ITEM
1A. RISK FACTORS
RISK FACTORS RELATED TO OUR BUSINESS
Many of
our competitors are better established and have resources significantly greater than we have, which may make it difficult to attract
and retain subscribers.
We
will compete with other providers of telephony service, many of which have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the
industry. In addition, a number of these competitors may combine or form strategic partnerships. As a result, our competitors
may be able to offer, or bring to market earlier, products and services that are superior to our own in terms of features, quality,
pricing or other factors. Our failure to compete successfully with any of these companies would have a material adverse effect
on our business and the trading price of our common stock.
The
market for broadband and VoIP services is highly competitive, and we compete with several other companies within a single market:
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cable operators offering high-speed Internet connectivity services
and voice communications;
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incumbent and competitive local exchange carriers providing
DSL services over their existing wide, metropolitan and local area networks;
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3G cellular, PCS and other wireless providers offering wireless
broadband services and capabilities, including developments in existing cellular and PCS technology that may increase network
speeds or have other advantages over our services;
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internet service providers offering dial-up Internet connectivity;
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municipalities and other entities operating free or subsidized
WiFi networks;
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providers of VoIP telephony services;
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wireless Internet service providers using licensed or unlicensed
spectrum;
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satellite and fixed wireless service providers offering or developing
broadband Internet connectivity and VoIP telephony;
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electric utilities and other providers offering or planning
to offer broadband Internet connectivity over power lines; and
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resellers providing wireless Internet service by “piggy-backing”
on DSL or WiFi networks operated by others.
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Moreover,
we expect other existing and prospective competitors, particularly if our services are successful; to adopt technologies or business
plans similar to ours or seek other means to develop a product competitive with our services. Many of our competitors are well-established
and have larger and better developed networks and systems, longer-standing relationships with customers and suppliers, greater
name recognition and greater financial, technical and marketing resources than we have. These competitors can often subsidize
competing services with revenues from other sources, such as advertising, and thus may offer their products and services at lower
prices than ours. These or other competitors may also reduce the prices of their services significantly or may offer broadband
connectivity packaged with other products or services. We may not be able to reduce our prices or otherwise alter our services
correspondingly, which would make it more difficult to attract and retain subscribers.
Our
Acquisitions could result in operating difficulties, dilution and distractions from our core business.
We
have evaluated, and expect to continue to evaluate, potential strategic transactions, including larger acquisitions. The process
of acquiring and integrating a company, business or technology is risky, may require a disproportionate amount of our management
or financial resources and may create unforeseen operating difficulties or expenditures, including:
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difficulties in integrating acquired technologies and operations
into our business while maintaining uniform standards, controls, policies and procedures;
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increasing cost and complexity of assuring the implementation
and maintenance of adequate internal control and disclosure controls and procedures, and of obtaining the reports and attestations
that are required of a company filing reports under the Securities Exchange Act;
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difficulties in consolidating and preparing our financial statements
due to poor accounting records, weak financial controls and, in some cases, procedures at acquired entities based on accounting
principles not generally accepted in the United States, particularly those entities in which we lack control; and
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the inability to predict or anticipate market developments and
capital commitments relating to the acquired company, business or technology.
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Acquisitions
of and joint ventures with companies organized outside the United States often involve additional risks, including:
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difficulties, as a result of distance, language or culture differences,
in developing, staffing and managing foreign operations;
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lack of control over our joint ventures and other business relationships;
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currency exchange rate fluctuations;
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longer payment cycles;
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credit risk and higher levels of payment fraud;
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foreign exchange controls that might limit our control over,
or prevent us from repatriating, cash generated outside the United States;
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potentially adverse tax consequences;
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expropriation or nationalization of assets;
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differences in regulatory requirements that may make it difficult
to offer all of our services;
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unexpected changes in regulatory requirements;
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trade barriers and import and export restrictions; and
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political or social unrest and economic instability.
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The
anticipated benefit of any of our acquisitions or investments may never materialize. Future investments, acquisitions or dispositions
could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization
expenses, or write-offs of goodwill, any of which could harm our financial condition. Future investments and acquisitions may
require us to obtain additional equity or debt financing, which may not be available on favorable terms, or at all.
Our
substantial indebtedness and our current default status and any restrictive debt covenants could limit our financing options and
liquidity position and may limit our ability to grow our business.
Our
indebtedness could have important consequences to the holders of our common stock, such as:
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we may not be able to obtain additional financing to fund working
capital, operating losses, capital expenditures or acquisitions on terms acceptable to us or at all;
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we may be unable to refinance our indebtedness on terms acceptable
to us or at all;
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if substantial indebtedness continues it could make us more
vulnerable to economic downturns and limit our ability to withstand competitive pressures; and
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cash flows from operations are currently negative and may continue
to be so, and our remaining cash, if any, may be insufficient to operate our business.
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paying dividends to our stockholders;
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incurring, or cause certain of our subsidiaries to incur, additional
indebtedness;
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permitting liens on or conduct sales of any assets pledged as
collateral;
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selling all or substantially all of our assets or consolidate
or merge with or into other companies;
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repaying existing indebtedness; and
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engaging in transactions with affiliates.
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As
of March 31, 2019, the total debt or financing arrangements was $11,025,202, of which $85,192 or less than 1% of total current
liabilities is past due. As of March 31, 2019, financing lease arrangements are in the amount of $553,369, of which 101,347 is
in default. Our inability to renegotiate our indebtedness may cause lien holders to obtain possession of a good portion of our
assets which would significantly alter our ability to generate revenues and obtain any additional financing.
We
may experience difficulties in constructing, upgrading and maintaining our network, which could adversely affect customer satisfaction,
increase subscriber turnover and reduce our revenues.
Our
success depends on developing and providing products and services that give subscribers a high-quality internet connectivity and
VoIP experience. If the number of subscribers using our network and the complexity of our products and services increase, we will
require more infrastructure and network resources to maintain the quality of our services. Consequently, we expect to make substantial
investments to construct and improve our facilities and equipment and to upgrade our technology and network infrastructure. If
we do not implement these developments successfully, or if we experience inefficiencies, operational failures or unforeseen costs
during implementation, the quality of our products and services could decline.
We
may experience quality deficiencies, cost overruns and delays on construction, maintenance and upgrade projects, including the
portions of those projects not within our control or the control of our contractors. The construction of our network requires
the receipt of permits and approvals from numerous governmental bodies, including municipalities and zoning boards. Such bodies
often limit the expansion of transmission towers and other construction necessary for our business. Failure to receive approvals
in a timely fashion can delay system rollouts and raise the cost of completing construction projects. In addition, we typically
are required to obtain rights from land, building and tower owners to install our antennas and other equipment to provide service
to our subscribers. We may not be able to obtain, on terms acceptable to us, or at all, the rights necessary to construct our
network and expand our services.
We
also face challenges in managing and operating our network. These challenges include operating, maintaining and upgrading network
and customer premises equipment to accommodate increased traffic or technological advances, and managing the sales, advertising,
customer support, billing and collection functions of our business while providing reliable
network
service at expected speeds and VoIP telephony at expected levels of quality. Our failure in any of these areas could adversely
affect customer satisfaction, increase subscriber turnover, increase our costs, decrease our revenues and otherwise have a material
adverse effect on our business, prospects, financial condition and results of operations.
