RISK FACTORS

An investment in the Units involves a high degree of risk. We have listed below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us, but they do not constitute all of the risks that may be applicable to us. New risks may emerge from time to time, and it is not possible for us to predict all potential risks or to assess the likely impact of all risks. Investors should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks. Some of these factors have affected our financial condition and operating results in the past or are currently affecting our company. This prospectus also contains forward-looking statements that involve risks and uncertainties. For more information about forward-looking statements, please see the section of this prospectus titled “ Cautionary Statement Regarding Forward-Looking Statements .”

Risks Related to Our Business and Industry

We may be unsuccessful in completing the development of Infinitus.

As Infinitus is currently in the development and testing phase and has yet to be deployed for commercial use, we cannot assure you that we will be able to complete the development of Infinitus so that it performs as expected or that we will complete development on our projected timeline. We have conducted only one airborne test of the system with two aircraft and a temporary mobile mast system to emulate a ground station and certain of the actual, customized equipment that will be used in the commercialized version of Infinitus was not used during this test.

We need to engage third-party vendors to complete development of the software and hardware necessary to operate the airborne mesh network, and to design, develop and manufacture the customized equipment to be installed on the aircraft. Once the design and development of the software and hardware is substantially complete, we will then conduct a larger airborne test of Infinitus, using up to 20 commercial aircraft. There is no guarantee that this larger airborne test will be successful.

The software necessary to enable Infinitus will be complex and could contain material defects or errors, due either to our third party vendors failing to adequately develop the software according to our specifications or simply due to the inherent complexity of the software itself. In particular, such defects or errors may occur when the software is first introduced or when new versions or enhancements are released. Defects or errors that initially go undetected could also occur in the future.

In addition, the hardware required to enable Infinitus is expected to consist of complex systems and components and could contain errors or defects, due either to our third party vendors failing to adequately manufacture the equipment according to our specifications or due to inherent, unforeseen defects in design.

If we cannot complete development of Infinitus, we will have no business. Further, significant delays in completing Infinitus will require us to raise more funds to sustain operations and there is no assurance that we can raise such funds on favorable terms, or at all.

Our business will depend on entering into agreements with airlines that permit us to install our equipment on their aircraft.

Our ability to generate revenue will depend on our ability to have our equipment installed on aircraft in order to create the Infinitus mesh network. A mesh network is a network topology in which each node relays data for the network. All mesh nodes cooperate in the distribution of data in the network. In order to create a mesh network over the continental United States that operates 24 hours a day and 7 days a week, we believe that we will need to have our equipment installed on at least 2,000 aircraft that fly in the continental United States. To expand outside the continental United States, we will need to have our equipment installed on a significantly greater number of aircraft. If we are unable to create the mesh network, we may not be successful in commercializing Infinitus.

 

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As an early stage company with a new product, we anticipate that we may have difficulty getting access to the major airlines to negotiate the installation of our equipment on their aircraft. To address this issue, we have engaged Air Lease Corporation as our marketing agent to arrange for airlines to install our equipment on their aircraft. No assurance can be given that Air Lease Corporation will be successful in persuading airlines to install our equipment. Further, Air Lease Corporation may terminate its engagement without cause with us at any time upon six months prior notice.

As of the date of this prospectus, we have no agreements permitting us to install our equipment on any aircraft. In addition, even if an airline permits us to install our equipment on its aircraft, the airline may not renew the contract upon expiration, or may terminate the contract prior to expiration upon the occurrence of certain contractually stipulated events such as material breach of contract or the failure to achieve certain certification, equipment delivery, installation or other milestones within agreed-upon time frames. These contracts might also permit termination prior to the expiration date upon the payment of a termination fee.

Our business will depend upon entering into agreements with customers to use Infinitus.

User fees from our customers from the use of Infinitus will provide all or substantially all of our revenues. As of the date of this prospectus, we have no agreements with customers. We can give no assurance that our potential customers, including data service providers that provide broadband service to end users, government agencies or entities with private data networks, will license Infinitus or will agree to pay the license fees we will request. The failure to enter into those agreements or realize the anticipated benefits from these agreements on a timely basis, or at all, or to renew any agreements upon expiration or termination would have a material adverse effect on our financial condition and results of operations.

We will need significant additional financing to commercialize Infinitus and we may not be able to obtain such financing on acceptable terms or at all.

To date, we have relied primarily on private placements of our common stock and warrants and convertible securities to purchase common stock to fund our operations. We will require additional financing in the near and long term to fully execute our business plan, including the completion of our next airborne test of the system involving the two Cessnas and 20 commercial aircraft as well as to cover our operational costs while we obtain all relevant certifications, negotiate relevant agreements and otherwise fully develop and commercialize Infinitus. We estimate that to fully complete development of Infinitus and commence commercialization we will require over $400 million of additional financing, assuming we can progress on our current timetable. Any material delays would result in us requiring additional financing.

In addition, we are currently exploring various options with respect to developing and implementing Infinitus and may actively consider from time to time other significant technological, strategic and operational initiatives. In order to execute on any of these initiatives, we may require additional financing. Our success will depend on our ability to raise such additional financing on reasonable terms and on a timely basis.

The market conditions and the macroeconomic conditions that affect the markets in which we operate could have a material adverse effect on our ability to secure financing on acceptable terms, if at all. We may be unable to secure additional financing on favorable terms, or at all, or our operating cash flow may be insufficient to satisfy our financial obligations. The terms of additional financing may limit our financial and operating flexibility. Our ability to satisfy our financial obligations will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. Furthermore, if financing is not available when needed, or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to regulatory pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

We have from time to time evaluated, and we continue to evaluate, our potential capital needs. We may utilize one or more types of capital raising in order to fund any initiative in this regard, including the issuance of new equity securities and new debt securities, including debt securities convertible into shares of our common stock. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into shares of our common stock, our existing stockholders could suffer significant dilution in their percentage ownership of our company. In addition, any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock, and we may grant holders of such securities rights with respect to the governance and operations of our business. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

We have incurred operating losses since our inception. We expect to incur operating losses for the foreseeable future and may never achieve or maintain profitability.

