The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data and as otherwise noted)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal, recurring nature that are considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
Throughout this Quarterly Report on Form 10-Q, including under Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we disclose certain measures that the Company has taken in response to the macroeconomic impacts of the novel coronavirus (“COVID-19”). The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that remain highly uncertain at this time.
Nature of Operations
PCTEL, Inc. (“PCTEL”, the “Company”, “we”, “our”, and “us”) is a leading global supplier of wireless network antenna and test solutions. We design and manufacture precision antennas and provide test & measurement products that improve the performance of wireless networks globally. PCTEL products address three market segments: Enterprise Wireless, Intelligent Transportation, and Industrial Internet of Things (“IoT”). PCTEL antennas are deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in network equipment and devices for the Industrial IoT. PCTEL test & measurement tools improve the performance of wireless networks globally. Mobile operators, neutral hosts, and network equipment manufacturers rely on PCTEL products to analyze, design, and optimize next generation wireless networks.
Our strength is solving complex network engineering problems for our customers through our products and solutions. To this end, we are constantly innovating and improving antenna and wireless testing products and capabilities in order to capture the opportunities and meet the challenges of the rapidly evolving wireless industry. We focus on engineering, research and development to maintain and expand our competitiveness.
PCTEL was incorporated in California in 1994 and reincorporated in Delaware in 1998. Our principal executive offices are located at 471 Brighton Drive, Bloomingdale, Illinois 60108. Our telephone number at that address is (630) 372-6800 and our website is www.pctel.com. Additional information about our Company can be obtained on our website; however, the information within, or that can be accessed through, our website, is not part of this Quarterly Report on Form 10-Q.
Product Lines
Antenna Products
PCTEL designs and manufactures precision antennas and we offer in-house wireless product development for our customers, including design, testing, radio integration, and manufacturing capabilities. PCTEL antennas are deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in equipment and devices for the Industrial IoT. Revenue growth in these markets is driven by the increased use and complexity of wireless communications. Consistent with our mission of solving complex network engineering problems and in order to compete effectively in the antenna market, PCTEL maintains expertise in the following areas: radio frequency engineering, wireless network engineering, mechanical engineering, mobile antenna design, manufacturing, and product quality and testing. We seek out product applications that command a premium for product design and performance, and we avoid commodity markets. Our antennas are primarily sold to original equipment manufacturer (“OEM”) providers, where they are designed into the customer’s solution.
Test & Measurement Products
PCTEL provides radio frequency (“RF”) test & measurement tools that improve the performance of wireless networks globally, with a focus on LTE, public safety, and 5G technologies. Network operators, neutral hosts, and equipment manufacturers rely on our scanning receivers and testing solutions to analyze, design, and optimize next generation wireless networks. Revenue growth in this market is driven by the implementation and roll out of new wireless technology standards (i.e., 3G to 4G; 4G to 5G). Consistent with our mission of solving complex network engineering problems and in order to compete effectively in the RF test & measurement market, PCTEL maintains expertise in the following areas: radio frequency engineering, DSP engineering, wireless network
9
engineering, mechanical engineering, manufacturing, and product quality and testing. Our test & measurement equipment is sold directly to wireless carriers or to OEMs who integrate our products into their solutions, which are then sold to wireless carriers.
Basis of Consolidation
The unaudited interim condensed consolidated financial statements of the Company include the condensed consolidated balance sheets for the period ended September 30, 2020 and December 31, 2019, and the condensed consolidated statements of operations, condensed consolidated statements of comprehensive income, the condensed consolidated statements of stockholders’ equity and statements of cash flows for the three and nine months ended September 30, 2020 and 2019, respectively. The interim condensed consolidated financial statements are unaudited and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The condensed consolidated balance sheet as of December 31, 2019 is derived from the audited financial statements as of December 31, 2019.
The unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The significant accounting policies followed by the Company are set forth in the 2019 Form 10-K. There were no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2020. In addition, the Company reaffirms the use of estimates in the preparation of the financial statements as set forth in the 2019 Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the 2019 Form 10-K. The results of operations for the period ended September 30, 2020 may not be indicative of the results for the period ending December 31, 2020.
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 China operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using the exchange rate in effect at the applicable balance sheet date for assets and liabilities and average monthly rates prevailing during the period for revenue and expense accounts. Adjustments resulting from translation are included in accumulated other comprehensive loss, a separate component of stockholders’ equity. Gains and losses resulting from other transactions originally in foreign currencies and then translated into U.S. dollars are included in the condensed consolidated statements of operations. For the nine months ended September 30, 2020, approximately 3% of revenues and 18% of expenses were transacted in foreign currencies as compared to 6% and 24% for the nine months ended September 30, 2019. Net foreign exchange losses resulting from foreign currency transactions included in other income, net was $0.2 million and $0.1 million for the three and nine months ended September 30, 2020, respectively. Net foreign exchange gains resulting from foreign currency transactions included in other income, net was $0.2 million for the three and nine months ended September 30, 2019, respectively.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”), which amended existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the statement of operations and statement of cash flows. The Company adopted Topic 842 on January 1, 2019 using the updated modified transition method. Upon adoption on January 1, 2019, the Company recorded right-of-use assets of $1.5 million and lease liabilities of $1.6 million. The Company elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classifications. See Note 10 for additional information and disclosures required by this new standard.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. The Company adopted ASU 2016-13 on January 1, 2020 using a modified retrospective approach. Adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements but required changes to its process of estimating expected credit losses. See Note 4 and Note 6 for further information on the Company’s allowance for credit losses.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and
10
hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company adopted ASU 2018-15 on January 1, 2020, and it did not have an impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020, and it did not have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies income tax accounting in various areas including, but not limited to, the accounting for hybrid tax regimes, tax implications related to business combinations, and interim period accounting for enacted changes in tax law, along with some codification improvements. The changes related to this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Certain changes in the standard require retrospective or modified retrospective adoption, while other changes must be adopted prospectively. The Company is currently evaluating ASU 2019-12 and its impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-14). This new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The changes are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. Topic 848 is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of Topic 848 on the consolidated financial statements.
2. Fair Value of Financial Instruments
The Company follows accounting guidance for fair value measurements and disclosures, 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. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
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.
Cash equivalents are measured at fair value and investments are recognized at amortized cost in the Company’s financial statements. Accounts receivable is a financial asset with a carrying value that approximates fair value due to the short-term nature of these assets. Accounts payable is a financial liability with a carrying value that approximates fair value due to the short-term nature of these liabilities.