If
we do not obtain and maintain rights to use licensed spectrum in one or more markets, we may be unable to operate in these markets,
which could adversely affect our ability to execute our business strategy.
Even
though we have established license agreements, growth requires that we plan to provide our services obtaining additional licensed
spectrum both in the United States and internationally, we depend on our ability to acquire and maintain sufficient rights to
use licensed spectrum by obtaining our own licenses or long-term spectrum leases, in each of the markets in which we operate or
intend to operate. Licensing is the short-term solution to obtaining the necessary spectrum as building out spectrum is a long
and difficult process that can be costly and require a disproportionate amount of our management resources. We may not be able
to acquire, lease or maintain the spectrum necessary to execute our business strategy.
Using
licensed spectrum, whether owned or leased, poses additional risks to us, including:
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inability to satisfy build-out or service deployment requirements
upon which our spectrum licenses or leases are, or may be, conditioned;
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increases in spectrum acquisition costs;
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adverse changes to regulations governing our spectrum rights;
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the risk that spectrum we have acquired or leased will not be
commercially usable or free of harmful interference from licensed or unlicensed operators in our or adjacent bands;
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with respect to spectrum we will lease in the United States,
contractual disputes with or the bankruptcy or other reorganization of the license holders, which could adversely affect our
control over the spectrum subject to such license;
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failure of the FCC or other regulators to renew our spectrum
licenses as they expire; and
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invalidation of our authorization to use all or a significant
portion of our spectrum, resulting in, among other things, impairment charges related to assets recorded for such spectrum.
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If
we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results
accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our business
and adversely impact the trading price of our common stock.
Effective
internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment
existed, and our business, brand and reputation with investors may be harmed.
In
addition, reporting a material weakness may negatively impact investors’ perception of us. We have allocated, and will continue
to allocate, significant additional resources to remedy any deficiencies in our internal control.
There
can be no assurances that our remedial measures will be successful in curing the any material weakness or that other significant
deficiencies or material weaknesses will not arise in the future.
Interruption or failure of
our information technology and communications systems could impair our ability to provide our products and services, which could
damage our reputation and harm our operating results.
We
have experienced service interruptions in some markets in the past and may experience service interruptions or system failures
in the future. Any unscheduled service interruption adversely affects our ability to operate our business and could result in
an immediate loss of revenues. If we experience frequent or persistent system or network failures, our reputation and brand could
be permanently harmed. We may make significant capital expenditures to increase the reliability of our systems, but these capital
expenditures may not achieve the results we expect.
Our
products and services depend on the continuing operation of our information technology and communications systems. Any damage
to or failure of our systems could result in interruptions in our service. Interruptions in our service could reduce our revenues
and profits, and our brand could be damaged if people believe our network is unreliable. Our systems are vulnerable to damage
or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses,
computer denial of service attacks or other attempts to harm our systems, and similar events. Some of our systems are not fully
redundant, and our disaster recovery planning may not be adequate. The occurrence of a natural
disaster
or unanticipated problems at our network centers could result in lengthy interruptions in our service and adversely affect our
operating results.
The industries
in which we operate are continually evolving, which makes it difficult to evaluate our future prospects and increases the risk
of your investment. Our products and services may become obsolete, and we may not be able to develop competitive products or services
on a timely basis or at all.
The
markets in which we and our customers compete are characterized by rapidly changing technology, evolving industry standards and
communications protocols, and continuous improvements in products and services. Our future success depends on our ability to enhance
current products and to develop and introduce, in a timely manner, new products that keep pace with technological developments,
industry standards and communications protocols, compete effectively on the basis of price, performance and quality, adequately
address end-user customer requirements and achieve market acceptance. There can be no assurance that the deployment of wireless
networks will not be delayed or that our products will achieve widespread market acceptance or be capable of providing service
at competitive prices in sufficient volumes. In the event that our products are not timely and economically developed or do not
gain widespread market acceptance, our business, results of operations and financial condition would be materially adversely affected.
There can also be no assurance that our products will not be rendered obsolete by the introduction and acceptance of new communications
protocols.
The
broadband services industry is characterized by rapid technological change, competitive pricing, frequent new service introductions
and evolving industry standards and regulatory requirements. We believe that our success depends on our ability to anticipate
and adapt to these challenges and to offer competitive services on a timely basis. We face a number of difficulties and uncertainties
associated with our reliance on technological development, such as:
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competition from service providers using more traditional and
commercially proven means to deliver similar or alternative services;
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competition from new service providers using more efficient,
less expensive technologies, including products not yet invented or developed;
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uncertain consumer acceptance;
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realizing economies of scale;
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responding successfully to advances in competing technologies
in a timely and cost-effective manner;
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migration toward standards-based technology, requiring substantial
capital expenditures; and
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existing, proposed or undeveloped technologies that may render
our wireless broadband and VoIP telephony services less profitable or obsolete.
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As
the products and services offered by us and our competitors develop, businesses and consumers may not accept our services as a
commercially viable alternative to other means of delivering wireless broadband and VoIP telephony services.
If we
are unable to successfully develop and market additional services and/or new generations of our services offerings or market our
services and product offerings to a broad number of customers, we may not remain competitive.
Our future success
and our ability to increase net revenue and earnings depend, in part, on our ability to develop and market new additional services
and/or new generations of our current services offerings and market our existing services offerings to a broad number of customers.
However, we may not be able to, among other things:
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successfully develop
or market new services or product offerings or enhance existing services offerings;
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educate third-party sales organizations
adequately for them to promote and sell our services offerings;
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develop, market and
distribute existing and future services offerings in a cost-effective manner; or
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operate the facilities
needed to provide our services offerings.
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If we fail to
develop new service offerings, or if we incur unexpected expenses or delays in product development or integration, we may lose
our competitive position and incur substantial additional expenses or may be required to curtail or terminate all or part of our
present planned business operations.
Our failure
to do any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
In addition, if any of our current or future services offerings contain undetected errors or design defects or do not work as
expected for our customers, our ability to market these services offerings could be substantially impeded, resulting in lost sales,
potential reputation damage and delays in obtaining market acceptance of these services offerings. We cannot assure you that we
will continue to successfully develop and market new or enhanced applications for our services offerings. If we do not continue
to expand our services offerings portfolio on a timely basis or if those products and applications do not receive market acceptance,
become regulatory restricted, or become obsolete, we will not grow our business as currently expected.
We operate in a very competitive
environment.
There are three
types of competitors for our service offerings.
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The value-added resellers and other vendors of hardware and
software for on-site installation do not typically have an offering similar to our cloud-based services. However, they are
the primary historic service suppliers to our targeted customers and will actively work to defend their customer base.
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There are a number of providers offering services, but they
typically offer only one or two applications of their choosing instead of our offering which bundles customer’s chosen
services.
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There are a few providers that offer more than two applications
from the cloud. However currently, these providers typically offer only those applications they have chosen.
