Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation

Company Overview

We are a developmental stage company with the principal business strategy of developing, marketing and licensing a fully-meshed, high-speed broadband airborne wireless network by linking commercial aircraft in flight. We call this network the “Infinitus Super Highway” (“Infinitus”).

Infinitus will provide a low-cost, broadband wireless communication infrastructure by using and modifying existing, small, lightweight, low-power relay station equipment that will be installed onboard aircraft. Each equipped aircraft would have a broadband wireless communication link to one or more neighboring aircraft and/or ground stations. These aircraft and ground stations would form a chain of seamless repeaters or routers providing broadband wireless communication gateways along the entire flight path, essentially creating a digital superhighway in the sky. If a link were to be interrupted, the signal would be redirected to the next participating aircraft or ground station in the chain -- in other words, there would be multiple, simultaneous data connections and thus the system would not rely on a single link.

We intend to act as a wholesale carrier, licensing our bandwidth to data service providers (such as major telecom companies and other Internet service providers) that provide broadband services to end users, to government or related agencies, and to companies that desire a more robust private broadband network. We do not plan to license Infinitus directly to consumers. We anticipate that Infinitus will enable our future customers to minimize their infrastructure development time and costs, and increase the reliability of their broadband communications systems.

If we can successfully complete the development of Infinitus, Infinitus could provide high speed broadband internet service to currently underserved markets, such as maritime, rural and remote locations. In addition, Infinitus could improve Internet access and connectivity for customers onboard aircraft in flight. Infinitus could also provide a broadband wireless network that is not vulnerable or susceptible to single points of failure (as is the case with current wireless networks) to government agencies, including those that provide emergency or disaster relief services, or companies seeking a more secure, reliable private data network.

Infinitus will be based on a United States patent that we acquired from Apcentive Inc. in August 2016. The patent, which expires on September 20, 2018, gives the holder the exclusive right in the United States and countries honoring United States patents to create a fully-meshed, high-speed broadband wireless network by linking commercial aircraft in flight. In consideration for the patent and the trademark "Infinitus", we issued to Apcentive 40,000,000 shares of our common stock and agreed to pay Apcentive a future royalty equal to 1.5% of the net cash we receive from the promotion, marketing, sale, licensing, distribution, and other exploitation of the patent.

We are currently in the process of completing the development of Infinitus, and have not licensed Infinitus to anyone or generated any revenue.

Plan of Operations

We have a three-pronged plan to commercialize Infinitus.

The first prong of our plan is to complete the development and testing of Infinitus and obtain the relevant certifications from the Federal Aviation Administration (“FAA”) to install our equipment on commercial aircraft. In May 2017, we completed our first airborne test of the system using two aircraft and a temporary mobile mast system that emulated a ground station. During this first airborne test, FAA and electromagnetic interference (“EMI”) tests were conducted successfully, demonstrating that use of our system did not interfere with any phase of aircraft operations. We must now complete the software development for Infinitus, and the design and development of the customized hardware needed to enable Infinitus. When that is substantially complete, we will be able to conduct a much larger test, using up to 20 commercial aircraft. We presently anticipate that we will be able to conduct that test in the first half of 2018, assuming adequate progress in the software and hardware development and receipt of additional funding. If that test is successful, our plan would be to commercialize Infinitus within the following six to nine months, provided we are also able to install and activate the ground and control stations required to fully enable Infinitus.

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The second prong of our plan is to enter into agreements with commercial airlines (passenger and cargo) that will allow us to install our equipment on their aircraft, and traditional data transfer providers with which we can partner to support the ground-based system infrastructure required to fully enable Infinitus. We believe that commercial airlines will be amenable to such agreements because they will receive a portion of the revenue from the usage of the equipment and/or Infinitus will enhance their overall customer service. We have entered into an agreement with Air Lease Corporation, a leading aircraft leasing company, as our marketing agent to arrange for airlines to install our equipment on their aircraft. We also believe that traditional data transfer providers will be amenable to such agreements because they will enjoy significantly increased data traffic and associated revenues, as well as additional trade recognition, as a part of enabling Infinitus.