We have incurred significant losses since inception and expect to continue to incur losses for the foreseeable future. We incurred net losses of $36,912,959 and $168,323, resulting in a total accumulated deficit of $37,128,829 and 215,870, during the fiscal years ended August 31, 2017 and 2016, respectively. We have devoted substantially all of our financial resources and efforts toward developing Infinitus. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We anticipate that our expenses will increase as we continue to develop Infinitus. We must succeed in developing and commercializing Infinitus and generate significant revenue to become and remain profitable. There can be no assurance that we complete the development and commercialization of Infinitus, and therefore, we may never generate revenues that are significant enough to achieve profitability.

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Our customers and the prospective airlines with which we intend to work are large entities, and it may take a long time and significant effort and expense to negotiate contracts with them, which could require us to raise additional capital to sustain operations until we generate positive cash flow from operations.

The companies with which we will need to negotiate agreements, including telecommunications carriers, ISPs and commercial airlines, are primarily large entities. Negotiations with these large companies are expected to require substantial time, effort and resources. The time required to reach a final agreement with an airline or other large company is unpredictable. The longer it takes to enter into a sufficient number of these contracts to generate positive cash flow, the more financing we will require, and we can give no assurance that we will be able to obtain such financing.

Regulation by United States and foreign government agencies, including the FAA, which regulates the civil aviation manufacturing and repair industries in the United States, and the Federal Communications Commission (the “FCC”), which is responsible for issuing spectrum licenses in the United States, requires us to obtain certain certifications, and any changes in relevant regulatory schemes may increase our costs of providing Infinitus or require us to change or discontinue Infinitus.

We are subject to various regulations, including those regulations promulgated by various federal, state and local regulatory agencies and legislative bodies and comparable agencies outside the United States where we may desire to offer Infinitus. The two U.S. government agencies that will have primary regulatory authority over our operations are the FAA and the FCC.

The commercial and private aviation industries, including civil aviation manufacturing and repair industries, are highly regulated in the United States by the FAA. FAA certification is required for all equipment installed on commercial aircraft and type-certificated business aircraft, and certain of our operating activities will require that we obtain FAA certification as a parts manufacturer. FAA approvals required to operate our business include Supplemental Type Certificates ("STCs") and Parts Manufacturing Approvals ("PMAs"). Obtaining STCs and PMAs is an expensive and time-consuming process that requires significant focus and resources. Any inability to obtain, delay in obtaining or change in, needed FAA certifications, authorizations or approvals, could have an adverse effect on our ability to meet our installation commitments, manufacture and sell parts for installation on aircraft or expand our business and could, therefore, materially adversely affect our growth prospects, business and operating results. We expect that the FAA will closely regulate many of our operations. If we fail to comply with the FAA’s many regulations and standards that apply to our activities, we could lose the FAA certifications, authorizations or other approvals on which our manufacturing, installation, maintenance, preventive maintenance and alteration capabilities are based. In addition, from time to time, the FAA or comparable foreign agencies adopt new regulations or amend existing regulations. The FAA could also change its policies regarding the delegation of inspection and certification responsibilities to private companies, which could adversely affect our business. To the extent that any such new regulations or amendments to existing regulations or policies apply to our activities, those new regulations or amendments to existing regulations could generally increase our costs of compliance.

The FCC is responsible for managing and licensing the electromagnetic spectrum for broadband wireless communications in the United States. Currently, the 849-851 MHz and 894-896 MHz bands have been designated by the FCC for exclusive nationwide licenses to provide radio telecommunications services to persons on aircraft (the “ 800 MHz ATG Band ”). In addition to the 800 MHz ATG Band, the FCC has allocated certain spectrum for satellite-based services to aircraft, including L-band mobile satellite spectrum and spectrum in the 10.95-11.2 GHz, 11.45-11.7 GHz, 11.7-12.2 GHz, and 14.0-14.5 GHz bands for communications between fixed satellite service geostationary-orbit satellites and earth stations on aircraft. The FCC also has pending before it a rulemaking proceeding proposing to authorize the use of spectrum in the 14.0-14.5 GHz bands for an air-ground mobile broadband service on a secondary basis, but has not yet allocated this spectrum for commercial air-to- ground services. Given its business goals and the limited amount of spectrum presently expressly allocated for commercial mobile aeronautical service by the FCC, we are presently evaluating the appropriate spectrum to provide our Infinitus services in the continental United States. If the spectrum we identify as appropriate for Infinitus has not been expressly allocated for commercial mobile aeronautical service by the FCC, we will need to petition the FCC to initiate a rulemaking proceeding to designate such spectrum for commercial mobile aeronautical service, and to adopt service rules for use of such spectrum. There can be no assurances if or when the FCC will initiate such a rulemaking proceeding in response to a request by us, or that the outcome of any such rulemaking proceeding will be favorable to Infinitus. Even if the FCC allocates the spectrum required for Infinitus, it will be necessary to obtain certain license(s) and other authorizations (collectively, “ FCC Licenses ”) to use a portion of this spectrum for Infinitus. We cannot provide any assurances if and when we will receive such spectrum allocation and/or the FCC Licenses necessary to operate Infinitus on a permanent basis.

We have obtained experimental special temporary authority from the FCC to begin tests of portions of our proposed air-to-air and air-to-ground meshed network system. See “Licenses and Regulation - Regulatory Status.” We may need to obtain additional experimental authorizations and licenses from the FCC to test and develop Infinitus. We anticipate that we will receive such experimental authorizations in the ordinary course, but there can be no assurances that this will be the case. If and when the FCC grants us any required experimental authorizations and other FCC Licenses necessary to operate Infinitus, any breach of the terms of the FCC Licenses us from time to time, or any violation of the Communications Act of 1934, as amended (the “ Communications Act ”) or the FCC’s rules and policies, could result in the revocation, suspension, cancellation, modification or reduction in the term of a license or the imposition of monetary fines. From time to time, the FCC may monitor or audit our compliance with the Communications Act and the FCC’s rules and policies or with the terms or conditions of our FCC Licenses, including in response to a complaint filed by a third party alleging our noncompliance or violation of the Communications Act and the FCC’s rules and policies or with the terms or conditions of our FCC Licenses. In addition, the Communications Act, from which the FCC obtains its authority, or the FCC’s rules and policies, may be amended in the future in a manner that could be adverse to us. The FCC from time to time may initiate a rulemaking proceeding to allocate spectrum for or change its rules and policies governing the aeronautical services proposed by us. It is not possible to predict what changes the FCC may propose or, if adopted, the likely impact of any such changes on our proposed aeronautical service and business.

