Item 1:  Consolidated Financial Statements  

pdvWireless, Inc.

Consolidated Balance Sheets

December 31, 2017 and March 31, 2017

(dollars in thousands, except share data)





See accompanying notes to consolidated financial statements

pd vWireless, Inc.

Consolidated Statements of Operations

Three and Nine Months Ended December 31, 2017 and 2016

(dollars in thousands, except share data)  

(Unaudited)





See accompanying notes to consolidated financial statements

pdvWireless , Inc.

Consolidated Statement of Stockholders’ Equity/(Deficiency)

Nine Months Ended Dec ember 3 1 , 2017

(dollars in thousands, except share data)

(Unaudited)



* includes restricted shares



See accompanying notes to consolidated financial statements

pdvWireless , Inc.

Consolidated Statements of Cash Flows

Nine Months Ended December 31, 2017 and 2016

(dollars in thousands)

(Unaudited)





 See accompanying notes to consolidated financial statements

pdvWireless , Inc.

Notes to Consolidated Financial Statements

(Unaudited)



pdvWireless, Inc. (the “Company”) is a private wireless communications carrier focused on utilizing its spectrum assets to develop and offer next generation network and mobile communication solutions for critical infrastructure and enterprise customers.   The Company is the largest holder of licensed spectrum in the Part 90 900 MHz band (i.e., 896-901 MHz paired with 935-940 MHz) throughout the contiguous United States, plus Hawaii, Alaska and Puerto Rico.



The Company’s first priority involves pursuing r egulatory initiatives at the Federal Communications Commission (“FCC”) with the goal of modernizing and realigning the 900 MHz band to increase its usability and capacity, including for the future potential deployment of broadband and other advanced technologies and services.  At the same time, the Company is exploring and developing network and mobile communication solutions, leveraging its spectrum to address the unmet needs of its targeted critical infrastructure and enterprise customers.  For its first offering, the Company has deployed push-to-talk (“PTT”) networks and offers its DispatchPlus TM two-way radio service to businesses in seven major metropolitan market areas throughout the United States, including Atlanta, Baltimore/Washington, Chicago, Dallas, Houston, New York and Philadelphia.  DispatchPlus allows enterprise customers to increase the productivity of their field-based workers and the efficiency of their dispatch and call center operations.  The Company is pursuing opportunities to offer additional network and mobile communication solutions to critical infrastructure and enterprise customers with its existing spectrum and currently available non-broadband technologies and, if the Company is successful with its FCC efforts, through the deployment of broadband and other advanced wireless service offerings.



The Company was originally incorporated in California in 1997, and reincorporated in Delaware in 2014.  In November 2015, the Company changed its name from Pacific DataVision, Inc. to pdvWireless, Inc.  The Company maintains offices in Woodland Park, New Jersey, Reston, Virginia and San Diego, California.  It also maintains a sales office in West Conshohocken, Pennsylvania.



During the year ended March 31, 2016, the Company began offering its DispatchPlus service in seven major metropolitan areas throughout the United States.  The Company developed DispatchPlus to address the needs of enterprises that value a tailored PTT solution addressing the management of their mobile workforce. These businesses typically operate within industry verticals such as construction, distribution, transportation, field services, waste management and hospitality. Given the nature of their operations, DispatchPlus offers these businesses several advantages over telephony and data-based services, including an easy-to-operate, one-touch button efficiency of communications and rugged equipment optimal for field use.  The operation of the Company’s DispatchPlus business is separate from, and not contingent on, the initiatives it is pursuing at the FCC or its other spectrum-related activities.



The Company’s revenues are derived substantially from its DispatchPlus and pdvConnect TM offerings.  The DispatchPlus service combines pdvConnect, a proprietary suite of mobile communication and workforce management applications, with advanced digital network architecture and mobile devices supplied by Motorola Solutions, Inc. and/or its subsidiaries (“Motorola”) .  Developed for dispatch-centric businesses, and historically offered to customers who utilize Tier 1 cellular networks, pdvConnect is an easy to use and efficient mobile communication and workforce management solution that enables businesses to locate and communicate with their field workers and improve the documentation of work events and job status.  Also built with the commercial dispatch customer in mind, Motorola’s digital network architecture allows the Company to provide highly reliable, instant and wide-area PTT communication services to its customers.



T o date , sales of the Company’s DispatchPlus service have been slower to ramp-up than initial expectations.  The Company primarily markets its DispatchPlus service to customers indirectly through third-party dealers selected from Motorola’s nationwide dealer network and other select wireless dealers.  The Company supports its indirect sales representatives by providing them with training, marketing and advertising support from its internal sales and marketing team.  The Company typically enters into contracts directly with end users of its DispatchPlus communication solutions, including those introduced to it through its indirect dealer network.



