**UNITED
                  STATES********SECURITIES
                  AND EXCHANGE COMMISSION****Washington,
                  D.C. 20549****FORM
                  10-K**xANNUAL
                  REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES
                  EXCHANGE ACT OF 1934**For
                  the fiscal year ended September 30, 2006**oTRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES
                  EXCHANGE ACT OF 1934Commission
                  file number1-10799ADDVANTAGE
                  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.)1221 E. Houston,Broken Arrow, Oklahoma
            74012(Address
                of principal executive offices)
            (Zip
                code)





Registrant’s
                  telephone number: (918) 251-9121Securities
                  registered under Section 12(b) of the
                  Act


Title of each class
            Name of exchange on which registeredCommon
                Stock, $.01 par value
            American
                Stock Exchange





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





Indicate
                by check mark if the registrant is a well-known seasoned issuer,
                as
                defined in Rule 405 of the Securities Act
            YesoNoxIndicate
                by check mark if the registrant is not required to file reports pursuant
                to Section 13 or 15(d) of the Act
            YesoNoxIndicate
                by check mark whether the registrant (1) filed all reports required
                to be filed by Section 13 or 15(d) of the Securities Echange
                Act during the past 12 months
              (or
                for such shorter period that the registrant was required to file
                such
                reports), and(2) has
                been subject to such filing requirements for the past
                90 days.
            YesxNooIndicate
                by check mark if disclosure of delinquent filers pursuant to Item
                405 of
                Regulation S-K is not contained herein, anddisclosure
                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.
            oIndicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer (asdefined
                in Rule 12b-2 of the Act)
              Large
                Accelerated FileroAccelerated
                FileroNon-accelerated filerxIndicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Act).
              
              The
                aggregate market value of the outstanding shares of common stock,
                par
                value $.01 per share, held by non-affiliatescomputed
                by reference to the closing
              price
                of the registrant’s common stock as of March 31, 2006 was
                $34,446,944.
            YesoNoxThe
                number ofshares
                ofthe
                registrant’soutstandingcommon
                stock, $.01 par value per share, was 10,232,756 as of December 12th,2006.








**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 2007
                annual meeting of shareholdersareincorporated 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.








ADDVANTAGE
      TECHNOLOGIES GROUP, INC.


FORM 10-K


YEAR
      ENDED SEPTEMBER 30, 2006


INDEX





PagePART
                  IItem
                  1.
              Business.
              3Item
                  1A.
              Risk
                  Factors.
              8Item
                  1B.
              Unresolved
                  Staff Comments.
              12Item
                  2.
              Properties.
              12Item
                  3.
              Legal
                  Proceedings.
              13Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders.
              13PART
                  IIItem
                  5.
              Market
                  for Registrant's Common Equity, Related Stockholder
                  Matters and Issuer
                  Purchases of Equity Securities.
              13Item
                  6.
              Selected
                  Financial Data.
              14Item
                  7.
              Management's
                  Discussion and Analysis of Financial Condition and Resultsof
                  Operation.
              14Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk.
              24Item
                  8.
              Financial
                  Statements and Supplementary
                  Data.
              25Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting andFinancial
                  Disclosure.
              47Item
                  9A.
              Controls
                  and Procedures.
              48Item
                  9B.
              Other
                  Information.
              48PART
                  IIIItem
                  10.
              Directors,
                  Executive Officers and Corporate
                  Governance.
              49Item
                  11.
              Executive
                  Compensation.
              49Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and RelatedShareholder
                  Matters.
              49Item
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence.
              49Item
                  14.
              Principal
                  Accounting Fees and Services.
              49PART
                  IVItem
                  15.
              Exhibits,
                  Financial Statement
                  Schedules.
              50








2


**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 (through our subsidiaries) distribute and service a comprehensive line of electronics and
      hardware for the cable television ("CATV") industry.  The products we sell
      and service are used to acquire, distribute, receive and protect the
      communications signals carried on fiber optic, coaxial cable and wireless
      distribution systems.  Our customers provide 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.





We
      continue to expand market presence by creating a network of regionally based
      subsidiaries that focus on servicing customers in their markets. The current
      subsidiary network includes Tulsat
      Corporation ("Tulsat"), NCS Industries, Inc. ("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"), Jones Broadband International, Inc. ("Jones Broadband") and
      Tulsat-Pennsylvania LLC (dba "Broadband Remarketing
      International").




Several
      of our subsidiaries, through their long relationships with OEM manufactures
      and
      specialty repair facilities have established themselves as value added resellers
      (“VARs”). Tulsat, located in Broken Arrow, Oklahoma, is an exclusive
      Scientific-Atlanta Master Stocking Distributor for certain legacy products
      and
      distributes most of Scientific-Atlanta's other products.  Tulsat has also
      been designated an authorized third party Scientific-Atlanta repair center
      for
      select products.  NCS, located in Warminster, Pennsylvania, is a leading
      distributor of Motorola broadband products.  Other subsidiaries distribute
      Standard, Corning-Gilbert, Blonder-Tongue, RL Drake, Quintech, Videotek and
      WaveTek products.





3


In
      addition to offering a broad range of new products, we also purchase from
      cable operators and others, surplus
      and used equipment that become s available as a result of upgrades in their systems or overstocks in their
      warehouses. We maintain one of the industr y's largest inventories of new and refurbished equipment, allowing us to provide
      products within a short period of time. We continue to upgrade our new product
      offerings to stay in the forefront of the communications broadband technology
      revolution.





O ur
      subsidiaries  all
      operate technical service centers specializing in Motorola, Magnavox,
      Scientific-Atlanta and Alpha Power Technologies repairs.





**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 capable of delivering symmetrical high-bandwidth video, two-way high
      speed data service and telephony to over 90% of their subscribers through their
      existing hybrid fiber co-axial (HFC) infrastructure.





We
      believe we have been able to provide the products and services sought 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 that drive our revenue and profit growth.





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, access to "hard-to-find" products and reduce
      customer downtime because we have the product in stock. 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 service
      centers that provide warranty and out-of-warranty repairs, we continue to reach
      new customers.





4


**Recent
      Business Developments**


On
          December 12, 2005, we announced Tulsat’s signing of a three-year extension on
          its  Master
          Distributor Contract with Scientific-Atlanta. This extension authorizes
          the
          subsidiary to carry and resell the entire line of Scientific-Atlanta current
          and
          legacy equipment. Under the terms of the agreement, Tulsat also continues
          to be
          the exclusive distributor for select Scientific-Atlanta headend and transmission
          products for U.S. customers through January 15, 2009. On June 7, 2006 Tulsat
          extended its Third Party Service Agreement with Scientific-Atlanta through
          May,
          2008. This service agreement allows Tulsat to act as an authorized service
          provider for select Scientific-Atlanta equipment within the United
          States.
 
 On
          June 22, 2006 we purchased the assets of Broadband Remarketing International.
          This acquisition expanded our product offerings to include refurbished
          digital
          converter set-top boxes and equipment destruction services. On September
          19,
          2006, we completed the purchase of approximately 100,000 surplus digital
          set-top
          boxes from Adelphia Communication Corporation for approximately $1,800,000.
          During the fourth quarter we also purchased an additional 15,000 boxes
          from
          other sources for various amounts totaling approximately $200,000. These
          boxes
          will require an additional investment of approximately $2.0 to $3.0
          million to refurbish and prepare them for resale. During the first quarter
          of 2007, we have started to inventory the refurbished digital set-top boxes
          and
          have begun marketing and selling this new product line.
 
 We
          believe there is a strong demand in the U.S. for this product line as digital
          boxes provide consumers the ability to translate high definition signals
          (HD-TV)
          and receive other services such as video on demand (VOD) and digital video
          recording (DVR). The
          boxes we purchased and currently market are considered legacy boxes as
          the
          security features (which allow the MSO or cable operator to control channel
          access and services) are not separable from digital boxes. The
          FCC has
          issued a ban on purchasing these legacy boxes after July 1, 2007 in the
          attempt
          to force the industry to transition to digital boxes with separable security
          features. By separating the security features from the digital boxes, the
          FCC
          believes the equipment can be more widely distributed through commercial
          retailers (such as Wal-Mart, Best Buy and Circuit City). Because of the
          uncertainty of equipment availability and higher acquisition costs associated
          with the new digital boxes with separable security features, several large
          MSOs
          have filed petitions with the FCC requesting at least partial if not full
          waivers to the regulation. In addition, certain Congress members have formally
          requested the FCC extend the July 1, 2007 deadline to give the industry
          time to
          develop more cost effective solutions. We believe the ban has created an
          increased demand for the legacy boxes as MSOs will want to build their
          inventory
          of these cost effective legacy boxes prior to the ban date. In addition,
          we
          believe there will continue to be demand for these 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 they are widely used.
 
 We
          expect to add the set-top digital boxes with separable security features
          to our
          refurbished digital box product line as surplus boxes become available.




**Products
      and Services**





We
      offer our customers a wide range of new, surplus new and refurbished products
      that are used in connection with the cable television signal.





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, fiber optic cable, 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 transmitters, receivers, line extenders,
      broadband amplifiers, directional taps and splitters.





Digital
      converters and modems are boxes placed inside the home that receive, record
      and
      transmit video, data and telephony signals. Among the products we offer in
      this
      category are remanufactured Scientific Atlanta and Motorola digital converter
      boxes and modems.





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





5





**Revenues
      by Geographic Areas**





Our
      r evenues
      by geographic areas were as
      follows:





Year ended September 30,


2006   2005   2004




Geographic Area


United States   $48,713,482  $47,863,096  $46,163,254


Latin America,


and Other  3,827,727              
      2,410,099           
      908,075




Total   $ 52,541,209   $50,273,195  $47,071,329







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.








**Sales
      and Marketing**





In
      fiscal 2006, sales of new products represented 73% of our revenue and
      re-manufactured product sales represented 17% of our revenues.  Repair and
      other services contributed the remaining 10% of our revenues.





