(7) Stock-based Compensation

Effective May 5, 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”), pursuant to which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other stock and cash awards to eligible participants. The Company also maintains an Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”). Together, the 2015 Plan and 2005 Plan are referred to herein as the “Plans.” The 2005 Plan prohibits the granting of incentives after May 12, 2015, the tenth anniversary of the date the 2005 Plan was approved by the Company’s shareholders. Nonetheless, the 2005 Plan will remain in effect until all outstanding incentives granted thereunder have either been satisfied or terminated. As of July 1, 2018, there were 275,477 shares available for grant pursuant to the 2015 Plan. For purposes of net income (loss) per share, there were approximately 102,000 and 629,000 stock options outstanding as of July 1, 2018 and July 2, 2017, respectively that were not included in the computation of diluted net income (loss) per share because their impact was antidilutive. As of July 1, 2018, the total compensation cost related to unvested stock option awards was approximately $599,000, which is expected to be recognized over a period of approximately 3.20 years.

Stock options granted to employees and directors generally vest over two to five years, in monthly or annual installments, as outlined in each agreement. Options generally expire ten years from the date of grant. Compensation expense equal to the grant date fair value of the options is recognized in general and administrative expense over the applicable service period.

The incentive compensation of the Company’s Chief Executive Officer is tied to increases in the Company’s share price and calls for the issuance of freely tradable shares of the Company’s common stock upon the achievement of certain milestones.

The Company utilizes the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:

Stock price – Published trading market values of the Company’s common stock as of the date of grant.

Exercise price – The stated exercise price of the stock option.

Expected life – The simplified method as outlined in ASC 718.

Expected dividend – The rate of dividends that the Company expects to pay over the term of the stock option.

Volatility – Actual volatility over the most recent historical period equivalent to the expected life of the option.

Risk-free interest rate – The daily United States Treasury yield curve rate.

The Company recognized stock-based compensation expense in its consolidated statements of operations for the three and six months ended July 1, 2018 and July 2, 2017, respectively, as follows:


	Three Months Ended				Six Months Ended
(in thousands)	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Stock options	$	120	$	16	$	167	$	116
Restricted stock		—		8		—		15
	$	120	$	24	$	167	$	131

Information regarding the Company’s stock options is summarized below:


				Weighted
				Average
				Remaining
	Number of	Weighted Average		Contractual
(number of options in thousands)	Options	Exercise Price		Life in Years
Options outstanding at December 31, 2017	539	$	6.60	6.6
Granted	90		7.67
Exercised	(125)		5.26
Forfeited or expired	(83)		5.65
Options outstanding at July 1, 2018	421	$	7.30	7.3


	Six Months Ended
	July 1, 2018			July 2, 2017
Weighted-average fair value of options granted during the period	$	3.73		$	2.55
Expected life (in years)		6.2			5.0
Expected dividend	$	—		$	—
Expected stock volatility		45.94	%		60.47	%
Risk-free interest rate		2.9	%		2.2	%