 

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In addition to these U.S. agencies, we may also be subject to regulation by foreign government agencies that choose to assert jurisdiction over us as a result of the service we intend to provide on aircraft that fly in their airspace. Adverse decisions or regulations of these U.S. and foreign regulatory agencies could negatively impact our operations and costs of doing business and could delay the implementation of Infinitus and have other adverse consequences for us. Our ability to obtain certain regulatory approvals to offer Infinitus internationally may also be the responsibility of a third party, and, therefore, may be out of our control. We are unable to predict the scope, pace or financial impact of regulations and other policy changes that could be adopted by the various governmental agencies that oversee portions of our business.

We cannot be certain what positions regulators may take regarding our compliance with, or lack of compliance with, current and future legal and regulatory requirements or what positions regulators may take regarding any past or future actions we have taken or may take in any jurisdiction. Regulators may determine that we are not in compliance with legal and regulatory requirements and impose penalties, or we may need to make changes to Infinitus, that could be costly and difficult. Any of these events would adversely affect our operating results and business.

We expect that our business will be highly dependent on the airline industry, which is itself affected by factors beyond the airlines’ control. The airline industry is highly competitive and sensitive to changing economic conditions.

We expect that our business will be directly affected by the financial condition of the airlines and other economic factors. If consumer demand for air travel declines, including due to increased use of technology such as videoconferencing for business travelers, or the number of commercial aircraft and flights shrinks, our business and results of operations could be affected adversely. Unfavorable general economic conditions and other events that are beyond the airlines’ control, including higher unemployment rates, higher interest rates, reduced stock prices, reduced consumer and business spending, outbreaks of communicable diseases and terrorist attacks or threats could have a material adverse effect on the airline industry. A general reduction or shift in discretionary spending could result in decreased demand for leisure and business travel and lead to a reduction in airline flights offered and the number of passengers flying. Consolidation within the airline industry could also adversely affect our relationships with our potential airline partners.

Unfavorable economic conditions could also limit airlines’ ability to counteract increased fuel, labor or other costs though raised prices. Our prospective airline partners operate in a highly competitive business market and, as a result, continue to face pressure regarding offerings and pricing. These unfavorable conditions and the competitiveness of the air travel industry could cause one or more of our prospective airline partners to reduce expenditures on passenger services or file for bankruptcy. If one or more of our prospective airline partners were to file for bankruptcy, bankruptcy laws could give them rights to terminate their contracts with us, they could reduce their total fleet size and capacity and/or their total number of flights. Any of these events could have a material adverse effect on our business prospects, financial condition and results of operations.

We anticipate that at least initially we will have only one supplier for the customized antennae we will need for Infinitus, and thus our business would be materially and adversely affected if that supplier did not supply the antennae for any reason.

We intend to engage a third party vendor to design the customized antennae needed for Infinitus. We anticipate that at least initially, that third party vendor will be the sole supplier of the antennae. Our business would be materially and adversely affected if that supplier for any reason failed to supply the antennae or was unable to manufacture the number of antennae that we desire to purchase. While we will own the designs and rights to the customized antennae, we may not be able to contract with another supplier on a timely basis, on commercially reasonable terms, or at all, which could adversely affect our business and impact our ability to roll out Infinitus. Further, any new supplier would have to obtain a PMA from the FAA, which could take time. The lack of alternative suppliers could lead to higher prices and a failure by any of our single source providers to continue to produce the component, or to otherwise fulfill its obligations, and could have a material adverse effect on our business, results of operations, and financial condition. Also, for certain customized equipment or components, any certification obtained from relevant government agencies will cover only that specific piece of equipment or component and supplier.

 

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We could be adversely affected if we suffer service interruptions or delays, technology failures or damage to our equipment, which could result in claims against us that exceed any insurance coverage that we may carry, thereby requiring us to pay significant damages, and impair our ability to sell Infinitus.

Our brand, reputation and ability to attract, retain and serve our customers and the airlines with which we intend to work will depend upon the reliable performance of our network infrastructure. We may experience service interruptions, service delays or technology or systems failures in the future, which may be due to factors beyond our control. If we experience significant system or network failures, our reputation, brand and airline partner and customer retention could be harmed and our airline partners and customers could have the right to terminate their contracts with us or pursue other remedies.

Our operations and services will depend upon the extent to which our equipment and the equipment of third-party network providers for ground station capability is protected against damage or interruption from fire, floods, earthquakes, tornados, power loss, solar flares, telecommunication failures, break-ins, acts of war or terrorism and similar events. Furthermore, the capacity, reliability and security of Infinitus would suffer in the event of system disruptions or failures, such as computer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks or other malicious activities. Our networks and those of third-party service providers might be vulnerable to these attacks and unauthorized access. Damage to our or third parties’ networks could cause interruptions in Infinitus. Such interruptions could have a material adverse effect on our revenue, our reputation and our ability to attract or retain airline partners.

