8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

July 9, 2012

Date of Report (date of earliest event reported)

PCTEL, Inc.

(Exact name of registrant as specified in its charter)

Delaware	000-27115	77-0364943
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

471 Brighton Drive

Bloomingdale, Illinois 60108

(Address of Principal Executive Offices, including Zip Code)

(630) 372-6800

(Registrant’s telephone number, including area code)

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 (see General Instruction A.2. below):

¨ 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(b))

¨ 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))

Explanatory Note

On July 9, 2012, PCTEL, Inc. completed the acquisition of substantially all of the assets and assumption of certain specified liabilities of TelWorx Communications LLC, TelWorx U.K. Limited, TowerWorx LLC and TowerWorx International, Inc. (collectively referred to below as TelWorx Communications, LLC, through its wholly-owned subsidiary (“PCTelWorx”), as more fully described in the Company’s Current Report filed on Form 8-K on July 13, 2012. This amendment No. 1 on Form 8-K/A amends the Company’s July 13, 2012, Form 8-K to provide financial statements of the business acquired and pro forma financial information related to the acquisition as required by Item 9.01(a) and 9.01(b).

Item 9.01 Financial Statements and Exhibits

(b) Financial Statements of Business Acquired

The Consolidated Financial Statements of TelWorx Communications, LLC for the years ended December 31, 2011 and 2010, are included as exhibit 99.1 to this Amendment No. 1.

The Consolidated Financial Statements of TelWorx Communications, LLC for the six months ended June 30, 2012 are included as Exhibit 99.2 to this Amendment No. 1.

(b) Pro Forma Financial Information

The unaudited pro forma consolidated financial statements of PCTEL, Inc. required by this item are included as Exhibit 99.2 to this Amendment No. 1.

(d) Exhibits.

23 Consent of Rives & Associates, LLP

99.1 The Consolidated Financial Statements of TelWorx Communications, LLC for the years ended December 31, 2011 and 2010

99.2 The Consolidated Financial Statements of TelWorx Communications, LLC for the six months ended June 30, 2012

99.3 PCTEL, Inc. unaudited pro forma consolidated condensed balance sheet as of June 30, 2012, and unaudited pro forma consolidated condensed statement of operations for the year ended December 31, 2011 and the six months ended June 30, 2012

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: September 24, 2012

	PCTEL, INC.
By:	/s/ John W. Schoen
	John W. Schoen, Chief Financial Officer

3

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to incorporation by reference in the Registration Statements on Form S-8 (No. 333-122117, No. 333-34910, No. 333-61926, No. 333-82120, No. 333-103233 and No. 333-112621) of PCTEL, Inc., of our report dated June 26, 2012, relating to the consolidated balance sheets of TelWorx Communications, LLC as of December 31, 2011 and 2010, and the related statements of income, members’ equity and cash flows, which appears in this Current Report on Form 8-K/A of PCTEL, Inc.

We also consent to incorporation by reference in the above named Registration Statements of our compilation report dated August 30, 2012, relating to the consolidated balance sheet of TelWorx Communications, LLC as of June 30, 2012 and the related statements of income, members’ equity and cash flows, which appears in this Current Report on Form 8-K/A of PCTEL, Inc.

/s/Rives & Associates, LLP

Rives & Associates, LLP

Lexington, North Carolina

September 20, 2012

EX-99.1

EXHIBIT 99.1

TELWORX COMMUNICATIONS, LLC

Consolidated Financial Statements and

Supplementary Information

December 31, 2011 and 2010

TELWORX COMMUNICATIONS, LLC

Table of Contents

	Page
Independent Auditors’ Report		1
Consolidated Financial Statements:
Consolidated Balance Sheets		2
Consolidated Statements of Income		3
Consolidated Statements of Members’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7
Supplementary Information:
Analysis of Cost of Goods Sold		24
EBITDA Analysis by Entity		24
Quarterly Statements of Income		25

Independent Auditors’ Report

To the Members

TelWorx Communications, LLC

Lexington, North Carolina

We have audited the accompanying consolidated balance sheets of TelWorx Communications, LLC, as of December 31, 2011 and 2010, and the related consolidated statements of income, members’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in 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 financial statements referred to above present fairly, in all material respects, the financial position of TelWorx Communications, LLC, as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information attached, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/Rives & Associates, LLP

June 26, 2012

1

TELWORX COMMUNICATIONS, LLC

Consolidated Balance Sheets

December 31, 2011 and 2010

	2011		2010
ASSETS
Current assets:
Cash	$	468,117	$	513,397
Accounts receivable		2,026,934		2,589,237
Employee loan		700		3,000
Marketable securities		20,000		—
Inventory		2,038,249		1,096,098
Total current assets		4,554,000		4,201,732
Net property and equipment:		2,744,423		2,898,790
Other assets:
Research and development		76,051		5,458
Intangible assets (net of accumulated amortization of $1,428,683 and $1,423,063)		218,229		223,849
Total other assets		294,280		229,307
Total assets	$	7,592,703	$	7,329,829
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Current maturities on capital leases	$	14,215	$	9,816
Current maturities on long-term debt		220,595		207,506
Lines of credit		1,477,892		1,381,260
Lease payable		—		3,144
Accounts payable		1,880,429		1,851,729
Accrued interest		6,967		8,009
Accrued liabilities		208,811		84,699
Total current liabilities		3,808,909		3,546,163
Long-term liabilities:
Capital leases, less current maturities		42,873		38,684
Long-term debt, less current maturities		2,318,054		2,538,649
Total long-term liabilities		2,360,927		2,577,333
Total liabilities		6,169,836		6,123,496
Members’ equity		1,422,867		1,206,333
Total liabilities and members’ equity	$	7,592,703	$	7,329,829

The accompanying notes to consolidated financial statements are an integral part of these statements.

2

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Income

For the Years Ended December 31, 2011 and 2010

	2011		2010
Revenue	$	18,117,971	$	18,134,468
Cost of goods sold		13,228,675		14,624,744
Gross profit		4,889,296		3,509,724
Sales and marketing expenses:
Wages		1,002,260		822,479
Commissions		471,829		307,920
Taxes and licenses		174,576		130,729
Telephone		52,962		30,972
Meals and entertainment		25,324		17,775
Travel		154,506		128,401
Retirement		46,573		23,060
Depreciation		47,174		46,726
Insurance		109,402		103,338
Office		8,743		6,829
Rent		21,285		43,139
Repairs and maintenance		4,443		5,858
Utilities		8,898		13,349
Supplies		5,827		9,365
Trade shows		90,941		13,532
Advertising		176,589		140,395
Other		5,715		4,930
Total sales and marketing expenses		2,407,047		1,848,797

The accompanying notes to consolidated financial statements are an integral part of these statements.

3

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Income (Continued)

For the Years Ended December 31, 2011 and 2010

	2011			2010
General and administrative expenses:
Wages	$	278,918		$	295,614
Commissions		9,871			7,800
Taxes and licenses		48,583			48,134
Telephone		25,801			16,554
Meals and entertainment		15,675			11,013
Travel		55,657			47,853
Retirement		11,443			8,186
Depreciation		36,533			32,909
Insurance		96,180			109,588
Office		6,912			3,074
Rent		—			1,408
Repairs and maintenance		4,099			3,996
Utilities		1,716			5,518
Supplies		3,290			5,110
Professional		62,210			44,423
Bank fees		68,330			37,913
Other		5,703			4,675
Total general and administrative expenses		730,921			683,768
Total operating expenses		3,137,968			2,532,565
Operating profit		1,751,328			977,159
Other income (expense):
Contributions		(12,655	)		(27,010	)
Amortization		(5,620	)		(263,377	)
Stock option amortization		(19,700	)		(19,700	)
Loss on disposition of fixed assets		—			(221,495	)
One time relocation		(82,000	)		—
Professional fees—legal		—			(270,610	)
Rental income		4,190			21,605
Interest income		1,940			1,975
Other income		14,773			17,862
Interest expense		(202,029	)		(208,308	)
Total other income (expenses)		(301,101	)		(969,058	)
Net income	$	1,450,227		$	8,101

The accompanying notes to consolidated financial statements are an integral part of these statements.

4

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Members’ Equity

For the Years Ended December 31, 2011 and 2010

	2011			2010
Members’ equity, beginning of year	$	1,206,333		$	973,748
Net income for the year		1,450,227			8,101
Deferred compensation from options		19,700			19,700
Contributions		—			549,507
Distributions		(1,253,393	)		(344,723	)
Members’ equity, end of year	$	1,422,867		$	1,206,333

The accompanying notes to consolidated financial statements are an integral part of these statements.

5

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Cash Flows

Years Ended December 31, 2011 and 2010

	2011			2010
Cash flows from operating activities:
Net income	$	1,450,227		$	8,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		237,923			220,388
Amortization		5,620			263,377
Stock option amortization		19,700			19,700
Cash flows from change in:
Accounts receivable		562,303			(398,208	)
Prepaid expenses		—			12,920
Employee loan		2,300			—
Inventory		(942,151	)		214,722
Research and development		(70,593	)		(1,658	)
Marketable securities		(20,000	)		—
Lease payable		(3,144	)		(12,473	)
Accounts payable		28,700			231,139
Accrued interest		(1,042	)		(2,997	)
Accrued liabilities		124,112			9,460
Net cash provided by operating activities		1,393,955			564,471
Cash flows from investing activities:
Net purchase of property and equipment		(83,556	)		(666,291	)
Net cash used by investing activities		(83,556	)		(666,291	)
Cash flows from financing activities:
Payments on capital leases		8,588			48,500
Payments on bank loans		(207,506	)		(65,455	)
Payments on line of credit		96,632			50,333
Contributions by members		—			549,507
Distributions to members		(1,253,393	)		(344,723	)
Net cash used by financing activities		(1,355,679	)		238,162
Net increase (decrease) in cash		(45,280	)		136,342
Cash, beginning of year		513,397			377,055
Cash, end of year	$	468,117		$	513,397
Supplemental disclosures:
Cash paid for income taxes	$	—		$	—
Cash paid for interest	$	203,071		$	205,311

The accompanying notes to consolidated financial statements are an integral part of these statements.

6

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 1—NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

TelWorx Communications, LLC, (the Company), which is headquartered in Lexington, North Carolina, is a certified purchaser and reseller of new telecom, surplus telecom and refurbished telecom equipment for the telecommunications market. Also, the Company is a leader in wire line services and wireless applications that support everyone from telecom providers, to telecom resellers and users of major voice, video and data communication technologies. They support entities ranging from telecom providers and resellers to government and all users of major voice, video and data communication technologies. The Company has employees and sales nationwide.

