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Note 2 - Acquisition

9 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

Note 2 – Acquisition

As part of the Company’s growth strategy, the Company is pursuing an acquisition strategy to expand into the broader telecommunications industry. On February 28, 2014, the Company acquired all of the outstanding common stock of Nave Communications, a telecommunications distributor of certified used telecommunication networking equipment and a recycler of surplus and obsolete telecommunications equipment. This acquisition, along with its retained management team, will diversify the Company’s business outside of the cable television industry and will also allow the Company to capitalize on growth opportunities in both the cable television and telecommunication industries. The preliminary estimated purchase price for Nave Communications includes the following:

Cash payments, net of cash received	$	9,630,647
Deferred guaranteed payments (a)		2,744,338
Net purchase price	$	12,374,985

(a)

This amount represents the present value of $3.0 million in deferred payments, which will be paid in equal annual installments over the next three years. Over the three year period, the Company will ratably record interest expense with the offset being the deferred payment liability. As of June 30, 2014, the deferred guaranteed payments balance is $1.0 million in other current liabilities and $1.8 million in other long-term liabilities.

Under the acquisition method of accounting, the total estimated purchase price is allocated to Nave Communications’ net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of February 28, 2014, the effective date of the acquisition. Any remaining amount is recorded as goodwill.

The following summarizes the preliminary purchase price allocation of the fair value of the assets acquired and the liabilities assumed at February 28, 2014:

Assets acquired:	(in thousands)
Cash and cash equivalents	$	113
Accounts receivable		1,651
Inventories		2,287
Property and equipment		406
Other non-current assets		120
Intangible assets		8,228
Goodwill		1,855
Total assets acquired		14,660

Liabilities assumed:
Accounts payable		1,821
Accrued expenses		275
Capital lease obligation – current portion		21
Capital lease obligation		55
Total liabilities assumed		2,172
Net assets acquired		12,488
Less cash acquired		113
Net purchase price	$	12,375

The acquired intangible assets of approximately $8.2 million consist primarily of customer relationships, technology, trade name, and non-compete agreements with the former owners.

The Company will also make payments over the next three years equal to 70% of Nave Communications’ annual EBITDA in excess of $2.0 million per year. The Company will recognize the expense ratably over the three year period as compensation expense.

The Company has one year from the date of the acquisition to finalize the purchase price allocation, and there may be a material change in the purchase price allocation as presented. The Company is still working with its valuation experts on the valuation of identifiable intangibles and inventories for which any change may impact the goodwill amount recorded. If information becomes available which would indicate material adjustments are required to the preliminary purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

The unaudited financial information in the table below summarizes the combined results of operations of ADDvantage Technologies Group and Nave Communications for the three and nine months ended June 30, 2014 and June 30, 2013, on a pro forma basis, as though the companies had been combined as of October 1, 2012. The pro forma earnings for the three months ended June 30, 2013 were adjusted to include intangible amortization expense of $0.2 million. The pro forma earnings for the nine months ended June 30, 2014 and June 30, 2013 were adjusted to include intangible amortization expense of $0.7 million. Incremental interest expense of $51 thousand was included in the pro forma earnings for the three months ended June 30, 2013 and $153 thousand in the nine months ended June 30, 2014 and June 30, 2013, as if the $5.0 million term loan used to help fund the acquisition had been entered into on October 1, 2012. The $0.6 million of acquisition-related expenses were excluded from the nine months ended June 30, 2014 and included in the nine month period ending June 30, 2013 as if the acquisition occurred at October 1, 2012. The unaudited pro forma financial information is provided for informational purposes only and does not purport to be indicative of the Company’s combined results of operations which would actually have been obtained had the acquisition taken place on October 1, 2012 nor should it be taken as indicative of our future consolidated results of operations.

	Three Months Ended June 30,			Nine Months Ended June 30,
	2014	2013		2014			2013
	(in thousands, except per share amounts)
Total net sales	n/a⁽¹⁾	$	9,810	$	29,822		$	30,679
Income from continuing operations	n/a⁽¹⁾	$	52	$	567		$	1,241
Net income (loss)	n/a⁽¹⁾	$	18	$	(100	)	$	1,347
Earnings (loss) per share:
Basic:
Continuing operations	n/a⁽¹⁾	$	0.01	$	0.06		$	0.12
Net income (loss)	n/a⁽¹⁾	$	−	$	(0.01	)	$	0.13
Diluted:
Continuing operations	n/a⁽¹⁾	$	0.01	$	0.06		$	0.12
Net income (loss)	n/a⁽¹⁾	$	−	$	(0.01	)	$	0.13

(1)	These amounts are presented in the unaudited Consolidated Condensed Statement of Operations for the quarter ended June 30, 2014.