1115091--9/26/2008--CALLWAVE

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{product, market, service}

{system, service, information}

{capital, credit, financial}

{control, financial, internal}

{property, intellectual, protect}

{acquisition, growth, future}

{competitive, industry, competition}

{regulation, change, law}

{stock, price, share}

{stock, price, operating}

{provision, law, control}

{regulation, government, change}

{financial, litigation, operation}

{gas, price, oil}

{personnel, key, retain}

{tax, income, asset}

We are moving into markets that are intensely competitive, subject to rapid change and are significantly affected by new product and service introductions and other market activities of industry participants. Our ability to successfully market and distribute our new WebMessenger and Fuze services is dependent upon our ability to market and sell these services to enterprise customers rather than consumers. We have limited intellectual property protection for our newer service offerings. We may suffer losses from operations and reduce our accumulated cash reserves as we shift resources from our profitable direct distribution business and focus our business and investments on indirect distribution of our services. Our ability to successfully implement indirect distribution arrangements is dependent upon our ability to integrate our technology with that of the companies that distribute our services. The use of indirect distribution arrangements may cause us to realize lower revenues and profitability than we traditionally have realized from direct web distribution of our services. Our ability to successfully implement indirect distribution arrangements and custom integrate our technology with that of the service providers that distribute our services may cause us to reduce our ability to innovate in our direct web channel. Because we are unable to predict with precision the rate at which we will acquire paying subscribers for our services through the indirect distribution relationships that we will be emphasizing, our results of operations may be correspondingly less predictable, our stock price therefore may be more volatile, and our stockholders may suffer losses. If service providers elect to bundle services similar to ours that they obtain from other providers or to develop such services themselves as part of their product offering, we could lose many of our paid subscribers. Increased marketing costs for Internet advertising may cause further erosion in our traditional landline business. New Internet-based distribution channels are emerging for the types of services we offer direct to the consumer which may cause an increase in our marketing costs. We are dependent upon billing arrangements with regional telephone companies for collecting fees from many of our subscribers. If we fail to maintain effective internal financial and managerial systems and procedures, our results of operations may be adversely affected. We face competition in our legacy business from well-capitalized hardware vendors, software vendors and service providers against whom we may not be able to successfully compete. There are limited barriers to entry for other companies to provide services that compete with ours. We rely upon the networks of numerous long-distance and local carriers to provide services to our subscribers. If the cost of these services were to increase, we may not be able to profitably provide our services to our subscribers. There are a limited number of long-distance and interconnection service providers that are able to provide the services on which we rely. We rely upon the Internet and other networks controlled by third parties to provide our services and if we are not able to maintain access to these networks at reasonable rates, we may not be able to profitably provide our services. Because a significant portion of our subscribers to our legacy business are price sensitive, we may not be able to increase the charges for our services without adversely affecting our ability to attract and retain paid subscribers. We are dependent upon the availability of reasonably priced call-forwarding services to provide our services to the majority of our subscribers in a cost-effective manner. We are dependent upon the availability of reasonably priced text messaging services to provide some of our services. A catastrophic event at Liberty Telecom s telephone switching facilities would cause the disruption of our legacy services to subscribers. A system failure or a breach of our network security could delay or interrupt service to our subscribers or lead to a misappropriation of our confidential information. If we experience excessive fraudulent credit card charges, we could lose the right to accept credit cards for payment and our subscriber base could decrease significantly. If we do not successfully anticipate the service demands of our subscribers, we may be unable to successfully attract and retain subscribers. Other persons may assert claims that our business operations or technology infringe or misappropriate their intellectual property rights, which could increase our costs of operation and distract management and could result in expensive settlement costs. We may be engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management s time and attention. We may not be able to protect and enforce our intellectual property rights, which could impair our ability to compete and reduce the value of our services. If we are unable to obtain additional telephone numbers, we may not be able to grow our subscriber base. Our Enhanced Services Platform is a complex hardware and software system that could fail and cause service interruptions to our subscribers. If we are unable to maintain access to national IP-protocol based networks, then our business and results of operations may be adversely affected. Our success depends in large part upon our retention of our executive officers and our ability to hire and retain additional key personnel. We may need to raise additional capital to support the growth of our operations, but such additional funds may not be available. If we acquire other businesses or license technologies, they could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results. We are exposed to risks and increased expense from recent legislation requiring companies to evaluate internal controls. Risks Related To Our Industry We may not be able to respond to the rapid technological change of the communications and information services industries and, as a result, our business may be adversely affected. We are exposed to risks that our subscribers could attempt to use some of our features to reach emergency services by dialing 911, which could result in liability since we do not provide access to emergency services to subscribers who dial 911. We may be required to incur significant costs to modify our systems in order to meet the requirements of the Communications Assistance to Law Enforcement Act. The underlying telecommunications and telecommunications services upon which we rely to provide our services may become subject to burdensome regulations that could increase our costs or hamper our ability to provide our service offerings. Our business and users may be subject to sales tax and other taxes. Future legislation, regulation, or legal decisions affecting the Internet, Internet telephony or IP-enabled services could restrict our business, prevent us from offering our services or increase our cost of doing business. Risks Related To Our Common Stock Our executive officers, directors and 5% stockholders own a significant percentage of our stock and will be able to exercise significant influence over stockholder votes. Provisions in Delaware law and our charter documents may make it difficult for a third party to acquire us and could depress the price of our common stock. We are incurring increased costs as a result of being a public company. We do not intend to pay cash dividends.

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1115091--9/26/2008--CALLWAVE_INC