Non-Employee Share-Based Compensation

12 Months Ended

Jan. 02, 2016

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Non-Employee Share-Based Compensation

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:

		Weighted Average
			Remaining	Aggregate
	Number of	Exercise	Contractual	Intrinsic
	Shares	Price	Term	Value
Outstanding at December 29, 2012	1,097,300	$    1.23	5.26
Options Granted	-	-
Options Exercised	(250,000)	0.50
Options Forfeited	-	-
Outstanding at December 28, 2013	847,300	$    1.44	5.74
Options Granted	90,000	1.24	10.00
Options Classification from Employee to Non-Employee	113,151	0.76	8.68
Options Exercised	-	-
Options Forfeited	-	-
Outstanding at January 3, 2015	1,050,451	$    1.35	5.46
Options Granted	-	-
Options Classification from Employee to Non-Employee	1,542,071	0.93	7.78
Options Exercised	-	-
Options Forfeited	-	-
Outstanding at January 2, 2016	2,592,522	$    1.10	6.04	$550,111
Exercisable at January 2, 2016	2,558,772	$    1.10	6.00	$549,961

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.

Stock and Restricted Stock Awards

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. On January 27, 2015, the Company awarded 350,000 shares of the Company’s common stock to non-employees. 210,000 of these shares were treated as stock awards as the shares vested immediately on the date of award, and the remaining 140,000 shares, which were initially treated as unvested restricted stock, vested on May 28, 2015. The fair values of the awards, which totaled approximately $350,000, were measured based on the trading prices of the Company’s stock on the date of award and the date vested. The expense related to these stock awards were fully recognized during the twelve-month period ended January 2, 2016.

In addition, 24,000 shares of restricted stock that were granted to a certain non-employee during the fiscal year ended January 3, 2015 became vested during the twelve-month period ended January 2, 2016. The fair value of these vested restricted shares was approximately $30,000, 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:

		Weighted Average
	Shares	Fair Value
Unvested shares at December 29, 2012	-	$                 -
Granted	-	-
Vested	-	-
Forfeited	-	-
Unvested shares at December 28, 2013	-	$                 -
Granted	96,000	1.30
Vested	(20,000)	1.17
Forfeited	-	-
Unvested shares at January 3, 2015	76,000	$            0.90
Granted	140,000	0.86
Vested	(164,000)	1.21
Forfeited	-	-
Unvested shares expected to vest at January 2, 2016	52,000	$            1.22

As of January 2, 2016, there was approximately $63,000 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 2.2 years as of January 2, 2016.

There were also stock awards made in 2014, which the Company has recognized a portion of the expense in 2015 as the required service periods extended into 2015. During the twelve months ended January 3, 3015, the Company awarded an aggregate of 65,000 shares and recognized a total expense of approximately $129,000. 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.

Warrant Awards

On October 27, 2014, the Company awarded a warrant to purchase 50,000 shares of the Company’s common stock with an exercise price of $1.10 per share. The term of the warrant was 2 years. This warrant has not been exercised as of January 2, 2016.

On August 7, 2012, the Company awarded a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.75 per share. The term of the warrant was 2 years. On December 9, 2013, 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 approximately $91,000.

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

For non-employee share-based compensation, the Company recognized share-based compensation expense of approximately $435,000, $170,000 and $330,000 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.