statements.

F-6

---

# Elecsys Corporation
and SubsidiariesConsolidated
Statements of Cash Flows(In thousands)

|                                                          | Years Ended April 30, | 
|--------------------------------------------------------- | --------------------- | 
|
|
|Operating Activities:                                     |                       | 
|Net income                                                |                       | 
|Adjustments to reconcile net income to net cash (used in) |                       | 
|provided by operating activities:                         |                       | 
|Depreciation                                              |                       | 
|Amortization                                              |                       | 
|Provision for doubtful accounts                           |                       | 
|Gain on disposal of property and equipment                |                       | 
|Impairment loss of investment in acquired subsidiary      |                       | 
|Changes in operating assets and liabilities:              |                       | 
|Accounts receivable                                       |                       | 
|Inventories                                               |                       | 
|Accounts payable                                          |                       | 
|Accrued expenses                                          |                       | 
|Other, net                                                |                       | 
|                                                          |                       | 
|Net cash provided by (used in) operating activities       |                       | 
|                                                          |                       | 
|Investing Activities:                                     |                       | 
|Investment in NTG, LLC                                    |                       | 
|Purchases of property and equipment                       |                       | 
|Proceeds from sale of property and equipment              |                       | 
|Acquisition, net of cash acquired                         |                       | 
|                                                          |                       | 
|Net cash used in investing activities                     |                       | 
|                                                          |                       | 
|Financing Activities:                                     |                       | 
|Proceeds from exercise of stock options                   |                       | 
|Principal payments on long-term debt                      |                       | 
|Borrowings on note payable to bank                        |                       | 
|Payments on note payable to bank                          |                       | 
|                                                          |                       | 
|Net cash used in financing activities                     |                       | 
|                                                          |                       | 
|Net decrease in cash and cash equivalents                 |                       | 
|Cash and cash equivalents at beginning of year            |                       | 
|                                                          |                       | 
|Cash and cash equivalents at end of year                  |                       | 
|                                                          |                       | 
|Supplemental Disclosures of Cash Flow Information:        |                       | 
|Cash paid during the period for interest                  |                       | 
|Cash received during the period for taxes                 |                       | 
|Common stock issued to pay subordinated debt              |                       | 
|Common stock issued for acquisition of NTG, Inc.          |                       | 

See Notes to Consolidated
Financial Statements.

F-7

---

# Elecsys Corporation
and SubsidiariesNotes to Consolidated
Financial StatementsApril 30, 2005

|1. | NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------------------------------------------

Nature of Business

Elecsys
Corporation (the Company) is a publicly traded holding company with two wholly
owned subsidiaries, DCI, Inc. and NTG, Inc. DCI, Inc. (DCI) designs,
manufactures, and integrates custom electronic interface solutions for original equipment
manufacturers (OEMs) in the medical, aerospace, communications, industrial
product, and other industries. DCI has specialized capabilities to design and efficiently
manufacture custom electronic assemblies which integrate a variety of interface
technologies, such as custom liquid crystal displays, light emitting diode displays, and
keypads, with circuit boards and other electronic components. NTG, Inc. (NTG)
designs, markets, and provides remote monitoring solutions for the gas and oil pipeline
industry as well as other industries requiring remote monitoring solutions.

The
Companys sales are made primarily to customers within the United States, but also
include Canada and several other international markets.

Principles of
Consolidation

The
accompanying consolidated financial statements include the accounts of Elecsys Corporation
(Elecsys) and its wholly-owned subsidiaries, DCI and NTG. All significant intercompany
balances and transactions have been eliminated in consolidation.

Use of Estimates

The
preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash
and cash equivalents include all cash and highly liquid investments with original
maturities of three months or less. At April 30, 2005 the Company had no cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. The Company had bank deposits of
approximately $157,000 and $189,000 in excess of FDIC insured limits as of April 30, 2005
and 2004, respectively.

Receivables

Receivables
are carried at original invoice amount less an estimate made for doubtful receivables
based on a review of all outstanding amounts on a monthly basis. Management determines the
allowance for doubtful accounts by regularly evaluating individual customer receivables
and considering a customers financial condition and credit history, and current
economic conditions. Receivables are written off when deemed uncollectible. Recoveries of
receivables previously written off are recorded when received.

