Risk Factors Related to the Business of the Company
Because we have a history of net losses, we may never achieve or sustain profitability or positive cash flow from operations .
We will need to raise additional funds in the near future in order to execute our business plan and these funds may not be available to us when we need them. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be negatively affected.
If we fail to meet the continued listing standards of NASDAQ, our common stock may be delisted, which could have a material adverse effect on the liquidity and market price of our common stock and expose the Company to litigation.
Our telecommunications line of business is highly sensitive to declining prices, which may adversely affect our revenues and margins.
The 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.
Our products face intense competitive challenges, including rapid technological changes and pricing pressure from competitors, which could adversely affect our business.
Our operating results may fluctuate, which could have a negative impact on our ability to grow our client base, establish sustainable revenues and succeed overall.
The termination of our carrier agreements or our inability to enter into new carrier agreements in the future could materially and adversely affect our ability to compete, which could reduce our revenues and profits.
Our customers could experience financial difficulties, which could adversely affect our revenues and profitability if we experience difficulties in collecting our receivables.
We may fail to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions.
We may seek business combination opportunities in industries or sectors that are outside of our management’s area of expertise.
Changes to federal, state and foreign government regulations and decisions in regulatory proceedings, as well as private litigation, could further increase our operating costs and/or alter customer perceptions of our operations, which could materially adversely affect us.
We may attempt to complete a business combination with a private target company about which little information is available, and such target entity may not generate revenue as expected or otherwise be compatible with us as expected.
iii
Any business we acquire will likely lack diversity of operations or geographical reach, and in such case we will be subject to risks associated with dependence on a single industry or region.
Our AI systems may not perform as intended.
Natural disasters, terrorist acts, acts of war, pandemics, cyber-attacks or other breaches of network or information technology security may cause equipment failures or disrupt our operations.
If we are unable to successfully manage growth, our operations could be adversely affected.
If we are unable to respond to technological advancements and other changes in our industry by developing and releasing new services, or improving our existing services, in a timely and cost-effective manner or at all, our business could be materially and adversely affected.
The loss of key personnel could disrupt the management and operations of our business.
Risk Factors Related to Uncertainty
We may be subject to securities litigation, which is expensive and could divert management attention.
We may be subject to tax and regulatory audits which could subject us to liabilities.
Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business.
Risk Factors Related to our Shares
Due to factors beyond our control, our stock price may be volatile.
Future issuance of our Common Stock could dilute the interests of our existing shareholders, particularly in connection with an acquisition and any resulting financing.
We do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
PART I
ITEM 1. BUSINESS
Overview
Nixxy, Inc. (“Nixxy,” the “Company,” “we,” “us,” or “our”) is a Nevada corporation focused on building an artificial intelligence-enabled communications and data infrastructure platform that supports global telecommunications services and emerging transaction-enabled workflows.
The Company operates a carrier-scale telecommunications network delivering wholesale voice and messaging services, enhanced by automation, data analytics, and AI-driven routing technologies. In parallel, the Company is developing an integrated platform designed to support the convergence of communications and financial workflows across global markets.
During the period from 2023 through 2025, the Company completed a strategic transformation from a recruitment and staffing services business into a communications and infrastructure technology company. As of December 31, 2025, the Company has divested or separated substantially all legacy recruiting operations and is primarily engaged in telecommunications services, data infrastructure, and related platform initiatives.
Our common stock trades on the Nasdaq Capital Market under the symbol “NIXX.”
Strategic Transformation
Historically, the Company operated recruitment marketplaces, staffing services, and career-related software platforms under the Recruiter.com brand.
Key milestones in our transformation include:
2023 – Sale of staffing business
Q3 2024 – Sale of Recruiter.com website assets
December 30, 2025 – Completion of legacy recruiter business divestment
Following the divestment of the remainder of our recruiter business, the Company no longer maintains majority ownership or control of the legacy recruitment marketplace business.
As a result of these actions, the Company has repositioned itself as a communications and data infrastructure platform with a focus on scalable telecommunications services and adjacent technology-driven opportunities.
Current Business Focus and Technology Strategy
The Company is focused on building a revenue-backed, carrier-scale communications platform that leverages artificial intelligence and automation to scale global voice and messaging services, improve operating performance, and expand into adjacent infrastructure and transaction-enabled markets.
