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                   U. S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                  FORM 10-KSB

(Mark One)
  [X]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
          ACT OF 1934
          For the fiscal year ended December 31, 1998


  [ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 
          EXCHANGE ACT OF 1934
          For the transition period ___________________ to ____________________


                        Commission File number 1-10799


                         ADDvantage Media Group, Inc.
                (Name of Small Business Issuer in its charter)


               Oklahoma                          73-1351610
    (State or other jurisdiction of           (I.R.S. Employer
    incorporation or organization)           Identification No.)


                            5100 East Skelly Drive
                          Meridian Tower, Suite 1080
                             Tulsa, Oklahoma 74135
          (Address of principal executive office, including zip code)

                  Issuer's telephone number:  (918) 665-8414

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

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

                    Common Stock, par value $.01 per share

     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 pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the 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. [_]

     Issuer's revenues for its most recent fiscal year. $5,025,878

     As of March 29, 1999, 1,476,646 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of the Common Stock held by
non-affiliates was approximately $1,569,674.

     Documents Incorporated by Reference:  Portions of the Registrant's Proxy
Statement to be sent to shareholders in connection with 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-KSB.

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

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                                 PART I

ITEMS 1 AND 2.    DESCRIPTION OF BUSINESS AND PROPERTIES

General

     The Company, ADDvantage Media Group, Inc., is in the business of providing
advertising services, primarily on Shoppers Calculators(R) which are solar-
powered calculators which attach to the handles of shopping carts.  The
calculators bear the registered trademark "Shoppers Calculator(R)" and are
designed with the three-fold purpose of increasing the retailer's sales,
assisting shoppers while they are in the store and presenting an advertising
message targeted to that consumer (in the space provided on the calculator
unit).  The Company's operations have primarily consisted of the installation
and operation of its Shoppers Calculator(R) program in Supercenter stores
operated by Wal-Mart Stores, Inc. ("Wal-Mart").  Substantially all of the
Company's revenues in 1997 and 1998 were generated from a contract with Wal-
Mart.

     In May 1998, the Company received the final revenue guarantee payment from
Wal-Mart. The Company had the option to continue the contract to October 6,
1999, however, Wal-Mart notified the Company that it would not agree to a new
contract or an extension of the current contract past its present term. Based on
Wal-Mart's failure to support the Shoppers Calculator(R) program and its
decision not to renew the present contract, the Company made the decision to
commence de-installation of the Shoppers Calculator(R) program beginning June
15, 1998. Such de-installation was completed by September 15, 1998. The Company
expects to receive no revenue from Wal-Mart in 1999, and as a result has
dramatically reduced its operations and workforce. See "Operations" below.

     On September 2, 1998 the Company filed a civil complaint against Wal-Mart
in the United States District Court for the Western District of Arkansas,
Fayetteville Division, seeking both compensatory and punitive damages based on
various allegations of wrongdoing by Wal-Mart. The Company believes that the
outcome of the litigation against Wal-Mart will have a material impact on its
future and the future of the Shoppers Calculator(R) program. See "Item 3 Legal
Proceedings" below.

Development of Business

     The Company was formed in late 1989 for the purpose of producing the
Shoppers Calculator(R) and marketing them as in-store advertising vehicles.  The
Company's business efforts initially were directed toward placing the
calculators in retail grocery chains and then selling the advertising space on
those calculators to national advertisers. During 1991, the Company installed
163,000 Shoppers Calculators(R) in 794 stores representing 13 grocery chains.
The Company incurred a substantial increase in its general and administrative
expenses as it increased the size and scope of its operations, but the
advertising revenues generated from those installations was significantly less
than anticipated under the Company's business plan. Although independent
marketing research substantiated the Company's belief in the Shoppers
Calculator(R) as an effective in-store advertising medium, the Company believes
that national advertisers were reluctant to commit their advertising dollars
because calculators were not installed in enough stores in the top market areas
to be considered a national advertising network.

     Consequently, the Company shifted its primary emphasis during 1992 from
selling advertising on the installed calculators to selling the calculator units
directly to the grocery chains.  Although the shift in emphasis from advertising
sales to unit sales provided some short-term cash flow relief, the Company
believed it was necessary to change its long-term strategy in order to become
successful.

     In early 1993, the Company redirected its managed in-store Shoppers
Calculator(R) program away from the retail grocery chain industry to the mass
merchandising industry segment. This move was motivated substantially by the
following:

                                      -1-
<PAGE>
 
     .  The significant decline in advertising revenues from the units installed
        in grocery chains during the last half of 1992 due, the Company
        believes, to the limited size and location of the Company's installed
        network.

     .  The opportunity to manage a Shoppers Calculator(R) program in a retail
        environment that has not previously been available to other in-store
        advertising companies.

     .  The available market penetration (and accompanying media value to
        advertisers) of the mass merchants.

     Because of the strategic change in direction and in an effort to reduce
operating costs, the Company removed its calculators from its retail grocery
chain network.

     Beginning in 1991, the Company began test marketing the Shoppers
Calculator(R) in several Wal-Mart discount stores and, in 1992, added several
Kmart stores to its test marketing efforts. The Company entered into agreements
with Wal-Mart in July 1993 and June 1994 which provided for the installation of
the Company's calculators in certain Wal-Mart stores. However, the July 1993 and
June 1994 contracts were never implemented.  In January 1995, the Company
initiated a lawsuit against Wal-Mart based on Wal-Mart's alleged breach of the
terms of the agreements. The Company and Wal-Mart settled the lawsuit and, in
connection with such settlement, entered into a new contract, effective as of
September 1, 1995, calling for the Company to install and maintain its Shoppers
Calculator(R) in all of Wal-Mart's Supercenters in the continental United
States.  In July 1996, the chief executive officer of Wal-Mart expressed
concerns over certain aspects of the September 1995 contract.  In August 1996,
after meeting with Company officers to address the specific concerns, Wal-Mart
issued a press release stating that it remained committed to honoring its
contractual obligations to the Company. Since that time, the Company has assumed
primary responsibilities for selling the advertising on the calculators under an
amendment to the contract and has continued its installation of the Shoppers
Calculator(R) program in the Supercenter stores pursuant to the contract.  See
"-- Wal-Mart Supercenters" below.

     Wal-Mart agreed to guarantee advertising revenues to the Company of $23.5
million, subject to the Company's obligation to install and service the Shoppers
Calculators(R) during the revenue guaranty period. In May 1998, the Company
received the final revenue guarantee payment. The Company had the option to
continue the contract to October 6, 1999, however, Wal-Mart notified the Company
that it would not agree to a new contract or an extension of the current
contract past its present term. Based on Wal-Mart's failure to support the
Shoppers Calculator(R) program and its decision not to renew the present
contract, the Company made the decision to commence de-installation of the
Shoppers Calculator(R) program beginning June 15, 1998. Such de-installation was
completed by September 15, 1998.  On September 2, 1998 the Company filed a civil
complaint against Wal-Mart in the United States District Court for the Western
District of Arkansas, Fayetteville Division, seeking both compensatory and
punitive damages based on various allegations of wrongdoing by Wal-Mart.

     The Company continued negotiations with Kmart Corporation ("Kmart") after
the Company discontinued its test marketing in Kmart stores in 1993.  In June of
1996, the Company entered into an agreement with Kmart which was since updated
in 1998. Under the Kmart agreement, the Company has the option to install and
maintain its Shoppers Calculators in certain Kmart and Super Kmart Center stores
and will be responsible for generating revenues, which will be shared with
Kmart, from the sale of the advertising messages.  No advertising for the
Shoppers Calculators(R) has been sold or committed at this time and the Company
cannot predict with any certainty what the price for advertising on such
calculators will be if and when they are ultimately installed.  See "-- Kmart
Stores."

     On September 1, 1998 the Company acquired a 27% interest in Ventures
Education Systems Corporation, ("Ventures") a private company engaged in the
commercial development and marketing of proprietary teaching techniques,
services, products and materials, principally to public primary and secondary
schools. The Company paid $990,000 cash for the interest, which consists of
550,000 shares of Common Stock. Under the terms of the investment, the Company
was able to designate one member of 

                                      -2-
<PAGE>
 
the Ventures Board of Directors. It is also contemplated that the Company may
provide certain assistance in connection with the development of Ventures'
future marketing and sales efforts and financial planning.

     In mid 1998, the Company terminated negotiations with Sports Display, Inc.
The Company's ability to finance this acquisition became severely limited as a
result of the termination of the Wal-Mart contract.
 
     The Company is currently evaluating a number of options which could include
a merger, the sale of the Shoppers Calculator(R) assets or some other business
alliance.

Shoppers Calculator(R) Products

     The Shoppers Calculator(R) is a 3" x 7 1/2" calculator which mounts on the
handles of retail shopping carts and includes an advertising image area of 
2 9/16" x 2 1/8" within which advertising messages are positioned. The units
themselves are molded from high impact plastic and are constructed to be both
water and shock resistant. The calculator performs the basic mathematical
functions (add, subtract, multiply and divide) and has an expected life of
approximately five years based on the life of the solar cell.

     The calculator units are attached to the handle of each shopping cart with
stainless steel clamps, brackets and headless screws. The Company has developed
and produced an all-new Shoppers Calculator(R) unit which is part of an
interchangeable system.  The new system allows the Company to interchange its
calculator shapes -- from the flat-ad standard calculator to the Company's
"packaged goods" formatted calculator and vice versa--without having to
deinstall the entire unit. This new interchangeable system features a permanent
installation mounting base on the handle of each cart, which allows service
personnel to change out parts or calculator format with a single mechanical
release tool.  The advertising image area on the new flat-ad calculator units
will be more than 40% larger than advertising image area on the old unit. See
"Item 6 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations."

