UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, ~~2016~~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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	~~The~~Not ~~Nasdaq Capital Market~~applicable

Securities registered pursuant to Section 12(g) of the Act:

None

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “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 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 June 30, ~~2016~~2017, the aggregate market value of common stock held by non-affiliates of the registrant was approximately $88109,~~766~~412,~~026~~306

As of ~~March~~February 1316, ~~2017~~2018, the registrant had 19189,~~274,244~~109 shares of Class A common stock and 553,~~366,000~~660 shares of Class B common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

~~Portions of the Registrant’s Definitive Proxy Statement for its 2017 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K~~None.

PENDRELL CORPORATION

~~2016~~2017 ANNUAL REPORT ON FORM 10-K

INDEX

		~~Page~~	Page
PART I.
Item 1.	Business	1	2
Item 1A.	Risk Factors	3	4
Item 1B.	Unresolved Staff Comments	10	12
Item 2.	Properties	10	12
Item 3.	Legal Proceedings	11	12
Item 4.	Mine Safety Disclosures	11	12
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12	13
Item 6.	Selected Financial Data	14	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24	26
Item 8.	Financial Statements and Supplementary Data	25	27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	52	51
Item 9A.	Controls and Procedures	52	51
Item 9B.	Other Information	54	53
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	54	53
Item 11.	Executive Compensation	54	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54	75
Item 13.	Certain Relationships and Related Transactions, and Director Independence	54	77
Item 14.	Principal Accounting Fees and Services	54	78
PART IV.
Item 15.	Exhibits, Financial Statement Schedules	55	79
Item 16.	Form 10-K Summary	55	79
Signatures		56	83

PART I

This Annual Report on Form 10-K (“Form 10-K”) contains certain forward-looking statements regarding future events and our future operating results that are subject to the safe harbors created under the Securities Act of 1933, as amended (“Securities Act”), and the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All of these forward-looking statements are subject to risks and uncertainties that could cause our actual results 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 under “Item 1A of Part I – Risk Factors” and elsewhere in this Form 10-K. 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.

Item 1.

Business.

Overview

Pendrell Corporation (“Pendrell”), with its consolidated subsidiaries, is referred to as “us,” “we,” or the “Company.” Pendrell has, for the past ~~five~~six years, invested in, acquired and monetized intellectual property (“IP”) rights. WeIn ~~are~~2017, ~~continuing~~we divested the majority of our ~~efforts~~largest IP portfolio, known as our “Pendragon” portfolio, but continued to ~~monetize~~license the digital rights management (“DRM”) patents owned by our IPsubsidiary ~~assets~~ContentGuard Holdings, Inc. We(“ContentGuard”), ~~are~~and ~~also~~the ~~evaluating~~memory ~~our~~and IPstorage ~~investments~~patents toowned ~~determine~~by ~~whether~~our ~~retention~~subsidiary orMemory ~~disposition~~Technologies isLLC ~~appropriate~~(“MTL”). We nowill ~~longer~~continue ~~advise~~efforts ~~clients~~to onlicense IPthose ~~strategies~~DRM and ~~transactions~~memory patents in the future.

Pendrell was originally incorporated in 2000 as New ICO Global Communications (Holdings) Limited, a Delaware corporation. In July 2011, we changed our name to Pendrell Corporation. On November 14, 2012, we reincorporated from Delaware to Washington. Our principal executive office is located at 2300 Carillon Point, Kirkland, Washington 98033, and our telephone number is (425) 278-7100. Our website address is www.pendrell.com. The information contained in or that can be accessed through our website is not part of this Form 10-K.

Our Business

Revenue Generating Activities

We generate revenues by licensing and selling our IP rights to others. Our subsidiaries hold patents that support ~~four~~three IP licensing programs that we own and manage: (i) memory and storage technologies, (ii) digital media, and (iii) digital cinema ~~and (iv) wireless technologies~~.

We acquired most of our memory and storage patents (our “Memory Patents”) and patent applications from Nokia Inc. in March 2013, many of which have been declared essential to standards that are applicable to memory and storage technologies used in electronic devices. These patents cover embedded memory components and storage subsystems. Potential licensees include flash memory component suppliers, solid state disk manufacturers and device vendors. Since 2014, we have entered into license agreements with ~~four~~five leading ~~technology~~memory device makers and a number of smaller companies in the memory space. We are in active license discussions with other memory component manufacturers and, early in ~~late 2016~~2018, filed litigation against ~~SanDisk~~Kingston atTechnology ~~the~~Corporation ~~International Trade Commission~~ (~~the~~ “~~ITC~~Kingston”) ~~and~~ in federal district court alleging infringement of certain of our memory and storage patents (“~~SanDisk~~Kingston Litigation”).

Our digital media program is supported by patents and patent applications designed to protect against unauthorized duplication and use of digital content that is transferred from a source to one or more electronic devices. The majority of our digital media patents and patent applications came to us through our October 2011 purchase of a 90.1% interest in ContentGuard Holdings, Inc., where we partnered with Time Warner to expand the development and licensing of ContentGuard’s portfolio of digital rights management (“DRM”) technologies. We have entered into digital media licenses with manufacturers, distributors and providers of consumer products, including Amazon, DirecTV, Fujitsu, LG Electronics, Microsoft Corporation, Nokia, Panasonic, Pantech, Sharp,

Sony, Toshiba, Time Warner and Xerox Corporation. Other companies that manufacture, distribute or provide DRM-enabled consumer products and that we believe use ContentGuard’s innovations, including Apple, Google, HTC, Huawei, Motorola Mobility and Samsung (the “ContentGuard Defendants”), did not take a license to our digital media assets, which prompted us to file claims against them for patent infringement.

Our digital cinema program is supported by DRM patents and patent applications designed to protect against unauthorized creation, duplication and use of digital cinema content that is authored and distributed to movie theaters globally, many of which also came to us through our acquisition of ContentGuard. Potential digital cinema licensees include distributors and exhibitors of digital content, including motion picture producers, motion picture distributors and equipment vendors. We launched our digital cinema program in June 2013, and we are actively engaged in licensing discussions with leading feature film studios.

Our wireless technologies program is supported by U.S. and foreign patents, referred to as our “Pendragon portfolio,” many of which relate to key functionality in cellular and digital wireless devices and infrastructure. These patents were developed by leading innovators in the wireless space, including Philips, IBM and ETRI. We acquired the bulk of our Pendragon portfolio in 2012, but have not yet generated material revenue from the portfolio. As such, in addition to continuing our licensing discussions, we are actively seeking a buyer for the portfolio that may be better positioned to capitalize on its potential.

We typically license our patents via agreements that cover entire patent portfolios or large segments of portfolios. We expect licensing negotiations with prospective licensees to take approximately 12 to 24 months, and perhaps longer, measured from inception of technical discussions regarding the scope of our patents. If we are unable to secure reasonable, negotiated licenses, we may resort to litigation to enforce our IP rights, as evidenced by ContentGuard’s ongoing litigation against device makers and our recently-filed claims against SanDisk at the ITC and in federal district court.

Our IP revenue generation activities are not limited to licensing and litigation. Patents that we believe may generate greater value through a sales transaction, such as the Pendragon portfolio, may be sold. Although our revenue may occur in different forms, we regard our IP monetization activities as integrated and not separate revenue streams.

Our IP portfolio currently consists of patents that have already expired and others that expire between 2017 and 2035. We have no plans to develop or acquire new patentable inventions prior to the expiration of our patents and patent applications. See “Revenue opportunities from our IP monetization efforts are limited” under “Item 1A of Part I—Risk Factors.”

Business Outlook

From 2011 through 2015, we focused on acquiring and growing companies that developed or possessed unique, innovative technologies that could be licensed to third parties or could provide a competitive advantage to products we were developing. During the past two years, we moderated those efforts and reduced our costs by eliminating certain positions, abandoning certain patent assets that do not support our existing licensing programs, and lowering facilities costs.

We have explored and continue to explore investment opportunities that are not premised on the value of IP, with the goal of investing our capital in operating companies that can generate solid, stable income streams. Due to high valuations that we attribute to inexpensive and widely available capital, we did not acquire any such operating companies in 2015 or 2016. We may encounter more suitable opportunities in the future as the cost of capital increases, and we therefore intend to continue our exploratory activity while keeping our costs contained.

Although our focus may evolve away from companies that develop or possess unique, innovative technologies, we will continue to dedicate effort and resources to generate revenue from our existing IP assets.

Our digital media program is supported by patents (our “DRM Patents”) and patent applications designed to protect against unauthorized duplication and use of digital content during the transfer of the digital content. The majority of our digital media patents and patent applications came to us through our October 2011 purchase of a 90.1% interest in ContentGuard, where we partnered with Time Warner to expand the development and licensing of ContentGuard’s portfolio of DRM technologies. We have granted digital media licenses to manufacturers, distributors and providers of consumer products, including Amazon, DirecTV, Fujitsu, LG Electronics, Microsoft Corporation, Nokia, Panasonic, Pantech, Sharp, Sony, Toshiba, Time Warner and Xerox Corporation.

Our digital cinema program is supported by DRM Patents and patent applications designed to protect against unauthorized creation, duplication and use of digital cinema content that is distributed to movie theaters globally, many of which also came to us through our acquisition of ContentGuard. Potential digital cinema licensees include distributors and exhibitors of digital content, including motion picture producers, motion picture distributors and equipment vendors. We launched our digital cinema program in June 2013, and signed a significant license with The Walt Disney Company in 2017. We are actively engaged in licensing discussions with other leading feature film studios.

In late 2017, we divested the majority of our “Pendragon portfolio,” which contained patents related to cellular and digital wireless devices and infrastructure. We are actively working to divest the remainder of the portfolio.

We typically license our patents via agreements that cover entire patent portfolios or large segments of portfolios. We expect licensing negotiations with prospective licensees to take approximately 12 to 24 months, and perhaps longer, measured from inception of technical discussions regarding the scope of our patents. If we are unable to secure reasonable, negotiated licenses, we may resort to litigation to enforce our IP rights, as evidenced by the claims we filed in 2016 against SanDisk at the ITC and in federal district court, and the claims we recently filed against Kingston in federal district court.

Our IP revenue generation activities are not limited to licensing and litigation. Patents that we believe may generate greater value through a sales transaction, such as the Pendragon portfolio, may be sold. Although some may characterize patent sale revenue differently than patent license revenue, we regard our IP monetization activities as integrated and not separate revenue streams, and therefore treat sale and license revenue the same for GAAP reporting purposes.

Our IP portfolio currently consists of patents that have already expired and others that expire between 2018 and 2035. See “Revenue opportunities from our IP monetization efforts are limited” under “Item 1A of Part I—Risk Factors.”

Business Outlook

From 2011 through 2015, we focused on acquiring and growing companies that developed or possessed unique, innovative technologies that could be licensed to third parties or could provide a competitive advantage to products we were developing. During the past three years, we moderated those efforts and reduced our costs by eliminating certain positions, reducing certain overhead costs and abandoning patent assets that do not support our existing licensing programs. In December 2017, we delisted from Nasdaq and filed for de-registration of our Class A common stock.

We have explored and continue to explore investment opportunities that are not premised on the value of IP, with the goal of investing our capital in operating companies that can generate solid, stable income streams. Due to high valuations that we attribute to inexpensive and widely available capital, we did not acquire any such operating companies in 2015, 2016 or 2017. We may encounter more suitable opportunities if the cost of capital increases over time. We intend to continue to explore new business opportunities that are better suited for non-listed private companies while keeping our costs contained.

Although our focus has evolved away from companies that develop or possess unique, innovative technologies, we will continue to dedicate effort and resources to generate revenue from our existing IP assets.

Competition

Due to the unique nature of our IP rights, we do not compete directly with other patent holders or patent applicants. However, to the extent that multiple parties seek royalties on the same product or service, we might as a practical matter compete for a share of reasonable royalties from manufacturers and distributors.

As we pursue opportunities that are not premised on the value of IP, we may compete with well-capitalized companies pursuing those same opportunities.

Divestiture of Satellite Assets

When we were formed in 2000, our intent was to develop and operate a next generation global mobile satellite communications system. In 2011, we started selling assets associated with the satellite business and, during 2012, we divested the remaining vestiges of our satellite business, including the sale of our remaining medium earth orbit (“MEO”) satellites and related equipment and our real property in Brazil, the transfer to a liquidating trust (the “Liquidating Trust”) of certain former subsidiaries associated with the satellite business (the “International Subsidiaries”) to address the winding down of the International Subsidiaries, and the settlement of our litigation with The Boeing Company (“Boeing”).

The 2012 divestiture and the corresponding transfer to the Liquidating Trust of the International Subsidiaries triggered tax losses of approximately $2.4 billion, which we believe can be carried forward for up to twenty years. Under the sales agreement for the MEO assets, the Company is entitled to a substantial portion of any proceeds generated from the resale of the MEO assets. In January 2015, the party that acquired the MEO assets from the Company resold the MEO assets and as a result, the Company received $3.9 million during 2015, which has been recorded in gain on contingencies in the statement of operations for the year ended December 31, 2015. On February 23, 2016, that party received the final scheduled payment for the MEO assets, which resulted in the Company’s recognition of an additional $2.0 million gain on contingency in 2016.

Employees

As of December 31, ~~2016~~2017, on a consolidated basis, we had the equivalent of 1412 full-time employees located in Washington, California, Finland and Texas.

Available Information

The address of our website is www.pendrell.com. You can find additional information about us and our business on our website. We make available on this website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission (“SEC”). You may read and copy this Form 10-K at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549-0102. Information on the operation of the public reference room can be obtained by calling the SEC at 1-800-SEC-0330. These filings are also accessible on the SEC’s website at www.sec.gov.

We also make available on our website in a printable format the charters for certain of our various Board of Director committees, including the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, and our Code of Conduct and Ethics in addition to our Articles of Incorporation, Bylaws and Tax Benefits Preservation Plan. This information is available in print without charge to any shareholder who requests it by sending a request to Pendrell Corporation, 2300 Carillon Point, Kirkland, Washington 98033, Attn: Corporate Secretary. The material on our website is not incorporated into or part of this Form 10-K.

Item 1A.

Risk Factors.

The risks below address some of the factors that may affect our future operating results and financial performance. If any of the following risks develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected.

Risks Related to our Patents and Monetization Activities

Success of our licensing efforts depends on our ability to sign new license agreements or otherwise enforce our intellectual property rights.

IP licensing revenues are dependent on our ability to sign new license agreements with, or otherwise enforce our intellectual property rights against, users of our patented inventions. If users refuse to sign license agreements, we may need to resort to litigation or other measures to compel the payment of fair consideration, which to date has not been effective, and may not be effective in the future. This risk applies not only to new license agreements, but to existing license agreements with fixed expiration dates. If we fail to sign or renew license agreements on terms that are favorable to us or obtain favorable outcomes through litigation or other enforcement actions, the value of our IP could be further impaired.

We may have a limited number of prospective licensees.

We are actively pursuing licenses for our ~~portfolios,~~DRM ~~including~~and ~~our~~memory ~~DRM portfolio~~portfolios. However, our portfolios are applicable to only a limited number of prospective licensees. Moreover, many device makers who ~~are~~would have been prospective DRM licensees are ~~currently~~ shielded by adverse jury verdicts in the ~~Apple~~patent ~~Litigation~~infringement ~~and~~cases ~~Google Litigation~~ that we ~~are~~filed ~~appealing~~in the Eastern District of Texas. In the memory and storage space, we believe we have licensed substantially more products than remain unlicensed. As such, we have a limited number of prospective licensees, and if we are unable to sign licenses with this limited group, licensing revenue will be adversely impacted. Moreover, if our portfolios are not demonstrably applicable to prospective licensees’ products or services, whether due to poor quality, lack of breadth or otherwise, parties may refuse to sign license agreements.

Revenue opportunities from our IP monetization efforts are limited.

Patents have finite lives. Our IP portfolio currently consists of numerous patents that have already expired, and others that expire between ~~2017~~2018 and 2035. ~~With no plans to develop or acquire new patentable inventions prior to the expiration of our patents and patent applications~~Therefore, our IP revenue opportunities are limited.

Our licensing cycle is lengthy, costly and our licensing efforts may be unsuccessful.

Licensing our patents takes time, with some license negotiations spanning many years. We have incurred and expect to incur significant legal and sales expenses in our efforts to sign license agreements and generate license revenues. We also expect to spend considerable resources educating prospective licensees on the benefits of a license arrangement with us. As such, we may incur significant costs and losses before any associated revenue is generated.

Enforcement proceedings may be costly and ineffective ~~and could lead to impairment of our IP assets~~.

We may choose to pursue litigation or other enforcement action to protect our intellectual property rights, such as the ~~Apple~~ITC ~~Litigation,~~and ~~Google~~district ~~Litigation~~court ~~and~~actions against SanDisk, and the recently-filed Kingston Litigation. Enforcement proceedings are typically protracted and complex, and might require cooperation of inventors and others who are unwilling or unable to assist with enforcement. Litigation also involves several stages, including the potential for a prolonged appeals process. The costs are typically substantial, and the outcomes are unpredictable. As evidenced in the Apple Litigation and Google Litigation, we might receive rulings or judgments, or sign licenses or settlement agreements, that compel us to revalue the IP assets that we are enforcing, which in turn might result in a reduction to the financial statement carrying value of such assets through a corresponding impairment charge. Enforcement actions will likely divert our managerial, technical, legal and financial resources from business operations. In certain cases, we may conclude that these costs and risks outweigh the potential benefits that would arise from successful enforcement, in which event we may opt not to pursue enforcement.

Our business could be negatively impacted by product composition and future innovation.

Our licensing revenues have been generated from manufacturers and distributors of products that use our patented inventions. Our business prospects could be negatively impacted if prospective licensees do not use our inventions in their products, or if they later modify their products to eliminate use of our inventions. Moreover, changes in technology or customer requirements could alter product composition and render our patented inventions obsolete or unmarketable.

inventions in their products, or if they later modify their products to eliminate use of our inventions. Moreover, changes in technology or customer requirements could alter product composition and render our patented inventions obsolete or unmarketable.

Our patent management activities could impact the value of our IP.

We assess our IP portfolio to identify patents and patent applications that are worth preserving and patents and patent applications that are not worth preserving. Our assessment is driven by numerous factors, many of which are not scientific. Our assessment drives decisions to maintain or abandon patents and patent applications. If we make decisions that prompt abandonment of patents and patent applications with value, we could materially impact the value of our IP portfolio and our ability to generate revenue from our IP portfolio.

Challenges to the validity or enforceability of our key patents could significantly harm our business.

Any third party may challenge the validity, scope, enforceability and ownership of our patents. Challenges may include review requests to patent authorities, such as inter partes review and covered business method proceedings that have been initiated by ZTE, Apple, Google and SanDisk. Review proceedings are costly and time-consuming, and we cannot predict their outcome or consequences. Such proceedings may narrow the scope of our claims or may cancel some or all claims. If patent claims are canceled, we could be prevented from enforcing or earning future revenues from the canceled claims. Even if our claims are not canceled, our enforcement actions against alleged infringers may be stayed pending resolution of reviews, or courts or tribunals reviewing our patent claims could make findings adverse to our interests. Irrespective of outcome, review challenges may result in substantial legal expenses and diversion of management’s time and attention away from our other business operations, including our ability to evaluate and acquire other businesses. Adverse decisions could impair the value of our inventions or result in a loss of our proprietary rights and may adversely affect our results of operations and our financial position.

Changes in patent law could adversely impact our business.

Patent laws may continue to change, and may alter protections afforded to owners of patent rights, impose additional enforcement risks, increase the costs of enforcement, or increase our licensing cycles. For instance, ~~during~~the 2012 passage of the America Invents Act provided alleged infringers with new procedures to combat patent infringement claims, including inter partes review and covered business method proceedings to challenge patent validity. In 2013 and 2015, legislative initiatives were introduced to address perceived patent abuses by non-practicing entities., ~~Some~~and some legislators ~~have~~continue ~~announced~~to express their intention to sponsor ~~and~~or ~~introduce~~support similar legislation in ~~2017~~the future. Even if legislative initiatives do not directly impact our business, such initiatives might encourage manufacturers to infringe our IP rights, lengthen our licensing cycles, increase the likelihood that we will litigate to enforce our IP rights, or make it more difficult and expensive to license our patents or enforce our patents against parties using our inventions without a license. Moreover, increased focus on the growing number of patent-related lawsuits may result in legislative changes which increase our costs and related risks of asserting patent enforcement actions.

Changes of interpretations of patent law could adversely impact our business.

Our success in review and enforcement proceedings relies in part on the historically consistent application of patent laws and regulations. Interpretations of patent laws and regulations by the courts and applicable regulatory bodies have evolved, and may continue to evolve, particularly with the introduction of new laws and regulations. Changes or potential changes in judicial interpretation could have a negative impact on our ability to monetize our patent rights.

Risks Related to our Acquisition Activities

We may over-estimate the value of assets or businesses we acquire.

We make investments from which we intend to generate a return. We estimate the value of these investments prior to acquisition, using both objective and subjective methodologies. If we over-estimate such value, we may not generate desired returns on our investment, or we may need to adjust the value of the investments to fair value and record a corresponding impairment charge, either of which could adversely affect our results of operations and our financial position.

We may not generate a return on acquired assets.

Even if we accurately value the investments we make, we must succeed in generating a return on the investments. Our success in generating a return depends on effective efforts of our employees and outside professionals. If we do not generate desired returns on our investments or if we are compelled to adjust the value of the investments to fair value and record a corresponding impairment charge, it could adversely affect our results of operations and our financial position.

We may pursue acquisition or investment opportunities that do not yield desired results.

We intend to continue investigating potential acquisitions that support our business objectives and strategy. Acquisitions are time-consuming, complex and costly. The terms of acquisition agreements tend to be heavily negotiated. We may incur significant transactional expenses, regardless of whether acquisitions are consummated. Moreover, the integration of acquired companies may create significant challenges, and we can provide no assurances that the integration of acquired businesses with our business will result in the realization of the full benefits we anticipate from such acquisitions. Investigating businesses and assets and integrating newly acquired businesses or assets may be costly and time-consuming, and such activities could divert our attention from other business concerns. In addition, we might lose key employees while integrating new organizations. Acquisitions could also result in potentially dilutive issuances of equity securities or the incurrence of debt, the assumption or incurrence of contingent liabilities, possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could negatively impact our financial position. We might not be successful in integrating acquired businesses and might not achieve desired revenues and cost benefits.

The financing of our acquisition activities could threaten our ability to use NOLs to offset future taxable income.

We have substantial historical net operating losses (“NOLs”) for United States federal income tax purposes. As explained in greater detail below, our use of our NOLs will be significantly limited if we undergo a “Tax Ownership Change,” as defined in Section 382 of the Internal Revenue Code. If and to the extent we finance acquisitions through the sale or issuance of stock, we will likely cause an ownership shift that increases the possibility that a future Tax Ownership Change might occur. If a Tax Ownership Change occurs, we will be permanently unable to use most of our NOLs.

Avoiding a Tax Ownership Change may limit our ability to use our shares in an acquisition which could limit our ability to execute a transaction.

The use of our NOLs will be significantly limited if we undergo a Tax Ownership Change. Given the potential economic benefit of our ~~NOL~~NOLs, we have taken steps to reduce the risk of a Tax Ownership Change including our Tax Benefit Preservation Plan. Issuing new shares in an acquisition transaction could cause or would increase the risk of a Tax Ownership Change. As a result, if a potential seller or partner requires a large number of shares as part of an acquisition transaction, we may choose not to execute that transaction.

We rely on representations, warranties and opinions from third parties that might not be accurate.

When we acquire assets or businesses or establish relationships with inventors or strategic partners, we may rely on representations and warranties made by third parties. We also may rely on opinions of lawyers and other professionals. We may not have the opportunity to independently investigate and verify the facts upon which such representations, warranties and opinions are made. By relying on these representations, warranties and opinions, we may be exposed to unforeseen liabilities that could have a material adverse effect on our operating results and financial condition.

Risks Related to our Operations

Our financial and operating results have been and may continue to be uneven.

Our operating results may fluctuate and, as such, our operating results are difficult to predict. Quarterly or annual comparisons of our results of operations should not be relied upon as an indication of our future performance. Factors that could cause our operating results to fluctuate during any period or that could adversely affect our operating results include the timing of license and sales agreements, compliance with such agreements, the terms and conditions for payment under those agreements, our ability to protect and enforce our intellectual property rights, costs of enforcement, changes in demand for products that incorporate our inventions, the time period between commencement and completion of license negotiations or enforcement proceedings, revenue recognition principles, and changes in accounting policies.

Our revenues may not offset our operating expenses.

We reported operating income in 2016 ~~was~~and ~~the~~2017, ~~first~~in ~~year~~part because we ~~reported~~signed significant licenses in those years and in part because we significantly reduced our year-over-year operating ~~income~~expenses. ~~Although~~ weMoving ~~have~~forward, ~~taken~~it ~~steps~~is not feasible to reduce ~~our~~ operating expenses as dramatically as we did in 2016 and 2017. Moreover, revenue from our IP licensing business continues to be inconsistent. If we are unable to generate revenue ~~that is~~ sufficient to cover ~~these~~operating costs, we will report a net operating loss in future years.

Failure to effectively manage the composition of our employee base could strain our business.

Our success depends, in large part, on continued contributions of our small group of key managers and employees, many of whom are highly skilled and would be difficult to replace. Our success also depends on the ability of our personnel to function effectively, both individually and as a group. At the end of 2015, we terminated the employment of numerous IP professionals whose roles we believe were unnecessary to advance our current and anticipated business strategies. In 2016, we parted ways with our vice president of licensing. If we misjudged our ongoing personnel needs or lose any of our remaining senior managers or key personnel, it could lead to dissatisfaction among our clients or licensees, which could slow our growth or result in a loss of business. Moreover, if we fail to manage the composition of our employee base effectively or otherwise strain our relationships with our personnel, our business and financial results may be materially harmed.

If we need financing and cannot obtain financing on favorable terms, our business may suffer.

If we deploy a significant portion of our capital or encounter unforeseen difficulties in the future that deplete our capital resources more rapidly than anticipated, we may need to obtain additional financing. Financing might not be available on favorable terms, if at all, may dilute our existing shareholders, and may prompt us to pursue structural changes that could impact shareholder concentration and liquidity. If we fail to obtain additional capital as and when needed, such failure could have a material adverse impact on our business, results of operations and financial condition.

~~Future~~Our ~~changes~~financial inreporting ~~standards,~~will ~~rules,~~no ~~practices~~longer orbe ~~interpretation~~subject ~~may~~to ~~impact~~an ~~our financial results~~audit.

WeHistorically, ~~prepare~~ our consolidated financial statements inwere ~~accordance~~audited ~~with~~by ~~accounting~~external ~~principles~~audit ~~generally~~firms ~~accepted~~registered inwith the ~~United~~Public ~~States~~Company ofAccountancy ~~America~~Oversight Board. ~~These~~Having ~~principles~~delisted ~~are~~our ~~subject~~Class toA ~~interpretations~~common bystock ~~the~~from ~~SEC~~Nasdaq and ~~various~~filed ~~accounting~~for ~~bodies. In addition~~de-registration, we ~~are~~will ~~subject~~no tolonger ~~various~~be ~~taxation~~required ~~rules~~to inhave ~~many~~our ~~jurisdictions.~~financial ~~The~~statements ~~existing~~audited. ~~taxation rules are generally complex~~Moreover, ~~voluminous,~~we ~~frequently~~do ~~changing~~not ~~and~~intend ~~often ambiguous. Changes~~ to ~~existing~~engage ~~taxation~~external ~~rules,~~auditors ~~changes~~ to ~~the~~audit our financial ~~accounting~~statements. ~~standards,~~The orabsence ~~any changes to the interpretations~~ of ~~these~~an ~~standards~~external oraudit ~~rules,~~could orincrease ~~changes~~the inrisk ~~practices~~that ~~under these standards and rules, may adversely affect~~ our ~~reported~~ financial ~~results~~statements orare ~~the~~not ~~way~~accurate weor ~~conduct our business~~reliable.

Unauthorized use or disclosure of our confidential information could adversely affect our business.

We rely primarily on a combination of license agreements, nondisclosure agreements, other contractual relationships and patent, trademark, trade secret and copyright laws to protect our confidential and proprietary information, our technology and our intellectual property. We cannot be certain that these protections have not been and will not be breached, that we will be able to timely detect unauthorized use or transfer of our trade secrets or

intellectual property, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. If we are unable to detect in a timely manner the unauthorized use or disclosure of our proprietary or other confidential information or if we are unable to enforce our rights under our agreements or applicable laws, the misappropriation of such information could harm our business.

Our company has an evolving business model, which raises doubt about our ability to increase our revenues and grow our business.

We have shifted our principal focus for growth away from the IP business and are evaluating opportunities that generate solid, stable income streams with greater growth potential. Those opportunities must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in an early stage of development. We may not be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business, operating results and financial condition. There can be no assurance that we will be able to increase our revenues and otherwise grow our business as we execute on new business opportunities in the future.

Risks Related to our Tax Losses

We cannot be certain that our tax losses will be available to offset any future taxable income.

A significant portion of our NOLs were triggered when we disposed of our satellite assets. We believe these NOLs can be carried forward to offset certain future taxable income. However, the NOLs have not been audited or otherwise validated by the Internal Revenue Service (“IRS”). We ~~cannot~~can ~~assure~~make ~~you~~no assurance that we would prevail if the IRS were to challenge the amount or our use of the NOLs. If the IRS were successful in challenging our NOLs, all or some amount of our NOLs would not be available to offset future taxable income which would result in an increase to our future income tax liability. The NOL carryforward period begins to expire in 2025 with the bulk of our NOLs expiring in 2032. ~~If the tax laws are amended to limit or eliminate our ability to carry forward our NOLs for any reason, or to lower income tax rates, the value of our NOLs may be significantly reduced.~~

An Ownership Change under Section 382 of the Internal Revenue Code may significantly limit our ability to use NOLs to offset future taxable income.

Our use of our NOLs will be significantly limited if we undergo a Tax Ownership Change. Broadly, a Tax Ownership Change will occur if, over a three-year testing period, the percentage of our stock, by value, owned by one or more 5% shareholder increases by more than 50 percentage points. For purposes of this test, shareholders that own less than 5% of our stock are aggregated into one or more separate “public groups,” each of which is treated as a 5% shareholder. In ~~general, shares traded within a public group are not included in the Tax Ownership Change test.~~ Despite our adoption of certain protections against a Tax Ownership Change (such as our Tax Benefits Preservation Plan), we cannot control the trading activity of our significant shareholders. If shareholders acquire or divest their shares in a manner or at times that do not account for the loss-limiting provisions of the Internal Revenue Code or regulations adopted thereunder, a Tax Ownership Change could occur. If a Tax Ownership Change occurs, we will be permanently unable to use most of our NOLs.

Our NOLs cannot be used to offset the Personal Holding Company tax.

The Internal Revenue Code imposes an additional tax on the undistributed income of a Personal Holding Company (“PHC”). In general, a corporation is classified as 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 a calendar 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. Pendrell met the Concentrated Ownership test in 2016, and it is likely that Pendrell will meet the Concentrated Ownership test in 2017. We have determined that in 2016 ContentGuard had not yet met the Concentrated Ownership test due to the interest held by its minority shareholder, but it is possible that ContentGuard could meet the Concentrated Ownership test in 2017. If Pendrell or ContentGuard meets the Concentrated Ownership test and generates positive net PHCI, Pendrell or ContentGuard will be subject to the PHC tax on undistributed net PHCI. The PHC tax, which is in addition to the income tax and cannot be offset by our NOL, is currently levied at 20% of the net PHCI not distributed to the corporation’s shareholders.

Our NOLs cannot be used to completely offset the Alternative Minimum Tax or other taxes.

We may also be subject to the corporate Alternative Minimum Tax (“AMT”) in a year in which we have net taxable income because the AMT cannot be completely offset by available NOLs, as losses carried forward generally can offset no more than 90% of a corporation’s AMT liability. In addition, our federal NOLs will not shield us from foreign withholding taxes, state and local income taxes, or revenue-based taxes incurred in jurisdictions that impose such taxes.

Our ability to utilize our NOLs is dependent on the generation of future taxable income.

Our ability to utilize our NOLs is dependent upon the generation of future taxable income before the expiration of the carry forward period attributable to the NOLs, which begin to expire in 2025. We generated taxable income in 2016 and 2017, but we may not generate sufficient taxable income in future years to use the NOLs before they begin expiring.

The value of our NOLs may be reduced by changes in the federal tax laws.

The Tax Cuts and Jobs Act (“TCJA”) was signed into law in 2017. TCJA resulted in several changes to federal tax law, including a reduction of the federal tax rate for corporations to 21%. The TCJA did not change our ability to use our NOLs, including potential limitation under Section 382 described above. We believe our NOLs have value to the extent they can be used to offset future taxable income. A lower overall corporate tax rate reduces that value and any further reduction to the federal corporate rate may further reduce that value.

Our NOLs cannot be used to offset the Personal Holding Company tax.

