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PC TEL INC - Quarter Report: 2009 September (Form 10-Q)

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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 September 30, 2009
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to           
Commission File Number 000-27115
PCTEL, Inc.
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  77-0364943
(I.R.S. Employer
Identification Number)
     
471 Brighton Drive,
Bloomingdale, IL

(Address of Principal Executive Office)
  60108
(Zip Code)
(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 corporate Web site, if any, every Interactive Date File required 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 definition of “accelerated filer” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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   18,678,477 as of November 1, 2009
 
 

 


 

PCTEL, Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2009
             
        Page
  FINANCIAL INFORMATION     3  
  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  
  Management’s Discussion and Analysis of Financial Condition And Results of Operations     28  
  Quantitative and Qualitative Disclosures about Market Risk     36  
  Controls and Procedures     36  
 
           
  OTHER INFORMATION     36  
  Legal Proceedings     36  
  Risk Factors     37  
  Unregistered Sales of Equity Securities and Use of Proceeds     37  
  Exhibits     38  
 
  Signature     38  
 EX-31.1
 EX-31.2
 EX-32.1

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PART I — FINANCIAL INFORMATION
Item 1: Financial Statements
PCTEL Inc.
Condensed Consolidated Balance Sheets
(in thousands except per share amounts)
                 
    (unaudited)        
    September 30,     December 31,  
    2009     2008  
ASSETS
               
 
               
Cash and cash equivalents
  $ 42,596     $ 44,766  
Short-term investment securities
    25,900       17,835  
Accounts receivable, net of allowance for doubtful accounts of $141 and $121 at September 30, 2009 and December 31, 2008, respectively
    11,525       14,047  
Inventories, net
    8,407       10,351  
Deferred tax assets, net
    1,148       1,148  
Prepaid expenses and other assets
    2,695       2,575  
 
           
Total current assets
    92,271       90,722  
 
               
Property and equipment, net
    12,132       12,825  
Long-term investment securities
    9,972       15,258  
Goodwill
          384  
Other intangible assets, net
    4,366       5,240  
Deferred tax assets, net
    9,730       10,151  
Other noncurrent assets
    899       926  
 
           
TOTAL ASSETS
  $ 129,370     $ 135,506  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Accounts payable
  $ 1,443     $ 2,478  
Accrued liabilities
    4,063       6,198  
 
           
Total current liabilities
    5,506       8,676  
 
               
Long-term liabilities
    1,692       1,512  
 
           
Total liabilities
    7,198       10,188  
 
           
 
               
Stockholders’ equity:
               
Common stock, $0.001 par value, 100,000,000 shares authorized, 18,657,839 and 18,236,236 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively
    18       18  
Additional paid-in capital
    138,553       137,930  
Accumulated deficit
    (16,550 )     (12,639 )
Accumulated other comprehensive income
    151       9  
 
           
Total stockholders’ equity
    122,172       125,318  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 129,370     $ 135,506  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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PCTEL, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share information)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
CONTINUING OPERATIONS
                               
REVENUES
  $ 13,709     $ 20,087     $ 41,216     $ 58,661  
COST OF REVENUES
    7,283       10,527       22,061       30,627  
 
                       
GROSS PROFIT
    6,426       9,560       19,155       28,034  
 
                       
OPERATING EXPENSES:
                               
Research and development
    2,673       2,591       8,010       7,387  
Sales and marketing
    1,845       2,543       5,841       8,180  
General and administrative
    2,169       2,619       7,245       8,372  
Amortization of other intangible assets
    553       552       1,660       1,544  
Restructuring charges
                494       364  
Impairment of goodwill
                1,485        
Loss on sale of product lines and related note receivable
          882       454       882  
Gain on sale of assets and related royalties
          (200 )     (400 )     (600 )
 
                       
Total operating expenses
    7,240       8,987       24,789       26,129  
 
                       
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS
    (814 )     573       (5,634 )     1,905  
Other income, net
    375       120       742       1,557  
 
                       
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS
    (439 )     693       (4,892 )     3,462  
Provision (benefit) for income taxes
    316       (10,216 )     (981 )     (8,451 )
 
                       
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
    (755 )     10,909       (3,911 )     11,913  
 
                       
DISCONTINUED OPERATIONS
                               
NET INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX PROVISION
          157             37,035  
 
                       
NET INCOME (LOSS)
    ($755 )   $ 11,066       ($3,911 )   $ 48,948  
 
                       
 
                               
Basic Earnings per Share:
                               
Income (Loss) from Continuing Operations
    ($0.04 )   $ 0.60       ($0.22 )   $ 0.61  
Income from Discontinued Operations
  $ 0.00     $ 0.01     $ 0.00     $ 1.90  
Net Income (Loss)
    ($0.04 )   $ 0.61       ($0.22 )   $ 2.51  
 
                               
Diluted Earnings per Share:
                               
Income (Loss) from Continuing Operations
    ($0.04 )   $ 0.58       ($0.22 )   $ 0.60  
Income from Discontinued Operations
  $ 0.00     $ 0.01     $ 0.00     $ 1.87  
Net Income (Loss)
    ($0.04 )   $ 0.59       ($0.22 )   $ 2.48  
 
                               
Weighted average shares — Basic
    17,559       18,164       17,573       19,525  
Weighted average shares — Diluted
    17,559       18,709       17,573       19,761  
The accompanying notes are an integral part of these consolidated financial statements.

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PCTEL, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
Operating Activities:
               
Net (loss) income
    ($3,911 )   $ 48,948  
Adjustments to reconcile net income (loss) to net cash
               
provided by operating activities:
               
Income from discontinued operations
          (37,035 )
Depreciation and amortization
    3,321       2,956  
Impairment charge
    1,485       882  
Amortization of stock based compensation
    2,670       3,469  
Loss from investments
          696  
Gain on sale of assets and related royalties
    (400 )     (600 )
Loss on disposal/sale of property and equipment
    34       39  
Restructuring costs
    166       (1,239 )
Loss on sale of product lines and related note receivable
    454        
Payment of withholding tax on stock based compensation
    (767 )     (937 )
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts receivable
    2,842       917  
Inventories
    2,238       (248 )
Prepaid expenses and other assets
    (456 )     (314 )
Accounts payable
    (1,173 )     467  
Income taxes payable
    (143 )     (8 )
Accrued liabilities
    (2,402 )     (2,053 )
Deferred tax assets
    421       2,291  
Deferred revenue
    (15 )     (30 )
 
           
Net cash provided by operating activities
    4,364       18,201  
 
           
 
               
Investing Activities:
               
Capital expenditures
    (948 )     (1,956 )
Proceeds from disposal of property and equipment
          35  
Purchase of investments
    (21,290 )     (12,739 )
Redemptions/maturities of short-term investments
    18,633       24,354  
Proceeds on sale of assets and related royalties
    400       600  
Purchase of assets/businesses, net of cash acquired
    (2,260 )     (3,930 )
 
           
Net cash (used in) provided by investing activities
    (5,465 )     6,364  
 
           
 
               
Financing Activities:
               
Proceeds from issuance of common stock
    427       2,239  
Payments for repurchase of common stock
    (1,515 )     (29,621 )
Tax benefit from stock option exercises
          1,979  
Cash dividend
          (10,294 )
Repayments of short-term borrowings
          (112 )
 
           
Net cash used in financing activities
    (1,088 )     (35,809 )
 
           
 
               
Cash flows from discontinued operations:
               
Net cash used in operating activities
          (105 )
Net cash provided by investing activities
          38,479  
Net cash provided by financing activities
           
 
               
Net (decrease) increase in cash and cash equivalents
    (2,189 )     27,130  
Effect of exchange rate changes on cash
    19       (81 )
Cash and cash equivalents, beginning of year
    44,766       26,632  
 
           
Cash and Cash Equivalents, End of Period
  $ 42,596     $ 53,681  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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PCTEL, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended September 30, 2009 (UNAUDITED)
(in thousands)
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. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the company’s annual report on Form 10-K for the year ended December 31, 2008.
The company has also filed the following amendments to restate the company’s previously-issued financial statements for the period ended March 31, 2009, and the company’s previously-issued financial statements for period ended June 30, 2009:
  Amendment No. 1 on Form 10-Q/A, filed with the Securities and Exchange Commission (“SEC”) on November 4, 2009, to the company’s quarterly report on Form 10-Q for the period ended March 31, 2009, originally filed on May 11, 2009.
 
