3. Acquisitions

Electronic Media Systems, Inc. and Advanced Wireless Group, LLC

On October 31, 2013, we acquired all outstanding stock of Electronic Media Systems, Inc. and all membership interests in its subsidiary, Advanced Wireless Group, LLC, not otherwise owned by Electronic Media Systems, Inc. such that we are now the beneficial owner of all membership interests of Advanced Wireless, Group, LLC (collectively, "AWG"). AWG operates public Wi-Fi in seventeen U.S. airports including Los Angeles International, Charlotte/Douglas International, Miami International, Minneapolis-St. Paul International, Detroit Metropolitan Airport, and Boston's Logan International. We have included the operating results of AWG in our consolidated financial statements since the date of acquisition.

The acquisition has been accounted for under the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations. As such, the assets acquired and liabilities assumed are recorded at their acquisition-date fair values. The total purchase price was $17,380, which includes cash paid at closing, holdback consideration to be paid and the fair value of additional contingent consideration that would be due and payable upon the successful extension of a specified airport Wi-Fi contract. The total purchase price includes estimated net equity adjustments that may be subject to additional adjustments.

The fair value of the contingent consideration is based on Level 3 inputs. Further changes in the fair value of the contingent consideration will be recorded through operating (loss) income. We allocated the excess of the purchase price over the fair value of assets acquired and liabilities assumed to goodwill, which is primarily not deductible for tax purposes. The goodwill arising from the AWG acquisition is attributable primarily to expected synergies and other benefits, including the acquired workforce, from combining AWG with us.

The deferred tax liabilities are provisional pending the filing of AWG's final short period 2013 tax returns. The contingent consideration was valued at the date of acquisition using a discount rate of 3.1% and is expected to be paid in 2014. The identifiable intangible assets were primarily valued using the excess earnings, relief from royalty, with-and-without and replacement cost methods using discount rates ranging from 12.0% to 14.0% and royalty rates of 0.5%.

The amortizable intangible assets are being amortized straight-line over their estimated useful lives. The following summarizes the preliminary purchase price allocation:

	Estimated Fair Value

Consideration:
Cash paid	$	14,800
Holdback consideration		1,600
Contingent consideration		980


Total consideration	$	17,380




Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	215
Restricted cash		515
Accounts receivable		988
Other current assets		609
Property and equipment		2,297
Accounts payable		(563	)
Accrued expenses		(515	)
Other current liabilities		(134	)
Capital lease obligations		(932	)
Other non-current liabilities		(130	)
Deferred tax liabilities		(3,561	)


Net tangible liabilities acquired		(1,211	)
Existing airport contracts and relationships		4,700		6.7
Technology		270		6.0
Trademark and tradename		120		3.0
Non-compete agreement		3,590		5.0
Goodwill		9,911


Total purchase price	$	17,380

Endeka Group, Inc.

On February 22, 2013, we acquired all outstanding stock of Endeka Group, Inc. ("Endeka"). Endeka is a provider of commercial wireless broadband and IPTV services at certain military bases, as well as Wi-Fi services to certain federal law enforcement training facilities. We acquired Endeka because Endeka's portfolio of venues and management team are natural additions to our managed network business. We have included the operating results of Endeka in our consolidated financial statements since the date of acquisition.

The acquisition has been accounted for under the acquisition method of accounting in accordance with FASB ASC 805. As such, the assets acquired and liabilities assumed are recorded at their acquisition-date fair values. The total purchase price was $6,498, which includes cash paid at closing, holdback consideration to be paid and the fair value of additional contingent consideration comprised of two components: (i) a payment ("Build Payment") if the amount of the capital expenditures incurred for the substantial completion of a specified build project is less than a target; and (ii) a payment ("Milestone Payment") based on revenue generated by certain contracts in fiscal year 2014. There is no maximum to the contingent consideration payments for the Milestone Payment. We do not expect to make any payments associated with the Build Payment. The holdback consideration will be paid in 2014 and the Milestone Payment will be paid on February 28, 2015.

The fair value of the contingent consideration is based on Level 3 inputs. Further changes in the fair value of the contingent consideration will be recorded through operating (loss) income. We allocated the excess of the purchase price over the fair value of assets acquired and liabilities assumed to goodwill, which is not deductible for tax purposes. The goodwill arising from the Endeka acquisition is attributable primarily to expected synergies and other benefits, including the acquired workforce, from combining Endeka with us.

The contingent consideration was valued at the date of acquisition using a discounted cash flow method with probability weighted cash flows and a discount rate of 50.5%. The identifiable intangible assets were primarily valued using the excess earnings, relief from royalty, and replacement cost methods using discount rates ranging from 40.0% to 50.0% and royalty rates ranging from 0.5% to 1.5%, where applicable.

The amortizable intangible assets are being amortized straight-line over their estimated useful lives. The following summarizes the final purchase price allocation:

	Estimated Fair Value

Consideration:
Cash paid	$	4,894
Holdback consideration		275
Contingent consideration		1,329


Total consideration	$	6,498




Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	20
Other current assets		44
Property and equipment		4,617
Other assets		12
Accounts payable		(992	)
Other current liabilities		(211	)
Notes payable and financed liabilities		(6,476	)
Deferred tax liabilities		(2,637	)


Net tangible liabilities acquired		(5,623	)
Existing customer contracts and relationships		4,770		10.0
Technology		930		6.0
Trademark and tradename		300		10.0
Non-compete agreement		250		2.0
Other intangibles		95		10.0
Goodwill		5,776


Total purchase price	$	6,498

Pro forma results (Unaudited)

The following table presents the unaudited pro forma results of the Company for the years ended December 31, 2013 and 2012 as if the acquisitions of Endeka and AWG had occurred on January 1, 2012. These results are not intended to reflect the actual operations of the Company had the acquisition occurred on January 1, 2012. Acquisition transaction costs have been excluded from the pro forma net (loss) income. We did not record any incremental income taxes for pro forma net (loss) income because we established a valuation allowance in 2013. Income taxes for purposes of the 2012 pro forma net (loss) income were computed based on the statutory tax rates.

	For the Years Ended December 31,

	2013			2012
	(Unaudited)
Revenue	$	114,492		$	110,957
Net (loss) income	$	(4,945	)	$	5,991

Cloud 9 Wireless, Inc.

On August 6, 2012, we acquired the assets of Cloud 9 Wireless, Inc. ("Cloud 9") for $3,500 plus the assumption of certain liabilities. Cloud 9 provides Wi-Fi sponsorship and location-based advertising at airports, hotels, bars and restaurants, and recreational areas in the U.S. and Canada. The acquisition has been accounted for under the acquisition method of accounting in accordance with the FASB ASC 805. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill, which is deductible for tax purposes. Goodwill is attributable primarily to expected synergies and other benefits, including the acquired workforce, from combining Cloud 9 with us. Cloud 9 was consolidated into our results of operations starting August 6, 2012, the acquisition date. Cloud 9 has been integrated into the Company's product offering; therefore, it is not practical to disclose actual and pro forma financial results for Cloud 9 since the acquisition.

The following table summarizes the allocation of the total purchase price as of August 6, 2012:


Current assets	$	899
Property, plant and equipment		65
Intangible and other assets		1,758
Goodwill		1,232
Current liabilities		(454	)


Net assets acquired	$	3,500

The intangible assets are all definite-lived intangibles and are recognized on a straight-line basis over their weighted average lives of approximately 5 years.