Note 4.

Stock-Based Compensation

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant).

Our net loss for the three quarters ended June 27, 2017 and June 30, 2016 includes $609,000 and $532,000, respectively, of compensation costs related to our stock-based compensation arrangements.

Stock Option awards

The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the three fiscal quarters ended June 27, 2017. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.

During the three quarters ended June 27, 2017, the Company granted a total of 151,834 incentive stock options, from available shares under its 2008 Plan, as amended, with exercise prices between $3.05 and $3.15 and per-share weighted average fair values between $2.17 and $2.30.

During the three quarters ended June 30, 2016, the Company granted a total of 22,686 non-statutory stock options and a total of 65,743 incentive stock options, from available shares under its 2008 Plan, as amended, with exercise prices between of $4.04 and $6.23 and per-share weighted average fair values between $2.85 and $4.52.

In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:

	Fiscal 2017 Incentive and Non-Statutory Stock Options	Fiscal 2016 Incentive and Non-Statutory Stock Options
Expected term (years)	6.5 to 7.5	6.5 to 7.5
Expected volatility	75.41% to 80.70%	79.75% to 89.08%
Risk-free interest rate	1.49% to 2.40%	1.45% to 2.07%
Expected dividends	0	0

We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.

The following table summarizes stock option activity for the three quarters ended June 27, 2017 under all plans:

	Shares		Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Life (Yrs.)
Outstanding-at beginning of year	586,083		$	4.99
Options granted	151,834		$	3.13
Options exercised	0
Forfeited	(3,132	)	$	7.66
Expired	(15,217	)	$	19.14
Outstanding June 27, 2017	719,568		$	4.29	7.1
Exercisable June 27, 2017	437,507		$	4.10	5.9

As of June 27, 2017, the aggregate intrinsic value of the outstanding and exercisable options was $376,000 and $326,000, respectively. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation.

As of June 27, 2017, the total remaining unrecognized compensation cost related to non-vested stock options was $714,000 and is expected to be recognized over a weighted average period of approximately 1.8 years.

There were no stock options exercised during the three quarters ended June 27, 2017 and 19,531 stock options exercised during the three quarters ended June 30, 2016 with proceeds of $39,000.

Restricted Stock Grants

During the three quarters ended June 27, 2017, the Company granted a total of 103,440 shares of restricted stock from available shares under its 2008 Plan, as amended. The shares were issued with grant date fair market values of $3.15 and $3.20 which is equal to the closing price of the stock on the date of the grants. The restricted stock grants vest between three months and three years following the grant date.

During the three quarters ended June 30, 2016, the Company granted a total of 44,755 shares of restricted stock from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market value of $4.18 which is equal to the closing price of the stock on the date of the grants. The restricted stock grants vest over three years following the grant date.

A summary of the status of non-vested restricted stock as of June 27, 2017 is presented below.

	Shares	Grant Date Fair Value Per Share
Non-vested shares at beg of year	180,916	$3.23 to $8.60
Granted	103,440	$3.15 to $3.20
Vested	(20,815)	$3.20 to $8.23
Non-vested shares at June 27, 2017	263,541	$3.15 to $8.60

As of June 27, 2017, there was $402,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately 1.4 years.