Share-Based Compensation

12 Months Ended

Dec. 30, 2017

Employee Share-based Compensation

Share-Based Compensation

11A. 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.

On June 20, 2017, the stockholders of the Company approved the ChromaDex Corporation 2017 Equity Incentive Plan (the "2017 Plan"). The 2017 Plan is intended to be the successor to the ChromaDex Corporation Second Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan"). Under the 2017 Plan, the Company is authorized to issue stock options that total no more than the sum of (i) 3,000,000 new shares, (ii) approximately 384,000 unallocated shares remaining available for the grant of new awards under the 2007 Plan, and (iii) any returned shares from the 2007 Plan or the 2017 Plan, such as forfeited, cancelled, or expired shares.

Under both 2007 Plan and 2017 Plan, the total number of shares the Company may grant, excluding returned shares, was approximately 10.8 million shares. The remaining amount available for issuance under the 2017 Plan totaled approximately 1.4 million shares at December 30, 2017.

General Vesting Conditions

The stock option awards generally vest ratably over a three to four-year period following grant date after a passage of time. However, some stock option awards are market or performance based and vest based on certain triggering events established by the Compensation Committee, subject to approval by the Board of Directors.

The fair value of the Company’s stock options that are not market based 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 December 30, 2017, December 31, 2016 and January 2, 2016.

Year Ended December	2017			2016			2015
Expected term	6 years			6 years			6 years
Volatility		72	%		73	%		76	%
Dividend Yield		0	%		0	%		0	%
Risk-free rate		2	%		1	%		2	%

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 January 3, 2015		4,241,386		$	3.39		7.00
Options Granted		730,562			3.66		10.00	$	2.28
Options Classification from Employee     to Non-Employee		(514,024	)		2.79		7.78
Options Exercised		(40,236	)		2.37					$	58,000
Options Forfeited		(103,425	)		3.93
Outstanding at January 2, 2016		4,314,263		$	3.50		6.44
Options Granted		742,485			3.91		10.00	$	2.49
Options Exercised		(238,423	)		2.67					$	502,000
Options Expired		(183,334	)		4.50
Options Forfeited		(353,840	)		4.15
Outstanding at December 31, 2016		4,281,151		$	3.52		6.36			$	1,352,000
Options Granted		1,110,404			3.25		10.00	$	2.07
Options Exercised		(863,712	)		2.42					$	2,455,000
Options Expired		(3,334	)		4.50
Options Forfeited		(73,483	)		3.88
Outstanding at December 30, 2017		4,451,026		$	4.45		5.76			$	10,740,000	*
Exercisable at December 30, 2017		2,937,613		$	3.54		5.18			$	7,230,000	*

*The aggregate intrinsic values in the table above are based on the Company’s closing stock price of $5.88 on the last day of business for the year ended December 30, 2017.

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 January 3, 2015		66,668	$	1.89		8.08
Options Granted		-		-
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at January 2, 2016		66,668	$	1.89		7.08
Options Granted		-		-
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at December 31, 2016		66,668	$	1.89		6.08
Options Granted		-		-
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at December 30, 2017		66,668	$	1.89		5.08		$	266,000
Exercisable at December 30, 2017		66,668	$	1.89		5.08		$	266,000

The aggregate intrinsic value in the table above are, based on the Company’s closing stock price of $5.88 on the last day of business for the period ended December 30, 2017.

3) Market Based Stock Options

The Company also grants stock option awards that are market based which have vesting conditions associated with a service condition as well as performance of the Company's stock price. The following table summarizes market based stock options activity:

			Weighted Average
					Remaining				Aggregate
	Number of		Exercise		Contractual		Fair		Intrinsic
	Shares		Price		Term		Value		Value
Outstanding at December 31, 2016		-	$	-		-
Options Granted		1,000,000		4.24		10.00	$	3.04
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at December 30, 2017		1,000,000	$	4.24		9.24			$	1,640,000
Exercisable at December 30, 2017		55,556	$	4.24		9.24			$	91,000

The aggregate intrinsic value in the table above are, based on the Company’s closing stock price of $5.88 on the last day of business for the period ended December 30, 2017.

The fair value of 1,000,000 options granted during the period ended December 30, 2017 was measured using Monte Carlo simulations based on a lattice approach with following assumptions:

Volatility:	67%
Contractual Term:	10 years
Risk Free Rate:	2.4%
Cost of Equity:	15.7%

For the contractual term, we are using 10 years as this is not a "plain vanilla" option. SEC Staff Accounting Bulletin No. 107 simplified method for estimating the expected term can be only used if the option is a "plain vanilla" option.

