Liability for Contingent Consideration

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Liability for Contingent Consideration

4. Liability for contingent consideration

 In connection with the Company’s acquisition of Winthrop on December 19, 2012, the Company agreed to pay contingent consideration in cash to a holder of Winthrop common stock who received 852,228 shares of Company Common Stock, to the extent that such shares had a value of less than $1,900,000 on the expiration of the three year period based on the average closing price of the Company’s Common Stock for the ten trading days prior to such date.

A liability was recognized for an estimate of the acquisition date fair value of the acquisition-related contingent consideration which may be paid.  The fair value was calculated by utilizing a lattice model, which takes into account the potential for the Company’s stock price per share being less than $2.23 per share at the end of the 3 year lock-up period.  The fair value measurement was based on significant unobservable inputs that were supported by little market activity and reflect the Company’s own assumptions.  Key assumptions included expected volatility (50% at December 31, 2014) in the Company’s Common Stock and the risk free interest rate   (0.25 %  at December 31, 2014)   during the  then remainder of the  three year lock up  period.  Changes in the fair value of the contingent consideration subsequent to the acquisition date were recognized in earnings prior to the liability being settled. The fair value of the liability was $572,000 on December 31, 2014 (Level 3 under the fair value hierarchy-see Note 5).  In December 2015, the Company paid $236,000 to settle the contingent consideration liability and   recognized income of $336,000 for the reduction in the fair value of the liability during 2015.  Based on the fair value of the liability at September 30, 2015, the Company recognized a gain of $532,000 (unaudited) for the fourth quarter ended December 31, 2015.