Stockholders' Equity

12 Months Ended

Dec. 29, 2014

Stockholders' Equity [Abstract]

Stockholders' Equity

9. Stockholders’ Equity

Rights Offering and Private Placement of Common Stock

On December 23, 2014, we completed a shareholders’ rights offering to our shareholders of record as of October 31, 2014. We issued a total of 13,333,329 shares of our common stock, $0.01 par value per share, at a subscription price of $1.50 per share. We received net proceeds of approximately $19.7 million from the rights offering of common stock.

On July 9, 2012, we completed a shareholders’ rights offering to our shareholders of record as of May 24, 2012. We issued a total of 4,915,461 shares of our common stock, $0.01 par value per share, at a subscription price of $2.60 per share. Of those shares, our executive officers and outside directors purchased an aggregate of 633,581 shares of our common stock, $0.01 par value per share, at a subscription price of $2.60 per share, through private placements, based on the number of shares that would have been available to them had they executed their basic and oversubscription privilege in the rights offering. We received net proceeds of approximately $12.6 million from the rights offering and the private placements of common stock.

We do not believe that the December 23, 2014, July 9, 2012, and the previously disclosed January 6, 2010, rights offerings and the related private placements of common stock triggered an ownership change which would generally occur if the aggregate stock ownership of holders of at least 5% of our stock increases by more than 50 percentage points over the preceding three-year period.

Under the Internal Revenue Code, an “ownership change” with respect to a corporation can significantly limit the amount of pre-ownership change NOLs and certain other tax assets that the corporation may utilize after the ownership change to offset future taxable income.

Stock Purchase Agreement

On August 22, 2014, the Company sold 3,367,874 unregistered shares of the Company’s common stock, par value of $0.01 per share, at a purchase price of $1.15 per share to Plaisance Fund, LP, a fund managed by Janus Capital Management LLC, for gross proceeds of $3,873,055, and concurrently therewith sold 521,739 unregistered shares of the Company’s common stock, par value of $0.01 per share, at a purchase price of $1.15 per share, to Lloyd I. Miller Trust C for gross proceeds of $600,000.

Senior Secured Promissory Notes

On April 14, 2014, the Company entered into a $5.0 million Senior Secured Promissory Note Agreement with MILFAM II, L.P. (the “MILFAM NOTE” and the “MILFAM Purchase Agreement”, respectively). The MILFAM Note bears interest at nine (9%) per annum, compounded semi-annually, and payable in arrears on a semi-annual basis. At the Company’s option, the first two semi-annual interest payments may be paid at eleven (11%) in kind in the form of additional Notes. The principal obligations under the MILFAM Note are due three (3) years from the effective date of the MILFAM Note. The MILFAM Note Agreement provides for the payment of a finance fee of 3.5% of the principal amount of the MILFAM Note at closing as well as providing a warrant exercisable to purchase up to 1.1 million shares of the Company’s common stock at an exercise price per share of $ 0.01. The warrant would not be exercisable to the extent that doing so resulted in MILFAM II L.P. and any related parties, in the aggregate, owning more than 19.9% of the Company’s common stock. Further, until all the obligations under the MILFAM Note are paid in full, MILFAM II, L.P. will have the right to participate in any future financing transactions consummated by the Company in an amount up to the greater of (1) the then-outstanding balance of obligations under the MILFAM Note and (2) $4.0 million. The MILFAM Note is guaranteed by the Company’s subsidiaries and secured by a lien on all assets of the Company and its subsidiaries [(excluding the assets of Hearthstone Associates, LLC and Hearthstone Partners, LLC)]. Mr. Lloyd I. Miller, III, is the manager of MILFAM LLC, the general partner of MILFAM II, L.P. Mr. Miller is a significant shareholder of the Company.

On September 16, 2014, 1.1 million of the warrants provided under the MILFAM Note Agreement were exercised in order to purchase 1.1 million unregistered shares of the Company’s common stock at an exercise price of $0.01 per share, resulting in an aggregate purchase price of $11,000. The stock warrants were carried at a fair value as of the issuance date of approximately $1.3 million based on the Black-Scholes model using the following assumptions:

Expected life (in years)	3
Volatility	63.86	%
Risk Free interest rate	.82	%
Dividend yield (on common stock)	0

As of the issuance date, the relative value of the warrants was $1.0 million, which was the amount recorded as debt discount, with an offset to additional paid-in capital. The debt discount will be amortized over the life of the MILFAM Note, three years, and charged to interest expense using the effective interest rate calculation method. During Fiscal 2014, we chose the PIK option on the first interest payment which was due on October 14, 2014.

On May 20, 2014, the Company entered into a $2.5 million Senior Secured Note Purchase Agreement with AB Opportunity Fund LLC and AB Value Partners, L.P. (the “AB Notes”, the “AB Note Agreement”, and the “AB Entities”, respectively). The AB Notes are payable in full on the third anniversary from the effective date of the AB Notes. Interest will accrue at the rate of nine percent (9%), compounded semi-annually, and will be paid in arrears semi-annually, provided that the Company, at its option, may elect to pay the first two semi-annual interest payments at a rate of eleven percent (11%) in kind in the form of additional promissory notes. As consideration for the AB Notes, the Company provided a fee of 3.5% of the principal amount of the AB Notes and warrants exercisable to purchase up to an aggregate, initially, of 550,000 shares of the common stock of the Company at an exercise price per share of $0.01, provided that the AB Entities would not be permitted to exercise the warrants to the extent such exercise would result in any of the AB Entities and any of their affiliates owning, in the aggregate more than 19.9% of the common stock of the Company. The warrants were exercisable by the AB Entities at any time prior to the third anniversary from the effective date of the AB Notes, in whole or in part, by surrendering the warrants and a form of exercise to the Company.

On October 14, 2014, 550,000 of the warrants provided under the AB Note Purchase Agreement were exercised by the cashless exercise method by forfeiting 2,895 shares to pay for the warrants in lieu of cash. The Company’s 550,000 stock warrants were carried at their fair value as of the issuance date of approximately $0.7 million based on the Black-Scholes model using the following assumptions:

Expected life (in years)	3
Volatility	63.86	%
Risk Free interest rate	.82	%
Dividend yield (on common stock)	0

As of the issuance date, the relative value of the warrants was $0.5 million, which was the amount recorded as debt discount, with an offset to additional paid-in capital. The debt discount will be amortized over the life of the AB Notes, three years, and charged to interest expense using the effective interest rate calculation method. During Fiscal 2014, we chose the PIK option on the first interest payment which was due on December 20, 2014.

We incurred approximately $0.5 million of debt issuance costs in connection with the issuance of both senior secured promissory notes issued during FY 2014 and are in compliance with all covenant requirements under the MILFAM and AB Note Agreements.

Reverse Common Stock Split

On May 8, 2013, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation to implement a one-for-four reverse split of its common stock, par value $0.01 per share, as approved by the Company’s stockholders at the Annual Meeting of Stockholders on May 8, 2013. The reverse split was effective as of 8:00 a.m. (Eastern Time) on May 9, 2013, and the Company’s common stock began trading on the NASDAQ Global Market on a post-split basis on May 9, 2013. All share amounts presented in these financial statements have been retroactively adjusted to reflect this split.