As of December 30, 2017, there was approximately $5.7 million 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 2.5 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 January 3, 2015		530,007		$	3.54
Granted		-			-
Vested		(173,336	)		4.23
Forfeited		-			-
Unvested shares at January 2, 2016		356,671		$	3.21
Granted		-			-
Vested		(6,668	)		4.23
Forfeited		-			-
Unvested shares at December 31, 2016		350,003		$	3.20
Granted		500,000			5.08
Vested		(666,668	)		4.60
Forfeited		-			-
Unvested shares at December 30, 2017		183,335		$	3.25
Expected to Vest as of December 30, 2017		183,335		$	3.25

During the year ended December 30, 2017, the Company granted 500,000 shares of restricted stock award to the Company's President and Chief Operating Officer Robert Fried, which vested during the year ended December 30, 2017. The expense for vested restricted stock was approximately $2.5 million and was recognized during the year ended December 30, 2017.

During the year ended December 30, 2017, the Company's former Chief Financial Officer, Thomas Varvaro resigned and received immediate vesting of his unvested restricted stock of 166,668 shares. The expense for the vested restricted stock was approximately $525,000 and was recognized prior to the fiscal year 2015.

During the years ended December 31, 2016 and January 2, 2016, several members of the Board resigned from the Board and received immediate vesting of their unvested restricted stock of 6,668 shares and 173,336 shares, respectively. The expense for the vested restricted stock was approximately $761,000 and was recognized all during the fiscal year ended January 3, 2015.

Employee Option and Restricted Stock Compensation

The Company recognized share-based compensation expense of approximately $4.4 million, $1.1 million and $1.5 million in general and administrative expenses in the statement of operations for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively.

 11B.  Non-Employee Share-Based Compensation

Stock Option Plan

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 January 3, 2015		350,158		$	4.05		5.46
Options Granted		-			-
Options Classification from Employee         to Non-Employee		514,024			2.79		7.78
Options Exercised		-			-
Options Forfeited		-			-
Outstanding at January 2, 2016		864,182		$	3.31		6.04
Options Granted		40,000			2.85		10.00
Options Exercised		(41,667	)		1.92			$	98,000
Options Forfeited		-			-
Outstanding at December 31, 2016		862,515		$	3.35		5.23
Options Granted		175,000			4.89		10.00
Options Exercised		(21,042	)		3.88			$	24,000
Options Forfeited		-			-
Outstanding at December 30, 2017		1,016,473		$	3.61		5.16	$	2,361,000	*
Exercisable at December 30, 2017		824,806		$	3.35		4.15	$	2,088,000	*

The aggregate intrinsic values in the table above are, based on the Company’s closing stock price of $5.88 on the last day of business for the year ended December 30, 2017.

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 non-employees during the years ended December 30, 2017 and December 31, 2016.

Year Ended December	2017			2016			2015
Contractual term		6 years			5 years			N/A
Volatility		69	%		73	%		N/A
Dividend yield		0	%		0	%		N/A
Risk-free rate		2	%		2	%		N/A

As of December 30, 2017, there was approximately $651,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans for non-employee stock options. That cost is expected to be recognized over a weighted average period of 2.4 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. The following table summarizes activity of restricted stock awards issued to non-employees:

				Weighted Average
	Shares			Fair Value
Unvested shares at January 3, 2015		25,333		$	2.70
Granted		46,668			2.58
Vested		(54,668	)		3.63
Forfeited		-			-
Unvested shares at January 2, 2016		17,333		$	3.66
Granted		-			-
Vested		(7,333	)		3.79
Forfeited		-			-
Unvested shares at December 31, 2016		10,000		$	3.31
Granted		-			-
Vested		(8,000	)		3.63
Forfeited		-			-
Unvested shares expected to vest at December 30, 2017		2,000		$	5.88

As of December 30, 2017, there was approximately $12,000 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 months as of December 30, 2017.

The Company did not award any stock grants to non-employees in 2017 and 2016. For the year ended January 2, 2016, the Company awarded 116,668 shares of the Company’s common stock to non-employees and recognized expenses of $361,000.

Non-Employee Option, Stock and Restricted Stock Awards

For non-employee share-based compensation, the Company recognized share-based compensation expense of approximately $171,000, $61,000 and $435,000 in general and administrative expenses in the statement of operations for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively.