ERFB ERF Wireless Inc (CE)

ITEM 1A. RISK FACTORS

Risks Related to Our Business

We have a history of significant losses, expect future losses and cannot assure you that we will achieve profitability.

We have experienced net losses and negative cash flows from operating activities since inception and we expect such losses and negative cash flows to continue in the foreseeable future. As of December 31, 2013 and 2012, we had a working capital deficit of $4,500,000 and $2,460,000, respectively, and stockholders’ deficit of $6,989,000 and $2,915,000, respectively. For the years ended December 31, 2013 and 2012, we incurred net losses attributable to ERF Wireless, Inc. of $7,264,000, and $4,814,000, respectively. As of December 31, 2013, we had an aggregate accumulated deficit of $63,276,000. We cannot guarantee that we will achieve sufficient revenues for profitability. Even if we achieve profitability, we cannot guarantee that we can sustain or increase profitability on a quarterly or annual basis in the future.

We have a limited cash and liquidity position and may need to raise additional funds to fund operations.

As of December 31, 2013, we had cash and cash equivalent balances of $42,000, a working capital deficit of $4,500,000, total liabilities of $12,061,000 including notes payable, debt and capital leases in the aggregate amount of $8,914,000, of which $3,435,000 matures on or prior to December 31, 2014. Revenues generated from our operations are not presently sufficient to sustain our operations. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on favorable terms, or terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

We have incurred significant indebtedness and a default of the terms of our significant debt obligations may subject us to the risk of foreclosure on certain of our assets.

As of December 31, 2013, we had current liabilities of $6,582,000 that included $3,435,000 of notes payable and current portion of long-term debt, $1,299,000 of accounts payable, $1,158,000 of accrued expenses, $13,000 deferred revenue and $677,000 of non-cash derivative liabilities. As of December 31, 2013, we had long-term debt outstanding in the amount of $4,281,000 on our unsecured Angus Capital Partners, a related party line of credit, bearing interest at a rate of 3% per annum and maturing December 31, 2017, $1,024,000 owed on our debt agreement with Dakota Capital Fund, LLC, a $2.0 million, secured equipment credit facility, bearing interest at a rate of 18% per annum and maturing March 31, 2016, and long-term capital leases of $174,000 payable to various capital lease agreements, bearing interest rates ranging from 6.75% to 42% per annum and maturing from September 30, 2014 to July 31, 2016.

Subsequent to December 31, 2013, the investor financing agreement was modified in January 2014, extending the maturity date to April 15, 2014. Both parties have renegotiated the subset interest rate from .5% interest per day on a 360 day calendar year to 12% rate per annum retroactive to March 23, 2013. The Company also agreed to additional consideration of 5,000 shares of Series A Preferred Stock to be issued as long as the note remains unpaid and a $50,000 penalty to be added to principal in January 2014.

Subsequent to December 31, 2013, TCA Global Credit Master Fund, effective March 25, 2014, has agreed to restructure the loan agreement and extend the maturity date to November 15 ^th , 2014. The Company in consideration has agreed to a $75,000 restructuring fee to be added to the sum of the principal balance including a $40,791 interest charge to be paid in March 2014 nd nominal legal fees.

Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of the indebtedness. Our indebtedness, combined with other financial obligations and contractual commitments, could:

Some of our existing debt involves variable rate debt, thus exposing us to risk of fluctuations in interest rates. In addition, as of December 31, 2013, certain operating assets, and furniture are pledged as collateral on outstanding notes and capital leases. The occurrence of an event of default under any of our obligations might subject us to foreclosure by the lenders to the extent necessary to repay any amounts due. If a foreclosure were to occur on our assets, it would likely have a material adverse effect on our business, prospects, financial condition and results of operation.

We may incur significant additional indebtedness in the future. If we incur a substantial amount of additional indebtedness, the related risks that we face could become more significant. Additionally, the terms of any future debt that we may incur may impose requirements or restrictions that further affect our financial and operating flexibility or subject us to other events of default.

During 2013 and 2012, a majority of our revenue was generated from short-term agreements and we expect that these arrangements will continue for the foreseeable future.

