##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2005   Commission file Number 1-10367
 Advanced Environmental
    Recycling Technologies, Inc.
 (Exact name of Registrant as
    specified in its charter)
  Delaware

71-0675758(State of
    Incorporation)

(I.R.S. Employer
    Identification No.)914 N Jefferson Street
    Post Office Box 1237
    Springdale, Arkansas(Address of principal
    executive offices)

72764(Zip Code)   Registrants telephone number, including area code:
  (479) 756-7400
  Securities registered pursuant to Section 12(b) of the
    Act:
  None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Class A common stock, $.01 par value
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
    Class A  38,137,812;
    Class B  1,465,530
  DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



Table of
    Contents
  
  Page No.Part IItem 1.

Business


1Item 1A.

Risk Factors


6Item 1B.

Unresolved Staff
    Comments


8Item 2.

Properties


8Item 3.

Legal
    Proceedings


9Item 4.

Submission of
    Matters to a Vote of Security Holders


10Part IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters,
    and Issuer Purchases of Equity Securities


10Item 6.

Selected Financial
    Data


11Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


12Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


19Item 8.

Financial
    Statements and Supplementary Data


20Item 9.

Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


21Item 9A.

Controls and
    Procedures


21Item 9B.

Other
    Information


21Part IIIItem 10.

Directors and
    Executive Officers of the Registrant


21Item 11.

Executive
    Compensation


25Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


25Item 13.

Certain
    Relationships and Related Transactions


25Item 14.

Principal
    Accountant Fees and Services


25Part IVItem 15.

Exhibits and
    Financial Statement Schedules


25Signatures


26Index to Financial
    Statements


F-1Loan Agreement - Liberty Bank of ArkansasPromissory NoteAccountant's ConsentCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906Certification Pursuant to Section 906   i




---



##### Table of Contents



Item 1.
    Business  Summary
  ® ® ® tm ® ® ®
  Products
    
    Commercial and residential decking planks and accessories such
    as balusters and handrails (MoistureShield and Weyerhaeuser
    ChoiceDek),
    Exterior door and window components, and
    Exterior housing trim (MoistureShield).    
    Unlike wood, our products do not require preservatives or
    treatment with toxic chemicals nor do they require yearly water
    sealing or staining.
    Our products are less subject to thermal contraction or
    expansion and have greater dimensional stability than competing
    all-plastic products.
    Our products are engineered for superior moisture-resistance and
    will not swell or expand like wood.
    Our products can be designed and extruded through dies to a
    desired shape in accordance with customer specifications, which
    helps the customer to minimize waste.
    Our products are less subject to rotting, cracking, warping, and
    splintering, insect infestation and water absorption than
    conventional wood materials.
    Our products can be aesthetically enhanced to provide a
    wood-like or grained surface appearance.
    When combined with our unique tie coat primer, the life of
    exterior paint can be greatly enhanced, thus creating a
    low-maintenance non-wood trim and fascia system designed to
    enhance and complement fiber cement siding.
    Our products can be combined with coloring agents
    and/or other
    additives to provide different colors and aesthetics. 1




---



##### Table of Contents



Marketing
    and Sales
  General Market Strategy. and/or
  Outdoor Decking Systems. year-to-year
       2




---



##### Table of Contents



Door and Window Products.
    Exterior Trim and Fascia Products. start-up
  Sales and Customer Service. www.choicedek.com www.moistureshield.com
  Cyclical Nature of Building Products
    Industry. and/or
  Product Innovation.
  Raw
    Materials
  Wood Fiber. over-the-road
 3




---



##### Table of Contents



Recycled Plastics.
  
    Low density polyethylene (LDPE) poly coatings or linings from
    recycled bleached food-board, which are generated from the
    hydro-pulping process;
    High density polyethylene (HDPE) and linear low density
    polyethylene (LLDPE) mixed plastic grocery bags from supermarket
    and store collection programs;
    HDPE ground container material;
    LLDPE stretch film from warehouses and packing waste; and
    Virgin HDPE and LDPE pellets.        
    As world political events conspired to raise the price of
    petroleum there was a related rise in the price of virgin
    plastic, which is a petroleum and natural gas derivative. This
    in turn increased the demand for scrap plastics since scrap can
    be substituted for virgin plastics in many manufacturing
    applications. We thus began competing with scrap plastic
    consumers that had not previously been in the market.
    The relative decline in the value of the dollar versus major
    Asian currencies has made it economical for Asian manufactures
    to source scrap plastic in the U.S. for use in their
    countries. We have thus encountered significant competition for
    scrap plastics from foreign consumers that had not previously
    been a factor in the market.
    Demand from economies in China and India for increased
    petrochemical products.
    As annual sales of wood composite decking products have grown,
    we and other composite decking manufacturers have become
    relatively large consumers of scrap plastics, which has created
    increasing competition for raw materials and driven up prices.   4




---



##### Table of Contents



Supply Contracts.
  Competition for Raw Materials.
  Patented
    and Proprietary Technology
  on-site
    Industry
    Standards
    Regulation
   5




---



##### Table of Contents



Competition
  Competition for Sales.
        Employees
  and/or and/or time-to-time,
  Item 1A.
    Risk
    Factors    We
    have a working capital deficit
    We may
    be unable to secure an adequate quantity and quality of raw
    materials at economical prices
   6




---



##### Table of Contents



The
    loss of one or more of our key customers could cause a
    substantial reduction in our revenues and profits
    If we
    are unable to comply with certain debt covenants, our financial
    position and operations could be adversely
    affected
    Restrictions
    regarding increased manufacturing capabilities could restrain
    our business growth
    Our
    growth is limited by the availability of human capital
    resources
    Declines
    in construction activity may adversely affect our
    business
    Fire
    disruptions may adversely affect our business
   7




---



##### Table of Contents



Covenants
    in our bond agreements could restrict our ability to borrow,
    which could impair the improvement and expansion of our
    operations
  day-to-day
  Future
    sales of shares could be dilutive and impair our ability to
    raise capital
    The
    high growth rate in demand for our products will eventually
    slow
    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties         8




---



##### Table of Contents



Item 3.
    Legal
    Proceedings  Lloyds
    London
        Advanced
    Control Solutions
   9




---



##### Table of Contents



Other
    Matters
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder
    Matters, and Issuer Purchases of Equity Securities  AERTA.
  Sales
    price range of Class A common stock
  High


LowFiscal 2004First Quarter


1.45



1.10Second Quarter


1.28



1.00Third Quarter


1.72



1.04Fourth Quarter


1.67



1.18Fiscal 2005First Quarter


1.85



1.25Second Quarter


1.59



1.21Third Quarter


1.74



1.19Fourth Quarter


1.79



1.25     Recent
    Sales of Unregistered Securities
   10




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Managements Discussion and Analysis of
    Financial Condition and Results of Operations.
  Year Ended
    December 31,2005


2004


2003


2002


2001Statements of Operations
    Data:Net sales

$
87,312,560


$
63,637,285


$
43,520,563


$
41,415,466


$
33,422,959Income (loss) before extraordinary
    gain, accrued premium on preferred stock and income taxes


3,583,370



1,369,983



(665,921
)


1,193,333



602,864Accrued premium on preferred stock


(235,367
)


(276,000
)


(276,000
)


(278,083
)


(290,000
)Income (loss) before extraordinary
    gain and income taxes


3,348,003



1,093,983



(941,921
)


915,250



312,864Net income tax benefit


4,449,682















Income (loss) before extraordinary
    gain


7,797,685



1,093,983



(941,921
)


915,250



312,864Extraordinary gain






173,536



2,962,041







Net income applicable to common
    stock

$
7,797,685


$
1,267,519


$
2,020,120


$
915,250


$
312,864Net income (loss) per common share
    before extraordinary gain(1) (Basic)

$
0.22


$
.03


$
(.03
)

$
.03


$
.01Net income (loss) per common share
    before extraordinary gain(1) (Diluted)

$
0.19


$
.03


$
(.03
)

$
.02


$
.01Extraordinary gain per common
    share (Basic)





$
.01


$
.10







Extraordinary gain per common
    share (Diluted)





$
.00


$
.10







Net income (loss) per common share
    after extraordinary gain (Basic)

$
0.22


$
.04


$
.07


$
.03


$
.01Net income (loss) per common share
    after extraordinary gain (Diluted)

