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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2005



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE

SECURITIES EXCHANGE ACT OF 1934



Commission file number 1-10799



ADDVANTAGE TECHNOLOGIES GROUP, INC.

(Exact
name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oklahoma                                                       |  | 73-1351610                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|1605 East Iola Broken Arrow, Oklahoma                          |  | 74012                               
|(Address of principal executive offices)                       |  | (Zip code)                          



Registrants
telephone number: (918) 251-9121



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

Common Stock, $.01 par value



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



Name of each exchange on which registered: American Stock Exchange.



Indicate by check mark whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 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
| | ------ | --



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

| | Yes | No  X
| | --- | -----



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act)

| | Yes | No  X
| | --- | -----



The aggregate market value of the shares of common stock, par value $.01 per share, held by
non-affiliates of the issuer was $11,939,468 as of March 31, 2005.



The
number of the registrants common stock, $.01 par value per share, outstanding was 10,096,747 as of December 20, 2005.



Documents Incorporated by Reference



The identified sections of definitive Proxy Statement to be filed as Schedule 14A pursuant to Regulation 14A in connection with the Registrants 2006 annual meeting
of shareholders is incorporated by reference into Part III of this Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of the registrants most recent fiscal year.



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ADDVANTAGE TECHNOLOGIES GROUP, INC.

FORM 10-K

YEAR ENDED SEPTEMBER 30, 2005

INDEX



|         |  |                                                                                                             |  |     
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                             |  | Page
|         |  | PART I                                                                                                      |  |     
|         |  |                                                                                                            
|Item 1.  |  | Business                                                                                                    |  | 3   
|Item 2.  |  | Properties                                                                                                  |  | 10  
|Item 3.  |  | Legal Proceedings                                                                                           |  | 11  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         |  | 11  
|         |  |                                                                                                            
|         |  | PART II                                                                                                     |  |     
|         |  |                                                                                                            
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities |  | 12  
|Item 6.  |  | Selected Financial Data                                                                                     |  | 13  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operation                        |  | 13  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 22  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                 |  | 23  
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                        |  | 42  
|Item 9A. |  | Controls and Procedures                                                                                     |  | 42  
|Item 9B. |  | Other Information                                                                                           |  | 43  
|         |  |                                                                                                            
|         |  | PART III                                                                                                    |  |     
|         |  |                                                                                                            
|Item 10. |  | Directors and Executive Officers of the Registrant                                                          |  | 43  
|Item 11. |  | Executive Compensation                                                                                      |  | 43  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              |  | 43  
|Item 13. |  | Certain Relationships and Related Transactions                                                              |  | 44  
|Item 14. |  | Principal Accounting Fees and Services                                                                      |  | 44  
|         |  |                                                                                                            
|         |  | PART IV                                                                                                     |  |     
|         |  |                                                                                                            
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                     |  | 44  



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PART I



|ITEM  1. | BUSINESS
|-------- | --------



FORWARD-LOOKING
STATEMENTS



Certain matters discussed in this report constitute
forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, including statements which relate to, among other things, expectations of the business environment in which ADDvantage Technologies Group, Inc.
(the Company) operates, projections of future performance, perceived opportunities in the market and statements regarding our goals and objectives and other similar matters. The words estimates, projects,
intends, expects, anticipates, believes, plans and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places
throughout this report and the documents incorporated into it by reference. These and other statements which are not historical facts are hereby identified as forward-looking statements for purposes of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements are subject to a number of risks, uncertainties and developments beyond the control or foresight of
the Company, including changes in the trends of the cable television industry, technological developments, changes in the economic environment generally, the growth or formation of competitors, changes in governmental regulation or taxation, changes
in our personnel and other such factors. Our actual results, performance, or achievements may differ significantly from the results, performance, or achievements expressed or implied in the forward-looking statements. We do not undertake any
obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors
described herein and in other documents we file from time to time with the Securities and Exchange Commission.



BACKGROUND



We are a supplier of a
comprehensive line of electronics and hardware for the cable television (CATV) industry (both franchise and non-franchise, or private cable). Our products are used to acquire, distribute and protect the broad range of communications
signals carried on fiber optic, coaxial cable and wireless distribution systems. These products are sold to customers providing an array of communications services including television, high-speed data (internet) and telephony, to single family
dwellings, apartments and institutions such as hospitals, prisons, universities, schools, cruise boats and others.



Tulsat Corporation (Tulsat), one of our subsidiaries, is an exclusive Scientific-Atlanta Master Distributor for certain legacy products and distributes most
of Scientific-Atlantas other products. Tulsat has been designated an authorized third party Scientific-Atlanta repair center for selected products. Another subsidiary, NCS Industries (NCS), is a leading distributor of
Motorola broadband products. Other subsidiaries distribute Standard, Corning-Gilbert, Blonder-Tongue, RL Drake, Quintech, Terayon Communication Systems, and Videotek products. We continue to upgrade our products to stay in the forefront of
the communications broadband technology revolution.



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We continue to expand our core product lines (headend and distribution) to maintain the ability to provide electronics
equipment needed to build smaller cable systems and much of the equipment needed in larger systems for the most efficient operation and highest profitability in high density areas.



We also continue to purchase surplus equipment from cable operators and others that become available as a result of upgrades in their
systems or overstocks in their warehouses. We maintain one of the industrys largest inventories of new and refurbished equipment, allowing us to provide products within a short period of time. Each of our six locations operates service centers
specializing in Motorola, Magnavox, Scientific-Atlanta and Alpha Power Supplies repairs.



We continue to add products and services to maintain and expand our current customer base in North America, Latin America, Europe and the Far East. Recently, Scientific-Atlanta has appointed one of our
subsidiaries, Tulsat, as one of its non-exclusive distributors in Latin America. Since the appointment, management has made several trips to the area, visiting with relationships that had previously been developed by our new sales associate for this
area. In addition, Tulsat has renewed its contract for 12 months of advertising in the leading magazine for the cable equipment market in this area and Spain.



Economics seem to be improving for the international cable operators in Latin and South America. The continuing advances in technology, products and services will
continue to create a better financial model for potential customers. We require prepayment of purchases or letters of credit from U.S. banks prior to shipment of products to most international customers. Recently, we have found several other methods
of guaranteeing payment through insurance companies or government agencies. The successful implementation of alternative methods of payments should put our companies in a better position to capture market share.



GEOGRAPHIC AREAS



Revenues by geographic areas are as follows:



|                        |  |                          |  |      |            |      |   |           
|----------------------- |  | ------------------------ |  | ---- | ---------- | ---- | - | ----------
|                        |  | Year ended September 30,
|                        |  | 2005                     |  | 2004 |            | 2003
|Geographic Area         |  |                          |  |      |            |      |   |           
|United States           |  | $47,863,096              |  | $    | 46,163,254 |      | $ | 32,026,494
|Latin America and Other |  | 2,410,099                |  |      | 908,075    |      |   | 1,301,251 
|                        |  |                          |  |      |            |      |   |           
|                        |  | $50,273,195              |  | $    | 47,071,329 |      | $ | 33,327,745
|                        |  |                          |  |      |            |      |   |           



Revenues attributed to geographic
areas are based on the location of the customer. All of our long-lived assets are located in the United States.



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PRODUCTS AND SERVICES



Our sales of new products represent 74% of our revenue and re-manufactured product sales represent 17% of our revenues. Repair services contribute the remaining 9% of our
revenues.



Headend products are used by a system operator for signal
acquisition, processing and manipulation for further transmission. Among the products we offer in this category are satellite receivers (digital and analog), integrated receiver/decoders, demodulators, modulators, antennas and antenna mounts,
amplifiers, equalizers and processors. The headend of a television signal distribution system is the brain of the system, the central location where the multi-channel signal is initially received, converted and allocated to specific
channels for distribution. In some cases, where the signal is transmitted in encrypted form or digitized and compressed, the receiver will also be required to decode the signal.



Fiber products are used to transmit the output of cable system headend to multiple locations using fiber optic cable. Among the products
offered are optical transmitters, receivers, couplers, splitters and compatible accessories. These products convert RF frequencies to light frequencies and launch them on optical fiber. At each receiver site, an optical receiver is used to convert
the signals back to RF VHF frequencies for distribution to subscribers.



Distribution products are used to permit signals to travel from the headend to their ultimate destination in a home, apartment, hotel room, office or other terminal location along a distribution network of fiber optic or coaxial cable.
Among the products we offer in this category are optical transmitters, optical receivers, line extenders, broadband amplifiers, directional taps and splitters.



Other hardware such as test equipment, connector and cable products are also inventoried and sold to our customers.



SALES AND MARKETING



We market and sell our products to franchise and private cable operators, system contractors and others directly. Our sales and marketing
are predominantly performed by our internal sales force. We also have sales representatives in particular geographic areas. The majority of our sales activity is generated through personal relationships developed by our sales personnel and
executives, referrals from manufacturers we represent, advertising in trade journals, telemarketing and direct mail to our customer base in the United States. We have developed contacts with the major CATV operators in the United States and we are
constantly in touch with these operators regarding their plans for upgrading or expansion and their needs to either purchase or sell equipment. In 2005, we purchased approximately 40% of our inventory from Scientific-Atlanta and approximately 10% of
our inventory from Motorola. The concentration of suppliers of our inventory subjects us to risk. We also purchase a large amount of our inventory from cable operators who have upgraded or are in the process of upgrading their systems.



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COMPETITION



The CATV industry is highly competitive with numerous companies competing in various segments of the market. There are a number of competitors throughout the United
States engaged in buying and selling re-manufactured CATV equipment. Most of our competitors are not able to maintain the large inventory we maintain due to capital requirements. In terms of sales and inventory, we are the largest in this industry,
providing both sales and service of new and re-manufactured CATV equipment.



We
also face competition from manufacturers and other vendors supplying new products. Due to our large inventory, we generally have the ability to ship and supply products to our customers from our large inventory without having to wait for the
manufacturers to supply the items.



SIGNIFICANT CUSTOMERS



We are not dependent on one or a few customers to support our business. Our customer base
consists of over 1,200 active accounts. Sales to Power and Telephone Supply Company accounted for approximately 11% of our revenues in fiscal 2005. Approximately 28% of our revenues for fiscal year 2005 and approximately 23% for 2004 were derived
from sales of products and services to our five largest customers. There are approximately 6,000 cable television systems within the United States, each of which is a potential customer.



PERSONNEL



At September 30, 2005, we had 159 employees. Management considers its relationships with its employees to be excellent. Our employees are not unionized and we are
not subject to any collective bargaining agreements.



RECENT DEVELOPMENTS IN
THE BUSINESS



On December 12, 2005, Tulsat, a subsidiary of ours,
announced the signing of a three-year contract extension with Scientific-Atlantic to be a Master Distributor of their current and legacy equipment. Under the terms of the agreement, we will also continue to be the exclusive distributor for select
Scientific-Atlantic headend and transmission products for U.S. customers through January 15, 2009.



On August 19, 2005, we purchased 100% of the outstanding stock of Jones Broadband International, Inc. (JBI) consisting of approximately $2.4 million in debt assumption, including accrued liabilities,
and cash of approximately $1.6 million. The total purchase price represented the approximate book value of JBI, consisting of $2.6 million of inventory after an approximate $480,000 write down to market, and $1.3 million of other assets including
receivables and fixed assets. JBIs main office is in Oceanside, California and it has a warehouse in Stockton, California. We maintain good working relationships with the existing JBI sales and marketing staff and believe their West Coast
presence with access to our other subsidiaries products will make this a good acquisition.



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RISK FACTORS



Each of the following risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment
in our common stock. Additional risks not presently known, or which we currently consider immaterial also may adversely affect us.



We are highly dependent upon our principal executive officers who also control us. At September 30, 2005, David Chymiak, Chairman of the Board, and
Kenneth Chymiak, President and Chief Executive Officer, owned approximately 69% of our outstanding common stock and 100% of our outstanding preferred stock. Our performance is highly dependent upon the skill, experience and availability of these two
persons. Should either of them become unavailable to us, our performance and results of operations would probably be adversely affected to a material extent. In addition, they will continue to own a controlling interest in us, thus restricting our
ability to take any action without their approval or acquiescence. Likewise, as shareholders, they may elect to take certain actions which may be contrary to the interests of the other shareholders.



Our business is dependent on our customers capital budgets. Our
performance is impacted by our customers capital spending for constructing, rebuilding, maintaining or upgrading broadband communications systems. Capital spending in the telecommunications industry is cyclical. A variety of factors will
affect the amount of capital spending, and therefore, our sales and profits, including:



| |  |  | consolidations and recapitalizations in the cable television industry;
| | - |  | ----------------------------------------------------------------------

| |  |  | general economic conditions;
| | - |  | ----------------------------

| |  |  | availability and cost of capital;
| | - |  | ---------------------------------

| |  |  | other demands and opportunities for capital;
| | - |  | --------------------------------------------

| |  |  | regulations;
| | - |  | ------------

| |  |  | demands for network services;
| | - |  | -----------------------------

| |  |  | competition and technology; and
| | - |  | -------------------------------

| |  |  | real or perceived trends or uncertainties in these factors.
| | - |  | -----------------------------------------------------------



Developments in the industry and in the capital markets in recent years have reduced access to funding for certain customers, causing delays in the timing and scale of
deployments of our equipment, as well as the postponement or cancellation of certain projects by our customers.



On the other hand, a significant increase in the capital budgets of our customers could impact us in a negative fashion. Much of our inventory consists of refurbished and
surplus-new equipment and materials that we have acquired from other cable operators. If our customers seek higher end, more expensive equipment, the demand for our products may suffer.



The markets in which we operate are very competitive, and competitive pressures may adversely affect our results of
operations. The markets for broadband communication equipment are extremely competitive and dynamic, requiring the companies that compete in these markets to react quickly and capitalize on change. This will require us to make quick
decisions and deploy substantial resources in an effort to keep up with the ever-changing demands of the industry. We compete with national and international manufacturers, distributors, resellers and wholesalers including many companies larger than
we are.



