Note 5 – Stockholders’ Equity and Share-Based Compensation

Public Equity Offering

On August 18, 2020, the Company completed an underwritten public equity offering of 4,000 shares of its common stock at a public offering price of $13.00 per share, resulting in net proceeds of $48,831 after deducting underwriters’ offering expenses and commissions. As part of the public equity offering, the Company granted the underwriters a 30-day option to purchase up to 900 shares of its common stock at the public offering price. The underwriters subsequently exercised their option in full within 30 days to purchase 900 shares of the Company’s common stock resulting in additional net proceeds of $11,700. The Company intends to use the net proceeds from the public equity offering for working capital and other general corporate purposes.

Series A Convertible Preferred Stock

On March 25, 2013, the Company authorized the issuance of 4,150 shares of Series A Preferred and entered into a Securities Purchase Agreement pursuant to which the Company agreed to sell up to an aggregate of 4,150 shares of our Series A Preferred, $0.001 par value per share at a purchase price per share of $1.45 for aggregate proceeds to the Company of approximately $6,017. On March 25, 2013, the Company sold 4,000 shares of Series A Preferred for aggregate proceeds of $5,800. On April 5, 2013, the Company sold the remaining 150 shares of Series A Preferred for aggregate proceeds of $217. The Company incurred issuance costs of $847 and used the net proceeds from the sale of the Series A Preferred to reduce its revolving loan payable.

Dividends on the Series A Preferred are payable quarterly at a rate of $0.058 per share per annum in cash, in shares of common stock or in any combination of cash and common stock as determined by the Company’s Board of Directors. Certain conditions are required to be satisfied in order for the Company to pay dividends on the Series A Preferred in shares of common stock, including (i) the common stock being registered pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended, (ii) the common stock being issued having been approved for listing on a trading market and (iii) the common stock being issued either being covered by an effective registration statement or being freely tradable without restriction under Rule 144 (subject to certain exceptions). The Series A Preferred shall each be entitled to one vote per share for each share of common stock issuable upon conversion thereof (excluding from any such calculation any dividends accrued on such shares) and shall vote together with the holders of common stock as a single class on any matter on which the holders of common stock are entitled to vote. Concurrent with the Company’s issuance of Series A Preferred, the Company, certain of its domestic subsidiaries and JPMorgan entered into a Second Amended Credit Agreement to allow the Company to pay cash dividends on the Series A Preferred in an aggregate amount of up to $400 per year and pay cash in lieu of issuing fractional shares upon conversion of or in payment of dividends on the Series A Preferred. For the fiscal year ended January 2, 2021, the Company recorded dividends of $71. The Company issued 45 shares of common stock in payment of the fiscal year 2020 dividends. There were $0 dividends accrued as of January 2, 2021. For the fiscal year ended December 28, 2019, the Company recorded dividends of $160. The Company issued 59 shares of common stock in payment of the fiscal year 2019 dividends. There were $41 dividends accrued as of December 28, 2019.

Each share of Series A Preferred is convertible into shares of our common stock at the initial conversion rate of one share of common stock for each share of Series A Preferred. On June 19, 2020, each outstanding share of Series A Preferred automatically converted to one share of the Company’s common stock. This automatic conversion was required pursuant to Section 4 of the Series A Preferred Stock purchase agreement (dated March 25, 2013) because the volume weighted average price for the common stock price was equal to, or exceeded, $4.35 for 30 consecutive trading days. The Company issued an aggregate of 2,620,687 shares of common stock in connection with the automatic conversion. Because of this automatic conversion, 0 shares of Series A Preferred shares were outstanding as of January 2, 2021.