$
0.19


$
.03


$
.07


$
.02


$
.01Weighted average number of shares
    outstanding (Basic)


35,861,060



31,815,067



30,017,661



29,516,768



27,565,825Weighted average number of shares
    outstanding (Diluted)


40,475,244



41,070,289



30,017,661



42,665,451



37,176,751Balance Sheet Data:Working capital deficit

$
687,039


$
3,470,971


$
1,915,695


$
6,557,943


$
4,535,600Total assets


56,952,673



43,340,793



36,406,601



39,335,948



36,393,071Long-term debt less current
    maturities


17,010,889



15,571,068



16,659,241



4,068,210



4,303,202Total liabilities


35,835,369



31,610,279



27,458,156



33,574,481



32,194,317Stockholders equity


21,117,304



11,730,514



8,948,445



5,761,467



4,198,754     (1)
    
    The net income (loss) per share of common stock is based on the
    combined weighted average number of shares of Class A and
    Class B common stock outstanding during the period. See
    Note 2 to the financial statements for a reconciliation of
    the basic and diluted weighted average number of shares
    outstanding. 11




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Executive
    Overview
                
    We are investing heavily in in-house plastic recycling capacity
    and advanced recycling technologies;
    We expect to start one production line at our new Springdale
    South extrusion facility in the second quarter of 2006 and plan
    to add a second line in early 2007, with two more
    lines  for a total of
    four  anticipated by the end of 2007.
    We are continually evaluating, improving and implementing
    manufacturing efficiencies;
    We continue to aggressively recruit new AERT associates for
    senior and middle management levels.
    We continue to build brand recognition and our companys
    reputation with the quality of our products and customer service. 12




---



##### Table of Contents









Results
    of Operations




Three
    Year Comparison




|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | -------- |  | ------ | ---- |  | - | ---------- | - |  | ---- | ------ | -- |  | - | ---------- | --
|                                                                                         |  | 2005 |            |   | % Change |  |        | 2004 |  |   | % Change   |   |  | 2003 |       
|                                                                                        
|Net sales                                                                                |  | $    | 87,312,560 |   |          |  | 37.2   | %    |  | $ | 63,637,285 |   |  |      | 46.2   | %  |  | $ | 43,520,563 |   
|Cost of goods sold                                                                       |  |      | 66,389,964 |   |          |  | 35.6   | %    |  |   | 48,963,166 |   |  |      | 42.5   | %  |  |   | 34,361,984 |   
|% of net sales                                                                           |  |      | 76.0       | % |          |  | (0.9   | )%   |  |   | 76.9       | % |  |      | (2.1   | )% |  |   | 79.0       | % 
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Gross margin                                                                             |  |      | 20,922,596 |   |          |  | 42.6   | %    |  |   | 14,674,119 |   |  |      | 60.2   | %  |  |   | 9,158,579  |   
|% of net sales                                                                           |  |      | 24.0       | % |          |  | 0.9    | %    |  |   | 23.1       | % |  |      | 2.1    | %  |  |   | 21.0       | % 
|Selling and administrative costs                                                         |  |      | 14,595,854 |   |          |  | 31.5   | %    |  |   | 11,099,911 |   |  |      | 23.3   | %  |  |   | 9,001,261  |   
|% of net sales                                                                           |  |      | 16.7       | % |          |  | (0.7   | )%   |  |   | 17.4       | % |  |      | (3.3   | )% |  |   | 20.7       | % 
|Research and development                                                                 |  |      | 110,134    |   |          |  | 13.3   | %    |  |   | 97,207     |   |  |      | 24.8   | %  |  |   | 77,900     |   
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Subtotal                                                                                 |  |      | 14,705,988 |   |          |  | 31.3   | %    |  |   | 11,197,118 |   |  |      | 23.3   | %  |  |   | 9,079,161  |   
|% of net sales                                                                           |  |      | 16.8       | % |          |  | 0.8    | %    |  |   | 17.6       | % |  |      | (3.3   | )% |  |   | 20.9       | % 
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Operating income                                                                         |  |      | 6,216,608  |   |          |  | 78.8   | %    |  |   | 3,477,001  |   |  |      | 4278.1 | %  |  |   | 79,418     |   
|% of net sales                                                                           |  |      | 7.1        | % |          |  | 1.6    | %    |  |   | 5.5        | % |  |      | 5.3    | %  |  |   | 0.2        | % 
|Other income (expense)                                                                   |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Insurance proceeds related to lost
    income                                            |  |      |           |   |          |  | (100.0 | )%   |  |   | 8,720      |   |  |      | (99.2  | )% |  |   | 1,125,372  |   
|Net litigation contingency                                                               |  |      | (610,206   | ) |          |  |       |      |  |   |           |   |  |      | 0.0    | %  |  |   |           |   
|Loss on disposition of equipment                                                         |  |      | (26,122    | ) |          |  |       |      |  |   |           |   |  |      | 0.0    | %  |  |   |           |   
|Net interest expense                                                                     |  |      | (1,996,910 | ) |          |  | (5.6   | )%   |  |   | (2,115,738 | ) |  |      | 13.1   | %  |  |   | (1,870,711 | ) 
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Income (loss) before extraordinary
    item accrued premium on preferred stock and taxes |  |      | 3,583,370  |   |          |  | 161.6  | %    |  |   | 1,369,983  |   |  |      |       |    |  |   | (665,921   | ) 
|% of net sales                                                                           |  |      | 4.1        | % |          |  | 1.9    | %    |  |   | 2.2        | % |  |      | 3.7    | %  |  |   | (1.5       | )%
|Accrued premium on preferred stock                                                       |  |      | (235,367   | ) |          |  | (14.7  | )%   |  |   | (276,000   | ) |  |      | 0.0    | %  |  |   | (276,000   | ) 
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Income (loss) before extraordinary
    item and taxes                                    |  |      | 3,348,003  |   |          |  | 206.0  | %    |  |   | 1,093,983  |   |  |      |       |    |  |   | (941,921   | ) 
|% of net sales                                                                           |  |      | 3.8        | % |          |  | 2.1    | %    |  |   | 1.7        | % |  |      | 3.9    | %  |  |   | (2.2       | )%
|Net income tax benefit                                                                   |  |      | 4,449,682  |   |          |  |       |      |  |   |           |   |  |      | 0.0    | %  |  |   |           |   
|% of net sales                                                                           |  |      | 5.1        | % |          |  | 5.1    | %    |  |   | 0.0        | % |  |      | 0.0    | %  |  |   | 0.0        | % 
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Income (loss) before extraordinary
    item                                              |  |      | 7,797,685  |   |          |  | 612.8  | %    |  |   | 1,093,983  |   |  |      |       |    |  |   | (941,921   | ) 
|% of net sales                                                                           |  |      | 8.9        | % |          |  | 7.2    | %    |  |   | 1.7        | % |  |      | 3.9    | %  |  |   | (2.2       | )%
|Extraordinary gain on involuntary
    conversion of non-monetary assets due to fire      |  |      |           |   |          |  | (100.0 | )%   |  |   | 173,536    |   |  |      | (94.1  | )% |  |   | 2,962,041  |   
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   
|Net income applicable to common
    stock                                                |  | $    | 7,797,685  |   |          |  | 515.2  | %    |  | $ | 1,267,519  |   |  |      | (37.3  | )% |  | $ | 2,020,120  |   
|% of net sales                                                                           |  |      | 8.9        | % |          |  | 6.9    | %    |  |   | 2.0        | % |  |      | (2.6   | )% |  |   | 4.6        | % 
|                                                                                         |  |      |            |   |          |  |        |      |  |   |            |   |  |      |        |    |  |   |            |   





13



---



##### Table of Contents



|                    |  |      |            |  |          |  |      |      |  |   |            |  |  |      |      |   |  |   |            | 
|------------------- |  | ---- | ---------- |  | -------- |  | ---- | ---- |  | - | ---------- |  |  | ---- | ---- | - |  | - | ---------- | 
|Net Sales           |  | 2005 |            |  | % Change |  |      | 2004 |  |   | % Change   |  |  | 2003 |     
|                   
|Springdale facility |  | $    | 67,823,259 |  |          |  | 41.6 | %    |  | $ | 47,902,106 |  |  |      | 40.1 | % |  | $ | 34,203,234 | 
|Junction facility   |  |      | 19,489,301 |  |          |  | 23.9 | %    |  |   | 15,735,179 |  |  |      | 68.9 | % |  |   | 9,317,329  | 
|                    |  |      |            |  |          |  |      |      |  |   |            |  |  |      |      |   |  |   |            | 
|Total net sales     |  | $    | 87,312,560 |  |          |  | 37.2 | %    |  | $ | 63,637,285 |  |  |      | 46.2 | % |  | $ | 43,520,563 | 
|                    |  |      |            |  |          |  |      |      |  |   |            |  |  |      |      |   |  |   |            | 





Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004




Net
    Sales








Cost of
    Goods Sold and Gross Margin
















Selling
    and Administrative Expenses








Operating
    Income








Net
    Income






14



---



##### Table of Contents











Year
    Ended December 31, 2004 Compared to Year Ended
    December 31, 2003




Net
    Sales








| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A product mix that included a higher percentage of value added
    products, including the new ChoiceDek Premium Embossed, which
    accounted for 15% of the increase;                              
|
| |  | Restoration of the Junction plant to its pre-fire capacity,
    which accounted for 23% of the increase; and                                                                                         
|
| |  | Increased productivity, which resulted from various capital
    projects that increased output and reduced manufacturing waste.
    Productivity gains account for the remaining 62% of the increase.