11
3. Income per Share
The following table is the computation of basic and diluted income per share:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Basic Income Per Share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,042
|
|
|
$
|
1,328
|
|
|
$
|
1,546
|
|
|
$
|
1,952
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding - basic
|
|
|
18,198,567
|
|
|
|
17,921,552
|
|
|
|
18,184,441
|
|
|
|
17,791,764
|
|
Net income per common share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
Diluted Income Per Share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding - basic
|
|
|
18,198,567
|
|
|
|
17,921,552
|
|
|
|
18,184,441
|
|
|
|
17,791,764
|
|
Restricted shares subject to vesting
|
|
|
87,006
|
|
|
|
206,078
|
|
|
|
167,296
|
|
|
|
150,287
|
|
Performance related awards
|
|
|
23,943
|
|
|
|
52,332
|
|
|
|
23,943
|
|
|
|
162,211
|
|
Common stock option grants
|
|
|
1,256
|
|
|
|
1,195
|
|
|
|
5,976
|
|
|
|
666
|
|
Weighted shares outstanding - diluted
|
|
|
18,310,772
|
|
|
|
18,181,157
|
|
|
|
18,381,656
|
|
|
|
18,104,928
|
|
Net income per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
0.11
|
|
4. Cash, Cash Equivalents and Investments
The Company’s cash, cash equivalents, and investments consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
|
|
$
|
2,869
|
|
|
$
|
5,604
|
|
Cash equivalents
|
|
|
1,560
|
|
|
|
1,490
|
|
Short-term investments
|
|
|
33,103
|
|
|
|
32,556
|
|
Long-term investments
|
|
|
3,735
|
|
|
|
0
|
|
Total
|
|
$
|
41,267
|
|
|
$
|
39,650
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
At September 30, 2020 and December 31, 2019, cash and cash equivalents included bank balances and investments with original maturities less than 90 days. At September 30, 2020 and December 31, 2019, the Company’s cash equivalents were invested in highly liquid AAA rated money market funds that are required to comply with Rule 2a-7 of the Investment Company Act of 1940. Such funds utilize the amortized cost method of accounting, seek to maintain a constant $1.00 per share price, and are redeemable upon demand. The Company restricts its investments in AAA money market funds to those invested 100% in either short-term U.S. government agency securities or bank repurchase agreements collateralized by these same securities. The fair values of these money market funds are established through quoted prices in active markets for identical assets (Level 1 inputs). The Company’s cash in U.S. banks is insured by the Federal Deposit Insurance Corporation up to the insurable limit of $250.
The Company had $1.1 million and $2.1 million of cash and cash equivalents in bank accounts in China at September 30, 2020 and December 31, 2019, respectively. The Company’s cash in its China bank accounts is not insured. As of September 30, 2020, the Company has no intentions of repatriating the cash in its foreign bank accounts in China. If the Company decides to repatriate the cash in these China bank accounts, it may have trouble doing so in a timely manner. The Company may also be exposed to foreign currency fluctuations and taxes if it repatriates these funds.
Investments
At September 30, 2020 and December 31, 2019, the Company’s investments consisted of corporate bonds with ratings at the purchase date of A or higher and certificates of deposit. All the investments at September 30, 2020 and December 31, 2019 were classified as held-to-maturity. The bonds and certificates of deposit classified as short-term investments have original maturities greater than 90 days and mature within one year and the bonds and certificates of deposit classified as long-term investments have maturities greater
12
than one year but less than two years. The Company’s bond investments are recorded at the purchase price and carried at amortized cost.
Effective January 1, 2020, the Company adopted ASU 2016-13. This ASU replaces the incurred loss impairment model with an expected loss impairment model for financial instruments, including short-term investments. The amendment requires entities to consider forward-looking information to estimate expected credit losses. Under ASU 2016-13, the Company classifies its held-to-maturity investment portfolio by the investment type and further classifies the corporate bonds by the bond ratings. For estimating potential credit losses, the Company considers the historical loss data, the bond ratings, as well as and current and future economic conditions. The Company did not record an estimate for credit losses upon adoption of ASU 2016-13 on January 1, 2020 or during the nine months ended September 30, 2020.
Cash equivalents and investments were as follows at September 30, 2020 and December 31, 2019:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
708
|
|
|
$
|
708
|
|
Money market funds
|
|
|
1,560
|
|
|
|
0
|
|
|
|
1,560
|
|
|
|
782
|
|
|
|
0
|
|
|
|
782
|
|
Total Cash Equivalents
|
|
$
|
1,560
|
|
|
$
|
0
|
|
|
$
|
1,560
|
|
|
$
|
782
|
|
|
$
|
708
|
|
|
$
|
1,490
|
|
Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
0
|
|
|
$
|
29,906
|
|
|
$
|
29,906
|
|
|
$
|
0
|
|
|
$
|
28,710
|
|
|
$
|
28,710
|
|
Certificates of deposit
|
|
|
3,197
|
|
|
|
0
|
|
|
|
3,197
|
|
|
|
3,846
|
|
|
|
0
|
|
|
|
3,846
|
|
Total Short-Term Investments
|
|
$
|
3,197
|
|
|
$
|
29,906
|
|
|
$
|
33,103
|
|
|
$
|
3,846
|
|
|
$
|
28,710
|
|
|
$
|
32,556
|
|
Long-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
0
|
|
|
$
|
3,225
|
|
|
$
|
3,225
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Certificates of deposit
|
|
|
510
|
|
|
|
0
|
|
|
|
510
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total Long-Term Investments
|
|
$
|
510
|
|
|
$
|
3,225
|
|
|
$
|
3,735
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Cash equivalents and Investments - book value
|
|
$
|
5,267
|
|
|
$
|
33,131
|
|
|
$
|
38,398
|
|
|
$
|
4,628
|
|
|
$
|
29,418
|
|
|
$
|
34,046
|
|
Unrealized gains (losses)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
0
|
|
|
$
|
1
|
|
|
$
|
(11
|
)
|
|
$
|
(10
|
)
|
Cash equivalents and Investments - fair value
|
|
$
|
5,266
|
|
|
$
|
33,132
|
|
|
$
|
38,398
|
|
|
$
|
4,629
|
|
|
$
|
29,407
|
|
|
$
|
34,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company categorizes its financial instruments within a fair value hierarchy according to accounting guidance for fair value. The fair value hierarchy is described under the Fair Value of Financial Instruments in Note 2. For the Level 2 investments, the Company uses quoted prices of similar assets in active markets. The fair values in the table above reflect no net difference between the book value and the fair value at September 30, 2020, and net unrealized losses of $10 at December 31, 2019.
5. Goodwill and Intangible Assets
Goodwill
There were no changes to the goodwill valued at $3.3 million during the three and nine months ended September 30, 2020. The Company performs an annual impairment test of goodwill as of the end of the first month of the fourth fiscal quarter (October 31), or at an interim date if an event occurs or if circumstances change that would indicate that an impairment loss may have been incurred. In performing the annual impairment test, the Company may consider qualitative factors that would indicate possible impairment. A quantitative fair value assessment is also performed at the reporting unit level. If the fair value exceeds the carrying value, then goodwill is not impaired, and no further testing is performed. If the carrying value exceeds the fair value, the implied fair value of goodwill is then compared against the carrying value of goodwill to determine the amount of impairment. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2019 impairment test. There were no triggering events during the nine months ended September 30, 2020. The Company will continue to monitor goodwill for impairment going forward.
