-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BdpO+szKY2d0b6A0kl2kihywrtppFbkVQ5U59NqXvtbCot1cru8Muk8JMQtkD7BR gpfWwHeFDYxFnuMeASvWWQ== 0000950137-05-011448.txt : 20050919 0000950137-05-011448.hdr.sgml : 20050919 20050919153416 ACCESSION NUMBER: 0000950137-05-011448 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050704 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050919 DATE AS OF CHANGE: 20050919 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PC TEL INC CENTRAL INDEX KEY: 0001057083 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 770364943 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27115 FILM NUMBER: 051091335 BUSINESS ADDRESS: STREET 1: 8725 W. HIGGINS RD. STREET 2: SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 773-243-3000 MAIL ADDRESS: STREET 1: 8725 W. HIGGINS RD STREET 2: SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60631 8-K/A 1 c98531e8vkza.txt AMENDMENT TO CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 JULY 4, 2005 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) PCTEL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 000-27115 77-0364943 (STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (IRS EMPLOYER INCORPORATION) IDENTIFICATION NUMBER)
8725 W. HIGGINS ROAD, SUITE 400, CHICAGO, IL 60631 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (773) 243-3000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) _______________________________________________________________ (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)) ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS As previously reported on July 8, 2005, on July 4, 2005, PCTEL, Inc. ("PCTEL") acquired all of the outstanding share capital of Sigma Wireless Technologies Limited, an Irish company ("Sigma"), pursuant to a Share Acquisition Agreement dated as of July 4, 2005 among PCTEL, Sigma, the holders of the outstanding share capital of Sigma, and other parties (the "Acquisition Agreement"). Sigma is based in Dublin, Ireland and develops, manufactures and distributes antenna products designed for wireless communications. The selling shareholders of Sigma consist of three manager/directors of SIGMA and an Irish corporation owned by affiliates of Sigma. The total purchase price was 23.4 million Euro (approximately $28.3 million). Of this amount, 19.3 million Euro (approximately $23.4 million) was paid in cash at the close of the transaction. Approximately 5.1 million Euro of the closing payment was immediately used to discharge outstanding Sigma indebtedness and retire outstanding preferred shares and the remaining 14.4 million Euro was paid to the selling shareholders of Sigma. PCTEL assumed approximately 2.5 million Euro (approximately $3.0 million) of Sigma obligations, consisting principally of unfunded pension liability. In addition, PCTEL incurred 1.6 million euro (approximately $2.0 million) in transaction costs. The Acquisition Agreement also provides for an "earn-out" provision in favor of the selling shareholders of Sigma, pursuant to which such shareholders may receive up to an additional 7.5 million Euro (approximately $9.1 million) in cash based on the revenue performance of Sigma over the 18-month period ending December 31, 2006. A cash payment of up to 5.75 million Euro (approximately $7.0 million) of the 7.5 million Euro total possible earn-out will be made to such shareholders based on Sigma revenue performance during the period in excess of 26 million Euro up to 35 million Euro; an additional cash payment of up to 1.75 million Euro (approximately $2.1 million) of the 7.5 million Euro total possible earn-out will be made to such shareholders based on Sigma revenue performance during the period in excess of 35 million Euro. Revenue performance of Sigma is measured quarterly, and earn-out payments, if any, are to be made within 45 days of the end of the quarterly period. The cash consideration paid and to be paid in connection with the acquisition is expected to be provided from PCTEL's available cash balance. Under the Acquisition Agreement, the selling shareholders of Sigma are required to indemnify PCTEL against losses resulting from breaches of representations and warranties made by such shareholders in the agreement and from failure of such shareholders to comply with covenants and agreements to be performed under the agreement, and against other specified costs and expenses expected to be incurred by Sigma. The indemnification obligations of the Sigma selling shareholders survive for a period of 12 months from July 4, 2005, with certain identified exceptions which survive for up to six years from such date. A third-party escrow arrangement has been established under the Acquisition Agreement for the benefit of PCTEL to satisfy the indemnification obligations of the selling shareholders during the 12 month period following the closing date of the acquisition, and the sum of 1.75 million Euro of the cash purchase price paid at the closing has been deposited into the escrow. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED The following audited consolidated financial statements of Sigma Wireless Technologies Limited are included as Exhibit 99.2 in this amended Current Report. Audited non-statutory financial statements of Sigma Wireless Technologies Limited as of and for the year ended December 31, 2004. (B) PRO FORMA FINANCIAL STATEMENTS The following pro forma financial statements of PCTEL, Inc. are included as Exhibit 99.3 in this amended Current Report. Unaudited pro forma combined condensed balance sheet as of June 30, 2005. Unaudited pro forma combined condensed statement of operations for PCTEL, Inc. for the year ended December 31, 2004, three months ended June 30, 2005 and three months ended March 31, 2005. (C) EXHIBITS
Exhibit No. Description - ----------- ------------------------------------------------------------------ 2.1* Share Acquisition Agreement dated as of July 4, 2005, among PCTEL, Inc., Sigma Wireless Technologies Limited, and other parties, with exhibits. 23.1 Independent Auditors' Consent. 99.1* Press release dated July 5, 2005 announcing the acquisition of Sigma Wireless Technologies Limited. 99.2 Audited Financial Statements of Sigma Wireless Limited as of and for the year ended December 31, 2004. 99.3 Unaudited pro forma combined condensed balance sheet of PCTEL, Inc. as of June 30, 2005. Unaudited pro forma combined condensed statement of operations of PCTEL, Inc. for the year ended December 31, 2004, three months ended June 30, 2005 and three months ended March 31, 2005.
(*) Incorporated by reference to PCTEL Inc.'s Current Report filed on July 8, 2005 with the SEC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, PCTEL, Inc. has duly caused this amendment to Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. Date: September 16, 2005 PCTEL, INC. By: /s/ John W. Schoen --------------------------------- John W. Schoen Chief Financial Officer EX-23.1 2 c98531exv23w1.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 The Board of Directors Sigma Wireless Technologies Limited McKee Avenue Finglas Dublin 11 Dear Sirs Consent of independent auditors We consent to the incorporation by reference in the registration statements on Forms S-8 (No. 333-122117, No. 333-61926, No. 333-82120, No. 333-103233, No. 333-112621, No. 333-106891, No. 333-70886 and No. 333-75204) of PCTEL, Inc. of our report dated 16 September, 2005 with respect to the consolidated balance sheet of Sigma Wireless Technologies Limited as of 31 December 2004, and the related profit & loss account statement, consolidated statement of total recognised gains and losses, consolidated cashflow statement and the reconciliation of net cashflow to movement in net debt for the year ended 31 December 2004, which report appears in this Current Report on Form 8-K/A of PCTEL, Inc. /s/ KPMG KPMG Dublin, Ireland 16 September 2005 EX-99.2 3 c98531exv99w2.txt AUDITED FINANCIAL STATEMENTS EXHIBIT 99.2 Sigma Wireless Technologies Limited Consolidated financial statements YEAR ENDED 31 DECEMBER 2004 Registered number: 178926 Sigma Wireless Technologies Limited Consolidated financial statements as of and for the year ended December 31, 2004
Contents Page - -------- ---- Independent auditors' report 3 Consolidated profit and loss account 4 Statement of total recognised gains and losses 5 Consolidated balance sheet 6 Consolidated cashflow statement 7 Notes forming part of the consolidated financial statements 8
2 Sigma Wireless Technologies Limited Independent auditors' report on the consolidated financial statements to the directors of Sigma Wireless Technologies Limited We have audited the accompanying consolidated financial statements of Sigma Wireless Technologies Limited and its subsidiary (together the "group") comprising the consolidated balance sheet as at 31 December 2004 and the related consolidated profit and loss account statement, consolidated statement of total recognized gains and losses, consolidated cash flow statement and the reconciliation of net cash flow to movement in net debt for the year ended 31 December 2004. These consolidated financial statements are the responsibility of the company's directors and management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Ireland and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the group as of 31 December 2004 and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles in the Republic of Ireland. The accompanying consolidated financial statements have been prepared assuming that the group will continue as a going concern. As noted in Note 1 to the consolidated financial statements, the group has incurred substantial retained losses of E4,709,280. This raises substantial doubt about the group's ability to continue as a going concern. Management's plans in regard to this matter are also set out in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accounting principles generally accepted in the Republic of Ireland vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 29 to the consolidated financial statements. /s/ KPMG KPMG 16 September 2005 Dublin, Ireland 3 Sigma Wireless Technologies Limited Consolidated profit and loss statement
YEAR ENDED 31 DECEMBER Note 2004 ---- ----------- E TURNOVER - CONTINUING OPERATIONS 4 9,260,828 Cost of sales (6,960,294) ---------- GROSS PROFIT 2,300,534 Other operating expenses 5 (2,562,324) ---------- OPERATING LOSS - CONTINUING OPERATIONS (261,790) Interest expense and similar charges 6 (90,071) ---------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (351,861) Tax on loss on ordinary activities 9 (7,367) ---------- LOSS FOR THE FINANCIAL YEAR (359,228) Finance cost of non-equity shares 17 (55,773) ---------- RETAINED LOSS FOR THE FINANCIAL YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS (415,001) Profit and loss account at beginning of year (4,349,526) Deferral of finance cost of non-equity shares 17 55,773 Foreign exchange translation difference (526) ---------- PROFIT AND LOSS ACCOUNT AT END OF YEAR (4,709,280) ==========
