UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

PCTEL, Inc.

Delaware		77-0364943
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
471 Brighton Drive,		60108
Bloomingdale, IL		(Zip Code)
(Address of Principal Executive Office)

(630) 372-6800
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and on its Web site, if any, every Interactive Date File to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Title		Outstanding
Common Stock, par value $.001 per share		18,841,395 as of May 1, 2009

 

 

PCTEL, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2009

TABLE OF CONTENTS

		Page
PART I
Item 1 Financial Statements			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Cash Flows			5
Notes to the Condensed Consolidated Financial Statements			6
Item 2 Management’s Discussion and Analysis of Financial Condition And Results of Operations			25
Item 3 Quantitative and Qualitative Disclosures about Market Risk			32
Item 4 Controls and Procedures			32
PART II
Item 1 Legal Proceedings			32
Item 1A Risk Factors			32
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 6 Exhibits			33
Signature			33
EX-31.1
EX-31.2
EX-32

PART I

Item 1 Financial Statements

PCTEL Inc.

		March 31,				December 31,
		2009				2008
ASSETS
Cash and cash equivalents		$	35,891			$	44,766
Short-term investment securities			27,010				17,835
Accounts receivable, net of allowance for doubtful accounts of $138 and $121 at March 31, 2009 and December 31, 2008, respectively			9,966				14,047
Inventories, net			10,614				10,351
Deferred tax assets, net			1,148				1,148
Prepaid expenses and other assets			2,955				2,575
Total current assets			87,584				90,722
Property and equipment, net			12,476				12,825
Long-term investment securities			14,319				15,258
Goodwill			—				384
Other intangible assets, net			5,472				5,240
Deferred tax assets, net			10,151				10,151
Other noncurrent assets			929				926
TOTAL ASSETS		$	130,931			$	135,506
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	1,141			$	2,478
Accrued liabilities			4,428				6,198
Total current liabilities			5,569				8,676
Long-term liabilities			1,482				1,512
Total liabilities			7,051				10,188
Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 18,837,866 and 18,236,236 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively			19				18
Additional paid-in capital			137,958				137,930
Accumulated deficit			(14,153	)			(12,639	)
Accumulated other comprehensive income			56				9
Total stockholders’ equity			123,880				125,318
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	130,931			$	135,506

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

PCTEL, Inc.

		Three Months Ended
		March 31,
		2009				2008
CONTINUING OPERATIONS
REVENUES		$	14,139			$	18,300
COST OF REVENUES			7,468				9,534
GROSS PROFIT			6,671				8,766
OPERATING EXPENSES:
Research and development			2,688				2,186
Sales and marketing			2,083				2,763
General and administrative			2,533				2,772
Amortization of other intangible assets			553				440
Restructuring charges			154				377
Impairment of goodwill			1,262				—
Gain on sale of assets and related royalties			(200	)			(200	)
Total operating expenses			9,073				8,338
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS			(2,402	)			428
Other Income, net			165				784
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS			(2,237	)			1,212
Provision (benefit) for income taxes			(723	)			737
NET INCOME (LOSS) FROM CONTINUING OPERATIONS			(1,514	)			475
DISCONTINUED OPERATIONS
NET INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX PROVISION			—				36,693
NET INCOME (LOSS)		$	(1,514	)		$	37,168
Basic Earnings per Share:
Income (Loss) from Continuing Operations		$	(0.09	)		$	0.02
Income from Discontinued Operations		$	0.00			$	1.80
Net Income (Loss)		$	(0.09	)		$	1.82
Diluted Earnings per Share:
Income (Loss) from Continuing Operations		$	(0.09	)		$	0.02
Income from Discontinued Operations		$	0.00			$	1.80
Net Income (Loss)		$	(0.09	)		$	1.82
Weighted average shares — Basic			17,545				20,426
Weighted average shares — Diluted			17,545				20,426

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

PCTEL, Inc.

		Three Months Ended
		March 31,
		2009				2008
Operating Activities:
Net income (loss)			($1,514	)		$	37,168
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Income from discontinued operations			—				(36,693	)
Depreciation and amortization			1,102				887
Impairment charge			1,262				—
Amortization of stock based compensation			818				1,148
(Gain) loss from investments			(55	)			475
Gain on sale of assets and related royalties			(200	)			(200	)
(Gain) loss on disposal/sale of property and equipment			12				(2	)
Restructuring costs			(36	)			(855	)
Payment of withholding tax on stock based compensation			(734	)			(697	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			4,400				3,341
Inventories			30				308
Prepaid expenses and other assets			(294	)			21
Accounts payable			(1,476	)			526
Income taxes payable			(233	)			(507	)
Other accrued liabilities			(1,710	)			(2,953	)
Deferred revenue			(23	)			4
Net cash provided by operating activities			1,349				1,971
Investing Activities:
Capital expenditures			(148	)			(429	)
Proceeds from disposal of property and equipment			—				5
Purchase of investments			(10,634	)			—
Redemptions of short-term investments			2,454				13,105
Proceeds on sale of assets and related royalties			200				200
Purchase of assets/businesses, net of cash acquired			(2,260	)			(3,900	)
Net cash (used in) provided by investing activities			(10,388	)			8,981
Financing Activities:
Proceeds from issuance of common stock			201				423
Payments for repurchase of common stock			(85	)			(7,592	)
Tax benefit from stock option exercises			—				1,238
Net cash provided by (used in) financing activities			116				(5,931	)
Cash flows from discontinued operations:
Net cash used in operating activities			—				(145	)
Net cash provided by investing activities			—				61,488
Net cash provided by financing activities			—				—
Net increase (decrease) in cash and cash equivalents			(8,923	)			66,364
Effect of exchange rate changes on cash			48				51
Cash and cash equivalents, beginning of year			44,766				26,632
Cash and Cash Equivalents, End of Period		$	35,891			$	93,047

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

PCTEL, Inc.

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the company’s annual report on Form 10-K for the year ended December 31, 2008.

Nature of Operations

PCTEL focuses on wireless broadband technology related to propagation and optimization. The company designs and develops innovative antennas that extend the reach of broadband and other wireless networks and that simplify the implementation of those networks. The company provides highly specialized software-defined radios that facilitate the design and optimization of broadband wireless networks. The company supplies its products to public and private carriers, wireless infrastructure providers, wireless equipment distributors, value added resellers (“VARs”) and other original equipment manufacturers (“OEMs”).

On January 5, 2009, the company acquired all of the outstanding share capital of Wi-Sys Communications Inc. (“Wi-Sys”). Wi-Sys is based in Ottawa, Canada and manufactures products for GPS, terrestrial and satellite communication systems, including programmable GPS receivers and high performance antennas. The company intends on completing its integration of Wi-Sys into its antenna product operations during 2009. The integration will include a restructuring of the Wi-Sys operations during the second quarter 2009. The manufacturing and engineering functions will be moved to the company’s Bloomingdale location in the second quarter 2009. Also in the second quarter 2009, the company will incur restructuring related expenses for employee severance, lease termination, and other shut down costs.

On March 14, 2008, the company acquired the assets of Bluewave Antenna Systems, Ltd (“Bluewave”). The Bluewave product line augments the company’s Land Mobile Radio (“LMR”) antenna product line.

On October 9, 2008, the company sold four of its antenna product families to Sigma Wireless Technology Ltd, a Scotland based company (“SWTS”). The four antenna product families represent the remaining antenna products from the company’s acquisition of Sigma Wireless Technologies Limited (“Sigma”) in 2005. Sigma and SWTS are not related.

The company also has a reporting unit that licenses an intellectual property portfolio in the area of analog modem technology. By the end of the second quarter 2009, the revenues and cash flows associated with this reporting unit will be substantially complete. Based on the financial information for 2009 and for comparable periods, this reporting unit does not meet the quantitative threshold requirements of a reportable segment in accordance with Statement of Financial Accounting Standard (“FAS”) No. 131, “Disclosure about Segments of an Enterprise and Related Information” (“FAS 131”). As such, the results for licensing are aggregated with the rest of the company.

