Pacific DataVision, Inc.

In December 2020, we announced that we had entered into long-term lease agreements for 900 MHz broadband spectrum licenses covering Ameren’s service territories in Missouri and Illinois. In February 2021, we announced that we had entered into an agreement with SDG&E to provide 900 MHz broadband spectrum throughout SDG&E’s California service territory, including San Diego and Imperial Counties and portions of Orange County. We are subject to contingencies and obligations under our commercial agreements with Ameren and SDG&E, including the delivery of cleared spectrum and broadband licenses in the designated service territories on a timely basis. There is no assurance that we will be able to clear incumbents from Ameren’s and/or SDG&E’s respective service territories and obtain broadband licenses from the FCC on the timeline required under our agreements, or at all. Ameren’s and SDG&E’s respective payment obligations, including our ability to maintain any upfront payments and any future payment obligations under these agreements, are contingent on our ability to deliver cleared spectrum and broadband spectrum licenses on the timelines required in these agreements. As a result, there is no assurance that we will be able to retain any upfront payments or receive future payments in the amounts and on the timeline we currently expect, or at all. Further, Ameren may not elect to exercise its option for the additional 10-year terms contemplated by the terms of the long-term lease agreements. Further, our costs to clear incumbents, qualify for broadband licenses and perform our other obligations under our agreements with Ameren and SDG&E may be significantly more than we currently anticipate, which could increase our operating expenses and reduce the net revenue or proceeds we recognize from these agreements.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We discovered in the past and may discover in the future areas of our internal controls that need improvement or additional documentation. For example, in connection with preparing our financial statements for the quarter ended June 30, 2018, we determined that we incorrectly interpreted the effective date of a change in the accounting treatment of our NOLs in accordance with the new tax law provisions in the Tax Cuts and Jobs Act of 2017. This error was the result of an inadequate design of controls pertaining to our review and analysis of changing tax legislation, which represented a material weakness in our internal control over financial reporting and disclosure controls. As a result, we filed restated financial statements for the quarterly period ended December 31, 2017 and for the year ended March 31, 2018. In addition, in preparing our Annual Report on Form 10-K for the year ended March 31, 2019, we determined that we had improper segregation of duties and other design gaps caused by user access deficiencies within the design of our information technology controls that support our financial reporting processes, and that this deficiency represented a material weakness in our internal control over financial reporting. As of March 31, 2020, we had remediated both of these material weaknesses. We cannot be certain that we will be successful in implementing or maintaining effective internal controls for all financial periods. As we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. The existence of any material weakness or significant deficiency in the future may require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. In addition, the existence of any material weakness in our internal controls could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect our value and our ability to raise any required capital in the future.

In February 2021, we entered into the SDG&E Agreement with SDG&E to provide 900 MHz broadband spectrum throughout SDG&E’s California service territory, including San Diego and Imperial Counties and portions of Orange County. The SDG&E Agreement will support SDG&E’s deployment of a PLTE network for its California service territory, with a population of approximately 3.6 million people. As part of the SDG&E Agreement, we and SDG&E intend to collaborate on accelerating utility industry momentum for private networks. The SDG&E Agreement includes the assignment of 6 MHz of broadband spectrum, 936.5 – 939.5 MHz paired with 897.5 – 900.5 MHz, within SDG&E’s service territory following FCC’s issuance of broadband licenses to us. Delivery of the broadband spectrum by county is expected to commence in fiscal year 2023 and completed before the end of fiscal year 2024. We are proactively working with incumbents to clear the 900 MHz broadband allocation in the SDG&E service territory. Total payment of $50.0 million is comprised of an initial payment of $20.0 million received in February 2021 reflected in the Consolidated Balance Sheets under Contingent Liability. The remaining $30.0 million is due through fiscal year 2024 as we deliver broadband spectrum to SDG&E upon our clearing of the 900 MHz incumbents and the granting of broadband licenses by the FCC.

At times, the Company enters into agreements to exchange or cancel spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment. The licenses are exchanged or cancelled at their carrying value and adjusted for any gain or loss recognized. Upon receipt of FCC approval, the spectrum licenses acquired as part of an exchange of nonmonetary assets are recorded at fair value and the difference between the fair value of the spectrum licenses obtained, carrying value of the spectrum licenses transferred and cash paid, if any, is recognized as a Gain (loss) on disposal of spectrum licenses reported separately in the Company’s Consolidated Statements of Operations. The fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the Company’s carrying value of the spectrum assets transferred, cancelled or exchanged.

The Company uses a Monte Carlo simulation model to determine the fair value of performance units with market condition on grant date. The Monte Carlo simulation model is based on a discounted cash flow approach, with the simulation of a large number of possible stock price outcomes for the Company's stock and the target composite index. The use of the Monte Carlo simulation model requires the input of a number of assumptions including expected volatility of the Company's stock price, expected volatility of a target composite index, correlation between changes in the Company's stock price and changes in the target composite index, risk-free interest rate, and expected dividends as applicable. Expected volatility of the Company's stock is based on the weighted-average historical volatility of its stock. Expected volatility of the target composite index is based on the historical and implied data. Correlation is based on the historical relationship between the Company's stock price and the target composite index average. The risk-free interest rate is based upon the treasury zero-coupon yield appropriate for the term of the performance unit as of the grant date. The Company has never paid any cash dividends. Any future determination to pay dividends will be at the discretion of the Board and will depend on the Company’s financial condition, results of operations, capital requirements, restrictions contained in any financing instruments and such other factors as the Board deems relevant in its sole discretion. Therefore, the Company has used an expected dividend yield of zero in the Monte Carlo simulation model.