Commitments and Contingencies

3 Months Ended

Jul. 02, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 9 - Commitments and Contingencies

Indemnification

As is customary in the Company's industry, the Company has agreed to defend certain customers, distributors, suppliers, and subcontractors against certain claims which third parties may assert that its products allegedly infringe on certain of their intellectual property rights, including patents, trademarks, trade secrets, or copyrights.  The Company has agreed to pay certain amounts of any resulting damage awards and typically has the option to replace any infringing product with non-infringing product.  The terms of these indemnification obligations are generally perpetual from the effective date of the agreement.  In certain cases, there are limits on and exceptions to the Company's potential liability for indemnification relating to intellectual property infringement claims.  The Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements.  To date, the Company has not paid any damage awards nor has it been required to defend any claims related to its indemnification obligations, and accordingly, it has not accrued any amounts for indemnification obligations.  However, there can be no assurance that the Company will not have any financial exposure under those indemnification obligations in the future.

Legal Proceedings

From time to time the Company is subject to possible claims or assessments from third parties arising in the normal course of business.  Management has reviewed such possible claims and assessments with the Company's outside legal counsel and believes that it is unlikely that they will result in any material adverse effect on the Company's financial condition, results of operations, or cash flows.  The Company is not currently involved in any legal proceeding that it believes will materially and adversely affect its business, financial condition, results of operations or cash flows.

The Company engaged in certain export-related activities consisting of having one of the Company's integrated circuits shipped to assemblers and its wholly-owned subsidiary in the Far East for assembly and test that may have inadvertently violated the International Traffic and Arms Regulations ("ITAR") and the Arms Export Control Act.  Upon discovery, the Company voluntarily notified the U.S. Department of State and has been investigating the facts and circumstances since March 2010. Should the actions of shipping these products to offshore facilities for assembly and testing have violated ITAR, the Company could face substantial civil fines or other penalties at the discretion of the U.S. Department of State, which to date has not imposed any fine or penalty. While at this time the Company is unable to estimate the extent of any fines or penalties or other potential losses that it may incur with respect to this matter, the Company believes that it is not probable, although not remote, that the ultimate outcome would have a material adverse effect on the Company. Since becoming aware of these potential ITAR issues, the Company has moved the assembly and testing of these products to ITAR-certified onshore facilities.

Product Return and Warranty Reserves

The Company's standard policy is to accept the return of defective parts for credit from non-distributor customers for a period of 90 days from date of shipment. This period may be extended in certain cases. The Company records estimated product returns as a reduction to revenue in the same period as the related revenues are recorded. These estimates are based on historical experience, analysis of outstanding returned material authorizations and allowance authorization data.

The reductions to revenue for estimated product returns for the three months ended July 2, 2011 and July 3, 2010 are as follows (in thousands):

Description	Balance at Beginning of Period		Charge(1)		Deductions and Other			Balance at End of Period
Three months ended July 2, 2011	$	234	$	24	$	(43	)	$	215
Three months ended July 3, 2010	$	217	$	136	$	(26	)	$	327

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(1) Represent amounts charged to the allowance for sales returns.

While the Company's sales returns are historically within the allowance established, it cannot guarantee that it will continue to experience the same return rates that it has had in the past.  Any significant increase in product failure rates and the resulting sales returns could have a material adverse effect on the operating results for the period or periods in which such returns materialize.

For sales through distributors, the Company's policy is to replace under warranty defective products at its own expense for a period of 90 days from date of shipment. This period may be extended in certain cases. This liability is limited to replacement of the product along with freight and delivery costs. In certain cases, the Company may pay for rework.

The Company reserves for estimated warranty costs in the same period as the related revenues are recorded. The estimate is based on historical expenses and is recorded as cost of sales. The warranty reserve was $54,000 and $114,000 as of July 2, 2011 and July 3, 2010, respectively.

Operating Lease Obligations

The Company's future minimum lease payments under non-cancelable operating leases as of July 2, 2011 are as follows (in thousands):

Payment Due by Year	Operating Lease
Less than 1 year	$	798
2 years		697
3 years		611
4 years		625
5 years		533
	$	3,264

The Company leases facilities under non-cancelable lease agreements expiring at various times through April 2016.  Rental expense for the three months ended July 2, 2011 amounted to $288,000 compared to $301,000 for the same period of last fiscal year.