Non-Employee Share-Based Compensation

9 Months Ended

Oct. 01, 2011

Notes to Financial Statements

Note 5.Non-Employee Share-Based Compensation

Stock Option Plans

At the discretion of management 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 remeasured 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 October 1, 2011, and changes during the nine months then ended:

			Weighted Average
					Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding at January 1, 2011		1,097,300	$	1.23
Options Granted		-		-
Options Classification from Employee to Non-Employee		67,500		1.55
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at October 1, 2011		1,164,800	$	1.25		6.63	$	94,400
Exercisable at October 1, 2011		839,879	$	1.16		5.97	$	90,600

The aggregate intrinsic values in the table above are before income taxes, based on the Company’s closing stock price of $0.82 on the last day of business for the period ended October 1, 2011.

As of October 1, 2011, there was $29,294 of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted to non-employees. That cost is expected to be recognized over a weighted average period of 0.71 year as of October 1, 2011.  The fair value of the options that vested during the nine months ended October 1, 2011 was $38,843.

Restricted Stock

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

On June 23, 2011, the Company awarded 630,000 shares of restricted stock at a purchase price of $0.14 per share to certain consultants as compensation for services to the Company.  These restricted shares will fully vest on April 19, 2012, provided that no termination events defined in the related consulting agreements have occurred on or prior to such dates.  On July 13, 2011 the Company awarded 40,000 shares of restricted stock at a purchase price of $0.14 per share to a certain consultant as compensation for services to the Company.  These restricted shares will fully vest on July 13, 2012, provided that no termination events defined in the related consulting agreements have occurred on or prior to such dates and certain performance conditions have been met.

The fair value of the Company’s restricted stock awards was $986,200 which represents the market value of the Company’s common stock on the date of award less the purchase price.

The following table summarizes activity of restricted stock awards to non-employees at October 1, 2011 and changes during the nine months then ended:

			Weighted Average
			Award-Date
	Shares		Fair Value
Unvested shares at January 1, 2011		-	$	-
Granted		670,000		1.47
Vested		-		-
Forfeited		-		-
Unvested shares at October 1, 2011		670,000	$	1.47
Expected to Vest as of October 1, 2011		670,000	$	1.47

As of October 1, 2011, there was $666,105 of total unrecognized compensation expense related to restricted stock awards to non-employees.  That cost is expected to be recognized over a period of 0.57 year as of October 1, 2011.

For non-employee share-based compensation, the Company recognized share-based compensation expense of $444,263 in general and administrative expenses in the statement of operations for the nine months ended October 1, 2011. The Company recognized $46,523 in share-based compensation expense for the comparable period in 2010.