UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

(Mark                              (Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30,December 31 2006,

OR

            o oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM________________ TO ______________

Commission File number 1-10799

ADDvantage Technologies Group, Inc.
(Exact name of registrant as specified in its charter)

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


1221 E. Houston
Broken Arrow, Oklahoma 74012
(Address of principal executive office)
(918) 251-9121
(Registrant's telephone number, including area code)


1221 E. Houston
Broken Arrow, Oklahoma 74012
(918) 251-9121
(Address of principal executive offices, zip code and telephone number, including area code)


Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for much 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for much 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 o
Indicate by check mark whether the registrant is a large accelerated filer, ________
an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):
    Large Accelerated filer _________
Filer o                                                          Accelerated Filer oNon-accelerated filer ____X____x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the Exchange Act).
       Yes o   No x
Shares outstanding of the issuer's $.01 par value common stock as of January 31, 2007 were 10,233,756.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the Exchange Act). Yes _____ No ____X___

Shares outstanding of the issuer's $.01 par value common stock as of July 28, 2006 were 10,252,428.




ADDVANTAGE TECHNOLOGIES GROUP, INC.
Form 10-Q
For the Period Ended June 30,December 31, 2006


PART I. FINACIALFINANCIAL INFORMATION
Page
Item 1.
Financial Statements.
3
Consolidated Balance Sheets
 
Item 1 - Financial Statements.      
Consolidated Balance Sheets
December 31, 2006 (unaudited) and September 30, 2006 (audited)
- 3 -
  
Consolidated Statements of Income and Comprehensive Income (unaudited)
Three and Nine Months Ended June 30,December 31, 2006 and 2005
- 5 -
  
ConsolidatedStatements of Cash Flows (Unaudited)(Unaudited)
 
 Nine
       Three Months Ended June 30,December 31, 2006 and 2005
- 6 -
  
Notes to unaudited consolidated financial statementsstatements.
- 7 -
  
Item 2. Management’s
Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations..
-10 -9
  
Item 3.
Quantitative and Qualitative Disclosures aboutAbout Market RiskRisk..
-12 -13
  
Item 4.
Controls and Procedures.
-12 -13
  
 
PART II - OTHER INFORMATION
 
  
Item 2. Changes in Securities and Use of Proceeds6..
Exhibits.
-12 -14
  
Item 6. ExhibitsSIGNATURES.
-13 -15
SIGNATURES
 -14 -














 
-2-

ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS

 June 30, September 30,  December 31, September 30, 
 2006 2005  2006 2006 
 (Unaudited) (Audited)   (Unaudited)   (Audited) 
Assets
            
Current assets:            
Cash $173,232 $449,219  $149,240 $98,898 
Accounts receivable, net allowance of
$391,000 and $92,000, respectively
  
6,388,893
  
7,671,549
 
Inventories, net of allowance for excess and obsolete
inventory of $1,626,000 and $1,575,000, respectively
  
26,966,067
  
25,321,149
 
Accounts receivable, net allowance of
$558,000 and $554,000, respectively
  
6,843,460
  
5,318,127
 
Income Tax Receivable   -  307,299 
Inventories, net of allowance for excess and obsolete
inventory of $1,253,000 and $1,178,000, respectively
  
29,007,253
  
28,990,696
 
Deferred income taxes  1,229,000  968,000   1,205,000  1,074,000 
Total current assets  34,757,192  34,409,917   37,204,953  35,789,020 
Property and equipment, at cost:
              
Machinery and equipment  2,501,852  2,357,182   3,094,345  2,697,476 
Land and buildings  1,607,648  1,591,413   4,918,511  1,668,511 
Leasehold improvements  525,006  565,945   205,797  205,797 
  4,634,506  4,514,540   8,218,653  4,571,784 
Less accumulated depreciation and amortization  (1,972,897) (1,811,784)  (2,098,995)  (2,033,679) 
Net property and equipment  2,661,609  2,702,756   6,119,658  2,538,105 
              
Other assets:              
Deferred income taxes  658,715  786,000   617,000  702,000 
Goodwill  1,560,183  1,150,060   1,592,039  1,560,183 
Other assets  273,598  220,275   332,335  335,566 
Total other assets  2,492,496  2,156,335   2,541,374  2,597,749 
              
Total assets
 $39,911,297 $39,269,008  $45,865,985 $40,924,874 














See notes to unaudited consolidated financial statements.

 
-3-

ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS

  December 31, September 30, 
  2006, 2006 
  (Unaudited) (Audited) 
Liabilities and Stockholders’ Equity
       
Current liabilities:       
Accounts payable $3,932,283 $2,618,490 
Accrued expenses  823,207  1,181,139 
Income taxes payable  487,701  - 
Bank revolving line of credit  3,117,822  3,476,622 
Notes payable - current portion  1,425,928  1,241,348 
Dividends payable  210,000  210,000 
Total current liabilities  9,996,941  8,727,599 
        
Notes payable  6,916,707  4,666,738 
 
Stockholders’ equity:
       
Preferred stock, 5,000,000 shares authorized,       
$1.00 par value, at stated value:       
Series B, 7% cumulative; 300,000 shares issued and       
outstanding with a stated value of $40 per share  12,000,000  12,000,000 
Common stock, $.01 par value; 30,000,000 shares       
authorized; 10,253,856 and 10,252,856 shares issued, respectively  
102,539
  
102,528
 
Paid-in capital  (6,473,219)  (6,474,018) 
Retained earnings  23,291,964  21,863,685 
Accumulated other comprehensive income:      
Unrealized gain on interest rate swap, net of tax  85,217  92,506 
   29,006,501  27,584,701 
        
