3.	FAIR VALUE MEASUREMENTS:

The following valuation hierarchy is used for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

 

¡

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

¡

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

¡

Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

As of December 31, 2013, the Company’s only financial assets and liabilities required to be measured on a recurring basis were its money market investments. As of December 31, 2012, the Company’s only financial assets and liabilities required to be measured on a recurring basis were its money market investments and the accrued contingent earnout consideration payable in connection with the Company’s acquisition of Meridian Consulting International (“Meridian”).

 

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities required to be measured on a recurring basis:

 

		Basis of Fair Value Measurements
		Balance				Quoted Prices in Active Markets for Identical Items (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In Thousands)
Balance at December 31, 2013:
Financial assets:
Money market investment		$	4,084			$	4,084			$	-			$	-
Total financial assets		$	4,084			$	4,084			$	-			$	-
Balance at December 31, 2012:
Financial assets:
Money market investment		$	4,084			$	4,084			$	-			$	-
Total financial assets		$	4,084			$	4,084			$	-			$	-

The Company did not transfer any financial instruments into or out of Level 3 classification during 2013, 2012 or 2011. A reconciliation of the beginning and ending Level 3 liabilities for the years ended December 31, 2013, 2012 and 2011 is as follows:

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		(In Thousands)
Balance at January 1, 2011		$	2,800
Change in fair value of earnout consideration (included within selling, general and administrative expense)			144
Funding of Fullscope contingent earnout consideration escrow			(2,713	)
Balance at December 31, 2011		$	231
Change in fair value of earnout consideration (included within selling, general and administrative expense)			(231	)
Balance at December 31, 2012		$	-
Change in fair value of earnout consideration (included within selling, general and administrative expense)			-
Balance at December 31, 2013		$	-

The Company classified its liability for contingent earnout consideration related to its acquisitions of Fullscope and Meridian within Level 3 of the fair value hierarchy because the fair values are determined using significant unobservable inputs, which included probability weighted cash flows.