FAIR VALUE OF FINANCIAL INSTRUMENTS |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Text Block] |
As of December 31, 2015 and December 31, 2014, the carrying amounts of cash, receivables, and accounts payable and accrued expenses approximated their estimated fair values because of the short term nature of these financial instruments. Our notes payable and line of credit are carried at cost and approximate fair value since the interest rates being charged approximates market rates. The fair value of our term loans at December 31, 2015 is $6.0 million since the interest rate on this debt is being charged at market rates. The fair value of related party obligations, including the note payable to the CEO at December 31, 2014, cannot be determined based upon the related party nature of the transaction.
Fair value measurements-Level 2
The Company’s outstanding borrowings under the line of credit with Opus Bank and TD Bank had a carrying value of $2 million and $1,215,000 as of December 31, 2015 and December 31, 2014, respectively. The fair value of the outstanding borrowings under the line of credit with Opus Bank and TD Bank approximated the carrying value at December 31, 2015 and December 31, 2014, respectively, as these borrowings bear interest based on prevailing variable market rates currently available. As a result, the Company categorizes these borrowings as Level 2 in the fair value hierarchy. Fair value measurements-Level 3
The fair value of the notes, auto loans and notes payable to the former owners of businesses acquired was determined based on internally-developed valuations that use current interest rates in developing a present value of these notes payable. These are categorized as Level 3 in the fair value hierarchy as there are unobservable inputs in which here is little or no market data and requires the Company to develop its own assumptions. Notes payable-other consists of fixed rate term loans from Bank Direct Capital Finance, auto loans and promissory notes from prior acquisitions. The fixed interest-bearing term notes to Bank Direct Capital Finance had an aggregate carrying value of $176,817 and $156,894 as of December 31, 2015 and December 31, 2014, respectively. Collectively, the fair value of these notes was approximately $177,637 and $158,435 at December 31, 2015 and December 31, 2014, respectively, and is categorized as Level 3 in the fair value hierarchy. The outstanding fixed interest bearing auto loans had a carrying value of $96,745 and $66,297 as of December 31, 2015 and December 31, 2014, respectively. The fair value of these auto loans was approximately $92,796 and $63,371 at December 31, 2015 and December 31, 2014, respectively. The Company has a non-interest bearing obligation for the purchase of customer relationships with a carrying value of $375,000 at December 31, 2015. The fair value of this note was determined to be approximately $372,000. The Company issued fixed interest-bearing notes payable to the former owners of companies acquired prior to 2014. The aggregate carrying value of these notes payable was $421,989 at December 31, 2014. No amounts were outstanding at December 31, 2015. Collectively, the fair value of these notes payable was approximately $423,168 at December 31, 2014. There were no transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2015 and 2014. The following table presents the change in the estimated fair value of Company’s liability under notes payable other, measured using significant unobservable inputs (Level 3) for the years ended December 31, 2015 and 2014:
Contingent Consideration
The Company’s contingent consideration of $1,172,508 and $2,626,323 as of December 31, 2015 and December 31, 2014, respectively, are Level 3 liabilities. The fair value of the contingent consideration at December 31, 2015 and 2014 was primarily driven by the price of the Company’s common stock on the NASDAQ Capital Market, an estimate of revenue to be recognized by the Company from the 2014 Acquisitions during the first twelve months after acquisition compared to the trailing twelve months’ revenue from customers in good standing as of March 31, 2014 shown in the Company’s prospectus dated July 22, 2014, changes in revenue estimates related to the 2015 Acquisitions, the passage of time and the associated discount rate. Due to the number of factors used to determine contingent consideration, it is not possible to determine a range of outcomes. In connection with the 2014 Acquisitions, discount rates were estimated by using government bond yields. As stated in Note 4, the Company historically estimated the number of shares anticipated to be earned as a result of the 2014 Acquisitions. The remaining shares of one of the sellers related to the 2014 Acquisitions have been included in the contingent consideration liability as of December 31, 2015 since a formal settlement agreement has not yet been reached. If, at the time of settlement, the Company’s stock price exceeds the price on December 31, 2015, the actual consideration could exceed the estimated contingent consideration. At December 31, 2015, we did not record any contingent consideration liability for CastleRock since such amount was settled in January 2016 with the forfeiture of all remaining shares being held for them. Contingent consideration related to the 2015 Acquisitions was based on the Company’s estimate of revenues to be achieved during the terms of the respective agreements. Subsequent adjustments to the fair value of the contingent consideration liability will continue to be recorded in the Company’s results of operations until all contingencies are settled.
The following table provides a reconciliation of the beginning and ending balances for the contingent consideration measured at fair value using significant unobservable inputs (Level 3):
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