F-8

---

Concentration of Credit
Risk and Financial Instruments

The
Company grants credit to customers who meet the Companys pre-established credit
requirements. Credit risk is managed through credit approvals, credit limits, and
monitoring procedures. Credit losses are provided for in the Companys consolidated
financial statements and historically have been within managements expectations.
During fiscal year 2004, the Company had two customers whose sales exceeded 10% of the
Companys total sales. For the fiscal year ended, April 30, 2005, the Company had two
customers, one of which was a significant customer in the previous year, whose sales
individually accounted for greater than 10% of the Companys total sales. The Company
had one customer who accounted for greater than 10% of the Companys receivables as
of April 30, 2005. As of April 30, 2004, the Company had two different customers who each
accounted for greater than 10% of the Companys receivables.

The
carrying value of the Companys financial instruments, including cash, accounts
receivable, accounts payable, notes payable and long-term debt, as reported in the
accompanying consolidated balance sheets, approximates fair value.

Shipping and Handling
Costs

Shipping
and handling costs that are billed to our customers are recognized as revenues in the
period that the product is shipped. Shipping and handling costs that are incurred by the
Company are recognized as cost of sales.

Revenue Recognition

The
Company derives revenue from the manufacture of production units of electronic assemblies,
liquid crystal displays and remote monitoring equipment. We also derive revenue from
repairs and non-warranty services, engineering design services and remote monitoring
services. Production and repaired units are billed to the customer and revenue is
recognized after they are shipped and title has transferred to the customer. Remote
monitoring services are billed and the revenue recognized at the end of the month after
the services are completed. For customers that utilize the Companys engineering
design services, the customer is billed and revenue is recognized after the design
services or tooling have been completed.

Inventories

Inventories
are stated at the lower of cost or market, using the first-in, first-out (FIFO) method.
Inventories, net of reserves of approximately $286,000 and $178,000, are summarized by
major classification as follows (in thousands):

|                | April 30,
|--------------- | ---------
|
|
|Raw materials   |          
|Work-in-process |          
|Finished goods  |          
|                |          
|                |          
|                |          

The
Company entered into supplier arrangements in fiscal 2005 with some of its larger
customers that allows for the Company to produce finished goods for those customers based
on their forecasted requirements.  As of April 30, 2005, approximately $123,000 of
finished goods inventory was directly related to those customer agreements. The remaining
finished goods inventory at April 30, 2005 was classified as raw materials in previous
years.  The comparable amount for the prior year has not been reclassified since such
information was not available.

F-9

---

Property and Equipment

Depreciation
is computed using the straight-line method over the following estimated useful lives:

| |                                                                                                      |                         | 
| | ---------------------------------------------------------------------------------------------------- | ----------------------- | 
| | Description              
Building and improvements
Equipment                
Computers and software | Years
   30
  3-8
    3 | 
| |                                                                                                      |                         | 
| |                                                                                                      |                         | 
| |                                                                                                      |                         | 

Goodwill

Goodwill is
initially measured as the excess of the cost of an acquired business over the fair value
of the identifiable net assets acquired. The Company recognized goodwill in its
acquisition of NTG, Inc. in November 2004. The Company does not amortize goodwill, but
rather reviews its carrying value for impairment annually, and whenever an impairment
indicator is identified. The goodwill impairment test involves a two-step approach. The
first step is to identify if potential impairment of goodwill exists. If impairment of
goodwill is determined to exist, the second step of the goodwill impairment test measures
the amount of the impairment using a fair value-based approach.

Intangible assets

Intangible
assets consist of patents, trademarks, copyrights and capitalized software. Intangible
assets are amortized over their estimated 10 year useful lives using the straight-line
method.

Impairment of Long-Lived
Intangible Assets

Long-lived
assets, including amortizable intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset or group
of assets may not be fully recoverable. These events or changes in circumstances may
include a significant deterioration of operating results, changes in business plans, or
changes in anticipated future cash flows. If an impairment indicator is present, the
Company evaluates recoverability by a comparison of the carrying amount of the assets to
future undiscounted cash flows expected to be generated by the assets. If the sum of the
expected future cash flows is less than the carrying amount, the Company would recognize
an impairment loss. An impairment loss would be measured by comparing the amount by which
the carrying value exceeds the fair value of the long-lived assets and intangibles.
Management reviewed the intangible assets for impairment as of April 30, 2005 and
determined that no impairment existed at that date.