     The Company presently has two additional Shoppers Calculator(R) product
applications developed by the Company in the form of (i) dual-panel on-shelf
signage units and (ii) "take-one" dispensers.  Both applications allow the
program advertisers to further support the sale of products advertised on the
on-cart unit.  Yet to be introduced to the marketplace, is the Company's newest
product, the AdHandler(R). It is a one-piece glass-filled plastic mold that
replaces current shopping cart handles. This ergonomic Adhandler(R) can be
retrofitted or be used as an O.E.M. application via cart manufacturers. Current
market surveys are being conducted by a European firm to evaluate its
application with an integrated locking mechanism. The AdHandler(R) can house the
standard calculator, Eurodollar calculator or be used as a dual-ad panel for
twice the ad space (without calculator). Contracts by both retailers and
marketers are subject to revenue potential, competitive contractual agreements,
and service arrangements.

Wal-Mart Supercenters

     As discussed above under "-- Development of Business," the Company and Wal-
Mart entered into a contract, effective as of September 1, 1995, providing for
the installation and maintenance of the Company's Shoppers Calculator(R) in all
of Wal-Mart's Supercenter stores in the continental United States.  Under the
contract, the Company was responsible for installing its calculators in Wal-
Mart's Supercenters, assisting potential advertisers with respect to developing
advertising messages, coordinating and obtaining the necessary camera-ready art
work, printing and producing the advertising messages, placing and changing the
messages on the installed calculators, and servicing and maintaining the
calculators installed in the Supercenters.

     Wal-Mart was obligated under the contract to pay the Company $2,700 per
installed store, per four week advertising cycle, during the "primary" term of
the contract in which Wal-Mart was to be responsible for selling the advertising
on the Shoppers Calculators.  Wal-Mart was also obligated to pay the Company the
amount of any shortfall if the revenues paid to the Company by October 6, 1998,
were less than

                                      -3-
<PAGE>
 
approximately $23.5 million.  After the Company had received total revenues of
approximately $23.5 million from Wal-Mart, the Company had the option to
continue the contract through October 6, 1999, the expiration date of the
contract.  After the payment of the $23.5 million, Wal-Mart had no obligation to
guarantee advertising revenues, and any advertising revenues received from third
party advertisers would be split 90% to the Company and 10% to Wal-Mart.

     During the last quarter of 1996, the Company, at Wal-Mart's request,
assumed primary responsibility for sales of advertising, and this arrangement
was formalized in an amendment to the Wal-Mart contract in August 1997.  The
Company had submitted a proposed new contract to Wal-Mart for the Shoppers
Calculator program which would have been implemented after the Company had
received the approximately $23.5 million of guaranteed revenues provided for
under the current contract In May 1998, the Company received the final revenue
guarantee payment.  The Company had the option to continue the contract to
October 6, 1999, however, Wal-Mart notified the Company that it would not agree
to a new contract or an extension of the current contract past its present term.
Based on Wal-Mart's failure to support the Shoppers Calculator(R) program and
its decision not to renew the present contract, the Company made the decision to
commence de-installation of the Shoppers Calculator(R) program beginning June
15, 1998. Such de-installation was completed by September 15, 1998.

     On September 2, 1998 the Company filed a civil complaint against Wal-Mart
in the United States District Court for the Western District of Arkansas,
Fayetteville Division, seeking both compensatory and punitive damages based on
various allegations of wrongdoing by Wal-Mart and its CEO, David Glass. The
lawsuit generally alleges that, at the direction of Wal-Mart's President and
CEO, David Glass, Wal-Mart breached contracts with the Company, including a
September 1, 1995 contract which was executed in connection with the settlement
of claims which the Company had asserted against Wal-Mart in previous
litigation.  The lawsuit also alleges that based on a course of conduct approved
by Mr. Glass, Wal-Mart is liable to the Company for misrepresentation, deceptive
trade practices, injurious falsehood, and intentional interference with
contractual relationships and business expectancies  The lawsuit also includes a
claim for damages under the doctrine of "promissory estoppel." The defendants
have denied the Company's allegations and have filed a counterclaim against the
Company and its executive officers. See "Item 3 Legal Proceedings".

Kmart Stores

     On June 3, 1996, the Company and Kmart entered into an agreement whereby
the Company would install and maintain its Shoppers Calculator(R) in designated
Kmart and Super Kmart Centers stores at no cost to Kmart.  Under the agreement,
the Company would be responsible for selling the advertising to be placed on the
calculators and agreed to pay Kmart a fee equal to 15% of the gross advertising
revenues generated.  The agreement is for an initial term of one year and
continues thereafter on a month to month basis until terminated by either party
on 60 days' prior written notice. The agreement is subject to earlier
termination by a party in the event of (i) a material breach of the agreement by
the other party, (ii) a material failure of any covenant, representation or
warranty set forth in the agreement, (iii) the insolvency or certain events of
bankruptcy of the other party, or (iv) the cessation of operations of the other
party. The Kmart contract has since been amended in 1998 for the Super Kmart
stores (approximately 105 stores) and Big K stores (approximately 670 stores)
too, pending successful Super Kmart results.

     At this time, the Company is not able to predict when or if installation of
Shoppers Calculators(R) in Kmart stores will commence. No advertising for the
Shoppers Calculators(R) has been sold or committed at this time and the Company
cannot predict with any certainly what the price for advertising on such
calculators will be if and when they are ultimately installed.


                                      -4-
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Ventures Education Systems Corporation

     On September 1, 1998 the Company acquired a 27% interest in Ventures
Education Systems Corporation, a private Company engaged in the commercial
development and marketing of proprietary teaching techniques, services, products
and materials, principally to public primary and secondary schools. The Company
paid $990,000 cash for the interest, which consists of 550,000 shares of Common
Stock. Under the terms of the investment, the Company was able to designate one
member of the Ventures Board of Directors.  It is also contemplated that the
Company may provide certain assistance in connection with the development of
Ventures' future marketing and sales efforts and financial planning.

     Ventures was formed in May of 1997 and is headquartered in New York, New
York. Its innovative teaching methods, based on cognitive science precepts,
focus on student-centered learning and are designed to improve student
motivation. The products and services were developed from the methods and
techniques developed by its not-for-profit affiliate, Ventures in Education,
Inc., over a period of approximately 17 years. Its methods and techniques
strived for improved literacy, logical and quantitative reasoning and problem-
solving skills. The Company's principal customer base is comprised of those
public schools which are eligible for Federal "Title I" funds.

     While A commercial market for Venture's products and services has yet to be
proven, we believe that this Company offers potential solutions to many of the
problems faced by our public schools. We also believe that we may be able to
assist in the commercial development of its product and services through our
marketing and financial expertise. We expect to continue discussions with
management of Ventures regarding the prospect of a more complete combination or
integration of our two Companies.

Marketing

     Mass Merchandising Program. Currently, the Company believes it will offer
to install the Shoppers Calculator(R) or new AdHandler(R) program in retail
store chains at no cost to the merchandiser and, in consideration therefor, will
agree to pay the merchandiser a percentage of the advertising revenues generated
from the units installed in the stores.  The Company expects that it will tailor
the specific terms of any future installation programs to meet the requirements
of each of its future mass merchandiser customers, if any. There can be no
assurance at this time what the specific terms of any such agreements will be
should the Company be successful in its efforts to enter into an agreement with
any additional mass merchandisers in the future.

     Revenues generated from the Wal-Mart contract accounted for approximately
99.5% of the Company's total revenues in each of 1998 and 1997. The Company
expects to receive no revenue from Wal-Mart in 1999.

          Advertising.  Advertising contracts are sold in cycles of four weeks
each (13 cycles per year).  The advertising messages displayed on the
calculators are changed at the beginning of each cycle by the Company.
Advertisers are generally responsible for submitting the proposed ad inserts in
camera-ready art form and the Company then reproduces the ads onto custom cut
advertising inserts for installation on the calculators.

     The Company has and expects to continue to offer advertisers contracts to
place advertising messages on a certain percentage of the total calculators
installed for any installed chains (e.g., 25% of the calculators installed in a
given chain). In addition, the Company may grant particular advertisers an
exclusive product category for advertising which prohibits the Company from
advertising products of competitors in that product category during the term of
the advertising cycle.

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  The Company has developed "package concept" calculators, which are calculators
with the shape and design of canned products (such as a soup, soft drink or beer
can) or packaged products (such as a detergent box, rice package or candy bar),
which also are attached to shopping cart handles. These calculators would
duplicate the packaging and bear the trademark and trade name of a particular
brand of product manufactured by an advertiser.  The Company has developed a new
mounting base so that the Company's package concept calculators will be more
readily interchangeable with the Company's standard calculator.  The package
concept and standard calculators manufactured for use in the future with the new
mounting base will contain a larger advertising space. During 1997, the Company
spent approximately $300,000 for the engineering, design and tooling necessary
to commence manufacturing the mounting base, package concept calculators and new
standard interchangeable calculators. The Company has introduced five different
"package concept" calculators for certain major manufacturers.

Competition

     There are numerous competitors providing other types of in-store
advertising mediums to other types of retailers including the framed advertising
on the front of each shopping cart, shelf and aisle signs and displays, and
check-out counter signage.  Most of these possible competitors have greater
financial and human resources and generally a more diversified product line than
the Company.  In addition, one or more of the Company's competitors could
develop a product similar or, should it choose to dispute the validity of the
design patent, identical to the Shoppers Calculator(R) and compete directly
against the Company.

     Since most manufacturers and suppliers have limited advertising budgets,
the Company competes with all other advertising media.  It is still uncertain
whether the Shoppers Calculator(R) will be able to compete effectively for
available advertising dollars.

Operations

     The Company has limited operations at this time. As a result of the
termination of the Wal-Mart contract, the Company has been forced to reduce its
workforce dramatically. The Company presently employs just seven people -- at
significantly reduced levels of compensation.

Manufacturing

     The Company purchases the components of the Shoppers Calculator(R) from
several manufacturers and completes the final assembly at its warehouse facility
in Tulsa, Oklahoma. The Company utilizes the services of a purchasing agent to
source the components required for assembling the calculator units.  In
consideration for such services, the Company is paying the agent a consulting
fee equal to 15% of the costs of the components purchased by the Company.

