Fair Value Measurements And Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value Measurements And Financial Instruments [Abstract]

FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

NOTE 7 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

     The Company determines the fair value of certain assets and liabilities based on assumptions that market participants would use in pricing the assets or liabilities. 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, or the “exit price.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and gives precedence to observable inputs in determining fair value. The following levels were established for each input:

     Level 1: “Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.”

     Level 2: “Include other inputs that are observable for the asset or liability either directly or indirectly in the marketplace.”

     Level 3: “Unobservable inputs for the asset or liability.”

     The above convertible promissory notes that are convertible into a variable number of shares of the Company’s common stock are recorded at fair value on the date of issuance and each subsequent reporting period. The fair values of these convertible promissory notes are based primarily on a Black-Scholes pricing model. The significant management assumptions and estimates used in determining the fair value include the expected term and volatility of our common stock. The expected volatility was based on an analysis of industry peer’s historical stock price over the term of the notes as we currently do not have sufficient history of our own stock volatility, which was estimated at approximately 25%. Subsequent changes in the fair value of these instruments are recorded in Other expense, net on the Condensed Consolidated Statements of Operations. Future movement in the market price of our stock could significantly change the fair value of these instruments and impact our earnings.

     The convertible promissory notes that are convertible into a variable number of the Company’s shares issued during 2010 and 2011 are Level 3 financial instruments since they are not traded on an active market and there are unobservable inputs, such as expected volatility used to determine the fair value of these instruments.

     In addition during 2011, we issued an earn out that is to be settled in shares within one year from the date of acquisition or once the acquired business’s revenue achieves an agreed upon level. The number of shares that could be issued varies based on the achievement of agreed upon revenue metrics.

The following table is a reconciliation of changes in fair value of these liabilities that have been classified as Level 3 in the fair value hierarchy:

Balance as of December 31, 2010	$	5,771,480
Issuance of convertible promissory notes		8,323,700
Unrealized losses included in earnings		1,961,100
Balance as of March 31, 2011		16,056,280
Issuance of earn out to be settled in shares		574,000
Settlement/conversion of convertible promissory notes		(15,933,480	)
Unrealized losses included in earnings		3,554,900
Balance as of June 30, 2011	$	4,251,700
The amount of gains for the three and six months ended June 30, 2011 included in earnings attributable to the change in unrealized gains or losses relating to liabilities still held as of June 30, 2011	$	364,500

Financial Instruments

     The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash and cash equivalents, account receivables, accounts payable, and debt. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. The carrying amounts of cash and the current portion of accounts receivable and accounts payable approximate fair value due to the short maturity of these instruments. The fair value of the Company’s debt is estimated based on the current borrowing rates available to the Company for bank loans with similar terms and maturities, and approximates the carrying value of these liabilities. In addition the convertible promissory notes are recorded at fair value at each reporting period date.