PCTEL
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 Form 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 000-27115 PCTEL, Inc.(Exact Name of Registrant as Specified in Its Charter) Delaware 77-0364943(State or Other Jurisdiction ofIncorporation or Organization) (I.R.S. EmployerIdentification Number) 471 Brighton Drive,Bloomingdale IL 60108(Address of Principal Executive Office) (Zip Code) (630) 372-6800(Registrant's Telephone Number, Including Area Code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $.001 Par Value Per Share The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 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☒ No ☐Indicate by checkmark whether the registrant has submitted electronically and posted on the Company’s website, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T ((§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was acquired tosubmit and post such files)). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not becontained, 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 thisForm 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See definition of “large accelerated filer”, "accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.: Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒As of June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter, there were 17,791,498 shares of the registrant's common stockoutstanding, and the aggregate market value of such shares held by non-affiliates of the registrant (based upon the closing sale price of such shares on the NASDAQ Global SelectMarket on June 30, 2017) was approximately $125,963,806. Shares of the registrant's common stock held by each executive officer and director and by each entity that owns 5% ormore of the registrant's outstanding common stock have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily aconclusive determination for any other purposes.18,138,543 shares of common stock were issued and outstanding as of March 15, 2018.Documents Incorporated by ReferenceCertain sections of the registrant's definitive proxy statement relating to its 2018 Annual Stockholders' Meeting to be held on June 5, 2018 are incorporated by reference intoPart III of this Annual Report on Form 10-K. The Company intends to file its proxy statement within 120 days after the end of its fiscal year end to which this report relates. PCTEL, Inc.Form 10-KFor the Fiscal Year Ended December 31, 2017TABLE OF CONTENTS PART I Item 1Business 3Item 1ARisk Factors 6Item 1BUnresolved Staff Comments 10Item 2Properties 10Item 3Legal Proceedings 10Item 4Mine Safety Disclosures 10 PART II Item 5Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 11Item 6Selected Financial Data 12Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations 14Item 7AQuantitative and Qualitative Disclosures about Market Risk 25Item 8Financial Statements and Supplementary Data 27Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 66Item 9AControls and Procedures 66Item 9BOther Information 66 PART III Item 10Directors, Executive Officers and Corporate Governance 67Item 11Executive Compensation 67Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 67Item 13Certain Relationships and Related Transactions, and Director Independence 67Item 14Principal Accountant Fees and Services 67 PART IV Item 15Exhibits and Financial Statement Schedules 68Item 16Form 10-K Summary 68 Schedule II - Valuation and Qualifying Accounts 68 Index to Exhibit 69 Signatures 72 2PART IItem 1: BusinessThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, among other things,statements concerning our future operations, financial condition and prospects, and business strategies. The words “believe”, “expect”, “anticipate” and othersimilar expressions generally identify forward-looking statements. Investors in our 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 our future business, financialcondition, or results of operations to differ materially from the historical results or currently anticipated results. Investors should carefully review theinformation contained in Item 1A Risk Factors and elsewhere in, or incorporated by reference into, this Annual Report on Form 10-K. Other factors notcurrently anticipated may also materially and adversely affect our results of operations, cash flows and financial position. There can be no assurance thatfuture results will meet expectations. While we believe that the forward-looking statements in this Annual Report on Form 10-K are reasonable, investorsshould not place undue reliance on any forward-looking statements. In addition, these statements speak only as of the date made. We do not undertake, andexpressly disclaim any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may berequired by applicable law.OverviewPCTEL, Inc. (“PCTEL”, the “Company”, “we”, “ours”, and “us”) delivers Performance Critical TELecom technology solutions to the wireless industry. Weare a leading global supplier of antennas and wireless network testing solutions. PCTEL Connected Solutions segment designs and manufactures precisionantennas. PCTEL antennas are deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in network equipment anddevices for the Industrial Internet of Things (“IIoT”). PCTEL RF Solutions segment provides test tools that improve the performance of wireless networksglobally. Mobile operators, neutral hosts, and equipment manufacturers rely on PCTEL to analyze, design, and optimize next generation wireless networks.PCTEL was incorporated in California in 1994 and reincorporated in Delaware in 1998. Our principal executive offices are located at 471 Brighton Drive,Bloomingdale, Illinois 60108. Our telephone number at that address is (630) 372-6800 and our website is www.pctel.com. The information within, or thatcan be accessed through, our website, is not part of this report.Segment ReportingPCTEL operates in two segments for reporting purposes, Connected Solutions and RF Solutions. Our chief operating decision maker uses operating profitsand identified assets for the Connected Solutions and RF Solutions segments for resource allocations. Each segment has its own segment manager as well asits own engineering, business development, sales and marketing, and operational general and administrative functions. All of our accounting and finance,human resources, IT and legal functions are provided on a centralized basis through the corporate function. We manage the balance sheet and cash flowscentrally at the corporate level, with the exception of trade accounts receivable and inventory which is managed at the segment level. Each of the segmentmanagers reports to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plansfor the segment.Connected Solutions SegmentPCTEL’s Connected Solutions segment designs and manufactures precision antennas. Our antennas are deployed primarily in small cells, enterprise Wi-Fiaccess points, fleet management and transit systems, and in equipment and devices for the IIoT. We offer in-house design, testing, radio integration, andmanufacturing capabilities for our antenna customers. Revenue growth in these markets is driven by the increased use of wireless communications andincreased complexity occurring in these markets. Our antennas are primarily sold to original equipment manufacturer (“OEM”) providers where they aredesigned into the customer’s solution.Competition in the antenna markets addressed by Connected Solutions is fragmented. Competitors include Airgain, Amphenol, Laird, Pulse, and Taoglas. Weseek out product applications that command a premium for product performance and customer service, and we avoid commodity markets.PCTEL maintains expertise in several technology areas in order to be competitive in the antenna market. These include radio frequency engineering, mobileantenna design and manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.3RF Solutions SegmentPCTEL’s RF Solutions segment provides test tools that improve the performance of wireless networks globally, with a focus on LTE, public safety, andemerging 5G technologies. Network operators, neutral hosts, and equipment manufacturers rely on our scanning receivers and testing solutions to analyze,design, and optimize their networks. Revenue growth is driven by the implementation and roll out of new wireless technology standards (i.e. 3G to 4G, 4G to5G). Our test equipment is sold directly to wireless carriers or to OEMs who integrate our products into their solutions which are then sold to wireless carriers.Competitors for our test tool products include OEMs such as Anritsu, Berkley Varitronics, Digital Receiver Technology, and Rohde and Schwarz.PCTEL maintains expertise in several technology areas in order to be competitive in the test tool market. These include radio frequency engineering, digitalsignal process (“DSP”) engineering, manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.Discontinued OperationsDuring the quarter ended June 30, 2017, we approved a plan to sell our Network Engineering Service business (“Engineering Services”) and shift our focustoward research and development driven radio frequency (“RF”) products. On July 31, 2017, we sold substantially all of the assets of our EngineeringServices business to Gabe’s Construction Co., Inc. (“Gabe’s”) for a purchase price of $1.45 million in cash. The Engineering Services business provideddesign, testing, commissioning, optimization, and consulting services for cellular, Wi-Fi and public safety networks, and was a reporting unit within the RFSolutions segment. We classified assets of the Engineering Services reporting unit as held for sale at December 31, 2016 and reported the results of itsoperations as discontinued operations for the years ended December 31, 2017, 2016, and 2015, respectively. The financial information presented in this Form10-K has been restated to reflect the historical results of Engineering Services as discontinued operations. See Note 4 in the notes to the financial statementsfor more information on discontinued operations.Major CustomersThe following table represents the customer that accounted for 10% or more of revenues during the years ended December 31, 2017, 2016 and 2015: Years Ended December 31, Revenues 2017 2016 2015 Customer A 9% 11% 3%The following table represents customers that accounted for 10% or more of total trade accounts receivable at December 31, 2017 and 2016 are as follows: As of December 31, Trade Accounts Receivable 2017 2016 Customer A 7% 17% Customer B 12% 8%International ActivitiesThe following table shows the percentage of revenues by geographic location during the last three fiscal years: Years Ended December 31, Region 2017 2016 2015 Asia Pacific 17% 22% 9% Europe, Middle East, & Africa 9% 9% 11% Other Americas 5% 6% 6% Total Foreign sales 31% 37% 26% Total Domestic sales 69% 63% 74% 100% 100% 100% See Note 11 of the consolidated financial statements for further information by geographical location.4BacklogSales of our products are generally made pursuant to standard purchase orders, which are officially acknowledged according to standard terms andconditions. The backlog is useful for scheduling production but is not necessarily a meaningful indicator of future product revenues as the order to shipcycle is short.Research and DevelopmentWe recognize that a strong technology base is essential to our long-term success and we have made a substantial investment in engineering, research anddevelopment. We will continue to devote substantial resources to product development and patent submissions. The patent submissions are primarily fordefensive purposes, rather than for potential license revenue generation. We monitor changing customer needs and work closely with our customers,consultants and market research organizations to track changes in the marketplace, including emerging industry standards.Research and development expenses include costs for hardware and related software development, prototyping, certification and pre-production costs. Wespent approximately $11.1 million, $10.2 million, and $11.2 million in the fiscal years 2017, 2016, and 2015, respectively, in research and development.Sales, Marketing and SupportWe supply our products to public and private carriers, wireless infrastructure providers, wireless equipment distributors, value added resellers (“VARs”) andOEMs. PCTEL’s direct sales force is technologically sophisticated and sales executives have strong industry domain knowledge. Our direct sales forcesupports the sales efforts of our distributors and OEM resellers.Our marketing strategy is focused on building market awareness and acceptance of our new products. The marketing organization also provides a wide rangeof programs, materials and events to support the sales organization. We spent approximately $12.6 million, $12.7 million, and $13.0 million in fiscal years2017, 2016, and 2015, respectively, for sales and marketing support.ManufacturingWe do final assembly of most of our antenna products and all of our OEM receiver and interference management product lines. We also have arrangementswith several contract manufacturers but are not dependent on any specific contract manufacturer. If any of our contract manufacturers are unable to providesatisfactory services for us, other contract manufacturers are available, although engaging a new contract manufacturer could cause delays and additionalcosts. We have no material guaranteed supply contracts or long-term agreements with any of our suppliers. We do have open purchase orders with oursuppliers. See the contractual obligations and commercial commitments section of Item 7 for information on purchase commitments.EmployeesAs of December 31, 2017, we had 484 full-time equivalent employees, consisting of 342 in operations, 56 in research and development, 49 in sales andmarketing, and 37 in general and administrative functions. Total full-time equivalent employees were 430 and 403 at December 31, 2016 and 2015,respectively. Headcount increased by 54 at December 31, 2017 from December 31, 2016 primarily due to production employees. None of our employees arerepresented by a labor union. We consider employee relations to be good.Available InformationOur annual reports 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 chargethrough our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities andExchange Commission (the “SEC”). Our website is located at the following address: www.pctel.com. The information within, or that can be accessedthrough, our website is not part of this Annual Report on Form 10-K. Further, any materials we file with the SEC may be read and copied by the public at theSEC’s Public Reference Room, located at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Information regarding the operation of the PublicReference Room can be obtained by calling the SEC at 1(800) SEC-0330. The SEC maintains an Internet site that contains reports, proxy and informationstatements and other information regarding our filings at www.sec.gov.5Item 1A: Risk FactorsFactors That May Affect Our Business, Financial Condition and Future OperationsRisks Related to Our BusinessOur business model depends upon our ability to recognize significant emerging technologies in a timely manner and to innovate to solve theengineering problems presented by such emerging technologies.Our strength is solving complex network engineering problems through our products and solutions. In order to provide solutions to complex engineeringproblems, the Company has to anticipate which technologies are promising and will be adopted by its customers and potential customers, and we need to beengaged early in the development of these new technologies and products. If we expend resources on the wrong technologies or are not included in thedevelopment phase of new technologies that are widely adopted in our industry, we may miss the opportunity for meaningful participation or revenuegeneration. Missed opportunities like these could have a negative impact on the Company’s long-term competitiveness.To innovate and solve complex network engineering problems, the Company has to offer highly competitive compensation in order to attract and retainspecific types of engineers and other skilled professionals. In addition, the Company must create intellectual property or obtain it from third parties whennecessary. Failure to accomplish these tasks while managing the costs thereof will result in difficulty in distinguishing our Company from its competitors andmay result in a significant loss of business or diminishing margin on our products.Mobile operators, who drive demand for our products, may decrease their capital expenditures on their mobile networks.Mobile operators engage in a variety of businesses and must allocate their capital expenditure budget across these businesses. They may limit their capitalexpenditures allocated to improvement of their network or adoption of new technologies. Our business depends upon their demand for our solutions andproducts.Competition within the wireless product industry is intense and could result in decreased margins on our products or loss of key customers. Failure tocompete successfully could materially harm our prospects and financial results.Competition in our industry can result from the following: •a competitor significantly reducing prices on their products causing disruption to our customer relationships; •customers demanding lower prices and requiring suppliers like us to engage in auctions and other forms of competitive bidding for purchaseorders; •entrance of a significant competitor in the markets for our products, either from a new participant or as a result of a merger of existingcompetitors; and •potential competitors have substantially greater financial, marketing, technical and other resources with which to pursue engineering,manufacturing, marketing, and distribution of their products and delivery of their services. These competitors may succeed in establishingtechnology standards or strategic alliances in the connectivity products markets, obtain more rapid market acceptance for their products, orotherwise gain a competitive advantage. Conducting business in foreign countries involves additional financial, operating, and regulatory risks.A substantial portion of our manufacturing, research and development, and sales activities is conducted outside the United States, primarily in China. Thereare a number of risks inherent in doing business in foreign countries, including: (i) fluctuations in the value of the U.S. dollar relative to other currencies, andin particular the impact of a re-valuation of the Chinese Yuan; (ii) impact of tariffs or trade wars among the countries in which we do business; (iii) difficultiesin repatriation of earnings; (iv) disruption to our supply chain, including our ability to import materials and export products; (v) nationalist sentimentcreating advantages for our competitors in their home countries; (vi) impact of labor unrest; (vii) unexpected legal or regulatory changes, particularlychanges to environmental, labor or manufacturing regulations; (vii) lack of sufficient protection for intellectual property rights; (viii) difficulties in recruitingand retaining personnel and managing international operations;(ix) less developed infrastructure; and (x) other unfavorable political or economic factorswhich could include nationalization of the wireless communications or related industries.. If we are unable to manage successfully these and other riskspertaining to our international activities, our operating results, cash flows and financial position could be materially and adversely affected.6Disruption in our manufacturing and supply chains could adversely impact our sales and reputation.We have limited manufacturing capability. For some product lines we outsource the manufacturing, assembly, and testing of printed circuit boardsubsystems. For other product lines, we purchase completed hardware platforms and add our proprietary software. While there is no unique capability withthese suppliers, any failure by these suppliers to meet delivery commitments would cause us to delay shipments and potentially be unable to accept neworders 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 andexpense 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 inincreased manufacturing costs and increased prices of our products.We assemble our antenna products in our facilities located in Illinois and China and scanning receivers at our facility in Maryland. We may experiencedelays, disruptions, capacity constraints or quality control problems at our assembly facilities, which could result in lower yields or delays of productshipments to our customers. In addition, a number of our antenna products are manufactured in China via contract manufacturers. Any disruption of our ownor contract manufacturers' operations could cause us to delay product shipments, which would negatively impact our sales, competitive reputation andposition. In addition, if we do not accurately forecast demand for our products, we will have excess or insufficient parts to build our products, either of whichcould materially affect our operating results.In summary, in order to be successful, the Company must manage its operations to limit the cost of product production, accurately forecast demand for itsproducts, avoid excess production and inventory that results in waste or obsolescence, dual source critical materials to avoid shortages and delays inshipping, build for manufacturability and avoid excessive quality issues.Future acquisitions and investments may not yield their intended benefits. Our failure to successfully integrate acquisitions into our existing operationscould adversely affect our business. We may in the future make acquisitions of, or large investments in, businesses that offer products, and technologies thatwe believe would complement our products, including wireless products and technology. We may also make acquisitions of or investments in, businessesthat we believe could expand our distribution channels. Even if we were to announce an acquisition, we may not be able to complete it. Additionally, anyfuture 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 existingbusiness, •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, •tax, employment, logistics, and other related issues unique to international organizations and assets we acquire, •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 may be paid in cash, shares of our common stock, or a combination of cash and our common stock. If consideration for atransaction is paid in common stock, this would further dilute our existing stockholders. We may also incur debt to pay for an acquisition which couldimpose restrictive covenants on how we conduct our business.Our gross profit may vary based on the mix of sales of our products, and these variations may cause our net income to decline.Depending on the mix of our products sold, our gross profit could vary significantly from quarter to quarter. Generally, antenna products have a lower profitmargin than scanning receiver products, creating the variance in gross profits related to profit mix. A decline in our gross profit could have a negative impacton our financial results and cause our net income to decline.7Any delays in our sales cycles could result in customers canceling purchases of our products.Sales cycles for our products with major customers can be lengthy, often lasting nine months or longer. In addition, it can take an additional nine months ormore before a customer commences volume production of equipment that incorporates our products. Sales cycles with our major customers are lengthy for anumber of reasons, including: •our OEM customers and carriers usually complete a lengthy technical evaluation of our products, over which we have no control, beforeplacing a purchase order, 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 largely based on our forecasts of volume and timing of orders. The lengthy salescycles make forecasting the volume and timing of product orders difficult. In addition, the delays inherent in lengthy sales cycles raise additionaluncertainty that customers may decide to cancel or change product phases. If customer cancellations or product changes were to occur, this could result inthe loss of anticipated sales without sufficient time for us to reduce our operating expenses. A failure in our information technology systems could negatively impact our business.We rely on information technology to record and process transactions, manage our business and maintain the financial accuracy of our records. Our computersystems are subject to damage or interruption from various sources, including power outages, computer and telecommunications failures, computer viruses,security breaches, vandalism, catastrophic events and human error. Interruptions of our computer systems could disrupt our business and could result in theloss of business and cause us to incur additional expense.Information technology security threats are increasing in frequency and sophistication. Our information technology systems could be breached byunauthorized outside parties or misused by employees or other insiders intent on extracting sensitive information, corrupting information or disruptingbusiness processes. Such unauthorized access could compromise confidential information, disrupt our business, harm our reputation, result in the loss ofassets, customer confidence and business and have a negative impact on our financial results.Additional income tax expense or exposure to additional income tax liabilities could have a negative impact on our financial results. We are subject to income tax laws and regulations in the United States and various foreign jurisdictions. Significant judgment is required in evaluating andestimating our provision and accruals for these taxes. Our income tax liabilities are dependent upon the location of earnings among these differentjurisdictions. Our income tax provision and income tax liabilities could be adversely affected by the jurisdictional mix of earnings, changes in valuation ofdeferred tax assets and liabilities and changes in tax laws and regulations. In the ordinary course of our business, we are also subject to continuousexaminations of our income tax returns by tax authorities. Although we believe our tax estimates are reasonable, the final results of any tax examination orrelated litigation could be materially different from our related historical income tax provisions and accruals. Adverse developments in an audit,examination, litigation related to previously filed tax returns, or in the relevant jurisdiction’s tax laws, regulations, administrative practices, principles andinterpretations could have a material effect on our results of operations and cash flows in the period or periods for which that development occurs, as well asfor prior and subsequent periods.Federal income tax reform could have unforeseen effects on our financial condition and results of operations. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. The Company is in the process of determining theimpact to the financial statements of all aspects of the Act and will reflect the impact of such reform in the financial statements during the period in whichsuch amounts can be reasonably estimated. The Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35 percent to21 percent, effective January 1, 2018, which will result in a blended federal tax rate for fiscal year 2018. There are also provisions that may partially offset thebenefit of such rate reduction, such as the repeal of the deduction for domestic production activities. The Act also includes international provisions, whichgenerally establish a territorial-style system for taxing foreign-source income of domestic multinational corporations. Financial statement impacts willinclude adjustments for the re-measurement of deferred tax assets (liabilities) and the accrual for deemed repatriation tax on unremitted foreign earnings andprofits. While there are benefits, there is also substantial uncertainty regarding the details of the Act. The intended and unintended consequences of the Acton our business and on holders of our common shares is uncertain and could be adverse. The Company anticipates that the impact of the Act may be materialto the income tax expense in our consolidated financial statements.8Risks Related to our Common StockThe trading price of our stock price may be volatile based on a number of factors, many of which are not under our control.Our stock can experience significant changes in price on a percentage basis. The closing price on the NASDAQ Global Select Market fluctuated between ahigh of $8.18 and a low of $5.18 in 2017. Our stock price can be subject to wide fluctuations in response to a variety of factors, many of which are out of ourcontrol, including: •adverse changes in domestic or global economic conditions, •new products offered by us or our competitors, •actual or anticipated variations in quarterly operating results, •changes in financial estimates by securities analysts, •announcements of technological innovations, •our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments, •conditions or trends in our industry, •additions or departures of key personnel, •mergers and acquisitions, and •sales of common stock by our stockholders or us or repurchases by us.In addition, these fluctuations often have been unrelated or disproportionate to the operating performance of the Company.Provisions in our charter documents may inhibit a change of control or a change of management, which may cause the market price for our commonstock to decline 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 ourstockholders may favor. Specifically, our charter documents do not permit stockholders to act by written consent, do not permit stockholders to call astockholders meeting, and provide for a classified board of directors, which means stockholders can only elect, or remove, a limited number of our directors inany given year. These provisions could have the effect of discouraging others from making tender offers for our shares, and as a result, these provisions mayprevent the market price of our common stock from reflecting the effects of actual or rumored takeover attempts and may prevent stockholders from resellingtheir shares at or above the price at which they purchased their shares. These provisions may also prevent changes in our management that our stockholdersmay favor.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 commonstock 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, theissuance of shares of preferred stock may delay or prevent a change in control transaction without further action by our stockholders. As a result, the marketprice of our common stock may decline.If we are unable to successfully maintain processes and procedures required by the Sarbanes-Oxley Act of 2002 to achieve and maintain effectiveinternal control over our financial reporting, our ability to provide reliable and timely financial reports could be harmed and our stock price could beadversely affected.We must comply with the rules promulgated under Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires an annual management reportassessing the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing thisassessment.While we are expending significant resources in maintaining the necessary documentation and testing procedures required by Section 404, we cannot becertain that the actions we are taking to achieve and maintain our internal control over financial reporting will be adequate. If the processes and proceduresthat we implement for our internal control over financial reporting are inadequate, our ability to provide reliable and timely financial reports, andconsequently 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 ofconfidence in the reliability of our financial reports, which could cause the market price of our common stock to decline.9Item 1B: Unresolved Staff CommentsNone.Item 2: PropertiesThe following table lists our main facilities: Lease Term Location Square feet Owned/Leased Beginning Ending SegmentBloomingdale, Illinois 75,517 Owned N/A N/A Connected Solutions and CorporateTianjin, China 44,289 Leased 2012 2020 Connected SolutionsGermantown, Maryland 20,704 Leased 2012 2020 RF SolutionsBeijing, China 11,270 Leased 2016 2020 Connected SolutionsAkron, Ohio 5,977 Leased 2018 2025 Connected SolutionsLexington, North Carolina 5,630 Leased 2013 2019 Connected Solutions Facility ChangesIn August 2017, we entered into a new seven-year lease for 5,977 square feet of office space in Akron, Ohio for antenna product development. The total leaseobligation pursuant to the agreement was $0.7 million. We assumed occupancy of this office in March 2018.In April 2017, we renewed the first-floor space of the Tianjin facility for 22,120 square feet of leased space. The total lease obligation pursuant to theagreement is $46 annually and expires on April 11, 2018. This lease will be renewed during the second quarter 2018. We expect the lease term to beextended to the same date as the other facility lease in Tianjin.In June 2016, we entered into a new four-year lease for our Beijing Design Center, and in January 2017 we signed a new lease for additional space at the samelocation. With the expansion, the Company has 11,270 square feet in its Beijing Design Center. The total lease obligation for the Beijing Design Center is$0.2 million annually. The Beijing Design Center has an engineering department for antenna development as well as sales and marketing for the Chinamarket.During the first quarter 2016, we vacated our Colorado office lease in order to consolidate facility space related to our Engineering Services reporting unit. InMay 2017, the Company signed a sublease with a term through the lease termination date. The lease expires on October 31, 2020. See Note 6 in the notes tothe financial statements for more information on the Colorado lease.All properties are in good condition and are suitable for the purposes for which they are used. We believe that we have adequate space for our current needs.Item 3: Legal ProceedingsWe are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertaintiesand outcomes that are not predictable with assurance. In our opinion, as of December 31, 2017, there were no claims or litigation pending that would bereasonably likely to have a material adverse effect on our consolidated financial position, results of operations or liquidity.Item 4: Mine Safety DisclosuresNot applicable.10PART IIItem 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesPrice Range of Common Stock and DividendsPCTEL’s common stock has been traded on the NASDAQ Global Select Market under the symbol PCTI since our initial public offering on October 19,1999. The following table shows the high and low closing prices of our common stock as reported by the NASDAQ Global Select Market for the periodsindicated and the frequency and amounts of dividends declared on PCTEL’s common stock during those periods. 2017 2016 Market Price Market Price High Low Dividends per Share High Low Dividends per Share Fourth Quarter $7.83 $6.30 $0.055 $5.68 $4.86 $0.050 Third Quarter $7.50 $5.87 $0.055 $5.62 $4.62 $0.050 Second Quarter $8.18 $6.31 $0.050 $4.95 $4.36 $0.050 First Quarter $7.12 $5.18 $0.050 $6.00 $4.38 $0.050 $0.210 $0.200 The closing sale price of our common stock as reported on the NASDAQ Global Select Market on March 15, 2018 was $6.90 per share. As of that date therewere 36 holders of record of the common stock. A substantially greater number of holders of the common stock are in “street name” or beneficial holders,whose shares are held of record by banks, brokers, and other financial institutions.11Five-Year Cumulative Total Return ComparisonThe following graph compares the annual percentage change in the cumulative return to our stockholders with the cumulative return of the NASDAQComposite Index and the S&P Information Technology Index for the period beginning December 31, 2012 and ending December 31, 2017. Returns for theindices are weighted based on market capitalization at the beginning of each measurement point. Note that historic stock price performance is notnecessarily indicative of future stock price performance. Sales of Unregistered Equity SecuritiesNone.Issuer Purchases of Equity SecuritiesAll share repurchase programs are authorized by our Board of Directors and are announced publicly. On April 20, 2015, our Board of Directors authorized anadditional repurchase of 500,000 shares of stock under an existing share repurchase program. Additionally, on August 10, 2015, our Board of Directorsauthorized repurchase of an additional 1,300,000 shares under the existing share repurchase programs, for a total of 2,726,000 shares. Under these repurchaseprograms, we repurchased 1,942,788 shares at an average price of $6.22 during the year ended December 31, 2015 and we repurchased 783,212 shares at anaverage price of $5.23 during the year ended December 31, 2016. At December 31, 2017, the Company had no shares remaining that could be repurchasedunder previously approved programs.Item 6: Selected Consolidated Financial DataThe following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition andResults of Operations," the Consolidated Financial Statements and related notes and other financial information appearing elsewhere in this Annual Reporton Form 10-K. The statement of operations data for the years ended12December 31, 2017, 2016, and 2015 and the balance sheet data as of December 31, 2017 and 2016 are derived from audited financial statements includedelsewhere in this Annual Report on Form 10-K. The statement of operations data for the years ended December 31, 2014 and 2013 and the balance sheet dataas of December 31, 2015, 2014, and 2013 are derived from audited financial statements not included in this Annual Report on Form 10-K. 2017 2016 2015 2014 2013 (in thousands, except per share data) Consolidated Statement of Operations Data: Revenues $91,437 $85,006 $90,533 $96,346 $97,722 Cost of revenues 52,626 50,595 55,405 55,813 57,387 Gross profit 38,811 34,411 35,128 40,533 40,335 Operating expenses: Research and development 11,142 10,158 11,205 11,736 11,064 Sales and marketing 12,630 12,716 12,972 12,437 12,121 General and administrative 13,110 11,905 11,920 12,766 15,570 Amortization of intangible assets 496 531 1,905 1,798 2,231 Restructuring expenses 0 234 1,609 0 256 Total operating expenses 37,378 35,544 39,611 38,737 41,242 Operating income (loss) 1,433 (1,133) (4,483) 1,796 (907)Other income, net 105 112 3,287 1,666 5,378 Income (loss) before income taxes 1,538 (1,021) (1,196) 3,462 4,471 Expense (benefit) for income taxes (2,471) 11,776 (462) 287 1,875 Net income (loss) from continuing operations 4,009 (12,797) (734) 3,175 2,596 Net income (loss) from discontinued operations, net of tax expense(benefit) (187) (4,884) (834) 1,437 655 Net income (loss) $3,822 $(17,681) $(1,568) $4,612 $3,251 Net income (loss) per share from continuing operations: Basic $0.24 $(0.79) $(0.04) $0.17 $0.14 Diluted $0.24 $(0.79) $(0.04) $0.17 $0.14 Net income (loss) per share from discontinued operations: Basic $(0.01) $(0.30) $(0.05) $0.08 $0.04 Diluted $(0.01) $(0.30) $(0.05) $0.08 $0.04 Net income (loss)per share: Basic $0.23 $(1.09) $(0.09) $0.25 $0.18 Diluted $0.23 $(1.09) $(0.09) $0.25 $0.18 Weighted average shares: Basic 16,626 16,151 17,737 18,159 17,797 Diluted 16,913 16,151 17,737 18,389 18,184 Cash dividends per share $0.21 $0.20 $0.20 $0.16 $0.14 Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments $38,058 $33,311 $31,783 $60,009 $57,895 Working capital $58,091 $55,152 $59,041 $88,573 $83,585 Total assets $96,466 $92,166 $113,710 $131,669 $127,432 Total stockholders' equity $83,319 $78,525 $100,397 $115,515 $112,052 13Item 7: Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following commentary presents a discussion and analysis of the Company’s financial condition and results of operations by its management. The reviewhighlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2017 and 2016. Financial information forprior years is presented when appropriate. The objective of this financial review is to enhance investor understanding of the accompanying tables and charts,the consolidated financial statements, notes to financial statements, and financial statistics appearing elsewhere in this Annual Report on Form 10-K. Whereapplicable, this discussion also reflects management’s insights with respect to known events and trends that have or may reasonably be expected to have amaterial effect on the Company’s operations and financial condition.IntroductionPCTEL operates in two segments for reporting purposes, Connected Solutions and RF Solutions. Our chief operating decision maker uses operating profitsand identified assets for the Connected Solutions and RF Solutions segments for resource allocations. Each segment has its own segment manager as well asits own engineering, business development, sales and marketing, and operational general and administrative functions. All of our accounting and finance,human resources, IT and legal functions are provided on a centralized basis through the corporate function. We manage our balance sheet and cash flowscentrally at the corporate level, with the exception of trade accounts receivable and inventory which is managed at the segment level. Each of the segmentmanagers reports to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plansfor the segment.Our 2017 revenues increased by $6.4 million (7.6%), compared to 2016 because revenues increased 18.5% for RF Solutions and 4.3% for ConnectedSolutions. We recorded operating income of $1.4 million in 2017, compared to an operating loss of $1.1 million in 2016 as the gross margin impact ofhigher revenues offset higher operating expenses. The increase in operating expenses during 2017 includes research and development investments forConnected Solutions and expenses for our short-term incentive plan. Connected Solutions SegmentPCTEL’s Connected Solutions segment designs and manufactures precision antennas. PCTEL antennas are deployed primarily in small cells, enterprise Wi-Fiaccess points, fleet management and transit systems, and in equipment and devices for the Industrial Internet of Things (“IIoT”). We offer in-house design,testing, radio integration, and manufacturing capabilities for our antenna customers. Revenue growth in these markets is driven by the increased use ofwireless communications and increased complexity trends occurring in these markets. PCTEL antennas are primarily sold to original equipment manufacturer(“OEM”) providers where they are designed into the customer’s solution.Competition in the antenna markets addressed the Connected Solutions segment is fragmented. Competitors include Airgain, Amphenol, Laird, Pulse, andTaoglas. We seek out product applications that command a premium for product performance and customer service and we avoid commodity markets.PCTEL maintains expertise in several technology areas in order to be competitive in the antenna market. These include radio frequency engineering, mobileantenna design and manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.RF Solutions SegmentPCTEL’s RF Solutions segment provides test tools that improve the performance of wireless networks globally with a focus on LTE, public safety, andemerging 5G technologies. Network operators, neutral hosts, and equipment manufacturers rely on our scanning receivers and testing solutions to analyze,design, and optimize their networks. Revenue growth is driven by the implementation and roll out of new wireless technology standards (i.e. 3G to 4G, 4G to5G). PCTEL test equipment is sold directly to wireless carriers or to OEM providers who integrate our products into their solutions which are then sold towireless carriers.Competitors for PCTEL’s test tool products include OEMs such as Anritsu, Berkley Varitronics, Digital Receiver Technology, and Rohde and Schwarz.PCTEL maintains expertise in several technology areas in order to be competitive in the test tool market. These include radio frequency engineering, digitalsignal processing (“DSP”) engineering, manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.During the quarter ended June 30, 2017, we approved a plan to sell our Network Engineering Service business (“Engineering Services”) and shift our focustoward research and development driven radio frequency (“RF”) products. On July 31, 2017, we sold14substantially all of the assets of our Engineering Services business to Gabe’s Construction Co., Inc. (“Gabe’s”) for a purchase price of $1.45 million. TheEngineering Services business provided design, testing, commissioning, optimization, and consulting services for cellular, Wi-Fi and public safety networkswas a reporting unit within the RF Solutions segment. We classified assets of the Engineering Services reporting unit as held for sale at December 31, 2016and reported the results of its operations as discontinued operations for the years ended December 31, 2017, 2016, and 2015, respectively. The financialinformation presented in this Form 10-K has been restated to reflect the historical results of Engineering Services as discontinued operations. See Note 4 inthe notes to the financial statements for more information on discontinued operations.Results of Operations for Continuing OperationsYears ended December 31, 2017, 2016, and 2015(All amounts in tables, other than percentages, are in thousands)REVENUES BY SEGMENT 2017 compared to 2016 2016 compared to 2015 2017 $ Change % Change 2016 $ Change % Change 2015 Connected Solutions $68,612 $2,849 4.3% $65,763 $(3,816) -5.5% $69,579 RF Solutions 23,019 3,600 18.5% 19,419 (1,754) -8.3% 21,173 Corporate (194) (18) not meaningful (176) 43 not meaningful (219)Total $91,437 $6,431 7.6% $85,006 $(5,527) -6.1% $90,533 Revenues were approximately $91.4 million for the year ended December 31, 2017, an increase of 7.6% from the prior year. Revenues increased by $3.6million (18.5%) for the RF Solutions segment due to the addition of new OEM partners and increased demand from U.S. operators. Revenues for theConnected Solutions segment increased $2.8 million (4.3%) due the growing sales of our antenna products in our core vertical markets, including fleet,industrial, small cells, and enterprise Wi-Fi. Revenues were approximately $85.0 million for the year ended December 31, 2016, a decrease of 6.1% from the prior year. Revenues declined by $1.8million (8.3%) for the RF Solutions segment due to the acquisition of one of our large OEM customers. Revenues for the Connected Solutions segmentdecreased $3.8 million (5.5%) primarily due to lower kitting revenues and due to the exit from the mobile tower product line. Approximately 42% of therevenue decline during 2016 was due to our exit from the mobile tower product line.GROSS PROFIT BY SEGMENT 2017 % of Revenues 2016 % of Revenues 2015 % of Revenues Connected Solutions $22,439 32.7% $20,706 31.5% $20,426 29.4%RF Solutions 16,354 71.0% 13,690 70.5% 14,670 69.3%Corporate 18 not meaningful 15 not meaningful 32 not meaningful Total $38,811 42.4% $34,411 40.5% $35,128 38.8% Gross profit was 42.4% for the year ended December 31, 2017, an increase of 1.9% compared to 2016. The RF Solutions segment’s gross profit increased0.5% to 71.0%. The Connected Solutions segment’s gross profit was 32.7%, an increase of 1.2% compared to 2016. The margin improvement was primarilydue to increased efficiencies in the supply chain as well as leveraging the fixed cost of goods sold against increased revenues.Gross profit was 40.5% for the year ended December 31, 2016, an increase of 1.7% compared to 2015. The RF Solutions segment’s gross profit increased1.2% to 70.5% due to more favorable customer mix. The Connected Solutions segment’s gross profit was 31.5%, an increase of 2.1% compared to 2015. Themargin improvement was primarily due to more favorable product mix with a higher proportion of antenna revenues, less kitting revenues and the exit fromthe mobile tower product line.15CONSOLIDATED OPERATING EXPENSES % of Revenues 2017 Change 2016 Change 2015 2017 2016 2015 Research and development $11,142 $984 $10,158 $(1,047) $11,205 12.2% 11.9% 12.4%Sales and marketing 12,630 (86) 12,716 (256) 12,972 13.8% 15.0% 14.3%General and administrative 13,110 1,205 11,905 (15) 11,920 14.3% 14.0% 13.2%Amortization of intangible assets 496 (35) 531 (1,374) 1,905 0.5% 0.6% 2.1%Restructuring expenses 0 (234) 234 (1,375) 1,609 0.0% 0.3% 1.8% $37,378 $1,834 $35,544 $(4,067) $39,611 40.9% 41.8% 43.8% RESEARCH AND DEVELOPMENTResearch and development expenses increased by $1.0 million from 2016 to 2017 due to an increase of $1.6 million for the Connected Solutions segmentoffset by a decrease of $0.6 million for the RF Solutions segment. The increase for Connected Solutions was due to investments in headcount to increase ourcapabilities in key vertical markets. The decrease of $0.6 million for RF Solutions was primarily driven by headcount reductions for certain productdevelopment areas and lower stock compensation expense. Research and development expenses decreased $1.0 million from 2015 to 2016 due to reductions in expenses of $0.9 million for the RF Solutions segmentand $0.3 million for the Connected Solutions segment, offset by an increase of $0.2 million for stock compensation. The decrease in RF Solutions was due toheadcount reductions in the third quarter 2015 for scanning receivers and in the first quarter 2016 for analytics. We had 56, 49, and 61 full-time equivalent employees in research and development at December 31, 2017, 2016, and 2015, respectively.SALES AND MARKETINGSales and marketing expenses include costs associated with the sales and marketing employees, sales representatives, product line management, and tradeshow expenses.Sales and marketing expenses decreased $0.1 million from 2016 to 2017 as expenses declined by $0.7 million within the Connected Solutions segment andincreased by $0.6 million within the RF Solutions segment. The decrease for Connected Solutions was due to headcount reductions in marketing andsales. The increase for RF Solutions was primarily driven by sales investments to support an increase in the number of direct customers.Sales and marketing expenses decreased $0.3 million from 2015 to 2016 as expenses declined by $0.7 million within Connected Solutions, offset by anincrease of $0.4 million for stock compensation. The decrease for Connected Solutions was primarily due to headcount reductions in marketing and sitesolution sales.We had 49, 53, and 55 full-time equivalent employees in sales and marketing at December 31, 2017, 2016, and 2015, respectively.GENERAL AND ADMINISTRATIVEGeneral and administrative expenses include costs associated with the general management, finance, human resources, information technology, legal, publiccompany costs, and other operating expenses to the extent not otherwise allocated to other functions.General and administrative expenses increased $1.2 million from 2016 to 2017. The increase was due to increased expense of $0.5 million for the Company’sshort-term incentive plan, $0.4 million for costs related to the CEO transition, $0.1 million for legal expenses, and $0.2 million for other corporate expenses.General and administrative expenses were approximately the same in 2016 compared to 2015 as decreases in Nexgen related expenses and other corporateexpenses offset higher stock compensation expenses. In 2015, we incurred $1.3 million in expenses related to the Nexgen acquisition and $0.1 million inlegal expenses related to the TelWorx SEC investigation that did not reoccur in 2016. Stock compensation expense was $1.5 million higher in 2016compared to 2015 because of higher expense for service-based restricted stock of $1.0 million, expense for stock bonuses of $0.4 million, and because 2015included a credit of $0.1 million related to performance awards that did not vest. We had 37, 35, and 35 full-time equivalent employees in general and administrative functions at December 31, 2017, 2016, and 2015, respectively.16AMORTIZATION OF INTANGIBLE ASSETSAmortization expense within operating expenses was approximately $0.5 million for both the years ended December 31, 2017 and 2016. Amortizationexpense decreased by approximately $1.4 million in 2016 compared to 2015. The decrease was attributable to certain assets being fully amortized in2015. Amortization expense declined by $0.8 million because certain Connected Solutions intangible assets were fully amortized in 2015 and amortizationexpense declined by $0.6 million because assets for the RF Solutions segment were fully amortized in 2015. RESTRUCTURING CHARGESNo restructuring expenses were recorded for the year ended December 31, 2017. We incurred restructuring expense of $0.2 million and $1.6 million for theyears ended December 31, 2016 and 2015, respectively. During the first quarter 2016, we reduced headcount in our RF Solutions segment related to analytics and incurred $0.2 million of expenses related toseverance and other employee benefits.In 2015, we reduced U.S. headcount and exited from the mobile towers product line. To lower operating and production costs, we reduced headcount inengineering related to scanning receivers, in U.S. operations for the Connected Solutions segment, and related to the mobile tower product line. Weterminated 51 employees between June and December 2015 and recorded severance and other employee benefits of $1.2 million. We also recorded a chargeof $0.4 million related to write-off of intangible assets related to the mobile towers product line. Our mobile towers were primarily sold into the oil and gasexploration market in North America. The mobile towers were used to primarily provide a communications link to an oil drilling site or lighting for a siteunder construction. The decline in oil prices caused a decline in related mobile tower sales. We made the decision to exit the mobile tower product line dueto the anticipated long-term effect on revenue from depressed oil prices, and one of our two tower suppliers filing for Chapter 7 bankruptcy in June 2015 as aresult of the decline in sales. Mobile towers were not a key element of our antenna business within the Connected Solutions segment. Our exit from themobile tower product line did not meet the accounting guidance for discontinued operations. The exit from mobile towers did not constitute a strategic shiftin our operations. OPERATING PROFIT (LOSS) BY SEGMENT 2017 % of Revenues 2016 % of Revenues 2015 % of Revenues Connected Solutions $8,304 12.1% $7,804 11.9% $5,040 7.2%RF Solutions 4,177 18.1% 1,042 5.4% 975 4.6%Corporate (11,048) not meaningful (9,979) not meaningful (10,498) not meaningful Total $1,433 1.6% $(1,133) -1.3% $(4,483) -5.0% Total operating income increased $2.6 million for the year ended December 31, 2017 compared to 2016 as higher operating profits for the RF Solutions andConnected Solutions segment offset higher corporate expenses. The operating profit for RF Solutions increased by $3.1 million primarily due to the grossprofit from higher revenues. The operating profit for Connected Solutions increased by $0.5 million due to the higher gross profits offsetting higheroperating expenses. Higher gross profit was attributable to higher revenues and a higher gross margin percentage. Operating expenses were higher due toinvestments in research and development. Within the corporate function, expenses were $1.0 million higher in 2017 compared to 2016 due to a $0.5 millionincrease in short-term incentive plan expenses, $0.4 million related to the CEO transition, and $0.1 million for other corporate expenses.Total operating loss declined $3.4 million for the year ended December 31, 2016 compared to 2015. The decline is largely attributed to an increase inoperating profit for the Connected Solutions segment of $2.8 million and lower corporate expenses of $0.5 million.OTHER INCOME, NET 2017 2016 2015 Interest income $270 $100 $55 Income from legal settlements 0 0 3,160 Insurance proceeds 0 5 102 Foreign exchange (losses) gains (139) 13 (33)Other, net (26) (6) 3 $105 $112 $3,287 Percentage of revenues 0.1% 0.1% 3.6% 17Other income, net consists of interest income, foreign exchange gains and losses, insurance proceeds, income from legal settlements, and interest expense.For the year ended December 31, 2017, we recorded interest income of $270 and foreign exchange losses of $139, and for the year ended December 31, 2016,we recorded interest income of $100 and foreign exchange gains of $13. Interest income increased due to higher average investment balances and higheraverage interest rates. Foreign exchange losses were primarily due to fluctuation of the Chinese Yuan to the U.S. Dollar. For the year ended December 31, 2015, an amendment to the terms of the Nexgen acquisition resulted in settlement income of $3.2 million, consisting of$2.3 million from the release of the Nexgen escrow fund, $0.8 million from the collection of previously excluded accounts receivables, and $0.1 millionrelated to the reversal of the contingent liability for the earnout. We also received $0.1 million in insurance proceeds related to claims for legal andprofessional expenses incurred in connection with the SEC investigation of the parties to the TelWorx acquisition. The legal expenses and professional feesrelated to the insurance claim were recorded in general and administrative expenses. We recorded interest income of $55 and foreign exchange losses of $33during the year ended December 31, 2015.