Item 1A. Risk Factors.
RISK FACTORS
Investing in our Class B common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our Class B common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks occur, our business, financial condition, operating results, cash flows and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risk Factor Summary
Our business operations are subject to numerous risks and uncertainties, including those outside of our control, that could cause our business, financial condition or operating results to be harmed, including, but not limited to, risks regarding the following:
Risks Related to our Businesses and Operations
changes to immigrant populations could negatively impact certain of our businesses;
cyberattacks impacting our networks or systems;
network disruptions, security breaches, or other significant disruptions or failures of our IT infrastructure and related systems or of those we operate for certain of our customers;
the failure, or perceived failure, of one or more of our products;
our international operations subject us to geopolitical and other risks including ongoing developments in Belarus, Ukraine and Israel;
failures in our data center or services;
our dependence on industry standard protocols and third-party software, including but not limited to open-source software;
our dependence on a single supplier or small group of suppliers;
changes to rates by our suppliers and increasing regulatory charges or tariffs;
our customers, particularly our IDT Global customers, and partners could experience financial difficulties;
technologies could affect our ability to track the results of ads and/or could block ads online;
Risks Related to Our NRS Business
substantial and increasing competition in the POS industry and payment space;
a decline in advertising on the NRS platform due to macro-economic factors or otherwise;
the ability of NRS to develop products and services to address the market for POS products and services;
Risks Related to Our BOSS Money Business
BOSS Money faces a complex and dynamic regulatory landscape;
BOSS Money depends on a licensed network of agents for its retail money remittance business;
adverse fluctuations in exchange rates can materially impact revenue and profitability;
money transfer services can be vulnerable to illegal activities and fraud schemes;
BOSS Money has less brand recognition in the money remittance space compared to larger players, which could make it harder to attract and retain customers;
Risks Related to Our net2phone Business
competition against established well-financed alternative voice communication providers, who may provide comparable services at comparable or lower pricing;
the capacity, reliability, and performance of several third-party providers and their network infrastructure;
scaling the business efficiently or quickly enough to meet customers’ growing needs;
Risks Related to Our Traditional Communications Segment
each of our BOSS Revolution and IDT Global businesses is highly sensitive to declining demand and prices;
obtaining sufficient or cost-effective termination capacity to particular destinations;
the termination of our carrier agreements with partners or our inability to enter into carrier agreements in the future;
Risks Related to Our Financial Condition
we hold cash, cash equivalents, debt securities and equity investments that are subject to various market risks;
if we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results;
Intellectual Property, Tax, Regulatory, and Litigation Risks
protecting our proprietary technology;
claims of infringement of intellectual property rights of others;
tax and regulatory audits;
legal proceedings;
our disbursement partners’ and our payment processors’ ability to comply with a wide range of laws and regulations intended to help detect and prevent illegal or illicit activity;
licensing and other requirements imposed by regulators and governments;
our collection, processing, storage, use, and transmission of personal data;
collection of sales and use, value added, or similar taxes;
certain imminent FCC Orders and rules that effect the telecommunications marketplace;
our ability to comply with requirements for debit card, credit card, and other digital payment methods;
Risks Related to Our Capital Structure
holders of our Class B common stock have significantly less voting power than holders of our Class A common stock; and
Howard S. Jonas, our Chairman and Chairman of the Board, holds shares that, in the aggregate, represent more than a majority of the combined voting power of our outstanding capital stock.
Risks Related to Our Businesses and Operations
Errors in our technology or technological issues outside our control could cause delays or interruptions to our customers.
Our services can be disrupted by issues with our networks, platforms, technology, and systems, including malfunctions in our servers, processors, software or facilities. In addition, there may be service interruptions for reasons outside of our control. Our customers and potential customers subscribing to our services have experienced such interruptions in the past and may experience such interruptions in the future because of these types of problems or others which may or may not be in our control. Such interruptions may cause us to lose customers and/or offer customer credits, which could adversely affect our revenue and profitability. Network and telecommunication interruptions may also impair our ability to sign-up new customers.
Cyberattacks impacting our networks or systems could have an adverse effect on our business.
Cyberattacks, including the use of malware, ransomware, computer viruses, denial of services attacks, credential harvesting, social engineering and other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our suppliers, vendors and other service providers, could have an adverse effect on our business. Cyberattacks may cause equipment failures, loss of information (including sensitive personal information of customers or employees or valuable technical and marketing information), or disruptions to our or our customers’ operations. Furthermore, ransomware could potentially deny the use of our systems until a ransom is paid. Cyberattacks against companies, including us, have increased in frequency, scope, and potential harm in recent years. They may occur alone or in conjunction with physical attacks, especially where of service is an objective of the attacker. The development and maintenance of systems to prevent such attacks is and requires ongoing monitoring and updating to address their increasing prevalence and sophistication. While, to date, we have not been subject to that, individually or in the aggregate, have been material to our operations or financial condition, the preventive actions we take to reduce the risks associated with , including protection of our systems and networks, may be to repel or mitigate the effects of a in the future.
The inability to operate or use our networks and systems or those of our suppliers, vendors, and other service providers because of cyberattacks, even for a limited period of time, may result in significant expenses to us and/or a loss of revenue and market share. The costs associated with a major cyberattack on us could include expensive incentives offered to existing customers and business partners to retain their business, increased expenditures on cybersecurity measures and the use of alternate resources, lost revenues from business interruption, and litigation. Further, certain of our businesses, such as those offering cloud services to business customers, could be negatively affected if our ability to protect our own networks and systems is called into question because of a cyberattack. In addition, a compromise of security or a theft or other compromise of valuable information, such as financial data and sensitive or private personal information, could result in lawsuits and government , , or proceedings. Any of these occurrences could our reputation, impact customer and investor confidence and result in a material effect on our results of operation or financial condition.
Changes to immigrant populations could negatively impact certain of our businesses.
Certain of our businesses, particularly Boss Money’ Boss Revolution and IDT Digital Payments, rely in large part on immigrant communities in the United States and elsewhere. Migration of immigrants and their spending patterns are affected by (among other factors) overall economic conditions, the availability of job opportunities, changes in immigration laws and their enforcement, including the potential for large scale deportations, restrictions on immigration and travel, and political or other events (such as civil unrest, war, terrorism, natural disasters, or public health emergencies or epidemics) that would make it more difficult for workers to migrate or work outside of the their countries of origin. Changes to these factors could materially and adversely affect our business, financial condition, results of operations, and cash flows.
We could be harmed by network disruptions, security breaches, or other significant disruptions or failures of our IT infrastructure and related systems or of those we operate for certain of our customers.
To be successful, we need to continue to have available, for our and our customers’ use, a high capacity, reliable and secure network. We face the risk, as does any company, of a security breach, whether through cyberattack, malware, computer viruses, sabotage, or other significant disruption of our IT infrastructure. As such, there is a risk of a security breach or disruption of the systems we operate, including possible unauthorized access to our and our customers’ proprietary or classified information. We are also subject to breaches of our respective networks resulting in unauthorized utilization of our services or products, which subject us to the costs of providing those products or services, which are likely not recoverable. The secure maintenance and transmission of our and our customers’ information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer information, or those of service providers or business partners, may be compromised by a third-party penetration of our network security, or that of a third-party service provider or business partner, or impacted by advertent or actions or by our employees, or those of a third-party service provider or business partner. As a result, our or our customers’ information may be , , accessed, or taken without our or our customers’ consent, or our product and service may be used without payment.
Although we make significant efforts to maintain the security and integrity of these types of information and systems, there can be no assurance that our respective security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging, especially in light of the growing sophistication of cyberattacks and intrusions sponsored by state or other interests. We may be unable to anticipate all potential types of attacks or intrusions or to implement adequate security barriers or other preventative measures. Certain of our business units have been the subject of attempted and successful cyberattacks in the past. We have researched these situations and do not believe any material internal, or customer information has been compromised.
Network disruptions, security breaches and other significant failures of the above-described systems could (i) disrupt the proper functioning of our networks and systems and therefore our operations or those of certain of our customers; (ii) result in the unauthorized use of our services or products without payment; (iii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; and (iv) require significant management attention or financial resources to remedy the that result or to change our systems and processes. We could be subject to for contract , , credits, , , , or other remedies from our customers, and subject to additional or by regulators, as a result of network , security and other significant of the above-described systems, any or all of which could result in a of business, to our reputation among our customers and the public generally and have a impact on our results of operations, financial condition, and cash flows.
If technology that drives one or more of our products fails, or is perceived to fail, or if there are technical defects, our reputation could be harmed, our market share may decline, and we could be subject to various liability claims.
The technology that drives and supports our products may contain undetected errors or defects that may result in failures or otherwise cause our products to fail to perform in accordance with customer expectations and contractual obligations. Moreover, our customers could incorrectly implement or inadvertently misuse our products, which could result in customer dissatisfaction and harm the perceived utility of our products and our brand. Because our customers use our products for mission-critical aspects of their business, any real or perceived errors or defects in, or other performance problems with, our products may damage our customers’ businesses and could significantly our reputation. If that occurs, we could future sales, or our existing customers could our services, seek payment credits, seek us, or or withhold payment to us, which could result in service credits that reduce our revenues, an increase in collection cycles for accounts receivable, an increase in our provision for accounts, and ultimately our financial results. Product performance could result in of market share, reputational , to market acceptance and the of development resources.
In addition, since telecommunications billing and associated telecom taxes, and the related calculations and billing of telecom taxes, are inherently complex and require highly sophisticated information systems to administer, our billing system may experience errors or we may improperly operate the system, which could result in the system incorrectly calculating the fees owed by our customers or related taxes and administrative fees. Customers also may make indemnification or warranty claims against us, which could result in significant expense and risk of litigation.
