PCTEL Secure - discontinued operations

9 Months Ended

Sep. 30, 2013

Discontinued Operations And Disposal Groups [Abstract]

PCTEL Secure - discontinued operations

7. PCTEL Secure – discontinued operations

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 designed 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 PCTEL Secure baseline product that its distribution channels had limited access to the target software markets, primarily U.S. government agencies. The Company was 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 its baseline product to market. Based on the lack of success of such efforts, the Company concluded, as of December 31, 2012, that the future potential revenue of PCTEL Secure was 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 of PCTEL Secure 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 all material assets associated with PCTEL Secure’s ProsettaCore™ technology to Redwall Technologies, LLC (“Redwall”), a development organization that specializes in mobile security, military and defense projects and systems, and critical national infrastructure. Under the terms of the agreement, Redwall acquired the server and device software (the “Software”), the underlying intellectual property, and complete development responsibility for the related products. At the closing of the divestiture, the

Company received no upfront cash payment, but the Company has the right to receive a royalty of 7% of the net sale price of each future sale or license of the Software and each provision of services related to the Software, if any. Under the agreement, royalties are capped at $10 million in the aggregate.

The consolidated financial statements separately reflect the PCTEL Secure operations as discontinued operations for all periods presented. Summary results of operations for the discontinued operations included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2013 and 2012 are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013			2012
Operating expenses	$	0	$	713		$	191		$	2,216
Other income, net		0		0			0			(41	)
Net loss attributable to noncontrolling interests		0		0			0			(686	)
Adjustments to redemption value of noncontrolling interests		0		0			0			647
Loss from discontinued operations, before income taxes		0		(713	)		(191	)		(2,136	)
Benefit for income tax		0		(297	)		(82	)		(622	)
Loss from discontinued operations, net of tax	$	0	($	416	)	($	109	)	($	1,514	)
Income (loss) from discontinued operations per common share:
Basic	$	0.00	($	0.02	)	($	0.01	)	($	0.09	)
Diluted	$	0.00	($	0.02	)	($	0.01	)	($	0.09	)
Weighted average shares:
Basic		17,841		17,493			17,766			17,368
Diluted		18,354		17,779			18,093			17,368

Assets and liabilities classified as discontinued operations held for sale on the condensed consolidated balances sheets as of September 30, 2013 and December 31, 2012 include the following:

	September 30, 2013		December 31, 2012
Cash and cash equivalents	$	0	$	16
Fixed assets		0		2
Total assets	$	0	$	18
Accounts payable	$	0	$	86
Accrued liabilities		0		17
Total liabilities	$	0	$	103