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 the internal sales and customer service staff of our
      subsidiaries.  We also have outside sales representatives located 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.





We
      market ourselves as an "On Hand - On Demand" distributor. We maintain the
      largest inventory of new and used cable products in the industry and offer
      our
      customers same day shipments. We believe our investment in on - hand
      inventory, our network of regional repair centers, and our experienced sales
      and
      customer service team create a competitive advantage for us .





We
      continue to add products and services to maintain and expand our current
      customer base in North America, Latin and South America, Europe and the Far
      East. Sales in Latin America and South America continue to grow as we expand
      our
      relationship with international cable operators in this region. Recently,
      Scientific-Atlanta has appointed one of our subsidiaries, Tulsat Corporation,
      to
      become one of its non-exclusive
      distributors in Latin and South America.





We
      believe there is growth potential for sales of new and legacy products
      in the international market as some operators choose to upgrade to new larger
      bandwidth platforms while other customers, specifically in developing markets,
      desire less expensive legacy new and refurbished bandwidths. We do extend
      limited credit to international customers that purchase products on a regular
      basis and make timely payments. However, for most international sales we require
      prepayment of purchases or letters of credit confirmed by U.S. banks prior
      to
      shipment of products.





6


**Suppliers**





In
      fiscal 2006, we purchased approximately $16.5 million of new inventory directly
      from Scientific-Atlanta and approximately $5.0 million of new inventory directly
      from Motorola. These
      purchases represented approximately 60 %
      of our total inventory purchases for fiscal 2006. The
      concentration of our inventory suppliers subjects us to risk  which
      is further discused in " Item
      1A. Risk
      Factors . " We also purchase a large amount of our inventory from cable operators who have
      upgraded or are in the process of upgrading their systems.








**Seasonality**





Many
      of the products that we sell are installed outdoors and can be damaged by storms
      and power surges. Consequently ,
      we experience increased demand on certain product offerings during the months
      between late spring and early fall when severe weather tends to be more prominent than at other times during the
      year .








**Competition
      and Working Capital Practices.**





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 buying and selling new and remanufactured CATV equipment similar to
      the
      products that we offer. However, most of these competitors do not maintain
      the
      large inventory we carry due to capital requirements. We maintain
      the practice of carrying large quantities of inventory to meet both the
      customers' urgent needs and mitigate the extended lead times of our suppliers.
      In terms of sales and inventory on hand, we are the largest reseller 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 without having to wait for the manufacturers
      to
      supply the items.





Working
      capital practices in the industry center on inventory and accounts receivable. We choose
      to carry a larger inventory and continue to reinvest excess cash flow in
      inventory to expand our product offerings. The greatest need for working capital occurs when we make
      bulk purchases of surplus new and used inventory, or when our OEM suppliers
      offer additional discounts on bulk purchases. Our working
      capital requirements are generally met by cash flow from operations and a bank
      revolving credit facility which currently permits borrowing up to $7,000,000.
      We
      believe we have sufficient funds available to meet our working
      capital needs for the foreseeable future.





7


**Significant
      Customers**





We
      are not dependent on one or a few customers to support our business. Our
      customer base consists of over 1,400 active accounts. Sales to our largest
      customer , Power
      and Telephone Supply , accounted for approximately 10.5% of our revenues in fiscal 2006. Approximately
      32% of our revenues for fiscal year 2006 and approximately 28% for 2005 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 alone,
      each of which is a potential customer.





On
      July 1, 2006, one of our larger customers, Adelphia Communications Corporation
      sold its remaining cable systems to Time Warner and Comcast. Sales to these
      cable system locations, under their new ownership, were negligible during our
      fiscal fourth quarter, 2006 and impacted our quarterly performance. While we
      can
      not forcast the purchasing activity from these cable systems, we expect sales
      to
      these systems to resume in fiscal 2007.





**Personnel**





At
      September 30, 2006, we had 167 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.







**Item
      1A. 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 own a
        significant amount of our outstanding stock.*** At September 30, 2006, David Chymiak, Chairman of the Board, and Kenneth
        Chymiak, President and Chief Executive Officer, owned approximately 43% 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 continue to own a significant interest
        in us,
        thus limiting 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.
 
 8
 ***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.
 
 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.
 
 ***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 our
        competitors may each supply products to businesses that have merged, such
        as the
        recent purchase of Adelphia Communications Corporation by Time Warner 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,
        such as the recent acquisition of Scientific-Atlanta by Cisco, and this trend
        may continue. The larger combined companies may be able to provide better
        solution alternatives for customers and potential customers. 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.
 
 9
 ***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 stocking distributor for
        Scientific-Atlanta and a value added reseller of Motorola broadband and
        transmission products. During fiscal 2006, our inventory purchases from these
        two companies totaled approximately $21.5 million, or 59% of our total inventory
        purchases. 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.*** 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. 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. The broadband
        communications industry is 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. The Company's largest asset is its inventory. Over the past
        few
        years, our inventory growth has been primarily in new products. However,
        the
        Company continues to maintain a large investment in used, refurbished,
        remanufactured or surplus new equipment.
 
 ***We
        have purchased a large quantity of legacy digital converter boxes which could
        become obsolete or outdated*** .
        Recently we purchased approximately 115,000 of used digital converter boxes
        for
        approximately $2.0 million and plan to invest an additional $2.0 million
        to $3.0
        million to prepare them for resale. The boxes we purchased and currently
        market
        are considered legacy boxes as the security features (which allow the MSO
        or
        cable operators to control access and services) are not separable from
        digital boxes. The FCC has issued a ban purchasing these types of legacy
        boxes
        after July 1, 2007, which is further discussed in “Item 1. Business. Recent
        Business Developments”.
 
 If
        we fail to sell our inventory of legacy digital boxes and the FCC fails to
        issue
        waivers or delay the enforcement date, such that no additional sales of legacy
        inventory can be made in the U.S. after July 1, 2007, and there is a lack
        of
        demand for these boxes in the international market, an adjustment may be
        needed
        to write down the value of any remaining legacy boxes in inventory and this
        adjustment may have adverse affect on our financial performance.
 
 10
 ***Our
        outstanding common stock is very thinly traded.*** While we have approximately 10.2 million shares of common stock outstanding,
        43%
        of these shares are beneficially owned at December 12, 2006 by David Chymiak
        and
        Kenneth Chymiak. As a consequence, only about 57% 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 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


11





**Item
      1B.** **Unresolved
      Staff Comments.**





Not
      applicable.








**Item
      2.****Properties.**





Each
      subsidiary owns or leases property for office, warehouse and service center
      facilities.





·
            Broken
                Arrow, Oklahoma - On November 20, 2006 Tulsat purchased a facility
                consisting of an office, warehouse and service center of
                approximately 100,000 square feet on ten acres, with an investment
                of
                $3,250,000, financed by a loan of $2,760,000, due in monthly payments
                through 2021at an interest rate of LIBOR plus 1 1/2%. At December
                1, 2006,
                Tulsat also continues to lease a total of approximately 80,000 square
                feet
                of warehouse facilities in three 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 December
                1,
                2006, monthly rental payments on these leases totaled
                $26,820.





·
            Deshler,
                Nebraska - Tulsat-Nebraska owns a facility consisting of land and
                an
                office, warehouse and service center of approximately 8,000 square
                feet.





·
            Warminster,
                Pennsylvania - NCS owns its facility consisting of an office, warehouse
                and service center of approximately 12,000 square feet, with an 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 $1,250 through
                December
                2006.





·
            Sedalia,
                Missouri - ComTech Services owns land and an office, warehouse and
                service
                center of approximately 25,000 square feet.





·
            New
                Boston, Texas - Tulsat-Texas owns land and an office, warehouse and
                service center of approximately 13,000 square feet.





·
            Suwanee,
                Georgia - Tulsat-Atlanta leases an office and service center 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 leases an office, warehouse and service
                center of approximately 15,000 square feet for $12,000 a month. The
                lease
                runs through November 30, 2007 and has a one year renewal option.





12


·
            Stockton,
                California - Jones Broadband leases a warehouse of approximately
                45,000
                square feet for $6,032 a month. The lease ends February 28, 2007
                and has a
                one-year renewal option.




·
            Chambersburg,
                  Pennsylvania - Broadband Remarketing International leases an office,
                  warehouse, and service center of approximately 10,000
                square
                  feet. The
                  lease is month to month and the lease payment varies based on the
                  volume
                  of warehouse space used. The average rent for the
                year
                  was $4,667 per month.


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


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 2006.










**PART
      II**





**Item
      5.****Market
      for Registrants 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, 2006
              High
              LowFirst
                  Quarter
              $7.10
              $3.51Second
                  Quarter
              $9.09
              $5.75Third
                  Quarter
              $6.86
              $4.63Fourth
                  Quarter
              $4.97
              $3.55Year
                  Ended September 30, 2005First
                  Quarter
              $6.30
              $3.85Second
                  Quarter
              $5.94
              $3.95Third
                  Quarter
              $4.25
              $3.03Fourth
                  Quarter
              $4.05
              $3.10




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
      September 30, 2006, there were approximately 1,400 beneficial owners of our
      common stock.





13


**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.




**Item
      6. Selected Financial Data.**





SELECTED
      CONSOLIDATED FINANCIAL DATA


(IN
      THOUSANDS, EXCEPT PER SHARE AMOUNTS)





Year
      ended September 30,


2006
            
            2005
            
            2004
            
            2003
            
            2002Net
                Sales and service income
            
            $
            52,541
            
            $
            50,273
            
            $
            47,071
            
            $
            33,327
            
            $
            25,409Income
                from operations
            
            $
            8,117
            
            $
            9,973
            
            $
            9,484
            
            $
            6,197
            
            $
            3,550Net
                income
            
            $
            4,843
            
            $
            5,814
            
            $
            5,814
            
            $
            4,493
            
            $
            2,201Earnings
                per shareBasic
            
            $
            .39
            
            $
            .49
            
            $
            .46
            
            $
            .33
            
            $
            .10Diluted
            
            $
            .39
            
            $
            49
            
            $
            .41
            
            $
            .30
            
            $
            .10Total
                assets
            
            $
            40,925
            
            $
            39,269
            
            $
            32,359
            
            $
            31,748
            
            $
            26,531Long-term
                obligations inclusiveof
                current maturities
            
            $
            9,385
            
            $
            9,382
            
            $
            11,610
            
            $
            6,912
            
            $
            6,276





**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 “ Item 1A. Risk Factors.” and elsewhere in this
      report.





14


**General**





We
      are a Value Added Reseller ("VAR") for selected Scientific-Atlanta and Motorola
      broadband and 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 the
      development of our supplier network and specialized knowledge of our sales
      team
      that we market our products and services to the larger cable multiple system
      operators ("MSOs") and Telecommunication Companies ("Telecoms"). 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 video, data and telephony.





