EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS On June 19, 2003, the Company announced that it had signed a definitive agreement to acquire IDS, a privately held company based in Foster City, CA. The acquisition subsequently completed on September 24, 2003. IDS developed and licensed yield management software applications and services dedicated to the semiconductor industry to enable customers to track and identify areas for yield improvement. The acquisition of IDS will provide the Company's customers with greater capabilities for managing product yield improvement through the use of the acquired technology and services. Under the amended terms of the agreement, PDF acquired all outstanding shares of IDS in consideration for $23.0 million in cash, issuance of 2,000,000 shares of the Company's common stock valued at $25.0 million, the assumption of all outstanding stock options valued at $1.7 million and transaction costs of $1.3 million, resulting in an aggregate purchase price of $51.0 million. The fair value of the Company's common stock was determined based on the average closing price per share of the Company's common stock over a 5-day period beginning two trading days before and ending two trading days after the amended terms of the acquisition were agreed to and announced (September 3, 2003). The fair value of the options assumed were calculated as of September 24, 2003 based on the Black-Scholes options pricing model. The acquisition was accounted for using the purchase method of accounting and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the excess purchase price allocated to goodwill. The following unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the financial position or results of operations that actually would have been realized had PDF and IDS been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical condensed consolidated financial statements and related notes of PDF, included in its Form 10-K and Form 10-Q, most recently filed with the Securities and Exchange Commission on March 26, 2003 and August 14, 2003, respectively, and the historical consolidated financial statements and related notes of IDS, included elsewhere in this Form 8-K/A. The following unaudited pro forma condensed combined financial statements give effect to the merger between PDF and IDS using the purchase method of accounting. The unaudited pro forma condensed combined financial statements are based on the respective historical financial statements of PDF and IDS. The pro forma adjustments are based on management's estimates and independent valuation of the value of the tangible and intangible assets acquired. The unaudited pro forma condensed combined balance sheet assumes the merger took place on June 30, 2003 and the unaudited pro forma condensed combined statements of operations assumes the acquisition took place at the beginning of the periods presented. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2002, combines PDF's statement of operations for the year ended December 31, 2002 with the statement of operations of IDS for its fiscal year ended September 30, 2002. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2003, combines PDF's statement of operations for the six months ended June 30, 2003 with the statement of operations of IDS for the six months ended March 31, 2003. As a result of the difference in fiscal year ends of PDF and IDS, the operating results of IDS for the three months ended June 30, 2003, have not been included within the pro forma statements of operations presented below. Accordingly, the following table is being provided to present the operating results for the three months ended June 30, 2003, of IDS: (IN THOUSANDS) Revenues $ 1,608 Costs and expenses 3,034 Net loss (1,426) UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 2003 (IN THOUSANDS) JUNE 30, 2003 ---------------------- HISTORICAL PRO FORMA ---------------------- -------------------------- PDF IDS ADJUSTMENTS COMBINED --------- --------- ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 67,073 $ 34 $ (22,962) (1) $ 44,145 Accounts receivable, net of allowances 6,584 917 - 7,501 Prepaid expenses and other current assets 5,006 122 - 5,128 --------- --------- --------- --------- Total current assets 78,663 1,073 (22,962) 56,774 Property and equipment, net 3,453 301 - 3,754 Goodwill 662 - 38,894 (1) 39,556 Intangible assets, net 4,195 - 21,260 (1) 25,455 Other assets 1,815 197 (112) (4) 1,900 --------- --------- --------- --------- Total assets $ 88,788 $ 1,571 $ 37,080 $ 127,439 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 1,370 $ 402 $ - $ 1,772 Accrued compensation and related benefits 1,910 722 - 2,632 Other accrued liabilities 1,364 81 451 (4) 1,896 Other liabilities 1,500 - 1,288 (5) 2,788 Taxes payable 686 (238) - 448 Deferred revenues 2,163 4,305 (3,029) (4) 3,439 Billings in excess of recognized revenue 274 - - 274 Current portion of long-term debt 17 - - 17 --------- --------- --------- --------- Total current liabilities 9,284 5,272 (1,290) 13,266 Deferred tax liabilities 753 - 8,708 (3) 9,461 Other long-term liabilities 55 - - 55 --------- --------- --------- --------- Total liabilities 10,092 5,272 7,418 22,782 --------- --------- --------- --------- Common stock 3 16 (15) (1) 3 Additional paid-in-capital 100,641 6,212 21,468 (1) 128,322 Deferred stock-based compensation (545) (425) (495) (1) (1,465) Notes receivable from stockholders (4,614) (3,051) 3,051 (1) (4,614) Accumulated deficit (16,855) (6,453) 5,653 (1) (17,655) Cumulative other comprehensive income 66 - - 66 --------- --------- --------- --------- Total stockholders' equity 78,696 (3,701) 29,662 104,657 --------- --------- --------- --------- Total liabilities and stockholders' equity $ 88,788 $ 1,571 $ 37,080 $ 127,439 ========= ========= ========= ========= See notes to unaudited pro forma condensed combined financial statements. PDF SOLUTIONS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SIX MONTHS SIX MONTHS ENDED JUNE 30, ENDED MARCH 31, 2003 2003 -------------- --------------- ------------------------ HISTORICAL PRO FORMA ------------------------------- ------------------------ PDF IDS ADJUSTMENTS COMBINED -------------- --------------- ----------- -------- Revenues $ 19,157 $ 2,976 $ - $ 22,133 Costs and expenses: Cost of revenues Direct costs of revenues 6,958 239 - 7,197 Amortization of acquired core technology 165 - 2,100 (2) 2,265 Research and development 8,785 1,862 - 10,647 Selling, general and administrative 5,532 1,093 - 6,625 Stock-based compensation amortization 978 - 469 (6) 1,447 Amortization of other acquired intangible assets - - 820 (2) 820 -------- -------- -------- -------- Total costs and expenses 22,418 3,194 3,389 29,001 -------- -------- -------- -------- Loss from operations (3,261) (218) (3,389) (6,868) Interest and other income, net 720 (14) (172) (7) 534 -------- -------- -------- -------- Loss before taxes (2,541) (232) (3,561) (6,334) Tax benefit (531) (62) (1,168) (3) (1,761) -------- -------- -------- -------- Net Loss $ (2,010) $ (170) $ (2,393) $ (4,573) ======== ======== ======== ======== Net loss per share: Basic and diluted $ (0.09) $ (0.19) ======== ======== Weighted average common shares: Basic and diluted 22,551 2,000 24,551 ======== ======== ======== See notes to unaudited pro forma condensed combined financial statements. PDF SOLUTIONS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED YEAR ENDED DECEMBER 31, 2002 SEPTEMBER 30, 2002 ----------------- ------------------ ------------------------- HISTORICAL PRO FORMA ----------------- ------------------ ------------------------- PDF IDS ADJUSTMENTS COMBINED ----------------- ------------------ ----------- -------- Revenues $ 43,724 $ 8,687 $ - $ 52,411 Costs and expenses: Cost of revenues Direct costs of revenues 14,986 336 - 15,322 Research and development 15,247 2,913 - 18,160 Amortization of acquired core technology 164 - 4,200 (2) 4,364 Selling, general and administrative 10,188 1,526 - 11,714 Stock-based compensation amortization 2,711 - 686 (6) 3,397 Amortization of other acquired intangible assets - - 1,640 (2) 1,640 -------- -------- -------- -------- Total costs and expenses 43,296 4,775 6,526 54,597 -------- -------- -------- -------- Income (loss) from operations 428 3,912 (6,526) (2,186) Interest and other income, net 1,549 (203) (344) (7) 1,002 -------- -------- -------- -------- Income (loss) before taxes 1,977 3,709 (6,870) (1,184) Tax provision (benefit) 1,453 250 (2,336) (3) (633) -------- -------- -------- -------- Net income (loss) $ 524 $ 3,459 $ (4,534) $ (551) ======== ======== ======== ======== Net income (loss) per share: Basic $ 0.02 $ (0.02) ======== ======== Diluted $ 0.02 $ (0.02) ======== ======== Weighted average common shares: Basic 21,962 2,000 23,962 ======== ======== ======== Diluted 23,199 763 23,962 ======== ======== ======== See notes to unaudited pro forma condensed combined financial statements. NOTE 1. BASIS OF PRESENTATION The unaudited pro forma condensed combined financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. However the Company believes that the disclosures are adequate to make the information not misleading. NOTE 2. PURCHASE PRICE ALLOCATION In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, the merger is accounted for as a purchase of IDS by PDF. The purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed as determined through an independent valuation. The following table summarizes the components of the total purchase price and the allocation (in thousands): AMORTIZATION ALLOCATION OF PURCHASE PRICE: LIFE (YRS). AMOUNT ----------------------------- ------------ -------- Fair value of tangible assets acquired $ 1,459 Brand name 4 2,000 Contract backlog 1 700 Backlog renewals 4 900 Customer relationships 4 800 Non-compete covenant 4 60 Core technology 4 16,800 In-process research and development* N/A 800 Goodwill N/A 38,894 Deferred tax liabilities (8,708) Liabilities assumed (2,693) -------- NET PURCHASE PRICE $ 51,012 ======== * In-process research and development of $800,000 was expensed in the period in which the acquisition was consummated. Accordingly the in-process research and development is reflected in the pro forma condensed combined balance sheet as an addition to accumulated deficit. The pro forma condensed combined statements of operations do not include the in-process research and development of $800,000 as it is considered a non-recurring charge. NOTE 3. PRO FORMA ADJUSTMENTS The following adjustments have been reflected in the unaudited pro forma condensed combined financial statements: (1) To record cash paid, common stock issued, and applicable purchase accounting entries including intangible assets. Common stock issued and stock options assumed in connection with the acquisition is based on the number of shares issued in the actual transaction which closed on September 24, 2003. (2) Adjustment to record the amortization of identifiable intangible assets resulting from the allocation of the IDS purchase price. The pro forma adjustment assumes that the identifiable intangibles will be amortized on a straight-line basis over the following estimated lives (remaining intangibles including goodwill will be tested for impairment): Brand name 4 years Contract backlog 1 year Backlog renewals 4 years Customer relationships 4 years Non-compete covenant 4 years Core technology 4 years (3) To record deferred tax liabilities resulting from the basis difference in acquired intangible assets and the related income tax effects. (4) To adjust acquired assets and assumed liabilities to fair value. (5) To record estimated transaction costs associated with the acquisition. (6) Adjustment to record the estimated amortization of deferred stock-based compensation associated with stock options assumed in connection with the acquisition. The amortization of deferred stock-based compensation is based on the accelerated vesting method as prescribed under Financial Accounting Standards Board Interpretation No. 28. (7) Adjustment to record reduction in estimated interest income earned on cash and cash equivalents as result of paying cash proceeds of $23.0 million in connection with the acquisition.