UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2017

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

For the transition period from ______ to ______

Commission File Number 001-33008

PENDRELL CORPORATION

(Exact name of registrant as specified in its charter)

Washington

98-0221142

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

2300 Carillon Point, Kirkland, Washington 98033

(Address of principal executive offices including zip code)

(425) 278-7100

(Registrant’s telephone number, including area code)

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

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

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

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 revised financial 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 Exchange Act). Yes ☐ No ☒.

As of ~~July~~October 2120, 2017, the registrant had 19,~~305~~107,~~392~~885 shares of Class A common stock and 5,366,000 shares of Class B convertible common stock outstanding.

PENDRELL CORPORATION

FORM 10-Q

For the three and ~~six~~nine months ended ~~June~~September 30, 2017

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statement of Changes in Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 6.	Exhibits	18
Signatures		19
Certifications

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Pendrell Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share data, unaudited)

	June 30, 2017			December 31, 2016
	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	~~148~~187,~~429~~220		$	174,631
Accounts receivable		5020,~~007~~976			15,457
Other receivables		8794			669
Prepaid expenses and other current assets		~~432~~342			262
Total current assets		~~198~~208,~~955~~632			191,019
Property in service – net of accumulated depreciation of $551 and $531, respectively		56			74
Property in service – net of accumulated depreciation of $560 and $531, respectively		47			74
Non-current accounts receivable		~~16,555~~809			16,555
Other assets		29			29
Intangible assets – net of accumulated amortization of $62,939 and $62,884, respectively		3,534			4,716
Intangible assets – net of accumulated amortization of $63,458 and $62,884, respectively		2,911			4,716
Total	$	~~219~~212,~~129~~428		$	212,393
LIABILITIES, SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
Current liabilities:
Accounts payable	$	~~907~~245		$	125
Accrued expenses		107,~~599~~522			6,278
Income taxes payable		~~555~~600			—
Other liabilities		8173			95
Total current liabilities		128,~~142~~440			6,498
Other non-current liabilities		~~6,412~~60			7,796
Total liabilities		188,~~554~~500			14,294
Commitments and contingencies (Note 7)
Commitments and contingencies (Note 6)
Shareholders’ equity and noncontrolling interest:
Preferred stock, $0.01 par value, 75,000,000 shares authorized, no shares issued or outstanding		—			—
Class A common stock, $0.01 par value, 900,000,000 shares authorized 25,067,534 and 27,268,261 shares issued, and 19,290,646 and 21,491,373 shares outstanding		2,128			2,151
Class A common stock, $0.01 par value, 900,000,000 shares authorized, 25,089,164 and 27,268,261 shares issued, and 19,292,276 and 21,491,373 shares outstanding		2,128			2,151
Class B convertible common stock, $0.01 par value, 150,000,000 shares authorized, 8,466,338 shares issued and 5,366,000 shares outstanding		537			537
Additional paid-in capital		1,~~950~~951,~~309~~319			1,962,178
Accumulated deficit		(1,~~746~~745,~~768~~055	)		(1,763,060	)
Total Pendrell shareholders’ equity		~~206~~208,~~206~~929			201,806
Noncontrolling interest		(5,~~631~~001	)		(3,707	)
Total shareholders’ equity and noncontrolling interest		~~200~~203,~~575~~928			198,099
Total	$	~~219~~212,~~129~~428		$	212,393

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

Pendrell Corporation

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data, unaudited)

	Three months ended June 30,						Six months ended June 30,
	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Revenue	$	355,~~122~~443		$	~~45,003~~—		$	3540,~~122~~565		$	58,503
Operating expenses:
Cost of revenues		~~229~~48			~~17,972~~—			~~229~~277			17,972
Patent administration and related costs		~~236~~238			~~232~~180			~~493~~731			~~594~~774
Patent litigation		~~7,103~~64			~~688~~308			8,~~453~~517			3,~~415~~723
General and administrative		1,~~588~~670			12,~~692~~052			35,~~480~~150			35,~~682~~734
Stock-based compensation		~~914~~921			~~939~~588			12,~~729~~650			2,~~051~~639
Amortization of intangible assets		~~590~~584			2,~~377~~373			1,~~179~~763			47,~~758~~131
Contract termination costs		—			—			3,161			—
Total operating expenses		103,~~660~~525			235,~~900~~501			1822,~~724~~249			3237,~~472~~973
Operating income		24,462			21,103			16,398			26,031
Operating income (loss)		1,918			(5,501	)		18,316			20,530
Interest income		~~325~~476			~~157~~163			~~608~~1,084			~~294~~457
Gain on contingency		—			—			—			2,047
Other expense		(2	)		(3	)		(46	)		(58	)
Income before income taxes		24,785			21,257			17,002			28,367
Income (loss) before income taxes		2,392			(5,341	)		19,394			23,026
Income tax expense		~~582~~49			—			~~582~~631			—
Net income		24,203			21,257			16,420			28,367
Net income (loss)		2,343			(5,341	)		18,763			23,026
Net income (loss) attributable to noncontrolling interest		~~(25~~630	)		(~~163~~87	)		~~(49~~581	)		~~382~~295
Net income attributable to Pendrell	$	24,228		$	21,420		$	16,469		$	27,985
Net income (loss) attributable to Pendrell	$	1,713		$	(5,254	)	$	18,182		$	22,731
Basic income per share attributable to Pendrell	$	0.98		$	0.80		$	0.65		$	1.05
Basic income (loss) per share attributable to Pendrell	$	0.07		$	(0.20	)	$	0.72		$	0.85
Diluted income per share attributable to Pendrell	$	0.96		$	0.77		$	0.63		$	1.01
Diluted income (loss) per share attributable to Pendrell	$	0.07		$	(0.20	)	$	0.70		$	0.82
Weighted average shares outstanding used to compute basic income per share		24,600,396			26,750,994			25,521,729			26,727,845
Weighted average shares outstanding used to compute basic income (loss) per share		24,597,689			26,778,453			25,210,331			26,744,837
Weighted average shares outstanding used to compute diluted income per share		25,290,515			27,699,958			26,236,959			27,690,190
Weighted average shares outstanding used to compute diluted income (loss) per share		25,281,661			26,778,453			25,915,027			27,691,863

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

Pendrell Corporation

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(In thousands, except share data, unaudited)

	Common stock								Additional
	Class A shares			Class B shares		Amount			paid-in capital			Accumulated deficit			Shareholders’ equity			Noncontrolling interest			Total
Balance, December 31, 2016		21,491,373			5,366,000	$	2,688		$	1,962,178		$	(1,763,060	)	$	201,806		$	(3,707	)	$	198,099
Repurchase of Class A common stock		(2,432,923	)		—		(24	)		(15,911	)		—			(15,935	)		—			(15,935	)
Stock-based compensation and issuance of restricted stock, net of forfeitures		232,196			—		1			1,940			—			1,941			—			1,941
Shares relinquished by the Liquidating Trust		(20,000	)		—		—			—			—			—			—			—
Stock-based compensation and issuance of restricted stock, net of forfeitures		253,826			—		1			2,950			—			2,951			—			2,951
Effect of accounting change to zero forfeitures for stock- based compensation		—			—		—			177			(177	)		—			—			—
Sale of noncontrolling interest in subsidiary		—			—		—			1,925			—			1,925			(1,875	)		50
Net income (loss)		—			—		—			—			16,469			16,469			(49	)		16,420
Net income		—			—		—			—			18,182			18,182			581			18,763
Balance, June 30, 2017		19,290,646			5,366,000	$	2,665		$	1,950,309		$	(1,746,768	)	$	206,206		$	(5,631	)	$	200,575
Balance, September 30, 2017		19,292,276			5,366,000	$	2,665		$	1,951,319		$	(1,745,055	)	$	208,929		$	(5,001	)	$	203,928

