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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Stock-Based Compensation | Stock-Based Compensation Stock-based compensation expense is recognized in the Company's consolidated statements of operations and includes compensation expense for the stock-based compensation awards granted or modified subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of the amended authoritative guidance. The impact of the amended authoritative guidance on the Company's consolidated financial statements for the third quarter of 2012 and 2011 was as follows (in thousands):
| Three Months Ended |  | Nine Months Ended
| September 30, 2012 |  | October 2, 2011 |  | September 30, 2012 |  | October 2, 2011
Cost of revenue | $ | 69 |  |  | $ | 34 |  |  | $ | 140 |  |  | $ | 104 |
Research and development | 147 |  |  | 114 |  |  | 339 |  |  | 354 |
Selling, general and administrative | 385 |  |  | 264 |  |  | 940 |  |  | 833 |
Total costs and expenses | $ | 601 |  |  | $ | 412 |  |  | $ | 1,419 |  |  | $ | 1,291 |
The amount of stock-based compensation included in inventories for the third quarter of 2012 and 2011 was not significant. Valuation Assumptions The amended authoritative guidance requires companies to estimate the fair value of stock-based compensation awards. The fair value of stock-based compensation awards is measured at the grant date and re-measured upon modification, as appropriate. The Company uses the Black-Scholes option pricing model to estimate the fair value of employee stock options and rights to purchase shares under the Company's ESPP, consistent with the provisions of the amended authoritative guidance. Using the Black-Scholes pricing model requires the Company to develop highly subjective assumptions including the expected term of awards, expected volatility of its stock, expected risk-free interest rate and expected dividend rate over the term of the award. The Company's expected term of awards assumption is based primarily on its historical experience with similar grants. The Company's expected stock price volatility assumption for both stock options and ESPP shares is based on the historical volatility of the Company's stock, using the daily average of the opening and closing prices and measured using historical data appropriate for the expected term. The risk-free interest rate assumption approximates the risk-free interest rate of a Treasury Constant Maturity bond with a maturity approximately equal to the expected term of the stock option or ESPP shares. This fair value is expensed over the requisite service period of the award. The fair value of restricted stock awards, or RSAs and restricted stock units, or RSUs is based on the closing price of the Company's common stock on the date of grant. Equity compensation awards which vest with service are expensed using the straight-line attribution method over the requisite service period. In addition to the assumptions used in the Black-Scholes pricing model, the amended authoritative guidance requires that the Company recognize expense for awards ultimately expected to vest; therefore we are required to develop an estimate of the number of awards expected to be forfeited prior to vesting, or forfeiture rate. The forfeiture rate is estimated based on historical pre-vest cancellation experience and is applied to all share-based awards. The following weighted average assumptions are included in the estimated fair value calculations for stock option grants:
| Three Months Ended |  | Nine Months Ended
| September 30, 2012 |  | October 2, 2011 |  | September 30, 2012 |  | October 2, 2011
Expected term (years) | 4.92 |  |  | 4.93 |  |  | 5.58 |  |  | 4.93 |
Risk-free interest rate | 0.67 | % |  | 1.15 | % |  | 0.89 | % |  | 1.50 | %
Expected volatility | 65.56 | % |  | 60.93 | % |  | 62.59 | % |  | 59.96 | %
Expected dividend yield | — |  |  | — |  |  | — |  |  | — |
The methodologies for determining the above values were as follows:
• | Expected term: The expected term represents the period that the Company's stock-based awards are expected to be outstanding and is estimated based on historical experience.
• | Risk-free interest rate: The risk-free interest rate assumption is based upon the risk-free rate of a Treasury Constant Maturity bond with a maturity appropriate for the expected term of the Company's employee stock options.
• | Expected volatility: The Company determines expected volatility based on historical volatility of the Company's common stock according to the expected term of the options.
• | Expected dividend yield: The expected dividend assumption is based on the Company's intent not to issue a dividend under its dividend policy.