Less: Treasury stock, 21,100 shares at cost  (54,164)  (54,164) 
Total stockholders’ equity
  28,952,337  27,530,537 
        
Total liabilities and stockholders’ equity
 $45,865,985 $40,924,874 
        

  June 30, September 30, 
  2006, 2005 
  (Unaudited) (Audited) 
Liabilities and Stockholders’ Equity
     
Current liabilities:     
Accounts payable $3,147,014 $4,958,834 
Accrued expenses  1,353,030  1,876,523 
Accrued income taxes  109,416  110,691 
Bank revolving line of credit  1,776,221  2,234,680 
Notes payable - current portion  1,240,783  1,239,071 
Dividends payable  210,000  210,000 
Total current liabilities  7,836,464  10,629,799 
        
Notes payable  4,977,266  5,908,199 
 
Stockholders’ equity:
       
Preferred stock, 5,000,000 shares authorized, $1.00 par value, at stated value;       
Series B, 7% cumulative; 300,000 shares issued and outstanding with a stated value of $40 per share  12,000,000  12,000,000 
Common stock, $.01 par value; 30,000,000 shares authorized;       
10,251,428 and 10,093,147 shares issued and outstanding, respectively  102,514  
100,931
 
Paid-in capital  (6,481,917) (7,265,930)
Retained earnings  21,392,058  17,860,967 
Accumulated other comprehensive income:      
Unrealized gain on interest rate swap, net of tax  139,076  89,206 
   27,151,731  22,785,174 
        
Less: Treasury stock, 21,100 shares at cost  (54,164) (54,164)
Total stockholders’ equity
  27,097,567  22,731,010 
        
Total liabilities and stockholders’ equity
 $39,911,297 $39,269,008 
        









See notes to unaudited consolidated financial statements.

 
-4-

ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)

  Three Months Ended June 30, Nine Months Ended June 30, 
  2006 2005 2006 2005 
Net sales income $11,926,117 $11,129,027 $36,665,636 $30,927,842 
Net service income  1,273,342  964,864  3,706,591  3,322,060 
Total income
  13,199,459  12,093,891  40,372,227  34,249,902 
              
Costs of sales  8,263,239  7,246,552  24,570,982  20,160,265 
Cost of service  740,651  588,752  2,439,313  2,254,920 
Gross profit  4,195,569  4,258,587  13,361,932  11,834,717 
Operating, selling, general and             
administrative expenses  1,982,489  1,636,968  6,375,152  4,734,842 
Depreciation and amortization  59,554  59,526  166,813  174,666 
Income from operations  2,153,526  2,562,093  6,819,967  6,925,209 
Interest expense 
  106,827  145,667  418,876  438,858 
Income before income taxes  2,046,699  2,416,426  6,401,091  6,486,351 
Provision for income taxes  704,000  970,000  2,240,000  2,437,000 
              
Net income
  1,342,699  1,446,426  4,161,091  4,049,351 
              
Other comprehensive income:             
              
Unrealized gain (loss) on interest rate swap net of taxes  
11,520
  
(35,934
)
 
49,870
  
50,309
 
Comprehensive income $1,354,219 $1,410,492 $4,210,961 $4,099,660 
              
              
Net income $1,342,699 $1,446,426 $4,161,091 $4,049,351 
Preferred dividends  210,000  210,000  630,000  630,000 
Net income attributable
             
to common stockholders
 $1,132,699 $1,236,426 $3,531,091 $3,419,351 
              
              
Earnings per share:
             
Basic $0.11 $0.12 $0.35 $0.34 
Diluted $0.11 $0.12 $0.35 $0.34 
              
Shares used in per share calculation             
Basic  10,171,534  10,070,172  10,125,992  10,065,685 
Diluted  10,206,152  10,097,155  10,174,415  10,109,744 

  
Three Months Ended
 December 31,
 
  2006 2005 
Net sales income $13,466,914 $13,540,949 
Net service income  1,281,603  1,212,662 
Total net sales
  14,748,517  14,753,611 
        
Costs of sales  9,079,723  8,864,697 
Cost of service  989,637  966,373 
Gross profit  4,679,157  4,922,541 
Operating, selling, general and       
administrative expenses  1,839,652  1,982,401 
Depreciation and amortization  65,316  46,622 
Income from operations  2,774,189  2,893,518 
Interest expense 
  131,910  146,924 
Income before income taxes  2,642,279  2,746,594 
Provision for income taxes  1,004,000  1,005,000 
        
Net income
  1,638,279  1,741,594 
        
Other comprehensive income:       
        
Unrealized (gain) loss on interest rate swap (net of (income) and taxes)  7,289  (13,606) 
Comprehensive income $1,630,990 $1,755,200 
        
Net income $1,638,279 $1,741,594 
Preferred dividends  210,000  210,000 
Net income available
       
to common stockholders
 $1,428,279 $1,531,594 
        
Earnings per share:
       
Basic $0.14 $0.15 
Diluted $0.14 $0.15 
        
Shares used in per share calculation       
Basic  10,232,756  10,073,297 
Diluted  10,253,483  10,116,782 

 



See notes to unaudited consolidated financial statements.