The accompanying notes on pages 8 to 30 are an integral part of the consolidated financial statements. /s/ Joseph Moore /s/ Damian Guerin - ------------------------------------- ---------------------------------------- Joseph Moore Damian Guerin Director Director 4 Sigma Wireless Technologies Limited Statement of total recognised gains and losses
YEAR ENDED 31 DECEMBER Note 2004 ---- ----------- E LOSS FOR THE FINANCIAL YEAR (359,228) Currency translation adjustment (526) -------- TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR (359,754) ========
The accompanying notes on pages 8 to 30 are an integral part of the consolidated financial statements. 5 Sigma Wireless Technologies Limited Consolidated balance sheet
AT 31 DECEMBER Note 2004 ---- ----------------------- E E FIXED ASSETS Intangible assets 10 195,000 Tangible assets 11 4,053,455 ---------- 4,248,455 CURRENT ASSETS Stocks 12 2,265,162 Debtors 13 2,676,293 Cash at bank and in hand 14,118 ---------- 4,955,573 ---------- TOTAL ASSETS 9,204,028 ========== CAPITAL AND RESERVES Share capital 18 1,478,678 Share premium account 19 1,494,545 Revaluation reserve 20 1,786,073 Profit and loss account (4,709,280) ---------- SHAREHOLDERS' FUNDS Equity (1,328,130) Non-equity 1,378,146 50,016 ---------- CREDITORS: amounts falling due within one year 14 4,578,438 CREDITORS: amounts falling due after one year 15 4,575,574 ---------- TOTAL LIABILITIES 9,204,028 ==========
The accompanying notes on pages 8 to 30 are an integral part of the consolidated financial statements /s/ Joseph Moore /s/ Damian Guerin - ------------------------------------- ---------------------------------------- Joseph Moore Damian Guerin Director Director 6 Sigma Wireless Technologies Limited Consolidated cashflow statement
YEAR ENDED 31 DECEMBER Notes 2004 ----- ----------- E NET CASH OUTFLOW FROM OPERATING ACTIVITIES 24 (2,082,428) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 25 (90,071) TAXATION (10,913) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 25 (322,030) ---------- Cash outflow before use of liquid resources and financing (2,505,442) FINANCING - Issue of shares 492,183 - Increase in net debt 1,967,151 ---------- Movement in cash and cash equivalents (46,108) ---------- Reconciliation of net cash flow to movement in net debt (note 26) Movement in cash and cash equivalents (46,108) Cash inflow from increase in debt (1,967,151) ---------- Change in net debt arising from cash flows (2,013,259) New finance leases (44,700) ---------- Movement in net debt in the year (2,057,959) ---------- Net debt at 31 December 2003 (992,927) ---------- NET DEBT AT 31 DECEMBER 2004 (3,050,886) ==========
The accompanying notes on pages 8 to 30 are an integral part of the consolidated financial statements 7 Sigma Wireless Technologies Limited Notes forming part of the consolidated financial statements 1 DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION The group, which consists of Sigma Wireless Technologies Limited and its wholly owned subsidiary Sigma Wireless (UK) Limited is engaged in antenna design and manufacture. The group manufactures a comprehensive line of base station, mobile, vehicle and inbuilding antennas. At 31 December 2004, the company's ultimate parent undertaking was BMS Holdings Limited, a company incorporated in Jersey. BMS Holdings Limited does not prepare consolidated financial statements. The largest and smallest group into which the company's results were consolidated is that headed by Sigma Communications Group Limited and Subsidiaries. The consolidated financial statements of Sigma Communications Group Limited and subsidiaries are available for public inspection at the Companies Registration Office, Parnell House, 14 Parnell Square, Dublin 1. At 31 December 2004, 24.7% of the voting shares were held by investors who did not participate in decisions regarding the management and direction of the company. The remaining 75.3% of the voting shares were held by Sigma Communications Group Limited and company executives. On this basis Sigma Communications Group Limited was deemed to have a controlling interest in the company. On 4 July 2005, PCTEL INC acquired all of the outstanding share capital of Sigma Wireless Technologies Limited, pursuant to a Share Acquisition Agreement. The total purchase price was E23.4m (approximately US$28.4m). Of this amount, E19.5m (approximately US$23.4m) was paid in cash at the close of the transaction. Approximately E5.1m of the closing payment was immediately used to discharge outstanding Sigma indebtedness including related party indebtedness, bank indebtedness, other third party liabilities and retire outstanding preferred shares. The remaining E14.4m was paid to the selling shareholders of Sigma. The balance of the purchase price related to the acquisition of pension liabilities and the cost of completing the transaction. The consolidated financial statements included herein may not necessarily be indicative of the results of operations, financial position and cash flows of the group in the future or had it operated as a separate independent group during the year. The consolidated financial statements included herein do not reflect any changes that may occur in the financing of operations of the group as a result of the acquisition. The consolidated financial statements have been prepared solely for the purpose of inclusion in the Securities and Exchange Commission, Form 8-K/A filing for PCTEL INC. They have been prepared under the historical cost convention in accordance with applicable accounting standards in the Republic of Ireland. Accounting principles generally accepted in the Republic of Ireland vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 27 to the consolidated financial statements. The group has incurred substantial retained losses of E4,709,280. The directors have reviewed, in the context of the group's going concern position, the results for the year ended 31 December 2004, the continuing future availability of adequate financial resources from shareholders and the projected performance for a period of one year from the date of approval of the financial statements. 8 Sigma Wireless Technologies Limited Notes (continued) The directors are satisfied the group has adequate resources to continue in operational existence for the foreseeable future and, for this reason, they continue to adopt the going concern basis in preparing the financial statements. 2 ACCOUNTING POLICIES The following accounting policies have been applied consistently throughout the year and preceding year, in dealing with items, which are considered material in relation to the company's consolidated financial statements. CONSOLIDATION The consolidated financial statements include the financial statements of the Company and its subsidiary as of and for the year ended 31 December 2004. TURNOVER Turnover represents the fair value of goods, excluding value added tax, collected by third party customers in the accounting period. Goods are deemed to have been sold to customers, when the customer has access to the significant benefits inherent in the goods and exposure to the risks inherent in those benefits. INTANGIBLE FIXED ASSETS Development expenditure is written off in the year of expenditure other than a certain amount of development expenditure incurred on specific projects which is carried forward when its recoverability can be foreseen with reasonable assurance, and amortised in relation to the sales from such projects. The directors consider that this treatment results in proper matching of costs and revenue. TANGIBLE FIXED ASSETS AND DEPRECIATION Previously, the group availed of the transitional provisions of FRS15, Tangible Fixed Assets, in continuing to carry certain items of land and buildings at their previously revalued amounts, which were not updated for subsequent changes in value, except for subsequent additions, disposals, depreciation and impairment, if any. In the prior year the company changed its accounting policy with respect to land and buildings. Land and buildings, other than those held on short term leases, are carried at their current value, being the lower of their depreciated replacement cost and their recoverable amount, at the balance sheet date. Revaluation gains arising in a year are recognized in the statement of total recognized gains and losses except to the extent that they reverse revaluation losses that were previously charged to the profit and loss account. Revaluation losses which represent a clear consumption of economic benefit inherent in the asset are recognized in the profit and loss account. Other revaluation losses are recognized; - in the statement of total recognized gains and losses until the carrying amount reaches its depreciated historical cost; and - thereafter, in the profit and loss account unless it can be demonstrated that the recoverable amount of the asset is greater than its revalued amount, in which case the loss is recognized in the statement of total recognized gains and losses to the extent that the recoverable amount of the asset is greater than its revalued amount. All other tangible fixed assets are stated at historical cost less accumulated depreciation. 9 Sigma Wireless Technologies Limited Notes (continued) 2 ACCOUNTING POLICIES (continued) No depreciation is provided on freehold land. The charge for depreciation is calculated to write down the cost or current value of tangible fixed assets to their estimated residual values by equal annual instalments over their expected useful lives which are as follows: Freehold buildings - 50 years Plant and machinery - 5 to 20 years Test Equipment - 5 to 10 years Motor Vehicles - 3 to 5 years Office Equipment - 5 to 10 years Computer Equipment - 3 to 5 years
Provision is also made for any impairments of tangible fixed assets below their carrying amounts. REVALUATION RESERVE Surpluses arising on the revaluation of tangible fixed assets are credited to the revaluation reserve. Deficits are debited to the profit and loss account. On the disposal of a revalued fixed asset, any remaining revaluation surplus corresponding to that asset is transferred to the profit and loss account. FINANCIAL FIXED ASSETS Financial fixed assets are included at cost less provision for any permanent diminution in value. Income from financial assets, together with any related tax credit, is recognized in the profit and loss account in the year in which it is earned. STOCKS Stocks are stated at the lower of cost and net realisable value. Cost incurred in bringing each product to its present location and condition is based on: Raw materials - purchase cost on a first in, first out basis, including transportation costs. Work in progress and finished goods - cost of direct materials and labour plus the attributable proportion of manufacturing overheads based on normal levels of activity.