The accounting policies and principles which significantly affect the determination of financial position and results of operations are summarized below:

Basis of Consolidation:

These consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements include the accounts of TelWorx Communications, LLC, TowerWorx LLC, TowerWorx International, Inc. and Scronce Real Estate, LLC. Information on the consolidated entities is as follows:

TowerWorx, LLC:

TowerWorx, LLC, which is headquartered in Pryor, Oklahoma manufactures mobile cell phone towers with global operations across North America, India, China, and Africa. TowerWorx, LLC organized as a limited liability company on August 3, 2007. TowerWorx, LLC has a highly qualified leadership team with over 60 years collective experience in manufacturing, telecom, defense, engineering, and mobile tower industries.

The manufacturing facility is located near Tulsa, OK. The facility has access to major transportation facilities via truck or train to ensure a timely delivery. The facility is large enough to enable TowerWorx, LLC to scale and meet large quantity orders and support inventory for quick turnaround delivery.

TowerWorx International, Inc.:

In December of 2008 the members of TowerWorx, LLC formed an Interest Charge Domestic to International Sales Company (IC-DISC) called TowerWorx International, Inc. TowerWorx International, Inc. receives commissions on TowerWorx, LLC’s sales to foreign purchasers. The purpose of forming the IC-DISC is to take advantage of tax incentives for export sales. All significant inter-company accounts and transactions have been eliminated.

Scronce Real Estate, LLC:

Scronce Real Estate, LLC is owned solely by the wife of the of 99% owner TelWorx Communications, LLC. Scronce Real Estate, LLC rents to TelWorx Communications, LLC the primary office and warehouse facility in Lexington ,North Carolina.

7

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 1—NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign Operations:

The Company is exposed to foreign currency fluctuations due to its foreign operations and because products are sold internationally. The functional currency for the Company’s foreign operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using the year-end exchange rate for assets and liabilities and average monthly rates for revenue and expense accounts. Management has determined that no adjustments were required resulting from translations.

Basis of Accounting:

The Company uses the accrual basis of accounting.

Cash Equivalents:

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At December 31, 2011, the Company had no cash equivalents.

Fair Value of Financial Instruments:

Cash and cash equivalents are measured at fair value and investments are recognized at amortized cost in the Company’s financial statements. Accounts receivable and other investments are financial assets with carrying values that approximate fair value due to the short-term nature of these assets. Accounts payable and short-term debt are financial liabilities with carrying values that approximate fair value due to the short-term nature of these liabilities. The Company follows Fair Value Measurements and Disclosures (“ASC 820”), which establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: inputs other than level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

All of the Company’s investments at December 31, 2011 are considered Level 3 assets. Management believes that the value of its marketable securities at December 31, 2011 to be near its original cost of $20,000.

8

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 1—NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounts Receivable and Allowance for Doubtful Accounts:

Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts, as needed. The Company uses the allowance method to account for uncollectible receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. The Company considers any account 120 days past due to be uncollectible. The Company believes that no allowance was needed at December 31, 2011 and 2010. Accounts receivable had balances of $2,254,934 and $2,589,237 at December 31, 2011 and 2010, respectively.

Inventories:

Inventory consists of new, refurbished, and consigned telecommunications equipment and are carried at the lower of cost or market. The Company carries consigned inventory in its warehouse. These items are only recognized as costs when the inventory is sold. The Company constantly evaluates if an allowance to reduce the value of inventory to the lower of cost or market, including allowances for excess and obsolete inventory. At December 31, 2011 and 2010 no allowance was considered necessary. The balance of inventory at December 31, 2011 and 2010 was $2,038,249 and $1,096,098, respectively.

Prepaid and Other Current Assets:

Prepaid assets are stated at cost and are amortized over the useful lives (up to one year) of the assets.

Property and Equipment:

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. The useful lives range from 27.5 to 40 years for buildings and 5 to 7 years for equipment. Leasehold improvements are amortized over the shorter of the corresponding lease term or useful life. Depreciation expense and gains and losses on the disposal of property and equipment are included in cost of sales and operating expenses in the consolidated statements of income. Maintenance and repairs are expensed as incurred. Depreciation expense for the years ended December 31, 2011 and 2010 was $237,923 and $220,388, respectively.

9

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 1—NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and Equipment (Continued):

An breakdown of property and equipment for the years ended December 31, 2011 and 2010 are as follows:

	Balance December 31, 2011			Balance December 31, 2010
Land	$	268,000		$	268,000
Buildings		2,204,778			2,204,778
Furniture and fixtures		427,903			380,818
Machinery and equipment		273,997			273,997
Computer equipment		150,996			150,996
Vehicles		132,785			104,984
Totals		3,458,459			3,383,573
Less accumulated depreciation		(714,036	)		(484,783	)
Net book value	$	2,744,423		$	2,898,790

Revenue Recognition:

The Company sells telecom products and services. The Company recognizes revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured.

The Company recognizes revenue for sales of the products when the product ships from its warehouse. The Company recognizes revenue for its services when the job is completed and all expenses for the job are recognized. The Company allows its customers to return products under specified terms and conditions.

Research and Development Costs:

The Company expenses research and development costs as incurred. To date, the Company has expensed all software development costs related to research and development because the costs incurred subsequent to the products reaching technological feasibility were not significant.

Advertising Costs:

Advertising costs are expensed in the period in which they are incurred. Advertising expense was $176,589 and $140,395, respectively for the years ended December 31, 2011 and 2010.

10

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 1—NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Sales and Value Added Taxes:

Taxes collected from customers and remitted to governmental authorities are presented on a net basis in goods sold in the accompanying consolidated statements of income.

Shipping and Handling Costs:

Shipping and handling costs are included on a gross basis in cost of goods sold in the accompanying consolidated statements of income.

Income Taxes:

No income tax provision has been included in the financial statements since the income or losses of the Company are required to be reported by the members on their income tax returns. Taxable income or loss will differ from the income or loss reported in the financial statements, due to the different carrying values of assets, and different revenue recognition methods for financial reporting and income tax purposes. Management has determined that the Company has no uncertain tax positions that would require the Company to record a liability for unrecognized tax benefits. Management believes that the Company’s tax years ended December 31, 2011, 2010, and 2009 remain subject to examination by federal and state tax jurisdictions.

Warranty Reserve and Sales Returns:

TelWorx Communications, LLC offers a 90 day warranty on products directly manufactured by TelWorx Communications, LLC. Any products resold by TelWorx Communications, LLC from other suppliers carry the original manufacturers warranty. TelWorx Communications, LLC offers returns with a 25% restocking fee.

TowerWorx, LLC warrants that products manufactured by TowerWorx, LLC, when properly installed and serviced by authorized service representatives and when properly used and maintained in conformance with the standards and limitations set forth by TowerWorx, LLC shall be free from defects in material and workmanship for a period of one (1) year from the date of original purchase or shipping date, whichever is earlier in time. TowerWorx, LLC’s obligation under this warranty shall be limited to replacing or repairing the defective part or parts or, at TowerWorx LLC’s option, the product itself, in part or in whole, which contains the defective part or parts. All TowerWorx, LLC sales are final after completion of the tower. Orders can be canceled or rescheduled within 10 days of shipment with written notice.

TelWorx Communications, LLC offers a 90 day warranty on products directly manufactured by TelWorx Communications, LLC. Any products resold by TelWorx Communications, LLC from other suppliers carry the original manufacturers warranty.

Management has determined that through analysis of historical return and warranty data that no reserve for warranty or sales returns should be included in the financial statements.

11

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 1—NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Leased Equipment Capitalized:

The imputed cost of leased equipment is capitalized and charged to earnings using the straight-line method of depreciation over an estimated useful life of ten years for financial reporting purposes. Generally, when items of leased property are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Date of Management’s Review:

The Company has evaluated events through June 26, 2012, which is the date the financial statements were available to be issued, for possible recognition or disclosure in the financial statements.

Note 2—INTANGIBLE ASSETS

A detailed schedule of intangible assets are as follows:

Intangible assets:	Original Value		Amortization Expense 2010		Accumulated Amortization 12/31/2010		Balance 12/31/2010
Goodwill	$	206,667	$	—	$	—	$	206,667
Trade name		379,945		69,657		379,945		—
Noncompete agreement		687,000		125,950		687,000		—
Customer relationships		339,000		62,150		339,000		—
Organization and start-up costs		34,300		5,620		17,118		17,182
	$	1,646,912	$	263,377	$	1,423,063	$	223,849

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TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 2—INTANGIBLE ASSETS (Continued)

A detailed schedule of intangible assets are as follows:

	Balance 12/31/2010		Amortization Expense 2011		Accumulated Amortization 12/31/2011		Balance 12/31/2011
Intangible assets:
Goodwill	$	206,667	$	—	$	—	$	206,667
Trade name		—		—		379,945		—
Noncompete agreement		—		—		687,000		—
Customer relationships		—		—		339,000		—
Organization and start-up costs		17,182		5,620		22,802		11,562
	$	223,849	$	5,620	$	1,428,747	$	218,229

Goodwill:

The Company performs an annual impairment test of goodwill at the end of each year (December 31). If the Company’s fair value is greater than its book value, then further impairment tests are not necessary. If the Company’s fair value is less than its book value, then further tests are performed to determine the Company’s fair value of goodwill. The implied fair value is then compared against the book value of goodwill to determine the amount of goodwill impairment. According to Statement of Financial Accounting Standards No. 142, goodwill is not amortized. Generally accepted accounting principles require that the unamortized value of purchased goodwill be evaluated annually to determine whether the amount reflected on the balance sheet as an asset has been impaired. In management’s opinion, there has been no impairment to the value of recorded goodwill during the year ended December 31, 2011. Goodwill is amortized for income tax purposes using the straight-line method over fifteen years.

The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions. The Company uses both the Income Approach and the Market Approach for determining the fair value of the reporting unit. Although the Company bases the cash flow forecasts on assumptions that are consistent with plans and estimates the Company uses to manage the business, there is considerable judgment in determining the cash flows. Assumptions related to future cash flows and discount rates involve significant management judgment and are subject to significant uncertainty.

13

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 2—INTANGIBLE ASSETS (Continued)

Goodwill (Continued):

While the use of historical results and future projections can result in different valuations for a company, it is a generally accepted valuation practice to apply more than one valuation technique to establish a range of values for a business. Since each technique relies on different inputs and assumptions, it is unlikely that each technique would yield the same results. However, it is expected that the different techniques would establish a reasonable range. In determining the fair value, the Company weighs the two methods equally in determining the fair value because the Company believes both methods have an equal probability of providing an appropriate fair value.