Cost of
    Goods Sold






















15



---



##### Table of Contents



Selling
    and Administrative Expenses
    Net
    Income
      Extraordinary
    Item
    Contingencies
  Liquidity
    and Capital Resources
     16




---



##### Table of Contents



Bonds Payable and Allstate Notes
    Payable Debt Covenants

December 31, 2005


ComplianceLong-term debt service coverage
    ratio for last four quarters of at least 2.00 to 1.00


3.25


YesCurrent ratio of not less than
    1.00 to 1.00 (as adjusted)(1)


1.08


No-WaivedDebt to equity ratio of not more
    than 3.00 to 1.00


0.90


YesNot more than 10% of accounts
    payable in excess of 75 days past invoice date


10.3
%

No-WaivedNot more than 20% of accounts
    receivable in excess of 90 days past invoice date


0.0
%

Yes     (1)
    
    The current ratio calculation was modified by the waiver to
    include the debt service reserve fund of $2,110,881 in current
    assets.  Critical
    Accounting Policies and Estimates
   17




---



##### Table of Contents



Accounts
    Receivable
    Buildings
    and Equipment
    Accounting for the
    Impairment or Disposal of Long-Lived Assets
  Stock-Based
    Compensation
  Accounting for Stock-Based
    Compensation Accounting for
    Stock Issued to Employees
  Revenue
    Recognition
  Revenue Recognition in
    Financial Statements
 18




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLess Than


1 to 3


3 to 5


More ThanTotal


1 Year


Years


Years


5 YearsLong-term debt

$
17,949,593


$
938,704


$
2,188,743


$
4,022,146


$
10,800,000Operating leases


7,157,697



1,816,437



2,978,500



1,541,495



821,265Total

$
25,107,290


$
2,755,141


$
5,167,243


$
5,563,641


$
11,621,265     Uncertainties,
    Issues and Risks
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    Forward-looking
    Information
  Form 10-K
   19




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  Summary
    Quarterly Financial Data
  2004


2005First


Second


Third


Fourth


First


Second


Third


FourthQuarter(1)


Quarter


Quarter


Quarter(1)


Quarter


Quarter


Quarter


QuarterNet sales

$
13,221,121


$
16,162,575


$
18,975,717


$
15,277,872


$
19,943,530


$
20,954,211


$
23,099,857


$
23,314,962Gross margin


2,588,210



4,184,501



5,695,745



2,205,663



4,319,620



4,734,626



6,266,274



5,602,076Income (loss) before extraordinary
    item


(463,313
)


857,142



1,500,498



(800,344
)


665,477



918,938



1,651,945



4,561,325Net income (loss) after
    extraordinary item


574,264



857,142



1,500,498



(1,664,385
)


665,477



918,938



1,651,945



4,561,325Income (loss) per share before
    extraordinary item (Basic)

$
0.00


$
0.03


$
0.05


$
(0.03
)

$
0.02


$
0.03


$
0.05


$
0.12Income (loss) per share before
    extraordinary item (Diluted)

$
0.00


$
0.02


$
0.04


$
(0.03
)

$
0.01


$
0.02


$
0.04


$
0.11Income (loss) per share after
    extraordinary item (Basic)

$
0.00


$
0.03


$
0.05


$
(0.05
)

$
0.02


$
0.03


$
0.05


$
0.12Income (loss) per share after
    extraordinary item (Diluted)

$
0.00


$
0.02


$
0.04


$
(0.05
)

$
0.01


$
0.02


$
0.04


$
0.11     (1)
    
    In the first quarter of 2004, we booked an insurance receivable
    of $864,000 and recognized related additional income of such
    amount related to additional insurance claims we expect to
    collect with respect to a 2003 fire at our Junction, Texas
    facility. Pursuant to litigation filed by the insurer in January
    2005, such claims are now being contested. As a result, we have
    reversed the receivable and related income for these additional
    claims by means of an $864,000 adjustment taken in the fourth
    quarter of 2004.   20




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Rules 13a-15(e) 15d-15(e) Form 10-K.
  Item 9B.
    Other
    Information    PART III Item 10.    Directors and Executive Officers of the Registrant (Item
    401)
    Name

Age

PositionJoe G. Brooks


50


Chairman of the board of
    directors, co-chief executive officer and presidentSal Miwa


49


Vice-chairman of the board of
    directorsStephen W. Brooks


49


Co-chief executive officer and
    directorMarjorie S. Brooks


70


Secretary, treasurer and directorJ. Douglas Brooks


46


Senior
    vice-president  raw materialsAlford Drinkwater


54


Senior vice
    president  plastic operationsJim Precht


60


Senior
    vice-president  sales and marketingRobert A. Thayer


54


Senior vice-president and Chief
    financial officerEric E. Barnes


32


Controller and Chief accounting
    officerJerry B. Burkett


49


DirectorEdward P. Carda


65


DirectorMelinda Davis


63


DirectorTim W. Kizer


40


DirectorSamuel L. Tony
    Milbank


65


DirectorJim Robason


68


DirectorMichael M. Tull


51


Director  21




---



##### Table of Contents



Joe G.
    Brooks
  Sal Miwa
  Stephen W.
    Brooks
  Marjorie S. Brooks
  J. Douglas Brooks
  Robert A. Thayer voice-over-internet
  Alford Drinkwater waste-to-energy
 22




---



##### Table of Contents



Jim Precht 32-years
  Eric
    E. Barnes
  Jerry B. Burkett
  Edward P. Carda 37-year
  Melinda Davis
  Tim W. Kizer Doing Business in
    Bentonville Series
  Samuel L. Milbank
 23




---



##### Table of Contents



Jim Robason
  Michael M. Tull
            Code
    of Ethics
  Form 10-K Form 8-K
 24




---



##### Table of Contents



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules  (a1) and (a2).
  (a3) and (c).
 25




---



##### Table of Contents



SIGNATURES    ADVANCED ENVIRONMENTAL
 RECYCLING TECHNOLOGIES, INC.
  By:
    /s/  JOE
    G. BROOKS    Chairman, Co-Chief Executive Officer and President
  STEPHEN
    W. BROOKS
    Co-Chief Executive Officer
  ROBERT
    A. THAYER
    Chief Financial Officer
    POWER OF
    ATTORNEY
  attorney-in-fact Form 10-K attorney-in-fact
    Signature

Title

Date/s/  JOE
    G. BROOKSJoe
    G. Brooks

Chairman of the board, co-CEO and
    president

March 31, 2006/s/  SAL
    MIWASal
    Miwa

Vice-chairman of the board

March 31, 2006/s/  STEPHEN
    W. BROOKSStephen
    W. Brooks

Co-CEO and director

March 31, 2006/s/  MARJORIE
    S. BROOKSMarjorie
    S. Brooks

Secretary, treasurer and director

March 31, 2006 26




---



##### Table of Contents



Signature

Title

Date/s/  JERRY
    B. BURKETTJerry
    B. Burkett

Director

March 31, 2006/s/  MICHAEL
    M. TULLMichael
    M. Tull

Director

March 31, 2006/s/  SAMUEL
    L. TONY MILBANKSamuel
    L. Tony Milbank

Director

March 31, 2006/s/  MELINDA
    DAVISMelinda
    Davis

Director

March 31, 2006/s/  JIM
    ROBASONJim
    Robason

Director

March 31, 2006/s/  EDWARD
    P. CARDAEdward
    P. Carda

Director

March 31, 2006/s/  TIM
    W. KIZERTim
    W. Kizer

Director

March 31, 2006  27




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
 INDEX TO FINANCIAL STATEMENTS  PageFinancial Statements:Report of
    Independent Registered Public Accounting Firm