Any product liability, intellectual property, warranty, or other claims against us could damage our reputation and relationships with our customers and could require us to spend significant time and money in litigation or pay significant settlements or damages. Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may not be sufficient to cover liabilities resulting from such claims. Also, our insurers may disclaim coverage. Our liability insurance also may not continue to be available to us on reasonable terms, in sufficient amounts, or at all. Any contract or product liability claims successfully brought against us would harm our business.
Failure in our data centers or services could lead to significant costs and disruptions.
All data centers, including ours, are subject to various points of failure. Problems with cooling equipment, generators, uninterruptible power supply, routers, switches, or other equipment, whether or not within our control, could result in service interruptions for our customers as well as equipment damage. Any failure or downtime could affect a significant percentage of our customers. The destruction or severe impairment of our data center facilities could result in significant downtime of our services and the loss of customer data.
Our ability to provide cloud-based communication services is dependent upon our physical and cloud-based infrastructure. While most of our physical equipment required for providing these services is redundant in nature, certain types of failures or malfunctioning of critical hardware/software equipment, including but not limited to fire, water or other physical damage may impact our ability to deliver continuous service to our customers. Acts of God or terrorism or vandalism or negligence or gross negligence of person(s) currently or formerly associated with us including failure to properly update and maintain infrastructure may result in loss of revenue, profitability, and failure to retain and acquire new customers.
Our ability to recover from disasters or failures, if and when they occur, is paramount to offering continued service to our existing customers. We maintain telecommunications points of presence in Brazil, Canada, and Spain. These network footprints do not guarantee continued reliability if a catastrophic event occurs. Despite implementation of network security measures, our servers may be vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems including, but not limited to, denial of service attacks. In addition, if there is a breach or alleged breach of security or privacy involving our services, including but not limited to data loss, or if any third party undertakes illegal or actions using our communications or e-commerce services, our business and reputation could substantial publicity and . We have experienced in service in the past. We have taken and continue to take steps to our infrastructure to prevent service .
In addition to our physical infrastructure, we have a cloud infrastructure deployment with Amazon Web Services, or AWS, and Google Cloud that supplements and extends our physical infrastructure. We utilize AWS’ and Google Cloud’s high availability configurations using multiple availability zones and, in some cases, we have services deployed in multiple AWS regions. However, we do not have cross region redundancy, which means we cannot guarantee continued reliability if AWS or Google Cloud suffers a catastrophic event which disrupts a region in which we have our services deployed. If there were a failure to respond quickly to problems, or such a catastrophic event were to occur, our customers may experience service interruptions, and we may suffer customer losses.
Our revenues and profits will suffer if our distributors and sales representatives fail to effectively market and distribute our products and services.
We rely on our distributors and representatives to market and distribute our BOSS products and services and NRS’ POS terminals and portfolio of services. We utilize a network of several hundred sub-distributors that sell our BOSS products and services to retail outlets throughout most of the United States. NRS’ POS terminal sales and marketing efforts are targeted, in part, to our nationwide network of BOSS Revolution retailers. If our distributors or sales representatives fail to effectively market or distribute our products and services, our ability to generate revenues and profits and grow our customer base for these products and services could be substantially impaired.
Our global operations subjects us to geopolitical and other risks that may harm our results of operations and financial condition.
We have developers, product development personnel, other employees and senior management in different countries, and some business activities may be concentrated in one or more geographic areas. As a result, our ability to design, develop or sell products and services may be affected by:
geopolitical concerns, such as armed conflict and civil or military unrest, crime, political instability, and terrorist activity;
natural disasters and health concerns;
inefficient and limited infrastructure and disruptions, such as supply chain interruptions and large-scale outages or interruptions of service from utilities, transportation, or telecommunications providers;
restrictions on our operations by governments seeking to support local industries, nationalization of our operations, and restrictions on our ability to repatriate earnings;
differing employment practices and labor issues; and
local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws and regulations.
Legal and regulatory requirements differ among jurisdictions worldwide. Violations of these laws and regulations could result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation. Although we have policies, controls, and procedures designed to ensure compliance with these laws, our employees, contractors, or agents may violate our policies.
Our global operations subject us to additional risks which could have an adverse effect on our business, operating results, and financial condition.
We have attempted to control our operating expenses by operating in foreign countries such as Poland, Belarus, Guatemala, Costa Rica, Georgia, Dominican Republic and Israel and we may in the future expand our reliance on offshore labor to other countries. Our employees in Poland, Belarus, Georgia and Israel primarily help develop, test, and maintain certain of our technology. Our labor source in Guatemala, Costa Rica and the Dominican Republic primarily perform certain call center, administrative, operational and customer acquisition functions. We also have significant operations in Brazil, Uruguay, and Argentina as a result of net2phone’s growth.
Countries outside of the United States may be subject to relatively higher degrees of political and social instability and may lack the infrastructure to withstand political unrest or natural disasters. The occurrence of natural disasters, pandemics such as COVID-19, or political or economic instability in these countries could interfere with work performed by these labor sources or could result in our having to replace or reduce these labor sources. If countries in which we operate experience civil or political unrest or acts of terrorism, especially when such unrest leads to an unseating of the established government, our operations in such countries could be materially impaired. Our vendors in other countries could potentially shut down suddenly for any reason, including financial problems or personnel issues. Such disruptions could decrease , increase our costs, and have an effect on our business or results of operations.
The practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States. Governmental authorities could seek to impose financial costs or restrictions on foreign companies providing services to customers or companies in the United States. Governmental authorities may attempt to prohibit or otherwise discourage us from sourcing services from offshore labor.
The FCPA and other applicable anti-corruption laws and regulations prohibit certain types of payments by our employees, vendors, and agents. Any violation of the applicable anti-corruption laws or regulations by us, our subsidiaries or our local agents could expose us to significant penalties, fines, settlements, costs, and consent orders that may curtail or restrict our business as it is currently conducted and could have an adverse effect on our business, financial condition, or results of operations.
Weakness of the United States dollar in relation to the currencies used in these foreign countries may also reduce the savings achievable through this strategy and could have an adverse effect on our business, financial condition, and results of operations.
Our technology and development(“T&D”) may be adversely affected by ongoing developments in Belarus and Ukraine.
We have a significant number of T&D personnel in Belarus. Belarus shares borders with both Russia and Ukraine. In February 2022, Russian military personnel stationed in Belarus were part of an invasion force by Russian forces into Ukraine. In response to the support and facilitation by Belarus for the invasion, the United States, the European Union, or EU, and various other nations imposed sanctions against multiple individuals and entities in Belarus. Other potential retaliatory measures could be taken by the United States and other countries, particularly if Belarus were to take a more active role in the conflict. While we continue to monitor the situation in Belarus closely, any prolonged or expanded unrest, military activities, or sanctions could have an adverse effect on our product roadmap and T&D. We cannot predict whether additional sanctions or other measures will be imposed, or the nature of severity of those measures, and whether they will directly or indirectly impact our T&D in Belarus or elsewhere.
Further, our Belarussian T&D personnel could be impacted by retaliatory actions taken by third parties related to actual or perceived Belarussian actions in support of the invasion, including cyberattacks.
Should the military conflict expand to Belarus, our operations there could likely be impacted, including due to availability of personnel, electrical outages, cyberattacks, and actual battles in areas where we have personnel.
Any of the foregoing could have an adverse impact on our ability to develop technology, including corrections or enhancements of existing platforms supporting our current products and services or development of new or complementary offerings.
Global and regional economic conditions could materially adversely affect our business, results of operations, financial condition, and growth.
We have international operations with revenues outside the United States representing a significant amount of our total revenues. As a result, our operations and performance depend significantly on global and regional economic conditions. Adverse macroeconomic conditions, including inflation, slower growth, or recession, new or increased tariffs or excise taxes and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment, and currency fluctuations could materially adversely affect demand for our products and services. In addition, consumer confidence and spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs, and other economic factors.
Our financial performance is subject to risks associated with changes in the value of the U.S. dollar relative to other currencies.
Our primary exposure to movements in foreign currency exchange rates relates to non–U.S. dollar–denominated revenues and operating expenses. The strengthening of foreign currencies may increase our costs denominated in those currencies, thus adversely affecting our earnings. The weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of our foreign currency–denominated revenues and earnings and could lead us to raise international pricing, potentially reducing demand for our products and services. In some circumstances, for competitive or other reasons, we may decide not to raise international pricing to offset the U.S. dollar’s strengthening, which would adversely affect the U.S. dollar value of our foreign currency–denominated revenue and earnings.
We depend upon industry standard protocols and third-party software, including but not limited to open-source software.
We rely on non-proprietary third-party software, some of which may be open source. We may be subject to additional royalties, license or trademark infringement costs or other unknown costs when one or more of these third-party technologies are affected or need to be replaced due to end-of-support or end-of-sale of such third parties.
Certain functions related to our business depend on a single supplier or small group of suppliers to carry out our business, and the inability to do business with some or all of these suppliers could have a materially adverse effect on our business and financial results.
If the services of any of the single suppliers or small group of suppliers, including, without limitation, software from third-party service providers used in certain of our products and services, that we depend on were unavailable, or available only in decreased capacity or at less advantageous terms, this could result in interruptions to our ability to provide certain services, could cause reduction in service and/or quality as the function is transitioned to an alternate provider, if an alternate provider is available, or could increase our cost, which in the current competitive environment, we may not be able to pass along to customers. Accordingly, any of these events could materially and negatively impact our business, our revenues, our profits, and our relationships with customers.
