5. Earnings per share

The Company computes earnings (loss) per share by applying the guidance stated in ASC 260, Earnings per Share, to determine the net income (loss) available per share of its common stock. Prior to the conversion of the shares of Company preferred stock to Company common stock as described in Note 4, “Reverse recapitalization of The W Group, private placement, reverse split and migratory merger,” earnings per share was calculated using the two-class method because the convertible preferred shares participated in any undistributed earnings with the common stockholders, specifically, on a one-to-one, as-if converted basis, without giving effect to the limitations on conversion of the preferred stock. Thus, under the two-class method, earnings allocated to preferred shares were based upon the proportion of the “as-if converted” preferred shares to the combined total of common shares, plus the “as-if converted” shares. Basic and diluted EPS under the two-class method were then calculated as earnings allocated to common shares divided by the weighted average of the actual common shares outstanding during the reporting period after giving effect to the adjustment for the Reverse Split.

Though the Company did not pay dividends prior to the Reverse Split, because the preferred stock granted the right to participate in undistributed earnings with Company common stock, it was considered a participating security, and the Company applied the two-class method to calculate per share amounts for distributed and undistributed earnings required under ASC 260-10-45, until all of the shares of preferred stock were converted into shares of Company common stock. Upon the effectiveness of the Reverse Split on August 26, 2011, all shares of the Company’s preferred stock automatically converted into shares of the Company’s common stock. Effective upon, and at all times since, the conversion of the Company preferred stock to Company common stock, the treasury stock method has been used to compute earnings (loss) per share.

Computation of dilutive common shares

The Company utilizes the treasury stock method described in ASC 260-10-55 to determine the number of treasury shares assumed to be purchased from the proceeds of warrant exercises, with any residual shares representing the incremental common shares to be issued and included in diluted EPS. As of September 30, 2013, the Company’s Private Placement Warrants, stock appreciation rights (“SAR” as described in Note 12, “2012 Incentive compensation Plan”) and restricted stock (as described in Note 12, “2012 Incentive compensation Plan) were evaluated for their potentially dilutive effect under the treasury stock method. Due to the loss reported in the unaudited condensed consolidated statements of operating results, any potentially issuable shares of Company common stock associated with the Private Placement Warrants, SAR and restricted stock granted are not included in the dilutive EPS calculation for the three and nine months ended September 30, 2013. These potential shares were excluded from the diluted EPS calculation because they have an anti-dilutive effect under the treasury stock method.

For the three and nine months ended September 30, 2012, the Company’s Private Placement Warrants were evaluated for their potentially dilutive effect using the treasury stock method. Due to the Company’s limited trading volume during this period, the Company estimated the average fair value of its common shares using the estimated fair value derived in the periodic valuation of its Private Placement Warrants liability as of September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011. Based upon an average estimated fair value of $11.71 per share of the Company’s common stock for the nine months ended September 30, 2012 and an exercise price of $13.00 per share, all of the potentially issuable shares of common stock were excluded from the diluted EPS calculation because these potential shares would have an anti-dilutive effect under the treasury stock method. For the three and nine months ended September 30, 2012, the Company’s SAR was also evaluated for its potentially dilutive effect using the treasury stock method. Based on the Company’s estimated average fair value noted above and the SAR strike price, as well as certain other requirements as defined in the stock appreciation rights award agreement, the SAR was not dilutive to the Company’s earnings per share during the period from date of grant to September 30, 2012. Accordingly, all potentially issuable shares of Company common stock associated with the SAR were excluded from the diluted EPS calculation. See Note 12, “2012 Incentive compensation plan,” for the details associated with the aforementioned SAR grant.

During the three and nine months ended September 30, 2013, a portion of the Private Placement Warrants were exercised, resulting in the issuance of 88,167 and 297,334 shares of the Company’s common stock, respectively.

The computations of basic and diluted (loss) earnings per share for the three and nine months ended September 30, 2013 and 2012, respectively, were as follows:


	Three months ended September 30,					Nine months ended September 30,
	2013			2012		2013			2012
Numerator:
Net (loss) income	$	(9,981	)	$	1,846	$	(15,008	)	$	5,957

Denominator:
Weighted average common shares outstanding-basic		10,266,176			9,068,024		9,536,687			9,065,699
Diluted effect of common stock equivalents		—			—		—			—
Weighted average common shares outstanding-diluted		10,266,176			9,068,024		9,536,687			9,065,699

(Loss) earnings per share of common stock – basic and diluted
(Loss) earnings per share of common stock – basic	$	(0.97	)	$	0.20	$	(1.57	)	$	0.66

(Loss) earnings per share of common stock – diluted	$	(0.97	)	$	0.20	$	(1.57	)	$	0.66