     The Company has utilized Gavco Plastics Incorporated ("Gavco"), a
manufacturing company located in Broken Arrow, Oklahoma, to manufacture the
plastic cases constituting the shell of the calculators.

     The Company currently has an agreement with Nam Tai Electronic & Electrical
Products Ltd. ("Nam Tai"), a manufacturing company located in Hong Kong, for the
manufacture of the internal assemblies utilized in the assembly of the
calculator units.

     While the Company is currently dependent on its existing suppliers for
component parts needed to complete the Shoppers Calculator(R), it believes that
there are a number of available suppliers for its component parts and that the
loss of any one supplier would not have a material adverse effect on the
Company's operations.

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     Other components for installation of the units (brackets, clamps, screws
and washers) are purchased from various manufacturers in the United States.

Design Patents and Trademarks

     An initial design patent was issued on the Shoppers Calculator(R) design
without an advertising space in December 1986.  A design patent was issued in
August 1992 for the Shoppers Calculator(R) design which includes the advertising
space. The Company acquired the rights to these design patents in December 1990.
Seven additional design patents were issued in late 1994 for additional designs
for the Shoppers Calculator(R). An additional design patent was issued to the
Company in March 1998 for a calculator design in the form of certain rectangular
packaged goods. The design patents expire 14 years after the date of their
issuance. Registration by the Company of the trademark "Shoppers Calculator" was
granted in July 1992 for a 10 year term. Registration by the Company of the
trademark "Shoppers Calculator(R) and design" with respect to its new logo was
granted in November 1997 for a 10-year term. The trademark registrations are
renewable by the Company at the end of their terms if the marks are still in
use.

     The Company has filed the necessary documentation to seek design patents or
registered designs in Australia, Canada, France, Germany, the United Kingdom and
Venezuela with respect to the U.S. design patent issued in August 1992.  Design
patents or registered designs for the Shoppers Calculator(R) have been granted
or registered in Australia, Canada, France, Germany, Venezuela and the United
Kingdom.  There is no assurance that foreign design patents will ultimately be
granted in those countries where applications are pending.  In addition, there
is no assurance that the granting of design patents or the registration of
registered designs will provide adequate protection against competing products.

     The Company believes that the design patent issued in August 1992 is
material and important to its business because of (i) the protection it should
provide against competitors using this precise design of advertising medium, and
(ii) the revenues it believes it will be able to generate through leasing and
sales of the Shoppers Calculators(R) and licensing their use. However, the
Company does not believe that the design patent is essential to its success.
Because of its development and marketing activities to date and the size of the
potential market, the Company believes that it could operate profitably even if
it did not have the protection of the design patent. The granting of a patent by
the U.S. Patent Office is not determinative of the validity of a patent; such
validity can be disputed by third parties in legal proceedings or the Company
may be forced to institute legal proceedings to enforce validity.  If any such
legal proceedings were commenced, the costs thereof could be substantial and
have a material adverse effect on the Company. The Company will benefit from the
design patent and pending design patent only if it is successful in its efforts
to market the advertising space to advertisers, however, there is no assurance
that such advertising will be commercially accepted. Additionally, substitutes
for successfully patented items are frequently developed and there can be no
assurance that a substitute for the Shoppers Calculator(R) will not be
successfully developed and marketed, which could have a material adverse effect
on the future operations of the Company.

Research and Development Activities

     Most of the Company's research activities over the past two fiscal years
have consisted of researching the market impact of its Shoppers Calculator
program on sales of advertised products in Wal-Mart Supercenters.  Most of this
market research information was supplied to the Company by Wal-Mart. The Company
did not spend a material amount on such research and development activities
during these periods.

                                      -7-
<PAGE>
 
     During 1997, the Company spent approximately $300,000 for the engineering,
design and tooling necessary to commence manufacturing the new mounting base,
"package concept" calculators and new standard interchangeable calculators. The
Company introduced five different "package concept" calculators for certain
major manufacturers in 1997. During 1996, the Company spent approximately
$100,000 for engineering, design and tooling costs associated with certain
"package concept" calculator products.

Properties

     The Company maintains its corporate offices at 5100 East Skelly Drive,
Meridian Tower, Suite 1080, Tulsa, Oklahoma 74135.  The Company currently leases
approximately 6,300 square feet for its corporate offices from a third party
under a lease which expires on August 31, 1999. The lease provides for monthly
rental payments of $6,825, and the Company currently subleases a portion of its
rented space for which it receives $1,950 per month. The Company also leases
approximately 9,158 square feet of warehouse space in Tulsa, Oklahoma, from a
third party. The lease for the warehouse space expires August 30, 2000, and
requires monthly rental payments of $3,657.

Employees

     At December 31, 1998, the Company had seven employees, six of which were
employed in the Company's corporate offices, and one of which was employed in
the Company's warehouse and installation operations.  Management considers its
relationships with its employees to be excellent. The employees of the Company
are not unionized and the Company is not subject to any collective bargaining
agreements.

ITEM 3.   LEGAL PROCEEDINGS

     On September 2, 1998 the Company filed a civil complaint against Wal-Mart
Stores, Inc. ("Wal-Mart" in the United States District Court for the Western
District of Arkansas, Fayetteville Division, seeking both compensatory and
punitive damages based on various allegations of wrongdoing by Wal-Mart. The
lawsuit generally alleges that, at the direction of Wal-Mart's President and
CEO, David Glass, Wal-Mart breached contracts with the Company, including a
September 1, 1995, contract which was executed in connection with the settlement
of claims which the Company had asserted against Wal-Mart in previous
litigation. The lawsuit also alleges that based on a course of conduct approved
by Mr. Glass, Wal-Mart is liable to the Company for misrepresentation, deceptive
trade practices, injurious falsehood and intentional interference with
contractual relationship and business expectancies. The lawsuit also includes a
claim for damages under the doctrine of "promissory estoppel".

     The civil complaint alleges that the Company has suffered substantial
damages as a consequence of the conduct of Wal-Mart , as alleged in the lawsuit.
The civil complaint does not, however, refer to a specific dollar amount of
damages which the Company seeks to recover from Wal-Mart in the lawsuit. The
Company believes that the outcome of the litigation against Wal-Mart will have a
material impact on its future and the future of the Shoppers Calculator(R)
program.

     In response to the lawsuit, on October 6, 1998, Wal-Mart filed a
counterclaim against the Company and a third-party complaint against Charles H.
Hood, Gary W. Young and unidentified "John Doe" defendants. In the counterclaim,
Wal-Mart alleged that the Company was liable to Wal-Mart for unspecified
compensatory and punitive damages on theories of promissory estoppel, breach of
contract, defamation and deceptive trade practices. In the third-party
complaint, Wal-Mart further alleged that Mr. Hood and Mr. Young were liable to
Wal-Mart for unspecified compensatory and punitive damages for defamation.

                                      -8-
<PAGE>
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The shareholders of the Company approved a one-for-four reverse stock split
at a special meeting of shareholders held on October 7, 1998. Of the 5,906,984
shares of Common Stock outstanding and entitled to vote at the meeting,
5,502,883 shares (approximately 93% of the outstanding shares) were represented
at the meeting, of which 5,203,083 shares were voted in favor of the reverse
stock split and 299,800 were voted against the stock split. The stock split was
officially effected through the filing of an amendment to the certificate of
incorporation of the Company on October 8, 1998.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below is certain information with respect to each executive
officer of the Company.  Executive officers are elected by the Board of
Directors and serve at its discretion.  The executive officers of the Company,
their ages and positions held in the Company are as follows:

Name                             Age  Position
----                             ---  --------
 
Charles H. Hood................  60   Chairman and President
 
Gary W. Young..................  57   Executive Vice President--
                                      Finance and Administration and
                                      Treasurer

     The following is a brief account of the business experience of each
director, executive officer and key employee of the Company:

     Charles H. Hood.  Mr. Hood has served as Chairman, President and a director
     ---------------                                                            
of the Company since its formation in September 1989.  From 1987 to June 1990,
he served as Chairman of the Board of Directors of Ackerman, Hood & McQueen,
Inc., an advertising agency headquartered in Oklahoma, with offices located in
Tulsa and Oklahoma City, Oklahoma, Dallas, Texas, Washington, D.C., Cleveland,
Ohio and Fort Smith, Arkansas.  From 1970 to 1987, Mr. Hood served as Chairman
of the Board of Directors of Hood, Hope and Associates, Inc., an advertising
agency he co-founded in 1970.  Mr. Hood received a Bachelor of Journalism degree
from the University of Missouri.

     Gary W. Young.  Mr. Young joined the Company in December 1990 as Executive
     -------------                                                             
Vice President--Finance and Administration and a director.  Mr. Young is also
the owner and President of Young Ideas Inc., a financial consulting and
investment company he founded in 1987.  From 1980 to 1986, he served as
Executive Vice President and a Director of Geodyne Resources, Inc., an oil and
gas acquisition and exploration company headquartered in Tulsa, Oklahoma.  From
1970 to 1980, Mr. Young was Senior Vice President of Finance and Administration
and a Director of Cotton Petroleum Corporation, a Tulsa, Oklahoma, based oil and
gas exploration company.  From 1963 to 1970, he was employed by Arthur Young &
Company (now Ernst & Young), a national accounting firm.  Mr. Young received a
Bachelor of Science degree from Kansas State University and is a Certified
Public Accountant.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock commenced trading on the Nasdaq Small Cap Market
on April 11, 1997 (symbol "ADDM"). Prior to that time, the Company's Common
Stock was traded on the OTC Bulletin Board.

                                      -9-
<PAGE>
 
  The following table sets forth, for the periods indicated, the range of high
and low closing bid quotations for the Common Stock as quoted on the Nasdaq
Small Cap Market and  OTC Bulletin Board, as the case may be.