In addition, we expect that our equipment will contain complex systems and components that could contain errors or defects, particularly when we incorporate new technology. If any of our equipment is defective, we could be required to redesign or recall that equipment’s operations or pay substantial damages or warranty claims. Such events could result in significant expenses, disrupt that equipment’s operations and adversely affect our reputation. If our on-board equipment malfunctions, or there is a problem with the equipment’s installation that damages an airplane or impairs its on-board electronics or avionics, significant property loss and serious personal injury or death could result. Any such malfunction or problem could expose us to substantial personal injury claims, product liability claims or costly repair obligations. In particular, the aircraft operated by our prospective airline partners are very costly to repair and, therefore, the damages in any product liability claims could be material. We intend to carry relevant insurance in amounts that exceed that of our suppliers’ coverage, consistent with industry norms. However, this insurance coverage may not be sufficient to fully cover the payment of any claims. An operations recall or a product liability claim not covered by insurance would have a material adverse effect on our business, financial condition and results of operations. Our business, financial condition and results of operations would also be materially adversely affected should we be required by the FAA or otherwise to cease providing Infinitus even on a temporary basis, as a result of an equipment malfunction or defect.

Our software will be inherently complex and could contain material defects or errors, particularly when the software is first introduced or when new versions or enhancements are released. We may from time to time find defects or errors in our software, and defects or errors that initially go undetected may be detected in the future. Any defects or errors that cause interruptions to the availability of our services could result in termination or failure to renew contracts by our potential customers; reduction in sales or delay in market acceptance of Infinitus; sales credits or refunds to our potential customers; loss of potential customers and difficulty in attracting customers; diversion of development resources; harm to our reputation and brand; increased insurance costs; and claims for substantial damages. The costs incurred in correcting any material defects or errors in our software may be substantial and could harm our financial condition and results of operations.

Assertions by third parties of infringement, misappropriation or other violations by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

In recent years, there has been significant litigation involving intellectual property rights in many technology-based industries, including the wireless communications industry. We may face from time to time in the future allegations that we or a supplier or customer have violated the rights of third parties, including patent, trademark and other intellectual property rights.

 

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If, with respect to any claim against us for violation of third party intellectual property rights, we are unable to prevail in the litigation or retain or obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely or cost-efficient basis, our business and competitive position could be materially adversely affected. Many companies may be devoting significant resources to obtaining patents that could potentially cover aspects of our business. We have not exhaustively searched patents relevant to our technologies and business and, therefore, it is possible that we may unknowingly infringe the patents of others.

Defending against any claims of infringement, misappropriation or related allegations, whether or not meritorious, would be time-consuming, divert technical and management personnel and be costly to resolve. We do not presently have funds to defend any such claims without materially impacting funds for the development of Infinitus. As a result of any such dispute, we may have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease providing certain products or services, adjust our marketing activities or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us. We anticipate that pursuant to agreements with our prospective airline partners, we may be required to agree to indemnify those airline partners against such claims and lawsuits, and, in some cases, those agreements may not limit our indemnification obligations, which, in addition to obligating us to pay defense costs, could result in significant indemnification obligations in the event of an adverse ruling in such an action. In addition, certain of our potential suppliers may not indemnify us for third party infringement or misappropriation claims arising from our use of supplier technology. As a result, we may be liable in the event of such claims. Any of these events could result in increases in operating expenses, limit our offering of Infinitus or result in a loss of business, if we are unable to meet our indemnification obligations and our airline partners terminate or fail to renew their contracts.

Our initial patent expires on September 20, 2018, and after that date the technology covered by the patent will be available to anyone, including companies with far greater financial and other resources than we have.

Once our initial patent expires on September 20, 2018, the technology covered by that patent will be available to anyone for use, including companies with far greater and financial and other resources than we have. If such companies were to use the technology previously covered by our patent, it is possible that those companies could create a commercial broadband airborne wireless network to compete with Infinitus.

We may not be able to protect our intellectual property rights.

We regard our intellectual property as important to our success. We plan to rely on trademark, copyright and patent law, trade secret protection and confidentiality agreements with our employees, vendors, airlines, consultants and others to protect our proprietary rights. We cannot assure you that the efforts we have taken to protect our proprietary rights will be sufficient or effective, that any pending or future patent and trademark applications will lead to issued patents and registered trademarks in all instances, that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual property will not be challenged, invalidated, misappropriated or infringed by others. Furthermore, the intellectual property laws and enforcement practices of other countries may not protect our products and intellectual property rights to the same extent as the laws of the United States. If we are unable to protect our intellectual property from unauthorized use, our ability to exploit our proprietary technology or our brand may be harmed and, as a result, our business and results of operations may suffer.

Increased costs and other demands associated with our growth could impact our ability to achieve profitability over the long term and could strain our personnel, technology and infrastructure resources.

We expect our costs to increase in future periods as we experience growth in our personnel and operations, which will place significant demands on our management and administrative, technological, operational and financial infrastructure. Anticipated future growth, the implementation of Infinitus and various technology enhancements will require the outlay of significant operating and capital expenditures and will continue to place strains on our personnel, technology and infrastructure. Our success will depend in part upon our ability to contain costs with respect to growth opportunities. To successfully manage our potential growth, we will need to continue to improve our operational, financial, technological and management controls and our reporting systems and procedures. In addition, as and when we grow, we will need to effectively integrate, develop and motivate new employees. Our failure to successfully manage our growth could adversely affect our business, financial condition and results of operations.

 

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We have limited insurance, and in the future we may not maintain sufficient insurance coverage for the risks associated with our business operations.

We currently have only general commercial liability insurance. We intend to carry additional insurance consistent with industry norms at such time as we commence the installation of our equipment on commercial aircraft and Infinitus starts operating, including expanded general liability insurance and product liability insurance.

We cannot provide any assurance that we will in the future be able to obtain insurance at industry norms at prices we can afford, or that any insurance we obtain will be sufficient to cover any losses that we may sustain, or that we will be able to successfully claim our losses under our insurance policies on a timely basis or at all. If we incur any loss not covered by our insurance policies, or the compensated amount is significantly less than our actual loss or is not timely paid, our business, financial condition and results of operations could be materially and adversely affected.

The industry within which we compete is highly competitive, which may hinder our ability to generate revenue and may diminish our margins.

The broadband wireless network industry within which we will compete is highly competitive. New developments in technology may negatively affect the development or licensing of Infinitus, or make Infinitus uncompetitive or obsolete. Some of our competitors may be much larger companies with longer operating histories and substantially greater financial, technical, sales, marketing and other resources than we do, as well as greater name recognition. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time than we could. Each of these competitors has the potential to capture market share in various markets, which could have a material adverse effect on our position in the industry and our financial results.