The Internal Revenue Code imposes an additional tax on the undistributed income of a Personal Holding Company (“PHC”). In general, a corporation is classified as 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 a calendar 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. Pendrell met the Concentrated Ownership test in 2016 and 2017 and more than 60% of Pendrell’s adjusted ordinary gross income was PHCI. Pendrell avoided payment of PHC tax on its PHCI by distributing the PHCI to its shareholders as a dividend in December 2017. ContentGuard did not meet the Concentrated Ownership test in 2016 or 2017 due to the interest held by minority shareholders, but it is possible that ContentGuard could meet the Concentrated Ownership test in 2018. If Pendrell or ContentGuard meets the Concentrated Ownership test, generates positive net PHCI and does not distribute the PHCI as a dividend, Pendrell or ContentGuard will be subject to the PHC tax. The PHC tax, which is in addition to the income tax and cannot be offset by our NOLs, is currently levied at 20% of the net PHCI not distributed to the corporation’s shareholders.

Risks Related to Our Class A Common Stock

AContinued ~~sale~~redemptions of ~~shares~~stock bywill ~~our~~deplete ~~larger shareholders could depress the market price of~~ our ~~Class A common stock~~cash.

ADuring ~~small~~2017, ~~number~~we ofselectively ~~our~~purchased ~~shareholders~~some ~~hold a majority~~ of our Class A common stock ~~and~~from ~~our~~a ~~Class~~small Bnumber ~~common~~of ~~stock,~~sophisticated ~~which~~shareholders isin ~~convertible~~private attransactions. ~~the~~In ~~option~~total, ofwe ~~the~~redeemed ~~holders~~more ~~into~~than ~~Class~~30,000 Ashares ~~common~~in ~~stock~~the aggregate from eight shareholders. ~~The~~We ~~sale~~may, orwithin ~~prospect~~legal ofconstraints, ~~the~~continue ~~sale~~to ofrepurchase astock, ~~substantial~~which ~~number~~will ofreduce ~~these~~our ~~shares~~cash ~~could~~balance, ~~have~~cement anour ~~adverse~~status ~~effect~~as ona ~~the~~personal ~~market~~holding ~~price~~company, ofand exacerbate our ~~Class~~challenges Aunder ~~common~~Section ~~stock~~382.

Purchases or sales of shares could significantly impact the price of our Class A common stock.

A small number of our shareholders hold a majority of our Class A common stock. Moreover, since we de-listed our Class A common stock from Nasdaq in mid-December 2017, trading in our stock has diminished and the price of our shares has fallen. Because of our concentrated holdings and limited trading volume, future purchases and sales of shares could have a significant impact on the price of our shares.

The interests of our controlling shareholder may conflict with the interests of other Class A holders.

Eagle River Satellite Holdings, LLC (“ERSH”), together with its affiliates Eagle River Investments, LLC (“ERI”), Eagle River, Inc. and Eagle River Partners, LLC (“ERP”) (collectively, “Eagle River”) controls approximately 6768% of the voting power of our outstanding capital stock. Craig O. McCaw, our Executive Chairman, is the sole manager and beneficial member of ERI, which is the sole member of ERSH. Mr. McCaw is the sole shareholder of Eagle River, Inc. and the beneficial member of ERP. Accordingly, Eagle River has control over the outcome of matters requiring shareholder approval, including the election of directors, amendments to our governing documents, the adoption or prevention of mergers, consolidations or sales of all or substantially all of our assets, or control changes. Eagle River is not restricted or prohibited from competing with us.

We ~~are~~have adelisted ~~“controlled~~our ~~company”~~shares ~~within~~from ~~the meaning of the~~ Nasdaq ~~Marketplace Rules~~ and are therefore ~~qualify~~not ~~for,~~subject ~~and~~to ~~may~~Nasdaq ~~rely on, exemptions from certain~~ corporate governance requirements.

~~Eagle~~Having ~~River~~delisted ~~controls approximately 67% of the voting power of~~ our ~~outstanding~~Class ~~capital~~A common stock. Asfrom ~~a result~~Nasdaq, we ~~are~~need ~~a “controlled company” within the meaning of the Nasdaq corporate governance standards, and therefore may elect~~ not to comply with ~~certain~~ Nasdaq corporate governance requirements, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that the compensation of officers be determined, or recommended to the board of directors for determination, by a majority of the independent directors or a compensation committee comprised solely of independent directors, and (iii) the requirement that director nominees be selected, or recommended for the board of directors’ selection, by a majority of the independent directors or a nominating committee comprised solely of independent directors with a written charter or board resolution addressing the nomination process. We do not currently rely on any of these exemptions, but reserve the right to do so in the future. If we choose to do so, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

Our Tax Benefits Preservation Plan (“Tax Benefits Plan”), as well as certain provisions in our restated articles of incorporation, may discourage takeovers, which could affect the rights of holders of our Class A common stock.

Our Tax Benefits Plan is intended to act as a deterrent against any person or group acquiring or otherwise obtaining beneficial ownership of more than 4.9% of our securities without the approval of our board of directors. In addition, our articles of incorporation require us to take all necessary and appropriate action to protect certain rights of our common shareholders, including voting, dividend and conversion rights and rights in the event of a liquidation, merger, consolidation or sale of substantially all of our assets. Our articles of incorporation also provide that we will not avoid or seek to avoid the observance or performance of those rights by charter amendment, entry into an inconsistent agreement or reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution or the issuance or sale of securities. The rights protected by these provisions of the articles of incorporation include our Class B common shareholders’ right to ten votes per share on matters submitted to a vote of our shareholders and option to convert each share of Class B common stock into one share of Class A common stock. The provisions of the Tax Benefits Plan and our articles of incorporation could discourage takeovers of our company, which could adversely affect the rights of our shareholders.

9Having delisted, and in light of our pending de-registration, our ability to access the capital markets could be negatively impacted.

ofIn December 2017, we delisted our common ~~shareholders,~~stock ~~including~~from ~~voting~~Nasdaq, ~~dividend~~ and ~~conversion~~filed ~~rights~~a ~~and~~de-registration ~~rights~~notice inwith the ~~event~~SEC ofto ade-register ~~liquidation,~~our ~~merger,~~Class ~~consolidation~~A orcommon ~~sale~~stock. ofElimination ~~substantially all~~ of our ~~assets.~~SEC ~~Our~~reporting ~~articles~~obligations ofand ~~incorporation~~delisting ~~also~~could ~~provide~~harm ~~that~~our weability ~~will not avoid or seek~~ to ~~avoid~~raise ~~the~~capital ~~observance~~through orfinancing ~~performance~~sources ofon ~~those~~terms ~~rights~~acceptable byto ~~charter amendment~~us, ~~entry into an inconsistent agreement~~ or ~~reorganization,~~at ~~recapitalization~~all, ~~transfer~~and ofresult ~~assets,~~in ~~consolidation, merger, dissolution or~~ the ~~issuance~~potential orloss ~~sale~~ of ~~securities.~~confidence ~~The rights protected~~ by ~~these~~investors, ~~provisions~~increased ofemployee ~~the~~turnover, ~~articles of incorporation include our Class B common shareholders’ right to ten votes per share on matters submitted to a vote of our shareholders~~ and ~~option~~fewer tobusiness ~~convert~~development ~~each share of Class B common stock into one share of Class A common stock~~opportunities. ~~The provisions of the Tax Benefits Plan and our articles of incorporation could discourage takeovers of our company, which could adversely affect the rights of our shareholders.~~

IfHaving ~~we delist from Nasdaq~~delisted, our ~~ability~~trading tovolume ~~access~~and ~~the~~common ~~capital~~stock ~~markets~~price ~~could~~may beremain ~~negatively impacted~~depressed.

Our ~~common~~trading ~~stock~~volume is ~~listed~~relatively ~~for~~low, ~~trading~~and onsince ~~the~~we delisted our shares from Nasdaq ~~Capital~~in ~~Market.~~December ~~However~~2017, ~~our~~the ~~Board~~price of ~~Directors~~our stock has ~~proposed~~fallen. toIn ~~our~~the ~~shareholders~~absence ~~that~~of weSEC ~~engage~~reporting inobligations aand ~~reverse~~the ~~stock~~absence ~~split~~of toa ~~reduce~~listing ~~our~~on ~~number~~Nasdaq, oftrading ~~record~~volume ~~holders~~may tofurther ~~less~~decrease, ~~than~~in ~~300~~which ~~and~~case ~~thereafter~~the ~~eliminate~~market ~~our~~price ~~SEC~~of ~~reporting~~our ~~obligations~~Class A ~~and~~common ~~our~~stock ~~Nasdaq~~could ~~listing~~decline. ~~Elimination~~More ofspecifically, our ~~SEC~~stock ~~reporting~~(i) may ~~obligations~~be ~~and~~more ~~delisting~~thinly ~~could~~traded, ~~harm~~making it more difficult for our ~~ability~~shareholders to ~~raise~~sell ~~capital~~shares, ~~through~~(ii) may ~~financing~~experience ~~sources~~greater onprice ~~terms~~volatility, ~~acceptable~~and to(iii) may ~~us,~~not orattract atanalyst ~~all~~coverage, ~~and~~all of which may result in ~~the~~a ~~potential~~lower ~~loss~~stock ofprice. ~~confidence~~For bythese ~~investors~~reasons and others, ~~increased~~shareholders ~~employee~~may ~~turnover,~~not ~~and~~receive ~~fewer~~what ~~business~~they ~~development~~view ~~opportunities~~as a fair price for their shares.

IfOnce we ~~delist~~have ~~from Nasdaq~~de-registered, ~~our~~it ~~trading~~may ~~volume~~be ~~and~~more ~~common~~difficult to trade our stock ~~price~~in ~~may~~compliance bewith ~~depressed~~laws.

~~Our~~Once ~~trading volume is relatively low. If~~ we are no longer required to fulfill SEC reporting obligations, ~~and~~we nomay ~~longer~~choose ~~listed~~not onto ~~Nasdaq,~~file ~~trading~~current ~~volume~~or ~~may~~periodic ~~further~~reports. ~~decrease,~~Even inif ~~which~~we ~~case~~choose ~~the~~to ~~market~~file ~~price~~reports, ofthey ~~our~~likely ~~Class A~~will ~~common~~not ~~stock~~be ~~could decline~~audited. ~~More~~The ~~specifically,~~absence ~~our~~of ~~stock~~those ~~(i) may~~reports beor ~~more~~the ~~thinly~~absence ~~traded,~~of ~~making~~an itaudit ~~more~~may ~~difficult~~mean ~~for~~that ~~our~~material ~~shareholders~~information toregarding ~~sell~~the ~~shares,~~Company ~~(ii) may~~is ~~experience~~not ~~greater~~in ~~price~~the ~~volatility~~public domain, ~~and~~which ~~(iii)~~ may ~~not~~make ~~attract~~it ~~analyst~~more ~~coverage,~~difficult ~~all~~to ofbuy ~~which~~or ~~may~~sell ~~result~~shares in acompliance ~~lower~~with ~~stock~~applicable ~~price~~securities laws. For these reasons and others, shareholders may not receive what they view as a fair price for their shares.

If we delist from Nasdaq, it may be more difficult to trade our stock in compliance with applicable laws.

If we are no longer required to fulfill SEC reporting obligations and no longer listed on Nasdaq, we may choose not to file current or periodic reports. Even if we choose to file reports, they likely will not be audited. The absence of those reports or the absence of an audit may mean that material information regarding the Company is not in the public domain, which may make it more difficult to buy or sell shares in compliance with applicable securities laws. For these reasons and others, shareholders may not receive what they view as a fair price for their shares.

If our number of record holders increases, we may be subject to SEC reporting obligations.

We have limited ability to control our shareholders’ acquisition or disposition of shares. If ~~we engage in a reverse stock split to reduce~~ our number of record holders toreaches ~~less than~~ 300 soor ~~that~~higher, we ~~can~~would ~~terminate~~be required to re-register our ~~SEC~~Class ~~reporting~~A ~~obligations~~common ~~and~~stock ~~delist~~with ~~from~~the ~~Nasdaq~~SEC, in which case we ~~could~~would lose the corresponding cost-saving benefits ifthat ~~our number of record holders thereafter increases to more than 300, in which case~~ we ~~will~~anticipate ~~again~~achieving beby ~~required~~delisting toand ~~fulfill SEC reporting obligations~~de-registering.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Our corporate headquarters are located in Kirkland, Washington, where we lease 8,050 square feet in Kirkland under a lease which expires on July 31, 2019. We currently sublease 2,882 square feet of that space and occupy the remaining 5,168 square feet.

We believe our facilities are adequate for our current business and operations.

Item 3.

Legal Proceedings.

See Note 87 – “Commitments and Contingencies” of the Notes to the Consolidated Financial Statements included in Item 8 of this report.

Item 4.

Mine Safety Disclosures.

Not Applicable.

1112

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Our Class A Common Stock

~~Our~~Prior to December 15, 2017, our Class A common stock ~~trades~~traded on the Nasdaq Capital Market under the symbol “PCO.” On December 15, 2017, we filed a Notification of Removal from Listing and/or Registration on Form 25, which prompted the Nasdaq Capital Market to suspend trading as of close of trading on December 15, 2017. We then filed a Form 15 with the SEC on December 26, 2017 to terminate the registration of our Class A common stock.

~~Prior~~Our ~~to October 1, 2016, the closing bid price of our~~ Class A common stock ~~price~~trades remained below the $1.00 price required by Nasdaq’s continued listing requirements. For continued listing, the stock price deficiency was required to be remediated prior to October 31, 2016. To address this stock price deficiency, we completed a 1-for-10 reverse stock split on ~~September~~OTC ~~30,~~Pink® ~~2016. As~~under ~~a result of~~ the ~~reverse~~symbol stock split, our share count, per share data and price per share reported in this annual report on Form 10-K have been adjusted retrospectively as if the reverse stock split had been in effect for all periods presented“PCOA.”

~~The~~At ~~table~~our ~~below~~annual ~~sets~~meeting ~~forth~~of ~~the~~shareholders ~~high~~in ~~and~~June ~~low~~2017, ~~sales~~our ~~prices~~shareholders approved a 1-for-100 reverse stock split of our Class A common stock inand ~~U.S.~~Class ~~dollars~~B ~~for~~common ~~each~~stock ofthat ~~the~~was ~~periods~~implemented ~~presented.~~on ~~Stock~~November ~~prices~~30, ~~represent~~2017 ~~amounts~~(the ~~published~~"2017 byReverse ~~Nasdaq~~Split"). AsThe 2017 Reverse Split reduced our number of ~~March~~record 13shareholders to less than 300, which allowed us to (i) terminate our Nasdaq listing, effective December 15, 2017, (ii) file to de-register our Class A Stock under the ~~closing~~Securities ~~sales~~Exchange ~~price~~Act of ~~our~~1934, ~~Class~~as amended (the “Exchange Act”), which we filed on December A26, ~~common~~2017; ~~stock~~and ~~was~~(iii) cease ~~$7.39~~to ~~per~~be ~~share~~a reporting company under the Exchange Act after our notice of de-registration is effective, which will be no later than March 26, 2018.

	2016				2015
Period	High		Low		High		Low
First Quarter	$	6.55	$	4.61	$	13.60	$	9.90
Second Quarter	$	6.93	$	4.85	$	14.50	$	9.56
Third Quarter	$	7.33	$	5.00	$	16.10	$	7.20
Fourth Quarter	$	7.23	$	6.05	$	8.03	$	5.00

On September 20, 2017, our Board of Directors (the “Board”) announced that we do not currently plan to publish financial information following the expiration of our reporting obligations under the Exchange Act. As a result, we believe this Form 10-K for fiscal year ended December 31, 2017 will be our final financial statement filed with the SEC.

AsIn ofSeptember ~~March 13~~2016, ~~2017,~~we ~~there~~consummated ~~were~~a ~~approximately~~1-for-10 ~~300~~reverse ~~record~~stock ~~holders~~split of(the ~~our~~“2016 ~~Class A~~Reverse ~~common~~Split”) to remediate a stock price deficiency as required by Nasdaq’s continued listing requirements.

As a result of the 2017 and 2016 Reverse Splits, our share count, per share data and price per share reported in this annual report on Form 10-K have been adjusted retrospectively as if both reverse stock splits had been in effect for all periods presented.

The table below sets forth the high and low sales prices of our Class A common stock in U.S. dollars for each of the periods presented. Stock prices represent amounts published by Nasdaq and by OTC Markets®, as applicable. For prices on and after December 15, 2017, the quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. As of February 6, 2018, the last sales price of our Class A common stock reported by OTC Pink® was $551.61 per share.

	2017				2016
Period	High		Low		High		Low
First Quarter	$	739.00	$	609.00	$	654.80	$	461.00
Second Quarter	$	723.00	$	597.00	$	692.70	$	485.00
Third Quarter	$	747.00	$	621.00	$	733.00	$	500.00
Fourth Quarter	$	739.03	$	575.00	$	723.00	$	605.00

As of February 6, 2018, there were approximately 166 record holders of our Class A common stock.

Market for Our Class B Common Stock

There is no established trading market for our Class B common stock, of which we have 553,~~366,000~~660 shares outstanding with two holders of record. Each share of Class B common stock is convertible at any time at the option of its holder into one share of Class A common stock.

Dividends

WeOn ~~have~~November ~~never~~30, ~~paid~~2017, athe ~~cash~~Board declared a dividend of $12.32 per share, payable on shares ofoutstanding ~~our~~after ~~equity~~the ~~securities.~~2017 ~~Unless~~Reverse weSplit. ~~become~~The ~~subject~~dividend towas ~~personal~~paid ~~holding~~on ~~company~~December ~~tax~~27, we2017 doto ~~not~~shareholders ~~intend~~of torecord ~~pay~~on ~~any~~December ~~cash~~15, ~~dividends~~2017. onThe ~~our~~Company ~~common~~elected ~~shares~~to ~~during~~pay the ~~foreseeable~~dividend ~~future.~~to Itshareholders, israther ~~anticipated~~than ~~that~~incur ~~future~~personal ~~earnings,~~holding ifcompany ~~any,~~tax. ~~from~~See ~~our~~Note ~~operations~~11 ~~will~~– be“Income ~~used~~Taxes” tofor ~~finance~~further ~~growth~~details.

12Prior to 2017, the Company had never paid cash dividends on shares of its Class A or Class B common stock.

Unregistered Sales of Equity Securities and Use of Proceeds

The Class A Stock securities purchases described in the table below represent private stock purchase transactions from a small number of sophisticated shareholders (seven) in private transactions during the fourth quarter of 2017, as well as the fractionalization of shares pursuant to our 2017 Reverse Split:

	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
October 1 – October 31, 2017		2,000	$	673.00		—		—
November 1 – November 30, 2017		1,945		526.44		—		—
December 1 – December 31, 2017		2,205		616.85		—		—
		6,150	$	606.52		—		—

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes information, as of December 31, 2017, relating to Pendrell’s equity compensation plans pursuant to which grants of stock options, restricted stock, or other rights to acquire shares may be granted from time to time:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) (a)		Weighted-average exercise price of outstanding options, warrants and rights(2) (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		18,589	$	1,489.80		24,743
Equity compensation plans not approved by security holders		—		—		—
Total		18,589	$	1,489.80		24,743

(1)	Excludes 562 shares of restricted stock awards that remain subject to forfeiture.

(2)	Excludes the impact of 562 shares of restricted stock awards and 6,089 shares of restricted stock unit awards that have no exercise price.

Performance Measurement Comparison

The following graph shows the total shareholder return as of the dates indicated of an investment of $100 in cash on December 31, ~~2011~~2012 for: (i) our Class A common stock; (ii) the Nasdaq Composite Index; and (iii) the Nasdaq 100 Technology Sector Index.

The stock price performance graph below is not necessarily indicative of future performance.

	12/11		12/12	12/13	12/14	12/15	12/16
	2012			2013	2014	2015	2016	2017
Pendrell Corporation	~~100.00~~	100.00	~~49.61~~	78158.5227	53108.9166	1939.5746	2653.3715	46.05
NASDAQ Composite	~~100.00~~	100.00	~~116.41~~	~~165~~141.4763	~~188~~162.6909	~~200~~173.3233	~~216~~187.5419	242.29
NASDAQ 100 Technology Sector	~~100.00~~	100.00	~~114.75~~	~~154~~133.2555	~~192~~165.4792	~~208~~180.7558	~~237~~205.5154	291.88

1315

Item 6.

Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and accompanying notes included in this Form 10-K.

	Year Ended December 31,
	2016			2015			2014			2013			2012
	2017			2016			2015			2014			2013
	(in thousands, except per share data)
Revenue	$	5942,~~018~~774		$	4359,~~519~~018		$	4243,~~534~~519		$	1342,~~128~~534		$	3313,~~775~~128
Operating expenses:
Cost of revenues(1)		~~18,156~~409			1018,~~215~~156			1410,~~170~~215			714,~~872~~170			~~314~~7,872
Patent administration and related costs(1)		~~1,046~~916			21,~~668~~046			62,~~386~~668			46,~~405~~386			34,~~655~~405
Patent litigation(1)		48,~~169~~695			134,~~076~~169			913,~~880~~076			49,~~564~~880			24,~~538~~564
General and administrative(1)		7,~~508~~675			167,~~750~~508			2716,~~467~~750			2527,~~939~~467			2925,~~844~~939
Stock-based compensation		3,~~424~~422			43,~~507~~424			94,~~405~~507			129,~~345~~405			812,~~597~~345
Amortization of intangibles		9,498			13,939			15,929			15,864			13,471
Amortization of intangible assets		2,345			9,498			13,939			15,929			15,864
Impairment of intangibles and goodwill(2)		—			103,499			11,013			—			—
Contract termination costs(2)		3,161			—			—			—			—
Operating expenses, net		43,801			164,654			94,250			70,989			58,419
Impairment of intangible assets and goodwill(3)		—			—			103,499			11,013			—
Operating income (loss)		15,217			(121,135	)		(51,716	)		(57,861	)		(24,644	)
Total operating expenses		26,623			43,801			164,654			94,250			70,989
Net interest income (expense)(3)		696			103			(99	)		(64	)		(2,245	)
Operating income (loss)		16,151			15,217			(121,135	)		(51,716	)		(57,861	)
Gain on deconsolidation of subsidiaries(3)		—			—			—			—			48,685
Net interest income (expense)		1,603			696			103			(99	)		(64	)
Gain on settlement of Boeing litigation(4)		—			—			—			—			10,000
Gain on contingencies (4)		—			2,047			6,095			—			—
Gain associated with disposition of assets(5)		—			—			—			—			5,599
Other expense		(8	)		(11	)		(14	)		(16	)		(55	)
Gain on contingencies (6)		2,047			6,095			—			—			—
Income (loss) before income taxes		17,746			17,949			(114,951	)		(51,831	)		(57,980	)
Other income (expense)		(11	)		(14	)		(16	)		(55	)		1,588
Income tax benefit (expense)(5)		2,110			—			(2,631	)		(6,303	)		—
Income (loss) before income taxes		17,949			(114,951	)		(51,831	)		(57,980	)		38,983
Net income (loss)		19,856			17,949			(117,582	)		(58,134	)		(57,980	)
Income tax benefit (expense)(7)		—			(2,631	)		(6,303	)		—			1,034
Net income (loss) attributable to noncontrolling interest		796			186			(7,902	)		(7,132	)		(2,918	)
Net income (loss)		17,949			(117,582	)		(58,134	)		(57,980	)		40,017
Net income (loss) attributable to Pendrell	$	19,060		$	17,763		$	(109,680	)	$	(51,002	)	$	(55,062	)
Net income (loss) attributable to noncontrolling interest		186			(7,902	)		(7,132	)		(2,918	)		(67	)
Basic income (loss) per share attributable to Pendrell	$	76.28		$	66.38		$	(412.79	)	$	(192.89	)	$	(210.06	)
Net income (loss) attributable to Pendrell	$	17,763		$	(109,680	)	$	(51,002	)	$	(55,062	)	$	40,084
Diluted income (loss) per share attributable to Pendrell	$	74.22		$	64.15		$	(412.79	)	$	(192.89	)	$	(210.06	)
Basic income (loss) per share attributable to Pendrell	$	0.66		$	(4.13	)	$	(1.93	)	$	(2.10	)	$	1.56
Total assets	$	208,184		$	212,393		$	180,892		$	304,104		$	351,994
Diluted income (loss) per share attributable to Pendrell	$	0.64		$	(4.13	)	$	(1.93	)	$	(2.10	)	$	1.52
Long-term obligations, including current portion of capital lease obligations(6)	$	—			7,796		$	—		$	1,521		$	6,695
Total assets	$	212,393		$	180,892		$	304,104		$	351,994		$	381,415
Long-term obligations, including current portion of capital lease obligations(8)	$	7,796			—		$	1,521		$	6,695		$	2,241

(1) ~~Certain~~Amounts ~~prior~~in ~~period~~2013 ~~amounts~~ have been reclassified to conform to the current year presentation of expenses in our consolidated statements of operations, including the presentation of “cost of revenues” and “patent litigation” as separate captions; as such costs were previously included in “patent administration, litigation and related costs” and “general and administrative~~” in 2013 and prior years~~.”

(2) ~~During~~Contract ~~the~~termination ~~fourth~~costs ~~quarter~~during of the year ended December 31, ~~2015,~~2017 werepresent ~~recorded a non-cash impairment charge of $103.5 million related to our patents, other intangible assets and goodwill. During~~ the ~~fourth~~cost ~~quarter~~associated ofwith the ~~year ended December 31, 2014, we recorded a non~~buy-~~cash~~out ~~impairment charge~~ of ~~$11.0 million related to~~ the ~~goodwill~~revenue ~~and~~share ~~proprietary~~agreement ~~micro-propagation~~from ~~technology of Provitro Biosciences LLC (“Provitro”). In early 2015, we suspended further development of~~ the ~~Provitro™~~company ~~proprietary micro-propagation technology and related laboratory processes~~ that ~~were~~sold ~~designed~~us tothe ~~facilitate~~bulk ~~production on a commercial scale~~ of ~~certain~~our ~~plants,~~memory ~~particularly~~patents ~~timber~~in ~~bamboo~~2013.

14(3) During the fourth quarter of the year ended December 31, 2015, we recorded a non-cash impairment charge of $103.5 million related to our patents, other intangible assets and goodwill. During the fourth quarter of the year ended December 31, 2014, we recorded a non-cash impairment charge of $11.0 million related to the goodwill and proprietary micro-propagation technology of Provitro Biosciences LLC (“Provitro”). In early 2015, we suspended further development of the Provitro™ proprietary micro-propagation technology and related laboratory processes that were designed to facilitate production on a commercial scale of certain plants, particularly timber bamboo.

(3) Prior to 2013, certain of our subsidiaries had agreements with operators of gateways for our MEO satellite system, some of which were capital leases. We continued to accrue expenses according to our subsidiaries’ contractual obligations until the liabilities, including interest costs resulting from capital lease obligations, were transferred to the Liquidating Trust on June 29, 2012, resulting in a recognized a gain of $48.7 million upon their deconsolidation.16

(4) WeDuring ~~had been in litigation with Boeing regarding~~ the ~~development~~years ~~and~~ended ~~launch~~December of31, ~~our~~2016 ~~former MEO satellites~~ and ~~related launch vehicles. On June 25~~2015, ~~2012,~~ we ~~settled~~recorded ~~our~~gain ~~litigation~~on ~~against~~contingencies ~~Boeing~~of ~~for~~ $102.0 million and $3.9 ~~The~~million, ~~settlement~~respectively, ~~agreement~~due ~~and~~to ~~mutual~~the ~~release~~receipt ~~between~~of ~~ourselves~~contingent ~~and~~payments ~~Boeing~~associated ~~fully~~with ~~released~~the ~~and~~disposition ~~discharged~~of ~~any~~MEO satellites and ~~all~~related ~~claims~~launch ~~between~~vehicles usof ~~and~~our ~~Boeing~~prior satellite business. AsDuring athe ~~result~~year ofended ~~the~~December ~~settlement~~31, ~~agreement~~2015, we also recorded a gain ofon contingency associated with a $101.06 million ~~during~~settlement received from the ~~year~~J&J ~~ended~~Group. ~~December~~See ~~31,~~Note ~~2012~~10 - “Gain on Contingencies” for further discussion.

(5) During the year ended December 31, ~~2012~~2017, we ~~sold~~settled ~~real~~our ~~property~~claim ~~located~~for the partial refund of state income taxes previously paid, resulting in ~~Brazil~~a ~~for~~tax ~~approximately~~benefit of $52.2 million. During the years ended December 31, 2015 and 2014, we recorded tax provisions of $4.1 million and $6.3 million, respectively, related to foreign taxes withheld on revenue generated from license agreements executed with third party licensees domiciled in foreign jurisdictions. Additionally, during the year ended December 31, 2015, as a result of the impairment of certain indefinite-lived intangible assets, the deferred tax liability associated with the intangible assets was decreased, resulting in a tax benefit of $1.5 million.

(6) ~~During~~Prior ~~the~~to ~~years ended December 31, 2016 and~~ 2015, welong-term ~~recorded~~obligations ~~gain~~consisted onprimarily ~~contingencies~~ of $2deferred tax liabilities.0 ~~million~~Long-term ~~and~~obligations ~~$3.9~~at ~~million,~~December ~~respectively~~31, ~~due~~2013 toalso ~~the~~included ~~receipt~~an ofinstallment ~~contingent~~payment ~~payments~~obligation ~~associated~~arising ~~with~~from the ~~disposition~~2013 ofacquisition ~~MEO satellites and related launch vehicles~~ of our ~~prior~~memory ~~satellite~~and ~~business.~~storage ~~During~~technologies ~~the~~portfolio ~~year~~and ~~ended~~expense ~~December~~related ~~31,~~to ~~2015,~~restricted westock ~~also~~awards ~~recorded~~that ais ~~gain~~required onto ~~contingency~~be ~~associated~~treated ~~with~~as a $1liability.6 ~~million~~Long-term ~~settlement~~obligations ~~received~~at ~~from~~December ~~the~~31, ~~J&J~~2016 ~~Group.~~consist ~~See~~primarily ~~Note~~of 10revenue -share ~~“Gain on Contingencies” for further discussion~~obligations.

(7) During the years ended December 31, 2015 and 2014, we recorded tax provisions of $4.1 million and $6.3 million, respectively, related to foreign taxes withheld on revenue generated from license agreements executed with third party licensees domiciled in foreign jurisdictions. Additionally, during the year ended December 31, 2015, as a result of the impairment of certain indefinite-lived intangible assets, the deferred tax liability associated with the intangibles was decreased, resulting in a tax benefit of $1.5 million.17

(8) Prior to 2015, long-term obligations consisted primarily of deferred tax liabilities. Long-term obligations at December 31, 2013 also included an installment payment obligation arising from the 2013 acquisition of our memory and storage technologies portfolio and expense related to restricted stock awards that is required to be treated as a liability. Long-term obligations at December 31, 2016 consist primarily of revenue share obligations.

Item 7.

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this 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 our actual results 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 under “Item 1A of Part I—Risk Factors” and elsewhere in this Form 10-K. 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~~After ~~the~~more ~~past~~than ~~five~~a ~~years,~~decade ~~through~~as ~~our~~a ~~consolidated~~public ~~subsidiaries~~company, we ~~have~~made ~~invested~~the decision in, ~~acquired~~2017 to “go private” by delisting our Class A common stock from Nasdaq and ~~monetized~~filing IPfor ~~rights~~de-registration. We ~~have~~anticipate ~~generated~~the ~~positive~~delisting ~~returns~~and onde-registration ~~our~~will ~~patents~~yield ~~applicable~~annual tocost ~~memory~~savings ~~and~~of ~~storage~~more ~~technologies~~than ~~(our~~one ~~“Memory~~million ~~Patents”),~~dollars. ~~but~~As ~~not~~a ~~our~~non-reporting ~~digital~~issuer, ~~rights~~we ~~management~~also ~~patents~~anticipate ~~(“DRM~~increased ~~Patents”)~~strategic orand ~~the~~operational ~~wireless~~flexibility, ~~digital~~with ~~and~~visibility ~~other~~to ~~patents~~potential ~~held~~business inpartnerships ~~our~~that ~~Pendragon~~are ~~subsidiaries.~~not available as a reporting company.

~~During~~As ~~2016,~~ we ~~licensed~~worked ~~our~~through ~~Memory Patents to Toshiba Corporation. The Toshiba license was~~ the ~~fourth~~delisting ~~significant~~and ~~Memory~~de-registration ~~Patent~~process ~~license signed since we acquired the Memory Patents~~ in ~~2013. Through those four licenses, we have generated aggregate license fees of approximately $110 million. Prior to~~ 2017, ~~pursuant to~~ the ~~agreement~~market ~~under~~price ~~which we acquired the Memory Patents, we shared a significant portion~~ of ~~those~~our ~~license~~stock ~~fees~~dropped ~~with~~to ~~the~~historically ~~seller.~~low Inlevels: ~~early~~lower ~~2017,~~than ~~the~~our ~~seller~~net ~~agreed~~book tovalue ~~relinquish~~per ~~its future revenue~~ share ~~rights~~and inlower ~~exchange~~than ~~for~~our ancash ~~up-front~~value ~~payment~~per ~~and future installment payments~~share. ~~This~~We ~~will~~responded ~~result~~by inpurchasing ashares ~~one-time charge~~ of ~~$3.2 million to expense in~~ our ~~first~~Class ~~quarter~~A ofcommon ~~2017~~stock ~~and~~from ~~will~~a ~~significantly~~select ~~reduce~~number ~~our “cost~~ of ~~revenues”~~sophisticated onshareholders ~~future~~in ~~revenue~~private, ~~from~~exempt ~~our Memory Patents~~transactions. ~~Our~~Federal ~~2017~~and ~~buyout~~state ofsecurities ~~future~~laws ~~revenue~~limited ~~share rights reflects~~ our ~~confidence~~ability into ~~the~~aggressively ~~value~~repurchase ofstock, ~~our memory portfolio~~ and ~~our~~those ~~belief~~laws ~~that~~continue ~~standard~~to ~~compliant~~impact ~~unlicensed~~ongoing ~~flash~~stock ~~memory~~repurchase ~~component~~efforts. ~~suppliers~~However, ~~solid~~within ~~state~~those ~~disk~~legal ~~manufacturers~~constraints, ~~and~~we ~~device~~intend ~~vendors~~to ~~will~~repurchase ~~ultimately~~additional ~~need~~shares toin ~~obtain~~2018 aif ~~license~~those ~~from~~repurchases usare accretive to ~~continue~~our ~~their~~remaining ~~commercial activities~~shareholders.