F-2Balance Sheets


F-3Statements of
    Operations


F-4Statements of
    Stockholders Equity


F-5Statements of Cash
    Flows


F-6Notes to Financial
    Statements


F-7 - F-29  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               F-2




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  BALANCE SHEETS
  December 31,


December 31,2005


2004ASSETSCurrent assets:Cash and cash equivalents

$
1,748,023


$
1,078,536Restricted cash


668,344



679,635Trade accounts receivable, net of
    allowance of $420,319 at December 31, 2005 and $153,526 at
    December 31, 2004


2,993,701



2,554,594Inventories


9,748,743



7,392,838Prepaid expenses


706,301



586,637Deferred tax asset


2,036,962



Total current assets


17,902,074



12,292,240Land, buildings and equipment:Land


1,986,033



1,612,243Buildings and leasehold improvements


5,717,054



5,413,115Machinery and equipment


35,647,614



33,524,077Transportation equipment


970,204



775,669Office equipment


770,803



755,000Construction in progress


8,997,223



2,363,93654,088,931



44,444,040Less accumulated depreciation


23,002,809



18,963,479Net land, buildings and equipment


31,086,122



25,480,561Other assets:Deferred tax asset


2,597,920



Debt issuance costs, net of
    accumulated amortization of $549,256 at December 31, 2005
    and $373,336 at December 31, 2004


3,055,666



3,211,766Debt service reserve fund


2,110,881



2,057,792Other assets, net of accumulated
    amortization of $364,163 at December 31, 2005 and $335,590
    at December 31, 2004


200,010



298,434Total other assets


7,964,477



5,567,992$
56,952,673


$
43,340,793LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts
    payable  trade

$
10,508,451


$
8,486,792Accounts
    payable  related parties


3,006,306



2,280,781Current maturities of long-term debt


938,704



1,133,168Accrued payroll expense


668,485



401,183Litigation loss payable


655,769



Other accrued liabilities


1,595,017



2,533,605Income taxes payable


117,200



Notes
    payable  related parties


746,775



600,000Notes payable  other


352,406



327,682Total current liabilities


18,589,113



15,763,211Long-term debt, less current
    maturities


17,010,889



15,571,068Accrued premium on convertible
    preferred stock


235,367



276,000Commitments and contingenciesStockholders equity:Preferred stock, $1 par value;
    5,000,000 shares authorized, 2,760 shares issued and
    outstanding at December 31, 2004






2,760Class A common stock,
    $.01 par value; 75,000,000 shares authorized;
    37,651,369 and 32,032,123 shares issued and outstanding at
    December 31, 2005 and 2004, respectively


376,514



320,322Class B convertible common
    stock, $.01 par value; 7,500,000 shares authorized;
    1,465,530 shares issued and outstanding at
    December 31, 2005 and 2004


14,655



14,655Warrants outstanding; 9,176,242 at
    December 31, 2005 and 14,890,867 at December 31, 2004


4,489,419



6,917,544Additional paid-in capital


31,340,363



27,376,565Accumulated deficit


(15,103,647
)


(22,901,332
)Total stockholders equity


21,117,304



11,730,514Total liabilities and
    stockholders equity

$
56,952,673


$
43,340,793    F-3




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  STATEMENTS OF OPERATIONS
  Year Ended
    December 31,2005


2004


2003Net sales

$
87,312,560


$
63,637,285


$
43,520,563Cost of goods sold


66,389,964



48,963,166



34,361,984Gross margin


20,922,596



14,674,119



9,158,579Selling and administrative costs


14,595,854



11,099,911



9,001,261Research and development


110,134



97,207



77,90014,705,988



11,197,118



9,079,161Operating income


6,216,608



3,477,001



79,418Other income (expense):Insurance proceeds related to lost
    income






8,720



1,125,372Net litigation contingency


(610,206
)






Loss on disposition of equipment


(26,122
)






Interest income


90,908



5,324



160,659Interest expense


(2,087,818
)


(2,121,062
)


(2,031,370
)(2,633,238
)


(2,107,018
)


(745,339
)Income (loss) before extraordinary
    item, accrued premium on preferred stock and income taxes


3,583,370



1,369,983



(665,921
)Accrued premium on preferred stock


(235,367
)


(276,000
)


(276,000
)Income (loss) before extraordinary
    item and income taxes


3,348,003



1,093,983



(941,921
)Net income tax benefit


(4,449,682
)






Income (loss) before extraordinary
    item


7,797,685



1,093,983



(941,921
)Extraordinary gain on involuntary
    conversion of non-monetary assets due to fire






173,536



2,962,041Net income applicable to common
    stock

$
7,797,685


$
1,267,519


$
2,020,120Income (loss) per share of common
    stock before extraordinary item (Basic)

$
0.22


$
0.03


$
(0.03
)Income (loss) per share of common
    stock before extraordinary item (Diluted)

$
0.19


$
0.03


$
(0.03
)Extraordinary gain per share of
    common stock (Basic)





$
0.01


$
0.10Extraordinary gain per share of
    common stock (Diluted)





$
0.00


$
0.10Income per share of common stock
    after extraordinary item (Basic)

$
0.22


$
0.04


$
0.07Income per share of common stock
    after extraordinary item (Diluted)

$
0.19


$
0.03


$
0.07Weighted average number of common
    shares outstanding (Basic)


35,861,060



31,815,067



30,017,661Weighted average number of common
    shares outstanding (Diluted)


40,475,244



41,070,289



30,017,661    F-4




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  STATEMENTS OF STOCKHOLDERS EQUITY
  AdditionalPreferred Stock


Class A Common
    Stock


Class B Common
    Stock


Warrants Outstanding


Paid-in


AccumulatedShares


Amount


Shares


Amount


Shares


Amount


Number


Value


Capital


Deficit


TotalBalance  December 31,
    2002


2,760


$
2,760



28,331,312


$
283,313



1,465,530


$
14,655



16,590,122


$
7,824,206


$
23,825,504


$
(26,188,971
)

$
5,761,467Issuance of stock in payment of
    accrued premium on preferred stock










179,586



1,796



















213,722







215,518Issuance of stock in payment of
    interest










309,849



3,099



















429,296







432,395Exercise of stock options










95,000



950



















48,410







49,360Exercise of Placement warrants










9,400



94











(9,400
)


(5,372
)


8,803







3,525Issuance of stock in payment of
    debt issuance costs










350,000



3,500



















462,560







466,060Net income






































2,020,120



2,020,120Balance  December 31,
    2003


2,760


$
2,760



29,275,147


$
292,752



1,465,530


$
14,655



16,580,722


$
7,818,834


$
24,988,295


$
(24,168,851
)

$
8,948,445Issuance of stock in payment of
    accrued premium on preferred stock










229,994



2,300



















273,700







276,000Exercise of stock options










837,400



8,374



















560,751







569,125Exercise of Consulting warrants










1,573,333



15,733











(1,573,606
)


(849,741
)


1,423,964







589,956Exercise of Class I warrants










116,249



1,163











(116,249
)


(51,549
)


129,855







79,469Net income






































1,267,519



1,267,519Balance  December 31,
    2004


2,760


$
2,760



32,032,123


$
320,322



1,465,530


$
14,655



14,890,867


$
6,917,544


$
27,376,565


$
(22,901,332
)

$
11,730,514Issuance of stock in payment of
    accrued premium on preferred stock










229,994



2,300



















273,700







276,000Exercise of stock options










387,600



3,876



















203,200







207,076Exercise of Consulting warrants










1,738,946



17,389











(2,016,332
)


(1,120,815
)


1,389,382







285,956Expiration of Consulting warrants


























(1,379,926
)


(784,532
)


784,532







Exercise of Class C warrants










325,000



3,250











(325,000
)


(96,098
)


442,223







349,375Exercise of Series X warrants










6,564



66











(6,564
)


(3,485
)


11,296







7,877Exercise of Class I warrants










21,142



211











(21,142
)


(8,220
)


24,604







16,595Expiration of Class I warrants


























(42,997
)


(13,478
)


13,478







Exercise of Series Z warrants










300,000



3,000











(300,000
)


(106,898
)


403,898







300,000Exercise of Extension warrants










310,000



3,100











(310,000
)


(183,310
)


296,460







116,250Expiration of Bonus warrants


























(1,312,664
)


(111,289
)


111,289







Conversion of preferred stock


(2,760
)


(2,760
)


2,300,000



23,000



















(20,240
)






Deferred equity
    compensation  restricted stock


































29,976







29,976Net income






































7,797,685



7,797,685Balance  December 31,
    2005





$




37,651,369


$
376,514



1,465,530


$
14,655



9,176,242


$
4,489,419


$
31,340,363


$
(15,103,647
)

$
21,117,304    F-5




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.