**Overview**





Fiscal
      2006 was a year of continued product transition and consolidation in the
      industry for the larger MSOs .
      These customers continued to upgrade their various cable systems, primarily
      by expanding
      the bandwidth of their digital communication signal to improve their ‘triple
      play’ offering of video, data and telephony. As the industry leaders continue to
      offer new services, such as h igh d efinition television ( HD-TV )
      and video on demand (VOD), the need for additional bandwidth will continue
      to
      drive future upgrades. The larger MSOs also continued their trend toward
      consolidation and standardization. Many of the large MSOs made strategic
      acquisitions to expand their coverage area, as was the case when Adelphia
      Communication Corporation sold it’s remaining cable systems to Time Warner Cable
      and ComCast on July 1, 2006, while at the same time others divested themselves
      of regional cable systems that could not meet their standard product offerings,
      as was the case when Charter sold several of their regional systems to
      Suddenlink and New Wave Communications on July 3, 2006. While we cannot foresee
      the continued trend of consolidations with our large customers, we do expect
      there to be continued spin-offs of regional cable systems that do not meet
      the
      larger MSOs' standard cable platforms.





To
      meet the product demand associated with our large customer upgrades, we have
      invested heavily in new
      product inventory that
      are only available from our OEM suppliers. As these products have been recently
      introduced to the industry and have yet to saturate the market, we are not
      yet
      able to purchase them through our network of ‘surplus new’ product sources. Consequently ,
      sales of these new products have put
      a strain on our gross
      profit margin percentages. As these new digital
      products become more widely used, ‘surplus new’ and ‘used’ products will become
      more available ,
      which we expect will enable us to return to higher margins on our product sales.





During
      2006, we also experienced delays in sales to some of our larger customers due
      to
      consolidations, as was the case in the fiscal fourth quarter when Adelphia
      sold
      its remaining cable systems to Time Warner Cable and Comcast. Sales to these
      system locations dropped off after the acquisition as the new owners worked
      through transition issues. While customer consolidations can have a direct
      impact to our quarterly sales results, the cable systems the new owners support
      will require continual upgrades and repairs.  As such, sales to these
      systems are expected to return.





15


Sales
      to smaller MSOs and small cable operators were consistent compared to last
      year
      as these customers remained focused on maintaining and repairing their existing
      cable systems. Many of the smaller cable operators continue to delay their
      decision to upgrade from analog to digital as the projected subscriber revenue
      generated from the expanded ‘triple play’ offering cannot justify the investment
      due to the limited subscriber base. The historical average increase in
      subscriber revenue of $40 must be compared against the estimated $4,200 per
      plant mile of upgrade dollars needed to enable the delivery of these
      differentiated services.





We
      do, however, expect to see more of the smaller MSOs and cable operators begin
      making the transition to digital in 2007 as the cost to upgrade becomes more
      affordable. Over the last two years , the larger MSOs have made several digital upgrades that have generated a supply
      of more cost effective ‘used’ digital equipment in the market. The reduced
      upgrade costs coupled with the strong customer demand is expected to drive
      these
      changes. If these customers begin to upgrade their systems as expected, the
      sales and margins of our refurbished product line should remain strong in the
      upcoming year.





Between
      August 2005 and October 2006, we made three strategic acquisitions. On August
      17, 2005, we purchased Jones Broadband International ,
      Inc. (“Jones Broadband”), a cable equipment distributor with operations in Oceanside,
      California and Stockton, California for approximately $3.5 million. The
      acquisition of Jones Broadband gave us a
      West Coast sales presence, expanded our customer base in Latin America and
      added
      an additional regional service center to our nationwide network. During 2006,
      Jones Broadband generated approximately $2.5 million of incremental revenue
      to
      our consolidated results but failed to contribute to our overall profitability.
      Throughout the year we addressed several ownership transitional issues including
      staffing, accounting system conversion and changes in product line offerings.
      In
      addition, we also wrote down the inventory value of the fiber optic cable
      offered by this subsidiary by approximately $400,000 due to its recent market price
      deterioration. While we will continue to make changes within the Jones Broadband
      operation, we expect the subsidiary to make a positive contribution to consolidated fiscal
      2007 profitability.





On
      June 30, 2006, we acquired the business and certain assets of Broadband
      Remarketing International (“BRI”), an equipment remarketing company based in
      Chambersburg, Pennsylvania that specializes in the resale of digital converter
      boxes and Certified Destruction Services in exchange for 87,209 shares of our
      common stock valued at $450,000. During the fourth quarter ,
      BRI purchased approximately 100,000 surplus digital converter boxes from Adelphia
      Communications Corporation for $1.8 million. We plan
      to invest an additional $2.0 to $3.0 million to refurbish and market these
      boxes
      during fiscal 2007 and we ha ve already begun to make sales of this new product line. Currently , there is an FCC ban on purchasing these legacy digital boxes after July 1,
      2007. Our ability to sell any remaining legacy boxes in inventory in the U.S.
      after the July 1, 2007 date, which depends on the issuance of waivers or
      extentions by the FCC, is one of our risk factors and further discussed in
      "Item
      1A. Risk Factors”.





On
      October 10, 2006 ,
      we purchased
      the business and certain assets of Broadband Digital Repair (“BDR”), a premium
      equipment repair facility located in Mishawaka, IN for approximately $150,000.
      BDR is an authorized Alpha Repair Facility and retained it’s authorization after
      the acquisition. BDR was subsequently renamed, ComTech - Indiana and became
      part
      of our ComTech subsidiary. The new repair facility expands our service
      capabilities in Indiana, Illinois, Ohio and Michigan and adds another repair
      facility to our nationwide network.





16


**Results
      of Operations**





*Year
      Ended September 30, 2006, compared to Year Ended September 30, 2005 (all
      references are to fiscal years)*





*Net
      Sales* .
      Net sales climbed $2.3 million, or 5.0%, to $52.6 million for 2006 from $50.3
      million for 2005. Sales of new and refurbished equipment increased $1.6 million
      to $47.4 million from
      $45.8 million in 2005 and
      repair service revenues increased $0.6 million to $5.1 million for 2006 from
      $4.5 million in 2005 . The increase s in revenues are primarily
      attributed to the incremental revenues generated from Jones Broadband. Increased
      customer sales from our other subsidiaries during 2006 offset the lost revenues
      from two of our larger customers, Adelphia Communications and Span Pr Fiber
      Optics. Sales to these two customers, prior to their business stoppage, declined
      to $1.6 million in 2006 from $3.8 million in 2005.





*Cost
      of Sales* .
      Cost of sales include the cost 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 and any related charges for inventory
      obsolescence. Cost of sales this year were 68.1% of net sales compared to 66.4%
      last year. This increase is due to the product mix change in new equipment
      and
      an increased charge to inventory obsolescence taken in 2006. Sales of new
      equipment to our large MSO customers consisted of a higher percentage of 1.0
      Ghz
      bandwidth gear. This product was recently introduced to the industry and our
      supply of this product has come directly from the OEM manufactures. As this
      product becomes widely used, we expect to be able to purchase surplus product
      in
      the market, at reduced costs, which will increase our overall margins. The
      approximate $0.4 million charge to inventory obsolescence was made in connection
      with the write-down of certain fiber optic cable currently maintained in
      inventory. The write-down of this inventory was made to reduce the cost of
      the
      fiber to its current market value.





*Gross
      Profit* .
      Gross profit declined an approximate $0.1 million to $16.7 million for 2006
      from
      $16.8 million in 2005. This decline was the attributed to the increase in the
      cost of sales partially offset by the additional gross profit produced on the
      incremental revenues.





*Operating,
      Selling, General and Administrative Expenses* .
      Operating, selling, general and administrative expenses include all personnel
      costs, including fringe benefits, insurance and business taxes, occupancy,
      transportation, communication, professional services and charges for bad debts,
      among other less significant accounts. Operating, selling, general and
      administrative expenses increased by $1.8 million to $8.4 million from $6.6
      million. Th is increase was attributable to a $1.0 million incremental expenses resulting
      from the addition of Jones Broadband ,
      acquired in August 2005, $0.5 million charge to bad debt to increase our reserve
      to cover the outstanding receivable balance from a customer whose collection
      has
      become doubtful, $0.1 million in additional compensation expense representing
      the fair value of options granted in 2006, resulting from implementing FAS
      123 R “Share
      based Payments" and $0.2 million of increased expenses associated with the
      move
      of our corporate headquarters, recruiting a new chief financial officer and
      changing our independent public accountants.





17


*Income
      from Operations* .
      Income from Operations declined $1.9 million to $8.1 million for 2006 from
      $10.0
      million in 2005. This decrease was due to the additional operating, selling,
      general and administrative expenses in addition to the decrease in our gross
      profit.





*Interest
      Expense* .
      Interest expense for fiscal 2006 was $0.5 million compared to $0.6 million
      in
      fiscal 2005. Interest expense dropped slightly for the year as we borrowed
      less money on our line
      of credit and continued to pay down our $8.0 million term loan.. The weighted average interest rate paid on the line
      of
      credit increased to 6.4% for 2006 from 3.0% for 2005. The weighted average
      interest rate for all borrowed funds for 2006 was 6.1% compared to 5.3% in
      2005.