InWhile ~~that~~we ~~regard,~~work ~~our licensing discussions with SanDisk reached impasse in 2016, leading~~ to ~~our~~capitalize ~~filing~~on ofanticipated ~~two~~cost ~~actions~~savings ~~against~~and ~~SanDisk:~~operational anflexibility ~~International~~from ~~Trade Commission (~~“~~ITC”)~~going ~~proceeding~~private," ~~in which~~ we ~~seek~~continue anour ~~exclusionary~~efforts ~~order~~to ~~that~~monetize ~~prevents~~our ~~SanDisk~~DRM ~~from~~Patents ~~importing infringing products into the United States,~~ and aour ~~patent~~Memory ~~infringement suit in the federal district court for the Central District of California, in which we seek monetary damages for SanDisk’s infringement~~Patents. ~~Due to the accelerated pace of ITC proceedings, we anticipate a trial with an administrative law judge as early as October 2017.~~

~~While~~During wethe ~~continue~~third toquarter ~~work~~of on2017 ~~monetizing our Memory Patents,~~ we ~~are~~licensed ~~also pursuing~~ our ~~appeal of two adverse jury decisions in 2015 relating to our~~ DRM Patents. ~~Briefing~~to ~~for~~The ~~those~~Walt ~~two~~Disney ~~appeals~~Company ~~is complete, with oral argument in front of the federal district court scheduled~~ for ~~early~~Disney’s ~~June~~digital ~~2017~~entertainment offerings. IfDisney wejoins ~~succeed~~Warner onBros ~~appeal,~~and weSony ~~intend~~Entertainment toas ~~re-open~~licensees ~~licensing~~of ~~discussions with numerous device makers who are currently shielded by~~ the ~~adverse~~DRM ~~verdicts~~Patents. Meanwhile, weContentGuard ~~have~~continues ~~continued~~its ~~our~~ dialogue with ~~participants~~other inmovie ~~the~~studios ~~digital~~and ~~cinema~~distributors ~~initiative~~of ~~to address our view that modern-day~~ digital ~~delivery of motion pictures from studios to theaters implicates our DRM Patents.~~ entertainment

~~Management~~Earlier ofin ~~our~~2017, IPwe ~~portfolio~~settled isour ~~not~~litigation ~~detracting~~against usSanDisk ~~from~~Corporation ~~our~~and ~~primary~~its ~~mission~~affiliates, ~~which~~including isWestern ~~identification~~Digital, ofby ~~business~~licensing ~~opportunities~~our ~~that~~Memory ~~generate~~Patents ~~solid,~~to ~~stable~~SanDisk ~~income streams~~ and ~~greater~~its ~~growth potential~~affiliates. WeThe ~~have~~SanDisk ~~evaluated~~license ~~several~~was ~~opportunities~~the ~~with~~fifth ~~business~~significant ~~owners~~Memory ~~and~~Patent ~~investment~~license ~~partners~~signed ~~who~~since ~~see~~we acquired the ~~benefits~~Memory ofPatents ~~working~~in ~~with~~2013. aPrior ~~well-established~~to 2017, ~~well-funded~~pursuant ~~organization.~~to ~~Although~~the agreement under which we ~~have~~acquired ~~not~~the ~~reached~~Memory ~~agreement~~Patents, ~~with~~we ~~any~~shared a significant portion of ~~these~~license ~~potential~~fees ~~owners~~from orour ~~partners~~Memory Patents with the seller. In early 2017, wethe ~~continue~~seller agreed to ~~identify~~relinquish ~~and~~its ~~evaluate~~future ~~new~~revenue ~~business~~share ~~opportunities~~rights in exchange for an up-front payment and future installment payments. ~~During~~This ~~the~~resulted ~~course~~in a one-time charge of ~~our~~$3.2 ~~evaluations,~~million weto ~~have~~expense ~~learned~~in ~~that~~our ~~many~~first quarter of ~~these~~2017, ~~potential~~but ~~targets~~significantly ~~are~~reduced ~~better~~our ~~suited~~cost ~~for~~of anrevenues ~~organization~~on ~~that~~future isrevenue ~~not~~from ~~encumbered~~our byMemory Patents. Our buyout of the ~~additional~~seller’s ~~infrastructure~~future ~~required~~revenue ofshare anrights ~~SEC~~reflects ~~reporting~~our ~~company.~~confidence ~~That~~in ~~knowledge,~~the ~~combined~~value ~~with~~of our ~~current~~Memory ~~costs~~Patents and ~~regulatory~~our ~~burdens~~belief ofthat ~~being~~standard acompliant ~~reporting~~unlicensed ~~company,~~flash ~~our~~memory ~~inability~~component tosuppliers, ~~provide~~solid ~~robust~~state ~~confidentiality~~disk ~~commitments~~manufacturers ~~(due~~and todevice ~~reporting~~vendors ~~obligations),~~will ~~and~~ultimately ~~limited~~need ~~flexibility~~to ~~resulting~~obtain a license from ~~SEC~~us ~~and~~to ~~Nasdaq~~continue ~~corporate~~their commercial activities.

16In that regard, our licensing discussions with Kingston reached impasse in 2017, leading to our filing of a patent infringement suit in the federal district court for the Central District of California in early 2018, in which we seek monetary damages for Kingston’s infringement. Kingston has not yet answered our complaint, so we have no indication of whether Kingston will aggressively defend our lawsuit or be willing to negotiate a license to resolve our claims.

governance mandates, prompted our board of directors to appoint a special committee of our independent directors (the “Special Committee”) to determine whether the Company should de-register and de-list.18

~~Following~~Management ~~months~~ of ~~assessment~~our ~~and~~IP ~~deliberation,~~portfolio ~~the Special Committee determined that it~~ is innot ~~our~~detracting ~~best~~us ~~interests~~from ~~and the best interests of shareholders to de-register and de-list. Therefore, the Special Committee recommended, and~~ our ~~board~~primary ~~of directors endorsed~~mission, awhich ~~reverse~~is ~~stock~~identification ~~split (“Reverse Split”)~~ of ~~our~~business ~~common~~opportunities ~~stock~~ that ~~transforms~~generate ~~each one hundred shares of common stock into one share of common stock~~solid, ~~with~~stable ~~fractionalized~~income ~~shares~~streams ~~redeemed for cash. Our shareholders will be asked to approve the reverse stock split at the 2017 annual meeting of shareholders~~ and, ifgreater ~~approved,~~growth ~~will be implemented promptly thereafter~~potential. We ~~anticipate~~have ~~that~~evaluated ~~the~~several ~~Reverse~~opportunities. ~~Split~~Although ~~will~~we ~~reduce~~have ~~our~~not ~~number~~reached ofagreement ~~record~~with ~~holders~~any topotential ~~substantially~~owners ~~less~~or ~~than 300~~partners, ~~which~~we ~~will~~continue ~~entitle us~~ to ~~de-register~~identify and ~~de-list.~~evaluate new business opportunities.

In conjunction with approval and recommendation of the reverse stock split, and consistent with a recommendation from the Special Committee, our board of directors also approved a stock repurchase plan for up to one million shares of our common stock. The Special Committee designed the repurchase plan to provide shareholders with an opportunity for liquidity prior to the effective date of the reverse stock split. The repurchase plan contemplates the repurchase of shares from time to time at prevailing market prices, through open market or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act. The repurchase plan does not require the Company to repurchase any minimum number of shares, and may be suspended, discontinued or modified at any time, for any reason and without notice.

Additionally, our board of directors assessed and continues to assess potential redemptions of outstanding shares of common stock, which led to discussions with Highland Crusader Offshore Partners, L.P., one of our largest minority shareholders (the “Crusader Fund”). The discussions with the Crusader Fund culminated in an agreement to repurchase all 2,432,923 of the Crusader Fund’s shares of Class A common stock at a price per share of $6.55, 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. Although we deployed significant cash to complete the Crusader Fund redemption, we believe the redemption will benefit our remaining shareholders in both the short and long term.

Critical Accounting Policies

Critical accounting policies require difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our estimates and judgments are based on information available at the time the estimates and judgments are made. Actual results could differ materially from those estimates. We make estimates and judgments when accounting for, among other matters, intangible assets, revenue recognition, stock-based compensation, income taxes and contingencies, as more fully described below.

Intangible Assets. We amortize finite-lived intangible assets, including patents, acquired in purchase transactions over their expected useful lives. We evaluate finite-lived intangible assets when events or circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or circumstances could include: a significant change in the business climate, legal factors, operating performance indicators, or changes in technology or customer requirements. Recoverability of an asset or asset group is measured by a comparison of the carrying amount to the future undiscounted net cash flows expected to be generated by the asset or asset group over its life. This comparison requires management to make judgments regarding estimated future cash flows. Our ability to realize the estimated future cash flows may be affected by factors such as changes in operating performance, changes in business strategy, invalidation of patents, unfavorable judgments in legal proceedings and changes in economic conditions. If our estimates of the undiscounted cash flows do not equal or exceed the carrying value of the asset or asset group, we recognize an impairment charge equal to the amount by which the recorded value of the asset or asset group exceeds its fair value.

Revenue Recognition. We derive our operating revenue from IP monetization activities, including patent licensing and patent sales. Additionally, prior to our sale of the Ovidian Group LLC in December 2015, we also derived revenue from IP consulting services. Although our revenue may occur in different forms, we regard our IP monetization activities as integrated and not separate revenue streams. For example, a third party relationship could involve consulting and licensing activities, or the acquisition of a patent portfolio can lead to licensing, consulting and patent sales revenue.

Our patent licensing agreements often provide for the payment of contractually determined upfront license fees representing all or a majority of the revenues that will be generated from such agreements for nonexclusive, nontransferable, limited duration licenses. These agreements typically grant (i) a nonexclusive license to make, sell, distribute, and use certain specified products that read on our patents, (ii) a covenant not to enforce patent rights against the licensee based on such activities, and (iii) the release of the licensee from certain claims. Generally, the agreements provide no further obligation for the Company upon receipt of the minimum upfront license fee. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront license fee, and when all other revenue recognition criteria have been met.

Certain of our patent licensing agreements provide for future royalties or future payment obligations triggered upon satisfaction of conditions. Future royalties and future payments are recognized in revenue upon satisfaction of any related conditions, provided that all revenue recognition criteria, as described below, have been met.

We sell patents from our portfolios from time to time. These sales are part of our ongoing operations. Consequently, the related proceeds are recorded as revenue. We recognize the revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) amounts are fixed or determinable, and (iv) collectability is reasonably assured.

Fees earned from IP consulting services were generally recognized as the services were performed.

The timing and amount of revenue recognized from IP monetization activities depend on the specific terms of each agreement and the nature of the deliverables and obligations. For agreements that are deemed to contain multiple elements, consideration is allocated to each element of an agreement that has stand-alone value using the relative fair value method. We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) all material obligations have been substantially performed pursuant to agreement terms or services have been rendered to the customer, (iii) amounts are fixed or determinable, and (iv) collectability is reasonably assured. As a result of the contractual terms of our patent monetization agreements and the unpredictable nature, form and frequency of monetizing transactions, our revenue may fluctuate substantially from period to period.

Stock-Based Compensation. We record stock-based compensation on stock options, performance stock awards, 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 recognize compensation cost over the requisite service period for awards expected to vest. The fair value of stock options are estimated on the date of grant using the Black-Scholes option pricing model (“Black-Scholes Model”) based on the single option award approach. The fair value of restricted stock awards and restricted stock units is determined based on the number of shares granted and either the quoted market price of our Class A common stock on the date of grant for time-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model (“Monte Carlo Simulation”) for market-based awards. The fair value of stock options, restricted stock awards and restricted stock units with service conditions are typically amortized to expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of stock options, restricted stock awards and restricted stock units with performance conditions deemed probable of being achieved and cliff vesting are amortized to expense over the requisite service period using the straight-line method of expense recognition. The fair value of restricted stock awards and restricted stock units with performance and market conditions are amortized to expense over the requisite service period using the straight-line method of expense recognition. The fair value of stock-based payment awards as determined by the Black-Scholes Model and the Monte Carlo Simulation are affected by our stock price as well as other assumptions. These assumptions include, but are not limited to, the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. ~~Forfeitures~~On ~~are~~January 1, 2017, we elected to change our accounting policy for calculating stock-based compensation based on forfeiture estimates to one that recognizes forfeitures when they occur (see “New Accounting Pronouncements” below). Previously, forfeitures were estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures ~~differ~~differed from those estimates.

Income Taxes. We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must record a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Since our utilization of our deferred tax assets is dependent upon future taxable income that is not assured, we have recorded a valuation allowance sufficient to reduce the deferred tax assets to an amount that is more likely than not to be realized. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would decrease or may result in a tax benefit in the period in which we determined that the recovery was more likely than not to occur.

The application of income tax law is inherently complex. As such, we are required to make many assumptions and judgments regarding our income tax positions and the likelihood whether such tax positions would be sustained if challenged. Interpretations and guidance surrounding income tax laws and regulations change over time, and changes in our assumptions and judgments can materially affect amounts recognized in our consolidated financial statements.

Contingencies. The outcomes of legal proceedings and claims brought by and against us are subject to significant uncertainty. We accrue an estimated loss from a loss contingency, such as a legal claim against us, by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We disclose a contingency if there is at least a reasonable possibility that a loss has been incurred. In determining whether a contingent loss should be accrued or disclosed, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position, results of operations or cash flows. For contingencies that might result in a gain, we do not record the gain until realized.

other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position, results of operations or cash flows. For contingencies that might result in a gain, we do not record the gain until realized.

New Accounting Pronouncements

See Note 2 – “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

Key Components of Results of Operations

Revenue—We derive our operating revenue from IP monetization activities, including patent licensing, patent sales and, prior to 2016, from IP consulting services, or a combination thereof. Although our revenue may occur in different forms, we regard our IP monetization activities as integrated and not separate revenue streams. Our revenues from IP monetization activities continue to depend in large part on our ability to enter into new license agreements with third parties. Because our licensing agreements often provide for the payment of upfront license fees rather than a royalty stream and as a result of the unpredictable nature, form and frequency of our transactions, our revenue may fluctuate substantially from period to period.

Cost of revenue—Cost of revenue consists of certain costs that are variable in nature and are directly attributable to our revenue generating activities including (i) payments to third parties to whom we have an obligation to share revenue, (ii) commissions, and (iii) success fees. Additionally, in periods when patent sales occur, cost of revenue includes the net book value and other related costs associated with the sold patents. Depending on the patents being monetized, revenue share payments as a percentage of revenues may vary significantly.

Patent administration and related costs—Patent administration and related costs are comprised of (i) patent-related maintenance and prosecution costs incurred to maintain our patents, (ii) other costs that support our patent monetization efforts, and (iii) costs associated with the abandonment of patents, including the write-off of any remaining net book value.

Patent litigation—Patent litigation costs consist of costs and expenses incurred in connection with our patent-related enforcement and litigation activities. These may include non-contingent or contingent fee obligations to external counsel.

General and administrative—General and administrative expenses are primarily comprised of (i) personnel costs, (ii) general legal fees, (iii) professional fees, (iv) acquisition investigation costs, and (v) general office related costs.

Stock-based compensation—Stock-based compensation expense includes expense associated with the granting of stock options, 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 expensed over the requisite service period for awards expected to vest.

Amortization of intangible assets—Amortization of intangible assets reflects the expensing of the cost to acquire intangible assets which are capitalized and amortized ratably over their estimated useful lives. Estimating the economic useful lives of our intangible assets depends on various factors including the remaining statutory life of the underlying assets as well as their expected period of benefit.

Results of Operations

The following table is provided to facilitate the discussion of our results of operations for the years ended December 31, 2016, 2015 and 2014 (in thousands):

	Year ended December 31,
	2016		2015		2014
Revenue	$	59,018	$	43,519	$	42,534
Cost of revenues		18,156		10,215		14,170
Patent administration and related costs		1,046		2,668		6,386
Patent litigation		4,169		13,076		9,880
General and administrative		7,508		16,750		27,467
Stock-based compensation		3,424		4,507		9,405
Amortization of intangibles		9,498		13,939		15,929
Impairment of intangibles and goodwill		—		103,499		11,013
Interest income		696		156		94
Interest expense		—		53		193
Gain on contingencies		2,047		6,095		—
Other expense		11		14		16
Income tax expense		—		2,631		6,303

Revenue. Our revenue of $59.0 million for the year ended December 31, 2016 increased by $15.5 million, or 36%, as compared to $43.5 million for the year ended December 31, 2015. Revenue of $43.5 million for the year ended December 31, 2015 increased by $1.0 million, or 2%, as compared to $42.5 million for the year ended December 31, 2014. The year over year increase in all instances was due to an increase in licensing revenue, primarily licenses of our Memory Patents including our May 2016 license agreement with Toshiba.

Cost of Revenues. Cost of revenues of $18.2 million for the year ended December 31, 2016 increased by $8.0 million, or 78%, as compared to $10.2 million for the year ended December 31, 2015. This increase was primarily due to costs associated with our May 2016 license agreement with Toshiba, including payments to third parties to whom we have an obligation to share revenue.

Cost of revenues of $10.2 million for the year ended December 31, 2015 decreased by $4.0 million, or 28%, as compared to $14.2 million for the year ended December 31, 2014. This decrease was primarily due to lower revenue share obligations in the year ended December 31, 2015 as compared to 2014.

In future periods, cost of revenues as a percentage of revenue may vary significantly, depending upon related revenue share obligations arising from licensing arrangements and the sales price realized compared to the net book value of patents sold. Additionally, our buyout of future revenue share rights in early 2017 will significantly reduce our cost of revenues on future revenue from our Memory Patents.

Patent Administration and Related Costs. Patent administration and related costs of $1.0 million for the year ended December 31, 2016 decreased by $1.7 million, or 61%, as compared to $2.7 million for the year ended December 31, 2015. Patent administration and related costs of $2.7 million for the year ended December 31, 2015 decreased by $3.7 million, or 58%, as compared to $6.4 million for the year ended December 31, 2014. The year over year decrease in all instances was primarily due to a decline in the cost of patents abandoned each year as compared to the prior year; as well as a reduction in patent maintenance and prosecution costs resulting from the abandonment of certain patents and applications during prior years that were not part of existing licensing programs.

Patent Litigation. Patent litigation expenses of $4.2 million for the year ended December 31, 2016 decreased by $8.9 million, or 68%, as compared to $13.1 million for the year ended December 31, 2015. The higher patent litigation expenses in 2015 included costs incurred by our subsidiary, ContentGuard, as it prepared for its March 2015 claim construction hearing and jury trials in September 2015 and November 2015 in the Google Litigation and Apple Litigation, as well as trial cost reimbursements, and contingent fees associated with our settlement and license agreement with Amazon. Patent litigation expenses for 2016 included costs and fees associated with our settlement and license agreement with DirecTV and costs incurred to pursue enforcement actions against certain companies with whom we have been unable to secure negotiated licenses.

Patent litigation expenses of $13.1 million for the year ended December 31, 2015 increased by $3.2 million, or 32%, as compared to $9.9 million for the year ended December 31, 2014. The increase in patent litigation expenses was primarily due to litigation expenses and trial cost reimbursements in the Google Litigation and Apple Litigation which commenced in 2014 and contingent fees associated with our settlement and license agreement with Amazon.

General and Administrative. General and administrative expenses of $7.5 million for the year ended December 31, 2016 decreased by $9.3 million, or 55%, as compared to $16.8 million for the year ended December 31, 2015. The decrease was primarily due to (i) $5.5 million reduction in employment expenses resulting from a lower headcount, (ii) $1.0 million loss on the sale of Provitro’s assets and the disposal of corporate office assets incurred in 2015, (iii) $0.7 million reduction in expenses associated with Provitro, (iv) $0.9 million reduction in facilities costs and $0.3 million decrease in depreciation expense due to the closure of office locations, and (v) $0.9 million reduction in professional fees and other expenses.

General and administrative expenses of $16.8 million for the year ended December 31, 2015 decreased $10.7 million, or 39%, as compared to $27.5 million for the year ended December 31, 2014. The decrease was primarily due to (i) $3.6 million reduction in employment expenses resulting from a lower headcount in 2015, (ii) a 2014 charge of $3.2 million for a lump-sum severance payment to our CEO who departed in November 2014, (iii) $1.5 million reduction in expenses associated with Provitro, (iv) $1.4 million reduction in amortized prepaid compensation expense associated with the acquisition of Ovidian in June 2011 (which was fully amortized as of June 2014), (v) $1.2 million decrease in expense associated with researching acquisition opportunities, and (vi) $0.8 million reduction in professional fees and other expenses partially offset by $1.0 million loss on the sale of the Provitro tangible assets and the disposal of corporate office assets.

Stock-based Compensation. Stock-based compensation of $3.4 million for the year ended December 31, 2016 decreased by $1.1 million, or 24%, as compared to $4.5 million for the year ended December 31, 2015. The decrease was primarily due to a lower headcount in 2016 versus 2015, partially offset by expense associated with awards issued in June 2015 to our CEO.

Stock-based compensation of $4.5 million for the year ended December 31, 2015 decreased by $4.9 million, or 52%, as compared to $9.4 million for the year ended December 31, 2014. The decrease in stock-based compensation expense was primarily due to the vesting of awards during the second quarter of 2014 and the accelerated vesting of awards in November 2014 associated with the departure of our former CEO for which no expense was incurred in 2015, partially offset by expense associated with awards issued in June 2015 to our new CEO.

Amortization of Intangibles. Amortization of intangible assets of $9.5 million for the year ended December 31, 2016 decreased by $4.4 million, or 32%, as compared to $13.9 million for the year ended December 31, 2015 due to a reduction in value of our intangible assets as a result of their impairment during the fourth quarter of 2015, partially offset by a change in their estimated useful lives.

~~Amortization~~Results of ~~intangibles~~Operations of $13.9 million for the year ended December 31, 2015 decreased by $2.0 million, or 12%, as compared to $15.9 million for the year ended December 31, 2014. The decrease in amortization was primarily due to the abandonments of certain patents in 2015 and 2014 that do not support our existing licensing programs, the elimination of the amortization of the Provitro™ technology that was written down to zero in the fourth quarter of fiscal 2014, as well as the elimination of the amortization of the intangible assets that were impaired in the fourth quarter of 2015.

~~Impairment~~The offollowing ~~Intangibles~~table ~~and~~is ~~Goodwill.~~provided ~~During the fourth quarter of the year ended December 31, 2015, we recorded an impairment charge of $103.5 million due~~ to afacilitate ~~reduction in~~ the ~~carrying~~discussion ~~value~~ of our IPresults ~~and~~of ~~goodwill~~operations asfor ~~a result of~~ the ~~non-infringement~~years ~~verdicts~~ended inDecember 31, ~~the~~2017, ~~Google~~2016 ~~Litigation~~ and ~~Apple~~2015 ~~Litigation.~~(in thousands):

During the year ended December 31, 2014, we took an impairment charge of approximately $11.0 million, which was equal to our unamortized investment in the Provitro™ technology and related goodwill. The impairment resulted from the inability to identify near-term opportunities to commercialize the technology.

	Year ended December 31,
	2017		2016		2015
Revenue	$	42,774	$	59,018	$	43,519
Cost of revenues		409		18,156		10,215
Patent administration and related costs		916		1,046		2,668
Patent litigation		8,695		4,169		13,076
General and administrative		7,675		7,508		16,750
Stock-based compensation		3,422		3,424		4,507
Amortization of intangible assets		2,345		9,498		13,939
Contract termination costs		3,161		—		—
Impairment of intangible assets and goodwill		—		—		103,499
Interest income		1,603		696		156
Interest expense		—		—		53
Gain on contingencies		—		2,047		6,095
Other expense		8		11		14
Income tax benefit (expense)		2,110		—		(2,631)

~~The~~Revenue. ~~Company~~Our ~~recorded~~revenue noof ~~such~~$42.8 ~~impairment~~million ~~charges~~for ~~during~~the year ended December 31, 2017 decreased by $16.2 million, or 28%, as compared to $59.0 million for the year ended December 31, 2016. The year over year decrease was primarily due to a decrease in licensing revenue, despite entering into licenses with SanDisk and Disney during the year.

~~Interest~~Revenue ~~Income~~of $59.0 ~~Interest~~million ~~income~~ for the ~~years~~year ended December 31, 2016 increased by $15.5 million, or 36%, as compared to $43.5 million for the year ended December 31, 2015. ~~and~~The ~~2014~~year ~~primarily~~over ~~related~~year increase was due to ~~interest~~an ~~earned~~increase onin ~~money~~licensing ~~market~~revenue, ~~funds~~primarily licenses of our Memory Patents including our May 2016 license agreement with Toshiba.

~~Interest~~Cost ~~Expense~~of Revenues. ~~Interest~~Cost ~~expense~~of revenues of $0.14 million for the year ended December 31, ~~2015~~2017 ~~and~~decreased by $017.8 million, or 98%, as compared to $18.2 million for the year ended December 31, ~~2014,~~2016. ~~consisted~~This decrease was primarily ofdue ~~interest~~to ~~expense~~lower ~~resulting~~revenue ~~from~~share ~~the~~obligations. ~~installment~~Prior ~~payment~~to ~~obligations~~2017, ~~associated~~we shared revenue with ~~intangible~~the ~~assets~~party from whom we acquired ~~during~~the ~~2013~~bulk of our memory patents. ~~The~~In ~~payment~~early ~~obligation~~2017, ~~was~~that ~~satisfied~~party relinquished its future revenue share rights in ~~March~~exchange ~~2015~~for an up-front payment and nofuture ~~further~~installment ~~interest~~payments. ~~expense~~This isresulted ~~being~~in ~~incurred~~a one-time charge of $3.2 million to expense in 2017 (see “Contract termination costs” below), but significantly reduced our “cost of revenues” from our memory patents.

Cost of revenues of $18.2 million for the year ended December 31, 2016 increased by $8.0 million, or 78%, as compared to $10.2 million for the year ended December 31, 2015. This increase was primarily due to costs associated with our May 2016 license agreement with Toshiba, including payments to third parties to whom we had an obligation to share revenue.

Patent Administration and Related Costs. Patent administration and related costs of $0.9 million for the year ended December 31, 2017 decreased by $0.1 million, or 12%, as compared to $1.0 million for the year ended December 31, 2016. Patent administration and related costs of $1.0 million for the year ended December 31, 2016 decreased by $1.7 million, or 61%, as compared to $2.7 million for the year ended December 31, 2015. The year over year decrease in all instances was primarily due to a decline in the cost of patents abandoned each year as compared to the prior year; as well as a reduction in patent maintenance and prosecution costs resulting from the sale and abandonment of certain patents and applications during current and prior years that were not part of existing licensing programs.

Patent Litigation. Patent litigation expenses of $8.7 million for the year ended December 31, 2017 increased by $4.5 million, or 109%, as compared to $4.2 million for the year ended December 31, 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.

Patent litigation expenses of $4.2 million for the year ended December 31, 2016 decreased by $8.9 million, or 68%, as compared to $13.1 million for the year ended December 31, 2015. The higher patent litigation expenses in 2015 included costs incurred by our subsidiary, ContentGuard, as it prepared for its March 2015 claim construction hearing and jury trials in September 2015 and November 2015 in the Google Litigation and Apple Litigation, as well as trial cost reimbursements, and contingent fees associated with our settlement and license agreement with Amazon. Patent litigation expenses for 2016 included costs and fees associated with our settlement and license agreement with DirecTV and costs incurred to pursue enforcement actions against certain companies with whom we have been unable to secure negotiated licenses.

General and Administrative. General and administrative expenses of $7.7 million for the year ended December 31, 2017 increased by $0.2 million, or 2%, as compared to $7.5 million for the year ended December 31, 2016. The increase was primarily due to a $0.4 million contingent fee incurred in obtaining the 2017 tax refund (discussed below) and a $0.2 million discretionary bonus payment to the Company’s CEO in the first quarter of 2017 partially offset by a $0.1 million reduction in employment expenses resulting from a lower headcount in 2017 and a $0.3 million decrease in professional fees and other expenses.

General and administrative expenses of $7.5 million for the year ended December 31, 2016 decreased by $9.3 million, or 55%, as compared to $16.8 million for the year ended December 31, 2015. The decrease was primarily due to (i) $5.5 million reduction in employment expenses resulting from a lower headcount, (ii) $1.0 million loss on the sale of Provitro’s assets and the disposal of corporate office assets incurred in 2015, (iii) $0.7 million reduction in expenses associated with Provitro, (iv) $0.9 million reduction in facilities costs and $0.3 million decrease in depreciation expense due to the closure of office locations, and (v) $0.9 million reduction in professional fees and other expenses.

Stock-based Compensation. Stock-based compensation of $3.4 million for the year ended December 31, 2017 remained flat as compared to $3.4 million for the year ended December 31, 2016, as higher valued CEO performance awards offset a reduction in expense for awards that became fully vested in 2016.

Stock-based compensation of $3.4 million for the year ended December 31, 2016 decreased by $1.1 million, or 24%, as compared to $4.5 million for the year ended December 31, 2015. The decrease was primarily due to a lower headcount in 2016 versus 2015, partially offset by expense associated with awards issued in June 2015 to our CEO.

Amortization of Intangible Assets. Amortization of intangible assets of $2.3 million for the year ended December 31, 2017 decreased by $7.2 million, or 75%, as compared to $9.5 million for the year ended December 31, 2016 primarily due to patents being abandoned or becoming fully amortized as they reached their estimated useful life with no additional patents added to our portfolio.

Amortization of intangible assets of $9.5 million for the year ended December 31, 2016 decreased by $4.4 million, or 32%, as compared to $13.9 million for the year ended December 31, 2015 due to a reduction in value of our intangible assets as a result of their impairment during the fourth quarter of 2015, partially offset by a change in their estimated useful lives.

Contract Termination Costs. Contract termination costs of $3.2 million for the year ended December 31, 2017 represent the cost associated with the buy-out of the revenue share agreement from the company that sold us the bulk of our memory patents in 2013.

Impairment of Intangible Assets and Goodwill. During the fourth quarter of the year ended December 31, 2015, we recorded an impairment charge of $103.5 million due to a reduction in the carrying value of our IP and goodwill as a result of the non-infringement verdicts in the Google Litigation and Apple Litigation.

The Company recorded no such impairment charges during the years ended December 31, 2017 and 2016.

Interest Income. Interest income for the years ended December 31, 2017, 2016 and 2015 primarily related to interest earned on money market funds.

Interest Expense. Interest expense of $0.1 million for the year ended December 31, 2015 consisted primarily of interest expense resulting from the installment payment obligations associated with intangible assets acquired during 2013. The payment obligation was satisfied in March 2015 and no further interest expense is being incurred.

Gain on Contingencies. Gain on contingencies of $2.0 million for the year ended December 31, 2016 was due to the receipt of contingent payments associated with the disposition of assets of our prior satellite business. Gain on contingencies of $6.1 million for the year ended December 31, 2015 was due to (i) $3.9 million from the disposition of assets associated with our former satellite business, (ii) $1.6 million, net of collection costs, upon the full and final settlement of all claims against the J&J Group, and (iii) $0.5 million from the release of a tax indemnification liability associated with our acquisition of Ovidian in June 2011.

Other Expense. Other expense for the year ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 was due to losses on foreign currency transactions.

