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Item 8. Financial Statements and Supplementary Data

2026-03-31 compared with 2025-06-24 · 1185 added, 341 removed, 165 unchanged (90% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SPECTRAL CAPITAL CORPORATION

DECEMBER 31, 2024 AND 2023

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Spectral Capital Corporation (a Nevada corporation)

Our audited consolidated financial statements for the years ended December 31, 2025, and 2024 are part of this Annual Report on Form 10-K.

They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2025 and 2024

Consolidated Statements of Operations for the years ended December 31, 2024 and 2023

Consolidated Statement of Stockholders’ Deficit for the years ended December 31, 2024 and 2023

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2025 and 2024

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2025 and 2024

Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024

Notes to Consolidated Financial Statements

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Spectral Capital Corporation and subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the consolidated financial statements).

We have audited the accompanying consolidated balance sheets of Spectral Capital Corporation (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

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The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, had an accumulated deficit and has a deficit working capital raise substantial doubt about its ability to continue as going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit and a working capital deficit which raise substantial doubt about its ability to continue as going concern.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters

The communication of critical audit matters does not alter in any way our opinion on the consolidated

financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill and Other Intangibles – Refer to Notes 3 to the consolidated financial statements

Critical Audit Matter Description

As disclosed in Note 3, Goodwill arises in connection with acquisitions.

The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill.

The Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.

As disclosed in Note 3, on August 1, 2025, the Company completed an acquisition referred to as the 42 Telecom Ltd.

acquisition in accordance with the stock purchase agreement.

The consideration included an initial payment of $12,880,000 through common stock.

In addition to the initial payment amount, the Company agreed to issue an earn-out to the selling stockholders that is subject to an earn-out adjustment based on actual EBITDA achieved in 2026 with total guarantee minimum share value consideration of $30,000,000.

The Company gave a fair value of approximately $7,120,000 to the earn-out on the date of acquisition which is considered a contingent liability.

Also, as disclosed in Note 3, on December 31, 2025, the Company completed an acquisition referred to as the Telvantis Voice Services, Inc.

acquisition in accordance with the stock purchase agreement.

The consideration included an initial payment of $3,407,250 through common stock.

In addition to the initial payment amount, the Company agreed to issue an earn-out agreement to the selling stockholders that is subject to an earn-out adjustment based on actual EBITDA achieved in 2027 with total guarantee minimum share value consideration of $65,000,000.

The Company gave a fair value of approximately $31,105,750 to the earn-out on the date of acquisition which is considered a contingent liability.

Given the significant judgments made by management to estimate the earn-outs as well as intangible assets acquired with the 42 Telecom Ltd acquisition and Telvantis Voice Services, Inc.

acquisition, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

· We utilized personnel with specialized knowledge and skill in valuation to assist in;

a) assessing the appropriateness and relative weighting of valuation methodology for the various intangible assets, including the Multi-Period Excess Earnings Method, Cost to Replace, Relief from Royalty and Monte Carlo Simulation model, b) evaluating the reasonableness of the growth rates, percent of revenues lost without existing agreements, discount rate used in the income approach and the discount rate used for lack of marketability of the Company’s common stock and, c) evaluating the reasonableness of the assumptions and estimates used in the various valuation methodologies.

· Evaluate the reasonableness of management’s significant estimates and assumptions including revenue growth rates and EBITDA margins, discount rates and futures market conditions.

· Evaluate if there have been events and circumstances that might indicate Goodwill has been impaired.

· Reviewed and assessed the appropriateness of adjustments to Goodwill, Other Intangibles and other Assets and Liabilities acquired based on changes to their estimated fair values.

We have served as the Company’s auditor since 2025.

June 23, 2025

March 31, 2026

SPECTRAL CAPITAL CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2024

December 31, 2023

Cash and cash equivalents

Prepaid expenses

AS OF DECEMBER 31, 2025 AND 2024

Current assets:

Liabilities and Stockholders' Deficit:

Current liabilities

Accounts payable and accrued liabilities

Related party advances

Short-term advances

Cash and cash equivalents

Restricted cash

Accounts receivable, net

Accounts receivable, related party

Contract assets

Contract assets, related party

Due from related party

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Intangible assets, net

Capital work-in-progress

Other receivable, related party

Right of use asset

$ 150,746,286

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

Accounts payable, related party

Accrued expenses and other current liabilities

Due to related party

Accounts receivable financing facility

Contingent consideration

Contract liabilities

Operating lease liability, current portion

Total current liabilities

Operating lease liability, net of current portion

Deferred tax liability

Total liabilities

Commitments and contingencies

Stockholders' Deficit:

Preferred stock, par value $ 0.0001 , 5,000,000 shares

authorized, no shares issued and outstanding

Series Quantum Preferred Stock, par value $ 0.0001 ,

2,000,000 and 0 shares authorized, 1,000,000 and 0

shares issued and outstanding as of December 31, 2024

Common stock, par value $ 0.0001 , 1,000,000,000 and

500,000,000 shares authorized, 67,699,302 and

42,017,948 shares issued and outstanding as of

December 31, 2024 and 2023

Commitments and contingencies (Note 15)

Stockholders' equity (deficit):

Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized no shares issued and outstanding

Series Quantum Preferred stock, par value $ 0.0001 , 2,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding as of December 31, 2025 and 2024

Common stock, par value $ 0.0001 , 300,000,000 shares authorized 88,254,216 and 67,699,302 shares issued and outstanding as of December 31, 2025 and 2024

Common stock to be issued (1,500,000 shares at December 31, 2025)

Additional paid-in capital

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( 34,333,396 )

Total stockholders' deficit

Accumulated other comprehensive income/(loss)

Total stockholders' equity (deficit)

Non-controlling interest

Total stockholders' deficit - Spectral Capital Corp.