  Amendment No. 1 on Form 10-Q/A, filed with the SEC on November 4, 2009, to the company’s quarterly report on Form 10-Q for the period ended June 30, 2009, originally filed on August 10, 2009.
These financial statements should be read in conjunction with the restated condensed consolidated financial statements and notes thereto for the period ended March 31, 2009 included on Form 10-Q/A and with the restated condensed consolidated financial statements and notes thereof for the period ended June 30, 2009 included on Form 10-Q/A.
Summary of Misstatement in the Quarter Ended March 31, 2009
The company acquired Wi-Sys Communications Inc. (“Wi-Sys”), a Canadian manufacturer of products for GPS, terrestrial and satellite communication systems, including programmable GPS receivers and high performance antennas, through a purchase of all of Wi-Sys’ common stock for $2.3 million in cash on January 5, 2009. When recording the initial Wi-Sys balance sheet at fair value under the acquisition method of accounting in the quarter ended March, 31, 2009, the company did not record a $223 deferred tax liability, with correspondent recording of additional goodwill, for the effect of the book over tax basis in the related intangible asset. The company evaluated at the time, in error, that it would treat the permanent difference as a reconciling item in its reconciliation of effective tax rate to statutory rate. During the same quarter, the company impaired all of its goodwill, resulting in goodwill impairment expense being understated by $223, equal to the amount of the unrecorded deferred tax liability.
Additionally, the company discovered that it omitted the effect of compensation deduction limitations for U.S. income tax purposes under IRS Code Section 162(m) when calculating the tax provision. This resulted in income tax expense being understated by $127.
Summary of Misstatement in the Quarter Ended June 30, 2009
During the quarter ended June 30, 2009, the company entered into a plan of liquidation for the Wi-Sys legal entity as part of its consolidation of Wi-Sys’ operations into PCTEL in order to achieve operating cost synergies. Pursuant to that liquidation, the company incurred $275 of Canadian income taxes related to the transfer of assets from the Canadian entity to the company’s U.S. entity. The company initially recorded those taxes as income tax expense in the quarter. Under accounting for income taxes incurred related to the transfer of assets between companies in a controlled group, the current Canadian taxes of $275, less the reversal of the deferred tax liability of $223 should be charged to prepaid taxes, with the balance amortized over the life of the related assets. Therefore income tax expense during the quarter was overstated by $275.
Summary of Misstatement in the Six Months Ended June 30, 2009
The year to date effect of the misstatements on the income statement is that goodwill impairment expense is understated by $223, income tax expense is overstated by $148, and net income is overstated by $75.

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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 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. During the second quarter 2009, the company exited the Canadian facility and fully integrated the Wi-Sys product lines into the company’s antenna product operations in Bloomingdale, Illinois. During the nine months ended September 30, 2009, the company incurred a restructuring charge of $0.2 million for employee severance, lease termination costs, and disposition of assets.
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 had a reporting unit that licensed an intellectual property portfolio in the area of analog modem technology. As of June 30, 2009, the revenues and cash flows associated with this reporting unit were 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. 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 condensed consolidated financial statements separately reflect the MSG operations as discontinued operations for 2008.
Basis of Consolidation and Foreign Currency Translation
The condensed consolidated balance sheet as of September 30, 2009 and the condensed consolidated statements of operations and cash flows for the three months and nine months ended September 30, 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 interim condensed consolidated financial statements are derived from the audited financial statements as of December 31, 2008.
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 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 and nine months ended September 30, 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 $0 and ($34) for the three months and nine months ended September 30, 2009, respectively. Net foreign exchange gains (losses) resulting from foreign currency transactions included in other income, net were ($134) and $84 for the three months and nine months ended September 30, 2008, respectively

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2. Recent Accounting Pronouncements
On September 30, 2009, the company adopted changes issued by the Financial Accounting Standards Board (“FASB”) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the condensed consolidated financial statements.
In August 2009, the FASB issued changes to fair value accounting for liabilities. These changes clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of either a similar liability or a quoted price of an identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of fair value measurements, such as an income approach (e.g., present value technique). This guidance also states that both a quoted price in an active market for the identical liability and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The adoption of these changes did not have a material effect on the condensed consolidated financial statements.
In June 2009, the FASB issued changes related to accounting for transfers of financial assets. The changes will require entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains risk related to the assets. The statement eliminates the concept of a qualifying special-purpose entity, changes the requirements for the de-recognition of financial assets, and calls upon sellers of the assets to make additional disclosures about them. These changes are effective for fiscal years beginning after November 15, 2009. The company does not expect the adoption of these changes to have a material impact on the condensed consolidated financial statements.
In June 2009, the FASB issued changes related to variable interest entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as one with the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the variable interest. These changes will be effective as of the beginning of the annual reporting period commencing after November 15, 2009 and will be adopted by the company in the first quarter of 2010. The company does not expect the adoption of these changes to have a material impact on the condensed consolidated financial statements
Effective June 30 2009, the company adopted Accounting Standards Codification (“ASC”) 855-10, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855-10 requires companies to reflect in their financial statements the effects of subsequent events that provide additional evidence about conditions at the balance sheet date. The adoption of ASC 855-10 did not have a material effect on the condensed consolidated financial statements. In accordance with ASC 855-10, the company reviewed for subsequent events through November 9, 2009.
Effective June 30 2009, the company adopted ASC 825-10, which requires an entity to provide disclosures about fair value of financial instruments in interim financial information. Under this ASC, 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, the company 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. The adoption of ASC 825-10 did not have a material effect on the condensed consolidated financial statements.

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In January 2009, the company adopted ASC 350-30, which 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. The adoption of ASC 350-30 did not have a material impact on the condensed consolidated financial statements.
In January 2009, the company adopted ASC 810-10, which describes a noncontrolling interest, sometimes called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. ASC 810-10 establishes accounting and reporting standards that require, among other items: (a) the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; (b) the amount of consolidated net income (loss) attributable to the parent and the noncontrolling interests be clearly identified and presented on the face of the consolidated statement of income; and (c) entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The adoption of ASC 810-10 did not have a material impact on the condensed consolidated financial statements.
3. Balance Sheet Data
Cash and Cash equivalents
At September 30, 2009, cash and cash equivalents included bank balances and investments with original maturities less than 90 days. At September 30, 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 $24.2 million and $38.9 million of the company’s cash and cash equivalents were insured through the Treasury Guarantee Program at September 30, 2009 and at December 31, 2008, respectively.
The company had cash equivalents in foreign bank accounts of $1.9 million and $1.8 million at September 30, 2009 and December 31, 2008, respectively.
Investments
At September 30, 2009 and December 31, 2008, the company’s short-term and long-term investments consisted of pre-refunded municipal bonds, U.S. Government Agency bonds, AA rated corporate bonds, and shares in a Bank of America affiliated fund, the Columbia Strategic Cash Portfolio (“CSCP”),
CSCP
At September 30, 2009, the company’s shares of the CSCP had a recorded value of approximately $1.9 million. The CSCP is an enhanced cash money market fund that has been negatively impacted by the 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 nine months ended September 30, 2009, the company received share redemption payments of approximately $7.0 million, and recorded $0.3 million in realized gains from these redemptions. At September 30, 2009, the company 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 September 30, 2009, the company has recorded cumulative losses on its CSCP investment of $2.5 million. At September 30, 2009, approximately $2.2 million of these losses had been realized through share liquidation payments and approximately $0.3 million remains 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

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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). Based on the total assets in the fund, the underlying assets of the $1.9 million investment in the fund at September 30, 2009 consist of approximately $0.4 million of cash and accrued interest and $1.5 million of asset backed securities primarily in the areas of residential mortgages, credit card debt, and auto loans. At September 30, 2009, approximately 80% of the CSCP holdings were in cash, accrued interest and securities with an S&P rating of A or better. Twenty 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 $1.5 million of the CSCP investment as short-term investment securities and approximately $0.4 million as long-term investment securities in the condensed consolidated balance sheets at September 30, 2009. The company is unable to determine when the long-term investment portion will be liquidated.
Bonds
The company has invested $32.9 million in pre-refunded municipal bonds and U.S. Government Agency bonds and $1.5 million of AAA rated corporate bonds. The income and principal from the pre-refunded 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 $9.6 million as long-term investment securities because the original maturities were greater than one year. Of this total, $4.5 million mature in 2010 and $5.1 million mature in 2011. The bonds are classified as held to maturity and are carried at amortized cost. At September 30, 2009, approximately 24% of the company’s bonds were protected by bond default insurance.
Cash equivalents and investments consist of the following:
                 
    September 30,     December 31,  
    2009     2008  
 
Cash and cash equivalents
  $ 42,596     $ 44,766  
 
               
Bonds:
               
Short-term
    24,429       13,600  
Long-term
    9,535       10,930  
 
               
Available for sale securities:
               
Short-term
    1,471       4,235  
Long-term
    437       4,328  
 
               
 
           
Total
  $ 78,468     $ 77,859  
 
           

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The financial assets are measured for fair value on a recurring basis. The fair value measurements of the financial assets at September 30, 2009 were as follows:
                         
    Quoted at Prices     Signficant Other        
    in Active Markets     Unobservable        
    for Identical Assets     Inputs        
    (Level 1)     (Level 3)     Total  
 
                       
Cash equivalents
  $ 40,696     $     $ 40,696  
 
                       
Bonds:
                       
Short-term
    24,504             24,504  
Long-term
    9,688             9,688  
 
                       
Available for sale securities:
                       
Short-term
          1,471       1,471  
Long-term
          437       437  
 
                       
 
                 
Total
  $ 74,888     $ 1,908     $ 76,796  
 
                 
The bonds and cash equivalents are carried at amortized cost on the company’s condensed consolidated balance sheets.
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 nine months ended September 30, 2009:
                         
    Short-term     Long-term     Total  
    investment     investment     investment  
    securities     securities     securities  
Balance at December 31, 2008
  $ 4,235     $ 4,328     $ 8,563  
Redemptions
    (7,044 )           (7,044 )
Unrealized gain on investments
    122             122  
Realized gain on investments
    267             267  
Reclassifications
    3,891       (3,891 )      
 
                 
Balance at September 30, 2009
  $ 1,471     $ 437     $ 1,908  
 
                 
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 September 30, 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 September 30, 2009 and December 31, 2008, respectively.
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 September 30, 2009 and December 31, 2008 were composed of raw materials, sub-assemblies, finished goods and work-in-process. The company had consigned inventory of $0.4 million and $0.9 million at September 30, 2009 and December 31, 2008, respectively. The company records allowances to reduce the value of inventory to the lower of cost or market, including allowances for excess and obsolete inventory. As of September 30, 2009 and December 31, 2008, the allowance for inventory losses was $1.3 million and $1.0 million, respectively.