Our strategy is guided by a structured execution model:
Scale the engine – Grow high-volume communications infrastructure and recurring telecom revenue
Improve the mix – Enhance margins through AI-enabled routing, automation, and traffic optimization
Move up the stack – Expand into infrastructure, software, and communications-driven financial workflows
Management believes that global commerce is increasingly constrained by fragmentation between communications systems and financial transaction infrastructure, creating an opportunity for integrated platforms that connect messaging, identity, and payments into unified workflows.
Auralink Telecommunications Platform (NIXXY COMM™)
Our core operating subsidiary provides a cloud-based telecommunications platform offering:
Wholesale voice termination
SMS routing and delivery
Optimized logic-based traffic flows
Real-time billing and settlement systems
Carrier interconnect services
This platform serves as the Company’s primary revenue engine, supporting high-volume communications traffic across global carrier relationships.
The Company integrates optimized logic and automation into its operations to enhance scalability and efficiency, including:
Intelligent routing and quality-of-service governance
Automated billing, settlement, and revenue assurance
Fraud detection and anomaly monitoring
Margin optimization through traffic mix management
These capabilities enable the Company to manage communications traffic at scale while improving delivery consistency and operational efficiency.
Telco + Fintech Convergence Strategy
The Company is pursuing a strategy to extend its communications platform into transaction-enabled workflows, leveraging its global network infrastructure to support financial interactions embedded within communications channels.
This strategy is based on the premise that modern commerce increasingly relies on messaging for authentication, notifications, and customer engagement, while financial transactions often occur on separate, disconnected systems. Management believes that integrating these functions may improve efficiency, reduce friction, and enable new service capabilities across global markets.
The Company’s approach includes:
Enabling communications-driven transaction workflows, such as payment notifications, confirmations, and identity verification
Supporting cross-border messaging and financial interactions through global telecom infrastructure
Leveraging AI and automation to enhance compliance, routing, and workflow execution
Execution of this strategy is supported by the Company’s infrastructure assets, software platforms, and strategic partnerships, including development collaboration with PayToMe.co.
PayToMe.co is a Silicon Valley–based AI-native financial technology platform enabling embedded payments and cross-border transaction workflows across global markets.
While the Company is actively developing these capabilities, commercialization timing, adoption, and financial impact remain subject to execution, market conditions, and regulatory considerations.
Platform Architecture and Infrastructure
The Company’s platform is structured as a multi-layer architecture designed to support communications, data processing, and application-level workflows:
Communications Layer (NIXXY COMM™)
Provides global voice and messaging infrastructure, routing, and billing systems.
Infrastructure Layer (NIXXY CORE™)
Includes edge computing and data infrastructure assets associated with Everythink Innovations Limited, designed to support:
Low-latency processing environments
AI inference and data processing
Communications-integrated workloads
Scalable compute and storage capabilities
These assets are intended to enable real-time processing of communications and transaction-related data within controlled infrastructure environments.
Application and Workflow Layer
Includes software platforms designed to convert communications into structured workflows, including:
AQUA AI software platform, supporting conversational engagement and automation across communications channels, will be the basis of the Company’s Agentic Ecommerce solutions.
Leadnova.ai, an AI-enabled application designed to integrate communications with data-driven business processes (currently in user acceptance testing with a targeted commercial beta planned for 2026, subject to execution)
Transaction Enablement Layer
Through strategic partnerships, including PayToMe.co, the Company is developing capabilities intended to support:
Messaging-based payment workflows (e.g., text-to-pay)
Transaction confirmations and financial notifications
Cross-border transaction messaging
Communications-driven financial interactions
These capabilities are in planning and development and are intended to extend the Company’s communications platform into transaction-enabled ecosystems over time.
Technology Assets and Acquisitions
During 2025, the Company acquired or licensed intellectual property supporting its transition toward AI-enabled telecommunications and infrastructure operations, including:
Telecommunications routing and billing systems
AI software infrastructure (including AQUA AI)
Edge data infrastructure assets (including Everythink)
Generative AI development assets
These acquisitions were accounted for primarily as asset acquisitions under ASC 805.
Management believes these assets provide a foundation for expanding beyond telecommunications transport into higher-value infrastructure and software-driven services.
Growth Strategy and Commercial Expansion
The Company’s growth strategy is focused on:
Scaling communications volume and network reach through carrier relationships and route expansion
Improving unit economics through automation, optimized logic routing, and traffic mix optimization
Expanding into higher-value services across infrastructure, software, and transaction-enabled workflows
Recent commercial engagements, including services agreements with third parties, are intended to generate incremental revenue, improve operational performance, and reinforce the Company’s position as a trusted operator within the telecommunications ecosystem.