Income Taxes

The
Company accounts for income taxes using the liability method in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. Under the liability method, deferred tax assets and liabilities are recorded
based upon the differences between the tax bases of assets and liabilities and their
carrying amount for financial reporting purposes, as measured by the enacted tax rates
which will be in effect when these differences are expected to reverse.

Advertising Costs

The
Company expenses advertising costs as incurred. Advertising expense charged to operations
amounted to approximately $33,000 and $39,000 for the years ended April 30, 2005 and 2004,
respectively.

F-10

---

Stock-Based Compensation

At
April 30, 2005, the Company has a stock-based employee compensation plan. The Company
accounts for the plan under the recognition and measurement principles of Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued toEmployees, and the related interpretations. Under APB No. 25, no employee compensation
expense is recognized, as all options granted under the plan had an exercise price equal
to the market value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income (loss) and net income (loss) per share as if
the Company had applied the fair value recognition provision of SFAS No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation (in
thousands, except per share data):

|                                                 | Years Ended April 30, | 
|------------------------------------------------ | --------------------- | 
|
|
|Net income, as reported                          |                       | 
|Deduct:  Total stock-based employee compensation |                       | 
|expense determined under fair value based        |                       | 
|method for all options, net of tax               |                       | 
|                                                 |                       | 
|Pro forma net income (loss)                      |                       | 
|                                                 |                       | 
|Net income (loss) per share:                     |                       | 
|Basic - as reported                              |                       | 
|Basic - pro forma                                |                       | 
|Diluted - as reported                            |                       | 
|Diluted - pro forma                              |                       | 

|                              | Years Ended April 30, | 
|----------------------------- | --------------------- | 
|
|
|Expected years until exercise |                       | 
|Risk-free interest rate       |                       | 
|Expected stock volatility     |                       | 
|Expected dividend yield       |                       | 

New Accounting
Pronouncements

In
December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 153 (SFAS 153),
Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.SFAS 153
expanded the scope of APB Opinion No. 29 to require that the nonmonetary exchange of
similar productive assets should be measured based on the fair value of the assets
exchanged. The adoption of this statement is not anticipated to have a material impact on
our consolidated financial statements.

In
December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R
establishes standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods and services or incurs liabilities in exchange for goods or
services that are based on the fair value of the entitys equity

F-10

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instruments or that may be settled
by the issuance of those equity instruments. SFAS 123R requires a public entity to
measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award and to recognize that cost
over the period during which an employee is required to provide service in exchange for
the award. Public entities filing as small business issuers will be required to apply
SFAS 123R in the first annual reporting period beginning after December 15, 2005. The
Company will adopt this statement after its next fiscal year ending April 30, 2006.. The
adoption of SFAS 123R will likely have an impact on our consolidated financial
statements. The Company is unable to estimate the impact of adoption of this statement as
the impact will depend, in part, on stock option awards made prior to the adoption date
of the statement, whether awards granted were non-qualified or qualified, the vesting
period of those awards, and cancellation or forfeitures related to both existing awards
and new awards.

In
November 2004, the FASB issued Statement No. 151 (SFAS No. 151), Inventory
Costs. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that . . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to
require treatment as current period charges. . . . SFAS No. 151 requires that those
items be recognized as current-period charges regardless of whether they meet the
criterion of so abnormal. In addition, SFAS No. 151 requires that allocation
of fixed production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The requirements of SFAS No. 151 are effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The adoption of this
statement is not expected to have a material impact on the Companys consolidated
financial statements.

2.     ACQUISITION

In
August 2003, DCI invested $100,000 to become a 19% member of Network Technologies Group,
LLC (NTG, LLC), a limited liability company formed by a group of technical and
management professionals who purchased the Network Technologies business from LaBarge,
Inc. DCI joined several other anticipated key suppliers, key distributors, and independent
investors in capitalizing NTG, LLC. NTG, LLC supplied remote monitoring solutions
utilizing the digital control channels of the nations cellular telephone network and
has established its initial market in the oil and gas pipeline industry.