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Inventories consisted of the following at September 30, 2009 and December 31, 2008:
                 
    September 30,     December 31,  
    2009     2008  
Raw materials
  $ 6,294     $ 7,650  
Work in process
    400       377  
Finished goods
    1,713       2,324  
 
           
Inventories, net
  $ 8,407     $ 10,351  
 
           
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 September 30, 2009 and December 31, 2008:
                 
    September 30,     December 31,  
    2009     2008  
Building
  $ 6,207     $ 6,193  
Land
    1,770       1,770  
Computers and office equipment
    3,895       3,545  
Manufacturing and test equipment
    7,048       6,573  
Furniture and fixtures
    1,116       1,176  
Leasehold improvements
    166       120  
Motor vehicles
    27       27  
 
           
Total property and equipment
    20,229       19,404  
Less: Accumulated depreciation and amortization
    (8,097 )     (6,579 )
 
           
Property and equipment, net
  $ 12,132     $ 12,825  
 
           
Goodwill
The company’s goodwill balance was $0 and $0.4 million on the condensed consolidated balance sheets at September 30, 2009 and December 31, 2008, respectively. In January 2009, the company recorded goodwill of $1.1 million related to the acquisition of Wi-Sys. In March 2009, the company recorded goodwill impairment of $1.5 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.
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 31st), 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 its carrying value. The company considered this market capitalization deficit as a triggering event for purposes of analyzing goodwill for impairment.

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Intangible Assets
The company amortizes intangible assets with finite lives on a straight-line basis over the estimated useful lives, which range from one to eight years. The summary of other intangible assets, net as of September 30, 2009 and December 31, 2008 are as follows:
                                                 
    September 30,     December 31,  
    2009     2008  
            Accumulated     Net Book             Accumulated     Net Book  
    Cost     Amortization     Value     Cost     Amortization     Value  
Customer contracts and relationships
  $ 9,580     $ 6,221     $ 3,359     $ 8,850     $ 5,048     $ 3,802  
Patents and technology
    6,027       5,621       406       5,990       5,338       652  
Trademarks and trade names
    2,278       1,677       601       2,260       1,474       786  
Other, net
    1,508       1,508             1,508       1,508        
 
                                   
 
  $ 19,393     $ 15,027     $ 4,366     $ 18,608     $ 13,368     $ 5,240  
 
                                   
The decrease in intangible assets at September 30, 2009 compared to December 31, 2008 reflects the addition of $0.8 million for the acquisition of Wi-Sys in January 2009 minus amortization of $1.7 million for the nine months ended September 30, 2009. Based on the triggering event related to the company’s market capitalization in the first quarter 2009, the company reevaluated the carrying value of the intangible assets. The company concluded that there was no impairment of other intangible assets in relation to the test at March 31, 2009. There was no triggering event in the second or third quarter 2009. Based on the company’s review of intangible assets, there was no impairment of other intangible assets at September 30, 2009.
Liabilities
Accrued liabilities consist of the following at September 30, 2009 and December 31, 2008:
                 
    September 30,     December 31,  
    2009     2008  
Inventory receipts
  $ 953     $ 2,667  
Paid time off
    732       741  
Royalties
    624        
Payroll, bonuses, and other employee benefits
    513       1,252  
Taxes and fees
    402       605  
Warranties
    189       193  
Professional fees
    149       230  
Prepaid accounts receivable
    102       124  
Employee stock purchase plan
    88       193  
Restructuring
          65  
Other
    311       128  
 
           
Total
  $ 4,063     $ 6,198  
 
           
Long-term liabilities consist of the following:
                 
    September 30,     December 31,  
    2009     2008  
Executive deferred compensation plan
  $ 875     $ 658  
Income tax liabilities
    642       642  
Other long-term liabilities
    175       212  
 
           
 
  $ 1,692     $ 1,512  
 
           

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4. 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 and nine months ended September 30, 2008. The company recognized a gain on sale before tax of $60.3 million in January 2008. There was no activity related to discontinued operations during the three months and nine months ended September 30, 2009.
Summary results of operations for the discontinued operations included in the condensed consolidated statement of operations for the three months and nine months ended September 30, 2008, were as follows:
                 
    Three Months Ended     Nine Months Ended  
    September 30, 2008     September 30, 2008  
Revenues
  $     $ 122  
Operating costs and expenses
          (400 )
Restructuring expenses
    (5 )     (19 )
Gain on disposal
          60,336  
 
           
Income (loss) from discontinued operations, before taxes
    (5 )     60,039  
Provision (benefit) for income tax
    (162 )     23,004  
 
           
Income from discontinued operations, net of tax
  $ 157     $ 37,035  
 
           
 
               
Income from discontinued operations per common share:
               
Basic
  $ 0.01     $ 1.90  
Diluted
  $ 0.01     $ 1.87  
 
               
Shares used in computing basic earnings per share
    18,164       19,525  
Shares used in computing diluted earnings per share
    18,709       19,761  
5. Acquisitions and Dispositions
Business combinations are accounted for using the acquisition method (formerly called the purchase method). In general the acquisition method requires acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed, and noncontrolling 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.
The new measurement requirements also change the accounting for contingent consideration, in process research and development, and restructuring costs. In addition 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.
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

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final balance sheet at December 31, 2008. The $0.2 million additional consideration was paid in cash in July 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 manufactured products for GPS, terrestrial and satellite communication systems, including programmable GPS receivers and high performance antennas in Ottawa, Canada. The Wi-Sys antenna product line augments the company’s GPS antenna product line. Wi-Sys revenues for the year ended December 31, 2008 were approximately $2.2 million. The revenues and expenses for Wi-Sys are included in the company’s financial results for the three months and nine months ended September 30, 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 $0.4 million to liabilities assumed, $0.7 million to customer relationships, and $0.1 million to core technology and trade names. The $1.1 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 amortizable for book purposes or deductible for 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.
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 current assets
    762  
 
       
Fixed assets, net
    69  
 
       
Intangible Assets:
       
Core technology
    37  
Customer relationships
    730  
Trade name
    18  
Goodwill
    1,101  
 
     
 
       
Total intangible assets
    1,886  
 
       
 
     
Total Assets
  $ 2,717  
 
     
 
       
Current liabilities:
       
Accounts payable
  $ 139  
Accrued liabilities
    36  
 
     
Total current liabilities
    175  
 
       
Deferred tax liabilities
    223  
 
       
 
     
 
       
Total Liabilities
  $ 398  
 
     
 
       
Net assets acquired
  $ 2,319  
 
     
In March 2009, the company recorded goodwill impairment of $1.5 million. The impairment charge included the $1.1 million recorded for the Wi-Sys acquisition. See the goodwill section in Note 3 for further discussion of the goodwill impairment.
In the second quarter 2009, the company closed the Ottawa, Canada location and integrated the operations in the company’s Bloomingdale, Illinois location. None of the Wi-Sys employees were retained by the company. The company incurred expenses related to employee severance, lease termination, and other shut down costs associated with the Wi-Sys restructuring. See note 9 related to 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,

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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 LMR antenna product line. In 2008, the revenues and expenses for Bluewave are included in the company’s financial results from the date of the acquisition through September 30, 2008.
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.
The following is the allocation of the purchase price for Bluewave:
         
Fixed Assets:
       
Computer software
  $ 46  
Tooling
    60  
 
     
Total fixed assets
  $ 106  
 
     
 
       
Intangible Assets:
       
Core technology
  $ 290  
Customer relationships
    2,850  
Trade name
    160  
Backlog
    8  
Goodwill
    486  
 
     
Total intangibles assets
  $ 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.
SWTS was formed at the effective date of this sale to specifically house the operations of the four antenna lines and the sales activities related to the representation of the company’s remaining antenna products in Europe. SWTS was capitalized with equity of $0.1 million and the company’s promissory note of $0.6 million. The company concluded that SWTS is a variable interest entity because of the company’s promissory note and because total equity investment of SWTS at risk is insufficient to finance the activities of SWTS without additional subordinated financial support. Per the company’s analysis, the company concluded that it is not the primary beneficiary of SWTS because the risks and other incidents of ownership were in fact transferred to the buyer. The shareholders of SWTS maintain all voting rights and decision making authority over SWTS activities. The company’s analysis included significant judgment related to projections of revenues, income, and cash flows of SWTS. Because the company is not the primary beneficiary of SWTS, the company does not consolidate the results of SWTS in its financial statements.
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 consolidated statements of operations. The net loss included the book value of the assets sold to SWTS, impairment charges and non-contingent 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. 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 net receivable balance from SWTS was $0 and $0.5 million in the condensed consolidated balance sheets as of September 30, 2009 and December 31, 2008, respectively. At June 30, 2009, the company reserved for the $0.5 million receivable balance from SWTS due to

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uncertainty of collection. The reserve was recorded as a loss on sale of product lines and related note receivable in the condensed consolidated statements of operations. As of September 30, 2009, the rep relationship constitutes the company’s continuing involvement with SWTS. SWTS sells the company’s antennas to the same customer base that were currently sold to and attempts to expand that customer base on its own. SWTS also manufactures and sells the four antenna lines purchased from the company. At September 30, 2009, there is no exposure to loss from SWTS.
6. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Basic Earnings Per Share computation:
                               
