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 condensed 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, which are discussed in Note 6. Further changes in the fair value of the contingent consideration will be recorded through operating loss. 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			Weighted Average Estimated Useful Life (years)
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 condensed 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 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			Estimated Useful Life (years)
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

During the three months ended March 31, 2014, we paid the holdback consideration in the amount of $275 to the previous Endeka shareholders.

Pro forma results

The following table presents the unaudited pro forma results of the Company for the three months ended March 31, 2013 as if the acquisitions of AWG and Endeka had occurred on January 1, 2012. These results are not intended to reflect the actual operations of the Company had the acquisitions occurred on January 1, 2012. We did not record any incremental income taxes for pro forma net loss because we established a valuation allowance in 2013.

	Three Months Ended March 31, 2013

Revenue	$	25,497
Net loss	$	(2,121	)