In addition, the Company is pursuing partnerships and development initiatives to support its expansion into communications-enabled financial workflows and cross-border transaction services.
Industry Overview
The global telecommunications services market was estimated by industry sources at approximately $1.98 trillion in 2024 and is projected to grow at a mid-single-digit compound annual rate through 2030.
Within this market, AI adoption and automation are expected to grow at a faster rate, driven by:
Increasing network complexity and data volumes
Demand for cost efficiency and automation
Fraud detection and security requirements
Real-time performance optimization
The Company operates within the wholesale telecommunications and AI-enabled infrastructure segment and is expanding into adjacent markets at the intersection of communications and financial technology.
Competitive Landscape
The Company competes with:
Global telecommunications carriers
Regional wholesale voice and messaging providers
Cloud communications platforms
Optimized logic routing, billing, and analytics providers
Emerging communications-enabled fintech platforms
Competition is based on:
Pricing and cost efficiency
Route quality and delivery performance
Reliability and service levels
Technology capabilities and automation
Network reach and carrier relationships
Ability to integrate communications with broader workflows
The Company’s competitive approach emphasizes automation, disciplined traffic optimization, infrastructure integration, and expansion into higher-value service layers.
Intellectual Property
The Company’s business relies on a combination of:
Licensed software and infrastructure platforms
Proprietary algorithms and routing logic
Trade secrets and confidential information
Third-party technology and development agreements
The Company uses contractual protections, including confidentiality and licensing agreements, to safeguard its intellectual property and commercial information. Infrastructure initiatives include edge computing capacity and network assets associated with acquired technologies, including facilities in Vancouver and Fremont, intended to support resilient workloads and future platform expansion.
Employees
As of December 31, 2025, the Company employed two full time employees and a number of independent contractors.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included or incorporated in this Annual Report. Each of these risk factors, either alone or taken together, could adversely affect our business, financial condition and results of operations, and adversely affect the value of an investment in our Common Stock. There may be additional risks that we do not know of or that we believe are immaterial that could also impair our business and financial condition.
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company. You should carefully consider all of the risks described more fully in this section before deciding to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected.
Important factors that could cause actual results or events to differ materially, but are not limited to, the following:
Risk Factors Related to the Business of the Company
Because we have a history of net losses, we may never achieve or sustain profitability or positive cash flow from operations .
We have incurred net losses in each fiscal year since inception, including net losses of approximately $15.0 million for the year ended December 31, 2025, and $22.6 million for the year ended December 31, 2024. As of December 31, 2025, we had an accumulated deficit of approximately $113.8 million. We expect to continue to incur substantial expenditures to develop and market our services and could continue to incur losses and negative operating cash flow for the foreseeable future. We may never achieve profitability or positive cash flow in the future, and even if we do, we may not be able to continue being profitable. Any failure to achieve and maintain profitability would continue to have an adverse effect on our stockholders’ deficit and working capital and could result in a decline in our stock price or cause us to cease operations. Our independent registered public accounting firm has previously expressed substantial doubt about our ability to continue as a going concern. If we cannot achieve sustained profitability or obtain additional financing, we may be required to curtail operations.
We will need to raise additional funds in the near future in order to execute our business plan and these funds may not be available to us when we need them. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating results could be negatively affected.
We require additional capital in the future in order to fund our growth strategy or to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances. Our telecommunications operations require working capital to support carrier deposits, traffic volume, and settlement cycles. We may also determine to raise equity or debt financing for other reasons. For example, in order to further enhance business relationships with current or potential customers or partners, we may issue equity or equity-linked securities to such current or potential customers or partners.
We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing shareholders could experience significant dilution. In addition, any debt financing obtained by us in the future, whether in the form of a credit facility or otherwise, could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In addition, because our decision to issue debt or equity in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts.
If we fail to meet the continued listing standards of NASDAQ, our common stock may be delisted, which could have a material adverse effect on the liquidity and market price of our common stock and expose the Company to litigation.