On December 10, 2007, the company entered into an Asset Purchase Agreement with Smith Micro Software, Inc. (“Smith Micro”), to sell substantially all the assets of its Mobility Solutions Group (“MSG”). On January 4, 2008, the company completed the sale of MSG. As required by GAAP, the consolidated financial statements separately reflect the MSG operations as discontinued operations for all periods presented.

Basis of Consolidation and Foreign Currency Translation

The condensed consolidated balance sheet as of March 31, 2009 and the condensed consolidated statements of operations and cash flows for the three months ended March 31, 2009 and 2008 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 results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year.

The condensed consolidated financial statements include the accounts of the company and its subsidiaries. All intercompany accounts and transactions have been eliminated. 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 accounting principles generally accepted in the United States of America have been condensed or omitted. The significant accounting policies followed by the company are set forth within the company’s Annual Report on Form 10-K for the year ended December 31, 2008. There were no changes in the company’s significant accounting policies during the three months ended March 31, 2009. In addition, the company reaffirms the use of estimates in the preparation of the financial statements as set forth in the 2008 Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements and notes thereto included in the 2008 Form 10-K.

The company is exposed to foreign currency fluctuations due to our foreign operations and international sales. The functional currency for the company’s foreign operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using the 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 income, a separate component of shareholders’ equity. Gains and losses resulting from other transactions originally in foreign currencies and then translated into U.S. dollars are included in net income (loss). Net foreign exchange gains (losses) resulting from foreign currency transactions included in other income, net were ($30) and $166 for the three months ended March 31, 2009 and March 31, 2008, respectively.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. This FSP provides additional guidance for estimating fair value in accordance with FAS No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The adoption of this FSP did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued FSP No. 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (“FAS 107”), to require an entity to provide disclosures about fair value of financial instruments in interim financial information. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. Under this FSP, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, an entity shall disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by FAS 107. The adoption of this FSP did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 do not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009; however, early adoption is only permitted in conjunction with the early adoptions of FSP FAS 157-4 and FSP FAS 107-1 and APB 28-1. The company does not expect the adoption of this FSP to have a material impact on the consolidated financial statements.

In April 2009, the FASB issued FSP on FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This statement amends and clarifies FASB Statement No. 141 (revised 2007), “Business Combinations” to address the application issues raised by preparers, auditors and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The adoption of FSP on FAS 141R-1 did not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued Statement 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), to change how an entity accounts for the acquisition of a business. FAS 141(R) replaces existing FAS 141 in its entirety for business combinations. FAS 141(R) carries forward the existing requirements to account for all business combinations using the acquisition method (formerly called the purchase method). In general, FAS 141(R) requires acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed, and

noncontrolling interests in the acquiree. FAS 141(R) eliminates the current cost-based purchase method under FAS 141. The new measurement requirements result in the recognition of the full amount of acquisition-date goodwill, which includes amounts attributable to noncontrolling interests. The acquirer recognizes in income any gain or loss on the remeasurement to acquisition-date fair value of consideration transferred or of previously acquired equity interests in the acquiree. Neither the direct costs incurred to effect a business combination nor the costs the acquirer expects to incur under a plan to restructure an acquired business may be included as part of the business combination accounting. As a result, those costs are charged to expense when incurred, except for debt or equity issuance costs, which are accounted for in accordance with other generally accepted accounting principles. FAS 141(R) also changes the accounting for contingent consideration, in process research and development, and restructuring costs. In addition, after FAS 141(R) is adopted, changes in uncertain tax positions or valuation allowances for deferred tax assets acquired in a business combination are recognized as adjustments to income tax expense or contributed capital, as appropriate, even if the deferred tax asset or tax position was initially acquired prior to the effective date of FAS 141(R). The company adopted FAS 141(R) as of the required effective date of January 1, 2009 and applies its provisions prospectively to business combinations that occur after adoption. The adoption of FAS141(R) did not have a material impact on the consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. FAS 142-3”). FSP No. FAS 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension. FSP No. FAS 142-3 will be effective for fiscal years beginning after December 15, 2008. The company adopted FSP No. FAS 142-3 in the first quarter 2009. The adoption of SFAS FSP No. FAS 142-3 did not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”), an amendment of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. FAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. This pronouncement is effective for fiscal years beginning after December 15, 2008. The company adopted FAS 160 in the first quarter 2009. The adoption of FAS 160 did not have a material impact on the consolidated financial statements.

2. Cash and Cash Equivalents and Investments

Cash and Cash equivalents

At March 31, 2009, cash and cash equivalents included bank balances and investments with original maturities less than 90 days. At March 31, 2009 and December 31, 2008, the company’s cash equivalents were invested in highly liquid AAA 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 money market funds to those invested 100% in either short term U.S. Government Agency securities, or bank repurchase agreements collateralized by the 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). Approximately $24.5 million and $38.9 million of the company’s cash and cash equivalents were insured through the Treasury Guarantee Program at March 31, 2009 and at December 31, 2008, respectively.

The company had $2.4 million and $1.8 million of cash equivalents in foreign bank accounts at March 31, 2009 and December 31, 2008, respectively.

Investments

At March 31, 2009 and December 31, 2008, the company’s short-term and long-term investments consisted of shares in a Bank of America affiliated fund, the Columbia Strategic Cash Portfolio (“CSCP”) and pre-refunded municipal bonds.

CSCP

At March 31, 2009, the company’s shares of the CSCP had a recorded value of approximately $6.2 million. The CSCP is an enhanced cash money market fund that has been negatively impacted by the recent turmoil in the credit markets. This investment is classified as available for sale and is carried at fair value. In December 2007, the CSCP was closed to new subscriptions and redemptions, and changed its method of valuing shares from the amortized cost method to the market value of the underlying securities of the fund. The CSCP manager is in the process of liquidating the fund and returning cash to the shareholders. During the quarter ended March 31, 2009, the company received approximately $2.5 million in share liquidation payments and recorded in comprehensive income unrealized gains of $0.1 million in net asset value from the CSCP marking the underlying assets of the fund to market. Starting in December 2007 and through March 31, 2009, the company has recorded cumulative losses on its CSCP investment of $2.9 million. At March 31, 2009, approximately $1.6 million of these losses had been realized through share liquidation payments and approximately $1.3 million remained unrealized. Future impairment charges may result until the fund is fully liquidated, depending on market conditions.

The CSCP fund manager provides a report of the CSCP fund share net asset value to shareholders on a daily basis, a report of the CSCP underlying securities holdings on a monthly basis, and a report of the liquidation status on a monthly basis. The CSCP fund shares are not tradable. In order to determine the fund’s net asset value, the CSCP fund manager utilizes a combination of unadjusted quoted prices in active markets for identical assets (Level 1 inputs), unadjusted quoted prices for identical or similar assets in both active and inactive markets (Level 2 inputs), and unobservable inputs for distressed assets (Level 3 inputs). They do not disclose the amount of net asset value attributable to each level. The net asset value per fund share provided by the CSCP fund manager is used by management as the basis for its determination of fair value of the CSCP fund shares. The company classifies that input in its entirety at the lowest level of the inputs used by the CSCP fund manager (Level 3). The company’s pro-rata share of the underlying assets of the $6.2 million investment in the fund at March 31, 2009 is approximately $0.2 million of cash and accrued interest and $6.0 million of asset backed securities primarily in the areas of residential mortgages, credit card debt, and auto loans. At March 31, 2009, approximately 84% of the CSCP holdings were in cash, accrued interest and securities with an S&P rating of A or better. Sixteen percent of the fund’s holdings are comprised of securities with S&P ratings of lower than A or were not rated.