STATEMENTS OF CASH FLOWS




|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                                      |  | Year Ended
    December 31, |           
|                                                                                      |  | 2005                        |            |   | 2004 |   |            | 2003 | 
|                                                                                     
|Cash flows from operating
    activities:                                             |  |                             |            |   |      |   |            |      |  |   |             |  
|Net income applicable to common
    stock                                             |  | $                           | 7,797,685  |   |      | $ | 1,267,519  |      |  | $ | 2,020,120   |  
|Adjustments to reconcile net
    income to net cash provided by operating activities: |  |                             |            |   |      |   |            |      |  |   |             |  
|Depreciation and amortization                                                         |  |                             | 4,176,523  |   |      |   | 4,086,811  |      |  |   | 3,671,512   |  
|Premium accrued on preferred stock                                                    |  |                             | 235,367    |   |      |   | 276,000    |      |  |   | 276,000     |  
|Interest paid through issuance of
    common stock                                    |  |                             |           |   |      |   |           |      |  |   | 432,395     |  
|Loss on disposition of equipment                                                      |  |                             | 26,122     |   |      |   |           |      |  |   |            |  
|Provision for returns and
    allowances                                              |  |                             | 266,793    |   |      |   | 61,319     |      |  |   | (6,000      | )
|Extraordinary gain on involuntary
    conversion of non-monetary assets due to fire   |  |                             |           |   |      |   | (173,536   | )    |  |   | (2,962,041  | )
|Deferred tax benefit                                                                  |  |                             | (4,634,882 | ) |      |   |           |      |  |   |            |  
|(Increase) decrease in other assets                                                   |  |                             | 192,683    |   |      |   | 67,765     |      |  |   | (766,446    | )
|(Increase) decrease in cash
    restricted for letter of credit and interest costs    |  |                             | 42,708     |   |      |   | (224,014   | )    |  |   | (277,835    | )
|Changes in current assets and
    current liabilities                                 |  |                             | (784,790   | ) |      |   | 65,361     |      |  |   | (161,255    | )
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Net cash provided by operating
    activities                                         |  |                             | 7,318,209  |   |      |   | 5,427,225  |      |  |   | 2,226,450   |  
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Cash flows from investing
    activities:                                             |  |                             |            |   |      |   |            |      |  |   |             |  
|Purchases of land, buildings and
    equipment                                        |  |                             | (5,907,695 | ) |      |   | (5,868,218 | )    |  |   | (11,257,967 | )
|Proceeds from disposition of
    equipment                                            |  |                             | 94,596     |   |      |   |           |      |  |   |            |  
|Insurance proceeds from
    involuntary disposition of property and equipment         |  |                             |           |   |      |   | 669,012    |      |  |   | 3,681,904   |  
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Net cash used in investing
    activities                                             |  |                             | (5,813,099 | ) |      |   | (5,199,206 | )    |  |   | (7,576,063  | )
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Cash flows from financing
    activities:                                             |  |                             |            |   |      |   |            |      |  |   |             |  
|Proceeds from issuance of notes                                                       |  |                             | 1,900,000  |   |      |   | 2,050,000  |      |  |   | 17,000,000  |  
|Payments on notes                                                                     |  |                             | (4,200,749 | ) |      |   | (3,804,520 | )    |  |   | (9,112,156  | )
|Increase in cash restricted for
    payment of long-term debt                         |  |                             | (31,417    | ) |      |   | (2,708     | )    |  |   | (175,078    | )
|Increase (decrease) in outstanding
    advances on factored receivables               |  |                             | 353,235    |   |      |   | 301,884    |      |  |   | (187,112    | )
|Debt acquisition costs                                                                |  |                             | (19,821    | ) |      |   | 11,100     |      |  |   | (1,677,080  | )
|Proceeds from exercise of stock
    options and warrants, net                         |  |                             | 1,163,129  |   |      |   | 1,238,550  |      |  |   | 52,885      |  
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Net cash provided by (used in)
    financing activities                               |  |                             | (835,623   | ) |      |   | (205,694   | )    |  |   | 5,901,459   |  
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Increase in cash                                                                      |  |                             | 669,487    |   |      |   | 22,325     |      |  |   | 551,846     |  
|Cash and cash equivalents,
    beginning of period                                    |  |                             | 1,078,536  |   |      |   | 1,056,211  |      |  |   | 504,365     |  
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  
|Cash and cash equivalents, end of
    period                                          |  | $                           | 1,748,023  |   |      | $ | 1,078,536  |      |  | $ | 1,056,211   |  
|                                                                                      |  |                             |            |   |      |   |            |      |  |   |             |  







F-6



---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.




NOTES TO FINANCIAL STATEMENTS




ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.




NOTES TO FINANCIAL
    STATEMENTS  (Continued)




|        |                               
|------- | ------------------------------
|Note 1: | Description
    of the Company



® ® ® tm ® ® ® ® ® ®




|        |                                               
|------- | ----------------------------------------------
|Note 2: | Summary
    of Significant Accounting Policies



Revenue
    Recognition




Revenue Recognition in
    Financial Statements








Shipping
    and Handling




Issue 00-10, Accounting for Shipping and Handling Fees and Costs




Operating
    Costs






F-7



---



##### Table of Contents







Statements
    of Cash Flows








|                           |  |                             |            |   |      |   |            |      |  |   |            |  
|-------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                           |  | Year Ended
    December 31, |           
|                           |  | 2005                        |            |   | 2004 |   |            | 2003 | 
|                          
|Receivables                |  | $                           | (705,900   | ) |      | $ | (402,405   | )    |  | $ | 213,444    |  
|Inventories                |  |                             | (2,355,905 | ) |      |   | (3,521,570 | )    |  |   | (1,186,932 | )
|Prepaid expenses and other |  |                             | 1,219,421  |   |      |   | 1,151,327  |      |  |   | 844,929    |  
|Accounts payable          |  |                             |            |   |      |   |            |      |  |   |            |  
|Trade and related parties  |  |                             | 835,910    |   |      |   | 1,858,857  |      |  |   | (321,085   | )
|Accrued liabilities        |  |                             | 104,484    |   |      |   | 1,040,471  |      |  |   | 282,389    |  
|Accrued income taxes       |  |                             | 117,200    |   |      |   |           |      |  |   |           |  
|                           |  |                             |            |   |      |   |            |      |  |   |            |  
|                           |  | $                           | (784,790   | ) |      | $ | 126,680    |      |  | $ | (167,255   | )
|                           |  |                             |            |   |      |   |            |      |  |   |            |  
|Cash paid for interest     |  | $                           | 2,458,323  |   |      | $ | 1,898,373  |      |  | $ | 1,125,238  |  
|                           |  |                             |            |   |      |   |            |      |  |   |            |  
|Cash paid for income taxes |  | $                           | 68,000     |   |      | $ |           |      |  | $ |           |  
|                           |  |                             |            |   |      |   |            |      |  |   |            |  





Supplemental
    Disclosures of Non-cash Investing and Financing
    Activities




|                                                                      |  |                             |           |  |      |   |           |      |  |   |           | 
|--------------------------------------------------------------------- |  | --------------------------- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|                                                                      |  | Year Ended
    December 31, |          
|                                                                      |  | 2005                        |           |  | 2004 |   |           | 2003 | 
|                                                                     
|Notes payable for financing of
    insurance policies                 |  | $                           | 1,339,084 |  |      | $ | 1,158,801 |      |  | $ | 1,080,683 | 
|Accounts/notes payable for
    equipment                              |  |                             | 3,936,561 |  |      |   | 1,546,631 |      |  |   | 928,023   | 
|Accrued premium on preferred stock
    paid with Class A common stock |  |                             | 276,000   |  |      |   | 276,000   |      |  |   | 215,518   | 