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The rapid technological changes occurring in the broadband markets may lead to the entry of new competitors, including
those with substantially greater resources than we have. Because the markets in which we compete are characterized by rapid growth and, in some cases, low barriers to entry, smaller niche market companies and start-up ventures also may become
principal competitors in the future. Actions by existing competitors and the entry of new competitors may have an adverse effect on our sales and profitability. The broadband communications industry is further characterized by rapid technological
change. In the future, technological advances could lead to the obsolescence of a substantial portion of our current inventory, which could have a material adverse effect on our business.



Consolidations in the telecommunications industry could result in delays or reductions in purchases of products, which would have a
material adverse effect on our business. The telecommunications industry has experienced the consolidation of many industry participants, and this trend is expected to continue. We and one or more of our competitors may each supply products
to businesses that have merged, such as AT&T Broadband and Comcast, or will merge in the future. Consolidations could result in delays in purchasing decisions by the merged businesses, and we could play either a greater or lesser role in
supplying the communications products to the merged entity. These purchasing decisions of the merged companies could have a material adverse effect on our business. Mergers among the supplier base also have increased, and this trend may continue.
The larger combined companies with pooled capital resources may be able to provide solution alternatives with which we would be at a disadvantage to compete. The larger breadth of product offerings by these consolidated suppliers could result in
customers electing to trim their supplier base for the advantages of one-stop shopping solutions for all of their product needs. Consolidation of the supplier base could have a material adverse effect on our business.



Our success depends in large part on our ability to attract and retain qualified
personnel in all facets of our operations. Competition for qualified personnel is intense, and we may not be successful in attracting and retaining key executives, marketing, engineering and sales personnel, which could impact our ability to
maintain and grow our operations. Our future success will depend, to a significant extent, on the ability of our management to operate effectively. The loss of services of any key personnel, the inability to attract and retain qualified personnel in
the future or delays in hiring required personnel, particularly engineers and other technical professionals, could negatively affect our business.



We are substantially dependent on certain manufacturers, and an inability to obtain adequate and timely delivery of products could adversely affect our
business. We are a value added reseller and master distributor for Scientific-Atlanta and a value added reseller of Motorola broadband and transmission products. Should these relationships terminate or deteriorate, or should either
manufacturer be unable or unwilling to deliver the products needed by us for our customers, our performance could be adversely impacted. An inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative
sources of supplies could affect our ability to ship products on a timely basis. Any inability to reliably ship our products on time could damage relationships with current and prospective customers and harm our business.



We have a large investment in our inventory which could become obsolete or
outdated. Much of our inventory is acquired from other cable operators and is in the nature of used, refurbished,



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remanufactured or surplus new equipment. Determining the amounts and types of inventory requires us to speculate to some degree as to what the future demands
of our customers will be. Technological changes, consolidation in the industry or competition from other types of broadcast media could substantially reduce the demands for our inventory, which could have a material adverse effect upon our business
and financial results.



Our outstanding common stock is very thinly
traded. While we have approximately 10.1 million shares of common stock outstanding, 69% of these shares are beneficially owned at December 1, 2005 by David Chymiak and Kenneth Chymiak. As a consequence, only about 31% of our
shares of common stock are held by nonaffiliated, public investors and available for public trading. The average daily trading volume of our common stock is low. Thus, investors in our common stock may encounter difficulty in liquidating their
investment in a timely and efficient manner.



We have not paid any
dividends on our outstanding common stock and have no plans to pay dividends in the future. We currently plan to retain our earnings and have no plans to pay dividends on our common stock in the future. We may also enter into credit
agreements or other borrowing arrangements which may restrict our ability to declare dividends on our common stock.



Our principal executive officers and shareholders have a number of conflicts of interest with us. Certain of our key properties are leased from entities
owned by our principal executive officers. Also, these executives have made loans to us in various amounts in the past and were paid interest on these loans. These transactions are described in the proxy statement that is incorporated by reference
into this report. These arrangements create certain conflicts of interest between these executives and us that may not always be resolved in a manner most beneficial to us.



Our international operations may be adversely affected by a number of factors. Although the majority of our business efforts
are focused in the United States, we have international operations in the Philippines, Taiwan, Korea, Japan, Australia, Brazil, Ecuador, Dominican Republic, Honduras, Panama, Mexico, Columbia and a few other Latin American countries. We currently
have no binding agreements or commitments to make any material international investment. Our foreign operations may be adversely affected by a number of factors, including:



| |  |  | local political and economic developments could restrict or increase the cost of our foreign operations;
| | - |  | --------------------------------------------------------------------------------------------------------

| |  |  | exchange controls and currency fluctuations;
| | - |  | --------------------------------------------

| |  |  | tax increases and retroactive tax claims could increase costs of our foreign operations;
| | - |  | ----------------------------------------------------------------------------------------

| |  |  | expropriation of our property could result in loss of revenue, property and equipment;
| | - |  | --------------------------------------------------------------------------------------

| |  |  | import and export regulations and other foreign laws or policies could result in loss of revenues; and
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | laws and policies of the United States affecting foreign trade, taxation and investment could restrict our ability to fund foreign operations or make foreign operations more costly.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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OVERVIEW OF THE INDUSTRY



We participate in markets for equipment sold primarily to cable operators and other related parties. As internet usage by households continues to increase, more
customers are electing to switch from dial-up access services to high-speed services, particularly those offered by cable operators in the United States. Within the last few years, certain cable operators have begun to offer a
triple-play bundle of services that includes voice, video and high-speed data over a single network with the objective of capturing higher average revenues per subscriber. We believe cable operators are well positioned to deliver
next-generation voice, video and data services because cable operators have invested significantly over the past few years to upgrade their cable plants to digital networks. These upgrades allow them to leverage their incumbent video and high speed
data positions further. Many cable operators have well-equipped networks to offer video and two-way high-speed data services to over 90% of their subscribers and through their existing Hybrid Fiber Co-axial (HFC) infrastructure, are capable of
delivering symmetrical high-bandwidth video, voice and data to their subscribers.



For the past couple of years, we believe that we have been able to provide the products and services sought after by cable operators as they establish and expand their services and territories. Our relationships with our principal vendors,
Scientific-Atlanta and Motorola, provide solutions with products that are required to implement and support existing cable operators. These relationships and our inventory are key factors in our significant revenue and profits.



We are focused on the opportunities provided by technological changes in fiber-to-the
premises, the expansion of bandwidth, and our recent appointment as a Scientific-Atlanta International Distributor for Latin and South America. We will continue to stock legacy CATV equipment as well as digital and optical broadband
telecommunications equipment from major suppliers so we can provide our customers one-stop shopping and access to hard-to-find products by reducing customer downtime by our having the product in stock. Our customers consult with us for
solutions for various products and configurations. Our experienced sales support staff has the technical know-how to consult with our customers regarding solutions for various products and configurations. Through our seven world-class service
centers that provide warranty and out-of-warranty repairs, we continue to reach new customers.



|ITEM  2. | PROPERTIES
|-------- | ----------



Each subsidiary owns or leases property for office space and warehouse facilities.



| |  |  | Broken Arrow, OklahomaTulsat leases a total of approximately 133,050 square feet of facilities in seven buildings from entities which are controlled by David E. Chymiak,
Chairman of the Board, and Kenneth A. Chymiak, President and Chief Executive Officer. Each lease has a renewable five-year term, expiring at different times through 2008. At September 30, 2005, total monthly rental payments of $38,800 were
required.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deshler, NebraskaTulsat-Nebraska, Inc. (Tulsat-Nebraska) owns approximately 8,000 square feet of property.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Warminster, PennsylvaniaNCS owns approximately 12,000 square feet of property, with an
| | - |  | ---------------------------------------------------------------------------------------



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| | investment of $567,000, financed by loans of $419,000, due in monthly payments through 2013 at an interest rate of 5.5% through 2008, converting thereafter
to prime minus 1/4%. NCS also rents property of approximately 2,000 square feet, with monthly rental payments of
$1,200 through November 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sedalia, MissouriADDvantage Technologies Group of Missouri, Inc. (dba ComTech Services) owns approximately 25,000 square feet of property.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | New Boston, TexasADDvantage Technologies Group of Texas, Inc. (Tulsat-Texas) owns approximately 13,000 square feet of property.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Suwanee, GeorgiaTulsat-Atlanta, LLC (Tulsat-Atlanta) leases property of approximately 5,000 square feet. The lease provides for 36 monthly lease payments of $3,500
ending on March 31, 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Oceanside, CaliforniaJones Broadband International, Inc. leases approximately 11,000 square feet of office, warehouse, and testing space for $11,031 a month. The lease runs
through November 30, 2006 and has four five-year renewal options.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stockton, CaliforniaJones Broadband International, Inc. leases approximately 45,000 square feet of warehouse space for $5,841 a month. The lease ends February 28, 2006
and has a one-year renewal option.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that our current facilities are adequate to meet our needs.



|ITEM  3. | LEGAL PROCEEDINGS
|-------- | -----------------



From time to time
in the ordinary course of business, we have become a defendant in various types of legal proceedings. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results
of operations or cash flows.



|ITEM  4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|-------- | ---------------------------------------------------



There were no matters submitted to a vote of our stockholders in the fourth quarter of fiscal 2005.



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PART II



|ITEM  5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|-------- | ------------------------------------------------------------------------------------------------------------



The table sets forth the high and low sales prices on the American Stock Exchange for the quarterly periods indicated.



|                              |  |      |      |     |   |     
|----------------------------- |  | ---- | ---- | --- | - | ----
|Year Ended September 30, 2005 |  | High |      | Low
|First Quarter                 |  | $    | 6.30 |     | $ | 3.85
|Second Quarter                |  | $    | 5.94 |     | $ | 3.95
|Third Quarter                 |  | $    | 4.25 |     | $ | 3.03
|Fourth Quarter                |  | $    | 4.05 |     | $ | 3.10
|                              |  |     
|Year Ended September 30, 2004 |  | High |      | Low
|First Quarter                 |  | $    | 6.05 |     | $ | 3.00
|Second Quarter                |  | $    | 5.90 |     | $ | 4.00
|Third Quarter                 |  | $    | 6.90 |     | $ | 4.66
|Fourth Quarter                |  | $    | 5.30 |     | $ | 3.35



Substantially all of the holders of
our common stock maintain ownership of their shares in street name accounts and are not, individually, shareholders of record. As of December 1, 2005, there were approximately 80 holders of record of our common stock. However, we
believe there are in excess of 500 beneficial owners of our common stock.



DIVIDEND POLICY



We have never declared or paid a cash
dividend on our common stock. It has been the policy of our Board of Directors to use all available funds to finance the development and growth of our business. The payment of cash dividends in the future will be dependent upon our earnings and
financial requirements and other factors deemed relevant by our Board of Directors. Under the terms of our outstanding preferred stock, no dividends may be paid on our common stock unless all cumulative cash dividends due on the preferred stock have
been paid or provided for.



REPURCHASE PROGRAM



In 2000, our Board of Directors authorized the repurchase of up to $l.0 million of our
outstanding common stock from time to time in the open market at prevailing market prices or in privately negotiated transactions. The repurchased shares will be held in treasury and used for general corporate purposes including possible use in our
employees stock plans or for acquisitions. We did not repurchase any shares during the 2004 or 2005 fiscal years.



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##### Index to Financial Statements

|ITEM  6. | SELECTED FINANCIAL DATA
|-------- | -----------------------



SELECTED CONSOLIDATED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



|                                                      |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|----------------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                      |  | Year ended September 30,
|                                                      |  | 2005                     |        | 2004 |   | 2003   |  | 2002 |        | 2001
|Net Sales and service income                          |  | $                        | 50,273 |      | $ | 47,071 |  | $    | 33,327 |      | $ | 25,409 |  | $ | 22,885
|                                                      |  |                          |        |      |  
|Income from operations                                |  |                          | 9,963  |      |   | 9,484  |  |      | 6,197  |      |   | 3,550  |  |   | 4,855 
|                                                      |  |                          |        |      |  
|Net income                                            |  |                          | 5,814  |      |   | 5,814  |  |      | 4,493  |      |   | 2,201  |  |   | 2,851 
|                                                      |  |                          |        |      |  
|Earnings per share                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Basic                                                 |  | $                        | .49    |      | $ | .46    |  | $    | .33    |      | $ | .10    |  | $ | .16   
|Diluted                                               |  | $                        | .49    |      | $ | .41    |  | $    | .30    |      | $ | .10    |  | $ | .16   
|                                                      |  |                          |        |      |  
|Total assets                                          |  | $                        | 39,269 |      | $ | 32,359 |  | $    | 31,748 |      | $ | 26,531 |  | $ | 25,335
|                                                      |  |                          |        |      |  
|Long-term obligations inclusive of current maturities |  | $                        | 9,382  |      | $ | 11,610 |  | $    | 6,912  |      | $ | 6,276  |  | $ | 6,253 



|ITEM  7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|-------- | ------------------------------------------------------------------------------------



The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated historical financial statements
and the notes to those statements that appear elsewhere in this report. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under BusinessRisk
Factors and elsewhere in this report.



General



We and our subsidiaries, Tulsat, Tulsat-Nebraska, NCS,
ComTech Services, Tulsat  Texas, Tulsat  Atlanta and Jones Broadband International, Inc. comprise an organization involved in the re-manufacture, repair and sale of previously owned cable television (CATV) equipment and the
distribution of new and surplus equipment to CATV operators. New sales are defined as products that are purchased from the manufacturer, and includes new surplus, which is defined as inventory items purchased from other distributors or multi-system
operators with excess equipment that have never been used. Remanufactured sales are defined as used inventory that is updated to meet customer needs and requirements.



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##### Index to Financial Statements

Overview



Fiscal 2005 continued to be a challenging business climate in our industry due to many of the large cable customers allocating a higher
percentage of their capital expenditures to meeting challenges from regional telephone companies such as Verizon and SBC as they attempt to provide data, voice, and video services. Many of the smaller cable systems are limited to the amount of
capital they can raise to meet these challenges coupled with competition from DBS and DirecTV.



Our subsidiaries continued to increase their revenues and market share with the larger cable customers based on relationships and being able to meet their needs by shipping directly from our inventory. Our increase in
sales of new Motorola and Scientific-Atlanta products were the result of having the products on the shelf.