For the year ended December 31, 2013 and 2012, the majority of our revenues resulted from short-term, terminable-at-will, arrangements. We had two customers that provided revenue in excess of 10% (32% and 12% of the gross sales during the year ended December 31, 2013) and two customers that accounted for revenues in excess of 10% (42% and 13% of the gross sales during the year ended December 31, 2012). We expect that for the foreseeable future a majority of our revenue will continue to be earned pursuant to short-term terminable-at-will, arrangements with our customers. There is no assurance that our customers will continue to conduct business with us in the future, the failure of which could have a material adverse effect on our business, prospects, financial condition and results of operation.

We may be adversely affected by our dependence on network infrastructure, telecommunications providers and other vendors.

We may experience problems with the installation, maintenance and pricing of our communications network, and delays in equipment delivery or loss of our equipment suppliers could impair the quality of our services and any growth. If our network infrastructure is disrupted, we may lose customers or incur additional liabilities. We may experience interruptions in service as a result of fire, natural disasters, power loss, or the accidental or intentional actions of service users, and others. Although we have implemented disaster recovery, security and service continuity protection measures, including the physical protection of our offices and equipment, we cannot guarantee that such measures are sufficient to avoid future interruptions of service or losses of data.

We may not be able to increase our customer base at the expected rate, which is dependent upon our growth strategies.

In order to become profitable and obtain consistent positive operating cash flow, we need to both retain existing customers and continue to add new customers. We may encounter difficulties, including but not limited to

While our current business plan is to expand primarily through organic growth, we plan to effect acquisitions of broadband coverage if and when necessary. Consummating acquisitions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, prospects, financial condition and results of operations.

If our security measures are breached, or if our services are subject to attacks that degrade or deny the ability of customers to access our network, our products and services may be perceived as not being secure and customers may curtail or stop using our services, and we may incur significant legal and financial exposure.

Concerns about the security of information transmitted through the use of our services and the privacy of users may inhibit our growth. With respect to our enterprise customers, we rely upon our CryptoVue™ technology as well as an Internet protocol layer “2” device to provide secure transmissions of certain customer information and various firewall systems to protect our databases and computer systems. Security breaches at our enterprise customer installations could expose us to litigation and potential liability. Our security measures may be breached due to the actions of outside parties, employee error, malfeasance, security flaws in the third party products or services that we rely upon or otherwise, and, as a result, an unauthorized party may obtain access to our data or data transferred over our network. Additionally, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our enterprise customers’ data or data transferred over our network. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures, such as the CryptoVue™ technology, could be harmed and we could lose customers.

We may be subject to significant liability for our technology.

If our technology contains defects, we may be subject to significant liability claims from subscribers and other users of our technology and incur significant unexpected expenses or lost revenues. Our technology is complex and may contain undetected errors or failures. We also have exposure to significant liability claims from our customers because our technology is designed to provide critical communications services. Our product liability insurance and contractual limitations in our customer agreements may not cover all potential claims resulting from a defect in our technology. Failure of our technology to perform satisfactorily could cause us to lose revenue, as well as to experience delay in or loss of market acceptance and sales, product returns, diversion of research and development resources, injury to our reputation or increased service and warranty costs.

Our current services may become obsolete due to the highly competitive and continued advancement of the communications industry. Larger service providers may provide services at lower costs.

Intense competition in the Internet services market and inherent limitations in existing technology may negatively affect the number of our subscribers. Competition in the market for Internet technology services is intense, and we expect the level of competition to intensify in the future. The market for Internet services and technology is characterized by rapid change, evolving industry standards and frequent introductions of new technological developments. These new standards and developments could make our existing or future services obsolete. Many of our current and potential competitors have longer operating histories, greater brand name recognition, larger subscriber bases and substantially greater financial, technical, marketing and other resources than we have. Therefore, they may be able to respond more quickly than we can respond to new or changing opportunities, technologies, standards or subscriber requirements. Our effort to keep pace with the introduction of new standards and technological developments and effectively compete with larger service providers could result in additional costs or the effort could prove difficult or impossible. The failure to keep pace with these changes and to continue to enhance and improve the responsiveness, functionality and features of our services could harm our ability to attract and retain users, which could lead to a loss of revenues.