Based on the continued illiquidity of the commercial paper market, management believes that the most accurate estimate of the CSCP liquidation schedule is found in the weighted average lives of the CSCP fund’s underlying securities, adjusted for an allowance for the historical accuracy of the weighted average lives. Based on that methodology, the company classified approximately $3.6 million of the CSCP investment as short-term investment securities and approximately $2.6 million as long-term investment securities at March 31, 2009. The company expects the liquidation of the long-term investment portion could take years to complete.

Municipal Bonds

The company has invested $35.2 million in pre-refunded municipal bonds. The income and principal from these pre-refunded municipal bonds is secured by an irrevocable trust of U.S Treasury securities. The bonds classified as short-term investments have original maturities greater than 90 days and mature in less than one year. The company classified $11.7 million as long-term investment securities because the original maturities were greater than one year. Of this total, $6.8 million mature in 2010 and $4.9 million mature in 2011. The municipal bonds are classified as held to maturity and are carried at amortized cost. At March 31, 2009, approximately 26% of the company’s municipal bonds were protected by bond default insurance.

Cash equivalents and investments consist of the following:

		March 31,				December 31,
		2009				2008
Cash and cash equivalents		$	35,891			$	44,766
Municipal bonds:
Short-term			23,476				13,600
Long-term			11,689				10,930
Available for sale securities:
Short-term			3,534				4,235
Long-term			2,630				4,328
Total		$	77,220			$	77,859

The fair value measurements of the financial assets at March 31, 2009 were as follows:

		Quoted at Prices				Signficant Other
		in Active Markets				Unobservable
		for Identical Assets				Inputs
		(Level 1)				(Level 3)				Total
Cash and cash equivalents		$	35,891			$	—			$	35,891
Municipal bonds:
Short-term			23,593				—				23,593
Long-term			11,824				—				11,824
Available for sale securities:
Short-term			—				3,534				3,534
Long-term			—				2,630				2,630
Total		$	71,308			$	6,164			$	77,472

The activity related to the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) was as follows for the three months ended March 31, 2009:

		Short-term				Long-term				Total
		investment				investment				investment
		securities				securities				securities
Balance at December 31, 2008		$	4,235			$	4,328			$	8,563
Redemptions			(2,454	)			—				(2,454	)
Unrealized gain on investments			55				—				55
Reclassifications			1,698				(1,698	)			—
Balance at March 31, 2009		$	3,534			$	2,630			$	6,164

3. Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at invoiced amount and the standard terms are net 30 days. The company extends credit to its customers based on an evaluation of a company’s financial condition and collateral is generally not required. The company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on the company’s assessment of known delinquent accounts, historical experience, and other currently available evidence of the collectability and the aging of accounts receivable. The company’s allowance for doubtful accounts was $0.1 million at March 31, 2009 and December 31, 2008, respectively. The provision for doubtful accounts is included in sales and marketing expense in the condensed consolidated statements of operations.

Unbilled receivables were $0.2 million and $0.1 million at March 31, 2009 and December 31, 2008, respectively.

4. Inventories

Inventories are stated at the lower of cost or market and include material, labor and overhead costs using the FIFO method of costing. Inventories as of March 31, 2009 and December 31, 2008 were composed of raw materials, sub assemblies, finished goods and work-in-process. The company has consigned inventory of $0.7 million and $0.9 million at March 31, 2009 and December 31, 2008, respectively. The company maintains reserves to reduce the value of inventory to the lower of cost or market, including reserves for excess and obsolete inventory. As of March 31, 2009 and December 31, 2008, the allowance for inventory losses was $0.9 million and $1.0 million, respectively.

Inventories consisted of the following at March 31, 2009 and December 31, 2008:

		March 31,				December 31,
		2009				2008
Raw materials		$	7,761			$	7,650
Work in process			500				377
Finished goods			2,353				2,324
Inventories, net		$	10,614			$	10,351

5. 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 computers over three years, office equipment and manufacturing equipment 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. Gains and losses on the disposal of property and equipment are included in operating expenses in the condensed consolidated statements of operations. Maintenance and repairs are expensed as incurred.

Property and equipment consists of the following at March 31, 2009 and December 31, 2008:

		March 31,				December 31,
		2009				2008
Building		$	6,193			$	6,193
Land			1,770				1,770
Computers and office equipment			3,592				3,545
Manufacturing and test equipment			6,687				6,573
Furniture and fixtures			1,192				1,176
Leasehold improvements			120				120
Motor vehicles			27				27
Total property and equipment			19,581				19,404
Less: Accumulated depreciation and amortization			(7,105	)			(6,579	)
Property and equipment, net		$	12,476			$	12,825

6. Liabilities

Accrued liabilities consist of the following at March 31, 2009 and December 31, 2008:

		March 31,				December 31,
		2009				2008
Inventory receipts		$	1,438			$	2,667
Paid time off			799				741
Payroll, bonuses, and other employee benefits			553				1,252
Taxes and fees			387				605
Professional fees			268				230
Wi-Sys shareholders			219				—
Warranties			185				193
Employee stock purchase plan			86				193
Restructuring			29				65
Other			464				252
Total		$	4,428			$	6,198

Long-term liabilities consist of the following:

		March 31,				December 31,
		2009				2008
Executive deferred compensation plan		$	640			$	658
Income tax liabilities			642				642
Other long-term liabilities			200				212
		$	1,482			$	1,512

7. Discontinued Operations

Disposal of Mobility Solutions Group

On January 4, 2008, the company completed the sale of MSG to Smith Micro in accordance with an Asset Purchase Agreement entered into between the two companies and publicly announced on December 10, 2007. Under the terms of the Asset Purchase Agreement, Smith Micro purchased substantially all of the assets of the MSG for total consideration of $59.7 million in cash. In the transaction, the company retained the accounts receivable, non customer-related accrued expenses and accounts payable of the division. Substantially all of the employees of MSG continued as employees of Smith Micro in connection with the completion of the acquisition. The results of operations of MSG have been classified as discontinued operations for the three months ended March 31, 2008. The company recognized a gain on sale before tax of $60.3 million in the three months ended March 31, 2008. There was no activity related to discontinued operations during the three months ended March 31, 2009.

Summary results of operations for the discontinued operations included in the consolidated statement of operations for the three months ended March 31, 2008, were as follows:

		Three Months Ended
		March 31, 2008
Revenues		$	122
Operating costs and expenses			381
Restructuring expenses			73
Gain on disposal			(60,336	)
Income from discontinued operations, before taxes			60,004
Provision for income tax			23,311
Income from discontinued operations, net of tax		$	36,693
Income from discontinued operations per common share:
Basic		$	1.80
Diluted		$	1.80
Shares used in computing basic earnings per share			20,426
Shares used in computing diluted earnings per share			20,426

8. Acquisitions and Dispositions

Acquisition of Wi-Sys

On January 5, 2009, the company acquired all of the outstanding share capital of Wi-Sys pursuant to a Share Purchase Agreement dated January 5, 2009 among PCTEL, Gyles Panther and Linda Panther, the holders of the outstanding share capital of Wi-Sys. The total consideration for Wi-Sys was $2.1 million paid at the close of the transaction and $0.2 million additional due to the shareholders based on the final balance sheet at December 31, 2008. The $0.2 million additional consideration is payable in cash in the second quarter 2009. The cash consideration paid in connection with the acquisition was provided from the company’s existing cash. The company incurred acquisition costs of approximately $0.1 million related to Wi-Sys.

Wi-Sys is based in Ottawa, Canada and manufactures products for GPS, terrestrial and satellite communication systems, including programmable GPS receivers and high performance antennas. Wi-Sys revenues for the year ended December 31, 2008 were approximately $2.2 million. The Wi-Sys antenna product line augments the company’s GPS antenna product line. The revenues and expenses for Wi-Sys are included in the company’s financial results for the three months ended March 31, 2009.

