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Capital Stock
9 Months Ended
Sep. 30, 2017
Capital Stock Disclosure [Abstract]  
Capital Stock Disclosure [Text Block]

11. Capital Stock

Common Stock

On February 5, 2008, the Company’s Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one preferred stock purchase right for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on February 6, 2008. Initially, these rights will not be exercisable and will trade with the shares of the Company’s common stock. Under the Shareholder Rights Plan, the rights generally will become exercisable if a person becomes an “acquiring person” by acquiring 20% or more of the common stock of the Company or if a person commences a tender offer that could result in that person owning 20% or more of the common stock of the Company. If a person becomes an acquiring person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current exercise price, such number of shares of preferred stock which are equivalent to shares of the Company’s common stock having a value of twice the exercise price of the right. If the Company is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s common stock having a value of twice the exercise price of the right. Unless the Board of Directors elects to extend such plan, the Shareholder Rights Plan will expire in February 2018.

Preferred Stock

The Company’s Board of Directors has the authority to issue up to 5.0 million shares of preferred stock and to determine the price privileges and other terms of the shares. The Board of Directors may exercise this authority without any further approval of stockholders. As of September 30, 2017, the Company had no preferred stock issued or outstanding.

Employee Stock Purchase Plan (as amended, the ESPP)

In 2000, the Company approved the ESPP. Under this ESPP, participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock at the beginning or end of the period. Shares are issued under the ESPP for the six-month periods ending June 30 and December 31. On May 18, 2017, the stockholders of the Company approved an increase of 300,000 shares of common stock in the number of shares available for issuance under the ESPP. Following such amendment, 1,050,000 shares of common stock are authorized for issuance, of which 762,141 shares were issued, as of September 30, 2017. There were 36,902 and 39,353 shares issued under the ESPP during the nine months ended September 30, 2017 and 2016, respectively.

Stock Option and Equity Incentive Plans

Third Amended and Restated 2000 Stock Option and Incentive Plan (as amended, the Third A&R Plan)

The Second Amendment to the Third A&R Plan (the Amendment) was adopted by the Board of Directors on April 3, 2015. Such Amendment was approved by the stockholders at the Company’s 2015 Annual Meeting of Stockholders. Pursuant to the Amendment, the aggregate number of shares authorized for issuance under the Third A&R Plan was increased by 2,500,000 shares to 17,508,929.

Restricted Stock Units with a Market Condition (the Market Condition RSU’s)

On August 3, 2015, the Compensation Committee of the Board of Directors of the Company approved and granted deferred stock awards of Market Condition RSU’s to certain members of the Company’s management team under the Third A&R Plan. The vesting of these Market Condition RSU’s is cliff-based and linked to the achievement of a relative total shareholder return of the Company’s common stock from August 3, 2015 to the earlier of (i) August 3, 2018 or (ii) upon a change of control (measured relative to the Russell 3000 index and based on the 20-day trading average price before each such date). As of September 30, 2017, the target number of these restricted stock units that may be earned is 170,903 shares; the maximum amount is 150% of the target number.

Stock-Based Payment Awards

The Company accounts for stock-based payment awards in accordance with the provisions of FASB ASC 718, which requires it to recognize compensation expense for all stock-based payment awards made to employees and directors including stock options, restricted stock units, Market Condition RSU’s and employee stock purchases related to the ESPP.

The Company adopted ASU 2016-09 as of January 1, 2017. As disclosed in footnote 2, as a result of this adoption, the Company has elected as an accounting policy to account for forfeitures for service based awards as they occur, with no adjustment for estimated forfeitures. The Company recognized as of January 1, 2017, a cumulative effect adjustment of $0.1 million to reduce retained earnings as required under the modified retrospective approach.

Stock option and restricted stock unit activity under the Company’s Third A&R Plan for the nine months ended September 30, 2017 was as follows:

Stock OptionsRestricted Stock UnitsMarket Condition RSU's
Weighted
StockAverageRestrictedMarket
OptionsExercise Stock UnitsGrant DateCondition RSU'sGrant Date
Outstanding PriceOutstandingFair ValueOutstandingFair Value
Balance at December 31, 20164,096,818$3.941,072,653$3.15182,150$4.81
Granted62,5002.991,293,7712.48--
Exercised(75,913)2.49----
Vested (RSUs)--(457,395)3.09--
Cancelled / forfeited(303,013)3.93(70,486)3.08(11,247)4.81
Balance at September 30, 20173,780,392$3.951,838,543$2.70170,903$4.81

The weighted average fair value of the options granted under the Third A&R Plan during the three months ended September 30, 2017 and 2016 was $1.24 and $1.11, respectively. The weighted average fair value of the options granted under the Third A&R Plan during the nine months ended September 30, 2017 and 2016 was $1.17 and $1.21, respectively. The following assumptions were used to estimate the fair value, using the Black-Scholes option pricing model, of stock options granted during the three and nine months ended September 30, 2017 and 2016:

Three Months EndedNine Months Ended
September 30,September 30,
2017201620172016
Volatility41.99%43.05%41.30%41.97%
Risk-free interest rate1.74%1.01%1.88%1.29%
Expected holding period (in years)5.10years5.08years5.16years5.21years
Dividend yield-%-%-%-%

The Company used historical volatility to calculate the expected volatility for each grant as of the grant date. Historical volatility was determined by calculating the mean reversion of the daily adjusted closing stock price. The risk-free interest rate assumption is based upon observed U.S. Treasury bill interest rates (risk-free) appropriate for the term of the Company’s stock options and Market Condition RSU’s. The expected holding period of stock options represents the period of time options are expected to be outstanding and is based on historical experience. The vesting period ranges from one to four years and the contractual life is ten years. The correlation coefficient, used to value the Market Condition RSU’s, represents the way in which entities move in relation to the Russell 3000 index as a whole.

Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the ESPP for the three and nine months ended September 30, 2017 and 2016 was allocated as follows:

Three Months EndedNine Months Ended
September 30,September 30,
2017201620172016
(in thousands)
Cost of revenues$16$17$46$44
Sales and marketing172159461401
General and administrative7097361,9952,071
Research and development363110280
Total stock-based compensation$933$943$2,604$2,596

The Company did not capitalize any stock-based compensation.

Earnings per share

Basic earnings per share is based upon net income divided by the number of weighted average common shares outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and Market Condition RSU’s into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following:

Three Months EndedNine Months Ended
September 30,September 30,
2017201620172016
Basic 34,840,32434,327,45934,705,94734,156,606
Effect of assumed conversion of employee and director stock options, restricted stock units and Market Condition RSU's----
Diluted34,840,32434,327,45934,705,94734,156,606

Excluded from the shares used in calculating the diluted earnings per common share in the above table are options, restricted stock units and Market Condition RSU’s of approximately 5,789,838 and 5,300,945 shares of common stock for both the three and nine months ended September 30, 2017 and 2016, respectively, as the impact of these shares would be anti-dilutive.