 
-5-

ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


 Nine Months Ended June 30,  
Three Months Ended
December 31,
 
 2006 2005  2006 2005 
Cash Flows from Operating Activities
          
Net income $4,161,091 $4,049,351  $1,638,279 $1,741,594 
Adjustments to reconcile net income to net cash              
provided by operating activities:              
Depreciation and amortization  166,813  174,666   65,316  46,622 
Provision for losses on accounts receivable  4,000  - 
Provision for excess and obsolete inventory  75,000  - 
Deferred income tax benefit  (154,000) (36,834)  (46,000)  (64,000) 
Change in:              
Receivables  1,282,656  (523,291)  (1,222,034)  1,211,488 
Inventories  (1,644,918) (1,772,165)  (91,557)  (2,442,724) 
Other assets  (3,453) (15,968)  (4,058)  5,956 
Accounts payable  (1,811,820) 499,816   1,313,793  (698,611) 
Accrued liabilities  (524,768) (70,422)
Net cash provided by operating activities  1,471,601  2,305,153 
Accrued expenses  129,769  (54,259) 
Net cash provided by (used in) operating activities  1,862,508  (253,934) 
              
Cash Flows from Investing Activities
              
Additions to property and equipment
  
(65,504
)
 
(150,766
)
Net assets acquired, net of cash  (450,000) - 
Net cash used in investing activities  (515,504) (150,766)
Additions of land and building  (3,250,000)  - 
Acquisition of business and certain assets  (166,951)  - 
Additions to machinery and equipment  (261,774)  (24,148) 
Net cash (used in) investing activities  (3,678,725)  (24,148) 
              
Cash Flows from Financing Activities
              
Net change under line of credit  (458,459) (1,328,119)  (358,800)  1,077,952 
Proceeds from notes payable  2,760,000  - 
Payments on notes payable  (929,221) (927,686)  (325,451)  (309,607) 
Proceeds from stock options exercised  785,596  16,935   810  4,125 
Payments of preferred dividends  (630,000) (630,000)  (210,000)  (210,000) 
Net cash used in financing activities  (1,232,084) (2,868,870)
Net cash provided by financing activities  1,866,559  562,470 
              
Net decrease in cash  (275,987) (714,483)
Net increase in cash  50,342  284,388 
              
Cash, beginning of period  449,219  1,316,239   98,898  449,219 
              
Cash, end of period $173,232 $601,756  $149,240 $733,607 
              
       
       
Supplemental Cash Flow Information
              
Cash paid for interest $421,668 $438,858  $122,023 $146,924 
Cash paid for income taxes $2,577,509 $2,358,972  $251,000 $386,500 


See notes to unaudited consolidated financial statements.

 
-6-





Notes to unaudited consolidated financial statements


Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. However, the information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial statements as of September 30, 20052006 have been audited by an independent registered public accounting firm. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2005.2006.

Reclassifications

Certain reclassifications have been made to the 2006 financial statements to conform to the 2007 presentation.

Note 2 - Description of Business

ADDvantage Technologies Group, Inc., through its subsidiaries Tulsat Corporation, ADDvantage Technologies Group of Nebraska, Inc., NCS Industries, Inc., ADDvantage Technologies Group of Missouri, Inc., ADDvantage Technologies Group of Texas, Tulsat - Atlanta, LLC.,LLC, Jones Broadband International, Inc., and Tulsat-Pennsylvania LLC (collectively, the "Company"), sells new surplus, and refurbished cable television equipment throughout North America and Latin America in addition to being a repair center for various cable companies. The Company operates in one business segment.


Note 3 - Earnings Per Share

Basic and diluted net earnings per share were computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic net earnings per share is computed by dividing net earnings available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period and excludes the dilutive effect of stock options. Diluted net earnings per share gives effect to all potentially dilutive potential common shares outstandingstock equivalents during a period. In computing diluted net earnings per share, the average stock price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of stock options.

  
Three Months Ended
December 31,
  2007 2006
Basic EPS Computation:
      
       
Net income available to common stockholders $1,428,279 $1,531,594
       
Weighted average outstanding common shares  10,232,756  10,073,297
       
Earnings per Share - Basic $0.14 $0.15
       
Diluted EPS Computation:
      
       
Net income attributable to common stockholders $1,428,279 $1,531,594
       
Weighted average outstanding common shares  10,232,756  10,073,297
       
Potentially dilutive securities      
Effect of dilutive stock options  20,727  43,485
       
Weighted average shares outstanding      
- assuming dilution  10,253,483  10,116,782
       
Earnings per Share - Diluted $0.14 $0.15


 

-7-


  Three Months Ended June 30, Nine Months Ended June 30,
  2006 2005 2006 2005 
          
Basic EPS Computation:
             
              
Net income attributable to             
common stockholders $1,132,699 $1,236,426 $3,531,091 $3,419,351 
              
Weighted average outstanding             
common shares  10,171,534  10,070,172  10,125,992  10,065,685 
              
Earnings per Share - Basic $0.11 $0.12 $0.35 $0.34 
              
              
              
Diluted EPS Computation:
             
              
Net income attributable to             
common stockholders $1,132,699 $1,236,426 $3,531,091 $3,419,351 
              
Weighted average outstanding             
common shares  10,171,534  10,070,172  10,125,992  10,065,685 
              
Potentially dilutive securities             
Effect of dilutive stock options  34,618  26,983  48,423  44,059 
 
Weighted average shares outstanding
             
- assuming dilution  10,206,152  10,097,155  10,174,415  10,109,744 
              
Earnings per Share - Diluted $0.11 $0.12 $0.35 $0.34 


Note 4 - Line of Credit, Stockholder Loans, and Notes Payable

At June 30,December 31, 2006, a $1,776,221$3.1 million balance is outstanding under a $7.0 million line of credit due SeptemberNovember 30, 2006,2007, with interest payable monthly based on the prevailing 30-day LIBOR rate plus 2.0% (7.35%(7.33% at June 30,December 31, 2006). $5.2$3.9 million of the $7.0 million line of credit was available at June 30,December 31, 2006. Borrowings under the line of credit are limited to the lesser of $7 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 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 $1,052,633$786,705 at JuneSeptember 30, 2006 and is included in the bank revolving line of credit.