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

Pendrell Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

	Six months ended June 30,
	Nine months ended September 30,
	2017			2016
Operating activities:
Net income including noncontrolling interests	$	1618,~~420~~763		$	2823,~~367~~026
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		12,~~729~~650			2,~~051~~639
Amortization of intangible assets		1,~~179~~763			47,~~758~~131
Depreciation		2130			2941
Loss associated with the abandonment and/or disposition of patents		341			71112
Other		—			5
Other changes in certain assets and liabilities:
Accounts receivable, current and non-current		~~(34~~10,~~550~~227	)		(4429,~~916~~915	)
Prepaid expenses and other current/non-current assets		(~~188~~105	)		(~~133~~12	)
Accounts payable		~~782~~120			96(34	)
Accrued expenses and other current liabilities		3(6,~~136~~194	)		21,~~739~~424
Income taxes payable		~~555~~600			—
Other non-current liabilities		—			138,~~326~~185
Net cash provided by (used in) operating activities		(10,913	)		6,388
Net cash provided by operating activities		27,895			12,602
Investing activities:
Payment received on note receivable		600			~~400~~1,300
Sale of noncontrolling interest in subsidiary		50			—
Purchases of property in service		(4	)		(812	)
Net cash provided by investing activities		646			~~392~~1,288
Financing activities:
Repurchase of Class A common stock		(15,935	)		—
Payment of statutory taxes for stock awards		—(17	)		(640	)
Net cash used in financing activities		(15,~~935~~952	)		(640	)
Net increase (decrease) in cash and cash equivalents		(26,202	)		6,774
Net increase in cash and cash equivalents		12,589			13,850
Cash and cash equivalents – beginning of period		174,631			162,457
Cash and cash equivalents – end of period	$	~~148~~187,~~429~~220		$	~~169~~176,~~231~~307
Supplemental disclosures:
Income taxes paid	$	2225		$	—

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

Pendrell Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Business

These condensed consolidated financial statements include the accounts of Pendrell Corporation (“Pendrell”) and its consolidated subsidiaries (collectively referred to as the “Company”). Since 2011, the Company, through its consolidated subsidiaries, has invested in, acquired and developed businesses with unique technologies that are often protected by intellectual property (“IP”) rights, and that present the opportunity to address large, global markets. The Company’s subsidiaries focus on licensing their IP rights to third parties. The Company regularly evaluates its existing investments to determine whether retention or disposition is appropriate, and investigates new investment and business acquisition opportunities.

2. Basis of Presentation

Interim Financial Statements—The financial information included in the accompanying condensed consolidated financial statements is unaudited and includes all adjustments, consisting of normal recurring adjustments and accruals, considered necessary for a fair presentation in accordance with accounting principles generally accepted in the United States (“U.S.”) of America (“GAAP”). Certain information and footnote disclosures have been condensed or omitted. The financial information as of December 31, 2016 is derived from the Company’s audited consolidated financial statements and notes included in Item 8 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“2016 Form 10-K”), filed with the U.S. Securities and Exchange Commission on March 15, 2017. The financial information included in this quarterly report should be read in conjunction with management’s discussion and analysis of financial condition and results of operations and the consolidated financial statements and notes included in the 2016 Form 10-K. Capitalized terms used and not otherwise defined in this quarterly report have the meanings given to them in the Company’s 2016 Form 10-K. Operating results and cash flows for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017 or any interim period.

Capital Structure Change—On September 30, 2016, the Company underwent a reverse stock split at a ratio of 1-for-10 (the “2016 Reverse Split”). The share counts and per share data reported in the historical financial statements have been adjusted retrospectively as if the 2016 Reverse Split had been in effect for all periods presented. Additionally, the exercise prices and the number of shares issuable under the Company’s stock-based compensation plans have been adjusted retrospectively to reflect the 2016 Reverse Split.

Principles of Consolidation and Basis of Presentation—The consolidated financial statements of the Company include the assets and liabilities of its wholly-owned subsidiaries and subsidiaries it controls or in which it has a controlling financial interest. All information in these financial statements is in U.S. dollars.

Noncontrolling interests on the consolidated balance sheets include third-party investments in entities that the Company consolidates, but does not wholly own. Noncontrolling interests are classified as part of equity and the Company allocates net income (loss), other comprehensive income (loss) and other equity transactions to its noncontrolling interests in accordance with their applicable ownership percentages. All intercompany transactions and balances have been eliminated in consolidation, including a $36.86 million loan from Pendrell to ContentGuard Holdings, Inc. (“ContentGuard”). In June 2017, the Company sold a 9% interest in ContentGuard. ContentGuard now has two minority shareholders, while Pendrell maintains an 81.1% ownership stake.

Segment Information—The Company operates in and reports on one segment (IP management). Operating segments are based upon the Company’s internal organization structure, how its operations are managed, and the criteria used by its Chief Operating Decision Maker. Substantially all the Company’s revenue is generated by operations located within the U.S., and the Company does not have any long-lived assets located in foreign countries.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

On an ongoing basis, the Company evaluates its estimates, including among others, those related to the fair value of acquired intangible assets, the useful lives and potential impairment of intangible assets and property and equipment, the value of stock awards for the purpose of determining stock-based compensation expense, accrued liabilities (including bonus accruals), valuation allowances related to the ability to realize deferred tax assets, allowances for doubtful receivables, and certain tax liabilities. Estimates are based on historical experience and other factors, including the current economic environment as deemed appropriate under the circumstances. Estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in estimates used to prepare these financial statements will be reflected in the financial statements in future periods.

Accounting Policies—There have been no material changes or updates in the Company’s existing accounting policies from the disclosures included in its 2016 Form 10-K.

Recent Accounting Pronouncements—In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires companies that are lessees to recognize a right-of-use asset and lease liability for most leases that do not meet the definition of a short-term lease. For income statement purposes, leases will continue to be classified as either operating or financing. Classification will be based on criteria that are similar to those applied in current lease accounting. Compliance with this ASU is required for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. As the Company’s future minimum lease commitments as of ~~June~~September 30, 2017 are approximately $0.76 million, the Company believes the future adoption of this ASU will not have a material impact on its financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify certain provisions in stock compensation accounting, including provisions applicable to: (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, (4) minimum statutory tax withholding requirements, (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes, (6) the practical expedient for estimating the expected term and (7) intrinsic value. Compliance with this ASU is required for annual periods beginning after December 15, 2016, and interim periods therein. The adoption of this ASU on January 1, 2017 resulted in an adjustment to retained earnings and additional paid in capital of approximately $0.2 million due to a change in accounting for forfeitures.

Throughout the year ended December 31, 2016, the FASB issued a number of ASUs which provide further clarification to ASU No. 2014-09, Revenue (Topic 606): Revenue from Contracts with Customers, issued in May 2014, which supersedes existing revenue recognition guidance under GAAP. The core principle of ASU No. 2014-09 is to recognize as revenue the amount that an entity expects to be entitled for goods or services at the time the goods or services are transferred to customers. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of the amendments in ASU No. 2014-09 to the annual reporting period beginning after December 15, 2017, with early adoption permitted beginning January 1, 2017. The ASUs issued in 2016 related to ASU No. 2014-09 will become effective when the guidance in ASU No. 2014-09 becomes effective. The Company is continuing to assess the impact, if any, of implementing ASU No. 2014-09 and related ASUs as of January 1, 2018, and plans to adopt this ASU under the modified retrospective method where the cumulative effect is recognized at the date of initial application. As the Company’s patent licensing agreements generally provide no further obligation for the Company upon receipt of the applicable license fees, the fiscal 2018 adoption of ASU 2014-09 will have no impact to revenues previously reported but may require additional footnote disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-—Stock Compensation (Topic 718)-Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Unless the changes in terms or conditions meet all three criteria outlined in the guidance, modification accounting should be applied. The three criteria relate to changes in the terms and conditions that affect the fair value, vesting conditions, or classification of a share-based payment award. Compliance with this ASU is required for annual periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this ASU in 2017 did not have an impact on the Company’s financial position, results of operations or cash flows.

3. Accounts Receivable (Current and Non-current)

Accounts receivable consist primarily of amounts billed to customers under licensing arrangements. Since 2011, the Company has not incurred any material losses on its accounts receivable. The Company received full payment of its June 30, 2017 current accounts receivable in July 2017. The Company expects to receive payment of approximately $15.7 million of its non-current accounts receivable in 2018 and the remainder in 2019.

A significant portion of the Company’s noncurrent accounts receivable balance is due from Toshiba Memory Corporation (“TMC”), which prior to 2017 was a division of Toshiba Corporation (“Toshiba”). Based on the Company’s assessment of various reports, including Toshiba’s unaudited financial results, as well as the ongoing activities of TMC, the Company believes that no allowance for doubtful accounts is required for its receivable from TMC. The Company will continue to evaluate its position as new information becomes available.