Numerator:
                               
Net income (loss)
    ($755 )   $ 11,066       ($3,911 )   $ 48,948  
Denominator:
                               
Common shares outstanding
    17,559       18,164       17,573       19,525  
 
                               
 
                       
Basic income (loss) per share
    ($0.04 )   $ 0.61       ($0.22 )   $ 2.51  
 
                       
 
                               
Diluted Earnings Per Share computation:
                               
Numerator:
                               
Net income (loss)
    ($755 )   $ 11,066       ($3,911 )   $ 48,948  
Denominator:
                               
Common shares outstanding
    17,559       18,164       17,573       19,525  
Restricted shares subject to vesting
    *       339       *       141  
Employee common stock option grants
    *       206       *       95  
 
                       
Total shares
    17,559       18,709       17,573       19,761  
 
                               
 
                       
Diluted income (loss) per share
    ($0.04 )   $ 0.59       ($0.22 )   $ 2.48  
 
                       
 
*   These amounts have been excluded since the effect is anti-dilutive. The weighted average common stock option grants and Restricted Shares excluded from the calculations of diluted net loss per share were 279,000 and 274,000 for the three months and nine months ended September 30, 2009, respectively.
7. Stock-Based Compensation
Total stock compensation expense for the three months ended September 30, 2009 was $0.7 million in the condensed consolidated statement of operations, which included $0.7 million of restricted stock amortization and $0.1 million for stock option and stock purchase plan expenses offsetting $0.1 million expense reversal for stock bonuses. Total stock compensation expense for the nine months ended September 30, 2009 was $2.7 million in the condensed consolidated statement of operations, which included $2.4 million of restricted stock amortization and $0.3 million for stock option expense and stock purchase plan expenses.
Total stock compensation expense for the three months ended September 30, 2008 was $0.9 million for continuing operations in the condensed consolidated statement of operations, which included $0.8 million of restricted stock amortization and $0.1 million for stock option and employee stock purchase plan expenses. Total stock compensation expense for the nine months ended September 30, 2008 was $3.5 million for continuing operations in the condensed consolidated statement of operations, which included $2.4 million of restricted stock amortization, $0.6 million for stock bonuses, and $0.5 million for stock option and stock purchase plan expenses. The company also recorded stock compensation of $0.2 million related to discontinued operations in the nine months ended September 30, 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

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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 three months ended September 30, 2009, the company issued 3,000 shares of restricted stock with a fair value of $17 and recorded cancellations of 14,305 shares with grant date fair value of $74. For the nine months ended September 30, 2009, the company issued 580,350 shares of restricted stock with a fair value of $2.4 million and recorded cancellations of 35,255 shares with grant date fair value of $0.3 million.
For the three months ended September 30, 2008, the company issued 2,200 shares of restricted stock with a grant date fair value of $20 and recorded cancellations of 9,675 shares with grant date fair value of $77. For the nine months ended September 30, 2008, the company issued 316,482 shares of restricted stock with a fair value of $2.2 million and recorded cancellations of 215,288 shares with grant date fair value of $2.0 million.
For the three months and nine months ended September 30, 2009, 10,675 and 235,149 restricted shares vested with a grant date fair value of $116 and $2.1 million, respectively. For the three months and nine months ended September 30, 2008, 65,250 and 317,845 restricted shares vested with a grant date fair value of $740 and $3.1 million, respectively.
At September 30, 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 1.7 years.
A summary of the company’s service-based restricted stock activity follows for the nine months ended September 30, 2009:
                 
            Weighted  
            Average  
            Grant Date  
    Shares     Fair Value  
 
               
Balance at December 31, 2008
    853,307     $ 8.29  
Shares awarded
    580,350       4.17  
Shares vested
    (235,149 )     8.79  
Shares cancelled
    (35,255 )     7.20  
 
           
Balance at September 30, 2009
    1,163,253     $ 6.17  
The intrinsic value of vested service-based restricted stock was as follows for the three months and nine months ended September 30:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2009   2008   2009   2008
Intrinsic value — service based restricted shares
  $ 69     $ 678     $ 1,570     $ 2,277  
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. 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. The 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.
The company did not issue stock options and there were no stock option exercises during the nine months ended September 30, 2009. During the three months and nine months ended September 30, 2009, respectively, 51,347 and 82,466 options were either forfeited or expired.

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The company issued 1,800 and 127,500 options during the three and nine months ended September 30, 2008, respectively. The company received $3.2 million in proceeds from the exercise of 437,009 options during the three months ended September 30, 2008 and the company received $3.8 million in proceeds from the exercise of 510,573 options during the nine months ended September 30, 2008.
At September 30, 2009, total unrecognized compensation expense related to stock options was approximately $85, net of forfeitures to be recognized through 2012 over a weighted average period of 1.0 year.
The intrinsic value of stock options exercised was as follows for the three months and nine months ended September 30:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2009   2008   2009   2008
Intrinsic value — stock options
  $ 0     $ 1,319     $ 0     $ 1,378  
The range of exercise prices for options outstanding and exercisable at September 30, 2009 was $6.16 to $59.00. The following table summarizes information about stock options outstanding under all stock plans at September 30, 2009:
                                                         
                            Options Outstanding     Options Exercisable  
                            Weighted                      
                            Average     Weighted-             Weighted  
Range of     Number     Contractual Life     Average     Number     Average  
Exercise Prices     Outstanding     (Years)     Exercise Price     Exercisable     Exercise Price  
$ 6.16    
  $ 7.30       237,665       5.44     $ 6.96       213,728     $ 7.02  
  7.40    
    7.93       245,104       4.19       7.68       239,777       7.69  
  7.95    
    8.62       239,858       4.10       8.24       231,564       8.23  
  8.63    
    9.16       348,127       5.83       9.03       317,471       9.02  
  9.19    
    10.25       247,750       5.87       9.74       210,621       9.75  
  10.46    
    10.70       256,206       4.54       10.68       254,931       10.68  
  10.72    
    11.60       326,970       4.36       11.28       320,408       11.28  
  11.65    
    11.84       335,600       4.48       11.78       335,600       11.78  
  12.16    
    13.30       33,400       3.88       12.82       33,400       12.82  
  59.00    
    59.00       7,500       0.34       59.00       7,500       59.00  
     
 
                                   
$ 6.16    
  $ 59.00       2,278,180       4.83     $ 9.79       2,165,000     $ 9.85  
The intrinsic value and contractual life of the options outstanding and exercisable at September 30, 2009 were as follows:
                 
    Weighted Average    
    Contractual Life   Intrinsic Value
Options Outstanding
    4.83     $ 1  
Options Exercisable
    4.69     $ 0  
The intrinsic value is based on the share price of $6.25 at September 30, 2009.

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A summary of the company’s stock option activity and related information follows for the nine months ended September 30, 2009:
                 
            Weighted  
            Average  
    Options     Exercise  
    Outstanding     Price  
 
               
Outstanding at December 31, 2008
    2,360,646     $ 9.80  
Granted
           
Exercised
           
Expired
    (73,333 )     9.92  
Forfeited
    (9,133 )     9.74  
 
           
Outstanding at September 30, 2009
    2,278,180     $ 9.79  
 
               
Exercisable at September 30, 2009
    2,165,000     $ 9.85  
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 nine months ended September 30:
                 
    September 30,   September 30,
    2009   2008
Weighted average fair value of options granted
        $ 1.97  
 
               
Dividend yield
        None
Risk-free interest rate
          2.7 %
Expected volatility
          40 %
Expected life (in years)
          2.4  
There were no stock options granted during the nine months ended September 30, 2009.
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.
During the nine months ended September 30, 2009, the company did not issue any performance based restricted stock rights and did not record any cancellations of performance shares. In the first quarter 2009, 10,342 performance shares vested with a grant date value of $82. In the first quarter 2008, the company issued 25,000 performance shares with a fair value of $169 and 5,330 performance shares vested with a grant date fair value of $56. No performance shares vested in the three months ended September 30, 2009 or in the three months ended September 30, 2008.
The intrinsic value of vested performance shares was as follows for the three months and six months ended September 30:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2009   2008   2009   2008
Intrinsic value — performance shares
  $ 0     $ 0     $ 50     $ 33  

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The following summarizes the performance share activity during the nine months ended September 30, 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 September 30, 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. Employee restricted stock units are time-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock.
No time-based restricted stock units were issued in the three months ended September 30, 2009. During the nine months ended September 30, 2009, the company granted 26,350 time-based restricted stock units with fair value of $179. During the three and nine months ended September 30, 2009, 12,500 restricted stock units vested with a grant date fair value of $87, and 12,500 restricted stock units were cancelled with a grant date fair value of $87.
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2009   2008   2009   2008
Intrinsic value — restricted stock units
  $ 67     $ 0     $ 67     $ 0  
The following summarizes the restricted stock unit activity during the nine months ended September 30, 2009:
                 
            Weighted  
            Average  
            Grant Date  
    Shares     Fair Value  
 
               
Balance at December 31, 2008
           
Units awarded
    26,350       6.79  
Units vested
    (12,500 )     6.93  
Units cancelled
    (12,500 )     6.93  
 
           
Balance at September 30, 2009
    1,350     $ 4.10  
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. 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. The company received proceeds of $0.2 million from the issuance of 51,551 shares under the Purchase Plan in August 2009 and received proceeds of $0.3 million from the issuance of 32,568 shares under the Purchase Plan in August 2008.
Based on the 15% discount and the fair value of the option feature of the Purchase Plan, the Purchase Plan is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.