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Our industry
is characterized by rapid change resulting from technological advances and new services offerings. Certain competitors have substantially
greater capital resources, larger customer bases, larger sales forces, greater marketing and management resources, larger research
and development staffs and larger facilities than our and have more established reputations with our target customers, as well
as distribution channels that are entrenched and may be more effective than ours. Competitors may develop and offer technologies
and products that are more effective, have better features, are easier to use, are less expensive and/or are more readily accepted
by the marketplace than our offerings. Their products could make our technology and service offerings obsolete or noncompetitive.
Competitors may also be able to achieve more efficient operations and distribution than ours may be able to and may offer lower
prices than we could offer profitably. We may decide to alter or discontinue aspects of our business and may adopt different strategies
due to business or competitive factors or factors currently unforeseen, such as the introduction by competitors of new products
or services technologies that would make part or all of our service offerings obsolete or uncompetitive.
In addition,
the industry could experience some consolidation. There is also a risk that larger companies will enter our markets.
If we
fail to maintain effective relationships with our major vendors, our services offerings and profitability could suffer.
We use third
party providers for services. In addition, we purchase hardware, software and services from external suppliers. Accordingly, we
must maintain effective relationships with our vendor base to source our needs, maintain continuity of supply, and achieve reasonable
costs. If we fail to maintain effective relationships with our vendor base, this may adversely affect our ability to deliver the
best products and services to our customers and our profitability could suffer.
Any failure of the physical
or electronic security that resulted in unauthorized parties gaining access to customer data could adversely affect our business,
financial condition and results of operations.
We use
commercial data networks to service customers cloud based services and the associated customer data. Any data is subject to the
risk of physical or electronic intrusion by unauthorized parties. We have a multi-homed firewalls and Intrusion Detection / Prevention
systems to protect against electronic intrusion and two physical security levels in our networks. Our policy is to close all external
ports as a default. Robust anti-virus software runs on all client servers. Systems have automated monitoring and alerting for
unusual activity. We also have a Security Officer who monitors these systems. We have better security systems and expertise than
our clients can afford separately but any failure of these systems could adversely affect our business growth and financial condition.
Demand
for our service offerings may decrease if new government regulations substantially increase costs, limit delivery or change the
use of Internet access and other products on which our service offerings depend.
We are dependent
on Internet access to deliver our service offerings. If new regulations are imposed that limit the use of the Internet or impose
significant taxes on services delivered via the Internet it could change our cost structure and/or affect our business model.
The significant changes in regulatory costs or new limitations on Internet use could impact our ability to operate as we anticipate,
could damage our reputation with our customers, disrupt our business or result in, among other things, decreased net revenue and
increased overhead costs. As a result, any such failure could harm our business, financial condition and results of operations.
Our securities,
as offered hereby, are highly speculative and should be purchased only by persons who can afford to lose their entire investment
in us. Each prospective investor should carefully consider the following risk factors, as well as all other information set forth
elsewhere in this prospectus, before purchasing any of the shares of our common stock.
Increasing
regulation of our Internet-based products and services could adversely affect our ability to provide new products and services.
On
February 26, 2015, the FCC adopted a new "network neutrality" or Open Internet order (the "2015 Order")
that: (1) reclassified broadband Internet access service as a Title II common carrier service, (2) applied certain existing
Title II provisions and associated regulations; (3) forbore from applying a range of other existing Title II provisions and
associated regulations, but to varying degrees indicated that this forbearance may be only temporary and (4) issued new rules
expanding disclosure requirements and prohibiting blocking, throttling, paid prioritization and
unreasonable
interference with the ability of end users and edge providers to reach each other. The 2015 Order also subjected broadband providers'
Internet traffic exchange rates and practices to potential FCC oversight and created a mechanism for third parties to file complaints
regarding these matters. The 2015 Order could limit our ability to efficiently manage our cable systems and respond to operational
and competitive challenges. In December 2017, the FCC adopted an order (the "2017 Order") that in large part reverses
the 2015 Order. The 2017 Order has not yet gone into effect, however, and the 2015 Order will remain binding until the 2017 Order
takes effect. The 2017 Order is expected to be subject to legal challenge that may delay its effect or overturn it. Additionally,
Congress and some states are considering legislation that may codify "network neutrality" rules.
Offering
telephone services may subject us to additional regulatory burdens, causing us to incur additional costs.
We
offer telephone services over our broadband network and continue to develop and deploy interconnected VoIP services. The FCC ha
that competitive telephone companies that support VoIP services, such as those that we offer to our customers, are entitled to
interconnect with incumbent providers of traditional telecommunications services, which ensures that our VoIP services can operate
in the market. However, the scope of these interconnection rights are being reviewed in a current FCC proceeding, which may affect
our ability to compete in the provision of telephony services or result in additional costs. It remains unclear precisely to what
extent federal and state regulators will subject VoIP services to traditional telephone service regulation. Expanding our offering
of these services may require us to obtain certain authorizations, including federal and state licenses. We may not be able to
obtain such authorizations in a timely manner, or conditions could be imposed upon such licenses or authorizations that may not
be favorable to us. The FCC has already extended certain traditional telecommunications requirements, such as E911 capabilities,
Universal Service Fund contribution, Communications Assistance for Law Enforcement Act ("CALEA"), measures to protect
Customer Proprietary Network Information, customer privacy, disability access, number porting, battery back-up, network outage
reporting, rural call completion reporting and other regulatory requirements to many VoIP providers such as us. If additional
telecommunications regulations are applied to our VoIP service, it could cause us to incur additional costs and may otherwise
materially adversely impact our operations. In 2011, the FCC released an order significantly changing the rules governing intercarrier
compensation for the origination and termination of telephone traffic between interconnected carriers. These rules have resulted
in a substantial decrease in interstate compensation payments over a multi-year period. The FCC is currently considering additional
reforms that could further reduce interstate compensation payments. Further, although the FCC recently declined to impose additional
regulatory burdens on certain point to point transport ("special access") services provided by cable companies, that
FCC decision has been appealed by multiple parties. If those appeals are successfully, there could be additional regulatory burdens
and additional costs placed on these services.
We
may engage in acquisitions and other strategic transactions and the integration of such acquisitions and other strategic transactions
could materially adversely affect our business, financial condition and results of operations.
Our business
has grown significantly as a result of acquisitions, including the Acquisitions, which entail numerous risks including:
•distraction
of our management team in identifying potential acquisition targets, conducting due diligence and negotiating acquisition agreements;
•difficulties
in integrating the operations, personnel, products, technologies and systems of acquired businesses;
•difficulties
in enhancing our customer support resources to adequately service our existing customers and the customers of acquired businesses;
•the
potential loss of key employees or customers of the acquired businesses;
•unanticipated
liabilities or contingencies of acquired businesses;
•unbudgeted
costs which we may incur in connection with pursuing potential acquisitions which are not consummated;
•failure
to achieve projected cost savings or cash flow from acquired businesses, which are based on projections that are inherently uncertain;
•fluctuations
in our operating results caused by incurring considerable expenses to acquire and integrate businesses before receiving the anticipated
revenues expected to result from the acquisitions; and
•difficulties
in obtaining regulatory approvals required to consummate acquisitions.
