EXHIBIT 99.4
PC MALL, INC.
Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements have been derived from the historical consolidated financial statements of PC Mall, Inc. (“PC Mall”) and SARCOM, Inc. (“SARCOM”) to give effect to PC Mall’s acquisition of SARCOM. On September 17, 2007, PC Mall completed the acquisition of SARCOM and paid an initial total purchase price of approximately $55.7 million, including transaction costs, which was subject to post-closing debt and net asset value adjustment. The initial purchase price consisted of $47.5 million in cash and 633,981 shares of PC Mall stock. On November 6, 2007, we and the sellers agreed on a final net asset value adjustment, resulting in a decrease in the purchase price by approximately $2.1 million, which was repaid to us at the sellers��� option in shares of our common stock issued to them as part of the transaction. As a result, the sellers tendered back to us a total of 122,478 shares of our common stock, which has been recorded as a reduction of the purchase price as of June 30, 2007 in our unaudited pro forma combined financial statements presented herein.
The unaudited pro forma combined balance sheet as of June 30, 2007 reflects adjustments as if the acquisition had occurred on June 30, 2007, and reflects the preliminary allocation of the purchase price to the SARCOM assets acquired and liabilities assumed based upon their respective estimated fair values. The unaudited pro forma combined statements of operations for the year ended December 31, 2006 and for the six months ended June 30, 2007 reflect adjustments as if the acquisition had taken place on January 1, 2006. The pro forma adjustments described in the accompanying notes are based on various assumptions that PC Mall’s management believes are reasonable in the circumstances, and the unaudited pro forma combined financial statements have been prepared based on preliminary estimates of fair values which are subject to change. Therefore, the actual amounts recorded as of the completion of the allocation of the purchase price may differ materially from the information presented in these unaudited pro forma combined financial statements. The unaudited pro forma combined financial information is presented for informational purposes only. The pro forma data is not necessarily indicative of what PC Mall’s financial position or results of operations actually would have been had PC Mall completed the acquisition as of the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined company.
The unaudited pro forma combined financial statements, including the notes thereto, should be read in conjunction with the audited consolidated financial statements of PC Mall included in its Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 12, 2007, as amended on April 30, 2007, its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007 filed with the SEC on May 15, 2007, August 14, 2007 and November 14, 2007, and its Current Reports on Form 8-K filed with the SEC from the end of our prior fiscal year through the date of this report.
1
PC MALL, INC.
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 2007
(Dollars in Thousands)
|
| Historical |
| Historical |
| Pro Forma |
| Pro Forma |
|
|
| PC Mall |
| SARCOM |
| Adjustments |
| PC Mall |
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $4,812 |
| $227 |
|
|
| $5,039 |
|
Accounts receivable, net |
| 119,613 |
| 40,359 |
|
|
| 159,972 |
|
Inventories, net |
| 50,601 |
| 3,818 |
|
|
| 54,419 |
|
Prepaid expenses and other current assets |
