Share-Based Compensation

6 Months Ended

Jul. 04, 2015

Share-based Compensation

Note 7. Share-Based Compensation

7A. Employee Share-Based Compensation

Stock Option Plans

Service Period Based Stock Options

The majority of options granted by the Company feature service conditions.  Accordingly, these options vest ratably over specified periods of approximately 3 to 5 years following the date of grant.

The following table summarizes our stock option activity during the six months ended July 4, 2015:

				Weighted Average
						Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at January 3, 2015		12,723,601		$	1.13		7.00
Options Granted		225,000			1.28		10.00
Options Classification from Employee to
Non-Employee		(1,202,762	)		0.91
Options Exercised		(22,745	)		0.69
Options Forfeited		(56,193	)		1.18
Outstanding at July 4, 2015		11,666,901		$	1.16		6.46	$	2,231,000
Exercisable at July 4, 2015		9,508,077		$	1.16		6.01	$	1,862,000

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 period ended July 4, 2015.

Certain employees who were previously classified as employees under the share-based compensation plan have been reclassified to non-employees during the six months ended July 4, 2015 as they became consultants.  There was no impact on accounting as the options were fully vested.

The fair value of the Company’s stock options was estimated at the date of grant using the Black-Scholes option pricing model.  The table below outlines the weighted average assumptions for options granted to employees during the six months ended July 4, 2015.

Six Months Ended July 4, 2015
Expected volatility		75	%
Expected dividends		0.00	%
Expected term	6.0 years
Risk-free rate		1.72	%

The weighted average grant date fair value of options granted during the six months ended July 4, 2015 was $0.85.

As of July 4, 2015, there was approximately $1,173,000 of total unrecognized compensation expense expected to be recognized over a weighted average period of 2.45 years.

Stock Award

On April 16, 2015, the Company awarded 125,000 shares of the Company’s common stock that were fully vested and non-forfeitable to Mark Germain, who resigned from the Board.  These shares were granted as compensation for his services as a director of the Company through April 16, 2015.  The fair value of the award, which amounted to approximately $154,000 was based on the trading price of the Company’s stock on the date of grant.  The expense related to this stock award was immediately recognized.

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 July 4, 2015 and changes during the six months then ended:

				Weighted Average
				Award-Date
	Shares			Fair Value
Unvested shares at January 3, 2015		1,590,000		$	1.18
Granted		-			-
Vested		(510,000	)		1.41
Forfeited		-			-
Unvested shares at July 4, 2015		1,080,000		$	1.08
Expected to Vest as of July 4, 2015		1,080,000		$	1.08

On February 25, 2015, former members of the Company’s Board of Directors (the “Board”), Michael Brauser and Barry Honig, resigned from the Board.  The Board made a resolution that 250,000 shares of unvested restricted stock held by Mr. Brauser and 250,000 shares of unvested restricted stock held by Mr. Honig are immediately vested on the date of resignation.  The expense for these vested restricted stock was recognized during the fiscal year ended January 3, 2015.

On April 16, 2015, a former member of the Board, Mark Germain, resigned from the Board.  The Board made a resolution that 10,000 shares of unvested restricted stock held by Mr. Germain are immediately vested on the date of resignation.  The expense for these vested restricted stock was recognized during the fiscal year ended January 3, 2015.

Employee Option, Stock and Restricted Stock Compensation

The Company recognized compensation expense of approximately $442,000 and $820,000 in general and administrative expenses in the statement of operations for the three and six months ended July 4, 2015, respectively, and approximately $1,021,000 and $1,970,000 for the three and six months ended June 28, 2014, respectively.

7B. Non-Employee Share-Based Compensation

Stock Option Plans

The following table summarizes activity of stock options granted to non-employees at July 4, 2015 and changes during the six months then ended:

			Weighted Average
					Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding at January 3, 2015		1,050,451	$	1.35		5.46
Options Granted		-		-
Options Classification from Employee     to Non-Employee		1,202,762		0.91
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at July 4, 2015		2,253,213	$	1.12		6.28	$	473,000
Exercisable at July 4, 2015		2,196,963	$	1.11		6.21	$	473,000

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 period ended July 4, 2015.

As of July 4, 2015, there was approximately $38,000 of total unrecognized compensation expense expected to be recognized over a weighted average period of 1.19 years.

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 six-month period ended July 4, 2015.

In addition, 12,000 shares of restricted stock that were granted to a certain non-employee during the fiscal year ended January 3, 2015 became vested during the six-month period ended July 4, 2015.  The fair value of these vested restricted shares was approximately $15,000, 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 July 4, 2015 and changes during the six months then ended:

				Weighted Average
	Shares			Fair Value
Unvested shares at January 3, 2015		76,000		$	0.90
Granted		140,000			0.86
Vested		(152,000	)		1.21
Forfeited		-			-
Unvested shares expected to vest at July 4, 2015		64,000		$	1.22

As of July 4, 2015, there was approximately $78,000 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 2.7 years as of July 4, 2015.

Non-Employee Option, Stock and Restricted Stock Compensation

The Company recognized share-based compensation expense of approximately $65,000 and $403,000 in general and administrative expenses in the statement of operations for the three and six months ended July 4, 2015 and approximately $16,000 and $66,000 for the three and six months ended June 28, 2014, respectively.