We
also participate in competitive bidding processes, some of which may involve significant cable systems. If we are the winning
bidder in any such process involving significant cable systems or we otherwise engage in acquisitions or other strategic transactions
in the future, we may incur additional debt, contingent liabilities and amortization expenses, which could materially adversely
affect our business, financial condition and results of operations. We could also issue substantial additional equity which could
dilute existing stockholders.
If
our acquisitions, including the Acquisitions and the integration of the Optimum and Suddenlink businesses, do not result in the
anticipated operating efficiencies, are not effectively integrated, or result in costs which exceed our expectations, our business,
financial condition and results of operations could be materially adversely affected.
Significant
unanticipated increases in the use of bandwidth-intensive Internet-based services could increase our costs.
The
rising popularity of bandwidth-intensive Internet-based services poses risks for our broadband services. Examples of such services
include peer-to-peer file sharing services, gaming services and the delivery of video via streaming technology and by download.
If heavy usage of bandwidth-intensive broadband services grows beyond our current expectations, we may need to incur more expenses
than currently anticipated to expand the bandwidth capacity of our systems or our customers could have a suboptimal experience
when using our broadband service. In order to continue to provide quality service at attractive prices, we need the continued
flexibility to develop and refine business models that respond to changing consumer uses and demands and to manage bandwidth usage
efficiently. Our ability to undertake such actions could be restricted by regulatory and legislative efforts to impose so-called
"net neutrality" requirements on broadband communication providers like us that provide broadband services. For more
information, see "Regulation—Broadband."
We
operate in a highly competitive business environment which could materially adversely affect our business, financial condition,
results of operations and liquidity.
We
operate in a highly competitive, consumer-driven industry and we compete against a variety of broadband, pay television and telephony
providers and delivery systems, including broadband communications companies, wireless data and telephony providers, satellite-delivered
video signals, Internet-delivered video content and broadcast television signals available to residential and business customers
in our service areas. Some of our competitors include AT&T and its DirecTV subsidiary, CenturyLink, DISH Network, Frontier
and Verizon. In addition, our pay television services compete with all other sources of leisure, news, information and entertainment,
including movies, sporting or other live events, radio broadcasts, home-video services, console games, print media and the Internet.
In
some instances, our competitors have fewer regulatory burdens, easier access to financing, greater resources, greater operating
capabilities and efficiencies of scale, stronger brand-name recognition, longstanding relationships with regulatory authorities
and customers, more subscribers, more flexibility to offer promotional packages at prices lower than ours and greater access to
programming or other services. This competition creates pressure on our pricing and has adversely affected, and may continue to
affect, our ability to add and retain customers, which in turn adversely affects our business, financial condition and results
of operations. The effects of competition may also adversely affect our liquidity and ability to service our debt. For example,
we face intense competition from Verizon and AT&T, which have network infrastructure throughout our service areas. We estimate
that competitors are currently able to sell a fiber-based triple play, including broadband, pay television and telephony services,
and may expand these and other service offerings to our potential customers.
Our
competitive risks are heightened by the rapid technological change inherent in our business, evolving consumer preferences and
the need to acquire, develop and adopt new technology to differentiate our products and services from those of our competitors,
and to meet consumer demand. We may need to anticipate far in advance which technology we should use for the development of new
products and services or the enhancement of existing products and services. The failure to accurately anticipate such changes
may adversely affect our ability to attract and retain customers, which in turn could adversely affect our business, financial
condition and results of operations. Consolidation and cooperation in our industry may allow our competitors to acquire service
capabilities or offer products that are not available to us or offer similar products and services at prices lower than ours.
For example, Comcast and Charter Communications have agreed to jointly explore operational efficiencies to speed their respective
entries into the wireless market, including in the areas of creating common operating platforms and emerging wireless technology
platforms. In addition, changes in the regulatory and legislative environments may result in changes to the competitive landscape.
In
addition, certain of our competitors own directly or are affiliated with companies that own programming content or have exclusive
arrangements with content providers that may enable them to obtain lower programming costs or offer exclusive programming that
may be attractive to prospective subscribers. For example, DirecTV has exclusive arrangements with the National Football League
that give it access to programming we cannot offer. AT&T also has an agreement to acquire Time Warner, which owns a number
of cable networks, including TBS, CNN and HBO, as well as Warner Bros. Entertainment, which produces television, film and home-video
content. AT&T's and DirecTV's potential access to Time Warner programming could allow AT&T and DirecTV to offer competitive
and promotional packages that could negatively affect our ability to maintain or increase our existing customers and revenues.
DBS operators such as DISH Network and DirecTV also have marketing arrangements with certain phone companies in which the DBS
provider's pay television services are sold together with the phone company's broadband and mobile and traditional phone services.
Most
broadband communications companies, which already have wired networks, an existing customer base and other operational functions
in place (such as billing and service personnel), offer DSL services. We believe DSL service competes with our broadband service
and is often offered at prices lower than our Internet services. However, DSL is often offered at speeds lower than the speeds
we offer. In addition, DSL providers may currently be in a better position to offer Internet services to businesses since their
networks tend to be more complete in commercial areas. They may also increasingly have the ability to combine video services with
telephone and Internet services offered to their customers, particularly as broadband communications companies enter into co-marketing
agreements with other service providers. In addition, current and future fixed and wireless Internet services, such as 3G, 4G
and 5G fixed and wireless broadband services and Wi-Fi networks, and devices such as wireless data cards, tablets and smartphones,
and mobile wireless routers that connect to such devices, may compete with our broadband services.
Our
telephony services compete directly with established broadband communications companies and other carriers, including wireless
providers, as increasing numbers of homes are replacing their traditional telephone service with wireless telephone service. We
also compete against VoIP providers like Vonage, Skype, GoogleTalk, Facetime, WhatsApp and magicJack that do not own networks
but can provide service to any person with a broadband connection, in some cases free of charge. In addition, we compete against
ILECs, other CLECs and long-distance voice-service companies for large commercial and enterprise customers. While we compete with
the ILECs, we also enter into interconnection agreements with ILECs so that our customers can make and receive calls to and from
customers served by the ILECs and other telecommunications providers. Federal and state law and regulations require ILECs to enter
into such agreements and provide facilities and services necessary for connection, at prices subject to regulation. The specific
price, terms and conditions of each agreement, however, depend on the outcome of negotiations between us and each ILEC. Interconnection
agreements are also subject to approval by the state regulatory commissions, which may arbitrate negotiation impasses. These agreements,
like all interconnection agreements, are for limited terms and upon expiration are subject to renegotiation, potential arbitration
and approval under the laws in effect at that time.
We
also face competition for our advertising sales from traditional and non-traditional media outlets, including television and radio
stations, traditional print media and the Internet.
We
face significant risks as a result of rapid changes in technology, consumer expectations and behavior.