Cash
    Equivalents and Restricted Cash








Buildings
    and Equipment






F-8



---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Accounting
    for the Impairment or Disposal of Long-Lived Assets
  Inventories
  (first-in,
  2005


2004Raw materials

$
6,541,443


$
5,479,344Work in process


1,256,121



891,473Finished goods


1,951,179



1,022,021$
9,748,743


$
7,392,838   Other
    Assets
      December 31, 2005


December 31, 2004Gross Carrying


Accumulated


Gross Carrying


AccumulatedAmount


Amortization


Amount


AmortizationDebt issuance costs

$
3,604,922


$
549,256


$
3,585,102


$
373,336Patents


485,749



364,163



485,749



335,590$
4,090,671


$
913,419


$
4,070,851


$
708,926  F-9




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     EstimatedAmortization2006


209,4492007


209,4492008


207,7972009


202,8422010


181,563   Accounts
    Receivable
      Earnings
    Per Share
  Earnings Per Share
    F-10




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  2005


2004


2003Before Extra-


After Extra-


Before Extra-


After Extra-Ordinary Item


Ordinary Item


Ordinary Item


Ordinary ItemNet income (loss) applicable to
    common stock (A)

$
7,797,685


$
1,093,983


$
1,267,519


$
(941,921
)

$
2,020,120Assumed exercise of stock options
    and warrants


11,160,603



18,196,164



18,196,164







Application of assumed proceeds
    toward repurchase of stock at average market price


(6,546,419
)


(8,940,942
)


(8,940,942
)






Net additional shares issuable


4,614,184



9,255,222



9,255,222







Adjustment of shares outstanding:Weighted average common shares
    outstanding


35,861,060



31,815,067



31,815,067



30,017,661



30,017,661Net additional shares issuable


4,614,184



9,255,222



9,255,222







Adjusted shares
    outstanding (B)


40,475,244



41,070,289



41,070,289



30,017,661



30,017,661Net income (loss) per common
    share  Diluted (A) divided by (B)

$
0.19


$
0.03


$
0.03


$
(0.03
)

$
0.07Antidilutive
    and/or
    non-exercisable options


682,500



1,256,000



1,256,000



N/A



N/AAntidilutive
    and/or
    non-exercisable warrants


1,021,269



2,333,933



2,333,933



N/A



N/A   and/or and/or
  Concentration
    Risk
  Credit
    Risk
   F-11




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    2005


2004


2003Sales (in millions)

$
67.4


$
51.7


$
35.6% of total sales


77
%


81
%


82
%   Cash
    Disclosure
    about Fair Value of Financial Instruments
    Current assets and current
    liabilities
  Long-term debt
  Stock-Based
    Compensation
  Accounting
    for Stock-Based Compensation
  2005


2004


2003Before


After


Before


AfterExtra-Ordinary


Extra-Ordinary


Extra-Ordinary


Extra-OrdinaryItem


Item


Item


ItemNet income (loss) applicable to
    common stock, as reported

$
7,797,685


$
1,093,983


$
1,267,519


$
(941,921
)

$
2,020,120Deduct: Total stock-based
    compensation expense determined under fair value based method
    for all awards


20,913



263,328



263,328



396,958



396,958Net income (loss) applicable to
    common stock, pro forma

$
7,776,772


$
830,655


$
1,004,191


$
(1,338,879
)

$
1,623,162Net income (loss) per share of
    common stock:Basic  as reported

$
0.22


$
0.03


$
0.04


$
(0.03
)

$
0.07Basic  pro forma

$
0.22


$
0.03


$
0.03


$
(0.04
)

$
0.05Diluted  as
    reported

$
0.19


$
0.03


$
0.03


$
(0.03
)

$
0.07Diluted  pro forma

$
0.19


$
0.02


$
0.02


$
(0.04
)

$
0.05  F-12




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Use of
    Estimates
    Advertising
    Costs
    Research
    and Development Costs
    Recent
    Accounting Pronouncements
  Inventory Costs, an amendment of ARB No. 43,
    Chapter 4
  Share-Based Payment Accounting for
    Stock-Based Compensation Accounting for Stock Issued to Employees
  Exchanges of Nonmonetary Assets, an amendment of APB Opinion
    No. 29 Accounting for Nonmonetary Transactions
 F-13




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Accounting Changes and Error Corrections Accounting
    Changes Reporting Accounting
    Changes in Interim Financial Statements.
  Reclassifications
    Note 3:
    Related
    Party Transactions  Transfer
    of Receivables
     F-14




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Commissions
      
    Marjorie S. Brooks personally guaranteed repayment of up to
    $4 million of the 2003 bonds;
    Joe G. Brooks personally guarantees repayment of the
    Companys American Express account, the outstanding balance
    of which is sometimes in excess of $100,000; and,
    Joe G. Brooks personally guarantees repayment of the
    Companys automobile loans, which had a balance of $71,068
    at December 31, 2005.    
    Advances on factored receivables of approximately
    $2.45 million assigned to Brooks Investment Co.,
    Sales commissions of approximately $84,000 owed to Tull Sales
    Co., which is owned by Michael M. Tull, one of our directors,
    and director compensation of $3,750 owed to Mr. Tull,
    Deferred compensation of $90,500 owed to Steve Brooks, one of
    our Co-CEOs,
    Deferred compensation of $169,622 and
    out-of-pocket
    expenses of $15,000 owed to Joe Brooks, our Chairman and Co-CEO,
    Director compensation of $3,750 and consulting fees of $112,000
    owed to Jim Robason, one of our directors, and
    Other items owed to related parties of approximately $77,000.  Note 4:
    Notes Payable
    and Long-Term Debt  Notes Payable  Related
    Parties
  Notes Payable to Related Parties
    Consisted of the Following at December 31:

2005


20047% notes payable to Brooks
    Investment Company, which is controlled by Marjorie S. Brooks,
    an officer and director of the Company; unsecured; due on demand

$
746,775


$
600,000   Notes Payable  Other
  Notes Payable Other, Consisted
    of the Following at December 31:

2005


2004Various notes payable to finance
    insurance policies bearing interest at rates of 11.5%and 13.25%
    at December 31, 2005; secured by insurance policies

$
352,406


$
327,682  F-15




---



##### Table of Contents





ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.




NOTES TO FINANCIAL
    STATEMENTS  (Continued)






Long-term
    Debt




|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|Long-Term Debt, Less Current
    Maturities Consisted of the Following at
    December 31:                                                                                                                                                                                                                                                                                            |  | 2005 |            |   | 2004 |  
|                                                                                                                                                                                                                                                                                                                                                                                     
|7% bonds payable to Regions Bank;
    principal payable annually; interest payable semi-annually;
    subject to mandatory sinking fund redemption; secured by real
    estate and improvements, fixed assets, patents and trademarks,
    inventory, pledged revenues, and a personal guarantee by
    Marjorie S. Brooks, the major shareholder; maturing on
    October 1, 2017(a) |  | $    | 12,900,000 |   |      | $ | 13,700,000 |  
|19.75% note payable to
    Allstate Insurance Company, secured by subordinated interest in
    the collateral securing the bonds payable; interest payable
    semiannually; principal due on October 1, 2017                                                                                                                                                                         |  |      | 2,600,000  |   |      |   | 2,600,000  |  
|Variable rate note payable bearing
    interest at the Wall Street Journal prime rate plus 1% (8.25% at
    December 31, 2005); secured by certain real estate and
    equipment purchased with proceeds from the note; maturing on
    September 28, 2009                                                                                                                            |  |      | 1,932,000  |   |      |   |           |  
|Variable rate note payable bearing
    interest at LIBOR plus 3.1% (7.32% at December 31, 2005);
    secured by equipment purchased with proceeds from the note;
    maturity to be negotiated upon completion of draws on $2,000,000
    equipment loan, of which this amount is the first draw                                                                                      |  |      | 446,522    |   |      |   |           |  
|5% note payable with weekly
    principal payments of $6,540 plus interest; unsecured; maturing
    October 14, 2005                                                                                                                                                                                                                                                                  |  |      |           |   |      |   | 267,980    |  
|Other                                                                                                                                                                                                                                                                                                                                                                                 |  |      | 71,071     |   |      |   | 136,256    |  
|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |   |      |   |            |  
|Total                                                                                                                                                                                                                                                                                                                                                                                 |  |      | 17,949,593 |   |      |   | 16,704,236 |  
|Less current maturities                                                                                                                                                                                                                                                                                                                                                               |  |      | (938,704   | ) |      |   | (1,133,168 | )
|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |   |      |   |            |  
|Long-term debt, less current
    maturities                                                                                                                                                                                                                                                                                                                                           |  | $    | 17,010,889 |   |      | $ | 15,571,068 |  
|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |   |      |   |            |  









|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The bond agreement contains financial covenants, which include a
    current ratio of not less than 1.00 to 1.00 and a requirement
    that not more than 10% of accounts payable be in excess of
    75 days past the invoice date. The Company was not in
    compliance with these two covenants at December 31, 2005;
    however, the bond trustee waived these covenants as of
    December 31, 2005 through, and including, December 31,
    2006.