| 11,238 |
| 852 |
|
|
| 12,090 |
|
Deferred income taxes |
| 4,577 |
|
|
|
|
| 4,577 |
|
Total current assets |
| 190,841 |
| 45,256 |
|
|
| 236,097 |
|
Property and equipment, net |
| 7,193 |
| 2,545 |
|
|
| 9,738 |
|
Deferred income taxes |
| 3,013 |
|
|
|
|
| 3,013 |
|
Goodwill |
| 3,914 |
|
|
| $24,514 | (a) | 28,428 |
|
Intangible assets, net |
| 669 |
|
|
| 5,000 | (b) | 5,669 |
|
Other assets |
| 729 |
| 418 |
|
|
| 1,147 |
|
Total assets |
| $206,359 |
| $48,219 |
| $29,514 |
| $284,092 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Stock and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
| $93,516 |
| $16,396 |
|
|
| $109,912 |
|
Accrued expenses and other current liabilities |
| 22,351 |
| 5,271 |
|
|
| 27,622 |
|
Deferred revenue |
| 10,565 |
| 1,506 |
|
|
| 12,071 |
|
Line of credit |
| 8,329 |
|
|
| $46,995 | (c) | 55,324 |
|
Note payable – current |
| 600 |
|
|
| 175 | (c) | 775 |
|
Total current liabilities |
| 135,361 |
| 23,173 |
| 47,170 |
| 205,704 |
|
Note payable |
| 3,600 |
| 30,046 |
| (28,996) | (c) | 4,650 |
|
Other long term liabilities |
|
|
| 152 |
|
|
| 152 |
|
Total liabilities |
| 138,961 |
| 53,371 |
| 18,174 |
| 210,506 |
|
Redeemable common stock |
|
|
|
|
| 6,051 | (d) | 6,051 |
|
Mandatorily redeemable preferred stock |
|
|
| 57,703 |
| (57,703) | (e) | - |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock |
| 13 |
| 56 |
| (56) | (e) | 13 |
|
Additional paid-in capital |
| 88,429 |
| 57,537 |
| (57,400) | (f) | 88,566 |
|
Treasury stock, at cost |
| (1,015) |
|
|
|
|
| (1,015) |
|
Accumulated other comprehensive income |
| 984 |
|
|
|
|
| 984 |
|
Accumulated deficit |
| (21,013) |
| (120,448) |
| 120,448 | (g) | (21,013) |
|
Total stockholders’ equity |
| 67,398 |
| (62,855) |
| 62,992 |
| 67,535 |
|
Total liabilities, redeemable stock and stockholders’ equity |
| $206,359 |
| $48,219 |
| $29,514 |
| $284,092 |
|
The accompanying notes are an integral part of the unaudited pro forma combined financial statements. References in the table above are to the corresponding letter in Note 2: Pro Forma Adjustments.
2
PC MALL, INC.
Unaudited Pro Forma Combined Statement of Operations
For the Six Months Ended June 30, 2007
(In Thousands, Except Per Share Amounts)
|
| Historical |
| Historical |
| Pro Forma |
| Pro Forma |
|
|
| PC Mall |
| SARCOM |
| Adjustments |
| PC Mall |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $519,738 |
| $135,918 |
|
|
| $655,656 |
|
Cost of goods sold |
| 453,994 |
| 115,495 |
|
|
| 569,489 |
|
Gross profit |
| 65,744 |
| 20,423 |
|
|
| 86,167 |
|
Selling, general and administrative expenses |
| 55,902 |
| 17,116 |
| $ 625 | (h) | 73,643 |
|
Operating profit |
| 9,842 |
| 3,307 |
| (625) |
| 12,524 |
|
Interest expense, net |
| 1,730 |
| 1,631 |
| 298 | (i) | 3,659 |
|
Income before income taxes |
| 8,112 |
| 1,676 |
| (923) |
| 8,865 |
|
Income tax expense |
| 3,245 |
| - |
| 301 | (j) | 3,546 |
|
Yield on mandatorily redeemable stock |
| - |
| (2,244) |
| 2,244 | (k) | - |
|
Net income (loss) |
| $4,867 |
| $(568) |
| $1,020 |
| $5,319 |
|
Basic and Diluted Income Per Common Share |
|
|
|
|
|
|
|
|
|
Basic |
| $0.39 |
|
|
|
|
| $0.41 |
|
Diluted |
| 0.36 |
|
|
|
|
| 0.38 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
| 12,407 |
|
|
| 512 |
| 12,919 |
|
Diluted |
| 13,543 |
|
|
| 512 |
| 14,055 |
|
The accompanying notes are an integral part of the unaudited pro forma combined financial statements. References in the table above are to the corresponding letter in Note 2: Pro Forma Adjustments.