Total liabilities and stockholders' deficit

The accompanying notes are an integral part of these consolidated financial statements.

Total liabilities and stockholders' equity (deficit)

$ 150,746,286

The accompanying notes are an integral part of these audited consolidated financial statements.

SPECTRAL CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31, 2024

Year Ended December 31, 2023

Costs of sales

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

Revenue, related party

Total revenues

Cost of revenue

Cost of revenue, related party

Operating expenses:

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Wages and benefits

Depreciation and amortization

Research and development

Total operating expenses

Operating loss

Loss from operations

( 2,928,140 )

Other income and (expense):

( 3,004,948 )

Other income (expense):

Interest expense, net

Extinguishment of debt

Change in fair value of contingent consideration

Other expense

Total other income (expense)

Net loss before non-controlling interest

Income (loss) before income taxes

( 3,270,544 )

Loss attributable to non-controlling interest

Net loss attributable to Spectral Capital Corporation

Income taxes (benefit)

Net income (loss)

$ ( 3,270,544 )

Net income (loss) attributable to Non-controlling interests

Net income (loss) attributable to the Company

$ ( 3,270,544 )

Basic and diluted loss per common share

Weighted average shares - basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.

Other comprehensive income (loss):

Foreign currency translation income (loss)

Total comprehensive income (loss)

$ ( 3,270,544 )

Net Income (loss) per share attributable to the Company

Weighted average shares outstanding

The accompanying notes are an integral part of these audited consolidated financial statements.

SPECTRAL CAPITAL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

Series Quantum Preferred Stock

Additional Paid-in Capital

Non-Controlling Interest

Accumulated Deficit

Total Stockholders' Deficit

December 31, 2022

$ ( 221,796 )

$ ( 30,847,465 )

$ ( 192,002 )

Settlement of liability by shareholder

Non-controlling interest

December 31, 2023

Series Quantum

Accumulated Other

Preferred Stock

Common Stock to be issued

Non-Controlling

Comprehensive

Stockholders'

Equity (Deficit)

Balances at December 31, 2023

$ ( 221,886 )

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$ ( 332,479 )

Sale of common stock

Proceeds from sale of common stock

Issuance of common stock for liabilities

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( 3,270,544 )

December 31, 2024

Balances at December 31, 2024

$ ( 221,886 )

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$ ( 919,186 )

The accompanying notes are an integral part of these consolidated financial statements.

Common stock issued pursuant to private placement

Common stock issued pursuant to business combination

Common stock to be issued pursuant to business combination

Common stock issued pursuant to assets purchase agreement

Common stock issued pursuant to debt settlement

Common stock issued pursuant to services

Settlement of related party liabilities

( 1,000,000 )

Stock-based compensation

Balances at December 31, 2025

$ ( 221,886 )

$ ( 33,415,041 )

The accompanying notes are an integral part of these audited consolidated financial statements.

SPECTRAL CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31, 2024

Year Ended December 31, 2023

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

Cash flows from operating activities:

Net loss attributable to Spectral Capital Corporation

$ ( 3,270,544 )

Net income (loss)

$ ( 3,270,544 )

Adjustments to reconcile net loss to net cash

used in operating activities:

Non-controlling interest

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Common stock issued for professional and marketing services

Amortization of right of use assets

Change in fair value of contingent consideration

( 3,387,266 )

Amortization of intangibles

Deferred tax adjustments

( 1,042,689 )

Excess value of common stock issued to settle liabilities

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Accounts receivable

Prepaids and other assets

Due to related parties - accrued salary

Accounts payable and accrued expenses

( 5,646,523 )

Contract assets

( 5,641,421 )

Prepaid expenses and other current assets

Other receivable, related party

Due to / from related party

Accounts payable

Accounts payable, related party

Accrued expenses and other current liabilities

Contract liabilities

Deferred tax liability

Operating lease liabilities, net

Net cash used in operating activities

( 1,487,560 )

( 1,653,959 )

Cash flows from investing activities:

Net cash used in investing activities

Cash and restricted cash acquired from business combinations

Purchase of property, plant and equipment

Software development capitalization

Net cash provided by investing activities

Cash flows from financing activities:

Short-term advances

Proceeds from related party advances

Short-term advances, related party

Repayment of loan

Accounts receivable financing facility

Proceeds from sale of common and preferred stock

Net cash provided by financing activities

Effect of exchange rate changes on cash

Change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents and restricted cash at beginning of year

Cash and cash equivalents and restricted cash at end of year

Reconciliation of cash and restricted cash:

Cash at beginning of year

Restricted cash at beginning of year

Cash and restricted cash at beginning of year

Cash at end of year

Restricted cash at end of year

Cash and restricted cash at end of year

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Non-cash investing and financing activities:

Common stock issued to settle liabilities

Settlement of a liability by a shareholder

The accompanying notes are an integral part of these consolidated financial statements.