Interruption or failure of our networks, which in certain rural markets are often subject to severe weather such as hurricanes, lightning storms or tornados, could impair our ability to provide our services, which could damage our reputation and harm operating results.

We provide our services in remote areas of North America, including the Gulf coast, which are more prone to severe weather such as hurricanes, lightning storms and tornados. Any disruption in our services arising from these or other natural disasters or catastrophic events including wildfires and other fires, excessive rain, terrorist attacks and wars, could disrupt the continued operation of our networks and have a material adverse effect on our business, prospects, results of operation and financial condition.

Although we believe our insurance coverage is adequate to address the variety of potential liabilities we face, our insurance coverage is subject to deductibles and coverage limits. Upon an occurrence of a significant natural disaster, or manmade problems such as computer viruses, civil war, terrorism, blackout or disruptions to the economies of the United States and other countries, such coverage may not be adequate or continue to be available at commercially reasonable rates and terms. In the event of a major disaster affecting one or more of our sites, our operations could be significantly disrupted, delayed or prevented for the time required to transfer production, repair, rebuild or replace the affected site. This time frame could be lengthy, and result in significant expenses for repair and related costs.

We may not be able to successfully upgrade our existing network infrastructure.

If the number of customers using our network and the complexity of our services increase, we will require more infrastructure, network and customer service resources to maintain the quality of our services. We may experience quality deficiencies, cost overruns and delays in implementing network improvements and expansion, in maintenance and upgrade projects, including slower than anticipated technology migrations. If we do not implement necessary developments and network upgrades successfully, or if it experiences inefficiencies, operational failures, or unforeseen costs during implementation, we may lose customers or incur additional liabilities.

We compete with many companies that are larger and better capitalized than us, and we expect such competition to continue. An inability to overcome competition from alternative communication systems could adversely affect our results of operations.

We face competition from many entities with significantly greater financial resources, well-established brand names and larger customer bases. The Internet services market is extremely competitive in every segment including competing technologies such as VSAT and long-term evolution (marketed as 4G LTE). We may become subject to price competition for our services as companies seek to enter our industry or current competitors attempt to gain market share. We expect competition to intensify in the future and expect significant competition from traditional and new telecommunications companies primarily consisting of cable modem, Internet, DSL, microwave, mobile and satellite data providers. For example, the performance and coverage area of our wireless systems are dependent on certain factors that are outside of our control, including features of the environment in which the systems are deployed, such as the amount of clutter (natural terrain features and man-made obstructions) and the radio frequency available. Depending on specific customer needs, these obstacles may make our technology less competitive in comparison with other technologies and make other technologies less expensive or more suitable. Our business may also compete in the future with products and services based on other wireless technologies and other technologies that have yet to be developed. If we are unable to make or keep our services competitively priced and attain a larger market share in the markets in which we compete, our levels of sales and our ability to achieve profitability may suffer.

To the extent we elect to enter into marketing or reseller agreements with third parties to expand our network, and our dependence on such relationships may adversely affect our business.

Our business strategy for increasing the size of our networks may depend on our ability to enter into marketing or reseller agreements with other companies. Supporting diligence activities conducted by potential partners and negotiating the financial and other terms of these agreements are long and complex processes with uncertain results. Even if we are successful entering into one or more marketing or reseller agreements, such arrangements can involve greater uncertainty for us, as we may have limited or no control over certain aspects of the programs. We may determine that continuing the relationships under the terms provided is not in our best interest, and we may terminate the agreements. Similarly, these third parties could delay or terminate their agreements with us, further delaying the execution of our business plan.

The ongoing weakness in the global economic environment may have significant effects on our customers and suppliers that could result in material adverse effects on our business, prospects, financial condition and results of operations.

