Non-Employee Share-Based Compensation

9 Months Ended

Sep. 29, 2012

Interim Financial Statements

Note 5. Non-Employee Share-Based Compensation [Text Block]

Stock Option Plans

At the discretion of management, working with the Compensation Committee, and with approval of the Board of Directors, the Company may grant options to purchase the Company’s common stock to certain individuals from time to time who are not employees of the Company. These options are granted under the Second Amended and Restated 2007 Equity Incentive Plan of the Company and are granted on the same terms as those being issued to employees. Stock options granted to non-employees are accounted for using the fair value approach. The fair value of non-employee option grants are estimated using the Black-Scholes option-pricing model and are re-measured over the vesting term until earned. The estimated fair value is expensed over the applicable service period.

The following table summarizes the activity of stock options granted to non-employees at September 29, 2012, and changes during the nine months then ended:

			Weighted Average
					Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding at December 31, 2011		1,097,300	$	1.23
Options Granted		—		—
Options Exercised		—		—
Options Forfeited		—		—
Outstanding at September 29, 2012		1,097,300	$	1.23		5.51	$	81,600
Exercisable at September 29, 2012		1,086,925	$	1.23		5.51	$	80,375

The aggregate intrinsic values in the table above are before income taxes, based on the Company’s closing stock price of $0.78 on the last day of business for the period ended September 29, 2012.

As of September 29, 2012, there was $1,559 of total unrecognized compensation expense related to unvested share-based compensation arrangements granted to non-employees. That cost is expected to be recognized over a weighted average period of 3.2 months as of September 29, 2012.

Restricted Stock

Restricted stock awards granted by the Company to non-employees generally have a time vesting condition tied to the respective service agreements. In addition, there may be other vesting conditions such as achievement of certain performance goals on certain awards.

The restricted stock awards to non-employees are accounted for using the fair value approach. The fair value of vested non-employee restricted stock awards during the nine months ended September 29, 2012 was $308,400, which represents the market value of the Company’s common stock on the vesting date less the purchase price. The fair value of unvested non-employee restricted stock awards at September 29, 2012 was $320,000, which represents the market value of the Company’s common stock on September 29, 2012 less the purchase price. The fair value is re-measured over the vesting term until earned and the fair value is expensed over the applicable service period.

The following table summarizes activity of restricted stock awards to non-employees at September 29, 2012 and changes during the nine months then ended:

				Weighted Average
	Shares			Fair Value
Unvested shares at December 31, 2011		1,170,000		$	0.41
Granted		—			—
Vested		(640,000	)		0.48
Forfeited		(30,000	)		0.74
Unvested shares at September 29, 2012		500,000		$	0.64
Expected to Vest as of September 29, 2012		500,000		$	0.64

As of September 29, 2012, there was $63,971 of total unrecognized compensation expense related to restricted stock awards to non-employees. That cost is expected to be recognized over a period of 2.3 months as of September 29, 2012.

Stock Awards

From time to time, the Company awards shares of its common stock to non-employees for services provided. If the fair value of services received is more reliably measurable than the fair value of the stock awarded, the fair value of the services received is used to measure the award. In contrast, if the fair value of the stock issued is more reliably measurable, than the fair value of services received, the award is measured based on the fair value of the stock awarded. Since these stock awards are fully vested and non-forfeitable, a measurement date for the award is usually reached on the date of the award.

During the nine months ended September 29, 2012, the Company awarded an aggregate of 1,234,851 shares of the Company’s common stock to non-employees. The expense the Company recognized for these awards was $680,897 for the nine months ended September 29, 2012.

WarrantAwards

During the nine months ended September 29, 2012, the Company also awarded warrants to purchase 250,000 shares of the Company’s common stock to a certain non-employee. The exercise price of these warrants was $0.75 per share and the term for these warrants was 2 years.

The fair value of these warrants was estimated at the date of award using the Black-Scholes based valuation model. The table below outlines the assumptions for the warrants granted.

Nine Months Ended September 29, 2012	2012
Volatility	28.2%
Expected dividends	0.00%
Expected term	2.0 years
Risk-free rate	0.27%

The Company calculated expected volatility from the volatility of publicly held companies in similar industries. The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term. The expected term of the warrants represents the contractual terms.

For the nine months ended September 29, 2012, the expense the Company recognized for these warrant awards was $1,971.

For non-employee share-based compensation, the Company recognized share-based compensation expense of $1,090,689 in general and administrative expenses in the statement of operations for the nine months ended September 29, 2012. The Company recognized $444,263 in share-based compensation expense for the comparable period in 2011.