(BENEFIT) EXPENSE FOR INCOME TAXES 2017 2016 2015 (Benefit) expense for income taxes $(2,471) $11,776 $(462)Effective tax rate -160.7% -1153.4% 38.6% On December 22, 2017, the United States federal government enacted the Tax Cuts and Jobs Act (the “Tax Act”), marking a change from a worldwide taxsystem to a modified territorial tax system in the United States. As part of this change, the Tax Act, among other changes, provides for a transition tax on theaccumulated unremitted foreign earnings and profits of our foreign subsidiaries (“Transition Tax”), a reduction of the U.S. federal corporate income tax ratefrom 34% to 21%, and an indefinite carryforward for net operating losses in 2018 and future periods. In response to the enactment of the Tax Act in late 2017, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB118”) to address situations where the accounting is incomplete for certain income tax effects of the Tax Act upon issuance of an entity’s financial statementsfor the reporting period in which the Tax Act was enacted. Under SAB 118, a company may record provisional amounts during a measurement period forspecific income tax effects of the Tax Act for which the accounting is incomplete, but a reasonable estimate can be determined, and when unable to determinea reasonable estimate for any income tax effects, report provisional amounts in the first reporting period in which a reasonable estimate can bedetermined. The measurement period should not extend beyond one year.As a result of the Tax Act, we recorded provisional income tax expense related to the deemed repatriation of the accumulated unremitted earnings and profitsof foreign subsidiaries, and net income tax expense associated with the remeasurement of our net deferred tax assets due to the tax rate reduction andincluded these amounts in our consolidated financial statements for the year ended December 31, 2017.The effective tax rate differed from the statutory rate of 34.0% by approximately 195% during 2017 because we decreased the valuation allowance for ourU.S. deferred tax assets by $8.2 million, offsetting provisional income tax expense of $5.0 million related to the remeasurement of deferred tax assets, andprovisional income tax expense of $0.6 million related to the Transition Tax. These provisional charges may be adjusted once we obtain, prepare, andanalyze additional information during the measurement period in 2018. We adjusted our valuation allowance because we believe it is more likely than notthat we will generate sufficient U.S. income to utilize our deferred tax assets related to timing differences. See Note 7 of the consolidated financial statementsfor more information on income taxes.The effective tax rate differed from the statutory rate of 34.0% by approximately 1187% during 2016 primarily due to an adjustment to the valuationallowance for deferred taxes. Based on lower future projected U.S. tax corporate tax at December 31, 2016, we recorded adjustments of $12.6 million to thevaluation allowance.The effective tax rate differed from the statutory rate of 34.0% by approximately 5% during 2015 primarily due to research and development credits andincremental tax on repatriation of Israel funds. 18At December 31, 2017, we had net deferred tax assets of $7.7 million, including a valuation allowance of $5.2 million. We maintain a valuation allowancedue to uncertainties regarding realizability. Management evaluates the recoverability of deferred tax assets and the need for a valuation allowance and ourability to use these deferred tax assets on a regular basis. The valuation allowance at December 31, 2017 relates to federal and state operating losses andcredits that we do not expect to realize because we expect them to expire unutilized. The valuation allowance at December 31, 2016 of $13.3 million wasprimarily because the Company did not believe it would generate sufficient US taxable income to realize a significant portion of its deferred tax assets.NET LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT 2017 2016 2015 Net loss from discontinued operations, net of tax expense (benefit) $(187) $(4,884) $(834)During the quarter ended June 30, 2017, we approved a plan to sell our Network Engineering Services business (“Engineering Services”) and shift our focustoward research and development driven radio frequency (“RF”) products. We sold the business to Gabe’s Construction on July 31, 2017. See Note 4 to theconsolidated financial statements for information related to discontinued operations. The results for our services business are reported as discontinuedoperations for the years ended December 31, 2017, 2016 and 2015. The net income from discontinued operations for all periods presented includes operating losses, net of income tax benefits for Engineering Services. Theloss for the year ended December 31, 2017 includes a net gain on sale of $0.5 million. The loss for the year ended December 31, 2016 was significantly higher than 2015 due to lower gross profits from lower revenues as well as impairmentexpense of $5.8 million, intangible amortization of $1.1 million, and restructuring expense of $0.4 million. As a result of declining revenues and profitsduring 2016, we reviewed the customer relationship intangible asset for impairment and concluded that the fair value of the reporting unit was below itscarrying value at both June 30, 2016 and December 31, 2016. The restructuring charges primarily related to the exit from our Colorado office lease. Liquidity and Capital Resources Years Ended December 31, 2017 2016 2015 Net income (loss) from continuing operations $4,009 $(12,797) $(734)Changes for depreciation, amortization, stock-based compensation, andother non-cash items 4,027 18,754 6,652 Changes in operating assets and liabilities 1,733 5,168 2,618 Net cash provided by operating activities $9,769 $11,125 $8,536 Net cash (used in) provided by investing activities $(16,708) $4,548 $(7,187)Net cash used in financing activities $(3,126) $(7,379) $(15,211)Net cash flows provided by (used in) discontinued operations $639 $(415) $535 December 31, December 31, 2017 2016 Cash and cash equivalents at the end of the year $5,559 $14,855 Short-term investments at the end of the year $32,499 $18,456 Working capital at the end of the year $58,091 $55,152 Liquidity and Capital Resources OverviewAt December 31, 2017, our cash, cash equivalents, and investments were approximately $38.1 million, and we had working capital of approximately $58.1million. Our primary source of liquidity is cash provided by operations, with short term swings in liquidity supported by a significant balance of cash andshort-term investments. The balance has fluctuated with cash from operations, acquisitions and divestitures, payment of dividends and the repurchase of ourcommon shares.Within operating activities, we are historically a net generator of operating funds from our income statement activities. During the three years endedDecember 31, 2017, 2016, and 2015 our balance sheet provided operating funds. In periods of expansion, we will expect to use cash from our balance sheet.19Within investing activities, capital spending historically ranges between 2.0% and 4.0% of our revenues and the primary use of capital is for manufacturingand engineering development requirements. Our capital expenditures during the year ended December 31, 2017 was approximately 3.0% of revenues. Wehistorically have significant transfers between investments and cash as we rotate our large cash balances and short-term investment balances between moneymarket funds, which are accounted for as cash equivalents, and other investment vehicles. We have a history of supplementing our organic revenue growthwith acquisitions of product lines or companies, resulting in significant uses of our cash and short-term investment balances from time to time. We expect thehistorical trend for capital spending and the variability caused by moving money between cash and investments and periodic merger and acquisition activityto continue in the future.Within financing activities, we have historically generated funds from the exercise of stock options and proceeds from the issuance of common stock throughthe Employee Stock Purchase Plan (“ESPP”), and we have historically used funds to repurchase shares of our common stock through our share repurchaseprograms and through quarterly dividends. Whether this activity results in our being a net user of funds versus a net generator of funds is largely dependenton our stock price during any given year.Operating Activities:We generated $9.8 million of funds from operating activities during the year ended December 31, 2017. Adjustments related to non-cash items within netincome were $4.0 million for the year ended December 31, 2017, as amortization and depreciation was $3.7 million, and stock-based compensation was $3.0million offset by a $2.6 million adjustment to the deferred tax provision. Within the balance sheet, we generated cash of $2.0 million from the reduction ofinventories and $0.9 million from the reduction of accounts receivable, but we used $1.0 million from the reduction of accounts payables. Inventoriesdecreased $2.0 million with RF Solutions inventories declining by $1.3 million and Connected Solutions inventories declining by $0.7 million. Thedecrease in RF Solutions inventories was due to improvements in supply chain management while the decrease in Connected Solutions was due to improvedprocesses for forecasting and reductions in minimum order quantities for purchases. Accounts receivable generated cash primarily because of the sale ofEngineering Services. We had accounts receivable of $3.1 million at December 31, 2016 related to Engineering Services. Accounts payables declinedprimarily due to the reduction in inventories.We generated $11.1 million of funds from operating activities during the year ended December 31, 2016. Adjustments related to non-cash items within netincome were $24.0 million for the year ended December 31, 2016 as the deferred tax provision was $11.0 million, amortization and depreciation was $3.8million, and stock-based compensation was $3.8 million. Within the balance sheet, we generated cash of $2.9 million from the reduction of inventories and$1.7 million from the reduction of accounts receivable. Inventories decreased $2.9 million due to lower inventories for Connected Solutions because ofimproved processes for forecasting and reductions in minimum order quantities for purchases. Accounts receivable generated cash primarily due to morefavorable timing of revenues with the fourth quarter 2016 compared to the fourth quarter 2015. We generated $8.5 million of funds from operating activities during the year ended December 31, 2015. Adjustments related to non-cash items within netincome were $9.2 million for the year ended December 31, 2015 as amortization and depreciation was $5.1 million and stock-based compensation was $1.7million. Within the balance sheet, we generated cash of $8.3 million from accounts receivable, of which $5.4 million related to the collection of openingbalance sheet accounts receivable for the Nexgen acquisition. We also generated cash from accounts receivable because revenues for the quarter endedDecember 31, 2015 were $3.3 million lower than the quarter ended December 31, 2014. We used $1.9 million for the payout of the executive deferredcompensation plan, and we used $1.5 million to pay annual 2014 accruals, including short-term incentive plan bonuses and sales commissions. Inventoriesincreased $1.4 million due to higher inventories for Connected Solutions. Inventories increased because of the transition of additional production to Chinafrom the U.S. and because of increased safety stock. Investing Activities:Our investing activities used $16.7 million of cash during the year ended December 31, 2017. Redemptions and maturities of our short-term investmentsduring the year provided $35.0 million in cash and we rotated $49.0 million of cash into new short-term investments. We used $2.7 million of cash for capitalexpenditures during the year ended December 31, 2017. Capital expenditures during 2017 include $0.6 million for a new IP phone and communicationssystem.Our investing activities provided $4.5 million of cash during the year ended December 31, 2016. Redemptions and maturities of our short-term investmentsduring the year provided $80.5 million in cash and we rotated $74.3 million of cash into new short-term investments. We used $1.7 million for capitalexpenditures during the year ended December 31, 2016. During 2016, we used capital for a facility expansion and upgrades at our Tianjin, China facility.Our investing activities used $7.2 million of cash during the year ended December 31, 2015. We used $20.5 million for the purchase of the Nexgen businessin February 2015. We funded the acquisition from our cash and from investments that matured during January and February 2015. During the year endedDecember 31, 2015, redemptions and maturities of our short-term investments provided20$45.0 million in cash and we rotated $30.1 million of cash into new short-term investments. We used $1.6 million for capital expenditures during the yearended December 31, 2015.Financing Activities:We used $3.1 million of cash for financing activities during the year ended December 31, 2017. We used $3.7 million for cash dividends paid quarterlyduring 2017. We received $2.0 million in proceeds from the purchase of shares through our ESPP and due to stock option exercises. We used $1.3 millionfor payroll taxes related to stock-based compensation. The tax payments related to our stock issued for restricted stock awards.We used $7.4 million in cash for financing activities during the year ended December 31, 2016. We used $4.1 million to repurchase shares in the stockrepurchase program and $3.5 million for cash dividends paid quarterly during 2016. We received $0.6 million in proceeds from the purchase of sharesthrough our ESPP. We used $0.4 million for payroll taxes related to stock-based compensation. The tax payments related to our stock issued for restrictedstock awards.We used $15.2 million in cash for financing activities during the year ended December 31, 2015. We used $12.1 million to repurchase shares in the stockrepurchase program and $3.7 million for cash dividends paid quarterly during 2015. We received $1.0 million in proceeds from the purchase of sharesthrough our ESPP and the exercise of stock options. We used $0.4 million for payroll taxes related to stock-based compensation. The tax payments related toour stock issued for restricted stock awards.Contractual Obligations and Commercial CommitmentsThe following summarizes our contractual obligations at December 31, 2017 for office and product assembly facility leases, office equipment leases andpurchase obligations, and the effect such obligations are expected to have on the liquidity and cash flows in future periods (in thousands): Payments Due by Period Less than After Total 1 year 1-3 years 4-5 years 5 years Operating leases: Facility(a) $2,992 $1,081 $1,570 $214 $127 Equipment(b) $192 $53 $139 $0 $0 Purchase obligations(c) $5,666 $5,666 $0 $0 $0 Total $8,850 $6,800 $1,709 $214 $127 (a)Future payments for the lease of office and production facilities.(b)Future payments for the lease of office equipment.(c)Purchase orders or contracts for the purchase of inventory, as well as for other goods and services, in the ordinary course of business, and excludes thebalances for purchases currently recognized as liabilities on the balance sheet.As of December 31, 2017, we had obligations through 2022 for capital leases of $296 related to office equipment. See Note 8 of the consolidated financialstatements for more information on capital leases.We have a liability related to uncertain positions for income taxes of $0.7 million at December 31, 2017. We do not know when this obligation will be paid.Off-Balance Sheet ArrangementsNone.Critical Accounting Policies and EstimatesThe preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires us to make estimates andjudgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates and judgments are subject to aninherent degree of uncertainty. Management bases its estimates and judgments on historical experience, market trends, and other factors that are believed tobe reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.21Revenue Recognition - We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, priceis fixed and determinable, and collectability is reasonably assured. We recognize revenue for sales of products when title transfers, which is predominantlyupon shipment from the factory. For products shipped on consignment, we recognize revenue upon delivery from the consignment location. Revenuerecognition is also based on estimates of product returns, allowances, discounts, and other factors. These estimates are based on historical data. We believethat the estimates used are appropriate, but differences in actual experience or changes in estimates may affect future results. Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable is recorded at invoiced amount. We extend credit to our customers basedon an evaluation of a customer’s financial condition and collateral is generally not required. We maintain an allowance for doubtful accounts for estimateduncollectible accounts receivable. The allowance is based on our assessment of known delinquent accounts, historical experience, and other currentlyavailable evidence of the collectability and the aging of accounts receivable. Although management believes the current allowance is sufficient to coverexisting exposures, there can be no assurance against the deterioration of a major customer’s creditworthiness, or against defaults that are higher than whathas been experienced historically.Excess and Obsolete Inventory - We maintain reserves to reduce the value of inventory to the lower of cost or market and reserves for excess and obsoleteinventory. Reserves for excess inventory are calculated based on our estimate of inventory in excess of normal and planned usage. Obsolete reserves arebased on our identification of inventory where carrying value is above net realizable value. We believe the accounting estimate related to excess andobsolete inventory is a critical accounting estimate because it requires us to make assumptions about future sales volumes and product mix, both of which arehighly uncertain. Changes in these estimates can have a material impact on our financial statements.Warranty Costs - We offer repair and replacement warranties of primarily five years for antenna products and scanning receiver products. Our warrantyreserve is based on historical sales and costs of repair and replacement trends. We believe that the accounting estimate related to warranty costs is a criticalaccounting estimate because it requires us to make assumptions about matters that are highly uncertain, including future rates of product failure and repaircosts. Changes in warranty reserves could be material to our financial statements.Stock-based Compensation - We recognize stock-based compensation expense for all equity awards in accordance with fair value recognitionprovisions. We amortize stock-based compensation expense over the requisite service period and we record forfeitures as incurred. Stock-basedcompensation expense and disclosures are dependent on assumptions used in calculating such amounts. These assumptions include risk-free interest rates,expected term of the stock-based compensation instrument granted, volatility of stock and option prices, expected time between grant date and date ofexercise, attrition, performance, and other factors. These factors require us to use judgment. Our estimates of these assumptions typically are based onhistorical experience and currently available market place data. While management believes that the estimates used are appropriate, differences in actualexperience or changes in assumptions may affect our future stock-based compensation expense and disclosures.Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases andoperating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date.Our operations have international subsidiaries located in China, United Kingdom and Israel, as well as an international branch office located in HongKong. The complexities that arise from operating in several different tax jurisdictions inevitably lead to an increased exposure to worldwide taxes. Shouldreview of the tax filings result in unfavorable adjustments to our tax returns, the operating results, cash flows, and financial position could be materially andadversely affected.We are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. A change in the assessmentof the outcomes of such matters could materially impact our consolidated financial statements. The calculation of tax liabilities involves dealing withuncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and theextent to which, additional taxes may be required. If we ultimately determine that payment of these amounts is unnecessary, then we reverse the liability andrecognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it ismore likely than not that our positions will be sustained if challenged by the taxing authorities. To the extent we prevail in matters for which liabilities havebeen established or are required to pay amounts in excess of our liabilities, our effective tax rate in a given period may be materially affected. An unfavorabletax settlement would require cash payments and may result in an increase in our effective tax rate in the year of resolution. A favorable tax settlement wouldbe recognized as a reduction in our effective tax rate in the year of resolution.22On December 22, 2017, the United States federal government enacted the Tax Act marking a change from a worldwide tax system to a modified territorial taxsystem in the United States. As part of this change, the Tax Act, among other changes, provides for a Transition Tax on the accumulated unremitted foreignearnings and profits of our foreign subsidiaries, a reduction of the U.S. federal corporate income tax rate from 34% to 21%, and an indefinite carryforward fornet operating losses incurred in 2018 and future periods. In response to the enactment of the Tax Act in late 2017, the U.S. Securities and Exchange Commission issued SAB 118 to address situations where theaccounting is incomplete for certain income tax effects of the Tax Act upon issuance of an entity’s financial statements for the reporting period in which theTax Act was enacted. Under SAB 118, a company may record provisional amounts during a measurement period for specific income tax effects of the TaxAct for which the accounting is incomplete, but a reasonable estimate can be determined, and when unable to determine a reasonable estimate for any incometax effects, report provisional amounts in the first reporting period in which a reasonable estimate can be determined. The measurement period should notextend beyond one year.As a result of the Tax Act, we recorded provisional income tax expense of $0.6 million related to the deemed repatriation of the accumulated unremittedearnings and profits of foreign subsidiaries, and provisional income tax expense of $5.0 million associated with the remeasurement of our net deferred taxassets due to the reduction in the U.S. corporate tax rate, and we included these amounts in our consolidated financial statements for the year ended December31, 2017.We are continuing to gather additional information including refining the calculation of earnings and profits of foreign subsidiaries and we are continuing tomonitor the guidance from the I.R.S., states, and other government agencies to more precisely compute the amount of the Transition Tax and the state incometax impact of the deemed distributions of the foreign earnings and profits in order to complete the accounting for the effects of the Transition Tax in2018. The analyses will continue throughout 2018 and is expected to be completed when we file our income tax returns in late 2018.Valuation Allowances for Deferred Tax Assets - We establish an income tax valuation allowance when available evidence indicates that it is more likelythan not that all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we consider the amounts and timingof expected future deductions or carryforwards and sources of taxable income that may enable utilization. We maintain an existing valuation allowance untilsufficient positive evidence exists to support its reversal. Changes in the amount or timing of expected future deductions or taxable income may have amaterial impact on the level of income tax valuation allowances. Our assessment of the realizability of the deferred tax assets requires judgment about ourfuture results. Inherent in this estimation is the requirement for us to estimate future book and taxable income and possible tax planning strategies. Theseestimates require us to exercise judgment about our future results, the prudence and feasibility of possible tax planning strategies, and the economicenvironment in which we do business. It is possible that the actual results will differ from the assumptions and require adjustments to theallowance. Adjustments to the allowance would affect future net income.Impairment Reviews of Goodwill – We perform an annual impairment test of goodwill as of the end of the first month of the fiscal fourth quarter (October31st), or at an interim date if an event occurs or if circumstances change that would indicate that an impairment loss may have been incurred. In performingour annual impairment test, we first perform a qualitative assessment to determine whether it is more likely that not that the fair value of a reporting unit isless than its carrying value, including goodwill. If our qualitative assessment is indicative of possible impairment, then a two-step quantitative fair valueassessment is performed at the reporting unit level. In the first step, the fair value of each reporting unit is compared with its carrying value. If the fair valueexceeds the carrying value, then goodwill is not impaired, and no further testing is performed. The second step is performed if the carrying value exceeds thefair value. The implied fair value of goodwill is then compared against the carrying value of goodwill to determine the amount of impairment.The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions in determining areporting unit’s fair value. We calculate the fair value of each reporting unit by using the income approach based on the present value of future discountedcash flows. The discounted cash flow method requires us to use estimates and judgments about the future cash flows of the reporting units. Although we basecash flow forecasts on assumptions that are consistent with plans and estimates we use to manage the underlying reporting units, there is significant judgmentin determining the cash flows attributable to these reporting units, including markets and market share, sales volumes and mix, research and developmentexpenses, tax rates, capital spending, discount rate and working capital changes. Cash flow forecasts are based on reporting unit operating plans for the earlyyears and business projections in later years. We believe the accounting estimate related to the valuation of goodwill is a critical accounting estimate becauseit requires us to make assumptions that are highly uncertain about the future cash flows of our reporting units.Impairment Reviews of Finite-Lived Intangible Assets - We evaluate the carrying value of finite-lived intangible assets and other long-lived assets forimpairment whenever indicators of impairment exist. We test finite-lived intangible assets for recoverability using undiscounted cash flows. Although webase cash flow forecasts on assumptions that are consistent with plans and estimates we23use to manage the underlying reporting units, there is significant judgment in determining the cash flows attributable to these reporting units, includingmarkets and market share, sales volumes and mix, research and development expenses, capital spending and working capital changes. Cash flow forecasts arebased on operating plans and business projections. We compare the tax-affected undiscounted cash flows to the carrying value of the asset group. If thecarrying value exceeds the sum of the undiscounted cash flows of the asset group, we would assess the fair value of the intangible assets in the group todetermine if an impairment charge should be recognized in the financial statements.We believe the accounting estimate related to the valuation of intangible assets is a critical accounting estimate because it requires us to make assumptionsabout future sales prices and volumes for products that involve new technologies and applications where customer acceptance of new products or timelyintroduction of new technologies into their networks are uncertain. The recognition of impairment could be material to our financial statements.Recent Accounting PronouncementsIn January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill andOther (Topic 350): Simplifying the Test for Goodwill Impairment (“Topic 350”). Topic 350 eliminates Step 2 as part of the goodwill impairment test. Theamount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss tobe recognized cannot exceed the amount of goodwill allocated to that reporting unit. The Company early adopted this guidance on January 1, 2017 becauseits annual impairment test is performed after January 1, 2017. The adoption of Topic 350 did not have an impact on our consolidated financial statementsbecause there was no impairment identified from our step 1 analysis at the measurement date of October 1, 2017.