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PCTEL Secure
3 Months Ended
Mar. 31, 2013
PCTEL Secure [Abstract]  
PCTEL Secure

7. PCTEL Secure

On January 5, 2011, the Company formed PCTEL Secure LLC (“PCTEL Secure”), a joint venture limited liability company, with Eclipse Design Technologies, Inc. (“Eclipse”). PCTEL Secure designs Android-based, secure communication products. The Company contributed $2.5 million in cash on the formation of the joint venture in return for 51% ownership of the joint venture. In return for 49% ownership of the joint venture, Eclipse contributed $2.4 million of intangible assets in the form of intellectual property and a services agreement, including an assembled workforce, to provide services. At the date of formation the weighted average amortization period of the intangible assets acquired was 2.4 years. The Company estimated the fair value and remaining useful lives of the assets.

The limited liability company agreement of PCTEL Secure, as amended, provided several mechanisms for the orderly transition of the Company’s ownership from 51% to 100%. The Company purchased an additional 19% of the membership interests for $0.9 million on May 29, 2012 and the remaining 30% of the membership interests for $0.8 million on July 2, 2012. During the periods that the Company did not own 100% of the membership interests, Eclipse’s membership interests were recorded as non-controlling interest.

The Company learned through its marketing efforts for the baseline product that its current distribution channels have limited access to the target software markets, primarily U.S. Government Agencies. The Company has been in active discussions with a number of potential distribution entities with U.S. Government Agency access through December 31, 2012, and in January 2013 the Company engaged Wunderlich Securities, Inc. to evaluate strategic alternatives for PCTEL Secure, including a further search for a distribution entity that could take the product to market. Based on the lack of success of such efforts, the Company concluded, as of December 31, 2012, the future potential revenue is indeterminate, resulting in management’s forecast of future undiscounted cash flow to be in a range at or below zero. Based on these revised forecast cash flows, the Company concluded that the intangible assets were impaired at December 31, 2012. The Company recorded intangible asset impairment expense of $1.1 million in December 2012.

On April 30, 2013, the Company divested the assets of PCTEL Secure business to Redwall Technologies, LLC. See footnote 15 related to subsequent events for more information on the sales of the PCTEL Secure business.