-8-


An $8.0 million amortizing term note with Bank of Oklahoma was obtained from the Company's primary financial lender to finance the redemption of the outstanding shares of the Series A Convertible Preferred Stock at September 30, 2004. The outstanding balance on this note was $5.9$5.3 million at June 30,December 31, 2006. The note 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% (7.85%(7.83% as of June 30,December 31, 2006). An interest rate swap was entered into simultaneously with the note on September 30, 2004, which fixed the interest rate at 6.13%. Upon entering into this interest rate swap, the Company designated this derivative as a cash flow hedge by documenting the Company’s risk management objective and strategy for undertaking the hedge along with methods for assessing the swap's effectiveness. At June 30,December 31, 2006, the fair market value of the interest rate swap approximated its carrying value of $226,076.$137,217.

Notes payable secured by real estate of $318,049$297,969 are due in monthly payments through 2013 with interest at 5.5% through 2008, converting thereafter to prime minus .25%.

On November 20, 2006 the Company purchased real estate consisting of an office and warehouse facility located on ten acres in Broken Arrow, OK from Chymiak Investments, LLC for $3,250,000. The office and warehouse facility is currently being utilized as the Company's headquarters and the office and warehouse of our Tulsat Corporation. The office and warehouse facility contains approximately 100,000 square feet of gross building area and was recently renovated and modified for the specific use of the Company. The Company obtained a $2.7 million amortizing term loan on November 20, 2006, secured by the real estate purchased, to finance the purchase of the facility. The term loan matures over fifteen years and payments are due monthly, beginning December 31, 2006, at $15,334 plus accrued interest. Interest accrues at a calculated rate of 1.5% plus the prevailing 30-day LIBOR rate (6.83% at December 31, 2006).

Note 5 - Stock Option Plans

PriorThe 1998 Incentive Stock Plan (the "Plan") provides for the award to fiscal year 2006,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, accountedother 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 December 31, 2006, 1,009,652 shares of common stock were reserved for the exercise of stock awards under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting1998 Incentive Stock Plan. Of the shares reserved for Stock Issued to Employees” (“APB 25”) and related interpretations. Accordingly, the company historically recognized no compensation expense for grantsexercise of stock options to employees because allawards, 759,652 shares were available for future grants.

A summary of the status of the Company's stock options had an exercise price equal tofor the market price of the underlying common stock on the date of the grant.three months ended December 31, 2006 is presented below.
 2006
 Wtd. Avg.
 SharesEx. Price
   
Outstanding at September 30, 2006104,750$4.01
Granted00
Exercised(1,000)$0.81
Canceled0-
Outstanding at December 31, 2006103,750$4.04
   
Exercisable at December 31, 200693,750$3.86

-8-

In the first quarter of fiscal year 2006, the Company adopted Statement of Financial Accounting Standards 123(R), “Share Based Payment” (“SFAS 123R”). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their grant date fair value. The Company has elected the modified-prospective transition method of adopting SFAS 123R which requires the fair value of unvested options be calculated and amortized as compensation expense over the remaining vesting period. SFAS 123R does not require the company to restate prior periods for the value of vested options. Compensation expense for stock based awards is included in the operating, selling, general and administrative expense section of the consolidated statements of income and comprehensive income. On October 1, 2005, all outstanding options, representing 144,767 shares, were fully vested. Therefore, SFAS 123R had no impact on the Company’s statement of income on the date of adoption.
 
On March 6, 2006, theThe Company issued nonqualified stock options covering a total of 35,000 shares to directors and executives. A portion of these options vested at the grant date and the remaining vest over 4 years. The company estimates the fair value of the options granted using the Black- Scholes option valuation model and the assumptions shown in the table below. The Company estimates the expected term of options granted based on the historical grants and exercises of the Company’s options. The Company estimates the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on it’s common stock, consistent with SFAS 123R and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB No. 107). The Company bases the risk-free rate that is used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected term. The Company has never paid cash dividends on its common stock and does not anticipate paying and cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model. The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company uses historical data to estimate the pre-vesting option forfeitures and records share-based expense only for those awards that are expected to vest. A summary of the Company's current estimates are presented below.


                                                                        Three Months Ended
Nine Months Ended
June 30, 2006
Average expected life5.5
Average expected volatility factor63%
Average risk-free interest rate4.7%
Average expected dividend yield------
December 31, 2006
Average expected life                        5.5
Average expected volatility factor                  63%
Average risk-free interest rate             4.7%
Average expected dividend yield                            ------
 

The estimated fair value ofFor the three months ended December 31, 2006 no options were granted on March 6 totaled $120,510. Theby the Company. During the quarter the Company recorded compensation expense of $93,324 during$3,064 representing the nine months ended June 30, 2006. The remaining $33,186 represents theamortizing fair value of the grants made prior to fiscal 2007. As of December 31, 2006, compensation costs related to unvested portionstock awards not yet recognized in the statements of the options issued andoperations totaled $19,338, which will be amortized as compensation expenserecognized over the remaining 4three year vesting term.

Employees exercised options covering 14,000 shares during the quarter ended June 30, 2006.