13
Intangible Assets
The Company amortizes intangible assets with finite lives on a straight-line basis over the estimated useful lives, which range from one to six years. The summary of amortization expense in the condensed consolidated statement of operations is as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
$
|
0
|
|
|
$
|
167
|
|
|
$
|
111
|
|
|
$
|
500
|
|
Operating expenses
|
|
|
0
|
|
|
|
48
|
|
|
|
33
|
|
|
|
170
|
|
Total
|
|
$
|
0
|
|
|
$
|
215
|
|
|
$
|
144
|
|
|
$
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The summary of other intangible assets, net is as follows:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
Customer contracts and relationships
|
|
$
|
16,880
|
|
|
$
|
16,880
|
|
|
$
|
0
|
|
|
$
|
16,880
|
|
|
$
|
16,880
|
|
|
$
|
0
|
|
Patents and technology
|
|
|
10,114
|
|
|
|
10,114
|
|
|
|
0
|
|
|
|
10,114
|
|
|
|
10,003
|
|
|
|
111
|
|
Trademarks and trade names
|
|
|
4,834
|
|
|
|
4,834
|
|
|
|
0
|
|
|
|
4,834
|
|
|
|
4,801
|
|
|
|
33
|
|
Other
|
|
|
2,506
|
|
|
|
2,506
|
|
|
|
0
|
|
|
|
2,506
|
|
|
|
2,506
|
|
|
|
0
|
|
Total
|
|
$
|
34,334
|
|
|
$
|
34,334
|
|
|
$
|
0
|
|
|
$
|
34,334
|
|
|
$
|
34,190
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $0.1 million decrease in the net book value of intangible assets at September 30, 2020 compared to December 31, 2019 relates to amortization expense for the nine months ended September 30, 2020.
The assigned lives and weighted average amortization periods by intangible asset category are summarized below:
Intangible Assets
|
|
Assigned Life
|
|
Weighted
Average
Amortization
Period
|
|
Customer contracts and relationships
|
|
5 years
|
|
|
5.0
|
|
Patents and technology
|
|
5 to 6 years
|
|
5.1
|
|
Trademarks and trade names
|
|
5 to 6 years
|
|
5.6
|
|
Other
|
|
1 to 6 years
|
|
|
3.0
|
|
The Company’s intangible assets were fully amortized as of February 2020. The amortization expense for 2020 is as follows:
Fiscal Year
|
|
Amount
|
|
2020
|
|
$
|
144
|
|
|
|
|
|
|
6. Balance Sheet Information
Accounts Receivable
Accounts receivable are recorded at invoiced amounts with standard net terms that range between 30 and 90 days. The Company extends credit to its customers based on an evaluation of a customer’s financial condition and collateral is generally not required. The Company records allowances for credit losses and credit allowances that reduce the value of accounts receivable to fair value.
The allowances for accounts receivable consisted of the following:
|
September 30, 2020
|
|
December 31, 2019
|
|
Credit loss provision
|
$
|
68
|
|
$
|
56
|
|
Credit allowances
|
|
43
|
|
|
48
|
|
Total allowances
|
$
|
111
|
|
$
|
104
|
|
|
|
|
|
|
|
|
14
Effective January 1, 2020, the Company adopted ASU 2016-13. This ASU replaces the incurred loss impairment model with an expected loss impairment model for financial instruments, including accounts receivable. The amendment requires entities to consider forward-looking information to estimate expected credit losses. The Company did not record an adjustment upon adoption of ASU 2016-13.
The Company is exposed to credit losses primarily through the sale of products. The Company’s expected loss methodology for accounts receivable is developed using historical collection experience, current and future economic market conditions, and a review of the current status of customers’ trade accounts receivable. Due to the short-term nature of accounts receivable, the estimate of amount of accounts receivable that may not be collected is based on aging of the account receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted. However, the Company has adjusted terms for a few of its customers and it may experience delays with collections due to the COVID-19 pandemic. The Company’s allowance for credit losses was $0.1 million at September 30, 2020 and at December 31, 2019. During the nine months ended September 30, 2020, the Company received $0.2 million pursuant to a settlement for a customer accounts receivable balance that was written off in 2018.
The following table summarizes the allowance for credit losses activity during the nine months ended September 30, 2020:
|
|
|
|
Balance at December 31, 2019
|
$
|
56
|
|
Current period benefit for credit losses
|
|
(164
|
)
|
Recovery of amounts previously written off
|
|
176
|
|
Balance at September 30, 2020
|
$
|
68
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost or net realizable value and include material, labor and overhead costs using the first-in, first-out method of costing. Inventories as of September 30, 2020 and December 31, 2019 were composed of raw materials, work-in-process and finished goods. The Company had consigned inventory with customers of $0.2 million and $0.3 million at September 30, 2020 and December 31, 2019, respectively. The Company records allowances to reduce the value of inventory to the lower of cost or net realizable value, including allowances for excess and obsolete inventory. Reserves for excess inventory are calculated based on an estimate of inventory in excess of normal and planned usage. Obsolete reserves are based on the identification of inventory where the carrying value is above net realizable value. The allowance for inventory losses was $3.8 million and $3.4 million at September 30, 2020 and at December 31, 2019, respectively.
Inventories, net consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Raw materials
|
|
$
|
5,832
|
|
|
$
|
6,502
|
|
Work-in-process
|
|
|
966
|
|
|
|
913
|
|
Finished goods
|
|
|
3,492
|
|
|
|
4,520
|
|
Inventories, net
|
|
$
|
10,290
|
|
|
$
|
11,935
|
|
Prepaid Expenses and Other 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 Company depreciates computer equipment and software licenses over three to five years, office equipment, manufacturing and test equipment, and motor vehicles over five years, furniture and fixtures over seven years, and buildings over 30 years. 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 condensed consolidated statements of operations. Maintenance and repairs are expensed as incurred.
15
Property and equipment consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Building
|
|
$
|
6,880
|
|
|
$
|
6,389
|
|
Computers and office equipment
|
|
|
9,966
|
|
|
|
9,847
|
|
Manufacturing and test equipment
|
|
|
15,398
|
|
|
|
14,192
|
|
Furniture and fixtures
|
|
|
1,440
|
|
|
|
1,314
|
|
Leasehold improvements
|
|
|
3,067
|
|
|
|
2,850
|
|
Motor vehicles
|
|
|
20
|
|
|
|
20
|
|
Total property and equipment
|
|
|
36,771
|
|
|
|
34,612
|
|
Less: Accumulated depreciation and amortization
|
|
|
(25,813
|
)
|
|
|
(24,397
|
)
|
Land
|
|
|
1,770
|
|
|
|
1,770
|
|
Property and equipment, net
|
|
$
|
12,728
|
|
|
$
|
11,985
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense were approximately $0.8 million and $0.7 million for the three months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expense were approximately $2.3 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020, the Company disposed of $0.9 million of fully depreciated property and equipment. Amortization for finance leases is included in depreciation and amortization expense. See Note 10 for information related to finance leases.