The Company recognized goodwill of $206,667 with the acquisition of assets from TelWorx Communications, LLC. The Company’s market capitalization as of the date of the acquisition exceeded the book value of the Company. Since there was not a triggering event for goodwill impairment, the Company did not perform the two-step goodwill impairment test.

Trade Name:

The Company assessed intangible assets as of the original acquisition on November 21, 2005. The Company determined the value of goodwill associated with the purchase price to be allocated towards the trade name to be $379,945 on the acquisition date. The trade name intangible assets was amortized over a five year period and carried a book value of $0 at December 31, 2011 and 2010. The amortization expense for the years ended December 31, 2011 and 2010 associated with these agreements was $0 and $69,657, respectively.

Noncompeting Agreement:

The Company executed a Noncompete agreement with the previous owners upon the acquisition of the Company on November 21, 2005. The value of these agreements at the acquisition date was $687,000. The agreements were amortized over a five year period and carried a book value of $0 at December 31, 2011 and 2010. The amortization expense for the years ended December 31, 2011 and 2010 associated with these agreements was $0 and $125,950, respectively.

Customer Relationships:

The Company assessed intangible assets as of the original acquisition on November 21, 2005. The Company determined the value of existing customer relationships to be $339,000 on the acquisition date. The customer relationships were amortized over a five year period and carried a book value of $0 at December 31, 2011 and 2010. The amortization expense for the years ended December 31, 2011 and 2010 associated with these agreements was $0 and $62,150, respectively.

Organization and Start-Up Costs:

Costs incurred in connection with the organization of TowerWorx, LLC have been capitalized and are being amortized using the straight-line method. The original costs totaled $34,300. The intangible assets will be amortized from 5 to 15 years. Amortization expense associated with this intangible asset for the years ended December 31, 2011 and 2010 was $5,620.

14

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 3—RELATED PARTY TRANSACTIONS

The Company’s CEO, Timothy Scronce’s wife, Brenda Scronce, is the sole member of Scronce Real Estate, LLC, which leases the operating facility to TelWorx Communications, LLC. Rent paid from TelWorx Communications, LLC to Scronce Real Estate, LLC was $167,976 for the years ended December 31, 2011 and 2010. These amounts were netted against rent expense on the statement of income. Scronce Real Estate, LLC currently has an outstanding loan at NewBridge Bank that is secured by the operating facility (see Note 11). The balance sheet and statements of income and member’s equity for Scronce Real Estate, LLC for the years ended December 31, 2011 and 2010 are as follows:

SCRONCE REAL ESTATE, LLC

Balance Sheets

December 31, 2011 and 2010

	2011			2010
ASSETS
Current assets:
Cash	$	100		$	100
Property and equipment:
Land		268,000			268,000
Buildings		2,204,778			2,204,778
Total property and equipment		2,472,778			2,472,778
Less, accumulated depreciation		(291,240	)		(162,973	)
Net property and equipment		2,181,538			2,309,805
Total assets	$	2,181,638		$	2,309,905
LIABILITIES AND MEMBER’S EQUITY
Current liabilities:
Current maturities on long-term debt	$	105,113		$	101,252
Long-term liabilities:
Long-term liabilities, less current maturities		1,619,184			1,724,297
Total liabilities		1,724,297			1,825,549
Member’s equity		457,339			484,356
Total liabilities and members’ equity	$	2,181,636		$	2,309,905

15

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 3—RELATED PARTY TRANSACTIONS (Continued)

SCRONCE REAL ESTATE, LLC

Statements of Income and Member’s Equity

For the years ended December 31, 2011 and 2010

	2011			2010
Other income (expenses):
Rental income	$	167,976		$	167,976
Depreciation		(128,267	)		(126,657	)
Interest		(66,726	)		(70,154	)
Net loss for the year		(27,017	)		(28,835	)
Member’s equity, beginning of year		484,356			(36,316	)
Contributions		—			549,507
Distributions		—			—
Member’s equity, end of year	$	457,339		$	484,356

Timothy Scronce, CEO:

The Company’s CEO, Timothy Scronce is a member and salaried employee that has invested capital into the Company. Timothy Scronce has also secured and guaranteed several of the Company’s outstanding loans and he has personally guaranteed litigation sales.

TowerWorx, LLC and TowerWorx International, Inc.:

The Company’s CEO, Timothy Scronce, is the spouse of the majority member of TowerWorx, LLC. The Company purchases and sells materials to TowerWorx, LLC. All outstanding intercompany receivables and payables were eliminated in the consolidation.

16

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 4—CONCENTRATION OF CREDIT RISK

The Company places its cash and cash equivalents on deposit with financial institutions in the United States. On July 21, 2010, the Federal Deposit Insurance Corporation (FDIC) permanently increased insured coverage to $250,000 for substantially all depository accounts held in FDIC-insured institutions. Beginning December 31, 2010 through December 31, 2012, all non-interest bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. During the year, the Company from time to time may have had amounts on deposit in excess of the insured limits. As of December 31, 2011 and 2010, the Company's deposits were fully insured.

Note 5—RENTAL INCOME

Prior to the litigation described in Note 12, the Company leased towers through TowerWorx, LLC. Income from these leases are broken out in other income on the consolidated statements of income. TowerWorx, LLC has seized leasing towers since the litigation.

Note 6—VARIABLE INTEREST ENTITY

Management has determined that TowerWorx, LLC and Scronce Real Estate, LLC are variable interest entities under FIN 46, subsequently titled under the FASB Accounting Standards Codification (ASC) as ASC 810. The accounts of TowerWorx, LLC, TowerWorx International, Inc. and Scronce Real Estate, LLC are included in these consolidated financial statements.

Management has determined that a joint venture between TowerWorx, LLC and an Egyptian company is not a variable interest entity under FIN 46, subsequently titled under the FASB Accounting Standards Codification (ASC) as ASC 810. The transactions of this joint venture are not consolidated in the financial statements. The Company has $0 invested in the joint venture.

Note 7—POSTRETIREMENT BENEFIT PLAN

The Company sponsors a defined contribution postretirement plan in the form of a safe harbor 401-K plan. The plan is contributory, with retiree contributions adjusted annually. The Company’s funding policy is to contribute annually an amount equal to three percent of the covered employee’s salary. The Company may terminate this plan at any time.

Note 8—OPERATING LEASES

The Company leases its facility for TowerWorx, LLC from FeatherLite in Pryor, Oklahoma. The lease arrangement is month by month rent. During the years ended December 31, 2011 and 2010, rents totaled $67,773 and $244,785, respectively for the leasing of the TowerWorx, LLC facility.

17

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 9—LINES OF CREDIT

TelWorx Communications, LLC Line of Credit:

The Company currently has an outstanding revolving line of credit at Newbridge Bank. The revolving line of credit is secured by the Company’s assets and is personally guaranteed by the Company’s CEO Timothy Scronce. The balance of the credit line as of December 31, 2011 and 2010 was $927,892 and $981,260, respectively. The credit line has a maximum amount of $2,000,000. Interest is charged at the prime rate minus 0.75%.

TowerWorx, LLC Line of Credit:

The Company has a $550,000 asset based commercial line of credit with SunTrust Bank for working capital needs of TowerWorx, LLC. The line of credit is secured against all the Company’s assets. As of December 31, 2011 the rate was the London Interbank Offering Rate plus 2.5%. The Company is required to make monthly interest payments, and the principal balance is due April 22, 2012, although the Company expects to renew the note on an annual basis. At December 31, 2011 and 2010, the Company’s unpaid balances were $550,000 and $400,000 respectively.

Note 10—CAPITAL LEASES

The Company purchased a van for use in business operations on August 14, 2010 and entered into a capital lease agreement with Modern Chevrolet, LLC for the purchase. The capital lease, with an original amount of $25,672, has an interest rate of 2.9%, requires monthly payments in the amount of $461 and matures on August 14, 2015.

	2011		2010
Balance, December 31:	$	19,207	$	24,262
Less, additional principal payments		—		161
Less, current maturities		5,038		4,894
Capital lease, less current maturities	$	14,169	$	19,207

The current maturities for the years ending December 31, are as follows:

2012	$	5,038
2013		5,186
2014		5,339
2015		3,644
	$	19,207

18

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 10—CAPITAL LEASES (Continued)

The Company purchased a van for use in business operations on August 14, 2010 entered into a capital lease agreement Modern Chevrolet, LLC for the purchase. The capital lease, with an original amount of $25,815, has an interest rate of 2.9%, requires monthly payments in the amount of $463 and matures on August 14, 2015.

	2011		2010
Balance, December 31:	$	19,316	$	24,238
Less, current maturities		5,066		4,922
Capital lease, less current maturities	$	14,250	$	19,316

The current maturities for the years ending December 31, are as follows:

2012	$	5,066
2013		5,215
2014		5,368
2015		3,667
	$	19,316

The Company purchased a truck for use in business operations on February 15, 2011 and entered into a capital lease agreement with Modern Chevrolet, LLC for the purchase. The capital lease, with an original amount of $21,797, has an interest rate of 5.0%, requires monthly payments in the amount of $412 and matures on February 15, 2016.

	2011		2010
Balance, December 31:	$	18,565	$	—
Less, current maturities		4,111		—
Capital lease, less current maturities	$	14,454	$	—

The current maturities for the years ending December 31, are as follows:

2012	$	4,111
2013		4,321
2014		4,543
2015		4,775
2016		815
	$	18,565

19

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 11—LONG-TERM DEBT

Commercial Loan:

The Company has an outstanding commercial loan with NewBridge Bank. The note is personally insured by CEO Timothy Scronce. The balance of the note at December 31, 2011 was $814,352. Interest is charged at the rate of 6.5%.

	2011		2010
Balance, December 31:	$	814,352	$	920,606
Less, current maturities		115,482		106,254
Mortgage payable, less current maturities	$	698,870	$	814,352

The current maturities for the years ending December 31, are as follows:

2012	$	115,482
2013		123,216
2014		131,468
2015		140,272
2016		149,667
Thereafter		154,247
	$	814,352

Commercial loan-Scronce Real Estate, LLC

The Company has an outstanding loan with NewBridge Bank for the Company’s headquarters in Lexington North Carolina. The loan is in the name of Scronce Real Estate, LLC and is collateralized by the land and buildings at the main headquarters. The loan, with an original amount of $1,915,000.

	2011		2010
Balance, December 31:	$	1,724,297	$	1,825,549
Less, current maturities		105,113		101,252
Mortgage payable, less current maturities	$	1,619,184	$	1,724,297

20

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 11—LONG-TERM DEBT (Continued)

The current maturities for the years ending December 31, are as follows:

2012	$	105,113
2013		109,123
2014		113,286
2015		117,608
2016		122,905
Thereafter		1,156,262
	$	1,724,297

Interest expense on this loan for the years ended December 31, 2011 and 2010 was $66,726 and $70,154, respectively.