Our success depends in part upon our ability to provide customer service that effectively supports the needs of our customers.
Providing customer service effectively requires that our customer support personnel have industry-specific technical knowledge and expertise. Our support personnel require extensive training on our products and services, which may make it difficult to scale up our support operations rapidly or effectively. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve post-implementation issues and provide effective ongoing support, our ability to sell additional features and services to existing customers will suffer and our reputation may be harmed.
Changes to rates by our suppliers and increasing regulatory charges, tariffs or excise taxes may require us to raise prices, which could adversely affect our financial result and business.
Our upstream carriers, suppliers and vendors may increase their prices thus directly impacting our direct cost of revenues, which would affect our earnings. Future changes in tariffs by regulatory agencies or application of tariff requirements to currently un-tariffed products or services could affect the price and sales of our products for a certain set of customers. Changes in our underlying direct costs of revenues may cause us to increase the rates we charge our customers, which could make us less competitive and impact our sales and retention of existing customers. On July 4, 2025, the One Big Beautiful Bill Act imposed a one percent excise tax on certain remittance transfers that will take effect for transfers made after December 31, 2025. The imposition of these or similar excise taxes could adversely affect our business and financial condition.
Our customers, particularly our IDT Global customers, could experience financial difficulties, which could adversely affect our revenues and profitability if we experience difficulties in collecting our receivables.
As a provider of international long-distance services, we depend upon sales of transmission and termination of traffic to other long-distance providers and the collection of receivables from these customers. The wholesale telecommunications market continues to feature many smaller, less financially stable companies. If weakness in the telecommunications industry or the global economy reduces our ability to collect our accounts receivable from our major customers, particularly our wholesale customers, our profitability may be substantially reduced. While our most significant customers, from a revenue perspective, vary from quarter to quarter, our five largest IDT Global customers collectively accounted for 4.2% and 4.7% of our total revenues in fiscal 2025 and fiscal 2024, respectively. Our IDT Global customers with the five largest receivables balances collectively accounted for 8.0% and 1.6% of our total gross trade accounts receivable on July 31, 2025, and 2024, respectively. This concentration of revenues and receivables increases our exposure to non-payment by our larger customers, and we may experience significant write-offs if any of our large customers fail to pay their outstanding balances, which could adversely affect our cash flow and profitability.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel, hire qualified personnel, or maintain our corporate culture, we may not be able to grow effectively.
We believe that our corporate culture fosters innovation, creativity, and teamwork. Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization, in particular our technology and software engineering organization. Competition for qualified technology and engineering employees is intense, and our compensation arrangements may not always be successful in attracting new employees and retaining and motivating our existing employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
New and existing technologies could affect our ability to track the results of ads and/or could block ads online, which would harm our business.
A significant portion of our revenues are derived from customers acquired in connection with the display of advertisements online. Technologies have been developed to make tracking the results of our online advertisements more difficult or to block the display of advertisements altogether and some providers of online services have integrated technologies that could potentially impair the core functionality of third-party digital advertising. As a result, such technologies and tools could adversely affect our operating results.
Risks Related to Our NRS Business
Substantial and increasingly intense competition in the POS industry may harm NRS’ business.
NRS competes in the POS market that is characterized by vigorous competition, changing technology, evolving industry standards, changing customer needs, and frequent introductions of new products and services. We expect competition to intensify in the future as existing and new competitors introduce new services or enhance existing services. NRS competes against many companies to attract customers, and some of these companies have greater financial resources and substantially larger bases of customers than NRS does, which may provide them with significant competitive advantages. These companies may devote greater resources to the development, promotion, and sale of products and services, may achieve economies of scale due to the size of their customer bases, and may more effectively introduce their own innovative products and services that adversely impacts NRS’ growth. If some or all of NRS’ competitors focus additional resources on NRS’ target markets, NRS’ growth may slow, or we may lose customers due to the competition.
NRS may also face pricing pressures from competitors, which may result in the need for NRS to alter the pricing that it offers and could reduce our profitability.
If NRS fails to increase advertising on its platform, our business could be adversely affected.
NRS’ strategy includes increasing its revenues from brand advertising. Brands may not do business with NRS or may reduce the amounts they are willing to spend to advertise if NRS does not deliver ads, and other commercial content and marketing programs in an effective manner, or if they do not believe that their investment in advertising with NRS will generate a competitive return relative to other alternatives. NRS’ ability to increase the number of brands that use its brand advertising, and ultimately to generate advertising and marketing services revenues, depends on several factors, many of which are outside of our control. If NRS fails to increase advertising on its platform, our business could be adversely affected.
The long-term success of NRS depends on its ability to develop products and services to address the rapidly evolving market for POS products and services, and, if it cannot implement successful enhancements and new features for its products and services, our business could be materially and adversely affected.
NRS’ success will depend, in part, on its ability to develop new technologies and to adapt to technological changes and evolving industry standards. New services and technologies may be superior to, impair, or render obsolete the POS products and services that NRS currently offers or the technologies NRS currently uses to provide them. Incorporating new technologies into NRS’ POS products and services may require substantial expenditures and take considerable time, and NRS may not be successful in realizing a return on these development efforts in a timely manner or at all. NRS’ ability to develop new products and services may be inhibited by industry-wide standards, existing and future laws and regulations, resistance to change from its customers, or third parties’ intellectual property rights. If NRS is unable to provide enhancements and new features for its products and services or to develop new products and services that achieve market acceptance or that keep pace with rapid technological developments and evolving industry standards, our business would be materially and affected.
Risks Related to Our BOSS Money Business
BOSS Money and its retailers face a complex and dynamic regulatory landscape; changes in laws and regulations can impact business operations, and non-compliance or failure to comply with laws can result in hefty fines, penalties, operational restrictions and reputational damage.
BOSS Money and its retailers face a complex and dynamic regulatory landscape related to anti-money laundering (AML), know your customer (KYC), consumer protection laws and data privacy. Changes in laws and regulations can impact business operations, and non-compliance or failure to comply with laws can result in hefty fines, penalties, operational restrictions and reputational damage. For example, certain banks, in an effort to comply with increasingly more challenging regulations, have gradually imposed stricter restrictions and limitations and higher costs on money remittance retailers making deposits to bank accounts. This can negatively affect the business of the BOSS Money retailers and, at times, disincentivize retailers from growing their BOSS Money business. As governments and regulatory bodies place increasing emphasis on anti-money laundering, data privacy, consumer protection and financial transparency, BOSS Money and its retailers may face rising costs to ensure compliance with, among others, customer due diligence, transaction monitoring, and consumer data privacy protection and reporting, which can affect, among other things, the ability of BOSS Money to maintain and grow its retailer network.
BOSS Money depends on a licensed network of agents for its retail money remittance business.
BOSS Money depends on a licensed network of agents for its retail money remittance business. Maintaining good relationships with agents, ensuring their compliance, and managing risks associated with their actions is critical but costly. Agents may not always act in BOSS Money’s best interest, engaging in fraudulent activities, regulatory violations, or causing reputational damage. In addition, agents could affect BOSS Money’s revenue and profitability due to non-payment of remittances collected or termination of the relationship.
BOSS Money has financial and business exposure to fluctuations in the foreign exchange markets.
BOSS Money’s international remittance business is subject to daily fluctuations in U.S. dollar exchange rates, resulting from devaluation or appreciation of currencies, exchange rate volatility, or currency restrictions, which can materially impact revenue and profitability.
BOSS Money can be vulnerable to illegal activities and fraud schemes.
BOSS Money’s transfer services can be vulnerable to illegal activities and fraud schemes such as identity theft, account takeover, money laundering, and terrorist financing. Failure to detect and mitigate these risks could lead to regulatory penalties, reputational harm and significantly and adversely affect revenues and profitability.
BOSS Money’s rapid growth can strain resources and internal controls which could potentially lead to, among other things, operational inefficiencies, increased costs and reduced profitability.
BOSS Money is experiencing rapid growth, which can strain resources and internal controls, carrying inherent risks and uncertainties when scaling operations or entering new markets, potentially leading to operational inefficiencies, increased costs and reduced profitability. BOSS Money’s growth depends on acquiring and retaining customers in a competitive market. BOSS Money invests significantly in marketing to grow its customer base. Rising costs of customer acquisition, especially in competitive markets, could adversely affect profitability.
The rapid evolution of payment technologies and shifts in consumer preferences along with adoption of new technologies could disrupt the money transfer industry.
The rapid evolution of payment technologies and shifts in consumer preferences along with adoption of new technologies such as mobile wallets, real-time payment systems and blockchain-based cryptocurrencies could disrupt the money transfer industry and require significant investments to stay competitive. Failure to innovate, adopt new technologies, or keep pace with industry advancements can potentially lead to market share and revenue declines. In addition, the inability to adapt to changing customer needs could significantly and negatively impact business growth.
Disruptions in mobile networks or changes in consumer preferences for mobile devices could impact our business.
BOSS Money relies heavily on mobile technology. Any disruptions in mobile networks or changes in consumer preferences for mobile devices could adversely impact our business. The BOSS Money and BOSS Revolution mobile apps are distributed through Apple’s App Store and Google Play app store. Changes in app store policies or restrictions could negatively impact our ability to reach customers. BOSS Money’s direct to consumer channel relies on the performance and uptime of its digital platform which means that failures in technology or software could impact transaction flow, customer satisfaction and ultimately revenues.
BOSS Money has less brand recognition than many of its competitors in the money remittance space which could make it harder to attract and retain customers.