The
broadband communications industry has undergone significant technological development over time and these changes continue to
affect our business, financial condition and results of operations. Such changes have had, and will continue to have, a profound
impact on consumer expectations and behavior. Our video business faces technological change risks as a result of the continuing
development of new and changing methods for delivery of programming content such as Internet-based delivery of movies, shows and
other content which can be viewed on televisions, wireless devices and other developing
mobile
devices. Consumers' video consumption patterns are also evolving, for example, with more content being downloaded for time-shifted
consumption. A proliferation of delivery systems for video content can adversely affect our ability to attract and retain subscribers
and the demand for our services and it can also decrease advertising demand on our delivery systems. Our broadband business faces
technological challenges from rapidly evolving wireless Internet solutions. Our telephony service offerings face technological
developments in the proliferation of telephony delivery systems including those based on Internet and wireless delivery. If we
do not develop or acquire and successfully implement new technologies, we will limit our ability to compete effectively for subscribers,
content and advertising. We cannot provide any assurance that we will realize, in full or in part, the anticipated benefits we
expect from the introduction of our home communications hub,, or that it will be rolled out across our footprint in the timeframe
we anticipate. In addition, we may be required to make material capital and other investments to anticipate and to keep up with
technological change. These challenges could adversely affect our business, financial condition and results of operations.
Our revenues
and growth may be constrained due to demand exceeding capacity of our systems or our inability to develop solutions.
We
anticipate generating revenues in the future from broadband connectivity, other Internet services, and broadband and in the cloud
services. Demand and market acceptance for these recently introduced services and products delivered over the Internet is uncertain.
Critical issues concerning the use of the Internet, such as ease of access, security, reliability, cost and quality of service,
exist and may affect the growth of Internet use or the attractiveness of conducting commerce online. In addition, the Internet
and online services may not be accepted as viable for a number of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies and performance improvements. To the extent that
the Internet and online services continue to experience significant growth, there can be no assurance that the infrastructure
of the Internet and online services will prove adequate to support increased user demands. In addition, the Internet or online
services could lose their viability due to delays in the development or adoption of new standards and protocols required to handle
increased levels of Internet or online service activity. Changes in, or insufficient availability of, telecommunications services
to support the Internet or online services also could result in slower response times and adversely affect usage of the Internet
and online services generally and us in particular. If use of the Internet and online services does not continue to grow or grows
more slowly than expected, if the infrastructure for the Internet and online services does not effectively support growth that
may occur, or if the Internet and online services do not become a viable commercial marketplace, our business could be adversely
affected.
Certain
aspects of our VoIP telephony services differ from traditional telephone service. The factors that may have this effect include:
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our subscribers may experience lower call quality than they
experience with traditional wireline telephone companies, including static, echoes and transmission delays;
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our subscribers may experience higher dropped-call rates than
they experience with traditional wireline telephone companies; and
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a power loss or Internet access interruption causes our service
to be interrupted.
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Additionally,
our VoIP emergency calling service is significantly more limited than the emergency calling services offered by traditional telephone
companies. Our VoIP emergency calling service can only transmit to a dispatcher at a public safety answering point, or PSAP, the
location information that the subscriber has registered with us, which may at times be different from the actual location at the
time of the call. As a result, our emergency calling systems may not assure that the appropriate PSAP is reached and may cause
significant delays, or even failures, in callers’ receipt of emergency assistance. Our failure to develop or operate an
adequate emergency calling service could subject us to substantial liabilities and may result in delays in subscriber adoption
of our VoIP telephony services or all of our services, abandonment of our services by subscribers, and litigation costs, damage
awards and negative publicity, any of which could harm our business, prospects, financial condition or results of operations.
If
our subscribers do not accept the differences between our VoIP telephony services and traditional telephone service, they may
not adopt or keep our VoIP telephony services or our other services, or may choose to retain or return to service provided by
traditional telephone companies. Because VoIP telephony services represent an important aspect of our business strategy, failure
to achieve subscribers’ acceptance of our VoIP telephony services may adversely affect our prospects, results of operations
and the trading price of our shares.
We rely on contract manufacturers
and a limited number of third-party suppliers to produce our network equipment and to maintain our network sites. If these companies
fail to perform, we may have a shortage of components and may be required to suspend our network deployment and our product and
service introduction
.
We
depend on contract manufacturers, to produce and deliver acceptable, high quality products on a timely basis. We also depend on
a limited number of third parties to maintain our network facilities. If our contract manufacturer or other providers do not satisfy
our requirements, or if we lose our contract manufacturers or any other significant provider, we may have an insufficient network
services for delivery to subscribers, we may be forced to suspend portions of our wireless broadband network, enrollment of new
subscribers, and product sales and our business, prospects, financial condition and operating results may be harmed.
We rely
on highly skilled executives and other personnel. If we cannot retain and motivate key personnel, we may be unable to implement
our business strategy
.
We
will be highly dependent on the scientific, technical, and managerial skills of certain key employees, including technical, research
and development, sales, marketing, financial and executive personnel, and on our ability to identify, hire and retain additional
personnel. To accommodate our current size and manage our anticipated growth, we must expand our employee base. Competition for
key personnel, particularly persons having technical expertise, is intense, and there can be no assurance that we will be able
to retain existing personnel or to identify or hire additional personnel. The need for such personnel is particularly important
given the strains on our existing infrastructure and the need to anticipate the demands of future growth. In particular, we are
highly dependent on the continued services of our senior management team, which currently is composed of a small number of individuals.
We do not maintain key-man life insurance on the life of any employee. The inability of us to attract, hire or retain the necessary
technical, sales, marketing, financial and executive personnel, or the loss of the services of any member of our senior management
team, could have a material adverse effect on us.
Our
future success depends largely on the expertise and reputation of our founder, Chairman and Chief Executive Officer Stephen J.
Thomas, Richard Eberhardt, and the other members of our senior management team. In addition, we intend to hire additional highly
skilled individuals to staff our operations. Loss of any of our key personnel or the inability to recruit and retain qualified
individuals could adversely affect our ability to implement our business strategy and operate our business.
We are currently
managed by a small number of key management and operating personnel. Our future success depends, in part, on our ability to recruit
and retain qualified personnel. Failure to do so likely would have an adverse impact on our business and the trading price of
our common stock.
If our data security measures
are breached, subscribers may perceive our network and services as not secure
.
Our
network security and the authentication of the subscriber’s credentials are designed to protect unauthorized access to data
on our network. Because techniques used to obtain unauthorized access to or to sabotage networks change frequently and may not
be recognized until launched against a target, we may be unable to anticipate or implement adequate preventive measures against
unauthorized access or sabotage. Consequently, unauthorized parties may overcome our encryption and security systems and obtain
access to data on our network, including on a device connected to our network. In addition, because we operate and control our
network and our subscribers’ Internet connectivity, unauthorized access or sabotage of our network could result in damage
to our network and to the computers or other devices used by our subscribers. An actual or perceived breach of network security,
regardless of whether the breach is our fault, could harm public perception of the effectiveness of our security measures, adversely
affect our ability to attract and retain subscribers, expose us to significant liability and adversely affect our business prospects.
Our activities outside the
United States could disrupt our operations
.
We
intend to invest in various international companies and spectrum opportunities through acquisitions and strategic alliances as
these opportunities arise. Our activities outside the United States operate in environments different from the one we face in
the United States, particularly with respect to competition and regulation. Due to these differences, our activities outside the
United States may require a disproportionate amount of our management and financial resources, which could disrupt our U.S. operations
and adversely affect our business.
