PC TEL INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE YEAR ENDED DECEMBER 31, 2004

[ ] 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 Business Issuer as Specified in Its Charter)

DELAWARE 77-0364943
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

8725 W. HIGGINS ROAD, SUITE 400, 60631
CHICAGO IL (Zip Code)
(Address of Principal Executive Office)

(773) 243-3000
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 Par Value Per Share.

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by a check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

As of June 30, 2004, the last business day of Registrant's most recently
completed second fiscal quarter, there were 20,827,414 shares of Registrant's
common stock outstanding, and the aggregate market value of such shares held by
non-affiliates of Registrant (based upon the closing sale price of such shares
on the Nasdaq National Market on June 30, 2004) was approximately $182,040,346.
Shares of Registrant's common stock held by each executive officer and director
and by each entity that owns 5% or more of Registrant's outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of March 1, 2005, the number of shares of the Registrant's common stock
outstanding was 20,766,533.

Certain sections of Registrant's definitive Proxy Statement relating to its
Annual Stockholders' Meeting to be held on June 2, 2005 are incorporated by
reference into Part III of this Annual Report on Form 10-K.
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PCTEL, INC.

FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004

i

PART I

ITEM 1: BUSINESS

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include, among other things, statements
concerning the future operations, financial condition and prospects, and
business strategies. The words "believe," "expect," "anticipate" and other
similar expressions generally identify forward-looking statements. Investors in
the common stock are cautioned not to place undue reliance on these
forward-looking statements. These forward-looking statements are subject to
substantial risks and uncertainties that could cause the future business,
financial condition, or results of operations to differ materially from the
historical results or currently anticipated results. Investors should carefully
review the information contained under the caption "Factors That May Affect the
Business, Financial Condition, and Future Operating Results," beginning on page
24 of the section of this report entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in, or
incorporated by reference into, this report.

OVERVIEW

PCTEL, Inc. ("PCTEL", the "company", or "we") provides wireless
connectivity products and technology to wireless carriers, aggregators of
Internet connectivity, wireless Internet service providers (WISP's), PC OEM's,
and wireless equipment manufacturers. The company brings together expertise in
RF platform design, mobility software, and hardware. The company's products
simplify mobility, provide wireless intelligence, and enhance wireless
performance. Additionally, the company licenses both patented and proprietary
access technology, principally related to analog modems, to modem solution
providers.

Antenna Products Group

The Antenna Products Group (APG) product line consists of wireless
communication antennas designed to enhance the performance of broadband
wireless, in-building wireless, wireless Internet service providers and Land
Mobile Radio (LMR) applications. The Antenna Products Group was formed around
the business of MAXRAD, Inc, which was acquired in January 2004. As a result of
the October 2004 acquisition of certain antenna product lines from Andrew
Corporation ("Andrew"), APG expanded the product line to include GPS (Global
Positioning Systems), satellite communications (Mobile SATCOM) and on-glass
mobile antennas.

APG products are sold to end user customers and dealers through
distributors and via direct sales channels to wireless equipment manufacturers.
The products are sold under the MAXRAD, Antenna Specialists(R) and Micro-Pulse
brands.

Revenue growth in this segment is tied to emerging wireless applications in
broadband wireless, in-building wireless, wireless Internet service providers,
GPS and Mobile SATCOM. The LMR and on-glass mobile antenna applications
represent mature markets.

There are many competitors for the APG product line, as the market is
highly fragmented. Competitors include such names as Cushcraft, Mobile Mark,
Radiall/Larsen, Comtelco, Wilson, and Antennex. APG seeks out product
applications that command a premium for product performance and customer
service, and seeks to avoid product applications characterized by
commoditization.

RF Solutions Group

The RF Solutions Group (RFSG) product line consists of software-defined
radio products designed to measure and monitor cellular networks. The RF
Solutions Group was formed around the business of DTI, Inc., which was acquired
in March 2003. The RFSG products represent a cost effective solution for
simplifying wireless intelligence. The technology is sold in three forms; as OEM
radio frequency receivers, as integrated systems solutions, and as components
and systems to U.S. government agencies. The SeeGull(TM) family of OEM receivers
collects and measure RF data, such as signal strength and base station
identification

1

in order to analyze wireless signals. The CLARIFY(TM) product line is a receiver
system solution that uses patent pending technology to identify and measure
wireless network interference. Customers of RFSG products are wireless network
operators, wireless infrastructure suppliers, and wireless test and measurement
solution providers. The company offers derivatives of the SeeGull(TM) and
CLARIFY(TM)products for government security applications to prime contractors
that hold the necessary security clearances.

Revenue in this segment 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. Revenue in this market follows the
seasonal capital spending patterns of the large wireless network operators.
Revenue for RFSG within each fiscal year is historically seasonal, with a trend
of the first quarter being the lowest and each succeeding quarter being higher.

Competitors for the RFSG product family are OEM's such as Agilent
Technologies, Rohde and Schwarz, Anritsu, Panasonic, and Berkley Varitronics.
The RFSG products compete on the basis of product performance at a price point
that is generally lower than the competition.

Mobility Solutions Group

The Mobility Solutions Group (MSG) produces Wi-Fi and cellular mobility
software products. This family of solutions simplifies access to both wired and
wireless data networks. In the wireless domain, the company's products support
Wi-Fi (802.11 a/b/g) and all major cellular data networking technologies. For
wired access, the company's products support traditional analog dial-up, DSL,
and Ethernet connectivity. Revenue in this segment is dominated by the company's
Roaming Client product. The Roaming Client is a PC or PocketPC-based application
developed to allow users to easily locate and connect to Wi-Fi and Wireless Wide
Area Networks (WWANs-GPRS, CDMA 1x or other 2.5G cellular networks) data
networks. Customers for these products are not typically individual end-users,
but cellular carriers, Internet access service providers, manufacturers,
distributors, integrators, or other service aggregators.

Revenue for the Roaming Client is correlated to the success of data
services offered by the customer base. The company describes the roll out of
such data services to be in the early stage of market development. It is too
early to assess if the market will develop seasonal revenue patterns within the
calendar year.

Competitors for the Roaming Client range from operating system suppliers
such as Apple or Microsoft (which offers a level of WLAN client support through
its Windows XP offering) to WLAN NIC (Network Interface Card) suppliers (that
bundle minimal clients with their hardware offering) to service aggregators that
provide a client as part of their service offering such as GRIC, iPASS, and
Boingo. The company believes it is unique in that many of these competitors are
potential customers for the branded client offering. There are few 'client only'
competitors in the WLAN space, such as Smith Micro, and Alice Systems (acquired
by Birdstep in November 2004). The single biggest competitive condition for the
Roaming Client is product performance.

Licensing

PCTEL has an intellectual property portfolio consisting of over 130 U.S.
patents and applications, primarily in analog modem technology. It also has
proprietary DSP based embedded modem technology. Independent of the three
product lines, the company has an active licensing program designed to monetize
its intellectual property. Companies under license at the end of 2004 include
3COM, Intel, Conexant, Broadcom, Silicon Laboratories, Texas Instruments,
Smartlink and ESS Technologies. The company has also asserted its patents and is
currently litigating against Agere, Lucent and U.S. Robotics, who are unlicensed
and the company believes are infringing PCTEL's intellectual property.

PCTEL was incorporated in California in 1994 and reincorporated in Delaware
in 1998. The principal executive offices are located at 8725 W. Higgins Road,
Suite 400, Chicago, Illinois 60631. The telephone number at that address is
(773) 243-3000 and the web site is www.pctel.com. The contents of the web site
are not incorporated by reference into this Annual Report on Form 10-K.

2

DEVELOPMENTS

The company entered 2001 as an analog modem company, with an intellectual
property portfolio that did not have significant revenue associated with it. The
personal computer market, which is a significant driver of analog modem volume,
was facing significant challenges in the form of reduced IT spending, intense
competition and severe pricing pressure. These and other factors caused the
company to shift its direction in 2002 from focusing on wire line access for
revenue growth to faster growing wireless markets and the monetization of its
intellectual property portfolio. The transition out of analog modems was
completed in 2003 and the company continues to look for opportunities in
wireless markets both through internal development and through acquisitions.

There were five significant events in the transition to wireless and
licensing:

- Acquisition of cyberPIXIE, Inc. in May 2002, which was the genesis of the
company's Mobile Solutions Group.

- Exit of the DSP based embedded modem product line in June 2002, and
conversion of that technology to a licensing program.

- Acquisition of Dynamic Telecommunications, Inc. (DTI) in March 2003. DTI
is now known as the RF Solutions Group (RFSG).

- Sale of a component of the company's HSP modem product line to Conexant
in May of 2003. The company sold the product line but retained its modem
patent portfolio for licensing purposes.

- Acquisition of MAXRAD, Inc. in January 2004. The Antenna Products Group
(APG) line was further augmented by the acquisition of three product
lines from Andrew Corporation in October of 2004.

During the management discussion and analysis, the APG, RFSG, and MSG
products are collectively referred to as wireless products, and the HSP modem
and embedded modem products as modem products.

SALES, MARKETING AND SUPPORT

The company sells its products directly to cellular carriers, wireless
Internet providers (WISP's), PC OEM's, and wireless equipment manufacturers and
indirectly through distributors. PCTEL employs a direct sales force with a
thorough level of technical expertise, product background and industry
knowledge. The sales force also supports the sales efforts of the company's
distributors.

The company's marketing strategy is focused on building market awareness
and acceptance of the company's new products. The marketing organization also
provides a wide range of programs, materials and events to support the sales
organization. The company spent approximately $10.9, $7.5 and $7.7 million for
the fiscal years 2004, 2003 and 2002 for sales and marketing support.

As of December 31, 2004, the company employed 33 individuals in sales and
marketing with offices in the U.S., Japan, China, Hong Kong and Israel.

3

Revenue to major customers representing greater than 10% of total revenues
during the last three fiscal years are as follows:

The 2002 revenue for Askey, Lite-on Technology, and Prewell relates to the
HSP modem product line that was sold in 2003, and the 2003 revenue for Intel
relates to a one-time modem licensing settlement. The 2004 revenue for TESSCO
relates to the Antenna Products Group. TESSCO is a distributor of wireless
products. See footnote 17 for top customers by segment.

The following table illustrates the percentage of revenues from domestic
sales as compared to foreign sales during the last three fiscal years:

The shift over the three-year timeframe from foreign to domestic revenue
reflects the transition from modems, which are heavily dominated by Asian sales,
to wireless products that are heavily dominated by domestic sales.

All long-lived assets are in the United States except for certain fixed
assets in Tianjin, China. See footnote 17 to the financial statements for
disclosure of long-lived assets.

BACKLOG

Sales of the company's products are generally made pursuant to standard
purchase orders, which are officially acknowledged according to standard terms
and conditions. The backlog, while useful for scheduling production or software
release dates, is not a meaningful indicator of future revenues as the order to
ship cycle is extremely short.

RESEARCH AND DEVELOPMENT

The company recognizes that a strong technical base is essential to the
long-term success and has made a substantial investment in research and
development. The company will continue to devote substantial resources to
product development and patent submissions. The patent submissions for the three
wireless product segments are characterized as for defensive purposes, rather
than for potential license revenue generation. The company monitors changing
customer needs and works closely with the customers, partners and market
research organizations to track changes in the marketplace, including emerging
industry standards.

Research and development expenses include costs for software and hardware
development, prototyping, certification and pre-production costs. The company
spent approximately $8.5, $7.8 and $10.0 million for the fiscal years 2004, 2003
and 2002, respectively in research and development.

As of December 31, 2004, the company employed 66 employees in research and
development.

4

MANUFACTURING

The company does final assembly of the products for the APG and RFSG
products. The company also has arrangements with several contract manufacturers
but is not dependent on any one. Should any of these manufacturers be
unsatisfactory, other manufacturers are available. The company has no guaranteed
supply or long-term contract agreements with any other of its suppliers.

MSG products are software licenses and related engineering fees to
customize the product for customer networks. The software product delivery cycle
is comprised of delivering a product master of the software from which customers
make copies for their subscribers.

EMPLOYEES

As of December 31, 2004, the company had 224 full-time equivalent
employees, including 72 in operations, 33 in sales and marketing, 66 in research
and development, and 53 in general and administrative functions. None of the
employees are represented by a labor union. The company considers the employee
relations to be good.

WEB SITE POSTINGS

The annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to such reports, are available free of
charge through the company's web site as soon as reasonably practicable after
the company electronically files such material with, or furnish it to, the
United States Securities and Exchange Commission, at the following address:
www.pctel.com. The information within, or that can be accessed through the web
site is not part of this report.

ITEM 2: PROPERTIES

In November 2004, the company purchased a building with approximately
75,000 square feet located in Bloomingdale, Illinois for APG. While the January
2004 acquisition of MAXRAD, included a building with 31,150 square feet located
in Hanover Park, Illinois, the company is currently moving into this larger
building to accommodate MAXRAD and the products lines acquired from Andrew. The
Hanover Park building has been put up for sale but is still currently used in
operations. APG also has a small sales and assembly facility lease in Tianjin,
China.

In October 2003, the company signed a fourth amendment to an operating
lease for the facility in Germantown, Maryland. This building houses office and
assembly space for the RFSG. The lease is for 9,135 square feet and it expires
in August 2007.

In August 2002, the company signed an operating lease for office space in
Chicago, Illinois. This office space houses the corporate functions as well as
MSG's operations. The lease is for 12,624 square feet and it expires in August
2007. The company also has a sales support office in Tokyo, Japan.

The company believes that it has adequate space for its current needs.

ITEM 3: LEGAL PROCEEDINGS

Ronald H. Fraser v. PC-Tel, Inc., Wells Fargo Shareowner Services, Wells Fargo
Bank Minnesota, N.A.

On March 19, 2002, plaintiff Ronald H. Fraser ("Fraser") filed a Verified
Complaint (the "Complaint") in Santa Clara County (California) Superior Court
for breach of contract and declaratory relief against the company, and for
breach of contract, conversion, negligence and declaratory relief against the
company's transfer agent, Wells Fargo Bank Minnesota, N.A ("Wells Fargo"). The
Complaint seeks compensatory damages allegedly suffered by Fraser as a result of
the sale of certain stock by Fraser during a secondary offering on April 14,
2000. Wells Fargo filed a Verified Answer to the Complaint on June 12, 2002. On
July 10, 2002, the company filed a Verified Answer to the Complaint, denying
Fraser's claims and asserting numerous affirmative defenses. Wells Fargo and the
company each filed Cross-complaints against the other for indemnity. On November
18, 2002, the parties conducted mediation but were unable to reach a settlement.

5

Wells Fargo filed a motion for summary judgment, or alternatively for
summary adjudication, which was heard on July 29, 2003. On July 30, the Court
granted Wells Fargo's motion for summary adjudication on Fraser's Third and
Fourth Causes of action for Breach of Fiduciary Duty and Declaratory Relief, but
denied Wells Fargo's motion for summary judgment and summary adjudication of
Fraser's First and Second Causes of Action for Breach of Contract and
Conversion. The company filed a Motion for Summary Judgment or, Alternatively,
Summary Adjudication, against Fraser. The Motion was scheduled for December 9,
2003. Fraser filed a motion for leave to amend his complaint, which was also
heard on December 9, 2003. The Court granted Fraser's motion and denied the
company's motion as moot. Trial of this matter had been set for January 12,
2004, but the trial date was vacated in light of the amended complaint. The
company re-filed its Motion for Summary Judgment or, Alternatively, Summary
Adjudication, against Fraser. Trial was scheduled for September 20, 2004.

On August 16, 2004, the Court signed an Order denying PCTEL's motion for
summary judgment but granting in part and denying in part PCTEL's alternative
motion for summary adjudication of Fraser's first cause of action for breach of
contract, and granting PCTEL's motion for summary adjudication of Fraser's fifth
cause of action for declaratory relief. Shortly thereafter, Wells Fargo and the
company dismissed the Cross-complaints against one another. At the Mandatory
Settlement Conference on September 15, 2004, Fraser stipulated to judgment in
favor of the company.

On November 15, 2004 Fraser filed a notice of appeal. The company believes
that this appeal is without merit and intends to defend the appeal vigorously.

Litigation with U.S. Robotics

On May 23, 2003, the company filed in the U.S. District Court for the
Northern District of California a patent infringement lawsuit against U.S.
Robotics Corporation claiming that U.S. Robotics has infringed one of the
company's patents. U.S. Robotics counterclaimed asking for a declaratory
judgment that the claims of the patent are invalid and not infringed. This case
was consolidated for claims construction discovery with the lawsuit against
Agere Systems and Lucent Technologies, and the now-concluded litigation with
3Com Corporation and Broadcom Corporation. Claims construction discovery under
the Patent Local Rules has been taken and the claims construction issues have
been briefed to the Court. A hearing on the construction of the claims of the
patent, originally scheduled for January 12, 2005, was continued by the Court
and is now scheduled for April 6, 2005. No trial date has been set. Although the
company believes that it has meritorious claims and defenses, the company cannot
now predict or determine the outcome or resolution of this proceeding.

Litigation with Agere and Lucent

On May 23, 2003, the company filed in the U.S. District Court for the
Northern District of California a patent infringement lawsuit against Agere
Systems and Lucent Technologies claiming that Agere has infringed four of the
company's patents and that Lucent has infringed three of the company's patents.
Agere counterclaimed asking for a declaratory judgment that the claims of the
four patents are invalid, unenforceable and not infringed by Agere. This case
was consolidated for claims construction discovery with the lawsuit against U.S.
Robotics Corporation and the now-concluded litigation with 3Com Corporation and
Broadcom Corporation.

Because of a then-pending reexamination proceeding for PCTEL's U.S. Patent
No. 5,787,305 (the '305 patent), on December 4, 2003, the claims against Agere
and Lucent relating to the "305 patent were stayed by stipulation of the
parties. Claims construction discovery under the Patent Local Rules has been
taken with respect to the three patents as to which the litigation was not
stayed, and the claims construction issues relating to those patents have been
briefed to the Court. A hearing on the construction of the claims of those
patents, originally scheduled for January 12, 2005, was continued by the Court
and is now scheduled for April 6, 2005.

On July 28, 2004, the company received from the U.S. Patent Office a Notice
of Intent to Issue Ex Parte Reexamination Certificate for the '305 patent, and
on January 11, 2005, the U.S. Patent Office issued the

6

Reexamination Certificate. The stay regarding the "305 patent has now been
lifted by stipulation of the parties.

No trial date has been set. Although the company believes that it has
meritorious claims and defenses, the company cannot now predict or determine the
outcome or resolution of this proceeding.