The purchase price of $2.3 million for the assets of Wi-Sys was allocated based on fair value: $0.8 million to tangible assets and $0.2 million to liabilities assumed, $0.7 million to customer relationships, and $0.1 million to core technology and trade names. The $0.9 million excess of the purchase price over the fair value of the net tangible and intangible assets was allocated to goodwill. The goodwill is not deductible for book or tax purposes. The intangible assets have a weighted average amortization period of 5.5 years. The company estimated the fair value (and remaining useful lives) of the assets and liabilities in accordance with FAS 141(R).

The following is the allocation of the purchase price for Wi-sys:

Current assets:
Cash		$	59
Accounts receivable			319
Inventory			294
Prepaid expenses and other assets			90
Total		$	762
Fixed Assets, net			69
Intangible Assets:
Core technology			37
Customer relationships			730
Trade name			18
Goodwill			878
Total			1,663
Total Assets		$	2,494
Current liabilities:
Accounts payable		$	139
Accrued liabilities			36
Total Liabilities		$	175
Net Assets Acquired		$	2,319

In March 2009, the company recorded goodwill impairment of $1.3 million. The impairment charge included the $0.9 million recorded for the Wi-Sys acquisition. See Note 9 for further discussion of the goodwill impairment.

All of the Wi-Sys operations will be moved to the company’s Bloomingdale location in the second quarter 2009. In the second quarter 2009, the company will incur restructuring related expenses for employee severance, lease termination, and other shut down costs related to the Wi-Sys restructuring.

Acquisition of Bluewave

On March 14, 2008 the company entered into and closed an Asset Purchase Agreement (the “Bluewave APA”) with Bluewave, a privately owned Canadian company. Under terms of the Bluewave APA, the company purchased, on a debt free basis, all of the intellectual property, selected manufacturing fixed assets, and all customer relationships related to Bluewave’s antenna product lines. The total consideration was $3.9 million in cash. The only liability the company assumed was for product warranty, which has been historically immaterial. The Bluewave antenna product line augments the company’s Land Mobile Radio (“LMR”) antenna product line. The revenues and expenses for Bluewave are included in the company’s financial results for the three months ended March 31, 2008 from the acquisition date forward.

The purchase price of $3.9 million for selected assets of Bluewave was allocated $3.3 million to intangible assets and $0.1 million to tangible assets. The $0.5 million excess of the purchase price over the fair value of the net tangible and intangible assets was allocated to goodwill. As a result of the company’s annual impairment test of goodwill in the fourth quarter 2008, this goodwill was written off at December 31,

2008. The intangible assets have a weighted average amortization period of 6 years. The company estimated the fair value (and remaining useful lives) of the assets acquired in accordance with FAS 141, “Business Combinations”.

The following is the allocation of the purchase price for Bluewave:

Fixed Assets:
Computer software		$	46
Tooling			60
Total		$	106
Intangible Assets:
Core technology		$	290
Customer relationships			2,850
Trade name			160
Backlog			8
Goodwill			486
Total		$	3,794
Total Assets Acquired		$	3,900

Sale of Product Lines

On August 14, 2008, the company entered into an asset purchase agreement for the sale of certain antenna products and related assets to SWTS. SWTS purchased the intellectual property, dedicated inventory, and certain fixed assets related to four of our antenna product families for $0.7 million, payable in installments at close and over a period of 18 months. The four product families represent the last remaining products acquired by us through our acquisition of Sigma in July 2005. SWTS and Sigma are unrelated. On August 14, 2008 SWTS was also appointed the company’s manufacturer’s representative (“rep”) in the European Union for the company’s remaining antenna products. The sale transaction closed on October 9, 2008.

In the year ended December 31, 2008, the company recorded a $0.9 million loss on sale of product lines, separately within operating expenses in the condensed consolidated statements of operations. The net loss included the book value of the assets sold to SWTS, impairment charges in accordance with FAS 142 and FAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, (“FAS 144”), and incentive payments due the new employees of SWTS, net of the proceeds due to the company. The company sold inventory with a net book value of $0.8 million and wrote off intangible assets including goodwill of $0.5 million. The intangible asset write-off was the net book value and the goodwill write-off was a pro-rata portion of goodwill in accordance with FAS 142. The company paid incentive payments of $0.1 million and calculated $0.5 million in proceeds based on the principal value of the installment payments excluding imputed interest.

The receivable balance from SWTS was $0.5 million in the condensed consolidated balance sheets as of March 31, 2009 and December 31, 2008, respectively. The company included the amounts due within one year in “Prepaid expenses and other current assets” and the amounts due beyond one year in “Other noncurrent assets” in the condensed consolidated balance sheets. At March 31, 2009, the receivable balance represents the company’s maximum exposure to loss from SWTS.

9. Goodwill and Other Intangible Assets

Goodwill

The company’s goodwill balance was $0 and $0.4 million on the condensed consolidated balance sheets at March 31, 2009 and December 31, 2008, respectively. In January 2009, the company recorded goodwill of $0.9 million related to the acquisition of Wi-Sys. In March 2009, the company recorded goodwill impairment of $1.3 million because of the company’s low market capitalization. The impairment represented the full amount of the goodwill from the Wi-Sys acquisition and $0.4 million remaining from the company’s licensing unit.

Under the provisions of FAS 142, the company tests goodwill for impairment on an annual basis. The company performs the annual impairment test of goodwill at the end of the first month of the fiscal fourth quarter (October 31^st), or at an interim date if an event occurs or if circumstances change that would more likely than not reduce the fair value of a segment below its carrying value. At March 31, 2009, we tested our goodwill for impairment due to the company’s market capitalization being below it carrying value. The company considered this market capitalization deficit as a triggering event in accordance with FAS 142.

In the fourth quarter 2008, the company recorded a goodwill impairment of $16.7 million based on the results from the annual test of goodwill impairment.

Intangible Assets

The company amortizes intangible assets with finite lives on a straight-line basis over the estimated useful lives, which range from 1 to 8 years. The summary of other intangible assets, net as of March 31, 2009 and December 31, 2008 are as follows:

		March 31,												December 31,
		2009												2008
						Accumulated				Net Book								Accumulated				Net Book
		Cost				Amortization				Value				Cost				Amortization				Value
Customer contracts and relationships		$	9,580			$	5,439			$	4,141			$	8,850			$	5,048			$	3,802
Patents and technology			6,027				5,432				595				5,990				5,338				652
Trademarks and trade names			2,278				1,542				736				2,260				1,474				786
Other, net			1,508				1,508				—				1,508				1,508				—
		$	19,393			$	13,921			$	5,472			$	18,608			$	13,368			$	5,240

The increase in intangible assets reflects the addition of $0.8 million for the acquisition of Wi-Sys and amortization of $0.6 million during the first quarter of 2009. In conjunction with the goodwill impairment in the first quarter 2009, we reevaluated the carrying value of the intangible assets as required by FAS 144 and FAS 142 under steps 1 and 2. The company concluded that there was no impairment of other intangible assets at March 31, 2009.

10. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended
		March 31,
		2009				2008
Basic Earnings Per Share computation:
Numerator:
Net income (loss)		$	(1,514	)		$	37,168
Denominator:
Common shares outstanding			17,545				20,426
Basic income (loss) per share		$	(0.09	)		$	1.82
Diluted Earnings Per Share computation:
Numerator:
Net income (loss)		$	(1,514	)		$	37,168
Denominator:
Common shares outstanding			17,545				20,426
Restricted shares subject to vesting			*				—
Employee common stock option grants			*				—
Total shares			17,545				20,426
Diluted income (loss) per share		$	(0.09	)		$	1.82

11. Stock-Based Compensation

Total stock compensation expense for the three months ended March 31, 2009 was $0.8 million in the condensed consolidated statement of operations, which included $0.7 million of restricted stock amortization and $0.1 million for stock option expense and stock bonuses. Total stock compensation expense for the three months ended March 31, 2008 was $1.1 million for continuing operations, which included $0.7 million for restricted stock amortization, $0.2 million for stock option expense, and $0.2 million for stock bonuses. The company also recorded stock compensation related to discontinued operations $0.2 million in the three months ended March 31, 2008.

