Note 10 - Share-based Compensation

9 Months Ended

Oct. 01, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

10.  Share-Based Compensation

At October 1, 2022, the Company had two share-based employee compensation plans. 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 October 1, 2022 and October 2, 2021 was $425 and $247, respectively.  Share-based compensation expense for the thirty-nine weeks ended October 1, 2022 and October 2, 2021 was $1,130 and $957, respectively.  Stock-based compensation expense is included in selling, general and administrative expense in the Company’s income statement.

As of October 1, 2022, the Company had $0.8 million of total unrecognized compensation cost related to all time-based non-vested share-based awards outstanding. The Company expects to recognize this expense over approximately five years.  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 July 5, 2022 (the first business day following the previous offering period) was 46,746.  As of October 1, 2022, there were 364,231 shares available for issuance under the Purchase Plan. 

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 and fiscal 2020, the Company 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 and 850,000 shares, respectively, so that the total number of shares of stock reserved for issuance under the Plan is 1,975,000 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. 

2014 Omnibus Equity Compensation Plan (the 2014 Plan) (Continued)

As of October 1, 2022, under the 2014 Plan, 303,695 time-based shares were outstanding, 75,000 performance-based restricted share units were outstanding and 40,682 shares were available for awards thereunder.  As of October 1, 2022, there was one outstanding grant for performance-based restricted stock units. The target number of shares for this grant of performance-based restricted stock units is 100,000 shares but may be increased to 125,000 shares depending on the performance metrics achieved. No more than 75,000 shares may come from the 2014 Plan. Any additional amount over 75,000 shares must come from future amounts approved by the Company's shareholders.

The market value of equity grants issued for the thirty-nine weeks ended October 1, 2022 and October 2, 2021 was $3.0 million and $2.2 million, respectively.  These amounts are based on the equity price on the last trading day in the period presented.

Time-Based Restricted Stock Awards

From time-to-time the Company issues time-based restricted stock awards.  These time-based restricted 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 restricted 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 condensed consolidated balance sheet. As of October 1, 2022, there were no accrued dividends.  Dividends for time-based restricted stock units that ultimately do not vest are forfeited.    

The following summarizes the activity in the time-based restricted stock units under the 2014 Plan during the thirty-nine weeks ended October 1, 2022:

	Number of Time-Based Restricted Stock Units			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at January 1, 2022		420,628		$	2.69
Granted		56,500		$	8.07
Vested		(108,175	)	$	2.72
Forfeited or expired		(65,258	)	$	1.95
Outstanding non-vested at October 1, 2022		303,695		$	3.87

Based on the closing price of the Company’s common stock of $16.69 per share on September 30, 2022 (the last trading day prior to October 1, 2022), the intrinsic value of the time-based non-vested restricted stock units at October 1, 2022 was approximately $5.1 million.

Performance-Based Restricted Stock Units

From time-to-time, the Company issues performance-based restricted stock units to its executives.  Performance-based restricted stock units are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee. These performance-based restricted stock units 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 on any stock awards that actually vest, if any.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheet.  As of October 1, 2022, there were no accrued dividends for performance-based restricted stock units.  Dividends for performance-based restricted stock units that ultimately do not vest are forfeited.   

To date, the Company has issued performance-based restricted stock units only under the 2014 Plan.  The following summarizes the activity in the performance-based restricted stock units during the thirty-nine weeks ended October 1, 2022:

	Number of Performance-Based Restricted Stock Units			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at January 1, 2022		125,000		$	3.26
Granted		100,000		$	6.15
Vested		(125,000	)	$	3.26
Forfeited or expired		-			-
Outstanding non-vested at October 1, 2022		100,000		$	6.15

As of October 1, 2022, there was one outstanding grant of performance-based restricted stock units. The target number of shares for this grant of performance-based restricted stock units is 100,000 shares but may be increased to 125,000 shares depending on the performance metrics achieved. No more than 75,000 shares may come from the 2014 Plan. Any additional amount over 75,000 shares must come from future amounts approved by the Company's shareholders.  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. 

The Company has estimated as of October 1, 2022 that a total of 125,000 performance-based stock units will be earned for fiscal 2022 performance metrics. The total expense recorded for the thirteen and thirty-nine weeks ended October 1, 2022 for performance-based stock units was $0.2 million and $0.6 million, respectively.  The total expense recorded for the thirteen and thirty-nine weeks ended October 2, 2021 for performance-based stock units was $0.1 million and $0.2 million, respectively.

During the thirty-nine weeks ended October 1, 2022, the Company awarded 1,000 immediately vested share awards at an average price of $18.48.  During the thirty-nine weeks ended October 2, 2021, the Company awarded 125,000 immediately vested share awards at an average price of $2.17.

As of October 1, 2022, there was approximately $0.8 million of total unrecognized compensation cost related to both unvested time-based and performance-based restricted stock units, which is expected to be recognized over the average weighted remaining vesting period of the restricted stock units through fiscal 2027.