Note 6 - Subsequent Events and Commitments and Contingencies

On March 30, 2006, the Company issued a press release announcing the move of its corporate headquarters and the headquarters of its subsidiary Tulsat in Broken Arrow, Oklahoma. This move was not completed as of the date of this report. During the quarter ended June 30, 2006, the Company was not charged rent for the new facility but continued to incur rent on the facilities being vacated. On August 2, 2006 the company decided to purchase the building. As of the date of this report the agreement and corresponding note payable have not been finalized. The Company expects to be able to terminate the leases on its vacated facilities without significant penalties. The change in cost from the rents on the existing leases to the depreciation and interest on the new facility is not expected to be significant.

The facilities being vacated and the new facility being purchased are all owned by entities that are owned by David E. Chymiak and Kenneth A. Chymiak. Management believes that the terms of the occupancy agreements with the entities owned by Messrs Chymiak are comparable to the terms available under similar agreements with third parties.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.

ThisSpecial Note on Forward-Looking Statements

Certain statements in Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of ADDvantage Technologies Group, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, the consolidatedour financial statements and the accompanying notes thereto included in Item 1 of this Quarterly Report andto the audited consolidated financial statements and notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the year ended September 30, 2005, contained in the Company's 2005 Annual Report on Form 10-K.

Overview("Notes").

We are a Value Added Reseller ("VAR") for selectedselect Scientific-Atlanta and Motorola broadband new products and we are a distributor for several other manufacturers of cable television ("CATV") equipment. We also specialize in the sale of surplus new and refurbished previously-owned CATV equipment to CATV operators and other broadband communication companies. It is through our development of these relationships that we have focused our initiative to market our products and services to the larger cable multiple system operators ("MSOs") and Telecommunication Companies (“Telcoms”). These customers provide an array of different communications services as well as compete in their ability to offer CATV customers ‘Triple Play’ transmission services, including data, voice and video.

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New Product Offering

During fiscal 2006 we added digital converter boxes to our current product offerings. The digital converter boxes we have purchased and currently sell are considered legacy boxes as the security features are not separable from the boxes. We sold approximately 7,100 legacy converter boxes during the first quarter of fiscal 2007, generating revenues of approximately $0.6 million, and are repairing and processing in excess of 90,000 additional legacy converter boxes. The inventory value of the boxes at December 31, 2006 totaled approximately $3.2 million and we expect to invest  approximately $2.0 million more to repair and process the legacy boxes in inventory during the next two quarters.

There is currently an FCC ban on the sale of legacy digital converter boxes scheduled to go into effect on July 1, 2007. While we can not yet determine the final impact of the July 1, 2007 ban, we believe the ban has created an increased demand for our legacy boxes as our U.S. customers will want to build their inventory of these cost effective legacy boxes prior to the ban date. In addition, we expect there will continue to be a demand for our legacy boxes after the ban date, either in the U.S. if waivers are obtained or the FCC deadline is extended, or internationally where no ban exists and these boxes are widely used. While there is speculation that there will be a large surplus supply of legacy boxes after the ban date, and there could be some price deterioration in the international market for these boxes due to the excess surplus available, we expect the eventual sales prices of our legacy boxes remaining in inventory after July 1, 2007 will still exceed our costs.

Result of Operations 

Comparison of Results of Operations for the Three Months Ended June 30,December 31, 2006 and June 30, 2005

Net Sales. Net sales increased $1.1for the first quarter of fiscal 2007 were $14.75 million, which remained consistent with the first quarter fiscal 2006 net sales of $14.75 million. New equipment sales dropped $0.5 million, or 9.1%4.7%, to $13.2$10.1 million in the secondfirst quarter of fiscal 20062007 from $12.1$10.6 million for the same period in fiscal 2005. New2006. Our new equipment sales decrease was primarily due to a less active hurricane and tornado season in the first quarter of 2007. Refurbished sales increased $0.8$0.4 million, or 8.9%14.2%, to $9.8$3.2 million in the thirdfirst quarter of fiscal 2006 from $9.0 million for the same period in fiscal 2005. Our continued growth in new equipment sales results from midsize and large MSO customers adding new equipment to expand their bandwidths in an effort to offer bundled services that include video, data and telephony. Refurbished sales dropped 4.8% to $2.0 million for the current quarter,2007, compared with $2.1$2.8 million for the same period last year. RefurbishedThis increase resulted from the introduction of our digital converter box product line which contributed $0.6 million of incremental sales decreased slightly thisduring the first quarter as many new and existing customers are choosing to upgrade their systems with new equipment to increase bandwidth rather than choosing to replace equipment with more cost-effective refurbished gear.of fiscal 2007. Repair sales were up 30.0%increased 8.3% to $1.3 million for the current quarter, compared with $1.0$1.2 million for the same period last year. Our repair service revenues increased due toprimarily from the incremental revenues from Jones Broadband International, acquired on August 19th, 2005, andcontributions of our continued relationship as an authorized repairnew ComTech-Indiana service center for a major CATV equipment manufacturer.in Mishiwaka, IN.

Costs of Sales. Costs of sales includes (i) the costs of new and refurbished equipment, on a weighted average cost basis, sold during the period, (ii) the equipment costs used in repairs, (iii) the related transportation costs, and (iv) the labor and overhead directly related to these sales. Costs of sales increased $1.2$0.3 million, or 15.4%3.1%, to $9.0$10.1 million in the thirdfirst quarter of fiscal 20062007 from $7.8$9.8 million for the same period of fiscal 2005.2006. This increase was primarily due to increaseda $0.2 million increase in obsolescence reserve to offset potential future inventory writedowns and a $0.1 million increase in costs on new product sales. Our costs of sales on new products have risen as we are selling more products that are currently only available from the manufacturer. As these products become more widely used, we expect to be able to purchase them from surplus new channels and the incrementalreduce our overall cost of sales from Jones Broadband International, acquired in the fourth quarter of fiscal 2005, which accounted for 37.0% of the total cost of sales increase.sales.

Gross Profit. Gross profit decreased $0.1$0.2 million to $4.2$4.7 million for the thirdfirst quarter of fiscal 20062007 from $4.3$4.9 million for the same period in fiscal 2005.2006. The gross margin percentage dropped to 31.8%31.7% of revenue for the current quarter, compared to 35.2%33.4% of revenue for the same quarter last year. The margin percentage decrease was primarily due to the continued change in our product line mix. Sales of new equipment, which have lower gross margins, continue to increase as a percentage of total revenue, over refurbished and repair sales. As such, this$0.3 million increase in new equipmentcosts of sales results in a lower overall gross margin percentage.previously discussed.

Operating, Selling, General and Administrative Expenses. Operating, selling, general and administrative expenses include personnel costs (including fringe benefits, insurance and taxes), occupancy, transportation (other than freight-in), communication and professional services, among other less significant cost categories. Operating, selling, general and administrative expenses increased $0.3decreased $0.2 million, or 17.6%10%, to $2.0$1.8 million in the thirdfirst quarter of fiscal 20062007 from $1.6$2.0 million for the same period in 2005. Incremental operating,of fiscal 2006. Operating, selling, general and administrative expenses from Jones Broadband International, acquireddeclined primarily as a result of a decrease in bad debt expense of $0.1 million. During the fourthfirst quarter of fiscal 2005,2006, we increased our bad debt reserve by $0.1 million and no adjustment to the reserve was responsible for 79.0%made in the first quarter of the increased expenses.2007.

Income from Operations. Income from operations decreased $0.4$0.1 million, or 15.4%3.4%, to $2.2$2.8 million for the thirdfirst quarter of fiscal 20062007 from $2.6$2.9 million for the same period last year. This decrease was primarily due to the decrease in gross margin percentage resulting from changes in our new product line mixsales discussed herein. The third quarter incremental income from operations resulting from Jones Broadband International, acquired in the fourth quarter of fiscal year 2005, was $0.05 million.

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Interest Expense. Interest expense for the thirdfirst quarter of fiscal year 20062007 was $0.1 million compared to $0.1 million for the same period last year. As of June 30,December 31, 2006 the line of credit balance was $1.8$3.1 million, compared to $1.9$3.5 million as of June 30,December 31, 2005. The interest rate on the line of credit as of December 31, 2006 and 2005 was 7.3% and 6.4%, respectively.

Income Taxes. The provision for income taxes for the thirdfirst quarter of fiscal 20062007 was $0.7$1.0 million or 34.0%38.0% of profit before tax, compared to $1.0 million or 40.0%36.6% of profit before tax for the same period last year. The decrease was primarily due to lower pre-tax earnings in the third quarter of fiscal 2006 and a decrease in theOur estimated effective 2006 tax rate due tofor 2007 was increased as the tax deduction for compensation expense from stock options exercised is expected to be minimal in the nine months ending June 30, 2006.


Comparison of Results of Operations for the Nine Months Ended June 30, 2006 and June 30, 2005

Net Sales. Net sales increased $6.2 million, or 18.1%, to $40.4 million for the nine months ended June 30, 2006 from $34.2 million for the same period in fiscal 2005. New equipment sales increased $5.4 million, or 22.1%, to $29.8 million for the nine months ended June 30, 2006 from $24.4 million for the same period in fiscal 2005. Our continued growth in new equipment sales results from midsize and large MSO customers adding new equipment to expand their bandwidths in an effort to offer bundled services that include video, data and telephony. Refurbish sales grew 3.2% to $6.5 million for the nine months ended June 30, 2006, from $6.3 million for the same period in 2005. We have experienced limited sales growth in our refurbished product line as many new and existing customers are choosing to upgrade their systems in an effort to increase bandwith rather than choosing a more cost effective replacement option. Repair service revenues grew 12.1% to $3.7 million for the nine months ended June 30, 2006, compared with $3.3 million for the same period lastcurrent year.Our repair service revenues increased due to the incremental revenues from Jones Broadband International, acquired in the fouth quarter of fiscal 2005, and our continued relationship as an authorized repair center for a major CATV equipment manufacturer.

Recently issued Accounting Standards
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 108, CostsConsidering the Effects of Sales.Prior Year Misstatements when Quantifying Current Year Misstatements. CostsSAB No. 108 requires analysis of sales includes (i) the costs of newmisstatements being both an income statement (rollover) approach and refurbished equipment, on a weighted average cost basis, sold during the period, (ii) the equipment costs usedbalance sheet (iron curtain) approach in repairs, (iii) the related transportation costs,assessing materiality and (iv) the labor and overhead directly related to these sales. Costs of sales increased $4.6 million, or 20.5%, to $27.0 millionprovides for the nine months ended June 30, 2006 from $22.4 million for the same period of fiscal 2005. This increase was primarily due to the increase in new equipment sales and the incremental cost of sales from Jones Broadband International, acquireda one-time cumulative effect transition adjustment. We adopted SAB No. 108 in the fourth quarter of fiscal 2005, which accounted for 32.0% of the total cost of sales increase.