 
                                                   Common Stock    
     Period                                     High(1)      Low(1)
     ------                                     -------      ------
     Fiscal Year 1998:                                             
     First Quarter........................      $ 9.75      $ 6.00 
     Second Quarter.......................      $10.75      $ 1.25 
     Third Quarter........................      $ 3.13      $ 1.50 
     Fourth Quarter.......................      $ 3.75      $ 0.88 

     Fiscal Year 1997:                                             
     First Quarter........................      $25.52      $17.52 
     Second Quarter.......................      $20.52      $13.00 
     Third Quarter........................      $16.52      $11.76 
     Fourth Quarter.......................      $17.24      $ 7.00  
                                           
--------------------------
  (1) All quotations prior to the fourth quarter of 1998 have been restated to
      reflect the effect of the one for four reverse stock split which was
      effective on Friday, October 9, 1998.


     The above quotations represent inter-dealer bid quotations, without retail
mark-ups, mark-downs or commissions, and do not necessarily represent actual
transactions.

     Substantially all of the holders of Common Stock maintain ownership of
their shares in "street name" accounts and are not, individually, stockholders
of record. At February 28, 1999, there were approximately 87 holders of record
of Common Stock.  However, the Company believes there are in excess of 975
beneficial owners of Common Stock.

     Dividends.  The Company has not paid cash dividends with respect to the
Common Stock in the past and has no present plans to pay dividends on the Common
Stock in the foreseeable future.

                                    PART II

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
---------------------------------------------------------------------

     The Company entered into a contract with Wal-Mart effective as of September
1, 1995, whereby the Company agreed to install and maintain its Shoppers
Calculators in all of Wal-Mart's Supercenter stores in the continental United
States.  Under the contract, Wal-Mart guaranteed that the Company's share of
advertising revenues would be $2,700 per installed store, per four-week
advertising cycle, until a total of approximately $23,500,000 had been received
by the Company. At June 30, 1998, the total amount of the revenue guarantee had
been received, so therefore, the last half of 1998 did not include any revenue
guarantee payments from Wal-Mart. The Company commenced de-installation of the
Wal-Mart Supercenter program on June 15, 1998 and completed such de-installation
approximately September 15, 1998.

                                      -10-
<PAGE>
 
     Advertising revenues decreased approximately $6,643,700 (57%) for the year
ended December 31, 1998, as compared to the year ended December 31, 1997. During
the second fiscal quarter of 1998 the Wal-Mart revenue guarantee was concluded
with a final billing of $360,900 ($1,074 per store) for advertising cycle number
six which ended on June 14, 1998. There were no significant advertising revenues
earned after that date.

     Operating income decreased $5,046,700 in 1998, as compared to 1997. The
Company's net loss applicable to Common Stock was $2,202,300 for 1998, as
compared to net income of $2,631,000 for the same period last year. As a result
of implementation of the new Wal-Mart contract, 1995 earnings were increased by
$3,910,000 from the accounting recognition of the future tax benefits of the
Company's net operating losses and temporary differences aggregating $10,290,000
at December 31, 1995.  The 1997 tax expense of $1,697,800 reflects the
amortization of the deferred tax asset recognized in 1995. As a result of 
Wal-Mart's decision to terminate its contract with the Company, management has
reevaluated the likelihood of realizing the deferred tax assets resulting from
its net operating loss and tax credit carryforwards. Management has determined
that the Company no longer meets the criteria to continue to recognize these tax
carryforwards as assets. Consequently, the tax provision for 1998 has been
increased by $1,486,600.  In conjunction with the termination of the Wal-Mart
contract and the de-installation of the program, the Company wrote down the
value of the Shoppers Calculator assets by $1,284,300 during 1998.

     Costs of advertising services (representing primarily labor to supervise,
service and clean the installed units and change advertising messages and the
depreciation of installed units) decreased approximately $2,316,000 (48%) in
1998 as compared to 1997 as a result of reduced labor costs and depreciation
expense. On March 1, 1998 the Company significantly reduced the size of its
field service staff. Labor costs and related expenses subsequent to June 30,
1998 related entirely to the de-installation of the of the Wal-Mart Supercenter
program which was completed approximately September 15, 1998.

     Selling expenses decreased approximately $189,000 (30%) in 1998 compared to
1997. During 1998, payroll, payroll related expenses and sales representative
retainer expenses decreased $116,000. Marketing materials cost, advertising and
other expenses decreased $73,000 in 1998 as compared to 1997. Sales efforts for
the last half of 1998 shifted from advertising sales for the Wal-Mart
Supercenter program to contacting other retailers and advertisers regarding the
Shoppers Calculator program.

     General and administrative expenses decreased $314,300 (19%) during 1998 as
compared to 1997. During 1998, payroll and payroll related expenses decreased
$4,800. Officer and management bonus accruals decreased $341,500 in 1998 as
compared to 1997. Executive retirement plan accruals, including insurance cost
to fund future payments, decreased $53,200 during 1998. Expenses related to
broker and analyst meetings and other shareholder expenses decreased $12,400
over 1997. Deferred acquisition expenses amounting to $75,700 were charged to
expense during 1998. Increases amounting to $21,900 occurred in professional
fees, occupancy costs and other expenses.

     Equity in loss of Ventures Education Systems Corporation increased $118,900
during 1998 as compared to 1997. The Company acquired a 27% interest in Ventures
on September 1, 1998. Ventures has operated at a loss since the acquisition date
and the Company's share has been reflected as a charge to earnings with a
corresponding reduction in the carrying cost of the investment.

     Interest expenses decreased approximately $68,300 (84%) during 1998 as
compared to 1997. Interest on bank borrowings decreased $19,900 due primarily to
the repayment of all bank debt during 1997. Interest accrued on amounts due
investors, including the accretion of discount for the litigation settlement,
was $53,800 lower for 1998 as compared to 1997. Vendor interest increased by
$5,400 in 1998 as compared to 1997.

                                      -11-
<PAGE>
 
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
----------------------------------------------------------------------

     The Company entered into a contract with Wal-Mart effective as of September
1, 1995, whereby the Company agreed to install and maintain its Shoppers
Calculators in all of Wal-Mart's Supercenter stores in the continental United
States. Under the contract, Wal-Mart was obligated to pay the Company $2,700 per
installed store, per four-week advertising cycle, until a total of approximately
$23,500,000 has been received by the Company. At December 31, 1997, a total of
336 Wal-Mart Supercenters were installed, with 41 being installed during 1995,
286 in 1996 and nine during 1997.

     Advertising revenues increased approximately $4,542,200 (65%) for the year
ended December 31, 1997, as compared to the year ended December 31, 1996. During
1997, an average of 329 installed stores contributed revenue for the year as
compared to 200 stores for 1996.

     The significant increase in revenues improved operating income (income
before interest, taxes and preferred stock dividends) by $1,248,100 for 1997 as
compared to 1996.  The Company's net income applicable to common stock was
$2,631,000 for 1997, as compared to $1,723,300 for 1996.  As a result of the
implementation of the Wal-Mart contract in September 1995, 1995 earnings were
increased by $3,910,000 from the accounting recognition of the future tax
benefits of the Company's net operating losses and temporary differences
aggregating $10,290,000 at December 31, 1995. The 1997 tax expense of $1,697,800
reflects the amortization of the deferred tax asset recognized in 1995.

     Costs of advertising services (representing primarily labor to supervise,
service and clean the installed units and change advertising messages and the
depreciation of installed units) increased approximately $2,712,400 (128%) in
1997 as compared to 1996 as a result of higher labor costs, printing costs and
depreciation due to the increase in the number of Supercenters installed and
calculators serviced during the respective periods.  The 1997 increase included
an additional depreciation charge of $396,375 resulting from a change in the
Company's accounting estimate related to the remaining useful lives of the
Shopper Calculators installed in the Wal-Mart Supercenters.  This change in
estimate of the remaining useful life was made in anticipation of the
replacement of the currently installed calculators with the Company's latest
model  Shoppers Calculator(R) unit.  The Company expects to commence
installation of the new units by the end of 1998 if it is successful in
negotiating a new contract with Wal-Mart.

     Selling expense increased approximately $366,900 (137%) in 1997 compared to
1996. This was primarily due to increases during 1997 in payroll, payroll
related expenses, sales representative retainer expenses, advertising and
marketing materials costs. During the last quarter of 1996, the Company assumed
primary responsibility for selling advertising on the Shoppers Calculators
installed in Wal-Mart Supercenters.

     General and administrative expenses increased $236,200 (17%) in 1997 as
compared to 1996. During 1997, payroll and payroll related expenses increased
$129,700 as a result of higher compensation levels and increased staff required
to administer the Wal-Mart Supercenter contract. Officer and management bonus
accruals increased $86,800 in 1997 as compared to 1996.  Executive retirement
plan accruals, including insurance cost to fund future payments, decreased
$65,900 during 1997. Expenses related to broker and analyst meetings and other
shareholder expenses increased $39,900 over 1996. Increases amounting to $45,700
occurred in professional fees, occupancy costs, business taxes and other
expenses.

     Interest expenses decreased approximately $407,500 (83%) during 1997 as
compared to 1996. Interest on bank borrowings decreased $330,000 due primarily
to the repayment of all bank debt during 1997.  Vendor interest was $21,500
lower and interest accrued on amounts due investors, including the accretion of
discount for the litigation settlement, was $56,000 lower for 1997 as compared
to 1996, all because of the reduction of amounts due and past due.

                                      -12-
<PAGE>
 
Financial Condition and Liquidity

     The termination of the Company's program with Wal-Mart has materially
reduced the Company's revenues. Consequently, the Company expects to incur
losses for the foreseeable future.  Presently, business activity is being
limited to selling units, which provides unpredictable cash flow, and contacting
other retailers and advertisers about the Shoppers Calculator program. The
Company has continued to downsize its staff and overhead requirements in order
to continue with limited operational activity while the lawsuit which was filed
against Wal-Mart in September, 1998 is being processed.