Our customers are primarily providers of broadband network delivered services. Our largest customers are the cable, multi-system operators although we serve telephone companies, television programmers and
broadcasters, municipal utilities, distributors and other broadband service providers.



Our strategy is to identify features, products and systems which are needed by our customers in significant numbers. The markets we serve consist of several large multiple cable customers and many smaller cable companies. The pace of
technology change is rapid and requires a comprehensive understanding of the nature of the services offered to customers as well as the equipment to deliver the services. Accordingly, maintaining direct relationships with our customers is important.
We specialize in providing current products for replacement, rebuilds or adding channel capacity. Even though we sell leading edge products, the majority of our sales are for legacy products.



In the fourth quarter, we experienced significant revenue growth as a result of our agreement
with Scientific-Atlanta to be the exclusive distributor of its System Amplifier III RF platform and other cable television equipment products to the U.S. and Latin America markets. Additionally, we recognized a total of approximately $1 million of
incremental revenue in the fourth quarter related to the active hurricane season as well as approximately $600,000 of increased revenue attributable to Jones Broadband International, Inc., which we acquired in August 2005. Our ability to deliver
inventory from stock on demand played a significant role in our fourth quarter and fiscal 2005 revenues and net income.



We anticipate that the continuation of our growth strategy in fiscal 2006 will produce another record year. We believe our strong relationships with leading product
manufacturers, including Motorola and Scientific-Atlanta, and our positive reputation in the multi-billion dollar CATV industry positions us for long-term success. Our plan is to drive future performance through an expanded sales force, both
domestic and overseas; enhanced strategic partnerships; and additional strategic acquisitions that complement our existing one-stop-shop capabilities and are accretive to earnings.



On August 19, 2005, we purchased 100% of the outstanding stock of Jones Broadband
International, Inc. (JBI), for consideration consisting of approximately $2.4 million in debt assumption, including



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##### Index to Financial Statements

accrued liabilities, and cash of approximately $1.6 million. The total purchase price represented the approximate book value of JBI, consisting of $2.6
million of inventory after an approximate $480,000 write down to market, and $1.3 million of other assets including receivables and fixed assets. JBIs main office is in Oceanside, California and it has a warehouse in Stockton, California. We
maintain good working relationships with the existing JBI sales and marketing staff and believe their West Coast presence with access to our other subsidiaries products will make this a good acquisition. We will be evaluating future
investments as they present themselves.



Results of Operation



Year Ended
September 30, 2005, Compared to Year Ended September 30, 2004 (all references to years are to fiscal years)



Net Sales. Net sales climbed $3.2 million, or 6.8%, to $50.3 million for 2005 from $47.1 million for 2004. Sales of new and refurbished equipment increased 8.3%
from $42.3 million in 2004 to $45.8 million for 2005, primarily due to the positive results of our marketing initiatives and the strengthening of our distributor relationships. Sales of new Scientific-Atlanta and Motorola equipment increased
substantially as we strengthened our strategic alliances with these manufacturers. Repair service revenues decreased by 6.3% from $4.8 million last year to $4.5 million this year. The decrease in repair services was due to several recent changes in
the market. Multi-system operators have been consolidating headends reducing the number required to do the job. This in turn has allowed operators to use the extra headends as replacements instead of repairing the ones not working. Finally, several
years ago the manufacturers started giving five year warranties on their products. These warranties are set to run out in 2006 and 2007 and we expect the repair business will return to us.



Costs of Sales. Costs of sales include the costs of new and refurbished equipment, on
a weighted average cost basis, sold during the period, the equipment costs used in repairs, and the related transportation costs. Costs of sales this year were 66.4% of net sales compared to 66.1% last year. This increase is due to lower margins
associated with the increased sales of new equipment.



Gross
Profit. Gross profit climbed $0.9 million, or 5.6%, to $16.9 million for fiscal 2005 from $16.0 million for fiscal 2004. The gross margin percentage was 33.6% for the current year, compared to 33.9% for last year. The small percentage decrease
was primarily due to an increase in sales of new and surplus equipment, which have margins lower than those of re-manufactured equipment or repairs.



Operating, Selling, General and Administrative Expenses. Operating, selling, general and administrative expenses include all personnel costs, including fringe
benefits, insurance and taxes, occupancy, transportation, communication and professional services, among other less significant accounts. Operating, selling, general and administrative expenses increased by $426,000 for fiscal 2005 to $6.6 million
from $6.2 million in 2004, an increase of 6.5%. The increase in operating, selling, general and administrative expenses was primarily due to increases in salary and wage related expenses.



15



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##### Index to Financial Statements

Income from Operations. Income from operations increased $.5 million, or 5.3%, to $10.0 million for 2005 from $9.5
million for 2004. This increase was primarily due to increases in sales of new equipment to the larger multi-system operators, partially offset by the lower margins received and the increase in our operating, selling, general and administrative
expenses.



Interest Expense. Interest expense for fiscal 2005 was
$558,000 compared to $158,000 in fiscal 2004. The increase was primarily attributable to the $8,000,000 new borrowings incurred to finance our redemption of the Series A Preferred Stock on September 30, 2004. This redemption resulted in our
payment in 2005 of $400,000 less dividends. Our interest expense is deductible for federal income tax purposes while the dividends we had been paying were not. The weighted average interest rate paid on the line of credit increased to 2.96% for 2005
from 2.85% for 2004. The weighted average interest rate for all borrowed funds for 2005 was 5.31% compared to 2.85% in 2004.



Income Taxes. The provision for income taxes for fiscal 2005 increased to $3.6 million from $3.5 million in fiscal 2004. The increase was primarily due to higher
pre-tax earnings in fiscal 2005.



Year Ended
September 30, 2004, Compared to Year Ended September 30, 2003 (all references to years are to fiscal years)



Net Sales. Net sales climbed $13.7 million, or 41.2%, to $47.1 million for 2004 from $33.3 million for 2003. Sales of new and refurbished equipment increased 46.8%
from $28.8 million for 2003 to $42.3 million for 2004 as we strengthened our role as a master distributor for several of Scientific-Atlantas legacy products and increased sales of Motorola products. Repair revenue resulted in a 6.7% increase
in revenues, from $4.5 million for 2003 to $4.8 million for 2004.



Costs of
Sales. Costs of sales includes the costs of new and refurbished equipment, on a weighted average cost basis, sold during the period, the equipment costs used in repairs, and the related transportation costs. Costs of sales for 2004 were 66.1% of
net sales compared to 66.0% for 2003.



Operating, Selling, General and
Administrative Expenses. Operating, selling, general and administrative expenses includes all personnel costs, including fringe benefits, insurance and taxes, occupancy, transportation (other than freight-in), communication and professional
services, among other less significant accounts. Operating, selling, general and administrative expenses increased $1.3 million, or 27.5%, in 2004 over the previous year. Most of this increase was directly attributable to the expanding sales force
and other added expenses incurred to meet the marketing initiatives described previously.



Income from Operations. Income from operations increased 53.1% to $9.5 million for 2004 from $6.2 million for 2003. This increase was primarily due to the increase in net sales and the increase in our
operating, selling, general and administrative expenses.



Interest
Expense. Interest expense for fiscal 2004 was $158,000 compared to $217,000 in fiscal 2003 due to lower interest rates and need for less borrowing.



16



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##### Index to Financial Statements

Income Taxes. The provision for income taxes for fiscal 2004 increased to $3.5 million from $1.5 million in fiscal
2003. The increase was primarily due to higher pre-tax earnings. For a more complete discussion of income taxes, please see Note 4  Income Taxes in the notes to the consolidated financial statements.



Inflation has had no noticeable impact on our revenues over the last three years. The
increase in revenue has been primarily a result of increasing our market share and the increased demand for our products resulting from our increased availability of products for sale.



Liquidity and Capital Resources



We finance our operations primarily through internally generated funds and a bank line of credit. During 2005, we generated approximately
$6.2 million cash flow from operations. During the 2005 fiscal year we invested approximately $3.5 million to acquire Jones Broadband International (see notes to the financials) and another almost $450,000 in additional capital equipment. We also
increased our net carrying value of inventory by $1.4 million, while decreasing our bank borrowings by $2.2 million, and meeting our preferred stock dividend obligations of $0.8 million, resulting in a net decrease in cash of approximately $0.9
million.



On September 30, 2004, the Company redeemed all of the
outstanding shares of its Series A 5% Cumulative Convertible Preferred Stock (the Series A Preferred Stock) at its aggregate stated value of $8 million. All of the outstanding shares of Series A Preferred Stock were held beneficially by
David E. Chymiak, Chairman of the Board of the Company, and Kenneth A. Chymiak, President and Chief Executive Officer of the Company. The Company financed the redemption with a new credit agreement with its bank which includes a Revolving Credit
Commitment in the amount of $7 million and a Term Loan Commitment in the amount of $8 million. The proceeds from the Term Loan were used to redeem the Series A Preferred Stock. At September 30, 2005 the term loan balance was $6,800,000.



We have a line of credit with the Bank of Oklahoma under which we are
authorized to borrow up to $7.0 million at a borrowing rate based on the prevailing 30-day LIBOR rate plus 2.0% (5.86% at September 30, 2005 and 2.96% average for fiscal year 2005). This line of credit will provide the lesser of $7.0 million or
the sum of 80% of qualified accounts receivable and 50% of qualified inventory in a revolving line of credit for working capital purposes. The line of credit is collateralized by inventory, accounts receivable, equipment and fixtures, and general
intangibles and had an outstanding balance at September 30, 2005 of $2.2 million, due September 30, 2006. The highest balance against this line in 2005 was approximately $2.9 million.



Notes payable secured by real estate of $347,270 are due in monthly payments through 2013
with interest at 5.5% through 2008, converting thereafter to prime minus .25%.



Cash used in financing activities in 2005 was primarily used to pay dividends on our Series B 7% Cumulative Preferred Stock (the Series B Preferred Stock). With the redemption of the Series A Preferred Stock on
September 30, 2004, dividends on the remaining Series B Preferred Stock total $840,000 annually. The outstanding common and preferred stock is beneficially owned by our principal shareholders as reflected in the following table.



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##### Index to Financial Statements

Related Parties



Cash used in financing activities in 2005 was primarily used to pay dividends on the Companys Series B Preferred Stock and for the
note payments for the buy-out of Series A Preferred Stock on September 30, 2004. On September 30, 2004, the Company redeemed, at the $8 million stated value, all of the Series A Preferred Stock, which was beneficially owned by David E.
Chymiak and Kenneth A. Chymiak. With the redemption of the Series A Preferred Stock on September 30, 2004, dividends on the remaining Series B Preferred Stock total $840,000 annually. The outstanding common and preferred stock is beneficially
owned by our principal shareholders as reflected in the following table.



|                         |  |                                        |   |  |                                                       |  
|------------------------ |  | -------------------------------------- | - |  | ----------------------------------------------------- | -
|Stock Ownership          |  |                                        |   |  |                                                       |  
|Name of Beneficial Owner |  | Percent ofCommonStockBeneficiallyOwned |   |  | Percent ofSeries BPreferredStockBeneficiallyOwned (A) |  
|                         |  |                                       
|David E. Chymiak         |  | 36.5                                   | % |  | 50.0                                                  | %
|                         |  |                                       
|Kenneth A. Chymiak       |  | 32.7                                   | % |  | 50.0                                                  | %

---

|(A) | The outstanding preferred stock has an aggregate preference upon liquidation of $12,000,000.
|--- | --------------------------------------------------------------------------------------------



In fiscal 1999, Chymiak Investments, L.L.C., which is owned by David E. Chymiak and Kenneth A. Chymiak, purchased from Tulsat Corporation on
September 30, 1999, the real estate and improvements comprising the headquarters and a substantial portion of the other office and warehouse space of Tulsat Corporation for a price of $1,286,000. The price represents the appraised value of the
property less the sales commission and other sales expenses that would have been incurred by Tulsat Corporation if it had sold the property to a third party in an arms-length transaction. Tulsat Corporation entered into a five-year lease
commencing October 1, 1999 with Chymiak Investments, L.L.C. covering the property. This lease was renewed on October 1, 2004 and will expire on September 30, 2008.



The Company leases various properties primarily from two companies owned by David E. Chymiak and Kenneth A. Chymiak. Future minimum lease
payments under these leases are as follows:



|     |  |   |          
|---- |  | - | ---------
|2006 |  | $ | 377,640  
|2007 |  | $ | 360,000  
|2008 |  | $ | 324,000  
|     |  |   |          
|     |  | $ | 1,061,640
|     |  |   |          



Related party rental expense for the
years ended September 30, 2005, 2004 and 2003 was $465,840, $466,000 and $461,000, respectively.



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##### Index to Financial Statements

The following table presents our contractual obligations for aggregate maturities of long term debt and the minimum lease
payments under our lease agreements.



|                        |  |                        |            |                  |   |            |  |           |           |                  |   |           |  |   |        
|----------------------- |  | ---------------------- | ---------- | ---------------- | - | ---------- |  | --------- | --------- | ---------------- | - | --------- |  | - | -------
|                        |  | Payments due by period
|Contractual Obligations |  | Total                  |            | Less than 1 year |   | 1- 3 years |  | 3-5 years |           | More than5 years
|Long Term Debt          |  | $                      | 9,381,950  |                  | $ | 3,473,751  |  | $         | 2,485,033 |                  | $ | 3,294,919 |  | $ | 128,247
|Capital Leases          |  | $                      |           |                  | $ |           |  | $         |          |                  | $ |          |  | $ |       
|Operating Leases        |  | $                      | 1,357,655  |                  | $ | 588,595    |  | $         | 769,060   |                  | $ |          |  | $ |       
|Purchase Obligations    |  | $                      |           |                  | $ |           |  | $         |          |                  | $ |          |  | $ |       
|                        |  |                        |            |                  |   |            |  |           |           |                  |   |           |  |   |        
|Total                   |  | $                      | 10,739,605 |                  | $ | 4,062,346  |  | $         | 3,254,093 |                  | $ | 3,294,919 |  | $ | 128,247
|                        |  |                        |            |                  |   |            |  |           |           |                  |   |           |  |   |        



We believe that cash flow from
operations, existing cash balances and our existing line of credit provide sufficient liquidity and capital resources to meet our working capital needs.