Risks Related to our Financial Statements, Management, Common Stock and this Offering

Our business has no operating history, which may make it difficult to evaluate our current business and predict our future performance.

Our lack of operating history makes it difficult to accurately evaluate our business and predict our future performance. Any assessments of our current business and predictions that we or you make about our future success or viability may not be as accurate as they could be if we had an operating history. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, and the size and nature of our market opportunity may change as we scale our business and begin deployment of Infinitus. If we do not address any of the foregoing risks, our business could be harmed.

Our independent registered public accounting firm, in its audit report related to our financial statements for the fiscal years ended each of August 31, 2017, 2016 and 2015, expressed doubt about our ability to continue as a going concern.

Our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements included in this prospectus expressing doubt as to our ability to continue as a going concern. The financial statements included in this prospectus have been prepared assuming that we will continue as a going concern. However, we cannot assure you that we will be able to do so. Our recurring losses and lack of any cash flow raise substantial doubt about our ability to continue as a going concern, and our financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to achieve or sustain profitability or to secure additional financing on acceptable terms, our inability to continue as a going concern may result in our stockholders losing their entire investment. There is no guarantee that we will become profitable or secure additional financing on acceptable terms, or at all.

Material weaknesses in our internal controls over financial reporting may limit our ability to prevent or detect financial misstatements or omissions. These material weaknesses could result in our financial statements not being in accordance with generally accepted accounting principles, and such failure could negatively affect the price of our stock.

Our current management has limited experience managing and operating a public company, and we rely in many instances on the professional experience and advice of third parties. As a result, we have in the past experienced, and in future may continue to experience, material weaknesses and potential problems in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes Oxley Act. Such material weakness could also include a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we fail to achieve and maintain the adequacy of our internal controls, as such requirements are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.

 

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We are required to include in our quarterly and annual reports the conclusion of our principal executive and principal financial officers regarding the effectiveness of our disclosure controls and procedures as of the end of the period covered by the report. In addition, in connection with our annual report, we are required to provide management’s assessment of the effectiveness of our internal controls over financial reporting as of the end of the fiscal year. In our annual report on Form 10-K for the year ended August 31, 2017, management concluded that our internal control over financial reporting was not effective because of material weaknesses that included:

Subsequent to our fiscal year end, we constituted an audit committee comprised of independent directors to oversee the preparation of our financial statements, internal control over financial reporting and other matters.

The loss of one or more of our key personnel could harm our business.

We depend on the continued service and performance of our key personnel, including Michael A. Warren, our Chief Executive Officer; J. Edward Daniels, our President, Treasurer and Secretary; Marius de Mos, our Vice President of Technical Affairs and Development; Jason T. de Mos, our Vice President of Business Development and Aviation Compliance; and Earle O. Olson, our Vice President of Industry Relations. Some of these individuals have acquired specialized knowledge and skills with respect to Infinitus and its operations. As a result, if any of these individuals were to stop providing services to us, we could face substantial difficulty in hiring qualified successors and could experience a loss of productivity while any such successor obtains the necessary training and expertise. We do not maintain key man insurance on any of our officers or key employees. The loss of key personnel, including key members of our management team, as well as certain of our key technology personnel, could disrupt our operations and have an adverse effect on our ability to grow our business.

Certain of the Company’s officers and directors recently served a company that became bankrupt or were otherwise involved in bankruptcy proceedings.

Kevin J. Spence, our chief financial officer, was chief financial officer of GreenCore Technology, Inc., previously known as Aquacell Technologies, Inc. (“ GreenCore ”), when an involuntary petition for liquidation under Chapter 7 of the U.S. Bankruptcy Code was filed against GreenCore on November 7, 2008. James C. Witham and Karen Laustsen, members of our board of directors, served as chief executive officer and president of GreenCore, respectively, when the bankruptcy petition was filed. GreenCore subsequently ceased business operations and the bankruptcy case involving GreenCore was dismissed in March 2012. Additionally, Mr. Spence was principal of Kevin Spence Consulting when it filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on May 6, 2010. Kevin Spence Consulting exited bankruptcy proceedings in January 2014. Separately, Marius de Mos, our Vice President of Technical Affairs and Development, filed a petition in his personal capacity seeking relief under Chapter 7 of the U.S. Bankruptcy Code in July 2010. Mr. de Mos exited bankruptcy proceedings in September 2011.

Our lack of directors’ and officers’ liability insurance coverage could have a material adverse effect on our financial condition and may also make it difficult for us to retain and attract talented and skilled directors and officers.

From time to time we may be subject to litigation, including potential stockholder derivative actions. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We do not currently maintain directors’ and officers’ liability (“ D&O ”) insurance to cover such risk exposure for our directors and officers. Such insurance generally pays the expenses (including amounts paid to plaintiffs, fines and expenses including attorneys’ fees) of officers and directors who are the subject of a lawsuit as a result of their service to the company. If we obtain D&O insurance in the future, the amount of D&O insurance we obtain may not be adequate to cover such expenses should such a lawsuit occur, and our deductibles may be higher than we may be able to pay. Applicable Nevada law provides for the indemnification of our directors, officers, employees and agents, under certain circumstances, for attorney’s fees and other expenses incurred by them in any litigation to which they become a party resulting from their association with us or activities on our behalf. We are also obligated to pay the expenses of such litigation for any of our directors, officers, employees or agents, upon such person’s promise to repay us, if it is ultimately determined that any such person shall not have been entitled to indemnification. Without adequate D&O insurance, the amounts we would pay to indemnify our officers and directors should they be subject to legal action based on their service to the Company could have a material adverse effect on our financial condition, results of operations and liquidity. Further, our lack of D&O insurance may make it difficult for us to retain and attract talented and skilled directors and officers, which could adversely affect our business.

We may fail to recruit, train and retain the highly skilled employees that are necessary to execute our growth strategy.