Notwithstanding the increased potential for economic recovery, the ongoing weakness in the global economic environment – which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, significant decreases in consumer confidence and consumer and business spending, high rates of unemployment and concerns that the worldwide economy may continue to experience significant challenges – may materially adversely affect our customers’ access to capital or willingness to spend capital on our products, and/or their levels of cash liquidity with which to pay for our products. In addition, our suppliers’ access to capital and liquidity may continue to be affected, which may in turn adversely impact their ability to maintain inventories, production levels, and/or product quality, or cause them to raise prices or lower production levels, or result in their ceasing operation.

Future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources.

We have completed 15 acquisitions since 2004, and we plan to continue to engage in strategic acquisitions that further expand our wireless broadband footprint and coverage areas in key oil and gas markets. The structure of our acquisitions and investments involve numerous risks, including:

Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could harm our operating results. It is also possible that at some point in the future we may decide to enter new markets, thus subjecting ourselves to new risks associated with those markets. If we fail to achieve the anticipated benefits of any acquisitions we may complete, our business, prospects, financial condition and results of operation may be impaired.

We may not be able to effectively manage our growth, which may harm our financial condition.

Our strategy envisions building and expanding our business in the oil and gas industry through organic growth and acquisition of broadband. While we anticipate that most of our growth will be through the deployment of the MBT’s in rural areas to transmit wireless data for oil and gas companies, we may determine that the acquisition of broadband coverage in existing and rural areas may be an attractive and strategic solution. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure you that we will be able to:

If we are unable to manage our growth and our operations, our business, prospects, financial condition and results of operation could be adversely affected.

Our business may suffer if we do not attract and retain talented personnel.

Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management and other personnel in conducting our business. The loss of any of our executive officers or our inability to attract qualified board members could adversely impact our business. We may also experience difficulties in certain jurisdictions in our efforts to obtain suitably qualified staff and to retain staffs that are willing to work in that jurisdiction. We do not currently carry “key man” life insurance on, nor do we have employment agreements with, certain of our executive officers.

Our success depends on the ability of our management and employees to successfully implement our business strategy. As we grow, we intend to hire additional personnel. Our future personnel may not continue their association or employment with us, and we may not be able to find replacement personnel with comparable skills. If we are unable to attract and retain key personnel, our business, prospects, financial condition and results of operation may be adversely affected.

Risks relating to our intellectual property

We depend upon our intellectual property and our failure to protect existing intellectual property or secure and enforce such rights for new proprietary technology could adversely affect our future growth and success.

We seek to protect our intellectual property rights by relying on a combination of patent, trade secret, copyright and trademark laws. We also use confidentiality and other provisions in our agreements that restrict access to and disclosure of our confidential know-how and trade secrets.

We have been issued three patents and have two patent applications pending with the United States Patent and Trademark Office relating to our CryptoVue™ hardware and software utilized by our enterprise banking and healthcare customers. However, we cannot provide any assurances that these applications will ultimately result in issued patents or, if patents are issued or in the case of our issued patents, that they will provide sufficient protections for our technology against competitors. Outside of these issued patents and patent applications, we seek to protect our technology as trade secrets and technical know-how. However, trade secrets and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular, only patents will allow us to prohibit others from using independently developed technology that is similar. If competitors develop knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value of our trade secrets and technical know-how would be diminished.

While we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how, these systems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into agreements with our employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets, technical know-how and confidential information, we cannot provide any assurance that these agreements will be sufficient to prevent unauthorized use or disclosure. In addition, some of the technology deployed at customer sites in the future, which we do not control, may be readily observable by third parties who are not under contractual obligations of non-disclosure, which may limit or compromise our ability to continue to protect such technology as a trade secret.

While we are not currently aware of any infringement or other violation of our intellectual property rights, monitoring and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.

We may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit their ability to use certain technologies in the future.

We may face claims asserting that our technology or the commercial use of such technology infringes or otherwise violates the intellectual property rights of others. We have not conducted infringement, freedom to operate or landscape analyses, and as a result we cannot be certain that our technologies and processes do not violate the intellectual property rights of others. We may also face infringement claims from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, we cannot provide any assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged to develop.