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The key assumptions used in the valuation model during the nine months ended September 30:
                 
    September 30,   September 30,
    2009   2008
Dividend yield
  None   None
Risk-free interest rate
    0.6 %     3.0 %
Expected volatility
    47 %     40 %
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.
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 February 2009, the company issued 90,173 shares, net of shares withheld for payment of withholding tax, under the 2008 Short Term Incentive Plan. In February 2008, the company issued 82,001 shares, net of shares withheld for payment of withholding tax, under the 2007 Short Term Incentive plan.
Board of Director Equity Awards
Beginning in 2009, the Board of Directors elected to receive their annual equity award in the form of shares of the company’s stock or in shares of vested restricted stock units. During the nine months ended September 30, 2009, the company issued 21,326 shares of the company’s stock with a fair value of $132 and issued 22,458 restricted stock units with fair value of $139 that vested immediately to the Board of Directors for the annual equity awards.
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 nine months ended September 30, 2009 and September 30, 2008, the company paid $0.8 million and $0.9 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 152,747 shares at an average price of $6.12 during the three months ended September 30, 2009, and the company repurchased 271,251 shares at an average price of $5.58 during the nine months ended September 30, 2009. As of September 30, 2009, the company has $3.5 million remaining under this share repurchase program. The company repurchased 503,446 shares at an average price of $9.92 during the three months ended September 30, 2008, and the company purchased 3,526,062 shares at an average price of $8.40 during the nine months ended September 30, 2008 under share repurchase programs.

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8. Comprehensive Income
The following table provides the calculation of other comprehensive income for the three months and nine months ended September 30, 2009 and 2008, respectively:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Net Income (loss) from continuing operations
    ($755 )   $ 10,909       ($3,911 )   $ 11,913  
Foreign currency translation adjustments
    (4 )     (24 )     20       (46 )
Unrealized gain on investments
    (167 )     (14 )     122        
 
                       
Comprehensive income (loss) from continuing operations
    (926 )     10,871       (3,769 )     11,867  
Income from discontinued operations, net of tax
          157             37,035  
 
                       
Total comprehensive income (loss)
    ($926 )   $ 11,028       ($3,769 )   $ 48,902  
 
                       
9. Restructuring
Wi-Sys Restructuring
During the second quarter 2009, the company exited the Canadian facility related to the Wi-Sys acquisition and fully integrated the Wi-Sys product lines into the company’s antenna product operations in Bloomingdale, Illinois. None of the fifteen Wi-Sys employees were retained by the company after the integration. During the three and nine months ended September 30, 2009, respectively the company incurred $0 and $0.2 million in restructuring charges for employee severance, lease termination costs, and disposition of assets.
                                 
    Accrual                     Accrual  
    Balance at             Cash     Balance at  
    December 31,     Restructuring     Payments/     September 30,  
    2008     Expense     Adjustments     2009  
Severance and employment related costs
  $     $ 139     $ (139 )   $  
Assets disposed net of proceeds
          65       (65 )      
Facility leases
          15       (15 )      
 
                       
 
  $     $ 219     $ (219 )   $  
 
                       
Antenna Restructuring
In order to reduce costs with the antenna operations in the Bloomingdale, Illinois location, the company terminated thirteen employees during the three months ended March 31, 2009 and terminated five additional employees during the three months ended June 30, 2009. During the three and nine months ended September 30, 2009, respectively the company recorded $0 and $0.3 million in restructuring charges for severance payments for these eighteen employees.
                                 
    Accrual                     Accrual  
    Balance at                     Balance at  
    December 31,     Restructuring     Cash     September 30,  
    2008     Expense     Payments     2009  
Severance and employment related costs
  $     $ 274       ($274 )   $  
 
                       
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 payments and lease obligations in the fourth quarter 2008. 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 September 30, 2009:
                                 
    Accrual                     Accrual  
    Balance at             Cash     Balance at  
    December 31,     Restructuring     Payments/     September 30,  
    2008     Expense     Receipts     2009  
 
                               
Severance and employment related costs
  $ 59     $       ($59 )   $  
Facility and car leases
    6             (6 )      
 
                       
 
  $ 65     $       ($65 )   $  
 
                       
2008 Restructuring

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In the three months ended March 31, 2008, the company incurred restructuring 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. A final adjustment to the UMTS restructuring reserve was recorded in the three months ended June 30, 2008.
10. Short Term Borrowings
The company had no borrowings at September 30, 2009 or December 31, 2008.
11. 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. 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 September 30, 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 September 30, 2009 and December 31, 2008, respectively, and is included in other accrued liabilities in the accompanying condensed consolidated balance sheets.
Changes in the warranty reserves during the nine months ended September 30, 2009 and 2008 were as follows:
                 
    Nine Months Ended  
    September 30,     September 30,  
    2009     2008  
Beginning balance
  $ 193     $ 193  
Provisions for warranty
    53       84  
Consumption of reserves
    (57 )     (82 )
 
           
Ending balance
  $ 189     $ 195  
 
           
Legal Proceedings
Litigation with Wider Networks LLC
In March 2009, the company filed in the United States District Court for the District of Maryland, Greenbelt Division, a lawsuit against Wider Networks, LLC claiming patent infringement, unfair competition and false advertising, seeking damages as allowed pursuant to federal and Maryland law. In June 2009, Telecom Network Optimization, LLC d/b/a Wider Networks, filed a lawsuit against the company for patent infringement. These cases were consolidated by the court. On November 5, 2009, the parties participated in a mandatory settlement conference and signed a binding memorandum of understanding (“MOU”) resolving all disputes. The consolidated cases were dismissed without prejudice on November 6, 2009, and the parties will shortly enter into definitive agreements based on the binding MOU.
Under the terms of the settlement, Wider will rely exclusively on the company to distribute Wider’s WIND 3G interference management system and the scanning receivers underlying those systems. The company has acquired all of the patents and intellectual property relating to Wider’s products for $800,000 in consideration and $400,000 in future payments.
ITAR Disclosure
During the quarter ended September 30, 2009, the company became aware that certain PCTEL antenna products are subject to the jurisdiction of the U.S. Department of State in accordance with the International Traffic in Arms Regulations (“ITAR”). The company determined that its processes surrounding the design and manufacture of these antennas were not adequate to assure compliance with the ITAR, and that the company may have inadvertently violated restrictions on technology transfer called for in the ITAR. Accordingly, on October 1, 2009 the company filed a Voluntary Disclosure with the Directorate of Defense Trade Controls (“DTCC”), Department of State, describing the details of the non-compliance. On October 15, 2009, the company received a letter from the DTCC requesting that the company provide a full disclosure within 60 days of the date of their letter. At this time it is not possible to determine whether any fines or other penalties will be

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asserted against the company or the materiality of any outcome.
12. Income Taxes
The company recorded an income tax provision of $0.3 million in the three months ended September 30, 2009 and recorded an income tax benefit of $1.0 million in the nine months ended September 30, 2009. This tax provision for the three months ended September 30, 2009 represents an effective rate of (72)% and the tax benefit for the nine months ended September 30, 2009 represents an effective rate of 20%. The tax rate differs from the statutory rate of 34% primarily because of permanent tax differences, foreign taxes and from revisions to the tax rates due to changes in income projections.
For the nine months ended September 30, 2008, the company recorded a net income tax benefit of $8.5 million for continuing operations. The net tax benefit of $8.5 million includes continuing income tax expense of $1.9 million offset by a $10.4 million tax benefit related to the reversal of allowances on the company’s deferred tax assets. The continuing income tax expense differs from the statutory rate of 35% because of permanent tax differences.
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.
Accounting for uncertainty in income taxes is based on a comprehensive model for recognizing, measuring, presenting and disclosing uncertain income tax positions taken or expected to be taken by the Company on our tax returns. The company’s gross unrecognized tax benefit was $0.9 million both at September 30, 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 was no interest or penalties related to income taxes recorded in the condensed consolidated financial statements.
13. 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 and nine months ended September 30, 2009 and 2008, are as follows:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
Region   2009   2008   2009   2008
Europe, Middle East, & Africa
    26 %     26 %     25 %     30 %
Asia Pacific
    9 %     9 %     15 %     7 %
Other Americas
    8 %     9 %     7 %     8 %
 
                               
Total Foreign sales
    43 %     44 %     47 %     45 %
Revenue from the company’s major customers representing 10% or more of total revenues for the three months and nine months ended September 30, 2009 and 2008 are as follows:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
Customer   2009   2008   2009   2008
Ericsson AB
    9 %     10 %     10 %     12 %
14. 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

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annual limit. The company may make discretionary contributions to the 401(k) plan. The company made employer contributions of $132 and $407 to the 401(k) plan for the three months and nine months ended September 30, 2009, respectively. The company made employer contributions of $137 and $407 to the 401(k) plan for the three months and nine months ended September 30, 2008, respectively.
Foreign Employee Benefit Plans
The company contributes to various retirement plans for foreign employees. The company made contributions of approximately $16 and $25 to these plans for the three months ended September 30, 2009 and 2008, respectively. The company made contributions of approximately $45 and $65 to these plans for the nine months ended September 30, 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. 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. The deferred compensation obligation included in Long-Term Accrued Liabilities in the condensed consolidated balance sheets was $0.9 million at September 30, 2009 and $0.7 million at December 31, 2008. 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.