Note 12—LITIGATION AND AGREEMENT

In 2010 the Company was involved in a lawsuit with All-Tech concerning the manufacturing of towers in violation of a patent. Incurred legal fees associated with the lawsuit totaled $270,610. A settlement was reached between TowerWorx, LLC and All-Tech. The agreement, settled in February 2011, allows for TowerWorx, LLC to cease production of the towers named in the lawsuit and have All-Tech manufacture towers for TowerWorx, LLC with a mark up of 52.52% for a period of five years. The agreement also guaranteed All-Tech a total of $2.3 million dollars in sales for the first two years personally guaranteed by CEO Timothy Scronce.

Note 13—ONE TIME RELOCATION

The Company experienced costs in 2011 associated with the shutdown of its manufacturing facility due to the litigation and agreement discussed in Note 12. The costs are broken out separately on the balance sheets due to the fact the no additional costs or fees are expected in the future. The total costs incurred in 2011 associated with the relocation was $82,000.

21

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 14—STOCK OPTIONS

In 2007 and 2008, the Company entered into stock option agreements with three employees for a total of 200,000 shares of class A restricted, non-voting, common stock. The first set had a fair value of $.48 per share at 1/1/2007 for a total value of $72,000. The second set of issued options had a value of $.53 per share at 1/1/2008 for a total value of $26,500. Both issuance of options vest over a period of five years and vest 20% per year over the five year period. The total fair value of $98,500 was recorded as an increase to members’ equity and deferred compensation, a contra-equity account. The deferred compensation will be amortized into expense over the vesting period of the restricted stock. For the years ended December 31, 2011 and 2010, the Company recognized $19,700 of amortization expense related to the vesting of the restricted shares. The first set of issued options were fully vested at December 31, 2011 and the second set of issued options will be fully vested at December 31, 2012, 20,000 shares vesting in 2012. As of December 31, 2011 and 2010, the holders of the common stock from these options, pursuant to the restricted stock grant, had $190,000 and 150,000 shares, respectively. The value of the options were determined annually be management.

Under the Company’s stock option plan, the Company may grant options to purchase up to 10,000,000 shares of common stock to employees, directors, and consultants as either incentive stock options or nonqualified stock options. Incentive stock options may be granted with exercise prices not less than 100% of the fair market value of the common stock on the dale of such grant. Options granted under the plan generally vest up to three years and expire 10 years from the date of the grant.

	Outstanding Options
	No. of Shares		Weighted Avg. Exercise Price
Balance at January 01, 2010		150,000	$	0.49
Granted		—		—
Forfeited		—		—
Exercised		20,000		0.49
Balance at January 01, 2011		170,000		0.49
Granted		—		—
Forfeited		—		—
Exercised		20,000		0.49
Balance at December 31, 2011		190,000	$	0.49

22

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

Note 14 —STOCK OPTIONS (Continued)

The following table summarizes information as of December 31, 2011 and 2010 related to all outstanding and vested options:

	2011				2010
Exercise Price	Number of Shares		Weighted Avg. Remaining		Number of Shares		Weighted Avg. Remaining
$    0.48		—		—		30,000		14,400
$    0.53		10,000		5,300		10,000		5,300
		10,000		5,300		40,000		19,700

23

Supplementary Information

TELWORX COMMUNICATIONS, LLC

Supplementary Information

For the Years Ended December 31, 2011 and 2010

1 Analysis of Cost of Goods Sold:

	2011		2010
Cost of goods sold:
Product	$	12,108,645	$	12,704,777
Wages		283,475		890,446
Commissions		20,408		16,600
Tax and licenses		122,873		153,255
Telephone		9,785		17,307
Meals and entertainment		23,288		16,522
Travel		67,595		67,830
Retirement		20,776		10,662
Depreciation		154,216		140,753
Insurance		149,919		119,506
Office		40,428		44,540
Rent		46,488		200,502
Repairs and maintenance		38,426		44,331
Utilities		47,768		84,891
Supplies		37,130		59,893
Warranty		21,200		15,199
Other		36,255		37,730
	$	13,228,675	$	14,624,744

2 EBITDA Analysis by Entity:

	2011		2010
TelWorx Communications, LLC	$	1,633,166	$	727,709
TowerWorx, LLC		188,110		301,863
Scronce Real Estate, LLC		167,976		167,976
	$	1,989,252	$	1,197,548

24

TELWORX COMMUNICATIONS, LLC

Supplementary Information

Consolidated Statements of Income (Unaudited)

For the Four Quarters Ended December 31, 2011 (all numbers in 000s)

	Total 2011		Q1—2011		Q2—2011		Q3—2011		Q4—2011
Revenue		18,118		4,044		4,679		5,112		4,283
Product		12,109		2,520		3,286		3,612		2,692
Wages		284		80		74		58		71
Commissions		20		6		5		5		4
Tax and licenses		123		15		32		30		46
Telephone		10		2		3		3		3
Meals and entertainment		23		6		5		7		5
Travel		68		21		13		24		10
Retirement		21		4		5		6		6
Depreciation		155		39		39		39		39
Insurance		150		20		38		48		43
Office		41		9		11		10		11
Rent		46		12		12		12		12
Repairs and maintenance		38		10		10		12		7
Utilities		48		14		11		22		0
Supplies		37		7		14		9		8
Warranty		21		5		5		5		5
Other		36		6		4		17		10
Cost of goods sold		13,229		2,776		3,564		3,918		2,970
Gross profit		4,889		1,268		1,115		1,194		1,312
Sales and marketing expenses:
Wages		1,004		209		272		299		223
Commissions		470		137		112		127		94
Taxes and licenses		175		40		46		61		28
Telephone		53		6		14		13		20
Meals and entertainment		25		5		7		7		7
Travel		154		41		31		47		35
Retirement		47		14		9		17		7
Depreciation		47		9		12		13		13
Insurance		110		28		27		27		27
Office		9		1		2		3		3
Rent		21		5		6		5		6
Repairs and maintenance		4		1		1		1		1
Utilities		9		2		2		3		2
Supplies		6		2		1		3		0
Trade shows		91		7		24		15		45
Advertising		177		43		46		43		44
Other		6		1		1		3		2
Total sales and marketing expenses		2,407		552		613		688		554

25

TELWORX COMMUNICATIONS, LLC

Supplementary Information

Consolidated Statements of Income (Unaudited)

For the Four Quarters Ended December 31, 2011 (all numbers in 000s)

	Total 2011			Q1—2011			Q2—2011			Q3—2011			Q4—2011
General and administrative expenses:
Wages		279			78			73			57			70
Commissions		10			2			3			3			2
Taxes and licenses		49			6			13			12			18
Telephone		26			5			7			7			7
Meals and entertainment		16			4			3			5			4
Travel		56			17			11			20			8
Retirement		11			2			3			3			3
Depreciation		37			9			9			9			9
Insurance		96			13			24			31			28
Office		7			2			2			2			2
Rent		—			—			—			—			—
Repairs and maintenance		4			1			1			1			1
Utilities		2			0			0			1			0
Supplies		3			1			1			1			1
Professional		62			8			22			23			10
Bank fees		68			13			15			14			25
Other		6			1			1			3			2
Total general and administrative expen		731			163			187			192			189
Total operating expenses		3,138			714			801			879			743
Operating profit		1,751			553			314			314			569
Other income (expense):
Contributions		(13	)		(2	)		(1	)		(10	)		(1	)
Amortization		(6	)		(1	)		(1	)		(1	)		(1	)
Stock option amortization		(20	)		(5	)		(5	)		(5	)		(5	)
Loss on disposition of fixed assets		—			—			—			—			—
One time relocation		(82	)		(21	)		(21	)		(21	)		(21	)
Professional fees—legal		—			—			—			—			—
Rental income		4			1			1			1			1
Interest income		2			1			0			1			—
Other income		15			4			4			7			—
Interest expense		(202	)		(51	)		(51	)		(51	)		(50	)
Total other income (expenses)		(301	)		(73	)		(72	)		(79	)		(77	)
Net income		1,450			480			242			236			492

26

TELWORX COMMUNICATIONS, LLC

Supplementary Information

Consolidated Statements of Income (Unaudited)

For the Four Quarters Ended December 31, 2010 (all numbers in 000s)

	Total 2010		Q1—2010		Q2—2010		Q3—2010		Q4—2010
Revenue		18,135		3,756		3,847		5,023		5,508
Product		12,705		2,754		2,604		3,513		3,835
Wages		890		208		230		207		246
Commissions		17		3		3		5		5
Tax and licenses		153		34		41		40		38
Telephone		17		4		5		4		4
Meals and entertainment		17		5		3		5		5
Travel		68		12		18		18		20
Retirement		11		4		2		1		3
Depreciation		140		37		37		38		29
Insurance		120		38		32		29		21
Office		45		13		13		8		11
Rent		200		45		45		50		60
Repairs and maintenance		44		13		12		10		9
Utilities		85		27		17		19		21
Supplies		60		18		19		17		7
Warranty		15		4		4		4		4
Other		38		8		10		14		6
Cost of goods sold		14,625		3,226		3,095		3,980		4,323
Gross profit		3,510		530		752		1,043		1,184
Sales and marketing expenses:
Wages		823		179		169		228		248
Commissions		308		72		79		72		85
Taxes and licenses		130		27		26		40		37
Telephone		31		7		8		8		8
Meals and entertainment		18		4		5		4		5
Travel		127		36		22		35		34
Retirement		23		4		6		6		7
Depreciation		47		17		9		6		14
Insurance		104		27		27		28		21
Office		7		2		2		2		1
Rent		43		13		12		7		11
Repairs and maintenance		6		1		1		1		2
Utilities		13		4		4		3		3
Supplies		9		3		2		2		2
Trade shows		13		4		3		5		1
Advertising		142		41		12		17		72
Other		5		1		1		2		1
Total sales and marketing expenses		1,849		441		390		465		552

27

TELWORX COMMUNICATIONS, LLC

Supplementary Information

Consolidated Statements of Income (Unaudited)

For the Four Quarters Ended December 31, 2010 (all numbers in 000s)