Litigation with 3Com

In March 2003, 3Com Corporation filed a lawsuit against the company
asserting claims that the company infringed certain 3Com patents and asking for
a declaration that one of the company's patents was invalid, unenforceable and
not infringed by 3Com. Also in March 2003, the company filed a lawsuit against
3Com asserting claims that 3Com infringed one of the company's patents and
asking for a declaration that certain of 3Com's patents were invalid,
unenforceable and not infringed by the company. These cases were consolidated
for claims construction discovery with the lawsuits against U.S. Robotics
Corporation, Agere and Lucent, and the now-concluded litigation with Broadcom
Corporation. In November 2004, the parties entered into a settlement agreement
which was favorable to the company, and on December 1, 2004, the Court granted
the parties' stipulated request that all claims and counterclaims in the 3Com
actions be dismissed with prejudice.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No stockholder votes took place during the fourth quarter of the year ended
December 31, 2004.

ITEM 4A: EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to the company's
executive officers as of March 1, 2005:

Dr. Martin H. Singer has been PCTEL's Chief Executive Officer and Chairman
of the Board since October 2001. Prior to that, Dr. Singer served as the
Non-Executive Chairman of the Board since February 2001 and as one of the
company's directors since August 1999. From October 2000 to May 2001, Dr. Singer
served as President and Chief Executive Officer of Ultra Fast Optical Systems,
Inc. From December 1997 to August 2000, Dr. Singer served as President and CEO
of SAFCO Technologies, Inc., a wireless communications company. He left SAFCO in
August 2000 after its sale to Agilent Technologies. From September 1994 to
December 1997, Dr. Singer served as Vice President and General Manager of the
Wireless Access Business Development Division for Motorola, Inc., a
communications equipment company. Prior to this period, Dr. Singer held senior
management and technical positions in Motorola Inc., Tellabs, Inc., AT&T and
Bell Labs. Dr. Singer holds a Bachelor of Arts in Psychology from the University
of Michigan, and a Master of Arts and a Ph.D. in Experimental Psychology from
Vanderbilt University.

Mr. John Schoen has been the Chief Financial Officer and Secretary since
November 2001. Prior to that, Mr. Schoen was a Business Development Manager at
Agilent Technologies, Inc. from July 2000 to November 2001. From May 1999 to
July 2000, Mr. Schoen served as Chief Operating Officer and Chief Financial
Officer of SAFCO Technologies, Inc. before its acquisition by Agilent
Technologies Inc. Prior to this period. Mr. Schoen held various financial
positions for over 19 years in Motorola Inc., including Controller of its
Wireless Access Business Development Division. Mr. Schoen received a Bachelor of
Science in Accounting from DePaul University and is a Certified Public
Accountant.

Mr. Jeffrey A. Miller has been the Vice President of Global Sales since
July 2004. Mr. Miller was Vice President of Business Development and Licensing
from January 2003 before taking on his Global Sales role.

7

Prior to that position, in September 2002 Mr. Miller was appointed Vice
President of Product Management & New Technology. From November 2001 when he
joined PCTEL, until September of 2002, Mr. Miller was Vice President of
Engineering. Prior to joining PCTEL, Mr. Miller was Functional Manager of
Wireless Optimization Products, Wireless Network Test Division of Agilent
Technologies Inc. from July 2000 to November 2001. From January 1998 to July
2001, Mr. Miller served as Vice President of Engineering of SAFCO Technologies,
Inc. and led its Test and Measurement Group before its acquisition by Agilent
Technologies Inc. From September 1992 to January 1998, Mr. Miller was a
Principal Consultant with Malcolm, Miller & Associates providing consulting
services to wireless network operators and infrastructure suppliers. From 1978
through September of 1992, Mr. Miller held various technical and management
positions at Motorola, Inc.'s Cellular Infrastructure Group. Mr. Miller received
a Bachelor of Science in Computer Science from University of Illinois.

Mr. Biju Nair has been the Vice President and General Manager of the
Mobility Solutions Group since May 2003. Prior to that position, in September
2002 Mr. Nair was appointed the Vice President of Product Development. From
January 2002 when he joined PCTEL, until September 2002, Mr. Nair served as the
Director & General Manager, Wireless Products. Prior to joining PCTEL, Mr. Nair
served, from July 2000 to January 2002, as the Global Manager of Wireless
Planning, Design and Management solutions at Agilent Technologies. Prior to its
acquisition by Agilent Technologies, Mr. Nair served from April 1994 to July
2000 as Vice President and General Manager of Global Software Products at SAFCO
Technologies in Chicago. In that capacity, he designed OPAS, the industry's
leading wireless post processing software and led the company's launch of its
VoicePrint test and measurement product. Mr. Nair holds B.S and M.S degrees in
Electronics and Computer Engineering and an advanced degree in Computer Science
from Illinois Institute of Technology in Chicago. Mr. Nair is the author of
numerous publications for the wireless industry and has presented technical
papers at major wireless seminars and panels.

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

PRICE RANGE OF COMMON STOCK

PCTEL's common stock has been traded on the NASDAQ National Market under
the symbol PCTI since the company's initial public offering on October 19, 1999.
The following table shows the high and low sale prices of the company's common
stock as reported by the NASDAQ National Market for the periods indicated.

The closing sale price of the company's common stock as reported on the
NASDAQ National Market on March 1, 2005 was $7.45 per share. As of that date
there were 82 holders of record of the common stock.

8

DIVIDENDS

The company has never declared or paid cash dividends on the capital stock.
The company currently intends to retain all of the earnings, if any, for use in
the business and does not anticipate paying any cash dividends in the
foreseeable future.

EQUITY COMPENSATION PLANS

The information required by this item regarding equity compensation plans
is incorporated by reference to the information set forth in Item 10 of this
Annual Report on Form 10-K.

ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides the activity of the company's repurchase
program during the three months ended December 31, 2004:

In August 2002, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the common stock, which was completed in February 2003. In
February and November 2003, the company extended the stock repurchase program to
repurchase up to 1,000,000 and 500,000 additional shares, respectively, on the
open market from time to time. The extensions of the stock repurchase program
were announced in the quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2003 and in the Annual Report on Form 10-K for the period ended
December 31, 2003, respectively.

9

ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and related
notes and other financial information appearing elsewhere in this Form 10-K. The
statement of operations data for the years ended December 31, 2004, 2003, and
2002 and the balance sheet data as of December 31, 2004 and 2003 are derived
from audited financial statements included elsewhere in this Form 10-K. The
statement of operations data for the years ended December 31, 2001 and 2000 and
the balance sheet data as of December 31, 2002, 2001, and 2000 are derived from
audited financial statements not included in this Form 10-K.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include, among other things, statements
concerning the future operations, financial condition and prospects, and
business strategies. The words "believe," "expect," "anticipate" and other
similar expressions generally identify forward-looking statements. Investors in
the common stock are cautioned not to place undue reliance on these
forward-looking statements. These forward-looking statements are subject to
substantial risks and uncertainties that could cause the future business,
financial condition, or results of operations to differ materially from the
historical results or currently anticipated results. Investors should carefully
review the information contained under the caption "Factors That May Affect the
Business, Financial Condition, and Future Operating Results," beginning on page
24 and elsewhere in, or incorporated by reference into, this report.

INTRODUCTION

PCTEL is focused on growing wireless revenue and maximizing the monetary
value of its intellectual property. These are the two key priorities for the
company in 2005. The company reports revenue and gross profit for APG, RFSG,
MSG, Licensing and Modems as separate product segments.

Growth in wireless product revenue is dependent both on gaining further
revenue traction in the existing product profile as well as further acquisitions
to support the wireless initiatives. Revenue growth in the APG segment is tied
to emerging wireless applications in broadband wireless, in-building wireless,
wireless Internet service providers, GPS and Mobile SATCOM. The LMR and on-glass
mobile antenna applications represent mature markets. A critical factor for 2005
revenue growth is the successful absorption of the product lines purchased from
Andrew in October 2004 into APG. Revenue in the RFSG segment 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.
Revenue growth in the MSG segment is correlated to the success of data services
offered by the customer base. The company describes the roll out of such data
services to be in the early stage of market development.

Licensing revenue is dependent on the signing of new license agreements and
the success of the licensees in the marketplace. New licenses often contain up
front payments pertaining to past royalty liability, or one time payments if the
license is perpetual. This can make licensing revenue uneven. The company has
found it necessary to enter into litigation from time to time as a means to
bring companies under license. The company is currently in litigation with
Agere, Lucent and U.S. Robotics over the use of PCTEL's intellectual property.
This litigation is the single largest opportunity to maximize the monetary value
of the company's intellectual property.

CRITICAL ACCOUNTING POLICIES

The preparation of the company's consolidated financial statements in
accordance with generally accepted accounting principles requires us to make
estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenue and expenses
during the period reported. By their nature, these estimates and judgments are
subject to an inherent degree of uncertainty. Management bases its

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estimates and judgments on historical experience, market trends, and other
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. Management believes the following critical accounting policies
reflect the more significant judgments and estimates used in the preparation of
its consolidated financial statements. Management has discussed the critical
accounting policies with the Audit Committee.

REVENUE RECOGNITION

The company sells antenna products, software defined radio products, Wi-Fi
and cellular mobility software products, and licenses the modem technology
through the licensing program. The company records the sale of these products,
including related maintenance, and the licensing of the intellectual property as
revenue.

In accordance with SAB No. 104, the company recognizes revenue when the
following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is fixed and
determinable, and collectibility is reasonably assured. The company recognizes
revenue for sales of the antenna products and software defined radio products,
when title transfers, which is generally upon shipment from the factory. PCTEL
sells these products into both commercial and secure application government
markets. Title for sales into the commercial markets generally transfer upon
shipment from the factory. Products that are sold into the secure application
government market are generally designed to a unique specification. Title for
sales into the government markets generally does not transfer until acceptance
of the first units and then upon shipment thereafter. Revenue is recognized for
antenna products sold to major distributors upon shipment from the factory. The
company allows its major distributors to return product under specified terms
and conditions. The company accrues for product returns in accordance with FAS
48, "Revenue Recognition When Right of Return Exists".

The company recognizes revenue from the Wi-Fi and cellular mobility
software, including related maintenance rights, under SOP 97-2 Software Revenue
Recognition. If the software license is perpetual and vendor specific objective
evidence can be established for the software license and any related maintenance
rights, the software license revenue is recognized upon delivery of the software
and the maintenance is recorded pro-rata over the life of the maintenance
rights. If part of the licensing agreement requires engineering services to
customize software for the customer needs, the revenue for these services is
recognized when the initial software license is delivered. If vendor specific
objective evidence cannot be established, and the only undelivered item is
maintenance, the software license revenue, the revenue associated with
engineering services, if applicable, and the related maintenance rights are
combined and recognized pro-rata over the expected term of the maintenance
rights. If vendor specific evidence cannot be established on any of the
non-maintenance elements, the revenue is recorded pro-rata over the life of the
contractual obligation.

The company records intellectual property licensing revenue when; it has a
licensing agreement, the amount of related royalties is known for the accounting
period reported, and collectibility is reasonably assured. Knowledge of the
royalty amount specific to an accounting period is either in the form of a
royalty report specific to a quarter, a contractual fixed payment in the license
agreement specific to a quarter, or the pro-rata amortization of a fixed payment
related to multiple quarters over those quarters using the operating lease
method. If a license agreement provides for a fixed payment related to periods
prior to the license effective date (the past) and volume-based royalties going
forward, the fixed payment is recognized at the license effective date and the
volume based royalties are recognized as royalty reports are received. If the
license provides for a fixed payment for the past and for a finite future
period, to be followed by volume based royalties thereafter, the fixed payment
is recorded under the operating lease method and recognized pro-rata from the
effective date through the end of the period covered by the fixed payment. If a
one-time license payment is made for a perpetual license, with no future
obligations on behalf of us, revenue is recognized under the capitalized lease
method upon the effective date.

There is one exception to the above-described recognition of intellectual
property licensing as revenue. The company signed a licensing agreement with
Conexant simultaneously with the sale of its HSP modem product line to Conexant
in 2003. Because the HSP modem product line also requires a license to the

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company's patent portfolio, the gain on sale of the product line and the
licensing stream are not separable for accounting purposes. Ongoing royalties
from Conexant are presented in the income statement as Gain on Sale of Assets
and Related Royalties.

INVENTORY WRITE-DOWNS AND RECOVERIES

Inventories are stated at the lower of cost or market and include material,
labor and overhead costs. Inventories as of December 31, 2004 and 2003 were
composed of raw materials, subassemblies, work-in-process, and finished goods.
The company regularly monitors inventory quantities on hand and, based on the
current estimated requirements, it was determined that any excess inventory was
reserved as of December 31, 2004 and 2003. Due to competitive pressures and
technological innovation, the company may have excess inventory in the future.
Write-downs of inventories would have a negative impact on gross profit.

ACCRUED ROYALTIES

The company records an accrual for estimated future royalty payments for
relevant technology of others used in the product offerings in accordance with
SFAS No. 5, "Accounting for Contingencies." The estimated royalties accrual
reflects management's broader litigation and cost containment strategies, which
may include alternatives such as entering into cross-licensing agreements, cash
settlements, or both, based upon the judgment that such negotiated settlements
would allow management to focus more time and financial resources on the ongoing
business. Accordingly, the royalties accrual reflects estimated costs of
settling claims rather than continuing to defend the legal positions and is not
intended to be, nor should it be interpreted as, an admission of infringement of
intellectual property, valuation of damages suffered by any third parties or any
specific terms that management has predetermined to agree to in the event of a
settlement offer. The company has accrued the amount of royalties payable for
royalty agreements, agreements that are in negotiation and unasserted but
probable claims of others using advice from third party advisors and historical
settlement rates. As of December 31, 2004 and 2003, the company had accrued
royalties of $11,000 and $3.2 million, respectively. The majority of the
royalties are associated with the modem product line sold to Conexant. On a
forward-looking basis, the value of royalties is not expected to be significant.

STOCK-BASED COMPENSATION

The company accounts for the stock option plans using Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", whereby
compensation cost for stock options is measured as the excess, if any, of the
fair market value of a share of the stock at the date of the grant over the
amount that must be paid to acquire the Stock. SFAS No. 123, "Accounting for
Stock-Based Compensation", issued subsequent to APB No. 25 -- and amended by
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure", defines a fair value based method of accounting for employee stock
options, but allows companies to continue to measure compensation cost for
employees using the intrinsic value method of APB No. 25. The company does not
expense stock options, but does expense restricted stock grants. The company
records the issuance of restricted stock grants based on the fair value on the
date of the grant and amortizes the value over the life of the restriction using
the straight-line method. As required by SFAS No. 123, the summary pro forma
effects to reported income as if the company had elected to recognize
compensation expense based on the fair value of the stock based awards to the
company's employees is disclosed. The calculation of the fair value of these
awards is determined using the Black- Scholes option-pricing model. The highly
subjective assumptions underlying this model include expected stock price
volatility and expected option life.

GOODWILL AND IMPAIRMENT OF LONG LIVED ASSETS

Effective January 1, 2002, the company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangibles," under which goodwill is no longer
amortized. Through a third-party valuation firm the company assessed the need to
record impairment losses on goodwill and long-lived assets used in operations
when indicators of impairment are present such as a significant industry
downturn, significant decline in the market value of the company, or significant
reductions in projected future cash flows. At least annually, typically in

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the fourth quarter, the company reviews the value of goodwill and long-lived
assets and, additionally reviews the period of amortization or depreciation of
long-lived assets. During this review, the significant assumptions used in
determining the original cost of long-lived assets are reevaluated. The company
determines whether there has been a permanent impairment of the value of
long-lived assets by comparing future estimated undiscounted cash flows to the
asset's carrying value. If the carrying value of the asset exceeds the estimated
future undiscounted cash flows, a loss is recorded as the excess of the asset's
carrying value over fair value. Long-lived assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.

A third-party valuation firm conducted the annual impairment test of
goodwill and long-lived assets as of October 31, 2004. The estimate of future
undiscounted cash flows for this test was based on historical sales trends,
financial projections, market analysis, capital expenditure needs, working
capital needs, analyst reports, and other data pertinent to the valuation as
provided by the company and obtained from public, financial, and industry
sources. The company's assumptions required significant judgment and actual cash
flows may differ from those forecasted today. The company believes the
assumptions used for discounting future cash flows were appropriately
conservative. Based on the results of the test, there was no impairment of
goodwill or other intangible assets.

INCOME TAXES

The company provides for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes. Deferred income tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates.
Valuation allowances are provided against tax assets, which are not likely to be
realized.

The company has international subsidiaries located in Japan, China and
Israel as well as international branch offices located in Hong Kong and Taiwan.
The branch office in Taiwan is presently in the liquidation process. The
complexities brought on by operating in several different tax jurisdictions
inevitably lead to an increased exposure to worldwide taxes. Should review of
the tax filings result in unfavorable adjustments to the company's tax returns,
the operating results, cash flows, and financial position could be materially
and adversely affected. The company believes there will not be any significant
adjustments related to foreign taxes.

As part of the process of preparing the consolidated financial statements,
the company is required to estimate the income taxes, which involves estimating
the actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities. Significant
management judgment is required to assess the likelihood that the deferred tax
assets will be recovered from future taxable income. The company maintains a
full valuation allowance against the deferred tax assets. In the event it was
determined that the company could realize the deferred tax assets in the future
in excess of the net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made.

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RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(ALL AMOUNTS IN TABLES, OTHER THAN PERCENTAGES, ARE IN THOUSANDS)

REVENUES

APG began operations with the purchase of MAXRAD in January 2004. Revenues
were supplemented in the fourth quarter with the acquisition of several product
lines from Andrew Corporation in October 2004. The fourth quarter included two
months of revenue from the Andrew product lines. The chronological revenue trend
by quarter within the year was $5.1, $5.8, $5.7 and $9.8 million. APG represents
the company's largest revenue segment and is expected to continue as such in
2005. Emerging technology applications such as broadband wireless, in building
wireless, GPS and Mobile SATCOM are the drivers of growth in this segment. The
land mobile radio (LMR) and on-glass mobile antenna products represent mature
markets. The company expects the revenue of this segment to grow in 2005 based
on its investment and market presence in emerging technology applications, as
well as the full year impact of owning the Andrew product lines.

RFSG revenue was $10.8 million in 2004, up 34% from 2003. The 2004 growth
was driven by the full year impact of owning RFSG, which was purchased in March
2003, and the full year impact of the CLARIFY (TM) product line, which was
introduced in the fourth quarter of 2003. The company expects the revenue in
this segment to grow in 2005 from the roll out of 2.5G and 3G technologies by
wireless network operators, increased market acceptance of its CLARIFY(TM)
product line, and penetration of secure government applications for its receiver
technology.

MSG revenue was $5.1 million in 2004, up 228% from 2003. The 2004 growth
was driven by the accumulation of contract wins for the company's Roaming Client
product. The roll out of data services in the customer base in 2004 and 2005 is
characterized as early stage market development. The company expects revenue
growth in 2005 commensurate with the success of its customer base.