Cash paid for interest

Supplemental disclosure of non-cash operating activities:

Issuances of common stock for consulting and marketing services - prepaid expense

Supplemental disclosure of non-cash investing and financing activities:

Purchase of intangible assets in exchange of issuance of common stock

Dividend payable to former owner of 42 arising from measurement year adjustment to goodwill

Contingent consideration liability recognized with business combination

Issuance of common stock pursuant to business combination

Common stock to be issued pursuant to business combination

Settlement of related party liabilities

Issuance of common stock in settlement of liabilities

Deferred tax adjustment to goodwill

The accompanying notes are an integral part of these audited consolidated financial statements.

SPECTRAL CAPITAL CORPORATION

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NOTE 1 – BUSINESS AND NATURE OF OPERATIONS

Spectral Capital Corporation (“Spectral” or the “Company”) is a Nevada corporation, originally incorporated on September 13, 2000.

Since its inception, the Company has undergone several strategic transitions, ultimately refocusing its operations in 2024 to become a deep technology company centered on hybrid classical-quantum computing.

Headquartered in Seattle, Washington, Spectral now operates as a vertically integrated quantum and AI innovation platform, offering Quantum as a Service (QaaS), intellectual property licensing, proprietary software products, and value-driven acquisitions.

Spectral Capital Corporation (the “Company” or “Spectral”) was incorporated on September 13, 2000 under the laws of the State of Nevada.

The Company is focused on the identification, acquisition, development, and financing of technology with the potential to transform existing industries.

Spectral has acquired significant stakes in two recently reactivated technology companies (Noot Holdings, Inc.

(“Noot”) and Monitr Holdings, Inc.(“Monitr”)) as well as interests within telecommunications, data and switching services, specifically providing international long distance reselling services on a business-to-business (B2B) basis and a newly emergent business in the field of deploying Quantum Computing as a Service (“QAAS”) technologies as well as supporting start-ups in that field with shared technological, marketing and other resources.

Spectral’s business model is built on four synergistic pillars:

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and (4) acquisition and transformation of smaller technology companies through the strategic application of Spectral’s proprietary technology.

In 2024, Spectral filed 104 patent applications across artificial intelligence, quantum computing, and autonomous systems, while concurrently developing an internal pipeline of over 400 additional patentable innovations.

The Company also engaged a network of senior scientific and commercial advisors to enhance IP defensibility and commercialization readiness.

These efforts support an expanding pipeline of licensing negotiations and product development initiatives.

The Company’s legacy as a technology incubator included several historical acquisitions, such as Noot Holdings and Monitr Holdings.

In 2024, Spectral entered a new strategic phase through a series of acquisitions and platform developments in quantum and decentralized computing.

However, in 2025, the Company formally rescinded certain transactions involving former Chairman Sean Michael Brehm and related entities.

In 2025, the Company formally rescinded certain transactions involving former Chairman Sean Michael Brehm and related entities.

These rescissions preserved Spectral’s independently developed intellectual property, clarified ownership of over 100 provisional patents, and returned in excess of $100 million in share-based consideration to shareholders, thereby restoring strategic focus and corporate governance alignment.

Spectral’s current operations are focused on licensing its IP, developing quantum- and AI-enhanced software products, and executing acquisitions where its technologies can drive transformative growth.

The Company has not yet generated revenues and reported net losses for fiscal years 2023 and 2024.

Management is actively pursuing strategic partnerships and financing opportunities to support operational expansion and long-term commercialization efforts.

Acquisition of 42 Telecom Ltd.

On July 15, 2025, Spectral entered into a definitive share-exchange agreement to acquire 100% of the issued and outstanding shares of 42 Telecom Ltd.

(“42 Telecom”), a Maltese-organized telecommunications infrastructure provider.

The transaction closed on August 1, 2025;

42 Telecom is now a wholly owned subsidiary of Spectral.

As consideration, the Company issued 8,000,000 shares of its common stock and placed an additional 8,000,000 shares into escrow subject to earn-out and performance milestones (the “Escrow Shares”).

The acquisition included the following wholly owned subsidiaries of 42 Telecom:

• 42 Telecom AB Ltd.

• 42 Telecom UK Ltd.

(United Kingdom)

• Arcus Technologies Ltd.

42 Telecom provides international telecommunications and messaging solutions.

Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions.

Through Arcus Technologies Ltd., 42 Telecom also offers platform-as-a-service solutions tailored for the tourism sector.

42 Telecom serves a global customer base consisting primarily of mobile network operators and enterprises.

Acquisition of Telvantis Voice Services.

On December 29, 2025, Spectral entered into a Definitive Stock Purchase Agreement with Telvantis, Inc.