On February 20, 2026, we received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that our consolidated closing bid price has been below $1.00 per share for 30 consecutive business days and that, therefore, we are not in compliance with Nasdaq Listing Rule 5550(a)(2), which is the minimum bid price requirement for continued listing on The Nasdaq Capital Market (the “Nasdaq Rule”). The notice does not result in the immediate delisting of our common stock from The Nasdaq Capital Market. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we have automatically been afforded a 180-calendar day grace period to regain compliance. The continued listing standard will be met if the consolidated closing bid price of our common stock is at least $1.00 per share for a minimum of ten consecutive business days during the 180-calendar day grace period. If we are not in compliance by such date, we may be afforded a second 180-calendar day period to regain compliance. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the minimum bid price requirement. In addition, we would be required to notify Nasdaq of its intention to cure the minimum bid price deficiency during the second compliance period by effecting a reverse stock split, if necessary.
If we do not regain compliance within the allotted 180-day compliance period and is not eligible for a second 180-day compliance period, our common stock would be subject to delisting unless it requested a hearing before an independent Nasdaq Hearings Panel. A request for a hearing would stay any suspension or delisting action pending the hearing and any additional extension period granted by the Nasdaq Hearings Panel.
If our common stock were to be delisted from Nasdaq, the liquidity of our common stock would be adversely affected, and the market price of our common stock could decrease. There is no assurance that we will maintain its compliance with the Nasdaq Rule in the future.
Our telecommunications line of business is highly sensitive to declining prices, which may adversely affect our revenues and margins.
The 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.
A reduction in our prices to compete with any other offers in the market will not always guarantee an increase in traffic, 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 telecommunications businesses and/or our gross margins. The continued growth of Over-The-Top calling and messaging services, such as WhatsApp, have adversely affected the use of traditional phone communications. We expect this IP-based service, which offers voice communications for free to continue to increase, which may result in increased substitution on our service offerings.
Additionally, our cost of revenue is significant and margins may fluctuate. Wholesale telecommunications is a low-margin industry subject to rapid pricing changes. Increases in carrier costs or pricing compression could materially impact profitability.
Our products face intense competitive challenges, including rapid technological changes and pricing pressure from competitors, which could adversely affect our business.
All of our product lines are subject to significant competition from existing and future competitors, market conditions and technological change, or a combination of them, and our sales revenues and gross margins may suffer protracted and serious declines with the result that we would likely incur protracted losses. Further, the barriers to entry in several of our lines of business are not so significant that we may be facing competition from others who see significant opportunities to enter the market and undercut our prices with products that possess superior technological attributes at prices that offer our customers a better value. In this instance, we could incur protracted and significant losses and people who acquire our common stock would suffer losses thereby.
From time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share. Competition and customer pressures may also restrict our ability to increase prices in response to commodity and other input cost increases. Our results of operations will suffer if profit margins decrease, as a result of a reduction in prices, increased input costs or other factors, and if we are unable to increase sales volumes to offset those profit margin decreases. We may also need to increase spending on marketing, advertising and new product innovation to protect existing market share or increase market share. The success of our investments is subject to risks, including uncertainties about trade and consumer acceptance. As a result, our increased expenditures may not maintain or enhance market share and could result in lower profitability.
Our operating results may fluctuate, which could have a negative impact on our ability to grow our client base, establish sustainable revenues and succeed overall.
Our results of operations may fluctuate as a result of a number of factors, some of which are beyond our control including but not limited to:
general economic conditions in the geographies and industries where we sell our services and conduct operations; legislative policies where we sell our services and conduct operations;
the budgetary constraints of our customers; seasonality;
the success of our strategic growth initiatives;
costs associated with the launching or integration of new or acquired businesses;
timing of new product introductions by us, our suppliers and our competitors; product and service mix, availability, utilization and pricing;
the mix, by state and country, of our revenues, personnel and assets;
movements in interest rates or tax rates;
changes in, and application of, accounting rules;
changes in the regulations applicable to us;
Litigation matters.
As a result of these factors, we may not succeed in our business, and we could go out of business.
The termination of our carrier agreements or our inability to enter into new 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 to provide our telecommunications services to our customers. These carrier agreements are, in most cases 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 revenue depends on relationships with telecommunications carriers and interconnection agreements. We rely on third-party carriers to originate and terminate traffic. Loss, modification, or unfavorable renegotiation of these agreements could materially reduce revenue. 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.
Our 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 our profitability may be substantially reduced. This concentration of revenue increases our exposure to non-payments and we may experience significant write-offs if any of our large customers fail to pay their outstanding balances, which could adversely affect our revenues and profitability.
We may fail to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions.