	Total 2010			Q1—2010			Q2—2010			Q3—2010			Q4—2010
General and administrative expenses:
Wages		296			69			76			69			82
Commissions		8			2			2			2			2
Taxes and licenses		48			11			13			12			12
Telephone		17			4			5			4			4
Meals and entertainment		11			3			2			3			3
Travel		48			8			13			13			14
Retirement		8			3			2			1			2
Depreciation		33			8			9			9			7
Insurance		110			35			29			27			19
Office		3			1			1			0			1
Rent		1			0			0			0			0
Repairs and maintenance		4			1			1			1			1
Utilities		6			2			1			1			1
Supplies		5			1			2			1			1
Professional		44			16			14			14			(0	)
Bank fees		38			5			15			9			9
Other		5			1			1			2			1
Total general and administrative expenses		684			171			185			169			159
Total operating expenses		2,533			612			576			634			711
Operating profit (loss)		977			(82	)		177			409			473
Other income (expense):
Contributions		(27	)		(5	)		(0	)		(21	)		(0	)
Amortization		(264	)		(65	)		(66	)		(66	)		(66	)
Stock option amortization		(20	)		(5	)		(5	)		(5	)		(5	)
Loss on disposition of fixed assets		(221	)		(55	)		(55	)		(55	)		(55	)
One time relocation		—			—			—			—			—
Professional fees—legal		(271	)		(68	)		(68	)		(68	)		(68	)
Rental income		22			5			5			5			5
Interest income		2			1			0			1			0
Other income		19			4			5			6			3
Interest expense		(208	)		(52	)		(62	)		(48	)		(46	)
Total other income (expenses)		(969	)		(241	)		(245	)		(251	)		(232	)
Net income (loss)		8			(322	)		(68	)		158			241

28

EX-99.2

Exhibit 99.2

TELWORX COMMUNICATIONS, LLC

Consolidated Financial Statements and

Supplementary Information

June 30, 2012

TELWORX COMMUNICATIONS, LLC

Table of Contents

	Page
Independent Accountants’ Compilation Report	1
Consolidated Financial Statements:
Consolidated Balance Sheet	2
Consolidated Statements of Income	3
Consolidated Statements of Members’ Equity	5
Consolidated Statement of Cash Flows	6
Notes to Consolidated Financial Statements	7
Supplementary Information:
Analysis of Cost of Goods Sold	25
EBITDA Analysis by Entity	25

Independent Accountants’ Compilation Report

To the Board of Directors

TelWorx Communications, LLC

Lexington, North Carolina

We have compiled the accompanying consolidated balance sheet of TelWorx Communications, LLC as of June 30, 2012, and the related consolidated statements of income, members’ equity, and cash flows for the six months then ended. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America. We have also compiled the supplementary information of TelWorx Communications, LLC which is presented for purposes of additional analysis and is not a required part of the basic financial statements.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

Our responsibility is to conduct the compilation in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management in presenting financial information in the form of financial statements and supplementary information, without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

/s/ Rives & Associates

August 30, 2012

1

TELWORX COMMUNICATIONS, LLC

Consolidated Balance Sheet

June 30, 2012

ASSETS
Current assets:
Cash	$	316,129
Accounts receivable		1,689,007
Prepaid expenses		20,360
Marketable securities		20,000
Inventory		1,838,537
Total current assets		3,884,033
Net property and equipment		2,710,261
Other assets:
Research and development		139,012
Intangible assets (net of accumulated amortization of $1,431,492)		215,420
Total other assets		354,432
Total assets	$	6,948,726
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Current maturities on capital leases	$	7,142
Current maturities on long-term debt		240,852
Lines of credit		1,689,184
Accounts payable		1,392,160
Accrued interest		9,453
Accrued liabilities		45,787
Total current liabilities		3,384,578
Long-term liabilities:
Capital leases, less current maturities		4,376
Long-term debt, less current maturities		2,225,852
Total long-term liabilities		2,230,228
Total liabilities		5,614,806
Members’ equity		1,333,920
Total liabilities and members’ equity	$	6,948,726

See independent accountants’ compilation report and notes to consolidated financial statements.

2

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Income

For the Periods Ended June 30, 2012

	For the three months ended  June 30, 2012		For the six months ended  June 30, 2012
Revenue	$	3,946,293	$	7,738,782
Cost of goods sold		3,281,267		6,009,134
Gross profit		665,026		1,729,648
Sales and marketing expenses:
Wages		297,277		543,953
Commissions		82,208		165,947
Taxes and licenses		32,444		66,722
Telephone		9,376		18,847
Meals and entertainment		4,070		9,217
Travel		19,881		44,851
Retirement		6,087		12,358
Depreciation		11,739		23,561
Insurance		26,806		51,936
Office		1,688		4,059
Rent		5,070		8,580
Repairs and maintenance		1,093		1,367
Utilities		978		2,188
Supplies		1,980		4,123
Trade shows		13,763		27,784
Advertising		22,870		62,231
Other		409		771
Total sales and marketing expenses		537,739		1,048,495

See independent accountants’ compilation report and notes to consolidated financial statements.

3

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Income (Continued)

For the Periods Ended June 30, 2012

	For the three months ended  June 30, 2012			For the six months ended  June 30, 2012
General and administrative expenses:
Wages	$	123,865		$	226,647
Commissions		7,378			14,893
Taxes and licenses		9,084			18,682
Telephone		4,531			9,109
Meals and entertainment		2,504			5,672
Travel		7,100			16,018
Retirement		1,548			3,142
Depreciation		8,803			17,670
Insurance		23,346			45,234
Office		1,266			3,044
Rent		975			1,650
Repairs and maintenance		1,093			1,367
Utilities		196			438
Supplies		1,066			2,220
Professional		16,756			27,489
Bank fees		7,257			14,405
Bad debt		64,516			64,516
Other		4,116			7,729
Total general and administrative expenses		285,400			479,925
Total operating expenses		823,139			1,528,420
Operating profit (loss)		(158,113	)		201,228
Other income (expense):
Contributions		(4,450	)		(4,750	)
Amortization		(1,405	)		(2,810	)
Stock option amortization		(4,925	)		(9,850	)
Rental income		—			7,395
Interest income		33			179
Other income		2,646			8,035
Interest expense		(47,849	)		(81,074	)
Total other income (expenses)		(55,950	)		(82,875	)
Net income (loss) for the period	$	(214,063	)	$	118,353

See independent accountants’ compilation report and notes to consolidated financial statements.

4

TELWORX COMMUNICATIONS, LLC

Consolidated Statements of Members’ Equity

For the Periods Ended June 30, 2012

	For the three months ended  June 30, 2012			For the six months ended  June 30, 2012
Members’ equity, beginning of period	$	1,727,337		$	1,422,867
Net income (loss) for the period		(214,063	)		118,353
Deferred compensation from options		4,925			9,850
Distributions		(184,279	)		(217,150	)
Members’ equity, end of period	$	1,333,920		$	1,333,920

See independent accountants’ compilation report and notes to consolidated financial statements.

5

TELWORX COMMUNICATIONS, LLC

Consolidated Statement of Cash Flows

For the Six Months Ended June 30, 2012

Cash flows from operating activities:
Net income	$	118,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		117,803
Amortization		2,810
Stock option amortization		9,850
Cash flows from change in:
Accounts receivable		337,927
Prepaid expenses		(20,360	)
Employee loan		700
Inventory		199,712
Research and development		(62,961	)
Accounts payable		(488,270	)
Accrued interest		2,486
Accrued liabilities		(163,024	)
Net cash provided by operating activities		55,026
Cash flows from investing activities:
Net purchase of property and equipment		(83,641	)
Net cash used by investing activities		(83,641	)
Cash flows from financing activities:
Payments on long-term debt		(129,033	)
Payments on lines of credit		211,292
Payments on capital leases		11,518
Distributions to members		(217,150	)
Net cash used by financing activities		(123,373	)
Net decrease in cash		(151,988	)
Cash, beginning of period		468,117
Cash, end of period	$	316,129
Supplemental disclosures:
Cash paid for income taxes	$	—
Cash paid for interest	$	71,621

See independent accountants’ compilation report and notes to consolidated financial statements.

6

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

TelWorx Communications, LLC, (the Company), which is headquartered in Lexington, North Carolina, is a certified purchaser and reseller of new telecom, surplus telecom and refurbished telecom equipment for the telecommunications market. Also, the Company is a leader in wire line services and wireless applications that support everyone from telecom providers, to telecom resellers and users of major voice, video and data communication technologies. They support entities ranging from telecom providers and resellers to government and all users of major voice, video and data communication technologies. The Company has employees and sales nationwide.

The accounting policies and principles which significantly affect the determination of financial position and results of operations are summarized below:

Basis of Consolidation:

These consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements include the accounts of TelWorx Communications, LLC, TowerWorx LLC, TowerWorx International, Inc. and Scronce Real Estate, LLC. Information on the consolidated entities is as follows:

TowerWorx, LLC:

TowerWorx, LLC, which is headquartered in Pryor, Oklahoma manufactures mobile cell phone towers with global operations across North America, India, China, and Africa. TowerWorx, LLC organized as a limited liability company on August 3, 2007. TowerWorx, LLC has a highly qualified leadership team with over 60 years collective experience in manufacturing, telecom, defense, engineering, and mobile tower industries.

The manufacturing facility is located near Tulsa, OK. The facility has access to major transportation facilities via truck or train to ensure a timely delivery. The facility is large enough to enable TowerWorx, LLC to scale and meet large quantity orders and support inventory for quick turnaround delivery.

TowerWorx International, Inc.:

In December of 2008 the members of TowerWorx, LLC formed an Interest Charge Domestic to International Sales Company (IC-DISC) called TowerWorx International, Inc. TowerWorx International, Inc. receives commissions on TowerWorx, LLC’s sales to foreign purchasers. The purpose of forming the IC-DISC is to take advantage of tax incentives for export sales. All significant inter-company accounts and transactions have been eliminated.

Scronce Real Estate, LLC:

Scronce Real Estate, LLC is owned solely by the wife of the of 99% owner TelWorx Communications, LLC. Scronce Real Estate, LLC rents to TelWorx Communications, LLC the primary office and warehouse facility in Lexington, North Carolina.

7

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign Operations:

The Company is exposed to foreign currency fluctuations due to its foreign operations and because products are sold internationally. The functional currency for the Company’s foreign operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using the year-end exchange rate for assets and liabilities and average monthly rates for revenue and expense accounts. Management has determined that no adjustments were required resulting from translations.

Basis of Accounting:

The Company uses the accrual basis of accounting.

Cash Equivalents:

The Company considers all short-term investments with an original maturity of six months or less to be cash equivalents. At June 30, 2012, the Company had no cash equivalents.