Share-Based Compensation Plan Information

The Company adopted the 2016 Equity Incentive Plan ("2016 Equity Plan") on March 9, 2016, which became effective on May 31, 2016, following stockholder approval. Subject to adjustment for certain changes in the Company’s capitalization, the aggregate number of shares of the Company’s common stock that may be issued under the 2016 Equity Plan will not exceed the sum of (i) two million five hundred thousand (2,500) new shares, (ii) the number of unallocated shares remaining available for the grant of new awards under the Company’s prior equity plans described below (the “Prior Equity Plans”) as of the effective date of the 2016 Plan (which was equal to 3,894 shares as of May 31, 2016) and (iii) any shares subject to a stock award under the Prior Equity Plans that are not issued because such stock award expires or otherwise terminates without all of the shares covered by such stock award having been issued, that are not issued because such stock award is settled in cash, that are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares, or that are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award. In addition, the share reserve will automatically increase on January 1st of each year, for a period of nine years, commencing on January 1, 2017 and ending on (and including) January 1, 2026, in an amount equal to one million five hundred thousand (1,500) shares per year; however the Board of Directors of the Company may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant the automatic increase. Options granted under the 2016 Equity Plan generally expire no later than ten years from the date of grant and generally vest over a period of four years. The exercise price of all option grants must be equal to 100% of the fair market value on the date of grant. As of January 2, 2021,  1,399 shares were available for future grants under the 2016 Equity Plan.

The following tables summarizes the Company’s stock option activity for the fiscal years ended, and details regarding the options outstanding and exercisable as of January 2, 2021 and December 28, 2019:

 

The weighted-average fair value of options granted during fiscal year 2020 and 2019 was $1.67 and $0.63, respectively. The intrinsic value of stock options at the date of the exercise is the difference between the fair value of the stock at the date of exercise and the exercise price. During fiscal year 2020 and 2019, the total intrinsic value of the exercised options was $12,563 and $96, respectively. The Company had $4,193 of unrecognized share-based compensation expense related to stock options outstanding as of January 2, 2021, which expense is expected to be recognized over a weighted-average period of 2.90 years. 

Options exercised under all share-based compensation plans are granted net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. For those employees who do not receive shares net of the minimum statutory withholding requirements, the appropriate taxes are paid directly by the employee. During fiscal year 2020 and 2019, we withheld 0 shares to satisfy $0 of employees’ tax obligations related to the net settlement of the stock options.

Restricted Stock Units

During 2020 and 2019 the Company granted an aggregate of 3,566 and 1,867 RSUs, respectively, to certain employees of the Company. The restricted stock units ("RSUs") were granted under the 2016 Equity Incentive Plan and reduced the pool of equity instruments available under that plan.

The vesting of each RSU is subject to the employee’s continued employment through applicable vesting dates. Some RSUs granted to certain executives may vest on an accelerated basis in part or in full upon the occurrence of certain events. The RSUs are accounted for as equity awards and are measured at fair value based upon the grant date price of the Company’s common stock. The closing price of the Company’s common stock on each grant date during 2020 ranged from $0.91 to $16.45.  The closing price of the Company’s common stock on each grant during 2019 ranged from $0.97 to $2.41. Compensation expense is recognized on a straight-line basis over the requisite service period of one-to-three years. Compensation expense for performance-based RSUs (“PSUs”) is measured based on the amount of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria.

During 2020 there were 155 RSUs granted that were time-based and 3,411 granted that were performance-based. As of January 2, 2021,  the performance criteria established to trigger vesting of PSUs was met, but still subject to certification by the Compensation Committee.

During 2019 there were 315 RSUs granted that were time-based and 1,552 granted that were performance-based. As of December 28, 2019, the performance criteria established to trigger vesting of the PSU’s granted in 2019 was met, but still subject to certification by the Compensation Committee.

For the fiscal year ended January 2, 2021, we recorded compensation expense of $6,095 related to RSU’s. As of January 2, 2021, there was unrecognized compensation expense of $2,275 related to unvested RSUs based on awards that are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.50 years.

Share-Based Compensation Expense

The fair value of each option grant, excluding those options issued from the stock option exchange program as discussed above, was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for each of the periods ended:

 

For the fiscal year 2020 and 2019, the Company recorded share-based compensation expense related to stock options and RSUs of $7,778 and $3,656, respectively.

The share-based compensation expense is net of amounts capitalized to internally-developed software of $659 and $55 during the fiscal year 2020 and 2019, respectively. No tax benefit was recognized for fiscal year 2020 and 2019 due to the valuation allowance position.

Under ASC 718, we recognize forfeitures as they occur.