3. Accounts Receivable (Current and Non-current)

Accounts receivable consist primarily of amounts billed to customers under licensing arrangements. Since 2011, the Company has not incurred any material losses on its accounts receivable.

A significant portion of the Company’s current accounts receivable balance is due from Toshiba Memory Corporation (“TMC”), which prior to 2017 was a division of Toshiba Corporation (“Toshiba”). Based on the Company’s assessment of various reports, including Toshiba’s unaudited financial results, as well as the ongoing activities of TMC, the Company believes that no allowance for doubtful accounts is required for its receivable from TMC. The Company will continue to evaluate its position as new information becomes available.

4. Other Receivables

From acquisition through the year ended December 31, 2014, the Company attempted to develop a strategy to commercialize a proprietary micro-propagation technology (designed to facilitate the production on a commercial scale of certain plants, particularly timber bamboo) through its former subsidiary, Provitro Biosciences LLC (“Provitro”), but did not generate revenue from the technology.

In January 2015, the Company discontinued its efforts to commercialize the Provitro™ technology and in September 2015, the Company sold Provitro’s facility and related tangible assets for $2.0 million. The purchase price was paid in installments of which $0.1 million was paid immediately, $0.4 million was received in January 2016, $0.9 million was received in August 2016 and $0.6 million was received in January 2017.

5. Accrued expenses

The following table summarizes accrued expenses (in thousands):

	June 30, 2017		December 31, 2016
	September 30, 2017		December 31, 2016
Accrued payroll and related expenses	$	~~881~~1,073	$	1,134
Accrued legal, professional and other expenses		~~5,968~~349		538
Accrued revenue share obligations		36,~~750~~100		4,606
	$	107,~~599~~522	$	6,278

6. ~~Other~~Commitments ~~non-current~~and ~~liabilities~~Contingencies

All non-current liabilities at June 30, 2017 are due in 2018.

7. Commitments and Contingencies

Purchase and Lease Commitments— The Company has operating lease agreements for its offices in Kirkland, Washington and Finland.

Litigation— In the opinion of management, except for those matters described below and elsewhere in this report, to the extent so described, litigation, contingent liabilities and claims against the Company in the normal course of business are not expected to involve any judgments or settlements that would be material to the Company’s financial condition, results of operations or cash flows.

There have been no material changes to the legal proceedings disclosures included under Part I, Item 3 of the Company’s 2016 Form 10-K other than the following update, with capitalized terms having the meaning given to them in the Form 10-K:

MTL Enforcement Actions— In 2016, Western Digital Corporation (“Western Digital”) acquired SanDisk Corporation. In June 2017, Memory Technologies, LLC, a subsidiary of Pendrell Corporation, and Western Digital entered into a settlement and patent license agreement. The agreement fully resolves all pending litigation between the parties and grants Western Digital a license to patents relating to memory and storage technologies.

ContentGuard Enforcement Actions— ContentGuard appealed the judgments in the Google Litigation and Apple Litigation to the Federal Circuit Court. On July 12, 2017, the Federal Circuit Court affirmed both adverse judgments, bringing those actions to conclusion.

87. Shareholders’ Equity

On March 9, 2017, the Company agreed to redeem 2,432,923 shares of the Company’s Class A Stock from Highland Crusader Offshore Partners, L.P. in a private transaction at a price of $6.55 per share~~, subject to possible adjustment if, on or before August 15, 2017, the Company buys or sells a substantial number of shares of Class A Stock for a higher price~~.

In March 2017, the Board of Directors (the "Board") of the Company approved and recommended that the Company’s shareholders approve a 1-for-100 reverse stock split of the Company’s shares of Class A Stock and Class B common stock (collectively, the “Common Stock”), to be effective no earlier than the fourth quarter of 2017 (the "2017 Reverse Split"), to enable the Company to (i) terminate the registration of the Class A Stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (ii) cease to be a reporting company under the Exchange Act; and (iii) terminate its Nasdaq listing if, after the 2017 Reverse Split, there are fewer than 300 record holders of Class A Stock. At the Company’s annual meeting of shareholders on June 14, 2017, the Company’s shareholders approved the 2017 Reverse Split and authorized the Board to implement the 2017 Reverse Split in the fourth quarter of 2017. The Board may abandon the proposed 2017 Reverse Split at any time if the Board determines that the 2017 Reverse Split will not facilitate de-registration and de-listing of the Common Stock or is no longer in the best interests of the Company or its shareholders. If implemented, the 2017 Reverse Split will reduce all issued and outstanding shares of Common Stock into one hundredth (1/100) of the pre-split number of shares of Common Stock. In lieu of fractional shares that would otherwise result from the 2017 Reverse Split, the Company will pay each holder cash.

9.On September 20, 2017, the Board set November 30, 2017 as the effective date for the 2017 Reverse Split, but reserved the right to delay or cancel the 2017 Reverse Split if the 2017 Reverse Split will not reduce the number of record holders of Class A Stock below 300, or if the Board determines that the 2017 Reverse Split is no longer in the best interests of the Company or its shareholders. The Board also authorized the de-~~based~~registration ~~Compensation~~and de-listing of the Class A Stock from Nasdaq promptly after completion of the 2017 Reverse Split, and clarified that the Company does not currently plan to publish financial information following the expiration of the Company’s reporting obligations under the Exchange Act.

8. Stock-based Compensation

The Company records stock-based compensation on stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock awards issued to employees, directors, consultants and/or advisors based on the estimated fair value on the date of grant and recognizes compensation cost over the requisite service period for awards expected to vest.

On January 1, 2017, the Company elected to change its accounting policy for calculating stock-based compensation based on forfeiture estimates to one that recognizes forfeitures when they occur. ASU 2016-09 permits this one-time policy change, but requires the change to be adopted utilizing the modified retrospective approach, with a cumulative effect adjustment recorded to retained earnings. The adoption of this change in accounting for forfeitures on January 1, 2017 resulted in an adjustment to retained earnings and additional paid in capital of approximately $0.2 million.

Stock-based compensation expense included in the condensed consolidated statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Stock options	$	~~222~~229	$	~~376~~93	$	~~438~~667	$	~~857~~951
Restricted stock awards		692		~~563~~495		1,~~291~~983		1,~~194~~688
Total stock-based compensation expense	$	~~914~~921	$	~~939~~588	$	12,~~729~~650	$	2,~~051~~639

Stock Options—The Company’s stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2017 is summarized as follows:

	Number of shares of Class A common stock underlying options			Weighted average exercise price
Outstanding – December 31, 2016		1,305,365		$	15.70
Forfeited		(3744,~~295~~695	)	$	2826.8666
Outstanding – June 30, 2017		1,268,070		$	15.31
Outstanding – September 30, 2017		1,260,670		$	15.31
Exercisable – June 30, 2017		903,566		$	15.99
Exercisable – September 30, 2017		937,043		$	15.87
Vested and expected to vest – June 30, 2017		1,243,070		$	15.20
Vested and expected to vest – September 30, 2017		1,235,670		$	15.20

Restricted Stock—The Company’s restricted stock activity for the ~~six~~nine months ended ~~June~~September 30, 2017 is summarized as follows:

	Number of shares of Class A common stock underlying restricted stock awards			Weighted average fair value per share
Unvested – December 31, 2016		890,755		$	8.23
Granted (1)		3246,~~196~~942		$	6.6281
Vested		(~~232~~256,~~196~~322	)	$	8.3950
Forfeited		(15,740	)	$	134.1090
Unvested – June 30, 2017		690,015		$	9.00
Unvested – September 30, 2017		665,635		$	9.05

(1) Represents shares issued to the Company’s Board of Directors as compensation for service. These awards have a grant date fair value of $0.23 million and vest upon issuance.

109. Contract Termination Costs

Pursuant to the 2013 agreement under which the Company acquired the bulk of its memory and storage technologies portfolio, the Company shared a significant portion of the revenue generated from memory patents with the seller. On February 23, 2017, the seller agreed to relinquish its future revenue share in exchange for an up-front payment and future installment payments. This agreement resulted in a one-time charge of $3.2 million to expense in the first quarter of 2017 and will significantly reduce the Company’s “~~cost~~Cost of revenues” on future memory patent revenue. ~~Future~~The final installment ~~payments,~~payment ~~one~~associated ofwith ~~which was paid in July 2017 and~~ the ~~second~~termination ~~of which~~ comes due in 2018, ~~are~~and is reflected in “Accrued expenses~~” and “Other non-current liabilities~~.”