Fair Value of Financial Instruments:

Cash and cash equivalents are measured at fair value and investments are recognized at amortized cost in the Company’s financial statements. Accounts receivable and other investments are financial assets with carrying values that approximate fair value due to the short-term nature of these assets. Accounts payable and short-term debt are financial liabilities with carrying values that approximate fair value due to the short-term nature of these liabilities. The Company follows Fair Value Measurements and Disclosures (“ASC 820”), which establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: inputs other than level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

All of the Company’s investments at June 30, 2012 are considered Level 3 assets. Management believes that the value of its marketable securities at June 30, 2012 to be near its original cost of $20,000.

8

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounts Receivable and Allowance for Doubtful Accounts:

Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts, as needed. The Company uses the allowance method to account for uncollectible receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. The Company considers any account 120 days past due to be uncollectible. The Company believes that no allowance was needed at June 30, 2012. Accounts receivable had a balances of $1,689,007 at June 30, 2012.

Inventories:

Inventory consists of new, refurbished, and consigned telecommunications equipment and are carried at the lower of cost or market. The Company carries consigned inventory in its warehouse. These items are only recognized as costs when the inventory is sold. The Company constantly evaluates if an allowance is required to reduce the value of inventory to the lower of cost or market, including allowances for excess and obsolete inventory. At June 30, 2012 no allowance was considered necessary. The balance of inventory at June 30, 2012 was $1,838,537.

Prepaid and Other Current Assets:

Prepaid assets are stated at cost and are amortized over the useful lives (up to one year) of the assets.

Property and Equipment:

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. The useful lives range from 27.5 to 40 years for buildings and 5 to 7 years for equipment. Leasehold improvements are amortized over the shorter of the corresponding lease term or useful life. Depreciation expense and gains and losses on the disposal of property and equipment are included in cost of sales and operating expenses in the consolidated statements of income. Maintenance and repairs are expensed as incurred. Depreciation expense for the six months ended June 30, 2012 was $117,803 and for the three months ended June 30, 2012 was $58,691.

9

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and Equipment (Continued):

An breakdown of property and equipment at June 30, 2012 is as follows:

Land	$	268,000
Buildings		2,204,778
Furniture and fixtures		502,425
Machinery and equipment		293,010
Computer equipment		163,841
Vehicles		132,785
Totals		3,564,839
Less accumulated depreciation		(854,578	)
Net book value	$	2,710,261

Revenue Recognition:

The Company sells telecom products and services. The Company recognizes revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured.

The Company recognizes revenue for sales of the products when the product ships from its warehouse. The Company recognizes revenue for its services when the job is completed and all expenses for the job are recognized. The Company allows its customers to return products under specified terms and conditions.

Research and Development Costs:

The Company expenses research and development costs as incurred. To date, the Company has expensed all software development costs related to research and development because the costs incurred subsequent to the products reaching technological feasibility were not significant.

Advertising Costs:

Advertising costs are expensed in the period in which they are incurred. Advertising expense was $62,231 for the six months ended June 30, 2012 and was $22,870 for the three months ended June 30, 2012.

10

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Sales and Value Added Taxes:

Taxes collected from customers and remitted to governmental authorities are presented on a net basis in goods sold in the accompanying consolidated statements of income.

Shipping and Handling Costs:

Shipping and handling costs are included on a gross basis in cost of goods sold in the accompanying consolidated statements of income.

Income Taxes:

No income tax provision has been included in the financial statements since the income or losses of the Company are required to be reported by the members on their income tax returns. Taxable income or loss will differ from the income or loss reported in the financial statements, due to the different carrying values of assets, and different revenue recognition methods for financial reporting and income tax purposes. Management has determined that the Company has no uncertain tax positions that would require the Company to record a liability for unrecognized tax benefits. Management believes that the Company’s tax years ended December 31, 2011, 2010, and 2009 remain subject to examination by federal and state tax jurisdictions.

Warranty Reserve and Sales Returns:

TelWorx Communications, LLC offers a 90 day warranty on products directly manufactured by TelWorx Communications, LLC. Any products resold by TelWorx Communications, LLC from other suppliers carry the original manufacturers warranty. TelWorx Communications, LLC offers returns with a 25% restocking fee.

TowerWorx, LLC warrants that products manufactured by TowerWorx, LLC, when properly installed and serviced by authorized service representatives and when properly used and maintained in conformance with the standards and limitations set forth by TowerWorx, LLC shall be free from defects in material and workmanship for a period of one (1) year from the date of original purchase or shipping date, whichever is earlier in time. TowerWorx, LLC’s obligation under this warranty shall be limited to replacing or repairing the defective part or parts or, at TowerWorx LLC’s option, the product itself, in part or in whole, which contains the defective part or parts. All TowerWorx, LLC sales are final after completion of the tower. Orders can be canceled or rescheduled within 10 days of shipment with written notice.

Management has determined that through analysis of historical return and warranty data that no reserve for warranty or sales returns should be included in the financial statements.

Leased Equipment Capitalized:

The imputed cost of leased equipment is capitalized and charged to earnings using the straight-line method of depreciation over an estimated useful life of ten years for financial reporting purposes. Generally, when items of leased property are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected.

11

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Date of Management’s Review:

The Company has evaluated events through August 30, 2012, which is the date the financial statements were available to be issued, for possible recognition or disclosure in the financial statements.

Note 2 - INTANGIBLE ASSETS

A detailed schedule of intangible assets are as follows:

	Original Value		Amortization Expense for the Six Months Ended 6/30/12		Accumulated Amortization 6/30/2012		Balance 6/30/2012
Intangible assets:
Goodwill	$	206,667	$	—	$	—	$	206,667
Trade name		379,945		—		379,945		—
Noncompete agreement		687,000		—		687,000		—
Customer relationships		339,000		—		339,000		—
Organization and start-up costs		34,300		2,810		25,547		8,753
	$	1,646,912	$	2,810	$	1,431,492	$	215,420

Goodwill:

The Company performs an annual impairment test of goodwill at the end of each year (December 31). If the Company’s fair value is greater than its book value, then further impairment tests are not necessary. If the Company’s fair value is less than its book value, then further tests are performed to determine the Company’s fair value of goodwill. The implied fair value is then compared against the book value of goodwill to determine the amount of goodwill impairment. According to Statement of Financial Accounting Standards No. 142, goodwill is not amortized. Generally accepted accounting principles require that the unamortized value of purchased goodwill be evaluated annually to determine whether the amount reflected on the balance sheet as an asset has been impaired. In management’s opinion, there has been no impairment to the value of recorded goodwill during the six months ended June 30, 2012. Goodwill is amortized for income tax purposes using the straight-line method over fifteen years.

12

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 2 - INTANGIBLE ASSETS (Continued)

The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions. The Company uses both the Income Approach and the Market Approach for determining the fair value of the reporting unit. Although the Company bases the cash flow forecasts on assumptions that are consistent with plans and estimates the Company uses to manage the business, there is considerable judgment in determining the cash flows. Assumptions related to future cash flows and discount rates involve significant management judgment and are subject to significant uncertainty.

While the use of historical results and future projections can result in different valuations for a company, it is a generally accepted valuation practice to apply more than one valuation technique to establish a range of values for a business. Since each technique relies on different inputs and assumptions, it is unlikely that each technique would yield the same results. However, it is expected that the different techniques would establish a reasonable range. In determining the fair value, the Company weighs the two methods equally in determining the fair value because the Company believes both methods have an equal probability of providing an appropriate fair value.

The Company recognized goodwill of $206,667 with the acquisition of assets from TelWorx Communications, LLC. The Company’s market capitalization as of the date of the acquisition exceeded the book value of the Company. Since there was not a triggering event for goodwill impairment, the Company did not perform the two-step goodwill impairment test.

Trade Name:

The Company assessed intangible assets as of the original acquisition on November 21, 2005. The Company determined the value of goodwill associated with the purchase price to be allocated towards the trade name to be $379,945 on the acquisition date. The trade name intangible assets was amortized over a five year period and carried a book value of $0 at June 30, 2012. The amortization expense for the six months ended June 30, 2012 and the three months ended June 30, 2012 associated with these agreements was $0.

Noncompeting Agreement:

The Company executed a noncompete agreement with the previous owners upon the acquisition of the Company on November 21, 2005. The value of these agreements at the acquisition date was $687,000. The agreements were amortized over a five year period and carried a book value of $0 at June 30, 2012. The amortization expense for the six months ended June 30, 2012 and the three months ended June 30, 2012 associated with these agreements was $0.

Customer Relationships:

The Company assessed intangible assets as of the original acquisition on November 21, 2005. The Company determined the value of existing customer relationships to be $339,000 on the acquisition date. The customer relationships were amortized over a five year period and carried a book value of $0 at June 30, 2012. The amortization expense for the six months ended June 30, 2012 and the three months ended June 30, 2012 associated with these agreements was $0.

13

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 2 - INTANGIBLE ASSETS (Continued)

Organization and Start-Up Costs:

Costs incurred in connection with the organization of TowerWorx, LLC have been capitalized and are being amortized using the straight-line method. The original costs totaled $34,300. The intangible assets will be amortized from 5 to 15 years. Amortization expense associated with this intangible asset for the six months ended June 30, 2012 was $2,810 and for the three months ended June 30, 2012 was $1,405.

Note 3 - RELATED PARTY TRANSACTIONS

Timothy Scronce, CEO:

The Company’s CEO, Timothy Scronce is a member and salaried employee that has invested capital into the Company. Timothy Scronce has also secured and guaranteed several of the Company’s outstanding loans and he has personally guaranteed litigation sales.

TowerWorx, LLC and TowerWorx International, Inc.:

The Company’s CEO, Timothy Scronce, is the spouse of the majority member of TowerWorx, LLC. The Company purchases and sells materials to TowerWorx, LLC. All outstanding intercompany receivables and payables were eliminated in the consolidation.

