(NASDAQ: PCTI) The Audit Committee of the Board of Directors of PCTEL, Inc. (the “Company” or “PCTEL”) has concluded that the financial statements relating to the recently acquired assets of the TelWorx Entities contain material errors. The Audit Committee further concluded that these material errors relate solely to pre-acquisition financial statements of the TelWorx Entities and have no material effect on any pre-acquisition consolidated financial statements of PCTEL.
Management detected accounting irregularities at its PCTelWorx subsidiary in December, 2012. PCTelWorx holds the assets acquired from the TelWorx Entities in July 2012. Management promptly informed the Audit Committee and its Board of Directors. With the oversight of the Audit Committee and assistance from outside counsel and forensic accountants, the Company immediately commenced a formal, internal investigation.
The expanded investigation is ongoing, but results to date indicate that pre and post-acquisition accounting errors and irregularities stem from Tim Scronce’s actions. Scronce was the executive formerly responsible for PCTelWorx operations and the principal owner of the TelWorx Entities. Management believes that the accounting irregularities in the TelWorx Financial Statements identified as a result of this investigation were directed and/or permitted by management of the TelWorx Entities, principally Tim Scronce and those acting at his direction. The Company further believes that Scronce continued to engage in these actions after the July 2012 acquisition.
PCTEL is seeking restitution from Tim Scronce, Brenda Scronce, the CEO of TowerWorx, and other responsible parties. Scronce and two other individuals involved with these irregularities are no longer with the Company.Management expects to record a non-cash impairment charge to good will in the fourth quarter of 2012 related to the actual performance and the expected future financial performance of PCTelWorx. The amount of this charge is under review with PCTEL’s auditors and the Audit Committee, but management currently projects that it will be in the range of approximately $13-14 million. When the precise amount is determined, the Company will report it in accordance with SEC requirements. PCTEL does not expect the impairment charge to result in any future cash expenditures. Management also does not anticipate a restatement of the Company’s third quarter financial statements. All of this will be reviewed at the Company’s fourth quarter earnings release which is scheduled for March 28, 2013 at 4:00 p.m. CDT.