Licensing revenue was $5.9 million in 2004, down 68% from 2003 and up 16%
from 2002. Licensing revenue is historically uneven, as licensing agreements
often contain one-time settlements for past infringement or perpetual licenses.
Intel purchased a perpetual license for the company's patented technology in the
fourth quarter of 2003 for $13.5 million. This segment continues to be affected
by older licensing agreements related to modem technology. Absent resolution to
the litigations with Agere, Lucent, and U.S. Robotics, licensing revenue is
expected to continue to shrink in 2005.

Modem product revenue ceased in 2003 with the sale of the HSP product line
to Conexant. Management believes that modems should only be viewed in their
historical context of the transition to wireless.

Intercompany sales from APG to RFSG are eliminated in consolidation. It is
expected that intercompany sales will continue to be insignificant in 2005.

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GROSS PROFIT

Gross profit as a percentage of total revenue was 65.6% in 2004, 74.4% in
2003, and 57.7% in 2002. The gross profit associated with modems over these
periods included favorable cost reserve recoveries of $3.2 million in 2004, $1.8
million in 2003, and $7.2 million in 2002. Additionally, 2003 gross profit
included a $13.5 million benefit from a one-time licensing settlement with
Intel.

The company's product segments vary significantly from each other in gross
profit percent. The revenue mix without the modem cost recovery yielded a total
company gross profit percentage of 59.0% in 2004. It is expected that total
gross profit as a percentage of revenue will settle in a range of 48.0% to 52.0%
in 2005, based on segment revenue mix. The expected change in mix in 2005 is
driven by having the antenna product lines purchased from Andrew for a full year
and an expected decline in licensing revenue, absent a litigation settlement
with Agere, Lucent, or U.S. Robotics.

Gross profit as a percentage of revenue for APG was 40.2 % in 2004. The
chronological trend by quarter within the year was 41.8%, 41.9%, 41.7%, and 37.6
%. The lower fourth quarter gross profit from the previous quarters is
attributed to duplicative manufacturing costs related to the transfer of
manufacturing activities from Andrew to the PCTEL factory as well as lower
long-term margins on the Andrew products versus the PCTEL historical mix. The
transition of manufacturing activities into the PCTEL factory will continue
through the first quarter 2005 with an expected gross profit level in the 36% to
37% range in that period. Once the transition is complete, long-term gross
profit is expected to be in the 39% to 40% range.

Gross profit as a percentage of revenue for RFSG was 66.7 % in 2004 and
75.0 % in 2003. The decrease in percentage is attributed to higher cost of goods
sold in CLARIFY (TM) system sales, versus receiver sales, which have much higher
software content as a percentage of revenue. The company expects long-term gross
profit in this segment to be between 65% and 70%.

Gross profit as a percentage of revenue for MSG was 96.2% in 2004, 94.3% in
2003 and 100% in 2002. The cost of goods sold in the segment relates primarily
to third party licenses included in the Roaming Client product. The company
expects long-term gross profit in this segment to be between 95% and 100%.

Gross profit as a percentage of revenue for Licensing was 95.9% in 2004,
100% in 2003, and 100% in 2002. The decrease in 2004 was attributable to
expensing the net book value of several patents transferred to a third party as
part of a license agreement. The company expects long-term gross profit in this
segment to be between 95% and 100%.

While there was no modem segment revenue in 2004, the fourth quarter 2004
gross profit included a $3.2 million reversal of a modem royalty expense reserve
made possible by the settlement of the company's patent litigation with 3Com.
The company does not expect any further adjustments going forward related to the
modem segment. Gross profit for modems as a percentage of revenue was 45.5% in
2003 and 52.6% in

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2002. The gross profit included favorable inventory reserve recoveries of $1.8
million in 2003 and $7.2 million in 2002. Without those reserve recoveries,
normalized gross profit would have been 35.2% in 2003 and 36.1% in 2002.

RESEARCH AND DEVELOPMENT

Research and development expenses include costs for software and hardware
development, prototyping, certification and pre-production costs. All costs
incurred prior to establishing the technological feasibility of computer
software products to be sold are research and development costs and expensed as
incurred in according with FAS 86. No significant costs have been incurred
subsequent to determining the technological feasibility.

Research and development expenses increased $0.7 million from 2003 to 2004.
The increase is attributed to investment in the development of wireless
products, net of the decrease for HSP modem products, which were sold to
Conexant in 2003. The primary increase in 2004 was $1.3 million related to
MAXRAD and the antenna products purchased from Andrew.

For 2003, total research and development costs incurred were $7.8 million,
compared to $10.0 million for 2002. Research and development expenses decreased
by $2.2 million for 2003 compared to 2002 primarily because of reduction in
research and development associated with the HSP modem product line that was
sold to Conexant was greater than the costs required to invest in the wireless
products.

Employees in Research and development at December 31, 2002, 2003 and 2004
were 47, 50 and 66.

SALES AND MARKETING

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 increased $3.4 million from 2003 compared to
2004. The increase is attributed to investment in wireless products, net of the
decrease for HSP modem products, which were sold to Conexant in 2003. The
primary increase in 2004 was $3.8 million related to MAXRAD and the antenna
products purchased from Andrew in 2004.

Sales and marketing expenses have declined $0.2 million from 2002 to 2003.
The declines are attributable to reductions in force related to modem products
taken in the second quarter of 2003. Employees in Sales and marketing at
December 31, 2002, 2003, and 2004 were 29, 21 and 33.

GENERAL AND ADMINISTRATIVE

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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 increased $4.0 million from 2003 to
2004. The primary reasons for the increase are the inclusion of Maxrad and the
antenna product lines from Andrew, Sarbanes-Oxley compliance costs, and
increased costs of patent infringement litigation. Legal expenses increased $0.6
million to $3.7 million in 2004, largely related to the intellectual property
litigation and the Frazier lawsuit. Sarbanes-Oxley compliance costs were
approximately $1.0 million.

General and administrative expenses increased $4.9 million from 2002 to
2003. The increase was due to inclusion of expenses related to DTI product
lines, increased insurance expenses and legal costs associated with the
company's settlement with Intel and patent infringement litigation against 3Com,
U.S. Robotics, Broadcom, Agere Systems and Lucent Technologies. Legal expenses
increased from $0.9 million in 2002 to $3.1 million in 2003.

Employees in General and administrative functions at December 31, 2002,
2003 and 2004 were 35, 21 and 53.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

During 2004, the company purchased MAXRAD and several antenna product lines
from Andrew. There was no purchased in-process technology for those acquisitions
that had not yet reached technological feasibility and had no alternative future
use. Upon completion of the DTI (now RFSG) acquisition in 2003, the company
expensed $1.1 million representing purchased in-process technology. During 2002,
the company expensed in-process technology of $0.1 million in connection with
the acquisition of cyberPIXIE.

AMORTIZATION OF OTHER INTANGIBLE ASSETS

The base amount of amortization of intangible assets in 2002 relates to the
acquisition of cyberPIXIE in 2002. The increase in intangible asset amortization
from 2002 to 2003 relates to the acquisition of DTI in 2003. The increase from
2003 to 2004 relates to the acquisitions of MAXRAD and the antenna product lines
from Andrew (now collectively APG).

In October 2004, the company completed the acquisition of selected assets
associated with Andrew Corporation's mobile antenna business for a total of
$10.9 million in cash. The assets acquired consist of Andrew's GPS, Mobile
SATCOM, On-Glass, and Antenna Specialists(R) brand of professional antenna
products. The results of operations of Andrew are included in the financial
statements from the date of acquisition. These product lines were integrated
into the operations of PCTEL's Antenna Products Group. Since the purchase price
exceeds the net tangible assets acquired, the difference is recorded as excess
purchase price and allocated to in-process research and development, goodwill
and other intangible assets. The purchase price was allocated $5.4 million to
net tangible assets acquired, $0.6 million to core technology, $2.6 million to
customer relationships, $0.3 million to trademarks and $0.3 million to order
backlog and other intangible assets, net, in the accompanying consolidated
balance sheets. The $1.7 million excess of the purchase price over the fair
value of the net tangible and intangible assets was allocated to goodwill.
Intangible assets will be amortized over an estimated useful life of six and
eight years. A third-party appraiser prepared the appraisal for the intangible
assets.

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In January 2004, the company completed the acquisition of MAXRAD, Inc. (now
the Antenna Product Group). MAXRAD is a manufacturer of wireless communications
antennas for broadband wireless, in-building wireless and land mobile radio
applications. In connection with the acquisition, PCTEL acquired all of the
outstanding capital stock of MAXRAD. In exchange for the outstanding capital
stock of MAXRAD, PCTEL paid $18.2 million, net of cash acquired of $2.4 million,
out of the available working capital. The results of operations of MAXRAD are
included in the financial statements from the date of acquisition. Since the
purchase price exceeds the net tangible assets acquired, the difference is
recorded as excess purchase price and allocated to in-process research and
development, goodwill and other intangible assets. The purchase price of $20.6
million in cash, of which $0.4 million was paid in April 2004, was allocated
$7.6 million to net tangible assets acquired, $0.9 million to the covenant not
to compete, $1.3 million to core technology, $3.2 million to customer lists,
$1.4 million to trademarks and $0.1 million to other intangible assets, net, in
the accompanying consolidated balance sheets. The $6.1 million excess of the
purchase price over the fair value of the net tangible and intangible assets was
allocated to goodwill. The covenant not to compete will be amortized over two
years and other intangible assets over an estimated useful life of six and eight
years. A third-party appraiser prepared the appraisal for the intangible assets.

In March 2003, the company acquired the assets of DTI for a total of $11.0
million in cash (now the RF Solutions Group). The results of operations of DTI
are included in the financial statements from the date of acquisition. Since the
purchase price exceeded the net tangible assets acquired, the difference is
recorded as excess purchase price and allocated to in-process research and
development, goodwill and other intangible assets. The purchase price was
allocated to the assets acquired and liabilities assumed at their estimated fair
values on the date of acquisition as determined by an independent valuation
firm. The purchase price was allocated $2.3 million to net assets acquired, $1.1
million to acquired in-process research and development, $0.2 million to the
covenant not to compete and $4.4 million to other intangible assets, net, in the
accompanying consolidated balance sheets. The $3.0 million excess of the
purchase price over the fair value of the net tangible and intangible assets was
allocated to goodwill. In-process research and development was expensed, but the
covenant not to compete is being amortized over two years, and other intangible
assets over an estimated useful life of four years. A third-party appraiser
prepared the appraisal for the intangible assets. As part of an earn-out
arrangement, the company paid $1.5 million to DTI in 2004.

In May 2002, the company acquired the assets of Chicago-based cyberPIXIE
for a total of $1.6 million in cash, including acquisition costs of $0.2 million
(the Mobility Solutions Group). The acquisition was accounted for under the
purchase method of accounting and the results of operations of cyberPIXIE were
included in the financial statements from May 22, 2002, the date of acquisition.
The purchase price of $1.6 million was allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition as determined by an independent
valuation firm. The purchase price was allocated $0.2 million to net assets
acquired, $0.1 million to in-process research and development and $0.4 million
to developed technology. The $0.9 million excess of the purchase price over the
fair value of the net tangible and identifiable intangible assets was allocated
to goodwill. In-process research and development was expensed and the developed
technology is being amortized over its useful life of three years. A third-party
appraiser prepared the appraisal for the intangible assets.

Effective January 1, 2002, the company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangibles," under which goodwill is no longer being
amortized and will be tested for impairment at least annually. A third-party
valuation firm conducted the annual impairment test as of October 31, 2004, the
result of which was that there was no impairment of goodwill or other
intangibles.

RESTRUCTURING CHARGES

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2004 restructuring activity consisted of $0.2 million favorable adjustments
to reserves related to the 2003 sale of the HSP modem product line, offset by
$0.1 million of expense related to the discontinuation of the Soft AP product
line.

The company's 2003 restructuring totaled $3.5 million. It consisted of
severance and employment related costs of $1.9 million and costs related to
closure of excess facilities as a result of the reduction in force of $1.6
million. $3.3 million of the total related to the sale of the company's HSP
modem product line to Conexant. A total of 26 employees, both foreign and
domestic, were terminated subsequent to the sale of the soft modem product line
to Conexant in May 2003 along with the related facilities closures.

During 2002, the company reduced worldwide headcount by 27 employees and
announced its intention to move the headquarters to Chicago, Illinois. The
restructuring resulted in $0.9 million of charges for the year ended December
31, 2002, consisting of severance and employment related costs of $0.7 million
and costs related to closure of excess facilities as a result of the reduction
in force of $0.2 million.

GAIN ON SALE OF ASSETS AND RELATED ROYALTIES

In May 2003, the company completed the sale of certain of its assets to
Conexant Systems, Inc., ("Conexant"). In exchange for the assets acquired from
the company, Conexant delivered approximately $10.75 million in cash to the
company, which represents $8.25 million plus the book value of the acquired
inventory and fixed assets being transferred to Conexant. Conexant assumed
certain liabilities of the company. The total proceeds of $10.75 million netted
a gain on sale of assets of $4.5 million.

Concurrently with the completion of the asset transaction with Conexant,
PCTEL and Conexant also completed an Intellectual Property Assignment Agreement
("IPA") and Cross-License Agreement. PCTEL provided Conexant with a
non-exclusive, worldwide license to certain of PCTEL's soft modem patents. In
consideration for the rights obtained by Conexant from PCTEL under this
agreement, and taking into account the value of patent rights obtained by PCTEL
from Conexant under this agreement, during the period beginning on July 1, 2003
and ending on June 30, 2007, Conexant agreed to pay to PCTEL, on a quarterly
basis, royalties in the amount of ten percent (10%) of the revenue received
during the royalty period, up to a maximum amount of $0.5 million per quarter
with respect to each calendar quarter during the royalty period, contingent upon
sales by Conexant during the period. Future payments by Conexant to PCTEL in
connection with the IPA will be recorded as part of the gain on sale of assets
and related royalties in the statement of operations. The company received $2.0
million of royalty payments from Conexant during 2004.

AMORTIZATION OF STOCK BASED PAYMENTS

In connection with the grant of restricted stock to employees in 2004, 2003
and 2002, the company recorded deferred compensation of $3.3, $0.8 and $3.7
million, respectively; representing the fair value of the common stock on the
date the restricted stock was granted. Such amounts are presented as a reduction
of stockholders' equity and are amortized ratably over the vesting period of the
applicable shares, typically five years. The amortization is recorded in the
income statement as stock based payment expense.

The amortization of stock based payments increased $0.4 million in 2004
compared to 2003 due to the grant of restricted shares to employees in 2004. The
largest portion of the increase was due to restricted stock grants issued as
retention bonuses to key employees hired in the MAXRAD and Andrew acquisitions.

20

The amortization of deferred stock compensation increased $0.3 million in
2003 compared to 2002 primarily due to the grant of restricted stock to
employees in 2003.

The table below summarizes the expected amortization of deferred stock
compensation for restricted stock grants outstanding, assuming no terminations
and without allowance for future grants, for the years 2005 through 2009. The
amount of stock based payment expense to be recorded in future periods could
decrease if restricted shares are forfeited. If the company grants additional
restricted stock, the amortization of deferred compensation will increase.

OTHER INCOME, NET

Other income, net, consists primarily of interest income. Interest income
is expected to fluctuate over time with changes in interest rates and size of
the company's cash and short-term investment balances. Other income, net,
decreased sequentially from 2002 to 2003 and from 2003 to 2004. The trend was
driven by generally declining interest rates over the periods and the use of
cash for acquisitions for the stock buy back program. The company used cash of
$29.1 million for acquisitions and $4.3 million for stock buy backs in 2004.

PROVISION (BENEFIT) FOR INCOME TAXES

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 maintained a full valuation allowance against all the deferred tax
assets since 2001, as a result of uncertainties regarding realizability.

The effective tax rate was below the statutory federal rate of 35% during
2004 principally due to permanent differences between book and tax as well as
adjustments to the deferred tax valuation allowance. The adjustment to the
deferred tax valuation allowance was primarily related to the addition of $1.2
million of research credit carry forwards that became available after the carry
back of the current loss to 2002 and 2003. The effective tax rate was below the
statutory tax rate of 35% during 2003 primarily due to the recognition of
benefits relating to tax credits for research and development activities in the
amounts of $1.1 million. The effective tax rate was below the statutory tax rate
of 35% during 2002 primarily due to the recognition of benefits relating to net
operating losses previously unrecognized as well as tax credit for research and
development activities in the amounts of $0.6 million.

LIQUIDITY AND CAPITAL RESOURCES

21

The company used $7.4 million of net cash in its operating activities in
2004. The largest uses of cash flow in the balance sheet were $4.9 million of
growth in accounts receivable primarily related to wireless products, a decrease
in liabilities of $3.2 million related to modem royalties, and a decrease in
income taxes payable of $1.7 million. The company used $15.5 million of net cash
in its investing activities. The largest uses of cash flow were for the
acquisitions of MAXRAD and the Andrew product lines ($29.1 million) and an
earn-out payment made in connection with the DTI acquisition of 2003 ($1.5
million). Additionally, the company used $6.1 million for capital expenditures,
$4.9 million of which was the purchase of the larger building for the Antenna
Products Group. Sources of investing activity cash flow were $2.0 million of
royalties from Conexant, and $19.1 million of sales of short-term investments to
fund the year's acquisition activity. The royalty income is reported as
continued cash flow from the sale of the HSP modem product lines in 2003, as the
royalty agreement and the asset sales agreement are not separable for accounting
purposes. Cash flow from financing activities was $0.8 million in 2004.
Financing activities included $5.1 million of proceeds from issuance of common
stock related to stock option exercises offset by $4.3 million used to
repurchase the company's common stock pursuant to its share buyback program. The
decrease in cash and cash equivalents of $22.1 million in 2004 compared to the
increase of cash and cash equivalents of $13.8 million in 2003 is due to
increase in amounts paid for acquisitions, working capital associated with the
acquisitions, and lower proceeds from royalties.

The increase in net cash provided by operating activities for the year
ended December 31, 2003 compared to 2002 was primarily due to the $16.1 million
payments from the settlement of the intellectual property dispute with Broadcom
and the cross-licensing agreement with Intel, and a decrease in prepaid
royalties and accounts receivable of $6.1 and $3.0 million, respectively. Net
cash provided by investing activities for 2003 consisted primarily of proceeds
from the sales and maturities of short-term investments of $375.7 million, net
of purchases of short-term investments of $343.1 million, purchase of DTI for
$10.8 million, proceeds on sale of assets and related royalties of $11.7 million
and purchases of property and equipment of $1.0 million. Net cash provided by
financing activities for 2003 consisted of proceeds from the issuance of common
stock associated with stock option exercises and from share purchases through
the employee stock purchase plan of $9.0 million, offset by shares repurchased
by the company of $6.2 million.

