8. Fair Value Measurements and Financial Instruments

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

8. Fair value measurements and financial instruments

Recurring Fair Value Measurements

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.”

One of the Company’s convertible promissory notes outstanding at September 30, 2013 is convertible at the holder’s election into a variable number of the Company’s shares at a fixed conversion rate and is considered a Level 3 financial instrument. The fair value of this convertible promissory note is 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 is based on an analysis of industry peer's historical stock price over the term of the note, which is estimated at approximately 25.0%. The Company believes that using a peer group stock volatility rate is appropriate given the Company’s relatively short history as a public company, which involved a high growth phase and the audit committee investigation discussed further in Note 14, “Commitments and Contingencies,” both of which occurred in 2011 and 2012, respectively. The subsequent changes in the fair value of this instrument due to changes in underlying data is 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 this instrument and impact our earnings. The Company has no Level 1 or Level 2 financial instruments.

The following table is a reconciliation of changes in fair value of this note:

Balance at December 31, 2012	$	886
Settlement/conversion of convertible promissory notes		(620	)
Balance at September 30, 2013	$	266
The amount of gains (losses) included in earnings attributable to liabilities still held at the end of the period	$	-

The above balance represents the fair value of the one remaining convertible note that is subject to continual remeasurement and mark to market accounting and is included in the $4.6 million balance of the Company’s total convertible promissory notes at September 30, 2013.

Non-Recurring Fair Value Measurements:

Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments when events or circumstances indicate a significant effect on the fair value of the asset.

Non-recurring fair value adjustment	Level	Valuation Technique/Inputs Used
Impairment of assets held for sale	3	Market - Estimated potential net selling price.

During the three months ended September 30, 2013, we revised our estimates of potential net selling prices to reflect the status of sales negotiations and as a result we recognized a net pre-tax impairment of $1.7 million.  See Note 3, “Discontinued Operations, Dispositions and Acquisitions” for a complete discussion.

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 cash equivalents, 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 note that is convertible into a variable number of the Company's common shares at the holder’s election is recorded at fair value at each reporting period date.