Restricted Stock — Serviced Based

The company grants restricted shares as employee incentives as permitted under the company’s 1997 Stock Plan, as amended and restated (“1997 Stock Plan”). In connection with the grant of restricted stock to employees, the company records deferred stock compensation representing the fair value of the common stock on the date the restricted stock is granted. Such amount is presented as a reduction of stockholders’ equity and is amortized ratably over the vesting period of the applicable shares. These grants vest over various periods, but typically vest over four years. For the quarter ended March 31, 2009, the company issued 572,150 shares of restricted stock with a fair value of $2.4 million and recorded cancellations of 18,100 shares for $0.2 million. For the quarter ended March 31, 2008, the company issued 333,300 shares of restricted stock with a fair value of $2.2 million and recorded cancellations of 193,863 shares for $1.8 million. For the three months ended March 31, 2009, 216,949 restricted shares vested with a value of $1.9 million. For the three months ended March 31, 2008, 243,543 restricted shares vested with a value of $1.5 million.

At March 31, 2009, total unrecognized compensation expense related to restricted stock was approximately $6.6 million, net of forfeitures to be recognized through 2013 over a weighted average period of 1.8 years.

A summary of the company’s restricted stock activity and related information follows for the three months ended March 31, 2009:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Balance at December 31, 2008			853,307			$	8.29
Shares awarded			572,150				4.15
Shares vested			(216,949	)			8.65
Shares cancelled			(18,100	)			8.78
Balance at March 31, 2009			1,190,408			$	6.23

The intrinsic value of vested service-based restricted stock was as follows for the three months ended March 31:

		Three Months Ended
		March 31,
		2009				2008
Intrinsic value — service based restricted shares		$	1,457			$	1,470

Stock Options

The company may grant stock options to purchase the company’s 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. Most employee options contain gradual vesting provisions, whereby 25% vest one year from the date of grant and thereafter in monthly increments over the remaining three years. Board of Director options vest on the first anniversary of the grant year. Stock options may be exercised at any time within ten years of the date of grant or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement.

Starting in 2005, only new employees or directors received stock options for incentive purposes. Presently, new employees and directors receive only service-based restricted awards for incentive purposes. As such, the company expects that future stock option grants will be minimal.

During the three months ended March 31, 2009, the company did not issue stock options and there were no stock option exercises. During the three months ended March 31, 2009, 8,517 options were either forfeited or expired.

The company issued 93,400 options during the three months ended March 31, 2008. For the three months ended March 31, 2008, the company received $0.2 million in proceeds from the exercise of 35,238 options.

The intrinsic value of stock options exercised was as follows for the three months ended March 31:

		Three Months Ended
		March 31,
		2009				2008
Intrinsic value — stock options		$	—			$	10

The range of exercise prices for options outstanding and exercisable at March 31, 2009 was $6.16 to $59.00. The following table summarizes information about stock options outstanding under all stock plans at March 31, 2009:

													Options Outstanding								Options Exercisable
													Weighted
													Average				Weighted-								Weighted
Range of									Number				Remaining				Average				Number				Average
Exercise Prices									Outstanding				Contractual Life				Exercise Price				Exercisable				Exercise Price
$	6.16		—		$	7.30				245,865				5.93			$	6.97				216,393			$	7.04
	7.40		—			7.93				248,224				4.71				7.68				240,991				7.69
	7.95		—			8.62				240,620				4.62				8.24				219,214				8.21
	8.63		—			9.16				348,127				6.33				9.03				289,196				9.01
	9.17		—			10.25				297,817				5.76				9.80				237,676				9.83
	10.46		—			10.70				257,206				5.05				10.68				255,052				10.68
	10.72		—			11.55				237,770				4.87				11.14				227,770				11.15
	11.60		—			11.84				435,600				4.85				11.74				435,600				11.74
	12.16		—			13.30				33,400				4.39				12.82				33,400				12.82
	59.00		—			59.00				7,500				0.84				59.00				7,500				59.00
$	6.16		—		$	59.00				2,352,129				5.26			$	9.80				2,162,792			$	9.88

The intrinsic value and contractual life of the options outstanding and exercisable at March 31, 2009 were as follows:

		Weighted Average
		Contractual Life				Intrinsic Value
Options Outstanding			5.26			$	—
Options Exercisable			5.03			$	—

The intrinsic value is based on the share price of $4.30 at March 31, 2009.

A summary of the company’s stock option activity and related information follows for the three months ended March 31, 2009:

						Weighted
						Average
		Options				Exercise
		Outstanding				Price
Outstanding at December 31, 2008			2,360,646			$	9.80
Granted			—				—
Exercised			—				—
Expired			(6,907	)			10.46
Forfeited			(1,610	)			9.18
Outstanding at March 31, 2009			2,352,129			$	9.80
Exercisable at March 31, 2009			2,162,792			$	9.88

The fair value of each unvested option was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions during the three months ended March 31:

		March 31,				March 31,
		2009				2008
Weighted average fair value of options granted			—			$	1.67
Dividend yield			—			None
Risk-free interest rate			—				3.0	%
Expected volatility			—				40	%
Expected life (in years)			—				2.1

There were no stock options granted during the three months ended March 31, 2009.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“Purchase Plan”) 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 six months. During 2008, 69,402 shares were issued under the Purchase Plan. The company received proceeds of $0.2 million from the issuance of 42,350 shares under the Purchase Plan in February 2009 and received proceeds of $0.2 million from the issuance of 36,834 shares under the Purchase Plan in February 2008.

Based on the 15% discount and the fair value of the option feature of the Purchase Plan, the Purchase Plan is considered compensatory under FAS No. 123(R), “Share Based Payments”. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.

The key assumptions used in the valuation model during the three months ended March 31:

		March 31,				March 31,
		2009				2008
Dividend yield		None				None
Risk-free interest rate			0.6	%			3.3	%
Expected volatility			47	%			41	%
Expected life (in years)			0.5				0.5

The company uses a dividend yield of “None” in the valuation model for shares related to the Purchase Plan. The company has paid one cash dividend in its history which was paid in May 2008. This special dividend was a partial distribution of the proceeds received from the sale of MSG. The company does not anticipate the payment of regular dividends in the future.

Performance Shares

The company grants performance based restricted stock rights to certain executive officers. The performance shares vest upon achievement of defined performance goals such as revenue and earnings. The performance based stock rights are amortized based on the estimated achievement of the performance goals.

For the three months ended March 31, 2009, the company did not issue any performance based shares and did not record any cancellations of performance shares. During the quarter ended March 31, 2009, 10,342 performance shares vested with a value of $50. For the three months ended March 31, 2008, the company issued 25,000 shares of restricted stock with a fair value of $169. During the three months ended March 31, 2008, 5,330 performance shares vested with a value of $33.

The intrinsic value of vested performance based restricted stock was as follows for the three months ended March31:

		Three Months Ended
		March 31,
		2009				2008
Intrinsic value — performance shares		$	50			$	33

The following summarizes the performance share activity during the three months ended March 31, 2009:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Balance at December 31, 2008			96,344			$	9.47
Shares awarded			—				—
Shares vested			(10,342	)			7.97
Shares cancelled			—				—
Balance at March 31, 2009			86,002			$	9.65

Restricted Stock Units

The company grants restricted stock units as employee incentives as permitted under the company’s 1997 Stock Plan. The restricted stock units are time-based awards and are amortized over the vesting period. At the vesting date, the units are converted to shares of common stock. The company granted 26,350 time-based restricted stock units to employees during the three months ended March 31, 2009. These restricted stock units vest over a period of two to four years.