     Notwithstanding the cost-cutting steps that have been taken, the Company
will need additional financing or significantly increased funds from operations
to accomplish its current business plan, which could include a merger, the sale
of the Shoppers Calculator assets or some other business alliance. To the extent
that the Company cannot generate the necessary funding from cash flow from
operations, it will be required to seek capital from third parties in order to
accomplish its business plan.  If however, the Company is unable to execute
these plans within the time frames anticipated, the Company has contingency
plans for further cost-cutting measures.

     The Company believes that the outcome of the Wal-Mart litigation will have
a material impact on its future and the future of the Shoppers Calculator
program.
 
Year 2000

     The Company is making an assessment of its Year 2000 date issues as it
relates to computer operations of the Company, the computer hardware and
software owned by the Company, the accounting software provided by its vendor,
the software of other suppliers and vendors, and the software of customers.

     The most critical aspect for the Company regarding the Year 2000 problem
involves the Company's accounting software. The Company's vendor of the software
is addressing this issue and assures its users that all software will be revised
to permit the usage of the Year 2000 date without adverse consequences to the
software users' systems. The Company has made arrangements with its local
computer systems consultant to survey all of the Company's computers and non-
accounting software acquired and used in Company operations. This survey will
include alarm systems, office equipment, computers, "off-the-shelf" software,
and software designed by the Company. It has been determined that Year 2000
problems encountered by the Company's customers would not be material. However,
the Company does have equipment which will be affected by the Year 2000 problem.
The Company will contact vendors of such equipment supplied by the Company and
determine if the equipment requires modifications to address its customers' Year
2000 problems.

     The Company has determined that the Year 2000 is not a material event or
uncertainty that would cause reported financial information not to be
necessarily indicative of future operating results or financial condition.
Additionally, the Company believes that the costs or consequences of incomplete
or untimely resolution of the Year 2000 issue is not a material event. These
determinations are based on three factors: the availability of accounting
software which has dealt with the Year 2000 problem, the relatively small amount
of reliance by the Company on specialized software or computer equipment, and
the inconsequential impact on the Company of any of the Company's customers'
Year 2000 problems.

Forward Looking Statements

     Certain statements included in this report which are not historical facts
are forward-looking statements.  These forward-looking statements are based on
current expectations, estimates, assumptions and beliefs of management; and
words such as "expects," "anticipates," "intends," "plans," "believes,"
"projects", "estimates" and similar expressions are intended to identify such
forward looking statements.  These forward looking statements involve risks and
uncertainties, including, but not limited to, the Company's ability to obtain
new users of the Shoppers Calculator(R) program and to sell advertising for that

                                      -13-
<PAGE>
 
program, general economic conditions and conditions affecting the retail
environment, the availability of raw materials and manufactured components and
the Company's ability to fund the costs thereof, and other factors which may
affect the Company's ability to comply with future obligations.  Accordingly,
actual results may differ materially from those expressed in the forward looking
statements.

ITEM 7.  FINANCIAL STATEMENTS

     The information required by this item begins at page F-1 following page 16
hereof.

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

     None.

                                 PART III

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

     The information required by this item concerning the Company's directors
and compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, is incorporated by reference to the information in the sections
entitled "Election of Directors" and "Compliance with Section 16(a) of the
Exchange Act," respectively, of the Company's Proxy Statement for the 1999
Annual Meeting of Shareholders (the "Proxy Statement") to be filed with the
Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year ended December 31, 1998.  The information required by this
item concerning the Company's executive officers appears as Item 4A of Part I of
this Form 10-KSB.

ITEM 10.  EXECUTIVE COMPENSATION

    The information required by this item concerning executive compensation is
incorporated by reference to the information set forth in the section entitled
"Compensation of Directors and Executive Officers" of the Company's Proxy
Statement.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by this item concerning security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Voting Securities and Principal
Holders Thereof" of the Company's Proxy Statement.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Relationships and Related Transactions" of the
Company's Proxy Statement.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits:

    The following documents are included as exhibits to this Form 10-KSB. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter.  If no parenthetical
appears after an exhibit, such exhibit is filed herewith.

                                      -14-
<PAGE>
 
Exhibit
-------

   2.1    Stock Purchase Agreement dated as of August 31, 1998 by and between
          ADDvantage Media Group, Inc. and Ventures Education Systems
          Corporation incorporated by reference to Exhibit 2.1 to the Current
          Report on Form 8-K filed with the Securities and Exchange Commission
          by the Company on September 14, 1998.
         
   3.1    Certificate of Incorporation of the Company and amendments thereto
          (incorporated by reference to Exhibit 3.1 to the Company's
          Registration Statement on Form S-18, File No. 33-39902-FW (the "S-18
          Registration Statement").
         
   3.2    Fourth Amendment to the Certificate of Incorporation of the Company
          (incorporated by reference to Exhibit 3.2 to the Company's
          Registration Statement on Form S-1, File No. 33-49892 (the "S-1
          Registration Statement").
         
   3.3    Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
          S-18 Registration Statement).
         
   4.1    Certificate of Designation, Preferences, Rights and Limitations of
          Series A 10% Cumulative Convertible Preferred Stock (incorporated by
          reference to Exhibit 4.1 to the Company's annual Report on Form 10-K
          for the fiscal year ended December 31, 1991).
         
   4.2    Voting Agreement dated as of August 31, 1998 by and among ADDvantage
          Media Group, Inc.; Maxine E. Bleich; Richard P. Kamenitzer and Marc J.
          Sokol incorporated by reference to exhibit 4.1 to the Current Report
          on Form 8-K filed with the Securities and Exchange Commission by the
          Company on September 14, 1998.

 *10.1    ADDvantage Media Group, Inc. 1991 Employee Stock Plan (incorporated
          by reference to Exhibit 10.7 to the S-18 Registration Statement).

  10.2    Loan Agreement for $1,800,000 line of credit dated June 5, 1992,
          between the Company and F&M Bank and Trust Company, as amended
          (incorporated by reference to Exhibit 10.5 to the S-1 Registration
          Statement).

  10.3    Amendment dated December 16, 1992 to the Loan Agreement
          (incorporated by reference to Exhibit 10.5a to the S-1 Registration
          Statement).

  10.4    Shopper's Calculator Contract, dated as of September 1, 1995,
          between the Company and Wal-Mart Stores, Inc., as amended by the First
          Amendment to the Shopper's Calculator Contract, the Second Amendment
          to the Shopper's Calculator Contract and the Third Amendment to the
          Shopper's Calculator Contract (incorporated by reference to Exhibit
          10.6 to the S-18 Registration Statement).

  10.5    Promissory Note for $700,000 from the Company to The F&M Bank &
          Trust Company dated September 5, 1995 (incorporated by reference to
          Exhibit 10.10 to the Company's Annual Report on Form 10-KSB for the
          year ended December 31, 1995).

  10.6    Letter agreement dated as of August 25, 1997, between the Company
          and Wal-Mart Stores, Inc. amending the Shopper's Calculator Contract
          dated September 1, 1995 (incorporated by reference to Exhibit 10 to
          the Company's Quarterly Report on Form 10-QSB for the quarter ended
          September 30, 1997).

                                      -15-
<PAGE>
 
 *10.7    ADDvantage Media, Inc. Supplemental Executive Retirement Plan
          effective December 7, 1995 and Subsequently Amended March 14, 1996
          (incorporated by reference to Exhibit 10.11 to the Company's Annual
          Report on Form 10-KSB for the year ended December 31, 1995).

  10.8    Letter Agreement between the Company and The F&M Bank & Trust
          Company dated March 6, 1996, with respect to $3,406,655.66 credit
          facility (incorporated by reference to Exhibit 10.12 to the Company's
          Annual Report on Form 10-KSB for the year ended December 31, 1995).

  10.9    Promissory Note for $3,406,655.66 from the Company to The F&M Bank &
          Trust Company effective October 11, 1995 (incorporated by reference to
          Exhibit 10.13 to the Company's Annual Report on Form 10-KSB for the
          year ended December 31, 1995).

  10.10   Agreement dated June 3, 1996, between the Company and Kmart
          Corporation (incorporated by reference to Exhibit 10.11 to the S-18
          Registration Statement).

  23.1    Consent of Tullius Taylor Sartain & Sartain LLP.

  27.1    Financial Data Schedule.

____________
*  Management contract or compensatory plan.

  (b)     Reports on Form 8-K:

  None.

 

                                      -16-
<PAGE>
 
                                    CONTENTS


 
 
Independent Auditors' Report......................................  F-2
 
Balance Sheets....................................................  F-3
 
Statements of Operations..........................................  F-5
 
Statements of Changes in Stockholders' Equity.....................  F-6
 
Statements of Cash Flows..........................................  F-7
 
Notes to Financial Statements.....................................  F-8

                                      F-1
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders of
ADDvantage Media Group, Inc.

We have audited the accompanying balance sheets of ADDvantage Media Group, Inc.
as of December 31, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity, and cash flows for the years then ended.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ADDvantage Media Group, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company's only advertising program was terminated, and
the Company expects to incur losses for the foreseeable future, which raises
substantial doubt about its ability to continue as a going concern.  The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


TULLIUS TAYLOR SARTAIN & SARTAIN LLP

Tulsa, Oklahoma
March 5, 1999

                                      F-2
<PAGE>
 
                         ADDVANTAGE MEDIA GROUP, INC.