If we were found to be infringing or otherwise violating the intellectual property rights of others, we could face significant costs to implement work-around methods, and we cannot provide any assurance that any such work-around would be available or technically equivalent to our current technology. In such cases, we might need to license a third party’s intellectual property, although any required license might not be available on acceptable terms, or at all. If we are unable to work around such infringement or obtain a license on acceptable terms, we might face substantial monetary judgments against us or an injunction against continuing to license our technology, which might cause us to cease operations.

In addition, even if we are not infringing or otherwise violating the intellectual property rights of others, we could nonetheless incur substantial costs in defending ourselves in suits brought against us for alleged infringement. Also, if any agreements provide that we will defend and indemnify our customer for claims against them relating to any alleged infringement of the intellectual property rights of third parties in connection with such customer’s use of our technologies, we may incur substantial costs defending and indemnifying any customer to the extent they are subject to these types of claims. Such suits, even if without merit, would likely require our management team to dedicate substantial time to addressing the issues presented. Any party bringing claims might have greater resources than we do, which could potentially lead to us settling claims against which we might otherwise prevail on the merits.

Any claims brought against us or any customers alleging that we have violated the intellectual property of others could have negative consequences for our business, prospects, financial condition and results of operation.

Risks Relating to Our Industry

We are subject to the volatility of the global oil and gas industry and our business is likely to fluctuate with the level of global activity for oil and natural gas exploration, development and production.

A substantial amount of our revenues are derived from services rendered to companies engaged in the oil and gas industry. Demand for our remote communication services and collaborative applications depends on our customers’ willingness to make operating and capital expenditures to explore, develop and produce oil and natural gas in the regions in which we operate or may operate. Our business will suffer if these expenditures decline. Our customers’ willingness to explore, develop and produce oil and natural gas depends largely upon prevailing market conditions that are influenced by numerous factors over which we have no control, including:

The level of activity in the oil and natural gas exploration and production industry has historically been volatile and cyclical. Although we believe our customers will be dependent upon real-time voice and data communication services to optimize their oil and gas production and development in an environment with lower energy prices, a prolonged significant reduction in the price of oil and natural gas will likely affect oil and natural gas production levels and therefore affect demand for the communication services we provide. In addition, a prolonged significant reduction in the price of oil and natural gas could make it more difficult for us to collect outstanding account receivables from our customers. A material decline in oil and natural gas prices or oil and natural gas exploration, development or production activity levels could have an adverse effect on our business, prospects, results of operation and financial condition.

Oil and gas operations are subject to comprehensive regulation which may impact drilling operations, causing an adverse effect on us.

Oil and gas operations are subject to national and local laws and regulations relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to national and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national or local authorities may be changed and any such changes may have material adverse effects on our oil and gas industry customers. Accordingly, if changes in regulations cause current or potential oil and gas industry customers to curtail drilling operations, our business, prospects, financial condition and results of operation will be negatively impacted as a majority of our sales result from oil and gas industry customers.

Privacy concerns may prevent customers from using our services.

We and our customers are subject to laws and regulations protecting personal and other confidential information in connection with the exchange of such information by these customers using our services. At present, in the United States, interactive Internet-based service providers have substantial legal protection for the transmission of third-party content that is infringing, defamatory, pornographic or otherwise illegal. We cannot guarantee that a U.S. court would not conclude that we do not qualify for these protections as an interactive service provider. We do not and cannot screen all of the content generated, sent and received by users of our services or the recipients of messages delivered through our services. Additionally, a small portion of our customers use our services in Canada, in which case we would be subject to its laws and regulations relating to Internet privacy. While Canadian Internet law continues to evolve, our services are currently largely unregulated. We cannot guarantee, however, that this regulatory environment will continue, and future legislation in Canada affecting Internet service providers could adversely impact our operations.

We utilize a combination of licensed and unlicensed spectrum, which is subject to intense competition, low barriers of entry and potential interference from multiple competing users.

We presently utilize unlicensed spectrum in connection with our broadband service offerings. While unlicensed spectrum is regulated by the FCC, it is available to multiple simultaneous users and may be subject to interference, which may reduce the quality of the service provided to subscribers. The availability of unlicensed spectrum is limited, and others do not need to obtain permits or licenses to utilize the same unlicensed spectrum used by us currently or which we may in the future utilize. Accordingly, utilization of unlicensed spectrum could threaten our ability to reliably deliver services.