Gross Profit. Gross profit increased $1.6 million, or 13.6%, to $13.4 million for the nine months ended June 30, 2006 from $11.8 million for the same period in fiscal 2005. The gross margin percentage was 33.1% for the current period, compared to 34.6% for the same period last year. The margin percentage decrease was primarily due to the continued change in our product line mix. Sales of new equipment, which have lower gross margins, continue to increase as a percentage of total revenue, over refurbished and repair sales. As such, this increase in new equipment sales results in a lower overall gross margin percentage.

Operating, Selling, General and Administrative Expenses. Operating, selling, general and administrative expenses include personnel costs (including fringe benefits, insurance and taxes), occupancy, transportation (other than freight-in), communication and professional services, among other less significant cost categories. Operating, selling, general and administrative expenses increased $1.7 million, or 36.2%, to $6.4 million for the nine months ended June 30, 2006 from $4.7 million for the same period in 2005. Incremental operating, selling, general and administrative expenses from the acquisition of Jones Broadband International was responsible for $0.9, or 56.3% of the increased expenses. Other increased expenses in the first nine months of fiscal 2006 include an increase in the reserve for bad debt of  $0.3 million and $0.1 million of compensation costs for stock options issued, resulting from the implementation of FAS 123R. Prior to fiscal 2006, the Company accounted for stock options under the guidelines of APB 25, which did not result in expense recognition when stock options were granted.

Income from Operations. Income from operations decreased $0.1 million, or 1.4%, to $6.8 million for the nine months ended June 30, 2006 from $6.9 million for the same period last year. Income from operations decreased due to the decrease in gross margin percentage resulting from changes in our product line mix discussed herein. The nine month incremental income from operations resulting from Jones Broadband International, acquired in the fourth quarter of fiscal year 2005, was $0.1 million.2007 and its adoption had no impact on our financial statements.

Interest Expense. Interest expense for the nine months ended June 30, 2006 totaled $0.4 million compared to $0.4 for the same period last year. As of June 30,In September 2006, the lineFASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of credit balance was $1.8 million, comparedthe information. This statement is effective for us beginning October 1, 2008. We do not expect the adoption of SFAS No. 157 to $1.9 million as of June 30, 2005.have a material effect on our financial statements.

In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes.Taxes - an interpretation of FASB Statement No. 109 The provision, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. In fiscal 2006, we elected early adoption of FIN No. 48 and there was no impact on our financial statements.

In June 2006, the nine months ended June 30, 2006 totaled $2.2 millionFASB ratified the Emerging Issues Task Force ("EITF") consensus on EITF issue No. 06-2, "Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43." EITF Issue No. 06-2 requires companies to accrue the costs of compensated absences under a sabbatical or 35.0%similar benefit arrangement over the requisite service period. EITF issue No. 06-2 is effective for us beginning October 1, 2007. We do not expect the adoption of profit before taxes, comparedEITF Issue No. 06-2 to $2.4 million, or 38.0% of profit before taxes for the same period last year. The reduced effective tax rate resulted primarily from the effect of stock options exercisedresult in the nine months ended June 30, 2006.a material adjustment to our financial statements.

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Critical Accounting Policies

Note 1 to the Consolidated Financial Statements in Form 10-K for fiscal 20052006 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 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.estimates. 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
 
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.

We market our products primarily to MSOs and other users of cable television equipment who are seeking products that can be shipped on a same-day basis, or seeking products which manufacturers have discontinued production, or are seeking shipment on a same-day basis.production. Our position in the industry requires us to carry large inventory quantities relative to quarterly sales, but also allows us to realize high overall gross profit margins on our sales. Carrying these significant inventories represents our greatest risk. 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 we make in a reasonable period. Over the past two years, ourOur investment in inventory has shifted tois predominantly new products purchased from manufacturers and surplus-new products, which are unused products purchased from other distributors or MSOs.

In order to address the risks associated with our investment in inventory, we regularly review inventory quantities on hand and reduce the carrying value by recording a provision for excess and obsolete inventory based primarily on inventory aging and forecasts of product demand and pricing. The broadband industry is characterized by changing customer demands and changes in technology that could result in significant increases or decreases of inventory pricing or increases in excess or obsolete quantities on hand. Our estimates of future product demand may prove to be inaccurate; in which case the provision required for excess and obsolete inventory may have been understated or overstated. Although every effort is made to ensure the accuracy of internal forecasting, any significant changes in demand or prices could have a significant impact on the carrying value of our inventory and reported operating results. As of June 30,December 31, 2006 we have reduced inventories by maintaining an allowance for excess and obsolete inventories totaling $1.6$1.3 million.

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 creditworthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer creditworthiness, 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. At June 30,December 31, 2006, accounts receivable, net of allowance for doubtful accounts of $0.4$0.6 million, amounted to $6.4$6.8 million.



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Liquidity and Capital Resources

We have a line of credit with the Bank of Oklahoma under which we are authorized to borrow up to $7$7.0 million at a borrowing rate based on the prevailing 30-day LIBOR rate plus 2.0% (7.35%(7.33% at June 30,December 31, 2006.) This line of credit will provide the lesser of $7$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 June 30,December 31, 2006, of $1.8$3.1 million, due SeptemberNovember 30, 2006. $5.22007. At December 31, 2006, $3.9 million of the $7.0 million line of credit remained unused and available at June 30, 2006. We intend to renew the agreement at the maturity date under similar terms.available.