|           |  |        |            | 
|---------- |  | ------ | ---------- | 
|Year       |  | Amount |           
|          
|2006       |  | $      | 938,704    | 
|2007       |  |        | 1,096,927  | 
|2008       |  |        | 1,091,816  | 
|2009       |  |        | 2,922,146  | 
|2010       |  |        | 1,100,000  | 
|Thereafter |  |        | 10,800,000 | 
|           |  |        |            | 
|           |  | $      | 17,949,593 | 
|           |  |        |            | 



F-16



---



##### Table of Contents





ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.




NOTES TO FINANCIAL
    STATEMENTS  (Continued)






|        |                         
|------- | ------------------------
|Note 5: | Stockholders
    Equity



Preferred
    Stock












Common
    Stock








Warrants








Class C
    Warrants








Class F
    Warrants






F-17



---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Class G
    Warrants
    Class H
    Warrants
  one-for-one
  Class I
    Warrants
     F-18




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Class I








Class IWarrants


Range of Exercise


Proceeds


WarrantsExercised


Prices


Received


Expired2005


21,142


$
0.5613 to $0.9375


$
16,596



42,9972004


116,249


$
0.31 to $ 1.125



79,469



2002


95,107


$
0.31 to $ 1.125



62,881



2001


56,727


$
0.31 to $ 1.125



34,548



1999


29,367


$
0.9375



27,532



42,866   Series X
    and Series Y Warrants Issued in Connection with Preferred
    Stock
    Series X
    and Series Y Warrants to Placement Agent
    Bonus
    Warrants
  one-for-one
 F-19




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Consulting
    and Placement Warrants
    Exercised


ExpiredConsulting


Placement


Consulting


PlacementYear Exercised/Expired

Warrants


Warrants


Warrants


Warrants2005


2,016,332







1,379,926



2004


1,573,333











2003






9,400







2002


416,667



195,605







Prior to 2002


928,668



173,890







4,935,000



378,895



1,379,926



   Extension
    Warrants
    Series Z
    Placement Warrants
   F-20




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Warrants Outstanding


Weighted





Warrants


Warrantsfor Class A


Average


Expiration


Exercised


ExpiredCommon Stock


Exercise Price


Date


in 2005


in 2005Class C warrants





$
1.08



06/15/05



325,000



Class F warrants


987,040



0.61



06/06/06







Class G warrants


2,987,040



0.92



06/06/06







Class H warrants


1,771,792



0.47



02/21/07







Class I warrants






0.94



06/22/05



21,142



42,997Series X warrants


1,998,165



1.20



11/10/07







Series Y warrants


867,500



2.50



11/10/07







Series X
    warrants  placement agent


410,936



1.20



11/10/07



6,564



Series Y
    warrants  placement agent


153,769



2.50



11/10/07







Bonus warrants






3.00



06/22/05







1,312,664Consulting warrants






0.38



02/05/05



1,441,332



Consulting warrants






0.38



04/06/05







760,000Consulting warrants






0.38



06/03/05







619,926Consulting warrants






0.38



08/21/05



575,000



Extension warrants






0.38



11/05/05



310,000



Series Z Placement warrants






1.00



11/12/05



300,000



Totals


9,176,242


$
1.05







2,979,038



2,735,587   Accounting
    for Derivative Instruments and Hedging Activities Accounting for Derivative Financial Instruments
    Indexed to, and Potentially Settled in, a Companys Own
    Stock (EITF 00-19). EITF 00-19.
    Note 6:
    Stock
    Option Plans   F-21




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  and/or Rule 16b-3
         F-22




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     2005


2004


2003Weighted





Weighted





WeightedAverage





Average





AverageExercise





Exercise





ExerciseShares


Price


Shares


Price


Shares


PriceOutstanding, beginning of year


4,595,230


$
1.06



5,742,630


$
1.01



5,667,630


$
1.00Granted










175,000



1.22



215,000



1.13Exercised


(377,600
)


0.49



(837,400
)


0.76



(95,000
)


0.52Forfeited


(529,500
)


1.79



(485,000
)


1.06



(45,000
)


1.03Outstanding, end of year


3,688,130


$
1.01



4,595,230


$
1.06



5,742,630


$
1.01Exercisable, end of year


3,638,130


$
1.01



4,395,230


$
1.02



5,215,130


$
0.92     Options Outstanding


Options ExercisableNumber


Wtd. Avg.


Wtd. Avg.


Number


Wtd. Avg.Outstanding


Remaining


Exercise


Exercisable


ExerciseRange of Exercise
    Prices

at 12/31/05


Contract Life


Price


at 12/31/05


Price$0.38 - $0.48


486,667



1.40 years


$
0.44



486,667


$
0.44$0.56 - $1.00


1,833,963



1.73 years


$
0.66



1,833,963


$
0.66$1.10 - $1.34


735,000



4.87 years


$
1.17



685,000


$
1.17$1.75 - $2.75


632,500



3.15 years


$
2.32



632,500


$
2.323,688,130



2.56 years


$
1.01



3,638,130


$
1.01     Note 7:
    Equity
    Incentive Plans  2005
    Key Associate and Management Equity Incentive Plan
       F-23




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
      Purchase Price.
  Consideration. stock-for-stock
  Vesting.
    2005
    Non-Employee Director Equity Incentive Plan
        Restricted Stock Awards.
 F-24




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  Form 10-K 50-business
  Termination of Participants Continuous
    Service.
    Note 8:
    Leases      Year

Amount2006

$
1,816,4372007


1,645,4042008


1,333,0962009


841,3282010


700,167Thereafter


821,265Total minimum payments required

$
7,157,697  F-25




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Note 9:  Income
    Taxes
  Accounting for Income Taxes.
    Year Ended December
    31,2005


2004


2003Current:Federal

$
80,000


$



$
State


105,200







185,200







Deferred:Federal


(4,823,917
)






State


189,035







(4,634,882
)






Net income tax benefit

$
(4,449,682
)

$



$
       Amount


PercentIncome tax at the U.S. federal
    statutory rate

$
1,138,321



34.0
%Net operating loss carryforwards


(1,024,489
)


(30.6
)State income taxes


105,200



3.1Net reversal of valuation allowance


(4,634,882
)


(138.4
)Other


(33,832
)


(1.0
)$
(4,449,682
)


(132.9
%)  F-26




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December
    31,2005Current


Long-Term


2004


2003Deferred tax assets:Net operating loss carryforwards

$
2,036,962


$
5,193,366


$
8,794,000


$
7,637,000Other






64,000







Valuation allowance










(8,121,000
)


(7,567,000
)Total deferred tax assets


2,036,962



5,257,366



673,000



70,000Deferred tax liability:
    Depreciation






2,659,446



673,000



70,000Net deferred tax assets

$
2,036,962


$
2,597,920


$



$
     Note 10:
    Extraordinary
    Item     F-27




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Note 11:
    Commitments
    and Contingencies  Lloyds
    London
        Advanced
    Control Solutions
      Other
    Matters
    Note 12:
    Segment
    Information  Disclosures About Segments of an
    Enterprise and Related Information
  
    That engages in business activities from which it may earn
    revenues and expenses,
    Whose operating results are regularly reviewed by the
    enterprises chief operating decision maker,
    For which discrete financial information is available. F-28




---



##### Table of Contents



ADVANCED
    ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
  NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Year Ended
    December 31,2005


2004


2003Net Sales Commercial and residential decking
    surface components

$
73,361,707


$
51,885,985


$
35,646,315Exterior door, window, and housing
    trim components


13,950,853



11,751,300



7,874,248$
87,312,560


$
63,637,285


$
43,520,563   Year Ended
    December 31,2005


2004


2003Springdale


Junction


Springdale


Junction


Springdale


JunctionGross
    MarginNet revenues

$
67,823,259


$
19,489,301


$
47,902,106


$
15,735,179


$
34,203,234


$
9,317,329Cost of goods sold


50,661,941



15,728,023



35,883,623



13,079,543



26,779,482



7,582,502Gross margin

$
17,161,318


$
3,761,278


$
12,018,483


$
2,655,636


$
7,423,752


$
1,734,827   Note 13:
    401(k)
    Plan    Note 14:
    Subsequent
    Events   F-29




---



##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNo.

