NOTE 12. STOCK BASED COMPENSATION

Stock-based compensation expense for all stock-based award programs, including grants of stock options and restricted stock awards, is recorded in accordance with "Compensation—Stock Compensation", Topic 718 of the FASB ASC. Stock-based compensation expense, which is calculated net of estimated forfeitures, is computed using the grant date fair-value method on a straight-line basis over the requisite service period for all stock awards that vest during the period. The grant date fair value for stock options is calculated using the Black-Scholes option valuation model. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. All employee stock options were granted at or above the grant date market price. Stock-based compensation expense is reported under general and administrative expenses on the accompanying consolidated statements of operations.

The Company's 2008 Stock Option and Performance Incentive Plan (the "2008 Plan") provides for the granting of various forms of awards, which has a maximum of 800,000 shares of common stock available. The shares available for issuance under the 2008 Plan are comprised of the following: (i) unissued shares of Common Stock previously available for issuance under the Company's 2003 Stock Option and Performance Incentive Plan (the "2003 Plan"), which were never granted or issued and are being carried forward into the Company's 2008 Plan, and (ii) additional shares of Common Stock not previously available for issuance under incentive compensation plans. As of December 29, 2012, there were a total of 77,247 shares available for future grants under the 2008 Plan. All of the Company's prior stock option plans have expired as to the ability to grant new options.

Awards granted under the plan have a ten-year term and may be incentive stock options, non-qualified stock options or restricted shares. The awards are granted at an exercise price equal to the fair market value on the date of grant and generally vest over a three or four year period. The granted restricted stock awards generally become exercisable at the maximum rate of approximately 33% per annum, to the extent certain Company performance goals, as approved by the Compensation and Plan Administration Committee are achieved. The price for stock options is payable in cash at the time of the exercise or, at the discretion of the Administrators, through the delivery of shares of Common Stock or the Company's withholding of shares otherwise deliverable to the employee, or a combination thereof. We recognize compensation expense ratably over the vesting period, net of estimated forfeitures. There were no stock options exercised during the 52-week period ended December 29, 2012. Restricted stock of 32,555 shares vested during fiscal 2012.

In accordance with Topic 718 of the FASB ASC, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions below for grants during fiscal 2010:

		2010 Grants

Expected dividend rate		$0.00
Expected volatility		59.5 - 59.6%
Risk free interest rate		1.5%
Expected lives (years)		3.0

The fair value of options granted during fiscal 2010 was $1.94. No options were granted in fiscal 2011 and 2012.

The following table summarizes all stock option transactions for the fiscal year ended December 29, 2012:

			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value(1)

Shares under options as of January 1, 2012	756,675		$	12.64
Options granted in 2012	—			—
Options exercised in 2012	—			—
Options canceled in 2012	(91,000	)		12.81

Shares under options as of December 29, 2012	665,675		$	12.61	2.3 years	$	—

Exercisable as of December 29, 2012	645,675		$	12.87	2.1 years	$	—

(1): The aggregate intrinsic value in the table above is based on the Company's closing stock price as of the last business day of the period ended December 29, 2012, which was $2.42.

The following table summarizes the Company's non-vested stock options for the year ended December 29, 2012:

			Weighted Average Grant Date Fair Value

Non-vested options:
At January 1, 2012	31,666		$	1.79
Vested	(11,666	)		1.86

At December 29, 2012	20,000		$	1.75

The following table summarizes all restricted stock transactions for the year ended December 29, 2012:

			Weighted Average Grant-Date Fair Value

Non-vested as of January 1, 2012	554,666		$	5.42
Granted in 2012	12,000			6.70
Vested in 2012	(32,555	)		5.17
Cancelled in 2012	(29,777	)		5.31

Non-vested as of December 29, 2012	504,334		$	5.47

During fiscal 2012, the Company granted 12,000 shares of restricted stock awards to employees who hold various positions within the Company. These shares vest over a three year period based on the Company meeting performance goals. The total grant-date fair value of restricted stock that vested as of December 29, 2012 was approximately $132,000. During fiscal 2012, the Company had a non-cash transaction from the issuance of 14,000 shares of the Company's common stock to its board members. As a result of this issuance, approximately $94,000 was recorded under share-based compensation based on the closing price on the date of grant. Topic 718 "—Compensation—Stock Compensation", of the FASB ASC, requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised ("excess tax benefits") be classified as financing cash flows. No excess tax benefits were recorded during fiscal 2012, 2011 and 2010.

As of December 29, 2012 there was approximately $1.7 million of future compensation cost related to nonvested share-based compensation awards granted under the 2008 Plan. Approximately $1.6 million of the future compensation costs relate to the Company meeting certain performance goals and $160,000 is based on reaching the requisite service period. These costs are expected to be recognized over a weighted average period of 1.9 years.