Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

4. Fair Value Measurements

The consolidated financial statements include financial instruments for which the fair market value may differ from amounts reflected on a historical basis.

Financial Liabilities Carried at Fair Value

The Company reports contingent seller financed promissory note at fair value on the consolidated balance sheets. The Company assesses the estimated fair value of the contingent seller financed promissory note (“contingent consideration”) using a probability weighted income approach (discounted cash flow) valuation technique. When preparing discounted cash flow models under the income approach, the Company uses internal forecasts to estimate future cash flows. The Company’s internal forecasts are developed using observable (Level 2) and unobservable (Level 3) inputs.

The Company uses the expected weighted average cost of capital, estimated using a capital asset pricing model, to discount future cash flows. The Company’s cost of equity estimate is developed using a combination of observable (Level 2) and unobservable (Level 3) inputs with appropriate adjustments that take into consideration our risk profile and other factors deemed appropriate. The Company believes the discount rates used appropriately reflect the risks and uncertainties associated with the probability of payout and market conditions generally and specifically in the Company’s internally developed forecasts.

Fair value is assessed on a quarterly basis and any changes in estimated fair value are recorded as a non-operating change in fair value of contingent consideration in the consolidated statement of operations. Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management’s estimate of the probability (which are greater than 75%) of the acquired company meeting the operating performance target and the estimated discount rate (a rate that approximates the Company’s weighted average cost of capital). Significant increases (decreases) in either of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, a change in the assumption used for the probability of meeting the performance target is accompanied by a directionally similar change in the fair value of contingent consideration liability, whereas a change in assumption used for the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability.

The following table summarizes the Company’s financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s valuation hierarchy (as described in Note 2) at the end of each reporting period presented below:

	Amount		Quoted Prices		Significant
	Recorded on		in Active		Other		Significant
	Consolidated		Markets for		Observable		Unobservable
	Balance		Identical Assets		Inputs		Inputs
	Sheets		(Level 1)		(Level 2)		(Level 3)
Liabilities as of December 31, 2012
Contingent obligation (1)	$	1,250,000		—		—	$	1,250,000
Liabilities as of December 31, 2011
Contingent obligation (1)	$	2,150,000		—		—	$	2,150,000

Changes in the fair value measurement of contingent obligation using significant unobservable inputs classified as Level 3 and valuation method used to estimate fair values are set forth below as of and for the years ended:

	2012			2011
Balance, January 1,	$	2,150,000		$	—
Total gains or losses for the period:
Non-cash gain on change in fair value of contingent obligation included in general and administrative expense (1)		(900,000	)		—
Initial fair value of contingent obligation (2)		-			2,150,000
Balance, December 31,	$	1,250,000		$	2,150,000

(1) For the year ended December 31, 2012, the Company measured the fair value of its contingent obligation and recorded a non-cash gain fair value adjustment of approximately $0.9 million to reflect a reduction in fair value of its contingent obligation. The Company determined the fair value of contingent consideration based on a probability weighted discounted cash flow valuation technique. The potential payout of consideration for the year ending 2013 is up to $1.5 million of face value of the contingent seller financed promissory note.

(2) For the year ended December 31, 2011, the Company recorded an initial fair value of contingent consideration of approximately $2.15 million based on a probability weighted discounted cash flow valuation technique. The potential payout of consideration for the year ended 2012 was up to $1.5 million of face value of the contingent seller financed promissory note.

There were no transfers into or out of Level 3 for the years ended December 31, 2012 or 2011.

Financial Assets and Financial Liabilities Carried at Other Than Fair Value

The Company’s financial instruments include cash equivalents, accounts receivable, short and long-term debt (except for contingent promissory notes) and other financial instruments associated with the issuance of the common stock. The carrying values of cash equivalents and accounts receivable approximate their fair value because of the short maturity of these instruments and past evidence indicates that these instruments settle for their carrying value. The carrying amounts of the Company’s bank borrowings under its credit facility approximate fair value because the interest rates reflect current market rates.