Note 3 - Employee Stock Benefit Plans

6 Months Ended

Jul. 01, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3. Employee Stock Benefit Plans

Stock Benefit Plans

The Company grants stock options and other stock-based awards to employees, directors and consultants under two equity incentive plans, the 2004 Equity Incentive Plan and the 2006 Director Plan.

As of July 1, 2011, the Company had an aggregate of 18.0 million shares of its common stock reserved for issuance under its 2004 Equity Incentive Plan, of which 0.6 million shares were subject to outstanding options and other stock-based awards and 17.4 million shares were available for future grants of options and other stock-based awards.  As of July 1, 2011, the Company had an aggregate of 0.9 million shares of its common stock reserved for issuance under its 2006 Director Plan, of which 0.6 million shares were subject to outstanding options and other stock-based awards and 0.3 million shares were available for future grants of options and other stock-based awards. 

Stock Benefit Plans Activities

Stock Options: A summary of option activity under all of the Company’s equity incentive plans as of July 1, 2011 and changes during the six-month period ended July 1, 2011 was as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
	(in thousands, except exercise price and contractual terms)
Outstanding at December 31, 2010		799		$	3.56
Granted		250		$	2.91
Exercised		(10	)	$	2.86
Forfeited		-			-
Expired		(55	)	$	6.99
Outstanding at July 1, 2011		984		$	3.21		6.19	$	61
Options vested and expected to vest at July 1, 2011		843		$	3.26		6.02	$	49
Options exercisable at July 1, 2011		664		$	3.35		5.61	$	34

The aggregate intrinsic value is calculated as the difference between the price of the Company’s common stock on the Pink Sheets Electronic Quotation Service and the exercise price of the underlying awards for the 0.6 million shares subject to options that were in-the-money at July 1, 2011.  As of July 1, 2011, the total unamortized stock-based compensation expense related to non-vested stock options, net of estimated forfeitures, was approximately $0.3 million and this expense is expected to be recognized over a remaining weighted-average period of 2.3 years.

Restricted Stock: Restricted stock awards and restricted stock units (collectively, “restricted stock”) were granted under the Company’s 2004 Equity Incentive Plan and 2006 Director Plan.  As of July 1, 2011, there were 18,959 shares of service-based restricted stock awards and 212,500 shares of restricted stock units outstanding.  The cost of restricted stock, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse.

A summary of activity for restricted stock as of July 1, 2011 and changes during the six-month period ended July 1, 2011 was as follows:

				Weighted Average
	Shares			Grant-Date Fair Value
	(in thousands, except weighted average grant-date fair value)
Non-vested restricted stock at December 31, 2010 (1)		84		$	2.91
Awarded		150		$	0.00
Vested		(3	)	$	2.84
Forfeited		-			-
Non-vested restricted stock at July 1, 2011 (1)		231		$	2.91

(1)Non-vested restricted stock at each period included shares issued to certain non-employee directors in which vesting will occur immediately if the relationship between the Company and the non-employee director ceases for any reason.  These non-vested shares were recognized and fully expensed as stock-based compensation expense in the Unaudited Condensed Consolidated Statements of Operations at the date of grant or the date of modification.

All restricted stock was awarded at the par value of $0.001 per share.  As of July 1, 2011, the total unamortized stock-based compensation expense related to non-vested restricted stock that is expected to vest, net of estimated forfeitures, was approximately $36,400 and this expense is expected to be recognized over a remaining weighted-average period of 2.3 years.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation expense for all stock-based awards made to its employees and directors based on estimated fair values using a straight-line amortization method over the respective requisite service period of the awards and adjusted it for estimated forfeitures.  In addition, the Company applies the simplified method to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, which is available to absorb tax shortfalls.

Stock-based compensation expense included in the Unaudited Condensed Consolidated Statements of Operations for the three-month and six-month periods ended July 1, 2011 and July 2, 2010 was as follows:

	Three-Month Period Ended				Six-Month Period Ended
	July 1, 2011		July 2, 2010		July 1, 2011		July 2, 2010
	(in thousands)
Stock-based compensation expense by caption:
Research and development	$	-	$	72	$	-	$	227
Selling, marketing and administrative		452		162		460		624
Effect on income (loss) from continuing operations	$	452	$	234	$	460	$	851
Stock-based compensation expense by award type:
Stock options	$	12	$	165	$	16	$	423
Restricted stock awards and restricted stock units		440		69		444		428
Effect on income (loss) from continuing operations	$	452	$	234	$	460	$	851

Stock-based compensation expense in the above table does not reflect any significant income tax expense, which is consistent with the Company’s treatment of income or loss from its United States operations.  For the three-month and six-month periods ended July 1, 2011 and July 2, 2010, there were no income tax benefits realized for the tax deductions from option exercises of the stock-based payment arrangements. In addition, there was no stock-based compensation costs capitalized as part of an asset in the three-month and six-month periods ended July 1, 2011 and July 2, 2010 as the amounts were not material.

Valuation Assumptions

The Company used the Black-Scholes option pricing model for determining the estimated fair value for all stock-based awards.  No grants were made in the three-month and six-month periods ended July 2, 2010 for stock options and other stock-based awards.  The fair value of the stock-based awards granted in the three-month and six-month periods ended July 1, 2011 was estimated using the following weighted average assumptions:

	Assumption
Expected life (in years)		4.3
Risk-free interest rates		1.5	%
Expected volatility		44	%
Dividend yield		0.0
Weighted average fair value of restricted stock		$1.09