On
November 24, 2004 the Company acquired the other 81% interest in NTG, LLC for total
consideration consisting of approximately $301,000 in cash, the Companys common
stock valued at $10,000 and $28,000 of acquisition costs. In exchange, the Company
acquired certain assets, including all of the proprietary technology, and assumed certain
liabilities of NTG, LLC as part of the transaction. The acquisition has been accounted for
as a purchase and, accordingly, the accompanying financial statements include the results
of operations of NTG from the date of the acquisition. As part of this transaction, the
original $100,000 investment in NTG, LLC made by DCI was discounted by an

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impairment loss of $19,000 and
transferred to the Companys new subsidiary, NTG, Inc (NTG). In addition
to the cash and stock paid, the members of NTG, LLC will receive quarterly cash payments
equal to 4% of NTGs net sales through November 2007. Additional consideration of
approximately $7,000 was paid for the period, November 2004 through April 30, 2005.

The
purchase price was allocated as follows (in thousands):

|                                                    | 
|--------------------------------------------------- | 
|
|
|Receivables                                         | 
|Inventories                                         | 
|Property and equipment                              | 
|Goodwill                                            | 
|Other assets, including product technology          | 
|Less discounted 19% original investment in NTG, LLC | 
|Liabilities                                         | 
|Issuance of common stock                            | 
|                                                    | 
|Cost of acquisition, net of cash acquired           | 
|                                                    | 

Intangible
assets totaling $349,000 were identified and valued by an independent third party
valuation expert, which included product technology. These intangible assets were
determined to have a useful life of 10 years and will be amortized over their useful life.
Amortization expense for the intangible assets will be $35,000 in each of the next five
fiscal years.

# 3.    LINE OF CREDIT

On
December 31, 2004, the Company renewed its $2,000,000 line of credit facility that is
secured by accounts receivable and inventory and is available for working capital. The
line of credit expires on December 31, 2005 and its borrowing capacity is calculated as a
specified percentage of accounts receivable and inventory. The line of credit accrues
interest at the prime rate plus .75% (6.5% at April 30, 2005) and contains various
covenants, including certain financial performance covenants pertaining to the maintenance
of debt to net worth and minimum net worth ratios. As of April 30, 2005, the Company was
in compliance with all of the covenants under the line of credit and there were no
borrowings outstanding on the credit facility.

# 4.     SEGMENT REPORTING

The
Company operates two reportable business segments: Electronic Interface Solutions and
Remote Monitoring Solutions. Electronic Interface Solutions (EIS) produces
custom electronic assemblies which integrate a variety of interface technologies, such as
custom liquid crystal displays, light emitting diode displays, and keypads, and also
provides repair services and engineering design services. The Remote Monitoring Solutions
(RMS) segment designs, markets, and provides remote monitoring services and is
the result of the NTG acquisition. The following table presents business segment revenues,
income (loss), and total assets for the years ended April 30, 2005 and 2004 including the
results of operations after the acquisition of NTG (in thousands).

F-12

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|               | Year Ended April 30, 2005
|-------------- | -------------------------
|
|
|Sales:         |                          
|External       |                          
|Intersegment   |                          
|               |                          
|Total sales    |                          
|               |                          
|Segment income |                          
|(loss)         |                          
|               |                          
|Total assets   |                          
|               |                          

|                      | Year Ended April 30, 2004
|--------------------- | -------------------------
|
|
|Sales:                |                          
|External              |                          
|Intersegment          |                          
|                      |                          
|Total sales           |                          
|                      |                          
|Segment income (loss) |                          
|                      |                          
|                      |                          
|Total assets          |                          
|                      |                          

The
following table reconciles total revenues to the products and services offered by the
Company (in thousands).

|                                | Years Ended April 30, | 
|------------------------------- | --------------------- | 
|
|
|Products and services:          |                       | 
|Electronic interface assemblies |                       | 
|Remote monitoring solutions     |                       | 
|Engineering services            |                       | 
|Other                           |                       | 
|                                |                       | 
|Total EMS sales                 |                       | 
|                                |                       | 

# 5.     WARRANTY

The
Company provides a limited warranty for a period of one year from the date of receipt of
its products. The Companys standard warranties require the Company to repair or
replace defective products at no cost to the customer or refund the customers
purchase price. In the second quarter of fiscal 2004, the Company began to establish a
liability to estimate the costs that may be incurred under its standard warranties. The
Companys product warranty liability reflects managements best estimate of
probable liability under product warranties. Management determines the liability based on
known product failures (if any), historical experience, and other currently available
evidence. The Company incurred actual warranty expenses of approximately $60,000 and
$68,000 for the years ended April 30, 2005

F-13

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and 2004, respectively.

