Note

– Acquisition

As part of the Company’s growth strategy, the Company is pursuing an acquisition strategy to expand into the broader telecommunications industry. The Company formed a new subsidiary called ADDvantage Triton, LLC (“Triton Datacom”) which on

October

14,

2016

acquired substantially all of the net assets of Triton Miami, Inc. (“Triton Miami”). Triton Datacom is a provider of new and refurbished enterprise networking products, including IP desktop phones, enterprise switches and wireless routers. This acquisition, along with its retained management team, is part of the overall growth strategy of the Company in that it further diversifies the Company into the broader telecommunications industry by reselling refurbished products into the enterprise customer market.

The preliminary estimated purchase price for Triton Miami includes the following:

Upfront cash payment	$	6,500,000
Deferred guaranteed payments (a)		1,897,372
Working capital purchase adjustment		143,540
Net purchase price	$	8,540,912

(a)

This amount represents the present value of

$2.0

million in deferred payments, which will be paid in equal annual installments over the next

three

years. These deferred payments are recorded in other current liabilities

($0.7

million) and other long-term liabilities

($1.2

million).

The Company will also make annual payments to the Triton Miami owners, if they have not resigned from Triton Datacom, over the next

three

years equal to

60%

of Triton Datacom’s annual EBITDA in excess of

$1.2

million per year. The Company will recognize the payments ratably over the

three

-year period as compensation expense.

Under the acquisition method of accounting, the total estimated purchase price is allocated to Triton Miami’s tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of

October

14,

2016,

the effective date of the acquisition. Any remaining amount is recorded as goodwill.

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 and prior quarter earnings. 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 following summarizes the preliminary purchase price allocation of the fair value of the assets acquired and the liabilities assumed at

October

14,

2016:

	(in thousands)
Assets acquired:
Accounts receivable	$	1,117
Inventories		1,149
Property and equipment, net		68
Other non-current assets		1
Intangible assets		4,841
Goodwill		2,121
Total assets acquired		9,297

Liabilities assumed:
Accounts payable		584
Accrued expenses		172
Total liabilities assumed		756
Net purchase price	$	8,541

The acquired intangible assets of approximately

$4.8

million consist of customer relationships, trade name and non-compete agreements with the owners of Triton Miami.

The unaudited financial information in the table below summarizes the combined results of operations of ADDvantage Technologies Group and Triton Miami for the

three

and

six

months ended

March

31,

2017

and

March

31,

2016,

on a pro forma basis, as though the companies had been combined as of

October

2015.

The unaudited pro forma earnings for the

three

months ended

March

31,

2016

were adjusted to include intangible amortization expense of

$0.1

million and Triton Datacom earn-out expenses of

$0.1

million. The pro forma earnings for the

six

months ended

March

31,

2017

and

March

31,

2016

were adjusted to include intangible amortization expense of

$21

thousand and

$0.3

million, respectively, and Triton Datacom earn-out expenses of

$19

thousand and

$0.2

million, respectively. Incremental interest expense of

$44

thousand was included in the

three

months ended

March

31,

2016

and

thousand and

$0.1

million for the

six

months ended

March

31,

2017

and

March

31,

2016,

respectively, as if the

$4.0

million term loan used to help fund the acquisition had been entered into on

October

2015.

The unaudited pro forma earnings for the

three

and

six

months ended

March

31,

2016

were adjusted to include

$0.2

million of acquisition-related costs recorded as operating, selling, general and administrative expenses in the Consolidated Condensed Statements of Income. 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

2015,

nor should it be taken as indicative of our future consolidated results of operations.

	Three Months Ended March 31,					Six Months Ended March 31,
	2017			2016		2017		2016
	(in thousands, except per share amounts)
Sales	$	11,295	(1)	$	13,783	$	23,829	$	25,160
Income from operations	$	87	(1)	$	405	$	745	$	859
Net income	$	11	(1)	$	164	$	362	$	400
Earnings per share:
Basic	$	0.00	(1)	$	0.02	$	0.04	$	0.04
Diluted	$	0.00	(1)	$	0.02	$	0.04	$	0.04

(1)	These amounts are presented in the unaudited Consolidated Condensed Statement of Income for the quarter ended March 31, 2017.