Liabilities
Accrued liabilities consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Inventory receipts
|
|
$
|
2,524
|
|
|
$
|
1,431
|
|
Payroll and other employee benefits
|
|
|
1,169
|
|
|
|
1,605
|
|
Paid time off
|
|
|
1,146
|
|
|
|
855
|
|
Employee stock purchase plan
|
|
|
419
|
|
|
|
228
|
|
Professional fees and contractors
|
|
|
416
|
|
|
|
246
|
|
Deferred revenues
|
|
|
255
|
|
|
|
241
|
|
Warranties
|
|
|
250
|
|
|
|
444
|
|
Operating leases
|
|
|
177
|
|
|
|
282
|
|
Income and sales taxes
|
|
|
182
|
|
|
|
133
|
|
Real estate taxes
|
|
|
116
|
|
|
|
152
|
|
Customer refunds for estimated returns
|
|
|
109
|
|
|
|
147
|
|
Finance leases
|
|
|
71
|
|
|
|
77
|
|
Restructuring
|
|
|
4
|
|
|
|
45
|
|
Short-term incentive plan
|
|
|
0
|
|
|
|
2,553
|
|
Leasehold improvements
|
|
|
0
|
|
|
|
702
|
|
Other
|
|
|
256
|
|
|
|
241
|
|
Total
|
|
$
|
7,094
|
|
|
$
|
9,382
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Operating leases
|
|
$
|
4,028
|
|
|
$
|
3,021
|
|
Deferred payroll taxes
|
|
|
318
|
|
|
|
0
|
|
Finance leases
|
|
|
111
|
|
|
|
164
|
|
Deferred revenue
|
|
|
83
|
|
|
|
119
|
|
Other
|
|
|
17
|
|
|
|
11
|
|
Total
|
|
$
|
4,557
|
|
|
$
|
3,315
|
|
|
|
|
|
|
|
|
|
|
16
7. Stock-Based Compensation
The condensed consolidated statements of operations include $0.4 million and $0.9 million of stock compensation expense for the three months ended September 30, 2020 and 2019, respectively. The condensed consolidated statements of operations include $2.0 million and $3.2 million of stock compensation expense for the nine months ended September 30, 2020 and 2019, respectively. The stock compensation expense for the three and nine months ended September 30, 2020 reflects the reduced estimates for the Company’s performance-based awards under the long-term incentive plans. The Company accounts for forfeitures as they occur. The Company did not capitalize any stock compensation expense during the three and nine months ended September 30, 2020 and 2019.
The stock-based compensation expense by type is as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Service-based awards
|
|
$
|
462
|
|
|
$
|
472
|
|
|
$
|
1,749
|
|
|
$
|
1,942
|
|
Performance-based awards - short-term incentive plan
|
|
|
0
|
|
|
|
361
|
|
|
|
0
|
|
|
|
990
|
|
Performance-based awards - long-term incentive plan
|
|
|
(88
|
)
|
|
|
56
|
|
|
|
67
|
|
|
|
170
|
|
Employee stock purchase plan
|
|
|
59
|
|
|
|
29
|
|
|
|
180
|
|
|
|
143
|
|
Stock options
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
Total
|
|
$
|
433
|
|
|
$
|
918
|
|
|
$
|
1,996
|
|
|
$
|
3,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
$
|
61
|
|
|
$
|
87
|
|
|
$
|
207
|
|
|
$
|
292
|
|
Research and development
|
|
|
121
|
|
|
|
158
|
|
|
|
403
|
|
|
|
507
|
|
Sales and marketing
|
|
|
115
|
|
|
|
158
|
|
|
|
429
|
|
|
|
521
|
|
General and administrative
|
|
|
136
|
|
|
|
515
|
|
|
|
957
|
|
|
|
1,926
|
|
Total
|
|
$
|
433
|
|
|
$
|
918
|
|
|
$
|
1,996
|
|
|
$
|
3,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of the remaining unrecognized share-based compensation expense related to outstanding share-based awards as of September 30, 2020:
Award Type
|
|
Remaining Unrecognized Compensation Expense
|
|
|
Weighted Average Life (Years)
|
|
Service-based awards
|
|
$
|
1,793
|
|
|
|
1.3
|
|
Performance-based awards
|
|
$
|
495
|
|
|
|
2.0
|
|
Stock options
|
|
$
|
1
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service-Based Awards
Restricted Stock
The Company grants service-based stock awards to employees under its long-term incentive plan, the PCTEL, Inc. 2019 Stock Incentive Plan (“LTIP”). For the annual awards granted to executives and key managers in the three months ended March 31, 2020 and 2019, respectively, the awards were comprised one-third of service-based restricted awards and two-thirds of performance-based awards. When service-based restricted stock is granted, the Company records deferred stock compensation within additional paid-in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares.
17
The following table summarizes service-based restricted stock activity for the nine months ended September 30, 2020:
|
|
Shares
|
|
|
Weighted
Average
Fair Value
|
|
Unvested Restricted Stock Awards - December 31, 2019
|
|
|
477,187
|
|
|
$
|
6.11
|
|
Shares awarded
|
|
|
201,233
|
|
|
|
7.91
|
|
Shares vested
|
|
|
(236,698
|
)
|
|
|
6.20
|
|
Shares cancelled
|
|
|
(3,000
|
)
|
|
|
5.92
|
|
Unvested Restricted Stock Awards - September 30, 2020
|
|
|
438,722
|
|
|
$
|
6.89
|
|
In February 2020, the Company issued to employees 153,694 service-based restricted stock awards under the LTIP that vest in three substantially equal annual increments commencing in 2021. In April 2020, as part of our efforts to reduce expenses and conserve cash, the Company reduced the salary of each executive and key manager by 10% and in connection therewith issued restricted stock, under the LTIP, with a one-year vesting period to such employee equal to 5% of his/her salary. In total 47,539 service-based restricted stock awards were issued. The intrinsic value of service-based restricted shares that vested during the three months ended September 30, 2020 and 2019 was $18 and $32, respectively. The intrinsic value of service-based restricted shares that vested during the nine months ended September 30, 2020 and 2019 was $1.9 million and $2.2 million, respectively.
Restricted Stock Units
The Company grants service-based restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units.
The following table summarizes the restricted stock unit activity during the nine months ended September 30, 2020:
|
|
Shares
|
|
|
Weighted
Average
Fair Value
|
|
Unvested Restricted Stock Units - December 31, 2019
|
|
|
8,117
|
|
|
$
|
5.83
|
|
Units awarded
|
|
|
6,448
|
|
|
|
7.48
|
|
Units vested/Shares awarded
|
|
|
(5,482
|
)
|
|
|
5.80
|
|
Unvested Restricted Stock Units - September 30, 2020
|
|
|
9,083
|
|
|
$
|
7.02
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of service-based restricted stock units that vested and were issued as shares during the nine months ended September 30, 2020 and 2019 was $44 and $30, respectively. No service-based restricted stock units vested during the three months ended September 30, 2020 or 2019.
Stock Options
The Company may grant new employees stock options to purchase common stock. The Company issues stock options with exercise prices no less than the fair value of the Company’s stock on the grant date. Employee stock options are subject to installment vesting typically over a period of not less than three years. Stock options may be exercised at any time prior to their expiration date or within 180 days of termination of employment, or such shorter time as may be provided in the related stock option agreement. Under the LTIP, new options can have a ten-year life. The stock options outstanding at September 30, 2020 have a seven-year life.
18
A summary of the Company’s stock option activity for the nine months ended September 30, 2020 is as follows:
|
|
Options Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31, 2019
|
|
|
150,246
|
|
|
$
|
7.11
|
|
Options exercised
|
|
|
(61,767
|
)
|
|
|
7.13
|
|
Options forfeited
|
|
|
(188
|
)
|
|
|
5.00
|
|
Options cancelled/expired
|
|
|
(72,041
|
)
|
|
|
7.23
|
|
Outstanding at September 30, 2020
|
|
|
16,250
|
|
|
$
|
6.54
|
|
Exercisable at September 30, 2020
|
|
|
15,431
|
|
|
$
|
6.53
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2020, the Company received proceeds of $0.1 million from the exercise of options for 9,412 shares and issued 10,194 shares for the exercise of 52,355 options. The intrinsic value of the options exercised was $0.1 million. During the nine months ended September 30, 2019, the Company received minimal proceeds from the exercise of options for 500 shares. The intrinsic value of the options exercised was also minimal. The Company did not grant stock options during the nine months ended September 30, 2020 or 2019.