Competition for key technical personnel in high-technology industries such as ours is intense. We believe that our future success depends in large part on our ability to hire, train, retain and leverage the skills of qualified engineers and other highly skilled personnel needed to maintain and grow our network and related technology and develop and successfully implement our products and technology. We may not be as successful as our competitors at recruiting, training, retaining and utilizing these highly skilled personnel. In particular, we may have more difficulty attracting or retaining highly skilled personnel during periods of poor operating performance. Any failure to recruit, train and retain highly skilled employees could negatively impact our business and results of operations.

 

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Our agreements with Air Lease Corporation and Jet Midwest Group, LLC  require us to issue to them additional capital stock whenever we issue any capital stock so that they maintain the same percentage ownership of our outstanding capital stock; these issuances will further dilute our other stockholders in connection with each stock issuance.

On January 9, 2017, we entered into a Marketing Memorandum of Understanding with Air Lease Corporation. 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 on January 10, 2017, and we agreed that on January 15, 2018 we would grant to Air Lease a five-year option to purchase an additional 6% of the shares of common stock outstanding on that date. The agreement with Air Lease Corporation provides full ratchet 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 continue to own 10% of the outstanding shares of common stock and each other class or series of capital stock. Similarly, each time we issue additional shares of common stock or shares of another class or series of capital stock that would dilute the 6% of shares for which Air Lease Corporation holds an option to purchase, we will issue to Air Lease Corporation without further consideration additional options to Air Lease Corporation for the purchase of additional shares of our common stock or other class or series of capital stock so that the number of shares that Air Lease Corporation can purchase continues to equal 6%. Through February 28, 2018, we have issued an aggregate of 9,641,339 shares of common stock to Air Lease Corporation.

On October 31, 2016, we entered a Services and Compensation Agreement with Jet Midwest Group , LLC . In consideration of the services to be provided by Jet Midwest Group , LLC , under that agreement, we issued to Jet Midwest Group , LLC shares of common stock representing 1.6% of our common stock outstanding at that date. The agreement with Jet Midwest Group , LLC provides full ratchet anti-dilution protection to Jet Midwest Group , LLC . 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 , LLC without further consideration additional shares of our common stock or other class or series of capital stock so that Jet Midwest Group , LLC will continue to own 1.6% of the outstanding shares of common stock and each other class or series of capital stock. Through February 28, 2018, we have issued, or committed to issue, an aggregate of 1,542,715 shares of common stock to Jet Midwest Group, LLC. Jet Midwest Group, LLC has since sought protection from creditors under the bankruptcy code. The Company is evaluating how and whether the bankruptcy will impact our obligation to continue issuing shares to Jet Midwest Group, LLC.

As a result, each time we issue shares for financing, compensatory, acquisition or other purposes (including the issuance of additional shares to Apcentive as discussed below), our stockholders will incur even greater dilution because of the additional shares issued to Air Lease Corporation and Jet Midwest Group, LLC.

In connection with this offering, we will issue to Air Lease Corporation and Jet Midwest Group, LLC a number of shares equal to approximately 13.1% of the number of shares issued in the offering, and any shares issued in the event that warrants issued in this offering are exercised.

We will be required to issue 20 million shares of common stock to Apcentive if, in the three years ending August 3, 2019, we do not spend certain amounts on matters relating to our patent and the “Infinitus Super Highway” trademark acquired from Apcentive, Inc.

The purchase agreement by which we acquired our patent and “Infinitus Super Highway” trademark provides that we must issue an additional 20 million shares of common stock to Apcentive if we do not spend, on matters relating to the patent and trademark, a cumulative total of $8 million on or before August 3, 2019. The purchase agreement requires that we spend at least $1 million on or before August 3, 2017 (which goal has been met), a total of at least $2 million on or before August 3, 2018 (which goal has been met) and a total of at least $5 million on or before August 3, 2019. The issuance of these shares would be very dilutive to stockholders.

Exercise or conversion of warrants and convertible securities will dilute stockholders’ percentage of ownership.

We have issued convertible securities, options and warrants to purchase shares of our common stock to our officers, directors, consultants and other stockholders. In the future, we may grant additional options, warrants and convertible securities. The exercise or conversion of options, warrants or convertible securities will dilute the percentage ownership of our stockholders, which may have a negative effect on the trading price of our common stock. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may exercise or convert such options, warrants and convertible securities at a time when we would be able to obtain additional equity capital on terms more favorable than such securities or when our common stock is trading at a price higher than the exercise or conversion price of the securities. The exercise or conversion of outstanding warrants, options and convertible securities will have a dilutive effect on the securities held by our stockholders.

 

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We have outstanding convertible notes with fluctuating conversion rates that are set at a discount to market prices of our common stock during the period immediately preceding conversion, which may result in material dilution to our common stockholders.

As of February 28, 2018, we had outstanding unsecured convertible notes issued to a number of unrelated third parties in the aggregate principal amount of approximately $4.5 million. These unsecured convertible notes are convertible into shares of our common stock at a price per share equal to 70% of the lowest price at which our common stock traded during the 20 or 25 days preceding the conversion date. This could result in material dilution to existing stockholders of our company. Because the conversion price is based upon the trading prices of our common stock at the time of conversion, the number of shares of common stock into which the notes may be converted may increase without an upper bound. If the trading prices of the common stock are low when the conversion price of the convertible notes is determined, we would be required to issue a higher number of shares of our common stock to the converting noteholder, which could cause substantial dilution to our stockholders. In addition, if any or all of the holders of our convertible notes convert and then sell our common stock, this could result in an imbalance of supply and demand for our common stock and reduce our stock price. The further our stock price declines, the further the adjustment of the conversion price will fall and the greater the number of shares we will have to issue upon conversion, resulting in further dilution to our stockholders. Because a market price-based conversion formula can lead to dramatic stock price reductions and corresponding negative effects on both a company and its stockholders, convertible security financings with market price-based conversion ratios have colloquially been called “floorless,” “toxic,” “death spiral,” and “ratchet” convertibles.

The warrants to be issued to investors in this offering are speculative in nature.