The Company’s spectrum is its most valuable asset.  Although the Company can use its spectrum for its existing DispatchPlus business and for other narrowband and wideband wireless services, many of the future business opportunities that the Company

has identified require higher bandwidth than allowed by the current configuration of its spectrum.  As a result, the Company is pursuing a number of initiatives to increase the usability and capacity of its spectrum.



In November 2014, the Company and the Enterprise Wireless Alliance ( “ EWA ” ) submitted a Joint Petition for Rulemaking to the FCC to propose the realignment of a portion of the 900 MHz band from narrowband to broadband.  In response to the Joint Petition, the FCC issued a public notice requesting comments from interested parties and asked a number of questions about the proposal. A number of parties, including several incumbent licensees, filed comments with the FCC expressing their views, including both support and opposition.  In May 2015, the Company and the EWA filed proposed rules with the FCC related to the Joint Petition.  Comments on the proposed rules were filed in June 2015, and reply comments in July 2015.



On August 4, 2017, the FCC issued a Notice of Inquiry (“NOI”) that the Company believes signifies the FCC’s interest in conducting a serious and comprehensive evaluation of the current and future rules governing the 900 MHz band.  In the NOI, the FCC announced that it had commenced a proceeding to examine whether it would be in the public interest to change the existing rules governing the 900 MHz band to enable increased access to spectrum, improved spectrum efficiency and expanded flexibility for a variety of potential uses and applications, including broadband and other advanced technologies and services.  The FCC stated that the purpose of the NOI was to gather information from interested parties to assist the FCC in its decision making process.  The FCC requested interested parties, including the Company, to comment on a number of questions related to three potential options for the 900 MHz band: (i) retaining the current configuration of the 900 MHz band, but increasing operational flexibility, (ii) reconfiguring a portion or all of the 900 MHz band to support broadband and other advanced technologies and services or (iii) retaining the current 900 MHz band licensing and eligibility rules.  Because the FCC is requesting information on multiple options for the 900 MHz band, the NOI effectively supersedes the Joint Petition and other pending proposals that involved the 900 MHz band.  However, a broadband reconfiguration option included in the NOI is consistent with the Company’s Joint Petition proposal, and all information the Company previously provided to the FCC to support the realignment and modernization of the 900 MH z band remain s relevant .  The full text of the NOI is available on the FCC’s public website https://www.fcc.gov/document/900-mhz-notice-inquiry.



The Company and EWA filed a joint response to the FCC’s NOI on October 2, 2017 and reply comments on November 1, 2017 .  The Company has responded to all outstanding requests for information from the FCC, and it is currently awaiting FCC action.   Based on the Company’s discussions with the staff of the FCC, it believes that the proceeding is currently under active consideration by FCC.  The FCC’s next step could be a Notice of Proposed Rulemaking based on the NOI and the record developed in response to it, a request for additional information, a decision to close the proceeding without further action, or some other action , and the timing of any such next step also remains uncertain .  The full text of the response and reply comments filed by the Company and EWA as well as the other filings submitted in the proceeding are available on the FCC’s public website .



The Company continues to believe in the merits of its broadband approach, and that it would be in the public interest for the FCC to realign the 900 MHz band to enable broadband and other advanced technologies and services.  Nevertheless, obtaining a favorable result from the FCC may take a significant amount of time and resources. Moreover, there is no assurance that following the conclusion of the NOI process, the FCC will ultimately propose and adopt rules that will allow the Company to utilize its spectrum to offer broadband and other advanced technologies and services.



To prepare for the filings it has submitted with the FCC and to build support for a 900 MHz broadband realignment, the Company has met, and intends to continue to meet, with a number of incumbent licensees, critical infrastructure businesses and other interested parties in the 900 MHz band.  The goals wit h these discussions have been : (i) building consensus for the proposed reconfiguration of the 900 MHz band to support broadband and other advanced technologies and services; (ii) resolving any technology or other concerns raised by incumbent licensees; (iii) educating critical infrastructure businesses on how broadband capabilities could enhance their operations and initiatives (for example, supporting grid modernization requirements or monitoring and/or controlling their own system or network elements via machine-to-machine type services); (iv) gaining a better understanding of the size of the operational incumbent base and the nature of the s ystems they are currently operating; and (v) evaluating and  proposing voluntary license relocation opportunities to certain incumbent licensees . 