Critical Accounting Policies and Estimates



Note 1 to the Consolidated Financial Statements in this Form 10-K for fiscal year 2005 includes a summary of the significant accounting policies or methods used in the
preparation of our Consolidated Financial Statements. Some of those significant accounting policies or methods require us to make estimates and assumptions that affect the amounts reported by us. We believe the following items require the most
significant judgments and often involve complex estimates.



General



The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience, current market conditions, and various other factors we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The most significant estimates and assumptions relate to the carrying value of our inventory and, to a lesser extent, the adequacy of our allowance for doubtful accounts.



Inventory Valuation



Our position in the industry requires us to carry large inventory quantities relative to
annual sales, but also allows us to realize high overall gross profit margins on our sales. We market our products primarily to multi-system operators and other users of cable television equipment who are seeking products for which manufacturers
have discontinued production, or cannot ship new equipment on a same-day basis. Carrying these large inventories represents our largest risk.



Our inventory consists of new and used electronic components for the cable television industry. Inventory cost is stated at the lower of cost or market and our cost is
determined using the weighted



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##### Index to Financial Statements

average method. At September 30, 2005 we had total inventory of approximately $26,900,000, consisting of approximately $20,000,000 in new products and
approximately $6,800,000 in used or refurbished against which a reserve of $1,600,000 for excess and obsolete inventory leaves us a net inventory of approximately $25,300,000.



We are required to make judgments as to future demand requirements from our customers. We regularly review the value of our inventory in
detail with consideration given to rapidly changing technology which can significantly affect future customer demand. For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be
able to recover our acquisition costs for sales that we do make. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value when the loss of usefulness of an item
or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold. During the last two fiscal years ended September 30, 2005, we have increased our reserve for excess and obsolete inventory
over $1,000,000 to almost 6% of total inventory. If actual market conditions are less favorable then those projected by management, and our estimates prove to be inaccurate, we could be required to increase our inventory reserve and our gross
margins could be adversely affected.



Inbound freight charges are included in
costs of sales. Purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs and other inventory expenditures are included in operating expenses since the amounts involved are not considered material.



Accounts Receivable Valuation



Management judgments and estimates are made in connection with establishing the allowance
for doubtful accounts. Specifically, we analyze the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant
changes in customer concentration or payment terms, deterioration of customer credit-worthiness, as in the case of the bankruptcy of Adelphia and its affiliates, or weakening in economic trends could have a significant impact on the collectibility
of receivables and our operating results. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The reserve for bad debts increased to
$92,000 at September 30, 2005 from $68,063 at September 30, 2004. This increase represents less than 1/10 of a percent of total revenues and is due to the increasing level of sales revenue and its corresponding exposure. At
September 30, 2005, accounts receivable, net of allowance for doubtful accounts, amounted to $7.7 million.



Impact of Recently Issued Accounting Standards



In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments
(FSP 115-1), which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP 115-1 also
includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been



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##### Index to Financial Statements

recognized as other-than-temporary impairments. FSP 115-1 is required to be applied to reporting periods beginning after December 15, 2005. We are
currently evaluating the effect that the adoption of FSP 115-1 will have on our consolidated results of operation and financial condition but we do not expect it to have a material impact.



In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107)
regarding the SECs interpretation of SFAS 123R and the valuation of share-based payments for public companies. We are evaluating the requirements of SFAS 123R and SAB 107 and expect that the adoption of SFAS 123R will not have a material
impact on our consolidated results of operations and earnings per share beginning in the first quarter of fiscal 2006



In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which revised ARB No. 43, relating to inventory costs. This revision is to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criterion
specified in ARB 43. This Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We elected to adopt SFAS No.151 beginning with fiscal year 2005. The adoption of this standard had no impact on our financial position and results of operations.



In December 2004, the FASB issued SFAS 123R, which replaced SFAS 123 and superseded APB 25.
SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant date fair market values and requires that such recognition begin in the first
interim or annual period after June 15, 2005, with early adoption encouraged. In April 2005, the Securities and Exchange Commission (the SEC) postponed the effective date of SFAS 123R until the issuers first fiscal year beginning after
June 15, 2005. We will adopt SFAS 123R in the first quarter of fiscal 2006.



Under SFAS 123R, the pro forma disclosures previously permitted no longer will be an alternative to financial statement recognition. We will apply the Black-Scholes valuation model in determining the fair value of share-based payments to
employees, which will then be amortized on a straight line basis over the requisite service period. We will apply the modified prospective method, which requires that compensation expense be recorded for all unvested stock options and restricted
stock upon adoption of SFAS 123R.



In May 2005 the FASB issued SFAS
No. 154 Accounting Changes and Error Corrections(SFAS 154), which replaces APB Opinion No. 20 Accounting Changes and SFAS 154 provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective applications or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December 5, 2005 and is required to be adopted by ADDvantage in the first quarter of fiscal 2007. ADDvantage is currently evaluating the effect that the adoption of SFAS 154
will have on the consolidated results of operations and financial conditions but does not expect it to have a material effect.



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##### Index to Financial Statements

Off-Balance Sheet Arrangements



None



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flow due to adverse changes in market
prices, foreign currency exchange rates, and interest rates. Our greatest exposure would be a downturn in the demand for our products. At September 30, 2005, over 85% of our assets were in cash, trade receivables, and inventory, with inventory
representing 76% of these assets.



Our exposure to market rate
risk for changes in interest rates relates primarily to our revolving line of credit. The interest rates under the line of credit and the stockholder notes fluctuate with the LIBOR rate. At September 30, 2005, the outstanding balances subject
to variable interest rate fluctuations totaled $2.2 million. The high credit balance for 2005 was approximately $2.9 million, leaving over $4.0 million available for working capital requirements. Future changes in drawdown requirements and changes
in interest rates could cause our borrowing costs to increase.



We maintain no cash equivalents. However, we entered into an interest rate swap on September 30, 2004, in an amount equivalent to the $8 million notes payable in order to minimize interest rate risk. Although the note bears interest at
the prevailing 30-day LIBOR rate plus 2.5%, the swap effectively fixed the interest rate at 6.13%. The fair value of this derivative will increase or decrease opposite any future changes in interest rates. All sales and purchases are denominated in
U.S. dollars.



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##### Index to Financial Statements

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------



|                                                                                                          |  |     
|--------------------------------------------------------------------------------------------------------- |  | ----
|Index to Financial Statements                                                                             |  | Page
|                                                                                                          | 
|Managements Responsibility for Financial Statements                                                      |  | 24  
|                                                                                                          | 
|Report of Independent Registered Public Accounting Firm                                                   |  | 25  
|                                                                                                          | 
|Consolidated Balance Sheets, September 30, 2005 and 2004                                                  |  | 26  
|                                                                                                          | 
|Consolidated Statements of Income and Comprehensive Income, Yearsended September 30, 2005, 2004 and 2003  |  | 28  
|                                                                                                          | 
|Consolidated Statements of Changes in Stockholders Equity, Years ended September 30, 2005, 2004 and 2003 |  | 29  
|                                                                                                          | 
|Consolidated Statements of Cash Flows, Years ended September 30, 2005, 2004 and 2003                      |  | 30  
|                                                                                                          | 
|Notes to Consolidated Financial Statements                                                                |  | 31  



23



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##### Index to Financial Statements

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS



The management of ADDvantage Technologies Group, Inc. is responsible for the accuracy and consistency of all the information contained in the annual report, including the accompanying consolidated financial
statements. These statements have been prepared to conform with U.S. generally accepted accounting principles appropriate to the circumstances. The statements include amounts based on estimates and judgments as required.



ADDvantage Technologies Group, Inc. maintains internal accounting controls
designed to provide reasonable assurance that the financial records are accurate, that the assets of the Company are safeguarded, and that the financial statements present fairly the consolidated financial position, results of operations and cash
flows of the Company.



The Audit Committee of the Board of
Directors reviews the scope of the audits and the findings of the independent certified public accountants. The auditors meet regularly with the Audit Committee to discuss audit and financial reporting issues, with and without management present.



Tullius Taylor Sartain & Sartain LLP, our independent
registered public accounting firm, has audited the financial statements prepared by management. Their opinion on the statements is presented below.



Kenneth A. Chymiak,

President, Chief Executive Officer

and Chief Financial Officer



24



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##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Stockholders of

ADDvantage Technologies Group, Inc.



We have audited the accompanying
consolidated balance sheets of ADDvantage Technologies Group, Inc. and subsidiaries (the Company) as of September 30, 2005 and 2004, and the related consolidated statements of income and comprehensive income, changes in
stockholders equity and cash flows for each of the three years in the period ended September 30, 2005. Our audits also included the financial schedule of ADDvantage Technologies Group, Inc., listed in Item 15(a). These financial
statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ADDvantage Technologies Group, Inc. and subsidiaries as of September 30, 2005 and
2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2005, in conformity with accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements, taken as a whole, presents fairly in all material respects the information set forth therein.



TULLIUS TAYLOR SARTAIN & SARTAIN LLP



Tulsa, Oklahoma

December 22, 2005



25



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##### Index to Financial Statements

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                        |  |               |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                        |  | September 30, |           
|Assets                                                                                                  |  | 2005          |            |   | 2004 |  
|Current assets:                                                                                         |  |               |            |   |      |   |            |  
|Cash                                                                                                    |  |               | 449,219    |   |      | $ | 1,316,239  |  
|Accounts receivable, net of allowance of $92,000 and $68,063                                            |  |               | 7,671,549  |   |      |   | 4,787,749  |  
|Inventories, net of allowance for excess and obsolete inventory $1,575,395 and $1,093,000, respectively |  |               | 25,321,149 |   |      |   | 20,978,714 |  
|Deferred income taxes                                                                                   |  |               | 968,000    |   |      |   | 651,000    |  
|                                                                                                        |  |               |            |   |      |   |            |  
|Total current assets                                                                                    |  |               | 34,409,917 |   |      |   | 27,733,702 |  
|                                                                                                        |  |              
|Property and equipment, at cost:                                                                        |  |               |            |   |      |   |            |  
|Machinery and equipment                                                                                 |  |               | 2,357,182  |   |      |   | 2,138,798  |  
|Land and buildings                                                                                      |  |               | 1,591,413  |   |      |   | 1,302,527  |  
|Leasehold improvements                                                                                  |  |               | 565,945    |   |      |   | 521,972    |  
|                                                                                                        |  |               |            |   |      |   |            |  
|                                                                                                        |  |               | 4,514,540  |   |      |   | 3,963,297  |  
|Less accumulated depreciation and amortization                                                          |  |               | (1,811,784 | ) |      |   | (1,561,698 | )
|                                                                                                        |  |               |            |   |      |   |            |  
|Net property and equipment                                                                              |  |               | 2,702,756  |   |      |   | 2,401,599  |  
|                                                                                                        |  |              
|Other assets:                                                                                           |  |               |            |   |      |   |            |  
|Deferred income taxes                                                                                   |  |               | 786,000    |   |      |   | 1,042,000  |  
|Goodwill                                                                                                |  |               | 1,150,060  |   |      |   | 1,150,060  |  
|Other assets                                                                                            |  |               | 220,275    |   |      |   | 31,222     |  
|                                                                                                        |  |               |            |   |      |   |            |  
|Total other assets                                                                                      |  |               | 2,156,335  |   |      |   | 2,223,282  |  
|                                                                                                        |  |               |            |   |      |   |            |  
|Total assets                                                                                            |  | $             | 39,269,008 |   |      |   | 32,358,583 |  
|                                                                                                        |  |               |            |   |      |   |            |  



See notes to audited
consolidated financial statements.



26



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##### Table of Contents

##### Index to Financial Statements

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                   |  |               |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                   |  | September 30, |           
|Liabilities and Stockholders Equity                                                                                                                                               |  | 2005          |            |   | 2004 |  
|Current liabilities:                                                                                                                                                               |  |               |            |   |      |   |            |  
|Accounts payable                                                                                                                                                                   |  | $             | 4,958,834  |   |      | $ | 1,758,695  |  
|Accrued expenses                                                                                                                                                                   |  |               | 1,876,523  |   |      |   | 1,011,911  |  
|Accrued income taxes                                                                                                                                                               |  |               | 110,691    |   |      |   | 120,748    |  
|Bank revolving line of credit                                                                                                                                                      |  |               | 2,234,680  |   |      |   | 3,225,183  |  
|Notes payable  current portion                                                                                                                                                    |  |               | 1,239,071  |   |      |   | 1,237,047  |  
|Dividends payable                                                                                                                                                                  |  |               | 210,000    |   |      |   | 210,000    |  
|                                                                                                                                                                                   |  |               |            |   |      |   |            |  
|Total current liabilities                                                                                                                                                          |  |               | 10,629,799 |   |      |   | 7,563,584  |  
|Notes payable                                                                                                                                                                      |  |               | 5,908,199  |   |      |   | 7,147,334  |  
|Stockholders equity:                                                                                                                                                              |  |               |            |   |      |   |            |  
|Preferred stock, 5,000,000 shares authorized, $1.00 par value, at stated value: Series B, 7% cumulative; 300,000 shares issued andoutstanding
with a stated value of $40 per share |  |               | 12,000,000 |   |      |   | 12,000,000 |  
|Common stock, $.01 par value; 30,000,000 shares authorized; 10,093,147 and 10,081,789 shares issued and outstanding,
respectively                                                  |  |               | 100,931    |   |      |   | 100,818    |  
|Paid-in capital                                                                                                                                                                    |  |               | (7,265,930 | ) |      |   | (7,285,564 | )
|Retained earnings                                                                                                                                                                  |  |               | 17,860,967 |   |      |   | 12,886,575 |  
|Accumulated other comprehensive income:                                                                                                                                            |  |               |            |   |      |   |            |  
|Unrealized gain on interest rate swap, net of tax                                                                                                                                  |  |               | 89,206     |   |      |   |           |  
|                                                                                                                                                                                   |  |               |            |   |      |   |            |  
|                                                                                                                                                                                   |  |               | 22,785,174 |   |      |   | 17,701,829 |  
|                                                                                                                                                                                   |  |              
|Less: Treasury stock, 21,100 shares at cost                                                                                                                                        |  |               | (54,164    | ) |      |   | (54,164    | )
|                                                                                                                                                                                   |  |               |            |   |      |   |            |  
|Total stockholders equity                                                                                                                                                         |  |               | 22,731,010 |   |      |   | 17,647,665 |  
|                                                                                                                                                                                   |  |               |            |   |      |   |            |  
|Total liabilities and stockholders equity                                                                                                                                         |  | $             | 39,269,008 |   |      | $ | 32,358,583 |  
|                                                                                                                                                                                   |  |               |            |   |      |   |            |  



See notes to audited
consolidated financial statements.



