Commitments and Contingencies

6 Months Ended

Jul. 02, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

6. Commitments and Contingencies

Operating Leases

We lease our offices and production facilities under a non-cancelable operating lease that expires in November 2016. This lease contains escalation clauses for increases in annual renewal options and requires us to pay utilities, insurance, taxes and other operating expenses.

For the three and six months ended July 2, 2011 rent expense was $274,000 and $551,000, respectively, and for the three and six months ended July 3, 2010 rent expense was $259,000 and $545,000, respectively.

Patents and Licenses

We have entered into various licensing agreements requiring royalty payments ranging from 0.13% to 2.5% of specified product sales. Certain of these agreements contain provisions for the payment of guaranteed or minimum royalty amounts. In the event that we fail to pay minimum annual royalties, these licenses may automatically become non-exclusive or be terminated. These royalty obligations terminate at various times from 2011 to 2018. Royalty expense totaled $44,000 and $87,000 in the second quarter and year to date in 2011, respectively, compared to $46,000 and $92,000 in the second quarter and year to date in 2010, respectively. Under the terms of certain royalty agreements, royalty payments made may be subject to audit. There have been no audits to date and we do not expect future audit adjustments to be significant.

The minimum lease payments under operating leases and license obligations are as follows:

Years ending December 31,	Licenses		Operating Leases
Remainder of 2011	$	—	$	653,000
2012		25,000		1,336,000
2013		25,000		1,368,000
2014		30,000		1,408,000
2015		45,000		1,448,000
Thereafter		135,000		1,364,000
Total payments	$	260,000	$	7,577,000

In March 2011, we decided to use certain of our own technologies and as a result we voluntarily terminated a patent license we had with a third party along with certain other related intangible assets. As a result, capitalized cost of $0.8 million was charged to expense during our first quarter and a $1.35 million license obligation was terminated. The above table reflects that termination.