We intend to make acquisitions of complementary (including competitive) businesses, products and technologies. However, any future acquisitions may result in material transaction costs, increased interest and amortization expenses related to goodwill and other intangible assets, increased depreciation expenses and increased operating expenses, any of which could have an adverse effect on our operating results and financial position. Acquisitions will require integration of acquired assets and management into our operations to realize economies of scale and control costs. Acquisitions may involve other risks, including diversion of management attention that would otherwise be available for ongoing internal development of our business and risks inherent in entering markets in which we have no or limited prior experience. In connection with future acquisitions, we may make potentially dilutive issuances of equity securities. In addition, consummation of acquisitions may subject us to unanticipated business uncertainties, contingent liabilities or legal matters relating to those acquired businesses for which the sellers of the acquired businesses may not fully indemnify us. There can be no assurance that our business will grow through acquisitions, as anticipated.
We believe there are meaningful opportunities to grow through acquisitions and joint ventures across all product and service categories and we expect to continue a strategy of selectively identifying and acquiring businesses with complementary products and services. We may be unable to identify, negotiate, and complete suitable acquisition opportunities on reasonable terms. There can be no assurance that any business acquired by us will be successfully integrated with our operations or prove to be profitable to us. We may incur future liabilities related to acquisitions. Should any of the following problems, or others, occur as a result of our acquisition strategy, the impact could be material:
diversion of management time and focus from operating our business;
use of resources that are needed in other areas of our business;
in the case of an acquisition, implementation or remediation of controls, procedures and policies of the acquired company;
in the case of an acquisition, difficulty integrating the accounting systems and operations of the acquired company;
in the case of an acquisition, coordination of product, engineering and selling and marketing functions, including difficulties and additional expenses associated with supporting legacy services and products and hosting infrastructure of the acquired company and difficulty converting the customers of the acquired company onto our systems, platforms and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company;
in the case of an acquisition, difficulty integrating, supporting or enhancing acquired product lines or services, including difficulty in transitioning acquired solutions developed with different source code architectures to our integrated platforms, difficulty in supporting feature development across our full suite of house-built and acquired solutions and strain on resources from marketing and supporting multiple platforms prior to integration;
in the case of an acquisition, retention and integration of employees from the acquired company, and preservation of our corporate culture;
in the case of an acquisition, reliance on certain existing executive teams of acquired companies in new industries;
in the case of an acquisition or divestiture, difficulty delivering on our product strategy, including building a platform that enables us to drive value across our full ecosystem of merchants, suppliers and consumers;
unforeseen costs or liabilities;
adverse effects to our existing business relationships with partners and customers as a result of the acquisition, investment or divestiture;
the possibility of adverse tax consequences;
in the case of an acquisition or divestiture, we may not be able to secure required regulatory approvals or otherwise satisfy closing conditions for a proposed transaction in a timely manner, or at all;
fluctuations in the value of our investments, impairment to the value of our investments, or the failure to realize a return on such investments;
regulatory risks, litigation or other claims inherited from or arising in connection with the acquired company, investment or divestiture;
in the case of a divestiture, unforeseen loss of institutional knowledge, resources, know-how, or other assets;
in the case of a divestiture, potential contractual obligations may trigger, such as change of control obligations, which may negatively impact our ability to execute on such divestiture, our business, our financial condition, or our operating results; and
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries.
We may not be able to identify acquisition or investment opportunities that meet our strategic objectives, or to the extent that such opportunities are identified, we may not be able to negotiate terms with respect to the acquisition or investment that are acceptable to us. In addition, the acquisitions and investments that we consummate may fail to achieve our strategic objectives, in which case we may shut down, divest, or otherwise exit the acquired business or investment, which could harm our reputation and adversely affect our financial position and results of operations.
We may seek business combination opportunities in industries or sectors that are outside of our management’s area of expertise.
We will consider a business combination outside of our management’s area of expertise if a business combination candidate is presented to us and we determine that such candidate offers an attractive opportunity for us. Although management intends to endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately ascertain or assess all the significant risks, or that we will accurately determine the actual value of a prospective operating entity to acquire. In the event we elect to pursue an acquisition outside of the areas of our management’s expertise, our management’s ability to evaluate and make decisions on behalf of us may be limited, or we may make material expenditures on additional personnel or consultants to assist management in our operations. Investors should be aware that the information contained herein regarding the areas of our management’s expertise will not necessarily be relevant to an understanding of the business that we ultimately elect to acquire. As a result, our management may not be able to adequately ascertain or assess all the significant risks or strategic opportunities that may arise. Accordingly, any of our shareholders following a business combination could suffer a reduction in the value of their shares, and any resulting loss will likely not be recoverable.