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“Topic230”). Topic 230 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debtinstruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingentconsideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests insecuritization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance was effective for us onJanuary 1, 2018. The adoption of Topic 230 will not have a material impact on our consolidated financial statements.In June 2016, the FASB issued Accounting Standards Update No. 2016-13 ("ASU 2016-13") regarding ASC Topic 326, "Financial Instruments -Credit Losses," which modifies the measurement of expected credit losses of certain financial instruments. The amendments will be effective forus on January 1, 2020. We are currently evaluating this guidance and the impact it will have on our consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (“Topic 718”): Improvements to Employee Share-Based PaymentAccounting. Topic 718 affects all entities that issue share-based payment awards to their employees. Topic 718 simplifies several aspects of the accountingfor share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on thestatement of cash flows, including recognizing all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement ratherthan in additional paid-in capital. We adopted Topic 718 in the first quarter 2017. Upon adoption, we recognized deferred tax assets of for all excess taxbenefits that had not been previously recognized. We also elected to recognize forfeitures as incurred. We recorded an adjustment of $0.1 million to deferredtax assets for estimated forfeitures previously recorded. These adjustments were recorded through a cumulative-effect adjustment to retained earnings ofapproximately $0.5 million and an adjustment to the valuation allowance for $0.2 million. We also reclassified our payments for withholding tax on stock-based compensation from operating activities to financing activities in the consolidated statements of cash flows for the years ended December 31, 2016 and2015.In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which amends existing guidance to require lessees to recognize assets and liabilitieson the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information aboutleasing arrangements. Topic 842 also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement ofcash flows. This guidance will be effective for us on January 1, 2019. We are currently evaluating this guidance and the impact it will have on ourconsolidated financial statements and related disclosures.In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement ofinventory by requiring inventory to be measured at the lower of cost and net realizable value. ASU 2015-11 applies only to inventories for which cost isdetermined by methods other than last-in first-out and the retail inventory method.24The Company adopted this guidance on January 1, 2017. The adoption of this ASU did not have a material impact on our consolidated financial statements.In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”) which introduces a new revenue recognition model inwhich an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, indoing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This ASU alsorequires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts withcustomers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assetsrecognized from the costs to obtain or fulfill a contract. This guidance is effective for reporting periods after December 31, 2017. The FASB has also issuedthe following standards which clarify Topic 606 and have the same effective date as the original standard: ASU 2016-20, Technical Corrections andImprovements to Topic 606, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, ASU 2016-10, Identifying Performance Obligationsand Licensing and ASU 2016-08, Principal versus Agent Considerations.We have completed the process of evaluating the effect of the adoption of Topic 606 and determined that Topic 606 will not have a material impact on ourresults of operations, cash flows or financial position. We utilized questionnaires, reviewed contracts, and assessed revenue streams that may be impactedfrom the adoption of Topic 606. Based on our evaluation process, the majority of our revenue will continue to be recognized on a “point-in-time” basis and anominal amount of our revenue will be recognized “over time” under the new standard, which is consistent with our revenue recognition policy under theprevious guidance. We will adopt the new standard in the first quarter of 2018, using the modified retrospective approach, and will expand our consolidatedfinancial statement disclosures in order to comply with Topic 606. We made changes to incorporate the impact of the new standard into our policies,processes, and controls.Item 7A: Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risk from changes in interest rates, foreign exchange rates, credit risk, and investment risk as follows:Interest Rate RiskWe manage the sensitivity of our results of operations to interest rate risk on cash equivalents by maintaining a conservative investment portfolio. Theprimary objective of our investment activities is to preserve principal without significantly increasing risk. To achieve this objective, we maintain ourportfolio of cash equivalents, short-term investments, and long-term investments, in pre-refunded municipal bonds, U.S. government agency bonds or moneymarket funds invested exclusively in government agency bonds and AA or higher rated corporate bonds.Due to changes in interest rates, our future investment income may fall short of expectations. A hypothetical increase or decrease of 10% in market interestrates would not result in a material change in interest income earned through maturity on investments held at December 31, 2017. We do not hold or issuederivatives, derivative commodity instruments or other financial instruments for trading purposes.Foreign Currency RiskWe are exposed to currency fluctuations due to our foreign operations and because we sell our products internationally. We manage the sensitivity of ourinternational sales by denominating the majority of transactions in U.S. dollars. However, the value of our billings in Chinese yuan has increased due to thegrowth of the Connected Solutions business in China. We manage these operating activities at the local level and revenues, costs, assets and liabilities aregenerally denominated in local currencies, thereby mitigating the risk associated with fluctuations in foreign exchange rates. However, our results ofoperations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and theU.S. dollar. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability.We had $1.2 million of cash in foreign bank accounts at December 31, 2017. As of December 31, 2017, we had no intention of repatriating the cash in ourforeign bank accounts in China. If we decide to repatriate the cash in these foreign bank accounts, we may experience difficulty in repatriating the cash in atimely manner. We may also be exposed to foreign currency fluctuations and taxes if we repatriate these funds. We ceased ongoing operations of our Israelsubsidiary during the third quarter 2016. We expect to liquidate the subsidiary and repatriate its remaining cash during 2018. We do not expect the foreigncurrency exchange rate related to the repatriation of these funds to have a material impact on the financial statements. 25Credit RiskThe financial instruments that potentially subject us to credit risk consist primarily of trade receivables. For trade receivables, credit risk is the potential for aloss due to a customer not meeting its payment obligations. Our customers are concentrated in the wireless communications industry. Estimates are used indetermining an allowance for amounts which we may not be able to collect, based on current trends, the length of time receivables are past due and historicalcollection experience. Provisions for and recovery of bad debts are recorded as sales and marketing expense in the consolidated statements ofoperations. We perform ongoing evaluations of customers' credit limits and financial condition. We do not require collateral from customers, but for somecustomers we do require partial or full prepayments. The following tables represents the customers that accounted for 10% or more of revenues during the years ended December 31, 2017, 2016 and 2015 Years Ended December 31, Revenues 2017 2016 2015 Customer A 9% 11% 3% and customers that accounted for 10% or more of total trade accounts receivable at December 31, 2017 and 2016. Years Ended December 31, Customers 2017 2016 Customer A 7% 17% Customer B 12% 8% 26Item 8: Financial Statements and Supplementary DataPCTEL, INC.INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS PageReports of Independent Registered Public Accounting Firm 28 Consolidated Balance Sheets as of December 31, 2017 and 2016 30 Consolidated Statements of Operations for the years December 31, 2017, 2016, and 2015 31 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015 32 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016, and 2015 33 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 34 Notes to the Consolidated Financial Statements 35 Schedule II Valuation and Qualifying Accounts 68 27REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersPCTEL, Inc.Opinion on the financial statementsWe have audited the accompanying consolidated balance sheets of PCTEL, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the threeyears in the period ended December 31, 2017, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally acceptedin the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’sinternal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2018 expressed an unqualifiedopinion.Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Grant Thornton LLPWe have served as the Company’s auditor since 2006.Chicago, IllinoisMarch 16, 201828REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersPCTEL, Inc.Opinion on internal control over financial reportingWe have audited the internal control over financial reporting of PCTEL, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31,2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedfinancial statements of the Company as of and for the year ended December 31, 2017, and our report dated March 16, 2018 expressed an unqualified opinionon those financial statements.Basis for opinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and limitations of internal control over financial reportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ Grant Thornton LLPChicago, IllinoisMarch 16, 201829PCTEL, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, December 31, 2017 2016 ASSETS Cash and cash equivalents $5,559 $14,855 Short-term investment securities 32,499 18,456 Accounts receivable, net of allowance for doubtful accounts of $319 and $273 at December 31, 2017 and December 31, 2016, respectively 18,427 19,101 Inventories, net 12,756 14,442 Prepaid expenses and other assets 1,605 1,498 Current assets held for sale 0 50 Total current assets 70,846 68,402 Property and equipment, net 12,369 11,833 Goodwill 3,332 3,332 Intangible assets, net 2,113 3,275 Deferred tax assets, net 7,734 4,512 Other noncurrent assets 72 36 Non-current assets held for sale 0 776 TOTAL ASSETS $96,466 $92,166 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $5,471 $6,073 Accrued liabilities 7,284 7,177 Total current liabilities 12,755 13,250 Long-term liabilities 392 391 Total liabilities 13,147 13,641 Stockholders’ equity: Common stock, $0.001 par value, 100,000,000 shares authorized, 17,806,792 and 17,335,122 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively 18 17 Additional paid-in capital 134,505 134,480 Accumulated deficit (51,258) (55,590)Accumulated other comprehensive loss 54 (382)Total stockholders’ equity 83,319 78,525 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $96,466 $92,166 The accompanying notes are an integral part of these consolidated financial statements.30PCTEL, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Years Ended December 31, 2017 2016 2015 REVENUES $91,437 $85,006 $90,533 COST OF REVENUES 52,626 50,595 55,405 GROSS PROFIT 38,811 34,411 35,128 OPERATING EXPENSES: Research and development 11,142 10,158 11,205 Sales and marketing 12,630 12,716 12,972 General and administrative 13,110 11,905 11,920 Amortization of intangible assets 496 531 1,905 Restructuring expenses 0 234 1,609 Total operating expenses 37,378 35,544 39,611 OPERATING INCOME (LOSS) 1,433 (1,133) (4,483)Other income, net 105 112 3,287 INCOME (LOSS) BEFORE INCOME TAXES 1,538 (1,021) (1,196)(Benefit) expense for income taxes (2,471) 11,776 (462)NET INCOME (LOSS) FROM CONTINUING OPERATIONS 4,009 (12,797) (734)NET LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOMETAX (BENEFIT) (187) (4,884) (834)NET INCOME (LOSS) $3,822 $(17,681) $(1,568) Net Income (Loss) per Share from Continuing Operations: Basic $0.24 $(0.79) $(0.04)Diluted $0.24 $(0.79) $(0.04) Net Loss per Share from Discontinued Operations: Basic $(0.01) $(0.30) $(0.05)Diluted $(0.01) $(0.30) $(0.05) Net Income (Loss) per Share: Basic $0.23 $(1.09) $(0.09)Diluted $0.23 $(1.09) $(0.09) Weighted Average Shares: Basic 16,626 16,151 17,737 Diluted 16,913 16,151 17,737 Cash dividend per share $0.21 $0.20 $0.20 The accompanying notes are an integral part of these consolidated financial statements.31PCTEL, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands, except per share data) Years Ended December 31, 2017 2016 2015 NET INCOME (LOSS) $3,822 $(17,681) $(1,568)OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustments 436 (367) (150)COMPREHENSIVE INCOME (LOSS) $4,258 $(18,048) $(1,718) The accompanying notes are an integral part of these consolidated financial statements.32PCTEL, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(in thousands) Accumulated Other Total Additional Comprehensive Stockholders' Common Paid-In Retained Income Equity of Stock Capital Deficit (Loss) PCTEL, Inc. BALANCE at JANUARY 1, 2015 $19 $145,462 $(30,101) $135 $115,515 Stock-based compensation expense 0 1,865 0 0 1,865 Issuance of shares for stock purchase and option plans 0 1,018 0 0 1,018 Cancellation of shares for payment of withholding tax 0 (438) 0 0 (438)Tax effect from stock-based compensation 0 (115) 0 0 (115)Repurchase of common stock (1) (12,078) 0 0 (12,079)Dividends paid 0 0 (3,651) 0 (3,651)Net loss 0 0 (1,568) 0 (1,568)Change in cumulative translation adjustment, net 0 0 0 (150) (150)BALANCE at DECEMBER 31, 2015 $18 $135,714 $(35,320) $(15) $100,397 Stock-based compensation expense 0 3,986 0 0 3,986 Issuance of shares for stock purchase and option plans 0 649 0 0 649 Cancellation of shares for payment of withholding tax 0 (426) 0 0 (426)Tax effect from stock-based compensation 0 (482) 0 0 (482)Repurchase of common stock (1) (4,094) 0 0 (4,095)Dividends paid 0 (867) (2,589) 0 (3,456)Net loss 0 0 (17,681) 0 (17,681)Change in cumulative translation adjustment, net 0 0 0 (367) (367)BALANCE at DECEMBER 31, 2016 $17 $134,480 $(55,590) $(382) $78,525 Cumulative-effect adjustment resulting from adoption of ASU 2016-09 510 510 BALANCE at JANUARY 1, 2017 $17 $134,480 $(55,080) $(382) $79,035 Stock-based compensation expense 1 3,053 0 0 3,054 Issuance of shares for stock purchase and option plans 0 1,975 0 0 1,975 Cancellation of shares for payment of withholding tax 0 (1,298) 0 0 (1,298)Dividends paid 0 (3,705) 0 0 (3,705)Net income 0 0 3,822 0 3,822 Change in cumulative translation adjustment, net 0 0 0 436 436 BALANCE at DECEMBER 31, 2017 $18 $134,505 $(51,258) $54 $83,319 The accompanying notes are an integral part of these consolidated financial statements.33PCTEL, INC.CONSOLIDATED STATEMENT OF CASH FLOWS(in thousands) Years Ended December 31, 2017 2016 2015 Operating Activities: Net income (loss) from continuing operations$4,009 $(12,797) $(734) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 2,567 2,629 2,610 Intangible asset amortization 1,162 1,198 2,499 Stock-based compensation 3,005 3,847 1,712 Loss (gain) on disposal/sale of property and equipment 18 2 (12) Restructuring costs (78) 30 688 Deferred tax provision (2,647) 11,048 (845) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 853 1,695 8,260 Inventories 1,970 2,863 (1,385) Prepaid expenses and other assets (121) 44 227 Accounts payable (1,037) (484) 1,114 Income taxes payable (199) 81 4 Other accrued liabilities 182 929 (4,404) Deferred revenue 85 40 (1,198) Net cash provided by operating activities 9,769 11,125 8,536 Investing Activities: Capital expenditures (2,666) (1,739) (1,600) Proceeds from disposal of property and equipment 1 15 64 Purchase of investments (49,009) (74,264) (30,146) Redemptions/maturities of short-term investments 34,966 80,536 44,995 Purchase of assets 0 0 (20,500) Net cash provided by (used in) investing activities (16,708) 4,548 (7,187) Financing Activities: Proceeds from issuance of common stock 1,975 649 1,018 Payments for repurchase of common stock 0 (4,095) (12,079) Payment of withholding tax on stock-based compensation (1,298) (426) (438) Principle payments on capital leases (98) (51) (61) Cash dividends (3,705) (3,456) (3,651) Net cash used in financing activities (3,126) (7,379) (15,211) Cash flows from discontinued operations: Net cash (used in) provided by operating activities (795) (242) 1,037 Net cash provided by (used in) investing activities 1,434 (173) (502)Net cash flows from discontinued operations: 639 (415) 535 Net increase (decrease) in cash and cash equivalents (9,426) 7,879 (13,327)Effect of exchange rate changes on cash 130 (79) (50)Cash and cash equivalents, beginning of year 14,855 7,055 20,432 Cash and Cash Equivalents, End of Year$5,559 $14,855 $7,055 Other information: Cash paid for income taxes$172 $622 $413 Cash paid for interest$12 $8 $7 Non-cash investing and financing information: Increases (decreases) to additional paid-in capital related to restricted stock$(1,339) $(879) $3,566 Issuance of restricted common stock, net of cancellations$196 $1,725 $4,941 Purchase of assets under capital leases$149 $134 $30 The accompanying notes are an integral part of these consolidated financial statements.34PCTEL, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the Year Ended: December 31, 2017(in thousands, except share data)1. Organization and Summary of Significant Accounting PoliciesNature of Operations PCTEL, Inc. (“PCTEL”, the “Company”, “we”, “ours”, and “us”) delivers Performance Critical TELecom technology solutions to the wirelessindustry. PCTEL is a leading global supplier of wireless network antenna and testing solutions. PCTEL’s Connected Solutions segment designs andmanufactures precision antennas. PCTEL antennas are deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and innetwork equipment and devices for the Industrial Internet of Things (“IIoT”). PCTEL’s RF Solutions segment provides test tools that improve theperformance of wireless networks globally. Mobile operators, neutral hosts, and equipment manufacturers rely on PCTEL to analyze, design, and optimizenext generation wireless networks.Segment ReportingPCTEL operates in two segments for reporting purposes, Connected Solutions and RF Solutions. The Company’s chief operating decision maker usesoperating profits and identified assets for the Connected Solutions and RF Solutions segments for resource allocations. Each segment has its own segmentmanager as well as its own engineering, business development, sales and marketing, and operational general and administrative functions. All of theCompany’s accounting and finance, human resources, IT and legal functions are provided on a centralized basis through the corporate function. TheCompany manages its balance sheet and cash flows centrally at the corporate level, with the exception of trade accounts receivable and inventory which ismanaged at the segment level. Each of the segment managers reports to and maintains regular contact with the chief operating decision maker to discussoperating activities, financial results, forecasts, or plans for the segment.Connected Solutions SegmentPCTEL Connected Solutions designs and manufactures precision antennas. PCTEL antennas are deployed primarily in small cells, enterprise Wi-Fi accesspoints, fleet management and transit systems, and in equipment and devices for the IIoT. Revenue growth in these markets is driven by the increased use ofwireless communications and increased complexity occurring in these markets. PCTEL antennas are primarily sold to original equipment manufacturer(“OEM”) providers where they are designed into the customer’s solution.Competition in the antenna markets addressed by Connected Solutions is fragmented. Competitors include Airgain, Amphenol, Laird, Pulse, and Taoglas.The Company seeks out product applications that command a premium for product performance and customer service, and its avoids commodity markets.PCTEL maintains expertise in several technology areas in order to be competitive in the antenna market. These include radio frequency engineering, mobileantenna design and manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.RF Solutions Segment PCTEL RF Solutions provides test tools that improve the performance of wireless networks globally, with a focus on LTE, public safety, and emerging 5Gtechnologies. Network operators, neutral hosts, and equipment manufacturers rely on PCTEL’s scanning receivers and testing solutions to analyze, design,and optimize their networks. Revenue growth is driven by the implementation and roll out of new wireless technology standards (i.e. 3G to 4G, 4G to 5G).PCTEL test equipment is sold directly to wireless carriers or to OEM providers who integrate the Company’s products into their solutions which are then soldto wireless carriers.Competitors for PCTEL’s test tool products include OEMs such as Anritsu, Berkley Varitronics, Digital Receiver Technology, and Rohde and Schwarz.PCTEL maintains expertise in several technology areas in order to be competitive in the test tool market. These include radio frequency engineering, digitalsignal process (“DSP”) engineering, manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.During the quarter ended June 30, 2017, the Company approved a plan to sell its Network Engineering Service business (“Engineering Services”) and shift itsfocus toward research and development driven radio frequency (“RF”) products. On July 31,352017, the Company sold substantially all of the assets of the Company’s Engineering Services business to Gabe’s Construction Co., Inc. (“Gabe’s”) for apurchase price of $1.45 million. The Engineering Services business provided design, testing, commissioning, optimization, and consulting services forcellular, Wi-Fi and public safety networks and was a reporting unit within the RF Solutions segment. The Company classified assets of the EngineeringServices reporting unit as held for sale at December 31, 2016 and reported the results of its operations as discontinued operations for the years endedDecember 31, 2017, 2016, and 2015, respectively. The financial information presented in this Form 10-K has been restated to reflect the historical results ofEngineering Services as discontinued operations. See Note 4 for more information on discontinued operations.Basis of ConsolidationThese consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have beeneliminated. Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates.Foreign OperationsThe Company is exposed to foreign currency fluctuations due to its foreign operations and because products are sold internationally. The functionalcurrency for the Company’s foreign operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollarsusing the year-end exchange rate for assets and liabilities and average monthly rates for revenue and expense accounts. Adjustments resulting fromtranslation are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Gains and losses resulting fromother transactions originally in foreign currencies and then translated into U.S. dollars are included in the consolidated statements of operations. Net foreignexchange gains (losses) resulting from foreign currency transactions included in other income, net was $(139), $13, and $(33) in the years ended December31, 2017, 2016, and 2015, respectively.Fair Value of Financial InstrumentsThe Company follows accounting pronouncements for Fair Value Measurements and Disclosures, which establishes a fair value hierarchy that requires theCompany to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-basedmeasurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for consideringsuch assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities,quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of assets or liabilities.Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.Cash equivalents are measured at fair value and investments are recognized at amortized cost in the Company’s financial statements. Accounts receivableand other investments are financial assets with carrying values that approximate fair value due to the short-term nature of these assets. Accounts payable is afinancial liability with a carrying value that approximates fair value due to the short-term nature of these liabilities.36Cash and Cash Equivalents and InvestmentsThe Company’s cash and investments consist of the following: December 31, December 31, 2017 2016 Cash $3,785 $7,507 Cash equivalents 1,774 7,348 Short-term investments 32,499 18,456 $38,058 $33,311 Cash and Cash EquivalentsAt December 31, 2017, cash and cash equivalents included bank balances and investments with original maturities less than 90 days. At December 31, 2017and 2016, the Company’s cash equivalents were invested in highly liquid AAA rated money market funds that are required to comply with Rule 2a-7 underthe Investment Company Act of 1940. Such funds utilize the amortized cost method of accounting, seek to maintain a constant $1.00 per share price, and areredeemable upon demand. The Company restricts its investments in AAA money market funds to those invested 100% in either short-term U.S. GovernmentAgency securities or bank repurchase agreements collateralized by these same securities. The fair values of these money market funds are established throughquoted prices in active markets for identical assets (Level 1 inputs). The cash in the Company’s U.S. banks is insured by the Federal Deposit InsuranceCorporation up to the insurable limit of $250.At December 31, 2017, the Company had $3.8 million in cash and $1.8 million in cash equivalents and at December 31, 2016, the Company had $7.5 millionin cash and $7.3 million in cash equivalents. The Company had $1.2 million and $0.9 million of cash and cash equivalents in foreign bank accounts atDecember 31, 2017 and at December 31, 2016, respectively. Within the cash in foreign bank accounts, the Company had cash of $1.0 million and $0.5million in China bank accounts at December 31, 2017 and December 31, 2016, respectively. The Company ceased ongoing operations of its subsidiary in Israel during the third quarter 2016. The Company expects to liquidate the subsidiary andrepatriate its remaining cash during 2018. In December 2015, the Company recorded the expense for the estimated incremental income tax of $0.1 millionrelated to the repatriation of the funds from Israel. The Company does not expect the foreign currency exchange related to the repatriation of these funds tohave a material impact on the consolidated financial statements. As of December 31, 2017, the Company had no intentions of repatriating the cash in itsforeign bank accounts in China. If the Company decides to repatriate the cash in the foreign bank accounts, it may experience difficulty in doing so in atimely manner. The Company may also be exposed to foreign currency fluctuations and taxes if it repatriates these funds. The Company’s cash in its foreignbank accounts is not insured.InvestmentsAt December 31, 2017 and 2016, the Company’s short-term investments consisted of pre-refunded municipal bonds, U.S. government agency bonds, AA orhigher rated corporate bonds and certificates of deposit, all classified as held-to-maturity. At December 31, 2017, the Company had invested $18.5 million in AA rated or higher corporate bond funds, $7.4 million in certificates of deposit, $4.5million in U.S. government agency bonds, and $2.1 million in pre-refunded municipal bonds and taxable bond funds. The income and principal from thepre-refunded municipal bonds is secured by an irrevocable trust of U.S. Treasury securities. The bonds have original maturities greater than 90 days andmature in 2018. The Company’s bonds are recorded at the purchase price and carried at amortized cost. The net unrealized losses were approximately $34and $9 at December 31, 2017 and December 31, 2016, respectively. Approximately 8% and 6% of the Company’s bonds were protected by bond defaultinsurance at December 31, 2017 and 2016, respectively. At December 31, 2016, the Company had invested $7.8 million in pre-refunded municipal bonds and taxable bond funds, $5.6 million in AA rated or highercorporate bond funds, $2.6 million in U.S. government agency bonds, and $2.5 million in certificates of deposit. The Company categorizes its financial instruments within a fair value hierarchy according to accounting guidance for fair value. The fair value hierarchy isdescribed under the Fair Value of Financial Instruments in Note 1. For the Level 2 investments, the Company uses quoted prices of similar assets in activemarkets.37Cash equivalents and Level 1 and Level 2 investments measured at fair value were as follows: December 31, 2017 December 31, 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash equivalents: Corporate bonds $0 $1,347 $0 $1,347 $0 $3,608 $0 $3,608 US government agency bonds 0 250 0 250 0 2,846 0 2,846 Certificates of deposit 0 0 0 0 750 0 0 750 Money market funds 175 0 0 175 145 0 0 145 Investments: Corporate bonds 0 18,433 0 18,433 0 5,569 0 5,569 Pre-refunded municipal bonds 0 2,132 0 2,132 0 7,776 0 7,776 US government agency bonds 0 4,455 0 4,455 0 2,571 0 2,571 Certificates of deposit 7,447 0 0 7,447 2,530 0 0 2,530 Total $7,622 $26,617 $0 $34,239 $3,425 $22,370 $0 $25,795 Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are recorded at invoiced amount with standard net terms for most customers that range between 30 and 90 days. The Company extendscredit to its customers based on an evaluation of a company’s financial condition and collateral is generally not required. The Company maintains anallowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on the Company’s assessment of known delinquentaccounts, historical experience, and other currently available evidence of the collectability and the aging of accounts receivable. The Company’s allowancefor doubtful accounts was $0.3 million at December 31, 2017 and 2016, respectively. The provision for doubtful accounts is included in sales and marketingexpense in the consolidated statements of operations.InventoriesInventories are stated at the lower of cost or net realizable value and include material, labor and overhead costs using the first-in, first-out (“FIFO”) method ofcosting. Inventories as of December 31, 2017 and 2016 were composed of raw materials, sub-assemblies, finished goods and work-in-process. The Companyhad consigned inventory of $0.5 million and $0.4 million at December 31, 2017 and 2016, respectively. The Company records allowances to reduce thevalue of inventory to the lower of cost or market, including allowances for excess and obsolete inventory. Reserves for excess inventory are calculated basedon the Company’s estimate of inventory in excess of normal and planned usage. Obsolete reserves are based on the Company’s identification of inventorywhere carrying value is above net realizable value. The allowance for inventory losses was $3.0 million and $2.9 million as of December 31, 2017 and 2016,respectively.Inventories consisted of the following: December 31,2017 December 31,2016 Raw materials $6,849 $8,718 Work in process 962 1,486 Finished goods 4,945 4,238 Inventories, net $12,756 $14,442 Prepaid and other current assetsPrepaid assets are stated at cost and are amortized over the useful lives (up to one year) of the assets.Property and EquipmentProperty and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. The Companydepreciates computers over three to five years, office equipment, manufacturing and test equipment and motor vehicles over five years, furniture and fixturesover seven years, and buildings over 30 years. Leasehold improvements are amortized over the shorter of the corresponding lease term or usefullife. Depreciation expense and gains and losses on the disposal of property and equipment are included in cost of sales and operating expenses in theconsolidated statements of operations. Maintenance and repairs are expensed as incurred.38Property and equipment consisted of the following: December 31,2017 December 31,2016 Building $6,351 $6,351 Computers and office equipment 10,873 10,683 Manufacturing and test equipment 13,012 11,638 Furniture and fixtures 1,288 1,225 Leasehold improvements 1,444 1,191 Motor vehicles 20 20 Total property and equipment 32,988 31,108 Less: Accumulated depreciation and amortization (22,389) (21,045)Land 1,770 1,770 Property and equipment, net $12,369 $11,833 Depreciation and amortization expense was approximately $2.6 million, for each of the years ended December 31, 2017, 2016, and 2015,respectively. Amortization for capital leases is included in depreciation and amortization expense. See Note 8 for information related to capital leases.LiabilitiesAccrued liabilities consisted of the following: December 31,2017 December 31,2016 Payroll, bonuses, and other employee benefits $2,780 $2,029 Inventory receipts 1,730 1,622 Paid time off 1,011 1,230 Warranties 382 394 Employee stock purchase plan 314 300 Income and sales taxes 243 546 Deferred revenues 189 104 Professional fees and contractors 155 320 Real estate taxes 148 152 Restructuring 35 126 Customer prepayments 34 164 Other 263 190 Total $7,284 $7,177 Long-term liabilities consisted of the following: December 31,2017 December 31,2016 Long-term obligations under capital leases $180 $157 Deferred rent 89 156 Restructuring 81 70 Deferred revenues 42 8 $392 $391 Revenue RecognitionThe Company sells antennas and scanning receiver products. The Company recognizes revenue when the following criteria are met: persuasive evidence ofan arrangement exists, delivery has occurred, price is fixed and determinable, and collectability is reasonably assured.The Company recognizes revenue for sales of its products when title transfers, which is predominantly upon shipment from its factory. For products shippedon consignment, the Company recognizes revenue upon delivery from the consignment location. The Company allows its major antenna productdistributors to return product under specified terms and conditions and accrues for product returns. 39Research and Development CostsThe Company expenses research and development costs as incurred. To date, the Company has expensed all software development costs related to researchand development because the costs incurred subsequent to the products reaching technological feasibility were not significant.Advertising CostsAdvertising costs are expensed in the period in which they are incurred. Advertising expense was $107, $162, and $212 in each of the fiscal years endedDecember 31, 2017, 2016, and 2015, respectively.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets, which are not likely tobe realized. On a regular basis, management evaluates the recoverability of deferred tax assets and the need for a valuation allowance. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income taxpositions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in theperiod in which the change in judgment occurs. On December 22, 2017, the United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”), marking a change from a worldwide tax systemto a modified territorial tax system in the United States. As part of this change, the Tax Act, among other changes, provides for a transition tax on theaccumulated unremitted foreign earnings and profits of the Company’s foreign subsidiaries (“Transition Tax”), a reduction of the U.S. federal corporateincome tax rate from 34% to 21%, and an indefinite carryforward of net operating losses (“NOL’s”) incurred in 2018 and future periods. In response to the enactment of the Tax Act in late 2017, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB118”) to address situations where the accounting is incomplete for certain income tax effects of the Tax Act upon issuance of an entity’s financial statementsfor the reporting period in which the Tax Act was enacted. Under SAB 118, a company may record provisional amounts during a measurement period forspecific income tax effects of the Tax Act for which the accounting is incomplete, but a reasonable estimate can be determined, and when unable to determinea reasonable estimate for any income tax effects, report provisional amounts in the first reporting period in which a reasonable estimate can bedetermined. The measurement period should not extend beyond one year. As a result of the Tax Act, the Company recorded provisional income tax expense of $0.6 million related to the deemed repatriation of the accumulatedunremitted earnings and profits of foreign subsidiaries, and provisional income tax expense of $5.0 million associated with the remeasurement of its netdeferred tax assets due to reduction in the U.S. corporate income tax rate, and included these amounts in its consolidated financial statements for the yearended December 31, 2017. The Company is continuing to gather additional information including refining the calculation of earnings and profits of foreign subsidiaries and iscontinuing to monitor the guidance from the I.R.S., states, and other government agencies to more precisely compute the amount of the Transition Tax andthe state income tax impact of the deemed distributions of the foreign earnings and profits and in order to complete the accounting for the effects of theTransition Tax in 2018. The analyses will continue throughout 2018 and is expected to be completed when the Company files its income tax returns in late2018. Deferred tax assets arise when the Company recognizes charges or expenses in the financial statements that will not be allowed as income tax deductionsuntil future periods. The deferred tax assets also include unused tax net operating losses and tax credits that the Company is allowed to carryforward to futureyears. Accounting rules permit the Company to carry the deferred tax assets on the balance sheet at full value as long as it is more likely than not thedeductions, losses, or credits will be used in the future. A valuation allowance must be recorded against a deferred tax asset if this test cannot be met. During2017, the Company recorded adjustments to the valuation allowance of $8.2 million because the Company believes that it is more likely than not that it willrealize its deferred tax assets related to timing differences. See Note 7 for more information on the deferred tax valuation allowance. 40Sales and Value Added TaxesTaxes collected from customers and remitted to governmental authorities are presented on a net basis in cost of sales in the accompanying consolidatedstatements of operations.Shipping and Handling CostsShipping and handling costs are included on a gross basis in cost of sales in the accompanying consolidated statements of operations.GoodwillThe Company performs an annual impairment test of goodwill as of the end of the first month of the fiscal fourth quarter (October 31st), or at an interim dateif an event occurs or if circumstances change that would indicate that an impairment loss may have been incurred. In performing the annual impairment test,the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than itscarrying value, including goodwill. If the qualitative assessment is indicative of possible impairment, then a two-step quantitative fair value assessment isperformed at the reporting unit level. In the first step, the fair value of each reporting unit is compared with its carrying value. If the fair value exceeds thecarrying value, then goodwill is not impaired, and no further testing is performed. The second step is performed if the carrying value exceeds the fairvalue. The implied fair value of goodwill is then compared against the carrying value of goodwill to determine the amount of impairment.The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions in determining areporting unit’s fair value. The Company calculates the fair value of each reporting unit by using the income approach based on the present value of futurediscounted cash flows. The discounted cash flow method requires the Company to use estimates and judgments about the future cash flows of the reportingunits. Although the Company bases cash flow forecasts on assumptions that are consistent with plans and estimates the Company uses to manage theunderlying reporting units, there is significant judgment in determining the cash flows attributable to these reporting units, including markets and marketshare, sales volumes and mix, research and development expenses, tax rates, capital spending, discount rate and working capital changes. Cash flow forecastsare based on reporting unit operating plans for the early years and business projections in later years. The Company believes the accounting estimate relatedto the valuation of goodwill is a critical accounting estimate because it requires us to make assumptions that are highly uncertain about the future cash flowsof the reporting units. Changes in these estimates can have a material impact on the Company’s financial statements.The Company performed its annual goodwill test at October 31, 2017 related to its goodwill of $3.3 million. This goodwill was recorded from the Nexgenacquisition in February 2015 and is included within the RF Solutions segment. The Company performed both a qualitative analysis of goodwill and the stepone quantitative analysis. There was no triggering event from the qualitative analysis, and the fair value of the reporting unit was higher than its carryingvalue in the quantitative analysis. Based on the Company’s analysis, there was no impairment of goodwill as of the testing date because the fair value of thereporting unit exceeded its carrying value by a significant margin. The Company performed its annual goodwill test at October 31, 2016 for the goodwill of$3.3 million within the RF Solutions segment. The Company performed both a qualitative analysis of goodwill and the step one quantitative analysis. Therewas no triggering event from the qualitative analysis, and the fair value of the reporting unit was higher than its carrying value in the quantitativeanalysis. Based on the Company’s analysis, there was no impairment of goodwill as of the testing date because the fair value of the reporting unit exceededits carrying value by a significant margin. Long-lived and Definite-Lived Intangible assets The Company reviews definite-lived intangible assets, investments and other long-lived assets for impairment when events or changes in circumstancesindicate that their carrying values may not be fully recoverable. This analysis differs from the Company’s goodwill analysis in that definite-lived intangibleasset impairment is only deemed to have occurred if the sum of the forecasted undiscounted future cash flows related to the assets being evaluated is less thanthe carrying value of the assets. The estimate of long-term undiscounted cash flows includes long-term forecasts of revenue growth, gross margins, andoperating expenses. All of these items require significant judgment and assumptions. An impairment loss may exist when the estimated undiscounted cashflows attributable to the assets are less than the carrying amount. There have been no impairments related to long-lived assets for continuing operationsduring the years ended December 31, 2017, 2016, and 2015. Discontinued Operations During 2016, the Company recorded total impairment expense of $5.8 million related to customer relationships for Engineering Services, consisting of $4.7million at June 30, 2016 and $1.1 million at December 31, 2016. 41For the three months ended June 30, 2016, the revenue and contribution margin of the services reporting unit were below its forecasts. The results andrevised forecast were reflective of a long-term slowdown in the Distributed Antenna System (“DAS”) market which is the primary market addressed by theCompany’s services offering. The Company considered the changes to its forecast and the industry and market trends as a triggering event to assess theintangible assets of the services reporting units for impairment. The Company reviewed the intangible assets for impairment by performing a test ofrecoverability. The cash flow forecast prepared by the Company included assumptions for revenues, gross margins, and operating expenses. The test ofrecoverability failed because the undiscounted cash flows were below the carrying value of the services reporting unit. The Company calculated the fairvalue of the services reporting unit with the assistance of a third-party valuation firm.For the three months ended December 31, 2016, the revenues and contribution margin for the services reporting unit declined sequentially. The fourthquarter 2016 gross margin was negatively impacted by the lower revenue volume and by lower average margins on individual projects. At December 31,2016 the backlog was lower than historical trends and there were no known large projects in the sales funnel. Based on these facts and an updated review ofthe market and industry trends, the Company lowered its profit forecast for 2017 compared to the profit forecast prepared for the 2017 operating plan and theCompany lowered its long-term revenue and profit forecast. The Company determined that the revision to the forecast for services was a triggering event forits review of intangible assets for impairment. The Company reviewed its intangible assets for impairment by performing a test of recoverability. The cashflow forecast prepared by the Company included assumptions for revenues, gross margins, and operating expenses. The test of recoverability failed becausethe undiscounted cash flows were below the carrying value of the services reporting unit. The Company calculated the fair value of the Services reportingunit based on the valuation assumptions from the analysis at June 30, 2016. The impairment charge of $1.1 million represented the remaining value of thecustomer relationships as of December 31, 2016. Recent Accounting PronouncementsIn January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill andOther (Topic 350): Simplifying the Test for Goodwill Impairment (“Topic 350”). Topic 350 eliminates Step 2 as part of the goodwill impairment test. Theamount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss tobe recognized cannot exceed the amount of goodwill allocated to that reporting unit. The Company early adopted this guidance on January 1, 2017 becauseits annual impairment test is performed after January 1, 2017. The adoption of Topic 350 did not have an impact on the Company's consolidated financialstatements because there was no impairment identified from the Company’s step 1 analysis at the measurement date of October 1, 2017. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of certain cash receipts and cash payments (“Topic230”). Topic 230 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debtinstruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingentconsideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests insecuritization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance was effective for theCompany on January 1, 2018. Adoption of this guidance will not have a material impact on the Company’s consolidated financial statements. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 ("ASU 2016-13") regarding ASC Topic 326, "Financial Instruments -Credit Losses," which modifies the measurement of expected credit losses of certain financial instruments. The amendments will be effective forthe Company on January 1, 2020. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting (“Topic 718”). Topic 718 affects all entities that issue share-based payment awards to their employees. Topic 718 simplifies several aspects ofthe accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, andclassification on the statement of cash flows, including recognizing all excess tax benefits and tax deficiencies as income tax expense or benefit in theincome statement rather than in additional paid-in capital. The Company adopted Topic 718 in the first quarter 2017. Upon adoption, the Companyrecognized deferred tax assets of $0.6 million for all excess tax benefits that had not been previously recognized. The Company also elected to recognizedforfeitures as incurred. The Company recorded an adjustment of $0.1 million to deferred tax assets for estimated forfeitures previously recorded. Theseadjustments were recorded through a cumulative-effect adjustment to retained earnings of approximately $0.5 million and an adjustment to the valuationallowance for $0.2 million. The Company also reclassified its42payments for withholding tax on stock-based compensation from operating activities to financing activities in the consolidated statements of cash flows forthe years ended December 31, 2016 and 2015.In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which amends existing guidance to require lessees to recognize assets and liabilitieson the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information aboutleasing arrangements. Topic 842 also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement ofcash flows. This guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating this guidance and the impact it willhave on its consolidated financial statements and related disclosures. In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement ofinventory by requiring inventory to be measured at the lower of cost and net realizable value. ASU 2015-11 applies only to inventories for which cost isdetermined by methods other than last-in first-out and the retail inventory method. The Company adopted this guidance on January 1, 2017. The adoption ofthis ASU did not have a material impact to the Company’s consolidated financial statements.In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”) which introduces a new revenue recognition model inwhich an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, indoing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Topic 606 alsorequires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts withcustomers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assetsrecognized from the costs to obtain or fulfill a contract. This guidance will be effective for us on January 1, 2018. The FASB has also issued the followingstandards which clarify Topic 606 and have the same effective date as the original standard: ASU 2016-20, Technical Corrections and Improvements to Topic606, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, ASU 2016-10, Identifying Performance Obligations and Licensing and ASU2016-08, Principal versus Agent Considerations.The Company completed the process of evaluating the effect of the adoption of Topic 606 and determined that the adoption of Topic 606 will not have amaterial impact on its results of operations, cash flows or financial position. The Company utilized questionnaires, reviewed contracts, and assessed revenuestreams that may be impacted from the adoption of Topic 606. Based on the Company’s evaluation process, the majority of revenue will continue to berecognized on a “point-in-time” basis and a nominal amount of our revenue will be recognized “over time” under the new standard, which is consistent withour revenue recognition policy under the previous guidance. The Company will adopt the new standard in the first quarter of 2018, using the modifiedretrospective approach, and will expand its consolidated financial statement disclosures in order to comply with Topic 606. The Company made changes toincorporate the impact of the new standard into our policies, processes, and controls.432. Earnings (Loss) per ShareThe Company computes earnings per share data under two different disclosures, basic and diluted, for all periods in which statements of operations arepresented. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding,less shares subject to repurchase. Diluted earnings (loss) per share are computed by dividing net income by the weighted average number of common stockand common stock equivalents outstanding. Common stock equivalents consist of stock options using the treasury stock method. Common stock optionsare excluded from the computation of diluted earnings per share if their effect is anti-dilutive.The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share: Years Ended December 31, 2017 2016 2015 Basic Income (Loss) Per Share computation: Numerator: Net income (loss) from continuing operations $4,009 $(12,797) $(734)Net loss from discontinued operations $(187) $(4,884) $(834)Net income (loss) $3,822 $(17,681) $(1,568)Denominator: Common shares outstanding 16,626 16,151 17,737 Net Income (Loss) per common share - basic Net income (loss) from continuing operations $0.24 $(0.79) $(0.04)Net loss from discontinued operations $(0.01) $(0.30) $(0.05)Net income (loss) $0.23 $(1.09) $(0.09)Diluted Income (Loss) Per Share computation: Denominator: Common shares outstanding 16,626 16,151 17,737 Restricted shares subject to vesting 285 * * Common stock option grants 2 * * Total shares 16,913 16,151 17,737 Income (Loss) per common share - diluted Net income (loss) from continuing operations $0.24 $(0.79) $(0.04)Net loss from discontinued operations $(0.01) $(0.30) $(0.05)Net income (loss) $0.23 $(1.09) $(0.09) * As denoted by “*” in the table above, weighted average common stock option grants and restricted shares of 174,000 and 520,000 were excluded from thecalculations of diluted net loss per share for the years ended December 31, 2016 and 2015, respectively, since their effects are anti-dilutive.3. AcquisitionsBusiness combinations are accounted for using the acquisition method of accounting. In general, the acquisition method requires acquisition-date fair valuemeasurement of identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree. The measurement requirements result in therecognition of the full amount of acquisition-date goodwill, which includes amounts attributable to non-controlling interests. Neither the direct costsincurred to affect a business combination nor the costs the acquirer expects to incur under a plan to restructure an acquired business may be included as partof the business combination accounting. As a result, those costs are charged to expense when incurred, except for debt or equity issuance costs, which areaccounted for in accordance with other generally accepted accounting principles.Acquisition of Business from Nexgen Wireless, Inc.On February 27, 2015, the Company acquired substantially all of the assets of, and assumed certain specified liabilities of, Nexgen Wireless, Inc., an Illinoiscorporation (“Nexgen”), pursuant to an Asset Purchase Agreement dated as of February 27, 2015 (the “Nexgen APA”) among PCTEL, Inc., Nexgen, BhumikaThakkar 2012 Irrevocable Trust Number One, Bhumika Thakkar 2012 Irrevocable Trust Number Two, and Jigar Thakkar (collectively, such trusts andMr. Thakkar are the “Nexgen Shareholders”), and Bhumika Thakkar (collectively with Nexgen and the Nexgen Shareholders, the “Nexgen Parties”).44The business acquired from Nexgen was based in Schaumburg, Illinois. Nexgen provided a network analysis tool portfolio, and engineering services.Nexgen’s software product portfolio translates real-time network performance data into engineering actions to optimize operator performance and supportscrowd-based, cloud-based data analysis to enhance network performance. The business provides performance engineering, specialized staffing, and trendanalysis for carriers, infrastructure vendors, and neutral hosts for 2G, 3G, 4G, and LTE networks.The purchase consideration for the Nexgen business was $21.4 million, consisting of $18.25 million in cash paid at closing, $2.25 million held in escrow, anestimated $0.8 million excess working capital true-up to be paid in cash, and a contingency payment that was provisionally calculated with a fair value of$0.1 million. The contingent payment was dependent on the achievement of revenue-based goals pertaining to the acquired business for the periodcommencing on March 1, 2015 and ending on April 30, 2016. The purchase consideration paid in cash was provided from the Company’s existing cash. TheCompany incurred transaction costs of $0.8 million for the acquisition of Nexgen primarily related to investment banking, legal, and due diligenceconsulting services.The assets acquired from Nexgen consisted primarily of customer relationships, intellectual property (including trade names), working capital (accountsreceivable, work in process, accounts payable and accrued liabilities), and fixed assets. The Nexgen Parties are bound by non-competition covenants underthe Nexgen APA, which generally expire on February 27, 2019. The Company calculated the fair value of the customer relationships, trade names, and non-compete agreement assets acquired by using the present value of future discounted cash flows. For the new technology, the Company used the replacementcost method for its valuation. The intangible assets recorded have a weighted average amortization period of 5.0 years.As previously reported in the Company’s Current Report on Form 8-K filed with the SEC on April 14, 2015, on April 7, 2015, Samsung Electronics America,Inc., as successor in interest to Samsung Telecommunications America, LLC (“Samsung”), provided Nexgen and the Company with a final notice ofSamsung’s election to terminate, effective April 30, 2015, the Contractor Services Agreement, dated May 2, 2012 (the “CSA”), by and between Samsung andNexgen. On May 5, 2015, the Company and the Nexgen Parties entered into an Amendment to the Asset Purchase Agreement (the “Nexgen APAAmendment”) with the following principal terms: (a) Nexgen agreed to transfer to the Company previously excluded accounts receivable with an aggregatevalue of $0.8 million; (b) the aggregate amount potentially payable to the Nexgen Parties as contingent earnout consideration was reduced from $2.0 millionto $1.0 million; (c) the Company waived its right to seek additional indemnification from the Nexgen Parties for matters specified therein; (d) the partiesdirected that $2.25 million in escrowed funds potentially payable to the Nexgen Parties pursuant to the Nexgen APA be released to the Company;(e) Mr. Thakkar relinquished a portion of the equity awards previously granted to him; and (f) the Company released various potential claims against Nexgenand the Nexgen Parties with respect to the termination of the CSA and related matters. The measurement period for the revised earnout commenced onJanuary 1, 2016 and ended on December 31, 2016 and was dependent on software revenue-based goals pertaining to the acquired business. No additionalconsideration was earned by the Nexgen parties.45The amendment terms were accounted for consistent with accounting for legal settlements, as there was not a clear and direct link between the settlement andthe acquisition price. During June 2015, the Company received the cash from the escrow fund and the previously excluded accounts receivable. Theseamounts are recorded in Other Income, net in the condensed consolidated statements of operations. The Company assumed no liability for the contingentearnout consideration. Approximately 78% of Nexgen’s revenue was related to the U.S. Sprint cellular network, contracted either with Samsung or Sprintdirectly. During due diligence, the Company modeled a likely range of future revenue and cash flow based on the high degree of customer concentration risk.While the terminated CSA represented a material portion of that revenue, the resulting total future revenue and cash flow remained within the lower range ofthe forecast model. The Company utilized the lower end of the forecast range in evaluating the fair value of the acquired assets. At December 31, 2015, thevaluation yielded goodwill of $3.3 million, of which $1.5 million was related to the assembled workforce. The goodwill is deductible for income taxpurposes. The purchase accounting related to the valuation of certain tangible and intangible assets was complete as of December 31, 2015. The following isthe allocation of the purchase price for the assets from Nexgen at the date of the acquisition as of December 31, 2015: Tangible assets: Accounts receivable $5,358 Prepaid and other assets 49 Deferred cost of sales 24 Fixed assets 43 Total tangible assets 5,474 Intangible assets: Customer relationships 8,117 Trade names 972 Technology 3,332 Backlog 162 Non-compete 583 Goodwill 3,332 Total intangible assets 16,498 Total assets 21,972 Accounts payable 200 Accrued liabilities 341 Total liabilities 541 Net assets acquired $21,431 A reconciliation of the assets acquired with the cash paid at closing is as follows: Net assets acquired $21,431 Due Nexgen - contingent liability (91)Due Nexgen - working capital adjustment (840)Cash paid at closing $20,500 The Company did not have any material relationship with Mr. Thakkar and the other Nexgen Parties other than in respect of the Nexgen APA, the NexgenAPA Amendment and the transactions provided for therein. Effective November 2015, Mr. Thakkar resigned from his role as the Company’s Vice Presidentand Chief Technology Officer, Network Analytics.The Company assumed Nexgen’s existing lease for Nexgen’s offices in Schaumburg, Illinois. Effective March 2016, the Company exercised its right of earlytermination of the Schaumburg lease. The lease termination was effective as of August 31, 2016. The Company moved the employees from the Schaumburgoffice to its Bloomingdale office prior to the termination date. The Nexgen services acquired in 2015 were integrated into the existing RF Solutions servicesreporting unit and the data analytics products were integrated in the RF Solutions product reporting unit. The Company sold its Engineering Servicesbusiness to Gabe’s Construction in July 2017. 46The Company’s results for the year ended December 31, 2015 include the operating results for March through December 2015 for the business acquired fromNexgen. The following unaudited pro forma financial information gives effect to the acquisition of the Nexgen business as if the acquisition had taken placeon January 1, 2015. The pro forma financial information for Nexgen was derived from the historical accounting records of Nexgen. (unaudited)Year EndedDecember 31,2015 REVENUES $93,491 NET LOSS $(617)NET LOSS PER SHARE $(0.03) The pro forma results include an adjustment for intangible amortization of $0.3 million for the year ended December 31, 2015. The pro forma information ispresented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisition occurred on January 1,2015, nor is it necessarily indicative of the Company’s future consolidated results of operations or financial position. 4. Discontinued OperationsDuring the quarter ended June 30, 2017, the Company approved a plan to sell its Network Engineering Services business “Engineering Services”) and shiftits focus towards research and development driven radio frequency (“RF”) products. On July 31, 2017, the Company sold its Network Engineering Servicesbusiness to Gabe’s Construction Co., Inc. (“Gabe’s”). The Company filed a Form 8-K related to the disposition on August 4, 2017. The disposition of Engineering Services met the requirements for classification as held for sale during the quarter ended June 30, 2017 because thedisposition met all of the criteria outlined in the accounting guidance. Due to the significance of the results during the years ended December 31, 2016, 2015,and 2014, and because this disposition represented a strategic shift by the Company to focus on products, the disposition of Engineering Services alsoqualified as a discontinued operation for reporting purposes. As such, the Company reported the results of its Engineering Services business as discontinuedoperations beginning with the quarter ended June 30, 2017. In this annual report on Form 10-K, the results for Engineering Services are reported asdiscontinued operations for the years ended December 31, 2017, 2016 and 2015, respectively. All of the revenues and cost of revenues in discontinuedoperations related to services provided by the Company. The Company sold the fixed assets and backlog of the Network Engineering Services business to Gabe’s for $1.45 million. At closing, the Company received$1.4 million, consisting of $1.3 million for the sale of the business and $0.1 million related to future services. A pre-tax book gain of $0.5 million is includedin discontinued operations in the year ended December 31, 2017. The net pre-tax book gain includes proceeds from the sale of assets minus the book value ofthe assets disposed as well as severance and related payroll benefits for terminated employees. The book value of the assets was $0.6 million at the date ofclosing. On August 1, 2017, the Company terminated 25 employees, and Gabe’s hired 11 of these employees. The severance and related benefits for theterminated employees who were not subsequently hired by Gabe’s was $0.2 million. The income tax gain was $0.3 million, which included the tax value ofthe fixed assets and the remaining tax value for intangible assets no longer being used by the Company as of the sale to Gabe’s. The Company retainedworking capital of approximately $0.5 million, including accounts receivable, accounts payable, and accrued liabilities. Subsequent to the sale, theCompany has provided transition services for billing and accounts receivable collection. The Company expects to complete the transition by March 31,2018. There was no impairment loss recorded on the long-lived assets because the fair value of the assets less cost to sell was higher than the carrying value of theassets. At December 31, 2016, the assets held for sale consisted of the fixed assets of $0.6 million and prepaid expenses of the business of $0.1 million. Forthe balance sheet at December 31, 2016, the Company reclassified the fixed assets to noncurrent assets held for sale and the prepaid expenses to current assetsheld for sale. There were no liabilities classified as held for sale at December 31, 2016. 47The following table is a reconciliation of the assets classified as held for sale in the consolidate balance sheets. December 31, 2016 Prepaid expenses and other assets$50 Current assets held for sale 50 Fixed assets 776 Non-current assets held for sale$776 The details of the discontinued operations within the Statement of Operations are as follows: Years Ended December 31, 2017 2016 2015 Revenues$3,725 $11,707 $16,082 Cost of revenues 3,974 10,912 13,949 Gross profit (249) 795 2,133 Operating expenses: Sales and marketing 400 1,094 1,224 General and administrative 74 146 479 Amortization of intangible assets 0 1,120 1,521 Impairment of intangible assets 0 5,785 161 Restructuring expenses 19 430 21 Total operating expenses 493 8,575 3,406 Operating loss (742) (7,780) (1,273)Gain on sale 503 0 0 Net loss before income taxes (239) (7,780) (1,273)Benefit for income taxes (52) (2,896) (439)Net loss$(187) $(4,884) $(834) The details of the cash flows for discontinued operations are as follows: Years Ended December 31, . 2017 2016 2015 Cash flows from discontinued operations: Operating Activities: Net loss $(187) $(4,884) $(834)Gain on sale of assets (803) 0 0 Depreciation 197 521 475 Intangible amortization 0 1,120 1,521 Impairment of intangible assets 0 5,785 161 Deferred tax provision (53) (2,896) (439)Stock compensation 49 139 153 Prepaid expenses and other assets 2 (27) 0 Net cash used in operating activities $(795) $(242) $1,037 Investing Activities: Capital expenditures $(16) $(173) $(502)Proceeds from sale of assets 1,450 0 0 Net cash provided by (used) in investing activities $1,434 $(173) $(502) Net cash flows from discontinued operations: $639 $(415) $53548 The investing cash flows for the year ended December 31, 2017 includes the proceeds from the sale of assets to Gabe’s.The Company recognized revenue for engineering services under the completed performance method. Most engineering services were delivered in one weekor less, and revenue was generally recognized when engineering reports were completed and issued to the customer. For specialized staffing, the Companyrecognized revenue as services are provided to the customer. 5. Goodwill and Other Intangible AssetsGoodwill There were no changes to goodwill during 2016 or 2017. The $3.3 million of goodwill on the balance sheet was recorded in February 2015 as part of thepurchase accounting for the Nexgen acquisition and was assigned to the RF Solutions segment. There were no triggering events for the RF Solutionssegment during the year ended December 31, 2017. See the goodwill section of Note 1 for more information on the evaluation of goodwill.Intangible Assets The summary of other intangible assets, net is as follows: December 31, 2017 December 31, 2016 Accumulated Net Book Accumulated Net Book Cost Amortization Value Cost Amortization Value Customer contracts and relationships $16,880 $16,880 $0 $16,880 $16,880 $0 Patents and technology 10,114 8,670 1,444 10,114 8,004 2,110 Trademarks and trade names 4,834 4,335 499 4,834 3,985 849 Other 2,506 2,336 170 2,506 2,190 316 34,334 32,221 2,113 34,334 31,059 3,275 Assets related to discontinued operations 0 0 0 863 863 0 $34,334 $32,221 $2,113 $35,197 $31,922 $3,275 The Company amortizes intangible assets with finite lives on a straight-line basis over the estimated useful lives, which range from one to six years. Incontinuing operations, amortization expense was approximately $1.2 million for the years ended December 31, 2017 and 2016, respectively, and $2.5million for the year ended December 31, 2015. Amortization for technology assets is included in cost of revenues and amortization for all other intangibleassets is included in operating expenses. For the year ended December 31, 2017, $0.5 million of the intangible asset amortization was included in operatingexpenses and $0.7 million was included in cost of goods sold. For the year ended December 31, 2016, $0.5 million of the intangible asset amortization wasincluded in operating expenses and $0.7 million was included in cost of goods sold. For the year ended December 31, 2015, $1.9 million of the intangibleasset amortization was included in operating expenses and $0.6 million was included in cost of goods sold. In discontinued operations, amortization expense was approximately $1.1 million and $1.5 million for the years ended December 31, 2016 and 2015,respectively. There was no amortization expense in discontinued operations for the year ended December 31, 2017. The assigned lives and weighted average amortization periods by intangible asset category is summarized below: Intangible Assets Assigned Life WeightedAverageAmortizationPeriod Customer contracts and relationships 5 years 5.0 Patents and technology 5 to 6 years 5.1 Trademarks and trade names 5 to 6 years 5.6 Other 1 to 6 years 3.0 49The Company’s amortization expense for intangible assets is scheduled through the first quarter 2020. The Company’s amortization expense over the nextthree years is as follows: Fiscal Year Amount 2018 $1,084 2019 $885 2020 $144 6. RestructuringThe following table summarizes the Company’s restructuring accrual activity for the years ended December 31, 2015, 2016 and 2017: Lease Asset Intangible Continuing Discontinued Severance Terminations Disposals Assets Total Operations Operations Balance at January 1, 2015 $0 $0 $0 $0 $0 $0 $0 Restructuring expense 1,199 0 25 406 1,630 1,609 21 Payments/charges (962) 0 (25) (406) (1,393) (1,372) (21)Balance at December 31, 2015 237 0 0 0 237 237 0 Restructuring expense 254 338 72 0 664 234 430 Payments/charges (485) (148) (72) 0 (705) (471) (234)Balance at December 31, 2016 6 190 0 0 196 0 196 Restructuring expense (1) 20 0 0 19 0 19 Payments/charges (5) (94) 0 0 (99) 0 (99)Balance at December 31, 2017 $0 $116 $0 $0 $116 $0 $116 The restructuring liability is recorded on the balance sheet at December 31, 2017 and 2016 as follows: December 31,2017 December 31,2016 Accrued liabilities $35 $126 Long-term liabilities 81 70 $116 $196 Continuing OperationsDuring the first quarter 2016, the Company reduced headcount in its RF Solutions segment related to analytics. The Company recorded restructuringexpense in 2016 of $0.2 million in employee severance and payroll related costs. These expenses were paid during 2016. In 2015, the Company reduced U.S. headcount for both Connected Solutions and RF Solutions and the exited from the mobile towers product line. To loweroperating and production costs, the Company reduced headcount in engineering related to scanning receivers, in U.S. operations for Connected Solutions,and related to the mobile tower product line. The Company terminated 51 employees between June and December 2015 and recorded severance and otheremployee benefits of $1.2 million. We also recorded a charge of $0.4 million related to write-off of intangible assets related to the mobile towers productline. Mobile towers were primarily sold into the oil and gas exploration market in North America. The mobile towers were used to primarily provide acommunications link to an oil drilling site or lighting for a site under construction. The decline in oil prices caused a decline in related mobile towersales. The Company made the decision to exit the mobile tower product line due to the anticipated long-term effect on revenue from depressed oil prices, andone of the Company’s two tower suppliers filing for Chapter 7 bankruptcy in June 2015 as a result of the decline in sales. Mobile towers were not a keyelement of the Company’s antenna business within Connected Solutions. The Company’s exit from the mobile tower product line did not meet theaccounting guidance for discontinued operations. The exit from mobile towers did not constitute a strategic shift in our operations. 50Discontinued OperationsDuring the first quarter 2016, the Company reduced headcount related to Engineering Services and exited from its Colorado office in order to consolidatefacility space. The total restructuring expense in 2016 consisted of $0.1 million in employee severance and payroll related costs and $0.3 million for leaseterminations. The restructuring expense incurred for the lease termination included the remaining obligations under the lease, net of proceeds for asublease. The Company signed a sublease for the office space in the second quarter 2017. During 2017, the Company adjusted the net amount due for thelease. In July 2017, the Engineering Services business was sold to Gabe’s Construction and the activity related to Engineering Services is reported asdiscontinued operations. The obligation for the Colorado lease was retained by the Company. See Note 4 for additional information related to discontinuedoperations.The following table summarizes the minimum lease payments and sublease payments under the lease agreements for the Colorado office: Year Lease Payments Sublease Payments 2018 110 81 2019 122 88 2020 93 59 Total $325 $228 7. Income TaxesThe domestic and foreign components of the continuing income (loss) before (benefit) expense for income taxes were as follows: Years Ended December 31, 2017 2016 2015 Domestic $917 $(3,695) $(2,432)Foreign 621 2,674 1,236 $1,538 $(1,021) $(1,196) The (benefit) expense for income taxes of continuing operations consisted of the following: Years Ended December 31, 2017 2016 2015 Current: Federal $0 $(5) $30 State 34 12 91 Foreign 142 721 262 176 728 383 Deferred: Federal (1,720) 10,123 (781)State (878) 917 (107)Foreign (49) 8 43 (2,647) 11,048 (845)Total $(2,471) $11,776 $(462)51A reconciliation of the (benefit) expense for income taxes at the federal statutory rate compared to the expense (benefit) at the effective tax rate is as follows: Years Ended December 31 2017 2016 2015 Statutory federal income tax rate 34% 34% 34%State income tax, net of federal benefit 3% 11% 1%Tax effect of permanent differences -2% 0% -3%Change in valuation allowance -535% -1238% 0%Foreign Income Inclusion 37% 0% 0%Effective state rate change to deferred tax assets -11% 9% 0%Effective Federal rate change to deferred tax assets 326% 0% 0%Stock Compensation shortfalls 15% 0% 0%Release of FIN 48 liability -8% 0% 0%Foreign income taxed at different rates -6% 22% 6%Tax on repatriation -7% 0% -10%Research and development credits -6% 6% 11%Return to provision adjustments -2% 4% 0%Other 1% -1% 0% -161% -1153% 39% On December 22, 2017, the United States federal government enacted the Tax Act, marking a change from a worldwide tax system to a modified territorial taxsystem in the United States. As part of this change, the Tax Act, among other changes, provides for a Transition Tax on the accumulated unremitted foreignearnings and profits of foreign subsidiaries, a reduction of the U.S. federal corporate income tax rate from 34% to 21%, and an indefinite carryforward of netoperating losses (“NOL’s”) incurred in 2018 and future periods.In response to the enactment of the Tax Act in late 2017, the U.S. Securities and Exchange Commission issued SAB 118 to address situations where theaccounting is incomplete for certain income tax effects of the Tax Act upon issuance of an entity’s financial statements for the reporting period in which theTax Act was enacted. Under SAB 118, a company may record provisional amounts during a measurement period for specific income tax effects of the TaxAct for which the accounting is incomplete, but a reasonable estimate can be determined, and when unable to determine a reasonable estimate for any incometax effects, report provisional amounts in the first reporting period in which a reasonable estimate can be determined. The measurement period should notextend beyond one year.To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits ofrelevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company recorded provisional income tax expense of $0.6million related to the deemed repatriation of the accumulated unremitted earnings and profits of the Company’s foreign subsidiaries. The income for theTransition Tax is included as a component of the Company’s 2017 net operating loss included within deferred tax assets. This provisional amount was basedon information currently available, including estimated tax earnings and profits from foreign subsidiaries. For the reduction in the corporate tax rate, the Company recorded provisional income tax expense of $5.0 million associated with the remeasurement of theCompany’s gross deferred tax assets and an income tax benefit of $1.4 million associated with a remeasurement of the valuation allowance. While we wereable to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by state treatment of the deemed repatriation offoreign profits and the Company’s Transition Tax. The Company is continuing to gather additional information including refining the calculation of earnings and profits of foreign subsidiaries and iscontinuing to monitor the guidance from the I.R.S., states, and other government agencies to more precisely compute the amount of the Transition Tax andthe state income tax impact of the deemed distributions of the foreign earnings and profits and in order to complete the accounting for the effects of theTransition Tax in 2018. The analyses will continue throughout 2018 and is expected to be completed when the Company files its income tax returns in late2018.The Company recorded a net income tax benefit of $2.5 million for the year ended December 31, 2017, income tax expense of $11.8 million for the yearended December 31, 2016, and an income tax benefit of $0.5 million for the year ended December 31, 2015. The 2017 effective tax rate differed from theFederal rate of 34% because we decreased the valuation allowance for our U.S. deferred tax assets by $8.2 million, offsetting the net income tax expense of$5.0 million related to the remeasurement of net deferred tax assets, and the $0.6 million of income tax expense related to the Transition Tax. The