1110. Gain on Contingency

During 2012, as part of the Company’s exit from the satellite business, the Company sold its partially completed medium earth orbit satellites, related equipment, and contracts. In February 2016, the final scheduled payment for those assets became payable, resulting in the recognition of a $2.0 million gain on contingency for the ~~six~~nine months ended ~~June~~September 30, 2016. The Company received the final scheduled payment in April 2016.

1211. Income Taxes

~~The~~For ~~Company~~the ~~anticipates~~three itmonths ~~will~~ended ~~not~~September ~~have~~30, a2017, ~~U.S.~~the ~~federal~~Company ~~income~~recorded a tax ~~liability~~provision of $49,000 related to foreign taxes withheld on revenue generated from license agreements executed with third party licensees domiciled in ~~2017~~a foreign jurisdiction. ~~However,~~ ~~the~~The Company ~~recorded~~had anno ~~income~~foreign ~~tax~~taxes ~~provision~~withheld ~~for~~during the three and ~~six~~nine months ended ~~June~~September 30, ~~2017~~2016. In general, inforeign ~~the~~taxes ~~amount~~withheld ofmay $0be claimed as a deduction on future U.6S. ~~million~~corporate ~~primarily~~income ~~because~~tax returns, or as ofa ~~the~~credit ~~filing~~against offuture ~~this~~U.S. ~~report~~federal income tax liabilities, subject to certain limitations. However, due to uncertainty regarding the Company’s ~~believes~~ability itto ~~will~~utilize bethe ~~subject~~deduction toor credit resulting from the ~~U.S.~~foreign ~~Personal~~withholding, ~~Holding~~the Company ~~tax~~established ina ~~2017~~full valuation allowance against the related deferred tax asset.

~~Personal~~The ~~Holding~~ Company ~~Determination-~~anticipates ~~The~~it ~~Internal~~will ~~Revenue~~not ~~Code~~have ~~imposes~~a anU.S. ~~additional~~federal income tax onliability ~~undistributed~~in ~~income~~2017. ofHowever, athe ~~personal~~Company ~~holding~~recorded ~~company~~an ~~(“PHC”).~~income Intax ~~general,~~provision afor ~~corporation~~the isnine amonths ~~PHC~~ended ifSeptember ~~50%~~30, or2017, ~~more~~in ofthe ~~its~~amount ~~outstanding~~of ~~shares,~~$0.6 ~~measured~~million byprimarily ~~value~~because, ~~are~~as ~~owned~~of ~~directly~~the orfiling ~~indirectly~~of bythis ~~five~~report, orthe ~~fewer~~Company ~~individual~~believes ~~shareholders~~it atwill ~~any~~be ~~time~~subject ~~during~~to the ~~second~~U.S. ~~half~~Personal ofHolding ~~the~~Company ~~year~~tax ~~(“Concentrated~~in ~~Ownership”)~~2017. ~~and~~As atdiscussed ~~least~~in ~~60%~~more ofdetail ~~its~~below, ~~adjusted~~the ~~ordinary~~U.S. ~~gross~~Personal ~~income~~Holding Company tax is assessed on undistributed personal holding company income (“~~PHCI~~UPHCI”). ~~Broadly,~~of ~~PHCI~~a ~~includes~~personal ~~items~~holding ~~such~~company ~~as dividends, interest, rents and royalties, among others~~(“PHC”). The ~~For~~Board amay ~~corporate~~elect ~~subsidiary,~~to ~~Concentrated~~distribute ~~Ownership is determined by reference~~ to ~~direct~~shareholders ~~and~~all ~~indirect~~or ~~ownership,~~a ~~including~~portion ~~through attribution to individual shareholders~~ of the ~~parent~~UPHCI ~~corporation(s),~~before ~~and~~ the ~~subsidiary’s~~end ~~income~~of isthe ~~subject~~year to ~~additional~~eliminate ~~tests~~or toreduce ~~determine whether its income renders~~ the ~~subsidiary~~tax aobligation. Under ~~PHC~~U.S. Iftax alaw, ~~corporation~~any isdistribution ato ~~PHC,~~shareholders ~~generates~~that ~~positive~~reduces ~~net~~the ~~PHCI~~Company’s ~~and~~UPHCI ~~does~~will ~~not~~be ~~distribute~~fully totaxable ~~its~~as ~~shareholders~~ a ~~proportionate~~ dividend. If in the ~~full~~Board ~~amount~~elects ofto make the ~~net PHCI~~distribution, ~~then~~all ~~the~~or ~~undistributed~~a ~~net~~portion ~~PHCI~~of isthe ~~taxed~~income ~~(at~~tax ~~20%~~provision ~~under~~and ~~current~~related ~~law)~~liability will be reversed.

Due to the significant number of shares held by the Company’s largest shareholders and the type of income that the Company generates, the Company must continually assess the Concentrated Ownership of Pendrell and its consolidated subsidiary ContentGuard. For 2017, Pendrell has met the Concentrated Ownership test. As of July 28, 2017, ContentGuard has not met the Concentrated Ownership test for 2017 due to the 18.9% interest held by its minority shareholders. However, ContentGuard’s Ownership Concentration could change at any point during the second half of the year. If ContentGuard is determined to be a PHC in 2017, generates net PHCI, and does not distribute to its shareholders a proportionate dividend in the full amount of the net PHCI, then the undistributed net PHCI will be taxed.

13Personal Holding Company Determination- The Internal Revenue Code imposes an additional tax on undistributed income of a PHC. ~~Income~~In ~~per~~general, ~~Share~~a corporation is a PHC if 50% or more of its outstanding shares, measured by value, are owned directly or indirectly by five or fewer individual shareholders at any time during the second half of the year (“Concentrated Ownership”) and at least 60% of its adjusted ordinary gross income is personal holding company income (“PHCI”). Broadly, PHCI includes items such as dividends, interest, rents and royalties, among others. For a corporate subsidiary, Concentrated Ownership is determined by reference to direct and indirect ownership, including through attribution to individual shareholders of the parent corporation(s), and the subsidiary’s income is subject to additional tests to determine whether its income renders the subsidiary a PHC. If a corporation is a PHC, generates positive net PHCI and does not distribute to its shareholders a proportionate dividend in the full amount of the net PHCI, then the undistributed net PHCI is taxed (at 20% under current law).

~~Basic~~Due ~~income~~to ~~per~~the ~~share~~significant isnumber ~~calculated~~of ~~based~~shares onheld by the ~~weighted~~Company’s ~~average~~largest ~~number~~shareholders and the type of ~~Common~~income ~~Shares~~that ~~outstanding~~the ~~during~~Company generates, the ~~period.~~Company ~~Diluted~~must ~~income~~continually ~~per~~assess ~~share~~the isConcentrated ~~calculated~~Ownership byof ~~dividing~~Pendrell and its consolidated subsidiary ContentGuard. For 2017, Pendrell has met the ~~income~~Concentrated ~~allocable~~Ownership totest. ~~common~~As ~~shareholders~~of byOctober 25, 2017, the ~~weighted~~Company ~~average~~believes ~~Common~~ContentGuard ~~Shares~~has ~~outstanding~~not ~~plus~~met ~~potential~~the ~~dilutive~~Concentrated ~~Common~~Ownership ~~Shares.~~test ~~Prior~~for 2017 due to the ~~satisfaction~~18.9% ofinterest ~~vesting~~held ~~conditions~~by its minority shareholders. However, ~~unvested~~ContentGuard’s ~~restricted~~Ownership ~~stock~~Concentration ~~awards~~could ~~are~~change ~~considered~~at ~~contingently~~any ~~issuable~~point during the remainder of the year. If ContentGuard becomes a PHC in 2017 and ~~are~~does ~~excluded~~not ~~from~~distribute ~~weighted~~to ~~average~~its ~~Common~~shareholders ~~Shares~~a ~~outstanding~~proportionate ~~used~~dividend ~~for~~in ~~computation~~the full amount of its ~~basic~~net ~~income~~PHCI, ~~per~~then ~~share~~the undistributed amount will be taxed at 20%.