Income Tax Benefit (Expense). We did not have a U.S. federal income tax liability for the years ended December 31, ~~2016~~2017, ~~2015~~2016 or ~~2014~~2015. However, wethe Company recorded an income tax ~~provisions~~benefit of $42.1 million ~~and~~in ~~$6.3~~2017 ~~million~~primarily ~~for the years ended December 31, 2015 and 2014, respectively,~~ related to ~~foreign taxes withheld on revenue generated from~~ a ~~license~~state ~~agreement executed with a licensee domiciled in a foreign jurisdiction. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate~~ income tax ~~returns, or as a credit against future U~~refund.S. During ~~federal~~the ~~income~~fourth ~~tax~~quarter ~~liabilities,~~of ~~subject to certain limitations. However~~2017, ~~due to uncertainty regarding~~ our ~~ability~~ContentGuard tosubsidiary ~~utilize~~settled ~~the~~an ~~deduction~~ongoing ordispute ~~credit~~with ~~resulting from~~ the ~~foreign~~State ~~withholding,~~of atCalifornia ~~December~~related ~~31,~~to ~~2016~~income ~~and 2015, we established a full valuation allowance against this deferred~~ tax ~~asset.~~paid ~~Additionally,~~to ~~during~~ the ~~year~~state ~~ended~~prior ~~December~~to ~~31,~~our ~~2015,~~acquisition ~~as a result~~ of ~~the~~ContentGuard. We ~~impairment~~expect ofto ~~certain~~receive ~~indefinite-lived intangible assets,~~ the ~~deferred~~proceeds ~~tax~~from ~~liability~~this ~~associated~~settlement ~~with these intangibles was decreased, resulting~~ in ~~a tax benefit of $1.5 million, resulting in a net tax provision for~~ the ~~year~~first ~~ended~~quarter ~~December 31, 2015~~ of $22018.~~6 million.~~

We recorded a tax provision of $4.1 million for the year end December 31, 2015 related to foreign taxes withheld on revenue generated from a license agreement executed with a licensee domiciled in a foreign jurisdiction. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future US federal income tax liabilities, subject to certain limitations. However, due to our uncertainty regarding our ability to utilize the deduction or credit resulting from the foreign withholding, we established a full valuation allowance against this deferred tax asset. Additionally, during the year ended December 31, 2015, as a result of the impairment of certain indefinite-lived intangible assets, the deferred tax liability associated with these intangibles was decreased, resulting in a tax benefit of $1.5 million, resulting in a net provision for the year ended December 31, 2015 of $2.6 million.

Liquidity and Capital Resources

Overview. As of December 31, ~~2016~~2017, we had cash and cash equivalents of $~~174~~184.65 million. Our primary expected cash needs for the next twelve months include repurchases of shares from our shareholders, ongoing operating costs associated with commercialization of our IP assets, expenses in connection with legal proceedings, 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 and Cash Equivalents. Cash and cash equivalents were $174.6 million at December 31, 2016, compared to $162.5 million at December 31, 2015. The following table is provided to facilitate the discussion of our liquidity and capital resources for the years ended December 31, 2016 and 2015 (in thousands): 24

	Year ended December 31,
	2016			2015
Net cash provided (used) in:
Operating activities	$	10,926		$	(47	)
Investing activities		1,288			(1,968	)
Financing activities		(40	)		(4,321	)
Net increase (decrease) in cash and cash equivalents		12,174			(6,336	)
Cash and cash equivalents—beginning of period		162,457			168,793
Cash and cash equivalents—end of period	$	174,631		$	162,457

Cash and Cash Equivalents. Cash and cash equivalents were $184.5 million at December 31, 2017, compared to $174.6 million at December 31, 2016. The following table is provided to facilitate the discussion of our liquidity and capital resources for the years ended December 31, 2017 and 2016 (in thousands):

	Year ended December 31,
	2017			2016
Net cash provided by (used in):
Operating activities	$	31,875		$	10,926
Investing activities		642			1,288
Financing activities		(22,666	)		(40	)
Net increase in cash and cash equivalents		9,851			12,174
Cash and cash equivalents—beginning of period		174,631			162,457
Cash and cash equivalents—end of period	$	184,482		$	174,631

The increase in cash and cash equivalents for the year ended December 31, 2017 of $9.9 million was primarily due to $56.1 million of collected revenue and the receipt of a $0.6 million installment payment on a note receivable, partially offset by (i) $18.0 million of general corporate expenditures, (ii) $19.7 million paid to repurchase shares and (iii) $9.1 million paid on revenue share obligations.

The increase in cash and cash equivalents for the year ended December 31, 2016 of $12.2 million was primarily due to $28.6 million of collected revenue, $2.0 million received from the disposition of assets associated with our former satellite business and the receipt of $1.3 million in installment payments on a note receivable, partially offset by $13.7 million of general corporate expenditures and $6.0 million paid on revenue share obligations.

~~The~~Cash ~~decrease~~Flows infrom ~~cash~~Operating ~~and~~Activities. ~~cash~~Cash ~~equivalents~~provided by operating activities of $31.9 million for the year ended December 31, ~~2015~~2017 consisted primarily of revenue generated by operations of $56.1 million and $1.6 million of interest income, partially offset by $26.6 million of operating expenses adjusted for various non-cash items including (a) $3.4 million ~~was~~of ~~primarily~~stock-based ~~due~~compensation toexpense, (b) $2.04 million ~~utilized~~of toamortization ~~acquire~~expense ~~additional~~associated with intangible assets inand ~~February~~(c) ~~2015~~$0.1 million of depreciation and costs associated with abandonment of patents, as well as a $4.09 million ~~payment~~decrease in ~~March~~accrued ~~2015~~expenses ofand another ~~accrued~~current ~~obligation~~liabilities ~~associated~~primarily ~~with~~related ~~the~~to ~~2013~~revenue ~~acquisition~~share ofobligations ~~our~~accrued ~~memory~~at ~~and~~December ~~storage~~31, ~~technologies portfolio~~2016.

~~Cash~~For ~~Flows~~the ~~from~~year ~~Operating~~ended ~~Activities.~~December ~~Cash~~31, ~~provided~~2016, bythe ~~operating activities of~~ $10.9 million ~~for~~of ~~the~~cash ~~year~~provided ~~ended~~by ~~December~~operating ~~31,~~activities ~~2016~~ consisted primarily of (i) revenue generated by operations of $59.0 million, (ii) $2.0 million received from the disposition of assets associated with our former satellite business, and (iii) $0.7 million of interest income, partially offset by a $30.4 million increase in accounts receivable and operating expenses of $43.8 million adjusted for various non-cash items including (a) $9.5 million of amortization expense associated with ~~intangibles~~intangible assets, (b) $3.4 million of stock-based compensation expense, and (c) $0.3 million of depreciation and costs associated with abandonment of patents, as well as a $10.2 million increase in accounts payable, accrued expenses and other current/non-current liabilities.

~~For~~Cash ~~the~~Flows ~~year~~from ~~ended~~Investing ~~December~~Activities. ~~31,~~Cash ~~2015,~~provided ~~the~~by ~~$47,000~~investing ~~of cash used in operating~~ activities ~~consisted primarily~~ of ~~(i) revenue generated by operations of~~ $430.~~5 million, (ii) $3.9 million from the disposition of assets associated with our former satellite business, and (iii) $1.~~6 million, ~~net~~for ~~of collection costs, upon~~ the ~~full~~year ~~and~~ended ~~final~~December ~~settlement of all claims against the J&J Group~~31, ~~partially~~2017 ~~offset by (a) foreign taxes paid of $4.1 million, (b) $3.6 million decrease in accounts payable, accrued expenses~~ and ~~other liabilities, (c)~~ $1.13 million ~~increase~~for inthe ~~accounts~~year ~~receivable,~~ended ~~prepaids~~December ~~and other current/non-current assets~~31, ~~and~~2016 ~~(d) operating~~was ~~expenses~~primarily ofdue ~~$164.7~~to ~~million~~the ~~adjusted~~receipt ~~for various non-cash items including (i) $103.5 million~~ of ~~impairment~~installment ofpayments ~~intangibles and goodwill, (ii) $13.9 million of amortization expense~~ associated with ~~patents and other intangibles, (iii) $4.5 million of stock-based compensation expense, (iv) $1.0 million of loss on~~ the sale of the Provitro assets ~~and~~in ~~the disposal of corporate office assets, (v) $1~~2015.~~0 million of non-cash loss associated with the abandonment of patents, (vi) $0.4 million of depreciation expense, and (vii) $0.1 million of cost associated with patents sold.~~

Cash Flows from ~~Investing~~Financing Activities. Cash ~~provided~~used byin ~~investing~~financing activities of $122.37 million for the year ended December 31, ~~2016~~2017 was primarily due to ~~the~~$19.7 ~~receipt~~million utilized to repurchase shares of ~~installment~~our ~~payments~~Class ~~associated~~A ~~with~~common ~~the~~stock ~~sale~~and $3.0 million utilized to pay a cash dividend of ~~the~~$12.32 ~~Provitro~~per ~~assets~~share to our shareholders in ~~2015~~December 2017.

23For the year ended December 31, 2016, the $40,000 of cash used in financing activities related to statutory taxes paid as a result of the vesting of restricted stock awards.

For the year ended December 31, 2015, the $1.9 million of cash used in investing activities was primarily due to the $2.0 million acquisition of intangible assets in February 2015, partially offset by $0.1 million of proceeds associated with the disposition of property and intangible assets. 25

~~Cash~~Contractual ~~Flows~~Obligations. ~~from~~Our ~~Financing~~primary ~~Activities.~~contractual ~~Cash~~obligations ~~used~~relate into ~~financing~~an ~~activities~~operating oflease ~~$40,000~~agreement for ~~the~~our ~~year~~main ~~ended~~office ~~December~~location ~~31,~~in ~~2016~~Kirkland, ~~relates~~Washington. toOur ~~statutory~~contractual ~~taxes~~obligations ~~paid~~ as ~~a result~~ of ~~the~~December ~~vesting~~31, of2017, ~~restricted~~were ~~stock~~as ~~awards.~~follows (in thousands):

For the year ended December 31, 2015, the $4.3 million of cash used in financing activities consisted of a $4.0 million payment of an accrued obligation associated with the 2013 purchase of property and intangible assets and $0.4 million payment to acquire the minority partner’s interest in Provitro, partially offset by net proceeds of $0.1 million related to stock option/award activities.

Years ending December 31,

Total

2018

2019

2020 and

Thereafter

Operating lease obligations

553

348

205

—

Contractual Obligations. Our primary contractual obligations relate to an operating lease agreement for our main office location in Kirkland, Washington. Our contractual obligations as of December 31, 2016, were as follows (in thousands):

	Years ending December 31,
	Total		2017		2018		2019		2020 and Thereafter
Operating lease obligations	$	892	$	339	$	348	$	205	$	—

Inflation

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 7A.

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 December 31, ~~2016~~2017, our cash and investment portfolio consisted of both cash and money market funds with a fair value of $~~174~~184.65 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 which currently yield between zero to ~~100~~150 basis points.

	December 31, 2016
	December 31, 2017
Cash	$	1315,~~485~~200
Money market funds		~~161~~169,~~146~~282
	$	~~174~~184,~~631~~482

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.

2426

Item 8.

Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Pendrell Corporation

WeOpinion ~~have~~on ~~audited~~ the accompanying consolidated balance sheets of Pendrell Corporation (a Washington corporation) and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements: ~~are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.~~

We ~~conducted~~have ~~our~~audited ~~audits~~the inaccompanying ~~accordance~~consolidated ~~with~~balance ~~the~~sheets ~~standards~~ of ~~the~~Pendrell ~~Public~~Corporation ~~Company~~Inc. ~~Accounting~~(a ~~Oversight~~Washington ~~Board~~corporation) and subsidiaries (~~United~~the ~~States~~“Company”). ~~Those~~as ~~standards~~of ~~require~~December ~~that~~31, we2017 ~~plan~~ and ~~perform~~2016, the ~~audit~~related toconsolidated ~~obtain~~statements ~~reasonable~~of ~~assurance~~operations, ~~about~~changes ~~whether~~in ~~the~~shareholders’ ~~financial~~equity, ~~statements~~and ~~are~~cash ~~free~~flows for each of ~~material~~the ~~misstatement.~~three Anyears ~~audit~~in ~~includes~~the ~~examining,~~period onended aDecember ~~test~~31, ~~basis~~2017, ~~evidence~~and ~~supporting~~ the ~~amounts~~related ~~and~~notes ~~disclosures~~(collectively inreferred to as the “financial statements”). AnIn ~~audit~~our ~~also~~opinion, ~~includes~~the ~~assessing~~financial statements present fairly, in all material respects, the ~~accounting~~financial ~~principles~~position ~~used~~of ~~and~~the ~~significant~~Company ~~estimates~~as ~~made~~of byDecember ~~management~~31, as2017 ~~well~~and as2016, ~~evaluating~~and the ~~overall~~results ~~financial~~of ~~statement~~its ~~presentation.~~operations Weand ~~believe~~its ~~that~~cash ~~our~~flows ~~audits~~for ~~provide~~each aof ~~reasonable~~the ~~basis~~three ~~for~~years ~~our~~in ~~opinion~~the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

InWe ~~our~~also ~~opinion~~have audited, ~~the~~in ~~consolidated~~accordance ~~financial~~with ~~statements~~the ~~referred~~standards toof ~~above~~the ~~present~~Public ~~fairly,~~Company inAccounting ~~all~~Oversight ~~material~~Board ~~respects~~(United States) (“PCAOB”), the ~~financial~~Company’s ~~position~~internal ofcontrol ~~Pendrell~~over ~~Corporation~~financial ~~and~~reporting ~~subsidiaries~~ as of December 31, ~~2016~~2017, ~~and~~based ~~2015,~~on ~~and~~criteria ~~the~~established ~~results~~in ofthe ~~their~~2013 ~~operations~~Internal ~~and~~Control—Integrated ~~their~~Framework ~~cash~~issued ~~flows~~by ~~for~~the ~~each~~Committee of ~~the~~Sponsoring ~~three~~Organizations ~~years~~of in the ~~period~~Treadway ~~ended~~Commission ~~December 31~~(“COSO”), ~~2016,~~and inour ~~conformity~~report ~~with~~dated ~~accounting~~February ~~principles~~16, ~~generally~~2018 ~~accepted~~expressed inan ~~the~~unqualified ~~United States of America~~opinion.

WeBasis ~~also~~for have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2017, expressed an unqualified opinion.:

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in 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 reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to 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 included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2014.

Seattle, Washington

~~March~~February 1516, ~~2017~~2018

2527

Pendrell Corporation

Consolidated Balance Sheets

(In thousands, except share data)

	December 31, 2016			December 31, 2015
	December 31, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	~~174~~184,~~631~~482		$	~~162~~174,~~457~~631
Accounts receivable		1517,~~457~~361			8715,457
Other receivables		669			1,329
Income tax receivable, net		2,161			—
Prepaid expenses and other current assets		262			384
Other receivables		118			669
Total current assets		191,019			164,257
Prepaid expenses and other current assets		351			262
Property in service – net of accumulated depreciation of $531 and $512, respectively		74			118
Total current assets		204,473			191,019
Non-current accounts receivable		16,555			1,502
Property in service – net of accumulated depreciation of $548 and $531, respectively		44			74
Other assets		29			638
Non-current accounts receivable		1,309			16,555
Intangible assets – net of accumulated amortization of $62,884 and $54,523, respectively		4,716			14,377
Other assets		29			29
Total	$	212,393		$	180,892
Intangible assets – net of accumulated amortization of $56,224 and $61,080, respectively		2,329			4,716
Total	$	208,184		$	212,393
LIABILITIES, SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
Current liabilities:
Accounts payable	$	~~125~~136		$	~~140~~125
Accrued expenses		68,~~278~~797			46,~~292~~278
Other liabilities		9564			~~119~~95
Total current liabilities		68,~~498~~997			46,~~551~~498
Other non-current liabilities		~~7,796~~—			—7,796
Total liabilities		148,~~294~~997			414,~~551~~294
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 7)
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 27,268,261 and 27,187,911 shares issued, and 21,491,373 and 21,410,896 shares outstanding		2,151			2,144
Class A common stock, $0.01 par value, 900,000,000 shares authorized, 186,927 and 272,682 shares issued, and 186,927 and 214,913 shares outstanding		2,124			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
Class B convertible common stock, $0.01 par value, 150,000,000 shares authorized, 84,663 shares issued and 53,660 shares outstanding		537			537
Additional paid-in capital		1,~~962~~948,~~178~~472			1,~~958~~962,~~376~~178
Accumulated deficit		(1,~~763~~747,~~060~~160	)		(1,~~780~~763,~~823~~060	)
Total Pendrell shareholders’ equity		~~201~~203,~~806~~973			~~180~~201,~~234~~806
Noncontrolling interest		(34,~~707~~786	)		(3,~~893~~707	)
Total shareholders’ equity and noncontrolling interest		~~198~~199,~~099~~187			~~176~~198,~~341~~099
Total	$	~~212~~208,~~393~~184		$	~~180~~212,~~892~~393

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

2628

Pendrell Corporation

Consolidated Statements of Operations

(In thousands, except share and per share data)

	Year ended December 31,
	2016			2015			2014
	2017			2016			2015
Revenue	$	5942,~~018~~774		$	4359,~~519~~018		$	4243,~~534~~519
Operating expenses:
Cost of revenues		~~18,156~~409			1018,~~215~~156			1410,~~170~~215
Patent administration and related costs		~~1,046~~916			21,~~668~~046			62,~~386~~668
Patent litigation		48,~~169~~695			134,~~076~~169			913,~~880~~076
General and administrative		7,~~508~~675			167,~~750~~508			2716,~~467~~750
Stock-based compensation		3,~~424~~422			43,~~507~~424			94,~~405~~507
Amortization of intangibles		9,498			13,939			15,929
Amortization of intangible assets		2,345			9,498			13,939
Impairment of intangibles and goodwill		—			103,499			11,013
Contract termination costs		3,161			—			—
Total operating expenses		43,801			164,654			94,250
Impairment of intangible assets and goodwill		—			—			103,499
Operating income (loss)		15,217			(121,135	)		(51,716	)
Total operating expenses		26,623			43,801			164,654
Interest income		696			156			94
Operating income (loss)		16,151			15,217			(121,135	)
Interest expense		—			(53	)		(193	)
Interest income		1,603			696			156
Gain on contingencies		2,047			6,095			—
Interest expense		—			—			(53	)
Other expense		(11	)		(14	)		(16	)
Gain on contingencies		—			2,047			6,095
Income (loss) before income taxes		17,949			(114,951	)		(51,831	)
Other expense		(8	)		(11	)		(14	)
Income tax expense		—			(2,631	)		(6,303	)
Income (loss) before income taxes		17,746			17,949			(114,951	)
Net income (loss)		17,949			(117,582	)		(58,134	)
Income tax benefit (expense)		2,110			—			(2,631	)
Net income (loss) attributable to noncontrolling interests		186			(7,902	)		(7,132	)
Net income (loss)		19,856			17,949			(117,582	)
Net income (loss) attributable to Pendrell	$	17,763		$	(109,680	)	$	(51,002	)
Net income (loss) attributable to noncontrolling interests		796			186			(7,902	)
Basic income (loss) per share attributable to Pendrell	$	0.66		$	(4.13	)	$	(1.93	)
Net income (loss) attributable to Pendrell	$	19,060		$	17,763		$	(109,680	)
Diluted income (loss) per share attributable to Pendrell	$	0.64		$	(4.13	)	$	(1.93	)
Basic income (loss) per share attributable to Pendrell	$	76.28		$	66.38		$	(412.79	)
Diluted income (loss) per share attributable to Pendrell	$	74.22		$	64.15		$	(412.79	)
Weighted average shares outstanding:
Basic		26249,~~758,985~~866			26267,~~570,733~~589			26265,~~440,750~~707
Diluted		27256,~~691,866~~814			26276,~~570,733~~918			26265,~~440,750~~707

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

2729

Pendrell Corporation

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except share data)

	Common stock								Additional
	Class A			Class B					paid-in			Accumulated			Shareholder’s			Noncontrolling
	shares			shares		Amount			capital			deficit			~~Equity~~equity			interests			Total
Balance, January 1, 2014		21,244,998			5,366,000	$	2,663		$	1,941,818		$	(1,619,993	)	$	324,488		$	12,305		$	336,793
Balance, January 1, 2015		212,975			53,660	$	2,669		$	1,952,880		$	(1,671,135	)	$	284,414		$	5,173		$	289,587
Vesting of Class A common stock issued for Ovidian acquisition		—			—		—			2,229			—			2,229			—			2,229
Issuance of Class A common stock from exercise of stock options		358			—		4			215			—			219			—			219
Issuance of Class A common stock from exercise of stock options		51,493			—		5			424			—			429			—			429
Class A common stock withheld at vesting to cover statutory tax obligations		(39	)		—		(1	)		(131	)		(8	)		(140	)		—			(140	)
Class A common stock withheld at vesting to cover statutory tax obligations		(16,182	)		—		(2	)		(633	)		(140	)		(775	)		—			(775	)
Stock-based compensation and issuance of restricted stock, net of forfeitures		1,156			—		12			4,693			—			4,705			—			4,705
Stock-based compensation and issuance of restricted stock, net of forfeitures		17,215			—		3			9,042			—			9,045			—			9,045
Repurchase of restricted stock		(250	)		—		(2	)		—			—			(2	)		—			(2	)
Net loss		—			—		—			—			(51,002	)		(51,002	)		(7,132	)		(58,134	)
Shares received through divesture of Ovidian		(92	)		—		(1	)		(45	)		—			(46	)		—			(46	)
Balance, December 31, 2014		21,297,524			5,366,000	$	2,669		$	1,952,880		$	(1,671,135	)	$	284,414		$	5,173		$	289,587
Issuance of Class A common stock from exercise of stock options		35,835			—		4			215			—			219			—			219
Class A common stock withheld at vesting to cover statutory tax obligations		(3,881	)		—		(1	)		(131	)		(8	)		(140	)		—			(140	)
Stock-based compensation and issuance of restricted stock, net of forfeitures		115,668			—		12			4,693			—			4,705			—			4,705
Repurchase of restricted stock		(25,000	)		—		(2	)		—			—			(2	)		—			(2	)
Shares received through divesture of Ovidian		(9,250	)		—		(1	)		(45	)		—			(46	)		—			(46	)
Purchase of noncontrolling interest in Provitro Biosciences LLC		—			—		—			764			—			764			(1,164	)		(400	)
Net loss		—			—		—			—			(109,680	)		(109,680	)		(7,902	)		(117,582	)
Balance, December 31, 2015		21214,~~410,896~~108			553,~~366,000~~660	$	2,681		$	1,958,376		$	(1,780,823	)	$	180,234		$	(3,893	)	$	176,341
Class A common stock withheld at vesting to cover statutory tax obligations		(~~6,352~~63	)		—		—			(40	)		—			(40	)		—			(40	)
Stock-based compensation and issuance of restricted stock, net of forfeitures		~~86,829~~868			—		7			3,842			—			3,849			—			3,849
Net income		—			—		—			—			17,763			17,763			186			17,949
Balance, December 31, 2016		21214,~~491,373~~913			553,~~366,000~~660	$	2,688		$	1,962,178		$	(1,763,060	)	$	201,806		$	(3,707	)	$	198,099
Repurchase of Class A common stock		(30,478	)		—		(28	)		(19,638	)		—			(19,666	)		—			(19,666	)
Shares relinquished by the Liquidating Trust		(200	)		—		—			—			—			—			—			—
Stock-based compensation and issuance of restricted stock, net of forfeitures		2,692			—		1			3,830			—			3,831			—			3,831
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
Dividend ($12.32 per share)		—			—		—			—			(2,983	)		(2,983	)		—			(2,983	)
Net income		—			—		—			—			19,060			19,060			796			19,856
Balance, December 31, 2017		186,927			53,660	$	2,661		$	1,948,472		$	(1,747,160	)	$	203,973		$	(4,786	)	$	199,187

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

2830

Pendrell Corporation

Consolidated Statements of Cash Flows

(In thousands, except share data)

	Year ended December 31,
	2016			2015			2014
	2017			2016			2015
Operating activities:
Net income (loss) including noncontrolling interest	$	1719,~~949~~856		$	~~(117~~17,~~582~~949	)	$	(58117,~~134~~582	)
Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation		3,~~424~~422			43,~~507~~424			94,~~405~~507
Amortization of prepaid compensation from Ovidian acquisition		—			—			1,380
Amortization of intangible assets		2,345			9,498			13,939
Amortization of intangible assets		9,498			13,939			15,929
Impairment of intangible assets and goodwill		—			—			103,499
Impairment of intangible assets and goodwill		—			103,499			11,013
Depreciation		37			51			351
Depreciation		51			351			523
Non-cash cost of patents monetized		—			—			138
Non-cash cost of patents monetized		—			138			794
Loss associated with the abandonment and/or disposition of patents		41			163			958
Loss associated with the abandonment and/or disposition of patents		163			958			2,765
Loss on the disposition of property		—			—			1,015
Loss on the disposition of property		—			1,015			—
Other		—			4			3
Other		4			3			222
Other changes in certain assets and liabilities:
Accounts receivable, current and non-current		~~(30~~13,~~423~~342	)		44(30,423	)		~~271~~44
Prepaid expenses and other current/non-current assets		91			(1,108	)		938
Income tax receivable, net		(2,161	)		—			—
Accounts payable		(15	)		(141	)		115
Prepaid expenses and other current/non-current assets		(138	)		91			(1,108	)
Accrued expenses and other current liabilities		2,388			(5,670	)		1,470
Accounts payable		11			(15	)		(141	)
Non-current liabilities		7,796			—			—
Accrued expenses and other current liabilities		(4,880	)		2,388			(5,670	)
Net cash provided (used) in operating activities		10,926			(47	)		(13,309	)
Other non-current liabilities		—			7,796			—
Net cash provided by (used in) operating activities		31,875			10,926			(47	)
Investing activities:
Payment received on note receivable		~~1,300~~600			—1,300			—
Purchases of property and intangible assets		(12	)		(2,077	)		(119	)
Sale of noncontrolling interest in subsidiary		50			—			—
Proceeds associated with disposition of property		—			109			—
Purchases of property in service and intangible assets		(8	)		(12	)		(2,077	)
Net cash provided (used) in investing activities		1,288			(1,968	)		(119	)
Proceeds associated with disposition of property		—			—			109
Net cash provided by (used in) investing activities		642			1,288			(1,968	)
Financing activities:
Proceeds from exercise of stock options		—			219			429
Repurchase of Class A common stock		(19,666	)		—			—
Payment of statutory taxes for stock awards		(40	)		(140	)		(775	)
Cash dividend paid		(2,983	)		—			—
Payment of accrued obligations for purchased intangible assets		—			(4,000	)		(2,000	)
Payment of statutory taxes for stock awards		(17	)		(40	)		(140	)
Purchase of noncontrolling interest in Provitro Biosciences LLC		—			(400	)		—
Proceeds from exercise of stock options		—			—			219
Net cash used in financing activities		(40	)		(4,321	)		(2,346	)
Payment of accrued obligations for purchased intangible assets		—			—			(4,000	)
Net increase (decrease) in cash and cash equivalents		12,174			(6,336	)		(15,774	)
Purchase of noncontrolling interest in Provitro Bioscience LLC		—			—			(400	)
Cash and cash equivalents—beginning of period		162,457			168,793			184,567
Net cash used in financing activities		(22,666	)		(40	)		(4,321	)
Cash and cash equivalents—end of period	$	174,631		$	162,457		$	168,793
Net increase (decrease) in cash and cash equivalents		9,851			12,174			(6,336	)
Cash and cash equivalents—beginning of period		174,631			162,457			168,793
Cash and cash equivalents—end of period	$	184,482		$	174,631		$	162,457
Supplemental disclosures:
Income taxes paid	$	—48		$	~~4,125~~—		$	64,~~272~~125
Supplemental disclosure of non-cash investing and financing activities:
Note receivable for disposition of property		—			~~1,900~~—			—1,900

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

2931

Pendrell Corporation

Notes to Consolidated Financial Statements

1. Organization and Business

Overview—These consolidated financial statements include the accounts of Pendrell Corporation (“Pendrell”) and its consolidated subsidiaries (collectively referred to as the “Company”). Since 2011, the Company’s strategy, through its consolidated subsidiaries, has been to invest in, acquire and develop 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 the IP rights they hold 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. From 2011 through 2015, the Company also advised clients on various IP strategies and transactions through its consulting subsidiary Ovidian Group LLC (“Ovidian”). AsThe ~~of December 31, 2015, the~~ Company sold Ovidian for nominal consideration in 2015.

The Company was formed in 2000 to operate a next generation global mobile satellite communications system. The Company began its exit from the satellite business in 2011 ~~with~~and ~~the~~completed ~~sale of~~ its ~~interests~~exit in ~~DBSD North America, Inc. and its subsidiaries to DISH Network Corporation. During~~ 2012, ~~the Company completed its exit~~ with (i) the sale of its medium earth orbit (“MEO”) satellite assets (“MEO Assets”) that had been in storage for nominal consideration, (ii) the transfer of its in-orbit MEO satellite to a new operator who assumed responsibility for all related operating costs effective April 1, 2012, and (iii) the deconsolidation of its MEO-related international subsidiaries.

2. Summary of Significant Accounting Policies

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. 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. All information in these financial statements is in U.S. dollars. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

All intercompany transactions and balances have been eliminated in consolidation, including a $31.8 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. In February 2015, the Company acquired the minority partner’s interest in Provitro Biosciences LLC (“Provitro”) for nominal consideration resulting in 100% ownership of Provitro. ~~The Company continues to have a minority partner in its ContentGuard Holdings, Inc. (“ContentGuard”) subsidiary.~~

~~Capital~~All ~~Structure~~information ~~Change—At~~in ~~the~~these ~~Company’s~~financial ~~annual~~statements ~~meeting~~is of shareholders on July 7, 2016, the Company’s shareholders approved a reverse split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of Class A common stock and Class B common stock within a range of one share of common stock for every three shares of common stock (1-for-3) to one share of common stock for every ten shares of common stock (1-for-10), with the exact Reverse Stock Split ratio to be set within this range as determined by the Company’s board of directors in ~~its sole discretion~~U.S. ~~On September 20, 2016, the Company’s board of directors fixed the Reverse Stock Split ratio at 1-for-10~~dollars. AsThese ~~a result of the Reverse Stock Split, the share counts and per share data reported in the historical~~ financial statements have been ~~adjusted~~prepared ~~retrospectively~~in asaccordance ifwith ~~the~~accounting ~~Reverse~~principles ~~Stock~~generally ~~Split~~accepted ~~had been~~ in ~~effect for all periods presented. Additionally,~~ the ~~exercise~~United ~~prices~~States ~~and the number~~ of ~~shares~~America ~~issuable under the Company’s stock-based compensation plans have been adjusted retrospectively to reflect the Reverse Stock Split~~(“GAAP”).

~~Segment~~Capital ~~Information~~Structure Change—~~The~~ At the Company’s ~~operates~~annual meeting of shareholders in June 2017, the Company’s shareholders approved a 1-for-100 reverse stock split of the Company’s Class A Stock and ~~reports~~Class B common stock that was implemented on ~~one~~November ~~segment~~30, 2017 (IPthe ~~management~~"2017 Reverse Split"). ~~Operating~~The ~~segments~~2017 ~~are~~Reverse ~~based~~Split ~~upon~~reduced the Company’s ~~internal~~number ~~organization~~of ~~structure,~~record ~~the~~shareholders ~~manner~~to inless than 300, which ~~its~~allowed ~~operations~~it ~~are~~to ~~managed,~~(i) ~~and~~terminate the ~~criteria~~Company’s ~~used~~Nasdaq bylisting, ~~its~~effective ~~Chief~~December ~~Operating~~15, ~~Decision~~2017, ~~Maker.~~(ii) ~~Substantially~~file ~~all~~to ofde-register the Company’s ~~revenue~~Class isA ~~generated~~Stock byunder ~~operations~~the ~~located~~Securities ~~within~~Exchange Act of 1934, as amended (the ~~United~~“Exchange ~~States~~Act”), which was filed on December 26, 2017; and (iii) cease to be a reporting company under the ~~Company~~Exchange ~~does~~Act ~~not~~after ~~have~~the ~~any~~Company’s ~~long~~notice of de-~~lived~~registration ~~assets~~is ~~located~~effective, inwhich ~~foreign~~will ~~countries~~be no later than March 26, 2018.

30On September 20, 2017, the Company’s Board of Directors (the “Board”) announced that the Company does not currently plan to publish financial information following the expiration of its reporting obligations under the Exchange Act. As a result, the Company believes this Form 10-K for fiscal year ended December 31, 2017 will be its final financial statement filed with the Securities and Exchange Commission.

In September 2016, the Company consummated a 1-for-10 reverse stock split (the “2016 Reverse Split”) to remediate a stock price deficiency as required by Nasdaq’s continued listing requirements.

As a result of the 2017 and 2016 Reverse Splits, the share counts and per share data reported in the historical financial statements have been adjusted retrospectively as if the 2017 and 2016 Reverse Splits 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 2017 and 2016 Reverse Splits.

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 of the Company’s revenue is generated by operations located within the United States, 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 ~~revenue share obligations for~~ the ~~purpose of determining cost of revenue, the~~ fair value of acquired intangible assets ~~and goodwill~~, 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.

Cash and Cash Equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities from the date of purchase of 90 days or less. Cash and cash equivalents are comprised of the following (in thousands):

	December 31,
	2016		2015
	2017		2016
Cash	$	1315,~~485~~200	$	2613,~~951~~485
Money market funds		~~161~~169,~~146~~282		~~135~~161,~~506~~146
	$	~~174~~184,~~631~~482	$	~~162~~174,~~457~~631

The fair value of money market funds at December 31, ~~2016~~2017 and ~~2015~~2016 was classified as Level 1 in the hierarchy established by the Financial Accounting Standards Board (“FASB”) as amounts were based on quoted prices available in active markets for identical investments as of the reporting date.

Accounts Receivable—Accounts receivable consist primarily of amounts billed to customers under licensing arrangements. For the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, the Company did not incur any losses on its accounts receivable. Based upon historical collections experience and currently available information, the Company has determined that no allowance for doubtful accounts was required at either December 31, ~~2016~~2017 or December 31, ~~2015~~2016. Carrying amounts of such receivables approximate their fair value due to their short-term nature.

