PC TEL INC - FORM 8-K - EX-99.2

Attached files

file	filename
EX-99.1 - EX-99.1 - PC TEL INC	pcti-ex991_7.htm
EX-10.1 - EX-10.1 - PC TEL INC	pcti-ex101_6.htm
8-K - 8-K NES JULY 2017 - PC TEL INC	pcti-8k_20170731.htm

Exhibit 99.2

PCTEL, Inc.

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

(in thousands, except per share data)

On July 31, 2017, the Company entered into a definitive asset purchase agreement and closed the sale of substantially all of the assets of its Network Engineering Services business to Gabe’s Construction Co., Inc. (“Gabe’s”) for $1.45 million in cash.

The following Unaudited Pro Forma Condensed Consolidated Financial Statements have been derived by the application of pro forma adjustments to the Company's historical consolidated financial statements. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the fiscal years ended December 31, 2016, 2015, and 2014 and for the three months ended March 31, 2017 are presented as if the disposition had occurred at the beginning of the year ended December 31, 2014. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2017 is presented as if the disposition had occurred on March 31, 2017.

The Unaudited Pro Forma Condensed Consolidated Financial Statements are being provided for informational purposes only and are not necessarily indicative of the results of operations or financial position that would have resulted if the disposition had actually occurred on the dates indicated and are not intended to project the Company's results of operations or financial position for any future period. The unaudited adjustments are based on estimates, currently available information and certain assumptions that the Company believes are reasonable, as described in the accompanying notes. Beginning in the second quarter 2017, the historical financial results of the Company’s Network Engineering Services business for the periods prior to the sale will be reflected in the Company’s Financial Statements as discontinued operations.

The Unaudited Pro Forma Condensed Consolidated Financial Statements and the accompanying notes should be read in conjunction with the historical financial statements and the related notes thereto of PCTEL, which are included in its Annual Reports on Form 10-K and its Quarterly Reports on Forms 10-Q.

PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)



		Year Ended December 31, 2016
		Historical			Network Engineering Services Pro Forma Adjustments (a)			Pro Forma

	REVENUES	$	96,713		$	11,707		$	85,006
	COST OF REVENUES		61,507			10,912			50,595
	GROSS PROFIT		35,206			795			34,411
	OPERATING EXPENSES:
	Research and development		10,158			0			10,158
	Sales and marketing		13,810			1,094			12,716
	General and administrative		12,051			146			11,905
	Amortization of intangible assets		1,651			1,120			531
	Impairment of goodwill and other intangible assets		5,785			5,785			0
	Restructuring expenses		664			430			234
	Total operating expenses		44,119			8,575			35,544
	OPERATING LOSS		(8,913	)		(7,780	)		(1,133	)
	Other income, net		112			0			112
	LOSS BEFORE INCOME TAXES		(8,801	)		(7,780	)		(1,021	)
	Expense for income taxes		8,880			240			8,640
	NET LOSS	$	(17,681	)	$	(8,020	)	$	(9,661	)

	Net Loss per Share:
	Basic	$	(1.09	)	$	(0.50	)	$	(0.60	)
	Diluted	$	(1.09	)	$	(0.50	)	$	(0.60	)

	Weighted Average Shares:
	Basic		16,151			16,151			16,151
	Diluted		16,151			16,151			16,151

PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)



		Year Ended December 31, 2015
		Historical			Network Engineering Services Pro Forma Adjustments (a)			Pro Forma

	REVENUES	$	106,615		$	16,082		$	90,533
	COST OF REVENUES		69,354			13,949			55,405
	GROSS PROFIT		37,261			2,133			35,128
	OPERATING EXPENSES:
	Research and development		11,205			0			11,205
	Sales and marketing		14,196			1,224			12,972
	General and administrative		12,399			479			11,920
	Amortization of intangible assets		3,426			1,521			1,905
	Impairment of goodwill and other intangible assets		161			161			0
	Restructuring expenses		1,630			21			1,609
	Total operating expenses		43,017			3,406			39,611
	OPERATING LOSS		(5,756	)		(1,273	)		(4,483	)
	Other income, net		3,287			0			3,287
	LOSS BEFORE INCOME TAXES		(2,469	)		(1,273	)		(1,196	)
	Benefit for income taxes		(901	)		(453	)		(448	)
	NET LOSS	$	(1,568	)	$	(820	)	$	(748	)

	Net Loss per Share:
	Basic	$	(0.09	)	$	(0.05	)	$	(0.04	)
	Diluted	$	(0.09	)	$	(0.05	)	$	(0.04	)

	Weighted Average Shares:
	Basic		17,737			17,737			17,737
	Diluted		17,737			17,737			17,737

PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)



		Year Ended December 31, 2014
		Historical		Network Engineering Services Pro Forma Adjustments (a)		Pro Forma

	REVENUES	$	107,164	$	10,818	$	96,346
	COST OF REVENUES		63,577		7,764		55,813
	GROSS PROFIT		43,587		3,054		40,533
	OPERATING EXPENSES:
	Research and development		11,736		0		11,736
	Sales and marketing		12,961		524		12,437
	General and administrative		12,819		53		12,766
	Amortization of intangible assets		1,967		169		1,798
	Total operating expenses		39,483		746		38,737
	OPERATING INCOME		4,104		2,308		1,796
	Other income, net		1,666		0		1,666
	NET INCOME BEFORE INCOME TAXES		5,770		2,308		3,462
	Expense for income taxes		1,158		871		287
	NET INCOME	$	4,612	$	1,437	$	3,175

