Shareholders' Equity

12 Months Ended

Sep. 27, 2022

Stockholders' Equity Note [Abstract]

Shareholders' Equity

8. Shareholders’ 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 with a par value of $.001. As of September 27, 2022 and September 28, 2021 there were 12,274,351 and 12,512,072 shares outstanding, respectively.

Stock Plans

The Company has traditionally maintained incentive compensation plans that include provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, 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. Future awards will be issued under the 2018 plan.

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 $250,000 and $362,000 in total stock option and restricted stock compensation expense during the fiscal years ended September 27, 2022 and September 28, 2021, 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 the fiscal years ended September 27, 2022 and September 28, 2021. 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 27, 2022, the Company granted inducement equity awards to Mr. Karnes, in connection with his appointment as the Senior Vice President of Finance, in the form of (a) a stock option to purchase 25,000 shares of the Company’s common stock granted on Mr. Karnes’ first day of employment (the “Initial Options”); and (b) an additional stock option to purchase 25,000 shares of common stock to be granted on the one year anniversary date of Mr. Karnes employment (the “Additional Options,” and, together with the Initial Options, the “Options”). The Options were granted outside of the Company’s 2018 Omnibus Equity Incentive Plan as an inducement material to Mr. Karnes’ acceptance of employment with the Company. The Initial Options have a ten-year term, vest 1/3 each year over a three-year vesting period, subject to Mr. Karnes’ continuous employment with the Company, and will have an exercise price equal to the Company’s closing market price on the day of grant. The Additional Options will have a ten-year term, an exercise price equal to the greater of market price on the date of grant or $5.00 and will vest upon the achievement the Company’s common stock reaching a market price of $7.50 per share, calculated based upon a trailing 60-day volume weighted average price.

On September 30, 2021, Mr. Zink was granted 80,000 Incentive Stock Options on September 29, 2021. The shares awarded include a vesting condition whereby the vesting shall occur on the date on which the price of the Company’s common stock (as traded on the Nasdaq Capital Market) is $6, as measured based on the trailing 60-day calendar day volume-weighted average price (VWAP) of Company common stock.

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 2022
Expected term (years)	4.5 - 6.5
Expected volatility	61.25% - 61.31%
Risk-free interest rate	0.90% - 1.76%
Expected dividends	-

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 fiscal year ended September 27, 2022 under all plans:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)
Outstanding at beginning of year		443,815		$	3.63
Options granted		105,000		$	4.90
Options exercised		(56,104	)	$	2.76
Forfeited		(22,550	)	$	4.52
Expired		-			-
Outstanding Sept 27, 2022		470,161		$	3.97		5.8
Exercisable Sept 27, 2022		324,044		$	3.61		5.0

As of September 27, 2022 and September 28, 2021, the aggregate intrinsic value of the outstanding and exercisable options was $459,277 and $634,000, 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 September 27, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was $200,000 and is expected to be recognized over a weighted average period of approximately 1.9 years.    

There were 56,104 stock options exercised during the fiscal year ended September 27, 2022 with proceeds of approximately $156,000.

There were 187,291 stock options exercised during the fiscal year ended September 28, 2021 with proceeds of approximately $440,000.

Common Stock and Performance Share Grants

During the fiscal year ended September 27, 2022, the Company granted its directors a discretionary grant of common stock totaling 9,256 shares. These shares had a grant date fair value of $4.35 per share which is equal to the closing price of the stock on the date of grant and resulted in the recognition of $40,000 of stock-based compensation expense.

During the fiscal year ended September 28, 2021, the Company granted its directors 12,948 shares of common stock and its Chief Executive Officer 10,000 performance shares from available shares under its 2018 Plan. The shares were issued with a grant date fair market value of $2.78 and $2.77, respectively, which is equal to the closing price of the stock on the date of grants. The performance shares granted to the Chief Executive Officer became fully vested on April 6, 2021 pursuant to the vesting provisions set forth in the grant notice.

Restricted Stock Units

There were 28,000 restricted stock units granted during the fiscal year ended September 27, 2022. No restricted stock units were granted during the fiscal year ended September 28, 2021.

A summary of the status of non-vested restricted stock units as of September 27, 2022 is presented below.

	Shares			Grant Date Fair Value Per Share
Non-vested shares at beginning of year		61,952		$1.54 to $3.95
Granted		28,000		$4.50
Exercised		(15,616	)	$3.95
Forfeited		(1,000	)	$4.50
Non-vested shares at September 27, 2022		73,336		$1.54 to $4.50

As of September 27, 2022, there was $100,000 of total unrecognized compensation cost related to non-vested restricted stock units. This cost is expected to be recognized over a weighted average period of approximately 2.3 years.  

Non-controlling Interests

Non-controlling interests are presented as a separate item in the shareholders’ equity section of the consolidated balance sheets. The amount of consolidated net income or loss attributable to non-controlling interests is presented on the face of the consolidated statements of operations. Changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions, while changes in ownership interest that do result in deconsolidation of a subsidiary require gain or loss recognition based on the fair value on the deconsolidation date.

The equity interests of the unrelated limited partners and members are shown on the accompanying consolidated balance sheets in the shareholders’ 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 contributions or distributions to or from the limited partners and members for the period. The limited partners’ and members’ share of the net income or loss in the subsidiary is shown as non-controlling interest income or expense in the accompanying consolidated statements 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 27, 2022 (in thousands):

	Bad Daddy’s			Good Times			Total
Balance at September 28, 2021	$	915		$	209		$	1,124
Income attributable to non-controlling interests	$	1,186		$	528		$	1,714
Contributions from unrelated limited partners	$	33			-		$	33
Distributions to unrelated limited partners	$	(1,093	)	$	(475	)	$	(1,568	)
Balance at September 27, 2022	$	1,041		$	263			1,303

Our non-controlling interests consist of one joint venture partnership involving Good Times restaurants and five joint venture partnerships involving five Bad Daddy’s restaurants.