NOTE 5—RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS

The Company’s stock option plans consist of the 2007 Stock Plan (the “2007 Plan”) and the 2013 Equity Incentive Plan, as amended and restated in July 2017 (the “2013 Plan”). The 2007 Plan and the 2013 Plan are collectively referred to as the “Stock Plans”. For additional information about the Stock Plans, please refer to Note 7 to the Company’s consolidated financial statements for the year ended December 31, 2017, included in the 2017 Form 10-K. The information presented below provides an update for activity under the Stock Plans for the three months ended March 31, 2018.

Restricted Stock Units

On February 6, 2018, the Board of Directors granted restricted stock units (“RSU’s”) under the 2013 Plan for an aggregate of approximately 156,000 shares of Common Stock to members of the Board of Directors and an officer of the Company. These RSU’s vest over periods ranging from 12 to 24 months and the awards are subject to forfeiture upon termination of employment or service on the Board of Directors. Based on the fair market value of the Company’s Common Stock on the date of grant of $8.60 per share, the aggregate fair value for the shares underlying the RSU’s amounted to $1.3 million as of the grant date that will be recognized as compensation cost over the vesting period. Accordingly, compensation expense of $0.2 was recognized for the three months ended March 31, 2018, and the remainder of $1.1 is expected to be charged to expense on a straight-line basis as the RSU’s vest are over a weighted-average period of approximately 1.1 years.

Stock Options

On February 6, 2018, the Board of Directors authorized an increase of 2.3 million shares available for grant under the 2013 Plan. The Board of Directors also granted stock options for the purchase of an aggregate of approximately 1.0 million shares of Common Stock at an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant of $8.60 per share. These stock options vest annually for one-third of the awards and expire ten years after the grant date.

The following table sets forth a summary of stock option activity under the Stock Plans for the three months ended March 31, 2018 (shares in thousands):

	Shares			Price ⁽¹⁾		Term ⁽²⁾

Outstanding, beginning of period		12,130		$	2.95		4.9
Granted		1,034			8.63
Forfeited		(22	)		7.22
Expired		(1	)		1.02
Exercised		(126	)		1.22

Outstanding, end of period ⁽³⁾⁽⁴⁾		13,015			3.41		5.0

Vested, end of period ⁽³⁾		10,674			2.44		4.0

⁽¹⁾

Represents the weighted average exercise price.

⁽²⁾

Represents the weighted average remaining contractual term until the stock options expire.

⁽³⁾

As of March 31, 2018, the aggregate intrinsic value of stock options outstanding was $67.2 million. As of March 31, 2018, the aggregate intrinsic value of vested stock options was $65.3 million.

⁽⁴⁾

The number of outstanding stock options that are not expected to ultimately vest due to forfeiture amounted to 0.3 million shares as of March 31, 2018.

The following table presents activity affecting the total number of shares available for grant under the Stock Plans for the three months ended March 31, 2018 (in thousands):

Available, beginning of period	2,413
Stock options granted	(1,034	)
Restricted stock units granted	(156	)
Expired options under 2007 Plan	1
Forfeited options under Stock Plans	22
Newly authorized by Board of Directors	2,300

Available, end of period	3,546

The aggregate fair value of approximately 1,034,000 stock options granted for the three months ended March 31, 2018 amounted to $3.0 million, or $2.95 per share as of the grant date. Fair value was computed using the Black-Scholes-Merton (“BSM”) method and will result in the recognition of compensation cost over the three-year vesting period of the stock options. No stock options were granted for the three months ended March 31, 2017. For the three months ended March 31, 2018, the fair value of each stock option grant under the Stock Plans was estimated on the date of grant using the BSM option-pricing model, with the following weighted-average assumptions:

Expected life (in years)		5.9
Volatility		31	%
Dividend yield		0	%
Risk-free interest rate		2.6	%
Fair value per common share on date of grant	$	8.60

As of March 31, 2018 and December 31, 2017, total unrecognized compensation costs related to unvested stock options was $5.4 million and $3.2 million, respectively. As of March 31, 2018, the unrecognized costs are expected to be charged to expense on a straight-line basis over a weighted-average vesting period of approximately 1.9 years.

Stock-Based Compensation Expense

Stock-based compensation expense attributable to RSU’s and stock options for the three months ended March 31, 2018 and 2017 is classified as follows (in thousands):

	2018		2017

Cost of revenues	$	165	$	64
Sales and marketing		367		140
General and administrative		335		157

Total	$	867	$	361

Warrants

As of March 31, 2018, warrants are outstanding for an aggregate of 18.1 million shares of Common Stock, including 3.4 million shares of Common Stock exercisable at $5.64 per share, and an aggregate of 14.7 million shares of Common Stock exercisable at $11.50 per share. For additional information about these warrants, please refer to Note 8 to the Company’s consolidated financial statements for the year ended December 31, 2017, included in the 2017 Form 10-K.

As of March 31, 2017, redeemable warrants were outstanding for approximately 3.4 million shares of the Company’s Common Stock, as restated to give effect for the reverse recapitalization discussed in Note 1. These redeemable warrants were classified under Level 3 of the fair value hierarchy. No warrants were granted or exercised for the three months ended March 31, 2017. The fair value of the warrants at March 31, 2017 was $7.9 million. The increase in fair value of $0.6 million for the three months ended March 31, 2017 was recorded as a loss from change in fair value of redeemable warrants in the Company’s unaudited condensed consolidated statements of operations. The cash redemption feature associated with these redeemable warrants was eliminated effective on October 10, 2017. Accordingly, the fair value of these warrants is no longer recognized as a liability in the Company’s consolidated balance sheets after October 10, 2017.

As of March 31, 2017, the valuation methodology for the redeemable warrants discussed above was performed through a hybrid model using Monte Carlo simulation, which considered possible future equity financing and liquidity scenarios, including an initial public offering, a sale of the business, and a liquidation of the Company. Key Level 3 assumptions inherent in the warrant valuation methodology as of March 31, 2017 include projected revenue multiples of 1.7 to 2.1, volatility of 52% to 57%, the risk-free interest rate of 1.08% to 1.36%, a discount rate for lack of marketability of 29%, and the overall discount rate of approximately 25%.