                                BALANCE SHEETS

                          December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                             1998        1997
                                                        ------------------------
<S>                                                      <C>         <C>
Assets
Current assets:
 Cash and cash equivalents                               $  421,722  $2,003,165
 Accounts receivable                                        124,777   1,548,961
 Deferred income taxes                                           --   1,432,000
 Other current assets                                        13,434      36,086
                                                        ------------------------
 
                                                            559,933   5,020,212
 
Property and equipment, at cost:
 Calculators                                                722,905   2,585,693
 Office and production equipment                            840,596     891,743
 Furniture and fixtures                                     100,332      97,879
                                                        ------------------------
 
                                                          1,663,833   3,575,315
 
Accumulated depreciation                                    489,152     981,186
                                                        ------------------------
 
                                                          1,174,681   2,594,129
 
Deferred tax asset                                               --      41,000
 
Patent, net of accumulated amortization of $717,961
 and $627,150 at December 31, 1998 and 1997,
 respectively                                               190,150     280,960
 
Investment in Ventures Education Systems Corporation        883,626          --
 
Other assets                                                280,196     186,184
                                                        ------------------------
 
Total assets                                             $3,088,586  $8,122,485
                                                        ========================
</TABLE>



                      See notes to financial statements.

                                      F-3
<PAGE>
 
                         ADDVANTAGE MEDIA GROUP, INC.

                                BALANCE SHEETS

                          December 31, 1998 and 1997


                                                          1998          1997
                                                     ---------------------------
Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                     $    45,604   $   834,115
 Income taxes payable                                          --        22,326
 Other accrued liabilities                                 18,786       449,944
 Unearned advertising revenue                                  --       810,001
                                                     ---------------------------
 
Total current liabilities                                  64,390     2,116,386
 
 
 
Long-term obligations                                     359,495       228,072
 
 
 
 
Stockholders' equity:
 Preferred stock, $1.00 par value, 1,000,000
   shares authorized; Series A, 10% cumulative
   convertible, preferred stock; 227,750 shares issued
   and outstanding at December 31, 1997;
   liquidation preference $911,000                             --       760,260
 Common stock, $.01 par value, 10,000,000 shares
   authorized; 1,476,646 shares issued and
   outstanding at December 31, 1998 and 1997               14,766        14,766
 Capital in excess of par value                         8,756,194     8,906,934
 Accumulated deficit                                   (6,106,259)   (3,903,933)
                                                     ---------------------------
 
Total stockholders' equity                              2,664,701     5,778,027
                                                     ---------------------------
 
Total liabilities and stockholders' equity            $ 3,088,586   $ 8,122,485
                                                     ===========================



                      See notes to financial statements.

                                      F-4
<PAGE>
 
                         ADDVANTAGE MEDIA GROUP, INC.

                           STATEMENTS OF OPERATIONS

                    Years ended December 31, 1998 and 1997


                                                          1998          1997
                                                     ---------------------------
 
Revenues:
 Advertising                                          $ 4,911,331   $11,555,035
 Other                                                    114,547        52,628
                                                     ---------------------------
 
                                                        5,025,878    11,607,663
 
Costs and expenses:
 Cost of advertising services                           2,515,339     4,831,397
 Selling expenses                                         444,835       633,857
 General and administrative expenses                    1,327,282     1,641,545
 Asset write down                                       1,284,279            --
                                                     ---------------------------
 
                                                        5,571,735     7,106,799
                                                     ---------------------------
 
Operating income (loss)                                  (545,857)    4,500,864
Equity in loss of Ventures Education
 Systems Corporation                                      118,894            --
Interest expense                                           12,629        80,944
                                                     ---------------------------
 
Income (loss) before income taxes                        (677,380)    4,419,920
Provision for income taxes                              1,486,614     1,697,817
                                                     ---------------------------
 
Net income (loss)                                      (2,163,994)    2,722,103
Preferred stock dividends                                 (38,332)      (91,100)
                                                     ---------------------------
 
Net income (loss) applicable to common stock          $(2,202,326)  $ 2,631,003
                                                     ===========================
 
Net income (loss) per share:
 Basic                                                $     (1.49)  $      1.80
                                                     ===========================
 
 Diluted                                              $     (1.49)  $      1.67
                                                     ===========================


                      See notes to financial statements.

                                      F-5
<PAGE>
 
                         ADDVANTAGE MEDIA GROUP, INC.

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                    Years ended December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                              Capital in
                                  Preferred Stock          Common Stock        Excess of   Accumulated
                                Shares      Amount      Shares      Amount     Par Value     Deficit        Total
                             ---------------------------------------------------------------------------------------
 
<S>                            <C>        <C>         <C>          <C>        <C>          <C>           <C>
Balance, January 1, 1997        227,750   $ 760,260    5,731,089   $ 57,311   $8,753,869   $(6,534,936)  $ 3,036,504
 
Issuance of shares on
 exercise of options                 --          --          495          5        1,295            --         1,300
 
Issuance of shares on
 exercise of warrants                --          --      175,000      1,750       75,750            --        77,500
 
Sales of warrants                    --          --           --         --       31,720            --        31,720
 
Preferred stock dividends
 ($.40 per share)                    --          --           --         --           --       (91,100)      (91,100)
 
Net income                           --          --           --         --           --     2,722,103     2,722,103
                             ---------------------------------------------------------------------------------------
 
Balance, December 31, 1997      227,750     760,260    5,906,584     59,066    8,862,634    (3,903,933)    5,778,027
 
Reverse stock split (1 to 4)         --          --   (4,429,938)   (44,300)      44,300            --            --
 
Redemption of preferred
 stock                         (227,750)   (760,260)          --         --     (150,740)           --      (911,000)
 
Preferred stock dividends
 ($.40 per share)                    --          --           --         --           --       (38,332)      (38,332)
 
Net loss                             --          --           --         --           --    (2,163,994)   (2,163,994)
                             ---------------------------------------------------------------------------------------
 
Balance, December 31, 1998           --   $      --    1,476,646   $ 14,766   $8,756,194   $(6,106,259)  $ 2,664,701
                             =======================================================================================
</TABLE>



                      See notes to financial statements.

                                      F-6
<PAGE>
 
                         ADDVANTAGE MEDIA GROUP, INC.

                           STATEMENTS OF CASH FLOWS

                    Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                          1998          1997
                                                                     -----------------------------
<S>                                                                    <C>           <C>
Cash Flows from Operating Activities
Net income (loss)                                                      $(2,163,994)  $ 2,722,103
Adjustments to reconcile net income (loss) to net
 cash provided by operating activities:
   Deferred income tax                                                   1,473,000     1,497,000
   Depreciation and amortization                                           717,403       912,707
   Accrual of long-term obligations                                        131,424       119,472
   Write down of assets                                                  1,284,279            --
   Equity in loss of investment                                            118,894            --
   Changes in assets and liabilities:
     Accounts receivable                                                 1,424,184      (557,417)
     Other current assets                                                   22,652       (14,920)
     Other assets                                                          (94,012)     (116,974)
     Accounts payable                                                     (788,511)      261,084
     Income taxes payable                                                  (22,326)       22,326
     Accrued interest                                                           --      (138,505)
     Accrued settlement obligation                                              --      (567,846)
     Other accrued liabilities                                            (431,158)      (80,763)
     Unearned advertising revenue                                         (810,001)       (9,835)
                                                                     -----------------------------
Net cash provided by operating activities                                  861,834     4,048,432
 
Cash Flows from Investing Activities
Purchases of property and equipment                                       (753,765)   (1,182,600)
Sales of property and equipment                                            262,340            -- 
Purchase of investment                                                  (1,002,520)           --
                                                                     -----------------------------
Net cash used in investing activities                                   (1,493,945)   (1,182,600)
 
Cash Flows from Financing Activities
Exercise of stock options and warrants                                          --        78,799
Proceeds from issuance of notes                                            383,580            --
Payments on notes                                                         (383,580)   (1,156,656)
Payments of preferred stock dividends                                      (38,332)     (523,950)
Redemption of preferred stock                                             (911,000)           --
                                                                     -----------------------------
Net cash used in financing activities                                     (949,332)   (1,601,807)
Increase (decrease) in cash and cash equivalents                        (1,581,443)    1,264,025
Cash and cash equivalents, beginning of year                             2,003,165       739,140
                                                                     -----------------------------
Cash and cash equivalents, end of year                                 $   421,722   $ 2,003,165
                                                                     =============================
Cash paid during the year for interest                                 $    12,629   $   288,509
                                                                     =============================
Cash paid during the year for taxes                                    $   129,733   $   176,619
                                                                     =============================
</TABLE>



                      See notes to financial statements.


        

                                      F-7
<PAGE>
 
                         ADDVANTAGE MEDIA GROUP, INC.

                         NOTES TO FINANCIAL STATEMENTS

                          December 31, 1998 and 1997


Note 1 -- Description of the Business

ADDvantage Media Group, Inc. (the "Company") markets and sells in-store
advertising to national advertisers.  This advertising is positioned on solar
powered calculators attached to the handles of shopping carts.  The patented
calculators are marketed under the registered trademark "Shoppers
Calculator(R)."

On September 1, 1995, the Company and Wal-Mart Stores, Inc. ("Wal-Mart") entered
into a four-year contract in settlement of a lawsuit related to prior contracts
under which the Company installed and maintained Shoppers Calculators(R) in all
of Wal-Mart's Supercenters in the continental United States and Wal-Mart was
responsible for selling the advertising for the calculators during the initial
phase of the contract. During the last quarter of 1996, the Company assumed the
primary responsibility for sales of advertising and this arrangement was
formalized in an amendment to the Wal-Mart contract dated August 25, 1997. Wal-
Mart agreed to guarantee advertising revenues to the Company of $23.5 million,
subject to the Company's obligation to install and service the Shoppers
Calculators(R) during the revenue guaranty period. In May 1998, the Company
received the final revenue guarantee payment from Wal-Mart. The Company had the
option to continue the contract to October 6, 1999; however, Wal-Mart notified
the Company that it would not agree to a new contract or an extension of the
current contract past its present term. Based on Wal-Mart's failure to support
the Shoppers Calculator(R) program and its decision not to renew the present
contract, the Company made the decision to commence de-installation of the
Shoppers Calculator(R) program beginning June 15, 1998. Such de-installation was
completed by September 15, 1998. The Company expects to receive no revenue from
Wal-Mart in 1999, and as a result has dramatically reduced its operations and
workforce.