12. Income (Loss) per Share

Basic income (loss) per share is calculated based on the weighted average number of Common Shares outstanding during the period. Diluted income (loss) per share is calculated by dividing the income (loss) allocable to common shareholders by the weighted average Common Shares outstanding plus potential dilutive Common Shares. Prior to the satisfaction of vesting conditions, unvested restricted stock awards are considered contingently issuable and are excluded from weighted average Common Shares outstanding used for computation of basic income (loss) per share.

Potential dilutive Common Shares consist of the incremental Class A Stock issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested restricted stock awards and units, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of the Company’s Class A Stock for the period) because their inclusion would have been anti-dilutive.

The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except share and per share data):

	Three months ended June 30,						Six months ended June 30,
	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Net income attributable to Pendrell	$	24,228		$	21,420		$	16,469		$	27,985
Net income (loss) attributable to Pendrell	$	1,713		$	(5,254	)	$	18,182		$	22,731
Weighted average common shares outstanding		24,~~656~~653,~~646~~939			26,~~817~~838,~~244~~073			25,~~577~~266,~~979~~581			26,~~807~~817,~~456~~736
Less: weighted average unvested restricted stock awards		(56,250	)		(6659,~~250~~620	)		(56,250	)		(7972,~~611~~899	)
Shares used for computation of basic income per share		24,600,396			26,750,994			25,521,729			26,727,845
Shares used for computation of basic income (loss) per share		24,597,689			26,778,453			25,210,331			26,744,837
Add back: weighted average unvested restricted stock awards and units		~~690~~683,~~119~~972			~~948,964~~—			~~715~~704,~~230~~696			~~962~~947,~~345~~026
Shares used for computation of diluted income per share (1)		25,290,515			27,699,958			26,236,959			27,690,190
Shares used for computation of diluted income (loss) per share (1)		25,281,661			26,778,453			25,915,027			27,691,863
Basic income per share attributable to Pendrell	$	0.98		$	0.80		$	0.65		$	1.05
Basic income (loss) per share attributable to Pendrell	$	0.07		$	(0.20	)	$	0.72		$	0.85
Diluted income per share attributable to Pendrell	$	0.96		$	0.77		$	0.63		$	1.01
Diluted income (loss) per share attributable to Pendrell	$	0.07		$	(0.20	)	$	0.70		$	0.82

(1) Stock options totaling 1,~~268~~260,~~070~~670 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, and 2,347,370 and 1,~~508~~456,~~865~~615 for the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively, were excluded from the calculation of diluted income (loss) per share as their inclusion was anti-dilutive.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this quarterly report and the audited consolidated financial statements and notes included in our 2016 Form 10-K.

Special Note Regarding Forward-Looking Statements

With the exception of historical facts, the statements contained in this management’s discussion and analysis are “forward-looking” statements. All of these forward-looking statements are subject to risks and uncertainties that could cause the actual results of Pendrell Corporation (“Pendrell,” together with its consolidated subsidiaries, “us” or “we”) to differ materially from those contemplated by the relevant forward-looking statements. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed in the section entitled “Risk Factors” (Part II, Item 1A of this Form 10-Q) and elsewhere in this quarterly report. The forward-looking statements included in this document are made only as of the date of this report, and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

Overview

For the past five years, through our consolidated subsidiaries, we have invested in, acquired and monetized IP rights. During ~~For example, during~~ the ~~second~~third quarter of 2017, we entered into a ~~settlement~~licensing ~~and license~~ agreement with ~~Western Digital.~~ The ~~agreement~~Walt ~~resolves~~Disney ~~our~~Company ~~pending~~through ~~litigation~~our ~~with~~ContentGuard ~~SanDisk~~subsidiary ~~and~~that ~~Western~~provides ~~Digital. With~~Disney the ~~Western~~right ~~Digital~~to ~~license~~use ~~concluded,~~ContentGuard’s wedigital ~~now~~rights ~~have~~management ~~license~~(DRM) ~~agreements~~technology ~~with~~to ~~five~~digitally ofdistribute ~~the~~its ~~largest~~motion ~~suppliers~~pictures ofto ~~memory~~theaters ~~and~~around ~~storage~~the ~~devices~~world. ~~The~~ ~~memory~~Disney ~~patents~~joins ~~have~~Warner ~~generated~~Bros ~~positive~~and ~~returns~~Sony ~~since~~Entertainment weas ~~acquired~~licensees ~~them in 2013. Prior to 2017, we shared a portion~~ of ~~those~~ContentGuard’s ~~returns with the party from whom we acquired the patents~~technology. ~~In early 2017~~Meanwhile, ~~that~~ContentGuard ~~party~~continues ~~relinquished~~ its ~~future~~dialogue ~~revenue~~with ~~share~~movie ~~rights~~studios ~~in exchange for an up-front payment~~ and ~~future~~distributors ~~installment payments. Our buyout~~ of ~~those~~digital ~~revenue share rights reduced our “cost of revenue” on the Western Digital license signed in June 2017 and will similarly reduce our cost of revenue on future licenses of our memory patents~~entertainment.

~~Although~~In weaddition ~~continue~~ to ~~monetize~~ our IPefforts ~~assets,~~with ~~our~~ContentGuard’s ~~primary~~digital ~~focus~~cinema ~~has~~initiative, ~~shifted~~we ~~to identifying and evaluating new business opportunities while continuing to evaluate our overall cost structure. We~~ continue totalks ~~reduce~~with ~~our~~manufacturers ~~costs~~ and ~~simplify~~suppliers ~~our~~of ~~operations~~memory ~~while~~and ~~retaining~~storage ~~the~~devices ~~resources~~about welicensing ~~believe critical to the generation of revenue from~~ our ~~existing~~memory ~~IP assets~~ and ~~the~~storage ~~pursuit of new business opportunities~~patents. We ~~Our~~have ~~cost-saving~~licensed ~~initiatives~~five ~~continued~~of ~~during~~ the ~~first~~largest ~~half~~suppliers ~~of 2017, when our Board~~ and ~~shareholders approved~~ a ~~1-for-100 reverse stock split, to be implemented no earlier than the fourth quarter of 2017. When completed, we believe the reverse stock split will reduce our~~ number of ~~record~~smaller ~~shareholders to fewer than 300, thereby enabling us to terminate our SEC registration and de-list our Class A Stock~~suppliers. ~~De-registration and de-listing will further reduce our overhead expenses.~~

WeWhile ~~believe~~we ~~that~~continue ~~de-registration~~to ~~and~~monetize ~~de-listing~~our ~~may~~IP ~~also~~assets, ~~provide~~we ~~visibility~~are tofocusing ~~opportunities~~primarily ~~that~~on ~~are~~identifying ~~not~~and ~~available~~evaluating tonew abusiness ~~reporting~~opportunities. We ~~company,~~target ~~and~~opportunities ~~will~~that ~~free~~demonstrate ~~management~~a potential for reliable cash flow and ~~staff~~significant ~~time~~growth. We tohave ~~analyze~~identified ~~those~~multiple opportunities., ~~The~~but ~~additional~~our ~~time~~acquisition ~~will~~efforts ~~also~~have ~~aid~~been ~~our~~hindered ~~continued~~by IPextremely ~~monetization~~high ~~efforts,~~valuations ~~including~~and ~~the~~corresponding ~~licensing~~seller ofexpectations. We have reduced our ~~profitable~~cost ~~patents~~structure ~~covering~~to ~~memory~~allow us to take a thoughtful and ~~storage~~measured ~~technologies~~approach in our evaluation of these opportunities.