In August 2002, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the common stock, which was completed in February 2003. In
February and November 2003, the company extended the stock repurchase program to
repurchase up to 1,000,000 and 500,000 additional shares, respectively, on the
open market from time to time. The company repurchased 461,400 shares of the
common stock in 2004 for approximately $4.3 million, and 1,538,600 shares in
2003 for approximately 11.5 million. Since the inception of the stock repurchase
program the company has repurchased 2,000,000 shares of the outstanding common
stock for approximately $15.8 million.

As of December 31, 2004, the company had $83.9 million in cash, cash
equivalents and short-term investments and working capital of $87.8 million.
Accounts receivable, as measured in days sales outstanding (DSO), was 81 and 29
days at December 31, 2004 and 2003, respectively. At December 31, 2003, the DSO
of 29 was unusually low due to $16.1 million of cash intellectual property
settlements from Broadcom and Intel. However, the company considers 81 days to
be unusually high and has targeted to reduce the days outstanding to 50 or lower
for 2005.

The company believes that the existing sources of liquidity, consisting of
cash, short-term investments and cash from operations, will be sufficient to
meet the working capital needs for the foreseeable future. The company will
continue to evaluate opportunities for development of new products and potential
acquisitions of technologies or businesses that could complement the business.
The company may use available cash or other sources of funding for such
purposes.

22

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following summarizes the contractual obligations (non-cancelable
operating leases) for office and product assembly facilities and the effect such
obligations are expected to have on the liquidity and cash flows in future
periods (in thousands):

Included in the obligation summary is a lease commitment of $0.6 million
for excess facilities. The total amount was accrued as part of previously
recorded restructuring expense. The company has no outstanding firm inventory
purchase contract commitments with major suppliers beyond near term needs.

As part of the acquisition of DTI there was an earn-out arrangement
covering the fiscal years 2003 and 2004. PCTEL had the option to settle any
earnings under the arrangement in either cash, shares of its common stock, or a
combination of both. For the year ended December 31, 2003, DTI earned a $1.5
million payment under the arrangement that was paid in cash in May 2004. For the
year ended December 31, 2004, DTI earned a $0.6 million payment under the
arrangement, which the company anticipates will be paid in cash during the
second quarter of 2005.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
FAS No. 123R, "Share-Based Payment". The statement addresses the accounting for
transactions in which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprises equity instruments or that may be settled by
the issuance of such equity instruments. FAS No. 123R is effective no later than
reporting periods ending after June 15, 2005. The company will adopt FAS No.
123R on a prospective basis starting in the third quarter of 2005. During
January 2005 and in advance of the adoption of FAS No. 123R, the company
accelerated the vesting of "out of the money" options with a share price equal
to or greater than $10.00. Under FAS 123R, the acceleration of these options
will result in PCTEL not being required to recognize share-based compensation
expense of approximately $2,200,000 beginning in the company's quarter ending
September 30, 2005 and ending in the company's quarter ending March 31, 2008.
The acceleration of these options will be reflected in pro-forma footnote
disclosure to the company's financial statements for the quarter ending March
31, 2005. See Subsequent Events footnote #19 in the Notes to the Financial
Statements.

In December 2004, the FASB issued Staff Positions in relation to FAS No.
109, "Accounting for Income Taxes". FASB issued FSP FAS 109-1, "Application of
FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004". As a domestic manufacturer, the company will access early in 2005 whether
the company is eligible for any tax deductions under this Act. FASB issued FSP
FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Repatriation
Provision within the American Jobs Creation Act of 2004". The company has not
yet completed the assessment of earnings of foreign subsidiaries that might be
repatriated. At this time the company does not expect to repatriate the earnings
of our foreign subsidiaries as dividends to take advantage of this tax credit.

In November 2004, the FASB issued FAS No. 151, "An Amendment of ARB No. 43,
Chapter 4". The statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). FAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for fiscal years beginning
after the date the statement was issued. The provisions of the statement shall
be applied prospectively. Adoption of FAS No. 151 is not expected to have a
material effect on the ongoing operations of the company.

In March 2004, Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue No. 03-6, "Participating Securities and the Two-Class Method under
FASB Statement No. 128, Earnings per Share"

23

("EITF 03-6"). EITF 03-6 clarifies what constitutes a participating security and
provides further guidance in applying the two-class method of calculating
earnings per share. The consensus reached by the Task Force in this Issue is
effective for reporting periods beginning after March 31, 2004. The company does
not have any participating securities as defined under EITF 03-6. Adoption of
this standard did not have a material impact on the company's financial
position, results of operations, or cash flows.

In January 2003, FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after December 15, 2003. In December 2003,
FASB issued Interpretation 46R (FIN 46R), a revision to Interpretation 46 (FIN
46), "Consolidation of Variable Interest Entities." FIN 46R clarifies some of
the provisions of FIN 46 and exempts certain entities from its requirements. FIN
46R is effective at the end of the first interim period ending after March 15,
2004. The company does not have any variable interest entities. Adoption of this
standard did not have an impact on the company's financial position, results of
operations, or cash flows.

FACTORS THAT MAY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FUTURE OPERATING
RESULTS

This annual report on Form 10-K, including this Management's Discussion and
Analysis, contains forward-looking statements. These forward-looking statements
are subject to substantial risks and uncertainties that could cause our future
business, financial condition or results of operations to differ materially from
our historical results or currently anticipated results, including those set
forth below.

RISKS RELATED TO OUR BUSINESS

COMPETITION WITHIN THE WIRELESS CONNECTIVITY PRODUCTS INDUSTRIES IS INTENSE AND
IS EXPECTED TO INCREASE SIGNIFICANTLY. OUR FAILURE TO COMPETE SUCCESSFULLY COULD
MATERIALLY HARM OUR PROSPECTS AND FINANCIAL RESULTS.

The wireless products connectivity markets are intensely competitive. We
may not be able to compete successfully against current or potential
competitors. We expect competition to increase in the future as current
competitors enhance their product offerings, new suppliers enter the wireless
connectivity products markets, new communication technologies are introduced and
additional networks are deployed. Our client software competes with software
developed internally by Network Interface Card (NIC) vendors, service providers
for 802.11 networks, and with software developed by large systems integrators.
Increased competition could materially and adversely affect our business and
operating results through pricing pressures, the loss of market share and other
factors.

Many of our present and potential competitors have substantially greater
financial, marketing, technical and other resources with which to pursue
engineering, manufacturing, marketing, and distribution of their products. These
competitors may succeed in establishing technology standards or strategic
alliances in the connectivity products markets, obtain more rapid market
acceptance for their products, or otherwise gain a competitive advantage. We can
offer no assurance that we will succeed in developing products or technologies
that are more effective than those developed by our competitors. We can offer no
assurance that we will be able to compete successfully against existing and new
competitors as the connectivity wireless markets evolve and the level of
competition increases.

24

OUR ABILITY TO GROW OUR BUSINESS MAY BE THREATENED IF THE DEMAND FOR WIRELESS
DATA SERVICES DOES NOT CONTINUE TO GROW.

Our ability to compete successfully in the wireless market is dependent on
the continued trend toward wireless telecommunications and data communications
services. If the rate of growth slows and service providers reduce their capital
investments in wireless infrastructure or fail to expand into new geographic
markets, our revenue may decline. Wireless data solutions are relatively
unproven in the marketplace and some of the wireless technologies have only been
commercially introduced in the last few years. We began offering wireless
products in the second quarter of fiscal 2002. If wireless data access
technology turns out to be unsuitable for widespread commercial deployment, we
may not be able to generate enough sales to achieve and grow our business. We
have listed below some of the factors that we believe are key to the success or
failure of wireless access technology:

- reliability and security of wireless access technology and the perception
by end-users of its reliability and security,

- capacity to handle growing demands for faster transmission of increasing
amounts of data, voice and video,

- the availability of sufficient frequencies for network service providers
to deploy products at commercially reasonable rates,

- cost-effectiveness and performance compared to wire line or other high
speed access solutions, whose prices and performance continue to improve,

- suitability for a sufficient number of geographic regions, and

- availability of sufficient site locations for wireless access.

The factors listed above influence our customers' purchase decisions when
selecting wireless versus other high-speed data access technology. Future
legislation, legal decisions and regulation relating to the wireless
telecommunications industry may slow or delay the deployment of wireless
networks.

Wireless access solutions compete with other high-speed access solutions
such as digital subscriber lines, cable modem technology, fiber optic cable and
other high-speed wire line and satellite technologies. If the market for our
wireless solutions fails to develop or develops more slowly than we expect due
to this competition, our sales opportunities will be harmed. Many of these
alternative technologies can take advantage of existing installed infrastructure
and are generally perceived to be reliable and secure. As a result, they have
already achieved significantly greater market acceptance and penetration than
wireless data access technologies. Moreover, current wireless data access
technologies have inherent technical limitations that may inhibit their
widespread adoption in many areas.

We expect wireless data access technologies to face increasing competitive
pressures from both current and future alternative technologies. In light of
these factors, many service providers may be reluctant to invest heavily in
wireless data access solutions, including Wi-Fi. If service providers do not
continue to establish Wi-Fi "hot spots," we may not be able to generate sales
for our Wi-Fi products and our revenue may decline.

OUR WIRELESS BUSINESS IS DEPENDENT UPON THE CONTINUED GROWTH OF EVOLVING
TELECOMMUNICATIONS AND INTERNET INDUSTRIES.

Our future success is dependent upon the continued growth of the data
communications and wireless industries, particularly with regard to Internet
usage. The global data communications and Internet industries are relatively new
and evolving rapidly and it is difficult to predict potential growth rates or
future trends in technology development for this industry. The deregulation,
privatization and economic globalization of the worldwide telecommunications
market that have resulted in increased competition and escalating demand for new
technologies and services may not continue in a manner favorable to us or our
business strategies. In addition, the growth in demand for wireless and Internet
services, and the resulting need for high speed or enhanced data communications
products and wireless systems, may not continue at its current rate or at all.

25

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND SUCCESSFULLY INTRODUCE
NEW AND ENHANCED PRODUCTS FOR THE WIRELESS MARKET, WHICH MEET THE NEEDS OF
CUSTOMERS.

Our revenue depends on our ability to anticipate our existing and
prospective customers' needs and develop products that address those needs. Our
future success will depend on our ability to introduce new products for the
wireless market, anticipate improvements and enhancements in wireless technology
and wireless standards, and to develop products that are competitive in the
rapidly changing wireless industry. Introduction of new products and product
enhancements will require coordination of our efforts with those of our
customers, suppliers, and manufacturers to rapidly achieve volume production. If
we fail to coordinate these efforts, develop product enhancements or introduce
new products that meet the needs of our customers as scheduled, our operating
results will be materially and adversely affected and our business and prospects
will be harmed. We cannot assure you that product introductions will meet the
anticipated release schedules or that our wireless products will be competitive
in the market. Furthermore, given the emerging nature of the wireless market,
there can be no assurance our products and technology will not be rendered
obsolete by alternative or competing technologies.

WE MAY EXPERIENCE INTEGRATION OR OTHER PROBLEMS WITH POTENTIAL ACQUISITIONS,
WHICH COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS OR RESULTS OF OPERATIONS. NEW
ACQUISITIONS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS, AND THE
ANNOUNCEMENT OF NEW ACQUISITIONS COULD RESULT IN A DECLINE IN THE PRICE OF OUR
COMMON STOCK.

We may in the future make acquisitions of, or large investments in,
businesses that offer products, services, and technologies that we believe would
complement our products or services, including wireless products and technology.
We may also make acquisitions of, or investments in, businesses that we believe
could expand our distribution channels. Even if we were to announce an
acquisition, we may not be able to complete it. Additionally, any future
acquisition or substantial investment would present numerous risks, including:

- difficulty in integrating the technology, operations, internal accounting
controls or work force of the acquired business with our existing
business,

- disruption of our on-going business,

- difficulty in realizing the potential financial or strategic benefits of
the transaction,

- difficulty in maintaining uniform standards, controls, procedures and
policies,

- possible impairment of relationships with employees and customers as a
result of integration of new businesses and management personnel, and

- impairment of assets related to resulting goodwill, and reductions in our
future operating results from amortization of intangible assets.

We expect that future acquisitions could provide for consideration to be
paid in cash, shares of our common stock, or a combination of cash and our
common stock. If consideration for a transaction is paid in common stock, this
would further dilute our existing stockholders.

WE MAY NEVER ACHIEVE THE ANTICIPATED BENEFITS FROM OUR RECENT ACQUISITIONS OF
MAXRAD, INC. AND CERTAIN ASSETS OF ANDREW CORPORATION.

We acquired MAXRAD, Inc. in January 2004 and certain assets of Andrew
Corporation in October 2004 as part of our continuing efforts to expand our
wireless line and product offerings. We may experience difficulties in achieving
the anticipated benefits of these acquisitions. The business and assets acquired
in these acquisitions are the core of our APG segment. APG's business is the
design and assembly of antenna products

26

and accessories used in wireless systems. These acquisitions represent a
significant expansion of and new direction for our wireless connectivity
business. Potential risks with these acquisitions include:

- the loss or decrease in orders of one or more of the major customers,

- decrease in demand for wireless devices that use these products,

- problems related to the operation of assembly facilities in China,

- difficulties in assimilation of related personnel, operations,
technologies or products, and

- challenges in integrating internal accounting and financial controls for
financial reporting purposes.

OUR GROSS MARGINS MAY VARY BASED ON THE MIX OF SALES OF OUR PRODUCTS AND
LICENSES OF OUR INTELLECTUAL PROPERTY, AND THESE VARIATIONS MAY CAUSE OUR NET
INCOME TO DECLINE.

We derive a portion of our sales from our software-based connectivity
products. We expect gross margins on newly introduced products generally to be
higher than our existing products. However, due in part to the competitive
pricing pressures that affect our products and in part to increasing component
and manufacturing costs, we expect gross margins from both existing and future
products to decrease over time. In addition, licensing revenues from our
intellectual property historically have provided higher margins than our product
sales. Changes in the mix of products sold and the percentage of our sales in
any quarter attributable to products as compared to licensing revenues could
cause our quarterly results to vary and could result in a decrease in gross
margins and net income.

ANY DELAYS IN OUR NORMALLY LENGTHY SALES CYCLES COULD RESULT IN CUSTOMERS
CANCELING PURCHASES OF OUR PRODUCTS.

Sales cycles for our products with major customers are lengthy, often
lasting nine months or longer. In addition, it can take an additional nine
months or more before a customer commences volume production of equipment that
incorporates our products. Sales cycles with our major customers are lengthy for
a number of reasons, including:

- our original equipment manufacturer customers and carriers usually
complete a lengthy technical evaluation of our products, over which we
have no control, before placing a purchase order,

- the commercial introduction of our products by an original equipment
manufacturer and carriers is typically limited during the initial release
to evaluate product performance, and

- the development and commercial introduction of products incorporating new
technologies frequently are delayed.

A significant portion of our operating expenses is relatively fixed and is
based in large part on our forecasts of volume and timing of orders. The lengthy
sales cycles make forecasting the volume and timing of product orders difficult.
In addition, the delays inherent in lengthy sales cycles raise additional risks
of customer decisions to cancel or change product phases. If customer
cancellations or product changes were to occur, this could result in the loss of
anticipated sales without sufficient time for us to reduce our operating
expenses.

OUR REVENUES MAY FLUCTUATE EACH QUARTER DUE TO BOTH DOMESTIC AND INTERNATIONAL
SEASONAL TRENDS.

The connectivity products market is too new for us to be able to predict
seasonal revenue patterns. Such patterns are also true for wireless test and
measurements products, such as those produced by our RF Solutions Group, where
capital spending is involved.

We are currently expanding our sales in international markets, particularly
in Europe and Asia. To the extent that our revenues in Europe and Asia or other
parts of the world increase in future periods, we expect our period-to-period
revenues to reflect seasonal buying patterns in these markets.

27

WE RELY ON INDEPENDENT COMPANIES TO MANUFACTURE, ASSEMBLE AND TEST OUR PRODUCTS.
IF THESE COMPANIES DO NOT MEET THEIR COMMITMENTS TO US, OUR ABILITY TO SELL
PRODUCTS TO OUR CUSTOMERS WOULD BE IMPAIRED.

We have limited manufacturing capability. For some product lines we
outsource the manufacturing, assembly, and testing of printed circuit board
subsystems. For other product lines, we purchase completed hardware platforms
and add our proprietary software. While there is no unique capability with these
suppliers, any failure by these suppliers to meet delivery commitments would
cause us to delay shipments and potentially be unable to accept new orders for
product.

In addition, in the event that these suppliers discontinued the manufacture
of materials used in our products, we would be forced to incur the time and
expense of finding a new supplier or to modify our products in such a way that
such materials were not necessary. Either of these alternatives could result in
increased manufacturing costs and increased prices of our products.

We assemble our APG products in our APG facilities located in Illinois and
China. We may experience delays, disruptions, capacity constraints or quality
control problems at our assembly facilities, which could result in lower yields
or delays of product shipments to our customers. In addition, we are having an
increasing number of our APG products manufactured in China via contract
manufacturers. Any disruption of our own or contract manufacturers' operations
could cause us to delay product shipments, which would negatively impact our
sales, competitive reputation and position. In addition, if we do not accurately
forecast demand for our products, we will have excess or insufficient parts to
build our product, either of which could seriously affect our operating results.

IN ORDER FOR US TO OPERATE AT A PROFITABLE LEVEL AND CONTINUE TO INTRODUCE AND
DEVELOP NEW PRODUCTS FOR EMERGING MARKETS, WE MUST ATTRACT AND RETAIN OUR
EXECUTIVE OFFICERS AND QUALIFIED TECHNICAL, SALES, SUPPORT AND OTHER
ADMINISTRATIVE PERSONNEL.

Our performance is substantially dependent on the performance of our
current executive officers and certain key engineering, sales, marketing,
financial, technical and customer support personnel. If we lose the services of
our executives or key employees, replacements could be difficult to recruit and,
as a result, we may not be able to grow our business.

Competition for personnel, especially qualified engineering personnel, is
intense. We are particularly dependent on our ability to identify, attract,
motivate and retain qualified engineers with the requisite education, background
and industry experience. As of December 31, 2004, we employed a total of 66
people in our engineering department. If we lose the services of one or more of
our key engineering personnel, our ability to continue to develop products and
technologies responsive to our markets may be impaired.

FAILURE TO MANAGE OUR TECHNOLOGICAL AND PRODUCT GROWTH COULD STRAIN OUR
MANAGEMENT, FINANCIAL AND ADMINISTRATIVE RESOURCES.

Our ability to successfully sell our products and implement our business
plan in rapidly evolving markets requires an effective management planning
process. Future product expansion efforts could be expensive and put a strain on
our management by significantly increasing the scope of their responsibilities
and by increasing the demands on their management abilities. To effectively
manage our growth in these new technologies, we must enhance our marketing,
sales, research and development areas.