(formerly Raadr, Inc.), a Nevada corporation, to acquire 100% of the issued and outstanding shares of Telvantis Voice Services, Inc.

(“Telvantis”), a Florida corporation.

At the time of the acquisition, Telvantis was considered a related party of the Company, as Telvantis is 75% owned by Mexedia SpA, an entity that is a related party of Spectral through the common directorship of Mr.

Orlando Taddeo, who served as director of 42 Telecom (a wholly owned Spectral subsidiary) and retained a controlling ownership interest in Mexedia SpA through Heritage Ventures Ltd.

through December 31, 2025.

The transaction closed on December 31, 2025;

Telvantis is now a wholly owned subsidiary of Spectral.

As consideration, Spectral issued 1,500,000 shares of its common stock at closing and may issue up to an additional 8,500,000 shares subject to financial year 2026 performance milestones (the “Earn-Out Shares”) (i) Earn-Out Shares shall be earned at a rate of 1,000,000 shares for each $1,000,000 of annualized net operating profit (GAAP basis) above $1,500,000, up to a maximum of 8,500,000 shares;

or alternatively, (ii) upon achievement of total annualized gross revenues of $665,000,000 with an equivalent or superior operating margin as compared to the Company's 2025 results.

In addition, the aggregate value of all Spectral shares issued in connection with the acquisition must achieve a 30-day volume weighted average price ("VWAP") of at least $65,000,000 by December 29, 2026, failing which the Seller may elect to rescind the transaction or Spectral may, at its sole option, issue such additional shares as would be necessary to satisfy the minimum value threshold.

The acquisition included the following wholly owned subsidiaries of Telvantis:

· Phonetime, Inc.

(U.S.) — A subsidiary providing international voice termination services

· Matchcom Telecommunications, Inc.

(U.S.) — A subsidiary focused on customer care and telecom solutions

Telvantis is a telecommunications services provider specializing in VoIP and voice traffic solutions delivered primarily to telecommunications businesses on a business-to-business basis, with a focus on high-quality, cost-effective international voice services.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

The Company is in the development stage and has sustained substantial losses since inception.

As of December 31, 2024, the Company has cash on hand of $ 107,475 and negative working capital of $ 919,186 .

The Company expects current cash on hand will not be able to fund operations for a period 12 months or more.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

To date management has funded its operations through selling equity securities and advances from related parties.

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations, however, there can be no assurance the Company will be successful in these efforts.

As of the date of these consolidated financial statements the Company does not have any firm commitments for capital.

Without the required capital, the Company will be required to reduce their development expenditures which will potentially delay the completion of products which are expected to generate future revenues.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred recurring operating losses from operations since inception and has not yet generated consistent positive cash flows from operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that these financial statements are issued.

As of December 31, 2025, the Company had cash and cash equivalents of $ 2,087,400 and an accumulated deficit of $( 33,415,041 ).

Total current liabilities of $ 102,018,696 exceeded total current assets of $ 59,451,611 , resulting in a working capital deficit of $( 42,567,085 ).

Included within current liabilities is $ 34,838,484 of contingent consideration arising from the acquisitions of 42 Telecom and Telvantis.

Pursuant to the terms of the respective acquisition agreements, the contingent consideration obligations are expected to be settled through the issuance of shares of the Company's common stock upon achievement of specified performance conditions.

Accordingly, the contingent consideration does not represent a cash funding requirement of the

Excluding contingent consideration, the working capital deficit was $( 7,728,601 ) as of December 31, 2025.

The Company does not have any significant long-term debt maturities within the evaluation period and is not in breach of any financial covenants.

For the year ended December 31, 2025, the Company generated total revenues of $ 21,839,868 , compared to $ 0 for the year ended December 31, 2024.

The increase in revenue is attributable to the post-acquisition consolidation of 42 Telecom, which contributed telecommunications service revenue beginning August 1, 2025.

Telvantis was acquired on December 31, 2025 and accordingly contributed no revenues to the consolidated results of operations and comprehensive income (loss) for the year ended December 31, 2025.

The Company reported net income of $ 918,355 for the year ended December 31, 2025, which includes a non-cash gain of $ 3,387,266 from the change in fair value of contingent consideration.

Excluding this non-cash item, the Company incurred a loss from operations of $( 2,468,911 ) for the year ended December 31, 2025.

Net cash used in operating activities was $( 1,487,560 ) for the year ended December 31, 2025.

Although management expects continued revenue generation from 42 Telecom and Telvantis, current cash and cash equivalents on hand may not be sufficient to fund operations.

To date, the Company has funded operations primarily through the sale of equity securities and advances from related parties.

The Company’s ability to continue as a going concern is dependent upon generating sufficient cash flows from operations, securing additional capital through the issuance of equity or debt, and ultimately achieving profitable operations.

Management continues to explore financing options, including private placements and strategic investment arrangements, while moderating discretionary expenditures to preserve liquidity.

In addition, 42 Telecom and Telvantis maintain a Master Participation Agreement with Fasanara Securitisation S.A.

pursuant to which Fasanara provides funding against a specified percentage of trade receivables arising from telecommunications services, providing the Company with access to working capital liquidity against its receivables base.