27



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##### Index to Financial Statements

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME



|                                                                |  |                          |            |      |   |            |  |   |           
|--------------------------------------------------------------- |  | ------------------------ | ---------- | ---- | - | ---------- |  | - | ----------
|                                                                |  | Year ended September 30,
|                                                                |  | 2005                     |            | 2004 |   | 2003      
|Net sales income                                                |  | $                        | 45,755,198 |      | $ | 42,293,046 |  | $ | 28,809,947
|Net service income                                              |  |                          | 4,517,997  |      |   | 4,778,283  |  |   | 4,517,798 
|                                                                |  |                          |            |      |   |            |  |   |           
|                                                                |  |                          | 50,273,195 |      |   | 47,071,329 |  |   | 33,327,745
|Costs of sales                                                  |  |                          | 33,401,167 |      |   | 31,092,890 |  |   | 21,996,312
|                                                                |  |                          |            |      |   |            |  |   |           
|Gross profit                                                    |  |                          | 16,872,028 |      |   | 15,978,439 |  |   | 11,331,433
|Operating, selling, general and administrative expenses         |  |                          | 6,642,641  |      |   | 6,216,728  |  |   | 4,876,961 
|Depreciation and amortization                                   |  |                          | 256,435    |      |   | 277,352    |  |   | 257,821   
|                                                                |  |                          |            |      |   |            |  |   |           
|Income from operations                                          |  |                          | 9,972,952  |      |   | 9,484,359  |  |   | 6,196,651 
|Interest expense                                                |  |                          | 557,560    |      |   | 157,606    |  |   | 217,063   
|                                                                |  |                          |            |      |   |            |  |   |           
|Income before income taxes                                      |  |                          | 9,415,392  |      |   | 9,326,753  |  |   | 5,979,588 
|Provision for income taxes                                      |  |                          | 3,601,000  |      |   | 3,513,000  |  |   | 1,487,000 
|                                                                |  |                          |            |      |   |            |  |   |           
|Net income                                                      |  |                          | 5,814,392  |      |   | 5,813,753  |  |   | 4,492,588 
|                                                                |  |                          |           
|Other comprehensive income:                                     |  |                          |            |      |   |            |  |   |           
|Unrealized gain on interest rate swap (Net of $56,000 in taxes) |  |                          | 89,206     |      |   |           |  |   |          
|                                                                |  |                          |            |      |   |            |  |   |           
|Comprehensive Income                                            |  | $                        | 5,903,598  |      | $ | 5,813,753  |  | $ |          
|                                                                |  |                          |            |      |   |            |  |   |           
|                                                                |  |                          |           
|Net income                                                      |  |                          | 5,814,392  |      |   | 5,813,753  |  |   | 4,492,588 
|Preferred stock dividends                                       |  |                          | 840,000    |      |   | 1,240,000  |  |   | 1,240,000 
|                                                                |  |                          |            |      |   |            |  |   |           
|Net income attributable to common stockholders                  |  |                          | 4,974,392  |      |   | 4,573,753  |  | $ | 3,252,588 
|                                                                |  |                          |            |      |   |            |  |   |           
|                                                                |  |                          |           
|Earnings per share:                                             |  |                          |            |      |   |            |  |   |           
|Basic                                                           |  | $                        | 0.49       |      | $ | 0.46       |  | $ | 0.33      
|Diluted                                                         |  | $                        | 0.49       |      | $ | 0.41       |  | $ | 0.30      
|                                                                |  |                          |           
|Shares used in per share calculation                            |  |                          |            |      |   |            |  |   |           
|Basic                                                           |  |                          | 10,067,277 |      |   | 10,041,197 |  |   | 10,007,756
|Diluted                                                         |  |                          | 10,109,854 |      |   | 12,104,541 |  |   | 12,021,235



See notes to audited
consolidated financial statements.



28



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##### Table of Contents

##### Index to Financial Statements

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Years ended September 30, 2005, 2004 and
2003



|                                          |  |              |  |                         |         |  |                         |            |                |  |   |                             |  |    |                                       |   |               |    |            |       |  |   |        |  |    |         |   |  |   |            |  
|----------------------------------------- |  | ------------ |  | ----------------------- | ------- |  | ----------------------- | ---------- | -------------- |  | - | --------------------------- |  | -- | ------------------------------------- | - | ------------- | -- | ---------- | ----- |  | - | ------ |  | -- | ------- | - |  | - | ---------- | -
|                                          |  | Common Stock |  | Series APreferred Stock |         |  | Series BPreferred Stock |            | Paid-inCapital |  |   | Retained Earnings (Deficit) |  |    | Accumulated OtherComprehensive Income |   | TreasuryStock |    |            | Total | 
|                                          |  | Shares       |  | Amount                  |         |  |                         |            |                |  |  
|Balance, September 30, 2002               |  | 10,011,716   |  | $                       | 100,117 |  | $                       | 8,000,000  |                |  | $ | 12,000,000                  |  | ($ | 7,389,010                             | ) |               | ($ | 5,060,234  | )     |  |   |       |  | ($ | 54,164  | ) |  | $ | 17,717,177 |  
|Net income                                |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    | 4,492,588  |       |  |   |       |  |    |        |   |  |   | 4,492,588  |  
|Preferred stock dividends                 |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    | (1,240,000 | )     |  |   |       |  |    |        |   |  |   | (1,240,000 | )
|Issue common shares for business purchase |  | 18,698       |  |                         | 187     |  |                         |           |                |  |   |                            |  |    | (187                                  | ) |               |    |           |       |  |   |       |  |    |        |   |  |   |           |  
|                                          |  |              |  |                         |         |  |                         |            |                |  |   |                             |  |    |                                       |   |               |    |            |       |  |   |        |  |    |         |   |  |   |            |  
|Balance, September 30, 2003               |  | 10,030,414   |  |                         | 100,304 |  |                         | 8,000,000  |                |  |   | 12,000,000                  |  |    | (7,389,197                            | ) |               |    | 8,312,822  |       |  |   |       |  |    | (54,164 | ) |  |   | 20,969,765 |  
|Net income                                |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    | 5,813,753  |       |  |   |       |  |    |        |   |  |   | 5,813,753  |  
|Preferred stock dividends                 |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    | (1,240,000 | )     |  |   |       |  |    |        |   |  |   | (1,240,000 | )
|Stock options exercised                   |  | 51,375       |  |                         | 514     |  |                         |           |                |  |   |                            |  |    | 103,633                               |   |               |    |           |       |  |   |       |  |    |        |   |  |   | 104,147    |  
|Redemption of Series A                    |  |              |  |                         |         |  |                         |            |                |  |   |                             |  |    |                                       |   |               |    |            |       |  |   |        |  |    |         |   |  |   |            |  
|Preferred Stock                           |  |             |  |                         |        |  |                         | (8,000,000 | )              |  |   |                            |  |    |                                      |   |               |    |           |       |  |   |       |  |    |        |   |  |   | (8,000,000 | )
|                                          |  |              |  |                         |         |  |                         |            |                |  |   |                             |  |    |                                       |   |               |    |            |       |  |   |        |  |    |         |   |  |   |            |  
|Balance, September 30, 2004               |  | 10,081,789   |  | $                       | 100,818 |  |                         |           |                |  | $ | 12,000,000                  |  | ($ | 7,285,564                             | ) |               | $  | 12,886,575 |       |  |   |       |  | ($ | 54,164  | ) |  | $ | 17,647,665 |  
|                                          |  |              |  |                         |         |  |                         |            |                |  |   |                             |  |    |                                       |   |               |    |            |       |  |   |        |  |    |         |   |  |   |            |  
|Net income                                |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    | 5,814,392  |       |  |   |       |  |    |        |   |  |   | 5,814,392  |  
|Preferred stock dividends                 |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    | (840,000   | )     |  |   |       |  |    |        |   |  |   | (840,000   | )
|Stock Options exercised                   |  | 11,358       |  |                         | 113     |  |                         |           |                |  |   |                            |  |    | 19,634                                |   |               |    |           |       |  |   |       |  |    |        |   |  |   | 19,747     |  
|Unrealized gain on interest swap          |  |             |  |                         |        |  |                         |           |                |  |   |                            |  |    |                                      |   |               |    |           |       |  |   | 89,206 |  |    |        |   |  |   | 89,206     |  
|                                          |  |              |  |                         |         |  |                         |            |                |  |   |                             |  |    |                                       |   |               |    |            |       |  |   |        |  |    |         |   |  |   |            |  
|Balance September 30, 2005                |  | 10,093,147   |  | $                       | 100,931 |  |                         |           |                |  | $ | 12,000,000                  |  | ($ | 7,265,930                             | ) |               | $  | 17,860,967 |       |  | $ | 89,206 |  | ($ | 54,164  | ) |  | $ | 22,731,010 |  



See notes to audited
consolidated financial statements.



29



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##### Table of Contents

##### Index to Financial Statements

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                  |  | Year ended September 30, |           
|                                                                                  |  | 2005                     |            |   | 2004 |   |            | 2003 | 
|Cash Flows from Operating Activities                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $                        | 5,814,392  |   |      | $ | 5,813,753  |      |  | $ | 4,492,588  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |            |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                                     |  |                          | 256,435    |   |      |   | 277,352    |      |  |   | 257,821    |  
|Loss on disposal of property and equipment                                        |  |                          |           |   |      |   | 24,412     |      |  |   |           |  
|Deferred income tax benefit                                                       |  |                          | (116,000   | ) |      |   | (172,000   | )    |  |   | (414,000   | )
|Change in:                                                                        |  |                          |            |   |      |   |            |      |  |   |            |  
|Receivables                                                                       |  |                          | (2,134,418 | ) |      |   | (1,004,069 | )    |  |   | (278,382   | )
|Inventories                                                                       |  |                          | (1,445,190 | ) |      |   | 1,152,382  |      |  |   | (4,456,859 | )
|Other assets                                                                      |  |                          | (40,577    | ) |      |   | 8,406      |      |  |   | (12,770    | )
|Accounts payable                                                                  |  |                          | 3,027,827  |   |      |   | (872,526   | )    |  |   | 1,159,549  |  
|Accrued liabilities                                                               |  |                          | 687,191    |   |      |   | 208,086    |      |  |   | 337,975    |  
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                         |  |                          | 6,151,660  |   |      |   | 5,435,796  |      |  |   | 995,922    |  
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|                                                                                  |  |                          |           
|Cash Flows from Investing Activities                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Investment in Jones Broadband International, net of cash acquired of $100,322     |  |                          | (3,510,935 | ) |      |   |           |      |  |   |           |  
|Additions to property and equipment                                               |  |                          | (446,534   | ) |      |   | (77,201    | )    |  |   | (671,412   | )
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Net cash used in investing activities                                             |  |                          | (3,957,469 |   |      |   | (77,201    | )    |  |   | (671,412   | )
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|                                                                                  |  |                          |           
|Cash Flows from Financing Activities                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Net change under bank revolving line of credit                                    |  |                          | (990,503   | ) |      |   | (1,960,719 | )    |  |   | 712,221    |  
|Payments on stockholder notes                                                     |  |                          |           |   |      |   | (1,223,644 | )    |  |   | (335,705   | )
|Proceeds on notes payable                                                         |  |                          |           |   |      |   | 8,000,000  |      |  |   | 440,000    |  
|Payments on notes payable                                                         |  |                          | (1,250,455 | ) |      |   | (118,423   | )    |  |   | (180,483   | )
|Proceeds from stock options exercised                                             |  |                          | 19,747     |   |      |   | 104,147    |      |  |   |           |  
|Payments of preferred dividends                                                   |  |                          | (840,000   | ) |      |   | (1,340,000 | )    |  |   | (1,240,000 | )
|Redemption of preferred stock                                                     |  |                          |           |   |      |   | (8,000,000 | )    |  |   |           |  
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Net cash used in financing activities                                             |  |                          | (3,061,211 | ) |      |   | (4,538,639 | )    |  |   | (603,967   | )
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in cash                                                   |  |                          | (867,020   | ) |      |   | 819,956    |      |  |   | (279,457   | )
|Cash, beginning of year                                                           |  |                          | 1,316,239  |   |      |   | 496,283    |      |  |   | 775,740    |  
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|Cash, end of year                                                                 |  | $                        | 449,219    |   |      | $ | 1,316,239  |      |  | $ | 496,283    |  
|                                                                                  |  |                          |            |   |      |   |            |      |  |   |            |  
|                                                                                  |  |                          |           
|Supplemental Cash Flow Information                                                |  |                          |            |   |      |   |            |      |  |   |            |  
|Cash paid for interest                                                            |  | $                        | 557,560    |   |      | $ | 172,426    |      |  | $ | 205,626    |  
|Cash paid for income taxes                                                        |  | $                        | 3,582,616  |   |      | $ | 3,669,170  |      |  | $ | 1,699,785  |  



See notes to audited
consolidated financial statements.



30



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##### Index to Financial Statements

ADDVANTAGE TECHNOLOGIES GROUP, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Years ended September 30, 2005, 2004 and 2003



Note 1 
Summary of Significant Accounting Policies



Description of business



ADDvantage Technologies Group, Inc. and its subsidiaries (the
Company) sell new, surplus, and re-manufactured cable television equipment throughout North America, Latin America and South America in addition to being a repair center for various cable companies. The Company operates in one
business segment.