2.      Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which require 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. The most significant estimates relate to allowance for doubtful accounts, estimated useful lives of depreciable assets, asset retirement obligations, the carrying amount of long-lived assets under construction in process, valuation allowance on the Company’s deferred tax assets, and recoverability of intangible assets. Moreover, in certain circumstances, requirements associated with relevant US GAAP guidance can impact the Company’s estimates and assumptions. The Company is also required to make certain estimates with regard to the valuation of awards and forfeiture rates for its share-based award programs. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the applicable period. Accordingly, actual results could materially differ from those estimates.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, including PDV Spectrum Holding Company, LLC formed in April 2014. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform to the presentation of the corresponding amounts in the financial statements for the three and nine months ended December 31, 2017. These reclassifications had no effect on previously reported results of operations, cash flows, assets, liabilities or equity for the periods presented.

Cash and Cash Equivalents

All highly liquid investments with maturities of three months or less at the time of purchase are considered cash equivalents. Cash equivalents are stated at cost, which approximates the quoted market value and include amounts held in money market funds.

Allowance for Doubtful Accounts

An allowance for uncollectible receivables is estimated based on a combination of write-off history, aging analysis and any specific known troubled accounts. The Company reviews its allowance for uncollectible receivables on a quarterly basis. Past due balances meeting specific criteria are reviewed individually for collectability. At December 31, 2017 and March 31, 2017, management provided an allowance of approximately $63,000 and $53,000, respectively, for certain slow paying accounts.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease term. The carrying amount at the balance sheet date of long-lived assets under construction in process include construction costs to date on capital projects that have not been completed, assets being constructed that are not ready to be placed into service, and assets that are not currently in service. On a periodic basis costs within construction in process are reviewed and a determination is made if the assets being developed will be put into use.   If it is concluded that the asset will not be put into use, the costs will be expensed.  If the asset will be put into use, t he costs are transferred to property and equipment when substantially all of the activities necessary to prepare the assets for their intended use are completed.   Depreciation commences upon completion.

Accounting for Asset Retirement Obligations

An asset retirement obligation is evaluated and recorded as appropriate on assets for which the Company has a legal obligation to retire. The Company records a liability for an asset retirement obligation and the associated asset retirement cost at the time the underlying asset is acquired and put into service. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation, if any. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset.

The Company enters into long-term leasing arrangements primarily for tower site locations. The Company constructs assets at these locations and, in accordance with the terms of many of these agreements, the Company is obligated to restore the premises to their original condition at the conclusion of the agreements, generally at the demand of the other party to these agreements. The Company recognizes the fair value of a liability for an asset retirement obligation and capitalizes that cost as part of the cost basis of the related asset, depreciating it over the useful life of the related asset .   Upon settlement of the obligation, any difference between the cost to retire the asset and the recorded liability is recognized in the Consolidated Statement of Operations.

As of December 31, 2017, the Company had asset retirement obligations of approximately $0.3 million.

Intangible Assets

Intangible assets are wireless licenses that will be used to provide the Company with the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are subject to renewal by the FCC. License renewals have occurred routinely and at nominal cost in the past. There are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the Company’s wireless licenses. As a result, the Company has determined that the wireless licenses should be treated as an indefinite-lived intangible asset. The Company will evaluate the useful life determination for its wireless licenses each year to determine whether events and circumstances continue to support their treatment as an indefinite useful life asset.

The licenses are tested for impairment annually on an aggregate basis, as the Company will be utilizing the wireless licenses on an integrated basis as a part of developing its nationwide network. Before employing detailed impairment testing, the Company first evaluates the likelihood of impairment by considering relevant qualitative factors that may have a significant bearing on fair value. If it determines that it is more likely than not that the wireless licenses are impaired, it will apply a quantitative analysis including detailed testing methodologies. Otherwise, it concludes that no impairment exists. In the event a quantitative analysis is required, the Company considers estimates of valuation methods to perform the test of the fair values of the wireless licenses using, among other things, market based and discounted cash flow approaches.

Long-Lived Asset Impairment

The Company evaluates long-lived assets, other than intangible assets with indefinite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Asset groups are determined at the lowest level for which identifiable cash flows are largely independent of cash flows of other groups of assets and liabilities. When the carrying amount of a long-lived asset group is not recoverable and exceeds its fair value, an impairment loss is recognized equal to the excess of the asset group’s carrying value over the estimated fair value.

Income Tax es

The Company utilize s the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities as well as from net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is established when it is estimated that it is more likely than not that the tax benefit of a deferred tax asset will not be realized.