Net realisable value is based on estimated normal selling price less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items, where appropriate. FOREIGN CURRENCIES The functional currency of the group is the Euro. The results and cash flows of the non-Euro subsidiary undertaking are translated into Euro using the average exchange rate and the related balance sheets have been translated at the rates of exchange ruling at the balance sheet date. Exchange rate differences arising on translation of the results of the non Euro subsidiary undertaking and on the restatement of opening net assets are dealt with through retained profit. Trading activities denominated in foreign currencies are recorded in Euro at rates approximating to actual exchange rates as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at the balance sheet date. Any resulting gain or loss arising from a change in exchange rates subsequent to the date of the transaction is reported as an exchange gain or loss in the profit and loss account. 10 Sigma Wireless Technologies Limited Notes (continued) 2 ACCOUNTING POLICIES (continued) TAXATION Corporation tax, including Irish corporation tax and foreign tax, is provided on taxable profits, at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognized in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision for deferred tax is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in taxable profits in periods different from those in which they are recognized in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognized only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is not recognized when a fixed asset is revalued unless by the balance sheet date there is a binding agreement to sell the revalued asset and the gain or loss expected to arise on sale has been recognized in the financial statements. Neither is deferred tax recognized when a fixed asset is sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets are sold. Any such deferred tax not provided is disclosed in the financial statements. PENSION COSTS The company has continued to account for pensions in accordance with the accounting standard SSAP 24. Pensions for employees, including certain executive directors, are funded through an external pension scheme in the name of Sigma Communications Group Limited. The scheme is vested in independent trustees for the sole benefit of employees and their dependants. The group pays an annual contribution on behalf of its employees to the Sigma Communication Group Limited pension scheme. The contribution is based on an actuarial assessment of that scheme. The cost of providing pensions to employees is charged to the profit and loss account on a systematic basis over the service lives of those employees. Pension costs are determined by an actuary by reference to a funding plan and funding assumptions. The regular pension cost is expressed as a substantially level proportion of current and expected future pensionable payroll. Variations from regular cost are spread over the remaining service lives of the current employees. To the extent that the pension cost is different from the cash contributions to the pension scheme, a provision or prepayment is recognized in the balance sheet. Under Irish GAAP, FRS 17 'Retirement Benefits' is only applicable for accounting periods beginning on or after 1 January 2005. Accordingly, there is no requirement at 31 December 2004 to include pension scheme surpluses or deficits on the balance sheet. 11 Sigma Wireless Technologies Limited Notes (continued) 2 ACCOUNTING POLICIES (continued) LEASED ASSETS Assets acquired under finance leases, where the group bears substantially all the risks and rewards of ownership, are included in the balance sheet as tangible fixed assets and depreciated in accordance with the accounting policy for tangible fixed assets. Future lease rentals payable, net of future finance charges, are shown as obligations under finance leases within creditors. Finance charges are expensed to the profit and loss account over the primary period of the lease in proportion to the outstanding lease obligation. Payments in respect of operating leases are charged to the profit and loss account as incurred. 3 NOTES OF HISTORICAL COST PROFITS AND LOSSES
YEAR ENDED 31 DECEMBER 2004 ----------- E REPORTED LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (359,228) Difference between historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount 17,692 -------- HISTORICAL LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (341,536) ======== HISTORICAL COST LOSS FOR THE YEAR RETAINED AFTER TAXATION AND DIVIDENDS (348,903) ========
4 TURNOVER The turnover of the company arises from the production and sale of antennas and related products and power supplies. The analysis of turnover by geographical area is as follows:
YEAR ENDED 31 DECEMBER 2004 ----------- E Ireland 334,146 Europe 8,598,191 Rest of the world 328,491 --------- 9,260,828 =========
12 Sigma Wireless Technologies Limited Notes (continued) 5 OTHER OPERATING EXPENSES
YEAR ENDED 31 DECEMBER 2004 ----------- E Distribution costs 1,209,720 Administrative expenses 912,712 Other operating expenses 439,892 --------- 2,562,324 =========
6 INTEREST EXPENSE AND SIMILAR CHARGES
YEAR ENDED 31 DECEMBER 2004 ----------- E Interest expense on bank loans, overdrafts and other loans repayable within five years 85,128 Finance lease interest payable in respect of finance leases and hire purchase contracts 4,176 Interest on late payment of tax 767 ------ 90,071 ======
7 STATUTORY AND OTHER INFORMATION
YEAR ENDED 31 DECEMBER 2004 ----------- E Directors' emoluments 319,739 Depreciation 404,343 Auditors' remuneration 13,737 Research and development - current year expenditure 721,023 - amortisation of deferred expenditure 23,837
8 STAFF NUMBERS AND COST The average weekly number of employees during the year, analysed by category, was as follows:
YEAR ENDED 31 DECEMBER 2004 ----------- NUMBER Production 77 Distribution 7 Sales 10 Research and development 11 Administration 8 --- 113 ===
13 Sigma Wireless Technologies Limited Notes (continued) 8 STAFF NUMBERS AND COST (continued) The aggregate payroll costs of the employees were as follows:
YEAR ENDED 31 DECEMBER 2004 ----------- E Wages and salaries 3,362,109 Social welfare costs 339,066 Other pension costs (note 23) 161,625 --------- 3,862,800 =========
9 TAX ON LOSS ON ORDINARY ACTIVITIES
YEAR ENDED 31 DECEMBER 2004 ----------- E (A) ANALYSIS OF CHARGE IN YEAR Corporation tax on loss on ordinary activities 7,367 =====
(B) FACTORS AFFECTING TAX CHARGE IN YEAR The tax assessed for the year is higher than the standard rate of corporation tax in the Republic of Ireland. The differences are explained below:
YEAR ENDED 31 DECEMBER 2004 ----------- E Loss on ordinary activities before tax (351,861) ======== Loss on ordinary activities multiplied by the standard rate of corporation tax of 12.5% (43,983) Effects of: Expenses not deductible for tax purposes 8,947 Capital allowances in excess of depreciation (1,556) Unutilised losses 38,314 Income taxed at higher rates 3,125 Higher tax rates on overseas earnings 2,520 -------- Current tax charge for year 7,367 ========
14 Sigma Wireless Technologies Limited Notes (continued) 9 TAX ON LOSS ON ORDINARY ACTIVITIES (continued) (B) FACTORS AFFECTING TAX CHARGE IN YEAR (continued) Given the uncertainty over the existence of future taxable profits, a potential deferred tax asset of E644,213 primarily comprising of available tax losses forward has not been recognized at 31 December 2004. The total losses of E7,101,706 can be carried forward indefinitely in the Republic of Ireland. In the year ended 31 December 1999 the company claimed capital gains tax rollover relief in respect of the disposal of goodwill, the proceeds from which were applied in the acquisitions of qualifying assets. In the event that these qualifying assets are disposed of and the proceeds are not reinvested in the acquisition in replacement assets the capital gains tax liability deferred (E323,600) will crystallize. 10 INTANGIBLE FIXED ASSETS
At 31 DECEMBER 2004 ----------- E DEVELOPMENT EXPENDITURE: At beginning of year 192,497 Charged to profit and loss account (23,837) Expenditure capitalised during the year 26,340 ------- AT END OF YEAR 195,000 =======
The deferred development expenditure represents costs incurred on specific projects, the recoverability of which, in the opinion of the directors, can be foreseen with reasonable certainty. 15 Sigma Wireless Technologies Limited Notes (continued) 9 TANGIBLE FIXED ASSETS - GROUP
Freehold Plant & Test Motor Office Land Buildings Machinery equipment vehicles equipment Computers Total --------- --------- --------- --------- -------- --------- --------- --------- E E E E E E E E COST OR VALUATION At beginning of year - - at cost -- -- 1,413,689 1,044,257 137,629 307,753 486,734 3,390,062 - - revaluation 1,187,897 1,860,611 -- -- -- -- -- 3,048,508 Additions in year -- -- 171,398 24,546 54,450 48,168 41,828 340,390 Foreign exchange -- -- -- -- (7) (965) (95) (1,067) AT END OF YEAR - - AT COST -- -- 1,585,087 1,068,803 192,072 354,956 528,467 3,729,385 - - AT VALUATION 1,187,897 1,860,611 -- -- -- -- -- 3,048,508 --------- --------- --------- --------- ------- ------- ------- --------- 1,187,897 1,860,611 1,585,087 1,068,803 192,072 354,956 528,467 6,777,893 --------- --------- --------- --------- ------- ------- ------- --------- DEPRECIATION At beginning of year -- 248,508 852,735 618,349 85,890 201,455 314,085 2,321,022 Charge for year -- 42,941 188,750 59,012 35,524 26,233 51,883 404,343 Foreign exchange -- -- -- -- (242) (640) (45) (927) --------- --------- --------- --------- ------- ------- ------- --------- AT END OF YEAR -- 291,449 1,041,485 677,361 121,172 227,048 365,923 2,724,438 --------- --------- --------- --------- ------- ------- ------- --------- NET BOOK VALUE AT 31 DECEMBER 2004 1,187,897 1,569,162 543,602 391,442 70,900 127,908 162,544 4,053,455 ========= ========= ========= ========= ======= ======= ======= =========