The
following table presents changes in the Companys warranty liability, which is
included in accrued expenses on the balance sheets (in thousands):

|                               | Years Ended April 30, | 
|------------------------------ | --------------------- | 
|
|Balance at beginning of period |                       | 
|Accruals                       |                       | 
|                               |                       | 
|Balance at end of period       |                       | 
|                               |                       | 

# 6.     LONG-TERM DEBT

Long-term
debt as of April 30, 2005 and 2004 consists of the following (in thousands):

`April 30,
                                                                                  -----------------------------
                                                                                      2005            2004
                                                                                  -------------   -------------
Industrial  revenue bonds,  variable interest rate (3.10% as of April 30, 2005),
due in annual  principal  payments  ranging from $100,000 to $200,000  beginning
October  2005  through  maturity  in  October  2017,  secured  by  property  and
equipment  and an  irrevocable  letter of credit in favor of the bond Trustee up
to a maximum  amount of $1,588,000  through  April 2006. In connection  with the
acquisition  of DCI,  the face amount of this IRB was  discounted  approximately
$178,000.  The discount  totaled  $130,000 and $140,000 as of April 30, 2005 and
2004 respectively.

                                                                                        $1,440          $1,430

Convertible   long-term   subordinated   notes   payable   to  the   former  DCI
stockholders,  convertible  into shares of common stock at a conversion price of
$1.93 per common  share,  with interest  payable  quarterly at 10%. The original
maturity  date of the notes was  February 7, 2005.  The notes were  subordinated
to all other borrowings of the Company.
                                                                                            --             405

Subordinated note payable to the former DCI stockholders,  with interest accrued
at 5% per  annum.  The  principal  and  accrued  interest  was  payable in equal
monthly installments beginning September 30, 2003 and ending February 28, 2005.
                                                                                            --              20

Convertible  subordinated debenture in the amount of $500,000, with a conversion
price of $1.93 per common share,  and a warrant granting the holder the right to
purchase  45,635  shares of the  Company's  stock for $88,076  ($1.93 per common
share).  The note was converted by Eiger  Investment  Group,  LLC on January 31,
2005 into 259,067 shares of common stock.  On                                              ---             ---`

F-14

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`On March 23,  2005,  KCEP  Ventures II, L.P.  converted  the warrant into 23,223
shares of common stock and surrendered the remaining 22,412 shares.  Originally,
the common stock purchase warrant was valued at $50,000 using the  Black-Scholes
option pricing model. Accordingly,  the subordinated debenture was discounted by
$50,000 which resulted in an effective interest rate of 13%. The debenture had a
stated interest rate of 10% and was due February 7, 2005. Interest was paid on a
quarterly basis.                                                                            --             489
                                                                                  -------------   -------------
Total long-term debt                                                                     1,440           2,344

Less current portion                                                                       100             914
                                                                                  -------------   -------------
                                                                                        $1,340          $1,430
                                                                                  =============   =============`

On
September 16, 2004, the Company satisfied is obligations under the convertible
subordinated debentures held by the former owners of DCI. The $405,625 due under the
convertible debentures and the associated interest were paid in a combination of the
Companys common stock and cash. The holders of the debentures elected to convert
approximately 60% of the principal value of the notes into 127,420 shares of common stock
at a conversion price of $1.93 per share. The remaining amount of the notes and interest,
$164,887, was paid from available cash and did not require the Company to draw on its line
of credit.

On
January 24, 2005, Eiger Investment Group, L.L.C. (Eiger) notified the Company
of its intent to convert, on January 31, 2005, the $500,000 convertible subordinated
debenture it owned into 259,065 shares of the Companys common stock. Eiger, which is
owned by the Companys management team, purchased the $500,000 convertible
subordinated debenture from KCEP Ventures II, L.P. (KCEP) in June 2004. Also
in June 2004, individual management team members purchased all of the Companys
common stock held by KCEP.