The Company intends to continue utilizing this arrangement to support near-term operating cash needs.

There can be no assurance that such financing or operational success will be achieved on terms favorable to the Company, or at all.

Accordingly, the accompanying audited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Risks and Uncertainties

The Company has a limited operating history and has not generated revenues from our planned principal operations.

The Company’s business and operations are sensitive to general business and economic conditions in the U.S.

and worldwide.

These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S.

and world economy.

A host of factors beyond the Company’s control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism.

Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on the Company’s consolidated financial condition and the results of its operations.

The Company currently has no sales and limited marketing and/or distribution capabilities.

The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to

market any of our current and future products.

Developing a marketing and sales force is also time consuming and could delay launch of our future products.

In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations.

Our marketing and sales efforts may be unable to compete successfully against these companies.

In addition, the Company has limited capital to devote sales and marketing.

The Company’s industry is characterized by rapid changes in technology and customer demands.

As a result, the Company’s products may quickly become obsolete and unmarketable.

The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis.

Further, the Company’s products must remain competitive with those of other companies with substantially greater resources.

The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products.

Also, the Company may not be able to adapt new or enhanced products to emerging industry standards, and the Company’s new products may not be favorably received.

Nor may we have the capital resources to further the development of existing and/or new ones.

The Company faces certain risks and uncertainties that could have a material impact on its operations, financial position, results of operations, and cash flows.

These include, but are not limited to, the following:

Limited operating history and profitability:

The Company has a limited operating history in its current line of business and has not yet achieved profitability.

Although the acquisition of 42 Telecom on August 1, 2025 introduced the Company’s initial revenue streams, the Company continues to depend on external financing to fund operations and there can be no assurance that it will achieve or attain profitability in the future.

Integration and acquisition risks.

The Company completed two significant acquisitions during 2025 — 42 Telecom, which closed on August 1, 2025 and contributed revenues during the year, and Telvantis, which closed on December 31, 2025 and accordingly its operations are not reflected in the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2025.

The successful integration of both acquired businesses involves significant operational, financial, and management challenges, including the coordination of personnel, technology platforms, customer relationships, and financial reporting processes across multiple jurisdictions.

Failure to integrate these businesses effectively, or to realize the anticipated benefits

of either acquisition, could adversely affect the Company’s financial condition, results of operations and cash flows.

Market and economic conditions:

The Company's business and financial performance are affected by general economic and business conditions in the United States and globally, including changes in inflation, interest rates, capital-market liquidity, and access to financing.

Adverse macroeconomic trends or recessionary conditions could reduce demand for technology and telecommunications services and have a material adverse effect on the Company's results and cash flows.

The United States and global markets are experiencing volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the Israel-Hamas conflict.

In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization ("NATO") deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment system.

Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions among a number of nations.

The invasion of Ukraine by Russia and the Israel-Hamas conflict and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies.

Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyberattacks against U.S.

Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.

Furthermore, changes to policy implemented by the U.S.

Congress or the current or any future administration may impact, among other things, the U.S.

and global economy, international trade relations, unemployment, immigration, healthcare, taxation, the U.S.

regulatory environment, inflation and other areas.

Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine, the Israel-Hamas conflict and subsequent sanctions or related actions, could adversely affect the Company's operations or its future capital-raising activities.

The Company has not been materially affected by these conflicts or related tariffs to date."

Foreign exchange and geopolitical risks:

The Company conducts a substantial portion of its operations internationally through 42 Telecom and its subsidiaries, whose functional currencies include the Euro, Swedish Krona, and British Pound.

The Company is therefore exposed to foreign currency fluctuations that affect the translation of foreign-denominated revenues, expenses, assets, and liabilities into U.S.

In addition, geopolitical instability, trade restrictions, sanctions, and regional conflicts in the markets in which the Company operates could disrupt operations, increase costs, or adversely affect reported financial results and cash flows.

Technological change and competitive pressures:

The Company operates in industries characterized by rapid technological innovation and evolving customer demands.

Failure to anticipate or adapt to such changes could render the Company’s technologies or products less competitive or obsolete.

The Company competes with organizations that possess significantly greater financial, technical, and marketing resources than the Company currently has.

Operational and cybersecurity risks:

The Company’s operations may be affected by supply-chain disruptions, cybersecurity threats, data-privacy and data-protection requirements across multiple

jurisdictions, and other operational risks inherent in the telecommunications and technology industries.

A cybersecurity incident, systems failure, or data breach could result in significant liability, regulatory penalties, reputational harm, and material disruption to the Company’s operations and customer relationships.

Management continuously monitors these risk factors and may implement mitigation strategies, including management of foreign-currency exposures, diversification of its customer and supplier base, cost management initiatives, and pursuit of additional capital resources.

However, the effects of these risks and uncertainties cannot be predicted with certainty, and actual results may differ materially from management’s expectations.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, Spectral Holdings, Inc, and its 60% owned subsidiaries, Noot Holdings, Inc.

from its date of incorporation of February 28, 2013, and Monitr Holdings, Inc.

from its date of incorporation of December 1, 2013.