WE MAY BE SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY ASSOCIATED WITH
OUR WIRELESS BUSINESS AND THIS COULD BE COSTLY TO DEFEND AND COULD PREVENT US
FROM USING OR SELLING THE CHALLENGED TECHNOLOGY.

In recent years, there has been significant litigation in the United States
involving intellectual property rights. We have from time to time in the
past-received correspondence from third parties alleging that we infringe the
third party's intellectual property rights. We expect potential claims to
increase in the future, including with respect to our wireless business.
Intellectual property claims against us, and any resulting lawsuit, may result
in our incurring significant expenses and could subject us to significant
liability for damages and invalidate what we currently believe are our
proprietary rights. These lawsuits, regardless of their

28

merits or success, would likely be time-consuming and expensive to resolve and
could divert management's time and attention. This could have a material and
adverse effect on our business, results of operation, financial condition and
prospects. Any potential intellectual property litigation against us related to
our wireless business could also force us to do one or more of the following:

- cease selling, incorporating or using technology, products or services
that incorporate the infringed intellectual property,

- obtain from the holder of the infringed intellectual property a license
to sell or use the relevant technology, which license may not be
available on acceptable terms, if at all, or

- redesign those products or services that incorporate the disputed
intellectual property, which could result in substantial unanticipated
development expenses.

If we are subject to a successful claim of infringement related to our
wireless intellectual property and we fail to develop non-infringing
intellectual property or license the infringed intellectual property on
acceptable terms and on a timely basis, operating results could decline and our
ability to grow and sustain our wireless business could be materially and
adversely affected. As a result, our business, financial condition, results of
operation and prospects could be impaired.

We may in the future initiate claims or litigation against third parties
for infringement of our intellectual property rights or to determine the scope
and validity of our proprietary rights or the proprietary rights of our
competitors. These claims could also result in significant expense and the
diversion of technical and management personnel's attention.

UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN A
LOSS OF CUSTOMERS OR A DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS.

Our products may contain undetected software errors or failures when first
introduced or as new versions are released. To date, we have not been made aware
of any significant software errors or failures in our products. However, despite
testing by us and by current and potential customers, errors may be found in new
products after commencement of commercial shipments, resulting in loss of
customers or delay in market acceptance.

OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED IF
TAX AUTHORITIES CHALLENGE US AND THE TAX CHALLENGES RESULT IN UNFAVORABLE
OUTCOMES.

We currently have international subsidiaries located in Japan, China and
Israel as well as international branch offices located in Hong Kong and Taiwan.
Our branch office in Taiwan is presently in the liquidation process. The
complexities resulting from operating in several different tax jurisdictions
increases our exposure to worldwide tax challenges.

RISKS RELATED TO OUR INDUSTRY

IF THE WIRELESS MARKET DOES NOT GROW AS WE ANTICIPATE, OR IF OUR WIRELESS
PRODUCTS ARE NOT ACCEPTED IN THESE MARKETS, OUR REVENUES MAY BE ADVERSELY
AFFECTED.

Our future success depends on market demand and growth patterns for
products using wireless technology. Our wireless products may not be successful
as a result of the intense competition in the wireless market.

If these new wireless products are not accepted in the markets as they are
introduced, our revenues and profitability will be negatively affected.

29

OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGIES. IF WE ARE NOT
SUCCESSFUL IN RESPONSE TO RAPIDLY CHANGING TECHNOLOGIES, OUR PRODUCTS MAY BECOME
OBSOLETE AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

The wireless data access business is characterized by rapidly changing
technologies, short product life cycles and frequent new product introductions.
To remain competitive, we have successfully introduced several new products.

Both the cellular (2.5G and 3G) and Wi-Fi (802.11) spaces are rapidly
changing and prone to standardization. We will continue to evaluate, develop and
introduce technologically advanced products that will position us for possible
growth in the wireless data access market. If we are not successful in response
to rapidly changing technologies, our products may became obsolete and we may
not be able to compete effectively.

CHANGES IN LAWS OR REGULATIONS, IN PARTICULAR, FUTURE FCC REGULATIONS AFFECTING
THE BROADBAND MARKET, INTERNET SERVICE PROVIDERS, OR THE COMMUNICATIONS
INDUSTRY, COULD NEGATIVELY AFFECT OUR ABILITY TO DEVELOP NEW TECHNOLOGIES OR
SELL NEW PRODUCTS AND THEREFORE, REDUCE OUR PROFITABILITY.

The jurisdiction of the Federal Communications Commission, or FCC, extends
to the entire communications industry, including our customers and their
products and services that incorporate our products. Future FCC regulations
affecting the broadband access services industry, our customers or our products
may harm our business. For example, future FCC regulatory policies that affect
the availability of data and Internet services may impede our customers'
penetration into their markets or affect the prices that they are able to
charge. In addition, FCC regulatory policies that affect the specifications of
wireless data devices may impede certain of our customers' ability to
manufacture their products profitably, which could, in turn, reduce demand for
our products. Furthermore, international regulatory bodies are beginning to
adopt standards for the communications industry. Although our business has not
been hurt by any regulations to date, in the future, delays caused by our
compliance with regulatory requirements may result in order cancellations or
postponements of product purchases by our customers, which would reduce our
profitability.

RISKS RELATED TO OUR LICENSING PROGRAM

OUR ABILITY TO SUSTAIN OR GROW OUR REVENUE FROM THE LICENSING OF OUR
INTELLECTUAL PROPERTY IS SUBJECT TO MANY RISKS, AND ANY INABILITY TO
SUCCESSFULLY LICENSE OUR INTELLECTUAL PROPERTY COULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS.

We may not be able to sustain our revenue from the licensing of our
intellectual property. In addition to our wireless product lines, we offer our
intellectual property through licensing and product royalty arrangements. We
have over 130 U.S. patents granted or pending addressing both essential
International Telecommunications Union and non-essential technologies. In
connection with our intellectual property licensing efforts, we have filed
several patent infringement lawsuits and are aggressively pursuing unlicensed
companies to license their unauthorized use of our intellectual property. We
have pending patent infringement litigation claims with U.S. Robotics, Agere and
Lucent. We expect litigation to continue to be necessary to enforce our
intellectual property rights and to determine the validity and scope of the
proprietary rights of others. Because of the high degree of complexity of the
intellectual property at issue, the inherent uncertainties of litigation in
general and the preliminary nature of these litigation matters, we cannot assure
you that we will ultimately prevail or receive the judgments that we seek. We
may not be able to obtain licensing agreements from these companies on terms
favorable to us, if at all. In addition, we may be required to pay substantial
monetary damages as a result of claims these companies have brought against us
which could materially and adversely affect our business, financial condition
and operating results.

30

LITIGATION EFFORTS RELATED TO OUR LICENSING PROGRAM ARE EXPECTED TO BE COSTLY
AND MAY NOT ACHIEVE OUR OBJECTIVES.

Litigation such as our suits with U.S. Robotics, Agere and Lucent can take
years to resolve and can be expensive to pursue or defend. We currently expect
our intellectual property litigation costs to be within a range of $3.0 to $3.5
million in 2005, in the absence of any settlement. In addition, the allegations
and claims involved in these lawsuits, even if ultimately resolved in our favor,
could be time consuming to litigate and divert management attention. We may not
ultimately prevail in these matters or receive the judgments that we seek. We
could also face substantial monetary damages as a result of claims others bring
against us. In addition, courts' decisions on current pending and future motions
could have the effect of determining the ultimate outcome of the litigation
prior to a trial on the merits, or strengthen or weaken our ability to assert
claims and defenses in the future. Accordingly, an adverse judgment could
seriously harm our business, financial position and operating results and cause
our stock price to decline substantially.

WE EXPECT TO CONTINUE TO BE SUBJECT TO LITIGATION REGARDING INTELLECTUAL
PROPERTY CLAIMS RELATED TO OUR LICENSING PROGRAM WHICH COULD IMPAIR OUR ABILITY
TO GROW OR SUSTAIN REVENUES FROM OUR LICENSING EFFORTS.

As we continue to aggressively pursue licensing arrangements with companies
that are using our intellectual property without our authorization, we expect to
continue to be subject to lawsuits that challenge the validity of our
intellectual property or that allege that we have infringed third party
intellectual property rights. Any of these claims could results in substantial
damages against us and could impair our ability to grow and sustain our
licensing business. This could materially and adversely affect our business,
financial condition, operating results and prospects. As a result, at least in
part, of our licensing efforts to date, we are currently subject to claims from
Agere and Lucent regarding patent infringement matters of the nature described
above. We have also been subject to claims from others in the past regarding
similar matters. In addition, in recent years, there has been significant
litigation in the United States involving intellectual property rights. We
expect these claims to increase as our intellectual property portfolio becomes
larger. Intellectual property claims against us, and any resulting lawsuit, may
result in our incurring significant expenses and could subject us to significant
liability for damages and invalidate what we currently believe are our
proprietary rights. These lawsuits, regardless of their merits or success, would
likely be time-consuming and expensive to resolve and could divert management's
time and attention.

OUR ABILITY TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS MAY BE LIMITED, AND ANY
LIMITATION COULD ADVERSELY AFFECT OUR ABILITY TO SUSTAIN OR INCREASE REVENUE
FROM OUR LICENSING PROGRAM.

Our ability to sustain and grow revenue from the licensing of our
intellectual property is dependent on our ability to enforce our intellectual
property rights. Our ability to enforce these rights is subject to many
challenges and may be limited. For example, one or more of our pending patents
may never be issued. In addition, our patents, both issued and pending, may not
prove enforceable in actions against alleged infringers. U.S. Robotics, Agere
and Lucent have currently pending claims seeking to invalidate one or more of
our patents. If a court were to invalidate one or more of our patents, this
could materially and adversely affect our licensing program. Furthermore, some
foreign laws, including those of various countries in Asia, do not protect our
proprietary rights to the same extent as United States laws.

31

RISKS RELATED TO OUR COMMON STOCK

THE TRADING PRICE OF OUR STOCK PRICE MAY BE VOLATILE BASED ON A NUMBER OF
FACTORS, SOME OF WHICH ARE NOT IN OUR CONTROL.

The trading price of our common stock has been highly volatile. The common
stock price has fluctuated from a low of $6.70 to a high of $13.20 during 2004.
Our stock price could be subject to wide fluctuations in response to a variety
of factors, many of which are out of our control, including:

- announcements of technological innovations,

- new products or services offered by us or our competitors,

- actual or anticipated variations in quarterly operating results,

- outcome of ongoing intellectual property related litigations,

- changes in financial estimates by securities analysts,

- conditions or trends in our industry,

- our announcement of significant acquisitions, strategic partnerships,
joint ventures or capital commitments,

- additions or departures of key personnel,

- mergers and acquisitions, and

- sales of common stock by our stockholders or us.

In addition, the NASDAQ National Market, where many publicly held
telecommunications companies, including PCTEL, are traded, often experiences
extreme price and volume fluctuations. These fluctuations often have been
unrelated or disproportionate to the operating performance of these companies.
In the past, following periods of volatility in the market price of an
individual company's securities, securities class action litigation often has
been instituted against that company. This type of litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources.

PROVISIONS IN OUR CHARTER DOCUMENTS MAY INHIBIT A CHANGE OF CONTROL OR A CHANGE
OF MANAGEMENT, WHICH MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO FALL AND
MAY INHIBIT A TAKEOVER OR CHANGE IN OUR CONTROL THAT A STOCKHOLDER MAY CONSIDER
FAVORABLE.

Provisions in our charter documents could discourage potential acquisition
proposals and could delay or prevent a change in control transaction that our
stockholders may favor. These provisions could have the effect of discouraging
others from making tender offers for our shares, and as a result, these
provisions may prevent the market price of our common stock from reflecting the
effects of actual or rumored takeover attempts and may prevent stockholders from
reselling their shares at or above the price at which they purchased their
shares. These provisions may also prevent changes in our management that our
stockholders may favor. Our charter documents do not permit stockholders to act
by written consent, do not permit stockholders to call a stockholders meeting,
and provide for a classified board of directors, which means stockholders can
only elect, or remove, a limited number of our directors in any given year.

Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series. The board of directors can fix the price,
rights, preferences, privileges and restrictions of this preferred stock without
any further vote or action by our stockholders. The rights of the holders of our
common stock will be affected by, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. Further,
the issuance of shares of preferred stock may delay or prevent a change in
control transaction without further action by our stockholders. As a result, the
market price of our common stock may drop.

32

UNDER NEW REGULATIONS REQUIRED BY THE SARBANES-OXLEY ACT OF 2002, IF WE ARE
UNABLE TO SUCCESSFULLY IMPLEMENT PROCESSES AND PROCEDURES TO ACHIEVE AND
MAINTAIN EFFECTIVE INTERNAL CONTROL OVER OUR FINANCIAL REPORTING, OUR ABILITY TO
PROVIDE RELIABLE AND TIMELY FINANCIAL REPORTS COULD BE HARMED.

We must comply with the rules promulgated under section 404 of the
Sarbanes-Oxley Act of 2002. Section 404 requires an annual management report
assessing the effectiveness of our internal control over financial reporting, a
report by our independent registered public accountants addressing this
assessment, and a report by our independent auditors addressing the
effectiveness of our internal control.

In connection with reporting our financial results for the quarter and year
ended December 31, 2004, we have identified and described a "material weakness"
(as defined by the relevant accounting standards) in our internal control
related to our accounting for income taxes in the fourth quarter of 2004.
Specifically, the Company did not have effective controls over determining net
operating loss carrybacks, applicable state tax rates applied, and the tax
effect of stock option exercises. In addition, the Company did not have
effective controls to monitor the difference between the income tax basis and
the financial reporting basis of assets and liabilities and reconcile the
difference to deferred income tax assets and liabilities. This control
deficiency resulted in audit adjustments to the fourth quarter 2004 financial
statements. To address the material weakness described above, PCTEL has engaged
an outside tax consultant and has implemented an internal training program to
enhance the capabilities of its internal tax personnel. Nevertheless, we cannot
be certain in future periods that other control deficiencies that may constitute
one or more "significant deficiencies" (as defined by the relevant accounting
standards) or material weaknesses in our internal control over financial
reporting, will not be identified. The occurrence of control deficiencies in our
internal control, and material weaknesses in particular, adversely affect our
ability to report our financial results on a timely and accurate basis.

In addition, our independent auditors and we are still completing
evaluation, assessment and testing activities related to our internal control
over financial reporting in accordance with the requirements of Section 404. As
a result, we have not included our annual management report on internal control
over financial reporting as of December 31, 2004 with the filing of this Annual
Report on Form 10-K, nor have we filed the related attestation report of our
independent auditors or the report of our independent auditors on the
effectiveness of our internal control. These reports will be filed in an
amendment to this Annual Report within the time period permitted under the SEC's
rules and regulations. Due to the material weakness already identified, we
expect that the report of our independent auditors on the effectiveness of our
internal control over financial reporting will be adverse. In addition, we
cannot be certain that other control deficiencies, including material
weaknesses, in our internal control will not be identified as we and our
independent auditors conclude the required Section 404 evaluation, assessment
and testing activities.

While we are expending significant resources in developing the necessary
documentation and testing procedures required by Section 404, we cannot be
certain that the actions we are taking to improve, achieve and maintain our
internal control over financial reporting will be adequate or that we will be
able to implement our planned processes and procedures. If we do not complete
our compliance activities under Section 404 in a timely manner, or the processes
and procedures that we implement for our internal control over financial
reporting are inadequate, our ability to provide reliable and timely financial
reports, and consequently our business and operating results, could be harmed.
This in turn could result in an adverse reaction in the financial markets due to
a loss of confidence in the reliability of our financial reports, which could
cause the market price of our Common Stock to decline.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks. We manage the sensitivity of our results of
operations to credit risks and interest rate risk by maintaining a conservative
investment portfolio, which is comprised solely of highly rated, short-term
investments. We have investments in both fixed rate and floating rate interest
earning instruments. Fixed rate securities may have their fair market value
adversely impacted based on the duration of such investments if interest rates
rise, while floating rate securities and the reinvestment of funds from matured
fixed rate securities may produce less income than expected if interest rates
fall. Due in part to these factors,

33

our future investment income may fall short of expectations. The primary
objective of our investment activities is to preserve principal while at the
same time maximizing yields without significantly increasing risk. To achieve
this objective, we maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, which can include both government and
corporate obligations with ratings of A or better, and money market funds. We
have accumulated a $0 and $26,000 unrealized holding gain as of December 31,
2004 and 2003, respectively. A hypothetical increase or decrease of 10% in
market interest rates would not result in a material decrease in interest income
earned through maturity on investments held at December 31, 2004.

We do not hold or issue derivative, derivative commodity instruments or
other financial instruments for trading purposes. We are exposed to currency
fluctuations, as we sell our products internationally. We manage the sensitivity
of our international sales by denominating substantially all transactions in
U.S. dollars. If the United States dollar uniformly increased or decreased in
strength by 10% relative to the currencies in which are sales were denominated,
our net loss would not have changed by a material amount for the year ended
December 31, 2004. For purposes of this calculation, we have assumed that the
exchange rates would change in the same direction relative to the United States
dollar. Our exposure to foreign exchange rate fluctuations, however, arises in
part from translation of the financial statements of foreign subsidiaries into
U.S. dollars in consolidation. As exchange rates vary, these results, when
translated, may vary from expectations and adversely impact overall expected
profitability. The effect of foreign exchange rate fluctuation gains for the
year ended December 31, 2004 and 2003 was $83,000 and $65,000, respectively.

34

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PCTEL, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of PCTEL, Inc.:

We have completed an integrated audit of PCTEL, Inc.'s 2004 consolidated
financial statements and of its internal control over financial reporting as of
December 31, 2004 and audits of its 2003 and 2002 consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our audits, are
presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of PCTEL, Inc. and its subsidiaries (the "Company") at December 31,
2004 and 2003, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit of financial statements includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, we have audited management's assessment, included in Management's
Report on Internal Control Over Financial Reporting appearing under Item 9A,
that PCTEL, Inc. did not maintain effective internal control over financial
reporting as of December 31, 2004, because the Company did not maintain
effective controls over the accounting for income taxes including the
determination of income taxes payable and deferred income tax assets and
liabilities and the related income tax provision based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express opinions on management's assessment
and on the effectiveness of the Company's internal control over financial
reporting based on our audit.