On September 2, 1998 the Company filed a civil complaint against Wal-Mart in the
United States District Court for the Western District of Arkansas, Fayetteville
Division, seeking both compensatory and punitive damages based on various
allegations of wrongdoing by Wal-Mart.  The Company believes that the outcome of
the litigation against Wal-Mart will have a material impact on its future and
the future of the Shoppers Calculator(R) program.

The termination of the Wal-Mart program eliminated the Company's advertising
revenues, and the Company expects to incur losses for the foreseeable future.
The Company is continuing with limited operational activity while other business
opportunities are being pursued and the Wal-Mart lawsuit is being processed.
The Company will need additional financing or significantly increased funds from
operations during 1999 to continue as a going concern.

                                      F-8
<PAGE>
 
Note 2 -- Summary of Significant Accounting Policies

Management estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include cash on deposit with financial institutions
and certificates of deposit with a maturity of 90 days or less.

Property and equipment

Property and equipment is recorded at cost.  Shoppers Calculators(R) not yet
installed ($722,905 and $352,715 at December 31, 1998 and 1997, respectively)
are reported in property and equipment.  Shoppers Calculators(R) installed and
in use are depreciated over a five-year straight-line life.  Calculator
replacements are charged to accumulated depreciation.  Gain or loss is
recognized upon complete de-installation of a customer's store or similar
service unit.  Other property and equipment is depreciated on the straight-line
method over estimated useful lives ranging from three to ten years.

Revenue recognition

Advertising revenues, including Wal-Mart billings, are recorded on the accrual
basis whereby billings for advertising services attributable to future
accounting periods are reported as unearned advertising revenue, a current
liability.

Concentrations of credit risk

The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents.  At December 31, 1998, all cash and
cash equivalents were on deposit with one bank.

Earnings Per Share ("EPS")

In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" (see Note 8).  SFAS
128 replaced primary EPS with basic EPS and fully diluted EPS with diluted EPS.
Basic EPS is calculated by dividing net earnings

                                      F-9
<PAGE>
 
available to common shares by the weighted average common shares outstanding.
Diluted EPS is calculated similarly, except that it includes the dilutive effect
of the assumed exercise of all dilutive potential common shares outstanding.
SFAS 128 also requires previously reported EPS to be restated.  The adoption of
SFAS 128 did not have a material effect on the calculation of EPS.

Patent

The Company's Shoppers Calculators(R) patent was acquired from a person who, at
the time, was a director of the Company, and a company in which he was a 50%
owner.  It is carried at acquisition cost, net of accumulated amortization which
is computed on a straight-line basis over the life (two years remaining at
December 31, 1998) of such design patent.  Since the initial acquisition
referred to above, the costs of applying for and obtaining additional design
patents and trademarks have been expensed as incurred.

Employee stock options

When the exercise price of employee stock options equals or exceeds the market
value of the stock at date of grant, the Company recognizes no compensation
expense.

New accounting standards

The Company adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
during 1998.  The Company has no comprehensive income items for the two years in
the period ended December 31, 1998.  Therefore, net income (loss) equals
comprehensive income.  The Company considers that it operates in only one
business segment. In 1998 and 1997, revenues from Wal-Mart accounted for 98% and
99%, respectively, of advertising revenues.  The Company will adopt SFAS No.
133, "Accounting for Derivative Investments and Hedging Activities" during 1999.
Currently, the Company does not engage in hedging activities or transactions
involving derivatives.


Note 3 -- Investment in Ventures Education Systems Corporation

On September 1, 1998 the Company acquired a 27% interest in Ventures Education
Systems Corporation ("Ventures"), a private company engaged in the commercial
development and marketing of proprietary teaching techniques, services,
products, and materials; principally to public primary and secondary schools.
Ventures was formed in May 1997 and is headquartered in New York, New York.
Under the terms of the investment, the Company may designate one member of the
Ventures Board of Directors

The cost of the 550,000 common shares acquired was $990,000.  The excess of cost
over the Company's equity in underlying net assets is $864,102.  This excess is
being amortized over a period of 20 years.  The Company's equity in Ventures'
net loss for the period from date of acquisition to December 31, 1998, is
$118,894.

                                      F-10
<PAGE>
 
As of December 31, 1998 and for the period from date of acquisition through
December 31, 1998, Ventures' assets, liabilities, revenues and expenses are
summarized as follows:

<TABLE>
<S>                                             <C>
Total assets                                    $ 622,000
                                               -----------
 
Total liabilities                               $ 550,000
                                               -----------
 
Contract sales                                  $ 290,000
Cost of services                                 (184,000)
Selling, general and administrative expenses     (542,000)
                                               -----------
 
Net loss                                        $(436,000)
                                               ===========
</TABLE>


Note 4 -- Income Taxes

<TABLE>
<CAPTION>
                                                               1998        1997
                                                          ------------------------
<S>                                                        <C>         <C>
Current provision:
 Federal                                                    $   13,614  $  200,817
 
Deferred provision:
 Federal                                                     1,473,000   1,339,000
 State                                                              --     158,000
                                                          ------------------------
 
                                                             1,473,000   1,497,000
                                                          ------------------------
 
Total provision                                             $1,486,614  $1,697,817
                                                          ========================
</TABLE>

As a result of the Wal-Mart contract, the Company had recognized the tax
benefits of its net operating losses and temporary differences in the financial
statements.  The Company utilized $3,349,000 of the net operating loss
carryforward in 1997.  The net operating loss carryforward of  $3,740,431 at
December 31, 1998 expires in 2010.

In 1998, as a result of Wal-Mart's decision to terminate its contract with the
Company, management reevaluated the likelihood of realizing the deferred tax
assets resulting from its net operating loss and tax credit carryforwards.
Management determined that the Company no longer meets the criteria to continue
to recognize these tax carryforwards as assets.  Consequently, the tax provision
has been increased to provide a valuation allowance against the deferred tax
assets to the extent they exceed deferred tax liabilities.

                                      F-11
<PAGE>
 
The tax effects of temporary differences and the tax loss carryforward that give
rise to the deferred tax assets and liabilities at December 31, 1997 are as
follows:

<TABLE>
<CAPTION>
                                                                                      1997
                                                                                 ------------
<S>                                                                              <C>
Deferred tax assets:
 Net operating loss carryforward                                                   $1,405,000
 Alternative Minimum Tax credit carryforward                                          177,000
 Accrued expenses                                                                      27,000
 Long-term obligation                                                                  87,000
                                                                                 ------------
 
Total deferred tax assets                                                           1,696,000
 
Deferred tax liability:
 Financial basis in excess of tax basis of fixed assets                              (223,000)
                                                                                 ------------
 
Net deferred tax assets                                                            $1,473,000
                                                                                 ============
</TABLE>

The components of the net deferred income tax balances recognized in the balance
sheet at December 31 follow:

<TABLE>
<CAPTION>
                                                                                     1997
                                                                                ------------
 
<S>                                                                               <C>
Current deferred tax assets                                                       $1,432,000
Non-current deferred tax assets                                                       41,000
                                                                                ------------
 
Net deferred tax assets                                                           $1,473,000
                                                                                ============
</TABLE>

The following table summarizes the significant differences between the U.S.
Federal statutory tax rate and the Company's effective tax rate for financial
statement purposes.

<TABLE>
<CAPTION>
                                                                                  1997
                                                                                ------
 
<S>                                                                               <C>
Statutory tax rate                                                                34.0%
State income taxes, net                                                            4.0
Other                                                                               .4
                                                                                ------
 
                                                                                  38.4%
                                                                                ======
</TABLE>


Note 5 -- Stockholders' Equity

The shareholders of the Company approved a one-for-four reverse stock split on
October 7, 1998. The stock split was officially effected through the filing of
an amendment to the Certificate of Incorporation of the Company which effected a
reverse stock split pursuant to which

                                      F-12
<PAGE>
 
each four (4) shares of issued and outstanding common stock, par value $.01 per
share, was combined into one (1) validly issued, fully paid and nonassessable
share of common stock, par value $.01 per share. The number of authorized shares
and the par value of the common stock was not affected by the reverse stock
split. All per share and weighted average share amounts have been restated to
reflect this stock split.

In January 1998, the stockholders adopted the 1998 Incentive Stock Plan, which
provides for the award to officers, directors, key employees and consultants of
stock options and restricted stock.  When issued, option prices will be set by
the Board of Directors and may be greater than, equal to, or less than the fair
market value on the grant date.  The provisions included in this plan have no
effect on the provisions of the 1991 Employee Stock Plan discussed below.

On June 3, 1998, all outstanding preferred stock was called for redemption at
$4.00 per share.

In June 1998, the Company modified options held by certain employees under the
1991 Employee Stock Plan.  The Company reduced the exercise prices to $2.1252
(adjusted for the reverse stock split), and made the options 100% vested and
immediately exercisable.  No compensation expense was recorded, as the exercise
price equaled the stock price on the modification date.

In November 1998, the Company modified the options held by the six remaining
employees by reducing the exercise prices to $0.875, the stock price on the
modification date.

In 1998, the Company granted warrants, which upon exercise will entitle the
holders the purchase of up to 62,500 shares of common stock at a price of $2.00
per share.  These warrants may be exercised at any time until December 31, 2000.
At December 31, 1998 and 1997, shares of common stock reserved for the exercise
of warrants are 75,000 and 27,500, respectively.

In April 1991, the stockholders adopted the 1991 Employee Stock Plan, which
provides for the award to key employees of stock options, stock appreciation
rights and shares of restricted stock.  The Plan provides that upon any
issuances of additional shares of common stock by the Company, other than
pursuant to the Plan, the number of shares covered by the Plan will increase to
an amount equal to 10% of the then outstanding shares of common stock.  The
purchase price per share for stock options may not be less than the fair market
value of the stock on the date of grant.