Compared to its larger competitors such as Western Union, Moneygram, Ria, Intermex, Xoom, Wise and Remitly, BOSS Money has less brand recognition in the money remittance space which could make it harder to attract and retain customers. BOSS Money leverages the brand value and trust built by BOSS Revolution. The remittance industry is highly sensitive to consumer trust. As such, negative publicity, such as being associated with poor service, fraud or money laundering, could significantly and negatively harm BOSS Money’s reputation, leading to a loss of customers and revenue.
BOSS Money relies on partnerships with global banks and payout agents to process transactions in its receiving markets.
BOSS Money relies on partnerships with global banks and disbursement agents to process transactions in its receiving markets. If these partners face operational, financial, or regulatory issues, it could severely and negatively impact the company’s ability to conduct business. BOSS Money’s success depends, in part, on reliable access to international banking systems and payment infrastructure. Disruptions in these systems due to political or economic issues, or regulatory changes, could severely and negatively impact the company’s ability to provide services.
Risks Related to Our net2phone Business
net2phone’s VoIP or cloud-based communications service competes against established well financed alternative voice communication providers who may provide comparable services at comparable or lower pricing or deploy new services that net2phone is unable to offer.
Pricing in the telecommunications industry is very fluid and competitive. Price is often a substantial motivating factor in a customer’s decision to switch to net2phone’s cloud-based communications products and services. net2phone’s competitors may reduce their rates, which may require it to reduce its rates, which would affect our revenues and profitability, or otherwise make our pricing non-competitive. net2phone may be at a disadvantage compared with those competitors who have substantially greater resources than us or may otherwise be better positioned to withstand an extended period of downward pricing pressure.
Many of net2phone’s current and potential competitors have longer operating histories, significantly greater resources and brand awareness, and a larger base of customers than net2phone has. As a result, these competitors may have greater credibility with net2phone’s existing and potential customers. net2phone’s competitors may also offer bundled service arrangements that present a more differentiated or better integrated product to customers. Certain of net2phone’s competitors that have more significant R&D capabilities may develop or deploy new value-added services that net2phone is unable to offer. Announcements, or expectations, as to the introduction of new products and technologies by net2phone’s competitors or net2phone could cause customers to defer purchases of net2phone’s existing products, which also could have a material adverse effect on our business, financial condition, or operating results.
net2phone depends in part upon the capacity, reliability, and performance of several third-party providers and their network infrastructure, the failure of which could cause delays or interruptions of net2phone’s service and impact our revenue and profitability.
net2phone depends on several third-party providers to provide service to maintain its operations. net2phone does not have control over these providers, and some of these providers are also its competitors. net2phone may be subject to interruptions or delays in their service and its reputation and business may be harmed. The failure of any of these third party service providers to properly maintain services may result in negative consequences to net2phone, including but not limited to: (i) a loss of customers, (ii) adverse impact on its reputation, (iii) negative publicity, (iv) negative impact on its ability to acquire customers, (v) negative impact on its revenue and profitability, (vi) potential law suits for not reaching emergency E-911 services, and (vii) potential law suits for loss of business and loss of reputation.
Internet Bandwidth Providers. net2phone’s cloud-based communications service requires its customers to have an operative broadband Internet connection and an electrical power supply, which are provided by the customer’s broadband Internet service provider and electric utility company and not by net2phone. The quality of some broadband Internet connections may be too poor for customers to use net2phone’s services properly. In addition, if there is any interruption to a customer’s broadband Internet service or electrical power supply, that customer will be unable to make or receive calls, including emergency calls, using net2phone’s service. In addition, Internet backbone providers may be able to block, degrade or charge for access to, or the bandwidth use of certain of net2phone’s products and services which could have a negative effect on its services and could lead to additional expenses and the loss of users. Further, customers who access net2phone’s mobile application (or future applications) through their smartphones must have a high-speed connection to use its services. This access is provided by companies that have significant and increasing market power in the broadband and Internet access marketplace and some of these providers offer products and services that directly compete with net2phone’s offerings, which give them a significant competitive .
Tier 1 and non-Tier 1 Telecom suppliers for Telecom Origination and Termination Services. net2phone depends on these companies to provide telecom services, sourcing of DID, porting of numbers, and delivering telephone calls from and to endpoints and devices on our network. If net2phone fails to maintain reliable connectivity or performance with its upstream carriers it could significantly reduce customer demand for its services and damage its business.
E-911 and other emergency service providers . net2phone maintains an agreement with an E-911 provider to assist it in routing and terminating emergency calls directly to an emergency service dispatcher at the public-safety answering point, or PSAP, in the customer’s registered location. net2phone also contract with a provider for the national call center that operates 24 hours a day, seven days a week to receive certain emergency calls and with several companies that maintain PSAP databases for the purpose of deploying and operating E-911 services. The dispatcher will have automatic access to the customer’s telephone number and registered location information. If a customer moves their service to a new location, the customer’s registered location information must be updated and verified by the customer. Until that takes place, the customer will have to verbally advise the emergency dispatcher of his or her actual location at the time of an E-911 call. This can lead to delays in the delivery of emergency services. Interruptions in service from these vendors could also cause failures in net2phone’s customers’ access to E-911 services and expose it to liability.
Local number portability providers. net2phone has agreements with companies that initiate its local number portability, which allows new customers to retain their existing telephone numbers when subscribing to its services. net2phone needs to work with these companies to properly port numbers. The failure to port numbers may cause net2phone to lose customers.
net2phone faces risks from the outsourcing of the manufacturing of its desktop telephones (“desktop devices”).
net2phone primarily sells Polycom, Yealink and Grandstream-branded desktop devices, although, it supports other third-party devices as well. These desktop devices are being manufactured by vendors in China. Recent supply-chain challenges in China and global ramifications of supply-chain difficulties, the U.S. trade war with China, including trade protection measures such as tariffs, and the effects of any new wave of COVID-19 infections or another pandemic may cause disruptions in obtaining its desktop devices. This may increase pricing, slow delivery times or may force net2phone to find other third-party manufacturers for its branded desktop devices.
net2phone targets sales to small, mid-market and enterprise customers. Not properly managing these customers could negatively affect our business, cash flow and operations.
A substantial percentage of net2phone’s revenues comes from small and medium-sized businesses. These customers may be more adversely affected by economic downturns than larger, more established businesses. The majority of net2phone’s customers pay for subscriptions with credit cards. Weakness in certain segments of the credit markets in the U.S. and global economies may result in increased numbers of rejected credit and debit card payments, which could negatively affect net2phone’s business. If small and medium-sized businesses experience financial hardship because of a weakening economy, industry consolidation, or any other reason, the overall demand for net2phone’s products and services could be materially and adversely affected.
Selling to larger enterprise customers also contains inherent risks and uncertainties. The loss of a key customer or the failure of some to renew or to continue to recommend net2phone’s products may have a material negative impact on its results. net2phone has a limited history of selling its services to larger businesses and may experience challenges in configuring and providing ongoing support for the products it sells to large customers. Larger customers’ networks are often more complex than those of smaller customers, and the configuration of services for these customers usually requires customer assistance. There is no guarantee that the customer will make available to net2phone the necessary personnel and other resources for a successful configuration of services. Lack of assistance from the customers or lack of local resources may prevent net2phone from properly configuring its services for these customers, which can in turn adversely impact the quality of services that it delivers over its customers’ networks, and/or may result in delays in the implementation of its services and impact the quality and ability to continue to provide the services. This could also create a public perception that net2phone is to deliver high quality service to its customers, which could its reputation. In addition to the foregoing, larger customers tend to require higher levels of customer service and individual attention, which may increase net2phone’s costs for implementing and delivering services.
If net2phone’s existing customers terminate their subscriptions or reduce their subscriptions and related usage, its revenues and earnings will be harmed, and we will be required to spend more money to grow net2phone’s customer base.
net2phone expects to continue to derive a significant portion of its revenues from existing customers. As a result, retaining its existing customers is critical to its future operating results. net2phone offers monthly, annual and multiple-year contracts to its customers, generally with 30 days’ notice required for reductions in the number of seats. Increases in the number of seats can be provisioned almost immediately.
Subscriptions and related usage by existing customers may decrease if:
customers are not satisfied with the services, prices or the functionality of net2phone’s products;
the stability, performance or security of net2phone’s products are not satisfactory;
the U.S. or global economy declines;
net2phone’s customers’ business or demand for net2phone’s services declines due to industry cycles, seasonality, business difficulties or other reasons;
customers favor products offered by other providers, particularly as competition continues to increase;
alternative technologies, products or features emerge or gain popularity that net2phone does not provide;
net2phone’s customers or potential customers experience financial difficulties; or
fewer customers purchase services from net2phone.
If net2phone’s existing customers’ subscriptions and related usage decrease or are terminated, net2phone will need to spend more money to acquire new customers and still may not be able to maintain its existing level of revenues. net2phone incurs significant costs and expenses, including sales and marketing expenses, to acquire new customers, and those costs and expenses are an important factor in determining our profitability. There can be no assurance that net2phone’s efforts to acquire new customers will be successful.
net2phone must acquire new customers on an ongoing basis to maintain and increase its customers and revenues, and the significant costs to acquire new customers may hinder profitability.
net2phone has to acquire new customers to increase revenues. net2phone incurs significant costs to acquire new customers, and those costs are an important factor in determining our profitability. Therefore, if net2phone is unsuccessful in retaining customers or is required to spend significant amounts to acquire new customers, its revenue and or profits may decrease, which would negatively affect profitability. Sales and marketing expenditures are an ongoing requirement of net2phone’s business as it strives to acquire more new customers.
net2phone’s customer churn rate may increase in future periods, which may adversely impact its revenue or require it to spend more money to grow its customer base.
net2phone’s customers generally have initial service periods of between two and three years and may discontinue their subscriptions for services after the expiration of their initial subscription period. In addition, net2phone’s customers may renew for lower subscription amounts or for shorter contract lengths. net2phone may not accurately predict cancellation rates for its customers. net2phone’s cancellation rates may increase or fluctuate because of several factors, including customer needs, pricing changes, number of applications used by its customers, customer satisfaction with its service, the acquisition of net2phone’s customers by other companies, and deteriorating general economic conditions. If net2phone’s customers do not renew their subscriptions for its service or decrease the amount they spend with net2phone, its revenue will decline, and our business will suffer.
net2phone may not be able to scale its business efficiently or quickly enough to meet its customers’ growing needs, in which case our operating results could be harmed.
