Note 10 — Stock-Based Compensation

The cost that has been charged against income for stock-based compensation is set forth below (in thousands):

	Three Months Ended				Six Months Ended
	June 30,		July 1,		June 30,		July 1,
	2017		2016		2017		2016
Employee stock options	$	493	$	153	$	761	$	5,049
Restricted stock		46		2		86		227
Restricted stock units		329		145		531		2,423
Nonemployee stock options		–		–		–		59
Total	$	868	$	300	$	1,378	$	7,758

The Company recorded stock-based compensation costs in the following categories on the accompanying condensed consolidated statements of operations (in thousands):

	Three Months Ended				Six Months Ended
	June 30,		July 1,		June 30,		July 1,
	2017		2016		2017		2016
Cost of sales	$	2	$	–	$	4	$	560
General and administrative		394		167		658		3,688
Marketing and selling		228		68		344		1,471
Research and development		244		65		372		2,039
Total stock compensation expense		868		300		1,378		7,758
Amounts capitalized as part of inventory		109		36		162		188
Total	$	977	$	336	$	1,540	$	7,946

Stock Option Plan

Our Amended and Restated Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units (“RSUs”), and performance contingent stock units. Options under the plan are granted at fair market value on the date of grant, become exercisable over a three-year period, or as determined by our Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting under certain circumstances in the event of a change in control (as defined in the Plan). Pursuant to the Plan, options for 3,934,517 shares were outstanding at June 30, 2017 with exercise prices ranging between $0.95 and $17.62 per share. Restricted stock grants under the Plan generally vest over a period between one to four years. There were 20,833 shares of restricted stock and 431,120 RSUs outstanding at June 30, 2017. As of June 30, 2017, there were 1,220,418 shares authorized and available for grants under the Plan.

Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated a 5.4% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2017			2016			2017			2016
Expected dividend yield		0	%		0	%		0	%		0	%
Expected volatility		57	%		45	%		57	%		53	%
Risk-free interest rate		1.81	%		1.01	%		1.95	%		1.27	%
Expected term (in years)		5.67			4.40			5.67			5.19

A summary of option activity under the Plan for the six-month period ended June 30, 2017 is presented below:

	Options
	Shares
	(000’s)
Outstanding at December 30, 2016		3,502
Granted		794
Exercised		(288)
Forfeited or expired		(73)
Outstanding at June 30, 2017		3,935
Exercisable at June 30, 2017		2,819

A summary of restricted stock and RSU activity under the Plan for the six-month period ended June 30, 2017 is presented below:

	Restricted
	Shares		RSUs
	(000’s)		(000’s)
Outstanding at December 30, 2016		23		274
Granted		21		269
Vested		(23)		(91)
Forfeited		–		(21)
Outstanding at June 30, 2017		21		431