Discontinued Operations

12 Months Ended

Dec. 31, 2012

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

As of September 30, 2011, we identified a change in circumstances that indicated the carrying amount of our long-lived assets may not be recoverable, as our primary AssuredUVS customer informed us that the AssuredUVS software would no longer be a component of its business strategy, which would result in a significant decline in revenues for the Company. Our long-lived assets consisted of the intangible assets associated with our acquisition in January 2010 of certain identified Cloverleaf assets, with an original carrying value of $5.0 million and property and equipment of $1.2 million.

Since we did not have an immediate replacement for our AssuredUVS customer, management’s forecasted undiscounted cash flows indicated that the assets were potentially not recoverable, and proceeded to estimate the fair value of each long-lived asset. Property and equipment consisted of mostly machinery and equipment used for testing and development of our AssuredUVS technology. Management determined that carrying value approximated fair value, as property was either acquired in the 2010 acquisition of Cloverleaf, had been purchased subsequently, or could be re-deployed, establishing recent evidence of fair value. It was depreciated over a 3 – 5 year estimated useful life.

Intangible assets consisted primarily of acquired software with a net book value of $4.9 million and a trade name with a net book value of $0.1 million. We determined the fair value of the acquired software by estimating the replacement cost of the software, taking into account both the software as acquired and subsequent development work, as well as the business alternatives we were considering and the corresponding value of the software in these alternative approaches. We estimated the value of the software based on the probabilities of each of the business alternatives. We determined the fair value of the trade name using an income approach and considered the fact that the software’s trade name at the time of acquisition was no longer being used.

Our impairment analysis at September 30, 2011 identified $2.9 million of impaired long-lived assets, consisting entirely of intangible assets recognized as part of the Cloverleaf acquisition in 2010. Long-lived asset impairment charges are recorded consistent with our treatment of related amortization expense specific to each acquired intangible asset. We recorded $2.8 million of impaired acquired software and $0.1 million of impaired acquired trade name as a component of cost of goods sold for the year ended December 31, 2011.

We also evaluated goodwill for impairment and determined that the reporting unit was less than its carrying value. Our valuation resulted in recognition of an impairment charge to goodwill of $4.1 million during the year ended December 31, 2011.

In February 2012, our Board of Directors approved a plan to exit our AssuredUVS business and close down our Israel Technology Development Center (see Note 8), at which time it was determined that the valuations at that date were appropriate. During the second quarter of 2012, we explored the potential sale of the AssuredUVS business, but were unsuccessful in locating a buyer and ended efforts to sell the business or its component assets as of June 30, 2012. Accordingly, we recognized an impairment of $0.2 million of property, plant and equipment and $1.6 million for the remaining value of acquired software as a component of cost of goods sold as of June 30, 2012. The AssuredUVS business is now recorded in discontinued operations, since we have ceased all ongoing operational activities as of December 31, 2012.

The following is a summary of the components of loss from discontinued operations for the years ended December 31, 2010, 2011 and 2012 (in thousands):

	2010			2011			2012
Net revenue	$	656		$	1,634		$	360
Cost of goods sold	2,011			5,284			2,501
Gross profit	(1,355		)	(3,650		)	(2,141		)
Operating expenses:
Research and development	3,465			4,355			741
Sales and marketing	327			651			56
General and administrative	766			762			765
Restructuring charge	107			—			844
Goodwill impairment charge	—			4,140			—
Total operating expenses	4,665			9,908			2,406
Operating loss	(6,020		)	(13,558		)	(4,547		)
Other income (expense), net	1			(2		)	(1		)
Loss from discontinued operations	$	(6,019	)	$	(13,560	)	$	(4,548	)

The following is a summary of the carrying amounts of major classes of assets and liabilities related to discontinued operations as of December 31, 2011 and 2012 (in thousands):

	December 31, 2011		December 31, 2012
Cash and cash equivalents	$	—	$	—
Inventories	56		—
Prepaid expenses and other assets	110		5
Total current assets	166		5
Property and equipment, net	1,031		—
Intangible assets, net	1,824		—
Other assets	54		55
Total assets	3,075		60
Accounts payable	203		7
Accrued compensation	372		—
Accrued expenses	232		20
Deferred revenue	319		—
Restructuring accrual	—		206
Total current liabilities	1,126		233