The net book value of tangible fixed assets includes an amount of E75,463 in respect of assets held under finance leases. The depreciation charge for the year on these assets amounted to E33,043. The land and buildings of the company were revalued by Lisney Property Services Limited, Chartered Surveyors, to an open market value basis reflecting existing use on 31 December 2003. The valuation was carried out in accordance with the SCS Appraisal Manual, which is the valuation manual pertaining in the Republic of Ireland. 16 Sigma Wireless Technologies Limited Notes (continued) 12 STOCKS, NET OF PROVISIONS
AT 31 DECEMBER 2004 -------------- E Raw materials and consumables 1,905,766 Work in progress 257,258 Finished goods and goods for resale 102,138 --------- 2,265,162 =========
There are no material differences between the replacement cost of stocks and the balance sheet amounts. 13 DEBTORS
AT 31 DECEMBER 2004 -------------- E Trade debtors 2,271,343 Prepayments 100,854 Pension prepayment 23,170 VAT refundable 151,746 Amounts due from related parties (note 27) 129,180 --------- 2,676,293 =========
All amounts fall due within one year. 14 CREDITORS: amounts falling due within one year
AT 31 DECEMBER 2004 -------------- E Bank overdraft 653,055 Trade creditors 1,650,868 Taxation and social welfare creditors (see below) 251,432 Accruals 1,163,265 Amounts owed to related parties (note 27) 825,687 Obligations under finance leases (note 16) 34,131 --------- 4,578,438 ========= Analysis of taxation and social welfare creditors: Irish payroll taxes 243,830 Corporation tax payable 7,602 --------- 251,432 =========
17 Sigma Wireless Technologies Limited Notes (continued) 15 CREDITORS: amounts falling due after one year
AT 31 DECEMBER 2004 -------------- E INBS loan 2,300,000 Obligations under finance leases (note 16) 25,696 Loans from shareholders 52,122 Amounts owed to parent undertaking (note 27) 2,197,756 --------- 4,575,574 =========
The loan from IBNS is secured by a debenture over the fixed assets of the company to specifically include a first legal charge over the land and buildings. The loan is for a period of 10 years at an initial rate of 4.95% variable. 16 OBLIGATIONS UNDER FINANCE LEASES The company and group had commitments under finance leases as follows:
AT 31 DECEMBER 2004 -------------- E Payable within one year 34,131 Payable after one and before five years 25,696 ------ 59,827 ======
17 FINANCE COST OF NON-EQUITY SHARES
AT 31 DECEMBER 2004 -------------- E 525,000 3% cumulative redeemable preference shares of E1.269738 each 19,998 250,000 7.95% cumulative redeemable preference shares of E1 each 19,875 200,000 7.95% cumulative redeemable 'A' preference shares of E1 each 15,900 ------ FINANCE COSTS DEFERRED 55,773 ======
No dividends have been paid on the cumulative preference shares to date. The cumulative dividend due at 31 December 2004 is E261,534. This has been included in the non-equity portion of shareholders' funds. 18 Sigma Wireless Technologies Limited Notes (continued) 18 SHARE CAPITAL
AT 31 DECEMBER 2004 -------------- E Authorised 125,939 'A' ordinary shares of E1.269738 each 159,910 159,211 convertible ordinary shares of E1.269738 each 202,156 525,000 3% cumulative redeemable preference shares of E1.269738 each 666,612 250,000 7.95% cumulative redeemable preference shares of E1 each 250,000 200,000 7.95% cumulative redeemable "A" preference shares of E1 each 200,000 --------- 1,478,678 =========
AT 31 DECEMBER 2004 -------------- E Allotted, called up and fully paid 125,939 'A' ordinary shares of E1.269738 each 159,910 159,211 convertible ordinary shares of E1.269738 each 202,156 525,000 3% cumulative redeemable preference shares of E1.269738 each 666,612 250,000 7.95% cumulative redeemable preference shares of E1 each 250,000 200,000 7.95% cumulative redeemable "A" preference shares of E1 each 200,000 --------- 1,478,678 =========
On 2 April 2004, the issued share capital of the company was increased by the sum of E5,298 by the issue of 4,172 convertible ordinary shares of E1.269738 each. On 1 November 2004, the issued share capital of the company was increased by the sum of E20,263 by the issue of 15,959 convertible ordinary shares of E1.269738 each. 19 Sigma Wireless Technologies Limited Notes (continued) 18 SHARE CAPITAL (continued) NON - EQUITY SHARES At 31 December 2004, the non-equity shares are represented by 125,939 "A" ordinary shares, 525,000 3% cumulative redeemable preference shares, 250,000 7.95% redeemable preference shares of E1 each and 200,000 7.95% cumulate redeemable 'A' preference shares of E1 each. SUMMARY OF RIGHTS OF NON-EQUITY SHARES 'A' Ordinary shares The 'A' ordinary shares have been issued to the trustees of a BES (Republic of Ireland government sponsored investment scheme) scheme. The entitlement of these shares to dividend payments rank pari-passu with the equity shares. There was an option agreement between Sigma Communications Group Limited and the trustees granting put and call options to transfer the shares held by the trustees, five years and one day from the date of allotment (31 December 1996). The trustees of the BES scheme exercised their option on 2 January 2002 to transfer the shares held at a purchase price of E10.384631 per share. The purchase price of E1,307,830 for the 125,939 'A' ordinary shares is due to be paid to the trustees in instalments, of which E576,968 has been repaid to date. Preference shares 'A' Preference shares The holders of the 'A' preference shares, Enterprise Ireland (Republic of Ireland state agency), are entitled, to a fixed cumulative preference dividend at the rate of 7.95% per annum on the amount paid up thereon on the 'A' preference shares. Preference shares The holders of the preference shares, Enterprise Ireland (Republic of Ireland state agency), are entitled to a fixed cumulative preference dividend at rates of 3% and 7.95%, as applicable above, per annum on the amount paid up thereon on the preference shares. In the event of a winding up of the company the holders of the 'A' preference and preference shares will rank above the holders of the ordinary shares up to the arrears in dividend if any, whether declared or earned, and the capital value of the shares. The holders of these shares shall be entitled to receive notice of, attend, speak at, but not to vote at, general meetings of the company. 19 SHARE PREMIUM
AT 31 DECEMBER 2004 -------------- E Share premium at beginning of year 1,027,923 Arising on issue of shares 466,622 --------- SHARE PREMIUM AT END OF YEAR 1,494,545 =========
20 Sigma Wireless Technologies Limited Notes (continued) 20 REVALUATION RESERVE
AT 31 DECEMBER 2004 -------------- E Revaluation reserve 1,786,073 =========
The revaluation reserve arose on the revaluation of property as referred to in note 11. 21 RECONCILIATION OF SHAREHOLDERS' FUNDS
AT 31 DECEMBER 2004 -------------- E Shareholders' funds at beginning of year (82,413) Loss for the financial year (359,228) Transactions with shareholders Share capital issued including share premium 492,183 Foreign exchange (526) ---------- SHAREHOLDERS' FUNDS AT END OF YEAR 50,016 ========== Profit and loss account retained by: E Holding Company (4,888,076) Subsidiaries 178,796 ==========
22 COMMITMENTS AND CONTINGENCIES CAPITAL COMMITMENTS The directors have neither approved nor contracted for any future capital commitments. Under the terms of the grant agreements in place between Sigma Wireless Technologies Limited and Enterprise Ireland (Republic of Ireland state agency), government grants amounting to E496,454 (2003: E496,454) could become repayable in the event that the company fails to comply with certain conditions set out in grant agreements. On 6 June 2005, E246,921 of this contingency expired. From time to time, the company is involved in other claims and legal actions, which arise in the normal course of business. Based on information currently available to the company, and legal advice, the directors believe such litigation will not, individually or in aggregate, have a material adverse effect on the financial statements and that the company is adequately positioned to deal with the outcome of any such litigation. 21 Sigma Wireless Technologies Limited Notes (continued) 23 PENSIONS The company has continued to account for pensions in accordance with the accounting standard SSAP 24 and the disclosures given in (a) below are those required by that standard. (A) SSAP 24 DISCLOSURES Pensions for employees, including certain executive directors, are funded through an external pension scheme in the name of Sigma Communications Group Limited. The scheme is vested in independent trustees for the sole benefit of employees and their dependants. The group pays an annual contribution on behalf of its employees to the Sigma Communication Group Limited pension scheme. The contribution is based on an actuarial assessment of that scheme. The latest actuarial valuation was at 1 July 2004 using the "projected unit" method. The total pension contributions to this scheme by the company for the year were E152,148. At the date of the valuation, the market value of the assets of the Sigma Communications Group Limited Scheme was sufficient to cover 66% of the accrued liability, allowing for expected future increases in earnings. The scheme actuary has calculated that if the rate of 8.7% mentioned below is adopted, over time the estimated assets of the scheme would cover 100% of the estimated liabilities of the scheme. The actuarial report is not available for public inspection but the results are advised to members of the scheme. Under Irish GAAP, FRS 17 'Retirement Benefits' is only applicable for accounting periods beginning on or after 1 January 2005. Accordingly, there is no requirement at 31 December 2004 to include pension scheme surpluses or deficits on the balance sheet. 24 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOWS FROM OPERATING ACTIVITIES