As usage of net2phone’s cloud-based communications services by mid-market and larger distributed enterprises expands and as customers continue to integrate its services across their enterprises, net2phone is required to devote additional resources to improving its application architecture, integrating net2phone’s products and applications across our technology platform as well as expanding integration and performance. net2phone will need to appropriately scale its internal business systems and services organization, including its onboarding and customer support services to serve a growing customer base. Any failure of or delay in these efforts could impair net2phone’s systems’ performance and reduce customer satisfaction, which could result in decreased sales to new customers and lower renewal rates by existing customers and eventually hurt net2phone’s revenue growth and its reputation. We cannot guarantee that the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all, which failure may reduce our revenue and earnings and adversely impact our financial results.
Risks Related to Our Traditional Communications Segment
Each of our BOSS Revolution and IDT Global businesses is highly sensitive to declining prices, which may adversely affect our revenues and profitability.
The worldwide telecommunications industry is characterized by intense price competition, which has resulted in declines in both our average per-minute price realizations and our average per-minute termination costs. Many of our competitors continue to aggressively price their services or offer them for free. The intense competition has led to continued erosion in our pricing power, in both our retail and wholesale markets, and we have generally had to pass along all or some of the savings we achieve on our per-minute costs to our customers in the form of lower prices. In the case of some international calling locations, indirect competitors, such as wireless carriers, may include calls to those locations at no extra cost, which increases our risk of losing customers. Any price increase by either our BOSS Revolution or IDT Global business may result in our prices becoming less attractive to customers, which may result in a reduction of revenue. If these trends in pricing continue or accelerate, it could have a material adverse effect on the revenues generated by our BOSS Revolution and IDT Global businesses and/or our profitability.
We may not be able to obtain sufficient or cost-effective termination capacity to particular destinations, which could adversely affect our revenues and profits.
Most of our telecommunications’ traffic is terminated through third-party providers. To support our minutes of use demand and geographic footprint, we may need to obtain additional termination capacity or destinations. We may not be able to obtain sufficient termination capacity from high-quality carriers to particular destinations or may have to pay significant amounts to obtain such capacity. This could result in our not being able to support our minutes of use demands or in higher cost-per-minute to particular destinations, which could adversely affect our revenues and profits.
The termination of our carrier agreements with partners or our inability to enter into carrier agreements in the future could materially and adversely affect our ability to compete, which could reduce our revenues and profits.
We rely upon our carrier agreements with partners to provide our telecommunications services to our customers. These carrier agreements are for finite terms and, therefore, there can be no guarantee that these agreements will be renewed at all or on favorable terms to us. Our ability to compete would be adversely affected if our carrier agreements were terminated or we were unable to enter into carrier agreements in the future to provide our telecommunications services to our customers, which could result in a reduction of our revenues and profits.
Risk Related to Our Financial Condition
We hold cash, cash equivalents, debt securities and equity investments that are subject to various market risks.
At July 31, 2025, we had cash, cash equivalents, debt securities, and current equity investments of $260.4 million. Debt securities and equity investments carry a degree of risk, as there can be no assurance that we can redeem them at any time and that our investment managers will be able to accurately predict the course of price movements and, in general, the securities markets have in recent years been characterized by great volatility and unpredictability. As a result of these different market risks, our holdings of cash, cash equivalents, debt securities, and equity investments could be materially and adversely affected.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting which could have a negative effect on the trading price of our stock.
We are required by the Securities and Exchange Commission to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We cannot be certain that we will continue to maintain an effective system of internal control over our financial reporting in future periods. Any failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the Securities and Exchange Commission and The New York Stock Exchange, we could face severe consequences from those authorities. In either case, there could be a material adverse effect on our business. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Intellectual Property, Tax, Regulatory, and Litigation Risks
Changes in national policy, governmental actions related to tariffs or international trade agreements, as well as shifts in social, political, regulatory, and economic conditions or laws and policies governing foreign trade, manufacturing, development, and investment in the regions where we operate, can significantly impact our business. Such changes could lead to negative sentiments towards us, potentially depressing economic activity or restricting access to suppliers or customers and thereby have a material adverse effect on our business, results of operations and outlook.
In January 2025, the global tariff landscape began to quickly change with the United States implementing tariffs on goods from various foreign countries, either generally or with respect to certain products, and certain of those foreign countries implementing rebalancing tariffs on goods from the United States, either generally or with respect to certain products. In certain circumstances the United States and certain foreign countries temporarily suspended tariffs they had recently implemented, either in whole or in part. Since then, the United States has continued to impose tariffs on imported goods, and affected countries have often responded by imposing tariffs on U.S. goods. In April 2025, the U.S. announced a baseline tariff of 10% on goods from all countries and instituted additional individualized reciprocal tariffs for countries with which the United States has significant trade deficits. The United States continues to implement new, reinstated or adjusted tariffs, and we expect that it will continue with this practice. Foreign countries subject to these U.S. tariffs continue to implement new, reinstated or adjusted rebalancing tariffs, and we expect that foreign countries will continue with that practice.
The U.S. tariffs and rebalancing tariffs that were recently enacted or that may be enacted have contributed to uncertainty about current global economic conditions. Sustained uncertainty could result in a global economic slowdown and long-term changes to global trade. Such changes could lead to negative sentiments towards us, potentially depressing economic activity or restricting access to suppliers or customers and thereby have a material adverse effect on our business, results of operations and outlook.
We provide communications and payment services to consumers and are therefore subject to various federal and state laws and regulations.
As a provider of communications and payment services to consumers, such as BOSS Revolution and BOSS Money, we are subject to various federal and state laws and regulations relating to the way we advertise our services, describe and present the terms of our services, and communicate with our customers and consumers in general. Compliance with these laws requires us to be constantly vigilant as they often vary from state to state. Failure to comply with these laws could result in action being taken by federal and state agencies or offices responsible for consumer protection, like the Federal Trade Commission, or FTC, which could have a material adverse effect on our results of operations, financial condition, revenues, and profits.
We may be adversely affected if we fail to protect our proprietary technology.
We depend on proprietary technology and other intellectual property rights in conducting our various business operations. We rely on a combination of patents, copyrights, trademarks and trade secret protection, and contractual rights to establish and protect our proprietary rights. Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective enough. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. Failure of our patents, copyrights, trademarks, and trade secret protection, non-disclosure agreements and other measures to provide protection of our technology and our intellectual property rights could our competitors to compete with us more effectively and have an effect on our business, financial condition, and results of operations.
Rapid, significant, and disruptive technological changes impact the industries in which we operate, and we expect new services and technologies to continue to emerge and evolve. We cannot predict the effects of technological changes on our businesses. Developing and incorporating new technologies into our products and services may require significant investment, take considerable time, and ultimately may not be successful.
In addition, we may be required to litigate in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition, or results of operations, and there can be no assurances that we will be successful in any such litigation.
We may incur costs in complying with, or face exposure from the failure to comply with, laws, regulation or initiatives regarding greenhouse gas emissions or reporting of our direct and indirect emissions.
Several states have either passed (California) or are drafting (e.g. Washington, New York, Illinois, and Minnesota) what is being referred to as “sustainability legislation.” This class of legislation generally requires companies generating certain levels in annual revenue (either globally or in the relevant state) and who have a presence in the relevant state to report data on the impact of the company on the environment, including as to direct and indirect greenhouse gas emissions or other factors believed to impact climate. Each company that meets the requirements will be required to report the data to a state regulator and may also be required to post the data online. Significant monetary penalties may apply to companies that fail to report in a timely manner. We believe that we will be required to report under the California legislation, and may also be subject to other states’ legislation, if passed. We are currently evaluating the resources necessary to comply with the law. While, barring unforeseen circumstances, we anticipate meeting the requirements in a timely manner, there can be no assurance that we will do so.
In addition, many foreign jurisdictions have enacted laws and regulations mandating certain reporting related to direct and indirect greenhouse gas emission by businesses operating in those areas. Our costs to comply with any legislation, regulations or initiatives may be significant and we could be exposed to fines and penalties and other negative impacts on our businesses if we do not comply with the laws and regulations that apply to us.
We may be subject to claims of infringement of intellectual property rights of others, which could have a material adverse effect on our results of operations, financial condition, revenues, and profits.
Companies in the telecommunications industry and other industries in which we compete own large numbers of patents, copyrights and trademarks and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property claims against us grows. Although we do not believe that we infringe upon the intellectual property rights of others, our technologies may not be able to withstand any third-party claims or rights against their use. From time to time, we may be subject to claims and legal proceedings from third parties regarding alleged infringement by us of trademarks, copyrights, patents, and other intellectual property rights. Such lawsuits can be expensive and time-consuming and could us and our management from focusing on our businesses. Further, the of such lawsuits could result in financial and the requirement to modify our modes of operation, which could materially affect our business.
We are subject to tax and regulatory audits which could result in the imposition of liabilities that may or may not have been reserved.