Prepaid Expenses and Other Current Assets—As of December 31, ~~2016~~2017 and ~~2015~~2016, prepaid expenses and other current assets consisted primarily of insurance prepayments, prepayments of patent maintenance fees and prepayments of rent for leased facilities.

Property in Service—Property in service consists primarily of computer equipment, software, furniture and fixtures and leasehold improvements. Property in service is recorded at cost, net of accumulated depreciation, and is depreciated using the straight-line method. Computer equipment and furniture and fixtures are depreciated over their estimated useful lives ranging from three to five years. Software is depreciated over the shorter of its contractual license period or three years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective lease. Significant additions and improvements to property in service are capitalized. Repair and maintenance costs are expensed as incurred.

Business Combinations—The Company accounts for business combinations using the acquisition method and, accordingly, the identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values. This valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets. Valuation methodologies may include the cost, market or income approach. Critical estimates in valuing intangible assets include but are not limited to estimates about: future expected cash flows from customers, proprietary technology, the acquired company’s brand awareness and market position and discount rates. The estimates are based upon assumptions the Company believes to be reasonable, but which are inherently uncertain and unpredictable. Goodwill is calculated as the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. Subsequent changes to assets, liabilities, valuation allowance or uncertain tax positions that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of new information about facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

Intangible Assets and Goodwill— The Company amortizes finite-lived intangible assets, including patents, acquired in purchase transactions over their expected useful lives. The Company assigns goodwill and indefinite-lived intangible assets to its reporting units based on the expected benefit from the synergies arising from each business combination.

The Company evaluates finite-lived intangible assets when events or circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or circumstances could include: a significant change in the business climate, legal factors, operating performance indicators, or changes in technology or customer requirements. Recoverability of an asset or asset group is measured by a comparison of the carrying amount to the future undiscounted net cash flows expected to be generated by the asset or asset group over its life. This comparison requires management to make judgments regarding estimated future cash flows. The Company’s ability to realize the estimated future cash flows may be affected by factors such as changes in operating performance, changes in business strategy, invalidation of patents, unfavorable judgments in legal proceedings and changes in economic conditions. If the Company’s estimates of the undiscounted cash flows do not equal or exceed the carrying value of the asset or asset group, an impairment charge equal to the amount by which the recorded value of the asset or asset group exceeds its fair value is recognized.

The Company previously evaluated goodwill for impairment on an annual basis during the fourth quarter, or more frequently if circumstances indicated that the carrying value of a Company reporting unit may exceed its fair value. When evaluating goodwill and indefinite-lived intangible assets for impairment, the Company first performed a qualitative assessment to determine if fair value of the reporting unit was more likely than not greater than the carrying amount. If the assessment indicated that it was more likely than not that the fair value of a reporting unit was less than its carrying amount, then the Company further evaluated the estimated fair value of the reporting unit through the use of discounted cash flow models, which required management to make significant judgments as to the estimated future cash flows utilized. The Company’s ability to realize the future cash flows utilized in its fair value calculations could be affected by factors such as changes in its operating performance, changes in its business strategy, invalidation of its patents, unfavorable judgments in legal proceedings and changes in economic conditions. The results of the models were compared to the carrying amount of the reporting unit. If such comparison indicated that the fair value of the reporting unit was lower than the carrying amount, impairment would exist and the impairment charge would be measured by comparing the implied fair value of the reporting unit’s goodwill to its carrying value.

During 2015, the Company determined that a portion of its intellectual property assets and the balance of its goodwill were impaired and recognized an impairment charge of $103.5 million for the year ended December 31, 2015. ~~During~~As ~~2014,~~a ~~the~~result ~~Company~~of ~~recognized~~the an impairment ~~charge~~in of2015, ~~$11.0~~the ~~million~~Company ~~related~~no tolonger ~~intangibles~~maintains ~~and~~balances for goodwill ofor ~~its~~indefinite-lived ~~Provitro~~intangible ~~asset~~assets ~~group.~~in ~~See~~its ~~Note~~financial ~~5, “Intangible Assets and Goodwill” for further details~~statements.

As a result of the impairments in 2015 and 2014, the Company no longer maintains balances for goodwill or indefinite-lived intangible assets in its financial statements.

Fair Value of Financial Instruments—The Company determines the fair value of its financial instruments based on the fair value hierarchy established by the FASB. The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets and liabilities.

Level 2—Quoted prices in active markets for similar assets and liabilities or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of December 31, 2016 and 2015, the Company’s financial instruments included its cash and cash equivalents, accounts receivable, other receivables, accounts payable and certain other assets and liabilities. The Company has determined that the carrying value of its financial instruments, based on the hierarchy established by the FASB, approximates the fair value of the financial instruments as they are equivalent to cash or due to their short-term nature.34

As of December 31, 2017 and 2016, the Company’s financial instruments included its cash and cash equivalents, accounts receivable, other receivables, accounts payable and certain other assets and liabilities. The Company has determined that the carrying value of its financial instruments, based on the hierarchy established by the FASB, approximates the fair value of the financial instruments as they are equivalent to cash or due to their short-term nature.

Revenue Recognition— The Company derives its operating revenue from IP monetization activities, including patent licensing and patent sales; and, in years prior to 2016, from IP consulting services. Although the Company’s revenue may occur in different forms, it regards its IP monetization activities as integrated and not separate revenue streams. For example, a third party relationship could involve consulting and licensing activities, or the acquisition of a patent portfolio can lead to licensing, consulting and patent sales revenue.

The Company’s patent licensing agreements often provide for the payment of contractually determined upfront license fees representing all or a majority of the revenue that will be generated from such agreements for nonexclusive, nontransferable, limited duration licenses. These agreements typically grant (i) a nonexclusive license to make, sell, distribute, and use certain specified products that read on the Company’s patents, (ii) a covenant not to enforce patent rights against the licensee based on such activities, and (iii) the release of the licensee from certain claims. Generally, the agreements provide no further obligation for the Company upon receipt of the minimum upfront license fee. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront license fee, and when all other revenue recognition criteria have been met.

Certain of the Company’s patent licensing agreements provide for future royalties or future payment obligations triggered upon satisfaction of conditions. Future royalties and future payments are recognized in revenue upon satisfaction of any related conditions, provided that all revenue recognition criteria, as described below, have been met.

The Company sells patents from its portfolios from time to time. These sales are part of the Company’s ongoing operations. Consequently, the related proceeds are recorded as revenue.

The timing and amount of revenue recognized from IP monetization activities depend on the specific terms of each agreement and the nature of the deliverables and obligations. Fees earned from IP consulting services are generally recognized as the services are performed. For agreements that are deemed to contain multiple elements, consideration is allocated to each element of an agreement that has stand-alone value using the relative fair value method. The Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) all material obligations have been substantially performed pursuant to agreement terms, services have been rendered to the customer or delivery has occurred, (iii) amounts are fixed or determinable, and (iv) collectability is reasonably assured. As a result of the contractual terms of our patent monetization agreements and the unpredictable nature, form and frequency of monetizing transactions, our revenue may fluctuate substantially from period to period.

Research and Development—The Company incurs costs associated with research and development activities and expenses the costs in the period incurred. Research and development expenses during the period were not material for separate disclosure and are included in general and administrative expenses.

33Stock-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. The fair value of stock options and stock appreciation rights is estimated on the date of grant using the Black-Scholes option pricing model (“Black-Scholes Model”) based on the single option award approach. The fair value of restricted stock awards and restricted stock units is determined based on the number of shares granted and either the quoted market price of the Company’s Class A common stock on the date of grant for time-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model (“Monte Carlo Simulation”) for market-based awards. The fair value of stock options, restricted stock awards and restricted stock units with service conditions are amortized to expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of stock options, stock appreciation rights, restricted stock awards and restricted stock units with performance conditions deemed probable of being achieved and cliff vesting is amortized to expense over

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. The fair value of stock options and stock appreciation rights is estimated on the date of grant using the Black-Scholes option pricing model (“Black-Scholes Model”) based on the single option award approach. The fair value of restricted stock awards and restricted stock units is determined based on the number of shares granted and either the quoted market price of the Company’s Class A common stock on the date of grant for time-based and performance-based awards, or the fair value on the date of grant using the Monte Carlo Simulation model (“Monte Carlo Simulation”) for market-based awards. The fair value of stock options, restricted stock awards and restricted stock units with service conditions are amortized to expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of stock options, stock appreciation rights, restricted stock awards and restricted stock units with performance conditions deemed probable of being achieved and cliff vesting is amortized to expense over the requisite service period using the straight-line method of expense recognition. The fair value of restricted stock awards and restricted stock units with performance and market conditions are amortized to expense over the requisite service period using the straight-line method of expense recognition. The fair value of stock-based payment awards as determined by the Black-Scholes Model and the Monte Carlo Simulation are affected by the Company’s stock price as well as other assumptions. These assumptions include, but are not limited to, the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Forfeitures are estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.35

~~The~~the ~~Company~~requisite ~~accounts~~service ~~for~~period using the ~~modification~~straight-line method of ~~the~~expense ~~terms~~recognition. orThe ~~conditions~~fair value of arestricted stock~~-based~~ ~~payment~~awards ~~award~~and asrestricted anstock ~~exchange~~units ofwith performance and market conditions are amortized to expense over the ~~original~~requisite ~~award~~service ~~for~~period ausing ~~new~~the ~~award.~~straight-line ~~Compensation~~method of expense ~~for~~recognition. ~~modified~~The fair value of stock-based payment awards isas ~~equal~~determined toby the ~~fair~~Black-Scholes ~~value~~Model ofand the ~~original~~Monte ~~award~~Carlo ~~plus~~Simulation are affected by the ~~incremental~~Company’s ~~cost~~stock ~~conveyed~~price as awell ~~result~~as ofother assumptions. These assumptions include, but are not limited to, the ~~modification~~expected ~~expensed~~stock price volatility over the ~~remaining~~term ~~life~~ of the ~~award~~awards and actual and projected employee stock option exercise behaviors. 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 (see “New Accounting Pronouncements” below). Previously, forfeitures were estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differed from those estimates.

~~Income~~In ~~Taxes—The~~certain situations, the Company accounts for ~~income~~changes ~~taxes~~in ~~using~~ the ~~asset~~terms ~~and~~or ~~liability~~conditions ~~method~~of ~~under~~a ~~which~~stock-based ~~deferred~~payment ~~tax~~award ~~assets~~as ~~and~~an ~~liabilities~~exchange ~~are~~of ~~recognized for~~ the ~~future~~original ~~tax~~award ~~consequences~~for ~~attributable~~a tonew ~~differences~~award ~~between~~pursuant to the ~~financial~~rules ~~statement~~governing ~~carrying~~modification ~~amounts of existing assets and liabilities and their respective tax bases~~accounting. ~~Deferred~~Compensation ~~tax~~expense ~~assets~~for ~~and~~modified ~~liabilities~~stock-based ~~are~~payment ~~measured~~awards ~~using~~is ~~enacted~~generally ~~tax~~equal ~~rates expected~~ to ~~apply~~the tofair ~~taxable~~value ~~income~~of in the ~~years~~original inaward ~~which~~plus ~~those~~the ~~temporary~~incremental ~~differences~~cost ~~are~~conveyed ~~expected~~as toa ~~reverse.~~result ~~The effect on deferred tax assets and liabilities~~ of ~~a change in tax rates is recognized in~~ the ~~period~~modification ~~that~~expensed ~~includes~~over the ~~enactment~~remaining ~~date.~~life Aof ~~valuation allowance against deferred tax assets (“DTAs”) is recorded when it is more likely than not that~~ the ~~assets will not be realized~~award.

Income Taxes—The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded when it is more likely than not that the assets will not be realized.

The Company records an unrecognized tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities. The Company’s policy is to recognize interest and/or penalties related to unrecognized tax benefits as income tax expense.

Contingencies—Outcomes of legal proceedings and claims brought by and against the Company are subject to significant uncertainty. The Company accrues an estimated loss from a loss contingency, such as a legal claim, by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company discloses a contingency if there is at least a reasonable possibility that a loss has been incurred. In determining whether a contingent loss should be accrued or disclosed, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact the Company’s financial position, results of operations or cash flows. For contingencies that might result in a gain, the Company does not record the gain until realized.

Income (Loss) Per Share—Basic income (loss) per share is calculated based on the weighted average number of Class A common stock and Class B common stock (the “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 ~~dilutive~~ 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.

34Potential dilutive Common Shares consist of the incremental Class A common 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 loss per share for the year ended December 31, 2015 excludes all potential dilutive Common Shares as their inclusion would have been antidilutive.

Potential dilutive Common Shares consist of the incremental Class A common 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 loss per share for the years ended December 31, 2015 and 2014 excludes all potential dilutive Common Shares as their inclusion would have been antidilutive.36

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

	Year ended December 31,
	2016			2015			2014
	2017			2016			2015
Net income (loss) attributable to Pendrell	$	1719,~~763~~060		$	~~(109~~17,~~680~~763	)	$	(51109,~~002~~680	)
Weighted average common shares outstanding		26250,~~827,699~~428			26268,~~713,685~~276			26267,~~633,662~~136
Less: weighted average unvested restricted stock awards		(~~68,714~~562	)		(~~142,952~~687	)		(~~192~~1,~~912~~429	)
Shares used for computation of basic income (loss) per share		26249,~~758,985~~866			26267,~~570,733~~589			26265,~~440,750~~707
Add back: weighted average unvested restricted stock awards and units		~~932~~6,~~881~~948			—9,329			—
Shares used for computation of diluted income (loss) per share (1)		27256,~~691,866~~814			26276,~~570,733~~918			26265,~~440,750~~707
Basic income (loss) per share attributable to Pendrell	$	076.6628		$	(466.1338	)	$	(1412.9379	)
Diluted income (loss) per share attributable to Pendrell	$	074.6422		$	(464.1315	)	$	(1412.9379	)

(1) Stock options, restricted stock awards and units totaling 112,~~305~~500,~~365,~~ 213,~~784,787~~053 and 227,~~811,354~~847 for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively, were excluded from the calculation of diluted income (loss) per share as their inclusion was anti-dilutive.

New 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 ~~largely~~ 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 December 31, ~~2016~~2017 are ~~less~~approximately ~~than~~ $1.0.6 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. ~~Early~~The adoption isof ~~permitted. The Company plans to adopt~~ this ASU inon ~~the~~January ~~first quarter of its fiscal year ended December 31~~1, 2017, ~~which~~resulted ~~will result~~ in an adjustment to retained earnings and additional paid in capital of approximately $0.2 million due to a change in ~~its~~ accounting for forfeitures. ~~The Company believes this adjustment will not have a material impact on its financial position, results of operations or cash flows.~~

35Throughout 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 plans to adopt this ASU on January 1, 2018 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 August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows including: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon bonds, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. Compliance with this ASU is required for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted. The adoption of this ASU during the year ended December 31, 2016 did not have an impact on the Company’s financial position, results of operations or cash flows.37

~~Throughout~~In ~~the~~May ~~year ended December 31~~2017, ~~2016,~~ the FASB ~~has~~ issued ~~a number of ASUs which provide further clarification to~~ ASU No. ~~2014~~2017-09, ~~Revenue~~Compensation—Stock Compensation (Topic ~~606~~718)~~: Revenue~~-Scope ~~from~~of ~~Contracts~~Modification ~~with Customers~~Accounting, ~~issued~~which inprovides ~~May~~guidance ~~2014,~~about which ~~supersedes~~changes ~~existing~~to ~~revenue~~the ~~recognition~~terms ~~guidance~~or ~~under~~conditions ~~GAAP. The core principle~~ of ~~ASU~~a ~~No. 2014~~share-09based ispayment toaward ~~recognize~~require ~~as revenue the amount that~~ an entity ~~expects~~ to beapply ~~entitled~~modification ~~for~~accounting. ~~goods~~Unless ~~or services at~~ the ~~time~~changes ~~the~~in ~~goods~~terms or ~~services~~conditions ~~are~~meet ~~transferred~~all tothree ~~customers.~~criteria Inoutlined ~~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~~guidance, ~~2017,~~modification ~~with~~accounting ~~early~~should ~~adoption~~be ~~permitted beginning January 1, 2017~~applied. The ~~ASUs~~three ~~issued~~criteria inrelate ~~2016 related~~ to ~~ASU~~changes ~~No.~~in ~~2014-09 will become effective when~~ the ~~guidance~~terms inand ~~ASU~~conditions ~~No.~~that ~~2014-09~~affect ~~becomes~~the ~~effective.~~fair ~~The~~value, ~~Company~~vesting ~~is continuing to assess the impact~~conditions, ifor ~~any,~~classification of ~~implementing~~a ~~ASU No. 2014~~share-09based ~~and~~payment ~~related~~award. ~~ASUs~~Compliance aswith ofthis ~~January~~ASU 1,is ~~2018,~~required ~~under~~for ~~the~~annual ~~modified~~periods ~~retrospective~~beginning ~~method~~after ~~where~~December ~~the~~15, ~~cumulative~~2017. ~~effect~~Early adoption is ~~recognized at the date of initial application~~permitted. The ~~Company believes future~~ adoption of ~~these~~this ~~ASUs~~ASU ~~will~~in 2017 did not have aan ~~material~~ impact on ~~its~~the Company’s financial position, results of operations or cash flows.

3. Provitro

In February 2013, the Company acquired a 68.75% interest in Provitro, the developer of the Provitro™ proprietary micro-propagation technology designed to facilitate the production on a commercial scale of certain plants, particularly timber bamboo. In February 2015, the Company acquired the minority partner’s interest in Provitro for nominal consideration resulting in 100% ownership of Provitro.

From acquisition through the year ended December 31, 2014, the Company attempted to develop a strategy to commercialize ~~the~~ Provitro~~™ technology, but did not generate revenue from the technology. In January 2015, the Company suspended further development of the Provitro™ technology due to the Company~~’s ~~inability~~proprietary ~~to identify near~~micro-~~term~~propagation ~~opportunities~~technology ~~for~~(designed ~~commercialization.~~to ~~The~~facilitate ~~Company~~the ~~began~~production ~~seeking~~on a ~~buyer~~commercial ~~for~~scale ~~Provitro’s assets and took an $11.0 million impairment charge during the fourth quarter~~ of ~~its~~certain ~~year~~plants, ~~ended~~particularly ~~December~~timber 31bamboo), ~~2014. The~~but ~~impairment~~did ~~charge~~not ~~was~~generate ~~equal~~revenue tofrom the ~~sum of its unamortized investment in the Provitro™~~ technology ~~and the goodwill associated with its acquisition of Provitro~~.

36In 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.

In September 2015, the Company sold Provitro’s facility and related tangible assets for $2.0 million, resulting in a $0.7 million loss which is included in general and administrative expenses for the year ended December 31, 2015. The purchase price is payable 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 is scheduled to be paid no later than March 1, 2017. The installment payments are reflected in the balance sheet as follows (in thousands):

	December 31, 2016		December 31, 2015
Other receivables:
Provitro note receivable	$	600	$	1,300
Other		69		29
Total other receivables	$	669	$	1,329
Other assets:
Provitro note receivable	$	—	$	600
Other		29		38
Total other assets	$	29	$	638

Additionally, in December 2015, the Company sold its rights to the Provitro™ micro-propagation technology, resulting in a nominal amount of revenue.

4. Accounts Receivable (Current and Non-current)

~~The~~A ~~Company~~significant ~~expects~~portion toof ~~receive~~ the ~~$15.5~~Company’s ~~million of~~ current accounts receivable atbalance ~~December~~is ~~31,~~due ~~2016~~from noToshiba ~~later~~Memory ~~than~~Corporation ~~July~~(“TMC”), which prior to 2017 was a division of Toshiba Corporation (“Toshiba”). ~~The~~ ~~Company~~Based ~~expects~~on tothe ~~receive~~Company’s ~~payment~~assessment of ~~approximately~~various ~~$15.7~~reports, ~~million~~including Toshiba’s unaudited financial results, as well as the ongoing activities of ~~its~~TMC, ~~non-current~~the Company believes that no allowance for doubtful accounts is required for its receivable infrom ~~2018~~TMC. ~~and~~The ~~the~~Company ~~remainder~~will incontinue ~~2019~~to evaluate its position as new information becomes available.

AThe ~~significant portion of the~~ Company’s ~~accounts receivable balance (current and noncurrent) is due from Toshiba Corporation. In December 2016, Toshiba announced that it~~ expects to ~~write-down~~receive ~~its~~the ~~nuclear business by several billion dollars~~$1. ~~The~~3 ~~write-down~~million ~~could result in negative shareholder equity, which could make it difficult for Toshiba to obtain funding if needed. At this time, based on its review~~ of ~~currently~~non-current ~~available information, the Company believes that no allowance for doubtful~~ accounts ~~is required with regards to its~~ receivable ~~from~~at ~~Toshiba.~~December ~~The~~31, ~~Company~~2017, ~~continues~~in ~~to evaluate its position as more information becomes available~~2019.

5. Intangible Assets and Goodwill

2015 Impairment of ~~Intangibles~~Intangible Assets and Goodwill

In November 2015, as a result of ~~the~~ non-infringement verdicts in the ~~Google~~Company’s ~~Litigation~~lawsuits against various manufacturers of mobile communication and ~~Apple~~computing ~~Litigation~~devices (see Note 87 – “Commitments and Contingencies”), the Company revised its projected cash flows for its intangible assets, triggering an impairment analysis of its intangible assets and goodwill. The Company records an impairment charge on its intangible assets if it determines that their carrying value may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition. When the Company determines that the carrying value of its intangible assets may not be recoverable, the Company measures the potential impairment based on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in its current business model. An impairment loss is recognized only if the carrying amount of the intangible assets exceeds its estimated fair value. An impairment charge is recorded to reduce the pre-impairment carrying amount of the intangible assets to their estimated fair value.

Determining the fair value is highly judgmental in nature and requires the use of significant estimates and assumptions considered to be Level 3 fair value inputs, including anticipated future revenue opportunities, operating margins, and discount rates, among others. The estimated fair value of the intangible assets was determined based on the income approach, as it was deemed to be most indicative of the Company's fair value in an orderly transaction ~~between market participants. Under the income approach the Company determined fair value based on estimated~~

3738

between market participants. Under the income approach the Company determined fair value based on estimated future cash flows resulting from licensing its intangible assets. The estimated cash flows were discounted by an estimated weighted-average cost of capital which reflects the overall level of inherent risk of the Company and the rate of return an outside investor would expect to earn. Upon completion of the analysis, the Company concluded that the estimated fair value of its intangible assets was less than their carrying amount and recorded an impairment charge of $82.3 million, which is included in "~~Impairment~~impairment of ~~intangibles~~intangible assets and goodwill" in the accompanying ~~Consolidated~~consolidated ~~Statements~~statements of ~~Operations~~operations.

The Company then evaluated the carrying value of its goodwill by estimating the fair value of the reporting unit through the use of discounted cash flow models, which required management to make significant judgments as to the estimated future cash flows resulting from licensing its intangible assets. Upon completion of the analysis, the Company concluded that the estimated fair value of its reporting unit was less than its carrying amount and recorded an additional $21.2 million impairment charge related to goodwill in the fourth quarter of 2015. As a result of the impairment in 2015, the Company no longer maintains balances for goodwill or indefinite-lived intangible assets in its financial statements.

2014 Impairment of Intangibles and Goodwill

In January 2015, the Company suspended further development of the Provitro™ technology as it had been unable to identify near-term opportunities to commercialize the technology. The Company determined that this suspension provided additional evidence about conditions that existed prior to December 31, 2014, triggering an impairment analysis of the intangibles associated with its Provitro asset group. In its impairment analysis, the Company compared the carrying amount of the Provitro™ technology to the future undiscounted net cash flows expected to be generated by the Provitro™ technology. The Company concluded that the anticipated undiscounted cash flows from the Provitro™ technology did not exceed the carrying value of the Provitro™ technology, and the Company recorded a $10.5 million non-cash impairment charge in its results of operations for the year ended December 31, 2014. Additionally, as of December 31, 2014, the company determined that the goodwill related to its acquisition of Provitro was impaired and recorded a $0.5 million non-cash impairment charge for the year ended December 31, 2014.

Intangible Assets

The following table presents details of the Company’s intangible assets and related amortization (in thousands):

	December 31, 2016			December 31, 2015
	December 31, 2017			December 31, 2016
Cost:
Patent cost	$	58,553		$	65,796
Patents	$	65,796		$	67,096
Patent accumulated amortization		(56,224	)		(61,080	)
Customer relationships		1,804			1,804
Intangible assets, net	$	2,329		$	4,716
Total cost		67,600			68,900
Accumulated amortization:
Patents		(61,080	)		(52,719	)
Customer relationships		(1,804	)		(1,804	)
Total accumulated amortization		(62,884	)		(54,523	)
Intangible assets, net	$	4,716		$	14,377

AtAmortization ~~December~~expense ~~31,~~related ~~2016~~to purchased intangible assets, ~~the~~reported ~~Company~~as ~~determined~~amortization ~~that~~of intangible assets in the ~~expected~~consolidated ~~period~~statements of ~~benefit~~operations, offor ~~its~~the ~~patents~~years isended ~~approximately~~December ~~two~~31, ~~years.~~2017, 2016 and 2015 were as follows (in thousands):

	Year ended December 31,
	2017		2016		2015
Amortization of intangible assets	$	2,345	$	9,498	$	13,939

The intangible assets at December 31, 2017 will be fully amortized as of December 31, 2018.

The Company has used, and may continue to use, different structures and forms of consideration for its acquisitions of intangible assets. Acquisitions may be consummated through the use of cash, equity, seller financing, third party debt, earn-out obligations, revenue sharing, profit sharing, or some combination of these types of consideration. Consequently, the acquisition values reflected in the Company’s investing activities may represent lower amounts than would be reflected, for example, in a situation where cash alone was utilized to complete the acquisition.

38During the year ended December 31, 2015, the Company enhanced its existing memory and storage technologies patent portfolio for an additional $2.0 million. No patents were purchased during the years ended December 31, 2017 and 2016.

During the ~~year~~years ended December 31, 2017 and 2015, the Company ~~further~~sold ~~enhanced~~certain ~~its~~patents ~~existing~~in ~~memory~~several transactions and ~~storage~~has ~~technologies~~included ~~patent~~the ~~portfolio~~gross ~~for~~proceeds anin ~~additional $2~~revenue.0 ~~million.~~ No patents were ~~purchased~~sold during the ~~years~~year ended December 31, ~~2014~~2016. ~~and~~Cost ~~2016~~associated with the patents sold, including any remaining net book value, are included in cost of revenues in the Company’s consolidated statements of operations. The patents sold in 2017 had previously been fully impaired, therefore, there was no related book value to charge to cost of revenues. Certain of the patents sold, as well as certain of those licensed, were subject to an obligation to pay a substantial portion of the net proceeds to a third party. These costs are also included in cost of revenues. In future periods, these third party payments as a percentage

During the years ended December 31, 2015 and 2014, the Company sold certain patents in several transactions and has included the gross proceeds in revenue. No patents were sold during the year ended December 31, 2016. Cost associated with the patents sold, including any remaining net book value, are included in cost of revenues in the Company’s consolidated statements of operations. Certain of the patents sold, as well as certain of those licensed, were subject to an obligation to pay a substantial portion of the net proceeds to a third party. These costs are also included in cost of revenues. In future periods, these third party payments as a percentage of revenues may vary significantly based on the structure utilized for any given acquisition. Costs associated with patents sold during the years ended December 31, 2016, 2015 and 2014 were as follows (in thousands):

	Year ended December 31,
	2016		2015		2014
Cost of patents sold	$	—	$	138	$	794

The Company periodically abandons patents that are not part of existing licensing programs or for which the Company has determined that it would no longer allocate resources to their maintenance and enforcement. Costs associated with the abandonment of patents, including any remaining net book value, are included in patent administration and related costs in the Company’s consolidated statements of operations and were as follows for the years ended December 31, 2016, 2015 and 2014 (in thousands):

	Year ended December 31,
	2016		2015		2014
Cost associated with the abandonment and/or disposition of patents	$	163	$	958	$	2,765

Amortization expense related to purchased intangible assets, reported as amortization of intangibles in the consolidated statements of operations, for the years ended December 31, 2016, 2015 and 2014 were as follows (in thousands):

	Year ended December 31,
	2016		2015		2014
Amortization of intangibles	$	9,498	$	13,939	$	15,929

The estimated future amortization expense of purchased intangible assets as of December 31, 2016 is as follows (in thousands):

Year ending December 31,	Amount
2017	$	2,358
2018		2,358
Total	$	4,716

6. Accrued expenses

The following table summarizes accrued expenses (in thousands):

	December 31, 2016		December 31, 2015
Accrued payroll and related expenses	$	1,134	$	1,742
Accrued legal, professional and other expenses		538		2,550
Accrued revenue share obligations		4,606		—
	$	6,278	$	4,292

7of revenues may vary significantly based on the structure utilized for any given acquisition. ~~Other~~Costs ~~non-current~~associated ~~liabilities~~with patents sold during the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):

At December 31, 2016, other non-current liabilities, primarily consisting of revenue share obligations, are estimated to be payable as follows (in thousands):

	Year ended December 31,
	2017		2016		2015
Cost of patents sold	$	—	$	—	$	138

Fiscal 2018	$	7,362
Fiscal 2019		434
	$	7,796

The Company periodically abandons patents that are not part of existing licensing programs or for which the Company has determined that it would no longer allocate resources to their maintenance and enforcement. Costs associated with the abandonment of patents, including any remaining net book value, are included in “patent administration and related costs” in the Company’s consolidated statements of operations and were as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):

8. Commitments and Contingencies

Year ended December 31,

2017

2016

2015

Cost associated with the abandonment and/or

disposition of patents

163

958

~~Lease and Commitments— The Company has operating lease agreements for its main office in Kirkland, Washington, and its office in Finland~~6. ~~The~~Accrued Company terminated its lease for office space in Plano, Texas effective June 30, 2016. Total rental expense included in general and administrative expenses in the Company’s consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014 was as follows (in thousands):Expenses

	Year ended December 31,
	2016		2015		2014
Rent expense	$	245	$	793	$	662

The following table summarizes accrued expenses (in thousands):

As of December 31, 2016, future minimum payments under the Company’s lease agreements were as follows (in thousands):

	December 31, 2017		December 31, 2016
Accrued payroll and related expenses	$	1,915	$	1,134
Accrued legal, professional and other expenses		782		538
Accrued revenue share obligations		6,100		4,606
	$	8,797	$	6,278

	Operating leases
2017	$	339
2018		348
2019		205
Total minimum payments	$	892

7. Commitments and Contingencies

Lease and Commitments— The Company has operating lease agreements for its main office in Kirkland, Washington, and its office in Finland. The Company terminated its lease for office space in Plano, Texas effective June 30, 2016. Total rental expense included in general and administrative expenses in the Company’s consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 was as follows (in thousands):

	Year ended December 31,
	2017		2016		2015
Rent expense	$	282	$	245	$	793

As of December 31, 2017, future minimum payments under the Company’s lease agreements were as follows (in thousands):

	Operating leases
2018	$	348
2019		205
Total minimum payments	$	553

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.

ContentGuard Enforcement Actions—In late 2013 and early 2014, in the Eastern District of Texas, ContentGuard filed patent infringement lawsuits against various manufacturers of mobile communication and computing devices, through which ContentGuard alleged that these manufacturers infringed and continue to infringe nine of ContentGuard’s patents by making, using, selling or offering for sale their devices. The lawsuits culminated in two trials in the Fall of 2015: one against Apple, Inc. (the “Apple Litigation”) and the other against Google, Inc. and manufacturers of Android devices (the “Google Litigation”).

Settlements. In late 2015 and early 2016, ContentGuard agreed to license its patents to Amazon and DirecTV, thereby settling its claims against those two parties and releasing them from the Apple Litigation and Google Litigation.

Google Litigation Verdict. On September 23, 2015, a jury in the Google Litigation found that the patents asserted against Google and Samsung are valid, but that products accused in the Google Litigation do not infringe the patents. The judge entered judgment consistent with the verdict in October 2015. The non-infringement decision, if not overturned on appeal, applies to all defendants that manufacture, sell or distribute Android devices that run Google Play services.

Apple Litigation Verdict. On November 20, 2015, a jury in the Apple Litigation found that the patents asserted against Apple in the Apple Litigation are valid, but that Apple products accused in the Apple Litigation do not infringe the patents. The judge entered judgment consistent with the verdict in December 2015.

~~Appeals.~~ ContentGuard ~~appealed~~Enforcement ~~the~~Actions—In ~~juries’~~July ~~findings~~2017, in the ~~Google~~Federal ~~Litigation~~District ~~and~~Court ~~Apple~~rejected ~~Litigation~~our toappeal ~~the~~of ~~Federal~~unfavorable ~~Circuit~~jury ~~Court,~~awards ~~which~~in ~~designated~~two ~~the~~infringement ~~appeals~~lawsuits asthat ~~companion~~ContentGuard ~~cases.~~filed Asin ~~such,~~ the ~~same~~Eastern ~~panel~~District of ~~three~~Texas ~~judges~~against ~~will~~various ~~hear~~manufacturers ~~and~~of ~~decide~~mobile ~~both~~communication ~~appeals.~~and ~~Briefing~~computing ~~was~~devices. ~~completed~~Early in ~~February 2017~~2018, ~~and~~ContentGuard ~~the~~licensed ~~Company~~its ~~anticipates~~patents to ZTE Corporation and dismissed proceedings that ~~oral~~ContentGuard’s ~~arguments~~German ~~will~~subsidiary behad ~~heard~~filed inagainst ~~early~~ZTE ~~June~~in ~~2017~~Germany. ~~The~~These ~~Company~~events ~~cannot~~brought ~~predict~~to ~~the~~a ~~outcome~~close ContentGuard’s various litigation initiatives against manufacturers of ~~the~~mobile ~~appeals~~communication and computing devices.