Changes to federal, state and foreign government regulations and decisions in regulatory proceedings, as well as private litigation, could further increase our operating costs and/or alter customer perceptions of our operations, which could materially adversely affect us.
Companies operating the telecommunications industry are subject to significant federal and state regulation, including the FCC and in some instances, by state and local agencies. Adverse regulations and rulings by the courts, the FCC or states relating to broadband and wireless deployment, could impede our ability to manage our networks and recover costs and lessen incentives to invest in our networks. The continuing growth of IP-based services, especially when accessed by wireless devices, has created or potentially could create conflicting regulation between the FCC and various state and local authorities, which may involve lengthy litigation to resolve and may result in outcomes unfavorable to us. In addition, increased public focus on a variety of issues related to our operations, such as privacy issues, government requests or orders for customer data, and concerns about global climate change, have led to proposals or new legislation at state, federal and foreign government levels to change or increase regulation on our operations, which could result in additional costs of compliance or litigation. Enactment of new privacy laws and regulations could, among other things, adversely affect our ability to collect data and offer targeted advertisements or result in additional costs of compliance or litigation.
We may attempt to complete a business combination with a private target company about which little information is available, and such target entity may not generate revenue as expected or otherwise be compatible with us as expected.
In pursuing our search for a business to acquire, we will likely seek to complete a business combination with a privately held company. Very little public information generally exists about private companies, and the only information available to us prior to making a decision may be from documents and information provided directly to us by the target company in connection with the transaction. Such documents or information or the conclusions we draw therefrom could prove to be inaccurate or misleading. As such, we may be required to make our decision on whether to pursue a potential business combination based on limited, incomplete, or faulty information, which may result in our subsequent operations generating less revenue than expected, which could materially harm our financial condition and results of operations.
Any business we acquire will likely lack diversity of operations or geographical reach, and in such case we will be subject to risks associated with dependence on a single industry or region.
Our search for a business will likely be focused on entities with a single or limited business activity and/or that operate in a limited geographic area. While larger companies have the ability to manage their risk by diversifying their operations among different industries and regions, smaller companies such as ours and the entities we anticipate reviewing for a potential business combination generally lack diversification, in terms of both the nature and geographic scope of their business. As a result, we will likely be impacted more acutely by risks affecting the industry or the region in which we operate than we would if our business were more diversified. In addition to general economic risks, we could be exposed to natural disasters, civil unrest, technological advances, and other uncontrollable developments that will threaten our viability if and to the extent our future operations are limited to a single industry or region. If we do not diversify our operations, our financial condition and results of operations will be at risk.
Our AI systems may not perform as intended.
AI-driven routing and analytics tools may produce inaccurate results, leading to billing errors, network inefficiencies, or contractual disputes. Rapid technological change could render our systems obsolete. Telecommunications and AI technologies evolve rapidly. Failure to adapt to new standards or protocols could reduce competitiveness. Increased regulation of artificial intelligence may increase compliance costs. Emerging AI regulations may impose additional operational and reporting requirements.
Natural disasters, terrorist acts, acts of war, pandemics, cyber-attacks or other breaches of network or information technology security may cause equipment failures or disrupt our operations.
Our inability to operate our telecommunications networks because of the events listed above, even for a limited period, may result in loss of revenue, significant expenses, which could have a material adverse effect on our results of operations and financial condition. Network disruptions, service outages, or routing failures could materially harm our business. Our services depend on uninterrupted operation of telecommunications infrastructure. System failures, cyberattacks, or routing errors may result in lost revenue and reputational damage.
We could be harmed by network disruptions, security breaches, or other significant disruptions or failures of our IT infrastructure and related systems. To be successful, we need to continue to have available a high capacity, reliable and secure network for our and our customers’ use. As any other company, we face the risk of a security breach, whether through cyber-attacks, malware, computer viruses, sabotage, or other significant disruption of our IT infrastructure and related systems. There is a risk of a security breach or disruption of the systems we operate, including possible unauthorized access to our proprietary or classified information. We are also subject to breaches of our network resulting in unauthorized utilization of our services, which subject us to the costs of providing those services, which are likely not recoverable. The secure maintenance and transmission of our information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer information may be compromised by a malicious third-party penetration of our network security, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third-party service provider or business partner. As a result, our or our customers’ information may be lost, disclosed, accessed or taken without the customers’ consent, or our services 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 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 cyber-attacks and intrusions. 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 cyber-attacks in the past. We have researched the situations and do not believe any material internal or customer information has been compromised.
