Non-Employee Share-Based Compensation

12 Months Ended

Jan. 03, 2015

Non-employee Share-based Compensation

Non-Employee Share-Based Compensation [Text Block]

Stock Option Plan

At the discretion of management, working with the Compensation Committee, and with approval of the Board of Directors, the Company may grant options to purchase the Company’s common stock to certain individuals from time to time who are not employees of the Company.  These options are granted under the Second Amended and Restated 2007 Equity Incentive Plan of the Company and are granted on the same terms as those being issued to employees.  Stock options granted to non-employees are accounted for using the fair value approach.  The fair value of non-employee option grants are estimated using the Black-Scholes option-pricing model and are re-measured over the vesting term until earned.  The estimated fair value is expensed over the applicable service period.

The following table summarizes activity of stock options granted to non-employees at January 3, 2015 and changes during the year 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		90,000		1.24		10.00
Options Classification from Employe to Non-Employee		113,151		0.76
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at January 3, 2015		1,050,451	$	1.35		5.46	$	37,550
Exercisable at January 3, 2015		971,701	$	1.36		5.12	$	37,550

The aggregate intrinsic values in the table above are, based on the Company’s closing stock price of $0.90 on the last day of business for the year ended January 3, 2015.  The aggregate intrinsic value for options exercised during the year ended December 28, 2013 was $35,000.

As of January 3, 2015, there was approximately $44,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plan for non-employee stock options.  The unrecognized compensation expense is expected to be recognized over a weighted average period of 1.7 years.

Stock Awards

On July 1, 2014, the Company awarded 65,000 shares of the Company’s common stock that were fully vested and non-forfeitable to a non-employee.  The fair value of the award, which amounted to $83,850 was based on the trading price of the Company’s stock on the date of grant.  The expense related to this stock award is being amortized over the period of approximately 7 months, as the services relating to this award are being provided over this period of time.  In addition, there were stock awards made in 2013, which the Company has recognized a portion of the expense in 2014 as the required service periods extended into 2014.  The total expense the Company recognized for stock awards to non-employees was approximately $129,000 for the twelve months ended January 3, 2015.  During the twelve months ended December 28, 2013, the Company awarded an aggregate of 600,000 shares and recognized a total expense of approximately $325,000.

As of January 3, 2015, there was approximately $11,000 of total unrecognized compensation expense related to the stock award to a non-employee.  That cost is expected to be recognized over a period of approximately one month.

Warrant Awards

On October 27, 2014, the Company awarded a warrant to purchase 50,000 shares of the Company’s common stock to a certain non-employee.  The exercise price of the warrant was $1.10 per share and the term of the warrant was 2 years.  The fair value of the warrant was estimated at the date of award using the Black-Scholes based valuation model.  The table below outlines the assumptions for the warrant granted.

	October 27, 2014
Volatility		66.9	%
Expected dividends		0.00	%
Contractual term	2.0 years
Risk-free rate		0.41	%

The Company calculated expected volatility from the historical volatility of Company’s common stock.  The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock.  The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term.  The expected term of the warrants represents the contractual terms.  For the year ended January 3, 2015, the expense the Company recognized for this warrant award was approximately $6,000.  As of January 3, 2015, there was approximately $10,000 of total unrecognized compensation expense related to this warrant, expected to be recognized over a period of approximately 4 months.

During the year ended December 28, 2013, the Company recognized an expense of approximately $4,000 for the warrant that was previously awarded to a certain non-employee on August 7, 2012.  On December 9, 2013, the warrant was exercised and the Company issued 74,186 shares of common stock.  The non-employee who held the warrant elected a cashless exercise pursuant to the provisions of the warrant and received 74,186 shares of common stock in lieu of 250,000 shares for a cash payment of $0.75 per share.  The intrinsic value of the warrant exercised was $90,507.

Restricted Stock Award

Restricted stock awards granted by the Company to non-employees generally feature time vesting service conditions, specified in the respective service agreements.  Restricted stock awards issued to non-employees are accounted for at current fair value through the vesting period.  The fair value of vested non-employee restricted shares awarded during the twelve months ended January 3, 2015 was approximately $24,000, which represents the market value of the Company’s common stock on respective vesting dates charged to expense.

The following table summarizes activity of restricted stock awards issued to non-employees at January 3, 2015 and changes during the year then ended:

				Weighted Average
	Shares			Fair Value
Unvested shares at December 28, 2013		-		$	-
Granted		96,000			1.30
Vested		(20,000	)		1.17
Forfeited		-			-
Unvested shares expected to vest at January 3, 2015		76,000		$	0.90

As of January 3, 2015, there was approximately $68,000 of total unrecognized compensation expense related to the restricted stock award to a non-employee.  That cost is expected to be recognized over a period of 3.2 years as of January 3, 2015.

Non-Employee Option, Stock, Warrant and Restricted Stock Awards

For non-employee share-based compensation, the Company recognized share-based compensation expense of approximately $170,000 and $330,000 in general and administrative expenses in the statement of operations for the year ended January 3, 2015 and December 28, 2013.