An $8 million amortizing term note with Bank of Oklahoma was obtained to finance the redemption of the outstanding shares of our Series A Convertible Preferred Stock at September 30, 2004. The outstanding balance on this note was $5.9$5.3 million at June 30,December 31, 2006. The note 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% (7.83% at December 31, 2006). An interest rate swap was entered into simultaneously with the note on September 30, 2004, which fixed the interest rate at 6.13%.

Notes payable secured by real estate of $318,049$297,969 are due in monthly payments through 2013 with interest at 5.5% through 2008, converting thereafter to prime minus .25%.

On November 20, 2006 we purchased real estate consisting of an office and warehouse facility located on ten acres in Broken Arrow, OK from Chymiak Investments, LLC for $3,250,000. The office and warehouse facility is currently being utilized as our headquarters and the office and warehouse of our Tulsat Corporation. The office and warehouse facility contains approximately 100,000 square feet of gross building area and was recently renovated and modified to for specific use of the Company. A $2,760,000 amortizing term note was executed on November 20, 2006 to finance the purchase of the new facility. The loan matures over fifteen years and payments are due monthly, beginning December 31, 2006, at $15,334 plus accrued interest. Interest accrues at a calculated rate of 1.5% plus the prevailing 30-day LIBOR rate (6.83% at December 31, 2006).

We finance our operations primarily through internally generated funds and the bank line of credit. Monthly payments of principal for notes payable and loans used to purchase buildings total $1.2$1.4 million in the next 12 months. We expect to fund these payments through cash flow from operations.

Forward-Looking Statements

Certain statements included in this report which are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations, estimates, assumptions and beliefs of management; and words such as "expects," "anticipates," "intends," "plans," "believes," "projects," "estimates" and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve risks and uncertainties, including, but not limited to, the future prospects for our business, our ability to generate or to raise sufficient capital to allow it to make additional business acquisitions, changes or developments in the cable television business that could adversely affect our business or operations, the continued availability to us of our key management personnel, general economic conditions, the availability of new and used equipment and other inventory and our ability to fund the costs thereof, and other factors which may affect our ability to comply with future obligations. Accordingly, actual results may differ materially from those expressed in the forward-looking statements.

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Item 3. Quantitative and Qualitative Disclosures about Market RiskRisk. 

The Company’s exposure to market rate risk for changes in interest rates relates primarily to its revolving line of credit. The interest rates under the line of credit fluctuate with the LIBOR rate. At June 30,December 31, 2006, the outstanding balances subject to variable interest rate fluctuations totaled $1.8$3.1 million. Future changes in interest rates could cause our borrowing costs to increase or decrease.

The Company maintains no cash equivalents. However, the Company 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 2.50%, the swap effectively fixed the interest rate at 6.13%. The fair value of this derivative, $226,076$137,217 at June 30,December 31, 2006, will increase or decrease based on any future changes in interest rates.

The Company does business primarily in North America and Latin America. All sales and purchases are denominated in U.S. dollars. The majority of all sales into Latin America are made on a prepayment basis.


Item 4.4. Controls and ProceduresProcedures.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that we are able to collect the information we are required to disclose in the reports we file or submit under the Exchange Act, and to record, process, summarize and report this information within the time periods specified in the rules of the Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer evaluated our disclosure controls and procedures as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective.

During the period covered by this report on Form 10-Q, there have been no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


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PART II OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) On June 30, 2006, the Company completed the purchase of the business and certain assets of Broadband Remarketing International, LLC (BRI). As payment for BRI's business and certain assets, the company issued 86,761 shares of the Company’s unregistered common stock, having a fair market value of $450,000, to the owners of BRI. The shares transaction was exempt from registration by virtue of the exemption provided by Section 4(2) of the Securities Act of 1933 as the issuance did not involve any public offering.

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Item 6. Exhibits

Exhibit No. Description

Item 6. Exhibits
Exhibit No.Description
10.1Third Amendment to Revolving Credit and Term Loan Agreement dated November 20, 2006, incorporated by reference to exhibit 10.5 to the Company’s Form 10-K filed December 27, 2006.
10.2Contract of sale of real estate between Chymiak Investments, LLC and ADDvantage Technologies, Group, Inc. dated November 20, 2006, incorporated by reference to exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission by the Company on November 20, 2006.
31.1Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002.2002

 
31.1Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002
31.2Certification of Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002.2002

 
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ADDVANTAGE TECHNOLOGIES GROUP, INC.
(Registrant)

/s/ Kenneth A. Chymiak
Date: August 11, 2006Kenneth A. Chymiak
(President Chief Executive Officer)

/s/ Daniel E. O'Keefe
Date: August 11, 2006Daniel E. O’Keefe
(Chief Financial Officer)

   /s/: Kenneth A. Chymiak                     
Date: February 14, 2007                                                                 Kenneth A. Chymiak,
(President and Chief Executive Officer)


   /s/: Daniel E. O'Keefe                         
Date: February 14, 2007                                                                Daniel E. O’Keefe,
     (Chief Financial Officer)



 
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Exhibit Index

The following documents are included as exhibits to this Form 10-Q:

Exhibit No. Description

Item 6. Exhibits
 
Exhibit No.Description
10.1Third Amendment to Revolving Credit and Term Loan Agreement dated November 20, 2006, incorporated by reference to exhibit 10.5 to the Company’s Form 10-K filed December 27, 2006.
10.2Contract of sale of real estate between Chymiak Investments, LLC and ADDvantage Technologies, Group, Inc. dated November 20, 2006, incorporated by reference to exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission by the Company on November 20, 2006.
31.1Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002.2002

 
31.1Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002
31.2Certification of Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002.2002

 
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





 
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