*Income
      Taxes* .
      The provision for income taxes for fiscal 2006 dropped to $2.7 million, or
      an
      effective rate of 36.2% from $3.6 million, or an effective rate of 38.2%, in
      2005. The reduced taxes resulted from lower pre-tax earnings in 2006 and a reduced tax rate. Our effective tax rate dropped primarily due to
      the
      increased tax exclusion for compensation expense recorded on stock options
      exercised during the year.





*Year
      Ended September 30, 2005, Compared to Year Ended September 30, 2004*





*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, due to new marketing
      initiatives and a strong fiscal fourth quarter sales volume, resulting from
      an
      active hurricane season, the incremental increase in revenues from Jones
      Broadband, acquired in August 2005, and increased purchases from a large
      bandwidth upgrade performed by one of our customers. 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.
      MSOs have been consolidating headends, thereby 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 for products initially
      sold
      under these warranties 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.





18


*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 MSOs, 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.





*Inflation.* 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.  D uring
      2006, we generated approximately $0.2 million cash flow from operations
      including an increase in inventory of $4.2 million and a trade payables
      reduction of $2.3 million. During the fiscal year, we invested approximately
      $0.1 million of capital assets and acquired $0.5 million of additional assets
      in
      an exchange for 87,209 shares of our common stock. We also received
      approximately $0.3 million from stock options exercised and kept our bank
      borrowings consistent while and meeting our preferred stock dividend obligations
      of $0.8 million. These activities resulted in a net decrease in cash of
      approximately $0.4 million.





Cash
      used in financing activities in 2006 was primarily used to pay dividends on
      our
      Series B 7% cumulative convertible Preferred Stock (the “Series B Preferred
      Stock”) and for the note payments resulting from the buy-out of Series A
      Preferred Stock on September 30, 2004. Dividends on the Series B Preferred
      Stock
      total $840,000 annually and the outstanding shares are beneficially owned,
      50%
      by David E. Chymiak, our Chairman of the Board and 50% by Kenneth A. Chymiak,
      our President and Chief Executive Officer. The outstanding Series B Preferred
      Stock has an aggregate preference upon liquidation of $12,000,000.





On
      September 30, 2004, we redeemed all of our outstanding shares of Series A 5%
      Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") at
      its
      aggregate stated value of $8 million. The outstanding shares of Series A
      Preferred Stock were held beneficially by David E. Chymiak and Kenneth A.
      Chymiak. We financed the redemption through a credit agreement with our primary
      lender which included a Revolving Credit Commitment in the amount of $7 million
      and a Term Loan Commitment in the amount of $8 million. This agreement was
      amended in November 2006 to include a second Term Loan Commitment of $2.76
      million. The proceeds from the $8.0 million term loan were used to redeem the
      Series A Preferred Stock. At September 30, 2006 this term loan balance was
      $5.6
      million. The proceeds from the $2.76 million term loan were used to purchase
      certain real estate in November 2006 from an entity owned by David and Kenneth
      Chymiak.





19





We
      have a line of credit with our primary lender 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 1.75% (7.08% at September 30, 2006 and 6.40% average for fiscal
      year 2006). This line of credit provides 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, 2006 of
      $3.5
      million. The line of credit renews annually and is currently due September
      30,
      2007. The highest balance against this line in 2006 was approximately $5.0
      million.





At
      September 30, 2006, notes payable secured by real estate of $0.3 million are
      due
      in monthly payments through 2013 with interest at 5.5% through 2008, converting
      thereafter to prime minus .25%.




On
      September 30, 1999, Chymiak Investments, L.L.C., which is owned by David E.
      Chymiak and Kenneth A. Chymiak, purchased from Tulsat Corporation, certain
      real
      estate and improvements comprising office and warehouse space for a price of
      $1,286,000. The price represented 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:


2007    $
      321,840


2008    $ 321,840


$ 643,680




Related
      party rental expense for the years ended September 30, 2006, 2005 and 2004
      was
      $465,840, $465,840 and $466,000, respectively.





20


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
                than 5 yearsLong
                Term Debt
            
            $
            9,384,
                808
            
            $
            4,718,070
            
            $
            4,489,840
            
            $
            48,765
            
            $
            128,133Capital
                Leases
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Operating
                Leases
            
            $
            928,592
            
            $
            541,752
            
            $
            386,840
            
            $
            -
            
            $
            -Purchase
                Obligations
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Total
            
            $
            10,313,400
            
            $
            5,259,822
            
            $
            4,876,680
            
            $
            48,765
            
            $
            128,133








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
      2006 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.








21


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 MSOs 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 average method. At September 30,
      2006
      we had total inventory of approximately $30.2 million, consisting of
      approximately $21.0 million in new products and approximately $9.2 million
      in
      used or refurbished products against which we have a reserve of $1.2 million
      for
      excess and obsolete inventory, leaving us a net inventory of $29.0 million.





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 2006,
      we
      increased our reserve for excess and obsolete inventory by approximately $0.4
      million. In addition during 2006, we wrote down the carrying value of certain
      inventory items by approximately $0.8 million to reflect deterioration in the
      market price of that 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 approximately
      $0.6 million at September 30, 2006 from approximately $0.1 million at September
      30, 2005. This reserve was increased to cover the potential write off
      from a specific customer whose payment capability, management believes, has
      become doubtful. At September 30, 2006, accounts receivable, net of allowance
      for doubtful accounts, amounted to approximately $5.3 million.








22


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. We elected to adopt
      FSP115-1 in fiscal 2006 and its application had no material impact on our
      financial position.





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. Under SFAS 123R, the pro forma disclosures previously
      permitted are no longer an alternative to financial statement recognition.
      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. In addition, 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
      adopted SFAS 123R in the first quarter of fiscal 2006 and applied the modified
      prospective method, which required that compensation expense be recorded for
      all
      unvested stock options and restricted stock upon adoption of SFAS 123R. We
      applied the Black-Scholes valuation model in determining the fair value of
      share-based payments to employees, which must then be amortized on a straight
      line basis over the requisite service period. On October 1, 2005, all
      outstanding options representing 1,214,967 shares were fully vested. Therefore,
      SFAS 123R had no impact on our statement of income on the date of adoption
      of
      that standard.





23


During
      2006, Stock options were granted to certain members of the management and the
      Board of Directors. We determined the fair value of the options issued, using
      the Black-Scholes Valuation Model and are amortizing the calculated value over
      the vesting term. The costs were primarily recognized in 2006, with residual
      amounts being charged against income in 2007, 2008 and 2009.




In
      July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48,) "Accounting
      for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes”. FIN 48 clarifies the accounting for income taxes
      by prescribing the minimum recognition threshold a tax position is required
      to
      meet before being recognized in the financial statements. FIN 48 also provides
      guidance on derecognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The interpretation
      applies to all tax positions related to income taxes subject to FASB Statement
      No. 109.





FIN
      48 is effective for fiscal years beginning after December 15, 2006. Differences
      between amounts recognized in the statements of financial position prior to
      the
      adoption of FIN 48 and the amounts reported after adoption should be accounted
      for as cumulative-effect adjustment recorded to the beginning balance or
      retained earnings. We do not believe that the adoption of FIN 48 will have
      a
      material impact on our financial position.








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, 2006, over 87% of our assets were in cash, trade
      receivables, and inventory, with inventory representing 81% 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, 2006,
      the
      outstanding balances subject to variable interest rate fluctuations totaled
      $2.1
      million. The high credit balance for 2006 was approximately $5.0 million,
      leaving over $2.0 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.





24


**Item
      8.****Financial
      Statements and Supplementary Data**





Index
                  to Financial Statements
              PageReport
                  of Independent Registered Public Accounting
                  Firm
              26Report
                  of Independent Registered Public Accounting
                  Firm
              27Consolidated
                  Balance Sheets, September 30, 2006 and
                  2005
              28Consolidated
                  Statements of Income and
                  Comprehensive Income, Years ended September
                  30, 2006, 2005 and 2004.
              30Consolidated
                  Statement of Changes in Stockholders'
                  Equity, Years ended September
                  30, 2006, 2005 and 2004.
              31Consolidated
                  Statements of Cash Flows, years ended
                  September 30, 2006, 2005 and 2004.
              32Notes
                  to Consolidated Financial
                  Statements
              33


25





REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM








To
      the Board of Directors and Stockholders of


ADDvantage
      Technologies Group, Inc.








We
        have audited the accompanying consolidated balance sheet of ADDvantage
        Technologies Group, Inc. and subsidiaries (the “Company”) as of September 30,
        2006, and the related consolidated statements of income and comprehensive
        income, changes in stockholders’ equity and cash flows for the year then ended.
        Our audit 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 audit.
        The
        consolidated financial statements of the Company as of September 30, 2005 and
        for each of the two years in the period ended September 30, 2005 were audited
        by
        other auditors whose report dated December 22, 2005 expressed an unqualified
        opinion on those statements.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our opinion, the 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,
        2006,
        and the consolidated results of their operations and their cash flows for
        the
        year then ended, in conformity with accounting principles generally accepted
        in
        the United States 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.








HOGAN
      AND SLOVACEK








December
      22, 2006


Tulsa,
      Oklahoma

















26








REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM










The
      Stockholders of


ADDvantage
      Technologies Group, Inc.





We
      have audited the accompanying consolidated balance sheet of ADDvantage
      Technologies Group, Inc. and subsidiaries (the “Company”) as of September 30,
      2005, and the related consolidated statements of income and comprehensive
      income, changes in stockholders’ equity and cash flows for each of the two years
      ended September 30, 2005 and 2004. 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. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. 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 the consolidated results of their operations and their cash flows for each
      of the two 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.








TULLUIS
      TAYLOR SARTAIN & SARTAIN LLP








Tulsa,
      Oklahoma


December
      22, 2005














27





ADDVANTAGE
      TECHNOLOGIES GROUP, INC.


