Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

3. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific asset or liability. GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

Level 1 - Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:

§ Quoted prices for similar assets or liabilities in active markets

§ Quoted prices for identical or similar assets or liabilities in markets that are not active

§ Inputs other than quoted prices that are observable for the asset or liability

§ Inputs that are derived principally from or corroborated by observable market data by correlation or other means

Level 3 - Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants would likely use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

The Company monitors applicable market conditions and evaluates the fair value hierarchy levels as they pertain to the Company at least quarterly. For any transfers in and out of the levels of the fair value hierarchy, the Company elects to disclose the fair value measurement at the beginning of the reporting period during which the transfer occurred.

The Company measured the fair value of contingent seller financed promissory notes (“contingent obligation”) presented on the condensed consolidated balance sheets at fair value on a recurring basis using significantly unobservable inputs (Level 3) during the three months ended March 31, 2013 and during the year ended December 31, 2012. The following table summarizes the Company’s measurement of fair value on a recurring basis for seller financed promissory notes as categorized by GAAP’s valuation hierarchy at the end of each reporting periods 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)
	(Unaudited)
Liabilities as of March 31, 2013 Contingent obligation (1)	$	1,030,000		—		—	$	1,030,000
Liabilities as of December 31, 2012 Contingent obligation (1)	$	1,250,000		—		—	$	1,250,000

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 period then ended:

	THREE MONTHS ENDED
	MARCH 31,
	2013			2012
	(Unaudited)
Balance, January 1,	$	1,250,000		$	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)		(220,000	)		-
Balance, March 31,	$	1,030,000		$	2,150,000

(1) The Company assesses the estimated fair value of the contingent obligation on a quarterly basis 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. For the three months ended March 31, 2013, the Company measured the fair value of its contingent obligation and recorded a non-cash gain fair value adjustment of approximately $0.2 million to reflect a reduction in fair value of its contingent obligation. The principal factor affecting the reduction in fair value is a change in timing of expected revenues due to client implementation delays. There were no significant changes in discount rate used in the calculation of fair value. There were changes in probability payout weightings used in the calculation to account for client implementation delays. The potential payout of consideration for the year ending 2013 is up to $1.5 million of face value of the contingent obligation.

There were no transfers into or out of Level 3 for the three months ended March 31, 2013 or 2012.