The third prong of our plan is to license our bandwidth to data service providers, government agencies and companies that currently have private data networks and are seeking to make those networks more robust (or companies that desire such a network). Data service providers could include telecom companies, Internet services providers (“ISPs”), data wholesalers, VOIP carriers and other providers of data communications services to consumers. Government agencies could include the FAA, the Department of Defense, the Transportation Security Administration and federal, state and local agencies that provide emergency or disaster relief services.

We did not earn revenues for the nine months ended May 31, 2017 or 2016.

We incurred a net loss of $27.1 million for the nine months ended May 31, 2017 as compared to a net loss of $39,000 for the same period in 2016. The increase in net loss was due to operating expenses incurred in connection with the development of our Infinitus Super Highway starting in August 2016.

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Our operating expenses for the nine months ended May 31, 2017 and May 31, 2016, and the changes between those periods for the respective items, are summarized as follows:

The principal reason for the increase in operating expenses was $23.2 million of stock based compensation expenses in the 2017 period. In the nine months ended May 31, 2017, stock compensation expense included: (i) $11.6 million in connection with the issuance of 8,665,140 shares of common stock to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $1.25 million in connection with the issuance of 1,250,000 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company (iii) $320,000 in connection with the issuance of 326,656 shares of common stock to consultants; and (iv) $9.2 million with respect to employee stock options.

Advertising and marketing expenses relate to television and print advertising for branding purposes. General and administrative expenses include office, shipping, entertainment, travel, insurance and other miscellaneous expenses. Professional fees include legal, accounting and compliance fees for our audit, SEC filings, securities offerings and contracts .

We did not earn revenues for the three months ended May 31, 2017 or 2016.

We incurred a net loss of $9.5 million for the three months ended May 31, 2017 as compared to a net loss of $14,000 for the same period in 2016. The increase in net loss was due to operating expenses incurred in connection with commencing the development of our Infinitus Super Highway starting in August 2016.

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Our operating expenses for the three months ended May 31, 2017 and May 31, 2016, and the changes between those periods for the respective items are summarized as follows:

The principal reason for the increase in operating expenses was $7.6 million of stock based compensation expenses in the 2017 period. In the three months ended May 31, 2017, stock compensation expense included: (i) $2.7 million in connection with the issuance of 965,140 shares of common stock to Air Lease Corporation pursuant to our marketing agreement with that company; and (ii) $30,000 in connection with the issuance of 11,798 shares of common stock to consultants; and (iii) $4.0 million with respect to employee stock options.

Because we have not generated any revenues, we depend on proceeds from the sales of securities and loans finance our operations. During the nine months ended May 31, 2017, we relied primarily on the proceeds from the issuances of securities, including the following: (i) $3.0 million from the issuance of units that included an aggregate of 2,965,608 shares of common stock and warrants to purchase an additional 2,965,608 shares of common stock periods expiring one to five years from the sale date at prices ranging from $1.25 to $3.25 per share; and (ii) $940,000 from the issuance of 752,000 shares of common stock upon exercise of outstanding warrants.

Pursuant to our agreement with Air Lease Corporation entered into in January 2017, in consideration of the services to be provided by Air Lease Corporation, we issued to Air Lease Corporation shares of common stock representing 10% of our common stock outstanding at that date, and we agreed that on January 15, 2018 we would grant to Air Lease a five-year option to purchase 6% of the shares of common stock outstanding on that date. The agreement with Air Lease Corporation provides full anti-dilution protection to Air Lease Corporation. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Air Lease Corporation without further consideration additional shares of our common stock or other class or series of capital stock so that Air Lease Corporation will own 10% of the outstanding shares of common stock and each other class or series of capital stock. Similarly and the number of shares subject to Air Lease Corporation's option would increase so that such number would represent 6% of the outstanding shares of our common stock. Through May 31, 2017, we had issued 8,839,600 shares of common stock to Air Lease Corporation.

