Einstein Bros 2006 Annual Report Download - page 51

http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10-k.htm[9/11/2014 10:12:36 AM]
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R,
Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and its related implementation guidance. SFAS No. 123R
focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement
requires entities to recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of those
awards (with limited exceptions).
Effective January 4, 2006, we adopted the provisions of SFAS No. 123R using the modified prospective transition method. Results for periods
prior to adoption have not been restated. Prior to the adoption of SFAS No. 123R, we applied the intrinsic value-based method of accounting
prescribed by APB No. 25 and related interpretations, in accounting for our fixed award stock options to our employees. As such, compensation
expense was recorded only if the current market price of the underlying common stock exceeded the exercise price of the option on the date of
grant. We applied the fair value-basis of accounting as prescribed by SFAS No. 123 in accounting for our fixed award stock options to our
consultants. Under SFAS No. 123, compensation expense was recognized based on the fair value of stock options granted.
Because we previously adopted only the pro forma disclosure provisions of SFAS No. 123, we are recognizing compensation cost, over the
requisite service period, relating to the unvested portion of awards granted prior to the date of adoption using the same estimate of the grant-date
fair value and the same attribution method used to determine the pro forma disclosures under SFAS No. 123, except that forfeiture rates are
estimated for all options, as required by SFAS No. 123R.
Our stock-based compensation cost for the year ended January 2, 2007, January 3, 2006 and December 28, 2004 was $654,000, $69,000 and
$68,000, respectively and has been included in general and administrative expenses. The impact of adoption of SFAS No. 123R had the effect of
increasing our loss
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per share by $0.06 for year to date period ended January 2, 2007. No tax benefits were recognized for these costs due to our recurring cumulative
losses.
The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
January 2,
2007
January 3,
2006
December 28,
2004
Expected life of options from date of grant 4.0 years 4.0 years 4.0 years
Risk-free interest rate 4.35-4.84% 3.55-4.44% 2.7-3.4%
Volatility 100.0% 100.0% 100.0%
Assumed dividend yield 0.0% 0.0% 0.0%
Had compensation cost for stock options granted to associates been determined on the basis of fair value for periods prior to fiscal 2006 using
the aforementioned assumptions, net loss and loss per share would have been increased to the following pro forma amounts (in thousands of
dollars, except per share amounts):
January 3,
2006
December 28,
2004
Net loss, as reported $ (14,018) $ (17,405)
Deduct: fair value based compensation expense (1,164) (544)
Pro forma net loss (15,182) (17,949)
Basic and diluted loss per common share:
As reported $ (1.42) $ (1.77)
Pro forma $ (1.54) $ (1.82)