CONSOLIDATED
      BALANCE SHEETS





September 30,**Assets**
              
              2006
              
              2005Current
                  assets:Cash
              
              $
              98,898
              
              $
              449,219Accounts receivable, net of allowance of $554,000and $92,000, respectively
              
              
              5,318,127
              
              
              7,671,549Income tax refund receivable
              
              
              307,299
              
              
              -Inventories,
                  net of allowance for excess and obsolete inventoryof $1,178,000 and $1,575,395, respectively
              
              
              28,990,696
              
              
              25,321,149Deferred income taxes
              
              
              1,074,000
              
              
              968,000Total
                  current assets
              
              
              35,789,020
              
              
              34,409,917Property
                  and equipment, at cost:Machinery and equipment
              
              
              2,697,476
              
              
              2,357,182Land and buildings
              
              
              1,668,511
              
              
              1,591,413Leasehold improvements
              
              
              205,797
              
              
              565,9454,571,784
              
              
              4,514,540Less
                  accumulated depreciation and amortization
              
              
              (2,033,679
              )
              
              (1,811,784
              )Net
                  property and equipment
              
              
              2,538,105
              
              
              2,702,756Other
                  assets:Deferred income taxes
              
              
              702,000
              
              
              786,000Goodwill
              
              
              1,560,183
              
              
              1,150,060Other assets
              
              
              335,566
              
              
              220,275Total other assets
              
              
              2,597,749
              
              
              2,156,335Total
                  assets
              
              $
              40,924,874
              
              $
              39,269,008












































See
      notes to audited consolidated financial statements.





28





ADDVANTAGE
      TECHNOLOGIES GROUP, INC.


CONSOLIDATED
      BALANCE SHEETS





September 30,**Liabilities
                  and Stockholders’ Equity**
              
              2006
              
              2005Current
                  liabilities:Accounts payable
              
              $
              2,618,490
              
              $
              4,958,834Accrued expenses
              
              
              1,181,139
              
              
              1,876,523Accrued income taxes
              
              
              -
              
              
              110,691Bank revolving line of credit
              
              
              3,476,622
              
              
              2,234,680Notes payable - current portion
              
              
              1,241,348
              
              
              1,239,071Dividends payable
              
              
              210,000
              
              
              210,000Total
                  current liabilities
              
              
              8,727,599
              
              
              10,629,799Notes
                  payable
              
              
              4,666,738
              
              
              5,908,199Stockholders’
                  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
              
              
              12,000,000Common stock, $.01 par value; 30,000,000 shares
                  authorized;10,252,856
                  and 10,093,147 shares issued and outstanding,respectively
              
              
              102,528
              
              
              100,931Paid-in capital
              
              
              (6,474,018
              )
              
              (7,265,930
              )Retained earnings
              
              
              21,863,685
              
              
              17,860,967Accumulated other comprehensive income:Unrealized
                  gain on interest rate swap, net of tax
              
              
              92,506
              
              
              89,20627,584,701
              
              
              22,785,174Less: Treasury stock, 21,100 shares at cost
              
              
              (54,164
              )
              
              (54,164
              )Total
                  stockholders’ equity
              
              
              27,530,537
              
              
              22,731,010Total
                  liabilities and stockholders’ equity
              
              $
              40,924,874
              
              $
              39,269,008





























See
      notes to audited consolidated financial statements.


29


ADDVANTAGE
      TECHNOLOGIES GROUP, INC.


CONSOLIDATED
      STATEMENTS OF INCOME AND


COMPREHENSIVE
      INCOME








September 30,2006
              
              2005
              
              2004Net
                  sales income
              
              $
              47,400,816
              
              $
              45,755,198
              
              $
              42,293,046Net
                  service income
              
              
              5,140,393
              
              
              4,517,997
              
              
              4,778,283Total
                  net sales
              
              
              52,541,209
              
              
              50,273,195
              
              
              47,071,329Cost of sales
              
              
              35,799,831
              
              
              33,401,167
              
              
              31,092,890Gross
                  profit
              
              
              16,741,378
              
              
              16,872,028
              
              
              15,978,439Operating, selling, general andadministrative expenses
              
              
              8,377,152
              
              
              6,642,641
              
              
              6,216,728Depreciation and amortization
              
              
              247,504
              
              
              256,435
              
              
              277,352Income
                  from operations
              
              
              8,116,722
              
              
              9,972,952
              
              
              9,484,359Interest expense
              
              
              530,004
              
              
              557,560
              
              
              157,606Income
                  before income taxes
              
              
              7,586,718
              
              
              9,415,392
              
              
              9,326,753Provision form income taxes
              
              
              2,744,000
              
              
              3,601,000
              
              
              3,513,000Net
                  income
              
              
              4,842,718
              
              
              5,814,392
              
              
              5,813,753Other
                  comprehensive incomeUnrealized gain on interest rate swap(Net of $2,000 and $54,000 in taxes, respectively).
              
              
              3,300
              
              
              89,206
              
              
              -Comprehensive Income
              
              $
              4,846,018
              
              $
              5,903,598
              
              $
              5,813,753Net
                  income
              
              
              4,842,718
              
              
              5,814,392
              
              
              5,813,753Preferred stock dividends
              
              
              840,000
              
              
              840,000
              
              
              1,240,000Net
                  income attributeto common stockholders
              
              $
              4,002,718
              
              $
              4,974,392
              
              $
              4,573,753Earnings
                  per share:Basic
              
              $
              0.39
              
              $
              0.49
              
              $
              0.46Diluted
              
              $
              0.39
              
              $
              0.49
              
              $
              0.41Shares
                  used in per share calculationBasic
              
              
              10,152,472
              
              
              10,067,277
              
              
              10,041,197Diluted
              
              
              10,201,474
              
              
              10,109,854
              
              
              12,104,541
























See
      notes to audited consolidated financial statements.


30


ADDVANTAGE
      TECHNOLOGIES GROUP, INC.


CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS'
      EQUITY


Years
      ended September 30, 2006, 2005 and 2004





Series
                A
            
            Series
                B
            
            
            
            Retained
            
            OtherCommon
                Stock
            
            Preferred
            
            Preferred
            
            Paid-in
            
            Earnings
            
            ComComprehensive
            
            T  
                TreasuryShares
            
            Amount
            
            Stock
            
            Stock
            
            Capital
            
            (Deficit)
            
            Income
            
            Stock
            
            TotalBalance,
                September 30, 2003
            
            
            10,030,414
            
            $
            100,304
            
            $
            8,000,000
            
            $
            12,000,000
            
            
            ($7,389,197
            )
            $
            8,312,822
            
            
            -
            
            
            ($54,164
            )
            $
            20,969,765Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,813,753
            
            
            -
            
            
            -
            
            
            5,813,753Preferred
                stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,240,000
            )
            
            -
            
            
            -
            
            
            (1,240,000
            )Stock
                options exercised
            
            
            51,375
            
            
            514
            
            
            -
            
            
            -
            
            
            103,633
            
            
            -
            
            
            -
            
            
            -
            
            
            104,147Redemption
                of Series APreferred
                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
            )
            $
            17,647,665Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,814,392
            
            
            -
            
            
            -
            
            
            5,814,392Preferred
                stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (840,000
            )
            
            -
            
            
            -
            
            
            (840,000
            )Stock
                options exercised
            
            
            11,358
            
            
            113
            
            
            -
            
            
            -
            
            
            19,634
            
            
            -
            
            
            -
            
            
            -
            
            
            19,747Unrealized
                gain on interest swap
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            89,206
            
            
            -
            
            
            89,206Balance,
                September 30, 2005
            
            
            10,093,147
            
            $
            100,931
            
            
            -
            
            $
            12,000,000
            
            
            ($7,265,930
            )
            $
            17,860,967
            
            $
            89,206
            
            
            ($54,164
            )
            $
            22,731,010Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            4,842,718
            
            
            -
            
            
            -
            
            
            4,842,718Preferred
                stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (840,000
            )
            
            -
            
            
            -
            
            
            (840,000
            )Stock
                options exercised
            
            
            72,500
            
            
            725
            
            
            -
            
            
            -
            
            
            244,674
            
            
            -
            
            
            -
            
            
            -
            
            
            245,399Unrealized
                gain on interest swap
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,300
            
            
            -
            
            
            3,300Share
                based compensation expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            98,110
            
            
            -
            
            
            -
            
            
            -
            
            
            98,110Shares
                issued in exchange for certain assets
            
            
            87,209
            
            
            872
            
            
            -
            
            
            -
            
            
            449,128
            
            
            -
            
            
            -
            
            
            -
            
            
            450,000Balance,
                September 30, 2006
            
            
            10,252,856
            
            $
            102,528
            
            
            -
            
            $
            12,000,000
            
            
            ($6,474,018
            )
            $
            21,863,685
            
            $
            92,506
            
            
            ($54,164
            )
            $
            27,530,537



















See
      notes to audited consolidated financial statements.