~~While~~We weanticipate ~~remain~~additional ~~upbeat~~cost ~~about~~reductions ~~our~~in ~~memory~~2018 ~~program,~~from ~~our~~de-registering ~~ContentGuard~~and ~~subsidiary~~de-listing ~~suffered~~our aClass ~~setback~~A ~~when~~Stock. ~~the~~We ~~Federal~~also ~~Circuit~~believe ~~Court~~the ofde-registration ~~Appeals~~and ~~affirmed~~de-listing onwill ~~July 12,~~simplify ~~2017~~our ~~two~~operations ~~adverse~~and ~~judgments~~present inopportunities ~~our~~that ~~lawsuits~~are ~~against~~unavailable ~~Apple,~~to ~~Inc.,~~a ~~Google,~~reporting ~~Inc~~company. Our ~~and~~board ~~manufacturers~~ of ~~Android~~directors ~~devices.~~set WeNovember ~~are~~30, ~~assessing~~2017 as the ~~appellate~~effective ~~decisions~~date ~~and~~for ~~ContentGuard’s~~the ~~patent~~reverse ~~portfolio~~stock tosplit ~~determine~~that ~~whether~~is ~~ContentGuard~~designed ~~retains~~to ~~any~~facilitate ~~viable~~de-registration ~~claims~~and ~~against the defendants in those lawsuits. Meanwhile~~de-listing, ~~ContentGuard~~but ~~continues~~reserved ~~to discuss~~ the ~~licensing~~right ofto ~~its~~delay ~~digital~~or ~~rights~~cancel ~~management~~the ~~patents~~reverse ~~with~~stock ~~motion~~split ~~picture~~if ~~studios~~it ~~and~~will ~~theater~~not ~~operators.~~reduce Weour ~~believe~~number ~~the~~of ~~methods~~record ~~the~~holders ~~studios~~below ~~and~~300 ~~theaters~~or ~~employ~~is tootherwise ~~deliver~~not ~~content~~in tothe ~~movie~~best ~~goers~~interests ~~require~~of athe ~~license~~company toor ~~those~~our ~~patents~~shareholders. ~~The~~ We ~~Company~~do ~~sold~~not acurrently 9%plan ~~interest~~to inpublish ~~ContentGuard~~financial ~~during~~information following the ~~second~~expiration ~~quarter.~~of ~~ContentGuard~~our ~~now~~reporting ~~has~~obligations ~~two~~under ~~minority~~the ~~shareholders,~~Securities ~~while~~Exchange ~~Pendrell~~Act ~~maintains~~of ~~an 81~~1934.~~1% ownership stake.~~

Critical Accounting Policies

Critical accounting policies require difficult, subjective and complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. The judgments and uncertainties affecting the application of these policies include significant estimates and assumptions made by us using information available at the time the estimates are made. Actual results could differ materially from those estimates. Our critical accounting policies involve judgments associated with our accounting for the fair value of financial instruments, asset impairment, valuation of intangible assets, contract settlements, revenue recognition, stock-based compensation, income taxes, contingencies and business combinations. There have been no significant changes to our critical accounting policies disclosed in our 2016 Form 10-K.

New Accounting Pronouncements

See Note 2 – “Basis of Presentation” of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion.

Results of Operations

The following table is provided to facilitate the discussion of our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 (in thousands):

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Revenue

355,~~122~~443

~~45,003~~—

3540,~~122~~565

58,503

Cost of revenues

~~229~~48

~~17,972~~—

~~229~~277

17,972

Patent administration and related costs

~~236~~238

~~232~~180

~~493~~731

~~594~~774

Patent litigation

~~7,103~~64

~~688~~308

8,~~453~~517

3,~~415~~723

General and administrative

1,~~588~~670

12,~~692~~052

35,~~480~~150

35,~~682~~734

Stock-based compensation

~~914~~921

~~939~~588

12,~~729~~650

2,~~051~~639

Amortization of intangible assets

~~590~~584

2,~~377~~373

1,~~179~~763

47,~~758~~131

Contract termination costs

—

3,161

—

Interest income

~~325~~476

~~157~~163

~~608~~1,084

~~294~~457

Gain on contingency

—

2,047

Other expense

Income tax expense

~~582~~49

—

~~582~~631

—

Revenue. ~~Revenue~~We generated revenue of $355.14 million for the three months ended ~~June~~ September 30, 2017 ~~decreased by $9~~.9 ~~million,~~No orrevenue ~~22%,~~was asgenerated ~~compared~~during ~~to $45.0 million for~~ the three months ended ~~June~~ September 30, 2016~~. Revenue of $35.1 million for the six months ended June 30~~, ~~2017~~as ~~decreased~~no bylicensing ~~$23.4~~transactions ~~million,~~ or ~~40%,~~other aspatent ~~compared~~monetization toactivity ~~$58.5 million for the six months ended June 30, 2016. The decrease for both the three and six months~~ was ~~primarily~~consummated ~~due to larger licensing transactions~~ during ~~the~~that ~~three and six months ended June 30, 2016 as compared to 2017~~period.

~~Cost~~Revenue of ~~revenues. Cost of revenues of~~ $040.26 million for the ~~three~~nine ~~and six~~ months ended ~~June~~ September 30, 2017 decreased by $17.89 million, or 9931%, as compared to $1858.05 million for the ~~three~~nine ~~and six~~ months ended ~~June~~ September 30, 2016. The decrease ~~for both the three and six months~~ was primarily due to ~~lower~~larger ~~revenue~~licensing ~~share~~transactions ~~obligations.~~during ~~Prior to 2017, we shared revenue with~~ the ~~party~~nine ~~from~~months ~~whom~~ended weSeptember ~~acquired the bulk of our memory patents. In early 2017~~30, ~~that~~2016 ~~party~~as ~~relinquished~~compared ~~its future revenue share rights in exchange for an up-front payment and future installment payments. This resulted in a one-time charge of $3.2 million~~ to ~~expense in our first quarter of~~ 2017 ~~(see “Contract termination costs” below), but has significantly reduced our “cost of revenues” from our memory patents~~.

~~Patent~~Cost ~~administration~~of ~~and related costs~~revenues. ~~Patent~~We ~~administration~~incurred ~~and~~cost ~~related~~of ~~costs~~revenues of $~~0.2~~48,000 ~~million~~ for the three months ended ~~June~~September 30, 2017 ~~remained flat as~~ compared to ~~$0.2~~zero ~~million~~ for the three months ended ~~June~~September 30, 2016. ~~Patent~~No ~~administration~~revenue ~~and~~was ~~related~~generated ~~costs~~during ~~of $0.5 million for~~ the ~~six~~three months ended ~~June~~September 30, ~~2017 decreased by $0.1 million~~2016, orresulting ~~17%, as compared to $0.6 million for the six months ended June 30, 2016. The decrease was primarily due to a reduction~~ in ~~patent~~no ~~maintenance~~corresponding ~~and~~cost ~~prosecution costs resulting from the abandonment~~ of ~~patents during the first six months of 2017 and throughout 2016 that were not part of existing licensing programs~~revenue.

~~Patent~~Cost ~~litigation.~~of ~~Patent~~revenues ~~litigation expenses~~ of $70.13 million for the ~~three~~nine months ended ~~June~~September 30, 2017 ~~increased~~decreased by $617.47 million, or ~~more than 900~~98%, as compared to $018.70 million for the ~~three~~nine months ended ~~June~~September 30, 2016. The ~~increase~~decrease was primarily due to ~~the~~lower ~~contingent~~revenue ~~fees~~share ~~associated~~obligations. Prior to 2017, we shared revenue with the party from whom we acquired the bulk of our ~~settlement~~memory patents. In early 2017, that party relinquished its future revenue share rights in exchange for an up-front payment and ~~license~~future ~~agreement~~installment ~~with~~payments. ~~SanDisk~~This resulted in a one-time charge of $3.2 million to expense in our first quarter of 2017 (see “Contract termination costs” below), but has significantly reduced our “Cost of revenues” from our memory patents.

Patent ~~litigation~~administration ~~expenses~~and related costs. Patent administration and related costs of $80.52 million for the ~~six~~three months ended ~~June~~September 30, 2017 ~~increased~~remained flat as compared to $0.2 million for the three months ended September 30, 2016. Patent administration and related costs of $0.7 million for the nine months ended September 30, 2017 decreased by $50.1 million, or ~~148~~6%, as compared to $30.48 million for the ~~six~~nine months ended ~~June~~September 30, 2016. The ~~increase~~decrease was primarily due to ~~the~~a ~~contingent~~reduction ~~fees~~in ~~associated~~patent ~~with~~maintenance ~~our~~and ~~settlement~~prosecution costs resulting from the abandonment and ~~license~~sale ~~agreement~~of ~~with~~patents ~~SanDisk,~~during ~~partially~~the ~~offset~~first bynine ~~contingent~~months ~~fees~~of ~~incurred~~2017 inand throughout 2016 ~~associated~~that ~~with~~were ~~our~~not ~~settlement~~part ~~and~~of ~~license~~existing ~~agreement~~licensing ~~with DirecTV~~programs.

