Fair Value Measurements And Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Abstract]

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 fair value of the above convertible promissory notes issued as a part of business combinations is based primarily on a Black-Scholes pricing model. The significant management assumptions and estimates used in determining the fair value included 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 the Company did not have sufficient history of its own stock volatility, which was estimated at approximately 25%. Subsequent changes in the fair value of these instruments were recorded in other expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss. 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 are Level 3 financial instruments. The Company has no Level 1 or Level 2 financial instruments.

In addition, during 2011, the Company issued an earn out that was to be settled in up to 90,909 shares held in escrow within one year from the date of acquisition or once the acquired business’s revenue achieved an agreed upon level. The number of shares that would be released from escrow varied based on the achievement of agreed upon revenue metrics. In April 2012, the Company released from escrow all 90,909 shares to the sellers.

The following table is a reconciliation of changes in fair value of the notes that are marked to market each subsequent reporting period for the three months ended March 31, 2012:

Balance at December 31, 2011	$	3,129
Issuance of convertible promissory notes		-
Settlement/conversion of convertible promissory notes		(515)
Net gains included in earnings		(29)
Balance at March 31, 2012	$	2,585
The amount of gains included in earnings attributable to liabilities still held at the end of the period	$	66

 The above balance represents the value of convertible notes that are subject to continual remeasurement and mark to market accounting and is included in the $12.1 million balance for all of the Company’s convertible promissory notes at March 31, 2012.

Financial Instruments

The Company's financial instruments, which may expose the Company to concentrations of credit risk, include cash and cash equivalents, accounts receivable, accounts payable, and debt. Cash and cash equivalents are maintained at financial institutions. 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. As discussed above, the convertible promissory notes that are convertible into a variable number of the Company's common shares are recorded at fair value at each reporting period date.