All material intercompany accounts and transactions have been eliminated in consolidation.

See Note 1 and 3 for discussion of the acquisition and then rescindment of the NNN acquisition.

The accompanying consolidated financial statements include the accounts of the Company and the following subsidiaries from their respective date of acquisition:

• Spectral Holdings, Inc.

(wholly owned, from August 29, 2024);

• Noot Holdings, Inc.

(60% owned, from February 28, 2013);

• Monitr Holdings, Inc.

(60% owned, from December 1, 2013);

• 42 Telecom and its wholly owned subsidiaries — 42 Telecom AB Ltd.

(Sweden), 42 Telecom UK Ltd.

(United Kingdom), and Arcus Technologies Ltd.

(Malta) — each wholly owned by Spectral from August 1, 2025;

• Telvantis Voice Services, Inc.

and its wholly owned subsidiaries — Phonetime, Inc.

(U.S.) and Matchcom Telecommunications, Inc.

All intercompany accounts and transactions have been eliminated in consolidation.

Refer to Note 1 for further description of the Company’s acquisitions.

In June 2025, the Company entered into a settlement agreement with former Chairman Sean Michael Brehm and affiliated entities to rescind all prior acquisitions and planned collaborations, including Node Nexus Network and related entities.

Refer to Note 11 for further detail.

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.

Revised Financial Statements

The Company has revised its previously issued consolidated statement of stockholders' deficit as of December 31, 2022 to correct an immaterial misstatement identified during the current period.

Specifically, in connection with the conversion of certain liabilities into common stock during 2022, the Company determined it had not previously recorded the full excess fair value of the consideration issued.

As a result, the Company revised the previously reported additional paid-in capital, increasing it from $29,106,804 to $30,873,057, and the accumulated deficit, increasing it from $32,613,718 to $34,379,971.

These adjustments reflect a net increase of $1,766,253 to both accounts.

The Company has evaluated and concluded that the misstatement, was not material to its previously issued consolidated financial statements.

However, it has revised the consolidated statement of stockholders’ deficit to reflect the corrections described above.

There was no impact on the remaining consolidated financial statements or disclosures.

Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance with the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

The Company follows ASC Topic 505-50, Equity:

Equity-Based Payments to Non-Employees for stock options and warrants issued to consultants and other non-employees.

In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined.

The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

The Company accounts for forfeitures as they occur.

Accordingly, compensation expense is recognized only for awards that ultimately vest.

Forfeitures are recognized in the period in which they occur, and no estimations or adjustments are made for anticipated forfeitures.

Because the Company’s stock-based compensation options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, amounts estimated using the Black-Scholes option pricing model may differ materially from the actual fair value of the Company’s stock-based compensation options.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Revenue Recognition

The Company revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers”.

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

There was no revenue during the year ended December 31, 2024 and 2023.

The accompanying consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

GAAP”) and the rules and regulation of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-K and are presented in US dollars.

The accompanying consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.

Fair Value of Financial Instruments

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Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability.

There are three levels of inputs that may be used to measure fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities

in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As of December 31, 2024 and 2023, the Company does not have any assets or liabilities which would be considered Level 2 or 3.

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts payable, and amounts payable to related parties.

Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the

asset or liability.

The Company follows the three-level fair value hierarchy established under U.S.

GAAP, which maximizes the use of observable inputs and minimizes the use of unobservable inputs:

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Include other inputs that are directly or indirectly observable in the marketplace.

Unobservable inputs which are supported by little or no market activity.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, contract assets, accounts receivable- related party, prepaid expense and other current assts, other receivables, related party receivables and advances, accounts payable and accrued liabilities, contract liabilities, financing liabilities arising from the Company’s receivables participation arrangements, amounts due to related parties, and deferred tax liabilities recognized in connections with business combinations.

The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.

The Company follows ASC 740, Income Taxes for recording the provision for income taxes.

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Tax law and rate changes are reflected in income in the period such changes are enacted.

The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within the income tax provision.

The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes.

The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

The Company recognizes windfall tax benefits associated with share-based awards directly to stockholders’ equity only when realized.

A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded.

When assessing whether a tax benefit relating to share-based compensation has been realized, the Company follows the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.

We are currently delinquent with respect to our U.S.

federal income tax filings for the past several years.

The Company has evaluated the criteria for segment reporting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting , and has determined that it operates as a single operating and reportable segment.

This conclusion is based on the following factors:

· The chief operating decision maker (“CODM”) reviews financial information on a consolidated basis for purposes of evaluating performance and allocating resources.

· The Company’s operations exhibit similar economic characteristics and are managed and reported as a single business unit.

· The Company’s products and services are offered in a consistent manner across its markets, with no discrete business lines requiring separate reporting.

As a result, no additional segment disclosures are required.

The Company’s operating lease liability and right-of-use asset are recorded based on the present value of future lease payments discounted at the rate implicit in the lease or the Company's incremental borrowing rate, in accordance with ASC (Accounting Standards Codification) 842, Leases.