In
a number of international markets, we face substantial competition from local service providers that offer or may offer their
own wireless broadband or VoIP telephony services and from other companies that provide Internet connectivity services. We may
face heightened challenges in gaining market share, particularly in certain European countries, where a large portion of the population
already has broadband Internet connectivity and incumbent companies already have a
dominant
market share in their service areas. Furthermore, foreign providers of competing services may have a substantial advantage over
us in attracting subscribers due to a more established brand, greater knowledge of local subscribers’ preferences and access
to significant financial or strategic resources.
In
addition, foreign regulatory authorities frequently own or control the incumbent telecommunications companies operating under
their jurisdiction. Established relationships between government-owned or government-controlled telecommunications companies and
their traditional local providers of telecommunications services often limit access of third parties to these markets. The successful
expansion of our international operations in some markets will depend on our ability to locate, form and maintain strong relationships
with established local communication services and equipment providers. Failure to establish these relationships or to market or
sell our products and services successfully could limit our ability to attract subscribers to our services.
We
may be unable to protect our intellectual property, which could reduce the value of our services and our brand
.
Our
ability to compete effectively depends on our ability to protect our proprietary technologies, system designs and manufacturing
processes. We may not be able to safeguard and maintain our proprietary rights. We rely on patents, trademarks and policies and
procedures related to confidentiality to protect our intellectual property. Some of our intellectual property, however, is not
covered by any of these protections.
We could
be subject to claims that we have infringed on the proprietary rights of others, which claims would likely be costly to defend,
could require us to pay damages and could limit our ability to use necessary technologies in the future
.
Our
competitors may independently develop or patent technologies or processes that are substantially equivalent or superior to ours.
These competitors may claim that our services and products infringe on these patents or other proprietary rights. Defending against
infringement claims, even merit less ones, would be time consuming, distracting and costly. If we are found to be infringing proprietary
rights of a third party, we could be enjoined from using such third party’s rights and be required to pay substantial royalties
and damages and may no longer be able to use the intellectual property on acceptable terms or at all. Failure to obtain licenses
to intellectual property could delay or prevent the development, manufacture or sale of our products or services and could cause
us to expend significant resources to develop or acquire non-infringing intellectual property.
Our business depends on our
brand, and if we do not maintain and enhance our brand, our ability to attract and retain subscribers may be impaired and our
business and operating results harmed
.
We
believe that our brand is a critical part of our business. Maintaining and enhancing our brand may require us to make substantial
investments with no assurance that these investments will be successful. If we fail to promote and maintain our brands, or if
we incur significant expenses in this effort, our business, prospects, operating results and financial condition may be harmed.
We anticipate that maintaining and enhancing our brand will become increasingly important, difficult and expensive.
We
are subject to extensive regulation.
Our
acquisition, lease, maintenance and use of spectrum licenses are extensively regulated by federal, state, local, and foreign governmental
entities. A number of other federal, state, local and foreign privacy, security and consumer laws also apply to our business.
These regulations and their application are subject to continual change as new legislation, regulations or amendments to existing
regulations are adopted from time to time by governmental or regulatory authorities, including as a result of judicial interpretations
of such laws and regulations. Current regulations directly affect the breadth of services we are able to offer and may impact
the rates, terms and conditions of our services. Regulation of companies that offer competing services, such as cable and DSL
providers and incumbent telecommunications carriers, also affects our business indirectly.
We
are also subject to regulation because we provide VoIP telephony services. As an “interconnected” VoIP provider, we
are required under FCC rules, to comply with the Communications Assistance for Law Enforcement Act, or CALEA, which requires service
providers to build certain capabilities into their networks and to accommodate wiretap requests from law enforcement agencies.
In
addition, the FCC or other regulatory authorities may in the future restrict our ability to manage subscribers’ use of our
network, thereby limiting our ability to prevent or address subscribers’ excessive bandwidth demands. To maintain the quality
of our network and user experience, we manage the bandwidth used by our subscribers’ applications, in part by restricting
the types of applications that may be used over our network. Some providers and users of these applications have objected to
this
practice. If the FCC or other regulatory authorities were to adopt regulations that constrain our ability to employ bandwidth
management practices, excessive use of bandwidth-intensive applications would likely reduce the quality of our services for all
subscribers. Such decline in the quality of our services could harm our business.
In
certain of our international markets, the services provided by our business may require receipt of a license from national, provincial
or local regulatory authorities. Where required, regulatory authorities may have significant discretion in granting the licenses
and in the term of the licenses and are often under no obligation to renew the licenses when they expire.
The
breach of a license or applicable law, even if inadvertent, can result in the revocation, suspension, cancellation or reduction
in the term of a license or the imposition of fines. In addition, regulatory authorities may grant new licenses to third parties,
resulting in greater competition in territories where we already have rights to licensed spectrum. In order to promote competition,
licenses may also require that third parties be granted access to our bandwidth, frequency capacity, facilities or services. We
may not be able to obtain or retain any required license, and we may not be able to renew a license on favorable terms, or at
all.
Our
wireless broadband and VoIP telephony services may become subject to greater state or federal regulation in the future. The scope
of the regulations that may apply to VoIP telephony services providers and the impact of such regulations on providers’
competitive position are presently unknown.
Our Chairman and Chief Executive
Officer is also our largest stockholder, and as a result he can exert control over us and has actual or potential interests that
may diverge from yours.
Mr. Thomas
may have interests that diverge from those of other holders of our common stock and he owns our super majority voting Series A
stock. As a result, Mr. Thomas may vote the shares he owns or otherwise cause us to take actions that may conflict with your best
interests as a stockholder, which could adversely affect our results of operations and the trading price of our common stock.
Through
his control, Mr. Thomas can control our management, affairs and all matters requiring stockholder approval, including the
approval of significant corporate transactions, a sale of our company, decisions about our capital structure and, the composition
of our board of directors.
RISK FACTORS
RELATED TO OUR STOCK
We can
give no assurance of success or profitability to our investors.
Cash flows generated
from operating activities were not enough to support all working capital requirements for the years ended March 31, 2019 and 2018.
Financing activities described below, have helped with working capital and other capital requirements. We incurred $2,981,346
and $1,037,581, respectively, in losses, and we used $369,477 and $250,097, respectively, in cash for operations for the three
months ended March 31, 2019 and 2018. Cash flows from financing activities were $848,661 and $235,635 for the same periods. These
factors raise substantial doubt about the ability of the Company to continue as a going concern for a period of one year from
the issuance of these financial statements. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Subsequent
to March 31, 2019, convertible promissory note was extended to the Company in the amount of $65,000 into convertible debt. In
addition, the company secured $527,000 in the sale of future receipts.
In order for
us to continue as a going concern for a period of one year from the issuance of these financial statements, we will need to obtain
additional debt or equity financing and look for companies with cash flow positive operations that we can acquire. There can be
no assurance that we will be able to secure additional debt or equity financing, that we will be able to acquire cash flow positive
operations, or that, if we are successful in any of those actions, those actions will produce adequate cash flow to enable us
to meet all our future obligations. Most of our existing financing arrangements are short-term. If we are unable to obtain additional
debt or equity financing, we may be required to significantly reduce or cease operations.