We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting, evaluating management's assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of
36

the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. A material
weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. The
following material weakness has been identified and included in management's
assessment. As of December 31, 2004, the Company did not maintain effective
controls over the accounting for income taxes, including the determination of
income taxes payable, deferred income tax assets and liabilities and the related
income tax provision. Specifically, the Company did not have effective controls
over determining net operating loss carrybacks, applicable state tax rates
applied, and the tax effect of stock option exercises. In addition, the Company
did not have effective controls to monitor the difference between the income tax
basis and the financial reporting basis of assets and liabilities and reconcile
the difference to deferred income tax assets and liabilities. This control
deficiency resulted in audit adjustments to the fourth quarter 2004 financial
statements. Additionally, this control deficiency could result in a misstatement
of income taxes payable, deferred income tax assets and liabilities and the
related income tax provision, that would result in a material misstatement to
annual or interim financial statements that would not be prevented or detected.
Accordingly, management has determined that this control deficiency constitutes
a material weakness. This material weakness was considered in determining the
nature, timing, and extent of audit tests applied in our audit of the 2004
consolidated financial statements, and our opinion regarding the effectiveness
of the Company's internal control over financial reporting does not affect our
opinion on those consolidated financial statements.

As described in Management's Report on Internal Control Over Financial
Reporting, management has excluded MAXRAD, Inc. and the acquired selected assets
of Andrew Corporation from its assessment of internal control over financial
reporting as of December 31, 2004 because they were acquired by the Company
through purchase business combinations during January and October 2004. The
Company has organized its Antenna Products Group around the businesses
represented by these two acquisitions. We have also excluded MAXRAD, Inc. and
the acquired selected assets of Andrew Corporation from our audit of internal
control over financial reporting. MAXRAD, Inc. and the acquired selected assets
of Andrew Corporation are consolidated in the Company's financial statements.
Their total assets represent 18% of the Company's total assets as of December
31, 2004. Their total revenues and gross profit represent 55% and 34% of the
Company's total revenues and gross profit for the year ended December 31, 2004.

In our opinion, management's assessment that PCTEL, Inc. did not maintain
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on criteria established in
Internal Control--Integrated Framework issued by the COSO. Also, in our opinion,
because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, PCTEL, Inc. has not
maintained effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the COSO.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 30, 2005

37

PCTEL, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

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

38

PCTEL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

39

PCTEL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
40

PCTEL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
41

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED: DECEMBER 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

PCTEL was incorporated in California in 1994 and reincorporated in Delaware
in 1998. PCTEL provides wireless connectivity products and technology to
wireless carriers, aggregators of Internet connectivity, wireless Internet
service providers (WISP's), PC OEM's, and wireless equipment manufacturers. The
company brings together expertise in RF platform design, mobility software, and
hardware. PCTEL simplifies mobility, provides wireless intelligence, and
enhances wireless performance. Additionally, the company licenses both patented
and proprietary access technology, principally related to analog modems, to
modem solution providers.

The company principally operates in four business segments.

Antenna Products Group

The Antenna Products Group (APG) product line consists of wireless
communication antennas designed to enhance the performance of broadband
wireless, in-building wireless, wireless Internet service providers and Land
Mobile Radio (LMR) applications. The Antenna Products Group was formed around
the business of MAXRAD, Inc, which was acquired in January 2004. As a result of
the October 2004 acquisition of certain antenna product lines from Andrew
Corporation ("Andrew"), APG expanded the product line to include GPS (Global
Positioning Systems), satellite communications (Mobile SATCOM) and on-glass
mobile antennas.

RF Solutions Group

The RF Solutions Group (RFSG) product line consists of software-defined
radio products designed to measure and monitor cellular networks. The RF
Solutions Group was formed around the business of DTI, Inc., which was acquired
in March 2003. The technology is sold in three forms; as OEM radio frequency
receivers, as integrated systems solutions, and as components and systems to
U.S. government agencies.

Mobility Solutions Group

The Mobility Solutions Group (MSG) produces Wi-Fi and Cellular Mobility
Software products. This family of solutions simplifies access to both wired and
wireless data networks.

Licensing

PCTEL has an intellectual property portfolio consisting of over 130 U.S.
patents and applications, primarily in analog modem technology. It also has
proprietary DSP based embedded modem technology. Independent of the three
product lines, the company has an active licensing program designed to monetize
its intellectual property.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
reported. Actual results could differ from those estimates.

42

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

BASIS OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION

The company uses the United States dollar as the functional currency for
the financial statements, including the financial statements of the subsidiaries
in foreign countries, with the exception of the Japanese subsidiary for which
the functional currency is the Japanese Yen. Assets and liabilities of the
Japanese operations are translated to U.S. dollars at the exchange rate in
effect at the applicable balance sheet date, and revenues and expenses are
translated using average exchange rates prevailing during that period.
Translation gains (losses) of the Japanese subsidiary are recorded in
accumulated other comprehensive income as a component of stockholders' equity.
All gains and losses resulting from other transactions originally in foreign
currencies and then translated into U.S. dollars are included in net income. At
December 31, 2004 the cumulative translation adjustment was $18,000. As of
December 31, 2004, the company had subsidiaries in China, Japan and Israel as
well as branch offices in Hong Kong and Taiwan. The branch office in Taiwan is
in the process of being liquidated. These consolidated financial statements
include the accounts of PCTEL and its subsidiaries after eliminating
intercompany accounts and transactions.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Financial instruments are divided into three different classifications:

Cash equivalents: Money market and debt instruments that have an
original maturity of 90 days or less.

Restricted cash: Certificates of deposit that support a stand-by
letter of credit in connection with facility
lease obligations and are restricted for use by
the company.

Short-term
investments: Marketable debt instruments that generally have
an original maturity between three months and
one year. All short-term investments are
classified as current assets and
available-for-sale.

As of December 31, 2003, short-term investments
consisted of high-grade corporate securities
with maturity dates of approximately three
months to one year. There were no short-term
investments at December 31, 2004.

These investments are recorded at current fair
market value and any unrealized holding gains
and losses (based on the difference between
market price and book value) are reflected as
other comprehensive income/loss in the
stockholders' equity section of the balance
sheet. Net of taxes, the accumulated unrealized
holding gain as of December 31, 2004 was $0 and
$26,000 as of December 31, 2003. Realized gains
and losses and declines in value of securities
judged to be other than temporary are included
in interest income (expense) and have not been
significant to date. Interest and dividends of
all securities are included in interest income.

The carrying amounts reported for cash equivalents and short-term
investments are considered to approximate fair values based upon the short
maturities of these financial statements.

CONCENTRATIONS OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

The company is subject to certain risks including the impact of the
continued economic slowdown, the company's ability to develop and successfully
introduce new and enhanced products such as wireless products,
43

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

the outcome of potential litigation involving intellectual property, competition
from larger, more established companies and dependence on key suppliers.

Financial instruments that potentially subject the company to credit risk
consist primarily of short-term investments and trade receivables. There were no
short-term investments at December 31, 2004.

To mitigate credit risk related to short-term investments, the company
maintains a portfolio of cash equivalents and short-term investments with
reputable financial institutions and money market funds.

For trade receivables, credit risk is the potential for a loss due to a
customer not meeting its payment obligations. PCTEL customers are concentrated
in the wireless industry. Estimates are used in determining an allowance for
amounts, which the company may not be able to collect, based on current trends,
the length of time receivables are past due and historical collection
experience. Provisions for and recovery of bad debts are recorded against sales
and marketing expense in the consolidated statements of operations.

The company performs ongoing evaluations of customers' credit limits
financial condition and generally require no collateral. As of December 31,
2004, the credit risk was diversified as a result of acquisitions. One customer
accounted for 11% of gross accounts receivable with the next largest balance
accounting for 6%. As of December 31, 2003, four customers accounted for
approximately 25%, 17%, 14% and 14% of gross accounts receivable, respectively.

The market for PCTEL products is characterized by frequent transitions in
which products rapidly incorporate new features and performance standards. A
failure to develop products with required features or performance standards or a
delay in bringing a new product to market could adversely affect the operating
results. In addition, due to competitive pricing pressures that affect the
products and in part to increasing component and manufacturing costs, the
company expects gross margins from both existing and future products to decrease
over time.

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
December 31, 2004 were composed of raw materials, sub assemblies, finished goods
and work-in-process. The company regularly monitors inventory quantities on hand
and, based on the current estimated requirements, it was determined that any
excess inventory was reserved as of December 31, 2004 and 2003. Due to
competitive pressures and technological innovation, there may be excess
inventory in the future. As of December 31, 2004 and December 31, 2003, the
allowance for inventory losses was $0.4 million and $0.1 million, respectively.
The company recovered $1.8 million of the former write-downs during the year
ended December 31, 2003. Write-downs of inventories would have a negative impact
on gross margin.

PREPAID ASSETS

Prepaid assets are stated at cost and are amortized over their useful lives
(up to one year) of the assets.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. The company
depreciates computers over three years, office equipment over five years and
furniture and fixtures over seven years. Leasehold improvements are amortized
over the shorter of the corresponding lease term or useful life.

44

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

SOFTWARE DEVELOPMENT COSTS

The company accounts for software development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." The company's products include a software component. To
date, the company has expensed all software development costs because costs
incurred subsequent to the products reaching technological feasibility were not
significant.

REVENUE RECOGNITION

The company sells antenna products, software defined radio products, and
licenses the modem technology through the licensing program. The company records
the sale of these products, including related maintenance, and the licensing of
the intellectual property as revenue.

In accordance with SAB No. 104, the company recognizes revenue when the
following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is fixed and
determinable, and collectibility is reasonably assured. The company recognizes
revenue for sales of the antenna products and software defined radio products,
when title transfers, which is generally upon shipment from the factory. PCTEL
sells these products into both commercial and secure application government
markets. Title for sales into the commercial markets generally transfer upon
shipment from the factory. Products that are sold into the secure application
government market are generally designed to a unique specification. Title for
sales into the government markets generally does not transfer until acceptance
for the first units and then upon shipment thereafter. Revenue is recognized for
antenna products sold to major distributors upon shipment from the factory. The
company allows its major antenna product distributors to return product under
specified terms and conditions. The company accrues for product returns in
accordance with FAS 48, "Revenue Recognition When Right of Return Exists".

The company recognizes revenue from the Wi-Fi and cellular mobility
software, including related maintenance rights, under SOP 97-2 Software Revenue
Recognition. If the software license is perpetual and vendor specific objective
evidence can be established for the software license and any related maintenance
rights, the software license revenue is recognized upon delivery of the software
and the maintenance is recorded pro-rata over the life of the maintenance
rights. If part of the licensing agreement requires engineering services to
customize software for the customer needs, the revenue for these services is
recognized when the initial software license is delivered. If vendor specific
objective evidence cannot be established, and the only undelivered item is
maintenance, the software license revenue, the revenue associated with
engineering services, if applicable, and the related maintenance rights are
combined and recognized pro-rata over the expected term of the maintenance
rights. If vendor specific evidence cannot be established on any of the
non-maintenance elements, the revenue is recorded pro-rata over the life of the
contractual obligation.

The company records intellectual property licensing revenue when; it has a
licensing agreement, the amount of related royalties is known for the accounting
period reported, and collectibility is reasonably assured. Knowledge of the
royalty amount specific to an accounting period is either in the form of a
royalty report specific to a quarter, a contractual fixed payment in the license
agreement specific to a quarter, or the pro-rata amortization of a fixed payment
related to multiple quarters over those quarters using the operating lease
method. If a license agreement provides for a fixed payment related to periods
prior to the license effective date (the past) and volume-based royalties going
forward, the fixed payment is recognized at the license effective date and the
volume based royalties are recognized as royalty reports are received. If the
license provides for a fixed payment for the past and for a finite future
period, to be followed by volume based royalties thereafter, the fixed payment
is recorded under the operating lease method and recognized pro-rata from the
effective date through the end of the period covered by the fixed payment. If a
one-time license payment is made for a perpetual license, with no future
obligations on behalf of us, revenue is recognized under the capitalized lease
method upon the effective date.
45

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

There is one exception to the recognition of intellectual property
licensing as revenue. The company signed a licensing agreement with Conexant
simultaneously with the sale of its HSP modem product line to Conexant in 2003.
Because the HSP modem product line also requires a license to the company's
patent portfolio, the gain on sale of the product line and the licensing stream
are not separable for accounting purposes. Ongoing royalties from Conexant are
presented in the income statement as Gain on Sale of Assets and Related
Royalties.

SALES RETURNS

The company's Antenna Products segment allows its major distributors and
certain other customers to return unused product under specified terms and
conditions. In accordance with FAS 48, the company accrues for product returns
based on historical sales and return trends.

WARRANTIES

The company offers repair and replacement warranties of primarily two years
for Antenna products and one year for RF Solution products. The company carries
a warranty reserve for these products based on historical sales and costs of
repair and replacement trends.

R & D COSTS

The company expenses research and development costs as incurred. All costs
incurred prior to establishing the technological feasibility of computer
software products to be sold are research and development costs and expensed as
incurred in according with SFAS 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed".

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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 total allowance for doubtful accounts was $0.5 and
$0.1 million at December 31, 2004 and December 31, 2003, respectively. The
provision for doubtful accounts is included in sales and marketing expense.

INCOME TAXES

The company provides for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes. Deferred income tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates.
Valuation allowances are provided against deferred tax assets, which are not
likely to be realized.

STOCK-BASED COMPENSATION

The company accounts for its stock option plans using Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", whereby
compensation cost for stock options is measured as the excess, if any, of the
fair market value of a share of the company's stock at the date of the grant
over the amount that must be paid to acquire the Stock. SFAS No. 123,
"Accounting for Stock-Based Compensation", issued subsequent to APB No.
25 -- and amended by SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure", defines a fair value based method of
accounting for employee

46

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

stock options, but allows companies to continue to measure compensation cost for
employees using the intrinsic value method of APB No. 25. The following table
illustrates the pro forma information regarding net income (loss) and net income
(loss) per share as if the company recorded compensation expense based on the
fair value of stock-based awards in accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation -- Transition and Disclosure" for the years ended December 31,
2004, 2003 and 2002 (in thousands, except per share data):

These costs may not be representative of the total effects on pro forma
reported income (loss) for future years. Factors that may also impact
disclosures in future years include the attribution of the awards to the service
period, the vesting period of stock awards, timing of additional grants of stock
option awards and the number of shares granted for future awards.

In January 2005, the company approved the acceleration of vesting for all
unvested underwater options. See discussion in footnote 19 on subsequent events.

The company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option-pricing model as prescribed by SFAS 123
using the following assumptions:

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility and expected option life. Because the company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate the existing models may not necessarily provide a
reliable single measure of the fair value of the employee stock options. Based
on the Black-Scholes option-pricing model, the weighted average estimated fair
value of employee stock option grants was $3.63 for 2004, $2.79 for 2003 and
$3.78 for 2002. Restricted stock awards are recorded at the fair market value of
the stock on the date of grant and is expensed over the vesting period.

47

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

EARNINGS PER SHARE

The company computes earnings per share in accordance with SFAS No. 128,
"Earnings Per Share". SFAS No. 128 requires companies to compute net income per
share under two different methods, basic and diluted, and present per share data
for all periods in which statements of operations are presented. Basic earnings
per share is computed by dividing net income/(net loss) by the weighted average
number of shares of common stock outstanding, less shares subject to repurchase.
Diluted earnings per share are computed by dividing net income by the weighted
average number of common stock and common stock equivalents outstanding. Common
stock equivalents consist of stock options using the treasury stock method.
Common stock options are excluded from the computation of diluted earnings per
share if their effect is anti-dilutive. The weighted average common stock option
grants excluded from the calculations of diluted net loss per share were 684,763
for the year ended December 31, 2004.

The following table provides a reconciliation of the numerators and
denominators used in calculating basic and diluted earnings per share for the
years ended December 31, 2004, 2003 and 2002, respectively (in thousands, except
per share data):

- ---------------

* These amounts have been excluded since the effect is anti-dilutive.

GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.'s 141 and 142, "Business Combinations" and "Goodwill and Other Intangible
Assets", respectively. SFAS No. 141 requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142
supersedes Accounting Principles Board Opinion ("APB") No. 17 and addresses the
financial accounting and reporting standards for goodwill and intangible assets
subsequent to their initial recognition. SFAS No. 142 requires that goodwill no
longer be amortized. It also requires that goodwill and other intangible assets
be tested for impairment at least annually and whenever events or circumstances
occur

48

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

indicating that goodwill might be impaired. Additionally, an acquired intangible
asset should be separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented, or exchanged, regardless of the
acquirer's intent to do so. The company adopted SFAS No. 142 on January 1, 2002
at which time the company ceased amortization of goodwill.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued FAS No. 123R, "Share-Based Payment". The
statement addresses the accounting for transactions in which an enterprise
receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by the issuance of such
equity instruments. FAS No. 123R is effective no later than reporting periods
ending after June 15, 2005. The company will adopt FAS No. 123R on a prospective
basis starting in the third quarter of 2005. See footnote 19 on subsequent
events regarding acceleration of underwater options.

In December 2004, the FASB issued Staff Positions in relation to FAS No.
109, "Accounting for Income Taxes". FASB issued FSP FAS 109-1, "Application of
FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004". As a domestic manufacturer, the company will access early in 2005 whether
the company is eligible for any tax deductions under this Act. FASB issued FSP
FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Repatriation
Provision within the American Jobs Creation Act of 2004. The company has not yet
completed the assessment of earnings of foreign subsidiaries that might be
repatriated. At this time the company does not expect to repatriate the earnings
of our foreign subsidiaries as dividends to take advantage of this tax credit.

In November 2004, FASB issued FAS No. 151, "An Amendment of ARB No. 43,
Chapter 4". The statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). FAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for fiscal years beginning
after the date the statement was issued. The provisions of the statement have
been applied prospectively.

In March 2004, Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue No. 03-6, "Participating Securities and the Two -- Class Method under
FASB Statement No. 128, Earnings per Share". EITF 03-6 clarifies what
constitutes a participating security and provides further guidance in applying
the two-class method of calculating earnings per share. The consensus reached by
the Task Force in this Issue are effective for reporting periods beginning after
March 31, 2004. The company does not have any participating securities as
defined under EITF 03- 6. Adoption of this standard did not have a material
impact on the company's financial position, results of operations, or cash
flows.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after December 15, 2003. In December 2003,
the Financial Accounting Standards Board issued Interpretation 46R (FIN 46R), a
revision to Interpretation 46 (FIN 46), "Consolidation of Variable Interest
Entities." FIN 46R clarifies some of the provisions of FIN 46 and exempts
49

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

certain entities from its requirements. FIN 46R is effective at the end of the
first interim period ending after March 15, 2004. The company does not have any
variable interest entities. Adoption of this standard did not have an impact on
the company's financial position, results of operations, or cash flows.

2. SHORT-TERM INVESTMENTS

The company invests in high quality, short-term investments, which the
company classifies as available-for-sale. There were no significant differences
between amortized cost and estimated fair value of these short-term investments
at December 31, 2004 and December 31, 2003. The following table presents the
estimated fair value breakdown of investment securities by major security type
(in thousands):

All of the short-term investments are classified as current assets because
they are marketable and the company has the option to sell them at any time.