YEAR ENDED 31 DECEMBER 2004 ----------- E Operating loss (261,790) Depreciation 404,343 Amortisation of intangible assets 23,837 Profit on disposal of fixed assets -- (Increase) in stock (688,758) (Increase) in debtors (800,382) (Decrease) in creditors (759,292) Exchange difference (386) ---------- Net cash outflow from operating activities (2,082,428) ==========
22 Sigma Wireless Technologies Limited Notes (continued) 25 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENTS
YEAR ENDED 31 DECEMBER 2004 ----------- E RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid (85,895) Interest element of finance lease payments (4,176) --------- NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (90,071) ========= CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (295,690) Purchase of intangible fixed assets (26,340) Sale of tangible fixed assets -- --------- NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (322,030) ========= FINANCING Issue of share capital 492,183 Repayment of shareholders' loans (315,363) Debt due within one year - new loan 2,300,000 Capital element of finance leases (17,486) --------- NET CASH INFLOW FROM FINANCING 2,459,334 =========
23 Sigma Wireless Technologies Limited Notes (continued) 26 ANALYSIS OF NET DEBT
AT 31 AT 31 DECEMBER CASH OTHER DECEMBER 2003 FLOW NON CASH 2004 -------- ---------- -------- ---------- E E E E Overdraft (649,424) (3,631) -- (653,055) Cash at bank 56,595 (42,477) -- 14,118 -------- ---------- ------- ---------- (592,829) (46,108) -- (638,937) Shareholders' loans (367,485) 315,363 -- (52,122) INBS loan -- (2,300,000) -- (2,300,000) Finance leases (32,613) 17,486 (44,700) (59,827) -------- ---------- ------- ---------- (992,927) (2,013,259) (44,700) (3,050,886) ======== ========== ======= ==========
27 RELATED PARTY TRANSACTIONS The group had the following balances with related parties at the year end. These companies are under the common control of Michael J. McGinley and James A. Boyle who were directors and shareholders at year end. DEBTORS
AT 31 DECEMBER 2004 ----------- E Finglas Technologies Limited 129,180 =======
CREDITORS: amounts falling due within one year
AT 31 DECEMBER 2004 ----------- E Sigma Wireless Communications Limited 825,687 =======
24 Sigma Wireless Technologies Limited Notes (continued) 27 RELATED PARTY TRANSACTIONS (continued) CREDITORS: amounts falling due after one year Loan from BMS Holdings Limited 2,197,756 =========
All related party balances are non interest bearing. Apart from the loan from BMS Holdings Limited, all balances are repayable on demand. The average balance during the year on the loan from BMS Holdings Limited was E2,458,641. During the year, the group had the following sales to related parties.
YEAR ENDED 31 DECEMBER 2004 ----------- E Sigma Wireless Communications Limited 156,849 ========
During the year the company had the following cross charges to group companies.
YEAR ENDED 31 DECEMBER 2004 ----------- E Sigma Wireless Communications Limited 399,975 =======
28 POST BALANCE SHEET EVENTS On 4 July 2005, PCTEL, INC. acquired all of the outstanding share capital of Sigma Wireless Technologies Limited pursuant to a Share Acquisition Agreement. 25 Sigma Wireless Technologies Limited Notes (continued) 29 SUMMARY OF DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES SIGNIFICANT DIFFERENCES The consolidated financial statements of the Group are prepared in accordance with generally accepted accounting principles ("GAAP") applicable in Ireland which differ significantly in certain respects from GAAP in the United States ("US"). These significant differences are described below: (a) Property revaluation Under Irish GAAP, tangible assets may be carried either at cost less depreciation, or at a subsequent valuation less depreciation in accordance with FRS 15. Under US GAAP, tangible assets must be carried at historical cost less depreciation. The revaluation recognized as part of the Group's land and buildings at December 31, 2004 under Irish GAAP would therefore be reversed under US GAAP. Similarly, depreciation expense charged on revaluation adjustments under Irish GAAP for the period ended December 31, 2004 would be reversed under US GAAP. (b) Intangible assets Under Irish GAAP, the Company capitalises development expenditures incurred on specific identifiable projects in accordance with SSAP No. 13, "Accounting for Research and Development" where recoverability can be foreseen with reasonable assurance. The capitalised amount is subsequently amortised in relation to the sales from such projects. Under US GAAP, SFAS No. 2, "Accounting for Research and Development Costs" requires that research and development costs are expensed as incurred. The net development asset recognized at December 31, 2004 under Irish GAAP would not have been recognized under US GAAP. Research and development expense charged under Irish GAAP during the period ended December 31, 2004 would not be materially different under US GAAP. (c) Deferred tax In 1999 the Group exited from the moulded antennae business and sold the related assets and goodwill to a third party. The sale of goodwill was subject to capital gains tax in Ireland; however the company claimed capital gains tax rollover relief, whereby after meeting certain conditions it was allowed to defer the payment of capital gains tax in respect of the sale of business assets such as goodwill because the proceeds from the sale were reinvested in new business assets. 26 Sigma Wireless Technologies Limited Notes (continued) 29 SUMMARY OF DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) (c) Deferred tax (continued) Rollover relief operates on a continuous basis. The Group applied the proceeds from the sale of the goodwill to acquiring plant and equipment used in its ongoing business. In the event that this plant and equipment are sold, rollover relief will continue to be available and the payment of capital gains tax in respect of the goodwill disposal is deferred if the proceeds from the sale are reinvested. In an ongoing business, rollover relief is a permanent deferral of the payment of the capital gains tax liability. Under Irish GAAP, there is no requirement to provide for a deferred tax liability related to the capital gains tax. In accordance with SFAS 109, under US GAAP the company would record a deferred tax liability, which cannot be offset by tax loss carryforwards and as such would be recognized at December 31, 2004. (d) Pensions The employees of the Group participate in the pension scheme operated by Sigma Communications Group Limited, which operates a multi-employer defined benefit scheme. Under Irish GAAP, pension costs for defined benefit plans are accounted for in accordance with SSAP No. 24, "Accounting for Pension Costs." Under SSAP 24 companies are not required to record their share of any surplus or deficit on the pension scheme in their financial statements. However, FRS No. 17 "Retirement Benefits" requires the recognition of the relevant surplus or deficit on the pension scheme for financial statements relating to accounting periods beginning on or after January 1, 2005. As disclosed in note 23 to the consolidated financial statements, prior to and for the year ended December 31, 2004 pension contributions made by the Group to the pension scheme were recorded as an expense for Irish GAAP; as allowed under SSAP 24 no amounts have been recorded on the balance sheet for any surplus or deficit of the scheme. In accordance with US GAAP defined benefit plans are accounted for in compliance with SFAS No. 87, "Employers' Accounting for Pensions." Under SFAS 87, where the accumulated benefit obligation (being the actuarial present value of benefits attributed by the pension to employee service rendered, based on current and past compensation levels) exceeds the fair value of plan assets, a liability must be recognized in the balance sheet. Under the Acquisition Agreement dated July 4, 2005 between PCTEL and the Group, PCTEL will assume the underlying assets and liabilities of the defined benefit scheme relating to the employees of the Group. An actuarial report has been obtained which determines the total pension liability assumed by PCTEL. Under US GAAP, the Group would have followed the requirements of SFAS 87 and recorded a pension liability on the balance sheet as of December 31, 2004. (e) Financial instruments Under Irish GAAP and in accordance with FRS No. 4, "Capital Instruments", all instruments that legally are shares are included in shareholders' funds even where they have characteristics that are more like those of liabilities. As of December 31, 2004, the Company has issued and outstanding 'A' ordinary shares, convertible ordinary