The Company measures certain assets and liabilities at fair value on a nonrecurring basis, including assets acquired and liabilities assumed in business combinations, and property, plant and equipment and intangible assets written down to fair value when held for sale or determined to be impaired.

The contingent consideration liabilities recorded in connection with the acquisitions of 42 Telecom and Telvantis are classified as Level 3 liabilities under the fair value hierarchy.

The fair value of these liabilities is determined using a Monte Carlo simulation incorporating a Black-Scholes framework and a discount for lack of marketability determined using a Black-Scholes put option model.

See Note 3 — Business Combinations and Note 4 — Fair Value Measurements for further details.

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures in financial statements and accompanying notes.

Actual results could differ materially from those estimates.

Areas requiring significant estimates and assumptions by the Company include, but are not limited to:

• discount rate applied in determining right-of-use assets and operating lease liabilities;

• allowances for income taxes, related valuation allowances, and uncertain tax positions;

• recoverability of long-lived assets and their related estimated lives, including internally developed software and acquired intangible assets;

• accruals for estimated liabilities;

• evaluation of goodwill for impairment;

• allowance for credit losses on accounts receivable and contract assets;

• fair value of share-based compensation and equity issued for services and

• fair value of assets acquired and liabilities assumed in business combinations, including the identification, valuation, and estimated useful lives of acquired intangible assets, and the fair value of contingent consideration.

Segment Reporting

The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting.

The Company's Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”) and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources.

The measure of segment profit or loss regularly reviewed by the CODM is consolidated net loss.

The Company identified two operating segments based on legal entity groupings — 42 Telecom and subsidiaries, and Telvantis and subsidiaries — and determined that both meet the aggregation criteria under ASC 280-10-50-11 based on similar nature of products and services, production processes, customer class, distribution methods, and regulatory environment, and are therefore presented as a single reportable segment.

Spectral holds intellectual property assets and is developing AI infrastructure and IP monetization capabilities;

these activities are at an early stage, do not currently generate revenue, and do not constitute a separately managed business with discrete financial information reviewed by the CODM and are accordingly treated as unallocated corporate overhead.

See Note 9 - Segment and Geographic Information for further details, including significant segment expenses regularly provided to the CODM and geographic revenue information.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.

Basic Loss Per Share

Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period.

Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year.

The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

During the year ended December 31, 2024, the Company had options to purchase 6,810,000 shares of common stock for which the effects were anti-dilutive.

During the year ended December 31, 2023, the Company did not have any dilutive shares.

Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less at the date of purchase, including certificates of deposit and money market funds that are readily convertible into known amounts of cash.

The Company also maintains restricted cash representing collateral required in connection with its corporate credit card program.

As of December 31, 2025 and 2024, the Company had restricted cash balances of $ 21,174 and $ 0 , respectively.

Restricted cash is excluded from cash and cash equivalents and is presented separately on the consolidated balance sheets.

Concentration of Credit Risks and Significant Customers and Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

The Company maintains its cash balances at financial institutions located in Malta, Sweden, the United Kingdom, and the United States.

The balances located outside the United States are not insured by the Federal Deposit Insurance Corporation (“FDIC”) or equivalent government deposit protection schemes in the respective jurisdictions.

The Company has not experienced any losses on its cash balances to date.

For the year ended during ended December 31, 2025, two customers individually accounted for 10% or more of the Company’s consolidated revenues.

One customer accounted for approximately 35.7% of consolidated revenues and another customer, a related party, accounted for approximately 33.0% of consolidated revenues.

See Note 11 - Related Party Transactions for further details regarding the Company's transactions and balances with related party.

The loss of either of these customers could have a material adverse effect on the Company’s results of operations, cash flows and financial condition.

For the year ended December 31, 2025, two suppliers individually accounted for 10% or more of the Company's consolidated cost of revenue.

One supplier accounted for approximately 36.0% of consolidated cost of revenue and another supplier, a related party of the Company, accounted for

approximately 39.1% of consolidated cost of revenue.

See Note 11 - Related Party Transactions for further details regarding the Company's transactions and balances with related party.

The loss of either of these suppliers could have a material adverse effect on the Company's results of operations and financial condition.

Accounts Receivable, net and Accounts Receivable, related party

The Company’s accounts receivable consist primarily of amounts due from customers for telecommunications and messaging services provided by 42 Telecom.

Receivables are recorded at the invoiced amount and do not bear interest.

The Company maintains an allowance for credit losses based on management’s periodic assessment of factors including customer payment history, creditworthiness, aging of receivable balances, current economic conditions, and historical collection experience.

Receivables determined to be uncollectible are written off against the allowance when collection efforts have been exhausted.

As of December 31, 2025 and 2024, the allowance for credit losses was $ 2,469,251 and $ 0 , respectively.

Accounts receivable, related party, represents amounts due from Mexedia and Mexedia SpA, a related party of the Company, arising from telecommunications and messaging services provided by 42 Telecom under bilateral messaging service agreements.

These receivables are recorded at the invoiced amount on the same basis as third-party accounts receivable and are subject to the same credit loss assessment methodology described above.

Receivables Financing Arrangements

The Company, through 42 Telecom and Telvantis, maintains participation arrangements with a third-party financing provider under which funding is advanced against a specified percentage of eligible trade receivables.

