Note 2. Subsequent events: On April 4, 2013, the merger by and among Cinelatino, WAPA and Azteca providing for the combination of Cinelatino, WAPA and Azteca as indirect, wholly-owned subsidiaries of Hemisphere (the “Transaction”) was consummated.

The Transaction will be accounted for by applying the acquisition method, which requires the determination of the accounting acquirer, the acquisition date, the fair value of the purchase consideration to be transferred, the fair value of assets and liabilities of the acquiree and the measurement of goodwill. ASC Topic 805-10, “Business Combinations—Overall” (“ASC 805-10”) provides that in identifying the acquiring entity in a business combination effected primarily through an exchange of equity interests, the acquirer is usually the entity that issues equity interests but all pertinent facts and circumstances must be considered in determining the acquirer. Other pertinent facts and circumstances to consider include the relative voting rights of the shareholders of the constituent companies in the combined entity, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of equity interests in the Transaction, including payment of any premium. Although Hemisphere issued the equity interests in the Transaction, since it is a new entity formed solely to issue these equity interests to effect the Transaction it would not be considered the acquirer and one of the combining entities that existed before the transaction must be identified as the acquirer. Based on the following, WAPA is the accounting acquirer and predecessor, whose historical results will become the results of Hemisphere as of the date the Transaction is consummated:

i. WAPA shareholders obtained approximately 46.4% of the post-Transaction common shares of stock and 59.9% of the voting rights in the combined entities;

ii. WAPA, through its parent company, InterMedia, has the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity, as they represent five of the nine directors on the combined entity board of directors, including the Chief Executive Officer; and

iii. WAPA’s historical revenues represent approximately 69.0% of the total revenues of the combined entities.

As WAPA is the accounting acquirer (and legal acquiree), the Transaction is considered to be a reverse acquisition. Since WAPA issued no consideration in the Transaction, unless the fair value of accounting acquirees’ equity interests are more reliably measurable, the fair value of the consideration transferred by WAPA would be based on the number of shares WAPA would have had to issue to give owners of the other entities in the transaction the same percentage ownership in the combined entities that results from the Transaction. In this situation, since Azteca’s shares are publicly traded and they are one of the combining entities in this Transaction, the fair value of those shares are considered to be more reliably measurable than the fair value of WAPA’s shares and therefore were used to determine the fair value of the consideration transferred for the acquisition of Cinelatino, which is the other operating entity involved in this Transaction.

Total consideration transferred by WAPA (accounting acquirer) to Cinelatino (accounting acquiree) was $121,930,102 based on: (i) cash consideration of $3.8 million (funded from cash on hand), plus (ii) 12,567,538 shares with an assumed value of $10.05 per share based on the per share trust value at the date of the agreement for each share of the Company’s common stock to be received by Cinelatino stockholders in the Transaction, (iii) less $8.2 million, which represents the estimated fair value of contingent consideration related to 1,142,504 shares of Hemisphere Class B common stock that are subject to forfeiture in the event the market price of Hemisphere Class A common stock does not meet certain levels. The contingent consideration was valued using a Monte Carlo simulation model. Significant assumptions utilized in the model include:

· Stock Price: $10.05

· Volatility: 32.5%

· Risk-Free Rate: 0.77%

The carrying amounts and classifications of WAPA’s historical assets and liabilities as the accounting acquirer as of March 31, 2013 are as follows (in thousands):

	WAPA
	(historical predecessor)

Cash	$	7,214
Accounts receivable, net	8,212
Programming rights	5,468
Other assets	5,568
Total current assets	26,463

Programming rights	4,072
Property and equipment, net	26,117
Broadcast license	41,356
Goodwill	10,983
Other intangibles, net	1,620
Other assets	2,707
Total Assets	$	113,318

Accounts payable & accrued expenses	$	8,620
Programming rights payable	4,255
Current portion of long term debt	6,456
Total current liabilities	19,331

Programming rights payable	2,157
Long-term debt, net of current portion	50,556
Other liabilities	2,139
Total Liabilities	$	74,183

The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed in the acquisition of Cinelatino (in thousands):

Cash	$	12,865
Accounts receivable, net	4,053
Programming rights	4,460
Prepaid expenses and other current assets	940
Property and equipment, net	21
Other assets	15,495
Intangible asset - affiliate agreements	23,100
Current liabilities	(6,272		)
Long-term debt	(32,097		)
Fair value of identifiable net assets acquired	22,565
Goodwill	99,365
Total	$	121,930

The amount allocated to definite-lived intangible assets represents the estimated fair values of Cinelatino’s affiliate agreements of $23.1 million, which have been valued using a discounted cash flow based on management’s best estimates utilizing a 10% discount rate. These intangible assets will amortized over the estimated remaining useful lives of approximately 6 years.

Goodwill of $99.4 million is the excess of the net consideration paid over the fair value of the identifiable net assets acquired, and primarily represents the benefits the Company expects to realize from the acquisition.

The acquisition accounting for the transaction described above is not finalized as of the date of filing.

Pro Forma Information

The following table sets forth the unaudited pro forma results of operations assuming that the acquisition of Cinelatino occurred on January 1, 2013 (in thousands):

	Three Months Ended March 31, 2013
	WAPA			Cinelatino			Pro Forma
	(historical predecessor)

Net Revenues	$	13,495		$	6,104		$	19,599

Operating Expenses:
Cost of revenues	5,856			1,053			6,909
Selling, general and administrative	3,429			754			4,183
Depreciation and amortization	1,011			964			1,975
Other expenses	3,292			2,068			5,360
Loss on disposition of assets	25			—			25
Total operating expenses	13,612			4,839			18,451

Operating (loss) income	(117		)	1,265			1,148

Interest expense	(771		)	(462		)	(1,233		)

Income tax benefit (expense)	363			(821		)	(458		)

Net loss	$	(525	)	$	(18	)	$	(543	)

In connection with the Transaction, the Company incurred a total of $5.4 million of non-recurring transaction related costs primarily related to legal and other professional services, which were expensed as incurred.