Employee Share-Based Compensation

12 Months Ended

Jan. 02, 2016

Employee Share-based Compensation

Employee Share-Based Compensation

Stock Option Plans

At the discretion of the Company’s compensation committee (the “Compensation Committee”), and with the approval of the Company’s board of directors (the “Board of Directors”), the Company may grant options to purchase the Company’s common stock to certain individuals from time to time. Management and the Compensation Committee determine the terms of awards which include the exercise price, vesting conditions and expiration dates at the time of grant. Expiration dates for stock options are not to exceed 10 years from their date of issuance. The Company, under its Second Amended and Restated 2007 Equity Incentive Plan, is authorized to issue stock options that total no more than 20% of the shares of common stock issued and outstanding, as determined on a fully diluted basis. Beginning in 2007, stock options were no longer issuable under the Company’s 2000 Non-Qualified Incentive Stock Plan. The remaining amount available for issuance under the Second Amended and Restated 2007 Equity Incentive Plan totaled 3,321,226 at January 2, 2016. The stock option awards generally vest ratably over a four-year period following grant date after a passage of time. However, some stock option awards are performance based and vest based on the achievement of certain criteria established by the Compensation Committee, subject to approval by the Board of Directors.

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 years ended January 2, 2016, January 3, 2015 and December 28, 2013.

Year Ended December	2015	2014	2013
Expected term	5.8 years	5.8 years	6.0 years
Expected Volatility	75.8%	74.6%	32.8%
Expected dividends	0.0%	0.0%	0.00%
Risk-free rate	1.7%	1.9%	1.5%

1) 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 following grant date after a passage of a service period.

The following table summarizes service period based stock options activity:

		Weighted Average
			Remaining		Aggregate
	Number of	Exercise	Contractual	Fair	Intrinsic
	Shares	Price	Term	Value	Value
Outstanding at December 29, 2012	12,202,558	$    1.08	8.25
Options Granted	805,000	0.81	10.00	$0.29
Options Exercised	(26,038)	0.51
Options Expired	(75,000)	0.50
Options Forfeited	(792,865)	1.19
Outstanding at December 28, 2013	12,113,655	$    1.06	7.43
Options Granted	2,233,987	1.39	10.00	$0.90
Options Classification from Employee to Non-Employee	(113,151)	0.76	8.68
Options Exercised	(534,715)	0.87
Options Expired	(253,900)	1.00
Options Forfeited	(722,275)	1.13
Outstanding at January 3, 2015	12,723,601	$    1.13	7.00
Options Granted	2,191,685	1.22	10.00	$0.76
Options Classification from Employee to Non-Employee	(1,542,071)	0.93	7.78
Options Exercised	(120,708)	0.79
Options Forfeited	(310,274)	1.31
Outstanding at January 2, 2016	12,942,233	$    1.17	6.44		$2,123,923
Exercisable at January 2, 2016	10,034,596	$    1.16	5.73		$1,921,746

The aggregate intrinsic values in the table above are based on the Company’s closing stock price of $1.22 on the last day of business for the year ended January 2, 2016. The aggregate intrinsic values for options exercised during the years ended January 2, 2016, January 3, 2015, and December 28, 2013 were approximately $58,000, $156,000 and $7,000 respectively.

2) Performance Based Stock Options

The Company also grants stock option awards that are performance based and vest based on the achievement of certain criteria established from time to time by the Compensation Committee. If these performance criteria are not met, the compensation expenses are not recognized and the expenses that have been recognized will be reversed.

The following table summarizes performance based stock options activity:

		Weighted Average
			Remaining		Aggregate
	Number of	Exercise	Contractual	Fair	Intrinsic
	Shares	Price	Term	Value	Value
Outstanding at December 29, 2012	145,834	$    1.59	8.27
Options Granted	200,000	0.63	10.00	$    0.22
Options Exercised	-	-
Options Forfeited	(145,834)	1.59
Outstanding at December 28, 2013	200,000	$    0.63	9.08
Options Granted	-	-
Options Exercised	-	-
Options Forfeited	-	-
Outstanding at January 3, 2015	200,000	$    0.63	8.08
Options Granted	-	-
Options Exercised	-	-
Options Forfeited	-	-
Outstanding at January 2, 2016	200,000	$    0.63	7.08		$   118,000
Exercisable at January 2, 2016	145,833	$    0.63	7.08		$     86,041

The aggregate intrinsic value in the table above are, based on the Company’s closing stock price of $1.22 on the last day of business for the period ended January 2, 2016.

As of January 2, 2016, there was approximately $1,805,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans for employee stock options. That cost is expected to be recognized over a weighted average period of 2.36 years.

Restricted Stock Awards

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:

		Weighted Average
		Award-Date
	Shares	Fair Value
Unvested shares at December 29, 2012	500,000	$            0.69
Granted	-	-
Vested	-	-
Forfeited	-	-
Unvested shares at December 28, 2013	500,000	$            0.69
Granted	1,090,000	1.41
Vested	-	-
Forfeited	-	-
Unvested shares at January 3, 2015	1,590,000	$            1.18
Granted	-	-
Vested	(520,000)	1.41
Forfeited	-	-
Unvested shares at January 2, 2016	1,070,000	$            1.07
Expected to Vest as of January 2, 2016	1,070,000	$            1.07

During the year ended January 2, 2016, several members of the Company’s Board of Directors (the “Board”) resigned from the Board and received immediate vesting of their unvested restricted stock of 520,000 shares. The expense for the vested restricted stock was recognized during the fiscal year ended January 3, 2015.

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. The award includes the vested shares described above for members who resigned from the Board. These shares were to 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 $1,536,900 in aggregate, and they were based on the trading price of the Company’s common stock on the date of grant. The expense related to the restricted stock award has been 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.

Subsequent to the year ended January 2, 2016, the Company and each of the executives and members of the Board amended the restricted stock awards to provide that the awards shall not vest upon the market price of the Company’s stock exceeding a certain price or listing of the Company’s stock on a national securities exchange.

Employee Option and Restricted Stock Compensation

The Company recognized share-based compensation expense of approximately $1,543,000, $2,747,000 and $958,000 in general and administrative expenses in the statement of operations for the years ended January 2, 2016, January 3, 2015 and December 28, 2013, respectively.