~~General~~Patent ~~and administrative expenses~~litigation. ~~General~~Patent ~~and~~litigation ~~administrative~~ expenses of $10.61 million for the three months ended ~~June~~September 30, 2017 decreased by $0.12 million, or 679%, as compared to $10.73 million for the three months ended ~~June~~September 30, 2016. The decrease was primarily due to ~~reductions~~the insettlement ~~employment~~of ~~expenses~~our ~~resulting~~dispute ~~from~~with aSanDisk ~~lower headcount~~ in June 2017.

Patent litigation expenses of $8.5 million for the nine months ended September 30, 2017 increased by $4.8 million, or 129%, as compared to $3.7 million for the nine months ended September 30, 2016. The increase was primarily due to the contingent fees associated with our settlement and license agreement with SanDisk, partially offset by contingent fees incurred in 2016 associated with our settlement and license agreement with DirecTV.

General and administrative expenses. General and administrative expenses of $1.7 million for the three months ended September 30, 2017 decreased by $0.4 million, or 19%, as compared to $2.1 million for the three months ended September 30, 2016. The decrease was primarily due to reductions in employment expenses resulting from a lower headcount in 2017.

General and administrative expenses of $3.5.2 million for the ~~six~~nine months ended ~~June~~September 30, 2017 decreased by $0.25 million, or 510%, as compared to $35.7 million for the ~~six~~nine months ended ~~June~~September 30, 2016. The decrease was primarily due to reductions in (1i) employment expenses resulting from a lower headcount in 2017, (2ii) professional fees and (3iii) other expenses, partially offset by a discretionary bonus payment to the Company’s CEO in the first quarter of 2017.

Stock-based compensation. Stock-based compensation of $0.9 million for the three months ended ~~June~~September 30, 2017, ~~remained~~increased ~~flat~~by ~~as compared to~~ $0.93 million, ~~for~~or ~~the three months ended June 30~~57%, ~~2016.~~as ~~Stock-based~~compared ~~compensation~~to of $10.76 million for the ~~six~~three months ended ~~June~~September 30, ~~2017 decreased by $0~~2016.4 ~~million,~~The orincrease ~~16%,~~was asprimarily ~~compared~~due to a $20.13 million ~~for~~credit in the ~~six~~three months ended ~~June~~September 30, 2016. ~~The~~related ~~decrease was primarily due~~ to ~~awards~~the ~~becoming~~reversal ~~fully~~of ~~vested~~stock-based incompensation ~~2016~~expense associated with noemployees ~~new~~that ~~awards~~terminated ~~being~~during ~~issued~~that ~~in 2017~~period.

~~Amortization~~Stock-based ofcompensation ~~intangible assets. Amortization~~ of ~~intangible assets of~~ $02.6 million for the ~~three~~nine months ended ~~June~~September 30, 2017 ~~decreased~~remained byflat ~~$1.8 million, or 75%,~~ as compared to $2.46 million for the ~~three~~nine months ended ~~June~~September 30, 2016~~. Amortization of intangible assets of $1.2 million for the six months ended June 30~~, ~~2017 decreased by $3.6 million, or 75%,~~ as ~~compared~~higher tovalued ~~$4.8~~CEO ~~million~~performance ~~for~~awards ~~the~~offset ~~six~~a ~~months~~reduction ~~ended June 30, 2016. The decrease~~ in ~~both~~expense ~~the~~for ~~three~~awards ~~and~~that ~~six~~became ~~months was primarily due to patents becoming~~ fully ~~amortized~~vested asin ~~they reached their estimated useful life with no additional patents added to our portfolio~~2016.

~~Contract~~Amortization ~~termination~~of ~~costs~~intangible assets. ~~Contract~~Amortization ~~termination~~of ~~costs~~intangible assets of $30.26 million for the ~~six~~three months ended ~~June~~September 30, 2017 ~~represent~~decreased ~~the~~by ~~cost~~$1.8 ~~associated~~million, ~~with~~or 75%, as compared to $2.4 million for the ~~buy-out~~three months ended September 30, 2016. Amortization of intangible assets of $1.8 million for the ~~revenue~~nine ~~share~~months ~~agreement~~ended ~~from~~September 30, 2017 decreased by $5.3 million, or 75%, as compared to $7.1 million for the ~~company~~nine ~~that~~months ~~sold~~ended usSeptember 30, 2016. The decrease in both the ~~bulk~~three ofand ~~our~~nine ~~memory~~months was primarily due to patents inbeing ~~2013.~~sold or becoming fully amortized as they reached their estimated useful life with no additional patents added to our portfolio.

~~Interest~~Contract ~~income~~termination costs. ~~Interest~~Contract ~~income~~termination ~~for~~costs ~~the~~of ~~three~~$3.2 ~~and~~million ~~six~~for the nine months ended ~~June~~September 30, 2017 ~~and~~represent ~~2016~~the ~~was~~cost ~~nominal~~associated ~~and~~with ~~primarily~~the ~~related~~buy-out toof ~~interest~~the ~~earned~~revenue onshare ~~money~~agreement ~~market~~from ~~funds~~the company that sold us the bulk of our memory patents in 2013.

~~Gain~~Interest ~~on contingency~~income. ~~Gain~~Interest onincome ~~contingency~~of $0.5 million for the ~~six~~three months ended ~~June~~September 30, ~~2016~~2017 ~~was~~increased ~~due~~by $0.3 million, or 192%, as compared to $0.2 million for the ~~receipt~~three months ended September 30, 2016. Interest income of $1.1 million for the ~~final~~nine ~~contingent~~months ~~payment~~ended ~~associated~~September ~~with~~30, 2017 increased by $0.6 million, or 137%, as compared to $0.5 million for the ~~disposition~~nine ofmonths ~~assets~~ended ofSeptember ~~our~~30, ~~prior~~2016. The ~~satellite~~increase ~~business~~in both the three and nine months was primarily due to larger cash balances and higher interest rates in ~~April~~2017 as compared to 2016.

~~Other~~Gain ~~expense~~on contingency. ~~Other~~Gain ~~expense~~on contingency for the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, ~~2017 and~~ 2016 was due to ~~losses~~the onreceipt ~~foreign~~of ~~currency~~the ~~transactions~~final contingent payment associated with the disposition of assets of our prior satellite business in April 2016.

~~Income~~Other ~~taxes~~expense. WeOther doexpense ~~not anticipate having a U.S. federal income tax liability in 2017. However, we recorded an income tax provision~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2017, inand the amount of $0.6 million primarily because, as of the filing of this report, we believe we will be subject to the U.S. Personal Holding Company tax for 2017.See Note 12 – Income Taxes of the Notes to the Condensed Consolidated Financial Statements. For the year ended December 31, 2016, wewas ~~did not record a provision for U.S. federal income tax~~ due to ~~available~~losses ~~tax~~on ~~loss~~foreign ~~carryforwards~~currency ~~that were used to offset the Company’s income~~transactions.

Income taxes. We do not anticipate having a U.S. federal income tax liability in 2017. However, we recorded an income tax provision for the nine months ended September 30, 2017, in the amount of $0.6 million primarily because, as of the filing of this report, we believe we will be subject to the U.S. Personal Holding Company tax for 2017. See Note 11 – Income Taxes of the Notes to the Condensed Consolidated Financial Statements. Income tax expense of $49,000 for the three months ended September 30, 2017 related to foreign taxes withheld on revenue generated from license agreements executed with third party licensees domiciled in a foreign jurisdiction.

For the year ended December 31, 2016, we did not record a provision for U.S. federal income tax due to available tax loss carryforwards that were used to offset the Company’s income.

Liquidity and Capital Resources

Overview. As of ~~June~~September 30, 2017, we had cash and cash equivalents of $~~148~~187.42 million. Our primary expected cash needs for the next twelve months include redemption of fractional shares if we complete the 2017 Reverse Split, ongoing operating costs associated with commercialization of our IP assets, legal expenses, expenses associated with researching new business opportunities and other general corporate purposes. We may also use our cash, and may incur debt or issue equity, to acquire or invest in other businesses or assets.

We believe our current balances of cash and cash equivalents and cash flows from operations will be adequate to meet our liquidity needs for the foreseeable future. Cash and cash equivalents in excess of our immediate needs are held in interest bearing accounts with financial institutions.