The range of exercise prices for options outstanding and exercisable at September 30, 2020, was $5.06 to $8.21. The following table summarizes information about stock options outstanding under all stock option plans:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Contractual
Life (Years)
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
$ 5.06
|
|
7,000
|
|
2.96
|
|
$5.06
|
|
|
6,895
|
|
$5.06
|
$ 6.98 - $ 7.55
|
|
4,750
|
|
2.41
|
|
7.22
|
|
|
4,036
|
|
7.26
|
$ 8.09 - $ 8.21
|
|
4,500
|
|
1.17
|
|
8.12
|
|
|
4,500
|
|
8.12
|
$ 5.06 - $ 8.21
|
|
16,250
|
|
2.30
|
|
$
|
6.54
|
|
|
15,431
|
|
$6.53
|
The weighted average contractual life and intrinsic value of options outstanding and options exercisable at September 30, 2020, was the following:
|
|
Weighted
Average
Contractual
Life (years)
|
|
|
Intrinsic
Value
|
|
Options Outstanding
|
|
|
2.30
|
|
|
$
|
4
|
|
Options Exercisable
|
|
|
2.20
|
|
|
$
|
4
|
|
The intrinsic value is based on the share price of $5.66 at September 30, 2020.
There were no stock options granted during the nine months ended September 30, 2020. For outstanding stock options, the Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life.
The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate is based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The expected volatility is based on a five-year historical period of the Company’s stock price. The expected life for options granted is based on historical data of employee exercise performance. The Company records expense based on the graded vesting method.
Performance-Based Equity Awards
Short-Term Incentive Plan
Incentive compensation earned by executives and key managers under the Company’s 2020 Short-Term Incentive Plan (“STIP”) will be settled 50% in cash and 50% in shares of the Company’s stock as was the case with the 2019 STIP. Under both the 2020 STIP and
19
2019 STIP, payouts are earned based on revenue and adjusted EBITDA targets. Shares valued at $1.2 million earned pursuant to the 2019 STIP were issued to executives and key managers during the first quarter 2020. For the 2019 STIP, the Company issued 129,285 shares net of shares withheld for taxes.
Long-Term Incentive Plan
The Company grants performance-based awards to executives and key managers to encourage sustainable growth, consistent earnings, and management retention. Based on the fair value of the shares on the grant date, the Company records stock compensation expense over the performance period based on the estimated achievement of the award.
The following table summarizes the performance award activity:
At Target
|
|
Awards
|
|
|
Weighted
Average
Fair Value
|
|
Unvested Performance Awards - December 31, 2019
|
|
|
171,437
|
|
|
$
|
5.27
|
|
Awards granted
|
|
|
145,289
|
|
|
|
8.70
|
|
Unvested Performance Awards - September 30, 2020
|
|
|
316,726
|
|
|
$
|
6.84
|
|
The Company granted performance awards under its long-term incentive plan to executives and key managers in February 2020 (“2020 LTIP”) and in February 2019 (“2019 LTIP”). Under both the 2020 LTIP and 2019 LTIP, shares of the Company’s stock can be earned based on achievement of a three-year revenue growth target with a penalty if a certain adjusted EBITDA level is not maintained. If the Company achieves less than the target growth over the performance period, the participant will receive fewer shares than the target award, determined on a straight-line basis. If the Company achieves greater than the target growth, the participant will receive more shares than the target award on an accelerated basis. Participants are required to be in service at the determination date of the award following the end of the performance period in order to receive the award. Shares earned under the 2020 LTIP and 2019 LTIP will be fully vested shares. The Company records stock compensation expense over the performance period based on the Company’s estimate of the aggregate number of shares that will be earned under the incentive plan.
The performance period for the 2020 LTIP is from January 1, 2020 through December 31, 2022. At target, the total fair market value of the award was $1.3 million based on the share price of $8.70 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 145,289 and the maximum number of aggregate shares that could be earned was 254,256.
The performance period for the 2019 LTIP is from January 1, 2019 through December 31, 2021. At target, the total fair market value of the award was $0.9 million based on the share price of $5.27 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 174,117 and the maximum number of aggregate shares that could be earned was 300,015. During the year ended December 31, 2019, the target and maximum shares that can be earned declined by 2,680 and 4,690, respectively due to employee terminations.
Employee Stock Purchase Plan (“ESPP”)
The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is approximately six months. The Company received proceeds of $0.4 million from the issuance of 77,297 shares under the ESPP in April 2020. The Company received proceeds of $0.4 million from the issuance of 85,483 shares under the ESPP in August 2019 and received proceeds of $0.3 million from the issuance of 95,376 shares under the ESPP in February 2019.
Based on the 15% discount and the fair value of the option feature of the ESPP, it is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.
The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
|
|
Employee Stock Purchase Plan
|
|
|
|
2020
|
|
|
2019
|
|
Dividend yield
|
|
|
4.1
|
%
|
|
|
4.1
|
%
|
Risk-free interest rate
|
|
|
0.1
|
%
|
|
|
2.5
|
%
|
Expected volatility
|
|
|
44
|
%
|
|
|
34
|
%
|
Expected life (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options
20
granted. The volatility was based on a five-year historical period of the Company’s stock price. The expected life was based on the offering period.
Board of Director Equity Awards
The Company grants equity awards to members of its Board of Directors as an annual retainer and for committee service. These awards are shares of the Company’s stock that vest upon issuance. In addition, new directors receive a one-time grant that vests over three years. In the second quarter of 2020, the Company issued 60,998 shares with a fair value of $0.4 million to directors for their annual retainer and committee service. The shares vested immediately upon issuance.
The following table summarizes the director awards activity:
|
|
Shares
|
|
|
Weighted
Average
Fair Value
|
|
Outstanding - December 31, 2019
|
|
|
4,831
|
|
|
$
|
6.90
|
|
Shares awarded
|
|
|
60,998
|
|
|
|
6.59
|
|
Shares vested
|
|
|
(63,413
|
)
|
|
|
6.60
|
|
Outstanding - September 30, 2020
|
|
|
2,416
|
|
|
$
|
6.90
|
|
|
|
|
|
|
|
|
|
|
Employee Withholding Taxes on Stock Awards
For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards, stock option exercises and short-term and long-term incentive plan stock awards for the value of the statutory withholding taxes. For everyone receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $1.1 million and $0.8 million during the nine months ended September 30, 2020 and 2019, respectively.
Stock Repurchases
On November 6, 2019, the Board of Directors approved a share repurchase program, which was reauthorized on March 10, 2020 pursuant to which the Company was authorized to repurchase up to $7.0 million of its common stock through the end of 2020. The Company spent $2.0 million to repurchase 375,046 shares at an average price of $5.36 during the three months ended March 31, 2020. The Company cancelled the repurchased shares. Due to uncertainties related to the COVID-19 pandemic and to protect the Company’s cash position, on April 1, 2020 the Board of Directors approved the termination of the stock repurchase program. On November 4, 2020, the Board of Directors approved a new, $5.0 million share repurchase program. Please refer to Note 14 for additional information.
Authorized Shares
On May 29, 2020, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (i) changing the Company’s name from “PC-Tel, Inc.” to “PCTEL, Inc.” and (ii) decreasing the number of authorized shares of common stock from 100,000,000 shares to 50,000,000 shares.
