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Share-Based Compensation

6 Months Ended

Jun. 28, 2014

7A. Employee Share-Based Compensation

Stock Option Plans

The fair value of the Company’s stock options was estimated at the date of grant using the Black-Scholes based option valuation model. The table below outlines the weighted average assumptions for options granted to employees during the six months ended June 28, 2014.

Six Months Ended June 28, 2014
Expected volatility		72.82	%
Expected dividends		0.00	%
Expected term	5.7 years
Risk-free rate		1.85	%

The weighted average fair value of options granted during the six months ended June 28, 2014 was $0.91.

Service Period Based Stock Options

The majority of options granted by the Company are comprised of service-based options granted to employees. These options vest ratably over a defined period of approximately 3 to 5 years following grant date after a passage of a service period.

The following table summarizes service period based stock options activity at June 28, 2014 and changes during the six months then ended:

				Weighted Average
						Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at December 28, 2013		12,113,655		$	1.06		7.43

Options Granted		1,948,987			1.38		10.00
Options Classification from Employee to Non-Employee		(113,151	)		0.76
Options Exercised		(58,499	)		0.77
Options Expired		(253,900	)		1.00
Options Forfeited		(111,541	)		1.10
Outstanding at June 28, 2014		13,525,551		$	1.11		7.48	$	3,582,000

Exercisable at June 28, 2014		8,833,463		$	1.13		6.69	$	2,354,000

The aggregate intrinsic values in the table above are before income taxes, based on the Company’s closing stock price of $1.30 on the last day of business for the period ended June 28, 2014.

As of June 28, 2014, there was approximately $2,464,000 of total unrecognized compensation expense expected to be recognized over a weighted average period of 2.19 years.

Restricted Stock

Restricted stock awards granted by the Company to employees have vesting conditions that are unique to each award.

The following table summarizes activity of restricted stock awards granted to employees at June 28, 2014 and changes during the six months then ended:

			Weighted Average
			Award-Date
	Shares		Fair Value
Unvested shares at December 28, 2013		500,000	$	0.69

Granted		1,090,000		1.41
Vested		-		-
Forfeited		-		-
Unvested shares at June 28, 2014		1,590,000	$	1.18

Expected to Vest as of June 28, 2014		1,590,000	$	1.18

On January 2, 2014, the Company awarded an aggregate of 1,090,000 shares of restricted stock to the Company’s officers and members of the board of directors. These shares shall vest upon the earlier to occur of the following: (i) the market price of the Company’s stock exceeds a certain price, or (ii) one of other certain triggering events, including the termination of the officers and members of the board of directors without cause for any reason. The fair values of these restricted stock awards were estimated at the date of award using the Company’s stock price. The expense related the restricted stock award will be amortized over the period of six months through July 1, 2014, as the Company determined the requisite service period to be 6 months as that is when they are eligible to vest.

As of June 28, 2014, there was approximately $25,000 of total unrecognized expense related to restricted stock awards granted. That cost is expected to be recognized by July 1, 2014.

Employee Option and Restricted Stock Compensation

The Company recognized compensation expense of approximately $1,021,000 and $1,970,000 in general and administrative expenses in the statement of operations for the three and six months ended June 28, 2014, respectively, and $286,000 and $573,000 for the three and six months ended June 29, 2013, respectively.

7B. Non-Employee Share-Based Compensation

Stock Option Plans

The following table summarizes activity of stock options granted to non-employees at June 28, 2014 and changes during the six months then ended:

			Weighted Average
					Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding at December 28, 2013		847,300	$	1.44		5.74

Options Granted		-		-
Options Classification from Employee to Non-Employee		113,151		0.76
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at June 28, 2014		960,451	$	1.36		5.58	$	109,000

Exercisable at June 28, 2014		960,451	$	1.36		5.58	$	109,000

The aggregate intrinsic values in the table above are before income taxes, based on the Company’s closing stock price of $1.30 on the last day of business for the period ended June 28, 2014.

Restricted Stock

Restricted stock awards granted by the Company to non-employees generally have a time vesting condition tied to the respective service agreements. The restricted stock awards to non-employees are accounted for using the fair value approach. The fair value of vested non-employee restricted stock awards during the six months ended June 28, 2014 was approximately $8,000, which represents the market value of the Company’s common stock on the vesting date.

The following table summarizes activity of restricted stock awards to non-employees at June 28, 2014 and changes during the six months then ended:

				Weighted Average
	Shares			Fair Value
Unvested shares at December 28, 2013		-		$	-

Granted		96,000			1.30
Vested		(6,000	)		1.30
Forfeited		-			-
Unvested shares expected to vest at June 28, 2014		90,000		$	1.30

As of June 28, 2014, there was approximately $115,000 of total unrecognized compensation expense related to restricted stock awards to non-employees. That cost is expected to be recognized over a period of 3.7 years as of June 28, 2014.

Non-Employee Option and Restricted Stock Compensation

The Company recognized share-based compensation expense of approximately $16,000 and $66,000 in general and administrative expenses in the statement of operations for the three and six months ended June 28, 2014, respectively, and $90,000 and $155,000 for the three and six months ended June 29, 2013, respectively.