Revenue Recognition

The Company recognizes revenue in the period that persuasive evidence of an arrangement exists, delivery of the product has occurred or services have been rendered, it is able to determine the amount of revenue and when the collection of such amount is considered probable.  In accordance with the guidance provided in Accounting Standards Codification (“ASC”) Topic 605-45-45, ( Revenue Recognition – Principal Agent Considerations ), the Company has determined that it is the primary obligor with respect to the service revenue derived from sales of the Company’s software applications through its Tier I domestic carrier partners. As a result, revenue is recorded at the gross amount billed to end-user customers for sales through these carrier partners. The Company also sells service and applications directly to end-users, which are billed and collected directly by the Company.

In September 2014, Motorola paid the Company an upfront, fully-paid leasing fee of $7.5 million in order to lease a portion of the Company’s wireless spectrum licenses. The payment of the fee is accounted for as deferred revenue on the Company’s Consolidated Balance Sheets. The Company recognizes leasing revenue in accordance with ASC Topic 840, ( Leases) . The fee is amortized using the straight-line method over the lease term of approximately ten years, which represents the time period in which the benefits of the leased property are expected to be depleted.

The Company evaluates certain transactions for its DispatchPlus service offering to determine whether they should be viewed as a Multiple Element Arrangement provided in ASC Topic 605-25. Judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which revenue should be allocated among the units of accounting.  Multiple deliverable arrangements are presumed to be bundled transactions, and the total consideration is measured and allocated to the separate transactions based on their relative selling price with certain limitations.  The relative selling price for each deliverable is determined using vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does not exist.  If neither VSOE nor third party evidence of selling price exist, the Company uses its best estimate of the selling price for the deliverable.  The Company has determined that the rental of user devices in connection with service contracts for its DispatchPlus service are multiple deliverable arrangements. 

Cost of Revenue

The Company’s cost of revenue relating to its DispatchPlus service offering includes the cost of operating its dispatch network and its cloud-based solutions, and to a lesser degree, the costs associated with the sales of the relevant user devices. In addition, cost of revenue associated with the sales of the Company’s software applications through its wireless carrier partners includes the portion of service revenue retained by its domestic Tier 1 carrier partners pursuant to its agreements with these parties, which may include network services, connectivity, SMS service, sales, marketing, billing and other ancillary services.

Stock Compensation

The Company accounts for stock options in accordance with US GAAP, which requires the measurement and recognition of compensation expense, based on the estimated fair value of awards granted to employees, directors, and consultants. The Company estimates the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s statements of operations over the requisite service periods.  In the event the participant’s employment by or engagement with (as a director or otherwise) the Company terminates before exercise of the options granted, the stock options granted to the participant shall immediately expire and all rights to purchase shares thereunder shall immediately cease and expire and be of no further force or effect, other than applicable exercise rights for vested shares that may extend past the termination date as provided for in the participant’s applicable option award agreement.  Additionally, the Compensation Committee adopted an Executive Severance Plan (the “Severance Plan”) in February 2015, and the Company subsequently entered into Severance Plan Participation Agreements with its executive officers and certain key employees.  In addition to providing participants with severance payments, the Severance Plan provides for accelerated vesting and extends the exercise period for outstanding equity awards if the Company terminates a participant’s service for reasons other than cause, death or disability or the participant terminates his or her service for good reason, whether before or after a change of control (each of such terms as defined in the Severance Plan).

To calculate option-based compensation, the Company uses the Black-Scholes option-pricing model. The Company’s determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by assumptions regarding a number of subjective variables. 

The fair value of restricted stock, restricted stock units and performance units are measured based upon the quoted closing market price for the stock on the date of grant. The compensation cost for the restricted stock and restricted stock units is recognized on a straight-line basis over the vesting period.  The compensation cost for the performance units is recognized when the performance criteria are complete.

No tax benefits have been attributed to the share-based compensation expense because the Company maintains a full valuation allowance for all net deferred tax assets.

Effective April 1, 2017, the Company adopted ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.  Under the new guidance, all excess tax benefits and tax deficiencies, including tax benefits of dividends on share-based payment awards, should be recognized as income tax expense or benefit in the income statement, eliminating the notion of the additional paid-in-capital (“APIC”) pool. The excess tax benefits will be classified as operating activities along with other income tax cash flows rather than financing activities in the statement of cash flows. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. ASU 2016-09 also allows entities to elect to either estimate the total number of awards that are expected to vest or account for forfeitures when they occur. Additionally, ASU 2016-09 clarifies that cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements should be presented as a financing activity in the statement of cash flows. The Company has elected to continue its past practice of estimating the total number of awards expected to vest and adopted the provisions of ASU 2016-09 related to changes in the consolidated statements of cash flows on a retrospective basis.  