31


ADDVANTAGE
      TECHNOLOGIESGROUP, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


September 30,**Cash
                  Flows from Operating Activities**
              
              2006                          2005                       2004Net
                  income
              
              $
              4,842,718
              
              $
              5,814,392
              
              $
              5,813,753Adjustments
                  to reconcile net incomeprovided
                  by operating activities:Depreciation and amortization
              
              
              247,504
              
              
              256,435
              
              
              277,352Provision for losses on accounts receivable
              
              
              445,541
              
              
              40,080
              
              
              -Provision for excess and obsolete inventories
              
              
              439,625
              
              
              482,395
              
              
              645,900Loss on disposal of property and equipment
              
              
              76,829
              
              
              -
              
              
              24,412Deferred income tax benefit
              
              
              (22,000
              )
              
              (3,000
              )
              
              (172,000
              )Change in:Receivables
              
              
              1,600,582
              
              
              (2,174,498
              )
              
              (1,004,069
              )Inventories
              
              
              (4,109,172
              )
              
              (1,927,585
              )
              
              506,482Other assets
              
              
              (132,276
              )
              
              (51,577
              )
              
              8,406Accounts payable
              
              
              (2,340,344
              )
              
              3,027,827
              
              
              (872,526
              )Accrued liabilities
              
              
              (806,075
              )
              
              687,191
              
              
              208,086Net
                  cash provided by operating activities
              
              
              242,932
              
              
              6,151,660
              
              
              5,435,796**Cash
                  Flows from Investing Activities**Additions
                  to property and equipment
              
              
              (99,520
              )
              
              (446,534
              )
              
              (77,201
              )Investment
                  in Jones Broadband International,net of cash acquired of $100,322
              
              
              -
              
              
              (3,510,935
              )
              
              -Net
                  cash used in investing activities
              
              
              (99,520
              )
              
              (3,957,469
              )
              
              (77,201
              )**Cash
                  Flows from Financing Activities**Net
                  change under bank revolving line of credit
              
              
              1,241,942
              
              
              (990,503
              )
              
              (1,960,719
              )Proceeds
                  on notes payable
              
              
              -
              
              
              -
              
              
              8,000,000Payments
                  on notes payable
              
              
              (1,239,184
              )
              
              (1,250,455
              )
              
              (1,342,067
              )Proceeds
                  from stock options exercised
              
              
              343,509
              
              
              19,747
              
              
              104,147Payments
                  of preferred dividends
              
              
              (840,000
              )
              
              (840,000
              )
              
              (1,340,000
              )Redemption
                  of preferred stock
              
              
              -
              
              
              -
              
              
              (8,000,000
              )Net
                  cash used in financing activities
              
              
              (493,733
              )
              
              (3,061,211
              )
              
              (4,538,639
              )Net
                  increase (decrease) in cash
              
              
              (350,321
              )
              
              (867,020
              )
              
              819,956Cash,
                  beginning of year
              
              
              449,219
              
              
              1,316,239
              
              
              496,283Cash,
                  end of year
              
              $
              98,898
              
              $
              449,219
              
              $
              1,316,239**Supplemental
                  Cash Flow Information**Cash
                  paid for interest
              
              $
              531,596
              
              $
              557,560
              
              $
              172,426Cash
                  paid for income taxes
              
              $
              3,019,768
              
              $
              3,582,616
              
              $
              3,669,170Value
                  of shares issued in exchange for business andcertain assets
              
              $
              450,000
              
              
              -
              
              
              -








See
      notes to audited consolidated financial statements.


32





ADDVANTAGE
      TECHNOLOGIESGROUP, INC.


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS





Years
      ended September 30, 2006, 2005 and 2004





**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 Corporation ("Tulsat"),
      NCS Industries, Inc. ("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"), Jones Broadband
      International, Inc. ("Jones Broadband") and Tulsat-Pennsylvania LLC (dba
      "Broadband Remarketing International"). 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 accounts 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. The Company records inventory reserve provisions to properly
      reflect inventory value based on a review of inventory quantities on hand,
      historical sales volumes and technology changes. These reserves are to provide
      for items that are potentially slow-moving, excess or obsolete.








33








*Property
      and equipment*





Property
      and equipment consists of office equipment, warehouse and service 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 $247,504, $256,435 and
      $277,352 for the years ended September
      30, 2006, 2005 and 2004, 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*





The
      Company's 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 the Company's
      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).





The
      Company's 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 on the $8.0 million term 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 this note is adjusted to include the payment
      made or received under the interest rate swap agreement.





34


*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.





*Advertising
      costs*





Advertising
      costs are expensed as incurred. Advertising expense was $385,485, $335,487
      and
      $265,112 for the years ended September 30, 2006, 2005 and 2004,
      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 the Company's inventory and operating
      results.





*Concentrations
      of credit risk*





The
      Company holds cash with one major financial institution which at times 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 the Company’s 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 2006. Sales to foreign (non-U.S. based
      customers) total approximately $3.8 million, $2.4 million and $0.9 million
      in
      the three fiscal years ended September 30, 2006. In 2006, the Company purchased
      approximately 46% of our inventory from Scientific-Atlanta and approximately
      14%
      of our inventory from Motorola. The concentration of suppliers of our inventory
      subjects us to risk.





35


*Goodwill*





Annual
      impairment testing indicates that goodwill is not impaired as of September
      30,
      2006 or 2005.





*Employee
      stock-based awards*





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 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.




*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 elected to
      adopt FSP11-5 in fiscal 2006 and its application had no material impact on
      its
      financial position.




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. The Company elected to adopt
      SFAS No.151 beginning with fiscal year 2005. The adoption of this standard
      had
      no impact on the Company's financial position and results of
      operations.





36


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. Under SFAS 123R, the pro forma disclosures previously
      permitted are no longer an alternative to financial statement recognition.
      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. In addition, 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 adopted SFAS 123R in the first quarter of fiscal 2006 and applied the
      modified prospective method, which required that compensation expense be
      recorded for all unvested stock options and restricted stock upon adoption
      of
      SFAS 123R. The Company applied the Black-Scholes valuation model in determining
      the fair value of share-based payments to employees, which must then be
      amortized on a straight line basis over the requisite service period. On October
      1, 2005 all outstanding options representing 1,214,967 shares were fully vested.
      Therefore, SFAS 123R had no impact on the Company's statement of income on
      the
      date of adoption.





During
      2006, stock options were granted to certain members of management and the Board
      of Directors. The Company determined the fair value of the options issued,
      using
      the Black-Scholes Valuation Model and is amortizing the calculated value over
      the vesting term. The costs were primarily recognized in 2006, with residual
      amounts being charged against income in 2007, 2008 and 2009.





The
      Company currently presents pro forma disclosure of net income (loss) and
      earnings (loss) per share as if compensation costs from all stock awards were
      recognized based on the fair value recognition provisions of SFAS 123. The
      Statement requires use of valuation techniques, including option pricing models,
      to estimate the fair value of employee stock awards. For pro forma disclosures,
      we use a Black-Scholes option pricing model in estimating the fair value of
      employee stock options.





In
      July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48,) "Accounting
      for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes”. FIN 48 clarifies the accounting for income taxes
      by prescribing the minimum recognition threshold a tax position is required
      to
      meet before being recognized in the financial statements. FIN 48 also provides
      guidance on derecognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The interpretation
      applies to all tax positions related to income taxes subject to FASB Statement
      No. 109.





FIN
      48 is effective for fiscal years beginning after December 15, 2006. Differences
      between amounts recognized in the statements of financial position prior to
      the
      adoption of FIN 48 and the amounts reported after adoption should be accounted
      for as a cumulative-effect adjustment recorded to the beginning balance or
      retained earnings. Management does not believe that the adoption of FIN 48
      will
      have a material impact on the Company's financial position.





37


*Reclassifications*





Certain
      reclassifications have been made to the 2004 and 2005 financial statements
      to
      conform to the 2006 presentation.





**Note
      2 - Inventories**





Inventories
      are summarized as follows:





2006
            
            2005New
            
            $
            21,012,912
            
            $
            20,066,957Used
            
            
            9,155,784
            
            
            6,829,587Allowance
                for excess and obsolete inventory
            
            
            (1,178,000
            )
            
            (1,575,395
            )$
            28,990,696
            
            $
            25,321,149





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
      during September 30, 2006, increasing the cost of sales by approximately $0.4
      million. The Company recorded a charge to allow for obsolete inventory at
      September 30, 2004, increasing the cost of sales by approximately $0.6
      million.




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 $0.5 million 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 statements of income from
      the acquisition date.





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





At
      September 30, 2006, a $3,476,622 balance is outstanding under a $7.0 million
      line of credit due November 30, 2006, with interest payable monthly based on
      the
      prevailing 30-day LIBOR rate plus 1.75%. (7.07% at September 30, 2006 with
      a
      6.4% combined weighted average during fiscal year 2006).  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.





38


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
      $1,334,946 at September 30, 2006, 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, 2006 the
      term
      loan balance was $5,600,000.





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. During 2006, Barron exercised its
      options to purchase these three million shares. 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. The Company did
      not receive any of the proceeds from the sale of the shares and did not receive
      any of the proceeds from the exercise of the options, but paid the cost of
      registering the shares for resale by the selling shareholders.





An
      $8 million amortizing term note with the Company's primary lender was obtained
      to finance the redemption of the outstanding shares of the Series A Preferred
      Stock at September 30, 2004. The September 30, 2006 balance of this note is
      $5,600,000 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% (7.82% at September 30, 2006). 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. 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. 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, 2006, the notional value of the swap was
      $8,000,000 and the fair market value of the interest rate swap is an asset
      of
      approximately $149,000, which is included in other non-current assets on the
      Company’s consolidated balance sheet.





Notes
      payable secured by real estate of $308,086 are due in monthly payments through
      2013 with interest at 5.5% through 2008, converting thereafter to prime minus
      .25%.


39





The
      aggregate maturities of notes payable and the line of credit for the five years
      ending September 30, 2011 are as follows:





2007
            
            $
            4,718,0702008
            
            
            1,243,6852009
            
            
            3,246,1552010
            
            
            48,7652011
            
            
            51,522Thereafter
            
            
            76,611Total
            
            $
            9,384,808





**Note
      4 - Income Taxes**





The
      provisions for income taxes consist of:





2006
            
            2005
            
            2004Current
            
            $
            2,766,000
            
            $
            3,604,000
            
            $
            3,685,000Deferred
            
            
            (22,000
            )
            
            (3,000
            )
            
            (172,000
            )2,744,000
            
            $
            3,601,000
            
            $
            3,513,000


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:





2006
            
            2005
            
            2004Statutory
                tax rate
            
            
            34.0%
            
            
            34.0%
            
            
            34.0%State
                income taxes, net of U.S.federal
                tax benefit
            
            
            4.9%
            
            
            4.7%
            
            
            4.7%Tax
                credits and exclusions
            
            
            (1.7%)
            
            
            (
                .5%)
            
            
            (0.6%)Other
            
            
            (1.0%)
            
            
            -
            
            
            (0.4%)36.2%
            
            
            38.2%
            
            
            37.7%











40





Deferred
      tax assets consist of the following at September 30:




2006
              
              2005Net
                  operating loss carryforwards
              
              $
              1,117,000
              
              $
              1,239,000Financial
                  basis in excess of tax basisof
                  certain assets
              
              
              (321,000
              )
              
              (397,000
              )Accounts
                  Receivable
              
              
              211,000
              
              
              27,000Inventory
              
              
              718,000
              
              
              834,000Other,
                  net
              
              
              51,000
              
              
              51,000Deferred
                  tax assets, net
              
              $
              1,776,000
              
              $
              1,754,000





Deferred
                tax assets are classified as:Current
            
            $
            1,074,000
            
            $
            968,000Non-Current
            
            
            702,000
            
            
            786,000$
            1,776,000
            
            $
            1,754,000





Utilization
      of ADDvantage’s net operating loss carryforward of approximately $2,938,000 to
      reduce future taxable income is limited to an annual amount of approximately
      $265,000. The NOL carryforward expires in varying amounts from 2010 to 2014.





