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 26, 2017 there were 12,427,280 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. As of September 26, 2017, 225,195 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 2008 Plan serves as the successor to our 2001 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 2008 Plan. All outstanding awards under the Predecessor Plan immediately prior to the effective date of the 2008 Plan shall be incorporated into the 2008 Plan and shall accordingly be treated as awards under the 2008 Plan. However, 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 2008 Plan or by the Committee that administers the 2008 Plan, no provision of the 2008 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 recorded $748,000 and $718,000 in total stock option and restricted stock compensation expense during fiscal years 2017 and 2016, 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 2017 and fiscal 2016. 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 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. During the fiscal year ended September 27, 2016, the Company granted a total of 22,686 non-statutory stock options and a total of 72,178 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: Incentive and Non-Statutory Stock Options Fiscal 2017 Fiscal 2016 Expected term (years) 6.5 to 7.5 6.5 to 7.5 Expected volatility 75.38% to 80.70% 79.75% to 89.08% Risk-free interest rate 1.49% to 2.40% 1.35% 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 fiscal year 2017 under all plans: Shares Weighted Exercise Price Weighted Contractual Life (Yrs.) Outstanding-beg of year 586,082 $ 4.99 Options granted 163,992 $ 3.15 Options exercised 0 Forfeited (52,936 ) $ 4.74 Expired (15,216 ) $ 19.14 Outstanding Sept 26, 2017 681,922 $ 4.25 6.7 Exercisable Sept 26, 2017 430,503 $ 4.04 5.6 As of September 26, 2017, the aggregate intrinsic value of the outstanding and exercisable options was $168,000. 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 26, 2017, the total remaining unrecognized compensation cost related to non-vested stock options was $535,000 and is expected to be recognized over a weighted average period of approximately 1.88 years. There were no stock options exercised during the fiscal year ended September 26, 2017 and there were 19,531 stock options exercised during the fiscal year ended September 27, 2016 with proceeds of $39,000. Restricted Stock Grants 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 grants vest between three months and three years following the grant date. During the fiscal year 2016, the Company granted a total of 44,755 shares of restricted stock to certain employees and executive officers from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market values of $4.18, which is equal to the closing price of the stock on the date of the grant. The restricted stock grants vest over three years following the grant date. A summary of the status of non-vested restricted stock as of September 26, 2017 and changes during fiscal 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 Forfeited (24,662 ) $3.15 to $8.23 Vested (144,655 ) $3.20 to $4.18 Non-vested shares at Sept 26, 2017 115,039 $3.15 to $8.60 As of September 26, 2017, there was $261,000 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 1.45 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 26, 2017 (in thousands): Good Times Bad Daddy’s Total Balance at September 27, 2016 $ 356 $ 1,364 $ 1,720 Income $ 374 $ 276 $ 650 Contributions $ 0 $ 1,421 $ 1,421 Distributions $ (296 ) $ (747 ) $ (1,043 ) Acquisition of non-controlling interest $ 0 $ (35 ) $ (35 ) Balance at September 26, 2017 $ 434 $ 2,279 $ 2,713 Our non-controlling interests consist of one joint venture partnership involving Good Times restaurants and six joint venture partnerships involving Bad Daddy’s restaurants. Three of the six Bad Daddy’s joint venture partnerships were established in fiscal 2016 and fiscal 2017 to fund the construction of Bad Daddy’s restaurants in North Carolina. Two of the restaurants opened in fiscal 2017 and one opened subsequent to the fiscal year end, on October 9, 2017. |