Cash Flows. The following table is provided to facilitate the discussion of our liquidity and capital resources for the six months ended June 30, 2017 and 2016 (in thousands):

	Six months ended June 30,
	2017			2016
Net cash provided by (used in):
Operating activities	$	(10,913	)	$	6,388
Investing activities		646			392
Financing activities		(15,935	)		(6	)
Net increase (decrease) in cash and cash equivalents		(26,202	)		6,774
Cash and cash equivalents—beginning of period		174,631			162,457
Cash and cash equivalents—end of period	$	148,429		$	169,231

~~For~~Cash ~~the six months ended June 30, 2017, the $10~~Flows.9 ~~million~~The offollowing ~~cash~~table ~~used~~is inprovided ~~operating activities consisted primarily of $18.8 million of operating expenses, including $3.2 million related~~ to ~~contract~~facilitate ~~termination~~the ~~costs,~~discussion ~~adjusted for various non-cash items including (i) $1.7 million~~ of ~~stock-based~~our ~~compensation~~liquidity ~~expense~~ and ~~(ii)~~capital ~~$1.2~~resources ~~million~~for ofthe ~~amortization~~nine ~~expense~~months ~~associated~~ended ~~with~~September ~~intangibles~~30, ~~offset~~2017 ~~by (a) $3.9 million net increase in accounts payable, accrued expenses~~ and ~~other~~2016 ~~current liabilities,~~ (~~b) $0.6 million receipt of revenue primarily generated~~ in ~~2016 and (c~~thousands): $0.6 million of interest income. Cash associated with the revenue generated in the first six months of 2017 was all received in July 2017 along with $15.0 million of cash associated with revenue generated in 2016.

For the six months ended June 30, 2016, the $6.4 million of cash provided by operating activities consisted primarily of revenue generated by operations of $58.5 million and $2.0 million received from the disposition of assets associated with our former satellite business, partially offset by a $44.9 million increase in accounts receivable and operating expenses of $32.5 million adjusted for various non-cash items including (i) $4.8 million of amortization expense associated with intangibles and (ii) $2.1 million of stock-based compensation expense, as well as a $16.2 million increase in accounts payable, accrued expenses and other current/non-current liabilities.

	Nine months ended September 30,
	2017			2016
Net cash provided by (used in):
Operating activities	$	27,895		$	12,602
Investing activities		646			1,288
Financing activities		(15,952	)		(40	)
Net increase in cash and cash equivalents		12,589			13,850
Cash and cash equivalents—beginning of period		174,631			162,457
Cash and cash equivalents—end of period	$	187,220		$	176,307

For the ~~six~~nine months ended ~~June~~September 30, 2017, the $027.69 million of cash provided by ~~investing~~operating activities ~~was~~consisted primarily ~~due~~of to(i) ~~the~~revenue ~~receipt~~generated by operations of ~~the~~$40.6 ~~final~~million, ~~installment~~(ii) ~~payment~~$10.2 ~~from~~million ~~the~~net ~~sale~~change ofin ~~the~~accounts ~~Provitro~~receivable ~~assets~~and in(iii) ~~2015~~$1.1 ~~For~~million ~~the~~of ~~six~~interest ~~months~~income, ~~ended~~partially ~~June~~offset ~~30,~~by ~~2016~~$22.3 million of operating expenses, ~~the~~including $03.42 million ofrelated ~~cash~~to ~~provided~~contract bytermination ~~investing~~costs, ~~activities~~adjusted ~~was~~for ~~due~~various tonon-cash ~~the~~items ~~receipt~~including $2.6 million of anstock-based ~~installment~~compensation ~~payment~~expense and $1.8 million of amortization expense associated with ~~the~~intangibles, ~~sale~~as ofwell ~~the~~as ~~Provitro~~a ~~assets~~$6.1 million decrease in ~~2015.~~accounts payable and accrued expenses.

For the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2016, the $1512.96 million of cash ~~used~~provided inby ~~financing~~operating activities ~~was~~consisted primarily ~~due~~of to(i) ~~the~~revenue ~~repurchase~~generated by operations of ~~all~~$58.5 2million,~~432,923~~ ~~shares~~(ii) $2.0 million received from the disposition of assets associated with our ~~Class~~former Asatellite ~~common~~business, ~~stock~~and ~~owned~~(iii) by$0.5 ~~the~~million ~~Crusader~~of ~~Fund~~interest atincome, partially offset by a ~~price~~$29.9 ~~per~~million ~~share~~increase in accounts receivable and operating expenses of $638.550 million adjusted for various non-cash items including (a) $7.1 ~~For~~million ~~the~~of ~~six~~amortization ~~months~~expense ~~ended~~associated ~~June~~with 30intangibles, ~~2016,~~(b) ~~the~~ $2.6~~,000~~ million of ~~cash~~stock-based ~~used~~compensation inexpense, ~~financing~~and ~~activities~~(c) ~~was~~$0.2 ~~statutory~~million ~~taxes~~of ~~paid~~depreciation ~~due~~and tocosts ~~the~~associated ~~vesting~~with abandonment of ~~restricted~~patents, ~~stock~~as ~~awards~~well as a $9.6 million increase in accounts payable, accrued expenses and other current/non-current liabilities.

For both the nine months ended September 30, 2017 and September 30, 2016, cash provided by investing activities was primarily due to the receipt of installment payments from the sale of the Provitro assets in 2015.

For the nine months ended September 30, 2017, the $15.9 million of cash used in financing activities was primarily due to the repurchase of all 2,432,923 shares of our Class A common stock owned by the Crusader Fund at a price per share of $6.55. For the nine months ended September 30, 2016, the $40,000 of cash used in financing activities was statutory taxes paid due to the vesting of restricted stock awards.

Contractual Obligations. We have a contractual obligation under an operating lease agreement for our main office in Kirkland, Washington.

Risks and Uncertainties

Certain risks and uncertainties that could materially affect our future results of operations or liquidity are discussed under “Part II—Other Information, Item 1A. Risk Factors” in this quarterly report.

Inflation

The impact of inflation on our condensed consolidated financial condition and results of operations was not significant during any of the periods presented.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We have assessed our vulnerability to certain market risks, including interest rate risk associated with our accounts receivable, accounts payable, other liabilities, and cash and cash equivalents and foreign currency risk associated with our cash held in foreign currencies.

As of ~~June~~September 30, 2017, our cash and investment portfolio consisted of both cash and money market funds, with a fair value of $~~148~~187.42 million. The primary objective of our investments in money market funds is to preserve principal, while optimizing returns and minimizing risk, and our policies require, at the time of purchase, that we make these investments in short-term, high rated securities. These securities have a current yield of approximately 1%.

	June 30, 2017 (in thousands)
	September 30, 2017 (in thousands)
Cash	$	1018,~~097~~431
Money market funds		~~138~~168,~~332~~789
	$	~~148~~187,~~429~~220

Our primary foreign currency exposure relates to cash balances in foreign currencies. Due to the small balances we hold, we have determined that the risk associated with foreign currency fluctuations is not material to us.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we have evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~second~~third quarter of 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

See Note 76 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.

Item 1A.

Risk Factors

There have been no material changes to our risk factor disclosures included under Part I, Item 1A of our 2016 Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The Class A common stock securities purchases described in the table below represent the withholding of restricted stock to satisfy tax withholding obligations upon the vesting of the related restricted stock.

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
July 1 – July 31, 2017		787	$	6.98		—		—
August 1 – August 31, 2017		—		—		—		—
September 1 – September 30, 2017		1,709		6.79		—		—
		2,496	$	6.85		—		—

Item 6.

Exhibits

Ex. 10.1*		Pendrell Corporation 2017 Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 14, 2017).
Ex. 31.1		Certification of the principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a).
Ex. 31.2		Certification of the principal accounting and financial officer required by Rule 13a-14(a) or Rule 15d-14(a).
Ex. 32.1		Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350).
Ex. 101		The following financial information from Pendrell Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, 2017 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PENDRELL CORPORATION (Registrant)
Date: July 28, 2017	By:	/S/ STEVEN A. EDNIE
Date: October 25, 2017	By:	/S/ STEVEN A. EDNIE
		Steven A. Ednie Vice President and Chief Financial Officer Principal Financial and Accounting Officer

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