3
PC MALL, INC.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 2006
(In Thousands, Except Per Share Amounts)
|
| Historical |
| Historical |
| Pro Forma |
| Pro Forma |
|
|
| PC Mall |
| SARCOM |
| Adjustments |
| PC Mall |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $1,005,820 |
| $236,876 |
|
|
| $1,242,696 |
|
Cost of goods sold |
| 881,902 |
| 200,876 |
|
|
| 1,082,778 |
|
Gross profit |
| 123,918 |
| 36,000 |
|
|
| 159,918 |
|
Selling, general and administrative expenses |
| 113,500 |
| 30,918 |
| $1,250 | (h) | 145,668 |
|
Operating profit |
| 10,418 |
| 5,082 |
| (1,250) |
| 14,250 |
|
Interest expense, net |
| 3,940 |
| 3,382 |
| 476 | (i) | 7,798 |
|
Income before income taxes |
| 6,478 |
| 1,700 |
| (1,726) |
| 6,452 |
|
Income tax expense |
| 2,522 |
| - |
| (10) | (j) | 2,512 |
|
Yield on mandatorily redeemable stock |
| - |
| (4,263) |
| 4,263 | (k) | - |
|
Net income (loss) |
| $3,956 |
| $(2,563) |
| $2,547 |
| $3,940 |
|
Basic and Diluted Income Per Common Share |
|
|
|
|
|
|
|
|
|
Basic |
| $0.33 |
|
|
|
|
| $0.31 |
|
Diluted |
| 0.31 |
|
|
|
|
| 0.29 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
| 12,052 |
|
|
| 512 |
| 12,564 |
|
Diluted |
| 12,908 |
|
|
| 512 |
| 13,420 |
|
The accompanying notes are an integral part of the unaudited pro forma combined financial statements. References in the table above are to the corresponding letter in Note 2: Pro Forma Adjustments.
4
PC MALL, INC.
Notes to Unaudited Pro Forma Combined Financial Statements
1. Basis of Presentation and Acquisition of SARCOM
On September 17, 2007, we completed the acquisition of SARCOM, a provider of advanced technology solutions, pursuant to the terms of an Agreement and Plan of Merger, dated as of August 17, 2007 for an initial total purchase price of approximately $55.7 million, including transaction costs. The total purchase price was subject to a post-closing debt and net asset value adjustment (see below for a discussion of the final net asset value adjustment on November 6, 2007). The aggregate purchase price paid at closing included a total of $48.2 million in cash and approximately $7.5 million in shares of our common stock, the number of shares being based on the average closing price of our stock on the Nasdaq Global Market for the 20 consecutive trading days immediately preceding the acquisition closing date. Under that formula, at closing, we issued an aggregate of 633,981 shares of our common stock to the sellers as payment of the stock component of the purchase price. We financed the cash component of the purchase price through borrowings under our existing credit facility.
On November 6, 2007, we and the sellers agreed on a final net asset value adjustment, resulting in a decrease in the purchase price by approximately $2.1 million, which was to be repaid, at the sellers’ option, in either cash or shares of our common stock based on a per share price determined by the average closing price for the 20 consecutive trading days ending on the date of final determination of the net asset value adjustment. As a result, in settlement of the $2.1 million net asset value adjustment, the sellers tendered back to us a total of 122,478 shares of our common stock previously issued to them. For purposes of the pro forma combined financial statements presented herein, we have recorded the net asset value settlement as a reduction of the purchase price as of June 30, 2007.
In determining the purchase price for accounting purposes, we measured the fair value of the shares issued in accordance with EITF No. 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.” We used an average closing price of our common stock over the four days prior to the close of the SARCOM acquisition, resulting in a total fair value of approximately $6.2 million for the 511,503 shares of common stock ultimately issued and an adjusted total purchase price of $54.4 million.
Pursuant to a registration rights agreement entered into with each of the recipients of the shares of our common stock issued in the SARCOM acquisition, if we were unable to file, within 30 days following the close of the SARCOM transaction, a registration statement with the SEC covering the sale of the shares held by each of such recipients, the recipients of such shares would then have the right to require us to repurchase all, or any portion, of the shares held by the recipients at the same formula price at which the original number of shares was determined. As such, we have treated the shares issued as redeemable common stock and classified the redemption amount of $6.1 million outside of the stockholders’ equity section on our Unaudited Pro Form Combined Balance Sheet as of June 30, 2007. In addition, the excess of accounting value over the redemption amount of the shares of approximately $136,000 was included in additional paid-in capital.
The unaudited pro forma combined balance sheet as of June 30, 2007 reflects adjustments as if the acquisition had occurred on June 30, 2007, and reflects the preliminary allocation of the purchase price to the SARCOM assets acquired and liabilities assumed based upon their respective estimated fair values. The unaudited pro forma combined statements of operations for the year ended December 31, 2006 and for the six months ended June 30, 2007 reflect adjustments as if the acquisition had taken place on January 1, 2006. The pro forma adjustments described in the accompanying notes are based on various assumptions and estimates that PC Mall’s management believes are reasonable under the circumstances. The unaudited combined financial statements do not purport to present the financial position or results of operations of PC Mall had the transaction and events assumed therein occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. The unaudited pro forma combined financial statements, including the notes thereto, should be read in conjunction with the audited consolidated financial statements of PC Mall included in its Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 12, 2007, as amended on April 30, 2007, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, June 30, 2007 and September 30, 2007 filed with the SEC on May 15, 2007, August 14, 2007 and November 14, 2007, respectively, and our Current Reports on Form 8-K filed with the SEC from the end of our prior fiscal year through the date of this report.