The warrants to be issued to investors in this offering do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to purchase shares of our Series A Convertible Preferred Stock at $1,000 per share for a limited period of time. Specifically, commencing on the date of issuance, holders of the Series 1 Warrants may exercise their rights to acquire shares of our Series A Convertible Preferred Stock until the 90-day anniversary of the issuance date, holders of the Series 2 Warrants may exercise their rights to acquire shares of our Series A Convertible Preferred Stock until the six-month anniversary of the issuance date and holders of the Series 3 Warrants may exercise their rights to acquire shares of our Series A Convertible Preferred Stock until the 12-month anniversary of the issuance date after which dates any unexercised warrants will expire and have no further value. There can be no assurance that the fair market value of our Series A Convertible Preferred Stock will ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitable for holders of the warrants to exercise the warrants.

There is no public market for our warrants or our shares of Series A Convertible Preferred Stock, which could limit your ability to sell our warrants or shares of Series A Convertible Preferred Stock.

There currently is no public market for our warrants or our shares of Series A Convertible Preferred Stock and we do not expect a market to develop. In addition, we do not plan to have our warrants or shares of Series A Convertible Preferred Stock quoted or traded on any market. Without an active market, the liquidity of the warrants and shares of Series A Convertible Preferred Stock may be limited.

Investors in this offering will experience immediate and substantial dilution.

The public offering price of the Units offered pursuant to this prospectus is substantially higher than the net tangible book value per share of our common stock. Our net tangible book value as of February 28, 2018 was ($10,011,699) or ($0.1039) per share. After giving effect to the sale of the Units in this offering at the public offering price of $1,000 per Unit and based on our net tangible book value as of February 28, 2018 , if you purchase Units in this offering, you would suffer immediate and substantial dilution of $ 0.6441 per share in the net tangible book value of the common stock. See the section titled “ Dilution ” below for a more detailed discussion of the dilution you will incur if you purchase Units in this offering.

We will have broad discretion over the use of the net proceeds from this offering.

We will have broad discretion to use the net proceeds from the sale of securities in this offering, and investors in our Units will be relying on the judgment of our board of directors and management regarding the application of these proceeds. We expect to use the net proceeds of this offering to continue development, testing and commercialization of Infinitus. See “ Use of Proceeds .” Our inability to apply the net proceeds from this offering effectively could have an adverse effect on our financial condition or results of operations.

 

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Our articles of incorporation allow for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority to issue up to 10,000,000 shares of our preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of additional series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders. Although we have no present intention to issue any additional shares of preferred stock or to create any additional series of preferred stock, we may issue such shares in the future.

Future stock issuances could cause substantial dilution and a decline in our stock price.

We expect to issue additional shares of common stock or other equity or debt securities convertible into shares of our common stock in connection with future financings and compensatory arrangements, and may issue additional shares of common stock or other equity securities in connection with acquisitions, litigation settlements or otherwise. In addition, a certain number of shares of our common stock are reserved for issuance upon the exercise of stock options and other equity incentives. We may reserve additional shares of our common stock for issuance upon the exercise of stock options or other similar forms of equity incentives. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline.

A large number of shares issued in this offering may be sold in the market following this offering, which may depress the market price of our common stock.

A large number of shares of common stock that are issuable upon conversion of the Preferred Stock or exercise of the Warrants may be sold in the market following this offering, which may depress the market price of our common stock. Sales of a substantial number of shares of our common stock in the public market following this offering could cause the market price of our common stock to decline. If there are more shares of our common stock offered for sale than buyers are willing to purchase, then the market price of our common stock may decline to a market price at which buyers are willing to purchase the offered shares of our common stock and sellers remain willing to sell the shares. All of the securities issued in the offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended.

Conversion of the Preferred Stock will dilute the ownership interest of our existing stockholders, including holders who had previously converted their Preferred Stock.

Issuance of shares of common stock upon conversion of shares of Preferred Stock will dilute the ownership interest of our existing stockholders. Further, any sales in the public market of our common stock issuable upon such conversions could adversely affect prevailing market prices of our common stock. In addition, the existence of the Preferred Stock and Warrants may encourage short selling by market participants because the conversion of the Preferred Stock could depress the price of our common stock.

Holders of our Series A Convertible Preferred Stock and warrants will have no rights as common stockholders until such holders convert or exercise their Series A Convertible Preferred Stock and warrants, respectively, and acquire our common stock.

Until holders of Series A Convertible Preferred Stock and warrants acquire shares of our common stock upon conversion of the Series A Preferred Stock or exercise of the warrants followed by conversion of the Series A Convertible Preferred Stock issuable as a result of such exercise, as the case may be, holders of Series A Convertible Preferred Stock and warrants will have no rights with respect to the shares of our common stock. Upon conversion of the Series A Convertible Preferred Stock or exercise of the warrants followed by conversion of Series A Convertible Preferred Stock issuable as a result of such exercise, as the case may be, the holders thereof will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the conversion or exercise date.

We may not be able to redeem the Series A Convertible Preferred Stock under Nevada law.

We have the right to redeem outstanding shares of the Series A Convertible Preferred Stock at our sole discretion, subject to certain conditions provided in the Certificate of Designation of the Series A Convertible Preferred Stock. However, under Nevada law, we may not redeem any Series A Convertible Preferred Stock if, after giving effect of such redemption, we would not be able to pay our debts as they become due in the usual course of business; or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of redemption, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to holders of the Series A Convertible Preferred Stock.

To date, we have not generated any revenues and we are unable to predict when we can expect to generate any significant revenues. As of February 28, 2018, we have total assets of $990,706 and total liabilities of $11,002,405. As such, after giving effect to the offering, we do not expect to be able to fully redeem the Series A Convertible Preferred Stock under Nevada law on the date of this prospectus and there is no assurance that we will ever be able to redeem the Series A Convertible Preferred Stock under Nevada law.

We are an “emerging growth company” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors. When we lose that status, there will be an increase in the costs and demands placed upon management.