We are subject to audits by taxing and regulatory authorities with respect to certain of our income and operations. These audits can cover periods for several years prior to the date the audit is undertaken and could result in the imposition of liabilities, interest, and penalties if our positions are not accepted by the auditing entity.
Our 2017 FCC Form 499-A, which reported our calendar year 2016 revenue was audited by the Universal Service Administrative Company, or USAC. The USAC’s final decision imposed a $2.9 million charge on us for the Federal TRS Fund. We have appealed the USAC’s final decision to the FCC and do not intend to remit payment for the TRS Fund fees unless and until a negative decision on our appeal has been issued. We have made certain changes to our filing policies and procedures for years that remain potentially under audit. As of July 31, 2025, our accrued expenses included $21.1 million for FCC-related regulatory fees for the year covered by the audit, as well as prior and subsequent years. If we do not properly calculate, or have not properly calculated, the amount payable by us to the FCC, we may be subject to interest and penalties.
We are subject to value added tax, or VAT, audits from time-to-time in various jurisdictions. In the conduct of such audits, we may be required to disclose information of a sensitive nature and, in general, to modify the way we have conducted business with our distributors until the present, which may affect our business in an adverse manner.
We are also subject to audits in various jurisdictions for various other taxes, including utility excise tax, sales and use tax, communications services tax, gross receipts tax, and property tax.
Our business is subject to strict regulation under federal law regarding anti-money laundering and anti-terrorist financing. Failure to comply with such laws, or abuse of our programs for purposes of money laundering or terrorist financing, could have a material adverse impact on our business, financial condition, and operating results.
Provisions of the USA PATRIOT Act, the Bank Secrecy Act and other federal laws impose substantial regulations on financial institutions that are designed to prevent money laundering and the financing of terrorist organizations. Increasing regulatory scrutiny of our industry with respect to money laundering and terrorist financing matters could result in more aggressive enforcement of these laws or the enactment of more onerous regulation, which could have a material adverse impact on our business. In addition, abuse of our money transfer services or prepaid card programs for purposes of money laundering or terrorist financing, notwithstanding our efforts to prevent such abuse through our regulatory compliance and risk management programs, could cause reputational or other harm that would have a material adverse impact on our business, financial condition, and operating results.
Our business is subject to a wide range of laws and regulations intended to help detect and prevent illegal or illicit activity and our failure, or the failure of one of our disbursement partners or payment processors to comply with those laws and regulations could harm our business, financial condition, and operating results.
Our BOSS Money and network branded prepaid card services are subject to a strict set of legal and regulatory requirements intended to help detect and prevent money laundering, terrorist financing, fraud, and other illicit activity. The interpretation of those requirements by judges, regulatory bodies and enforcement agencies is changing, often quickly and with little notice. Economic and trade sanctions programs that are administered by the U.S. Treasury Department’s Office of Foreign Assets Control prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, with individuals and entities that are specially designated nationals of those countries, narcotics traffickers and terrorists or terrorist organizations. As federal, state, and foreign legislative regulatory scrutiny and enforcement action in these areas increase, we expect our costs to comply with these requirements will increase, perhaps substantially. Failure to comply with any of these requirements by us, our regulated retailers or our disbursement partners could result in the suspension or revocation of a money transmitter license, the limitation, or of our services, the seizure and/or of our assets and/or the imposition of civil and , including .
Furthermore, failure by us or our agents to comply with applicable laws and regulations could also result in termination of contracts with our banks and/or merchant payment processors. Termination of services by one of our retail banks would seriously diminish our ability to collect funds from our BOSS Revolution agents. Likewise, termination of services by our merchant processor would negatively impact our ability to process payments in our digital channels.
The foregoing laws and regulations are constantly evolving, unclear, and inconsistent across various jurisdictions, making compliance challenging. If we fail to update our compliance system to reflect legislative or regulatory developments, we could incur penalties. New legislation, changes in laws or regulations, implementing rules and regulations, litigation, court rulings, changes in industry practices or standards, changes in systems rules or requirements or other similar events could expose us to increased compliance costs, liability, reputational damage, and could reduce the market value of our BOSS Money and network branded prepaid card services or render them less profitable or obsolete.
The Dodd-Frank Act, as well as the regulations required by the Dodd-Frank Act and the Consumer Financial Protection Bureau could harm us and the scope of our activities, and could harm our operations, results of operations, and financial condition.
The Dodd-Frank Act, which became law in the United States on July 21, 2010, enacted significant structural reforms and substantive regulation across the financial services industry. In addition, the Dodd-Frank Act created the Consumer Financial Protection Bureau, or CFPB, whose purpose is to issue and enforce consumer protection initiatives governing financial products and services, including money transfer services.
We may be subject to examination by the CFPB, which has broad authority to enforce consumer financial laws. The CFPB has a large budget and staff and has broad authority with respect to our money transfer service and related business. It is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. In addition, the CFPB may adopt other regulations governing consumer financial services, including regulations defining unfair, deceptive, or abusive acts or practices, and new model disclosures. The CFPB’s authority to change regulations adopted in the past by other regulators, or to rescind or alter past regulatory guidance, could increase our compliance costs and litigation exposure.
The Dodd-Frank Act established a Financial Stability Oversight Council that is authorized to designate as “systemically important” non-bank financial companies and payment systems. Companies designated under either standard will become subject to new regulation and regulatory supervision. If we were designated under either standard, the additional regulatory and supervisory requirements could result in costly new compliance burdens or may require changes in the way we conduct business that could harm our business, financial condition, and operating results.
We are subject to licensing and other requirements imposed by U.S. state regulators, and the U.S. federal government. If we were found to be subject to or in violation of any laws or regulations governing money transmitters, we could lose our licenses, be subject to liability or be forced to change our business practices, which could harm our business, results of operations, and financial condition.
Several states and territories have enacted legislation regulating money transmitters, with 49 states requiring a license as of July 31, 2025. At July 31, 2025, we had obtained licenses to operate as a money transmitter in 48 U.S. states and Washington, D.C. We are also registered as money services businesses with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury, or FinCEN. As a licensed money transmitter, we are subject to bonding requirements, liquidity requirements, restrictions on our investment of customer funds, reporting requirements, and inspection by state and foreign regulatory agencies. If we were found to be subject to and in violation of any banking or money services laws or regulations, we could be subject to liability or additional restrictions, such as increased liquidity requirements. In addition, our licenses could be revoked, or we could be forced to cease doing business or change our practices in certain states or jurisdictions or be required to obtain additional licenses or regulatory approvals that could impose a substantial cost on us. Regulators could also impose other regulatory orders and sanctions on us. Any change to our business practices that makes our service less attractive to customers or prohibits use of our services by residents of a particular jurisdiction could decrease our transaction volume and our business, financial condition, and operating results.
Our disbursement partners generally are regulated institutions in their home jurisdiction, and money transfers are regulated by governments in both the United States and in the jurisdiction of the recipient. If our disbursement partners fail to comply with applicable laws, it could harm our business, results of operations, and financial condition.
Money transfers are regulated by state, federal and foreign governments. Many of our disbursement partners are banks that are heavily regulated by their home jurisdictions. Our non-bank disbursement partners are also subject to money transfer regulations. We require regulatory compliance as a condition to our continued relationship, perform due diligence on our disbursement partners, and monitor them periodically with the goal of meeting regulatory expectations. However, there are limits to the extent to which we can monitor their regulatory compliance. Any determination that our disbursement partners or their sub-disbursement partners have violated laws and regulations could seriously damage our reputation, resulting in diminished revenue and profit and increased operating costs. While our services are not directly regulated by governments outside the United States, except with respect to IDT Financial Services Limited, or IDTFS, our Gibraltar-based bank as discussed below, it is possible that in some cases we could be liable for the failure of our disbursement partners or their sub-disbursement partners to comply with laws, which also could harm our business, financial condition, and results of operations.
IDTFS is a licensed bank regulated by the Gibraltar Financial Services Commission (“GFSC”). As a deposit-taking institution, IDTFS is authorized to provide a wide range of regulated banking and financial services, including the issuance of electronic money, payment services and foreign exchange services. As a regulated bank, IDTFS is subject to stringent supervisory oversight and is required to maintain robust governance, risk management, anti-money laundering (AML) controls, and capital adequacy in accordance with Gibraltarian and EU financial regulations. The GFSC’s oversight extends to all aspects of IDTFS’ operations, including customer due diligence, transaction monitoring, and safeguarding of client funds. Failure to comply with regulatory obligations could result in fines, enforcement actions, reputational damage, or, in severe cases, revocation of the banking license.
IDT Services Limited (IDTS) is regulated by the Malta Financial Services Authority (MFSA) and operates under the Maltese and EU legal framework for financial services providers. It was licensed by the MFSA as an Electronic Money Institution (EMI) in May 2025, authorizing it to issue electronic money and provide payment services. While its operational scope differs from that of IDTFS, IDTS is nonetheless subject to similar regulatory expectations regarding AML compliance, internal governance, data protection, and financial reporting. The MFSA conducts regular supervision to ensure ongoing compliance with applicable regulations. Non-compliance could result in regulatory sanctions or, ultimately, the withdrawal of authorization.
We receive, store, process, and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy. Our actual or perceived failure to comply with such obligations could harm our business, financial condition, and results of operations.
We receive, store, and process personal information and other customer data, including bank account numbers, credit and debit card information, identification numbers, and images of government identification cards. As a result, we are required to comply with the privacy provisions of the Gramm-Leach-Bliley Act of 1999, or the Gramm-Leach-Bliley Act, and the Payment Card Industry Data Security Standard, or PCI DSS. There are also numerous other federal, state, local, and international laws, such as the California Consumer Privacy Act, or CCPA and the EU’s General Data Protection Regulation, or GDPR, regarding privacy and the storing, sharing, use, processing, disclosure, and protection of personal information and other customer data, the scope of which are changing, subject to differing interpretations, and may be inconsistent among different jurisdictions or conflict with other applicable rules. It is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our business practices.