Principles of consolidation



The consolidated financial statements include the accounts of ADDvantage Technologies Group,
Inc. and its subsidiaries: Tulsat, NCS, Tulsat-Atlanta LLC, ADDvantage Technologies Group of Missouri, Inc. (dba ComTech Services), Tulsat-Nebraska, Inc., ADDvantage Technologies Group of Texas, Inc. (dba Tulsat Texas) and
Jones Broadband International, Inc. All significant inter-company balances and transactions have been eliminated in consolidation.



Accounts receivable



Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful
accounts by regularly evaluating individual customer receivables and considering a customers financial condition, credit history, and current economic conditions. Trade receivables are written-off when deemed uncollectible. Recoveries of trade
receivables previously written-off are recorded when received. The Company generally does not charge interest on past due accounts.



Inventory valuation



Inventory consists of new and used electronic components for the cable television industry. Inventory is stated at the lower of cost or market. Market is defined principally as net realizable value. Cost is determined
using the weighted average method.



Property and equipment



Property and equipment consists of office equipment, other equipment, and buildings, with
estimated useful lives of 5 years, 10 years, and 40 years, respectively. Depreciation is provided using straight line and accelerated methods over the estimated useful lives of the related assets. Leasehold improvements are amortized over the
remainder of the lease agreement. Repairs and maintenance are expensed as incurred, whereas major improvements are capitalized. Depreciation and amortization expense was $256,435, $277,352 and $257,821 for the years ended



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##### Table of Contents

##### Index to Financial Statements

September 30, 2005, 2004 and 2003, respectively.



Income taxes



The Company provides for income taxes in accordance with the liability method of accounting pursuant to Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, and tax carryforward amounts. Management provides a valuation allowance against deferred tax assets for amounts which are not considered more likely than
not to be realized.



Revenue recognition



Our principal sources of revenues are from sales of new, remanufactured or used equipment,
and repair services. The Company recognizes revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed and determinable, and the collection of the related receivable is
probable which is generally at the time of shipment. The stated shipping terms are FOB shipping point per our sales agreements with customers. Accruals are established for expected returns based on historical activity. Revenue for services is
recognized when the repair is completed and the product is shipped back to the customer.



Derivatives



SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, requires that all derivatives, whether designated in hedging relationships or not, be recorded on the balance sheet at fair value. If the derivative is designated
as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of the changes in
the fair value of the derivative are recorded in Other Comprehensive Income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in
other income (expense).



Our objective of holding derivatives is to minimize
the risks of interest rate fluctuation by using the most effective methods to eliminate or reduce the impact of this exposure. The Company has designated its interest rate swap as a cash flow hedge for the underlying note payable. As there are no
differences between the critical terms of the interest rate swap and the hedged debt obligations the Company assumes no ineffectiveness in the hedging relationship. Interest expense on the note is adjusted to include the payment made or received
under the interest rate swap agreement.



Freight



Amounts billed to customers for shipping and handling represent revenues earned and are
included in Net Sales Income and Net Service Income in the accompanying Consolidated Statements of Income. Actual costs for shipping and handling of these sales is included in Costs of Sales.



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##### Index to Financial Statements

Advertising costs



Advertising costs are expensed as incurred. Advertising expense was $335,487, $265,112 and $229,534 for the years ended September 30, 2005, 2004 and 2003,
respectively.



Management estimates



The preparation of financial statements in conformity with U.S. 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.



Any significant, unanticipated changes in product demand, technological developments or continued economic trends affecting the cable industry could have a significant impact on the value of our inventory and
operating results.



Concentrations of credit risk



The Company holds cash with several major financial institutions which often exceed FDIC
insured limits. Historically the Company has not experienced any loss due to such concentration of credit risk.



Other financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade receivables. Concentrations of credit risk
with respect to trade receivables are limited because a large number of geographically diverse customers make up our customer base, thus spreading the trade credit risk. The Company controls credit risk through credit approvals, credit limits, and
monitoring procedures. The Company performs in-depth credit evaluations for all new customers but does not require collateral to support customer receivables. Sales to one customer accounted for approximately 11% of net revenues for 2005. Sales to
foreign (non-US based customers) total approximately $2.4 million, $0.9 million, and $1.3 million in the three fiscal years ended September 30, 2005. In 2005, we purchased approximately 40% of our inventory from Scientific-Atlanta and
approximately 10% of our inventory from Motorola. The concentration of suppliers of our inventory subjects us to risk.



Goodwill



Annual impairment testing indicates that goodwill is not impaired as of September 30, 2005 or 2004.



Employee stock-based awards



Employee stock-based awards are accounted for using the intrinsic value method prescribed in
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and related interpretations. Under APB No. 25, compensation expense is based on the difference, if any, on the date of grant
between the fair value of the Companys stock and the exercise price. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation.



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##### Index to Financial Statements

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 may be adopted at the option of the Company. Had compensation cost been determined consistent with SFAS 123, the Companys net income would not have
changed significantly.



Earnings per share



Basic earnings per share are based on the sum of the average number of common shares
outstanding and issuable restricted and deferred shares. Diluted earnings per share include any dilutive effect of stock options, restricted stock and convertible preferred stock.



Fair value of financial instruments



The carrying amounts of accounts receivable and accounts payable approximate fair value due to their short maturities. The carrying value of the Companys line of
credit approximates fair value since the interest rate fluctuates periodically based on the prime rate. Management believes that the carrying value of the Companys borrowings approximate fair value based on credit terms currently available for
similar debt.



Impact of recently issued accounting standards



In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (FSP 115-1), which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that
impairment is other-than-temporary, and on measuring such impairment loss. FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses
that have not been recognized as other-than-temporary impairments. FSP 115-1 is required to be applied to reporting periods beginning after December 15, 2005. The Company is currently evaluating the effect that the adoption of FSP 115-1 will
have on its consolidated results of operation and financial condition but does not expect it to have a material impact.



In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SECs interpretation of SFAS 123R and the valuation of
share-based payments for public companies. The Company is evaluating the requirements of SFAS 123R and SAB 107 and expects that the adoption of SFAS 123R will not have a material impact on its consolidated results of operations and earnings per
share beginning in the first quarter of fiscal 2006.



In November 2004, the
FASB issued SFAS No. 151, Inventory Costs, which revised ARB No. 43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted
material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criteria specified in ARB 43. In addition, this Statement requires the allocation of fixed production
overheads to the costs of conversion be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company elected to follow SFAS 151
beginning with fiscal year end September 30, 2004. The adoption of this standard had no material impact on our financial position and results of operations for 2005.



In December 2004, the FASB issued SFAS 123R, which replaced SFAS 123 and superseded APB 25. SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the financial statements based on their grant date fair market values and requires that such recognition begin in the first interim or annual period after June 15, 2005,
with early adoption encouraged. In April 2005, the Securities and Exchange Commission (the SEC) postponed the effective date of SFAS 123R until the issuers first fiscal year beginning after June 15, 2005. We will adopt SFAS 123R in the
first quarter of fiscal 2006.



Under SFAS 123R, the pro forma disclosures
previously permitted no longer will be an alternative to financial statement recognition. The Company will apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which will then be amortized on a
straight line basis over the requisite service period. The Company will apply the modified prospective method, which requires that compensation expense be recorded for all unvested stock options and restricted stock upon adoption of SFAS 123R.



In May 2005 the FASB issued SFAS No. 154 Accounting Changes and
Error Corrections (SFAS 154), which replaces APB Opinion No. 20 Accounting Changes and SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes
retrospective applications or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 5, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2007. The Company is currently evaluating the effect that the adoption of SFAS 15 will have on the consolidated
results of operations and financial conditions but does not expect it to have a material effect.



Reclassifications



Certain reclassifications have been made to the 2003 and 2004 financial statements to conform to the 2005 presentation.



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##### Index to Financial Statements

Note 2  Inventories



Inventories are summarized as follows:



|                                            |  |      |            |   |      |   |            |  
|------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                            |  | 2005 |            |   | 2004 |  
|New                                         |  | $    | 20,066,957 |   |      | $ | 16,410,694 |  
|Used                                        |  |      | 6,829,587  |   |      |   | 5,661,020  |  
|Allowance for excess and obsolete inventory |  |      | (1,575,395 | ) |      |   | (1,093,000 | )
|                                            |  |      |            |   |      |   |            |  
|                                            |  | $    | 25,321,149 |   |      | $ | 20,978,714 |  
|                                            |  |      |            |   |      |   |            |  



New inventory includes products
purchased from the manufacturers plus surplus-new which is unused products purchased from other distributors or multiple system operators. Used inventory includes factory remanufactured, Company remanufactured and used products.



The Company regularly reviews inventory quantities on hand and a departure
from cost is required when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold. The Company recorded a charge to allow for obsolete inventory at
September 30, 2004, increasing the cost of sales by $645,900. We recorded a charge to allow for obsolete inventory at September 30, 2003, increasing the cost of sales by $447,100.



On August 19, 2005, the Company purchased 100% of the outstanding stock of Jones
Broadband International, Inc. (JBI) for consideration consisting of approximately $2.4 million in debt assumption, including accrued liabilities, and cash of approximately $1.6 million. The total purchase price represented the
approximate book value of JBI, consisting of $2.6 million of inventory after an approximate $480,000 write down to market, and $1.3 million of other assets including receivables and fixed assets. JBIs main office is in Oceanside, California
and it has a warehouse in Stockton, California. Results of JBIs operations are included in the Companys consolidated statement of income from the acquisition date.



Note 3  Line of Credit, Stockholder Notes, Notes Payable, and Interest Rate Swap



At September 30, 2005, a $2,234,680 balance is outstanding under a $7.0 million line of
credit due September 30, 2006, with interest payable monthly based on the prevailing 30-day LIBOR rate plus 2.0%. (5.86% at September 30, 2005 with a 2.96% combined weighted average during fiscal year 2005). Borrowings under the line of
credit are limited to the lesser of $7.0 million or the sum of 80% of qualified accounts receivable and 50% of qualified inventory for working capital purposes. Among other financial covenants, the line of credit agreement provides that the
Companys net worth must be greater than $15.0 million plus 50% of annual net income (with no deduction for net losses), determined quarterly. The line of credit is collateralized by inventory, accounts receivable, equipment and fixtures, and
general intangibles.



Cash receipts are applied from the Companys lockbox
account directly against the bank line of credit, and checks clearing the bank are funded from the line of credit. The resulting overdraft balance, consisting of outstanding checks, was $101,273 at September 30, 2005,



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##### Table of Contents

##### Index to Financial Statements

and is included in the bank revolving line of credit.



On September 30, 2004, the Company redeemed all of the outstanding shares of its Series
A 5% Cumulative Convertible Preferred Stock at its aggregate stated value of $8 million. All of the outstanding shares of Series A Preferred Stock were held beneficially by David E. Chymiak, Chairman of the Board of the Company, and Kenneth A.
Chymiak, President and Chief Executive Officer of the Company. The Company financed the redemption with a new credit agreement with its bank which includes a Revolving Credit Commitment in the amount of $7 million and a Term Loan Commitment in the
amount of $8 million. The proceeds from the Term Loan were used to redeem the Series A Preferred Stock. At September 30, 2005 the term loan balance was $6,800,000.



On September 29, 2004, the Companys majority shareholders, David Chymiak and Ken Chymiak, entered into a stock purchase agreement
in which they sold 500,000 shares of their common stock to Barron Partners, LP (Barron), a private investment partnership, for $3.25 per share. Under this agreement, Barron also received options to purchase up to three million additional
shares of the common stock owned by these majority shareholders. The Company did not receive any of the proceeds from the sale of the shares and will not receive any of the proceeds from the exercise of any of the options, but paid the cost of
registering the sales for resale by the selling shareholders. The Company filed a registration statement covering the resale of the shares of common stock sold as well as the shares of common stock issuable upon exercise of the options.



An $8 million amortizing term note with Bank of Oklahoma was obtained to finance the
redemption of the outstanding shares of the Series A Preferred Stock at September 30, 2004. The September 30, 2005 balance of this note is $6,800,000 and is due on September 30, 2009, with monthly principal payments of $100,000 plus
accrued interest, and the note bears interest at the prevailing 30-day LIBOR rate plus 2.50% (6.36% at September 30, 2005). An interest rate swap was entered into simultaneously with the note on September 30, 2004, which fixed the interest
rate at 6.13%. The Company receives monthly the variable interest rate of LIBOR based on a one month interval, plus 2.5% on the interest rate swap. Upon entering into this interest rate swap (which expires September 30, 2009), the Company
designated this derivative as a cash flow hedge by documenting our risk management objective and strategy for undertaking the hedge along with methods for assessing the swaps effectiveness. At September 30, 2005, the notional value of the
swap was $6,800,000 and the fair market value of the interest rate swap is an asset of approximately $144,000, which is included in other non-current assets on the Companys consolidated balance sheet. This amount is subsequently reclassified
into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligation affects earnings. Notes payable secured by real estate of $347,270 are due in monthly payments through 2013 with
interest at 5.5% through 2008, converting thereafter to prime minus .25%.



