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). The company recognizes the impact of forfeitures as forfeitures occur.

Our net loss for the two quarters ended March 27, 2018 and March 28, 2017 includes $215,000 and $404,000, 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 first two fiscal quarters ended March 27, 2018. 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 two quarters ended March 27, 2018, the Company granted a total of 18,274 incentive stock options, from available shares under its 2008 Plan, as amended, with an exercise prices between $2.70 and $2.73 and per-share weighted average fair values between $1.65 and $1.95.

During the two quarters ended March 28, 2017, the Company granted a total of 149,899 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.

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 2018 Incentive and Non-Statutory Stock Options	Fiscal 2017 Incentive and Non-Statutory Stock Options
Expected term (years)	7.5	6.5 to 7.5
Expected volatility	75.33% to 75.67%	75.66% to 80.70%
Risk-free interest rate	2.17% to 2.35%	1.49% to 2.40%
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 two quarters ended March 27, 2018 under all plans:

	Shares			Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Life (Yrs.)
Outstanding-at beginning of year		681,922		$	4.25
Options granted		18,274		$	2.71
Options exercised		0
Forfeited		(22,338	)	$	5.49
Expired		(2,933	)	$	17.25
Outstanding March 27, 2018		674,925		$	4.12	6.3
Exercisable March 27, 2018		513,054		$	4.28	5.6

As of March 27, 2018, the aggregate intrinsic value of the outstanding and exercisable options was $243,000 and $235,000, 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 March 27, 2018, the total remaining unrecognized compensation cost related to non-vested stock options was $404,000 and is expected to be recognized over a weighted average period of approximately 1.8 years.

There were no stock options exercised during the two quarters ended March 27, 2018 and March 28, 2017.

Restricted Stock Units

During the two quarters ended March 27, 2018, the Company granted a total of 37,037 restricted stock units from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market value of $2.70 which is equal to the closing price of the stock on the date of the grant. The restricted stock units vest over three years following the grant date.

During the two quarters ended March 28, 2017, the Company granted a total of 103,440 restricted stock units to certain employees and executive officers 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 prices of the stock on the dates of the grants. The restricted stock units vest between three months and three years following the grant date.

A summary of the status of non-vested restricted stock as of March 27, 2018 is presented below.

	Shares			Grant Date Fair Value Per Share
Non-vested shares at beg of year		115,039		$3.15 to $8.60
Granted		37,037		$2.70
Forfeited		(4,175	)	$3.15 to $4.18
Vested		(41,037	)	$3.15 to $4.18
Non-vested shares at March 27, 2018		106,864		$2.70 to $8.60

As of March 27, 2018, there was $257,000 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 1.3 years.