On
March 29, 2005, KCEP and the Company amended the warrant agreement held by KCEP for the
right to purchase 45,635 shares of common stock at $1.93 per share. The amendment allowed
KCEP to exercise the warrant to purchase 23,223 shares of the Companys common stock
at $1.93 per common share in exchange for the surrender of the remaining 22,412 shares
granted to KCEP under the warrant. KCEP exercised and surrendered the common shares on
March 29, 2005. The transaction was based on the average daily closing price for the 30
days prior to the exercise of the warrant of $3.93 per common share.

The
aggregate amount of principal to be paid on the long-term debt during each of the next
five years ending April 30 and thereafter is as follows (in thousands):

| |                                                                |                              
| | -------------------------------------------------------------- | -----------------------------
| | Year                                                           | Amount                       
| | 2006   
   2007   
   2008   
   2009   
   2010   
Thereafter | $100
 200
 170
 100
 100
 900

F-15

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As
of April 30, 2005, the Company is not subjective to any restrictive covenants with its
long-term debt.

# 7.    OPERATING LEASES

The
Company currently leases approximately 5,000 square feet of office space for one of the
Companys subsidiaries that expires at the end of September 2006.

In
November 2002, as a result of the Crystaloid transaction, the Company entered into a
one-year non-cancelable operating lease for a facility that was to be used for storage and
some manufacturing. On December 31, 2003, the lease expired and the Company vacated the
facility.

Rent
expense under all operating leases was approximately $19,000 and $40,000 for the years
ended April 30, 2005 and 2004, respectively. The following table presents the
Companys future obligations for minimum lease payments (in thousands):

|       | Years Ended April 30,
|------ | ---------------------
|       |                      
|       |                      
|Amount |                      

# 8.    NET INCOME (LOSS) PER
SHARE

The following
table presents the components of the calculation of basic and diluted income (loss) per
share (in thousands):

|                                                     | Years Ended April 30,2005                        2004
|---------------------------------------------------- | -----------------------------------------------------
|Numerator:                                           |                                                      
|Net income (loss)                                    |                                                      
|Denominator:                                         |                                                      
|Weighted average common shares outstanding - basic   |                                                      
|Effect of dilutive options outstanding               |                                                      
|                                                     |                                                      
|Weighted average common shares outstanding - diluted |                                                      
|                                                     |                                                      

Options
to purchase 5,000 and 76,000 shares of common stock as of April 30, 2005 and 2004,
respectively, were antidilutive and therefore were not included in the computation of
diluted earnings per share.

# 9.    STOCK OPTIONS

The
Company has reserved 675,000 shares of common stock for issuance to employees and
consultants of the Company pursuant to the Companys 1991 stock option plan (the
Plan). According

F-16

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to the terms of the Plan, both
incentive stock options and non-qualified stock options to purchase common stock of the
Company may be granted to key employees of and consultants to the Company, at the
discretion of the Board of Directors. Incentive stock options may not be granted at
prices that are less than the fair market value on the date of grant. Non-qualified
options may be granted at prices determined appropriate by the Board of Directors of the
Company. Generally, these options become exercisable and vest over one to five years and
expire within 10 years of the date of grant. At April 30, 2005 and 2004, options to
purchase approximately 227,000 and 206,000 shares, respectively, were vested and
exercisable. Information with respect to options granted under the Plan is as follows:

|                              | Shares | Price  
|----------------------------- | ------ | -------
|Outstanding at April 30, 2003 |        | 299,250
|Granted                       |        | --     
|Exercised                     |        | --     
|Canceled                      |        | --     
|                              |        |        
|Outstanding at April 30, 2004 |        | 299,250
|Granted                       |        | --     
|Exercised                     |        | (35,000
|Canceled                      |        | (18,500
|                              |        |        
|Outstanding at April 30, 2005 |        | 245,750
|                              |        |        

The
following table summarizes information about stock options outstanding at April 30, 2005

`Options outstanding                               Options exercisable
                      ------------------ ------------------- ------------------    ---------------- -----------------
                                          Weighted-average
                           Number            remaining                                 Number       Weighted-average
 Range of exercise     outstanding at     contractual life   Weighted-average      exercisable at    exercise price
       prices          April 30, 2005                         exercise price       April 30, 2005
--------------------- ------------------ ------------------- ------------------    ---------------- -----------------
$0.81                           117,250     7 years                $0.81                   117,250        $0.81
$1.25 - $1.50                    72,500     7.22 years             $1.30                    53,336        $1.32
$2.13 - $3.25                    56,000     4.62 years             $2.34                    56,000        $2.34
                      ------------------                                           ----------------
$0.81 - $3.25                   245,750     6.52 years             $1.30                   226,586        $1.31
                      ==================                                           ================`

# 10.    INCOME TAXES

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Companys deferred tax assets
and liabilities at April 30, 2005 and 2004 are as follows (in thousands):

F-17

---

|                                                     | April 30,    2005                      2004 | 
|---------------------------------------------------- | ------------------------------------------- | 
|Deferred tax assets:                                 |                                             | 
|Current:                                             |                                             | 
|Net operating loss carry forward                     |                                             | 
|Alternative minimum tax and research and development |                                             | 
|credit carry forward                                 |                                             | 
|Accrued expenses                                     |                                             | 
|Inventories                                          |                                             | 
|                                                     |                                             | 
|Total deferred tax assets                            |                                             | 
|Deferred tax liabilities:                            |                                             | 
|Basis differences in acquired assets                 |                                             | 
|                                                     |                                             | 
|Total deferred tax liabilities                       |                                             | 
|                                                     |                                             | 
|Net deferred tax asset                               |                                             | 
|Valuation allowance                                  |                                             | 
|                                                     |                                             | 
|                                                     |                                             | 
|                                                     |                                             | 

For
the year ended April 30, 2005, the Company had an income tax benefit of approximately
$10,000 that was the result of a refund from property tax credits from the filing of the
2004 state tax return. The $39,000 income tax benefit for the year ended April 30, 2004
resulted from filing amended tax returns claiming refunds for federal and state income
taxes paid in prior years as a result of additional carry backs of net operating losses
pursuant to the Job Creation and Worker Assistance Act of 2002.

The
income tax expense (benefit) differs from amounts computed at the statutory federal
income tax rate as follows (in thousands):

|                                             | Years Ended April 30,2005                               2004
|-------------------------------------------- | ------------------------------------------------------------
|Expense (benefit) at combined statutory rate |                                                             
|State tax credits                            |                                                             
|Valuation allowance                          |                                                             
|Other                                        |                                                             
|                                             |                                                             
|                                             |                                                             
|                                             |                                                             

The
valuation allowance is primarily related to net operating loss carryforwards for which no
tax benefit has been recognized due to the uncertainty of utilization. At April 30, 2005,
the Company has available net operating loss carryforwards of approximately $2.1 million
which will begin to expire in fiscal year 2020.

# 11.    EMPLOYEE BENEFIT PLAN

The
Company has a defined contribution employee benefit plan that covers substantially all
full-time employees who have attained age 21 and completed six months of service.
Qualified employees are entitled to make voluntary contributions to the plan of up to 15%
of their annual compensation subject to Internal Revenue Code maximum limitations. The
Company contributes 50% of each employees contribution up to a maximum of 6% of the
employees annual compensation. Participants in the plan may direct the
Companys contribution into mutual funds and money market funds. Additionally, the
Company may make discretionary contributions to the plan. For the years ended

F-18

---

April 30, 2005 and 2004, Company
contributions to the plans amounted to approximately $60,000 and $61,000, respectively.

# 12.    RELATED PARTY
TRANSACTIONS

The
Company had a management advisory agreement with Merit Capital & Management, Inc.
(Merit Capital) whose president and sole shareholder was the Companys
former Chairman of the Board of Directors. Pursuant to the terms of the agreement, the
Company paid a monthly fee, in addition to benefits, in exchange for management advisory
services.

In
July 2003, the agreement was amended and the management advisory services were terminated
effective October 31, 2003. In February 2004, the Company amended Merit Capitals
management advisory agreement. Pursuant to the terms of the amended agreement, Merit
Capital was paid a fee of $4,500 per month commencing March 2004 and ending July 2004 in
exchange for exploring strategic alternatives for the Company.

The
Company paid Merit Capital $29,000 and $80,000 for management advisory and director fees
during the years ended April 30, 2005 and 2004, respectively.

F-19