The weighted average estimated fair value for options granted during the third quarter of 2012 and 2011 were $1.17 and $1.45 per option, respectively. The weighted average estimated fair value for options granted during the first nine months of 2012 and 2011 were $1.50 and $1.72, respectively. As of September 30, 2012, the fair value of unvested stock options, net of expected forfeitures, was approximately $2.0 million. This unrecognized stock-based compensation expense is expected to be recorded over a weighted average period of 2.32 years. Stock-Based Compensation Award Activity The following table summarizes the shares available for grant under the 2009 Plan as of September 30, 2012:
| Shares Available for Grant
| (in thousands)
Balance at January 1, 2012 | 2,969 |
Authorized | — |
Options granted | (429 | )
Options forfeited or expired | 493 |
RSUs granted | (2 | )
RSUs forfeited or expired | — |
Balance at September 30, 2012 | 3,031 |
Stock Options The following table summarizes stock options outstanding and stock option activity under the 1999 Plan and the 2009 Plan, and the related weighted average exercise price, for the first nine months of 2012:
| Number of Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Term |  | Aggregate Intrinsic Value
| (in thousands) |  |  |  | (in years) |  | (in thousands)
Balance outstanding at January 1, 2012 | 7,483 |  |  | $ | 2.58 |  |  |  |  |
Granted | 345 |  |  | 2.76 |  |  |  |  |
Forfeited or expired | (493 | ) |  | 3.60 |  |  |  |  |
Exercised | (353 | ) |  | 1.87 |  |  |  |  |
Balance outstanding at September 30, 2012 | 6,982 |  |  | $ | 2.56 |  |  | 6.00 |  |  | $ | 3,114 |
Exercisable at September 30, 2012 | 5,017 |  |  | $ | 2.53 |  |  | 5.06 |  |  | $ | 2,683 |
Vested and expected to vest at September 30, 2012 | 6,669 |  |  | $ | 2.55 |  |  | 5.88 |  |  | $ | 3,065 |
The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company's closing stock price of $2.80 as of the end of the Company's current reporting period, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the first nine months of 2012 and 2011 was $338,000 and $1.8 million, respectively. Total cash received from employees as a result of employee stock option exercises during the first nine months of 2012 and 2011 was approximately $660,000 and $1.6 million, respectively. The Company settles employee stock option exercises with newly issued common shares. In connection with these exercises, there was no tax benefit realized by the Company due to the Company's current loss position. Total stock-based compensation related to stock options was $601,000 and $1.4 million for the third quarter and first nine months of 2012, respectively. Restricted Stock Awards and Restricted Stock Units The Company began issuing RSAs, in the second quarter of 2007 and RSUs, in the third quarter of 2007. RSAs entitle the holder to purchase shares of common stock at par value during a short period of time, and purchased shares are held in escrow until they vest. RSUs entitle the holder to receive, at no cost, one common share for each restricted stock unit as it vests. The Company withheld shares in settlement of employee tax withholding obligations upon the vesting of restricted stock units. The stock-based compensation related to RSUs was $185,000 for the third quarter of 2012. As of September 30, 2012, there were no unrecognized compensation expense related to RSUs.
| RSUs Outstanding
| Number of Shares |  | Weighted Average Grant Date Fair Value
| (in thousands) |  |
Nonvested at January 1, 2012 | — |  |  | $ | — |
Granted | 86 |  |  | 2.19 |
Vested | (86 | ) |  | 2.19 |
Forfeited | — |  |  | — |
Nonvested at September 30, 2012 | — |  |  | $ | — |
Employee Stock Purchase Plan The weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company's 2009 ESPP plan during the third quarter of 2012 and 2011 was $1.15 and $0.80 per right, respectively. As of September 30, 2012, 2.3 million shares remained available for issuance under the 2009 ESPP. For the third quarter of 2012, the Company recorded compensation expense related to the ESPP of $56,000. The fair value of rights issued pursuant to the Company's ESPP was estimated on the commencement date of each offering period using the following weighted average assumptions:
| Three Months Ended |  | Nine Months Ended
| September 30, 2012 |  | October 2, 2011 |  | September 30, 2012 |  | October 2, 2011
Expected term (months) | 6.08 |  |  | 6.00 |  |  | 6.08 |  |  | 6.00 |
Risk-free interest rate | 0.14 | % |  | 0.10 | % |  | 0.14 | % |  | 0.10 | %
Volatility | 67.93 | % |  | 47.00 | % |  | 67.93 | % |  | 47.00 | %
Dividend yield | — |  |  | — |  |  | — |  |  | — |
The methodologies for determining the above values were as follows:
• | Expected term: The expected term represents the length of the purchase period contained in the ESPP.
• | Risk-free interest rate: The risk-free interest rate assumption is based upon the risk-free rate of a Treasury Constant Maturity bond with a maturity appropriate for the term of the purchase period.
• | Volatility: The Company determines expected volatility based on historical volatility of the Company's common stock for the term of the purchase period.
• | Dividend yield: The expected dividend assumption is based on the Company's intent not to issue a
dividend under its dividend policy. As of September 30, 2012, the unrecognized stock-based compensation expense relating to the Company's ESPP was $28,000 and is expected to be recognized over a weighted average period of approximately 1.50 months.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
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