~~IPR~~MTL ~~and~~Enforcement ~~CBM~~Actions ~~Petitions.~~Against SanDisk—In December ~~2014~~2016, ~~Apple~~the ~~and~~Company’s ~~Google~~wholly-owned ~~filed~~subsidiary, aMemory ~~total~~Technologies ofLLC 35(“MTL”) ~~petitions~~filed ~~with~~patent ~~the~~infringement ~~USPTO,~~claims ~~through~~against ~~which~~SanDisk ~~Apple~~Corporation and ~~Google~~certain ~~challenged~~affiliated ~~the~~companies, ~~validity~~including ofWestern ~~all~~Digital ~~nine~~Corporation ~~patents~~(collectively, ~~asserted~~“SanDisk”) inat the ~~Apple~~International ~~Litigation~~Trade Commission and ~~Google~~in ~~Litigation.~~the ~~The~~Federal ~~USPTO~~District ~~terminated~~Court ~~all~~for ~~but~~the ~~one~~Central ~~petition.~~District ~~The~~of ~~lone remaining petition~~California, ~~relating~~through towhich ~~patent~~MTL ~~number~~sought ~~7,774,280,~~monetary ~~went~~damages tofor ~~trial~~SanDisk’s ~~and~~alleged ~~was~~infringement ~~resolved~~of ~~in ContentGuard~~MTL’s ~~favor~~patents. ~~Google~~In ~~appealed~~June ~~the~~2017, ~~trial~~MTL ~~finding~~licensed toits ~~the~~patents ~~Federal~~to ~~Circuit~~SanDisk ~~Court.~~and ~~The~~dismissed ~~Company~~its ~~cannot~~actions ~~predict~~against ~~the outcome of the appeal~~SanDisk.

~~ZTE~~MTL ~~—In~~Enforcement ~~early~~Actions ~~2012,~~Against ~~ContentGuard~~Kingston—On ~~and~~January ~~its~~31, ~~subsidiaries~~2018, MTL filed ~~lawsuits in~~patent ~~United~~infringement ~~States~~claims ~~and~~against ~~German~~Kingston ~~courts,~~Technology ~~alleging that ZTE~~ Corporation, ~~ZTE (USA) Inc.~~ and ~~ZTE~~certain ~~Deutschland~~affiliated ~~GmbH~~companies (collectively, “~~ZTE~~Kingston”) ~~infringed and~~in ~~continue~~the toFederal ~~infringe~~District ~~ContentGuard~~Court ~~patents by making, using, selling or offering~~ for ~~sale~~the ~~certain~~Central ~~mobile~~District ~~communication and computing devices. In response, ZTE filed a nullity action against two~~ of ~~the~~California ~~patents and an opposition proceeding against~~ (the ~~third~~“Kingston ~~patent. ZTE prevailed in the opposition proceeding~~Litigation”), ~~resulting~~through inwhich ~~the~~MTL ~~revocation~~seeks ofmonetary ~~one~~damages ~~European~~for ~~patent,~~Kingston’s ~~which~~alleged ~~ContentGuard has appealed. The~~ infringement ~~and nullity proceedings in Germany, along with all U.S. court actions, were “put to rest” or stayed as the result~~ of aMTL’s ~~standstill agreement signed by ContentGuard and ZTE in December 2013~~patents. ~~The standstill agreement has been extended through the end of 2017.~~

~~MTL~~The ~~Enforcement Actions—In December 2016, the~~ Company’s ~~wholly-owned~~is ~~subsidiary,~~unable ~~Memory~~to ~~Technologies~~anticipate ~~LLC (“MTL”) filed patent infringement claims against SanDisk LLC and certain affiliated companies (collectively, “SanDisk”) at~~ the ~~International~~timing ~~Trade~~or ~~Commission~~outcome ~~(the “ITC”) and in the Federal District Court for the Central District~~ of ~~California (~~the ~~“District~~Kingston ~~Court”), through which MTL alleged that SanDisk infringed and continues to infringe MTL’s patents~~Litigation.

~~ITC Action~~8. InShareholders’ its ITC filing, MTL requested that the ITC commence an investigation against SanDisk to bar the unlawful importation into the United States, the sale for importation, and the sale within the United States after importation of secure digital cards, microSD cards and components of such cards. The ITC instituted the investigation in January 2017, and MTL is cooperating with the investigation.Equity

~~District~~Common ~~Court~~Stock—The ~~Action~~Company’s Articles of Incorporation authorizes two classes of common stock, Class A and Class B. InThe ~~parallel~~rights ~~with~~of the ~~ITC~~holders ~~Action~~of shares of Class A common stock and Class B common stock are identical, ~~MTL~~except ~~filed~~with arespect ~~District~~to ~~Court~~voting ~~action~~and ~~against~~conversion. ~~SanDisk~~Holders ~~alleging~~of ~~infringement~~shares of ~~eight~~Class A ~~patents~~common ~~and~~stock ~~seeking~~are ~~monetary~~entitled ~~damages~~to ~~for~~one ~~patent~~vote ~~infringement~~per share. Holders of shares of Class B common stock are entitled to ten votes per share. The ~~District~~Class B ~~Court~~common ~~action~~stock ~~has~~is ~~been~~convertible ~~stayed~~at ~~pending~~any ~~resolution~~time at the option of its holder into shares of Class A common stock. Each share of Class B common stock is convertible into one share of Class A common stock. Additionally, subject to certain exceptions, shares of Class B common stock will automatically convert into shares of Class A common stock if the ~~ITC~~shares ~~Action~~of Class B common stock are sold or transferred. Class A common stock is not convertible. Eagle River Satellite Holdings, LLC, the Company’s controlling shareholder, together with its affiliates Eagle River Investments, LLC, Eagle River, Inc. and Eagle River Partners, LLC held an economic interest of approximately 37.4% and a voting interest of approximately 67.6% in the Company as of December 31, 2017.

~~The~~On March 9, 2017, the Company isredeemed ~~unable~~24,328 toshares ~~anticipate~~of the ~~timing~~Company’s orClass ~~outcome~~A Stock from Highland Crusader Offshore Partners, L.P. in a private transaction at a price of $655 per share. In the ~~ITC~~fourth ~~Action~~quarter ~~and~~of 2017, the ~~District~~Company ~~Court~~redeemed ~~Action~~an additional 6,150 shares from various investors in private transactions and as fractionalized shares at an average price of $606 per share.

9Dividend—On November 30, 2017, the Board declared a dividend of $12.32 ~~Shareholders’~~per ~~Equity~~share, payable on shares outstanding after the 2017 Reverse Split. The dividend was paid on December 27, 2017 to shareholders of record on December 15, 2017. The Company elected to pay the dividend to shareholders, rather than incur personal holding company tax. See Note 11 – “Income Taxes” for further details.

~~Common~~Prior ~~Stock—The~~to ~~Company’s Articles of Incorporation authorizes two classes of common stock~~2017, ~~Class A and Class B. The rights of~~ the ~~holders~~Company ofhad ~~shares~~never ofpaid ~~Class A~~cash ~~common~~dividends ~~stock~~on ~~and Class B common stock are identical, except with respect to voting and conversion. Holders of~~ shares of Class A common stock are entitled to one vote per share. Holders of shares of Class B common stock are entitled to ten votes per share. The Class B common stock is convertible at any time at the option of its ~~holder into shares of~~ Class A ~~common stock. Each share of Class B common stock is convertible into one share of Class~~ A ~~common~~or ~~stock. Additionally, subject to certain exceptions, shares of~~ Class B ~~common stock will automatically convert into shares of Class A common stock if the shares of Class~~ B common stock ~~are sold or transferred~~. Class A common stock is not convertible. Eagle River Satellite Holdings, LLC, the Company’s controlling shareholder, together with its affiliates Eagle River Investments, LLC, Eagle River, Inc. and Eagle River Partners, LLC held an economic interest of approximately 33.3% and a voting interest of approximately 65.0% in the Company as of December 31, 2016.

Stock Incentive Plan—On November 14, 2012, the Company’s shareholders approved the Pendrell Corporation 2012 Equity Incentive Plan (the “2012 Plan”). Effective upon the approval of the 2012 Plan, the Company’s 2000 Stock Incentive Plan, as amended and restated (the “2000 Plan”) was terminated. No additional awards will be granted under the 2000 Plan.

The purpose of the 2012 Plan is to assist the Company in securing and retaining the services of skilled employees, directors, consultants and/or advisors of the Company and to provide incentives for such individuals to exert maximum efforts toward the Company’s success. The 2012 Plan allows for the grant of stock options, stock appreciation rights, performance stock awards, performance cash awards, restricted stock awards, restricted stock unit awards and other stock awards (collectively, “Awards”) to employees, directors, consultants and/or advisors who provide services to the Company or its subsidiaries.

Under the 2012 Plan, the aggregate number of shares of Class A common stock that may be issued pursuant to Awards from and after the effective date of the 2012 Plan will not exceed, in the aggregate, the sum of 337,~~795,254~~952 shares, plus any shares subject to outstanding stock awards granted under the 2000 Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited, canceled or otherwise returned due to the failure to meet a condition required to vest such shares; or (iii) are reacquired, withheld or not issued to satisfy a tax withholding obligation in connection with an award. As of December 31, ~~2016~~2017, 224,~~449,419~~743 shares were reserved and remain available for grant under the 2012 Plan.

Stock-Based Compensation—The Company records stock-based compensation 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. ~~The~~On January 1, 2017, the Company ~~estimates~~elected to change its ~~forfeiture~~accounting ~~rate~~policy for ~~Awards~~calculating stock-based compensation based on ~~the~~forfeiture ~~Company’s~~estimates ~~historical~~to ~~rate~~one ofthat recognizes forfeitures ~~due~~when they occur. ASU 2016-09 permits this one-time policy change, but requires the change to ~~terminations~~be ~~and~~adopted ~~expectations~~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 ~~the~~an ~~future~~adjustment to retained earnings and additional paid in capital of approximately $0.2 million. The Company’s estimated forfeiture rate was 5% for the years ended December 31, 2016, ~~2015~~ and ~~2014~~2015.

Stock-based compensation expense included in the Company’s consolidated statements of operations for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 was as follows (in thousands):

	Year ended December 31,
	2016		2015		2014
	2017		2016		2015
Stock options (1)	$	1,193	$	2,236	$	7,268
Stock options	$	884	$	1,193	$	2,236
Restricted stock awards (1) (2)		2,231		2,271		2,137
Restricted stock awards (1)		2,538		2,231		2,271
Total stock-based compensation expense	$	3,~~424~~422	$	43,~~507~~424	$	94,~~405~~507

(1) On November 19, 2014, Benjamin G. Wolff resigned from his positions as President and Chief Executive Officer of the Company. The Company entered into a separation agreement in accordance with the terms of Mr. Wolff’s Amended and Restated Employment Letter Agreement (the "Agreement"). The Agreement provided for the vesting of all options, shares of restricted stock ("RSAs") and restricted stock units ("RSUs") in which Mr. Wolff would have vested had he remained actively employed by the Company through the second anniversary of his resignation, excluding any unvested performanceStock-based ~~RSAs~~compensation orexpense ~~performance-based RSUs. The Agreement also provided~~ for ~~an extension of~~ the ~~exercise~~year ~~period~~ended ~~for Mr. Wolff’s vested stock options until~~ December 1531, 2015. ~~The~~includes ~~extension of the exercise period is considered a modification and resulted in additional stock-based compensation expense of~~ $0.72 million, asof ~~determined~~expense ~~using~~related ato ~~Black-Scholes~~250 ~~model,~~Class ~~which~~A ~~was~~common ~~recognized~~stock onrestricted ~~the~~stock ~~modification~~awards ~~date~~that aswere ~~the~~required ~~options~~to ~~were~~be ~~vested~~treated ~~pursuant~~as toa ~~the Agreement~~liability. The ~~accelerated~~Company ~~vesting~~settled of the ~~options,~~related ~~RSUs~~liability ~~and~~with ~~RSAs~~a ~~resulted in~~ $2.15 million ofpayment ~~additional~~in ~~stock-based~~April ~~compensation~~2015 ~~expense~~and inno ~~the~~further ~~year~~expense ~~ended~~has ~~December~~been ~~31, 2014~~incurred.

~~(2)~~At ~~Stock~~December 31, 2017, the balance of stock-based compensation ~~expense~~cost ~~for~~to ~~the~~be ~~year~~expensed ~~ended~~in ~~December~~future ~~31,~~years ~~2015~~related ~~and~~to ~~2014,~~unvested ~~includes~~stock-based awards is $0.2.1 million, ~~and~~all of which will be expensed in 2018. The $02.81 million of future expense, ~~respectively,~~does not include expense related to ~~250,000~~500 ~~Class~~performance-based Astock ~~common~~options ~~stock~~and 1,000 performance-based restricted stock awards ~~that~~granted ~~are~~in ~~required~~2015, toas bethese ~~treated~~awards asvest aupon ~~liability.~~the ~~The~~achievement ~~Company~~of ~~settled~~certain performance milestones for which the related ~~liability~~performance ~~with~~targets ahave $2yet to be established.5 ~~million~~The ~~payment~~fair invalue ~~April~~of ~~2015~~these ~~and~~awards nowill ~~further~~not ~~expense~~be ~~has~~known ~~been~~until ~~incurred~~the date the performance targets are established at which point expensing will commence.

Additionally, the $2.1 million of future expense does not include additional stock-based compensation resulting from the modification of options and restricted stock outstanding at December 31, 2017 during the first quarter of 2018. See Note 15 – “Subsequent Events.”

At December 31, 2016, the balance of stock-based compensation cost to be expensed in future years related to unvested stock-based awards, as adjusted for expected forfeitures, is as follows (in thousands):

2017 (1)	$	2,823
2018 (1)		1,859
2019 and thereafter		—
	$	4,682

(1) Future expense does not include expense related to 0.1 million performance-based stock options and 0.2 million performance-based restricted stock awards granted in 2015, as these awards vest upon the achievement of certain performance milestones for which the related performance targets have yet to be established. The fair value of these awards will not be known until the date the performance targets are established at which point expensing will commence.

The weighted average period over which the unearned stock-based compensation expense is expected to be recognized is approximately 1.75 years.

Stock Options and Stock Appreciation Rights—The Company has granted stock options and stock appreciation rights to employees, directors, consultants and advisors in connection with their service to the Company. Stock options to purchase the Company’s Class A common stock are granted at the fair market value of the stock on the date of grant. The Company has both service-based stock options and performance-based stock options. The majority of service-based stock options granted to employees become exercisable over a four year period, while stock options granted to non-employee directors generally vest over one year. Performance-based stock options become exercisable if the Company achieves specified performance goals during the performance period and the grantee remains employed during the subsequent vesting period. Stock options generally expire 10 years after the date of grant or up to three months after termination of employment, whichever occurs earlier. There are no stock appreciation rights currently outstanding.

The weighted average fair value of stock options granted during the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 was estimated using the Black-Scholes Model with the following assumptions:

	Year ended December 31,
	2016			2015			2014
	2017			2016			2015
Weighted average expected volatility		5349	%		4853	%		5548	%
Weighted average risk-free interest rate		1.2.0	%		1.92	%		1.9	%
Expected dividend yield		0	%		0	%		0	%
Weighted average expected term in years		5.5			65.05			6.20
Weighted average estimated fair value per option granted	$	3319.3270		$	4332.7000		$	7470.9000

The assumptions used to calculate the fair value are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

The Company’s expected stock price volatility rate is based on a peer group, which the Company believes is a reasonable representation of the Company’s business direction and expected future volatility as an IP investment and asset management business.

The risk-free interest rate is based upon U.S. Treasury bond interest rates appropriate for the term of the Company’s employee stock options. The expected dividend yield is based on the Company’s history and expectation of dividend payments. The expected term has been estimated using the simplified method which permit entities, under certain circumstances, to continue to use the simplified method in developing estimates of the expected term of “plain-vanilla” share options.

The Company’s stock option activity for the year ended December 31, ~~2016~~2017 is summarized as follows:

	Number of options			Weighted average exercise price		Weighted average remaining life (in years)
Outstanding at December 31, 2015		1,731,732		$	16.21
Outstanding at December 31, 2016		13,045		$	1,569.84
Granted (1)		~~24,000~~240			6687.9100
Forfeited		(~~450,367~~785	)		172574.1943
Outstanding at December 31, 2016 (2)		1,305,365		$	15.70		6.72
Outstanding at December 31, 2017 (2)		12,500		$	1,489.80		6.04
Exercisable at December 31, 2016 (2)		800,140		$	16.97		5.95
Exercisable at December 31, 2017 (2)		9,552		$	1,547.53		5.60
Vested and expected to vest at December 31, 2016 (2)		1,256,354		$	15.64		6.81
Vested and expected to vest at December 31, 2017 (2)		12,500		$	1,489.80		6.04

(1)	All options granted were to members of the Company’s board of directors.

(2) Aggregate intrinsic value represents the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on December 31, ~~2016~~2017. As of December 31, ~~2016~~2017, the aggregate intrinsic values of stock options outstanding, exercisable, and vested and expected to vest were all zero as the closing stock price of the Company’s stock was lower than the exercise prices of its outstanding options.

The total fair value of options which vested during the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 was approximately $21.0 million, $2.50 million and $72.35 million, respectively.

The following table summarizes significant ranges of outstanding and exercisable stock options as of December 31, ~~2016~~2017:

	Outstanding stock options						Exercisable stock options
Range of exercise prices	Number of options		Weighted average exercise price		Weighted average remaining life (in years)		Number of options		Weighted average exercise price
$ 6.91—$12.90		268,125	$	11.00		6.37		244,125	$	11.40
$ 687—$1,255		2,570	$	1,039		5.57		2,330	$	1,076
$12.91—$13.25		176,090		13.10		8.38		88,050		13.10
$1,256—$1,325		1,925		1,304		7.21		1,522		1,302
$13.26—$14.05		400,000		13.40		8.52		100,000		13.40
$1,326—$1,405		4,000		1,340		7.46		2,000		1,340
$14.06—$19.60		232,500		16.24		5.75		167,002		16.60
$1,406—$1,845		1,872		1,562		4.96		1,567		1,568
$19.61—$42.20		228,650		26.67		4.06		200,963		27.49
$1,846—$2,780		2,133		2,418		3.87		2,133		2,418
		1,305,365	$	15.70		6.72		800,140	$	16.97
		12,500	$	1,490		6.04		9,552	$	1,548

See Note 15 – “Subsequent Events” for discussion regarding 2018 modification, including cancellation, of options outstanding at December 31, 2017.

Restricted Stock Awards—The Company has granted restricted stock awards to employees, directors and consultants in connection with their service to the Company. The Company’s stock grants can be categorized as either service-based awards, performance-based awards, and/or market-based awards.

The Company’s restricted stock award activity for the year ended December 31, ~~2016~~2017 is summarized as follows:

	Number of restricted stock awards			Weighted average grant date fair value
Unvested—December 31, 2015		1,053,075		$	8.40
Unvested—December 31, 2016		8,907		$	822.67
Granted (1)		~~78,083~~625			5681.4667
Vested		(~~200~~2,~~856~~719	)		10817.5239
Forfeited		(~~39,547~~162	)		10522.3293
Unvested—December 31, 2016		890,755		$	8.23
Unvested—December 31, 2017 (2)		6,651		$	904.00

(1)	Represents shares issued to the Company’s Board of Directors as compensation for service. These awards have a grant date fair value of $0.4 million and vest upon issuance.

~~During~~(2) ~~the year ended December 31~~2,089 ~~2016,~~of ~~122,773~~the ~~stock~~ awards ~~vested~~outstanding asat aDecember ~~result~~31, of2017 ~~the~~will ~~Company’s~~either ~~employees~~vest ~~achieving~~or ~~service~~expire ~~and~~in ~~performance~~2018, ~~targets.~~with ~~Certain holders of~~ the ~~vested~~balance ~~RSAs~~either ~~and RSUs exercised their right to have their awards net-share settled to cover statutory employee taxes related to the~~ vesting ofor ~~the~~expiring ~~RSAs and RSUs. The settlement of these awards resulted~~ in ~~the Company repurchasing and/or cancelling 6,352 shares for approximately $40,000~~2019.

During the year ended December 31, 2017, 2,094 restricted stock awards vested as a result of the Company’s employees achieving service and performance targets. Certain holders of the vested RSAs and RSUs exercised their right to have their awards net-share settled to cover statutory employee taxes related to the vesting of the RSAs and RSUs. The settlement of these awards resulted in the Company repurchasing and/or cancelling 24 shares for approximately $17,000.

See Note 15 – “Subsequent Events” for discussion regarding the 2018 modification, including cancellation, of restricted stock outstanding at December 31, 2017.

9. 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 significantly reduced the Company’s “cost of revenues” on future memory patent revenue. The final installment payment associated with the termination comes due in 2018 and is reflected in “accrued expenses.”

10. Gain on Contingencies

During 2012, as part of the Company’s exit from the satellite business, the Company sold its MEO Assets that had been in storage for nominal consideration. Under the sales agreement, the Company was entitled to a substantial portion of any proceeds that the buyer generated from the resale of the MEO Assets. In January 2015, the buyer resold the MEO Assets and the Company received two of three scheduled payments for these assets in 2015, resulting in the recognition of $3.9 million gain on contingency in the year ended December 31, 2015. The Company received the final scheduled payment in April 2016, resulting in the recognition of a $2.0 million gain on contingency in the year ended December 31, 2016.

~~The~~In ~~Company~~March ~~received~~2012, the ~~final~~Company ~~scheduled~~asserted ~~payment~~claims in ~~April~~arbitration ~~2016,~~in ~~resulting~~London inagainst the ~~recognition~~J&J ofGroup to recover costs that the J&J Group was required to reimburse the Company pursuant to a ~~$2.0~~MEO ~~million~~satellite ~~gain~~asset onpurchase ~~contingency~~agreement that was signed in ~~the~~April ~~year~~2011. ~~ended~~In ~~December~~November 312015, ~~2016.~~the ~~Due~~Company toentered into a settlement agreement with the ~~uncertainty~~J&J ofGroup ~~collection~~whereby atit ~~December~~received 31approximately $1.6 million, ~~2015~~net of collection costs, ~~the~~in ~~Company~~full ~~did~~and ~~not~~final ~~recognize~~settlement of all claims against the J&J Group which is included in gain ~~generated~~on bycontingencies in the ~~third~~statements ~~scheduled~~of ~~payment~~operations for the ~~MEO~~year ~~Assets~~ended inDecember 31, 2015.

In March 2012, the Company asserted claims in arbitration in London against the J&J Group to recover approximately $2.7 million in costs that J&J was required to reimburse the Company pursuant to a MEO satellite asset purchase agreement that was signed in April 2011. During 2011, the Company recorded a receivable of $2.7 million to reflect the J&J Group’s reimbursement obligation and established a corresponding reserve in the full amount of the receivable pending resolution of the dispute. In November 2012, the Company obtained an arbitration judgment award for approximately $4.0 million, which included the requested reimbursement plus costs and fees of approximately $1.3 million. J&J Group submitted multiple appeals to the UK courts, and in December 2014, the Company obtained an enforcement judgment against J&J Group, and commenced collection efforts. In November 2015, the Company entered into a settlement agreement with the J&J Group whereby it received approximately $1.6 million, net of collection costs, in full and final settlement of all claims against the J&J Group which is included in gain on contingencies in the statements of operations for the year ended December 31, 2015.

Additionally, the Company recorded a gain of $0.5 million during 2015 as a result of the release of a tax indemnification liability associated with the acquisition of Ovidian in June 2011.

11. Income Taxes

The Company’s income tax benefit (expense) for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 consists of the following (in thousands):

	Year ended December 31,
	2016			2015			2014
	2017			2016			2015
United States—deferred	$	—		$	(1,497	)	$	33
United States—current	$	2,182		$	—		$	—
Foreign—current		—			4,128			6,270
United States—deferred		—			—			1,497
	$	—		$	2,631		$	6,303
Foreign—current		(72	)		—			(4,128	)
Income tax benefit (expense)	$	2,110		$	—		$	(2,631	)

For the year ended December 31, 2017, the Company recorded an income tax benefit of $2.1 million primarily related to a state income tax refund of prior year taxes approved by tax authorities in late 2017. For the year ended December 31, 2016, the Company did not record a provision for U.S. federal income tax due to available tax loss carryforwards. During the year ended December 31, 2015, as a result of the impairment of certain indefinite-lived ~~intangibles~~intangible assets, the deferred tax liability associated with these ~~intangibles~~intangible ~~was~~assets decreased, resulting in a federal tax benefit of $1.5 million.

For the years ended December 31, ~~2015~~2017 and ~~2014~~2015, the Company recorded tax provisions of $40.1 million and $64.31 million, respectively, related to foreign taxes withheld on revenue generated from license agreements executed with third party licensees domiciled in a foreign ~~jurisdiction~~jurisdictions. The Company had no foreign taxes withheld during the year ended December 31, 2016. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. federal income tax liabilities, subject to certain limitations. However, due to uncertainty regarding the Company’s ability to utilize the deduction or credit resulting from the foreign withholding, the Company established a full valuation allowance against the related deferred tax asset.

AThe ~~reconciliation~~Company’s accounting for the various elements of the ~~federal~~Tax ~~statutory~~Cuts ~~income~~and Jobs Act (“TCJA”), enacted on December 22, 2017, is complete and the impact is reflected in the 2017 financial statements, including the reduction in the maximum U.S. federal corporate tax rate offrom 3435% to 21% beginning in 2018. As a result of the TCJA, the Company’s ~~effective~~recorded ~~income~~a $323.2 million reduction in its net deferred tax assets to reflect the new statutory tax rate. isThis asadjustment ~~follows:~~to deferred tax assets was fully offset by a corresponding decrease in the Company’s valuation allowance, resulting in no impact to the Company’s effective tax rate.

	Year ended December 31,
	2016			2015			2014
Statutory tax rate		34.00	%		34.00	%		34.00	%
Change in valuation allowance		(59.30	)		(22.59	)		(95.75	)
Release of uncertain tax position		—			—			62.77
Foreign withholding taxes		—			(2.37	)		(7.98	)
Goodwill impairment		—			(6.07	)		—
Stock-based compensation		10.24			(3.23	)		—
Loss on sale of subsidiary		13.70			—			—
Other		1.36			(2.03	)		(5.20	)
Effective tax rate		0	%		(2.29	)%		(12.16	)%

A reconciliation of the 2017, 2016 and 2015 federal statutory income tax rate of 34% to the Company’s effective income tax rate is as follows:

	Year ended December 31,
	2017			2016			2015
Statutory tax rate		34.00	%		34.00	%		34.00	%
Change in valuation allowance		(1,862.16	)		(59.30	)		(22.59	)
Impact of change in tax law		1,821.35			—			—
State income taxes		(8.01	)		—			—
Foreign withholding taxes		0.26			—			(2.37	)
Goodwill impairment		—			—			(6.07	)
Stock-based compensation		1.42			10.24			(3.23	)
Loss on sale of subsidiary		—			13.70			—
Other		1.24			1.36			(2.03	)
Effective tax rate		(11.90	)%		0	%		(2.29	)%

The significant components of the Company’s net deferred tax assets ~~and liabilities~~ are as follows (in thousands):

	December 31, 2016				December 31, 2015
		December 31, 2017				December 31, 2016
Deferred tax assets:
Net deferred tax assets:
Net operating losses	$	~~941,163~~$	624,984		$	~~956,181~~$	941,163
Basis difference in Liquidating Trust		~~16,955~~	10,380			~~16,894~~	16,955
Accrued expenses and other		~~12,336~~	5,083			~~10,380~~	12,336
Total deferred tax assets		~~970,454~~	640,447			~~983,455~~	970,454
Valuation allowance		~~(970,454~~	)(640,447	)		~~(981,096~~	)(970,454	)
Net deferred tax assets	$	—$	—		$	~~2,359~~$	—
Deferred tax liabilities:
Intangibles	$	—			$	(2,359	)
Total deferred tax liabilities	$	—			$	(2,359	)
Net deferred tax liabilities	$	—			$	—

As of December 31, ~~2016~~2017, the Company had federal tax net operating loss carryforwards in the United States (“NOLs”) of approximately $2.5 billion. A significant portion of the ~~NOL~~NOLs ~~was~~were generated when the Company disposed of its satellite business and transferred the MEO-related international subsidiaries to a liquidating trust. ~~The~~In ~~Company~~2017, ~~believes~~ the ~~NOL~~Company ~~can~~adopted beASU ~~carried forward to offset certain future taxable income that may be generated during the NOL carryforward period~~No. ~~The~~ ~~NOL~~2016-09, ~~carryforward~~Compensation—Stock ~~period~~Compensation begins to expire in 2025 with a significant portion expiring in 2032. The use of the NOL will be significantly limited if the Company undergoes a Tax Ownership Change under Section 382 of the Internal Revenue Code (~~“Tax~~Topic ~~Ownership Change”~~718)~~. Broadly,~~: ~~the~~Improvements ~~Company~~to ~~will~~Employee ~~have~~Share-Based aPayment ~~Tax~~Accounting. ~~Ownership~~As ~~Change if, over~~ a ~~three year testing period~~result, the ~~portion~~deferred oftax ~~all~~asset ~~stock~~related ofto the Company,’s byNOLs ~~value,~~increased ~~owned~~ by ~~one or more 5% shareholder increases by more than 50 percentage points~~$0. ~~For~~3 ~~purposes~~million ofdue ~~this~~to ~~test, shareholders that own less than 5% of~~ the ~~stock~~inclusion of ~~the~~additional ~~Company~~NOLs ~~are~~related aggregated into one or more separate “public groups”, each of which is treated as a 5% shareholder. In general, shares traded within a public group are not included in the Tax Ownership Change test. As discussed below, the Board of Directors adopted a Tax Benefits Preservation Plan designed to ~~preserve~~excess ~~shareholder value and the value of certain~~ tax ~~assets primarily associated with NOLs~~benefits. AsThe ofincrease ~~December~~in ~~31, 2016,~~ the ~~Company~~deferred ~~also had~~ tax ~~loss~~asset ~~carryforwards~~was infully ~~the~~offset ~~state~~by ofa ~~California~~valuation ~~of approximately $1.3 billion~~allowance, aresulting ~~portion of which will expire~~ in ~~2017. A~~no ~~significant~~change ~~portion~~to of the ~~California loss carryforward was generated when the~~ Company’s ~~disposed~~recognized ofnet ~~its~~deferred ~~satellite business and will expire in 2032. The impacts of a Tax Ownership Change, discussed above, would apply to the California~~ tax ~~losses as well~~assets.

~~For~~The ~~all~~Company ~~years~~believes ~~presented~~the NOLs can be carried forward to offset certain future taxable income that may be generated during the carryforward period, which begins to expire in 2025 with a significant portion expiring in 2032. The use of the NOLs will be significantly limited if the Company ~~has~~undergoes ~~considered~~a ~~all~~Tax ~~available~~Ownership ~~evidence~~Change under Section 382 of the Internal Revenue Code (“Tax Ownership Change”). Broadly, ~~including~~the Company will have a Tax Ownership Change if, over a three-year testing period, the ~~history~~portion of ~~tax~~all ~~losses~~stock ~~and~~of the ~~uncertainty~~Company, ~~around~~by ~~future~~value, ~~taxable~~owned ~~income~~by one or more 5% shareholder increases by more than 50 percentage points. ~~Based~~For onpurposes of this test, shareholders that own less than 5% of the ~~weight~~stock of the ~~evidence~~Company ~~available~~are ataggregated ~~December~~into 31one or more separate “public groups”, ~~2016~~each of which is treated as a 5% shareholder. In general, shares traded within a ~~valuation~~public ~~allowance~~group ~~has~~are ~~been~~not ~~recorded~~included in the Tax Ownership Change test. As discussed below, the Board of Directors adopted a Tax Benefits Preservation Plan designed to ~~reduce~~preserve shareholder value and the value of ~~the~~certain ~~Company’s~~tax ~~DTA~~assets primarily associated with NOLs. As of December 31, ~~including~~2017, the ~~DTA~~Company ~~associated~~also ~~with~~had tax loss carryforwards in the ~~NOL~~state of California of approximately $1.3 billion, which will begin to anexpire ~~amount~~in ~~that~~2028. A issignificant ~~more~~portion ~~likely~~of ~~than~~the ~~not~~California loss carryforward was generated when the Company disposed of its satellite business and will expire in 2032. The impacts of a Tax Ownership Change, discussed above, apply to bethe ~~realized~~California tax losses as well.