Additionally, with advances in computer capabilities and data protection requirements to address ongoing threats, we may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by security breaches.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, may result in governmental enforcement actions, fines, or litigation. If there is a breach of credit or debit card information that we store, we could also be liable to the issuing banks for their cost of issuing new cards and related expenses. In addition, a significant breach could result in our being prohibited from processing transactions for any of the relevant network organizations, such as Visa or MasterCard, which would harm our business. If any third parties with whom we work, such as marketing partners, vendors, or developers, violate applicable laws or our policies, such violations may put our customers’ information at risk and could our business. Any publicity arising out of a data or to comply with applicable privacy requirements could our reputation and cause our customers to trust in us, which could our business, results of operations, financial position, and potential for growth.
We may be harmed by certain imminent FCC Orders and rules that effect the telecommunications marketplace.
In the Telephone Robocall Abuse Criminal Enforcement and Deterrence, or TRACED, Act, Congress gave the FCC new tools to fight unwanted, and often illegal, robocalls, the top consumer complaint reported to the FCC annually. The TRACED Act required the FCC to mandate the STIR/SHAKEN caller identification framework. STIR/SHAKEN enables phone companies to verify that the caller ID information transmitted with a call matches the caller’s real phone number. The FCC has issued a series of Orders and adopted several rules to implement the TRACED Act.
The FCC’s rules present several concerns to all carriers. Notably, the FCC has prohibited STIR/SHAKEN compliant carriers, such as IDT, from doing business with non-compliant carriers.
Additionally, the rules extend to many foreign carriers, and it is unclear whether foreign carriers will be sufficiently educated and experienced to implement U.S. rules and regulations. Foreign carrier compliance, or the lack thereof, could impact U.S. carriers as they seek to meet their own regulatory obligations. There may also be changes in the marketplace as foreign carriers may look to limit U.S. carrier partners to whom they transmit calls for termination in the U.S. that are subject to the STIR/SHAKEN rules.
In Canada, the Canadian Radio-Television and Telecommunications Commission, or CRTC is implementing near-identical STIR/SHAKEN rules as the FCC is implementing in the U.S. although it is not apparent whether the CRTC will punish service providers who fail to meet their obligations with the zealousness of the FCC. We expect that additional national communications regulators will implement similar, if not identical, STIR/SHAKEN legislation.
We anticipate meeting our regulatory obligations under the STIR/SHAKEN rules and we are undertaking efforts to prevent us from being harmed by potential changes in the marketplace. Nevertheless, the FCC’s rules allow for the possibility that well-prepared carriers with anti-robocalling procedures in place may fail and be punished for their failure, despite their best efforts. Moreover, because the STIR/SHAKEN rules may have a significant impact on the telecommunications marketplace, it is difficult to predict their outcome. We are prepared for the implementation of STIR/SHAKEN but are concerned about its impact on the market as a whole and on us specifically.
Federal and state regulations may be passed that could harm our business, financial condition, and results of operations.
Our ability to provide VoIP communications services at attractive rates arises in large part from the fact that VoIP services are not currently subject to the same level of regulation as traditional, switch-based telephony. The use of the Internet and private IP networks to provide voice communications services is largely unregulated within the United States, although several foreign governments have adopted laws and/or regulations that could restrict or prohibit the provision of voice communications services over the Internet or private IP networks. In the United States, the California PUC has initiated a proceeding under which we believe the PUC will expand its authority to regulate interconnected VOIP. Other states are expected to follow the California PUC’s lead. If interconnected VoIP services become subject to state regulation and/or additional regulation by the FCC, such regulation will likely lead to higher costs and reduce or eliminate the competitive advantage interconnected VoIP holds over traditional telecommunications services by virtue of its lesser regulatory oversight. More aggressive regulation of the Internet in general, and Internet telephony providers and services specifically, may materially and adversely affect our business, financial condition, and results of operations.
Our ability to offer services outside of the United States is subject to the local regulatory environment, which may be unfavorable, complicated, and often uncertain.
Regulatory treatment outside the United States varies from country to country. We distribute our products and services through resellers that may be subject to telecommunications regulations in their home countries. The failure of these resellers to comply with these laws and regulations could reduce our revenue and profitability or expose us to audits and other regulatory proceedings. Regulatory developments such as these could have a material adverse effect on our operating results.
In many countries in which we operate, or our services are sold, the status of the laws that may relate to our services is unclear. We cannot be certain that our customers, resellers, or other affiliates are currently in compliance with regulatory or other legal requirements in their respective countries, that they or we will be able to comply with existing or future requirements, and/or that they or we will continue in compliance with any requirements. Our failure or the failure of those with whom we transact business to comply with these requirements could materially adversely affect our business, financial condition, and results of operations.
While we expect additional regulation of our industry in some or all these areas, and we expect continuing changes in the regulatory environment as new and proposed regulations are reviewed, revised and amended, we cannot predict with certainty what impact new laws in these areas will have on us, if any.
net2phone’s VoIP services are subject to regulation in the United States and Canada. Future legislative, regulatory, or judicial actions could adversely affect net2phone’s business and expose it to liability and limit its growth potential.
The United States and Canada have applied some traditional telephone company regulations to VoIP and continue to evaluate how VoIP should be regulated, as are other countries as we expand globally. The effects of future regulatory developments are uncertain. At the federal level in the United States, the FCC has imposed certain telecommunications regulations on VoIP services including, but not limited to:
Requirements to provide E-911 service;
Communications Assistance for Law Enforcement Act obligations;
Obligation to support Universal Service;
Customer Proprietary Network Information, or CPNI, requirements;
Disability access obligations;
Local Number Portability requirements; and
Consumer protection, including protection from unwanted telemarketing and other calls.
In Canada, the CRTC regulates VoIP Service. These regulated services are similar to those regulated in the United States discussed above. We are subject to a variety of other federal, state and international laws and regulations as well as oversight from a variety of governmental agencies and public service commissions. The laws governing our business may change in ways that harm our business. Federal, state, or international governmental agencies administering and enforcing such laws may also choose to interpret and apply them in ways that harm our business. These interpretations are also subject to change. Regulatory action could materially impair or force us to change our business model and may adversely affect our revenue, increase our compliance costs, and reduce our profitability. In addition, governmental agencies such as the Securities and Exchange Commission, Internal Revenue Service, FTC, FCC, and state taxing authorities may conclude that we have violated federal laws, state laws or other rules and regulations, and we could be subject to fines, penalties or other actions that could impact our financial results or our ability to conduct business.
We are subject to legal proceedings in the ordinary course of business that may have a material adverse effect on our business, results of operations, cash flows, or financial condition.
Various legal proceedings that have arisen or may arise in the ordinary course of business have not been finally adjudicated, which may have a material adverse effect on our results of operations, cash flows, or financial condition (see Note 22 to our Consolidated Financial Statements in Item 8 to Part II of this Annual Report).
Our telecommunications services are required to comply with industry standards, FCC regulations, privacy laws as well as certain state and local jurisdiction specific regulations. Failure to comply with existing laws and any new laws that may become applicable to us may subject us to penalties, increase our operating costs, and may also require us to modify existing products and/or service.
The acceptance of telecommunications services is dependent upon our meeting certain industry standards. We are required to comply with certain rules and regulations of the FCC regarding safety standards. Standards are continuously being modified and replaced. As standards evolve, we may be required to modify our existing products or develop and support new versions of our products. We must comply with certain federal, state, and local requirements regarding how we interact with our customers, including marketing practices, consumer protection, privacy, and billing issues, the provision of emergency 911 service, and the quality of service we provide to our customers. The failure of our products and services to comply, or delays in compliance with various existing and evolving standards could delay future offerings and impact our revenues and profitability. Changes to the Universal Service Fund by the FCC or various state Universal Service Funds may require us to increase our costs which could negatively affect revenue and profitability.
We are subject to Federal laws and FCC regulations that require us to protect customer information. While we have protections in place to protect customer information there is no assurance that our systems will not be subject to failure or intentional fraudulent attack. The failure to protect required information could subject us to penalties and diminish the confidence our customers have in our systems, which could negatively affect results. While we try to comply with all applicable data protection laws, regulations, standards, and codes of conduct, as well as our own posted privacy policies and contractual commitments to the extent possible, any failure by us to protect our customers’ privacy and data, including as a result of our systems being compromised by hacking or other malicious or surreptitious activity, could result in a loss of customer confidence in our services and ultimately in a loss of customers, which could materially and affect our business as well as subject us to law suits, civil and .
Governmental entities, class action lawyers, and consumer advocates are reviewing the data collection and use by companies that must maintain such data. Our own requirements as well as regulatory codes of conduct, enforcement actions by regulatory agencies, and lawsuits by other parties could impose additional compliance costs on us as well as subject us to unknown potential liabilities. These evolving laws, rules, and practices may also curtail our current business activities, which may delay or affect our ability to become profitable as well as affect customers and other business opportunities.
In addition, several foreign countries and governmental bodies, including the EU, Brazil, and Canada, have laws and regulations concerning the collection and use of personally identifiable information obtained from their residents, including payment card information, which are often more restrictive than those in the U.S. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of personally identifiable information, including payment card information identifying, or which may be used to identify, an individual, such as names, email addresses, and, in some jurisdictions, IP addresses, device identifiers, and other data. As we conduct business or become deemed to conduct business in foreign jurisdictions, including through websites that we host that may be available in these locations, we may become subject to those laws and regulations.