The following summarizes the restricted stock unit activity during the three months ended March 31, 2009:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Balance at December 31, 2008			—				—
Units awarded			26,350				6.93
Shares vested			—				—
Units cancelled			—				—
Balance at March 31, 2009			26,350			$	6.93

Short Term Incentive Plan

Bonuses related to the company’s Short Term Incentive Plan are paid in the company’s common stock to executives and in cash to non-executives. The shares earned under the plan are issued in the first quarter following the end of the fiscal year. In the three months ended

March 31, 2009, the company issued 90,173 shares, net of shares withheld for payment of withholding tax, for the 2008 Short Term Incentive Plan. In the three months ended March 31, 2008, the company issued 82,001 shares, net of shares withheld for payment of withholding tax, for the 2007 Short Term Incentive plan

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 and short-term incentive plan stock awards for the value of the statutory withholding taxes. During the three months ended March 31, 2009 and March 31, 2008, the company paid $0.7 million, respectively, for withholding taxes related to stock awards.

Stock Repurchases

On November 21, 2008, the Board of Directors authorized the repurchase of shares up to a value of $5.0 million. The company repurchased 19,994 shares at an average price of $4.26 during the three months ended March 31, 2009. As of March 31, 2009, the company has $4.9 million remaining under this share repurchase program. The company repurchased 1,139,347 shares at an average price of $6.66 during the three months ended March 31, 2008.

12. Comprehensive Income

The following table provides the calculation of other comprehensive income for the three months ended March 31, 2009 and 2008, respectively:

		Three Months Ended
		March 31,
		2009				2008
Net Income (loss) from continuing operations			($1,514	)		$	475
Foreign currency translation adjustments			(8	)			51
Realized gain on investments			55				—
Comprehensive income (loss) from continuing operations			(1,467	)			526
Income from discontinued operations, net of tax			—				36,693
Total comprehensive income (loss)			($1,467	)		$	37,219

13. Restructuring

Antenna Restructuring

During the three months ended March 31, 2009, the company terminated thirteen employees from its antenna operations in Bloomingdale, Illinois to reduce costs. The company recorded $0.2 million in restructuring charges for severance payments.

The following table summarizes the restructuring activity during 2009 and the status of the reserves at March 31, 2009:

		Accrual												Accrual
		Balance at								Cash				Balance at
		December 31,				Restructuring				Payments/				March 31,
		2008				Expense				Receipts				2009
Severance and employment related costs		$	—			$	154				($125	)		$	29

International Sales Restructuring

In November 2008, the company announced the closure of the company’s sales office in New Delhi, India. The company recorded restructuring charges of $0.1 million for severance payouts and lease obligations. The final restructuring payments were made in the first quarter 2009.

The following table summarizes the international sales restructuring activity during 2009 and the status of the reserves at March 31, 2009:

		Accrual												Accrual
		Balance at								Cash				Balance at
		December 31,				Restructuring				Payments/				March 31,
		2008				Expense				Receipts				2009
Severance and employment related costs		$	59			$	—				($59	)		$	—
Facility and car leases			6				—				(6	)			—
		$	65			$	—				($65	)		$	—

Q1 2008 Restructuring

In the three months ended March 31, 2008, the company incurred expense of $0.4 million. The company recorded $0.3 million for employee severance costs related to the company’s restructuring of corporate overhead and $0.1 million for an adjustment to its UMTS restructuring reserve.

14. Short Term Borrowings

The company had no borrowings at March 31, 2009 or December 31, 2008. The company’s subsidiary in China, PCTEL (Tianjin) Electronics Company Ltd, had borrowings of ¥780,000 ($0.1 million) outstanding from July 2006 until April 2008. In April 2008, the company repaid the loan from working capital and terminated the loan agreement. The weighted average interest rate for this borrowing was 7.2% during the first quarter 2008.

15. Commitments and Contingencies

Warranty Reserve and Sales Returns

The company allows its major distributors and certain other customers to return unused product under specified terms and conditions. In accordance with FAS No. 48, “Revenue Recognition When Right of Return Exists”, the company accrues for product returns based on historical sales and return trends. The company’s allowance for sales returns was $0.2 million and $0.3 million at March 31, 2009 and December 31, 2008, respectively.

The company offers repair and replacement warranties of primarily two years for antennas products and one year for scanners and receivers. The company’s warranty reserve is based on historical sales and costs of repair and replacement trends. The warranty reserve was $0.2 million at March 31, 2009 and December 31, 2008, respectively and is included in other accrued liabilities.

Changes in the warranty reserves during the three months ended March 31, 2009 and 2008 were as follows:

		Three Months Ended
		March 31,				March 31,
		2009				2008
Beginning balance		$	193			$	193
Additions (deductions), net			—				—
Consumption of reserves			(8	)			(30	)
Ending balance		$	185			$	163

Legal Proceedings

Litigation with Wider Networks LLC

On March 13, 2009, in the United States District Court for the District of Maryland Greenbelt Division, the company filed a lawsuit against Wider Networks, LLC alleging patent infringement, unfair competition and false advertising. In this matter, the company seeks a number of remedies including equitable relief in the form of injunctive relief and other remedies and monetary relief in the form of damages for false and fraudulent advertising, unfair competition and other damages and relief as allowed pursuant to federal and Maryland law. It is the

company’s policy to protect its intellectual property and, the company intends to vigorously prosecute the action. However, as the litigation is in its early stages, the company is unable to predict the outcome at this time.

16. Income Taxes

For the three months ended March 31, 2009, the company recorded an income tax benefit of $0.7 million for continuing operations. This tax expense represents a projected effective rate of 32.3%. The tax rate for the three months ended March 31, 2009 differs from the statutory rate of 35% primarily because of permanent tax differences and valuation allowances.

The tax rate of 60.8% for the three months ended March 31, 2008 differed from the statutory rate of 35% because of permanent tax differences, valuation allowances for certain temporary tax differences, and the recognition of tax expense net of foreign tax credits related to expected repatriation of foreign source income. During the three months ended March 31, 2008, the company recognized $1.2 million of tax benefits in additional paid in capital related to equity compensation benefits.

Significant management judgment is required to assess the likelihood that the company’s deferred tax assets will be recovered from future taxable income. The company maintains a valuation allowance of $1.2 million against deferred tax assets because of uncertainties regarding whether they will be realized.

FASB interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109” (“FIN 48”) clarifies the accounting for uncertainty in income taxes by prescribing a comprehensive model for recognizing, measuring, presenting and disclosing uncertain income tax positions taken or expected to be taken by us on our tax returns and was adopted effective January 1, 2007. The company’s gross unrecognized tax benefit was $0.9 million at March 31, 2009 and December 31, 2008.

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 federal and state income tax years, with limited exceptions, are closed through 2004. The company does not believe that any of its tax positions will significantly change within the next twelve months.

The company classifies interest and penalties associated with the uncertain tax positions as a component of income tax expense. There were no interest or penalties related to income taxes recorded in the condensed consolidated financial statements.

17. Customer and Geographic Information

The company’s revenues to customers outside of the United States, as a percent of total revenues for the three months ended March 31, 2009 and 2008, are as follows:

		Three Months Ended
		March 31,
Region		2009				2008
Europe, Middle East, & Africa			24	%			32	%
Asia Pacific			20	%			5	%
Other Americas			7	%			3	%
Total Foreign sales			51	%			40	%

Revenue from the company’s major customers representing 10% or more of total revenues for the three months ended March 31, 2009 and 2008, are as follows:

		Three Months Ended
		March 31,
Customer		2009				2008
Comtec EF Data			1	%			11	%
Ericsson AB			10	%			16	%

18. Benefit Plans

401(k) Plan

The 401(k) plan covers all of the domestic employees beginning the first of the month following the month they begin 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 may make discretionary contributions to the 401(k) plan. The company made employer contributions of $146 and $140 to the 401(k) plan for the three months ended March 31, 2009 and 2008, respectively.

Foreign Employee Benefit Plans

The company contributes to various retirement plans for foreign employees. The company made contributions of approximately $14 and $20 to these plans for the three months ended March 31, 2009 and 2008, respectively.

