Note 10 - Share-based Compensation

6 Months Ended

Jul. 01, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

10.     Share-Based Compensation

At July 1, 2023, the Company had two share-based employee compensation plans, the Employee Stock Purchase Plan and the 2014 Omnibus Equity Compensation Plan.

The Company measures the fair value of share-based awards, if and when granted, based on the Black-Scholes method and using the closing market price of the Company’s common stock on the date of grant. Awards typically vest over periods ranging from one to five years and expire within 10 years of issuance. The Company may also issue immediately vested equity awards. Share-based compensation expense related to time-based awards is amortized in accordance with applicable vesting periods using the straight-line method. The Company expenses performance-based awards only when the performance metrics are likely to be achieved and the associated awards are therefore likely to vest. Performance-based share awards that are likely to vest are also expensed on a straight-line basis over the vesting period but may vest on a retroactive basis or be reversed, depending on when it is determined that they are likely to vest, or in the case of a reversal when they are later determined to be unlikely to vest or forfeited.

Share-based compensation expense for the thirteen weeks ended July 1, 2023 and July 2, 2022 was $471 and $302, respectively.  Share-based compensation expense for the twenty-six weeks ended July 1, 2023 and July 2, 2022 was $967 and $705, respectively.  Stock-based compensation expense is included in selling, general and administrative expense in the Company’s statement of operations.

As of July 1, 2023, the Company had $3.8 million of total unrecognized compensation cost, with approximately $3.5 million related to time-based non-vested share-based awards outstanding and $0.3 million related to performance-based non-vested share-based awards outstanding. The Company expects to recognize the expense associated with time-based non-vested share-based awards through fiscal 2027.  If earned, the Company will recognize the expense associated with performance-based non-vested share-based awards straight-line through fiscal 2023.  These amounts do not include a) the cost of any additional share-based awards granted in future periods or b) the impact of any potential changes in the Company’s forfeiture rate. 

Incentive Share-Based Plans

Employee Stock Purchase Plan

The Company implemented the 2001 Employee Stock Purchase Plan (the “Purchase Plan”) with shareholder approval, effective January 1, 2001. Under the Purchase Plan, employees meeting certain specific employment qualifications are eligible to participate and can purchase shares of common stock semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period. The purchase plan permits eligible employees to purchase shares of common stock through payroll deductions for up to 10% of qualified compensation, subject to maximum purchases in any one fiscal year of 3,000 shares.

In fiscal 2015, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Purchase Plan by an additional 300,000 shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be 1,100,000 shares and to extend the expiration date of the Purchase Plan to December 31, 2025. In fiscal 2018, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Purchase Plan by an additional 300,000 shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be 1,400,000 shares. In fiscal 2021, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Purchase Plan by an additional 400,000 shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be 1,800,000 shares and the termination date of the Purchase Plan was extended to December 31, 2030.

The Company has two offering periods in the Purchase Plan coinciding with the Company’s first two fiscal quarters and the last two fiscal quarters. Actual shares are issued on the first business day of the subsequent offering period for the prior offering period payroll deductions. The number of shares issued on January 3, 2023 (the first business day following the previous offering period) was 33,071. As of July 1, 2023, there were 331,160 shares available for issuance under the Purchase Plan. Compensation expense, representing the discount to the quoted market price, for the Purchase Plan for the twenty-six weeks ended July 1, 2023 and July 2, 2022 was $160 and $119, respectively.

2014 Omnibus Equity Compensation Plan (the 2014 Plan)

The 2014 Plan, approved by the Company’s shareholders in December 2014, initially provided for the issuance of up to 625,000 shares of the Company’s common stock to officers, non-employee directors, employees of the Company and its subsidiaries, or consultants and advisors utilized by the Company.  In fiscal 2016, fiscal 2020 and fiscal 2022, the Company amended, or amended and restated, the 2014 Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance under the Plan by an additional 500,000, 850,000 and 1,000,000 shares, respectively, so that the total number of shares of stock reserved for issuance under the Plan is 2,975,000 shares.  The expiration date of the Plan is December 17, 2030, unless the 2014 Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.  The Compensation Committee of the Board of Directors determines the vesting period at the time of grant.

All stock awards typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period assuming the grantee’s stock award fully vests. Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet. As of July 1, 2023, there were no accrued dividends. Dividends for stock awards that ultimately do not vest are forfeited.

As of July 1, 2023, under the 2014 Plan, 497,561 time-based shares were outstanding, 100,000 performance-based restricted stock awards were outstanding and 605,629 shares were available for awards thereunder.

Time-Based Restricted Stock Awards

From time-to-time the Company issues time-based restricted stock awards. The following summarizes the activity in the time-based restricted stock awards under the 2014 Plan during the twenty-six weeks ended July 1, 2023:

	Number of Time-Based Restricted Stock Awards			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 31, 2022		274,939		$	3.59
Granted		288,893		$	13.00
Vested		(57,669	)	$	2.88
Forfeited or expired		(8,602	)	$	1.55
Outstanding non-vested at July 1, 2023		497,561		$	9.17

Based on the closing price of the Company’s common stock of $18.40 per share on June 30, 2023 (the last trading day prior to July 1, 2023), the intrinsic value of the time-based non-vested restricted stock awards at July 1, 2023 was approximately $9.2 million. As of July 1, 2023, there was approximately $3.5 million of total unrecognized compensation cost related to time-based restricted stock awards, which is expected to be recognized over the average weighted remaining vesting period of the restricted stock awards through fiscal 2027.

Performance-Based Restricted Stock Awards

From time-to-time the Company issues performance-based restricted stock awards to its executives.  Performance-based restricted stock awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee.

The following summarizes the activity in the performance-based restricted stock awards during the twenty-six weeks ended July 1, 2023:

	Number of Performance-Based Restricted Stock Awards			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 31, 2022		225,000		$	8.73
Granted		-			-
Vested		(125,000	)	$	6.15
Forfeited or expired		-			-
Outstanding non-vested at July 1, 2023		100,000		$	11.96

As of July 1, 2023, there was one outstanding grant for performance-based restricted stock awards issued to Bradley Vizi, the Company’s Chief Executive Officer. In December 2022, the Company issued a performance-based restricted stock unit grant of 100,000 shares, subject to increase up to 125,000 shares, based on fiscal 2023 performance (the “2023 Grant”). The Company has not made a determination as to how many shares it expects to issue under the 2023 Grant.

The Company assesses at each reporting date whether achievement of any performance condition is probable and recognizes the expense when achievement of the performance condition becomes probable.  The Company will then recognize the appropriate expense cumulatively in the year performance becomes probable and recognize the remaining compensation cost over the remaining requisite service period. If at a later measurement date, the Company determines that performance-based restricted stock awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed. 

Share-based compensation for performance-based equity agreement was $0.2 million and $0.4 million for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively.  Share-based compensation for performance-based equity agreement was $0.3 million and $0.2 million for the twenty-six weeks ended July 1, 2023 and July 2, 2022, respectively

During the twenty-six weeks ended July 1, 2023, the Company awarded 4,762 immediately vested share awards at an average price of $10.50. During the twenty-six weeks ended July 2, 2022, the Company did not award any immediately vested share awards.