3. INVENTORIES

Inventories consist of the following (in thousands):

4. PREPAID AND OTHER ASSETS

Prepaid and other assets consist of the following (in thousands):

50

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

Depreciation expense was approximately $1.1, $0.7 and $2.0 million for the
years ended December 31, 2004, 2003 and 2002, respectively.

6. ACQUISITIONS

Andrew

On October 27, 2004, PCTEL entered into an agreement to acquire selected
assets associated with Andrew Corporation's mobile antenna business and
completed the acquisition on October 29, 2004 for a total of $10.9 million in
cash. The assets acquired consist of Andrew's GPS, On-Glass, and Antenna
Specialists(R) brand of professional antenna products. These product lines will
now be developed, manufactured, and supported by PCTEL's Antenna Products Group
(APG). These product lines were integrated into the operations of the Antenna
Products Group. The purchase price was allocated $5.4 million to net tangible
assets acquired, $0.6 million to core technology, $2.6 million to customer
relationships, $0.3 million to trademarks and $0.3 million to order backlog and
other intangible assets, net, in the accompanying consolidated balance sheets.
The $1.7 million excess of the purchase price over the fair value of the net
tangible and intangible assets was allocated to goodwill, which is deductible
for tax purposes. The company will amortize the intangible assets over estimated
useful lives ranging from six to eight years. A third-party appraiser prepared
the appraisal for the tangible and intangible assets.

The unaudited pro forma affect on the financial results of PCTEL as if the
acquisition had taken place on January 1, 2004 and January 1, 2003 is as
follows:

- ---------------

* The Andrew Acquisition information is carved out of a larger business unit
within Andrew. No data is available below income from operations

51

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

MAXRAD, Inc.

On January 2, 2004, PCTEL completed the acquisition of MAXRAD, Inc. MAXRAD
is a manufacturer of wireless communications antennas for broadband wireless,
in-building wireless and land mobile radio applications. In connection with the
acquisition, PCTEL acquired all of the outstanding capital stock of MAXRAD.
MAXRAD is now part of the Antenna Products Group (APG) and is one of the three
APG product brands. Antenna Specialists(R) and Micro-Pulse are the other two
brands.

In exchange for the outstanding capital stock of MAXRAD, PCTEL paid $18.2
million, net of cash acquired of $2.4 million, out of the available working
capital. The purchase price of $20.6 million in cash, of which $0.4 million was
paid in April 2004, was allocated $7.6 million to net tangible assets acquired,
$0.9 million to the covenant not to compete, $1.3 million to core technology,
$3.2 million to customer lists, $1.4 million to trademarks and $0.1 million to
other intangible assets, net, in the accompanying consolidated balance sheets.
The $6.1 million excess of the purchase price over the fair value of the net
tangible and intangible assets was allocated to goodwill, which is deductible
for tax purposes. The covenant not to compete will be amortized over two years
and other intangible assets over an estimated useful life of six and eight
years. A third-party appraiser prepared the appraisal for the intangible assets.

The unaudited pro forma affect on the financial results of PCTEL as if the
acquisition had taken place on January 1, 2003 is as follows:

Dynamic Telecommunications, Inc.

In March 2003, PCTEL, Inc., completed its asset acquisition of Dynamic
Telecommunications, Inc., ("DTI") through a newly wholly owned subsidiary PCTEL
Maryland, Inc. DTI is a supplier of software-defined radio technology deployed
in high-speed wireless scanning receivers, multi-protocol collection and
analysis systems, interference measurement systems and radio frequency command
and control software solutions. In connection with the asset acquisition, PCTEL
Maryland, a wholly-owned subsidiary of PCTEL, and DTI Holdings, Inc., the sole
shareholder of DTI, entered into an Asset Purchase Agreement dated as of March
12, 2003 under which the wholly-owned subsidiary acquired substantially all of
the assets of DTI, including intellectual property, receivables, property and
equipment and other tangible and intangible assets used in DTI's business.

In exchange for the acquired net assets, PCTEL paid DTI Holdings $11.0
million in cash. In addition, DTI is entitled to earn-out payments as a result
of PCTEL Maryland, Inc. meeting specified financial targets in fiscal years 2003
and 2004. DTI earned approximately $1.5 million for 2003 that was recorded as
additional goodwill at December 31, 2003 and paid on May 1, 2004. For the year
ended December 31, 2004, DTI earned a cash payout of approximately $0.6 million,
which was accrued and recorded as additional goodwill. This amount will be paid
on or before May 1, 2005.

52

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

The purchase price of $11.0 million was allocated to the assets acquired
and liabilities assumed at their estimated fair values on the date of
acquisition as determined by an independent valuation firm. The purchase price
was allocated $2.3 million to net assets acquired, $1.1 million to acquired
in-process research and development, $0.2 million to the covenant not to compete
and $4.4 million to other intangible assets, net, in the accompanying
consolidated balance sheets. The $3.0 million excess of the purchase price over
the fair value of the net tangible and intangible assets was allocated to
goodwill. In-process research and development costs were expensed and the
covenant not to compete is being amortized over two years and other intangible
assets over an estimated useful life of four years. A third-party appraiser
prepared the appraisal for the intangible assets. An additional payment of $0.2
million was made in July 2003 to DTI after they delivered a final balance sheet
as agreed upon in the Asset Purchase Agreement. The additional payment, recorded
as goodwill.

The unaudited pro forma affect on the financial results of PCTEL as if the
acquisition had taken place on January 1, 2003 and 2002 is as follows:

7. DISPOSITION

In May 2003, the company completed the sale of certain of its assets to
Conexant Systems, Inc., ("Conexant"). Conexant is a supplier of semiconductor
system solutions for communications applications. In connection with the
transaction, the company and Conexant entered into an Asset Purchase Agreement
dated as of May 8, 2003 (the "Purchase Agreement") under which Conexant acquired
specified assets of the company relating to a component of the company HSP modem
operations and consisting of inventory, fixed assets from the company offices in
Taiwan, contracts with customers and distributors related to the soft modem
products, and limited intellectual property. The company did not transfer any of
its patent portfolio in connection with this transaction, and the company
retained all operating contracts and intellectual property assets associated
with its hardware modem and wireless products.

In exchange for the assets acquired from PCTEL, Conexant paid approximately
$10.75 million in cash to the company, which represents $8.25 million plus the
book value of the acquired inventory and fixed assets being transferred to
Conexant. Conexant assumed certain liabilities of the company. The total
proceeds of $10.75 million netted a gain on sale of assets of $4.5 million. In
connection with the Purchase Agreement, Conexant agreed to license the company's
Segue Wi-Fi software for use with certain of its products. Conexant will pay the
company an aggregate of $1 million, as consideration for this license.

Concurrent with the completion of the transaction with Conexant, the
company and Conexant also completed an Intellectual Property Assignment
Agreement and Cross-License Agreement ("IPA"). The company provided Conexant
with a non-exclusive, worldwide license to certain of the company's soft modem
patents. In addition, Conexant assigned 46 U.S. patents and patent applications
relating to modem and other

53

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

access technologies to the company as part of the transaction. In consideration
for the rights obtained by Conexant from the company under this agreement, and
taking into account the value of rights obtained by the company from Conexant
under this agreement, during the period beginning on July 1, 2003 and ending on
September 30, 2007, Conexant agreed to pay to the company, on a quarterly basis,
royalties in the amount of ten percent (10%) of the revenue received during the
royalty period, up to a maximum amount of $0.5 million per quarter with respect
to each calendar quarter during the royalty period, contingent upon sales by
Conexant during the period. Any such future payments by Conexant to the company
in connection with the IPA will be recorded as part of the gain on sale of
assets and related royalties in the statement of operations.

8. INVENTORY WRITE-DOWNS AND RECOVERIES

Due to the changing market conditions, economic downturn and estimated
future requirements, inventory write-downs of $10.9 million were recorded in the
second half of 2001. Of the $10.9 million, $2.3 million related to firm purchase
order commitments with the major suppliers and the remaining $8.6 million
related to excess inventory on hand or disposed. During 2003 and 2002, the
company did not record any additional inventory write-downs having either sold
or disposed of all the written down inventories and recovered $1.8 and $7.2
million of the former write-downs, respectively. There were no write-downs for
excess inventory in 2004 or 2003.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board issued SFAS No.'s
141 and 142, "Business Combinations" and "Goodwill and Other Intangible Assets",
respectively. SFAS No. 141 requires all business combinations initiated after
September 30, 2001 to be accounted for using the purchase method. SFAS No. 142
supersedes Accounting Principles Board Opinion ("APB") No. 17 and addresses the
financial accounting and reporting standards for goodwill and intangible assets
subsequent to their initial recognition. SFAS No. 142 requires that goodwill no
longer be amortized. It also requires that goodwill and other intangible assets
be tested for impairment at least annually and whenever events or circumstances
occur indicating that goodwill might be impaired. Additionally, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. The company adopted SFAS No. 142
on January 1, 2002 at which time the company ceased amortization of goodwill.
The provisions of SFAS No. 142 are effective for fiscal years beginning after
December 15, 2001 and must be applied to all goodwill and other intangible
assets that are recognized in an entity's balance sheet at the beginning of that
fiscal year. An independent valuation firm conducted the annual impairment test
as of October 31, 2004, the result of which was that there was no impairment of
goodwill or other intangibles.

54

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

The changes in the carrying amount of goodwill and other intangible assets
as of December 31, 2004 were as follows (in thousands):

During 2004, the company sold $0.2 million in patents and wrote off $0.2
million of impaired developed technology. In 2005 and in future years,
amortization of other intangible assets would be as follows:

COMPREHENSIVE INCOME

The following table provides the calculation of other comprehensive income
for the years ended December 31, 2004, 2003 and 2002 (in thousands):

55

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

10. RESTRUCTURING CHARGES

2004 Restructuring

In October 2004, the company discontinued its Soft AP product line. The
amount charged to restructuring for severance costs in California and Taiwan as
well as costs associated with the closure of the Taiwan branch office was $0.1
million. These costs will be paid by the end of the third quarter of 2005.

2003 Restructuring

In May 2003, the company completed the sale of certain of its assets to
Conexant relating to a component of PCTEL's HSP modem product line. As a result
of the disposition, 29 employees were transferred to Conexant. An additional 26
employees, both foreign and domestic, were terminated along with the related
facilities closures. The total restructuring aggregated $3.3 million consisting
of severance and employment related costs of $1.8 million and costs related to
closure of excess facilities as a result of the reduction in force of $1.5
million.

As of December 31, 2004, the remaining accrual balance of $0.6 million
primarily relates to the facility related charges, lease payments, and related
costs. As a result of lower than estimated facility shut down costs, the company
reversed $0.2 million of the restructuring reserve. The following analysis sets
forth the rollforward of this charge:

11. INCOME TAXES

The domestic and foreign components of the income (loss) before provision
for income taxes and extraordinary loss were as follows (in thousands):

56

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

The provision (benefit) for income taxes consisted of the following (in
thousands):

A reconciliation of the provision for income taxes at the Federal statutory
rate compared to our effective tax rate is as follows (in thousands):

57

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The net deferred tax
accounts consist of the following (in thousands):

At December 31, 2004, the company had a full valuation allowance against
the deferred tax assets due to the uncertainty surrounding the realization of
such assets. Management evaluates on a periodic basis 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.

The company believes that approximately $1.3 million of undistributed
earnings of non-domestic subsidiaries were reinvested indefinitely, and no
Federal income tax needed to be provided under the plan of investment. The
American Jobs Creation Act of 2004 ("the Act") was passed into law on October
22, 2004 and introduced a special one-time dividend received deduction under
certain circumstances on the repatriation of certain foreign earnings to a
United States of America taxpayer. While it is unlikely that any distributions
will be made, the company is not yet in position to decide whether, and to what
extent, it might repatriate foreign earnings under the new provisions of the Act
that have not yet been remitted to the United States.

12. CONTINGENCIES

The company has from time to time in the past received correspondence from
third parties, and may receive communications from additional third parties in
the future, asserting that the products infringe on their intellectual property
rights, that the patents are unenforceable or that the company has
inappropriately licensed the intellectual property to third parties. The company
expects these claims to increase as our intellectual property portfolio becomes
larger. These claims could affect the company's relationships with existing
customers and may prevent potential future customers from purchasing the
company's products or licensing the technology. Intellectual property claims
against the company, and any resulting lawsuit, may result in incurring
significant expenses and could subject the company to significant liability for
damages and invalidate the company's proprietary rights. These lawsuits,
regardless of their success, would likely be time-consuming and expensive to
resolve and could divert management's time and attention. In addition, any
claims of this kind, whether they are with or without merit, could cause product
shipment delays or require the company to enter into royalty or licensing
agreements. In the event that PCTEL does not prevail in litigation, the company
could be prevented from selling the company's products or be required to enter
into royalty or licensing agreements on terms, which may not be acceptable to
the company. PCTEL could also be prevented

58

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

from selling the company's products or be required to pay substantial monetary
damages. Should PCTEL cross license the intellectual property in order to obtain
licenses, the company may no longer be able to offer a unique product. To date,
PCTEL has not obtained any licenses from 3Com and the other companies from whom
the company has received communication.

Ronald H. Fraser v. PC-Tel, Inc., Wells Fargo Shareowner Services, Wells Fargo
Bank Minnesota, N.A.

On March 19, 2002, plaintiff Ronald H. Fraser ("Fraser") filed a Verified
Complaint (the "Complaint") in Santa Clara County (California) Superior Court
for breach of contract and declaratory relief against the company, and for
breach of contract, conversion, negligence and declaratory relief against the
company's transfer agent, Wells Fargo Bank Minnesota, N.A ("Wells Fargo"). The
Complaint seeks compensatory damages allegedly suffered by Fraser as a result of
the sale of certain stock by Fraser during a secondary offering on April 14,
2000. Wells Fargo filed a Verified Answer to the Complaint on June 12, 2002. On
July 10, 2002, the company filed a Verified Answer to the Complaint, denying
Fraser's claims and asserting numerous affirmative defenses. Wells Fargo and the
company each filed Cross-complaints against the other for indemnity.

Wells Fargo filed a motion for summary judgment, or alternatively for
summary adjudication, which was heard on July 29, 2003. On July 30, the Court
granted Wells Fargo's motion for summary adjudication on Fraser's Third and
Fourth Causes of action for Breach of Fiduciary Duty and Declaratory Relief, but
denied Wells Fargo's motion for summary judgment and summary adjudication of
Fraser's First and Second Causes of Action for Breach of Contract and
Conversion. The company filed a Motion for Summary Judgment or, Alternatively,
Summary Adjudication, against Fraser. The Motion was scheduled for December 9,
2003. Fraser filed a motion for leave to amend his complaint, which was also
heard on December 9, 2003. The Court granted Fraser's motion and denied the
company's motion as moot. Trial of this matter had been set for January 12,
2004, but the trial date was vacated in light of the amended complaint. The
company re-filed its Motion for Summary Judgment or, Alternatively, Summary
Adjudication, against Fraser. Trial was scheduled for September 20, 2004.

On August 16, 2004, the Court signed an Order denying PCTEL's motion for
summary judgment but granting in part and denying in part PCTEL's alternative
motion for summary adjudication of Fraser's first cause of action for breach of
contract, and granting PCTEL's motion for summary adjudication of Fraser's fifth
cause of action for declaratory relief. Shortly thereafter, Wells Fargo and the
company dismissed the Cross-complaints against one another. At the Mandatory
Settlement Conference on September 15, 2004, Fraser stipulated to judgment in
favor of the company.

On November 15, 2004 Fraser filed a notice of appeal. The company believes
that this appeal is without merit and intends to defend the appeal vigorously.

Litigation with U.S. Robotics

On May 23, 2003, the company filed in the U.S. District Court for the
Northern District of California a patent infringement lawsuit against U.S.
Robotics Corporation claiming that U.S. Robotics has infringed one of the
company's patents. U.S. Robotics counterclaimed asking for a declaratory
judgment that the claims of the patent are invalid and not infringed. This case
was consolidated for claims construction discovery with the lawsuit against
Agere Systems and Lucent Technologies, and the now-concluded litigation with
3Com Corporation and Broadcom Corporation. Claims construction discovery under
the Patent Local Rules has been taken and the claims construction issues have
been briefed to the Court. A hearing on the construction of the claims of the
patent, originally scheduled for January 12, 2005, was continued by the Court
and is now scheduled for April 6, 2005. No trial date has been set. Although the
company believes it has meritorious

59

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

claims and defenses, the company cannot now predict or determine the outcome or
resolution of this proceeding or the potential range of loss if any.

Litigation with Agere and Lucent

On May 23, 2003, the company filed in the U.S. District Court for the
Northern District of California a patent infringement lawsuit against Agere
Systems and Lucent Technologies claiming that Agere has infringed four of the
company's patents and that Lucent has infringed three of the company's patents.
Agere counterclaimed asking for a declaratory judgment that the claims of the
four patents are invalid, unenforceable and not infringed by Agere. This case
was consolidated for claims construction discovery with the lawsuit against U.S.
Robotics Corporation and the now-concluded litigation with 3Com Corporation and
Broadcom Corporation.

Because of a then-pending reexamination proceeding for PCTEL's U.S. Patent
No. 5,787,305 (the '305 patent), on December 4, 2003, the claims against Agere
and Lucent relating to the '305 patent were stayed by stipulation of the
parties. Claims construction discovery under the Patent Local Rules has been
taken with respect to the three patents as to which the litigation was not
stayed, and the claims construction issues relating to those patents have been
briefed to the Court. A hearing on the construction of the claims of those
patents, originally scheduled for January 12, 2005, was continued by the Court
and is now scheduled for April 6, 2005.

On July 28, 2004, the company received from the U.S. Patent Office a Notice
of Intent to Issue Ex Parte Reexamination Certificate for the '305 patent, and
on January 11, 2005, the U.S. Patent Office issued the Reexamination
Certificate. The stay regarding the '305 patent has now been lifted by
stipulation of the parties.

No trial date has been set. Although the company believes that it has
meritorious claims and defenses, the company cannot predict or determine the
outcome or resolution of this proceeding or the potential range of loss if any.

Litigation with 3Com

In March 2003, 3Com Corporation filed a lawsuit against the company
asserting claims that the company infringed certain 3Com patents and asking for
a declaration that one of the company's patents was invalid, unenforceable and
not infringed by 3Com. Also in March 2003, the company filed a lawsuit against
3Com asserting claims that 3Com infringed one of the company's patents and
asking for a declaration that certain of 3Com's patents were invalid,
unenforceable and not infringed by the company. These cases were consolidated
for claims construction discovery with the lawsuits against U.S. Robotics
Corporation, Agere and Lucent, and the now-concluded litigation with Broadcom
Corporation. In November 2004, the parties entered into a settlement agreement
which was favorable to the company, and on December 1, 2004, the Court granted
the parties' stipulated request that all claims and counterclaims in the 3Com
actions be dismissed with prejudice.