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##### Index to Financial Statements

The aggregate maturities of notes payable and the line of credit for the five years ending September 30, 2010 are as
follows:



|           |  |   |          
|---------- |  | - | ---------
|2006       |  | $ | 3,473,751
|2007       |  |   | 1,241,348
|2008       |  |   | 1,243,685
|2009       |  |   | 3,246,155
|2010       |  |   | 48,764   
|Thereafter |  |   | 128,247  
|           |  |   |          
|Total      |  | $ | 9,381,950
|           |  |   |          



Note 4  Income Taxes



The provisions for income taxes consist
of:



|         |  |      |           |   |      |   |           |      |  |   |           |  
|-------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|         |  | 2005 |           |   | 2004 |   |           | 2003 | 
|Current  |  | $    | 3,604,000 |   |      | $ | 3,685,000 |      |  | $ | 1,901,000 |  
|Deferred |  |      | (3,000    | ) |      |   | (172,000  | )    |  |   | (414,000  | )
|         |  |      |           |   |      |   |           |      |  |   |           |  
|         |  | $    | 3,601,000 |   |      | $ | 3,513,000 |      |  | $ | 1,487,000 |  
|         |  |      |           |   |      |   |           |      |  |   |           |  



The following table summarizes the
differences between the U.S. federal statutory rate and the Companys effective tax rate for financial statement purposes for the year ended September 30:



|                                                     |  |      |   |  |      |   |  |      |  
|---------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                                     |  | 2005 |   |  | 2004 |   |  | 2003 |  
|Statutory tax rate                                   |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
|State income taxes, net of U.S. federal tax benefit  |  | 4.7  |   |  | 4.7  |   |  | 5.0  |  
|Tax credits and exclusions                           |  | (.5  | ) |  | (0.6 | ) |  | (2.8 | )
|Adjustment of deferred tax asset valuation allowance |  |     |   |  |     |   |  | (7.4 | )
|Other                                                |  |     |   |  | (0.4 | ) |  | (3.9 | )
|                                                     |  |      |   |  |      |   |  |      |  
|                                                     |  | 38.2 | % |  | 37.7 | % |  | 24.9 | %
|                                                     |  |      |   |  |      |   |  |      |  



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##### Table of Contents

##### Index to Financial Statements

Deferred tax assets consist of the following at September 30:



|                                                        |  |      |           |   |      |   |           |  
|------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                        |  | 2005 |           |   | 2004 |  
|Net operating loss carryforwards                        |  | $    | 1,239,000 |   |      | $ | 1,316,000 |  
|Financial basis in excess of tax basisof certain assets |  |      | (397,000  | ) |      |   | (155,000  | )
|Financial liability accruals                            |  |      | 912,000   |   |      |   | 532,000   |  
|                                                        |  |      |           |   |      |   |           |  
|Net deferred tax asset                                  |  | $    | 1,754,000 |   |      | $ | 1,693,000 |  
|                                                        |  |      |           |   |      |   |           |  
|                                                        |  |     
|Deferred tax assets are classified as:                  |  |      |           |   |      |   |           |  
|Current                                                 |  | $    | 968,000   |   |      | $ | 651,000   |  
|Non-Current                                             |  |      | 786,000   |   |      |   | 1,042,000 |  
|                                                        |  |      |           |   |      |   |           |  
|                                                        |  | $    | 1,754,000 |   |      | $ | 1,693,000 |  
|                                                        |  |      |           |   |      |   |           |  



Utilization of ADDvantages net
operating loss carryforward of approximately $3,202,000 to reduce future taxable income is limited to an annual amount of $265,000. The NOL carryforward expires in varying amounts from 2014 to 2019.



Note 5  Stockholders Equity



The 1998 Incentive Stock Plan (the Plan) provides for the award to officers,
directors, key employees and consultants of stock options and restricted stock. The Plan provides that upon any issuance 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. Under the Plan, option prices will be set by the Board of Directors and may be greater than, equal to, or less than fair market value on the grant date.



At September 30, 2005, 1,001,041 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, 786,041 shares were available for future grants at September 30, 2005.



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##### Index to Financial Statements

A summary of the status of the Companys stock options at September 30, 2005, 2004 and 2003 and changes during
the years then ended is presented below.



|                               |  |         |   |  |                    |      |        |         |      |                    |   |        |  |         |                  |  |   |     
|------------------------------ |  | ------- | - |  | ------------------ | ---- | ------ | ------- | ---- | ------------------ | - | ------ |  | ------- | ---------------- |  | - | ----
|                               |  | 2005    |   |  |                    |      | 2004   |         | 2003
|                               |  | Shares  |   |  | Wtd. Avg.Ex. Price |      | Shares |         |      | Wtd. Avg.Ex. Price |   | Shares |  |         | Wtd. AvEx. Price
|Outstanding, beginning of year |  | 131,125 |   |  | $                  | 2.83 |        | 179,000 |      |                    | $ | 1.97   |  | 114,500 |                  |  | $ | 2.07
|Granted                        |  | 25,000  |   |  | $                  | 4.62 |        | 4,000   |      |                    | $ | 4.40   |  | 71,500  |                  |  | $ | 1.81
|Exercised                      |  | (11,358 | ) |  | $                  | 1.74 |        | (51,375 | )    |                    | $ | 2.03   |  |        |                  |  |   |    
|Canceled                       |  |        |   |  |                    |     |        | (500    | )    |                    | $ | 1.50   |  | (7,000  | )                |  | $ | 1.50
|                               |  |         |   |  |                    |      |        |         |      |                    |   |        |  |         |                  |  |   |     
|Outstanding, end of year       |  | 144,767 |   |  | $                  | 3.23 |        | 131,125 |      |                    | $ | 2.83   |  | 179,000 |                  |  | $ | 1.97
|                               |  |         |   |  |                    |      |        |         |      |                    |   |        |  |         |                  |  |   |     
|Exercisable, end of year       |  | 144,767 |   |  | $                  | 3.23 |        | 108,500 |      |                    | $ | 3.08   |  | 129,875 |                  |  | $ | 2.79
|                               |  |         |   |  |                    |      |        |         |      |                    |   |        |  |         |                  |  |   |     
|Weighted average fair value of |  |         |   |  |                    |      |        |         |      |                    |   |        |  |         |                  |  |   |     
|Options granted                |  |         |   |  | $                  | 2.61 |        |         |      |                    | $ | 4.04   |  |         |                  |  | $ | 1.55
|                               |  |         |   |  |                    |      |        |         |      |                    |   |        |  |         |                  |  |   |     



The
following table summarizes information about fixed stock options outstanding at



September 30, 2005:



|               |  |                             |  |                         
|-------------- |  | --------------------------- |  | ------------------------
|               |  | Options Exercisable        
|Exercise Price |  | NumberOutstandingAt 9/30/05 |  | RemainingContractualLife
|$4.620         |  | 25,000                      |  | 9.5 years               
|$4.400         |  | 4,000                       |  | 8.5 years               
|$1.900         |  | 10,000                      |  | 7.5 years               
|$1.650         |  | 4,000                       |  | 7.5 years               
|$0.810         |  | 4,000                       |  | 6.5 years               
|$1.500         |  | 27,267                      |  | 5.5 years               
|$3.125         |  | 20,500                      |  | 4.5 years               
|$4.000         |  | 50,000                      |  | 4.0 years               
|               |  |                             |  |                         
|               |  | 144,767                     |  |                         
|               |  |                             |  |                         



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 2005: risk-free interest rates of 4.3%; expected dividend yield of 0.0%; expected lives of six years and
estimated volatility of 55%.



The Series B
Preferred Stock has priority over the Companys common stock with respect to the



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##### Index to Financial Statements

payment of dividends and the distribution of assets. Cash dividends on the Series B Preferred Stock shall be payable quarterly when and as declared by the
Board of Directors. Interest accrues on unpaid dividends at the rate of 7% per annum. No dividends may be paid on any class of stock ranking junior to the Series B Preferred Stock unless Series B Preferred Stock dividends have been
paid. Liquidation preference is equal to the stated value per share. The Preferred Stock is redeemable at any time at the option of the Board of Directors at a redemption price equal to the stated value per share. Holders of the Series B
Preferred Stock do not have any voting rights unless the Company fails to pay dividends for four consecutive dividend payment dates.



Note 6  Related Parties



Cash used in financing activities in 2005 was primarily used to pay dividends on the Companys Series B Preferred Stock and for the note payments for the buy-out of
Series A Preferred Stock on September 30, 2004. On September 30, 2004, the Company redeemed, at the $8 million stated value, all of the Series A Preferred Stock, which was beneficially owned by David E. Chymiak and Kenneth A. Chymiak. With
the redemption of the Series A Preferred Stock on September 30, 2004, dividends on the remaining Series B Preferred Stock total $840,000 annually. The outstanding common and preferred stock is beneficially owned by our principal shareholders as
reflected in the following table.



In fiscal 1999, Chymiak Investments, L.L.C.,
which is owned by David E. Chymiak and Kenneth A. Chymiak, purchased from Tulsat Corporation on September 30, 1999, the real estate and improvements comprising the headquarters and a substantial portion of the other office and warehouse space
of Tulsat Corporation for a price of $1,286,000. The price represents the appraised value of the property less the sales commission and other sales expenses that would have been incurred by Tulsat Corporation if it had sold the property to a third
party in an arms-length transaction. Tulsat Corporation entered into a five-year lease commencing October 1, 1999 with Chymiak Investments, L.L.C. covering the property. This lease was renewed on October 1, 2004 and will expire on
September 30, 2008.



In fiscal 2001, ADDvantage Technologies Group of
Texas borrowed $150,000 on June 26, 2001 from Chymiak Investments, L.L.C for the purchase of a building consisting of office and warehouse space at the location in Texas. The note is payable at 7.5% over 10 years and total interest paid in 2004
and 2003 was $4,898 and $9,869, respectively. The note was repaid in April 2004.



In fiscal 2002, ADDvantage Technologies Group of Missouri completed additions at its location in Missouri and financed $342,000 from Chymiak Investments, L.L.C for a building consisting of office and warehouse space. The note is payable at
7.5% over 10 years and total interest paid in 2004 and 2003 was $11,694 and $23,371 respectively. The note was repaid in April 2004.



Chymiak Investments Inc., which is owned by Kenneth A. Chymiak and his wife, Susan C. Chymiak, owns three other properties leased to Tulsat Corporation for five-year
terms (all ending in 2008).



The Company had outstanding, unsecured stockholder
loans of $800,000 at September 30, 2003. Of this amount, $650,000 was payable to revocable trusts for the benefit of Kenneth A. Chymiak and his



40



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##### Index to Financial Statements

wife and $150,000 was payable to David E. Chymiak. The interest rate on the notes was 1.25% below the Chase Manhattan Bank Prime, which was the same rate as
the Companys bank line of credit. The total interest paid on the notes was $19,134 in 2004 and $30,323 in 2003 . The notes were repaid in August and September 2004.



The Company leases various properties primarily from two companies owned by David E. Chymiak and Kenneth A. Chymiak. Future minimum lease
payments under these leases are as follows:



|     |  |   |          
|---- |  | - | ---------
|2006 |  | $ | 377,640  
|2007 |  |   | 360,000  
|2008 |  |   | 324,000  
|     |  |   |          
|     |  | $ | 1,061,640
|     |  |   |          



Related party rental expense for the
years ended September 30, 2005, 2004 and 2003 was $465,840, $466,000 and $461,000, respectively.



Note 7  Retirement Plan



The
Company sponsors a 401(k) plan that covers all employees who are at least 21 years of age and have completed one year of service as of the plan effective date. The Companys contributions to the plan consist of a matching contribution as
determined by the plan document. Pension expense under the 401(k) plan was $186,304 during the year ended September 30, 2005, $161,644 during the year ended September 30, 2004, and $140,673 during the year ended September 30,
2003.



Note 8  Earnings per Share



|                                                         |  |                             |            |                             |   |                             |  |   |           
|-------------------------------------------------------- |  | --------------------------- | ---------- | --------------------------- | - | --------------------------- |  | - | ----------
|                                                         |  | Year endedSeptember 30,2005 |            | Year endedSeptember 30,2004 |   | Year EndedSeptember 30,2003
|Net income                                               |  | $                           | 5,814,392  |                             | $ | 5,813,753                   |  | $ | 4,492,588 
|Dividends on preferred stock                             |  |                             | 840,000    |                             |   | 1,240,000                   |  |   | 1,240,000 
|                                                         |  |                             |            |                             |   |                             |  |   |           
|Net income attributable to common shareholders  basic   |  |                             | 4,974,392  |                             |   | 4,573,753                   |  |   | 3,252,588 
|Dividends on Series A Preferred Stock                    |  |                             |           |                             |   | 400,000                     |  |   | 400,000   
|                                                         |  |                             |            |                             |   |                             |  |   |           
|Net income attributable to common shareholders  diluted |  | $                           | 4,974,392  |                             | $ | 4,973,753                   |  | $ | 3,652,588 
|                                                         |  |                             |            |                             |   |                             |  |   |           
|Weighted average shares outstanding                      |  |                             | 10,067,277 |                             |   | 10,041,197                  |  |   | 10,007,756



41



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##### Index to Financial Statements

|                                                                 |  |   |            |  |   |            |  |   |           
|---------------------------------------------------------------- |  | - | ---------- |  | - | ---------- |  | - | ----------
|Potentially dilutive securities                                  |  |   |            |  |   |            |  |   |           
|Assumed conversion of 200,000 shares of Series A Preferred Stock |  |   |           |  |   | 2,000,000  |  |   | 2,000,000 
|Effect of dilutive stock options                                 |  |   | 42,577     |  |   | 63,344     |  |   | 13,479    
|                                                                 |  |   |            |  |   |            |  |   |           
|Weighted average shares outstanding  assuming dilution          |  |   | 10,109,854 |  |   | 12,104,541 |  |   | 12,021,235
|                                                                 |  |   |            |  |   |            |  |   |           
|Earnings per common share:                                       |  |   |            |  |   |            |  |   |           
|Basic                                                            |  | $ | 0.49       |  | $ | 0.46       |  | $ | 0.33      
|Diluted                                                          |  | $ | 0.49       |  | $ | 0.41       |  | $ | 0.30      
|                                                                 |  |   |            |  |   |            |  |   |           



Note 9  Quarterly Results of
Operations (Unaudited)



The following is
a summary of the quarterly results of operations for the years ended September 30, 2005 and 2004.





|                                  |  |                    |            |          |   |            |  |              |            |  |   |           
|--------------------------------- |  | ------------------ | ---------- | -------- | - | ---------- |  | ------------ | ---------- |  | - | ----------
|                                  |  | Three months ended
|                                  |  | December 31        |            | March 31 |   | June 30    |  | September 30
|Fiscal year ended 2005            |  |                    |            |          |   |            |  |              |            |  |   |           
|Net sales and service income      |  | $                  | 12,261,125 |          | $ | 9,894,886  |  | $            | 12,093,891 |  | $ | 16,023,293
|Gross profit                      |  |                    | 4,056,414  |          |   | 3,519,716  |  |              | 4,258,587  |  |   | 5,037,311 
|Net income                        |  |                    | 1,514,687  |          |   | 1,088,238  |  |              | 1,446,426  |  |   | 1,765,041 
|Basic earnings per common share   |  |                    | 0.13       |          |   | 0.09       |  |              | 0.12       |  |   | 0.15      
|Diluted earnings per common share |  |                    | 0.13       |          |   | 0.09       |  |              | 0.12       |  |   | 0.15      
|                                  |  |                    |            |         
|Fiscal year ended 2004            |  |                    |            |          |   |            |  |              |            |  |   |           
|Net sales and service income      |  | $                  | 11,292,500 |          | $ | 11,654,041 |  | $            | 12,682,449 |  | $ | 11,442,339
|Gross profit                      |  |                    | 4,447,890  |          |   | 4,427,620  |  |              | 4,830,899  |  |   | 4,549,788 
|Net income                        |  |                    | 1,393,170  |          |   | 1,523,626  |  |              | 1,715,232  |  |   | 1,181,725 
|Basic earnings per common share   |  |                    | 0.11       |          |   | 0.12       |  |              | 0.14       |  |   | 0.09      
|Diluted earnings per common share |  |                    | 0.10       |          |   | 0.11       |  |              | 0.12       |  |   | 0.08      



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------



Our
management carried out an evaluation pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or furnish under the Exchange



42



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Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



During the period covered by this report on Form 10-K, there has been no change in our
internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------



None.



PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------



The information required by this item concerning our officers, directors, compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, and our Code of Business Conduct and Ethics is
incorporated by reference to the information in the sections entitled Identity of Officers, Election of Directors, Compliance with Section 16(a) of the Exchange Act, and Code of Ethics,
respectively, of our Proxy Statement for the 2006 Annual Meeting of Shareholders (the Proxy Statement) to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended September 30,
2005.



|ITEM 11. | 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 our Proxy Statement.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



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 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of our Proxy Statement.



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|ITEM 13. | 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 our Proxy Statement.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------



The information required by this item regarding principal accounting fees and services is incorporated by reference to the information set forth in the section entitled Appointment Of Independent Auditors
of our Proxy Statement.





PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



|   |   |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | - |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |   | 
|(a | ) |  | 1. |  | The following financial statements are filed as part of this report in Part II, Item 8.                                                                                                                                                                                                                                                                                                                                                                 
|   |   | 
|   |   |  |    |  | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                 
|   |   | 
|   |   |  |    |  | Consolidated Balance Sheets as of September 30, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                           
|   |   | 
|   |   |  |    |  | Consolidated Statements of Income for the years ended September 30, 2005, 2004 and 2003                                                                                                                                                                                                                                                                                                                                                                 
|   |   | 
|   |   |  |    |  | Consolidated Statements of Changes in Stockholders Equity for the years ended September 30, 2005, 2004 and 2003                                                                                                                                                                                                                                                                                                                                        
|   |   | 
|   |   |  |    |  | Consolidated Statements of Cash Flows for the years ended September 30, 2005, 2004 and 2003                                                                                                                                                                                                                                                                                                                                                             
|   |   | 
|   |   |  |    |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                              
|   |   | 
|   |   |  | 2. |  | The following financial statement Schedule II  Valuation and Qualifying Accounts for the years ended September 30, 2005, 2004 and 2003 is filed as part of this report. All other
financial statement schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the financial statements or notes thereto contained in Part II, Item 8 of
this current report.



44



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##### Index to Financial Statements

Schedule II  Valuation and Qualifying Accounts



|                                            |  |                              |           |                            |   |         |            |  |   |            |   |                        |   |         |  |   |          
|------------------------------------------- |  | ---------------------------- | --------- | -------------------------- | - | ------- | ---------- |  | - | ---------- | - | ---------------------- | - | ------- |  | - | ---------
|                                            |  | Balance atBeginningof Period |           | Chargedto CostsandExpenses |   |         | Write-offs |  |   | Recoveries |   | Balance atEnd ofPeriod
|Period Ended September 30, 2005             |  |                              |           |                            |   |         |            |  |   |            |   |                        |   |         |  |   |          
|Allowance for Doubtful Accounts             |  | $                            | 68,063    |                            | $ | 40,080  |            |  | $ | (16,143    | ) |                        | $ |        |  | $ | 92,000   
|Allowance for Excess and Obsolete Inventory |  |                              | 1,093,000 |                            |   | 482,395 |            |  |   |           |   |                        |   |        |  |   | 1,575,395
|Valuation Allowance of Deferred Tax Asset   |  |                              |          |                            |   |        |            |  |   |           |   |                        |   |        |  |   |         
|                                            |  |                              |           |                            |  
|Period Ended September 30, 2004             |  |                              |           |                            |   |         |            |  |   |            |   |                        |   |         |  |   |          
|Allowance for Doubtful Accounts             |  | $                            | 78,359    |                            | $ | (58,413 | )          |  | $ | (19,968    | ) |                        | $ | 68,085  |  | $ | 68,063   
|Allowance for Excess and Obsolete Inventory |  |                              | 447,100   |                            |   | 645,900 |            |  |   |           |   |                        |   |        |  |   | 1,093,000
|Valuation Allowance of Deferred Tax Asset   |  |                              |          |                            |   |        |            |  |   |           |   |                        |   |        |  |   |         
|                                            |  |                              |           |                            |  
|Period Ended September 30, 2003             |  |                              |           |                            |   |         |            |  |   |            |   |                        |   |         |  |   |          
|Allowance for Doubtful Accounts             |  | $                            | 85,212    |                            | $ | 83,740  |            |  | $ | (90,593    | ) |                        | $ |        |  | $ | 78,359   
|Allowance for Excess and Obsolete Inventory |  |                              |          |                            |   | 447,100 |            |  |   |           |   |                        |   |        |  |   | 447,100  
|Valuation Allowance of Deferred Tax Asset   |  |                              | 443,000   |                            |   |        |            |  |   |           |   |                        |   | 443,000 |  |   |         



3. The following
documents are included as exhibits to this Form 10-K.



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 
|3.1     |  | Certificate of Incorporation of the Company and amendments thereto incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission
by the Company on January 10, 2003.                                                                                                                                                                                             
|        | 
|3.2     |  | Bylaws of the Company, as amended, incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission by the Company on
January 10, 2003.                                                                                                                                                                                                                             
|        | 
|4.1     |  | Certificate of Designation, Preferences, Rights and Limitations of ADDvantage Media Group, Inc. Series A 5% Cumulative Convertible Preferred Stock and Series B 7% Cumulative Preferred Stock
as filed with the Oklahoma Secretary of State on September 30, 1999 incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities Exchange Commission by the Company on October 14,
1999.
|        | 
|10.1    |  | Lease Agreement dated September 15, 1999 by and between Chymiak Investments, L.L.C. and Tulsat Corporation (formerly named DRK Enterprises, Inc.) incorporated by reference to Exhibit
10.3 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission by the Company on December 30, 1999.                                                                                                            
|        | 
|10.2    |  | Schedule of documents substantially similar to Exhibit 10.1 incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-KSB filed with                                                                                                                                                                                                                                                                          



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|     |  |                                                                                                                                                                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|     |  | the Securities Exchange Commission by the Company on December 30, 1999.                                                                                                                                                                                                                                        
|     | 
|10.4 |  | Form of promissory notes issued by Tulsat to David Chymiak and to Ken Chymiak Revocable Trust and Susan C. Chymiak Revocable Trust dated as of February 7, 2000 incorporated by reference
to Exhibit 10.7 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission on January 9, 2001.
|     | 
|10.5 |  | Revolving Credit and Term Loan Agreement dated September 30, 2004 (Revolving Credit and Term Loan Agreement), incorporated by reference to Exhibit 10.5 to the Companys
Form 10-K filed December 22, 2004.                                                                                                  
|     | 
|10.6 |  | Amendment to Revolving Credit and Term Loan Agreement dated September 30, 2005.                                                                                                                                                                                                                                
|     | 
|10.7 |  | The ADDvantage Media Group, Inc. 1998 Incentive Stock Plan, incorporated by reference to Appendix A to the Companys Proxy Statement relating to the Companys 1998 Annual Meeting,
filed April 28, 1998.                                                                                                      
|     | 
|10.8 |  | First Amendment to ADDvantage Media Group, Inc. 1998 Incentive Stock Plan, incorporated by reference to Exhibit 4.4 to the Companys Registration Statement on Form S-8 filed
November 20, 2003.                                                                                                               
|     | 
|21.1 |  | Listing of the Companys subsidiaries, filed herewith.                                                                                                                                                                                                                                                         
|     | 
|23.1 |  | Consent of Tullius Taylor Sartain & Sartain LLP.                                                                                                                                                                                                                                                               
|     | 
|31.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                                
|     | 
|32.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                            



46



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##### Index to Financial Statements

SIGNATURES



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



|                        |  |  |  |     |  |                           |  |                                    
|----------------------- |  |  |  | --- |  | ------------------------- |  | -----------------------------------
|                        |  |  |  |     |  |                           |  | ADDvantage Technologies Group, Inc.
|                        |  |  | 
|Date: December 27, 2005 |  |  |  | By: |  | /s/    Kenneth A. Chymiak
|                        |  |  |  |     |  |                           |  | Kenneth A. Chymiak, 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.

|                        |  |  |  |  |  |                         |  |                                                     
|----------------------- |  |  |  |  |  | ----------------------- |  | ----------------------------------------------------
|                        |  |  | 
|Date: December 27, 2005 |  |  |  |  |  | /s/    David E. Chymiak
|                        |  |  |  |  |  |                         |  | David E. Chymiak, Chairman of the Board of Directors



|                        |  |  |  |  |  |                           |  |                                                                                                                                  
|----------------------- |  |  |  |  |  | ------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|                        |  |  | 
|Date: December 27, 2005 |  |  |  |  |  | /s/    Kenneth A. Chymiak
|                        |  |  |  |  |  |                           |  | Kenneth A. Chymiak, President, Chief Executive Officer and Director (Principal Executive Officer and Principal Financial Officer)



|                        |  |  |  |  |  |                       |  |                                                                                       
|----------------------- |  |  |  |  |  | --------------------- |  | --------------------------------------------------------------------------------------
|                        |  |  | 
|Date: December 27, 2005 |  |  |  |  |  | /s/    James W. Brown
|                        |  |  |  |  |  |                       |  | James W. Brown, Vice President of Operations, Secretary (Principal Accounting Officer)



|                        |  |  |  |  |  |                        |  |                          
|----------------------- |  |  |  |  |  | ---------------------- |  | -------------------------
|                        |  |  | 
|Date: December 27, 2005 |  |  |  |  |  | /s/    Stephen J. Tyde
|                        |  |  |  |  |  |                        |  | Stephen J. Tyde, Director



|                        |  |  |  |  |  |                          |  |                            
|----------------------- |  |  |  |  |  | ------------------------ |  | ---------------------------
|                        |  |  | 
|Date: December 27, 2005 |  |  |  |  |  | /s/    Freddie H. Gibson
|                        |  |  |  |  |  |                          |  | Freddie H. Gibson, Director



|                        |  |  |  |  |  |                        |  |                          
|----------------------- |  |  |  |  |  | ---------------------- |  | -------------------------
|                        |  |  | 
|Date: December 27, 2005 |  |  |  |  |  | /s/    Henry F. McCabe
|                        |  |  |  |  |  |                        |  | Henry F. McCabe, Director





47



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##### Index to Financial Statements

INDEX TO EXHIBITS



The following documents are included as exhibits to this Form 10-K.



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 
|3.1     |  | Certificate of Incorporation of the Company and amendments thereto incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission
by the Company on January 10, 2003.                                                                                                                                                                                             
|        | 
|3.2     |  | Bylaws of the Company, as amended, incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission by the Company on
January 10, 2003.                                                                                                                                                                                                                             
|        | 
|4.1     |  | Certificate of Designation, Preferences, Rights and Limitations of ADDvantage Media Group, Inc. Series A 5% Cumulative Convertible Preferred Stock and Series B 7% Cumulative Preferred Stock
as filed with the Oklahoma Secretary of State on September 30, 1999 incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities Exchange Commission by the Company on October 14,
1999.
|        | 
|10.1    |  | Lease Agreement dated September 15, 1999 by and between Chymiak Investments, L.L.C. and Tulsat (formerly named DRK Enterprises, Inc.) incorporated by reference to Exhibit 10.3 to the
Annual Report on Form 10-KSB filed with the Securities Exchange Commission by the Company on December 30, 1999.                                                                                                                        
|        | 
|10.2    |  | Schedule of documents substantially similar to Exhibit 10.1 incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission on
December 30, 1999.                                                                                                                                                                                                                 
|        | 
|10.4    |  | Form of promissory notes issued by Tulsat to David Chymiak and to Ken Chymiak Revocable Trust and Susan C. Chymiak Revocable Trust dated as of February 7, 2000 incorporated by reference
to Exhibit 10.7 to the Annual Report on Form 10-KSB filed with the Securities Exchange Commission on January 9, 2001.                                                                                                               
|        | 
|10.5    |  | Revolving Credit and Term Loan Agreement dated September 30, 2004, incorporated by reference to Exhibit 10.5 to the Companys Form 10-K filed December 22,
2004.                                                                                                                                                                                                                                                              
|        | 
|10.6    |  | Amendment to Revolving Credit and Term Loan Agreement dated September 30, 2005.                                                                                                                                                                                                                                                                                                                                               



48



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##### Index to Financial Statements

|     |  |                                                                                                                                                                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|10.7 |  | The ADDvantage Media Group, Inc. 1998 Incentive Stock Plan, incorporated by reference to Appendix A to the Companys Proxy Statement relating to the Companys 1998 Annual Meeting,
filed April 28, 1998.
|     | 
|10.8 |  | First Amendment to ADDvantage Media Group, Inc. 1998 Incentive Stock Plan incorporated by reference to Exhibit 4.4 to the Companys Registration Statement on Form S-8 filed
November 20, 2003.          
|     | 
|21.1 |  | Listing of the Companys subsidiaries, filed herewith.                                                                                                                                                   
|     | 
|23.1 |  | Consent of Tullius Taylor Sartain & Sartain LLP.                                                                                                                                                         
|     | 
|31.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                          
|     | 
|32.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                      



49