8. Benefit Plans
Employee Benefit Plans
The Company’s 401(k) plan covers all U.S. employees beginning the first day of the month following the first month of their employment. Under this plan, employees may elect to contribute up to 15% of their current compensation to the 401(k) plan up to the statutorily prescribed annual limit. The Company matches employee contributions up to 4% and may also make discretionary contributions to the 401(k) plan. The Company also contributes to various retirement plans for foreign employees.
21
The Company’s contributions to retirement plans during the three and nine months ended September 30, 2020 and 2019, respectively, were as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
PCTEL, Inc. 401(k) profit sharing plan - US employees
|
|
$
|
164
|
|
|
$
|
165
|
|
|
$
|
560
|
|
|
$
|
484
|
|
Defined contribution plans - foreign employees
|
|
|
9
|
|
|
|
111
|
|
|
|
41
|
|
|
|
356
|
|
Total
|
|
$
|
173
|
|
|
$
|
276
|
|
|
$
|
601
|
|
|
$
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions for foreign employees were lower for the nine months ended September 30, 2020 because employer contributions to Chinese government sponsored retirement programs were not required for the first nine months of fiscal 2020.
9. Commitments and Contingencies
China Restructuring
On August 7, 2019, the Board of Directors approved a transition plan for the Company’s China manufacturing operations. In order to optimize the cost structure of the antenna product line, reduce fixed costs in China and increase the Company’s competitiveness, the Company is transitioning high-volume manufacturing from its Tianjin, China facility to contract manufacturers in China and elsewhere. The Company incurred restructuring expenses during the nine months ended September 30, 2020 of $0.1 million for employee severance related to the separation of 12 employees. The severance payments for these employees were paid during the second and third quarters of 2020. Commencing in the third quarter 2019 and through the third quarter 2020, the Company has separated 96 Tianjin employees and incurred total restructuring expense of $0.6 million for severance costs. Severance costs are paid from the Company’s cash in its China bank accounts.
On October 8, 2020, the lease of the premises on which the Company’s China manufacturing operations are conducted expired and the renewal is pending and uncertain. The Company has been notified that the Chinese Party Central Committee and the State Council are accelerating the layout optimization and transformation of the industrial park in which the Company’s leased premises is located and, accordingly, leases and lease extensions for all premises in the industrial park have been suspended and rent collection has been postponed. The Company has not received an indication of the likelihood of approval of its lease extension. As a result of the uncertainty regarding the Tianjin Lease (as defined in Note 10) renewal, the Company is refining and accelerating its transition plan for the manufacturing activities conducted on the leased premises. As part of the acceleration of the transition plan, the Company will reduce additional headcount in Tianjin and incur additional restructuring charges for severance and other non-cash costs. The Company is currently assessing the additional severance cost it will incur in 2021. See Note 10 and the risk factors in Part II, Item 1A for additional information.
Lease Termination
In 2016, the Company exited from its Colorado office in order to consolidate facility space and in the second quarter 2017 signed a sublease for the office space. The lease and the sublease terminated in October 2020.
The following table summarizes the restructuring activity during the nine months ended September 30, 2020 and the status of the reserves at September 30, 2020:
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
|
Severance
|
|
|
Termination
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
12
|
|
|
$
|
33
|
|
|
$
|
45
|
|
Restructuring expense
|
|
|
124
|
|
|
|
0
|
|
|
|
124
|
|
Payments made
|
|
|
(136
|
)
|
|
|
(106
|
)
|
|
|
(242
|
)
|
Payments received
|
|
|
0
|
|
|
|
77
|
|
|
|
77
|
|
Balance at September 30, 2020
|
|
$
|
0
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The restructuring liability is recorded in accrued liabilities on the condensed consolidated balance sheet at September 30, 2020 and December 31, 2019.
Warranty Reserve and Sales Returns
The Company allows its major distributors and certain other customers to return unused product under specified terms and conditions. The Company accrues for product returns based on historical sales and return trends. The refund liability related to estimated sales
22
returns was $0.1 million at September 30, 2020 and December 31, 2019, respectively, and is included within accrued liabilities on the accompanying condensed consolidated balance sheets.
The Company offers repair and replacement warranties of up to five years for certain antenna products and test & measurement products. The Company’s warranty reserve is based on historical sales and costs of repair and replacement trends. The warranty reserve was $0.3 million at September 30, 2020 and $0.4 million at September 30, 2019, respectively, and is included in accrued liabilities in the accompanying condensed consolidated balance sheets.
The following table summarizes the warranty activity during the nine months ended September 30, 2020 and 2019:
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
444
|
|
|
$
|
339
|
|
Provisions for warranties
|
|
$
|
9
|
|
|
|
207
|
|
Consumption of reserves
|
|
$
|
(203
|
)
|
|
|
(146
|
)
|
Ending balance
|
|
$
|
250
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
10. Leases
The Company has operating leases for facilities and finance leases for office equipment. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company determines if an arrangement is a lease at inception of a contract.
Right of Use (“ROU”) assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the net present value of fixed lease payments over the lease term. The Company's lease term is deemed to include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. ROU assets also include any advance lease payments made and exclude lease incentives. As most of the Company's operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments on a collateralized basis. Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Operating fixed lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term.
The Company's lease cost for the nine months ended September 30, 2020 and 2019, respectively, included the following components:
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Operating lease costs
|
|
$
|
538
|
|
|
$
|
673
|
|
Short-term lease costs
|
|
|
77
|
|
|
|
71
|
|
Variable lease costs
|
|
|
2
|
|
|
|
19
|
|
Amortization of finance lease assets
|
|
|
59
|
|
|
|
78
|
|
Interest on finance lease liabilities
|
|
|
6
|
|
|
|
6
|
|
Total lease cost
|
|
$
|
682
|
|
|
$
|
847
|
|
|
|
|
|
|
|
|
|
|
23
The table below summarizes the Company's scheduled future minimum lease payments under operating and finance leases recorded on the balance sheet as of September 30, 2020:
Year
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2020
|
|
$
|
48
|
|
|
$
|
19
|
|
2021
|
|
|
472
|
|
|
|
73
|
|
2022
|
|
|
558
|
|
|
|
48
|
|
2023
|
|
|
569
|
|
|
|
32
|
|
2024
|
|
|
581
|
|
|
|
21
|
|
Thereafter
|
|
|
3,174
|
|
|
|
0
|
|
Total minimum payments required
|
|
|
5,402
|
|
|
|
193
|
|
Less: amount representing interest
|
|
|
1,197
|
|
|
|
11
|
|
Present value of net minimum lease payments
|
|
|
4,205
|
|
|
|
182
|
|
Less: current maturities of lease obligations
|
|
|
(177
|
)
|
|
|
(71
|
)
|
Long-term lease obligations
|
|
$
|
4,028
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining lease terms and discount rates for all the Company’s operating and finance leases were as follows as of September 30, 2020:
|
|
September 30, 2020
|
|
Weighted-average remaining lease term - finance leases
|
|
3.1 years
|
|
Weighted-average remaining lease term - operating leases
|
|
9.8 years
|
|
Weighted-average discount rate - finance leases
|
|
4.0%
|
|
Weighted-average discount rate - operating leases
|
|
5.0%
|
|
The table below presents supplemental cash flow information related to leases during the nine months ended September 30, 2020 and 2019, respectively:
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
2019
|
|
Cash paid for (received) amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
262
|
|
$
|
684
|
|
Operating cash flows from tenant improvements incentives from operating leases
|
|
$
|
(1,004
|
)
|
$
|
0
|
|
Operating cash flows for finance leases
|
|
$
|
6
|
|
$
|
6
|
|
Financing cash flows for finance leases
|
|
$
|
59
|
|
$
|
79
|
|
The following table summarizes the classification of ROU assets and lease liabilities as of September 30, 2020 and December 31, 2019:
Leases
|
Consolidated Balance Sheet Classification
|
September 30, 2020
|
|
December 31, 2019
|
|
Assets:
|
|
|
|
|
|
|
|
Operating right-of-use assets
|
Other noncurrent assets
|
$
|
2,317
|
|
$
|
2,696
|
|
Finance right-of-use assets
|
Other noncurrent assets
|
|
175
|
|
|
234
|
|
Total leased assets
|
|
$
|
2,492
|
|
$
|
2,930
|
|
Liabilities:
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Operating lease liabilities
|
Accrued liabilities
|
$
|
177
|
|
$
|
282
|
|
Finance lease liabilities
|
Accrued liabilities
|
|
71
|
|
|
77
|
|
Noncurrent
|
|
|
|
|
|
|
|
Operating lease liabilities
|
Long-term liabilities
|
|
4,028
|
|
|
3,021
|
|
Finance lease liabilities
|
Long-term liabilities
|
|
111
|
|
|
164
|
|
Total lease liabilities
|
|
$
|
4,387
|
|
$
|
3,544
|
|
|
|
|
|
|
|
|
|
24
In January 2019, the Company entered into an eleven-year lease ending February 28, 2031 for 21,030 square feet of office space in Clarksburg, Maryland for the Company’s test & measurement product line. The Company moved the operations for its test & measurement product line from its Germantown, Maryland office to the new office in January 2020. The Company recognized a present value right of use asset of $2.1 million in August 2019, which was the lease commencement date for accounting purposes. The present value of the right of use asset reflects 14 months of rent abatement and $1.5 million in tenant improvement incentives in the form of cash reimbursements which the Company fully utilized.
