3. Acquisition

On February 22, 2013, we acquired all outstanding stock of Endeka Group, Inc. (“Endeka”). Endeka is a provider of commercial wireless broadband and Internet Protocol television (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 condensed consolidated financial statements since the date of acquisition. The operating results for Endeka for the three and six months ended June 30, 2013 are not material. The Endeka acquisition is not a significant acquisition for us and actual and pro forma financial statements have therefore not been included.

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 $6,623, which includes cash paid at closing, holdback consideration to be paid and 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. The Build Payment is expected to be paid in late 2013 and the Milestone Payment will be paid on February 28, 2015.

The fair value of the contingent consideration is based on Level 3 inputs as defined in FASB ASC 820, Fair Value Measurements and Disclosures. Further changes in the fair value of the contingent consideration will be recorded through operating 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 deferred tax liabilities are provisional pending the filing of Endeka’s 2012 and final short period 2013 tax returns. The contingent consideration was valued 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 preliminary purchase price allocation:

	Estimated Fair Value			Estimated Useful Life (years)
Consideration:
Cash paid	$	4,894
Holdback consideration	400
Contingent consideration	1,329
Total consideration	$	6,623

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	(186		)
Notes payable and financed liabilities	(6,476		)
Deferred tax liabilities	(3,062		)
Net tangible liabilities acquired	(6,023		)
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	6,301
Total purchase price	$	6,623

As of June 30, 2013, we had gross intangible assets of $35,282 and accumulated amortization of $19,222. As of December 31, 2012, we had gross intangible assets of $28,905 and accumulated amortization of $18,311. Amortization expense for the six months ended December 31, 2013 will be $1,054. Amortization expense for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 will be $2,032, $1,878, $1,816, $1,651, and $1,441, respectively.