If we are unable to successfully manage growth, our operations could be adversely affected.
Our progress is expected to require the full utilization of our management, financial and other resources, which to date has occurred with limited working capital. Our ability to manage growth effectively will depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train and manage sales personnel. There can be no absolute assurance that management will be able to manage growth effectively.
If we do not properly manage the growth of our business, we may experience significant strains on our management and operations and disruptions in our business. Various risks arise when companies and industries grow quickly. If our business or industry grows too quickly, our ability to meet customer demand in a timely and efficient manner could be challenged. We may also experience development delays as we seek to meet increased demand for our products. Our failure to properly manage the growth that we or our industry might experience could negatively impact our ability to execute on our operating plan and, accordingly, could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or potential customers.
If we are unable to respond to technological advancements and other changes in our industry by developing and releasing new services, or improving our existing services, in a timely and cost-effective manner or at all, our business could be materially and adversely affected .
Our industry is characterized by rapid technological change, frequent new service launches, changing user demands, and evolving industry standards. The introduction of new services based on technological advancements can quickly render existing services obsolete. We will need to expend substantial resources on researching and developing new services and enhancing our platform by incorporating additional features, improving functionality, and adding other improvements to meet our users’ evolving demands. We may not be successful in developing, marketing, and delivering in a timely and cost-effective manner enhancements or new features to our platform or any new services that respond to continued changes in the market. Furthermore, any enhancements or new features to our platform or any new services may contain errors or defects and may not achieve the broad market acceptance necessary to generate sufficient revenue. Moreover, even if we introduce new services, we may experience a decline in revenue from our existing services that is not offset by revenue from the new services.
The loss of key personnel could disrupt the management and operations of our business.
Our business depends upon the continued efforts, abilities and expertise of our executive officers and other key executives and employees. We are highly dependent on the abilities of our Chief Executive Officer, Mike Schmidt. We believe that the combination of skills and experience possessed by our executive officers and other key employees could be difficult to replace, and that the loss of one or more of them could have a material adverse effect on us, including the impairment of our ability to execute our business strategy.
Risks Related to Legal Uncertainty
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.
We may be subject to tax and regulatory audits which could subject us to liabilities.
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.
Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business.
Federal, state, and international laws and regulations govern the collection, use, retention, disclosure, sharing and security of data that we receive from and about our users. The use of consumer data by online service providers is a topic of active interest among federal, state, and international regulatory bodies, and the regulatory environment is unsettled. Many states have passed laws requiring notification to users where there is a security breach for personal data, such as California’s Information Practices Act. We face similar risks in international markets where our products and services are offered. Any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any applicable federal, state, or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of user confidence, damage to our business and brand, and a loss of users, which could potentially have an adverse effect on our business.
In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data retention, data transfer and data protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with users. For example, some countries are considering or have enacted laws mandating that user data regarding users in their country be maintained in their country. In addition, there currently is a data protection regulation applicable to member states of the European Union that includes operational and compliance requirements that are different than those currently in place and that also includes significant penalties for non-compliance.
The interpretation and application of privacy, data protection, data transfer and data retention laws and regulations are often uncertain and in flux in the United States and internationally. These laws may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices, complicating long-range business planning decisions. If privacy, data protection, data transfer or data retention laws are interpreted and applied in a manner that is inconsistent with our current policies and practices, we may be fined or ordered to change our business practices in a manner that adversely impacts our operating results. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business and operating results.
Security breaches, denial of service attacks, or other hacking and phishing attacks on our systems or other security breaches, including internal security failures, could harm our reputation or subject us to significant liability, and adversely affect our business and financial results.
As a critical infrastructure service provider, we transmit large amounts of data over our systems, and process and store highly sensitive customer data. Consequently we, our third-party service providers, and our customers operate in an industry that is prone to cyber-attacks. Despite our efforts to prevent these events, some of these attacks could result in a material adverse impact to our operations due to distributed denial of service attacks, ransomware attacks, malware, virus, credential harvesting, man-in-the-middle attacks, or social engineering attacks. We do not believe these incidents are likely to have a material adverse impact on our ability to serve our customers or our business, operations or financial results.