Executive Deferred Compensation Plan

The company provides an Executive Deferred Compensation Plan for executive officers and senior managers. Under this plan, the executives may defer up to 50% of salary and 100% of cash bonuses with a minimum of $1,500. In addition, the company provides a 4% matching cash contribution which vests over three years subject to the executive’s continued service. The executive has a choice of investment alternatives from a menu of mutual funds. The plan is administered by the Compensation Committee and an outside party tracks investments and provides the executives with quarterly statements showing relevant contribution and investment data. Upon termination of employment, death, disability or retirement, the executive will receive the value of his or her account in accordance with the provisions of the plan. Upon retirement, the executive may request to receive either a lump sum payment, or payments in annual installments over 15 years or over the lifetime of the participant with 20 annual payments guaranteed. At the March 31, 2009, the deferred compensation obligation of $0.6 million was included in Long-Term Accrued Liabilities in the condensed consolidated balance sheets. The company funds the obligation related to the Executive Deferred Compensation Plan with corporate-owned life insurance policies. The cash surrender value of such policies is included in Other Assets.

19. Stockholders’ Equity

The following table is a summary of the activity in stockholders’ equity during the three months ended March 31, 2009 and 2008:

		Three Months Ended
		March 31,
		2009				2008
Number of common shares outstanding:
Balance at beginning of period			18,236				21,917
Common stock repurchases			(20	)			(1,139	)
Stock-based compensation			621				173
Balance at end of period			18,837				20,951
Common stock:
Balance at beginning of period		$	18			$	22
Common stock repurchases			—				(1	)
Stock-based compensation			1				—
Balance at end of period		$	19			$	21
Additional paid-in capital:
Balance at beginning of period		$	137,930			$	165,108
Stock-based compensation			113				1,062
Common stock repurchases			(85	)			(7,592	)
Tax benefit from shares issued under equity-based compensation plans		—					1,238
Balance at end of period		$	137,958			$	159,816
Accumulated deficit:
Balance at beginning of period		$	(12,639	)		$	(40,640	)
Net income (loss)			(1,514	)			37,168
Balance at end of period		$	(14,153	)		$	(3,472	)
Accumulated other comprehensive income:
Balance at beginning of period		$	9			$	77
Foreign translation			(8	)			51
Realized gain on investments			55				—
Balance at end of period		$	56			$	128
Total stockholders’ equity		$	123,880			$	156,493

20. Subsequent Event

The Wi-Sys manufacturing and engineering functions will be moved to the company’s Bloomingdale location as part of the integration and restructuring of the Wi-Sys operations. During the second quarter 2009, the company will complete the integration and will incur restructuring related expenses for employee severance, lease termination, and other shut down costs. The estimate of the company’s restructuring costs for Wi-Sys is between $0.2 million and $0.3 million.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the condensed interim financial statements and the notes thereto included in Item 1 of this Quarterly Report and in conjunction with the financial statements for the year ended December 31, 2008 contained in our Form 10-K filed on March 16, 2009. Except for historical information, the following discussion contains forward looking statements that involve risks and uncertainties, including statements regarding our anticipated revenues, profits, costs and expenses and revenue mix. These forward-looking statements include, among others, those statements including the words “may,” “will,” “plans,” “seeks,” “expects,” “anticipates,” “intends,” “believes” and words of similar import. Such statements constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements.

Introduction

PCTEL focuses on wireless broadband technology related to propagation and optimization. We design and develop innovative antennas that extend the reach of broadband and other wireless networks and that simplify the implementation of those networks. Our antenna solutions support public safety applications, unlicensed and licensed wireless broadband, fleet management, network timing, and other global positioning systems (“GPS”) applications. We provide highly specialized software-defined radios that facilitate the design and optimization of broadband wireless networks. Our portfolio of scanning receivers and interference management solutions are used to measure, monitor and optimize cellular networks. We supply our products to public and private carriers, wireless infrastructure providers, wireless equipment distributors, Value Added Resellers (“VARs”) and other Original Equipment Manufacturers (“OEMs”). We maintain expertise in several technology areas. These include digital signal processing (“DSP”) chipset programming, radio frequency, software engineering, mobile, antenna design and manufacture, mechanical engineering, product quality and testing, advanced algorithm development, and cellular engineering.

Growth in product revenue is dependent both on gaining further revenue traction in the existing product portfolio as well as further acquisitions to support the wireless initiatives. Revenue growth for antenna products is correlated to emerging wireless applications in broadband wireless, in-building wireless, wireless Internet service providers, GPS and Mobile SATCOM. Land mobile radio (“LMR”), private mobile radio (“PMR”), digital private mobile radio (“DPMR”), and on-glass mobile antenna applications represent mature markets. Our newest products address Worldwide Interoperability for Microwave Access (“WiMAX”) standards and applications. Revenue for scanning receivers is tied to the deployment of new wireless technology, such as 2.5G and 3G, and the need for existing wireless networks to be tuned and reconfigured on a regular basis.

On January 5, 2009, we acquired all of the outstanding share capital of Wi-Sys Communications Inc. (“Wi-Sys”). Wi-Sys is based in Ottawa, Canada and manufactures products for GPS, terrestrial and satellite communication systems, including programmable GPS receivers and high performance antennas. The Wi-Sys product line augments our GPG antenna product line. The company intends on fully integrating Wi-Sys into its antenna product operations during 2009. The integration will include a restructuring of the Wi-Sys operations during the second quarter 2009. The manufacturing and engineering functions will be moved to our Bloomingdale location in the second quarter 2009. Also in the second quarter 2009, we will incur restructuring related expenses for employee severance, lease termination, and other shut down costs.

On March 14, 2008, we acquired certain assets of Bluewave Antenna Systems, Ltd (“Bluewave”). The Bluewave product line augments our LMR antenna product line.

On October 9, 2008, we sold four of our antenna product families to Sigma Wireless Technology Ltd, a Scotland based company (“SWTS”). The four antenna product families represent the remaining antenna products from our acquisition of Sigma Wireless Technology Limited (“Sigma”) in 2005. Sigma and SWTS are not related.

On January 4, 2008, we sold our Mobility Solutions Group (“MSG”) to Smith Micro Software, Inc. (NASDAQ: SMSI) (“Smith Micro”). MSG produced mobility software products for WiFi, Cellular, IP Multimedia Subsystem (“IMS”), and wired applications. The financial results for MSG are presented in the financial statements as discontinued operations.

We also have a reporting unit that licenses an intellectual property portfolio in the area of analog modem technology. As of the second quarter 2009, the revenues and cash flows associated with this reporting unit will be substantially complete. In 2009 and for comparable periods this reporting unit does not meet the quantitative threshold requirements of a reportable segement in accordance with FAS 131. As such, the results for licensing for all periods presented are aggregated with the rest of the company.

Current Economic Environment

We believe the current economic conditions have reduced spending by consumers and businesses in markets into which we sell our products in response to tighter credit, negative financial news and the continued uncertainty of the global economy. Consequently, the global demand for our products has also decreased. This decrease in demand is having a negative impact on our revenues, results of operations, and overall business. It is uncertain how long the current economic conditions will last or how quickly any subsequent economic recovery will occur. If the economy or markets into which we sell our products continue to slow or any subsequent economic recovery is slow to occur, our business, financial condition and results of operations could be further materially and adversely affected.

Results of Operations
Three Months Ended March 31, 2009 and 2008

Revenues

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Revenue		$	14,139			$	18,300
Percent change from year ago period			(22.7	%)			10.1	%

Revenues decreased 22.7% in the three months ended March 31, 2009 compared to the same period in 2008 as both scanning receiver and antenna product lines experienced declines. In the three months ended March 31, 2009 versus the prior year, approximately 20% of the decline is attributable to antennas and approximately 3% of the decline is attributable to scanning receivers. Antenna revenues were lower in our distribution and OEM channels, reflecting declines in LMR and U.S. defense-related revenues. Scanning receiver revenue was lower due to reduced capital expenditures levels worldwide.

