Note 4 - Employee Stock Benefit Plans

9 Months Ended

Sep. 30, 2011

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

4.   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 disclosed in Note 1, all share information has been adjusted to reflect the Reverse/Forward Split.

As of September 30, 2011, the Company had an aggregate of 1.8 million shares of its common stock reserved for issuance under its 2004 Equity Incentive Plan, of which 57,500 shares were subject to outstanding options and other stock-based awards and 1.7 million shares were available for future grants of options and other stock-based awards. As of September 30, 2011, the Company had an aggregate of 0.1 million shares of its common stock reserved for issuance under its 2006 Director Plan, of which 57,601 shares were subject to outstanding options and other stock-based awards and 30,517 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 September 30, 2011 and changes during the nine-month period ended September 30, 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		80		$	35.61
Granted		25		$	29.10
Exercised		(1	)	$	28.60
Forfeited		(1	)		28.40
Expired		(7	)	$	62.10
Outstanding at September 30, 2011		96		$	31.96		60.10	$	-
Options vested and expected to vest at September 30, 2011		84		$	32.36		58.90	$	-
Options exercisable at September 30, 2011		69		$	33.09		55.90	$	-

The aggregate intrinsic value is calculated as the difference between the closing price of the Company’s common stock on the Pink Sheets Electronic Quotation Service and the exercise price of the underlying awards for the 68,771 shares subject to options that were in-the-money at September 30, 2011.  As of September 30, 2011, the total unamortized stock-based compensation expense related to non-vested stock options, net of estimated forfeitures, was approximately $0.2 million and this expense is expected to be recognized over a remaining weighted-average period of 2.0 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 September 30, 2011, there were 1,625 shares of service-based restricted stock awards and 17,500 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 September 30, 2011 and changes during the nine-month period ended September 30, 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)		8		$	29.24
Awarded		15		$	0.10
Vested		(4	)	$	28.49
Forfeited		-			28.39
Non-vested restricted stock at September 30, 2011 (1)		19		$	29.49

(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 Statements of Operations at the date of grant or the date of modification.

All restricted stock was awarded at the par value of $0.01 per share.  As of September 30, 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 $32,463 and this expense is expected to be recognized over a remaining weighted-average period of 2.0 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 Condensed Statements of Operations for the three-month and nine-month periods ended September 30, 2011 and October 1, 2010 was as follows:

	Three-Month Period Ended				Nine-Month Period Ended
	September 30, 2011		October 1, 2010		September 30, 2011		October 1, 2010
	(in thousands)
Stock-based compensation expense by caption:
Research and development	$	-	$	-	$	-	$	-
Selling, marketing and administrative		30		-		491		624
Effect on income from continuing operations	$	30	$	-	$	491	$	624
Stock-based compensation expense by award type:
Stock options	$	26	$	-	$	43	$	196
Restricted stock awards and restricted stock units		4		-		448		428
Effect on income from continuing operations	$	30	$	-	$	491	$	624

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 nine-month periods ended September 30, 2011 and October 1, 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 nine-month periods ended September 30, 2011 and October 1, 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 nine-month periods ended October 1, 2010 for stock options and other stock-based awards.  No grants were made in the three-month period ended September 30, 2011. The fair value of the stock-based awards granted in the nine-month period ended September 30, 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