We are also subject to privacy and data protection-related obligations in our contracts with our customers and other third parties. Any failure, or perceived failure, to comply with federal, state, or international laws, or to comply with our contractual obligations related to privacy, could result in proceedings or actions against us which could result in significant liability to us as well as harm to our reputation. Additionally, third parties with whom we contract may violate or appear to violate laws or regulations which could subject us to the same risks. Any new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur additional costs and restrict our business operations.
Our collection, processing, storage, use, and transmission of personal data could give rise to liabilities because of governmental regulation, conflicting legal requirements, differing views on data privacy, or security breaches.
We engage in electronic billing and processing of our customers using secure transmission of sometimes confidential information over public networks. We have systems and processes in place that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches. However, there is no guarantee that such systems and processes will not experience a failure. Our failure to protect against fraud or breaches may subject us to costly breach notification and other mitigation obligations, class action lawsuits, investigations, fines, forfeitures, or penalties from governmental agencies that could adversely affect our operating results. We may be unable to prevent our customers from receiving goods and services. Personal data is increasingly subject to legal and regulatory protections around the world, which vary widely in approach and which possibly with one another. In recent years, for example, U.S. legislators and regulatory agencies, such as the FTC, as well as U.S. states have increased their focus on protecting personal data by law and regulation and have increased enforcement actions for of privacy and data protection requirements. The CCPA requires, among other things, covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information. While we believe that we are not a covered entity under the law, the effects of the CCPA potentially are significant, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses to comply. We may also from time to time be subject to, or face that we are subject to, additional obligations relating to personal data by contract or due to that self-regulatory obligations or industry standards apply to our practices.
We may also experience losses due to customer fraud and theft of service, such as fraudulent credit card transactions. Customers have, in the past, obtained access to our service without paying for monthly service and international toll calls by unlawfully using fraudulently obtained codes. If our existing anti-fraud procedures are not adequate or effective, consumer fraud and theft of service could have a material adverse effect on our business, financial condition, and operating results.
The GDPR and the Data Protection Act in the United Kingdom are intended to protect the privacy and security of personal data, including credit card information that is collected, processed, and transmitted in or from the relevant jurisdiction. We stopped hosting websites in GDPR-complaint countries or countries from which the bulk of business came from countries subject to GDPR. We also took steps to block those countries from accessing any other sites we host. While we do not currently provide services in countries where compliance would be required and are therefore not required to be compliant, if we did provide those services or otherwise were required to become complaint, implementation of and compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position or cash flows.
Additionally, media coverage of data breaches has escalated, in part because of the increased number of enforcement actions, investigations, and lawsuits. As this focus and attention on privacy and data protection increases, we also risk exposure to potential liabilities and costs resulting from compliance with or any failure to comply with applicable legal requirements, conflicts among these legal requirements, or differences in approaches to privacy.
We could fail to comply with requirements for debit card, credit card, and other digital payment methods, which could have a material adverse effect on our revenues, results of operations, and financial condition.
A significant and increasing portion of our transactions are processed using debit cards, credit cards, and other digital payment methods. The banks, credit card companies, networks, and other payment processing providers impose strict regulatory, compliance, system, and other requirements to participate in such parties’ payment systems. We are required to comply with the privacy provisions of various federal and state privacy statutes and regulations, and the PCI DSS, each of which is subject to change at any time. Compliance with PCI DSS does not guarantee a completely secure environment and notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card processing services. Compliance with PCI DSS is an ongoing effort, and the requirements evolve as new threats are identified. Compliance with these requirements is often difficult and costly, and our failure, or our counterparty’s failure, to comply may result in significant fines or civil penalties, regulatory enforcement action, or liability under or termination of necessary agreements, each of which could have a material effect on our financial position and/or operations and that of our distributors who could be liable as well.
Further, our payment services are subject to stringent requirements by regulators and trade organizations in various jurisdictions. Our payment services unit is subject to federal and state banking regulations, and we are also subject to further regulation by those states in which we are licensed as a money transmitter. We may not be able to comply with all such requirements in a timely manner or remain in compliance. If we are not in compliance, we could be subject to penalties or the termination of our rights to participate in such payment systems or provide such services, which could have a material negative impact on our ability to grow our businesses and our revenues and profits.
We face risks in our sales to certain market segments including, but not limited to, sales subject to HIPAA Regulations.
Our customers can use our services to store contact and other personal or identifying information, and to process, transmit, receive, store, and retrieve a variety of communications and messages, including information about their own customers and other contacts. In addition, customers may use our services to store protected health information, or PHI, that is protected under the Health Insurance Portability and Accountability Act, or HIPAA. We have sold and will continue to attempt to sell to certain customer segments which may have requirements for additional privacy or security. In addition, sales may be made to customers that are subject to additional security requirements. Selling into segments with additional requirements increases potential liability that in some instances may be unlimited. While we believe we meet or exceed all requirements for sales to such segments, there is no assurance that our systems fully comply with all requirements. Noncompliance with laws and regulations relating to privacy and HIPAA may lead to significant fines, penalties, or civil liability.
Our ability to offer services outside the United States is subject to different regulations which may be unknown and uncertain.
Regulatory treatment of VoIP providers outside the United States varies from country to country, and local jurisdictions. Many times, the laws are vague, unclear and regulations are not enforced uniformly. We are licensed as a VoIP seller in our international markets and are considering expanding to other countries. We also cannot control if our customers take their devices out of the United States and use them abroad. Our resellers may sell to customers who maintain facilities outside the United States. The failure by us or our customers and resellers to comply with laws and regulations could reduce our revenue and profitability. As we expand to additional countries there may be additional regulations that we are required to comply with, the failure to comply or properly assess regulations may subject us to penalties, fines, and other actions that could materially affect our business.
Examinations by relevant tax authorities may result in material changes in related tax reserves for tax positions taken in previously filed tax returns or may impact the valuation of certain deferred income tax assets, such as net operating loss carry-forwards.
Based on the outcome of examinations by relevant tax authorities, or because of the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related tax reserves for tax positions taken regarding previously filed tax returns will materially change from those recorded in our financial statements. In addition, the outcome of examinations may impact the valuation of certain deferred income tax assets (such as net operating loss carry-forwards) in future periods. It is not possible to estimate the impact of the amount of such changes, if any, on previously recorded uncertain tax positions.
There may be a negative effect on our business going forward because of changes to net neutrality.
The principle that Internet service providers should treat all Internet communications equally and not charge users different rates for various tiers of service or prioritize certain traffic while blocking or slowing down others, is called net neutrality. On January 4, 2018, the FCC released an order that largely repealed prior FCC rules that prevented broadband internet access providers from degrading or otherwise disrupting a broad range of services provisioned over consumers’ and enterprises’ broadband internet access lines. In January 2025, the U.S. Court of Appeals for the Sixth Circuit struck down the FCC’s January 2018 order.
Many of the largest providers of broadband services, like cable companies and traditional telephone companies, have publicly stated that they will not degrade or disrupt their customers’ use of applications and services, like ours. However, there was no guarantee that they would not do so in the future. If such providers were to degrade, impair, or block our services, it would negatively impact our ability to provide services to our customers, and we would likely lose revenue and profits. We would probably incur legal fees in an attempt to restore our customers’ access to our services. Broadband internet access providers may also attempt to charge us or our customers additional fees to access services like ours that may result in the loss of customers and revenue, or increase our costs thereby reducing our profitability, or make our services less competitive if we increase our rates to our customers.
Following the adoption of the FCC’s January 2018 order, several states passed state-level net neutrality laws. However, we cannot rely on those state laws because of potential opposition from the federal government. We cannot predict the ultimate outcome of these disputes.
States are adding regulations for VoIP providers which could increase our costs and change certain aspects of our service.
Certain states take the position that offerings by VoIP providers may include intrastate communications and should therefore be subject to state regulation including state taxes or surcharges. We have registered as an interconnected VoIP provider in those states where registration is required; however, our rates are not regulated in the same manner as traditional telephone service providers. We believe that the FCC has pre-empted states from regulating VoIP providers in the same manner as providers of traditional telecommunications services. We cannot predict how this issue will be resolved or its impact on our business at this time.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and any such assessments could adversely affect our business, financial condition, and results of operations.
Jurisdictions in which we do not collect sales, use, value added, or similar taxes on VoIP services or other products may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties, interest, or future requirements could adversely affect our financial condition and results of operations. Further, in June 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair , a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair ) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years, which could create additional administrative for us, put us at a competitive if such states do not impose similar obligations on our competitors, and decrease our future sales, which would impact our business, financial condition, and results of operations.
Risks Related to Our Capital Structure
Holders of our Class B common stock have significantly less voting power than holders of our Class A common stock.
Holders of our Class B common stock are entitled to one-tenth of a vote per share on all matters on which our stockholders are entitled to vote, while holders of our Class A common stock are entitled to three votes per share. As a result, the ability of holders of our Class B common stock to influence our management is limited.
We are controlled by our principal stockholder, which limits the ability of other stockholders to affect the management of the Company.
Howard S. Jonas, our Chairman and Chairman of the Board of Directors, controls a majority of the voting power of our capital stock. As of September 24, 2025, Mr. Jonas has voting power over 1,574,326 shares of our Class A common stock (which are convertible into shares of our Class B common stock on a 1-for-1 basis) and 2,630,045 shares of our Class B common stock, representing approximately 70.3% of the combined voting power of our outstanding capital stock. Mr. Jonas will be able to control all matters requiring approval by our stockholders, including the election of all the directors and the approval of significant corporate matters, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of our other stockholders to influence our management is limited.