We are subject to extensive regulation that could limit or restrict our activities. If we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, and past due fees and interest, which may adversely affect our financial condition and results of operations.

Our business, including the acquisition, lease, maintenance, and use of spectrum licenses, is extensively regulated by federal, state and local governmental authorities. A number of federal, state and local 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 telecommunications carriers, also affects our business.

Certain wireless broadband services are subject to regulation by the FCC. At the federal level, the FCC has jurisdiction over wireless transmissions over the electromagnetic spectrum, all interstate and foreign telecommunications services, and many aspects of intrastate telecommunications. Wireless broadband services may become subject to greater state or federal regulation in the future. We cannot predict the impact, if any, that any future legal or regulatory changes or developments may have on our business, prospects, financial condition and results of operation. Changes in the legal or regulatory environment relating to the Internet access industry, including changes that directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition from regional telephone companies, cable operators or others, could have a material adverse effect on its business, financial condition and results of operations.

Much of the law related to the liability of Internet service providers remains unsettled. For example, many jurisdictions have adopted laws related to unsolicited commercial email or “spam” in the last several years. Other legal issues, such as the sharing of copyrighted information, transborder data flow, universal service, and liability for software viruses could become subjects of additional legislation and legal development. We cannot predict the impact of these changes on them. Regulatory changes could have a material adverse effect on our business, financial condition or results of operations.

The industry in which we operate is continually evolving. Our services may become obsolete, and may not be able to offer or develop competitive services on a timely basis or at all.

The broadband Internet and wireless services industries are characterized by rapid technological change, competitive pricing, frequent new service introductions, 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:

As the services offered by the companies and their competitors develop, our customers may not accept our services as a commercially viable alternative to other means of delivering broadband or wireless broadband services. As a result, our services may become obsolete, and we may be unable to develop competitive services on a timely basis, or at all.

If the wireless broadband market does not evolve as we anticipate, our business may be adversely affected.

If we fail to properly assess and address the broadband wireless market or if our services fail to achieve market acceptance for any reason, our business, prospects, financial condition and results of operation would be materially adversely affected. Since the market for our products is still evolving, it is difficult to assess the competitive environment or the size of the market that may develop. In addition, technologies, customer requirements and industry standards may change rapidly. If we cannot improve or augment our services and products as rapidly as existing technologies, customer requirements and industry standards evolve, our products or services could become obsolete. The introduction of new or technologically superior products by competitors could also make our services less competitive or obsolete. As a result of any of these factors, our position in existing markets or potential markets could be eroded.

Risks Related to Our Securities

There is currently a limited market for our shares of common stock, and any trading market that exists in our shares may be highly illiquid and may not reflect the underlying value of our net assets or business prospects.

Trading in our common stock continues to be conducted on the electronic bulletin board in the over-the-counter market. As a result, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of our common stock, and our common stock may be less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes.

The terms of our Series A Preferred Stock include super-majority voting provision.

Each share of our Series A Preferred Stock votes on the basis of 100 votes for each share of common stock into which the Series A Preferred Stock is convertible. This provision may limit us in raising additional capital, competing effectively, or taking advantage of new business opportunities.

Because certain of our stockholders control a significant number of shares of our voting capital stock, they have effective control over actions requiring stockholder approval.

As of December 31, 2013, Dr. H. Dean Cubley, our Chief Executive Officer and Chairman, had voting control over 95.5% of our outstanding shares of Series A Preferred Stock, or 95.4% of the total voting power of the Company. As a result, Dr. Cubley has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, Dr. Cubley has the ability to control the management and affairs of our company. Accordingly, any investors who purchase shares will be minority shareholders and as such will have little to no say in the direction of us and the election of directors. Additionally, this concentration of ownership might harm the market price of our common stock by:

The market price of our common stock is very volatile and the value of your investment may be subject to sudden decreases.