Net Loss Per Share of Common Stock

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. For purposes of the diluted net loss per share calculation, preferred stock, stock options, restricted stock and warrants are considered to be potentially dilutive securities. Because the Company has reported a net loss for the three and nine months ended December 31, 2017 and 2016, diluted net loss per common share is the same as basic net loss per common share for those periods.

Common stock equivalents resulting from potentially dilutive securities approximated 982,000 and 709,000 at December 31, 2017 and March 31, 2017, respectively, and have not been included in the dilutive weighted average shares of common stock outstanding, as their effects are anti-dilutive.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) , ("ASU 2014-09") which supersedes current revenue recognition guidance, including most industry specific guidance. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services, and also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue that is recognized. The guidance, as stated in ASU 2014-09, is effective for annual and interim periods beginning after December 15, 2016. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which defers the effective date by one year, with early adoption on the original effective date permitted. The standard can be applied using a full retrospective method or a modified retrospective method of adoption. The Company expects to adopt the standard in 2018 using the full retrospective method and continues to assess the impact of this ASU on its results of operations, financial position and cash flows. Based on its preliminary assessment, the Company expects the adoption of this ASU will result in: (i) contract cost assets that will be established to reflect costs that will be deferred as incremental contract acquisition costs (incremental contract acquisition costs generally relate to commissions paid to sales associates); and (ii) increased disclosure, including qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  However, the adoption of this ASU is not expected to have a material impact on the Company's financial position and cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases .  The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease pa yments. The ASU also requires disclosure of key information about leasing arrangements to increase the transparency and comparability among organizations. The accounting for lessors does not fundamentally change except for changes to conform and align guidance to the lessee guidance as well as to the new revenue recognition guidance in ASU 2014-09.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted. ASU 2016-02 requires reporting organizations to take a modified retrospective transition approach (as opposed to a full retrospective transition approach). The Company decided not to early adopt the ASU.  The Company is evaluating the potential impact that ASU 2016-02 may have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The effective date and transition requirements for this amendment is the same as the effective date and transition requirements of ASU 2014-09, which is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. The adoption of this ASU is not expected to have a material impact on the Company's financial position and cash flows.

I n April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing . ASU 2016-10 is intended to reduce the cost and complexity of applying the guidance in the FASB's new revenue standard on identifying performance obligations, and is also intended to improve the operability and understandability of the licensing implementation guidance. The effective date for ASU 2016-10 is the same as for ASU 2014-09. The adoption of this ASU is not expected to have a material impact on the Company's financial position and cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment . ASU 2017-04 eliminated Step 2 from the goodwill impairment test, which required entities to compute the implied fair value of goodwill by determining the fair value of the reporting unit's assets and liabilities as if they were assets acquired and liabilities assumed in a business combination. Instead of Step 2, entities performing their annual impairment test will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. Entities will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is

necessary. The adoption of ASU 2017-04 will be effective for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this guidance is not expected to have an effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting . The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09 will become effective for annual periods beginning after December 15, 2017 with prospective application.  Although the Company is currently evaluating the potential impact Topic 718   may have on its financial position, it does not believe there will be a material impact on the consolidated financial statements.

Subsequent Events Evaluation by Management

Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were issued. See Note 13 Subsequent Events below.









3 .      Property and E quipment

Property and equipment consist s of the following at December 31 , 201 7 and March 31, 201 7 (in thousands) :  











Depreciation expense for the three and nine months ended December 31 , 201 7  a mounted to $0.7 million and $2.1 million , respectively. For the three and nine months ended Dec ember 3 1, 2016, depreciation expense was approximately $0.6 million and $1.6 million, respectively .   For the three and nine months ended Dec ember 3 1, 2017, approximately $0.6 million and $1.9 million of such depreciation expense was classified as cost of revenue, while the remainder for each period was classified as operating expense in the Company’s Consolidated Statements of Operations. For the three and nine months ended Dec ember 3 1, 2016, approximately $0.5 million and $1.5 million of such depreciation expense was classified as cost of revenue, while the remainder for each period was classified as operating expense in the Company’s Consolidated Statements of Operations. Leasehold improvements include certain allowances for tenant improvements related to the expansion of the Company’s corporate headquarters. Construction in process includes the expenditures related to the costs to establish the Company’s dedicated wide-area, two-way radio dispatch network s in certain metropolitan areas.



4. Intangible Assets

Wireless licenses are considered indefinite-lived intangible assets. Indefinite-lived intangible assets are not subject to amortization but instead are tested for impairment annually, or more frequently if an event indicates that the asset might be impaired. The Company believes that no impairment indicators existed as of Dec ember 3 1, 2017   for which the Company would recognize impairment.

