Significant Accounting Policies

3 Months Ended

Mar. 29, 2014

Accounting Policies [Abstract]

Note 3. Significant Accounting Policies

Basis of presentation:  The financial statements and accompanying notes have been prepared on a consolidated basis and reflect the consolidated financial position of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated from these financial statements. The Company's fiscal year ends on the Saturday closest to December 31, and the Company’s normal fiscal quarters end on the Saturday 13 weeks after the last fiscal year end or fiscal quarter end.  Every fifth or sixth fiscal year, the inclusion of an extra week occurs due to the Company’s floating year-end date.  The fiscal year 2014 will include 53 weeks instead of the normal 52 weeks, and will end on January 3, 2015.

Changes in accounting estimate: During the three-month period ended March 29, 2014, the Company evaluated assumptions for estimating the fair value of the Company’s stock options.  The Company uses the Black-Scholes based option valuation model, which requires assumptions on (i) volatility, (ii) expected dividends, (iii) expected term and (iv) risk-free rate.  While evaluating the assumptions on volatility, the Company determined that the historical volatility the Company’s common stock needs to be considered when estimating the expected volatility.  Previously, the Company calculated expected volatility based on publicly held companies in similar industries and did not consider the historical volatility of the Company’s common stock, as the historical measurement period that was available to compute the volatility rate of the Company’s common stock was shorter than the expected life of the options.

For the stock options granted during the three-month period ended March 29, 2014, the Company calculated expected volatility rate based on the combined volatility of publicly held companies in similar industries and the historical volatility of the Company’s common stock.  A 20% weight was assigned to the volatility of the Company’s common stock as the historical volatility of the Company’s common stock covers only the period since June 2008 in a thinly traded market.  The weighted average expected volatility for the stock options granted during the three-month period ended March 29, 2014 using this revised calculation method was approximately 70%.  The weighted average expected volatility would have been approximately 31%, if we calculated based on only publicly held companies in similar industries.

Inventories:  Inventories are comprised of raw materials, work-in-process and finished goods.  They are stated at the lower of cost, determined by the first-in, first-out method (FIFO) method, or market.  Labor and overhead has been added to inventory that was manufactured or characterized by the Company.  The amounts of major classes of inventory as of March 29, 2014 and December 28, 2013 are as follows:

	March 29, 2014		December 28, 2013
Reference standards	$	1,772,865	$	1,769,160
Bulk ingredients		980,912		694,965
		2,753,777		2,464,125
Less valuation allowance		261,000		260,000
	$	2,492,777	$	2,204,125

Earnings per share: Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of common stock options for the three-month period ending in March 29, 2014 and common stock options and warrants for the three-month period ending in March 30, 2013.  For all periods presented, the basic and diluted shares reported are equal because the common share equivalents are anti-dilutive.  Below is a tabulation of the potentially dilutive securities that were “in the money” for the three-month periods ended March 29, 2014 and March 30, 2013.

	Three Months Ended
	March 29, 2014		March 30, 2013
Basic weighted average common shares outstanding		106,076,361		94,626,120
Warrants and options in the money, net		4,855,625		3,298,337
Weighted average common shares outstanding assuming dilution		110,931,986		97,924,457

Total warrants and options that were not “in the money” at March 29, 2014 and March 30, 2013 were approximately 65,000 and 12,338,000, respectively.