The trading price for our common stock has been, and we expect it to continue to be, volatile. For example, the closing price of our stock fluctuated between $3.10 per share and $456.00 (Post-Split) per share during the year ended December 31, 2013. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results and general market and economic conditions, which are beyond our control, including:

In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock. Moreover, during periods of stock market price volatility, share prices of many companies have often fluctuated in a manner not necessarily related to their operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole.

Our stock is traded over the counter on the OTCBB, and is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with a company's operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to our business or operating performance. Moreover, trading is often more sporadic than the trading of securities listed on a quotation system like the NASDAQ or a stock exchange like the NYSE Euronext. There is no guarantee that we will obtain a listing on a national stock exchange, and accordingly, shareholders may have difficulty reselling any of their shares of common stock.

A significant number of shares of common stock may be issued during the next 12 months. The issuance of these shares will have a dilutive effect on our common stock and may lower our stock price.

We have reserved for issuance the following shares of common stock as of December 31, 2013:

Further, we may issue shares to reduce our debt obligations. Accordingly, the issuance of these shares will have a dilutive effect from both a net tangible book value per share basis and from a number of shares of common stock outstanding basis. This overhang could have a depressive effect on our common stock price.

Our revenue and operating results may fluctuate significantly from quarter to quarter, and fluctuations in operating results could cause our stock price to decline.

Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors. In future quarters, operating results may be below the expectations of investors, and the price of our common stock may decline. Factors that could cause quarterly fluctuations include:

Accordingly, the failure to obtain significant future revenue, lower than expected revenue in the future, increased losses in the future, and decreased working capital could adversely affect our stock price and liquidity.

If our common stock remains subject to the SEC's penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.

Unless our securities are listed on a national securities exchange, or we have net tangible assets of $5,000,000 or more and our common stock has a market price per share of $5.00 or more, transactions in our common stock will be subject to the SEC's "penny stock" rules. If our common stock remains subject to the "penny stock" rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

As a result, if our common stock becomes or remains subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

We do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.

No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. In addition, our Series A Preferred Stock limits our ability to pay dividends upon any shares of common stock unless we declare and pay a dividend upon the then outstanding shares of Series A Preferred Stock in the same amount per share of Series A Preferred Stock as would be declared payable upon the number of shares of common stock into which each share of Series A Preferred Stock could then be converted to holders of our Series A Preferred Stock. If we do not pay dividends, our common stock may be less valuable because a return on an investor's investment will only occur if our stock price appreciates. Investors in our common stock should not rely on an investment in us if they require dividend income.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Nevada law and our corporate charter contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our Articles of Incorporation, as amended, may have the effect of delaying or preventing a change of control or changes in our management. For example, our Board of Directors have the authority to issue up to 25,000,000 shares of preferred stock in one or more series (of which 9,930,982 shares of Series A Preferred Stock have been issued as of December 31, 2013) and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our company, or otherwise could adversely affect the market price of our common stock.

Additionally, our Articles of Incorporation, as amended, and Bylaws, as applicable, provide, subject to applicable Nevada law, that (i) our board of directors with the ability to alter our Bylaws without stockholder approval, (ii) a director may be removed only for cause and by the affirmative vote of the holders of 67% of the combined voting power; (iii) that vacancies on our board of directors resulting from death, resignation (except where such resignation is to take place at a future time), disqualification, or removal may be filled by a majority of directors in office, although less than a quorum, and (iv) provide for a staggered board, in which the board members are divided into three classes to serve for a period of three years from the date of their respective appointment or election. Our Series A Preferred Stock Designation also provides that each share Series A Preferred Stock entitles the holder to 100 votes on all matters submitted to a vote of the shareholders of the Company. The Designation further provides that the Series A Preferred Stock will have a preference as to dividends and liquidation. Such provisions may have the effect of discouraging a third-party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to finance future acquisitions to decline and may impair our ability to raise capital in the future.

Our common stock is traded on the OTCBB and, despite certain increases of trading volume from time to time, there have been periods when it could be considered "thinly-traded," meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Finance transactions, as well as shares that may be issued to finance future acquisitions resulting in a large amount of newly issued shares that become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock.

If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, including the ending of restriction on resale, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management's attention and harm our business.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. 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. In addition, we cannot be certain that material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.