AsFor ofall ~~December~~years 31presented, ~~2016,~~ the Company ~~had~~has ~~unrecognized~~considered ~~tax~~all ~~benefits~~available evidence, including the history of ~~$15.3~~tax ~~million~~losses ~~related~~and tothe uncertainty around future taxable income. Based ~~tax~~on ~~refund~~the ~~claims~~weight ~~filed~~of inthe ~~various~~evidence ~~jurisdictions.~~available ~~Due~~at December 31, 2017, a valuation allowance has been recorded to reduce the ~~uncertain~~value ~~nature~~ of the ~~refund~~Company’s ~~claims~~deferred tax assets, including the ~~uncertain~~deferred tax ~~positions~~assets ~~have~~associated ~~not~~with ~~been~~the ~~recorded~~NOLs, asto an ~~income~~amount ~~tax~~that ~~benefit~~is more likely than not to be realized.

AAt ~~reconciliation~~the beginning of the ~~beginning~~year ~~and~~ended ~~ending~~December ~~amount~~31, of2017, the Company had unrecognized tax benefits of $15.3 million related to income tax refund claims filed in various jurisdictions. In late 2017, the Company settled a claim for the partial refund of state income taxes previously paid, resulting in a refund of $2.2 million, which is asexpected ~~follows~~to (be received in ~~thousands):~~early 2018, and a reduction to the Company’s unrecognized tax benefits of $3.0 million. Due to the uncertain nature of the Company’s remaining refund claims, the remaining uncertain tax positions have not yet been recorded as an income tax benefit.

	December 31,
	2016			2015		2014
Beginning of period	$	15,594		$	5,132	$	37,665
Additions for tax positions taken during the current period		—			10,462		—
Reductions for tax positions taken during prior periods		—			—		(32,533	)
Exchange rate fluctuations		(271	)		—		—
End of period	$	15,323		$	15,594	$	5,132

~~All~~A reconciliation of the ~~unrecognized~~beginning ~~tax~~and ~~benefits~~ending atamount ~~December~~of ~~31, 2016, if fully recognized, would affect the Company’s effective tax rate. The Company estimates that a reduction in its~~ unrecognized tax benefits ofis ~~approximately~~as ~~$15.3~~follows ~~million~~(in ~~may occur within the next twelve months upon resolution of determinations by taxing authorities.~~thousands):

The Company and its subsidiaries file U.S. federal income tax returns and tax returns in various state and foreign jurisdictions. The Company is open to examination for the years ended 2005 and forward with respect to NOLs generated and carried forward from those years. The Company is open to examination by foreign jurisdictions for tax years 2012 forward.

	December 31,
	2017			2016			2015
Beginning of period	$	15,323		$	15,594		$	5,132
Additions for tax positions taken during the current period		—			—			10,462
Reductions for tax positions taken during prior periods		(2,950	)		—			—
Settlements with tax authorities		(2,182	)		—			—
Exchange rate fluctuations		1,352			(271	)		—
End of period	$	11,543		$	15,323		$	15,594

~~Certain~~All ~~Taxes Payable Irrespective~~ of ~~NOLs—Under~~ the ~~Internal~~unrecognized ~~Revenue Code and related Treasury Regulations, the Company may “carry forward” its NOLs in certain circumstances to offset current and future income and thus reduce its federal income~~ tax ~~liability,~~benefits ~~subject~~at toDecember ~~certain restrictions. To the extent that the NOLs do not otherwise become limited~~31, ~~the Company believes that it will be able to carry forward a significant amount of NOLs. However~~2017, ~~these~~if ~~NOLs~~fully ~~will not impact all taxes to which the Company may be subject. For instance~~recognized, ~~state~~would oraffect ~~foreign income taxes and/or revenue based taxes may be payable if~~ the Company’s ~~income~~effective ortax ~~revenue~~rate. isThe ~~attributed~~Company toestimates ~~jurisdictions~~ that ~~impose~~a ~~such~~reduction ~~taxes;~~in ~~the Company’s NOLs do not entirely offset~~ its ~~income~~unrecognized ~~for alternative minimum~~ tax; ~~and~~benefits ~~the NOLs will not offset federal personal holding company tax liability that Pendrell or one or more~~ of ~~its~~approximately ~~corporate~~$11.5 ~~subsidiaries~~million may ~~incur.~~occur ~~This~~within isthe ~~not~~next antwelve ~~exhaustive~~months ~~list,~~upon ~~but~~resolution ~~merely illustrative~~ of ~~the~~determinations ~~types~~by oftaxing ~~taxes to which the Company’s NOLs are not applicable~~authorities.

~~Personal Holding Company Determination—~~The ~~Internal Revenue Code imposes an additional tax on the undistributed income of a Personal Holding~~ Company (“PHC”). In general, a corporation will be classified as 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~~subsidiaries ~~ordinary~~file ~~gross income is Personal Holding Company Income (“PHCI”)~~U.S. ~~Broadly,~~federal ~~PHCI~~income ~~includes~~tax ~~items~~returns ~~such~~and astax ~~dividends,~~returns ~~interest,~~in ~~rents~~various state and ~~royalties,~~foreign ~~among others~~jurisdictions. ~~For~~The aCompany ~~corporate subsidiary, Concentrated Ownership~~ is ~~determined~~open ~~by reference~~ to ~~ownership~~examination offor the ~~parent~~years ~~corporation(s),~~ended 2005 and ~~the~~forward ~~subsidiary’s~~with ~~income~~respect ~~is subject~~ to ~~additional~~NOLs ~~tests~~generated toand ~~determine~~carried ~~whether~~forward ~~its~~from ~~income~~those ~~renders the subsidiary a PHC~~years. IfThe aCompany ~~corporation~~ is aopen ~~PHC, generates positive net PHCI and does not distribute~~ to ~~its~~examination ~~shareholders~~by aforeign ~~proportionate~~jurisdictions ~~dividend~~for intax ~~the~~years ~~full~~2013 ~~amount of the net PHCI, then the undistributed net PHCI is taxed (at 20% under current law)~~forward.

~~Due~~Certain toTaxes ~~the~~Payable ~~significant~~Irrespective ~~number~~ of ~~shares~~NOLs—Under ~~held by~~ the ~~Company’s~~Internal ~~largest~~Revenue ~~shareholders~~Code and ~~the~~related ~~type~~Treasury ofRegulations, ~~income that~~ the Company ~~generates,~~may ~~the~~“carry ~~Company~~forward” ~~must~~its ~~continually~~NOLs ~~assess~~in ~~share~~certain ~~ownership~~circumstances ofto ~~Pendrell~~offset current and future income and thus reduce its ~~consolidated~~federal ~~subsidiary~~income ~~ContentGuard~~tax liability, subject to ~~determine~~certain ~~whether~~restrictions. orTo ~~not~~the ~~there~~extent isthat ~~Concentrated~~the ~~Ownership~~NOLs ofdo ~~either~~not ~~corporation.~~otherwise ~~For~~become ~~2016~~limited, the Company ~~determined~~believes that ~~Pendrell,~~it ~~the~~will ~~parent~~be ~~company,~~able ~~met~~to ~~the~~carry ~~Concentrated~~forward ~~Ownership~~a ~~test,~~significant ~~but~~amount ~~that~~of ~~ContentGuard~~NOLs. ~~has~~However, these NOLs will not ~~yet~~impact ~~met~~all taxes to which the ~~Concentrated~~Company ~~Ownership~~may ~~test~~be ~~due~~subject. toFor ~~the~~instance, ~~interest~~state ~~held~~or byforeign ~~its~~income ~~minority~~taxes ~~shareholder. The~~and/or ~~Company~~revenue ~~does~~based ~~not~~taxes ~~expect~~may tobe ~~have~~payable aif ~~PHC~~the ~~liability~~Company’s ~~for~~income ~~2016~~or ~~because~~revenue ~~Pendrell~~is ~~did~~attributed ~~not~~to ~~have~~jurisdictions ~~undistributed~~that ~~net~~impose ~~PHCI. If~~such ~~either~~taxes, ~~Pendrell~~and orthe ~~ContentGuard~~NOLs iswill ~~determined~~not tooffset beany afederal ~~PHC~~personal inholding ~~the~~company ~~future,~~tax ~~generates~~liability ~~net~~that ~~PHCI,~~Pendrell ~~and~~or ~~does~~one ~~not~~or ~~distribute~~more toof its ~~shareholders~~corporate asubsidiaries ~~proportionate~~may ~~dividend~~incur. inThis ~~the~~is ~~full~~not ~~amount~~an exhaustive list, but merely illustrative of the ~~net~~types ~~PHCI,~~of ~~then~~taxes ~~the~~to ~~undistributed~~which ~~net~~the ~~PHCI~~Company’s ~~will~~NOLs beare ~~taxed~~not applicable.

Personal Holding Company Determination—The Internal Revenue Code imposes an additional tax on the undistributed income of a Personal Holding Company (“PHC”). In general, a corporation will be classified as 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 ownership of the parent corporation, 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).

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 share ownership of Pendrell and its consolidated subsidiary ContentGuard to determine whether or not there is Concentrated Ownership of either corporation. For 2017, the Company determined that Pendrell, the parent company, met the Concentrated Ownership test, but that ContentGuard has not yet met the Concentrated Ownership test due to the interest held by its minority shareholders. The Company does not expect to have a PHC liability for 2017 because Pendrell did not have undistributed net PHCI as a result of the $3.0 million dividend payment made to shareholders on December 27, 2017. If either Pendrell or ContentGuard is a PHC in a future tax year, 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.

Tax Benefits Preservation Plan—Effective January 29, 2010, the Board of Directors adopted the Tax Benefits Preservation Plan (“Tax Benefits Plan”) to help the Company preserve its ability to utilize fully its NOLs and to help preserve potential future NOLs. As discussed above, if the Company experiences a “Tax Ownership Change,” as defined in Section 382 of the Internal Revenue Code, the Company’s ability to use the NOLs could be significantly limited.

The Tax Benefits Plan is intended to act as a deterrent to any person or group acquiring, without the approval of the Company’s Board of Directors, beneficial ownership of 4.9% or more of the Company’s securities, defined to include: (i) shares of its Class A common stock and Class B common stock, (ii) shares of its preferred stock, (iii) warrants, rights, or options to purchase its securities, and (iv) any interest that would be treated as “stock” of the Company for purposes of Section 382 or pursuant to Treasury Regulation § 1.382-2T(f)(18).

Holders of 4.9% or more of the Company’s securities outstanding as of the close of business on January 29, 2010 will not trigger the Tax Benefits Plan so long as they do not (i) acquire additional securities constituting one-half of one percent (0.5%) or more of the Company’s securities outstanding as of the date of the Tax Benefits Plan (as adjusted to reflect any stock splits, subdivisions and the like), or (ii) fall under 4.9% ownership of the Company’s securities and then re-acquire securities that increase their ownership to 4.9% or more of the Company’s securities. The Board of Directors may exempt certain persons whose acquisition of securities is determined by the Board of Directors not to jeopardize the Company’s tax benefits or to otherwise be in the best interest of the Company and its shareholders. The Board of Directors may also exempt certain transactions.

12. Employee Benefits

The Company provides its eligible employees with medical and dental benefits, insurance arrangements to cover death in service, long-term disability and personal accident, as well as a defined contribution retirement plan. Expense related to contributions by the Company under the defined contribution retirement plan included in general and administrative expenses in the Company’s consolidated statements of operations for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 was as follows (in thousands):

	Year ended December 31,
	2016		2015		2014
	2017		2016		2015
Defined contribution expenses	$	8065	$	~~201~~80	$	~~264~~201

13. Related Parties

The Company considers its related parties to be its principal shareholder and its affiliates.

Eagle River Satellite Holdings, LLC (“ERSH”), Eagle River Investments, LLC (“ERI”), Eagle River, Inc. and Eagle River Partners, LLC (“ERP”)—ERSH is the Company’s controlling shareholder. ERSH, together with its affiliates ERI, Eagle River, Inc. and ERP (collectively, “Eagle River”) holds an economic interest of approximately 3337.34% of the Company’s outstanding common stock and a voting interest of approximately 6567.06% in the Company as of December 31, ~~2016~~2017. Craig O. McCaw, our Executive Chairman, is the sole manager and beneficial member of ERI, which is the sole member of ERSH. Mr. McCaw is the sole shareholder of Eagle River, Inc. and the beneficial member of ERP. Mr. McCaw disclaims beneficial ownership of the securities owned by ERSH, ERI and ERP, except to the extent of any pecuniary interest.

14. Quarterly Financial Data (Unaudited)

The following table contains selected unaudited statement of operations information for each quarter of the years ended December 31, ~~2016~~2017 and ~~2015~~2016. The quarterly financial data reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. During the quarter ended December 31, 2017, the Company reversed its prior tax accrual of $0.6 million related to PHC tax as it chose, instead, to pay a $3.0 million dividend. See Note 11 – “Income Taxes” for further details.

Additionally, in the same quarter, the Company recognized a $2.1 million tax benefit associated with the recognition of previously recorded uncertain tax positions.

There were no changes in accounting estimates that materially affected the fourth quarter of the year ended December 31, 2016.

Unaudited quarterly results were as follows (in thousands, except per share data):

	Three months ended
	March 31,						June 30,					September 30,						December 31,
	2016			2015			2016		2015			2016			2015			2016			2015
	2017			2016			2017		2016			2017			2016			2017			2016
Revenue	$	~~13,500~~—		$	2513,~~245~~500		$	4535,~~003~~122	$	245,~~147~~003		$	—5,443		$	~~15,465~~—		$	~~515~~2,209		$	~~662~~515
Impairment of intangibles and goodwill		—			—			—		—			—			—			—			(103,499	)
Operating income (loss)		(8,064	)		4,928			24,462		21,103			1,918			(5,501	)		(2,165	)		(5,313	)
Operating income (loss)		4,928			1,076			21,103		(8,021	)		(5,501	)		(2,129	)		(5,313	)		(112,061	)
Net income (loss)		(7,783	)		7,110			24,203		21,257			2,343			(5,341	)		1,093			(5,077	)
Net income (loss)		7,110			(1,315	)		21,257		(7,990	)		(5,341	)		127			(5,077	)		(108,404	)
Net income (loss) attributable to Pendrell		(7,759	)		6,565			24,228		21,420			1,713			(5,254	)		878			(4,968	)
Net income (loss) attributable to Pendrell		6,565			(559	)		21,420		(7,558	)		(5,254	)		1			(4,968	)		(101,564	)
Basic income (loss) per share attributable to Pendrell	$	(29.33	)	$	24.58		$	98.49	$	80.07		$	6.96		$	(19.62	)	$	3.61		$	(18.54	)
Basic income (loss) per share attributable to Pendrell (1)	$	0.25		$	(0.02	)	$	0.80	$	(0.28	)	$	(0.20	)	$	—		$	(0.19	)	$	(3.82	)
Diluted income (loss) per share attributable to Pendrell	$	(29.33	)	$	23.72		$	95.80	$	77.33		$	6.78		$	(19.62	)	$	3.51		$	(18.54	)
Diluted income (loss) per share attributable to Pendrell (1)	$	0.24		$	(0.02	)	$	0.77	$	(0.28	)	$	(0.20	)	$	—		$	(0.19	)	$	(3.82	)

(1) Per share amounts for the three months ended September 30, 2015 were less than $0.01.

15. Subsequent Events

~~Pursuant~~On toJanuary 23, 2018, the ~~2013~~Board ~~agreement~~authorized ~~under~~management ~~which~~to ~~the~~make ~~Company~~an ~~acquired~~offer ~~its~~to ~~memory~~certain ~~and~~Company ~~storage~~employees ~~technologies~~to ~~portfolio,~~exchange ~~the~~their ~~Company~~stock ~~shares~~options aand ~~significant~~restricted ~~portion~~stock offor ~~the~~future ~~revenue~~cash ~~generated~~payments ~~from~~to ~~memory~~be ~~patents~~paid ~~with~~out ~~the~~as ~~seller.~~follows: On(i) twenty-five ~~February~~percent 23(25%) on August 15, ~~2017~~2018, so long as the ~~seller~~employee ~~agreed~~continues toas ~~relinquish~~an ~~its~~employee ~~future~~of ~~revenue~~the ~~share~~Company inthrough ~~exchange~~that ~~for~~date; an(ii) uptwenty-~~front~~five ~~payment~~percent ~~and~~(25%) ~~future~~on ~~installment~~August ~~payments.~~15, ~~This~~2019, ~~agreement~~so ~~will~~long ~~result~~as inthe aemployee ~~one-time~~continues ~~charge~~as an employee of ~~$3.2~~the ~~million~~Company tothrough ~~expense~~that indate; and (iii) the ~~first~~remaining ~~quarter~~fifty ofpercent ~~2017~~(50%) ~~and~~on ~~will~~August ~~significantly~~15, ~~reduce~~2020, so long as the ~~Company’s~~employee ~~“cost~~continues ofas ~~revenues”~~an onemployee ~~future~~of ~~memory~~the ~~patent~~Company ~~revenue~~through that date.

~~Additionally,~~The onCompany ~~March~~intends 9,to ~~2017,~~make the ~~Company~~offer ~~agreed~~sometime toin ~~redeem~~the ~~2,432,923~~first ~~shares~~quarter of 2018. If all employees who receive the ~~Company’s~~offer ~~Class~~accept: A(i) ~~common~~3,184 options and 86 restricted stock ~~from~~awards ~~Highland~~outstanding ~~Crusader~~at ~~Offshore~~December ~~Partners~~31, ~~L.P.~~2017 will be canceled; and (~~“Crusader”~~ii) inthe aCompany ~~private~~estimates ~~transaction~~that atit amay ~~price~~incur ofan additional $60.557 ~~per~~million ~~share,~~of ~~subject~~stock-based tocompensation ~~possible~~expense ~~adjustment~~in ~~if,~~the onyear orended ~~before~~December ~~August 15~~31, ~~2017~~2018, which represents the ~~Company~~incremental ~~buys~~fair orvalue ~~sells~~of athe ~~substantial~~right ~~number~~to ofreceive ~~shares~~cash over the estimated fair value of ~~Class~~the Acanceled ~~Stock~~stock ~~for~~options aand ~~higher~~restricted ~~price~~stock, as of the acceptance date.

Further, on March 10, 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 (the “Reverse Split”) of the Company’s shares of Class A Stock and Class B common stock (collectively, the “Common Stock”). If approved by the shareholders at the Company’s 2017 annual meeting of shareholders, the Reverse Split will be effective at the close of trading on June 30, 2017 (the “Effective Date”), the Company’s Articles of Incorporation will be amended as of the Effective Date to reflect the Reverse Split, and any shareholder who holds less than 100 shares of Common Stock immediately prior to the Reverse Split will receive a cash payment in lieu of their fractionalized shares.

The Board approved the Reverse Split based on a recommendation from a special committee of the Board’s independent directors (the “Committee”). The Committee recommended the Reverse Split to enable the Company to terminate the registration of the Class A Stock under the Securities Exchange Act of 1934 as amended (the “Exchange Act”), and cease to be a reporting company under the Exchange Act if, after the Reverse Split, there are fewer than 300 record holders of Class A Stock. This de-registration will eliminate the expenses related to the disclosure, reporting and compliance requirements of the Exchange Act and related federal securities laws and regulations. The Board may abandon the proposed Reverse Split at any time prior to the Effective Date if the Board determines that it is no longer in the best interests of the Company or its shareholders. However, if its shareholders approve the Reverse Split, the Company anticipates the termination of its registration and the termination of its Nasdaq listing as soon as practicable after the Effective Date.

On March 10, 2017, at the recommendation of the Committee, the Board also authorized a share repurchase plan (the “Repurchase Plan”) for up to one million shares of Class A Stock. The Repurchase Plan contemplates the repurchase of shares from time to time at prevailing market prices, through open market or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act. The Committee recommended the Repurchase Plan, and the Board approved the Repurchase Plan, to provide shareholders with an opportunity for liquidity prior to the Effective Date of the Reverse Split. The Repurchase Plan does not require the Company to repurchase any minimum number of shares, and may be suspended, discontinued or modified at any time, for any reason and without notice.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer have evaluated our disclosure controls and procedures as of December 31, ~~2016~~2017, as such terms are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and have concluded that these disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e)) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15f of the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, ~~2016~~2017.

Our internal control over financial reporting as of December 31, ~~2016~~2017 has been audited by Grant Thornton, an independent registered public accounting firm, as stated in their report which appears in “Item 9A—Controls and Procedures” within this Form 10-K.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fourth quarter of ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5251

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Pendrell Corporation

WeOpinion ~~have audited the internal control over financial reporting of Pendrell Corporation (a Washington corporation) and subsidiaries (the “Company”) as of December 31, 2016, based~~ on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.:

We ~~conducted~~have ~~our~~audited ~~audit~~the ininternal ~~accordance~~control ~~with~~over ~~the~~financial ~~standards~~reporting of ~~the~~Pendrell ~~Public~~Corporation ~~Company Accounting Oversight Board~~ (~~United~~a ~~States~~Washington corporation). ~~Those standards require that we plan~~ and ~~perform~~subsidiaries (the ~~audit~~“Company”) toas ~~obtain~~of ~~reasonable~~December ~~assurance~~31, ~~about~~2017, ~~whether~~based ~~effective~~on ~~internal~~criteria ~~control~~established ~~over financial reporting was maintained~~ in ~~all~~the ~~material~~2013 ~~respects.~~Internal ~~Our~~Control—Integrated ~~audit~~Framework ~~included~~issued ~~obtaining~~by anthe ~~understanding~~Committee of ~~internal~~Sponsoring ~~control~~Organizations ~~over~~of ~~financial reporting, assessing~~ the ~~risk~~Treadway ~~that~~Commission a(COSO). ~~material~~In ~~weakness~~our ~~exists~~opinion, ~~testing~~the ~~and~~Company ~~evaluating~~maintained, ~~the~~in ~~design~~all ~~and~~material ~~operating~~respects, ~~effectiveness~~effective of internal control ~~based~~over onfinancial ~~the~~reporting ~~assessed~~as ~~risk,~~of ~~and~~December ~~performing~~31, ~~such~~2017, ~~other~~based ~~procedures~~on ascriteria weestablished ~~considered necessary~~ in the ~~circumstances.~~2013 WeInternal ~~believe~~Control—Integrated ~~that~~Framework ~~our~~issued ~~audit~~by ~~provides a reasonable basis for our opinion~~COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report dated February 16, 2018 expressed unqualified opinion on those financial statements.

Basis for opinion:

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting:

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, 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), the consolidated financial statements of the Company as of and for the year ended December 31, 2016, and our report dated March 15, 2017, expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Seattle, Washington

~~March~~February 1516, ~~2017~~2018

5352

Item 9B.

Other Information.

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

~~The~~Information ~~information~~Concerning required by this item is incorporated by reference to the sections entitled “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our ~~Proxy Statement relating to our 2017 Annual Meeting of Shareholders.~~ Directors

The name and certain background information regarding each of our directors are set forth below. There are no family relationships among directors or executive officers of the Company. In addition to the information presented below regarding each director’s specific experience, qualifications, attributes and skills, each of our directors has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment to the Company and our Board as demonstrated by his past service.

Name	Age	Position Held with the Company
Richard P. Emerson	55	Director
Nicolas Kauser	77	Director
Craig O. McCaw	68	Executive Chairman of the Board of Directors
Lee E. Mikles	62	Chief Executive Officer, President and Director
R. Gerard Salemme	63	Consultant and Director
Stuart M. Sloan	74	Director
H. Brian Thompson	78	Director

Richard P. Emerson

Became Director: October 2010

Mr. Emerson has spent his entire career in investment banking and corporate finance. Since 2008, Mr. Emerson has been a private investor and pursued personal interests. From 2009 to 2012, Mr. Emerson attended Stanford University Law School from which he earned a juris doctor degree. From 2004 through 2008, he was Senior Managing Director of Evercore Partners Inc., a public investment banking advisory firm. From 2000 through 2003, Mr. Emerson served as Senior Vice President for Microsoft Corporation, a leading provider of software and technology solutions, reporting directly to the Chief Executive Officer and serving on the executive leadership team, with responsibility for all acquisitions, investments and corporate strategy. Mr. Emerson joined Microsoft from investment bank Lazard Ltd., where as a Senior Managing Director, he advised telecom and technology clients on significant mergers, acquisitions and related financial transactions from 1994 to 2000. Prior to Lazard, Mr. Emerson held senior roles with The Blackstone Group and Morgan Stanley & Co., both of which are financial services companies. Mr. Emerson previously served on the board of directors of Clearwire Corporation, a leading provider of wireless broadband services (“Clearwire”), from 2003 through 2008, where he also served on the Audit Committee.

Qualifications and Skills: With a career dedicated to corporate finance and mergers and acquisitions, Mr. Emerson is well suited to assist the Company with future financing and investment opportunities. His extensive background in corporate finance and prior experience as a member of the Audit Committees of two public companies and a non-profit entity and his experience with the evaluation of financial statements qualifies him as an ‘audit committee financial expert’ as defined in the applicable rules of the SEC. As such, the Board of Directors has appointed Mr. Emerson to serve as Chair of the Audit Committee.

Nicolas Kauser

Became Director: December 2008 (also served from May 2000 through May 2004)

Mr. Kauser has spent over 40 years in the communications industry, including as President of Clearwire International LLC, Chief Technology Officer of Clearwire, Executive Vice President and Chief Technology Officer for AT&T Wireless Services, Inc. (formerly McCaw Cellular Communications, Inc.) and Senior Vice President of Operations and Vice President of Engineering of Cantel, Inc. He also spent 20 years in Venezuela where he first worked for the National Telephone Co. and subsequently co-founded two companies in the communications industry. Mr. Kauser served on the board of directors of TriQuint Semiconductor, Inc., a provider of radio

frequency solutions and technology, from 1999 to January 2015. In 1998, Mr. Kauser received the prestigious Gold Prize awarded by The Carnegie Mellon Institute and American Management Systems for excellence in the application of information technology. In recognition of his contributions to the communications industry, Mr. Kauser was inducted to the Wireless Hall of Fame in October 2011.

Qualifications and Skills: Mr. Kauser was a director with Pendrell from 2000 to 2004 and is familiar with our operations and history. He has been involved in the technology industry for many years and has experience with communications companies. In addition, Mr. Kauser’s experience as a senior officer at Clearwire and AT&T provides him with the management experience to assist in the oversight of our operations and strategic objectives. He has served on boards of numerous companies, including TriQuint Semiconductor, Inc. and various private companies. The Board of Directors has appointed Mr. Kauser to serve as Chair of the Nominating and Governance Committee and as a member of the Audit Committee.

Craig O. McCaw

Became Director: May 2000; Chairman of the Board since June 2011 (also served as Chairman from 2000 until 2009); Executive Chairman since November 2014.

Since 1993, Mr. McCaw has been Chairman, Chief Executive Officer, and the beneficial member of the Eagle River group of investment companies which focus on strategic investments in the telecommunications industry. Mr. McCaw served as a director and Chairman of DBSD North America, Inc., a satellite communications company, from 2005 to 2008. Mr. McCaw founded Clearwire in 2003 and served as its chairman of the board of directors from 2003 to December 2010. Mr. McCaw was a director of Nextel Communications, Inc., a wireless service provider that was acquired by Sprint Corporation in 2005, from 1995 until 2003, and a director of XO Communications, Inc., a communications network services provider formerly known as NEXTLINK Communications, Inc. (“XO”), from 1997 until 2002. From 1994 to 1997, he was also XO’s Chief Executive Officer. From 1974 to 1994, Mr. McCaw served as Chairman and Chief Executive Officer of McCaw Cellular Communications, Inc., which he built into the nation’s leading provider of cellular services in more than 100 U.S. cities, until the company was sold to AT&T in 1994.

Qualifications and Skills: Mr. McCaw brings to our Board of Directors demonstrated leadership skills and operating experience, including those acquired during more than 30 years of serving as a senior executive and director of Clearwire, XO, Nextel and McCaw Cellular Communications. As a former director of public and private companies in the telecommunications industry, Mr. McCaw also brings to the Company broad-based business experience and financial acumen.

Lee E. Mikles

Became Director: April 2014

Mr. Mikles was appointed President and Chief Executive Officer of Pendrell in June 2015 following his service as Interim Chief Executive Officer and President from November 2014 to June 2015. He served as chief executive officer of FutureFuel Corp., a manufacturer of custom and performance chemicals and biofuels, from 2005 to January 2013, its president from 2005 to January 2015, its principal financial officer from 2005 to 2008, and served as a director between 2005 and 2016. He served as chairman of Mikles/Miller Management, Inc., a registered investment adviser and home to the Kodiak family of funds, between 1992 and 2005 and was chairman of Mikles/Miller Securities, LLC, a registered broker-dealer, between 1999 and 2005. Mr. Mikles has served on the boards of directors of Pacific Capital Bankcorp., Official Payments Corporation, Coastcast Corporation, Nelnet, Inc., Imperial Bank and Imperial Bancorp.

Qualifications and Skills: Mr. Mikles brings to our Board of Directors extensive business, finance and investment experience. In addition, his experience as a senior executive and director of private and public companies, his active involvement in strategic planning and his significant financial and investment experience make him well suited to assist the Company in the oversight of our future strategic business and investment opportunities.

R. Gerard Salemme

Became Director: June 2010 (also served from May 2002 through December 2008)

Mr. Salemme has served as a consultant to the Company since February 2015. Mr. Salemme was our Executive Vice President and Chief Strategy Officer from March 2011 to February 2015. He is a Partner in Eagle River Partners, LLC, a private investment firm. Mr. Salemme has over 30 years of experience in business and government, having served as Executive Vice President-Strategy, Policy and External Affairs of Clearwire from 2004 to 2010, and as Senior Vice President, External Affairs of XO. Prior to joining XO, Mr. Salemme held senior executive positions with AT&T Corporation and McCaw Cellular Communications Inc. He also held the position of Senior Telecommunications Policy Analyst for the U.S. House of Representatives Subcommittee on Telecommunications and Finance from 1987 to 1991 and served as Chief of Staff to Congressman Ed Markey of Massachusetts from 1976 to 1984.

Qualifications and Skills: Mr. Salemme brings to our Board of Directors significant experience in business and government, including experience gained as a senior executive officer with Clearwire, XO and AT&T, which provides him with the management experience to assist in the oversight of our operations and strategic objectives. He is familiar with our operations and history, having served on our Board of Directors from 2002 to 2008. He has also served as a board member for numerous private companies.

Stuart M. Sloan

Became Director: October 2010

Since 1984, Mr. Sloan has been a principal of Sloan Capital Companies LLC, a private investment company that serves as general partner in the redevelopment of University Village, a nationally recognized regional center for upscale shopping in Seattle, Washington. From 1986 through 1999, Mr. Sloan was an owner and executive officer of Quality Food Centers, Inc., a grocery retailer (“QFC”), which was acquired by The Fred Meyer Co. in 1997. Prior to QFC, from 1967 until 1984, Mr. Sloan owned in part and operated Schuck’s Auto Supply, Inc., a retail provider of automotive maintenance and repair products that was sold to Pay ‘n Save Corp in 1984. Mr. Sloan currently serves as a director of Anixter International, Inc., a global distributor of communications and security products, electrical and electronic wire and cable, fasteners and other small parts. From 2003 until March 2011, Mr. Sloan served as a director of J. Crew Group, Inc., an apparel retailer. He is active, both personally and through his private foundation, in numerous civic, cultural, educational and other philanthropic activities.

Qualifications and Skills: Mr. Sloan’s extensive management experience, along with his service on numerous boards of directors, provides him with the experience to assist in the oversight of our operations and strategic objectives. For this reason, the Board of Directors has appointed Mr. Sloan to serve as a member of the Nominating and Governance Committee. His direct involvement, over the span of decades, with management, personnel management and employee incentives makes him particularly well suited to assist with compensation issues and other human resource matters. As such, the Board of Directors has appointed Mr. Sloan to serve as a member of the Compensation Committee.

H. Brian Thompson

Became Director: May 2007

Since 2006, Mr. Thompson has been Executive Chairman of GTT Communications, Inc., a leading global cloud network provider to multinational clients. Mr. Thompson continues to head his own private equity investment and advisory firm, Universal Telecommunications, Inc. From 2002 to 2007, Mr. Thompson was Chairman of Comsat International, one of the largest independent telecommunications operators serving Latin America. He also served as Chairman and Chief Executive Officer of Global TeleSystems Group, Inc. from 1999 to 2000. Mr. Thompson was Chairman and Chief Executive Officer of LCI International, Inc. a telecommunications company, from 1991 until its merger with Qwest Communications International Inc. in 1998. Mr. Thompson became Vice Chairman of the board of directors for Qwest until his resignation in December 1998. Mr. Thompson previously served as Executive Vice President of MCI Communications Corporation, a telecommunications company, from 1981 to 1990, and prior to MCI was a management consultant with McKinsey & Company, a global management consulting firm, where he specialized in the management of telecommunications. He currently serves

as a member of the board of directors of Penske Automotive Group, an international automotive retailer. He serves as a member of the Irish Prime Minister’s Ireland-America Economic Advisory Board, and from January 1999 to March 1999, he served as Non-Executive Chairman of Telecom Eireann, Ireland’s incumbent telephone company. Mr. Thompson received his M.B.A. from Harvard’s Graduate School of Business and holds an undergraduate degree in chemical engineering from the University of Massachusetts.