During the nine months ended Dec ember 3 1, 2017, the Company entered into agreements with several third parties in multiple U.S. markets to acquire wireless licenses for cash consideration , upon FCC approval. 

Intangible assets consist of the following at Dec ember 3 1, 2017 and March 31, 2017 (in thousands):













5 .      Accounts Payable - officers

Accounts payable   -   officers represents unreimbursed expenses including travel and entertainment expenses incurred by the Company’s officers. At Dec ember 3 1 , 2017 and March 31, 2017, the accounts payable to officers amounted to approximately $40,000 and $36,000 , respec tively.



6.      Note Payable



On October 23, 2015, the Company entered into a promissory note in the amount of $1,289,013 with a third party in exchange for wirele ss licenses.  The term of the note is through March 15, 2018 and bears a fixed rate of interest, of 0.55% per annum,

which is based on the Short Term Applicable Federal Rate on the closing date.  As of Dec ember 3 1 , 2017 , the Compan y ’s outs tanding borrowings   were approximately $0.5 million.



7.      Income Taxes  

The Company recorded income tax benefit of $2.2 million and $0.9 million for the three and nine months ended December 31, 2017 compared to none in the prior year. The Company’s tax benefit for both periods had an unusual relationship to the pre-tax loss due primarily to the existence of a deferred tax asset valuation allowance at the beginning of both periods.  The tax benefit recorded in the three and nine months ended December 31, 2017 resulted from $1.8 million and $5.3 million, respectively, of tax amortization of the Company’s indefinite-lived intangible assets that is not available to offset existing deferred tax assets. Due to the passage of Public Law 115-97 (“Tax Cuts and Jobs Act”) on December 22, 2017, the statutory federal corporate tax rate has been reduced from a maximum of 35% to 21% for years beginning after December 31, 2017.  The net effect of this rate change on the deferred tax liability as of December 31, 2017 resulted in a tax benefit to the Company of $2.8 million, which is a discre t e item for the three and nine months ended December 31, 2017 .

The Company expects the indefinite-lived intangible assets to result in approximately $0.4 million of income tax benefit for the full fiscal year 2018 (as previously discussed in Note 9 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2017 but reduced to include the rate change related to the Tax Cuts and Jobs Act as discussed above).



8.      Stock Acquisition Rights, Stock Options and Warrants

The Company established the pdvWireless, Inc. 2014 Stock Plan (the “2014 Stock Plan”) to attract, retain and reward individuals who contribute to the growth of the Company. This 2014 Stock Plan superseded previous stock plans .  However, under such previous plans, 43,275 stock options remained   vested and outstanding  a s of Dec ember 3 1 , 2017 .  

A s of Dec ember 3 1, 2017 ,   2,788,234 shares of common stock were authorized and reserved for issuance under the 2014 Stock Plan.  The shares authorized and reserved for issuance under the 2014 Stock Plan will continue to increase each subsequent anniversary through January 1, 2024 by an amount equal to the lesser of 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or a lesser amount determined by the Board of Directors.  The number of shares authorized and reserved for issuance under the 2014 Stock Plan increased on January 1, 2018 by 723,461 shares of common stock, for an aggregate of 3,511,695 shares authorized and reserved under the 2014 Stock Plan. 

The Company recognizes compensation expense for restricted stock awards that vest on a time schedule on a straight - line basis over the explicit vesting period. Vested restricted sto ck units are settled and issuable upon the vesting date (or the next open trading date if the vesting date occurs during a closed window under th e Company’s insider trading policy) or a date certain in the future.  Stock compensation expense related to restricted stock was approximately $0.5 million and $1.3 million for the three and nine months ended Dec ember 3 1 , 2017 and approximately $0.4 million and $1.1 million for the three and nine months ended Dec ember 3 1 , 2016.  Stock compensation expense for restricted stock is accounted f or in general and administrative expense in the Company’s Consolidated Statement of Operations.  At Dec ember 3 1 ,   201 7 , there was $4.4 million of unvested compensation expense related to the restricted stock, which is expected to be recognized over a weighted average period of 2.7 yea rs .

The Company awarded performance stock units in May 2017 and January 2016.  The units represent the number of shares of the Company’s common stock that the recipient would vest in and receive contingent upon the Company’s attainment of t he applicable performance goal .   For the outstanding performance stock units, the p erformance goal requires the Company to obtain, prior to January 13, 2020, (i ) a Final Order from the FCC providing for the creation and allocation of licenses for spectrum in the 900 MHz band consisting of paired blocks of contiguous spectrum, each containing at least 3 MHz of contiguous spectrum, authorized for broadband wir eless communications uses and (ii ) the lack of objection by the Company's Board of Directors to the terms and conditions  (including, but not limited to, the rebanding, clearing and relocation procedures, license assignment and award mechanisms, and technical and operational rules) set forth or referenced in the Final Order.

