Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Summary of Measurement of Fair Value on a Recurring Basis

The following table summarizes the Company's measurement of fair value on a recurring basis for seller financed promissory note as categorized by GAAP's valuation hierarchy 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

Sheets

(Level 1)

(Level 2)

(Level 3)

(Unaudited)

Liabilities as of September 30, 2013

Contingent obligation (1)

Liabilities as of December 31, 2012

Contingent obligation (1)

1,250,000

Schedule of Changes in the Fair Value Measurement of Contingent Obligation using Significant Unobservable Inputs

Changes in the fair value measurement of the 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 each of the periods then ended:

	THREE MONTHS ENDED					NINE MONTHS ENDED
	SEPTEMBER, 30					SEPTEMBER, 30
	2013			2012		2013			2012
	(Unaudited)					(Unaudited)
Balance, Beginning of Period	$	661,000		$	2,150,000	$	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)		(661,000	)		-		(1,250,000	)		-

Balance, End of Period	$	-		$	2,150,000	$	-		$	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. The Company previously estimated the fair value of contingent consideration at $3.0 million in connection with an asset purchase agreement with Avalon Global Solutions, Inc. ("AGS") on December 31, 2011. Under the terms of the Asset Purchase Agreement ("APA"), contingent consideration (or "contingent obligation") is payable provided Adjusted Gross Profit(" AGP") targets of $5,428,000 and $6,752,000 are reached in fiscal 2012 and 2013, respectively. AGS did not meet its AGP target in fiscal 2012 and the Company reduced the fair value of its contingent obligation and remeasured the fair value of this contingent obligation to $2.15 million. The Company revised its third and fourth quarter of 2013 forecasted AGP to reflect lower projected revenue growth from slower implementation of recently sold services. The Company believes these factors make it remote that the 2013 AGP target of $6,752,000 will be reached and accordingly revised the fair value of its contingent obligation to a zero value during the three months ended September 30, 2013. For the three and nine months ended September 30, 2013, the Company recorded a non-cash gain within general and administrative expense as a result of a fair value adjustment of approximately $0.66 million and $1.25 million, respectively.

- Definition

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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