13. PREFERRED STOCK

The company is authorized to issue up to 5,000,000 shares of preferred
stock in one or more series, each with a par value of $0.001 per share. As of
December 31, 2004 and 2003, no shares of preferred stock were outstanding.

60

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

14. COMMON STOCK

COMMON STOCK RESERVED FOR FUTURE ISSUANCE

As of December 31, 2004, the company had reserved shares of common stock
for future issuance as follows:

STOCK OPTION PLANS

1995 Plan, 1997 Plan, and 2001 Plan

In March 1995, the Board of Directors adopted and approved the 1995 Stock
Option Plan ("1995 Plan"). Under the 1995 Plan, the Board may grant to
employees, directors and consultants options to purchase the common stock at
terms and prices determined by the Board. No further options will be granted
under the 1995 Plan. However, all outstanding options under the 1995 Plan remain
in effect. The 1995 Plan will terminate in 2005. As of December 31, 2004, of the
total 3,200,000 shares authorized under the 1995 Plan, 156,032 shares remain
available for issuance, pursuant to options outstanding under the plans.

In November 1996, the Board of Director adopted and approved the 1997 Stock
Option Plan ("1997 Plan"). Under the 1997 Plan, the Board may grant to
employees, directors and consultant's options to purchase the common stock
and/or stock purchase rights at terms and prices determined by the Board. In
August 1999, the Board of Directors and the stockholders approved an amendment
and restatement of the 1997 Plan that increased the number of authorized shares
of the common stock the company may issue under the 1997 Plan to 5,500,000. The
company will further increase annually the number of shares authorized to issue
under the 1997 Plan by an amount equal to the lesser of (i) 700,000 shares, (ii)
4% of the outstanding shares on such date or (iii) a lesser amount determined by
the Board of Directors. The exercise price of incentive stock options granted
under the 1997 Plan may not be less than the fair market value of the common
stock on the grant date. Nonqualified stock options granted under the 1997 Plan
must be at a price equal to at least 85% of the fair market value of the common
stock at the date of grant. Options granted under the 1997 Plan 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. The 1997 Plan will terminate in 2007. As of
December 31, 2004, of the total 8,962,413 shares authorized under the 1997 Plan,
794,267 shares remain available for issuance.

In August 2001, the Board of Directors adopted and approved the 2001
Nonstatutory Stock Option Plan ("2001 Plan"). Under the 2001 Plan, the Board may
grant to employees and consultants options to purchase the common stock at terms
and prices determined by the Board. The 2001 Plan does not apply to directors
and officers. Options granted under the 2001 Plan may be exercised at any time
within ten years from 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. The 2001 Plan will terminate in 2011. As of December 31, 2004, of the
total 750,000 shares authorized under the 2001 Plan, 584,244 remain available
for issuance.

61

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

The following table summarizes stock option activity under the Plans as of
December 31, 2004:

In 2001, in connection with the hiring and appointment of two executive
officers of PCTEL, the company granted an aggregate amount of 300,000 options at
$8.00 per share outside of any stock option plan, pursuant to individual stock
option agreements. As of December 31, 2004, 86,667 options are outstanding.

1998 Director Option Plan ("Directors Plan")

The Directors Plan became effective following the company's IPO in October
1999. In June 2003 the shareholders approved amendments to the plan, which added
200,000 shares for a plan total of 400,000 shares and increased the annual
options granted to the Board of Directors from 7,500 to 10,000 shares.
Therefore, the company reserved a total of 400,000 shares of common stock that
the company can issue under the company's Directors Plan. Under our 1998
Directors Plan, any new non-employee director elected to the Board of Directors
automatically receives a grant of 15,000 shares of common stock. The 15,000
share options will vest one-third as of each anniversary of its date of grant
until the option is fully vested, provided that the optionee continues to serve
as a director on such dates. After the initial 15,000 share options are granted
to the non-employee director, he or she shall automatically be granted an option
to purchase 10,000 shares each year on January 1, if on such date he or she
shall have served on the Board of Directors for at least six months. The 10,000
share options shall vest completely on the first year anniversary of their date
of grant, provided that the optionee continues to serve as a director on such
dates. The exercise price of all options shall be 100% of the fair market value
per share of the common stock, generally determined with reference to the
closing price of the common stock as reported on the NASDAQ National Market on
the date of grant. All of the options

62

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

granted under our 1998 Directors Plan have a term of 10 years. As of December
31, 2003, of the total 400,000 shares authorized for issuance, the company has
250,000 shares remaining that can be granted under the Directors Plan. For the
year ended December 31, 2001, there were grants of 52,500 options at a weighted
average exercise price of $8.46 and cancellations of 15,000 options at a
weighted average exercise price of $33.92 under the Directors Plan. As of
December 31, 2001, 60,000 options were outstanding at a weighted average
exercise price of $21.05. For the year ended December 31, 2002, there were
grants of 75,000 options at a weighted average exercise price of $8.43 and
cancellations of 22,500 options at a weighted average exercise price of $25.95
under the Directors Plan. As of December 31, 2002, 112,500 options were
outstanding at a weighted average exercise price of $11.66. For the year ended
December 31, 2003, there were grants of 37,500 options at a weighted average
exercise price of $7.90 and no cancellations under the Directors Plan. As of
December 31, 2003, 150,000 options were outstanding at a weighted average
exercise price of $10.72. For the year ended December 31, 2004, there were
grants of 60,000 options at a weighted average exercise price of $10.75 and no
cancellations under the Directors Plan. As of December 31, 2004, 210,000 options
were outstanding at a weighted average exercise price of $10.73.

The following table summarizes information about stock options outstanding
under the 1995 Plan, 1997 Plan, 2001 Plan, Directors Plan and Executive Options
at December 31, 2004:

As of December 31, 2003 there were 3,596,000 options exercisable at a
weighted average exercise price of $11.98 and as of December 31, 2002, there
were 2,080,916, options exercisable at a weighted average exercise price of
$13.40.

Employee Stock Purchase Plan ("Purchase Plan")

In May 1998, the company reserved a total of 800,000 shares of common stock
for future issuance under the company's Purchase Plan, plus annual increases
equal to the lesser of (i) 350,000 shares (ii) 2% of the outstanding shares on
such date or (iii) a lesser amount determined by the Board of Directors. The
Purchase Plan will enable 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 Purchase
Plan will terminate in 2008. As of December 31, 2004, the company had 1,850,923
shares remaining that can be issued under the Purchase Plan.

63

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

Deferred Stock Compensation

In connection with the grant of stock options to employees prior to the
initial public offering in 1999, the company recorded deferred stock
compensation of $5.4 million, representing the difference between the exercise
price and deemed fair value of the common stock on the date these stock options
were granted. Such amount is presented as a reduction of stockholders' equity
and was amortized ratably over the vesting period of the applicable options
through the second quarter of 2003.

In connection with the grant of restricted stock to employees in 2001, the
company recorded deferred stock compensation of $1.8 million, representing the
fair value of the common stock on the date the restricted stock was granted.
Such amount is presented as a reduction of stockholders' equity and was
amortized ratably over the vesting period of the applicable shares through the
fourth quarter of 2003.

In connection with the grant of restricted stock to employees in March
2002, the company recorded deferred stock compensation of $0.4 million,
representing the fair value of our common stock on the date the restricted stock
was granted. Such amount is presented as a reduction of stockholders' equity and
is amortized ratably over the vesting period of the applicable shares through
March 2005.

In connection with the grant of restricted stock to employees in December
2002, the company recorded deferred stock compensation of $3.3 million
representing the fair value of the common stock on the date the restricted stock
was granted. Such amount is presented as a reduction of stockholders' equity and
is amortized ratably over the vesting period of the applicable shares through
October 2008.

In connection with the grant of restricted stock to employees and directors
in 2003, the company recorded deferred stock compensation of $0.8 million
representing the fair value of the common stock on the date the restricted stock
was granted. Such amount is presented as a reduction of stockholders' equity and
is amortized ratably over the vesting period of the applicable shares through
July 2009.

In connection with the grant of restricted stock to employees and directors
in 2004, the company recorded deferred stock compensation of $3.3 million
representing the fair value of the common stock on the date the restricted stock
was granted. Such amount is presented as a reduction of stockholders' equity and
is amortized ratably over the vesting period of the applicable shares through
July 2009.

For the years ended December 31, 2004, 2003 and 2002, amortization of
deferred stock compensation (in thousands) relates to the following functional
categories:

15. STOCK REPURCHASES

In August 2002, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the common stock, which was completed in February 2003. In
February and November 2003, the company extended the stock repurchase program to
repurchase up to 1,000,000 and 500,000 additional shares, respectively, on the
open market from time to time. During 2004, the company repurchased 461,400
shares of the common stock for approximately $4.3 million. Since the inception
of the stock repurchase program the company has repurchased 2,000,000 shares of
the outstanding common stock for approximately $15.8 million.

64

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

16. LEASE COMMITMENTS

The company has non-cancelable operating leases for office facilities
through 2007. The future minimum rental payments under these leases at December
31, 2004, are as follows (in thousands):

2005........................................................ 558
2006........................................................ 543
2007........................................................ 347
------
Future minimum lease payments............................... $1,448
======

The rent expense under operating leases for office facilities in use for
the years ended December 31, 2004, 2003 and 2002 was approximately $0.6 million,
$0.7 million and $0.9 million, respectively.

17. INDUSTRY SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION

In 2003 the company operated as a single segment. In January 2004 PCTEL
began operating in five distinct segments. They are Mobility Solutions
(previously software), RF Solutions (previously test), Antenna Product
(previously antenna), Modems and the Licensing segment. In May 2003, the company
sold its modem product line to Conexant. Intercompany sales and profits from
Antenna Products to RF Solutions are eliminated.

PCTEL's chief operating decision maker (CEO) uses only the below measures
in deciding how to allocate resources and assess performance among the segments.

The results of operations by segment are as follows:

65

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

The company's revenue to customers outside of the United States, as a
percent of total revenues, is as follows:

Revenue to the company's major customers representing greater than 10% of
total revenues by segment during the last three fiscal years are as follows:

APG

RFSG

MSG

66

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

LICENSING

MODEMS

As of December 31, 2004, the long-lived assets were primarily located in
the United States. The long-lived assets by geographic region as of December 31,
2004 and 2003 are as follows:

18. BENEFIT PLANS

401(k) Plan

The 401(k) plan covers all of the employees beginning the first of the
month following the month of their employment. Under this plan, employees may
elect to contribute up to 15% of their current compensation to the 401(k) plan
up to the statutorily prescribed annual limit. The company may make
discretionary contributions to the 401(k). The company made $0.5 million in
employer contributions to the 401(k) plan for each of the years ended December
31, 2004, 2003 and 2002.

Post-retirement health insurance

Effective July 2003, the company started a plan to cover post-retirement
health insurance for Martin H. Singer, Chairman of the Board and Chief Executive
Officer. Based on an actuarial valuation prepared by RSM McGladrey in accordance
with FAS 106, the company's accumulated post retirement benefit obligation for
this plan was $107,000 at December 31, 2004.

67

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

19. SUBSEQUENT EVENTS

Acceleration of Stock Options

On January 28, 2005, the Compensation Committee of the Board of Directors
of PCTEL, Inc. approved the acceleration of vesting of all unvested options to
purchase shares of common stock of PCTEL that are held by current employees,
including executive officers, and which have an exercise price per share equal
to or greater than $10.00. Options to purchase 1,647,765 shares of common stock
are subject to this acceleration. The acceleration is effective as of January
28, 2005, provided that holders of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, will be given the
election to decline the acceleration of an option if such acceleration would
have the effect of changing the status of such option for federal income tax
purposes from an incentive stock option to a non-qualified stock option.

The acceleration of these options was undertaken to eliminate the future
compensation expense that PCTEL would otherwise recognize in its income
statement with respect to those options upon the effectiveness of FASB Statement
No. 123R ("FAS 123R") in July 2005. The future expense will instead be reflected
in pro forma footnote disclosure to PCTEL's financial statements for the quarter
ending March 31, 2005, as permitted under the transition guidance provided by
the Financial Accounting Standards Board.

20. QUARTERLY DATA (UNAUDITED)

68

PCTEL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED: DECEMBER 31, 2004

69

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

ITEM 9A: CONTROLS AND PROCEDURES

(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of PCTEL management,
including the company's Chairman and Chief Executive Officer and its Chief
Financial Officer, management evaluated the effectiveness of the company's
disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended. Based on that
evaluation, the Company's Chairman and Chief Executive Officer and its Chief
Financial Officer concluded that the company's disclosure controls and
procedures were ineffective as of December 31, 2004 because of the material
weakness discussed below. In light of the material weakness described below, the
Company performed additional analysis and other post-closing procedures to
ensure our consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Accordingly, management believes that
the financial statements included in this Annual Report on Form 10-K fairly
present in all material respects our financial condition, results of operations
and cash flows for the periods presented.

(B) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of PCTEL is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. PCTEL's internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that:

- pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of PCTEL;

- provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of PCTEL are being made only in accordance with
authorizations of management and directors of PCTEL; and

- provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of PCTEL's assets that could
have a material effect on the financial statements.

The management of PCTEL has assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004. In making its
assessment of internal control over financial reporting, management used the
criteria described in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. As of December 31, 2004, the Company did not maintain effective
controls over the accounting for income taxes, including the determination of
income taxes payable, deferred income tax assets and liabilities and the related
income tax provision. Specifically, the Company did not have effective controls
over determining net operating loss carrybacks, applicable state tax rates
applied, and the tax effect of stock option exercises. In addition, the Company
did not have effective controls to monitor the difference between the income tax
basis and the financial reporting basis of assets and liabilities and reconcile
the difference to deferred income tax assets and liabilities. This control
deficiency resulted in audit adjustments to the fourth quarter 2004 financial
statements. Additionally, this control deficiency could result in a misstatement
of income taxes payable, deferred income tax assets and liabilities and the
related income tax provision would result in a material misstatement to annual
or interim financial statements that would not be prevented or

70

detected. Accordingly, management has determined that this control deficiency
constitutes a material weakness. Because of this material weakness, we have
concluded that the Company did not maintain effective internal control over
financial reporting as of December 31, 2004, based on criteria in "Internal
Control-Integrated Framework."

Management has excluded MAXRAD, Inc. and the acquired selected assets of
Andrew Corporation from its assessment of internal control over financial
reporting as of December 31, 2004 because they were acquired by the Company
through purchase business combinations during January and October 2004,
respectively. The Company has organized its Antenna Products Group around the
businesses represented by these two acquisitions. MAXRAD, Inc. and the acquired
operations of Andrew Corporation are consolidated in the company's financial
statements. Their total assets represent 18% of the Company's total assets as of
December 31, 2004. Their total revenues and gross profit represent 55% and 34%
of the Company's total revenues and gross profit, respectively, for the year
ended December 31, 2004.

Management's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.

(C) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in our internal control over financial reporting during
the quarter ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

However, to address the material weakness described above, subsequent to
December 31, 2004, the Company's management has taken the following actions,
which are material changes:

- Engaged an outside tax consultant to prepare the tax provision, provide
tax expertise and expertise in the application of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes".

- Implemented an internal training program to enhance the capabilities of
its internal tax personnel.

- Acquired software to automate and better control the tax provision
preparation process.

- Improved its system of internal controls over the review of the
consolidated benefit (provisions) for income taxes.

ITEM 9B: OTHER INFORMATION

None.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item concerning the company's directors is
incorporated by reference to the sections entitled "Proposal #1 -- Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
contained in the Proxy Statement related to PCTEL's 2005 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days of the end of our fiscal year pursuant to general instruction G(3) of Form
10-K (the "Proxy Statement"). Certain information required by this item
concerning executive officers is set forth in Item 4A of this Report in the
section captioned "Executive Officers of the Registrant".

CODE OF ETHICS

The company adopted the PCTEL, Inc. Code of Ethics for Principal Executives
and Key Financial Officers ("Code of Ethics"). The Code of Ethics applies to the
principal executive financial officer, the
71

principal accounting officer or controller and persons performing similar
functions and responsibilities who shall be identified by the Audit Committee
from time to time.

The Code of Ethics is available at the company's website, located at
www.pctel.com. It may be found at the website as follows:

1. From the main web page, click on "Investor Relations,"

2. Next, click on "Corporate Governance,"

3. Finally, click on "Financial Code of Ethics."

The company intends to satisfy the disclosure requirement under Item 5.05
of Form 8-K regarding an amendment to, or waiver from, a provision of the Code
of Ethics by posting such information on the company website.

ITEM 11: EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
sections captioned "Executive Compensation and Other Matters" and "Report of the
Compensation Committee of the Board of Directors" contained in the Proxy
Statement.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information concerning the security ownership of certain beneficial owners
and management as well as equity compensation plans, is incorporated by
reference to the information set forth in the sections entitled "Security
Ownership of Certain Beneficial Owners and Management" and "Equity Compensation
Plan Information" contained in the Proxy Statement.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships is incorporated by reference
to the section entitled "Certain Relationships and Related Transactions"
contained in the Proxy Statement.

PART IV

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services is
incorporated by reference to the section entitled "Proposal #2-Ratification of
Appointment of Independent Registered Public Accountants" contained in the Proxy
Statement.

ITEM 15: EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

(a) (1) FINANCIAL STATEMENTS

Refer to the financial statements filed as a part of this Report under
"Item 8 -- Financial Statements and Supplementary Data".

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(2) FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is filed as a part of this
Report under "Schedule II" immediately preceding the signature page:
Schedule II -- Valuation and Qualifying Accounts for the three fiscal years
ended December 31, 2004. All other schedules called for by Form 10-K are
omitted because they are inapplicable or the required information is shown
in the financial statements, or notes thereto, included herein.

(3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)

- ---------------

* Filed herewith.

+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 15(c) of Form 10-K.

(a) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Current Report on Form 8-K dated March 12, 2003.

(b) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
No. 333-84707).

(c) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for fiscal year ended December
31, 2001.

(d) Incorporated by reference herein to the Registrant's Registration Statement
of Form S-8 filed on October 3, 2001 (Registration Statement No.
333-70886).

(e) Incorporated by reference herein to the Registrant's Registration Statement
of Form S-8 filed on December 14, 2001 (Registration Statement No.
333-75204).

(f) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for quarter ended September
30, 2002.

(g) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.

(h) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 2003.

(i) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.

(j) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003.

(k) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 2004.

(l) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004.

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(b) EXHIBITS

See Item 15(a)(3) above.

(c) FINANCIAL STATEMENT SCHEDULE

See Item 15(a)(2) above.

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PCTEL, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, 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

Dated: March 31, 2005

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Martin H. Singer and John Schoen, and
each of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and re-substitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or their substitute or substitutes, or any of them, shall do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

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EXHIBIT INDEX