2.	Summary of Significant Accounting Policies

The Company's significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended January 1, 2011, which was filed with the SEC on March 25, 2011.

Revenue Recognition

Our revenues arise from the sale of laser consoles, delivery devices, consumables and service and support activities. Revenue from product sales is recognized upon receipt of a purchase order and product shipment provided that no significant obligations remain and collection of the receivables is reasonably assured. Shipments are generally made with Free-On-Board (FOB) shipping point terms, whereby title passes upon shipment from our dock. Any shipments with FOB receiving point terms are recorded as revenue when the shipment arrives at the receiving point. Cost is recognized as product sales revenue is recognized.

The Company's sales may include post-sales obligations for training and or other deliverables. For revenue arrangements with multiple deliverables such as these, effective for new or modified arrangements entered into beginning on January 2, 2011, the date we adopted the new revenue recognition guidance for arrangements with multiple deliverables on a prospective basis, we allocate arrangement consideration at the inception of the arrangement to all deliverables using the relative selling price method. This method requires us to determine the selling price at which each deliverable could be sold if it were sold regularly on a standalone basis. When available, we use vendor-specific objective evidence ("VSOE") of fair value as the selling price. VSOE represents the price charged for a deliverable when it is sold separately or for a deliverable not yet being sold separately, the price established by management with the relevant authority. We have established VSOE of fair value for our post-installation technical support services. When VSOE of fair value is not available, third-party evidence ("TPE") of fair value for similar products and services is acceptable; however, our offerings and market strategy differ from those of our competitors, such that we cannot obtain sufficient comparable information about third parties' prices. If neither VSOE nor TPE are available, we use our best estimates of selling prices ("BESP"). We determine BESP considering factors such as market conditions, sales channels, internal costs and product margin objectives, and pricing practices. We regularly review and update our VSOE, TPE and BESP information and obtain formal approval by appropriate levels of management. The relative selling price method allocates total arrangement consideration proportionally to each deliverable on the basis of its estimated selling price.

We use the residual method to allocate total arrangement consideration between delivered and undelivered items for any arrangements entered into prior to January 2, 2011. We also use the residual method of allocating the arrangement consideration in certain circumstances where we do not have VSOE on one or more elements of the arrangement. Under the residual method, the amount allocated to the undelivered elements equals VSOE of fair value of these elements. Any remaining amounts are attributed to the delivered items and are recognized when those items are delivered.

The adoption of the new revenue recognition guidance did not result in changes in what we identify as the individual deliverables to which revenue is allocated, or the timing of revenue recognition related to these individual deliverables. The change in the allocation method from residual to relative selling price did not have a material impact on our financial statements during the three months and six months ended July 2, 2011.

In international regions outside of France, we utilize distributors to market and sell our products. We recognize revenue upon shipment for sales to these independent, third party distributors as we have no continuing obligations subsequent to shipment. Generally our distributors are responsible for all marketing, sales, installation, training and warranty labor coverage for our products. Our standard terms and conditions do not provide price protection or stock retention rights to any of our distributors.

Deferred Revenue

Revenue related to extended service contracts is deferred and recognized on a straight line basis over the period of the applicable service contract. Costs associated with these service arrangements are recognized as incurred. A reconciliation of the changes in the Company's deferred revenue balance for the six months ended July 2, 2011 and January 1, 2011 is as follows:


	Six Months Ended
(in thousands)	July 2, 2011			January 1, 2011
Balance, beginning of period	$	2,134		$	2,266
Additions to deferral		2,611			2,451
Revenue recognized		(2,570	)		(2,583	)

Balance, end of period	$	2,175		$	2,134

Warranty

The Company accrues for estimated warranty cost upon shipment of products. Actual warranty costs incurred have not materially differed from those accrued. The Company's warranty policy is applicable to products which are considered defective in their performance or fail to meet the product specifications. Warranty costs are reflected in the statement of operations as cost of sales. A reconciliation of the changes in the Company's warranty liability for the six months ended July 2, 2011 and January 1, 2011 is as follows:


	Six Months Ended
(in thousands)	July 2, 2011			January 1, 2011
Balance, beginning of period	$	956		$	1,150
Accruals for product warranties		109			119
Cost of warranty claims and adjustments		(259	)		(313	)

Balance, end of period	$	806		$	956

Goodwill

All of the goodwill recorded as a result of the Company's acquisition of substantially all of the assets of RetinaLabs, Inc. ("RetinaLabs") is attributable to our ophthalmology segment. Goodwill is tested for impairment at least annually or whenever there is a change in circumstances that indicates the carrying value of these assets may be impaired. The determination of whether any potential impairment of goodwill exists is based upon a two-step impairment test performed in accordance with Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other. The carrying value of goodwill was $0.5 million at July 2, 2011 and $0.5 million at January 1, 2011. There was no impairment of goodwill recognized during the six months ended July 2, 2011 and July 3, 2010.

Intangible Assets

The purchase method of accounting for acquisitions requires estimates and assumptions to allocate the purchase price to the fair value of net tangible and intangible assets acquired. The amounts allocated to, and the useful lives estimated for, intangible assets, affect future amortization. There are a number of generally accepted valuation methods used to estimate fair value of intangible assets, and we use primarily a discounted cash flow method, which requires significant management judgment to forecast the future operating results and to estimate the discount factors used in the analysis. An asset is considered impaired if its carrying amount exceeds the value of future net cash flow the asset is expected to generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. There was no impairment recorded for the three and six months ended July 2, 2011 and July 3, 2010.

Future changes in events or circumstances, such as an inability to achieve the cash flows determined above, may indicate that the recorded value of the intangible assets will not be recovered through future cash flows and the Company may be required to record an impairment charge for the intangible assets or modify the period of expected lives for the intangible assets.

Intangible assets consist of the following (in thousands):


	July 2, 2011							January 1, 2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amortization Life
Services – Contractual Customer Relationships	$	2,132	$	(1,237	)	$	895	$	2,132	$	(1,156	)	$	976	8 years
Patents		600		(14	)		586		600		(7	)		593	Varies
Customer Relations		240		(20	)		220		240		(12	)		228	15 years

	$	2,972	$	(1,271	)	$	1,701	$	2,972	$	(1,175	)	$	1,797

Amortization expense totaled $96 thousand and $101 thousand for the six months ended July 2, 2011 and July 3, 2010, respectively.


Future estimated amortization expense (in thousands):
2011 (six months)	$	164
2012	$	299
2013	$	350
2014	$	415
2015	$	207
Thereafter	$	266

Total	$	1,701

Stock Repurchases

In March 2011, the Company purchased the remaining 75,698 shares of our common stock held by American Medical Systems Holdings, Inc (AMS) that were issued to AMS as part of a 2007 purchase transaction at $4.00 per share. In May 2011, the Company approved a stock repurchase program authorizing the Company to purchase in open market or privately negotiated transactions, up to $2.0 million worth of our common stock, from time to time during the next 12 months. For the three and six months ended July 2, 2011, the Company has purchased 25,400 and 101,098 shares at an average price of $3.84 and $3.96 per share, respectively. There were no shares repurchased for the three and six month periods ending July 3, 2010. As of July 2, 2011, $1.9 million of share remain subject to repurchase under the stock repurchase program.