In July 2020, the Company signed a one-year lease renewal for its engineering design center in Beijing, China. Under the new lease, the square footage was reduced from 11,210 square feet to 5,393 square feet. The lease period ends on June 14, 2021 and the total lease obligation is approximately $0.1 million.
On March 5, 2020, PCTEL (Tianjin) Wireless Telecommunications Products, Co. Ltd., a wholly-owned subsidiary of the Company (“PCTEL Tianjin”), entered into a letter agreement with Wang Zhuang Village Committee of Tianjin, China (the “Letter Agreement”) specifying the terms for extension of the lease of the premises on which PCTEL Tianjin currently conducts its manufacturing activities in Tianjin, China (the “Tianjin Lease”) to October 2022. The Letter Agreement did not, however, effect the lease extension. The Tianjin Lease expired on October 8, 2020 without extension. On October 16, 2020, the Wang Zhuang Village Committee issued a notice informing PCTEL Tianjin that the Chinese Party Central Committee and the State Council are accelerating the layout optimization and transformation of the industrial park in which the leased premises is located, and accordingly leases and lease extensions for all premises in the industrial park have been suspended and rent collection has been postponed. The letter indicates that if the Tianjin Lease extension is subsequently approved, the rent for the period from October 9, 2020 to the date of the Tianjin Lease extension (the “Intervening Period”) will then be due and payable. If the Tianjin Lease extension is not approved, PCTEL Tianjin will need to vacate the premises and no rent will be due for the Intervening Period. PCTEL Tianjin has not received an indication of the likelihood of approval of the Tianjin Lease extension, the length of the Intervening Period or the notice period for vacating the leased premises; provided, however, based upon past practices and verbal assurances, the Company believes that PCTEL Tianjin will have not less than 30 days to vacate the leased premises if the Lease Extension is not approved. See risk factors in Section IA for additional information on the Tianjin lease. See the risk factors in Part II, Item 1A for additional information.
11. Income Taxes
The Company recorded income tax expense of $25 and $23 for the nine months ended September 30, 2020 and 2019, respectively. The expense recorded for the nine months ended September 30, 2020 and 2019 was lower than the statutory rate of 21% because the Company has a full valuation allowance on its deferred tax assets. The Company’s valuation allowance is due to the uncertainty regarding the utilization of the deferred tax assets.
The Company had deferred tax assets net of deferred tax liabilities of $13.5 million at September 30, 2020 and at December 31, 2019. The deferred tax assets consisted of domestic deferred tax assets of $13.0 million and foreign deferred tax assets of $0.5 million. The Company’s gross deferred tax assets consist of federal and state net operating losses (“NOLs”), credits, and timing differences. The Company’s federal NOLs generated in 2019 and 2018 have an infinite life, and the Company’s NOLs and credits generated as of December 31, 2017 have a finite life primarily based on the 20-year carry forward of federal net operating losses. The timing differences have a ratable reversal pattern over 12 years. On a regular basis, the Company evaluates the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment. The Company considers multiple factors in its evaluation of the need for a valuation allowance. The Company’s full valuation allowance against its deferred tax assets was $13.5 million at September 30, 2020 and December 31, 2019. The Company generated book and tax income during 2019 but incurred significant losses in 2018 resulting in a cumulative break-even position for the three years ended December 31, 2019. The Company recorded pretax book income for the nine months ended September 30, 2020 and believes its financial outlook remains positive; however, the COVID-19 pandemic has created a high level of uncertainty. Because of difficulties with forecasting financial results historically, and due to the uncertainties associated with the COVID-19 pandemic, the Company maintained a full valuation allowance on its deferred tax assets at September 30, 2020. The analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance.
The Company files a consolidated federal income tax return, income tax returns with various states, and foreign income tax returns in various foreign jurisdictions. The Company’s U.S. federal tax returns remain subject to examination for 2017 and subsequent periods. The Company’s U.S. state tax returns remain subject to examination for 2015 and subsequent periods. The Company’s foreign tax returns remain subject to examination for 2011 and subsequent periods. The Company’s gross unrecognized tax benefit was $0.8 million at September 30, 2020 and December 31, 2019, respectively.
25
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Under the CARES Act, the Company is deferring the employer portion of social security taxes and will apply for a refund of its Alternative Minimum Tax credit. For the nine months ended September 30, 2020, the Company has deferred $0.3 million of payroll taxes. The payroll taxes will be deferred until the due dates of December 31, 2021 and December 31, 2022. The Company records a deferred tax asset for the payroll tax liability that is not deductible in 2020 for income tax purposes.