shares and three classes of cumulative redeemable preference shares. The accounting and financial statement presentation for the 'A' ordinary shares and the cumulative redeemable preference shares differs between Irish and US GAAP as follows: 27 Sigma Wireless Technologies Limited Notes (continued) 29 SUMMARY OF DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) 'A' Ordinary shares As discussed in Note 18 to the company's December 31, 2004 financial statements, the 'A' ordinary shares were originally issued to trustees of a Business Expansion Scheme ("BES"). There was an option agreement in relation to 125,939 'A' Ordinary Shares between Sigma Communications Group Limited, the ultimate parent of the Group, and the trustees granting put and call options to transfer the shares held by the trustees to the Group five years and one day from the date of allotment, December 31, 1996. This option to transfer the shares was exercised by the trustees on January 2, 2002 at a purchase price E1,307,830 or E10.384631 per share. The book value of the shares at that date was E1,187,833. Under Irish GAAP, as of 31 December 2004 and 2003 the book value of the shares was included as part of shareholders' equity in the consolidated financial statements. Under US GAAP, the book value of the shares would have been reclassified from shareholders' equity to liabilities as of the date of the option exercise, or January 2, 2002. In addition, the difference between the book value and fair value of the shares would have been recorded as an additional liability and expense under US GAAP. At December 31, 2004 E576,968 of the total option purchase price of E1,307,830 had been paid to the BES trustees via repurchase of shares by Sigma Communications Group Limited. Sigma Communications Group Limited held approximately 44% of the total shares issued and outstanding. These share purchases have not resulted in any changes to the Group's consolidated financial statements under Irish GAAP. Under US GAAP, the purchase of the Group's shares by its parent would result in a reduction of the original liability recorded at January 2, 2002 of E1,307,830 by the amount of repurchases, or E576,968, reflecting a liability of E730,862 as of December 31, 2004. The amount paid by the parent of E576,968 would be reflected as a contribution to shareholders' equity in the Group's consolidated financial statements under US GAAP. Preference shares Under Irish GAAP and in accordance with FRS No. 4 "Capital Instruments", preferred shares meet the definition of Capital Instruments and are included as part of shareholder funds. All classes of the preference shares outstanding at December 31, 2004 are mandatorily redeemable for cash between July 2007 and 2009 and accordingly under US GAAP, SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" these instruments would be classified as liabilities. Further, cumulative unpaid dividends entitled to the holders of all classes of preference shares have not been recorded under Irish GAAP because the company has insufficient distributable profits to pay the dividends. Cumulative unpaid dividends at December 31, 2004 would also be recorded and classified as liabilities under US GAAP. Amounts recorded as liabilities for cumulative unpaid dividends would be recorded as interest expense under US GAAP. 28 Sigma Wireless Technologies Limited Notes (continued) 29 SUMMARY OF DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) (f) Revenue Recognition Under Irish GAAP, goods are deemed to have been sold to customers and revenue is recognized when the customer has access to the significant benefits inherent in the goods and exposure to the risks inherent in those benefits, which generally occurs when goods are shipped. The company's customer contracts may include requirements to perform testing on shipped goods prior to customers accepting the goods, which does not necessarily preclude revenue recognition under Irish GAAP. For the year ended December 31, 2004, the company did not have any arrangements with customers containing multiple deliverables as it sells antenna equipment that does not require significant customization or installation. Under US GAAP, the company would be required to consider the guidance in Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition" and other US GAAP revenue recognition literature including but not limited to Emerging Issues Task Force No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" and Concepts statements issued by the US Financial Accounting Standards Board ("FASB"). Revenue generally should be recognized when all of the following has occurred: persuasive evidence of an arrangement exists, generally in writing; delivery has occurred or services have been rendered; the price is fixed or determinable; and collection of the price is reasonably assured. The company does not believe there would be any adjustments required under US GAAP related to revenue recognition for the year ended December 31, 2004 other than for one bill and hold arrangement entered into in 2004. This arrangement did not meet the criteria for revenue recognition under US GAAP because delivery was deemed not to have occurred by December 31, 2004. This arrangement is not customary for the company. Revenue and associated cost of sales were recognized under Irish GAAP. Under US GAAP the revenue and costs would be reversed and recognized at the time all revenue recognition criteria, including delivery, are deemed to have been met. (g) Cash flows In accordance with Irish GAAP, the company complies with FRS No. 1 (revised), "Cash Flow Statements." Its objectives and principles are similar to those set out in SFAS No. 95, "Statement of Cash Flows." The principal difference between the standards is in respect to classification. Under FRS 1, the Company has presented its cash flows for (a) operating activities; (b) returns on investment and servicing of finance; (c) taxation; (d) capital expenditure; and (e) financing activities. SFAS 95 requires only three categories of cash flow activities, (a) operating; (b) investing; and (c) financing. Cash flows arising from taxation and returns on investments and servicing of finance under FRS 1 are included as operating activities under SFAS 95. 29 Sigma Wireless Technologies Limited Notes (continued) 29 SUMMARY OF DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) (h) Disclosure of accounting policy Under FRS 1, cash is defined as cash in hand and deposits receivable on demand, less overdrafts payable on demand. Cash equivalents are not included but are dealt with in liquid resources and financing. Under SFAS 95, cash excludes overdrafts repayable on demand and changes in the balances of overdrafts are classified as financing cash flows rather than being included within cash and cash equivalents. 30 APPROVAL OF FINANCIAL STATEMENTS The directors approved the financial statements on 16 September 2005. 30 EX-99.3 4 c98531exv99w3.txt UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET EXHIBIT 99.3 PCTEL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS PCTEL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements have been prepared to give effect to the acquisition by PCTEL, Inc. ("PCTEL") of Sigma Wireless Technology Limited ("Sigma") on July 4, 2005 (the "Acquisition"), using the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. The unaudited pro forma combined condensed financial statements were prepared as if the Acquisition had been completed as of January 1, 2004 with respect to the statement of operations, and as of June 30, 2005 with respect to the balance sheet. The unaudited pro forma combined condensed financial statements are based on the respective historical consolidated financial statements of PCTEL and Sigma. These unaudited pro forma combined condensed financial statements should be read in conjunction with: i) PCTEL's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed on August 9, 2005; ii) PCTEL's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 filed on May 10, 2005; iii) PCTEL's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 31, 2005; iv) Sigma's audited financial statements for the year ended December 31, 2004, included in this Form 8-K as Exhibit 99.2; and v) the accompanying notes to the unaudited pro forma combined condensed financial statements. The non-statutory historical financial statements of Sigma included as Exhibit 99.2 to this Form 8-K have been presented in Euros and prepared in accordance with generally accepted accounting principles in Ireland, whereas all amounts for Sigma included herein have been presented in U.S. dollars and prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The unaudited pro forma combined condensed financial statements include adjustments, which are based on preliminary estimates, to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of Sigma. The purchase price allocation presented herein is preliminary, and final allocation of the purchase price will be based upon actual net tangible and intangible assets acquired as well as liabilities assumed as of the date of Acquisition. Accordingly, final purchase accounting adjustments may differ from the pro forma adjustments presented herein. The unaudited pro forma combined condensed financial statements are intended for information purposes only and, in the opinion of management, are not necessarily indicative of the financial position or results of operations of Sigma had the Acquisition actually been effected as of the dates indicated, nor are they indicative of PCTEL's future financial position or results of operations. The unaudited pro forma combined condensed financial statements do not include potential cost savings from operating efficiencies or synergies that may result from the Acquisition. 2 PCTEL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF JUNE 30, 2005 (IN THOUSANDS)