Scronce Real Estate, LLC:

The Company’s CEO, Timothy Scronce’s wife, Brenda Scronce, is the sole member of Scronce Real Estate, LLC, which leases the operating facility to TelWorx Communications, LLC. Rent paid from TelWorx Communications, LLC to Scronce Real Estate, LLC was $83,988 for the six months ended June 30, 2012. These amounts were netted against rent expense on the statement of income. Scronce Real Estate, LLC currently has an outstanding loan at NewBridge Bank that is secured by the operating facility (see Note 11). The balance sheet and statements of income and member's equity for Scronce Real Estate, LLC for the six months ended June 30, 2012 is as follows:

14

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 3 - RELATED PARTY TRANSACTIONS (Continued)

SCRONCE REAL ESTATE, LLC

Balance Sheet

June 30, 2012

ASSETS
Current assets:
Cash	$	100
Property and equipment:
Land		268,000
Buildings		2,204,778
Total property and equipment		2,472,778
Less, accumulated depreciation		(355,374	)
Net property and equipment		2,117,404
Total assets	$	2,117,504
LIABILITIES AND MEMBER’S EQUITY
Current liabilities:
Current maturities on long-term debt	$	107,099
Long-term liabilities:
Long-term liabilities, less current maturities		1,565,047
Total liabilities		1,672,146
Member’s equity		445,358
Total liabilities and member’s equity	$	2,117,504

15

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 3 - RELATED PARTY TRANSACTIONS (Continued)

SCRONCE REAL ESTATE, LLC

Statement of Income and Member’s Equity

For the six months ended June 30, 2012

Other income (expenses):
Rental income	$	83,988
Depreciation		(64,134	)
Interest		(31,924	)
Net loss for the period		(12,070	)
Member’s equity, beginning of period		457,343
Contributions		85
Member’s equity, end of period	$	445,358

Note 4 - CONCENTRATION OF CREDIT RISK

The Company places its cash and cash equivalents on deposit with financial institutions in the United States. On July 21, 2010, the Federal Deposit Insurance Corporation (FDIC) permanently increased insured coverage to $250,000 for substantially all depository accounts held in FDIC-insured institutions. Beginning December 31, 2010 through December 31, 2012, all non-interest bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. During the period, the Company from time to time may have had amounts on deposit in excess of the insured limits. As of June 30, 2012 the Company’s deposits were fully insured.

Note 5 - RENTAL INCOME

Prior to the litigation described in Note 12, the Company leased towers through TowerWorx, LLC. Income from these leases were broken out in other income on the consolidated statements of income. TowerWorx, LLC has ceased leasing towers since the litigation.

16

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 6 - VARIABLE INTEREST ENTITY

Management has determined that TowerWorx, LLC and Scronce Real Estate, LLC are variable interest entities under FIN 46, subsequently titled under the FASB Accounting Standards Codification (ASC) as ASC 810. The accounts of TowerWorx, LLC, TowerWorx International, Inc. and Scronce Real Estate, LLC are included in these consolidated financial statements.

Management has determined that a joint venture between TowerWorx, LLC and an Egyptian company is not a variable interest entity under FIN 46, subsequently titled under the FASB Accounting Standards Codification (ASC) as ASC 810. The transactions of this joint venture are not consolidated in the financial statements. The Company has $0 invested in the joint venture.

Note 7 - POSTRETIREMENT BENEFIT PLAN

The Company sponsors a defined contribution postretirement plan in the form of a safe harbor 401-K plan. The plan is contributory, with retiree contributions adjusted annually. The Company’s funding policy is to contribute annually an amount equal to three percent of the covered employee’s salary. The Company may terminate this plan at any time.

Note 8 - OPERATING LEASES

The Company leases its facility for TowerWorx, LLC from FeatherLite in Pryor, Oklahoma. The lease arrangement is month by month rent. During the six months ended June 30, 2012 rents totaled $5,032 for the leasing of the TowerWorx, LLC facility.

Note 9 - LINES OF CREDIT

TelWorx Communications, LLC Line of Credit:

The Company currently has an outstanding revolving line of credit at Newbridge Bank. The revolving line of credit is secured by the Company’s assets and is personally guaranteed by the Company’s CEO Timothy Scronce. The balance of the credit line as of June 30, 2012 was $1,264,184. The credit line has a maximum amount of $2,000,000. Interest is charged at the prime rate minus 0.75%.

TowerWorx, LLC Line of Credit:

The Company has a $550,000 asset based commercial line of credit with SunTrust Bank for working capital needs of TowerWorx, LLC. The line of credit is secured against all the Company’s assets. As of June 30, 2012 the rate was the London Interbank Offering Rate plus 2.5%. The Company is required to make monthly interest payments, and the principal balance is expected to renew the note on an annual basis. At June 30, 2012, the Company’s unpaid balance was $425,000.

17

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 10 - CAPITAL LEASES

The Company entered into a capital lease with US Bank for the lease of a copier. The lease, originating on September 25, 2009, requires 60 monthly payments of $274.

Balance, June 30, 2012		$	7,658
Less, current maturities			3,282
Capital lease, less current maturities		$	4,376
The maturities for the years ending June 30, are as follows:
	2013	$	3,282
	2014		3,282
	2015		1,094
		$	7,658

The Company entered into a capital lease with Toyota Financial Services for the lease of a forklift. The lease, originating on January 19, 2009, requires 48 monthly payments of $483.

Balance, June 30, 2012		$	3,860
Less, current maturities			3,860
Capital lease, less current maturities		$	—
The maturities for the years ending June 30, are as follows:
	2013	$	3,860

18

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 11 - LONG-TERM DEBT

The Company purchased a van for use in business operations on August 14, 2010 and entered into an agreement with Modern Chevrolet, LLC for the purchase. The capital lease, with an original amount of $25,672, has an interest rate of 2.9%, requires monthly payments in the amount of $461 and matures on August 14, 2015.

Balance, June 30, 2012		$	16,708
Less, current maturities			5,112
Long-term debt, less current maturities		$	11,596
The maturities for the years ending June 30, are as follows:
	2013	$	5,112
	2014		5,262
	2015		5,416
	2016		918
		$	16,708

The Company purchased a van for use in business operations on August 14, 2010 entered into an agreement with Modern Chevrolet, LLC for the purchase. The capital lease, with an original amount of $25,815, has an interest rate of 2.9%, requires monthly payments in the amount of $463 and matures on August 14, 2015.

Balance, June 30, 2012		$	16,801
Less, current maturities			5,140
Long-term debt, less current maturities		$	11,661
The maturities for the years ending June 30, are as follows:
	2013	$	5,140
	2014		5,290
	2015		5,448
	2016		923
		$	16,801

19

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 11 - LONG-TERM DEBT (Continued)

The Company purchased a truck for use in business operations on February 15, 2011 and entered into an agreement with Modern Chevrolet, LLC for the purchase. The capital lease, with an original amount of $21,797, has an interest rate of 5.0%, requires monthly payments in the amount of $412 and matures on February 15, 2016.

Balance, June 30, 2012		$	16,539
Less, current maturities			4,215
Long-term debt, less current maturities		$	12,324
The maturities for the years ending June 30, are as follows:
	2013	$	4,215
	2014		4,431
	2015		4,657
	2016		3,236
		$	16,539

Commercial Loan:

The Company has an outstanding commercial loan with NewBridge Bank. The note is personally insured by CEO Timothy Scronce. Interest is charged at the rate of 6.5%.

Balance, June 30, 2012		$	744,510
Less, current maturities			119,286
Long-term debt, less current maturities		$	625,224
The maturities for the years ending June 30, are as follows:
	2013	$	119,286
	2014		127,275
	2015		135,799
	2016		144,894
	2017		154,597
	Thereafter		62,659
		$	744,510

20

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 11 - LONG-TERM DEBT (Continued)

Commercial Loan- Scronce Real Estate, LLC

The Company has an outstanding loan with NewBridge Bank for the Company’s headquarters in Lexington North Carolina. The loan is in the name of Scronce Real Estate, LLC and is collateralized by the land and buildings at the main headquarters. The original amount of the loan was $1,915,000.

Balance, June 30, 2012		$	1,672,146
Less, current maturities			107,099
Long-term debt, less current maturities		$	1,565,047
The maturities for the years ending June 30, are as follows:
	2013	$	107,099
	2014		111,185
	2015		115,427
	2016		119,830
	2017		124,402
	Thereafter		1,094,203
		$	1,672,146

Interest expense on this loan for the six months ended June 30, 2012 was $31,924.

Note 12 - LITIGATION AND AGREEMENT

In 2010 the Company was involved in a lawsuit with All-Tech concerning the manufacturing of towers in violation of a patent. Incurred legal fees associated with the lawsuit totaled $270,610. A settlement was reached between TowerWorx, LLC and All-Tech. The agreement, settled in February 2011, allows for TowerWorx, LLC to cease production of the towers named in the lawsuit and have All-Tech manufacture towers for TowerWorx, LLC with a mark up of 52.52% for a period of five years. The agreement also guaranteed All-Tech a total of $2.3 million dollars in sales for the first two years personally guaranteed by CEO Timothy Scronce.

21

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 13 - STOCK OPTIONS

In 2007 and 2008, the Company entered into stock option agreements with three employees for a total of 200,000 shares of class A restricted, non-voting, common stock. The first set had a fair value of $.49 per share at 1/1/2007 for a total value of $72,000. The second set of issued options had a value of $.53 per share at 1/1/2008 for a total value of $26,500. Both issuance of options vest over a period of five years and vest 20% per year over the five year period. The total fair value of $98,500 was recorded as an increase to members' equity and deferred compensation, a contra-equity account. The deferred compensation will be amortized into expense over the vesting period of the restricted stock. For the six months ended June 30, 2012, the Company recognized $9,850 of amortization expense related to the vesting of the restricted shares. The first set of issued options were fully vested at December 31, 2011 and the second set of issued options will be fully vested at December 31, 2012, 10,000 shares vesting in 2012. As of June 30, 2012, the holders of the common stock from these options, pursuant to the restricted stock grant, had 195,000 shares. The value of the options were determined annually by the management.

Under the Company’s stock option plan, the Company may grant options to purchase up to 10,000,000 shares of common stock to employees, directors, and consultants as either incentive stock options or nonqualified stock options. Incentive stock options may be granted with exercise prices not less than 100% of the fair market value of the common stock on the date of such grant. Options granted under the plan generally vest up to three years and expire 10 years from the date of the grant.

	Outstanding Options
	No. of Shares		Weighted Avg. Exercise Price
Balance at December 31, 2011		190,000	$	0.49
Granted		—		—
Forfeited		—		—
Exercised		2,500		0.49
Balance at March 31, 2012		192,500		0.49
Granted		—		—
Forfeited		—		—
Exercised		2,500		0.49
Balance at June 30, 2012		195,000	$	0.49

22

TELWORX COMMUNICATIONS, LLC

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2012

Note 13 - STOCK OPTIONS (Continued)

The following table summarizes information as of June 30, 2012 related to all outstanding and vested options:

	June 30, 2012
Exercise Price	Number of Shares		Weighted Avg. Remaining
$ 0.49		—	$	—
$ 0.53		2,500		1,325
		2,500	$	1,325

23

Supplementary Information

TELWORX COMMUNICATIONS, LLC

Supplementary Information

For the Six Months Ended June 30, 2012

	For the three months ended June 30, 2012			For the six months ended June 30, 2012
1. Analysis of Cost of Goods Sold:
Cost of goods sold:
Product	$	3,006,614		$	5,478,913
Wages		74,319			135,988
Commissions		15,809			31,913
Tax and licenses		23,360			48,040
Telephone		1,719			3,455
Meals and entertainment		3,757			8,508
Travel		8,521			19,222
Retirement		2,682			5,446
Depreciation		38,149			76,572
Insurance		36,316			70,364
Office		7,598			18,266
Rent		13,455			22,770
Repairs and maintenance		9,961			12,457
Utilities		5,349			11,963
Supplies		12,183			25,371
Other		21,475			39,886
	$	3,281,267		$	6,009,134
2. EBITDA Analysis by Entity:
TelWorx Communications, LLC	$	(63,534	)	$	239,673
TowerWorx, LLC		(77,881	)		(4,631	)
Scronce Real Estate, LLC		47,907			89,901
	$	(93,508	)	$	324,943

25

EX-99.3

EXHIBIT 99.3

PCTEL, INC

Pro Forma Financial Statements

PCTEL, Inc.