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") provides an
alternative method of determining compensation cost for employee stock options,
which alternative method

                                      F-13
<PAGE>
 
may be adopted at the option of the Company.  Had compensation cost for these
plans been determined consistent with SFAS 123, the Company's net income (loss)
and EPS would have been reduced to the following pro forma amounts:



<TABLE>
<CAPTION>
                                                                  1998         1997
                                                            --------------------------
<S>                                                           <C>           <C>
Net income (loss):
 As reported                                                  $(2,202,326)  $2,631,003
 Pro forma                                                     (2,338,680)   2,553,258
 
Basic EPS:
 As reported                                                  $     (0.37)  $     0.45
 Pro forma                                                          (0.40)        0.44
 
Diluted EPS:
 As reported                                                  $     (0.37)  $     0.42
 Pro forma                                                          (0.40)        0.40
</TABLE>

A summary of the status of the Company's stock options at December 31, 1998 and
1997, and changes during the years then ended is presented below.

<TABLE>
<CAPTION>
                                                1998                    1997
                                      -----------------------  ---------------------
                                                   Wtd. Avg.               Wtd. Avg.
                                         Shares    Ex. Price     Shares    Ex. Price
                                      -----------------------  ---------------------
<S>                                     <C>        <C>          <C>        <C>
Employees
Outstanding, beginning of year           129,438       $4.16     124,250      $ 2.08
Granted                                   56,250        0.88      10,563       13.50
Exercised                                     --          --        (125)      10.50
Canceled                                    (625)       2.13      (5,250)       9.20
                                      ----------              ----------
Outstanding, end of year                 185,063       $0.96     129,438      $ 4.16
                                      ==========              ==========
Exercisable, end of year                 185,063       $0.96     107,500      $ 2.08
                                      ==========              ==========
Weighted average fair value of
 options granted                        $   0.50                $   7.59
                                      ==========              ==========
 
Directors and Consultants
Outstanding, beginning of year            30,000       $4.84      25,000      $ 3.20
Granted                                   12,500        0.88       5,000      $13.00
Exercised                                     --          --          --          --
Canceled                                      --          --          --          --
                                      ----------              ----------
Outstanding, end of year                  42,500       $0.86      30,000      $ 4.84
                                      ==========              ==========
Exercisable, end of year                  42,500       $0.86      30,000      $ 4.84
                                      ==========              ==========
Weighted average fair value of
 options granted                        $   1.00                $   7.30
                                      ==========              ==========
</TABLE>

                                      F-14
<PAGE>
 
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
                                   Options Outstanding             Options Exercisable
                         -------------------------------------- ------------------------
                                         Weighted
                                          Average
                             Number      Remaining                  Number
        Range of           Outstanding  Contractual  Wtd. Avg.    Exercisable  Wtd. Avg.
     Exercise Prices       at 12/31/98     Life      Ex. Price    at 12/31/98  Ex. Price
--------------------------------------------------------------- ------------------------
<S>                        <C>          <C>          <C>          <C>          <C>
Employees
$0.80--$.875                   171,250  8.88 years       $0.86        171,250      $0.86
$2.1252                         13,813  0.49 years       $2.13         13,813      $2.13
                          ------------                           ------------
                               185,063                                185,063
                          ============                           ============
Directors and Consultants
$0.80  $0.875                   42,500  7.34 years       $0.86         42,500      $0.86
                          ============                           ============
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: risk-free interest
rates of 5.67% and 6.70%; expected dividend yields of 0.0; expected lives of
five years; and estimated volatility of 11% and 57%.

Under the 1991 Employee Stock Plan, 143,791 shares of common stock were reserved
for the exercise of stock awards at December 31, 1998 and 1997.  Of the shares
reserved for exercise of stock awards, 3,728 and 14,353 shares were available
for future grants at December 31, 1998 and 1997, respectively

At December 31, 1998, 147,665 shares of common stock were reserved for the
exercise of stock awards under the 1998 Incentive Stock Plan.  Of the shares
reserved for exercise of stock awards, 102,665 shares were available for future
grants at December 31, 1998.


Note 6 -- Employee Benefit Plans

In November 1991, the stockholders adopted the ADDvantage Media Group, Inc.
401(k) Plan.  The Plan has a calendar year end.  Employees working at least
1,000 hours during a consecutive twelve-month period and at least 21 years of
age are eligible to participate.  Employees may contribute 1% to 15% of their
compensation.  The Company may make a discretionary match not to exceed 6% of
the participants' compensation.  Employer contributions are fully vested after
six years of service.  Employer contributions for 1998 and 1997 were $31,650 and
$39,408, respectively.

Effective December 7, 1995, the Company adopted the Supplemental Executive
Retirement Plan (the "Plan"), a nonqualified plan.  Two of the Company's
executive officers are the initial participants.  Generally, the Plan provides
for retirement benefits for participants who remain employed with the Company
until age 65, with a reduced benefit available for early retirement at 

                                      F-15
<PAGE>
 
age 62. Benefits will be funded by life insurance policies of $1,900,000 and
$1,800,000 on the lives of the participants, for which the Company is the
beneficiary. Deferred compensation expense of $131,424 and $119,471 was accrued
for 1998 and 1997, respectively. The deferred compensation liability is included
in the balance sheet in long-term obligations payable. For 1998 and 1997, the
cost of the related life insurance, net of increase in cash surrender value, is
$58,538 and $88,613, respectively. The cash surrender value of the policies at
December 31, 1998, was $262,783, included in other assets.


Note 7 -- Commitments and Contingencies

Commitments at December 31, 1998, under non-cancelable operating leases for
office, warehouse space and vehicles are as follows: 1999 -- $124,038 and 2000 
-- $29,256.

Total rent expense for the years ended December 31, 1998, and 1997, was $126,043
and $109,712, respectively.


Note 8 -- Earnings per Share

Basic and diluted EPS for the years ended December 31, 1998 and 1997, were
computed as follows:


<TABLE>
<CAPTION>
                                                           1998         1997
                                                     --------------------------
Basic EPS Computation:
<S>                                                    <C>           <C>
 Net income (loss)                                     $(2,163,994)  $2,722,103
 Less preferred stock dividends                             38,332       91,100
                                                     --------------------------
 
Net income (loss) applicable to common stockholders    $(2,202,326)  $2,631,003
                                                     ==========================
 
Weighted average shares outstanding                      1,476,646    1,463,075
                                                     --------------------------
 
Basic EPS                                              $     (1.49)  $     1.80
                                                     ==========================
 
Diluted EPS Computation:
Net income (loss) applicable to common stockholders    $(2,202,326)  $2,631,003
                                                     ==========================
 
Weighted average shares outstanding                      1,476,646    1,463,075
Incremental shares for assumed exercise of
 securities:
 Warrants                                                       --          301
 Options                                                        --      115,781
                                                     --------------------------
 
                                                         1,476,646    1,579,157
                                                     ==========================
 
Diluted EPS                                            $     (1.49)  $     1.67
                                                     ==========================
</TABLE>

                                      F-16
<PAGE>
 
The 227,750 shares of convertible preferred stock were not included in the 1997
computation of diluted EPS as their effect is anti-dilutive.  Outstanding
warrants and options to purchase common stock with an exercise price greater
than the average market price of common stock were not included in the
computation of diluted EPS.  The balance of such warrants and options was
210,063 and 22,875 in 1998 and 1997, respectively.


Note 9 -- Quarterly Financial Data (Unaudited)

Selected comparative fourth quarter data are as follows:

<TABLE>
<CAPTION>
                                                                 1998         1997
                                                           --------------------------
 
<S>                                                          <C>           <C>
Revenues                                                     $     4,038   $2,974,988
Costs and expenses                                             1,090,552    2,434,795
                                                           --------------------------
 
Operating income (loss)                                       (1,086,514)     540,193
Interest expense                                                   1,117        8,206
                                                           --------------------------
 
Income (loss) before income taxes                             (1,087,631)     531,987
Provision for income taxes                                       154,358     (195,446)
                                                           --------------------------
 
Net income (loss)                                               (933,273)     336,541
Preferred stock dividends                                             --      (22,899)
                                                           --------------------------
 
Net income (loss) applicable to common stock                 $  (933,273)  $  313,642
                                                           ==========================
 
Net income (loss) per common share:
 Basic                                                       $     (0.63)  $     0.20
                                                           ==========================
 
 Diluted                                                     $     (0.63)  $     0.20
                                                           ==========================
</TABLE>

During the fourth quarter of 1997, the Company changed its accounting estimate
related to the remaining useful lives of existing Shoppers Calculators installed
in Wal-Mart Supercenters and recorded additional depreciation of $396,375.

                                      F-17
<PAGE>
 
                                   SIGNATURES


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

                                 ADDVANTAGE MEDIA GROUP, INC.



Date:  March 30, 1999            By: /s/ Charles H. Hood
                                     -------------------
                                          Charles H. Hood
                                          President


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated:


<TABLE>
<CAPTION>
              Signature                             Title                         Date
-------------------------------------  --------------------------------  ------------------------
<S>                                         <C>                                 <C>  
/s/ Charles H. Hood                         President and Director              March 30, 1999
-------------------------------------       (Principal Executive Officer)
Charles H. Hood                         
 
                                            Executive Vice President-
                                            Finance and Administration,
/s/ Gary W. Young                           Treasurer and Director              March 30, 1999
-------------------------------------       (Principal Financial Officer and
Gary W. Young                               Principal Accounting Officer)

                                       
 
/s/ J. Larre Barrett                        Director                            March 30, 1999
-------------------------------------
J. Larre Barrett
 
/s/ Stephen G. Smith                        Director                            March 30, 1999
-------------------------------------
Stephen G. Smith
 
/s/ Steven C. Oden                          Director                            March 30, 1999
-------------------------------------
Steven C. Oden
 
/s/ John W. Condon                          Director                            March 30, 1999
-------------------------------------
John W. Condon
</TABLE>