For the three and nine months en d ed   Dec ember 3 1 , 2017 and 2016, there was no stock compensation expense recognized for the performance units.  At Dec ember 3 1 , 2017 , there was appro ximately $2.6 million of u nvested compensation expense for the performance units .

The stock options to purchase shares of common stock awarded during the nine months ended Dec ember 3 1, 2017 have a ten - year contractual life and 25% will vest on the first anniversary of grant, and the remainder will vest in three   equal   annual   installments thereafter .  In addition, a stock option to purchase 100,000 shares of common stock awarded to a consultant during the nine months ended Dec ember 3 1, 2017 vests monthly over four years.  Shares granted to employees are subject to vesting, future settlement conditions and other such terms as determined by the Board of Directors and set forth in the applicable award agreements.

Additional information regarding stock options outstanding at Dec ember 3 1, 2017 is as follows:







The Black-Scholes option model requires weighted average assumptions to be used for calculation of the Company’s stock compensation e xpense. The assumptions used during the nine months ended Dec ember 3 1 , 2017 were: the expected life of the awards was 5 years; the risk-free interest rate range was 1.8% to 2.3% ; the expected volatility was 49.05% ; the expected dividend yield was 0.0% ; and the expected forfeiture rate was 3% .

Performance Stock Options

  A summary of the performance stock o ptions as of Dec ember 3 1 , 2017 is as follows:





During the nine months ended Dec ember 3 1 , 2017 , the Company awarded executive officer s   performance stock option s to p urchase 75,000 and 54,945 shares of common stock with an exercise price of $28.10 and $22.75 , re spectively.  During the year ended March 31, 2016, the Company awarded an executive officer performance stock options to purchase 50,000 shares of common stock with an exercise price of $25.81 .  These options have a ten -year contractual life.  The performance stock options will vest in full contingent on the Company’s achievement, prior to January 13, 2020, of (i) a Final Order from the FCC providing for the creation and allocation of licenses for spectrum in the 900 MHz band consisting of paired blocks of contiguous spectrum, each containing at least 3 MHz of contiguous spectrum, authorized for broadband wireless communications uses and (ii) the lack of objection by the Company's Board of Directors to the terms and conditions  (including, but not limited to, the rebandi ng, clearing and relocation procedures, license assignment and award mechanisms, and technical and operational rules) set forth or referenced in the Final Order.

Stock compensation expense related to the amortization of the fair value of stock options issued was approximately $1.0 million and $2.7 million for the three and nine   months ended Dec ember 3 1 , 2017 , respectively . For the three and nine   months ended Dec ember 3 1 , 2016, stock compensation expense was approximately $0.8 million and $2.5 million, respectively . Th ere was no stock compensation expense related to the performance stock options issued for the three and nine months ended Dec ember 3 1 , 2017 and 2016 .  Stock compensation expense is included as part of general and administrative expense in the accompanying Consolidated Statement of Operations. The weighted average fair value for the stock option awards granted during the nine months ended Dec ember 3 1 , 2017 was $11.02 . As of Dec ember 3 1 , 2017 , there was approximately $5.8 million of unrecognized compensation cost related to non-vested s tock options granted under the Company’s stock option plans, of which $3.8 million pertains to the non-performance based stock options and $2.0 million pertains to the performance based stock options . The cost is expected to be recognized over a weighted-average period of 3.0 years.

Motorola Investment

On September 15, 2014, Motorola invested $10.0 million to purchase 500,000 Class B Units of the Company’s subsidiary, PDV Spectrum Holding Company, LLC (at a price equal to $20.00 per unit). The Company owns 100% of the Class A Units in this subsidiary. Motorola has the right at any time to convert its 500,000 Class B Units into 500,000 shares of the Company’s common stock. The Company also has the right to force Motorola’s conversion of these Class B Units into shares of its common stock at its election. Motorola is not entitled to any assets, profits or distributions from the operations of the subsidiary. In addition, Motorola’s conversion ratio from Class B Units to shares of the Company’s common stock is fixed on a one -for-one basis, and is not dependent on the performance or valuation of either the Company or the subsidiary. The Class B Units have no redemption or call provisions and can only be converted into shares of the Company’s common stock. Management has determined that this investment does not meet the criteria for temporary equity or non-controlling interest due to the limited rights that Motorola has as a holder of Class B Units, and accordingly has presented this investment as part of its permanent equity within Additional Paid-in Capital in the accompanying consolidated financial statements.