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15. Stockholders’ Equity
The following table is a summary of the activity in stockholders’ equity during the nine months ended September 30, 2009 and 2008:
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
Number of common shares outstanding:
               
Balance at beginning of period
    18,236       21,917  
Common stock repurchases
    (271 )     (3,526 )
Stock-based compensation, net of taxes
    693       360  
 
           
Balance at end of period
    18,658       18,751  
 
           
 
               
Common stock:
               
Balance at beginning of period
  $ 18     $ 22  
Common stock repurchases
    (1 )     (2 )
Stock-based compensation, net of taxes
    1       (1 )
 
           
Balance at end of period
  $ 18     $ 19  
 
           
 
               
Additional paid-in capital:
               
Balance at beginning of period
  $ 137,930     $ 165,108  
Stock-based compensation, net of taxes
    2,330       4,970  
Common stock repurchases
    (1,515 )     (29,618 )
Tax benefit from shares issued under equity-based compensation plans
    (192 )     1,979  
 
           
Balance at end of period
  $ 138,553     $ 142,439  
 
           
 
               
Accumulated deficit:
               
Balance at beginning of period
    ($12,639 )     ($40,640 )
Dividends
          (10,294 )
Net income (loss)
    (3,911 )     48,948  
 
           
Balance at end of period
    ($16,550 )     ($1,986 )
 
           
Accumulated other comprehensive income:
               
Balance at beginning of period
  $ 9     $ 77  
Foreign translation
    20       (46 )
Unrealized gain on investments
    122        
 
           
Balance at end of period
  $ 151     $ 31  
 
           
 
               
Total stockholders’ equity
  $ 122,172     $ 140,503  
 
           

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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 consolidated 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 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”), a Canadian manufacturer of products for GPS, terrestrial and satellite communication systems, including programmable GPS receivers and high performance antennas. The Wi-Sys product line augments our GPS antenna product line. During the second quarter 2009, we exited the Wi-Sys Canadian facility and fully integrated the Wi-Sys product lines into our antenna product operations in Bloomingdale, Illinois. During the nine months ended September 30, 2009 we incurred a restructuring charge of $0.2 million for employee severance, lease termination costs, and asset dispositions.
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, 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 were substantially complete. In 2009 and for comparable periods this reporting unit does not meet the quantitative threshold requirements of a reportable segment. As such, the results for licensing for all periods presented are aggregated with the rest of the company.

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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 and Nine Months Ended September 30, 2009 and 2008
Revenues
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Revenue
  $ 13,709     $ 20,087     $ 41,216     $ 58,661  
Percent change from year ago period
    (31.8 %)     14.0 %     (29.7 %)     15.6 %
Revenues decreased 31.8% in the three months ended September 30, 2009 and 29.7% in the nine months ended September 30, 2009 compared to the same periods in 2008 as both scanning receiver and antenna product lines experienced declines. In the three months ended September 30, 2009 versus the comparable period in the prior year, approximately 23% of the decline is attributable to antennas and approximately 8% of the decline is attributable to scanning receivers. In the nine months ended September 30, 2009 versus the comparable period in the prior year, approximately 19% of the decline is attributable to antennas and approximately 10% of the decline is attributable to scanning receivers. Antenna revenues were lower in our distribution and OEM channels, reflecting particular softness in land mobile radio systems, continued delays in mobile WiMAX rollout, and defense related antenna sales. Scanning receiver revenues were lower due to reduced capital expenditures levels worldwide and due to delays in carrier spending caused by the transition from Evolution Date Optimized to the Long-Term Evolution technology standard for communication networks.
Gross Profit
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Gross profit
  $ 6,426     $ 9,560     $ 19,155     $ 28,034  
Percentage of revenue
    46.9 %     47.6 %     46.5 %     47.8 %
Percent of revenue change from year ago period
    (0.7 %)     2.9 %     (1.3 %)     3.2 %
Gross margin of 46.9% in the three months ended September 30, 2009 was 0.7% lower than the comparable period in fiscal 2008. Scanners contributed 0.3% of the margin percentage decrease and antennas contributed 0.4% of the margin percentage decrease in the three months ended September 30, 2009 versus the comparable period in 2008. Gross margin of 46.5% in the nine months ended September 30, 2009 was 1.3% lower than the comparable period in fiscal 2008. Scanners contributed 0.7% of the margin percentage decrease and antennas contributed 0.6% of the margin percentage decrease in the nine months ended September 30, 2009 versus the comparable period in 2008. In the three months and nine months ended September 30, 2009, the lower gross margin reflects the cost of lower overall volume over our fixed costs.
Research and Development
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Research and development
  $ 2,673     $ 2,591     $ 8,010     $ 7,387  
Percentage of revenues
    19.5 %     12.9 %     19.4 %     12.6 %
Percent change from year ago period
    3.2 %     20.2 %     8.4 %     0.1 %
Research and development expenses increased approximately $0.1 million for the three months ended September 30, 2009 and increased

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approximately $0.6 million for the nine months ended September 30, 2009 compared to the comparable periods in 2008. During the nine months ended September 30, 2009, expenses were higher than the comparable period in the prior year because we invested in the development of new scanning receivers and because of the acquisition of certain assets of Bluewave in March 2008 and Wi-Sys in January 2009. During the integration of the Bluewave and Wi-Sys acquisitions, we incurred incremental engineering expenses.
Sales and Marketing
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Sales and marketing
  $ 1,845     $ 2,543     $ 5,841     $ 8,180  
Percentage of revenues
    13.5 %     12.7 %     14.2 %     13.9 %
Percent change from year ago period
    (27.4 %)     (10.0 %)     (28.6 %)     (0.6 %)
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 September 30, 2009 and decreased approximately $2.3 million for the nine months ended September 30, 2009 compared to the same periods in fiscal 2008. These decreases are 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   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
General and administrative
  $ 2,169     $ 2,619     $ 7,245     $ 8,372  
Percentage of revenues
    15.8 %     13.0 %     17.6 %     14.3 %
Percent change from year ago period
    (17.2 %)     (16.3 %)     (13.5 %)     (13.7 %)
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 $0.5 million for the three months ended September 30, 2009 and approximately $1.1 million for the nine months ended September 30, 2009 compared to the same periods in fiscal 2008. For the three months ended September 30, 2009, the expense decrease is due to $0.2 million lower stock compensation expense for employees in general and administrative functions and $0.3 million due to corporate cost reductions. For the nine months ended September 30, 2009, the expense decrease is due to $0.7 million lower stock compensation expense for employees in general and administrative functions and $0.4 million due to corporate cost reductions.
Amortization of Intangible Assets
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Amortization of other intangible assets
  $ 553     $ 552     $ 1,660     $ 1,544  
Percentage of revenues
    4.0 %     2.7 %     4.0 %     2.6 %
Amortization was unchanged in the three months ended September 30, 2009 compared to the same period in 2008. Amortization expense related to the Wi-Sys acquisition in January 2009 offset the impact from the sale of product lines to SWTS in October 2008. Amortization increased approximately $0.1 million in the nine months ended September 30, 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.

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Restructuring Charges
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Restructuring charges
  $  —     $  —     $ 494     $ 364  
Percentage of revenues
     —        —       1.2 %     0.6 %
There were no restructuring charges incurred during the three months ended September 30, 2009. During the nine months ended September 30, 2009, we recorded $0.2 million expense related to Wi-Sys restructuring and $0.3 million expense related to antenna operations.
In order to reduce costs with the antenna operations in the Bloomingdale, Illinois location, we terminated thirteen employees during the three months ended March 31, 2009 and terminated five additional employees during three months ended June 30, 2009. During the nine months ended September 30, 2009, we recorded $0.3 million in restructuring expense for severance payments for these eighteen employees.
During the second quarter 2009, we exited the Ottawa, Canada location related to the Wi-Sys acquisition and integrated their operations in our Bloomingdale, Illinois location. The restructuring expense of $0.2 million relates to employee severance, lease termination, and other shut down costs.
During the nine months ended September 30, 2008, we incurred charges of approximately $0.3 million related to employee severance costs related to the reduction of corporate overhead and $0.1 million related to adjustments to our UMTS restructuring reserves. We streamlined our corporate overhead structure to reduce general and administrative expenses
Impairment of Goodwill
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Impairment of goodwill
  $  —     $  —     $ 1,485     $  —  
Percentage of revenues
     —        —       3.6 %      —  
In March 2009, we recorded goodwill impairment of $1.5 million. This amount represented the remaining $0.4 million of goodwill for Licensing and the $1.1 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 book value at March 31, 2009. We considered this market capitalization deficit as a triggering event. For testing goodwill for impairment.
Loss on sale of product lines and related note receivable
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Loss on sale of product lines and realted note receivable
  $  —     $ 882     $ 454     $ 882  
Percentage of revenues
     —       4.4 %     1.1 %     1.5 %
In the fourth quarter of 2008 we sold 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. In the year ended December 31, 2008, we recorded a $0.9 million loss on sale of product lines, separately within operating expenses in the consolidated statements of operations. The net loss included the book value of the assets sold to SWTS, impairment charges, and incentive payments due the new employees of SWTS, net of the proceeds due to us. We 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. We 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.
At June 30, 2009, we reserved for the $0.5 million receivable balance from SWTS due to uncertainty of collection. The reserve was recorded as a loss on sale of product line and related note receivable in the condensed consolidated statements of operations.