Description of Exhibit3
.1

Certificate of Incorporation,
    including Certificate of Amendment filed on June 12,
    1989 (a), and Certificate of Amendment filed on
    August 22, 1989 (b), and Certificate of Amendment
    filed on December 29, 19993
.2

Certificate of Designation of
    Class B common stock. (a)3
.3

Bylaws of Registrant. (a)3
.4

Form of Class A common stock
    Certificate. (c)4
.2

Form of Class B common stock
    Certificate. (a)4
.8

Form of Class C Warrant
    Certificate. (h)4
.9

Form of Class D Warrant
    Certificate. (h)4
.10

Form of Class E Warrant
    Certificate. (h)4
.11

Form of Class F Warrant
    Certificate. (i)4
.12

Form of Class G Warrant
    Certificate. (i)4
.13

Form of Class H Warrant
    Certificate. (j)4
.14

Form of Class I Warrant
    Certificate. (j)4
.15

Form of Class J Warrant
    Certificate. (j)4
.16

Form of Class K Warrant
    Certificate. (j)10
.1

Private Placement Agreement.
    (l)10
.2

Consulting Agreement. (l)10
.3

Note Purchase Agreement.
    (l)10
.4

Form of Notes. (l)10
.5

Form of Private Placement
    Warrants. (l)10
.6

Form of Consulting Warrants.
    (l)10
.9

Form of Right of Refusal Agreement
    among Class B common stockholders. (a)10
.10

1989 Stock Option plan. (a)10
.11

Form of Escrow Agreement with
    American Stock Transfer & Trust Company. (c)10
.15

Lease Agreement dated June 1,
    1990 between the Registrant and Js Feed, Inc. for the
    Registrants plastics reclamation facility. (e)10
.18

Loan Agreement with City of
    Rogers, arranged through Arkansas Industrial Development
    Commission. (f)10
.19

Lease Agreement dated
    June 15, 1992 between the Registrant and Georges,
    Inc. for the Registrants corporate office facility.
    (g)10
.20

Factoring Agreement dated
    April 30, 1993 between the Registrant and Brooks Investment
    Company. (g)10
.21

Private Placement Distribution
    Agreement dated September 23, 1993 between the Registrant
    and Berkshire International Finance, Inc. (g)10
.22

Lease Agreement dated
    June 16, 1994 between Registrant and Marjorie S. Brooks.
    (i)10
.27

Line of Credit Promissory Note
    payable to Jim G. Brooks and Marjorie S. Brooks. (i)10
.28

Amended and Restated Stock Option
    Plan. (i)10
.29

Non-Employee Director Stock Option
    Plan. (i)10
.30

Chairman Stock Option Plan.
    (i)10
.31

Factoring Agreement dated
    April 30, 1994 between the Registrant and Brooks Investment
    Company.(i)10
.32

Lease agreement dated
    July 29, 1997 between Registrant and Dwain A. Newman, et
    ux., and National Home Center, Inc. (k)10
.33

Securities Purchase Agreement.
    (m)10
.34

Certificate of Designation of
    Series A Preferred Convertible Stock. (m)




---



##### Table of Contents



ExhibitNo.

Description of Exhibit10
.35

Certificate of Designation of
    Series B Preferred Convertible Stock. (m)10
.36

Certificate of Designation of
    Series C Preferred Convertible Stock. (m)10
.37

Form of Series X Warrants.
    (m)10
.38

Form of Series Y Warrants.
    (m)10
.39

Registration Rights Agreement.
    (m)10
.40

Placement Agency Agreement.
    (m)10
.41

Indenture of Trust between City of
    Springdale and Regions Bank, Trustee, as of October 1,
    2003. (n)10
.42

Mortgage and Loan Agreement
    between City of Springdale and Company, as of October 1,
    2003.(n)10
.43

Assignment of Mortgage and Loan
    Agreement between City of Springdale and Regions Bank. (n)10
.44

Note Purchase Agreement
    between Company and Allstate Insurance Company dated
    October 9, 2003. (n)10
.45

Promissory Note made by Company
    dated October 9, 2003. (n)10
.46

Wood-Plastic Composite Decking
    Agreement between AERT and Weyerhaeuser Company, et al.
    effective October 12, 2004.* (Redacted in accordance with
    confidential treatment request, as filed October 18,
    2005) (o) (p)10
.46.1

Wood-Plastic Composite Decking
    Agreement between AERT and Weyerhaeuser Company, et al.
    effective October 12, 2004.* (Redacted in accordance with
    confidential treatment request, as filed October 15,
    2005) (q)10
.47

Loan Agreement. (r)10
.48

Promissory Note. (r)10
.49

Loan Agreement.***10
.50

Promissory Note.***23
.1

Accountants Consent. ***31
.1

Certification pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350, by the Companys
    chairman, co-chief executive officer and president. ***31
.2

Certification pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350, by the Companys co-chief
    executive officer. ***31
.3

Certification pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350, by the Companys chief
    financial officer. ***32
.1

Certification pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350, by the Companys
    chairman, co-chief executive officer and president. ***32
.2

Certification pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350, by the Companys co-chief
    executive officer. ***32
.3

Certification pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350, by the Companys chief
    financial officer. ***     *
    
    Confidential treatment was granted by the Securities and
    Exchange Commission for certain portions of this agreement. The
    confidential portions were filed separately with the Commission.The Registrant has no exhibits corresponding to
    Exhibits 1, 2, 5, 6, 7, 8, 9, 11,
    through 23, or 26 through 29.***
    
    Filed herewith.(a)
    
    Contained in Exhibits to Registration Statement on
    Form S-1,
    No. 33-29595,
    filed June 28, 1989.(b)
    
    Contained in Exhibits to Amendment No. 1 to Registration
    Statement on
    Form S-1,
    No. 33-29595,
    filed August 24, 1989.(c)
    
    Contained in Exhibits to Amendment No. 2 to Registration
    Statement on
    Form S-1,
    No. 33-29595,
    filed November 8, 1989.(d)
    
    Filed with
    Form 10-K
    for December 31, 1989.(e)
    
    Filed with
    Form 10-K
    for December 31, 1990.




---



##### Table of Contents



(f)
    
    Contained in Exhibits to Post Effective Amendment No. 1 to
    Registration Statement on
    Form S-1,
    No. 33-29593,
    filed December 24, 1991.(g)
    
    Filed with
    Form 10-K
    for December 31, 1992.(h)
    
    Filed with
    Form 10-K
    for December 31, 1994.(j)
    
    Filed with
    Form 10-K
    for December 31, 1996. [EX-4.13, 4.14, 4.15, and 4.16](k)
    
    Filed with
    Form 10-K
    for December 31, 1997. [EX-10.32](l)
    
    Contained in Exhibits to Registration Statement on
    Form S-3,
    No. 333-42555
    filed December 18, 1997. [EX-10.1, 10.2, 10.3, 10.4, 10.5,
    10.6](m)
    
    Filed with
    Form 10-K
    for December 31, 1998. [EX-10.33, 10.34, 10.35, 10.36,
    10.37, 10.38, 10.39 and 10.40](n)
    
    Filed with
    Form 10-Q
    for September 30, 2003.(o)
    
    Filed with
    Form 10-Q
    for September 30, 2004.(p)
    
    Filed with
    Form 10-Q
    for June 30, 2005.(q)
    
    Filed with
    Form 10-Q/A
    for September 30, 2004.(r)
    
    Filed with
    Form 10-Q
    for September 30, 2005.