Pursuant to our agreement with Jet Midwest Group entered into in October 2016, in consideration of the services to be provided by Jet Midwest Group, we issued to Jet Midwest Group shares of common stock representing 1.6% of our common stock then outstanding. The agreement with Jet Midwest Group provides full anti-dilution protection to Jet Midwest Group. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Jet Midwest Group without further consideration additional shares of our common stock or other class or series of capital stock so that Jet Midwest Group will own 1.6% of the outstanding shares of common stock and each other class or series of capital stock. Through May 31, 2017, we had issued 1,414,336 shares of common stock to Jet Midwest Group.

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As a result of our agreements with Air Lease Corporation and Jet Midwest Group, in connection with the issuance of capital stock in any offering, we are required to issue to Air Lease Corporation and Jet Midwest Group a number of shares equal to approximately 13.1% of the number of shares of issued in that offering.

We believe that our cash as of May 31, 2017 will satisfy our cash requirements, at our current level of development and operations, for approximately three months. Accordingly, we must obtain additional financing to continue operations at our current level. We can give no assurance that we can obtain any additional financing, or if such financing is available, it would be available on terms generally as favorable as terms of recent financings.

In June 2017, we obtained additional financing of $993,900. We issued units consisting of an aggregate of 289,390 shares of common stock and warrants to purchase 289,390 shares of common stock, exercisable for three years from issuance at a price range of $1.66 to $2.41 per share, for aggregate gross proceeds of $493,900 and 400,000 shares of common stock were issued for the exercise of warrants at an exercise price of $1.25 for proceeds of $500,000.

If we cannot raise additional funds through the sale of securities or loans, we would be required to substantially curtail or even cease business operations.

The following table sets forth certain information about our cash flow during the nine months ended May 31, 2017.

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For the nine months ended May 31, 2017, net cash flows used in operating activities was $3,745,859, consisting of a net loss of $27,068,248 and was reduced by stock based compensation of $23,226,492 and an increase in accounts payable and accrued liabilities of $310,841 and was increased by an increase in prepaid expenses of $215,753, and a decrease in line of credit of $1,805. For the nine months ended May 31, 2016, net cash flows used in operating activities was $13,610, primarily from a loss of $38,613 and offset by an increase in accounts payable and accrued liabilities of $24,461 and an increase in line of credit of $542.

Cash Flows from Investing Activities

For the nine months ended May 31, 2017, we acquired $29,910 of office and computer equipment. For the nine months ended May 31, 2016, net cash flows used in investing activities was $0.

Cash Flows from Financing Activities

For the nine months ended May 31, 2017, net cash flows provided by financing activities was $3,999,291, consisting of proceeds from issuance of common stock of $3,019,676, proceeds from exercise of warrants of $940,000 and advancement from related parties of $39,615. For the nine months ended May 31, 2016, net cash flows provided by financing activities was $8,183 through advancement from related parties.

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Off Balance Sheet Arrangement

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

Application of Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The material estimates for our company are that of the stock-based compensation recorded for common shares issued for non-cash consideration and options and warrants granted, and the income tax valuation allowance recorded for deferred tax assets.

The fair values of options and warrants are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model stated below. The specific quantitative variables are included in the notes to the consolidated financial statements. The estimated fair value of options is recognized as expense on the straight-line basis over the options’ vesting periods. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the expected life, dividend yield, expected volatility, and risk-free interest rate weighted-average assumptions used for options and warrants granted. Expected volatility for 2017 was estimated using the average historical volatility of three public companies offering services in the same industry classification. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. The expected life of options is based on the life of the instrument on grant date.

Stock-Based Compensation

ASC 718, "Compensation - Stock Compensation," prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, "Equity - Based Payments to Non-Employees." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

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Income taxes

The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and 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 year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

The Company uses the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments.

Recent accounting pronouncements

For discussion of recently issued and adopted accounting pronouncements, please see Note 2 to the unaudited financial statements included herein.