12. Product Line, Customer and Geographic Information
Product Line Information:
The following tables are the product line revenues and gross profits for the three and nine months ended September 30, 2020 and 2019:
|
|
Three Months Ended September 30, 2020
|
|
|
|
Antenna Products
|
|
|
Test & Measurement
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,326
|
|
|
$
|
6,810
|
|
|
$
|
(213
|
)
|
|
$
|
18,923
|
|
Gross Profit
|
|
$
|
4,336
|
|
|
$
|
5,203
|
|
|
$
|
36
|
|
|
$
|
9,575
|
|
Gross Profit %
|
|
|
35.2
|
%
|
|
|
76.4
|
%
|
|
NA
|
|
|
|
50.6
|
%
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
Antenna Products
|
|
|
Test & Measurement
|
|
|
Corporate
|
|
|
Total
|
|
Revenues
|
|
$
|
37,696
|
|
|
$
|
19,011
|
|
|
$
|
(436
|
)
|
|
$
|
56,271
|
|
Gross Profit
|
|
$
|
13,228
|
|
|
$
|
14,109
|
|
|
$
|
(26
|
)
|
|
$
|
27,311
|
|
Gross Profit %
|
|
|
35.1
|
%
|
|
|
74.2
|
%
|
|
NA
|
|
|
|
48.5
|
%
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
Antenna Products
|
|
|
Test & Measurement
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,463
|
|
|
$
|
7,240
|
|
|
$
|
(73
|
)
|
|
$
|
23,630
|
|
Gross Profit
|
|
$
|
5,712
|
|
|
$
|
4,937
|
|
|
$
|
(2
|
)
|
|
$
|
10,647
|
|
Gross Profit %
|
|
|
34.7
|
%
|
|
|
68.2
|
%
|
|
NA
|
|
|
|
45.1
|
%
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Antenna Products
|
|
|
Test & Measurement
|
|
|
Corporate
|
|
|
Total
|
|
Revenues
|
|
$
|
47,565
|
|
|
$
|
20,301
|
|
|
$
|
(146
|
)
|
|
$
|
67,720
|
|
Gross Profit
|
|
$
|
16,142
|
|
|
$
|
13,834
|
|
|
$
|
24
|
|
|
$
|
30,000
|
|
Gross Profit %
|
|
|
33.9
|
%
|
|
|
68.1
|
%
|
|
NA
|
|
|
|
44.3
|
%
|
Geographic Information:
The Company’s revenue from customers by geographic location, as a percent of total revenues for the three and nine months ended September 30, 2020 and 2019, is as follows:
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
Region
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
Europe, Middle East & Africa
|
|
16%
|
|
|
12%
|
|
16%
|
|
|
13%
|
|
Asia Pacific
|
|
8%
|
|
|
6%
|
|
9%
|
|
|
9%
|
|
Other Americas
|
|
3%
|
|
|
4%
|
|
2%
|
|
|
3%
|
|
Total Foreign sales
|
|
27%
|
|
|
22%
|
|
27%
|
|
|
25%
|
|
26
Customer Concentration:
There were no customers that accounted for 10% or more of revenues during the three and nine months ended September 30, 2020 and 2019.
The following table represents the customers that accounted for 10% or more of total trade accounts receivable:
Trade Accounts Receivable
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Customer A
|
|
16%
|
|
|
15%
|
|
Customer B
|
|
0%
|
|
|
11%
|
|
Customer C
|
|
12%
|
|
|
8%
|
|
13. Revenue from Contracts with Customers
Under Topic 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance, and specified payment terms, and for which collectability is probable. Once the Company has entered into a contract, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized as control of promised goods or services transfers to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The amount of revenue recognized takes into account variable consideration, such as returns and volume rebates. A majority of the Company’s revenue is short cycle in nature with shipments within one year from order. The Company's payment terms generally range between 30 to 90 days.
All of the Company’s revenue relates to contracts with customers. The Company’s accounting contracts are from purchase orders or purchase orders combined with purchase agreements. The majority of the Company’s revenue is recognized on a “point-in-time” basis and a nominal amount of revenue is recognized “over time”. For the sale of antenna products and test & measurement products, the Company satisfies its performance obligations generally at the time of shipment or upon delivery based on the contractual terms with its customers. For products shipped on consignment, the Company recognizes revenue upon delivery from the consignment location. For its test & measurement software tools, the Company has a performance obligation to provide software maintenance and support for one year. The Company recognizes revenues for the maintenance and support over this period.
The Company considers shipping and handling performed by the Company as fulfillment activities. Amounts billed for shipping and handling are included in revenues, while costs incurred for shipping and handling are included in cost of revenues. The Company excludes taxes from the transaction price. Cost of contracts include sales commissions. The Company expenses the cost of contracts when incurred because the amortization period is one year or less.
The Company allows its major distributors and certain other customers to return unused product under specified terms and conditions. The Company estimates product returns based on historical sales and return trends and records a corresponding refund liability. The refund liability was $0.1 million at September 30, 2020 and December 31, 2019 and is included within accrued liabilities in the accompanying condensed consolidated balance sheets. The Company records an asset based on historical experience for the amount of product it expects to return to inventory as a result of customer returns, which is recorded in inventories in the accompanying condensed consolidated balance sheets. The product return asset was $0.1 million at September 30, 2020 and December 31, 2019.
There were no contract assets at September 30, 2020 or December 31, 2019. The Company records contract liabilities for deferred revenue and customer prepayments. Contract liabilities are recorded in accrued liabilities in the accompanying condensed consolidated balance sheets. The contract liability was $0.4 million and $0.2 million at September 30, 2020 and December 31, 2019, respectively. The Company recognized revenue of $0.2 million and $0.1 million during the three months ended September 30, 2020 and 2019, respectively, related to contract liabilities that existed at the beginning of the period. The Company recognized revenue of $0.6 million and $0.4 million during the nine months ended September 30, 2020 and 2019, respectively, related to contract liabilities that existed at the beginning of the period.
14. Subsequent Events
The Company evaluates subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available to be issued in order to determine whether the subsequent events are to be recorded and/or disclosed in the Company’s financial statements and footnotes. The financial statements are considered to be available to be issued at the time that they are filed with the SEC. Other than the events described below, there were no other subsequent events or transactions that required recognition or disclosure in the unaudited interim condensed consolidated financial statements.
27
On March 5, 2020, PCTEL (Tianjin) Wireless Telecommunications Products, Co. Ltd., a wholly-owned subsidiary of the Company (“PCTEL Tianjin”), entered into the Letter agreement with Wang Zhuang Village Committee of Tianjin, China specifying the terms for extension of the lease of the premises on which PCTEL Tianjin currently conducts its manufacturing activities in Tianjin, China (the “Tianjin Lease”) to October 2022. The Letter Agreement did not, however, effect the lease extension. The Tianjin Lease expired on October 8, 2020 without extension. On October 16, 2020, the Wang Zhuang Village Committee issued a notice informing PCTEL Tianjin that the Chinese Party Central Committee and the State Council are accelerating the layout optimization and transformation of the industrial park in which the leased premises is located, and accordingly leases and lease extensions for all premises in the industrial park have been suspended and rent collection has been postponed. The letter indicates that if the Tianjin Lease extension is subsequently approved, the rent for the period from October 9, 2020 to the date of the Tianjin Lease extension (the “Intervening Period”) will then be due and payable. If the Tianjin Lease extension is not approved, PCTEL Tianjin will need to vacate the premises and no rent will be due for the Intervening Period. PCTEL Tianjin has not received an indication of the likelihood of approval of the Tianjin Lease extension, the length of the Intervening Period or the notice period for vacating the leased premises; provided, however, based upon past practices and verbal assurances, the Company believes that PCTEL Tianjin will have not less than 30 days to vacate the leased premises if the Lease Extension is not approved. See the risk factors in Part II, Section 1A for additional information on the Tianjin Lease.
On November 4, 2020, the Board of Directors approved a share repurchase program pursuant to which the Company may repurchase up to $5.0 million of its common stock. The plan will be effective November 10, 2020 through December 31, 2021. Such repurchases may be made from time to time at prevailing prices in the open market, by block purchases, in private transactions or otherwise. The repurchases will be funded with cash on hand.
28