5
2. Pro Forma Adjustments
The following adjustments give pro forma effect to the SARCOM transaction described above:
a. Adjustment to record goodwill related to excess of fair value of assets acquired and liabilities assumed resulting from a preliminary purchase price allocation as follows (in thousands):
Total purchase price, adjusted |
| $ | 54,408 |
|
|
|
|
| |
Cash |
| $ | 227 |
|
Accounts receivable |
| 36,874 |
| |
Inventory |
| 3,818 |
| |
Other accounts receivable |
| 3,485 |
| |
Property and equipment, net |
| 2,545 |
| |
Other assets |
| 1,270 |
| |
Intangible assets: |
|
|
| |
Customer relationships |
| $ | 4,310 |
|
Trade names |
| 400 |
| |
Software licenses |
| 250 |
| |
Non-compete agreements |
| 40 |
| |
Total intangible assets |
| 5,000 |
| |
Total assets acquired |
| $ | 53,219 |
|
|
|
|
| |
Accounts payable |
| $ | (16,396 | ) |
Accrued expenses and other liabilities |
| (5,423 | ) | |
Deferred revenue |
| (1,506 | ) | |
Total liabilities assumed |
| $ | (23,325 | ) |
|
|
|
| |
Total allocated to goodwill |
| $ | 24,514 |
|
b. Adjustment to record total fair value of $5.0 million relating to acquired intangible assets based on a preliminary purchase price allocation. See note a. above for detail.
c. Represents an adjustment to record $48.2 million of PC Mall’s debt to finance the SARCOM acquisition under PC Mall’s existing facility and term note, and the pay-off of SARCOM’s historical outstanding debt of $30.0 million at close of the transaction.
d. Represents the redemption value of the 511,503 net shares of PC Mall common stock issued in the SARCOM transaction. The redemption value of these 511,503 net shares has been classified as redeemable common stock and classified outside of the stockholders’ equity section of our consolidated balance sheet due to a put right held by the holders of such shares pursuant to a registration rights agreement entered into by us and the shareholders at close of the transaction. The holders of such shares had the right to require us to repurchase all, or any portion, of the shares held by them if we were unable to file a registration statement with the SEC within 30 days of the close of the SARCOM transaction.
e. Adjustment to record the cash pay-out to the preferred shareholders to settle SARCOM’s mandatorily redeemable preferred stock and to settle the outstanding common stock of SARCOM at close of the transaction.
f. Includes $137,000 which represents the excess of accounting value over the redemption amount of the 511,503 net shares issued in the SARCOM transaction in accordance with EITF 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination,” recorded as additional paid-in capital, and the elimination of SARCOM’s historical addition paid-in capital of $57.5 million.
g. Adjustment to SARCOM’s historical stockholders’ equity to eliminate $120.4 million of SARCOM’s accumulated deficit.
h. Adjustment to record amortization expense related to the $5.0 million of intangibles acquired in the SARCOM transaction, which was based on a preliminary allocation of the purchase price, using an estimated useful life of four years.
i. Adjustment to eliminate SARCOM’s historical interest expense of $1.6 million and $3.4 million for the six months ended June 30, 2007 and year ended December 31, 2006, respectively, and to record interest expense of $1.9 million and
6
$3.9 million for the six months ended June 30, 2007 and for the year ended December 31, 2006 on PC Mall’s debt which financed the acquisition of SARCOM at PC Mall’s effective annual interest rate of 8.0% at the close of the acquisition.
j. Adjustment to record income tax expense on the pro forma adjustments at PC Mall’s applicable effective income tax rate for each of the periods.
k. Adjustment to record elimination of yield on mandatorily redeemable preferred stock which was cancelled at close of the SARCOM transaction.
***
7