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Gain on sale of assets and related royalties
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Gain on sale of assets and related royalties
  $  —     $ 200     $ 400     $ 600  
Percentage of revenues
     —       1.0 %     1.0 %     1.0 %
All royalty amounts represent royalties from Conexant. Payments under the royalty agreement with Conexant were completed at June 30, 2009. We do not expect any additional royalties.
Other Income, Net
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Other income, net
  $ 375     $ 120     $ 742     $ 1,557  
Percentage of revenues
    2.7 %     0.6 %     1.8 %     2.7 %
Other income, net consists primarily of interest income and foreign exchange gains and losses. Other income, net increased in the three months ended September 30, 2009 compared to the comparable period in 2008 due primarily to $0.2 million of realized gains related to the CSCP fund. Other income, net decreased in the nine months ended September 30, 2009 compared to the comparable period in 2008 due to lower interest income. For the three months ended September 30, 2009 and 2008, interest income was $0.1 million and $0.2 million, respectively. For the nine months ended September 30, 2009 and 2008, interest income was $0.5 million and $1.5 million, respectively. Interest income decreased due to lower cash balances in 2009 compared to 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 September 30, 2009 and 2008, we recorded foreign exchange gains (losses) of $0 and ($134), respectively. In the nine months ended September 30, 2009 and 2008, we recorded foreign exchange gains (losses) of $(34) and $84, respectively.
Provision (Benefit) for Income Taxes
                                 
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
    September 30, 2009   September 30, 2008   September 30, 2009   September 30, 2008
 
                               
Provision (benefit) for income taxes
  $ 316       ($10,216 )     ($981 )     ($8,451 )
Effective tax rate
    (72.0 %)     (1474.2 %)     20.0 %     -244.1 %
The tax rate for the nine months ended September 30, 2009 differs from the statutory rate of 34% because of permanent differences, foreign taxes and from revisions to the tax rates due to changes in income tax projections.
The tax rate for the nine months ended September 30, 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. At September 30, 2009, we had a $1.2 million valuation allowance on our deferred tax assets. The valuation allowance 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.

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Discontinued operations
                                 
    Three Months   Three Months Ended   Nine Months Ended   Nine Months Ended
    Ended September 30,   September 30,   September 30,   September 30,
    2009   2008   2009   2008
Net income from discontinued operations
  $  —     $ 157     $  —     $ 37,035  
We had no activity related to discontinued operations in the three months and nine months ended September 30, 2009 and we do not anticipate any activity in discontinued operations in the remainder of 2009. Discontinued operations for the three months ended September 30, 2008 included a $0.1 million benefit for state income taxes. Discontinued operations for the nine months ended September 30, 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 $23.2 million.
Stock-based compensation expense
Total stock compensation expense for the three months ended September 30, 2009 was $0.7 million in the condensed consolidated statement of operations, which included $0.7 million of restricted stock amortization and $0.1 million for stock option and stock purchase plan expenses and a reversal of stock bonuses for the year of $0.1 million. Total stock compensation expense for the nine months ended September 30, 2009 was $2.7 million in the condensed consolidated statement of operations, which included $2.4 million of restricted stock amortization and $0.3 million for stock option expense, stock purchase plan expenses and stock bonuses.
Total stock compensation expense for the three months ended September 30, 2008 was $0.9 million for continuing operations in the condensed consolidated statement of operations, which included $0.8 million of restricted stock amortization and $0.1 million for stock option and employee stock purchase plan expenses. Total stock compensation expense for the nine months ended September 30, 2008 was $3.5 million for continuing operations in the condensed consolidated statement of operations, which included $2.4 million of restricted stock amortization, $0.6 million for stock bonuses, and $0.5 million for stock option and stock purchase plan expenses. The company also recorded stock compensation of $0.2 million related to discontinued operations in the nine months ended September 30, 2008.
The following table summarizes the stock-based compensation expense by income statement line item for the three months and nine months ended September 30, 2009 and 2008, respectively:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Cost of revenues
  $ 71     $ 72     $ 258     $ 288  
Research and development
    146       135       490       437  
Sales and marketing
    112       123       399       514  
General and administrative
    374       578       1,523       2,230  
 
                       
Total continuing operations
    703       908       2,670       3,469  
Discontinued operations
                      187  
 
                       
Total
  $ 703     $ 908     $ 2,670     $ 3,656  
 
                       

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Liquidity and Capital Resources
                 
    Nine Months Ended  
    September 30.  
    2009     2008  
 
Net (loss) income from continuing operations
    ($3,911 )   $ 11,913  
Charges for depreciation, amortization, stock-based compensation, and other non-cash items
    6,963       5,266  
Changes in operating assets and liabilities
    1,312       1,022  
 
           
Net cash provided by operating activities
    4,364       18,201  
Net cash (used in) provided by investing activities
    (5,465 )     6,364  
Net cash used in financing activities
    (1,088 )     (35,809 )
Net cash provided by discontinued operations
  $     $ 38,374  
 
               
Cash and cash equivalents at end of period
  $ 42,596     $ 53,681  
Short-term investments at end of quarter
    25,900       13,969  
Long-term investments at end of quarter
    9,972       12,662  
Working capital at the end of quarter
  $ 86,765     $ 89,293  
Liquidity and Capital Resources Overview
At September 30, 2009, our cash and investments were approximately $78.5 million and we had working capital of $86.8 million. The increase in cash and investments of $0.6 million at September 30, 2009 compared to December 31, 2008 is due primarily to positive cash flows from operations of approximately $4.4 million offset by the acquisition of Wi-Sys for approximately $2.3 million and repurchases of stock of $1.5 million.
Within operating activities, we are historically a net generator of operating funds from our income statement activities and a net user of operating funds for balance sheet expansion. Due to our lower revenues in the first nine months of 2009 and related balance sheet contraction, we were a net generator of funds from our balance sheet during the first nine months of 2009.
Within investing activities, capital spending historically ranges between 3% and 5% of our revenues. The primary use of capital is for manufacturing and development engineering requirements. We historically have significant transfers between investments and cash as we rotate our large cash balances and short-term investment balances between money market funds, which are accounted for as cash equivalents, and other investment vehicles. We have a history of supplementing our organic revenue growth with acquisitions of product lines or companies, resulting in significant uses of our cash and short-term investment balance from time to time. We expect the historical trend for capital spending and the variability caused by moving money between cash and investments and periodic merger and acquisition activity to continue in the future.
Within financing activities, we have historically generated funds from the exercise of stock options and proceeds from the issuance of common stock through our Purchase Plan and used funds to repurchase shares of our common stock through our share repurchase programs. The result of this activity being a net user of funds versus a net generator of funds is largely dependent on our stock price during any given year. Due to our historically low stock price, there was no cash received from the exercise of stock options in the nine months ended September 30, 2009.
Operating Activities:
Operating activities provided $4.4 million of net cash during the nine months ended September 30, 2009 primarily due to a net contraction in the balance sheet. Reduction in accounts receivable provided $2.8 million in funds. The net receivable reduction at September 30, 2009 compared to December 31, 2008 was attributable to a $4.6 million decrease in revenues during the three months ended September 30, 2009 compared to the three months ended December 31, 2008. Payments of accounts payable and accrued liabilities used $1.2 million and $2.4 million of cash, respectively, during the nine months ended September 30, 2009. Our accrued liabilities declined due to payment of year end 2008 bonuses and commissions in the first quarter 2009. Accounts payable were lower at September 30, 2009 compared to December 31, 2008 because we reduced our inventory purchases due to the decline in revenues.
Operating activities provided $18.2 million of net cash during the nine months ended September 30, 2008. In the nine months ended