	Net Income per Share:
	Basic	$	0.25	$	0.08	$	0.17
	Diluted	$	0.25	$	0.08	$	0.17

	Weighted Average Shares:
	Basic		18,159		18,159		18,159
	Diluted		18,389		18,389		18,389

PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)



		Three Months Ended March 31, 2017
		Historical			Network Engineering Services Pro Forma Adjustments (a)			Pro Forma

	REVENUES	$	24,979		$	2,009			22,970
	COST OF REVENUES		15,664			2,148			13,516
	GROSS PROFIT		9,315			(139	)		9,454
	OPERATING EXPENSES:
	Research and development		2,716			0			2,716
	Sales and marketing		3,407			154			3,253
	General and administrative		3,352			13			3,339
	Amortization of intangible assets		124			0			124
	Restructuring expenses		9			9			0
	Total operating expenses		9,608			176			9,432
	OPERATING INCOME (LOSS)		(293	)		(315	)		22
	Other income, net		28			0			28
	INCOME (LOSS) BEFORE INCOME TAXES		(265	)		(315	)		50
	Benefit for income taxes		(235	)		0			(235	)
	NET INCOME (LOSS)	$	(30	)	$	(315	)	$	285

	Net Income (Loss) per Share:
	Basic	$	(0.00	)	$	(0.02	)	$	0.02
	Diluted	$	(0.00	)	$	(0.02	)	$	0.02

	Weighted Average Shares:
	Basic		16,340			16,340			16,340
	Diluted		16,340			16,340			16,715

PCTEL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(in thousands, except share data)
(unaudited)

	March 31, 2017
	Historical			Network Engineering Services Pro Forma Adjustments				Pro Forma
ASSETS
Cash and cash equivalents	$	14,960		$	1,425		(b)	$	16,385
Short-term investment securities		18,002							18,002
Accounts receivable		18,347							18,347
Inventories, net		12,692							12,692
Prepaid expenses and other assets		1,219			(11	)	(c)		1,208
Total current assets		65,220			1,414				66,634

Property and equipment, net		13,059			(714	)	(d)		12,345
Goodwill		3,332							3,332
Intangible assets, net		2,985							2,985
Deferred tax assets, net		5,399			(162	)	(e)		5,237
Other noncurrent assets		35							35
TOTAL ASSETS	$	90,030		$	538			$	90,568

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable	$	5,284						$	5,284
Accrued liabilities		5,621			294		(f)		5,915
Total current liabilities		10,905			294				11,199
									-
Other long-term liabilities		489							489

Total liabilities		11,394			294				11,688

Stockholders’ equity:
Common stock		18							18
Additional paid-in capital		134,059							134,059
Accumulated deficit		(55,110	)		244		(g)		(54,866	)
Accumulated other comprehensive loss		(331	)						(331	)
Total stockholders’ equity		78,636			244				78,880
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	90,030		$	538			$	90,568

PCTEL, Inc.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(in thousands, except per share data)

1. Sale of Network Engineering Services

On July 31, 2017, the PCTEL, Inc. (“the Company”) entered into a definitive asset purchase agreement and closed the sale of substantially all of the assets of its Network Engineering Services business unit (“Network Engineering Services”) to Gabe’s Construction for $1.45 million in cash. The sales price included fixed assets, and order backlog as well as an obligation by the Company to perform future services for Gabe’s. Gabe’s hired 11 employees of the Company. The Company retained working capital of accounts receivable, accounts payable, and accrued liabilities, and also retained all of the deferred tax assets. The sale resulted in a pre-tax book gain of approximately $0.4 million net of the asset book values and an accrual for severance and related employee benefits to 14 employees not hired by the buyer. The Company will write-off $0.3 million of deferred tax assets related to intangible assets that were disposed of for U.S. income tax purposes but will continue to amortize for income tax certain intangible assets written off for book due to U.S. income tax rules.

2. Pro Forma Adjustments

(a)

These adjustments reflect the historical results of Network Engineering Services.

(b)

Adjustment reflects the receipt of cash proceeds on the close date of the sale. The Company expects to use the proceeds for general purposes.

(c)

Adjustment reflects a receivable of $25 related to a hold back of the purchase price and $36 related to a write-off of prepaid expenses.

(d)

Adjustment reflects the disposal of fixed assets.

(e)

Adjustment reflects a write off of intangible assets of $0.3 million and an increase to the net operating loss of $0.1 million.

(f)

Adjustments reflect deferred revenue of $0.1 million and $0.2 million for accrued liabilities. The deferred revenue is the fair value of future services the Company will provide the Gabe’s Construction after the close date of the sale. The accrued liabilities represent severance and related employee benefits for 14 employees terminated on the close date.

(g)

Adjustment reflects the book gain net of income tax expense based on the book values as of March 31, 2017.

3. Income tax provision

The Company computed the income tax provision for Network Engineering Services as if it was a standalone entity. For this calculation, the Company applied an effective tax rate and also included adjustments to the valuation allowance on the deferred tax assets. The income tax provision for the year ended December 31, 2016 included income tax expense of $3.1 million related an adjustment for a valuation allowance on the deferred tax assets and the provision for the three months ended March 31, 2017 assumed no income tax benefit due to a corresponding adjustment to the valuation allowance on the

deferred tax assets. Because the tax amounts for Network Engineering Services were calculated on a stand-alone basis for pro forma purposes, the income tax provision in these pro forma statements may not be consistent with the income tax provision that will be reported in discontinued operations in the statements of operations in the Company’s Form-10Q for the quarter ended June 30, 2017, or reported in discontinued operations in the statements of operations on Form 10-Q or Form 10-K filed hereafter.

PC TEL INC - FORM 8-K - EX-99.2 - August 4, 2017

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