Our sources
of capital are loans and sales of equity from common or preferred stock. We have no firm commitments for loans or equity sales
at this date.
We may
in the future issue more shares which could cause a loss of control by our present management and current stockholders.
We may issue
further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would,
upon issuance, represent a majority of the voting power and equity of our Company. The result of such an issuance would be those
new stockholders and management would control our Company, and persons unknown could replace our management at this time. Such
an occurrence would result in a greatly reduced percentage of ownership of our Company by our current shareholders, which could
present significant risks to investors.
We have options and warrants
issued and outstanding, convertible promissory notes and preferred stock that is convertible into common stock. A conversion of
such equity and debt instruments could have a dilutive effect to existing shareholders.
As of March
31, 2019, we had options outstanding to purchase 3,093,120 shares of common stock of the Company.
As of March
31, 2019, we had convertible promissory notes outstanding that were convertible into 9,475,367 common shares.
In addition,
the Series A and B preferred stocks outstanding are convertible into common shares of 128,056,693 and 2,588,693, respectively
as of March 31, 2019.
The exercise
of the options, convertible promissory notes and Series A and B Series Preferred Stock into shares of our common stock could have
a dilutive effect to the holdings of our existing shareholders.
As of March
31, 2019, the following warrants were outstanding:
As part of the
Auctus Convertible Promissory Note issuance, the Company issued to, Auctus 2,000,000 warrants to purchase 2,000,000 common shares
of the Company at 70% of the current market price. Current market price means the average of the three lowest trading prices for
our common stock during the ten-trading day period ending on the latest complete trading day prior to the date of the respective
exercise notice. However, if a required registration statement, registering the underlying shares of the Auctus Convertible Promissory
Note, is declared effective on or before June 11, 2019, then, while such Registration Statement is effective, the current market
price shall mean the lowest volume weighted average price for our common stock during the ten-trading day period ending on the
last complete trading day prior to the conversion date.
Our officers
and directors may have conflicts of interests as to corporate opportunities which we may not be able or allowed to participate
in
.
Presently there
is no requirement contained in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our
business to disclose to us business opportunities which come to their attention. Our officers and directors do, however, have
a fiduciary duty of loyalty to us to disclose to us any business opportunities which come to their attention, in their capacity
as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through
his involvement as an officer and director of another company. We have no intention of merging with or acquiring business opportunity
from any affiliate or officer or director.
We have
agreed to indemnification of officers and directors as is provided by Florida Statutes.
Florida Statutes
provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s
fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or
activities our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents,
upon such person’s promise to repay us therefore if it is ultimately determined that any such person shall not have been
entitled to indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable
to recoup.
Our directors’
liability to us and shareholders is limited.
Florida Statutes
exclude personal liability of our directors and our stockholders for monetary damages for breach of fiduciary duty except in certain
specified circumstances. Accordingly, we will have a much more limited right of action against our directors that otherwise would
be the case. This provision does not affect the liability of any director under federal or applicable state securities laws.
Our
Stock prices in the Market may be volatile.
The
value of our Common stock following this offering may be highly volatile and could be subject to fluctuations in price in response
to various factors, some of which are beyond our control. These factors include:
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quarterly variations in our results of operations or those of
our competitors;
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announcements by us or our competitors of acquisitions, new
products, significant contracts, commercial relationships or capital commitments;
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disruption to our operations or those of other sources critical
to our network operations;
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the emergence of new competitors or new technologies;
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our ability to develop and market new and enhanced products
on a timely basis;
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seasonal or other variations in our subscriber base;
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commencement of, or our involvement in, litigation;
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availability of additional spectrum;
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dilutive issuances of our stock or the stock of our subsidiaries,
or the incurrence of additional debt;
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changes in our board or management;
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adoption of new or different accounting standards;
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changes in governmental regulations or in the status of our
regulatory approvals;
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changes in earnings estimates or recommendations by securities
analysts;
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announcements regarding WiMAX and other technical standards;
and
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general economic conditions and slow or negative growth of related
markets.
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In
addition, the stock market in general, and the market for shares of technology companies in particular, has experienced price
and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. We
expect the value of our common stock will be subject to such fluctuations.
We may
not be able to successfully implement our business strategy without substantial additional capital. Any such failure may adversely
affect the business and results of operations.
Unless we can
generate revenues sufficient to implement our Business Plan, we will need to obtain additional financing through debt or bank
financing, or through the sale of shareholder interests to execute our Business Plan. We expect to need $16,900,000 in the next
twelve months in capital or loans to complete our plans and operations. We may not be able to obtain this financing at all. We
have not sought commitments for this financing, and we have no terms for either debt or equity financing, and we realize that
it may be difficult to obtain on favorable terms. Moreover, if we issue additional equity securities to support our operations,
Investor holdings may be diluted. Our business plans are at risk if we cannot continually achieve additional capital raising to
complete our plans.
We are
reliant, in part, on third party sales organizations, which may not perform as we expect.
We, from time
to time rely on the sales force of third-party sales organizations with support from our own selling resources. The third-party
relationships and internal organization are not fully developed at this time and must be developed. We may not be able to hire
effective inside sales people to help our third-party sales organizations close sales. There is no assurance that any approaches
will improve sales. Further, using only a direct sales force would be less cost-effective than our plan to use third-party sales
organizations. In addition, a direct sales model may be ineffective if we were unable to hire and retain qualified salespeople
and if the sales force fails to complete sales. Moreover, even if we successfully implement our business strategy, we may not
have positive operating results. We may decide to alter or discontinue aspects of our business strategy and may adopt different
strategies due to business or competitive factors.
Our growth
may be affected adversely if our sales of products and services are negatively affected by competition or other factors.
The growth of
our business is dependent, in large part, upon the development of sales for our services and product offerings. Market opportunities
that we expect to exist may not develop as expected, or at all. For example, a substantial percentage of our service offerings
is oriented around data access. If lower cost alternatives are developed, our sales would decrease and our operating results would
be negatively affected. Moreover, even if market opportunities develop as expected, new technologies and services offerings introduced
by competitors may significantly limit our ability to capitalize on any such market opportunity. Our failure to capitalize on
expected market opportunities would adversely affect revenue growth.
The lack of
operating history and the rapidly changing nature of the market in which we compete make it difficult to accurately forecast revenues
and operating results. We anticipate that revenues and operating results might fluctuate in the future due to a number of factors
including the following:
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the timing of sales for current services and products offerings
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the timing of new product implementations
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unexpected delays in introducing new services and products offerings
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increased expense related to sales and marketing, product development
or administration
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the mix of products and our services offerings
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costs related to possible acquisitions of technology or business.
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We may be unable to compete
with larger, more established competitors.
The market for
providing network delivered service solutions is competitive. We expect competition to intensify in the future. Many of our potential
competitors have longer operating histories, larger customer bases, greater recognition and significantly greater resources. As
a result, competitors may be able to respond more quickly to emerging technologies and changes in customer requirements than we
can. The continuous and timely introduction of competitively priced services offerings into the market is critical to our success,
and there can be no assurance that we will be able to introduce such services offerings. We may not be able to compete successfully
against competitors, and the competitive pressures we face may have an adverse effect on our business.