PCTEL AS OF SIGMA AS JUNE 30, OF JUNE 30, PRO FORMA PRO FORMA 2005 2005 (A) ADJUSTMENTS COMBINED ----------- ----------- ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents ................. $ 81,864 -- $(23,395) (b) $ 58,469 Restricted cash ........................... 208 -- -- 208 Accounts receivable ....................... 13,153 2,113 -- 15,266 Inventories, net .......................... 8,932 2,804 261 (c) 11,997 Prepaid expenses and other assets ......... 2,760 318 -- 3,078 -------- ------- -------- -------- Total current assets ................... 106,917 5,235 (23,134) 89,018 PROPERTY AND EQUIPMENT, net .................. 9,853 1,537 (206) (d) 11,184 GOODWILL ..................................... 14,105 -- 16,393 (e) 30,498 OTHER INTANGIBLE ASSETS, net ................. 9,891 -- 9,125 (f) 19,016 OTHER ASSETS ................................. 1,797 -- -- 1,797 -------- ------- -------- -------- TOTAL ASSETS ................................. $142,563 $ 6,772 $ 2,178 $151,513 ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .......................... $ 2,700 2,518 -- $ 5,218 Income taxes payable ...................... 5,453 -- -- 5,453 Deferred revenue .......................... 2,679 194 -- 2,873 Other accrued liabilities ................. 7,845 752 2,048 (g) 10,645 -------- ------- -------- -------- Total current liabilities .............. 18,677 3,464 2,048 24,189 Long-term accrued liabilities ............. 1,431 -- -- 1,431 Pension liability ......................... -- 3,046 -- 3,046 Deferred income taxes ..................... -- 392 -- 392 Ordinary shares ........................... -- 885 (885) (h) -- Preferred shares .......................... -- 1,700 (1,700) (i) -- Long-term debt ............................ -- 4,739 (4,739) (j) -- -------- ------- -------- -------- Total liabilities ...................... 20,108 14,226 (5,276) 29,058 STOCKHOLDERS' EQUITY: Common stock .............................. 21 -- -- 21 Additional paid-in capital ................ 164,942 1,506 (1,506) (k) 164,942 Deferred stock compensation ............... (6,982) -- -- (6,982) Accumulated deficit ....................... (35,578) (8,960) 8,960 (k) (35,578) Accumulated other comprehensive income .... 52 -- -- 52 -------- ------- -------- -------- Total stockholders' equity ............. 122,455 (7,454) 7,454 122,455 -------- ------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ... $142,563 $ 6,772 $ 2,178 $151,513 ======== ======= ======== ========
The accompanying notes are an integral part of these unaudited pro forma combined condensed financial statements. 3 PCTEL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005 (IN THOUSANDS)
PCTEL AS OF SIGMA AS OF JUNE 30, JUNE 30, PRO-FORMA PRO FORMA 2005 2005 (L) ADJUSTMENTS COMBINED ----------- ----------- ----------- --------- REVENUES .......................................... $18,313 $ 2,459 -- $20,772 COST OF GOODS SOLD ................................ 9,609 1,959 -- 11,568 ------- ------- ----- ------- GROSS PROFIT ...................................... 8,704 500 -- 9,204 OPERATING EXPENSES: Research and development ....................... 2,434 439 -- 2,873 Sales and marketing ............................ 2,934 437 -- 3,371 General and administrative ..................... 3,865 500 -- 4,365 Amortization of intangible assets .............. 854 -- 424(M) 1,278 Restructuring charges .......................... (70) -- -- (70) Gain on sale of assets and related royalties ... (500) (2,820) -- (3,320) ------- ------- ----- ------- Total operating expenses ..................... 9,517 (1,444) 424 8,497 ------- ------- ----- ------- INCOME (LOSS) FROM OPERATIONS ..................... (813) 1,944 (424) 707 ------- ------- ----- ------- OTHER INCOME (EXPENSE), NET ....................... 431 (61) (85)(N) 285 ------- ------- ----- ------- INCOME (LOSS) BEFORE BENEFIT FOR INCOME TAXES ..... (382) 1,883 (509) 992 PROVISION (BENEFIT) FOR INCOME TAXES .............. (60) 9 -- (51) ------- ------- ----- ------- NET INCOME (LOSS) ................................. $ (322) $ 1,874 $(509) $ 1,043 ======= ======= ===== ======= Basic loss per share .............................. $ (0.02) $ 0.05 Shares used in computing basic loss per share ..... 20,135 20,135 Diluted loss per share ............................ $ (0.02) $ 0.05 Shares used in computing diluted loss per share ... 20,135 20,135
The accompanying notes are an integral part of these unaudited pro forma combined condensed financial statements. 4 PCTEL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 (IN THOUSANDS)
PCTEL AS OF SIGMA AS OF MARCH 31, MARCH 31, PRO-FORMA PRO FORMA 2005 2005 (L) ADJUSTMENTS COMBINED ----------- ----------- ----------- --------- REVENUES .......................................... $15,008 $2,730 -- $17,738 COST OF REVENUES .................................. 7,570 2,218 -- 9,788 ------- ------ ----- ------- GROSS PROFIT ...................................... 7,438 512 -- 7,950 OPERATING EXPENSES: Research and development ....................... 2,470 223 -- 2,693 Sales and marketing ............................ 3,115 378 -- 3,493 General and administrative ..................... 4,167 278 -- 4,445 Amortization of intangible assets .............. 883 -- 424(M) 1,307 Restructuring charges .......................... -- -- -- -- Gain on sale of assets and related royalties ... (500) -- -- (500) ------- ------ ----- ------- Total operating expenses ....................... 10,135 879 424 11,438 ------- ------ ----- ------- LOSS FROM OPERATIONS .............................. (2,697) (367) (424) (3,488) ------- ------ ----- ------- OTHER INCOME (EXPENSE), NET ....................... 541 (54) (91)(N) 396 ------- ------ ----- ------- LOSS BEFORE PROVISION FOR INCOME TAXES ............ (2,156) (421) (515) (3,092) PROVISION FOR INCOME TAXES ........................ 161 -- -- 161 ------- ------ ----- ------- NET LOSS .......................................... $(2,317) $ (421) $(515) $(3,253) ======= ====== ===== ======= Basic loss per share .............................. $ (0.12) $ (0.17) Shares used in computing basic loss per share ..... 19,554 19,554 Diluted loss per share ............................ $ (0.12) $ (0.17) Shares used in computing diluted loss per share ... 19,554 19,554
The accompanying notes are an integral part of these unaudited pro forma combined condensed financial statements. 5 PCTEL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 (IN THOUSANDS)
PCTEL AS OF SIGMA AS OF DECEMBER 31, DECEMBER 31, PRO-FORMA PRO FORMA 2004 2004 (L) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- REVENUES........................................... $48,221 $10,976 -- $59,197 COST OF REVENUES................................... 19,786 8,299 261 (O) 28,346 MODEM INVENTORY AND ROYALTY EXPENSE RECOVERY....... (3,208) -- -- (3,208) ------- ------- ------- ------- GROSS PROFIT....................................... 31,643 2,677 (261) 34,059 ------- ------- ------- ------- OPERATING EXPENSES: Research and development........................ 8,506 852 -- 9,358 Sales and marketing............................. 10,944 1,442 -- 12,386 General and administrative...................... 14,402 1,020 -- 15,422 Amortization of intangible assets............... 2,972 -- 1,748 (M) 4,720 Restructuring charges........................... (66) -- -- (66) Gain on sale of assets and related royalties.... (2,000) -- -- (2,000) Amortization of stock based payments......... 1,425 -- -- 1,425 ------- ------- ------- ------- Total operating expenses..................... 36,183 3,314 1,748 41,245 ------- ------- ------- ------- LOSS FROM OPERATIONS............................... (4,540) (637) (2,009) (7,186) ------- ------- ------- ------- OTHER INCOME (EXPENSE), NET........................ 1,261 (182) (134) (N) 945 ------- ------- ------- ------- LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES... (3,279) (819) (2,143) (6,241) PROVISION (BENEFIT) FOR INCOME TAXES............... (541) 9 -- (532) ------- ------- ------- ------- NET LOSS........................................... $(2,738) $ (828) $(2,143) $(5,709) ======= ======= ======= ======= Basic loss per share............................... $ (0.14) $ (0.29) Shares used in computing basic loss per share...... 19,857 19,857 Diluted loss per share............................. $ (0.14) $ (0.29) Shares used in computing diluted loss per share.... 19,857 19,857