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September 30, 2008, the income statement was a net generator of cash of $17.2 million of funds through net income, depreciation, amortization, stock based compensation and restructuring. Net income includes a tax benefit of $10.4 million for the reversal of deferred tax asset allowances. With the sale of certain antenna product lines to SWTS, we will realize tax deductions in 2008 for intangible assets from the Sigma acquisition. The balance sheet provided $1.0 million in funds during the nine months ended September 30, 2008. The collection of receivables provided $0.9 million in funds and a decrease of deferred tax assets provided $2.3 million in funds and a decrease of accrued liabilities used $2.1 million in funds. The receivable collections included $1.9 million of MSG accounts receivables from December 31, 2007 that was retained by us, offsetting an expansion of BTG receivables of $1.0 million due to an increase in third quarter 2008 revenues versus fourth quarter 2007 revenues. The use of cash for accrued liabilities during the nine months ended September 30, 2008 was for 2007 bonuses and commissions, professional fees, and accrued inventory receipts.
Investing Activities:
Our investing activities used $5.5 million of cash during the nine months ended September 30, 2009. We rotated $21.3 million of cash into short and long term investments. We also used $2.3 million for the acquisition of Wi-Sys in January 2009. Redemptions and maturities of short-term investments during the nine months ended September 30, 2009 included $7.0 million from our shares in the Bank of America affiliated fund, the Columbia Strategic Cash Portfolio (“CSCP”) and $11.6 million from maturities and redemptions of pre-refunded municipal and U.S. Government Agency bonds. For the nine months ended September 30, 2009, our capital expenditures were $0.9 million. The rate of capital expenditures in relation to revenues for the nine months ended September 30, 2009 is below our historical range.
In December 2007, we received notification that the CSCP, in which we had invested $38.9 million as of December 31, 2007, was being closed to new subscriptions or redemptions, resulting in our inability to immediately redeem our investments for cash. The fair value of our investment in this fund was based on the net asset value of the fund, and was classified as “Short-Term Investments” on our condensed consolidated balance sheet. At September 30, 2009, the fair value of our investment in this fund was $1.9 million and we classified approximately $1.5 million of the CSCP investment as short-term investment securities and approximately $0.4 million as long-term investment securities at September 30, 2009. We are unable to determine when the long-term investment portion will be liquidated.
Our investing activities provided $6.4 million of funds in the nine months ended September 30, 2008. Redemptions from the CSCP provided $24.4 million in funds and we rotated $12.8 million to other short-term and long-term investments. We used $3.9 million for the purchase of Bluewave in March 2008, and $2.0 million for capital expenditures. Capital expenditures during the nine months ended September 30, 2008 were 3% of BTG revenues, below the historical range of 4% to 6% of BTG revenues. Lower capital expenditures than our historical trend are reflective of our exit from UMTS antenna operations in 2007 and reduced capital expenditures for information systems. We expect the capital expenditures to be at the low end of the historical range for the full year. We received $0.6 million from the sale and related royalties of our modem business to Conexant in 2003. There are maximum royalty payments under that sale of $0.8 million in 2008 and $0.4 million in 2009.
Financing Activities:
Cash flow from financing activities used $1.1 million in the nine months ended September 30, 2009. We used $1.5 million to repurchase our common stock under share repurchase programs and we received $0.4 million from shares purchased through the Purchase Plan.
Our financing activities consumed $35.8 million of funds for the nine months ended September 30, 2008. We used $29.6 million to repurchase our common stock under share repurchase programs and we used $10.3 million for a $0.50 per share special cash dividend. We generated $2.2 million from the proceeds from the sale of common stock related to stock option exercises and the ESPP. Tax benefits from stock compensation and proceeds from the sale of common stock related to stock option exercises and the ESPP generated $2.0 million. In April 2008, we used $0.1 million to repay a short-term loan for our Tianjin, China subsidiary.
Discontinued Operations:
Discontinued operations provided $38.4 million in cash during the nine months ended September 30, 2008. The $38.4 million contribution in 2008 includes the gain related to the sale of the MSG segment for total cash consideration of $59.7 million to Smith Micro, less estimated tax payments.
Contractual Obligations and Commercial Commitments
As of September 30, 2009, we had operating lease obligations of approximately $1.9 million through 2014. Operating lease obligations consist of $1.7 million for facility lease obligations and $0.2 million for equipment leases. During the first quarter 2009, we extended our lease until March 2012 for our Tianjin, China facility. With our acquisition of Wi-Sys in January 2009, we assumed a facility lease in Ottawa, Canada. With the integration of Wi-Sys operations in our Bloomingdale, Illinois facility in the second quarter 2009, we exited the

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Canadian facility and terminated the lease. The lease termination costs are included in restructuring expense. See details on restructuring in note 9 to the condensed consolidated financial statements.
As of September 30, 2009, we had purchase obligations of $4.6 million for the purchase of inventory, as well as for other goods and services in the ordinary course of business, and exclude the balances for purchases currently recognized as liabilities on the balance sheet.
At September 30, 2009 we have a liability of $0.6 million related to income tax uncertainties. We do not know when this obligation will be paid.
Critical Accounting Policies and Estimates
We use certain critical accounting policies as described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008. There have been no material changes in any of our critical accounting policies since December 31, 2008. See Note 2 in the Notes to the Condensed Consolidated Financial Statements for discussion on recent accounting pronouncements.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
See our 2008 Annual Report on Form 10-K (Item 7A). As of September 30, 2009, there have been no material changes in this information.
Item 4: Controls and Procedures
Our management evaluated with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the fiscal period covered by this report.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures and controls related to the preparation and review of the quarterly income tax provision were not effective to ensure that amounts related to the income tax provision were accurate. This material weakness is a continuation of the material weakness in disclosure controls and procedures over financial reporting surrounding income tax accounting reported on Form 10-Q/A for both the period ended March 31, 2009 and June 30, 2009 that resulted in accounting errors during those periods and required a restatement of our condensed consolidated financial statements.
Changes in Internal Controls
Beginning in 2005, we engaged a national public accounting, tax and business consulting firm with affiliates worldwide (the “Tax Advisor”) to assist us with calculation and review of our quarterly and annual income tax provisions and with our income tax compliance. To avoid recurrence of errors such as the one described above, we and Tax Advisor have made the following changes.
    We and the Tax Advisor have reassessed the appropriateness of technical resources assigned to the engagement and as a result have made changes in the technical resources.
 
    We have increased the Tax Advisor’s scope of work to include business combination accounting as it relates to income taxes.
 
    We and the Tax Advisor have switched the frequency of the income tax provision from a quarterly event to a monthly event, beginning in October 2009.
Other than the changes discussed above, there have been no significant changes in our internal controls over financial reporting as defined in rules 13a-15(f) and 15d-15-(f) of the Securities and Exchange Act of 1934, as amended, that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
PART II Other Information
Item 1: Legal Proceedings
Litigation with Wider Networks LLC
In March 2009, we filed in the United States District Court for the District of Maryland, Greenbelt Division, a lawsuit against Wider Networks, LLC claiming patent infringement, unfair competition and false advertising, seeking damages as allowed pursuant to federal and

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Maryland law. In June 2009, Telecom Network Optimization, LLC d/b/a Wider Networks, filed a lawsuit against us for patent infringement. These cases were consolidated by the court. On November 5, 2009, the parties participated in a mandatory settlement conference and signed a binding memorandum of understanding (“MOU”) resolving all disputes. The consolidated cases were dismissed without prejudice on November 6, 2009, and the parties will shortly enter into definitive agreements based on the binding MOU.
Under the terms of the settlement, Wider will rely exclusively on us to distribute Wider’s WIND 3G interference management system and the scanning receivers underlying those systems. We have acquired all of the patents and intellectual property relating to Wider’s products for $800,000 in consideration and $400,000 in future payments.
ITAR Disclosure
During the quarter ended September 30, 2009, we became aware that certain PCTEL antenna products are subject to the jurisdiction of the U.S. Department of State in accordance with the International Traffic in Arms Regulations (“ITAR”). We determined that our processes surrounding the design and manufacture of these antennas were not adequate to assure compliance with the ITAR, and that we may have inadvertently violated restrictions on technology transfer called for in the ITAR. Accordingly, on October 1, 2009 we filed a Voluntary Disclosure with the Directorate of Defense Trade Controls (“DTCC”), Department of State, describing the details of the non-compliance. On October 15, 2009, we received a letter from the DTCC requesting that we provide a full disclosure within 60 days of the date of their letter. At this time it is not possible to determine whether any fines or other penalties will be asserted against us or the materiality of any outcome.
Item 1A: Risk Factors
Factors That May Affect Our Business, Financial Condition and Future Operating Results
There have been no material changes with respect to risk factors as previously disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2008 except for the additional risk factor described below.
We are subject to certain governmental regulations that could subject us to liability or adversely affect our operating results
Our design and manufacture of products for sale to the United States military either directly or through prime contractors, combined with our international supply chain, subjects us to certain governmental regulations, such as ITAR. Certain of our products that we sell to the United States military, either directly or through prime contractors are subject to ITAR, which is administered by the U.S. Department of State. ITAR regulates the export of related technical data and defense services as well as foreign production. Given the current global political climate, there is increased focus by regulators and companies such as ours on ITAR and the actions that it regulates. We are currently enhancing our ITAR controls and implementing improvements in our internal compliance program. If our ITAR-related enhancements and improvements were to fail or be ineffective for a prolonged period of time, it could have a materially adverse effect on our operating results. In addition, if we discover issues that are sufficiently material, the U.S. Department of State could impose fines on us, investigate our business practices or impose other remedies upon us which could have a material adverse effect on our business. Furthermore, the conduct and resolution of any such issues that are sufficiently material could be time consuming, expensive and distracting from the conduct of our business.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
                                 
                    Total Number of   Dollar Value
    Shares Purchased   Shares Repurchased   of Shares That May
    Total Number   Average Price   as Part of Publicly   be Purchased
    of Shares   Paid per Share   Announced Program   Under the Programs
July 1, 2009 — July 31, 2009
                118,504     $ 4,421,332  
August 1, 2009 — August 31, 2009
    109,598     $ 6.15       228,102     $ 3,747,673  
September 1, 2009 — September 30, 2009
    43,149     $ 6.07       271,251     $ 3,485,869  
We repurchase shares of our common stock under share repurchase programs authorized by our Board of Directors. All share repurchase programs are announced publicly. On November 21, 2008, the Board of Directors authorized the repurchase of shares up to a value of $5.0

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million. During the three months ended September 30, 2009, we repurchased 152,747 shares for approximately $0.9 million. During the nine months ended September 30, 2009, we repurchased 271,251 shares for approximately $1.5 million. As of September 30, 2009, we have approximately $3.5 million remaining under this share repurchase program.
Item 6: Exhibits
         
Exhibit No.   Description   Reference
 
       
31.1
  Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002   Filed herewith
 
       
31.2
  Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002   Filed herewith
 
       
32.1
  Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Setion 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.   Furnished herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
         
PCTEL, Inc.
A Delaware corporation
(Registrant)
 
   
/s/ Martin H. Singer      
Martin H. Singer     
Chairman of the Board and
Chief Executive Officer 
   
Date: November 9, 2009

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EXHIBIT INDEX
         
Exhibit No.   Description   Reference
 
       
31.1
  Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002   Filed herewith
 
       
31.2
  Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002   Filed herewith
 
       
32.1
  Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Setion 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.   Furnished herewith

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