Cyber-attacks on our systems may stem from a variety of sources and take many forms. Cyber-attacks can put at risk personally identifiable information, customer data or protected information, thereby implicating stringent domestic and foreign data protection laws. These threats may also arise from failure or intrusions of systems owned, operated or controlled by other unaffiliated third-party operators, upon whom we are materially reliant to operate our business. Various other factors could intensify these risks, including, (i) our maintenance of information in digital form stored on servers connected to the Internet, (ii) our use of open- and software-defined networks, (iii) the challenges of operating and maintaining our complex multi-continent network composed of legacy and acquired properties, which is more difficult to safeguard than newer fully-integrated networks, (iv) growth in the size and sophistication of our customers and their service requirements, (v) increased use of our network due to greater demand for data services, (vi) the large number of our employees working from remote locations, (vii) our IT support agreements with purchasers of businesses we have divested over the past few years and (viii) as further discussed below, the difficulty of defending against increasingly sophisticated attacks.
Cyber-attacks could (i) disrupt the proper functioning of our networks and systems, which could in turn disrupt the operations of our customers, (ii) result in the destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, classified or otherwise valuable information of ours, our employees, our customers or our customers’ end users, (iii) require us to notify customers, regulatory agencies or the public of data incidents, (iv) damage our reputation or result in a loss of business, (v) require us to provide credits for future service to our customers or to offer expensive incentives to retain customers, (vi) subject us to claims by our customers or regulators for damages, fines, penalties, license or permit revocations or other remedies, (vii) result in the loss of industry certifications or (viii) require significant management attention or financial resources to remedy the resulting damages or to change our systems. Any or all of the foregoing developments could have a material adverse impact on us.
We believe the importance of our network to global internet data flows will continue to make it a target to a wide range of threat actors, including nation state actors and other advanced persistent threat actors. Moreover, the risk of incidents is likely to continue to increase due to several factors, including (i) the increasing use of machine learning, AI and other sophisticated techniques to initiate cyber and phishing attacks, (ii) the wider accessibility of cyber-attack tools that can circumvent security controls and evade detection, which can delay and limit our ability to accurately assess and fully remediate the impact of the attack, and (iii) growing threats from Chinese, Russian and other state actors due to heightened geopolitical tensions and rivalries, and the attendant increased possibility of cyber warfare targeting us in the event of a direct conflict. It should also be noted that defenses against cyber-attacks currently available to us and others are unlikely to prevent intrusions by a highly-determined, highly-sophisticated threat actor. Thus far, none of our past security incidents have had a material adverse effect on us, and we continue to take steps designed to limit our cyber risks. Nonetheless, we cannot assure you that future cyber incidents or events will not ultimately have a material adverse impact on our business, operations or financial results.
Risks Related to Our Common Stock
Due to factors beyond our control, our stock price may be volatile.
There is currently a limited market for our Common Stock, and there can be no guarantee that an active market for our Common Stock will develop, even if we are successful in consummating a business combination. Recently, the price of our Common Stock has been volatile for no reason. Further, even if an active market for our Common Stock develops, it will likely be subject to by significant price volatility when compared to more seasoned issuers. We expect that the price of our Common Stock will continue to be more volatile than more seasoned issuers for the foreseeable future. Fluctuations in the price of our Common Stock can be based on various factors in addition to those otherwise described in this Report, including:
General speculative fever;
A prospective business combination and the terms and conditions thereof;
The operating performance of any business we acquire, including any failure to achieve material revenues therefrom;
The performance of our competitors in the marketplace, both pre- and post-combination;
The public’s reaction to our press releases, SEC filings, website content and other public announcements and information;
Changes in earnings estimates of any business that we acquire or recommendations by any research analysts who may follow us or other companies in the industry of a business that we acquire;
Variations in general economic conditions, including as may be caused by uncontrollable events;
The public disclosure of the terms of any financing we disclose in the future;
The number of shares of our Common Stock that are publicly traded in the future;
Actions of our existing shareholders, including sales of Common Stock by our then directors and then executive officers or by significant investors; and
The employment or termination of key personnel.
Many of these factors are beyond our control and may decrease the market price of our Common Stock, regardless of whether we can consummate a business combination and of our current or subsequent operating performance and financial condition. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.
Future issuance of our Common Stock could dilute the interests of our existing shareholders, particularly in connection with an acquisition and any resulting financing.
We may issue additional shares of our Common Stock in the future. The issuance of a substantial amount of our Common Stock could substantially dilute the interests of our shareholders. In addition, the sale of a substantial amount of Common Stock in the public market, either in the initial issuance or in a subsequent resale by the target company in a business combination which received our Common Stock as consideration or by investors who has previously acquired such Common Stock could have an adverse effect on the market price of our Common Stock.
We do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