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS

(in thousands, except per share data)

The unaudited condensed consolidated pro forma financial statements include the financial statement information for PCTEL, Inc. (PCTEL) and TelWorx. TelWorx includes the condensed consolidated financial results of TelWorx Communications, LLC, TelWorx U.K. Limited, TowerWorx LLC and TowerWorx International, Inc. Scronce Real Estate LLC is not included in the unaudited condensed consolidated pro forma financial statements.

The unaudited condensed consolidated pro forma balance sheet combines the condensed consolidated balance sheet of PCTEL as of June 30, 2012 and the balance sheet of TelWorx, giving effect to the acquisition as if it had occurred June 30, 2012. The unaudited pro forma consolidated financial information has been prepared using the purchase method of accounting in which the total cost of the TelWorx acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. This allocation has been done on a preliminary basis and is subject to change pending final determination of fair values for the acquired assets and assumed liabilities and a final analysis of the total purchase price paid, including direct costs of the acquisition. The adjustments included in the unaudited condensed consolidated pro forma financial statements represent the preliminary determination of such adjustments based upon currently available information. Accordingly, the actual fair value of the assets acquired, liabilities assumed and the related adjustments may differ from those reflected in this Current Report on Form 8-K/A.

The unaudited condensed consolidated pro forma statement of operations for the year ended June 30, 2012 combines the condensed consolidated statement of operations of PCTEL for the six months ended June 30, 2012 and the unaudited condensed consolidated statements of operations for TelWorx for the six months ended June 30, 2012 as if the acquisition had occurred on January 1, 2012.

The unaudited condensed consolidated pro forma statement of operations for the year ended December 31, 2011 combines the condensed consolidated statement of operations of PCTEL for the year ended December 31, 2011 and the audited condensed consolidated statements of operations for TelWorx for the year ended December 31, 2011 as if the merger had occurred on January 1, 2011.

No pro forma effects have been given to any operational or other synergies that may be realized from the TelWorx acquisition. The unaudited pro forma condensed consolidated financial information is based on the estimates and assumptions described in the notes to the unaudited condensed consolidated pro forma financial statements.

The unaudited condensed consolidated pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that might have been achieved had the transaction occurred as of an earlier date, and they are not necessarily indicative of future operating results or financial position. These pro forma amounts do not, therefore, project PCTEL’s financial position or results of operations for any future date or period. The accompanying unaudited condensed consolidated pro forma financial information should be read in conjunction with the historical financial statements and the related notes thereto of PCTEL, which are included in its Annual Report on Form 10-K and its Quarterly Reports on Forms 10-Q, as well as other financial information included elsewhere in this Current Report on Form 8-K/A.

PCTEL, INC.

CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET (Unaudited)

June 30, 2012

(in thousands, except share data)

	PCTEL, Inc. (as Reported)			TelWorx			Proforma Adjustments			PCTEL, Inc. (Pro Forma)
ASSETS
Cash and cash equivalents	$	27,790								$	11,790
Short-term investment securities		37,174			0			(16,000	)(b)		37,174
Accounts receivable, net of allowance for doubtful accounts of $120 at June 30, 2012		14,578			1,566	(a)		0			16,144
Inventories, net		13,728			1,752	(a)		74	(a)		15,554
Deferred tax assets, net		896			0			0			896
Prepaid expenses and other assets		1,288			0			0			1,288
Total current assets		95,454			3,318			(15,926	)		82,846
Property and equipment, net		14,116			593	(a)		355	(a)		14,354
Long-term investment securities		1,054			0			0			1,054
Goodwill		161			0			9,385	(a)		9,546
Intangible assets, net		7,842			0			5,318	(a)		13,160
Deferred tax assets, net		8,831			0			0			8,831
Other noncurrent assets		1,501			0			0			1,501
TOTAL ASSETS	$	128,959		$	3,911		($	1,578	)	$	131,292
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	6,278		$	1,347	(a)	$	0		$	7,625
Accrued liabilities		4,200			12	(a)		974	(b)		5,186
Total current liabilities		10,478			1,359			974			12,811
Long-term liabilities		2,409			0			0			2,409
Total liabilities		12,887			1,359			974			15,220
Redeemable equity		800			0			0			800
Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 18,481,607 shares issued and outstanding at June 30, 2012		18			0			0			18
Additional paid-in capital		137,865			0			0			137,865
Accumulated deficit		(23,251	)		2,552			(2,552	)		(23,251	)
Accumulated other comprehensive income		109			0			0			109
Total stockholders’ equity of PCTEL, Inc.		114,741			2,552			(2,552	)		114,741
Noncontrolling interest		531			0			0			531
Total equity		115,272			2,552			(2,552	)		115,272
TOTAL LIABILITIES AND EQUITY	$	128,959		$	3,911		($	1,578	)	$	131,292

* see accompanying footnotes to the pro forma financial statements

PCTEL, INC.

CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS (Unaudited)

Year Ended December 31,2011

(in thousands, except per share data)

	PCTEL, Inc. (as Reported)			TelWorx			Proforma Adjustments			PCTEL, Inc. (Pro Forma)
REVENUES	$	76,844		$	18,118		$	0		$	94,962
COST OF REVENUES		40,982			13,229			74	(c)		54,285
GROSS PROFIT		35,862			4,889			(74	)		40,677
OPERATING EXPENSES:
Research and development		11,912			0			0			11,912
Sales and marketing		10,492			2,407			0			12,899
General and administrative		10,799			731			0			11,530
Amortization of intangible assets		2,795			0			1,430	(d)		4,225
Restructuring charges		117			0			0			117
Total operating expenses		36,115			3,138			1,430			40,683
OPERATING INCOME (LOSS)		(253	)		1,751			(1,504	)		(6	)
Other income (expense), net		358			(301	)		142	(e)		199
INCOME (LOSS) BEFORE INCOME TAXES		105			1,450			(1,362	)		193
Expense (benefit) for income taxes		216			0			0			216
NET INCOME (LOSS)		(111	)		1,450			(1,362	)		(23	)
Less: Net loss attributable to noncontrolling interests		(1,158	)		0			0			(1,158	)
NET INCOME (LOSS) ATTRIBUTABLE TO PCTEL, INC.	$	1,047		$	1,450		($	1,362	)	$	1,135
Less: adjustments to redemption value of noncontrolling interests		(863	)		0			0			(863	)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	184		$	1,450		($	1,362	)	$	272
Basic Earnings per Share:
Net income (loss) available to common shareholders	$	0.01								$	0.02
Diluted Earnings per Share:
Net income (loss) available to common shareholders	$	0.01								$	0.02
Weighted average shares—Basic		17,186									17,186
Weighted average shares—Diluted		17,739									17,739

* see accompanying footnotes to the pro forma financial statements

PCTEL, INC.

CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS (Unaudited)

Six Months Ended June 30, 2012

(in thousands, except per share data)

	PCTEL, Inc. (as Reported)			TelWorx			Proforma Adjustments			PCTEL, Inc. (Pro Forma)
REVENUES	$	37,154		$	7,739		$	0		$	44,893
COST OF REVENUES		21,306			6,009			0			27,318
GROSS PROFIT		15,848			1,730			0			17,575
OPERATING EXPENSES:
Research and development		5,596			0			0			5,596
Sales and marketing		5,096			1,049			0			6,145
General and administrative		5,407			480			0			5,887
Amortization of intangible assets		1,490			0			715	(d)		2,205
Total operating expenses		17,589			1,529			715			19,833
OPERATING INCOME (LOSS)		(1,741	)		201			(715	)		(2,255	)
Other income (expense), net		114			(83	)		51	(e)		82
INCOME (LOSS) BEFORE INCOME TAXES		(1,627	)		118			(664	)		(2,173	)
Expense (benefit) for income taxes		(379	)		0			0			(379	)
NET INCOME (LOSS)		(1,248	)		118			(664	)		(1,794	)
Less: Net loss attributable to noncontrolling interests		(687	)		0			0			(687	)
NET INCOME (LOSS) ATTRIBUTABLE TO PCTEL, INC.	($	561	)	$	118		($	664	)	($	1,107	)
Less: adjustments to redemption value of noncontrolling interests		(648	)		0			0			(648	)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	($	1,209	)	$	118		($	664	)	($	1,755	)
Basic Earnings per Share:
Net loss available to common shareholders	($	0.07	)							($	0.10	)
Diluted Earnings per Share:
Net loss available to common shareholders	($	0.07	)							($	0.10	)
Weighted average shares—Basic		17,317									17,317
Weighted average shares—Diluted		17,317									17,317

* see accompanying footnotes to the pro forma financial statements

PCTEL, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

(in thousands)

(a) To record the TelWorx Communications, LLC (“TelWorx”) transaction based on PCTEL, Inc.’s (“the Company”) initial allocation of the purchase price of $17.0 million. Allocation of assets include $1.8 million for inventories, $1.6 million for accounts receivable, $0.2 million for fixed assets, $5.3 million for amortizable intangible assets including customer relationships, trade names, intellectual property, and non-compete agreements, and $9.4 million of goodwill. Liabilities recorded in the transaction include $1.3 million of accounts payable and accrued liabilities. All assets and liabilities have been stated at their preliminary fair value. The Company is currently in the process of completing the fair value determination process. The final fair value by the Company may differ from the allocation reflected herein.

(b) To record, cash of $16.0 million used to fund the acquisition of TelWorx and to record contingent consideration $1.0 million.

(c) To record the sale of inventory costs which were grossed up to fair value at the acquisition date.

(d) To record the amortization of intangible assets.

(e) To record the reduction of interest income of $30 for the six months ended June 30, 2012 and $60 for the year ended December 31, 2011, and to remove the interest expense of $81 for the six months ended June 30, 2012, and $202 for the year ended December 31, 2011. The adjustment for interest income relates to the cash used for the acquisition. The interest expense relates to expense incurred by TelWorx for its lines of credit and other debt.