In
      accordance with SFAS 109, the Company records net deferred tax assets to the
      extent the Company believes these assets will more likely than not be realized.
      In making such determination, the Company considers all available positive
      and
      negative evidence, including scheduled reversals of deferred tax liabilities,
      projected future taxable income, tax planning strategies and recent financial
      performance. The Company has concluded, based on its historical earnings and
      projected future earnings that it will be able to realize the full effect of
      the
      deferred tax assets and no valuation allowance is needed.








**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, 2006, 1,009,652 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, 759,652 shares were available for future
      grants at September 30, 2006.





41


A
      summary of the status of the Company's stock options at September 30, 2006,
      2005
      and 2004 and changes during the years then ended is presented
      below.





2006
            
            2005
            
            2004Wtd.
                Avg.
            
            
            
            Wtd.
                Avg
            
            
            
            Wtd.
                Avg.Shares
            
            Ex.
                Price
            
            Shares
            
            Ex.
                Price
            
            Shares
            
            Ex.
                PriceOutstanding,
                beginning of year
            
            
            144,767
            
            $
            3.23
            
            
            131,125
            
            $
            2.83
            
            
            179,000
            
            $
            1.97Granted
            
            
            35,000
            
            $
            5.78
            
            
            25,000
            
            $
            4.62
            
            
            4,000
            
            $
            4.40Exercised
            
            
            (72,500
            )
            $
            3.38
            
            
            (11,358
            )
            $
            1.74
            
            
            (51,375
            )
            $
            2.03Canceled
            
            
            (2,517
            )
            $
            1.50
            
            
            -
            
            
            -
            
            
            (500
            )
            $
            1.50Outstanding,
                end of year
            
            
            104,750
            
            $
            4.01
            
            
            144,767
            
            $
            3.23
            
            
            131,125
            
            $
            2.83Exercisable,
                end of year
            
            
            94,750
            
            $
            3.83
            
            
            144,767
            
            $
            3.23
            
            
            108,500
            
            $
            3.08








The
      following table summarizes information about fixed stock options outstanding
      at September
      30, 2006:





Options ExercisableNumber
            RemainingOutstanding
            ContractualExercise
                Price
            At
                9/30/06
            Life$5.780
            25,000
            9.5
                years$4.620
            25,000
            8.5
                years$4.400
            4,000
            7.5
                years$1.900
            10,000
            6.5
                years$1.650
            2,000
            6.5
                years$0.810
            2,000
            5.5
                years$1.500
            13,750
            4.5
                years$3.125
            13,000
            3.5
                years94,750





Prior
      to fiscal year 2006, the Company accounted for stock awards under the
      recognition and measurement principles of Accounting Principles Board Opinion
      No. 25, "Accounting for Stock Issued to Employees' ("APB 25") and related
      interpretations. Accordingly, the company historically recognized no
      compensation expense for grants of stock options to employees because all stock
      options had an exercise price equal to the market price of the underlying common
      stock on the date of the grant.





42


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 its adoption.





On
      March 6, 2006, the 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 estimated 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 any 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 options forfeitures and records share-based expense
      only for those awards that are expected to vest.





Twelve
      Months
      Ended


September
      30, 2006


Average expected life         5.5


Average expected volatility
      factor                                                                    63%


Average risk-free interest
      rate                                                                         4.7%


Average expected dividends
      yield                                                                   -----





The
      estimated fair value of the options granted on March 6, 2006 totaled $120,510.
      The Company recorded compensation expense of $98,110 during fiscal year 2006.
      The remaining $23,401 represents the value of the unvested portion of the
      options issued and will be amortized as compensation expense over the remaining
      4 year vesting term.




Under
      the requirements of FAS 123(R), the Company presents pro forma disclosure of
      net
      income and earnings per share as if compensation costs from all stock awards
      issued during periods presented were recognized based on the fair value
      recognition provisions of SFAS 123. Pro forma information regarding net income
      and earnings per share has been determined as if the Company has accounted
      for
      its employee stock options under the fair value method of that statement for
      2005 and 2004. The compensation expense from the options issued in 2006 are
      included in the net income as reported. The fair value for these options was
      estimated at the date of grant using a Black-Scholes option pricing model with
      the following assumptions:





43


2006
            2005
            2004Expected
                life in years
            5.5
            6.0
            6.0Expected
                volatility
            63.0%
            55.0%
            142.0%Risk-free
                interest rate
            4.7%
            4.3%
            2.0%Expected
                dividend yeild
            -
            -
            -





The
      following table illustrates the pro forma effect on net income and earnings
      per
      share as if the Company had applied the fair value recognition provisions of
      SFAS No. 123:





Fiscal Year Ended September 30,


2006
            
            2005
            
            2004(In
                thousands)Net
                income as reported
            
            $
            4,003
            
            $
            4,974
            
            $
            4,574Pro
                forma compensation expense from stock options
            
            
            0
            
            
            (65
            )
            
            (10
            )Pro
                forma net income
            
            $
            4,003
            
            $
            4,909
            
            $
            4,564Earnings
                per common share as reported:Basic
            
            $
            .39
            
            $
            .49
            
            $
            .46Diluted
            
            $
            .39
            
            $
            .49
            
            $
            .41Proforma
                earings per common shareBasic
            
            $
            .39
            
            $
            .49
            
            $
            .46Diluted
            
            $
            .39
            
            $
            .49
            
            $
            .41





The
      Series B Preferred Stock has priority over the Company’s common stock with
      respect to the 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 2006 was primarily used to pay dividends on
      the
      Company’s Series B Preferred Stock, which is beneficially owned by David E.
      Chymiak, Chairman of the Board and Kenneth A. Chymiak, President and Chief
      Executive Officer, 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 also 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 the Company's
      principal shareholders are reflected in the following table.





44




Stock
        Ownership:
 Name
                  of
                Beneficial
                  Owner
              Percent
                  of
                Common
                  Stock
                Beneficially
                Owned
              Percent
                  of
                Series
                  B
                Preferred
                  Stock
                Beneficially
                Owned
                  (A)David
                  E. Chymiak
              23%
              50.0%Kenneth
                  A. Chymiak
              20%
              50.0%


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
      certain real estate and improvements consisting of office and warehouse space
      of
      for a price of $1,286,000. The price represented 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, Inc. 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
      accrued interest at the rate of 7.5% per annum and was payable over 10 years.
      Total interest paid in 2004 and 2003 was $4,898 and $9,869, respectively. The
      note was repaid in April 2004.





During
      2006, the Company moved its headquarters into a recently renovated office and
      warehouse property owned by Chymiak Investments, LLC. The Company vacated
      several leased properties as a result of the move that were being leased from
      Chymiak Investments, LLC. The Company utilized the new office and warehouse
      facility rent free in 2006 but continued to make lease payments on the vacated
      properties. The lease agreements associated with the vacated properties were
      cancelled on September 30, 2006 without penalty.





The
      Company continues to lease 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:


2007     321,840


2008     321,840


$
      643,680




Related
      party rental expense for the years ended September 30, 2006, 2005 and 2004
      was
      $465,840, $465,840 and $466,000, respectively.





45


**Note
      7 - Retirement Plan.**





The
      Company sponsors a 401(k) plan that allows participation by all employees who
      are at least 21 years of age and have completed one year of service. 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
      $186,079 during the year ended September 30, 2006, $186,304 during the year
      ended September 30, 2005, and $161,644 during the year ended September 30,
      2004.





**Note
      8 - Earnings per Share**


Year
                ended
            
            Year
                ended
            
            Year
                EndedSeptember
                30,
            
            September
                30,
            
            September
                30,2006
            
            2005
            
            2004Net
                income
            
            $
            4,842,718
            
            $
            5,814,392
            
            $
            5,813,753Dividends
                on preferred stock
            
            
            840,000
            
            
            840,000
            
            
            1,240,000Net
                income attributable tocommon
                shareholders - basic
            
            
            4,002,718
            
            
            4,974,392
            
            
            4,573,753Dividends
                on Series APreferred
                Stock
            
            
            -
            
            
            -
            
            
            400,000Net
                income attributable to commonshareholders
                - diluted
            
            $
            4,002,718
            
            $
            4,974,392
            
            $
            4,973,753Weighted
                average shares outstanding
            
            
            10,152,472
            
            
            10,067,277
            
            
            10,041,197Potentially
                dilutive securitiesAssumed
                conversion of 200,000 shares ofSeries
                A Preferred Stock
            
            
            -
            
            
            -
            
            
            2,000,000Effect
                of dilutive stock options
            
            
            49,002
            
            
            42,577
            
            
            63,344Weighted
                average shares outstanding -assuming
                dilution
            
            
            10,201,474
            
            
            10,109,854
            
            
            12,104,541Earnings
                per common share:Basic
            
            $
            0.39
            
            $
            0.49
            
            $
            0.46Diluted
            
            $
            0.39
            
            $
            0.49
            
            $
            0.41








**Note
      9 - Subsequent Events**





On
      November 20th, 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 to for specific use of the Company. The price paid for the property
      represents less than the appraised value of the property.





