Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 5 – Fair Value Measurements

The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to measurements involving unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:

Level 1 inputs -	observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs -	other inputs that are directly or indirectly observable in the marketplace.
Level 3 inputs -	unobservable inputs which are supported by little or no market activity.

The level in the fair value hierarchy within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents the placement in the fair value hierarchy of the Company’s assets and liabilities measured at fair value on a recurring basis:

	June 30, 2013
	Level 1		Level 2		Level 3		Total
ASSETS:
Common stock	$	354,375	$	—	$	—	$	354,375
LIABILITIES:
Contingent consideration	$	—	$	—	$	1,475,000	$	1,475,000

	December 31, 2012
	Level 1		Level 2		Level 3		Total
ASSETS:
Common stock	$	344,346	$	—	$	—	$	344,346

The fair value of financial instruments including cash and cash equivalents, notes and accounts receivable and notes and accounts payable are not materially different from their carrying amounts. The fair values of marketable securities are estimated based on closing share price on the quoted market price for those investments. Cost basis is determined by specific identification of securities sold. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable are classified as Level 2 measurements.

The contingent consideration liability categorized in level 3 of the fair value hierarchy arose as a result of the JDOG Marketing acquisition. See Note 2 – Acquisitions for more information regarding that transaction. Any adjustments to the liability’s fair value between the acquisition date and the financial statement date would be immaterial.

Valuation of the contingent consideration liability categorized under level 3 of the fair value hierarchy was conducted by an independent third-party valuation firm. Inputs and assumptions used in the valuation were reviewed for reasonableness by the Company in the course of the valuation process and were updated to reflect changes in the Company’s business environment.

The following table reconciles the beginning and ending balance for liabilities categorized under level 3 of the fair value hierarchy.

	Fair value Measurements Using Significant Unobservable Inputs (Level 3)
	Contingent Consideration		Total
Opening balance December 31, 2012	$	—	$	—
Transfers into level 3		—		—
Transfers out of level 3		—		—
Total gains or losses for period:
Included in net income		—		—
Included in other comprehensive income		—		—
Purchases		—		—
Sales		—		—
Settlements		—		—
Issuances		1,475,000		1,475,000
Closing balance June 30, 2013	$	1,475,000	$	1,475,000

The following table summarizes quantitative information used in determining the fair value of the Company’s liabilities categorized in level 3 of the fair value hierarchy.

	Quantitative Information about Level 3 Fair Value Measures
	Fair Value at June 30, 2013		Valuation Technique(s)	Unobservable Input	Range
Contingent Consideration	$	1,475,000	Monte Carlo analysis	Forecasted annual EBITDA	$0.8 - $1.3 million
				Weighted avg cost of capital	19.0% - 19.0%
				U.S. Treasury yields	0.1% - 3.0%
				Projection risk adjustment	(5.0)% - (3.0)%
			Discounted cash flow	U.S. Treasury yields	0.1% - 0.9%
				Credit spread	1.8% - 3.4%

The significant unobservable inputs used in the fair value measure of the Company’s contingent consideration liability are its weighted average cost of capital, various U.S. Treasury yields, and the Company’s credit spread above the risk free rate. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measure. An additional significant unobservable input for this fair value measure is the Company’s forecasted annual EBITDA related to its GNR subsidiary. A significant increase (decrease) in this input would result in a significant increase (decrease) in the fair value measure.