Gross Profit

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Gross profit		$	6,671			$	8,766
Percentage of revenue			47.2	%			47.9	%
Percent of revenue change from year ago period			(0.7	%)			3.2	%

The gross margin of 47.2% in the three months ended March 31, 2009 was approximately 0.7% lower than the comparable period in fiscal 2008. Antennas contributed 0.6% of the margin percentage decrease and scanning receivers contributed 0.1% of the margin percentage decrease in the three months ended March 31, 2009. In the first quarter 2009, a higher mix of scanning receiver revenues offset costs of lower volume over our fixed costs.

Research and Development

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Research and development		$	2,688			$	2,186
Percentage of revenues			19.0	%			11.9	%
Percent change from year ago period			23.0	%			(15.2	%)

Research and development expenses increased approximately $0.5 million for the three months ended March 31, 2009 compared to the comparable period in 2008. Expenses were higher than the prior year because we invested in the development of new scanning receivers and due to the acquisition of certain assets of Bluewave in March 2008 and Wi-Sys in January 2009.

Sales and Marketing

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Sales and marketing		$	2,083			$	2,763
Percentage of revenues			14.7	%			15.1	%
Percent change from year ago period			(24.6	%)			0.9	%

Sales and marketing expenses include costs associated with the sales and marketing employees, sales representatives, product line management, and trade show expenses.

Sales and marketing expenses decreased approximately $0.7 million for the three months ended March 31, 2009 compared to the same period in fiscal 2008. This decrease was due to the headcount reductions in several unproductive international sales offices and due to lower commissions to sales people and manufacturers representatives. The headcount reductions occurred in the third and fourth quarters of 2008.

General and Administrative

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
General and administrative		$	2,553			$	2,772
Percentage of revenues			18.1	%			15.1	%
Percent change from year ago period			(7.9	%)			(19.5	%)

General and administrative expenses include costs associated with the general management, finance, human resources, information technology, legal, insurance, public company costs, and other operating expenses to the extent not otherwise allocated to other functions.

General and administrative expenses decreased approximately $0.2 million for the three months ended March 31, 2009 compared to the same period in fiscal 2008. The expense decrease is due to lower stock compensation expense for employees in general and administrative functions.

Amortization of Intangible Assets

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Amortization of other intangible assets		$	553			$	440
Percentage of revenues			3.9	%			2.4	%

Amortization increased approximately $0.1 million in the three months ended March 31, 2009 compared to the same period in 2008 due to the intangible amortization from the acquisitions of Bluewave in March 2008 and Wi-Sys in January 2009.

Restructuring Charges

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Restructuring charges		$	154			$	377
Percentage of revenues			1.1	%			2.1	%

During the three months ended March 31, 2009, we eliminated headcount to lower costs in our antenna operations. We incurred restructuring charges of approximately $0.2 million related to employee severance costs.

During the three months ended March 31, 2008, we streamlined our corporate overhead structure to reduce general and administrative expenses. We incurred charges of approximately $0.3 million related to employee severance costs related to the reduction of corporate overhead.

Impairment of Goodwill

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Impairment of goodwill		$	1,262			$	0
Percentage of revenues			8.9	%			—

In March 2009, we recorded goodwill impairment of $1.3 million in accordance with FAS 142. This amount represented the remaining $0.4 million of goodwill for Licensing and the $0.9 million in goodwill recorded with the Wi-Sys acquisition in January 2009. We tested our goodwill for impairment because our market capitalization was below our carrying value at March 31, 2009. We considered this market capitalization deficit as a triggering event in accordance with FAS 142.

Gain on sale of assets and related royalties

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Gain on sale of assets and related royalties		$	200			$	200
Percentage of revenues			1.4	%			1.1	%

All royalty amounts represent royalties from Conexant. Payments under the royalty agreement with Conexant run through June 30, 2009.

Other Income, Net

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Other income, net		$	165			$	784
Percentage of revenues			1.2	%			4.3	%

Other income, net consists primarily of interest income and foreign exchange gains and losses. Other income, net decreased in the three months ended March 31, 2009 compared to the comparable period in 2008 due to lower interest income and lower foreign exchange gains. For the three months ended March 31, 2009 and 2008, interest income was $0.2 million and $0.6 million, respectively. Interest income decreased due to lower cash balances in the first quarter 2009 compared to the first quarter 2008 and because of lower interest rates. The cash balance during the first quarter 2008 includes the proceeds from the sale of MSG. We subsequently used a portion of the cash for a cash dividend and for repurchases of our common stock. In the three months ended March 31, 2009 and 2008, we recorded foreign exchange gains (losses) of $(30) and $166, respectively.

Provision (Benefit) for Income Taxes

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Provision (benefit) for income taxes		$	(723	)		$	737
Effective tax rate			32.3	%			60.8	%

The tax rate for the three months ended March 31, 2009 differs from the statutory rate of 35% because of permanent differences and valuation allowances for certain temporary differences.

The tax rate for the three months ended March 31, 2008 differs from the statutory rate of 35% because of permanent differences, valuation allowances for certain temporary differences, and due to the recognition of tax expense net of foreign tax credits related to expected repatriation of foreign source income.

We maintain valuation allowances due to uncertainties regarding realizability. The $1.2 million valuation allowance at March 31, 2009

relates to deferred tax assets in tax jurisdictions in which we no longer have significant operations. On a regular basis, management evaluates the recoverability of deferred tax assets and the need for a valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.

We regularly evaluate our estimates and judgments related to uncertain tax positions and, when necessary, establish contingency reserves to account for our uncertain tax positions. As we obtain more information via the settlement of tax audits and through other pertinent information, these projections and estimates are reassessed and may be adjusted accordingly. These adjustments may result in significant income tax provisions or provision reversals.

Discontinued operations

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Net income from discontinued operations		$	0			$	36,693

We had no activity related to discontinued operations in the three months ended March 31, 2009 and we do not anticipate any activity in discontinued operations in 2009. Discontinued operations for the three months ended March 31, 2008 included the gain on the sale of MSG of $60.3 million in addition to net loss from operations of $0.3 million and income tax expense of $23.3 million.

Stock-based compensation expense

In the three months ended March 31, 2009, we recognized stock-based compensation expense of $0.8 million in the condensed consolidated statements of operations for continuing operations, which included $0.7 million of restricted stock and $0.1 million for stock options and stock bonuses. Total stock compensation expense for continuing operations for the three months ended March 31, 2008 was $1.1 million, which included $0.7 million for restricted stock amortization, $0.2 million for stock option expense, and $0.2 million for stock bonuses.

The following table summarizes the stock-based compensation expense by income statement line item for the three months ended March 31, 2009 and March 31, 2008, respectively:

		Three Months Ended
		March 31,
		2009				2008
Cost of revenues		$	112			$	92
Research and development			139				154
Sales and marketing			137				154
General and administrative			430				748
Total continuing operations			818				1,148
Discontinued operations			—				187
Total		$	818			$	1,335

Liquidity and Capital Resources

		Three Months Ended
		March 31,
		2009				2008
Net (loss) income from continuing operations		$	(1,514	)		$	475
Charges for depreciation, amortization, stock-based compensation, and other non-cash items			2,169				756
Changes in operating assets and liabilities			694				740
Net cash provided by operating activities			1,349				1,971
Net cash provided by (used in) investing activities			(10,388	)			8,981
Net cash provided by (used in) financing activities			116				(5,931	)
Net cash provided by discontinued operations		$	—			$	61,343
Cash and cash equivalents at end of period		$	35,891			$	93,047
Short-term investments at end of quarter			27,010				9,931
Long-term investments at end of quarter			14,319				15,432
Short-term borrowings at end of quarter			—				111
Working capital at the end of quarter		$	82,015			$	99,632