The accompanying notes are an integral part of these unaudited pro forma combined condensed financial statements. 6 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The unaudited pro forma combined condensed financial statements included herein have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in the financial statements prepared in accordance with the accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. 1. BASIS FOR PRO FORMA PRESENTATION On July 4, 2005, PCTEL, Inc. ("PCTEL") acquired all of the outstanding share capital of Sigma Wireless Technologies Limited, an Irish company ("Sigma"), pursuant to a Share Acquisition Agreement dated as of July 4, 2005 among PCTEL, Sigma, the holders of the outstanding share capital of Sigma, and other parties (the "Acquisition Agreement"). Sigma is based in Dublin, Ireland and develops, manufactures and distributes antenna products designed for wireless communications. The selling shareholders of Sigma consist of three manager/directors of Sigma and an Irish corporation owned by affiliates of Sigma. The total purchase price was 23.4. million Euro (approximately $28.3 million). Of this amount, 19.3 million Euro (approximately $23.4 million) was paid in cash at the close of the transaction. Approximately 5.1 million Euro of the closing payment were immediately used to discharge outstanding Sigma indebtedness and retire outstanding preferred shares and the remaining 14.4 million Euro was paid to the selling shareholders of Sigma. In addition, PCTEL assumed approximately 2.5 million Euro (approximately $3.0 million) of Sigma obligations, consisting principally of unfunded pension liability. Transactions costs were approximately $1.6 million euro (approximately $2.0 million). The Acquisition Agreement also provides for an "earn-out" provision in favor of the selling shareholders of Sigma, pursuant to which such shareholders may receive up to an additional 7.5 million Euro (approximately $9.1 million) in cash based on the revenue performance of Sigma over the 18-month period ending December 31, 2006. A cash payment of up to 5.75 million Euro (approximately $7.0 million) of the 7.5 million Euro total possible earn-out will be made to such shareholders based on Sigma revenue performance during the period in excess of 26 million Euro up to 35 million Euro; an additional cash payment of up to 1.75 million Euro (approximately $2.1 million) of the 7.5 million Euro total possible earn-out will be made to such shareholders based on Sigma revenue performance during the period in excess of 35 million Euro. Revenue performance of Sigma is measured quarterly, and earn-out payments, if any, are to be made within 45 days of the end of the quarterly period The acquisition establishes a European presence for PCTEL, whose antenna sales to date have been principally in North and South America and China. In addition, the acquisition positions PCTEL in the rapidly growing UMTS infrastructure market with leading edge antenna technology and associated control systems. The new generation of cellular technology requires frequent optimization and the ability to manage clusters of antennas. The unaudited pro forma combined condensed balance sheet as of June 30, 2005 was prepared by combining the historical condensed balance sheet for PCTEL and Sigma as if the Acquisition had been consummated on June 30, 2005. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2004, and for the three months ended June 30, 2005 and for the three months ended March 31, 2005 give effect to the Acquisition as if it occurred on January 1, 2004. 7 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (continued) 2. PURCHASE PRICE ALLOCATION The following represents the preliminary allocation of the purchase price paid for Sigma based on the estimated fair values of the acquired assets and assumed liabilities of Sigma as of June 30, 2005. The preliminary allocation of the purchase price may not be indicative of the final allocation of the purchase price consideration. Actual fair values will be determined as more detailed analysis is completed and additional information becomes available related to the fair values of the assets acquired and liabilities assumed from Sigma on July 4, 2005. The unaudited pro forma combined condensed financial statements reflect the total initial purchase price of $28.4 million, consisting of the following: i) the payment of initial cash consideration of 19.3 million euros ($23.4 million), ii) estimated transaction costs of $2.0 million, and assumption of unfunded pension liability of 2.5 million euro ($3.0 million). Under the purchase method of accounting, the initial purchase price is allocated to Sigma's net tangible and intangible assets based on the estimated fair value as of the date of Acquisition. The initial purchase price does not include any contingent earn out amounts. The preliminary purchase price allocation as of June 30, 2005 is as follows: (in thousands): TANGIBLE ASSETS: Accounts receivable................................................... $ 2,113 Inventory............................................................. 3,065 Property and equipment................................................ 1,331 Prepaids and other current assets..................................... 318 ------- TOTAL TANGIBLE ASSETS: 6,827 ------- INTANGIBLE ASSETS: Acquired Technology................................................... $ 2,541 Customer Relationships................................................ 6,536 Backlog............................................................... 48 Goodwill.............................................................. 16,393 ------- TOTAL INTANGIBLE ASSETS: 25,518 ------- LIABILITIES ASSUMED: Accounts payable...................................................... $ 2,518 Accrued liabilities (including deferred revenue)...................... 946 Income tax liability 392 Pension liability..................................................... 3,046 ------- TOTAL LIABILITIES ASSUMED: 6,902 ------- NET ASSETS ACQUIRED: $25,443
A third-party appraiser prepared the valuation of the intangible assets. A preliminary estimate of $16.4 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the tangible and intangible assets acquired. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill will not be amortized but will be tested for impairment at least annually. The purchase price allocation presented above is preliminary and final allocation of the purchase price will be based upon the actual fair values of the net tangible and intangible assets acquired, as well as liabilities assumed as of the date of Acquisition. Any change to the fair value of the net assets of Sigma will change the purchase price allocable to goodwill. The final purchase accounting adjustments may differ materially from the pro forma adjustments presented herein. There were no historical transactions between PCTEL and Sigma. 8 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (continued) 3. PRO FORMA ADJUSTMENTS The unaudited pro forma combined condensed balance sheet and statements of operations give effect to the following pro forma adjustments: BALANCE SHEET A) Sigma's condensed balance sheet data reflects certain adjustments to conform the historical balance sheet from generally accepted accounting principles in Ireland to U.S. GAAP. Please refer to the summary of differences between Irish and US generally accepted accounting principles set out in Note 29 of the consolidated financial statements. Further, Sigma's condensed balance sheet has been translated from the Euro to U.S. dollars using the exchange rate at June 30, 2005. B) To reflect the acquisition of all of the outstanding stock of Sigma for cash consideration of $23.4 million. C) To adjust the historical value of Sigma's inventory to fair value. D) To adjust the historical value of Sigma's property and equipment to fair value. E) To reflect goodwill of $16.4 million created as a result of the acquisition of Sigma based on the preliminary acquisition purchase price allocation. F) To reflect the acquisition of three identifiable intangible assets ("Acquired Technology", "Customer Relationships", and "Backlog"). G) To reflect an accrual for estimated transactions costs of $2.0 million, consisting primarily of professional fees incurred related to investment bankers, attorneys, accountants, and valuation advisors. H) To eliminate the Ordinary shares. I) To eliminate the Enterprise Ireland Preference shares. J) To eliminate the Sigma debt that was paid by PCTEL at the closing of the acquisition. K) To eliminate Sigma's historical stockholders' equity upon acquisition. STATEMENT OF OPERATIONS L) Sigma's condensed statement of operations data reflects certain adjustments to conform the historical balance sheet from generally accepted accounting principles in Ireland to U.S. GAAP. Please refer to the summary of differences between Irish and US generally accepted accounting principles set out in Note 29 of the consolidated financial statements. Further, Sigma's condensed statements of operations have been translated from the Euro to U.S. dollars using the average exchange rates during each of the respective periods. M) To reflect the straight-line amortization of the Acquired Technology intangible assets over the useful life of six years and the amortization of the Customer Relationships intangible assets over the useful life of six years and the Backlog intangible asset over the useful life of one year. N) To reflect the net decrease in interest income related to the initial cash consideration of $23.4 million paid to the shareholders of Sigma and to settle the long-term debt. The reduction of interest income was based on assumed interest rates of approximately 1.3% for the year ended December 31, 2004 and 2.5% for the three months ended March 31, 2005 and June 30, 2005, respectively. O) To reflect the fair value inventory adjustment in cost of goods sold. 9 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (continued) 4. GAIN ON SALE OF ASSETS The gain on sale assets for Sigma during the three months ended June 30, 2005 represents the U.S. GAAP gain on the sale of Sigma's Dublin property, including the land and building. Sigma sold the property to Finglas McKee Property Holdings Limited for 3.3 million Euro (approximately $4.1 million) on June 9, 2005. 10 -----END PRIVACY-ENHANCED MESSAGE-----