Stockholders' Equity

12 Months Ended

Sep. 25, 2018

Stockholders' Equity Note [Abstract]

Stockholders' Equity

7. Stockholders’ Equity:

Preferred Stock

The Company has the authority to issue 5,000,000 shares of preferred stock. The Board of Directors has the authority to issue such preferred shares in series and determine the rights and preferences of the shares as may be determined by the Board of Directors.

Common Stock

The Company has the authority to issue 50,000,000 shares of common stock, par value $.001, as of September 25, 2018 there were 12,481,162 shares outstanding.

Stock Plans

The Company has an Omnibus Equity Incentive Compensation Plan (the “2008 Plan”), approved by shareholders in fiscal 2008, which is the successor equity compensation plan to the Company’s 2001 Stock Option Plan (the “2001 Plan”). Pursuant to stockholder approval in September 2012, February 2014 and February 2016 the total number of shares available for issuance under the 2008 Plan was increased to 1,500,000. The 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), during the third fiscal quarter of 2018, pursuant to shareholder approval. Under the 2018 Plan, the total number of shares available for issuance was set at 750,000 shares. As of September 25, 2018, 499,605 shares were available for future grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and stock-based awards.

The 2018 Plan serves as the successor to our 2008 Plan, as amended (the “Predecessor Plan”), and no further awards shall be made under the Predecessor Plan from and after the effective date of the 2018 Plan. All outstanding awards under the Predecessor Plan continue to be governed by the Predecessor Plan, each such award shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance, and, except as otherwise expressly provided in the 2018 Plan or by the Committee that administers the 2008 and 2018 Plans, no provision of either Plan shall affect or otherwise modify the rights or obligations of holders of such incorporated awards.

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.

The Company recorded $417,000 and $748,000 in total stock option and restricted stock compensation expense during fiscal years 2018 and 2017, respectively, that was classified as general and administrative costs.

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 fiscal 2018 and fiscal 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 fiscal year ended September 25, 2018, the Company granted a total of 18,274 incentive stock options, from available shares under its 2008 Plan, as amended, with exercise prices between $2.70 and $2.73 and per-share weighted average fair values between $1.65 and $1.95. Additionally, during the fiscal year ended September 25, 2018, the Company granted a total of 129,381 incentive and non-statutory stock options, from available shares under its 2018 Plan, with an exercise prices between $3.55 and $4.25 and a per-share weighted average fair value between $2.08 and $2.52.

Subsequent to receiving stockholder approval, the Company completed a value-for-value stock option exchange program on July 23, 2018 ("Exchange Program"). The Exchange Program was open to all associates of the Company who held qualified and non-qualified stock options with an exercise prices ranging from $7.79 to $9.17 per share ("Eligible Awards"). Pursuant to the Exchange Program, 129,025 stock options were canceled and replaced with 49,491 stock options ("Replacement Options") at an exercise price equal to the Company's closing stock price on the grant date (July 23, 2018), which was $4.25. The exchange ratio was calculated such that the value of the Replacement Options would approximately equal the value of the canceled Eligible Awards, determined in accordance with the Black-Scholes option valuation model, with no incremental cost incurred by the Company. The estimate of fair value for options granted as part of the Exchange program was $2.08, calculated using an expected volatility of 53.71% and a risk-free interest rate of 2.83%, and a five-year expected term. On the exchange date of July 23, 2018 all of the Eligible Awards were 100% vested and the Replacement Options were issued as 100% vested as of July 23, 2018 with a ten-year exercisable life beginning on the date of grant. The other terms and conditions of each Replacement Option grant are substantially similar to those of the tendered Eligible Awards it replaced. Each Replacement Option was granted under the 2018 Plan. Of the 129,025 tendered Eligible Awards, 129,025 shares were canceled in the 2008 Plan.

During the fiscal year ended September 26, 2017, the Company granted a total of 163,992 incentive stock options, from available shares under its 2008 Plan, as amended, with exercise prices between $3.05 and $3.45 and per-share weighted average fair values between $2.17 and $2.49.

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:

	Incentive and Non-Statutory Stock Options
	Fiscal Year
	2018*	2017
Expected term (years)	7.5	6.5 to 7.5
Expected volatility	75.09% to 80.70%	75.38% to 80.70%
Risk-free interest rate	1.49% to 2.80%	1.49% to 2.40%
Expected dividends	0	0

*Excluding options issued in the exchange program

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 fiscal year 2018 under all plans:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)
Outstanding-beg of year		681,922		$	4.25
Options granted (1)		147,655		$	3.68
Options exercised		(9,398	)	$	3.05
Forfeited/Canceled (1)		(182,599	)	$	6.76
Expired		(2,933	)	$	17.25
Outstanding Sept 25, 2018		634,647		$	3.36	6.4
Exercisable Sept 25, 2018		422,229		$	3.24	5.3

⁽¹⁾ In connection with the Exchange Program, 129,025 options to purchase common stock were canceled and 49,491 Replacement Options were granted.

As of September 25, 2018, the aggregate intrinsic value of the outstanding and exercisable options was $787,000. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation.

As of September 25, 2018, the total remaining unrecognized compensation cost related to non-vested stock options was $431,000 and is expected to be recognized over a weighted average period of approximately 2.35 years.

There were 9,397 stock options exercised during the fiscal year ended September 25, 2018 with proceeds of $29,000. There were no stock options exercised during the fiscal year ended September 26, 2017.

Restricted Stock Units

During the fiscal year 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. Additionally, the Company granted a total of 60,507 shares of restricted stock during the fiscal year 2018 from available shares under its 2018 Plan. The shares were issued with grant date fair market value of $3.55 which is equal to the closing price of the stock on the date of the grants. All restricted stock units issued under both Plans during the fiscal year 2018 vest over three years following the grant date.

During the fiscal year 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 units vest between three months and three years following the grant date.

A summary of the status of non-vested restricted stock as of September 25, 2018 and changes during fiscal 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		97,544		$2.70 to $3.55
Forfeited		(18,493	)	$3.15 to $8.60
Vested		(44,476	)	$3.15 to $4.18
Non-vested shares at Sept 25, 2018		149,614		$3.15 to $4.18

As of September 25, 2018, there was $341,000 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 1.6 years.

Non-controlling Interests

The equity interests of the unrelated limited partners and members are shown on the accompanying consolidated balance sheet in the stockholders’ equity section as a non-controlling interest and is adjusted each period to reflect the limited partners’ and members’ share of the net income or loss as well as any cash distributions to the limited partners and members for the period. The limited partners’ and members’ share of the net income or loss in the partnership is shown as non-controlling interest income or expense in the accompanying consolidated statement of operations. All inter-company accounts and transactions are eliminated.

The following table summarizes the activity in non-controlling interests during the year ended September 25, 2018 (in thousands):

	Good Times			Bad Daddy’s			Total
Balance at September 26, 2017	$	434		$	2,279		$	2,713
Income	$	382		$	635		$	1,017
Contributions	$	-		$	933		$	933
Distributions	$	(439	)	$	(986	)	$	(1,425	)
Balance at September 25, 2018	$	377		$	2,861		$	3,238

Our non-controlling interests consist of one joint venture partnership involving Good Times restaurants and eight joint venture partnerships involving eight Bad Daddy’s restaurants, including three Bad Daddy’s restaurants that opened during fiscal 2018.