adjustmentto the valuation allowance includes $1.4 million to reflect the new corporate tax rate of 21.0%.52The 2016 effective tax rate differed from the statutory Federal rate of 34% primarily due to adjustments to the deferred tax valuation allowance. TheCompany recorded adjustments of $12.6 million to the deferred tax valuation allowance in 2016. The 2015 effective tax rate differed from the statutoryFederal rate of 34% primarily due to research and development credits and incremental tax on repatriation of funds from Israel. Deferred Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes.The net deferred tax accounts consist of the following: December 31, 2017 2016 Deferred Tax Assets: Amortization $5,384 $9,313 Net operating loss carryforwards 3,658 4,029 Federal, foreign, and state credits 1,627 1,307 Inventory reserves 949 1,397 Stock compensation 845 1,902 Accrued vacation 257 461 Other 635 298 Gross deferred tax assets 13,355 18,707 Valuation allowance (5,234) (13,300)Net deferred tax asset 8,121 5,407 Deferred Tax Liabilities: Depreciation (387) (895)Net Deferred Tax Assets $7,734 $4,512 At December 31, 2017, the Company had $7.7 million of net deferred tax assets, consisting of domestic net deferred tax assets of $7.6 million and foreign netdeferred tax assets of $0.1 million. The net income tax expense related to the remeasurement of the deferred tax assets consisted of income tax expense of$5.0 million related to gross deferred tax assets and an income tax benefit of $1.4 million related to the valuation allowance. At December 31, 2016, theCompany had $4.5 million of net deferred tax assets, consisting of domestic net deferred tax assets of $4.4 million and foreign net deferred tax assets of $0.1million. The most significant balance within the net deferred tax assets at December 31, 2017 and 2016 relates to intangible assets acquired under purchaseaccounting which are amortized for tax purposes over 15 years, but for shorter periods under generally accepted accounting principles. The Company had avaluation allowance of $5.2 million and $13.3 million at December 31, 2017 and 2016, respectively. On a regular basis, the Company evaluates the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve theapplication of significant judgment. The Company considers multiple factors in its evaluation of the need for a valuation allowance. The Company’s netdeferred tax assets consist of assets related to net operating losses and credits as well as assets related to timing differences. The Company’s net operatinglosses and credits have a finite life primarily based on the 20-year carryforward rule for federal NOL’s generated as of December 31, 2017. The timingdifferences have a ratable reversal pattern over 13 years. Under the new rules enacted with the Tax Act, tax losses incurred in 2018 and future periods will notexpire, thereby extending the period by which the Company’s deferred tax assets can be realized. In continuing operations, the Company recorded pre-taxbook income for the year ended December 31, 2017, but for the cumulative three-year period, the Company has recorded pretax book losses of $0.7 million.As of December 31, 2017, the Company’s future projections for U.S. book income have increased due to the sale of Engineering Services in July 2017 andfrom growth in U.S. business for both segments compared to historical periods. The Company’s Engineering Services business incurred pre-tax book lossesof $7.8 million and $1.3 million for the years ended December 31, 2016 and 2015, respectively. For the deferred tax assets related to net operating losses and credits, the Company believes that it is more likely than not that these deferred tax assets willnot be realized based on the negative evidence of the cumulative loss and expiration of the NOL’s. For the Company’s deferred tax assets related to timingdifferences, the Company believes it is more likely than not that the deferred tax assets will be realized based on the positive evidence which includes a trendof higher future book income and the indefinite carryforwards for NOL’s incurred in 2018 and future periods. The valuation allowance at December 31, 2017reflects an allowance on its deferred tax assets related to expiring net operating losses and credits and no valuation allowance on its deferred tax assets relatedto timing differences. Based on its assessment, the Company reduced its valuation allowance for deferred tax assets by $8.2 million. This adjustment to thevaluation allowance includes $1.4 million to reflects the new corporate tax rate of 21.0%. The53analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditionsas well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions insubsequent periods could have a material effect on the valuation allowance.The valuation allowance at December 31, 2016 was primarily because the Company did not believe it would generate sufficient US taxable income to realizea significant portion of its deferred tax assets. In 2016, the Company recorded adjustments of $12.6 million to increase its valuation allowance for deferredtax assets. During 2016, the cumulative three-year US book income had turned to a loss. In addition, the Company reduced its domestic profit forecastbecause it lowered its long-term forecast for its services business and increased the contribution of the profits from its China subsidiary. Accounting for Uncertainty for Income TaxesA reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: December 31, 2017 2016 Beginning of period $870 $850 Addition related to tax positions in current year 13 20 Reversals for uncertain tax positions (183) 0 End of period $700 $870 Included in the balance of total unrecognized tax benefits at December 31, 2017 are potential benefits of $0.7 million that, if recognized, would affect theeffective rate on income before taxes. The Company does not anticipate that its unrecognized tax benefits significantly increase or decrease within the nexttwelve months.The Company recognizes all interest and penalties, including those relating to unrecognized tax benefits as income tax expense. There was no income taxexpense related to interest and penalties for the years ended December 31, 2017, 2016, and 2015.AuditsThe Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company’s U.S. federal tax returns remain subjectto examination for 2015 and subsequent periods. The Company’s state tax returns remain subject to examination for 2012 and subsequent periods. TheCompany’s foreign tax returns remain subject to examination for 2010 and subsequent periods.Summary of CarryforwardsAt December 31, 2017, the Company has a federal net operating loss carryforward of $12.7 million that expires between 2031 and 2037, state net operatingloss carryforwards of $14.2 million that expire between 2025 and 2037. Additionally, the Company has $1.0 million of federal research credits that expirebetween 2030 and 2037 and $1.5 million of state research credits with no expiration.Investment in Foreign OperationsIn 2015, the Company provided U.S. income taxes of $0.1 million related to the expected repatriation of earnings from its subsidiary in Israel. The Companyadjusted this amount to reflect the provisional amount calculated from the Transition Tax. The Company expects to liquidate this entity and repatriate theearnings in 2018. As of December 31, 2017, there are no business activities in this subsidiary. While the Company recorded income tax related to thedeemed dividend of earnings of its China subsidiary, the Company considers such earnings permanently reinvested. Upon repatriation of these earnings, theCompany would be subject to local withholding taxes. 548. Commitments and ContingenciesOperating LeasesThe Company has operating leases for facilities through 2025 and office equipment through 2021. The future minimum rental payments under these leases atDecember 31, 2017, are as follows: Year Amount 2018 1,134 2019 1,084 2020 486 2021 139 Thereafter 341 Future minimum lease payments $3,184 The rent expense under leases was approximately $0.9 million, $0.8 million, and $0.9 million for the years ended December 31, 2017, 2016, and 2015,respectively.Capital LeasesThe Company has capital leases for office and manufacturing equipment. As of December 31, 2017, and 2016, the equipment had cost, accumulateddepreciation, and a net book value as follows: December 31,2017 December 31,2016 Cost $453 $324 Accumulated Depreciation (195) (105)Net Book Value $258 $219 The following table presents future minimum lease payments under capital leases together with the present value of the net minimum lease payments due ineach year: Year Amount 2018 107 2019 90 2020 50 2021 38 2022 11 Total minimum payments required 296 Less: amount representing interest 19 Present value of net minimum lease payments $277 Warranty Reserve and Sales ReturnsThe Company allows its major distributors and certain other customers to return unused product under specified terms and conditions. The Company accruesfor product returns based on historical sales and return trends. The Company’s allowance for sales returns was $0.2 million at December 31, 2017 and 2016and is included within accounts receivable on the consolidated balance sheet.The Company offers repair and replacement warranties of primarily five years for antenna products and for scanning receivers. The Company’s warrantyreserve is based on historical sales and costs of repair and replacement trends. The warranty reserve was $0.4 million at December 31, 2017 and at December31, 2016, respectively and is included in other accrued liabilities in the accompanying consolidated balance sheets. Year Ended December 31, 2017 2016 Beginning balance $394 $348 Provisions for warranties 102 114 Consumption of reserves (114) (68)Ending balance $382 $39455 Contingent ConsiderationAs part of the acquisition of the business from Nexgen, the purchase consideration included a contingent payment that was dependent on the achievement ofrevenue-based goals pertaining to the acquired business for the period commencing on March 1, 2015 and ending on April 30, 2016. As part of the NexgenAPA Amendment, the parties revised the terms of the contingent consideration to software revenue-based goals pertaining to the acquired business. Themeasurement period for the revised earnout commenced on January 1, 2016 and ended on December 31, 2016. Based on the 2016 results, there was nocontingent liability at December 31, 2016. See Note 3 for information related to the Nexgen APA Amendment.9. Shareholders’ EquityCommon StockThe activity related to common shares outstanding for the years ended December 31st is as follows: (share data in thousands) 2017 2016 2015 Beginning of year 17,335 17,654 18,571 Issuance of common stock on exercise of stock options net of stock swaps 189 0 35 Issuance of restricted common stock and performance shares, net of cancellations 245 400 916 Issuance of common stock from executive bonuses 113 0 0 Issuance of common stock from purchase of Employee Stock Purchase Plan shares 140 146 134 Cancellation of stock for withholding tax for vested shares (215) (82) (59)Common stock buyback 0 (783) (1,943)End of Year 17,807 17,335 17,654 Preferred StockThe 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 December31, 2017, and 2016, no shares of preferred stock were issued or outstanding.10. Stock-Based CompensationStock PlansCommon Stock Reserved for Future IssuanceAt December 31, 2017, the Company had 3,670,085 shares of common stock that could potentially be issued under various stock-based compensation plansdescribed in this footnote. A summary of the reserved shares of common stock for future issuance are as follows: December 31, 2017 2016 PCTEL Stock Plan 3,298,876 3,937,606 2001 Stock Plan 19,600 31,110 Employee Stock Purchase Plan 351,609 491,210 Total shares reserved 3,670,085 4,459,926 These amounts include the shares available for grant and the options outstanding.PCTEL Stock PlanThe Board of Directors may grant to employees, directors and consultants restricted stock, options to purchase common stock, or stock purchase rights atterms and prices determined by the Board under the PCTEL Stock Plan (“Stock Plan”) which expires in 2025. Under the Stock Plan, restricted share awardsare deducted from the shares available in the Stock Plan at a ratio of 1.78 stock option awards are deducted from the shares available in the Stock Plan at aratio of 1.0. As of December 31, 2017, options to acquire 450,884 shares were outstanding and a total of 2,847,992 shares remain available for future grants.562001 Non-Statutory Stock Option PlanOptions granted under the 2001 Plan are exercisable at any time within ten years from the date of grant or within ninety days of termination ofemployment. In June 2010, the stockholders approved certain changes to the PCTEL Stock Plan that included the following: (i) there would be no additionalgrants from the 2001 Stock Plan; and (ii) any shares returned (or that would have otherwise returned) to the 2001 Plan would be added to the shares ofcommon stock authorized for issuance under the PCTEL Stock Plan. The 2001 Plan terminated in August 2011, and options to acquire 19,600 shares wereoutstanding at December 31, 2017.Employee Stock Purchase PlanUnder the Company’s ESPP, eligible employees can purchase common stock at the lower of 85% of the fair market value of the common stock on the first orlast day of each offering period. The expiration date of the ESPP is the date that all shares authorized have been granted. As of December 31, 2017, theCompany had 351,609 shares remaining that can be issued under the Purchase Plan.Stock-Based Compensation ExpenseThe consolidated statements of operations include $3.0 million, $3.8 million, and $1.7 million of stock compensation expense in continuing operations forthe years ended December 31, 2017, 2016, and 2015, respectively. The Company did not capitalize any stock compensation expense during the years endedDecember 31, 2017, 2016, and 2015.The stock-based compensation expense by type is as follows: Years Ended December 31, 2017 2016 2015 Service-based awards $2,785 $2,910 $1,674 Stock bonuses 0 609 0 Stock option and employee purchase plans 220 328 490 Performance-based shares and stock options 0 0 (452)Total continuing operations 3,005 3,847 1,712 Discontinued operations 49 139 153 Total $3,054 $3,986 $1,865 The stock-based compensation is reflected in the consolidated statements of operations as follows: Years Ended December 31, 2017 2016 2015 Cost of revenues $268 $281 $250 Research and development 517 651 419 Sales and marketing 474 617 212 General and administrative 1,746 2,298 831 Total continuing operations 3,005 3,847 1,712 Discontinued operations 49 139 153 Total $3,054 $3,986 $1,865 Restricted Stock - Serviced Based The Company grants service-based restricted shares as employee incentives. When service-based restricted stock is granted to employees, the Companyrecords deferred stock compensation within additional paid-in capital, representing the fair value of the common stock on the date the restricted shares aregranted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restrictedshares. These grants vest over various periods. During the first quarter 2017, the Company issued 285,000 service-based restricted stock awards toemployees that cliff vest in two years. During the years ended December 31, 2017, 2016 and 2015, the Company awarded annual service-based restrictedstock to eligible employees as long-term incentives.57The following table summarizes service-based restricted stock activity for the years ended December 31st: 2017 2016 2015 Unvested Restricted Stock Awards Shares WeightedAverageFair Value Shares WeightedAverageFair Value Shares WeightedAverageFair Value Beginning of year 1,120,960 $5.83 1,050,172 $6.11 343,836 $7.41 Shares awarded 337,786 6.13 457,300 5.60 1,033,776 6.12 Shares vested (527,657) 6.27 (242,585) 6.43 (193,751) 7.20 Shares cancelled (102,513) 5.92 (143,927) 6.20 (133,689) 7.90 End of year 828,576 $5.66 1,120,960 $5.83 1,050,172 $6.11 The intrinsic values of service-based restricted shares that vested were $3.3 million, $1.1 million, and $1.5 million during the years ended December 31,2017, 2016, and 2015, respectively.As of December 31, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock was approximately $2.7million, to be recognized through 2020 over a weighted average period of 1.4 years.Restricted Stock Units – Service BasedThe Company grants service-based restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these unitsare converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units.The following summarizes the service-based restricted stock unit activity during the year ended December 31st: 2017 2016 2015 Unvested Restricted Stock Units Shares WeightedAverageFair Value Shares WeightedAverageFair Value Shares WeightedAverageFair Value Beginning of year 36,388 $5.57 22,725 $5.65 4,600 $7.47 Units awarded 5,000 5.97 15,000 5.61 22,350 5.62 Units vested/Shares awarded (9,588) 6.13 (1,337) 7.25 (2,475) 7.00 Units cancelled 0 0.00 0 0.00 (1,750) 7.91 End of year 31,800 $5.47 36,388 $5.57 22,725 $5.65 The intrinsic values of service-based restricted stock units that vested were $60, $7, and $20 during the years ended December 31, 2017, 2016, and 2015,respectively.The Company recorded stock compensation expense of $65, $58, and $22 for restricted stock units in the years ended December 31, 2017, 2016, and 2015,respectively. As of December 31, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was$0.1, million to be recognized through 2020 over a weighted average period of 0.9 years.Stock OptionsThe Company grants stock options to purchase common stock as long-term incentives. The Company issues stock options with exercise prices no less thanthe fair value of the Company’s stock on the grant date. Employee options are subject to installment vesting typically over a period of four years. Stockoptions may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may beprovided in the related stock option agreement. The Company grants stock options with a seven-year life. No stock options were granted during2017. During the years ended December 31, 2016, and 2015, the Company awarded stock options to certain new employees for incentive purposes.58A summary of the Company’s stock option activity for the years ended December 31st is as follows: 2017 2016 2015 OptionsOutstanding WeightedAverageExercisePrice OptionsOutstanding WeightedAverageExercisePrice OptionsOutstanding WeightedAverageExercisePrice Beginning of Year 825,561 $7.30 1,220,442 $7.72 1,357,928 $7.81 Options granted 0 0.00 26,000 4.95 185,000 7.61 Options exercised (211,044) 7.09 0 0.00 (35,134) 7.25 Options forfeited (103,381) 8.24 (86,061) 7.36 (141,722) 7.46 Options cancelled/expired (40,652) 6.70 (334,820) 8.64 (145,630) 8.75 End of Year 470,484 $7.24 825,561 $7.30 1,220,442 $7.72 Exercisable 458,698 $7.28 628,333 $7.40 764,546 $7.97 During the year ended December 31, 2017, the Company received proceeds of $1.5 million from the exercise of 211,044 options. The intrinsic value of theseoptions exercised was $128. During the year ended December 31, 2015, the Company received proceeds of $0.3 million from the exercise of 35,134options. The intrinsic value of these options exercised was $34. There were no exercises during the year ended December 31, 2016.The range of exercise prices for options outstanding and exercisable at December 31, 2017, was $5.00 to $10.46. The following table summarizesinformation about stock options outstanding under all stock option plans: Options Outstanding Options Exercisable Range ofExercise Prices NumberOutstanding WeightedAverageContractualLife (Years) Weighted-AverageExercisePrice NumberExercisable WeightedAverageExercisePrice $ 5.00 — $ 6.00 13,500 5.73 $5.05 4,155 $5.05 6.00 — 7.00 7,489 1.78 6.67 7,489 6.67 7.00 — 8.00 424,445 2.29 7.20 423,119 7.20 8.00 — 9.00 7,500 2.64 8.25 6,385 8.28 9.00 — 10.00 16,150 0.30 9.62 16,150 9.62 10.00 — 10.46 1,400 0.58 10.46 1,400 10.46 $ 5.00 — $ 10.46 470,484 2.31 $7.24 458,698 $7.28 The weighted average contractual life and intrinsic value at December 31, 2017, was the following: WeightedAverageContractualLife (years) IntrinsicValue Options Outstanding 2.31 $116 Options Exercisable 2.23 $94 The intrinsic value is based on the share price of $7.37 at December 31, 2017. The fair values of stock option awards are estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes optionvaluation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Inaddition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected optionlife. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in thesubjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of thefair value of the employee stock options.The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate is based onthe U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The Company calculates the volatility based on afive-year historical period of the Company’s stock price. The expected life used for options granted is based on historical data of employee exerciseperformance. The Company records expense based on the grading vesting method.59As of December 31, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $36,to be recognized through 2020 over a weighted average period of 1.2 years.Stock BonusesFor the Company’s 2016 short-term incentive plan (“STIP”), executives were paid in the Company’s stock. The value of the shares was based on percentagesachieved related to the 2016 metrics and the number of shares was based on the value as of March 3, 2017 the date the Compensation Committee approvedthe payments under the STIP. The Company recorded $0.6 million of compensation expense based on the stock bonuses earned by the executiveemployees. The shares were awarded in March 2017. 100% of the Company’s 2017 STIP is payable in cash. Performance-based Equity Awards The Company granted performance awards to executives in 2014 and 2015 as long-term incentives. These long-term incentive plans (“LTIPs”) had four-yearrevenue goals to encourage long-term growth with a penalty if certain profit levels were not maintained. Each four-year period was divided into two interimperiods (each an “Interim Period”). The LTIPS were designed so that at the end of each Interim Period, the participants would receive an equity award if theCompany’s actual revenue at the conclusion of the Interim Period exceeds the Interim Period threshold. The equity award increased in a linear progression asthe Company’s revenue for the Interim Period increased. The fair value of these performance awards was calculated based on the stock price on the date ofgrant and stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. The following summarizes the performance unit activity during the years ended December 31st: 2017 2016 2015 Unvested Performance Units - at Target Awards WeightedAverageFair Value Awards WeightedAverageFair Value Awards WeightedAverageFair Value Beginning of Year 296,500 $7.95 555,000 $7.78 380,000 $8.47 Units awarded 0 0.00 0 0.00 431,000 7.49 Units vested 0 0.00 0 0.00 (13,202) 7.98 Units cancelled (186,000) 8.22 (258,500) 7.58 (242,798) 8.34 End of Year 110,500 $7.49 296,500 $7.95 555,000 $7.78 Under the 2015 LTIP, the four-year period was divided into two interim periods (each an “Interim Period”), the first of which ended on December 31, 2016,and the second of which will end on December 31, 2018. At the award date, the number of shares that could be earned collectively by all participants attarget was 424,000 The Company did not meet the revenue threshold for the year ended December 31, 2016 and does not expect the revenue threshold to bemet for the year ended December 31, 2018.Under the 2014 LTIP, the four-year period was divided into two interim periods (each an “Interim Period”), the first of which ended on December 31, 2015,and the second of which ended on December 31, 2017. The number of shares that could be earned collectively by all participants at target was 380,000. TheCompany did not meet the revenue thresholds for the years ended December 31, 2015 or 2017. The performance-based awards cancelled during 2017 consisted of 102,500 awards that were not earned related to the 2017 Interim Period and 83,500 awardsrelated to terminated employees. The awards cancelled during 2016 consisted of 158,500 awards that were not earned related to the 2016 Interim Period and100,000 awards for terminated employees. The units cancelled during 2015 consisted of 162,000 awards that did not vest related to the 2015 Interim Periodand 80,798 awards for terminated employees. The number of awards presented in the table above is based on achievement at target. The intrinsic value of performance units that vested during the yearended December 31, 2015 was $82.60Employee Stock Purchase PlanThe following summarizes the Purchase Plan activity during the years ended December 31st: 2017 2016 2015 Shares WeightedAverageFair Valueat GrantDate Shares WeightedAverageFair Valueat GrantDate Shares WeightedAverageFair Valueat GrantDate Outstanding, beginning of year 0 $0.00 0 $0.00 0 $0.00 Granted 139,601 1.41 145,948 1.16 133,607 1.35 Vested (139,601) 1.41 (145,948) 1.16 (133,607) 1.35 Outstanding, end of year 0 $0.00 0 $0.00 0 $0.00 Based on the 15% discount and the fair value of the option feature of this plan, the ESPP is considered compensatory. Compensation expense is calculatedusing the fair value of the employees’ purchase rights under the Black-Scholes model. The Company recognized compensation expense of $0.2 million forthe years ended December 31, 2017, 2016 and 2015, respectively.The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using thefollowing assumptions: Employee Stock Purchase Plan 2017 2016 2015 Dividend yield 3.5% 3.7% 3.4%Risk-free interest rate 1.1% 0.8% 0.6%Expected volatility 34% 33% 34%Expected life (in years) 0.5 0.5 0.5 The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate wasbased on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The dividend yield rate is calculated bydividing the Company’s annual dividend by the closing price on the grant date. The Company calculates the volatility based on a five-year historical periodof the Company’s stock price. The expected life used is based on the offering period.Board of Director Equity AwardsThe Company grants equity awards under the Stock Plan to members of its Board of Directors for an annual retainer and for committee services in shares ofthe Company’s stock. These awards vest immediately. New directors receive service-based restricted shares which vest over three years. Since there were nonew directors in 2017, no service-based restricted shares were awarded for directors in 2017. During the year ended December 31, 2017, the Company issued52,786 shares of the Company’s stock with a fair value of $0.4 million which vested immediately to the directors. During the year ended December 31, 2016,the Company issued 85,374 shares of the Company’s stock with a fair value of $0.4 million which vested immediately to the directors. During the year endedDecember 31, 2015, the Company issued 37,379 shares of the Company’s stock with a fair value of $0.3 million which vested immediately to the directors. Employee Withholding Taxes on Stock AwardsFor ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stockawards for the value of the statutory withholding taxes. For each individual receiving a share award, the Company redeems the shares it computes as thevalue for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $1.3million during the year ended December 31, 2017, and $0.4 million during the years ended December 31, 2016 and 2015.6111. Stock RepurchasesAll share repurchase programs are authorized by the Company’s Board of Directors. On April 20, 2015, the Board of Directors authorized the repurchase of500,000 shares of stock under an existing share repurchase program. Additionally, on August 10, 2015, the Board of Directors authorized repurchase of