46


On
      November 20th, ADDvantage Technologies Group, Inc. executed the Third Amendment
      to Revolving Credit and Term Loan Agreement with its primary financial lender.
      The Third Amendment renewed the $7,000,000 Revolving Line of Credit and extends
      the maturity date on the credit facility to September 30, 2007. The Third
      Amendment also established a new $2,760,000 Term Note to the Agreement. The
      $2,760,000 Term Note was executed to finance the purchase of the Company's
      new
      headquarters building located in Broken Arrow, OK, discussed above. The new
      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.





The
      Revolving line of Credit and term Loan Agreement also includes a Term Loan
      Commitment of $8,000,000 established September 2004. This loan was used to
      finance the redemption of the outstanding shares of the Company's Series A
      Preferred Stock and matures over five years ending September 30, 2009.











**Note
      10 - Quarterly Results of Operations (Unaudited)**





The
      following is a summary of the quarterly results of operations for the years
      ended September 30, 2006 and 2005.




Three
      months ended


December
                31
            
            March
                31
            
            June
                30
            
            September
                30**Fiscal
                year ended 2006**Net
                sales and service income
            
            
            14,753,611
            
            
            12,419,157
            
            
            13,199,459
            
            
            12,168,982Gross
                profit
            
            
            5,070,522
            
            
            4,095,811
            
            
            4,195,569
            
            
            3,379,446Net
                income
            
            
            1,741,594
            
            
            1,076,798
            
            
            1,342,699
            
            
            681,627Basic
                earnings per common share
            
            
            .15
            
            
            .09
            
            
            .11
            
            
            .05Diluted
                earnings per common share
            
            
            .15
            
            
            .09
            
            
            .11
            
            
            .05**Fiscal
                year ended 2005**Net
                sales and service income
            
            $
            12,261,125
            
            $
            9,894,886
            
            $
            12,093,891
            
            $
            16,023,293Gross
                profit
            
            
            4,056,414
            
            
            3,519,716
            
            
            4,258,587
            
            
            5,037,311Net
                income
            
            
            1,514,687
            
            
            1,088,238
            
            
            1,446,426
            
            
            1,765,041Basic
                earnings per common share
            
            
            0.13
            
            
            0.09
            
            
            0.12
            
            
            0.15Diluted
                earnings per common share
            
            
            0.13
            
            
            0.09
            
            
            0.12
            
            
            0.15





**Item
      9.****Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





On
      January 17, 2006 we received notification from Tullius Taylor Sartain &
Sartain ("Tullius"), our independent registered public accounting firm, that
      they would resign upon completion of Tullius' review of our Quarterly Report
      on
      Form 10-Q for the first quarterly period ended December 31, 2005. Tullius’
resignation became effective when we filed our Form 10-Q on February 13,
      2006.





47


In
      connection with the audits of our financial statements for each of the two
      fiscal years ended September 30, 2005, and in the subsequent interim period
      preceding the effective resignation date, there were no disagreements with
      Tullius on any matters of accounting principles or practices, financial
      statement disclosures or auditing scope and procedures which disagreements,
      if
      not resolved to the satisfaction of Tullius, would have caused Tullius to make
      reference to the matter in their reports on the Company’s consolidated financial
      statements for such periods.





In
      addition, during the Company's two fiscal years ended September 30, 2005, and
      for the period from October 1, 2005, through February 13, 2006, there were
      no
      reportable events as defined by paragraph (a) (1) (v) of Item 304 of Regulation
      S-K promulgated by the Securities and Exchange Commission.





On
      January 26, 2006, the Audit Committee of the Board of Directors engaged Hogan
      & Slovacek to serve as our independent registered public accounting firm for
      the current fiscal year.





**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 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 controls 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.





48


**PART
      III**





**Item
      10.****Directors
      and Executive Officers and Corporate Governance.**





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 2007 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, 2006.







**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.








**Item
      13.****Certain
      Relationships and Related Transactions and Directors****Independence.**





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.


49








**PART
      IV**





**Item
      15.****Exhibits,
      Financial Statements 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 for 2005 and 2004.





Report
      of Independent Registered Public Accounting Firm for 2006.




Consolidated
      Balance Sheets as of September 30, 2006 and 2005.





Consolidated
      Statements of Income for the years ended September 30, 2006, 2005 and
      2004.





Consolidated
      Statements of Changes in Stockholders’ Equity for the years ended September 30,
      2006, 2005 and 2004.





Consolidated
      Statements of Cash Flows for the years ended September 30, 2006,  2005
      and 2004.





Notes
      to Consolidated Financial Statements.


50





2.  The
      following financial statement Schedule II - Valuation and Qualifying
      Accounts  for
      the years ended September 30, 2006, 2005 and 2004 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.





Schedule
      II - Valuation and Qualifying Accounts





Balance
                  at
              
              Charged
                  to
              
              
              
              
              
              Balance
                  atBeginning
              
              Costs
                  and
              
              
              
              
              
              Endof
                  Period
              
              Expenses
              
              Write-offs
              
              Recoveries
              
              of
                  Period**Period
                  Ended September 30, 2006**Allowance
                  for Doubtful Accounts
              
              $
              92,000
              
              $
              445,541
              
              
              -
              
              $
              16,459
              
              $
              554,000Allowance
                  for Excess and Obsolete Inventory
              
              
              1,575,395
              
              
              439,625
              
              
              (837,020
              )
              
              -
              
              
              1,178,000Valuation
                  Allowance of Deferred Tax Asset
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Period
                  Ended September 30, 2005**Allowance
                  for Doubtful Accounts
              
              $
              68,063
              
              $
              40,080
              
              
              (16,143
              )
              
              -
              
              $
              92,000Allowance
                  for Excess and Obsolete Inventory
              
              
              1,093,000
              
              
              482,395
              
              
              -
              
              
              -
              
              
              1,575,395Valuation
                  Allowance of Deferred Tax Asset
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Period
                  Ended September 30, 2004**Allowance
                  for Doubtful Accounts
              
              $
              78,359
              
              $
              -
              
              
              (19,968
              )
              $
              9,672
              
              $
              68,063Allowance
                  for Excess and Obsolete Inventory
              
              
              447,100
              
              
              645,900
              
              
              -
              
              
              -
              
              
              1,093,000Valuation
                  Allowance of Deferred Tax Asset
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -





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.





51


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
                the Securities Exchange Commission by the Company on December 30,
                1999.





10.3               
       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 Annuak Report to Form 10-KSB filed with the







10.4
            
            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.





10.5
            
            Third
                Amendment to Revolving Credit and Term Loan Agreement dated November
                20,
                2006.





10.6
            
            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.





10.7
            
            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.





10.8                
      Contract 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.




10.9                
      Senior Management Incentive Compensation Plan and employment agreement
      between the Company and Dan O'Keefe, incorporated by


reference
      to the Current Report on Form 8-K filed with the Securities and Exchange
      Commission by the Company on March 6, 2006.




14.1                
      Amended Code of Business Conduct and Ethics for directors, officers and
      employees of the Company, incorporated by reference to the


Current Report on Form 8-K filed with the Securities and Exchange Commission
      by
      the Company on March 6, 2006.





52


16.1                 Letter
      regarding change in certifying accountant, incorporated by reference to the
      Current Report on Form 8-K filed with the by reference


to
      the Current Report on Form 8-K filed with the Securities and Exchange Commission
      by the Company on February 13, 2006.




21.1                
      Listing of the Company's subsidiaries.












31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes
                Oxley
                Act of 2002.




31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes
                Oxley Act of 2002.




32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes
                Oxley Act of 2002.




32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes
                Oxley Act of 2002.


53


**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,
      2006 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,
      2006 /s/
      David E. Chymiak


David
      E. Chymiak, Chairman of the Board of Directors





Date:
      December 27,
      2006 /s/
      Kenneth A. Chymiak


Kenneth
      A. Chymiak, President, Director (Principal Executive Officer)








Date:
      December 27,
      2006 /s/
      Daniel E. O'Keefe


Daniel
      E. O'Keefe, Chief Financial Officer (Principal Financial Officer)





Date:
      December 27,
      2006 /s/
      Stephen J. Tyde


Stephen
      J. Tyde, Director








Date:
      December 27,
      2006 /s/
      Freddie H. Gibson


Freddie
      H. Gibson, Director








Date:
      December 27,
      2006 /s/
      Henry F. McCabe


Henry
      F. McCabe, Director








54








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 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
                the Securities Exchange Commission by the Company on December 30,
                1999.




10.3                 Form
      of promissory notes issued by Tulsat to David Chymiak and to KenChymiak
      Revocable Trust and Susan C. Chymiak Revocable


Trust
        dated as of February 7, 2000 incorporated by reference to Exhibit 10.7 to
        the Annuak Report to Form 10-KSB filed with the


10.4
            
            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.





10.5
            
            Third
                Amendment to Revolving Credit and Term Loan Agreement dated November
                20,
                2006.







10.6
            
            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.





10.7
            
            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.




10.8                
      Contract 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.




10.9                
      Senior Management Incentive Compensation Plan and employment agreement
      between the Company and Dan O'Keefe, incorporated by


reference
        to the Current Report on Form 8-K filed with the Securities and Exchange
        Commission by the Company on March 6, 2006.








16.1                
      Letter regarding change in certifying accountant, incorporated by reference
      to
      the Current Report on Form 8-K filed with the Securities


Securities
        and Exchange Commission by the Company on February  13,
        2006.




21.1 Listing
      of the Company’s subsidiaries.





23.1                Consent
      of Hogan & Slovacek.





23.2               
      Consent of Tullius Taylor Sartain & Sartain LLP




31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes
                Oxley
                Act of 2002.




31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes
                Oxley
                Act of 2002.




32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes
                Oxley Act of 2002.




32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes
                Oxley Act of 2002.


56