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Related Party Transactions
 9 Months Ended
Sep. 30, 2013
Related Party Transactions  
Related Party Transactions

Note 9. Related Party Transactions

 

In February 2012, the Company entered into a strategic development and marketing agreement with Credo Semiconductor (Hong Kong) Ltd. (Credo), a privately-funded, fabless semiconductor company, to develop, market and sell integrated circuits. Two of the Company’s executive officers between them loaned a total of $250,000 to Credo for a portion of the seed funding needed by Credo to commence its integrated circuit design efforts.  These loans may be converted into minority equity interests in Credo. The agreement calls for the Company to pay approximately $1.4 million to Credo upon Credo achieving certain development and verification milestones towards the development of IC products and provides the Company with exclusive sales and marketing rights for such IC products. In 2012, Credo achieved a number of the milestones set forth in the agreement, and the Company paid Credo $1.1 million. In the first nine months of 2013, the Company paid Credo an additional $1.2 million for achievement of additional development milestones, as well as for mask costs and wafer purchases from third-party vendors.  All amounts incurred have been recorded as research and development expense.  As of September 30, 2013, the first $1.9 million of gross profits generated by the sale of these integrated circuits will be retained by the Company, and, thereafter, the gross profits will be shared equally.  In the first half of 2013, the Company announced the availability of prototype samples of the LineSpeed products developed pursuant to the strategic development and marketing agreement.  In October 2013, the Company agreed to pay Credo an additional $0.6 million for further product development work.