anadditional 1,300,000 shares under the existing share repurchase program, for a total of 2,726,000 shares. The Company repurchased 783,212 shares at anaverage price of $5.23 during the year ended December 31, 2016. The Company repurchased 1,942,788 shares at an average price of $6.22 during the yearended December 31, 2015. At December 31, 2017, the Company had no shares remaining that could be repurchased under these programs.The following table is a summary of the share repurchases for the years ended December 31st: Year Shares Amount Avg priceper Share 2015 1,942,788 $12,079 $6.22 2016 783,212 $4,095 $5.23 12. Segment, Customer and Geographic InformationPCTEL operates in two segments for reporting purposes. The Company’s Connected Solutions segment includes its antenna and engineered site solutions.Its RF Solutions segment includes its scanning receivers and other test tools. Each of the segments has its own segment manager as well as its ownengineering, business development, sales and marketing, and operational general and administrative functions. All of the Company’s accounting andfinance, human resources, IT and legal functions are provided on a centralized basis through the corporate function. The Company manages its balance sheetand cash flows centrally at the corporate level, with the exception of inventory which is managed at the segment level. Each of the segment managers reportsto and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for thesegment. The Company’s chief operating decision maker uses operating profits and identified assets for the Connected Solutions and RF Solutions segmentsto make operating decisions.The following tables are the segment operating profits and cash flow information for the years ended December 31, 2017, 2016 and 2015, and the segmentbalance sheet information as of December 31, 2017 and December 31, 2016: Year Ended December 31, 2017 ConnectedSolutions RF Solutions Corporate Total REVENUES $68,612 $23,019 $(194) $91,437 GROSS PROFIT $22,439 $16,354 $18 $38,811 OPERATING INCOME (LOSS) FOR CONTINUINGOPERATIONS $8,304 $4,177 $(11,048) $1,433 Depreciation $1,734 $558 $275 $2,567 Intangible amortization $155 $1,007 $0 $1,162 Capital expenditures $1,706 $521 $439 $2,666 As of December 31, 2017 ConnectedSolutions RF Solutions Corporate Total Accounts receivable $12,961 $5,466 $0 $18,427 Inventories $11,418 $1,338 $0 $12,756 Long-lived assets: Property and equipment, net $10,161 $1,300 $908 $12,369 Goodwill $0 $3,332 $0 $3,332 Intangible assets, net $78 $2,035 $0 $2,113 Deferred tax assets, net $0 $0 $7,734 $7,734 Other noncurrent assets $0 $0 $72 $72 62 Year Ended December 31, 2016 ConnectedSolutions RF Solutions Corporate Total REVENUES $65,763 $19,419 $(176) $85,006 GROSS PROFIT 20,706 13,690 15 34,411 OPERATING INCOME (LOSS) FROM CONTINUINGOPERATIONS $7,804 $1,042 $(9,979) $(1,133)Depreciation $1,720 $660 $249 $2,629 Intangible amortization $192 $1,006 $0 $1,198 Capital expenditures $1,192 $174 $373 $1,739 As of December 31, 2016 ConnectedSolutions RF Solutions Corporate Total Accounts receivable $12,731 $6,370 $0 $19,101 Inventories $12,301 $2,141 $0 $14,442 Long-lived assets: Property and equipment, net $9,756 $1,346 $731 $11,833 Goodwill $0 $3,332 $0 $3,332 Intangible assets, net $233 $3,042 $0 $3,275 Deferred tax assets, net $0 $0 $4,512 $4,512 Other noncurrent assets $0 $0 $36 $36 Year Ended December 31, 2015 ConnectedSolutions RF Solutions Corporate Total REVENUES $69,579 $21,173 $(219) $90,533 GROSS PROFIT 20,426 14,670 32 35,128 OPERATING INCOME (LOSS) FROM CONTINUINGOPERATIONS $5,040 $975 $(10,498) $(4,483)Depreciation $1,706 $633 $271 $2,610 Intangible amortization $850 $1,649 $0 $2,499 Capital expenditures $954 $495 $151 $1,600 All revenues and cost of revenues in continuing operations for the years ended December 31, 2017, 2016 and 2015 relate to products. All revenues and costof revenues included in discontinued operations relate to services. See Note 4 for the revenues and cost of revenues in discontinued operations for the yearsended December 31, 2017, 2016 and 2015. The Company’s revenue to customers by geographic location, as a percent of total revenues, is as follows: Years Ended December 31, Region 2017 2016 2015 Asia Pacific 17% 22% 9%Europe, Middle East, & Africa 9% 9% 11%Other Americas 5% 6% 6%Total Foreign sales 31% 37% 26%Total Domestic sales 69% 63% 74% 100% 100% 100% The following tables represents the customer that accounted for 10% or more of revenues during the years ended December 31, 2017, 2016 and 2015 Years Ended December 31, Revenues 2017 2016 2015 Customer A 9% 11% 3% 63The following table represents the customers that accounted for 10% or more of total trade accounts receivable at December 31, 2017 and 2016. As of December 31, Trade Accounts Receivable 2017 2016 Customer A 7% 17% Customer B 12% 8% The long-lived assets by geographic region are as follows: December 31, 2017 2016 2015 United States $23,938 $22,557 $23,741 All Other 1,682 1,207 994 $25,620 $23,764 $24,735 13. Benefit PlansThe Company’s 401(k) plan covers all of the U.S. employees beginning the first of the month following the first 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 Companymay make discretionary contributions to the 401(k) plan. The Company also contributes to various defined contribution retirement plans for foreignemployees.The Company’s contributions to retirement plans were as follows: Years Ended December 31, 2017 2016 2015 PCTEL, Inc. 401(k) profit sharing plan - US employees $627 $577 $644 Defined contribution plans - foreign employees 446 378 345 Total $1,073 $955 $989 14. Quarterly Data (Unaudited) Quarters Ended, March 31, June 30, September 30, December 31, 2017 2017 2017 2017 Revenues $22,970 $21,501 $23,665 $23,301 Gross profit 9,454 8,962 10,150 10,245 Operating income (loss) 24 (339) 893 855 Income (loss) before income taxes 50 (325) 927 886 Net income (loss) from continuing operations 184 (185) 721 3,289 Net income (loss) from discontinued operations (214) (168) 234 (39)Net income (loss) $(30) $(353) $955 $3,250 Net income (loss) per share from continuing operations: Basic $0.01 $(0.01) $0.04 $0.19 Diluted $0.01 $(0.01) $0.04 $0.19 Net income (loss) per share from discontinued operations: Basic $(0.01) $(0.01) $0.02 $0.00 Diluted $(0.01) $(0.01) $0.02 $0.00 Net income (loss) per share: Basic $0.00 $(0.02) $0.06 $0.19 Diluted $0.00 $(0.02) $0.06 $0.19 Weighted Average Shares: Basic 16,340 16,534 16,757 16,926 Diluted 16,340 16,534 17,065 17,299 64 Quarters Ended, March 31, June 30, September 30, December 31, 2016 2016 2016 2016 Revenues $19,183 $21,308 $20,892 $23,623 Gross profit 7,459 8,934 8,255 9,763 Operating income (loss) (1,290) (86) (300) 543 Income (loss) income taxes (1,284) (78) (265) 606 Net income (loss) from continuing operations (538) (7,781) 89 (4,567)Net income (loss) from discontinued operations (918) (3,292) 86 (760)Net income (loss) $(1,456) $(11,073) $175 $(5,327)Net income (loss) per share from continuing operations: Basic $(0.03) $(0.49) $0.01 $(0.28)Diluted $(0.03) $(0.49) $0.01 $(0.28)Net income (loss) per share from discontinued operations: Basic $(0.06) $(0.20) $0.00 $(0.05)Diluted $(0.06) $(0.20) $0.00 $(0.05)Net income (loss) per share: Basic $(0.09) $(0.69) $0.01 $(0.33)Diluted $(0.09) $(0.69) $0.01 $(0.33)Weighted Average Shares: Basic 16,324 15,979 16,106 16,194 Diluted 16,324 15,979 16,245 16,194 The quarterly information includes reclassifications between revenues, cost of revenues and operating expenses for discontinued operations. 15. Related PartiesThe Company leased its Pryor, Oklahoma facility from American Tradition Custom Steel LLC, of which Aaron Jarvis is a member. Mr. Jarvis was theoperations manager for the Company’s mobile tower business. Mr. Jarvis was separated from employment with the Company in September 2015, and thelease terminated on October 31, 2015. Mr. Jarvis provided warranty support as a contractor for the mobile towers product line through October, 2016,because all warranty periods ended by then. There were no other related party transactions.16. Accumulated Other Comprehensive IncomeAccumulated other comprehensive income (loss) of $54 and $(382) at December 31, 2017 and December 31, 2016, respectively, consists of foreign currencytranslation adjustments.17. Subsequent EventsThe Company evaluates subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available to beissued in order to determine whether the subsequent events are to be recorded and/or disclosed in the Company’s financial statements and footnotes. Thefinancial statements are considered to be available to be issued at the time that they are filed with the SEC. There were no subsequent events or transactionsthat required recognition or disclosure in the consolidated financial statements. 65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 ProceduresOur management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controlsand procedures as defined by Rule 13a-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures areeffective to ensure that information we are required to disclose in our reports that we file or submit under Securities Exchange Act of 1934 (i) is recorded,processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management,including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.(b) Management’s Report on Internal Control Over Financial ReportingOur management 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. Our internal control over financial reporting is a process designed by, or under the supervision of, ourprincipal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management, and otherpersonnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles (GAAP) and 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 ofPCTEL; •provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withGAAP, and that receipts and expenditures of PCTEL are being made only in accordance with authorizations of management and directors ofPCTEL; and •provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of PCTEL's assets thatcould have a material effect on the financial statements.Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making its assessment of internalcontrol over financial reporting, management used the criteria described in “2013 Internal Control – Integrated Framework” issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO).Based on our management’s assessment of internal control over financial reporting, management has concluded that, as of December 31, 2017, our internalcontrol over financial reporting was effective to provide assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles.Grant Thornton LLP, our independent registered public accounting firm, has audited and issued their report on our internal control over reporting, which isincluded herein.(c) Changes in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, orare likely to materially affect, our internal control over financial reporting.Item 9B: Other InformationNone.66PART IIIItem 10: Directors, Executive Officers and Corporate GovernanceThe information with respect to the directors. the board committees of the Company, and director compensation required to be included pursuant to this Item10 is included in PCTEL’s proxy statement for the 2018 Annual Meeting of Stockholders under the captions “Proposal #1 Election of Directors” and“Corporate Governance” which will be filed with the SEC pursuant to Rule 14a-6 under the Exchange Act in accordance with applicable SEC deadlines andis incorporated in this Item 10 by reference.The information regarding executive compensation in response to this item will be included in PCTEL’s proxy statement for the 2018 Annual Meeting ofStockholders and incorporated by reference herein under the captions “Compensation Discussion and Analysis”- Compensation and Philosophy; -Overviewand Responsibilities of the Compensation Committee; -Annual Compensation Process; -Summary of Principal Elements of Executive Compensation; -2018Executive Compensation; -General Terms of Equity Grants. Information included under the caption “Compensation Committee Report” in PCTEL’s proxystatement for the 2018 Annual Meeting of Stockholders is incorporated by reference herein; however, this information shall not be deemed to be “solicitingmaterial” or to be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or the liabilities of Section 18 of the SecuritiesExchange Act of 1934.Item 11: Executive CompensationThe information required by Item 402, 407(e)(4) and Item 407(e)(5) of Regulation S-K will be included under the captions “Compensation Discussion andAnalysis,” “Executive Compensation and Other Matters,” “Compensation Committee Interlocks” and “Compensation Committee Report,” respectively, inPCTEL’s proxy statement for the 2018 Annual Meeting of Stockholders and is incorporated by reference herein.Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information regarding security ownership will be included under the caption “Security Ownership of Certain Beneficial Owners and Management” inPCTEL’s proxy statement for the 2018 Annual Meeting of Stockholders and is incorporated by reference herein.The information regarding securities authorized for issuance under equity compensation plans is included under the caption “Equity Compensation PlanInformation” in PCTEL’s proxy statement for the 2018 Annual Meeting of Stockholders and is incorporated by reference herein.Item 13: Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference to the sections entitled "Certain Relationships and Related Person Transactions" and“Corporate Governance” which will be contained in PCTEL’s proxy statement for the 2018 Annual Meeting of Stockholders and is incorporated by referenceherein.Item 14: Principal Accountant Fees and ServicesInformation regarding principal accounting fees and services is under the caption “Summary of Fees” of Proposal #3 in PCTEL’s proxy statement for the2018 Annual Meeting of Stockholders and is incorporated by reference herein.Information with respect to audit committee pre-approval policies and procedures required to be included pursuant to this Item 14 is included in the 2018Proxy Statement and is incorporated in this Item 14 by reference.67PART IVItem 15: Exhibits and Financial Statement Schedules(a) (1) Financial StatementsThe Consolidated Financial Statements are included in Part II, Item 8 of this Annual Report on Form 10-K on pages 29 to 68.(a) (2) Financial Statement SchedulesThe 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, 2017.All other information called for this Item are omitted because they are inapplicable, or the required information is shown in the financial statements, or notesthereto, included herein.PCTEL, INC.SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS(in thousands) Balance at Charged to Balance at Beginning Costs and Addition End of of Year Expenses (Deductions) Year Year Ended December 31, 2015: Allowance for doubtful accounts $121 205 (12) $314 Warranty reserves $304 60 (16) $348 Deferred tax asset valuation allowance $633 26 0 $659 Year Ended December 31, 2016: Allowance for doubtful accounts $314 (40) (1) $273 Warranty reserves $348 114 (68) $394 Deferred tax asset valuation allowance $659 12,641 0 $13,300 Year Ended December 31, 2017: Allowance for doubtful accounts $273 55 (9) $319 Warranty reserves $394 102 (114) $382 Deferred tax asset valuation allowance $13,300 (8,236) 170 $5,234 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, ornotes thereto, included herein.(a) (3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K. We will furnish at no cost a copy of any exhibitfiled with or incorporated by reference into this Annual Report on Form 10-K. Oral or written requests for copies of any exhibits should be directed to us,Attn: Corporate Secretary.Item 16: Form 10-K SummaryNot applicable.68 Exhibit No. Description Reference 2.1.1 Asset Purchase Agreement dated July 9, 2012, by and amongPCTEL, Inc., TelWorx Communications, LLC, and other parties. Incorporated by reference to Exhibit Number 2.1 filed with theRegistrant's Current Report on Form 8-K filed July 13, 2012. 2.1.2 Amendment to Asset Purchase Agreement dated March 27, 2013,by and among PCTEL, Inc., PCTelWorx Enterprises, LLC f/k/aTelWorx Communications, LLC and the other parties thereto. Incorporated by reference to Exhibit Number 10.1 filed with theRegistrant’s Current Report on Form 8-K dated March 27, 2013. 2.2 Asset Purchase Agreement dated February 27, 2015, by and amongPCTEL, Inc., Nexgen Wireless, Inc. and other parties thereto. Incorporated by reference to Exhibit Number 2.1 filed with theRegistrant's Current Report on Form 8-K filed March 4, 2015. 2.2.1 Amendment to Asset Purchase Agreement dated as of May 5, 2015by and among, PCTEL, Inc., Nexgen Wireless, Inc. and otherparties thereto. Incorporated by reference to Exhibit Number 2.1 filed with theRegistrant's Quarterly Report on Form 10-Q filed March 31, 2015. 2.3 Asset Purchase Agreement, dated July 31, 2017, by and betweenPCTEL and Gabe’s Construction Co., Inc. Incorporated by reference to Exhibit Number 10.1 filed with theRegistrant’s Current Report on Form 8-K filed on August 4, 2017 3.1 Amended and Restated Certificate of Incorporation of PCTEL, Inc.(P) Incorporated by reference to Exhibit Number 3.2 filed with theRegistrant's Registration Statement on Form S-1 (File No. 333-84707). 3.2 Amended and Restated Bylaws of the Registrant Incorporated by reference to Exhibit Number 3.3 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2001. 4.1 Specimen common stock certificate (P) Incorporated by reference to Exhibit Number 4.1 filed with theRegistrant's Registration Statement on Form S-1 (File No. 333-84707). 10.1 * Form of Indemnification Agreement between PCTEL, Inc. and eachof its directors and officers (P) Incorporated by reference to Exhibit Number 10.1 filed with theRegistrant's Registration Statement on Form S-1 (File No. 333-84707). 10.2 * Employment Agreement between Jeffrey A. Miller and PCTEL,Inc., dated November 7, 2001 Incorporated by reference to Exhibit Number 10.25 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2001. 10.2.1 * Letter agreement dated August 22, 2006 amending theEmployment Agreement, by and between PCTEL, Inc. and JeffreyA. Miller Incorporated by reference to Exhibit Number 10.25.1 filed with theRegistrant's Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2006. 10.3 * Employment Agreement between John Schoen and the Registrant,dated November 12, 2001 Incorporated by reference to Exhibit Number 10.26 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2001. 10.3.1 * Letter agreement dated August 22, 2006 amending theEmployment Agreement, by, and between PCTEL, Inc. and JohnSchoen Incorporated by reference to Exhibit Number 10.26.1 filed with theRegistrant's Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2006. 10.4 * Stock Option Agreement of Jeffrey A. Miller, dated November 15,2001 Incorporated by reference to Exhibit Number 10.1 filed with theRegistrant's Registration Statement on Form S-8 filed on December14, 2001 (File No. 333-75204). 10.5 * Stock Option Agreement of John Schoen, dated November 15,2001 Incorporated by reference to Exhibit 10.2 filed with the Registrant'sRegistration Statement on Form S-8 filed on December 14, 2001(File No. 333-75204). 69Exhibit No. Description Reference 10.6 * Employment Agreement dated November 11, 2016 betweenPCTEL, Inc. and Martin H. Singer. Incorporated by reference to Exhibit Number 10.6.1 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2016. 10.7 * Management Retention Agreement dated September 5, 2007between PCTEL, Inc., and Martin H. Singer Incorporated by reference to Exhibit Number 10.62 filed with theRegistrant's Current Report on Form 8-K filed on September 10,2007. 10.8 * Form of Management Retention Agreement Incorporated by reference to Exhibit Number 10.64 filed with theRegistrant's Current Report on Form 8-K filed on October 12, 2007. 10.9 * Form of 1997 Stock Plan Performance Share Agreement Incorporated by reference to Exhibit Number 10.66 filed with theRegistrant's Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2008. 10.10 * Form of Stock Plan Stock Option Award Agreement, as amendedSeptember 18, 2008 Incorporated by reference to Exhibit Number 10.69 filed with theRegistrant's Current Report on Form 8-K filed on September 22,2008. 10.10.1 * PCTEL, Inc., 2001 Nonstatutory Stock Option Plan, as amendedNovember 7, 2008. Incorporated by reference to Exhibit Number 10.70 filed with theRegistrant's Current Report on Form 8-K filed on November 13,2008. 10.10.2 * PCTEL, Inc., 2001 Nonstatutory Stock Option Plan Form of StockOption Agreement, as amended November 7, 2008. Incorporated by reference to Exhibit Number 10.71 filed with theRegistrant's Current Report on Form 8-K filed on November 13,2008. 10.11 * Employee Stock Purchase Plan, as amended and restated June 10,2015 Incorporated by reference from Appendix A to the Registrant'sDefinitive Proxy Statement on Schedule 14A filed April 30, 2014. 10.12 * PCTEL, Inc., Stock Plan, as amended and restated June 30, 2015 Incorporated by reference From Appendix A to the Registrant’sDefinitive Proxy Statement on Schedule 14A filed on April 30,2015. 10.13 * Employment Agreement dated December 5, 2016 between PCTEL,Inc. and David A. Neumann Incorporated by reference to Exhibit Number 10.15 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2016. 10.14 * Amended and Restated Management Retention Agreement datedApril 9, 2013 between PCTEL, Inc. and David A. Neumann Incorporated by reference to Exhibit Number 10.16 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2016. 10.14.1 * First Amendment to Amended and Restated ManagementRetention Agreement dated December 13, 2016 between PCTEL,Inc. and David A. Neumann Incorporated by reference to Exhibit Number 10.16.1 filed with theRegistrant's Annual Report on Form 10-K for fiscal year endedDecember 31, 2016. 11 ** Statement re Computation of Per Share Earnings 21 List of significant subsidiaries Filed Herewith 23 Consent of Grant Thornton LLP Filed Herewith 24 Power of Attorney Filed Herewith 31.1 Certification of Principal Executive Officer pursuant to ExchangeAct Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant toSection 302 of Sarbanes-Oxley Act of 2002 Filed Herewith 31.2 Certification of Principal Financial Officer pursuant to ExchangeAct Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant toSection 302 of Sarbanes-Oxley Act of 2002 Filed Herewith70Exhibit No. Description Reference 32 Certifications of Principal Executive Officer and PrincipalFinancial Officer pursuant to 18 U.S.C. Section 1350 as adoptedpursuant to Section 906 of Sarbanes-Oxley Act of 2002. Filed Herewith 101.INS XBRL Instance Document Filed Herewith 101.SCH XBRL Taxonomy Extension Schema Filed Herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Filed Herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Filed Herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Filed Herewith 101.PRE XBRL Taxonomy Extension Presentation Linkbase Filed Herewith *Management contract or compensatory plan or arrangement required to be filed as an Exhibit hereto.**Information required to be presented in Exhibit 11 is provided in Note 2 of the Notes to the Consolidated Financial Statements in this Annual Reporton Form 10-K in accordance with accounting rules related to accounting for earnings per share.(P)Paper Filing71SIGNATURESPursuant 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 besigned on its behalf by the undersigned, thereunto duly authorized: PCTEL, Inc. A Delaware corporation (Registrant) /s/ DAVID A. NEUMANN David A. Neumann Chief Executive Officer Dated: March 16, 2018 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 Registrantand in the capacities and on the dates indicated. Signature Title Date /s/ DAVID A. NEUMANN March 16, 2018(David A. Neumann) Chief Executive Officer /s/ JOHN SCHOEN Chief Financial Officer March 16, 2018(John Schoen) (Principal Financial and Accounting Officer) /s/ CINDY K. ANDREOTTI Director March 16, 2018(Cindy K. Andreotti) /s/ GINA HASPILAIRE Director March 16, 2018(Gina Haspilaire) /s/ STEVEN D. LEVY Director March 16, 2018(Steven D. Levy) /s/ GIACOMO MARINI Director March 16, 2018(Giacomo Marini) /s/ M. JAY SINDER Director March 16, 2018(M. Jay Sinder) 72EXHIBIT 21 Subsidiary State or Other Jurisdiction ofIncorporation or Organization PCTEL (Tianjin) Electronics Company Ltd. China PCTEL Israel Ltd. Israel PCTEL Limited (United Kingdom) United Kingdom EXHIBIT 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated March 16, 2018, with respect to the consolidated financial statements and internal control over financial reporting includedin the Annual Report of PCTEL, Inc. on Form 10-K for the year ended December 31, 2017. We consent to the incorporation by reference of said reports in theRegistration Statements of PCTEL, Inc. on Forms S-8 (File No. 333-205754; File No. 333-198134; File No. 333-168222; File No. 333-135586; File No. 333-131020; File No. 333-122117; File No. 333-112621; File No. 333-106891; File No. 333-103233; File No. 333-82120; File No. 333-75204; File No. 333-70886; File No. 333-61926; and File No. 333-34910). /s/ Grant Thornton LLP Chicago, IllinoisMarch 16, 2018 Exhibit 24 POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Neumann and JohnSchoen, 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 allamendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documentsin connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power andauthority 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 heor 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. This Power of Attorney shall remain in effect until revoked in writing by the undersigned. /s/ CINDY K. ANDREOTTI(Cindy K. Andreotti) /s/ GINA HASPILAIRE(Gina Haspilaire) /s/ STEVEN D. LEVY(Steven D. Levy) /s/ GIACOMO MARINI(Giacomo Marini) /s/ M. JAY SINDER(M. Jay Sinder) EXHIBIT 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULES 13a-14(a) and 15(d)-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, David A. Neumann, certify that:1. I have reviewed this annual report on Form 10-K of PCTEL, Inc.:2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), forthe registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 16, 2018 /s/ DAVID A. NEUMANNDavid A. NeumannChief Executive Officer EXHIBIT 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULES 13a-14(a) and 15(d)-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, John Schoen, certify that:1. I have reviewed this annual report on Form 10-K of PCTEL, Inc.:2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), forthe registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 16, 2018 /s/ JOHN SCHOENJohn SchoenChief Financial Officer EXHIBIT 32CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIALOFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Martin H. Singer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the AnnualReport on Form 10-K of PCTEL, Inc. for the fiscal year ended December 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financialcondition and results of operations of PCTEL, Inc. A signed original of this written statement required by Section 906 has been provided to PCTEL, Inc. andwill be retained by PCTEL, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. By:/s/ David A NeumannDATE: March 16, 2018 NAME:DAVID A. NEUMANN Title:Chief Executive Officer I, John Schoen, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report onForm 10-K of PCTEL, Inc. for the fiscal year ended December 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition andresults of operations of PCTEL, Inc. A signed original of this written statement required by Section 906 has been provided to PCTEL, Inc. and will beretained by PCTEL, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. By:/s/ John SchoenDATE: March 16, 2018 NAME:JOHN SCHOEN Title:Chief Financial Officer 

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