RISKS RELATING
TO OUR INTELLECTUAL PROPERTY AND POTENTIAL LITIGATION
We may not be able to protect
our intellectual property and proprietary rights.
There can be
no assurances that we will be able to obtain intellectual property protection that will effectively prevent any competitors from
developing or marketing the same or a competing technology. In addition, we cannot predict whether we will be subject to intellectual
property litigation the outcome of which is subject to uncertainty and which can be very costly to pursue or defend. We will attempt
to continue to protect our proprietary designs and to avoid infringing on the intellectual property of third parties. However,
there can be no assurance that we will be able to protect our intellectual property or avoid suits by third parties claiming intellectual
property infringement.
If
our patents and other intellectual property rights do not adequately protect our service offering, we may lose market share to
competitors and be unable to operate our business profitably.
Patents and
other proprietary rights are anticipated to be of value to our future business, and our ability to compete effectively with other
companies depends on the proprietary nature of our current or future technologies. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop, maintain, and strengthen our competitive position.
We cannot assure you that any future patent applications will result in issued patents, that any patents issued or licensed to
us will not be challenged, invalidated or circumvented or that the rights granted there under will provide a competitive advantage
to us or prevent competitors from entering markets which we currently serve. Any required license may not be available to us on
acceptable terms, if at all or may become invalid if the licensee’s right to such technology become challenged and/or revoked.
In addition, some licenses may be non-exclusive, and therefore competitors may have access to the same technologies as we do.
Furthermore, we may have to take legal action in the future to protect our trade secrets or know-how, or to defend them against
claimed infringement of the rights of others. Any legal action of that type could be costly and time-consuming to us, and we cannot
assure you that such actions will be successful. The invalidation of key patents or proprietary rights which we own or unsuccessful
outcomes in lawsuits to protect our intellectual property may have a material adverse effect on our business, financial condition
and results of operations.
We may
in the future become subject to claims that some, or the entire service offering violates the patent or intellectual property
rights of others, which could be costly and disruptive to us.
We operate in
an industry that is susceptible to patent litigation. As a result, we or the parties we license technology from may become subject
to patent infringement claims or litigation. Further, one or more of our future patents or applications may become subject to
interference proceedings declared by the U.S. Patent and Trademark Office, (“USPTO”) or the foreign equivalents thereof
to determine the priority of claims to inventions. The defense of intellectual property suits, USPTO interference proceedings
or the foreign equivalents thereof, as well as related legal and administrative proceedings, are both costly and time consuming
and may divert management's attention from other business concerns. An adverse determination in litigation or interference proceedings
to which we may become a party could, among other things:
-
subject us to significant liabilities
to third parties, including treble damages;
-
require disputed rights to
be licensed from a third party for royalties that may be substantial;
-
require us to cease using such
technology; or
-
prohibit us from selling certain
of our service offerings.
Any of these
outcomes could have a material adverse effect on our business, financial condition and results of operations.
Our stock
will in all likelihood be thinly traded and as a result you may be unable to sell at or near ask prices or at all if you need
to liquidate your shares.
The shares of
our common stock may be thinly-traded on the OTC Market, meaning that the number of persons interested in purchasing our common
shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number
of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional
investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention
of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or
purchase or recommend the purchase of any of our Securities until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our Securities is minimal or non-existent, as compared to
a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without
an adverse effect on Securities price. We cannot give you any assurance that a broader or more active public trading market for
our common Securities will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we
can give investors no assurance that they will be able to sell their shares at or near ask prices or at all if they need money
or otherwise desire to liquidate their securities of our Company.
The regulation
of penny stocks by SEC and FINRA may discourage the tradability of our securities.
We are a “penny
stock” company. None of our securities currently trade in any market and, if ever available for trading, will be subject
to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such
securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase “accredited
investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth
in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income,
exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages
broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers in this offering
to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny
stock transactions.
In addition,
the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks". Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended.
Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and
to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might
develop for them because it imposes additional regulatory burdens on penny stock transactions.
Shareholders
should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years
from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by
one or a few
broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically
in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers
who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns
from being established with respect to our securities.
Inventory in
penny stocks have limited remedies in the event of violations of penny stock rules. While the courts are always available to seek
remedies for fraud against us, most, if not all, brokerages require their customers to sign mandatory arbitration agreements in
conjunctions with opening trading accounts. Such arbitration may be through an independent arbiter. Investors may file a complaint
with FINRA against the broker allegedly at fault, and FINRA may be the arbiter, under FINRA rules. Arbitration rules generally
limit discovery and provide more expedient adjudication, but also provide limited remedies in damages usually only the actual
economic loss in the account. Investors should understand that if a fraud case is filed against a company in the courts it may
be vigorously defended and may take years and great legal expenses and costs to pursue, which may not be economically feasible
for small investors.
That absent
arbitration agreements, specific legal remedies available to investors of penny stocks include the following:
If a penny stock
is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor
may be able to cancel the purchase and receive a refund of the investment.
If a penny stock
is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud
for damages.
The fact that
we are a penny stock company will cause many brokers to refuse to handle transactions in the stocks, and may discourage trading
activity and volume, or result in wide disparities between bid and ask prices. These may cause investors significant illiquidity
of the stock at a price at which they may wish to sell or in the opportunity to complete a sale. Investors will have no effective
legal remedies for these illiquidity issues.
We will
pay no dividends in the foreseeable future
.
We have not
paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future.
Rule 144
sales in the future may have a depressive effect on our stock price.
All of the outstanding
shares of common stock held by our present officers, directors, and affiliate stockholders are “restricted securities”
within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted Shares, these shares may be resold
only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from
registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person
who has held restricted securities for six months, under certain conditions, sell every three months, in brokerage transactions,
a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock or the average weekly
trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that
may be sold by a non-affiliate after the owner has held the restricted securities for a period of six months. A sale under Rule
144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock
of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
Any sales
of our common stock, if in significant amounts, are likely to depress the future market price of our securities.
Assuming all
of the shares of common stock held by the selling security holders registered recently in a Form S-1 that became effective in
2019 are sold, we would have 38,208,210 new shares that are freely tradable and therefor available for sale, in market or private
transactions.
Unrestricted
sales of 38,208,210 shares of stock by these selling stockholders could have a huge negative impact on our share price, and the
market for our shares.
Any
new potential investors will suffer a disproportionate risk and there will be immediate dilution of existing investor’s
investments.
Our present
shareholders have acquired their securities at a cost significantly less than that which the investors purchasing pursuant to
shares will pay for their stock holdings or at which future purchasers in the market may pay. Therefore, any new potential investors
will bear most of the risk of loss.
We can
issue shares of preferred stock without shareholder approval, which could adversely affect the rights of common shareholders.
Our Articles
of Incorporation permit our Board of Directors to establish the rights, privileges, preferences and restrictions, including voting
rights, of future series of stock and to issue such stock without approval from our shareholders. The rights of holders of common
stock may suffer as a result of the rights granted to holders of preferred stock that may be issued in the future. In addition,
we could issue preferred stock to prevent a change in control of our Company, depriving common shareholders of an opportunity
to sell their stock at a price in excess of the prevailing market price.