Share-Based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-based compensation expense is included in costs and expenses in the accompanying Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in thousands)
Share-based compensation expense:
Cost of revenues	$	2	$	20	$	21	$	59
Sales and marketing		520		409		904		1,222
Technology support		886		138		1,213		401
General and administrative		388		397		2,228		1,238
Share-based compensation costs		1,796		964		4,366		2,920
Less amount capitalized to internal use software:		—		1		1		2
Total share-based compensation costs	$	1,796	$	963	$	4,365	$	2,918

During the nine months ended September 30, 2018, certain awards were modified or accelerated in connection with the termination of employment of certain former officers of the Company. In accordance with guidance provided under ASC 718 and related ASU No. 2017-09 and ASU No. 2018-07, the Company recognized award modification and acceleration expenses related to these events in the period incurred. Modification expense was determined by using the Black-Scholes option pricing model to estimate the fair value of the modified awards as of the new measurement date and respective fair value assumptions. As reflected in the table above, the Company recognized award modification and acceleration expense of $1.2 million and $2.1 million in the three and nine months ended September 30, 2018, respectively. There were no modification or acceleration expenses recognized in 2017.

 Service-Based Options.  The Company granted the following service-based options for the three and nine months ended September 30, 2018 and 2017, respectively:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Number of service-based options granted		33,000		83,850		1,749,700		457,100
Weighted average grant date fair value	$	1.65	$	3.72	$	1.83	$	6.29
Weighted average exercise price	$	3.04	$	7.23	$	3.29	$	12.51

The Company recognizes compensation expense for stock option grants based on the fair value at the date of grant using the Black-Scholes option pricing model. The Company uses historical data, among other factors, to estimate the expected option life and has elected to estimate forfeiture rates. The risk-free rate is based on the United States Treasury Department yield curve in effect at the time of grant for the expected life of the option. The Company assumes an expected dividend yield of zero for all periods. Options generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months thereafter.  The vesting of these awards is contingent upon the employee’s continued employment with the Company during the vesting period and vesting may be accelerated in the event of a change in control of the Company.

In April 2018, the Company entered into an Inducement Stock Option Award Agreement with the Company’s CEO, Jared Rowe (“Rowe Option Award Agreement”). Pursuant to the Rowe Option Award Agreement, Mr. Rowe was granted stock options to purchase 1,000,000 shares of common stock (“Rowe Employment Options”), which shall vest monthly in 36 monthly installments on the first day of each calendar month following the date of grant. These options have an exercise price of $3.26 per share and a term of seven years from the date of grant. Upon a change in control of the Company or in the event of a termination of Mr. Rowe’s employment by the Company without cause or by Mr. Rowe with good reason, all unvested options will vest. In the event of a termination of Mr. Rowe’s employment with the Company by reason of Mr. Rowe’s death or disability, the lesser of: (i) 1/3rd of the total number of these options and (ii) the total number of unvested options will vest upon the date of termination.

Market Condition Options.  On January 21, 2016, the Company granted 100,000 stock options to its former chief executive officer (“Former CEO”) with an exercise price of $17.09 and grant date fair value of $1.47 per option, using a Monte Carlo simulation model (“Former CEO Market Condition Options”).   The Former CEO Market Condition Options were previously valued at $2.94 per option but were revalued when the requisite stockholder approval for the Company’s Amended and Restated 2014 Equity Incentive Plan was obtained in June 2016. The Former CEO Market Condition Options were subject to both stock price-based and service-based vesting requirements that must be satisfied for the Former CEO Market Condition Options to vest and become exercisable. On April 12, 2018, pursuant to the stock option award agreement, vesting of the Former CEO Market Condition Options was accelerated with the termination of employment of the Former CEO, resulting in the recognition of approximately $0.8 million of non-recurring share-based compensation expense during the first quarter of 2018. The Former CEO Market Condition Options may be exercised at any time on or before April 13, 2020.

Stock option exercises.  The following stock options were exercised during the three and nine months ended September 30, 2018 and 2017, respectively:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Number of stock options exercised		1,000		15,000		16,967		191,074
Weighted average exercise price	$	1.75	$	4.20	$	4.51	$	5.58

The grant date fair value of stock options granted during these periods was estimated using the Black-Scholes option pricing model using the weighted average assumptions listed below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Dividend yield		—			—			—			—
Volatility		66	%		63	%		68	%		62	%
Risk-free interest rate		2.9	%		1.8	%		2.6	%		1.8	%
Expected life (years)		4.5			4.4			4.5			4.4

Restricted Stock Awards.  The Company granted an aggregate of 125,000 restricted stock awards (“RSAs”) on April 23, 2015 in connection with the promotion of one of its executive officers.  Of these 125,000 RSAs, 25,000 were service-based and 100,000 were performance-based. The forfeiture restrictions of the service-based RSAs lapse with respect to one-third of the restricted stock on each of the first, second, and third anniversaries of the date of the award.  Forfeiture restrictions lapsed on 8,333 shares and 8,333 shares of restricted stock on April 23, 2016 and April 23, 2017, respectively. During the nine months ended September 30, 2018, 8,333 of the foregoing service-based RSAs and 100,000 of the performance-based RSAs were forfeited upon the resignation of this executive officer.

The Company granted an aggregate of 345,000 RSAs on September 27, 2017 to senior officers of the Company. These RSAs are service- based and the forfeiture restrictions lapse with respect to one-third of the restricted stock on each of the first, second, and third anniversaries of the date of the award. During the nine months ended September 30, 2018, 80,000 shares of RSAs were forfeited upon the resignation of two executive officers, the forfeiture restrictions on 175,000 shares of RSA lapsed upon the termination of employment of the former CEO and three officers of the Company, and the forfeiture restrictions of 40,000 shares of RSAs were modified upon the entry into a consulting agreement with a former executive officer. During the three months ended September 30, 2018, the forfeiture restrictions on 90,000 shares of RSAs lapsed in connection with the termination of employment of three officers of the Company. Accordingly, the Company recognized expenses of $364,000 and $787,000 related to the acceleration of vesting and modification of RSAs in the three and nine months ended September 30, 2018, respectively. As of September 30, 2018, 60,000 shares of RSAs remain unvested.