Qualifications and Skills: Mr. Thompson brings to our Board of Directors significant experience in the telecommunications industry, including experience as an Executive Chairman at Global Telecom & Technology and Chairman at Comsat International. His executive officer experience at LCI International and MCI Communications Corporation provides him with the management experience to assist in the oversight of our operations and strategic objectives. He has served on the boards of numerous companies, including Axcelis Technologies, Inc. and Sonus Networks, Inc. The Board of Directors has appointed Mr. Thompson to serve as chair of the Compensation Committee and as a member of its Audit Committee.

Information Concerning our Executive Officers

The following is a list of the names and ages of our current executive officers, indicating all positions and offices held by each such person and each such person’s business experience during at least the past five years. All such persons have been elected to serve until their successors are elected and qualified or until their earlier resignation or removal.

Name	Age	Position Held with the Company
Lee E. Mikles	62	Director; Chief Executive Officer and President
Steven A. Ednie	49	Vice President and Chief Financial Officer
Timothy M. Dozois	55	Corporate Counsel and Corporate Secretary

Set forth below is certain additional information concerning Messrs. Ednie and Dozois. Information concerning Mr. Mikles has been provided above in “Information Concerning our Directors.”

Steven A. Ednie

Mr. Ednie has served as our Vice President and Chief Financial Officer since September 2014. Mr. Ednie is an experienced financial executive with an extensive background in domestic and international accounting and tax matters, serving most recently as Chief Accounting Officer of Clearwire from October 2010 to April 2014, and as Vice President-Tax and Chief Tax Officer from 2004 to April 2014. Before joining Clearwire, Mr. Ednie served as the Director of Tax of Expedia, Inc., an Internet-based travel website company, from 2002 to 2004, as Executive Director–Tax and Chief Tax Officer of XO Communications Inc., a telecommunications company, from 1997 to 2002, and as Tax Manager of MIDCOM Communications, Inc., a telecommunications company, from 1996 to 1997. Mr. Ednie began his professional career at Coopers & Lybrand, LLP, an accounting firm, where he was a Senior Associate. Mr. Ednie holds a B.A. in Business Administration from the University of Washington.

Timothy M. Dozois

Mr. Dozois has served as our Corporate Counsel since May 2010 and as our Corporate Secretary since April 2014. From 1996 to 2010, Mr. Dozois engaged in the private practice of law as an equity partner of Davis Wright Tremaine LLP, with a focus on securities law compliance, mergers, acquisitions, divestitures, and technology licensing matters. Mr. Dozois has been an outside director of MacKenzie Realty Capital, Inc., a publicly listed real estate business development company, since January 2012, and an outside director of Pinnacle Healthcare, Inc., a privately held operator of skilled nursing facilities, since July 2011. Mr. Dozois is a member of the Oregon State Bar Association. He received his B.S. in Financial Management from Oregon State University and his J.D from the University of Oregon School of Law, where he was Order of the Coif.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and ten percent shareholders to file reports of ownership and changes in ownership with the SEC. The same persons are required to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of forms furnished to us during the most recent fiscal year, we believe that all reports required by Section 16(a) for transactions in the year ended December 31, 2017 were filed timely, except Form 4s reflecting equity grants to directors in October 2017 that were reported on Form 4s filed on January 3, 2018.

Code of Conduct and Ethics

We have adopted a Code of Conduct and Ethics that applies to all officers, directors and employees. The Code of Conduct and Ethics is publicly available on our website located at www.pendrell.com, by clicking on “Investors” and then “Corporate Governance,” or can be obtained without charge by written request to Pendrell’s Corporate Secretary at the address of Pendrell’s principal executive office. If the Company makes any substantive amendments to the Code of Conduct and Ethics or grants any waiver from a provision of the Code of Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website.

Shareholder Nominations and Recommendations for Director Candidates

We have not made any material changes to the procedures by which our shareholders may recommend nominees to our board of directors since we last disclosed the procedures under the caption “Shareholder Nominations and Recommendations for Director Candidates” in our proxy statement for the 2017 annual meeting of shareholders filed with the SEC on April 27, 2017.

Audit Committee

Messrs. Emerson, Kauser, and Thompson are the members of our Audit Committee. The Audit Committee: (i) evaluates the performance of and assesses the qualifications and independence of the independent auditor; (ii) determines and approves the engagement of the independent auditor, including the reasonable fees and other terms applicable to such engagement; (iii) determines whether to retain or terminate the existing independent auditor or to appoint and engage a new independent auditor; (iv) reviews and approves the retention of the independent auditor to perform any proposed permissible non-audit services; (v) reviews and evaluates the qualifications, performance and independence of the lead audit partner of the independent auditor and assures the regular rotation of the lead audit partner, reviewing partner and other audit engagement team partners of the independent auditor as required by law; (vi) reviews and approves or rejects transactions between the company and any related persons; (vii) confers with management and the independent auditor regarding the effectiveness of internal controls over financial reporting; (viii) establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submissions by employees of concerns regarding questionable accounting or auditing matters; (ix) meets to review the Company’s annual audited financial statements and quarterly financial statements with management and the independent auditor, including reviewing the company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and discusses, as appropriate, any major issues as to the adequacy of the company’s internal controls and the adequacy of disclosures about changes in internal control over financial reporting; (x) annually reviews the terms of the directors and executive officers insurance coverage and approves the terms prior to the renewal of the policy; (xi) reviews and assesses the adequacy of the Company’s investment policy and recommends any proposed changes to the Board; (xii) ensures the company maintains an internal audit capability, at least annually evaluates the performance of the company’s internal audit capability, and discusses with the independent auditor and management the internal audit capabilities responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit; and (xiii) has such other authority, duties and responsibilities as the Board delegates to the Audit Committee. The Board has determined that Richard Emerson qualifies as an Audit Committee “financial expert” as defined by the SEC rules.

Item 11.

Executive Compensation.

~~The information required by this item is incorporated by reference to the sections entitled “Executive~~ Compensation,” ~~“Director~~Discussion ~~Compensation”~~ and “Corporate Governance-Meetings of the Board, Committees of the Board and Compensation Committee Interlocks and Insider Participation” and “Executive Compensation—Compensation Committee Report” in our Proxy Statement relating to our 2017 Annual Meeting of Shareholders.Analysis

Overview

This compensation discussion and analysis describes the principles underlying our executive compensation program and the factors that impacted the 2017 compensation of our named executive officers. Our named executive officers for 2017 are listed in the Summary Compensation Table and include the following individuals:

•

Mr. Mikles, our Chief Executive Officer and President;

•

Mr. Ednie, our Chief Financial Officer; and

•

Mr. Dozois, our Corporate Counsel and Corporate Secretary

This compensation discussion and analysis is limited to a discussion of compensation and other benefits earned by the named executive officers for their performance in 2017.

Executive Summary

Pay for Performance

Consistent with our pay-for-performance philosophy, a substantial part of our executive compensation program consists of performance-based compensation. During 2017, our named executive officers who participated in our annual performance-based cash incentive plan, which we also refer to as the 2017 Incentive Plan (the “2017 Incentive Plan”), were eligible to receive cash bonuses upon achieving pre-established performance objectives, with relatively equal weighting between Company financial objectives and individual objectives. Performance-based equity awards also constitute the principal component of our Chief Executive Officer’s compensation package.

Financial Results

In 2017, we exceeded our targets for revenue and non-variable cash expense. We also achieved profit and loss objectives for individual cost centers within the Company.

2017 Compensation Highlights

Summarized below are 2017 executive compensation highlights, described more fully in later sections of this Compensation Discussion and Analysis.

•

Mr. Mikles vested into 2,000 shares of Class A common stock and 1,000 options to purchase shares of Class A common stock.

•

We awarded 2017 cash incentive awards under the 2017 Incentive Plan to Messrs. Ednie and Dozois at 124% and 114% of target, respectively.

•

The advisory vote on executive compensation at our 2017 annual meeting of shareholders received approval from over 99% of the votes cast.

Executive Compensation Philosophy and Objectives

Our executive compensation program is designed to balance achievement of near-term results with positioning for long-term success by encouraging executives to expand capacity, increase productivity, create efficiencies and implement tangible process improvements. The Company believes that the skill, talent, judgment, and dedication of its executive officers are critical factors affecting the long-term value of our company. In furtherance of this belief,

the primary goals of our executive compensation program in 2017 were to (i) provide compensation at competitive levels in order to attract and retain qualified executives who can manage the evolution of our business and contribute to our long-term success, (ii) motivate performance consistent with clearly defined corporate and individual performance goals, and (iii) provide incentives to help align the long-term interests of our executives with those of our shareholders. We believe our executive compensation program provides a solid framework for implementing and maintaining a balanced approach to compensation, has been instrumental in helping us accomplish our business objectives, and is strongly aligned with the long-term interests of our shareholders. In detail, our compensation program is designed to:

•

provide a balance between fixed and variable compensation elements that encourage performance while discouraging excessive risk-taking;

•

provide incentives that encourage our executives to appropriately balance short-term and long-term strategic goals;

•

attract and retain individuals with the leadership abilities and skills to successfully execute our business strategy and build long-term shareholder value;

•

encourage and reward outstanding initiative, achievement, and teamwork, and motivate individuals to perform at their highest level;

•

reflect varying degrees of executive responsibility, accountability and impact on our business;

•

provide compensation and incentive packages to our executives that are competitive with our peer companies;

•

emphasize performance-based pay that aligns incentives with our strategic objectives; and

•

provide a meaningful ownership stake to appropriately align executive interests with shareholder interests.

Role of the Compensation Committee

The Compensation Committee of the Board of Directors is responsible for the administration and oversight of our executive compensation program. Each director who served on the Compensation Committee in 2017 is a non-employee director within the meaning of SEC Rule 16b-3 and is an outside director within the meaning of Section 162(m) of the Code. The Compensation Committee has overall responsibility for approving and evaluating our executive officer compensation plans, policies, and programs, including:

•

periodically reviewing and establishing the agreements with, and compensation of, our executive officers;

•

establishing and periodically reviewing the operation and administration of our executive compensation programs;

•

carrying out duties assigned to the Compensation Committee under any equity compensation plan or other incentive compensation plan, including granting equity awards to our executive officers; and

•

performing other duties as assigned by the Board of Directors.

The Compensation Committee may delegate authority to subcommittees, retain or terminate compensation consultants, and obtain advice and assistance from internal or external legal, accounting or other advisers. The Compensation Committee may also consider recommendations of the Chief Executive Officer.

Say on Pay Feedback from Shareholders

Shareholders holding more than 99% of the votes cast at our 2017 annual meeting of shareholders approved, on an advisory basis, the compensation of our named executive officers. The Compensation Committee considered the results of the 2017 vote and, based in part on the significant shareholder support, made no changes to our executive compensation policies or decisions.

Role of Compensation Committee Consultants in Compensation Decisions

The Compensation Committee periodically engages independent compensation consultants to assist with the discharge of its responsibilities. Compensation consultants may review our compensation programs to confirm consistency with our executive compensation philosophy and objectives, may advise the Compensation Committee on emerging trends and issues related to the compensation of executive officers, and may recommend peer group and market data as reference points for executive compensation decisions. The Compensation Committee did not engage any compensation consultants in 2017.

Role of Management in Compensation Decisions

Our Chief Executive Officer and President periodically assesses the performance of our executive officers (other than himself) and makes recommendations to the Compensation Committee regarding the compensation of these executive officers. In early 2017, Mr. Mikles made recommendations regarding 2017 performance goals for Messrs. Ednie and Dozois. In January 2018, Mr. Mikles assessed the individual performance of Messrs. Ednie and Dozois for 2017 and the contributions of these executives to our 2017 business and strategic objectives, and thereafter recommended to the Compensation Committee that they receive cash incentive awards pursuant to the 2017 Incentive Plan. Mr. Mikles did not make recommendations regarding his own compensation, nor was he present for any executive sessions or discussions regarding his own compensation.

Peer Companies and Benchmarking

The Compensation Committee considers multiple data sources when assessing and constructing compensation programs, including competitive market data. However, the Committee does not set or maintain compensation at certain target percentiles within a peer group, nor does the Committee rely solely on market data. Instead, the Committee exercises discretion when making decisions regarding our compensation programs and the performance assessment process, with the goal of rapidly responding to and adjusting for an evolving business environment and the value delivered by our executive officers.

In addition to competitive market data, the Compensation Committee considers a variety of other factors when establishing compensation programs, including general market conditions, internal equity, individual responsibilities, and individuals’ recent or expected future contributions. The Compensation Committee also looks to our human resources staff to periodically assess executive compensation data from compensation consultants or salary surveys.

Mr. Mikles. Effective June 1, 2015, the Board of Directors appointed Mr. Mikles as our Chief Executive Officer and President following his service as Interim Chief Executive Officer and President from November 19, 2014 to June 1, 2015. In establishing compensation for Mr. Mikles upon his transition from interim status, our Compensation Committee considered the total direct compensation of chief executive officers in a group of 11 companies in the technology and intellectual property sector (the “Compensation Peer Group”). Our human resources staff and the Compensation Committee selected these companies based on a variety of factors, including revenue, industry, stage of development, and market capitalization. The companies in that Compensation Peer Group were:

Acacia Research Corporation		Dolby Laboratories, Inc.
DTS, Inc.		Immersion Corporation
InterDigital, Inc.		Rambus Inc.
Rovi Corporation		RPX Corporation
Tessera Technologies, Inc.		TiVO Inc.
VirnetX Holding Corporation

Chief Financial Officer and Corporate Counsel. The Compensation Committee compared target base salary and target cash compensation for chief financial officers and chief legal officers in the Radford Global Technology Survey for companies with comparable annual revenue (the “Target Peer Group”) to the 2017 cash compensation of Messrs. Ednie and Dozois. The Compensation Committee also considered each executive’s experience, skills, role, and responsibilities when determining the compensation for these executives. Mr. Ednie’s base salary for 2017 was

marginally above the 50th percentile of the annual base salaries of chief financial officers in the Target Peer Group. His total target cash compensation for 2017 was above the 50th percentile of the total target cash compensation for chief financial officers in the Target Peer Group. Mr. Dozois’ base salary and total target cash compensation for 2017 was slightly below the 50th percentile of the annual base salaries of individuals serving as general counsel for the companies in the Target Peer Group. His total target cash compensation for 2017 was also below the 50^th percentile.

Our Compensation Committee does not formulaically apply competitive compensation data. Cash compensation paid to an executive may be above or below the targeted range due to numerous factors, including but not limited to Company and individual performance, differences in responsibilities between executives at peer companies, an executive’s prior experience and experience and tenure with the Company, and contributions relative to other executives at the Company.

Elements of Compensation

As in 2015 and 2016, the 2017 compensation for Mr. Mikles consisted primarily of the vesting of long-term equity incentive awards. The 2017 compensation for Messrs. Ednie and Dozois consisted of base salary and short-term performance-based cash incentive compensation.

Each element of our executive compensation program is designed to achieve one or more of our performance, retention, and alignment goals as described below. These elements provide incentives to encourage our executives to appropriately balance their focus between our short-term and long-term strategic goals.

Compensation Element	Designed to Reward	Relationship to Compensation Philosophy
Annual Base Salary	Executive officer’s experience, responsibilities, and contributions to the Company	Attract and retain talented executives through competitive pay programs that ensure a fixed level of annual cash compensation for our executives

Short-term Performance-based Cash Incentives	Achievement of corporate and individual performance goals	Motivate executives to achieve and exceed annual business and individual objectives that we believe are important to our long-term success

Long-term Equity Incentives (options and stock awards)	Increased shareholder value through the achievement of long-term strategic goals such as revenue growth, return on invested capital, and stock price appreciation	Align executive and shareholder interests to optimize shareholder return; motivate executives to achieve and exceed business objectives; encourage retention through multi-year vesting

Each executive’s compensation, including the mix of cash compensation, equity awards, and compensation that is performance-based, ultimately reflects the Compensation Committee’s business judgment.

Except for nominal monthly stipends to assist with commuting expenses incurred by Mr. Dozois, who resided outside the state of Washington during 2017, the Company has not established programs under which executive perquisites are offered. The Company does not offer guaranteed payouts under its cash incentive program or other benefit programs to its executives that are not provided to the general employee population.

2017 Executive Compensation

Chief Executive Officer. Mr. Mikles was appointed our Chief Executive Officer and President in June 2015, following his service as our Interim Chief Executive Officer and President from November 2014 to June 2015. In May 2015, the Compensation Committee developed a compensation package for Mr. Mikles that was almost exclusively comprised of long-term equity incentive compensation. Other than an increase in Mr. Mikles nominal annual cash salary from $6,000 to $7,500 in early 2017 to allow for his contributions to employee benefits, the Compensation Committee made no changes to Mr. Mikles’ compensation package.

From time to time, Mr. Mikles utilizes private chartered aircraft for business travel to avoid travel delays, work productively and efficiently while in transit, minimize time away from the office, and maximize time for business purposes while traveling. In 2017, the Compensation Committee reaffirmed the reimbursement of private chartered aircraft expenses incurred by Mr. Mikles for Company business travel subject to limits set forth in the Company’s Travel and Reimbursement Policy. Reimbursement is conditioned upon proper substantiation and documentation of business-related travel, including all documentation required (by the Internal Revenue Service or otherwise) to allow the Company to deduct the corresponding travel expense, and compliance with such other requirements that the Compensation Committee may impose. Personal travel (that is, travel without a substantiated business-related purpose) is not eligible for reimbursement.

Named Executive Officers Other than the Chief Executive Officer.

In 2017, we provided our other executive officers (Messrs. Ednie and Dozois) with base salary and performance-based cash incentives.

The base salaries for Messrs. Ednie and Dozois were increased in early 2017 to $400,000 for Mr. Ednie and $300,000 for Mr. Dozois, as determined appropriate by our Compensation Committee based on position, responsibility, experience, individual performance, overall company budgets, competitive market data, and internal equity issues.

The annualized base salaries of our named executive officers at the end of 2017 are set forth below. Actual base salaries earned for our named executive officers in 2017 are reflected in the “Summary Compensation Table.”

Named Executive Officer and Principal Position	2017 Annual Base Salary (as of 12/31/17)
Lee E. Mikles, Chief Executive Officer and President	$	7,500
Steven A. Ednie, Vice President and Chief Financial Officer	$	400,000
Timothy M. Dozois, Corporate Counsel and Corporate Secretary	$	300,000

Performance-based Cash Incentive Compensation

In April 2017, the Compensation Committee adopted the 2017 Incentive Plan for employees and executive officers other than the Chief Executive Officer and President. The 2017 Incentive Plan was designed to reward participants for achievement against 2017 revenue and expense control targets, promote a strong connection between employee contributions and the Company’s financial performance at all levels of the organization, encourage and support achievement of the business objectives of the Company, and promote retention of Company employees. The 2017 Incentive Plan provided for cash and/or stock incentive awards calculated as a percentage of annual base salary. Awards under the 2017 Incentive Plan were not automatic and were dependent on the achievement of identified goals and objectives, with the Compensation Committee retaining discretion to increase or decrease payments under the 2017 Incentive Plan if overall company performance, individual performance or subjective factors warranted variation from the bonus formula established under the 2017 Incentive Plan. Messrs. Ednie and Dozois were required to be employed by the Company on the date payments were made under the 2017 Incentive Plan to be eligible to receive awards under the 2017 Incentive Plan. Pursuant to their employment agreements with the Company, the target annual cash incentive compensation for Messrs. Ednie and Dozois, expressed as a percentage of annual base salary, was as follows:

Name		Target Cash Incentive Award as a Percentage of Annual Base Salary
Steven A. Ednie		53.5%
Timothy M. Dozois		36.5%

Performance Criteria. The performance criteria for Messrs. Ednie and Dozois pursuant to the 2017 Incentive Plan consisted of both Company and individual performance objectives, with the achievement of Company objectives weighted at 60% and the achievement of individual objectives weighted at 40%.

•

Company financial objectives included:

•

Achievement of overall Company revenue and expense budget projections which drives 48% of the incentive award calculation; and

•

Achievement or profit and loss objectives for the officer’s cost center(s) which drives 12% of the incentive award calculation.

The Compensation Committee established expense control goals to reward our executives for maintaining fiscal responsibility and implementing our cost reduction initiatives. The Compensation Committee established a revenue goal because we consider revenue to be a key driver of our growth and success. The Compensation Committee established cost center profit and loss objectives to render each executive accountable for the corporate function for which he or she is responsible. The Compensation Committee established individual performance objectives to motivate each executive to accomplish specific goals that are consistent with the Company’s objectives of growth and strong financial performance.

The following table shows the performance objectives established under the 2017 Incentive Plan for eligible named executive officers.

Company Performance Objectives – 60% of Target Payout

Objective		Weighting
Expense Control		40%
Revenue		40%
P&L Objectives		20%

Individual Performance Objectives – 40% of Target Payout

Objective

Expanding capacity, increasing productivity, creating efficiencies, implementing tangible process improvements, and capitalizing on new opportunities, and fulfillment of the executive’s responsibilities within his specific function; the executive’s contributions in support of Company objectives; demonstrated leadership; management experience; achievement of core objectives

The Compensation Committee measured individual performance of our eligible named executive officers for 2017 using a rating scale consisting of four tiers, each of which translates to an achievement range as set forth in the following table. An employee performing below expectations was not eligible for an incentive award regardless of the achievement of Company performance objectives.

Rating		Achievement Percentage Range
Exceeds Expectations - (consistently exceeds expectations in essential areas of responsibility)		75% – 125%
Meets Expectations - (consistently meets expectations in essential areas of responsibility)		50% – 75%
Needs Improvement/New in Role - (in position less than 90 days)		0% – 50%
Below Expectations - (does not consistently meet expectations; failed in one or more areas of responsibility)		0%

Performance Objectives and Actual Performance. The Company performance objectives were determined by the Compensation Committee. The following table shows the Company’s 2017 achievement against performance objectives:

	Favorable			Achievement
Company Objective	Variance to Budget			Percentage			Plan Weighting
Revenue		111.1	%		75	%		40	%
Expense		15	%		100	%		40	%
P&L		—			100	%		20	%
Calculated Company Performance Payout:								100.00	%

Due to the Company’s generation of extraordinary revenue that was not included in the calculation of Company performance, the Compensation Committee exercised its discretion to increase the Company’s 2017 achievement percentage from 100% to 140%.

In January 2018, the Compensation Committee and our Chief Executive Officer and President assessed the individual performance of Messrs. Ednie and Dozois for 2017 as part of our company-wide performance evaluation process. As a result, the Compensation Committee and our Chief Executive Officer and President determined that Mr. Ednie’s and Mr. Dozois’ bonus payments should be 124% and 114% of their respective targets.

The payments earned for performance under the 2017 Incentive Plan by Messrs. Ednie and Dozois were therefore as follows:

	Target Payout			Actual Payout			Actual Payout
	under 2017			under 2017			under 2017
	Incentive Plan			Incentive Plan			Incentive Plan			Actual Payout
	(as a % of annual			(as a % of annual			(as a % of			under 2017
Name	base salary)			base salary)			target payout)			Incentive Plan ($)
Steven A. Ednie		53.5	%		66.3	%		124	%	$	265,360
Timothy M. Dozois		36.5	%		41.6	%		114	%	$	124,830

Long-Term Equity Incentive Compensation

Long-term incentives are designed to attract a highly skilled and talented executive team, encourage long-term retention of executive officers, motivate our executive officers to focus on long-term company performance, and recognize efforts of executives who contribute to the achievement of our business objectives. We believe the periodic vesting of long-term incentive compensation, which is contingent upon continued employment or the achievement of specific performance criteria, directly aligns executive officer interests with our shareholders’ interests. While no long-term incentives were granted to our executive officers in 2017, we believe that the existing awards continue to have adequate retention value.

Compensation Mix

For 2017, the mix of the total compensation elements for each of our named executive officers was as follows:

Percent of Total 2017 Compensation

								Equity and
	Base Salary			Annual Cash			Long Term
	and Other			Incentive			Incentive
Named Executive Officer	Compensation			Compensation			Awards(1)
Mr. Mikles		1	%		—			99	%
Mr. Ednie		61	%		39	%		—
Mr. Dozois		73	%		27	%		—

(1)	Mr. Mikles’ Equity and Long-Term Incentive Awards reflect the value of inducement awards granted in 2015 which vested based on attainment of 2017 performance conditions applicable to the individual awards.

Other Compensation

Employment, Severance and Change in Control Arrangements

Each of our executive officers is employed on an “at will” basis, which means that his employment may be terminated at any time, at the election of either the executive officer or the Company, for any reason or no reason, with or without notice. We issued employment letters to each of our named executive officers at the time of hire that contain general employment terms. The employment letter for Mr. Mikles includes additional severance and change in control benefits applicable to his long-term equity incentive awards. The employment letters for Messrs. Ednie and Dozois describe certain benefits payable upon termination of employment under certain circumstances, such as termination without “cause” or for “good reason.” These severance benefits are intended to provide competitive compensation and to ensure that our executive officers remain focused on our goals and objectives, as well as the interests of our shareholders, by removing uncertainties related to unexpected termination of employment. The named executive officers are also subject to the confidentiality, noncompetition and non-solicitation obligations set forth in our standard employee inventions agreement, some of which survive termination of employment.

All equity awards granted to our executive officers and non-executive employees under our 2000 Stock Incentive Plan, as amended and restated (the “2000 Plan”), provide for 100% vesting acceleration upon a change in control if the equity obligation is not assumed, continued, or substituted by the acquiring company. Conversely, under our 2012 Equity Incentive Plan (the “2012 Plan”), the vesting of an equity award accelerates upon a change of control only if such acceleration is contemplated by the agreement evidencing the award. The vesting of an equity award granted pursuant to the 2012 Plan may also be accelerated in the event of certain sales or dispositions of assets or securities, mergers, consolidations or similar transactions, unless otherwise provided in the agreement evidencing an equity award or any other written agreement between us and the holder of such equity award, or unless otherwise expressly provided by the plan administrator of the 2012 Plan at the time an equity award is granted.

Benefits

Our executive officers are eligible to participate in the same benefit programs offered to other eligible employees. These programs include medical, dental, vision, group life, accidental death and dismemberment, and disability insurance; an elective health care savings account; a transportation subsidy or paid parking, as applicable; paid time off; and holiday pay. The same contribution amounts, percentages and plan design provisions are generally applicable to all employees.

Our employees, including our named executive officers, are also eligible to participate in our 401(k) savings plan, a tax-qualified retirement savings plan pursuant to which all U.S.-based employees may contribute a portion of their cash compensation (including base salary and overtime pay) on a before-tax basis, up to the limit prescribed each year by the Internal Revenue Service. We match 100% of the first 3% of pay and 50% of the next 2% of pay that is contributed to the 401(k) savings plan. All employee contributions and matching contributions made by us to the 401(k) savings plan are fully vested upon contribution. Our executive officers are eligible to participate in the benefit programs described above on the same basis as our other employees.

We have no defined benefit pension plans or supplemental retirement plans for executives.

Perquisites and Personal Benefits

We may offer other benefits to our employees and executive officers from time to time, which benefits are typically offered to help us compete more effectively to attract or retain an executive officer.

In April 2013, the Compensation Committee adopted a Pre-Approval Policy for Nominal Payments pursuant to which the Compensation Committee delegated authority to each of the Chief Executive Officer and the Chairman of the Compensation Committee to approve certain nominal payments to our executive officers from time to time. Our Chief Executive Officer is authorized to approve nominal payments to our executive officers (not including the Chief Executive Officer) up to an aggregate amount of $10,000 per year, per executive officer. The Chairman of the Compensation Committee is authorized to approve nominal payments to our executive officers up to an aggregate amount of $25,000 per year, per executive officer (when aggregated with any nominal payments approved by the Chief Executive Officer). These payments may include, without limitation, relocation assistance, transportation benefits, length of service awards, achievement awards and certain other payments.

As negotiated at the time of hire and reflected in his employment offer letter, we provided compensation to Mr. Dozois, who was based outside the state of Washington, to assist with commuting expenses incurred for travel to our headquarters in Kirkland, Washington. Effective January 2013, this compensation is paid in the form of a monthly stipend of $1,920. These amounts have been reported as taxable income to Mr. Dozois. There were no other perquisites provided to any named executive officer in 2017.

Taxation of “Parachute” Payments and Deferred Compensation

In 2017, Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits upon a change in control that exceeds certain prescribed limits, and that we, or a successor, may forfeit a deduction on the amounts subject to this additional tax. Section 409A of the Code (“Section 409A”) also imposes additional significant taxes on the individual if an executive officer, director or other service provider receives “deferred compensation” that does not meet the requirements of Section 409A. We do not provide any executive officer, including any named executive officer, with a “gross-up” or other reimbursement payment for any liability that he or she might owe upon application of Sections 280G or 4999 of the Code. The employment letters with our current named executive officers allow us to accelerate severance payments to the extent necessary to comply with Section 409A.

CEO Pay Ratio

To calculate the pay ratio between our CEO and our median employee, we identified the median employee on December 31, 2017 based on total annual cash compensation for the 2017 fiscal year of all employees (excluding our CEO) who were employed by us on such date. We determined total annual cash compensation by adding annual salary and annual bonus. We did not employ any hourly employees as of December 31, 2017.

									Non-Equity
					Stock		Option		Incentive Plan		All Other
	Salary		Bonus		Awards		Awards		Compensation		Compensation
Position	($)		($)		($)(1)		($)(1)		($)		($)		Total ($)		CEO Pay Ratio
CEO		7,375		—		626,000		63,678		—		37		697,090	3:1
Median Employee		173,139		—		—		—		42,311		10,798		226,248

(1)	See Footnote 2 in “Executive Compensation/Summary Compensation Table” for a description of how CEO Stock Awards and Option Awards are valued.

Other Policies and Considerations

Assessment of Risk in our Compensation Program

The Compensation Committee periodically assesses our compensation program to monitor and mitigate risk. The committee considers the primary design features of the compensation plans, monitoring compliance with our code of ethics, structuring executives’ pay to include both fixed and variable compensation, and retaining broad discretion over the award of annual performance-based cash incentive compensation. The Compensation Committee believes that the annual and long-term equity incentive compensation programs for our executive officers appropriately focus these individuals on our current and future business needs without encouraging undue risk-taking, and that our compensation policies and practices for all employees, including named executive officers, do not create risks that are reasonably likely to have a material adverse effect on us.

Policies Regarding Granting of Equity Awards

We do not have any program, plan or obligation that requires the granting of stock options or other equity awards to any executive officer on specified dates, or that requires the named executive officers to hold stock options, restricted stock or RSUs beyond their vesting dates. The Compensation Committee may authorize the future grant of an equity award to an executive officer in advance of the commencement of such officer’s employment by us, in which case the Compensation Committee’s approval of the award is subject to and effective on the date of hire or on the 15^th day of the month that falls on or follows an executive officer’s employment start date.

Our Board of Directors has authorized our Chief Executive Officer, who is also a member of our Board of Directors, to grant equity awards to certain newly hired employees and consultants, subject to certain limitations, as follows:

•

the awards will be granted on the 15^th day of the month that falls on or follows an individual’s employment start date;

•

the individual cannot report directly to the Chief Executive Officer or be subject to the reporting requirements of Section 16(a) of the Exchange Act;

•

the total number of shares granted under all awards to an individual during a single period may not exceed certain levels, as approved in advance by the Compensation Committee;

•

the total number of shares granted under all awards by the Chief Executive Officer during a calendar year may not exceed 1,000 shares; and

•

each stock option must have an exercise price equal to the closing share price on the date of grant.

Tax and Accounting Implications

Tax Deductibility of Executive Compensation. Section 162(m) of the Code (“Section 162(m)”) generally disallows an income tax deduction to publicly traded companies for compensation over $1.0 million paid to the chief executive officer or any of the other named executive officers. The Compensation Committee believes that in certain circumstances factors other than tax deductibility take precedence when determining the forms and levels of executive compensation most appropriate and in the best interests of us and our shareholders. Given the competitive market for outstanding executives, the Compensation Committee believes that it is important for it to retain the flexibility to design compensation programs consistent with our overall executive compensation program, even if some executive compensation is not fully deductible by us. Accordingly, the Compensation Committee may from time to time approve elements of compensation for certain officers that are not fully deductible, and reserves the right to do so in the future when appropriate.

Accounting for Stock-Based Compensation. We account for stock-based compensation in accordance with the requirements of “Accounting Standards Codification Topic 718, Compensation – Stock Compensation.” Under the fair value provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award.

Policies on Hedging Economic Risk

No director or officer designated by our Board of Directors as a “reporting person or insider” may engage in any transaction involving our securities or securities of certain companies with whom we transact business (including a stock plan transaction such as an option exercise, a gift, a loan or pledge or hedge, a contribution to a trust, or any other transfer), without first obtaining pre-clearance of the transaction from our legal department.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal 2017. Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K.

		COMPENSATION COMMITTEE
		Mr. H. Brian Thompson, Chair
		Mr. Stuart M. Sloan

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information regarding compensation earned by our named executive officers during 2017, 2016, and 2015.

										Non-Equity
						Stock		Option		Incentive Plan		All Other
		Salary			Bonus	Awards		Awards		Compensation		Compensation
Name and Principal Position	Year	($)		($)(1)		($)(2)		($)(2)		($)		($)(3)		Total ($)
Lee E. Mikles	2017		7,375	—			626,000		63,678		—		37		697,090
Chief Executive Officer and	2016		6,000		250,000		560,400		68,150		—		30		884,580

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