We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote regarding executive compensation, and stockholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “ Securities Act ”) for complying with new or revised accounting standards.

 

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An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards. We can be an emerging growth company until our fiscal year ending on August 31, 2018, although, if the market value of our common stock that is held by non-affiliates exceeds $700 million prior to that date, our annual gross revenue exceeds $1.07 billion or we issue more than $1 billion of non-convertible debt during a 3-year period, we would cease to be an “emerging growth company” earlier. We cannot predict if investors will determine that our common stock is less desirable if we choose to rely on these exemptions. If some investors determine that our common stock is less desirable as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

When we lose emerging growth company status, we expect the costs and demands placed upon management to increase, as we would have to comply with additional disclosure and accounting requirements.

Certain provisions of Nevada law provide for indemnification of our officers and directors at our expense and limit their liability, which may result in a major cost to us and damage the interests of our stockholders, because our resources may be expended for the benefit of our officers and/or directors.

Applicable Nevada law provides for the indemnification of our directors, officers, employees and agents, under certain circumstances, for attorney’s fees and other expenses incurred by them in any litigation to which they become a party resulting from their association with us or activities on our behalf. We are also obligated to pay the expenses of such litigation for any of our directors, officers, employees or agents, upon such person’s promise to repay us, if it is ultimately determined that any such person shall not have been entitled to indemnification. These indemnity obligations are set forth more fully in indemnification agreements that we have entered into with our officers and directors. This indemnification policy could result in substantial expenditures by us, which we would be unable to recover.

We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under the federal securities laws is against public policy as expressed in the Securities Act and, therefore, unenforceable. In the event that a claim for indemnification against these types of liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, lawsuit or proceeding, is asserted by a director, officer or controlling person in connection with our securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the issue of whether such indemnification by us is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue. The legal process relating to this matter, if it were to occur, probably will be very costly and may result in us receiving negative publicity, either of which factors would probably materially reduce the market and price for our common stock.

The market for our common stock is subject to the penny stock restrictions, which result in lack of liquidity and make trading difficult or impossible.

SEC Rule 15g-9 establishes the definition of a “penny stock,” for purposes relevant to us, as an equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions. Our common stock is currently subject to the penny stock rules, and it is probable that our common stock will continue to be considered to be a penny stock for the immediately foreseeable future. This classification materially and adversely affects the market liquidity for our common stock. For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker-dealer approve a person’s account for transactions in penny stocks, and the broker-dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.

To approve a person’s account for transactions in penny stocks, the broker-dealer must obtain financial information, investment experience and objectives of that person and make a reasonable determination that transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

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The broker-dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission (the “ SEC ”) relating to the penny stock market, which, in highlight form, sets forth:

Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to, both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Because of these regulations, broker-dealers may desire to not engage in the necessary paperwork and disclosures required to sell our common stock, and broker-dealers may encounter difficulties in their attempt to sell our common stock, which may affect the ability of holders to sell our common stock in the secondary market and have the effect of reducing trading activity in the secondary market of our common stock. These additional sales practice and disclosure requirements could impede the sale of our common stock. In addition, the liquidity of our common stock may decrease, with a corresponding decrease in the price of our common stock. Our common stock, in all probability, will continue to be subject to such penny stock rules for the foreseeable future and our stockholders will, quite probably, have difficulty selling our common stock.

We do not intend to pay cash dividends on our common stock for the foreseeable future.

We have not paid any dividends on our common stock, and we have no plans to pay dividends on our common stock in the foreseeable future.

We intend to retain earnings, if any, to provide funds for the operation of our business. Therefore, we cannot provide any assurance that holders of our common stock will receive any additional cash dividends on their shares of our common stock until we have funds which our board of directors determines can be allocated to dividends.

Sales of our common stock in reliance on Rule 144 may reduce prices in that market by a material amount.

A significant number of the outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted securities, those shares may be resold only pursuant to an effective registration statement or pursuant to the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that an affiliate ( i.e. , an officer, director or control person) who has held restricted securities for a prescribed period may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed 1.0% of the issuer’s outstanding common stock. The alternative limitation on the number of shares that may be sold by an affiliate, which is related to the average weekly trading volume during the four calendar weeks prior to the sale is not available to stockholders of companies whose securities are not traded on an “automated quotation system”; because the OTCQB is not such a system, market-based volume limitations are not available for holders of our securities selling under Rule 144.

Pursuant to the provisions of Rule 144, there is no limit on the number of restricted securities that may be sold by a non-affiliate ( i.e ., a stockholder who has not been an officer, director or control person for at least 90 consecutive days before the date of the proposed sale) after the restricted securities have been held by the owner for a prescribed period, although there may be other limitations and/or criteria to satisfy. A sale pursuant to Rule 144 or pursuant to any other exemption from the Securities Act, if available, or pursuant to registration of shares of our common stock held by our stockholders, may reduce the price of our common stock in any market that may develop.

The trading market for our common stock may be restricted because of state securities “Blue Sky” laws which prohibit trading absent compliance with individual state laws.

 

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Transfers of our common stock may be restricted pursuant to the securities laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such laws, our common stock may not be traded in such jurisdictions. Because the shares of our common stock registered hereunder have not been registered for resale under the “Blue Sky” laws of any state, the holders of such shares and persons who desire to purchase such shares in any trading market that might develop in the future, should be aware that there may be significant state “Blue Sky” law restrictions upon the ability of investors to sell and purchasers to purchase such shares. These restrictions prohibit the secondary trading our common stock. We currently do not intend and may not be able to qualify securities for resale in those states which do not offer manual exemptions and require securities to be qualified before they can be resold by our stockholders. Accordingly, investors should consider the secondary market for our securities to be limited.

The price of our common stock may be volatile and the value of our common stock could decline.

The trading price of our common stock has been, and is expected to continue to be, volatile. The trading price of our common stock may fluctuate widely in response to various factors, many of which are beyond our control. They include:

 

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In addition, the stock markets have experienced extreme price and volume fluctuations in recent years that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many such companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against such company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which would harm our business, operating results and financial condition.