9.     Supplemental Disclosure of Cash Flow   Information

The Company paid in cash $9,250 in taxes and did not make any payments for interest during the nine months ended Dec ember 3 1, 2017. The Company paid in cash $39,759 in taxes and did not make any payments for interest during the nine months ended Dec ember 3 1, 2016.

During the nine months ended Dec ember 3 1, 2017, the Company entered into a lease agreement with a landlord that included a Tenant Allowance of $202,000 that it utilized in the expansion of its corporate headquarters. The Tenant Allowance is included in other liabilities.

During the nine months ended Dec ember 3 1, 2016, the Company entered into a barter transaction with a third party whereby it acquired wireless licenses valued at approximately $307,000 consisting of approximately $269,000 related to use of the

Company’s network along with radios and $39,000 in cash. The Company capitalized Asset Retirement Obligations that amounted to $25,000 and $30,278 for the nine months ended Dec ember 3 1, 2017 and 2016, respectively.



10.     Commitments and Contingencies

Leasing Obligations

The Company is obligated under certain lease agreements for office space with lease term s expir ing on various dates from January 7, 2019 through March 31, 2027 , which includes a ten -year lease extension for its corporate headquarters. The Company entered into multiple lease agreements for tower space related to its DispatchPlus business. The lease expiration dates range from February 28, 2020 to June 30, 2026 .  

Rent expense amounted to approximately $0.6 million and $1.9 million, for the three and nine months ended Dec ember 3 1, 2017, respectively, of which approximately $0.4 million and approximately $1.2 million, respectively, was classified as cost of revenue and the remainder of approximately $0.2 million and $0.7 million, respectively, was classified in operating expenses in the Consolidated Statements of Operations.  Total rent expense amounted to approximately $0.5 million and $ 1.4 million, for the three and nine months ended Dec ember 3 1, 2016, respectively, of which approximately $0.4 million and $ 1. 0 million, respectively, was classified as cost of revenue and the remainder of approximately $0.1 million and $0. 4 million, respectively, was classified in operating expenses in the Consolidated Statements of Operations.  At Dec ember 3 1, 2017, accumulated deferred rent payable amounted to approximately $1.9 million and is included as part of other liabilities in the accompanying Consolidated Balance Sheet.

Aggregate rentals, under non-cancelable leases for office and tower space (exclusive of real estate taxes, utilities, maintenance and other costs borne by the Company), for the remaining terms of the leases following the nine months ended Dec ember 3 1, 2017 are as follows (in thousands):  

Liti gation

The Company is not involved in any material legal proceedings at this time. However, from time to time, the Company may be involved in litigation that arises from the ordinary operations of the business, such as contractual or employment disputes or other general actions. In the event of an adverse outcome of these proceedings, the Company believes the resulting liabilities would not have a material adverse effect on its financial condition or results of operations.



11.     Concentrations of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable.

The Company places its cash and temporary cash investments with financial institutions for which credit loss is not anticipated.

The Company sells its current software applications product and extends credit predominately through two domestic third-party carriers. The Company maintains allowances for doubtful accounts based on factors surrounding the write-off history, historical trends, and other information.

1 2.     Business Concentrations

For the three and nine month s ended Dec ember 3 1, 2017 , the Company had one Tier 1 domestic carrier that accounted for approxima tely 40% of op erating revenues .   For the three months ended Dec ember 3 1, 2016, the Company had two Tier 1 carriers that accounted for approximately 40 % and 8 % of operat ing revenues, respectively.  For the nine months ended Dec ember 3 1, 2016, the Company had two Tier 1 carriers that accounted for approximately 3 6 % and 1 2 % of operat ing revenues, respectively. 

As of Dec ember 3 1, 2017, and March 31, 201 7 , the Company had one Tier 1 domestic carrier that accounted for approximately 64% and 67% , respectively, of accounts receivable.



13.    Subsequent Events

On February 6, 2018, the Company entered into a Controlled Equity Offering SM  Sales Agreement and a Sales Agreement (collectively, the “Sales Agreements”) with Cantor Fitzgerald & Co. and B. Riley FBR, Inc. , respectively (collectively, the “Agents”), and registered the sale of up to an aggregate of $40,000,000 in shares of its Common Stock in at-the-market sales transactions pursuant to the Sales Agreement s .  See Item 5 Other Information of Part II of this Quarterly Report on Form 10-Q for additional information regarding the Sales Agreement s and the registration of the sale of the Company’s Common Stock in at-the-market sales transactions.