The Company retains responsibility for customer billing, collection, and servicing under these arrangements and maintains direct customer relationships.

Management evaluated the substance of these arrangements under ASC 860, Transfers and Servicing, and concluded that they do not qualify for sale accounting, as the Company retains continuing involvement with the receivables and the receivables are not fully isolated from the Company and its creditors.

Accordingly, the arrangements are accounted for as receivables financing.

The underlying receivables remain recognized on the consolidated balance sheets until collected, and the associated financing obligations are classified within short-term borrowings.

Interest and fees incurred under these arrangements are recognized as interest expense in the consolidated statements of operations and comprehensive income (loss).

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily consist of advance payments for services and operational costs to be consumed within one-year, prepaid taxes and deposits related to the Company’s telecommunications and technology operations.

Prepaid services representing common stock issued for future services are recorded at the fair value of the shares on the date of issuance and recognized ratably as expense over the contractual service period.

As of December 31, 2025 and 2024, prepaid expenses and other current assets totaled $ 5,272,803 and $ 6,500 , respectively.

The increase is primarily attributable to the consolidation of 42 Telecom and Telvantis following their respective acquisitions.

Property, Plant and Equipment, Net

Property, plant and equipment, net (“PP&E”) is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses.

Depreciation is computed using the straight-line method over the assets’ estimated useful lives.

The estimated useful lives of PP&E are as follows:

Office Equipment and tools – 3 - 5 years

Computers – 3 - 5 years

Furniture and Fittings – 8 - 10 years

Leasehold improvements – Shorter of the estimate useful life or remaining lease term

Major renewals and improvements are capitalized.

Replacements, maintenance, and repairs, which do not significantly improve or extend the useful life of the assets, are expensed as incurred.

Upon the disposal or retirement of an asset, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the consolidated statement of operations in the period of disposal.

The Company reviews PP&E for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

No impairment losses were identified for the years ended December 31, 2025 and 2024.

Intangible Assets, net

The Company’s intangible assets primarily consist of (i) identifiable intangible assets acquired in connection with the acquisitions of 42 Telecom and Telvantis, including developed technology, customer relationships, and trade names and (ii) intellectual property assets acquired pursuant to an Asset Purchase Agreement dated October 15, 2025, consisting of a portfolio of patentable innovations and proprietary technologies including artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies;

All intangible assets are carried net of accumulated amortization and any accumulated impairment losses.

Intangible Assets Acquired in Business Combinations

Identifiable intangible assets acquired in the 42 Telecom and Telvantis business combinations were valued as of the respective acquisition dates in accordance with ASC 805, Business Combinations (“ASC 805”).

These assets are amortized on a straight-line basis over their estimated useful lives as follows:

Developed technology – 42 Telecom – 5 years

Customer relationship – 42 Telecom – 7 years

Trade name – 42 Telecom – 3 years

Customer relationship – Telvantis – 8 years

Trade name – Telvantis – 4 years

The useful lives assigned to each asset class reflect entity-specific factors assessed as of the respective acquisition dates, including customer attrition rates, contract durations, and brand recognition, which differ between the two acquired businesses.

Intellectual Property Asset Acquisition

On October 15, 2025, the Company acquired a portfolio of intellectual property assets pursuant to an Asset Purchase Agreement.

The acquired assets consist of patentable innovations and proprietary technologies, including artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies.

The transaction was evaluated under ASC 805 and determined not to constitute a business combination, as no workforce, customers, operational

processes, or revenue-generating activities were transferred.

Accordingly, the transaction was accounted for as an asset acquisition under ASC 805-50.

The total purchase consideration consisted of 9,000,000 shares of Spectral common stock, measured at fair value based on the quoted market price of $2.19 per share on the acquisition date, resulting in total consideration of $ 19,710,000 .

In accordance with ASC 805-50, no goodwill was recognized;

the entire consideration was allocated to the acquired intangible assets.

The acquired intellectual property is amortized on a straight-line basis over an estimated useful life of five years from the acquisition date.

Capitalized Software Development

42 Telecom capitalizes certain costs incurred during the application development stage of internal-use software projects in accordance with ASC 350-40, Internal-Use Software.

Capitalized costs include direct labor and related benefits for employees engaged in software development activities and qualifying third-party contractor fees.

Costs incurred during the preliminary project and post-implementation stages, including training, maintenance, and data conversion, are expensed as incurred.

Capitalized software costs are amortized on a straight-line basis over five years upon being placed into service.

Amortization of software used directly in service delivery is classified within cost of revenue.

As of December 31, 2025, the Company had $ 439,264 software projects classified as capital work-in-progress and $ 294,157 internally developed software placed into services classified as Intangible assets, net in the consolidated balance sheet.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Recoverability is assessed by comparing the carrying amount to the sum of undiscounted future net cash flows expected to be generated by the asset or asset group.

If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized equal to the excess of the carrying amount over the asset’s fair value, generally determined using estimated discounted future cash flows.

No impairment indicators were identified for the years ended December 31, 2025 or 2024.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805.

Under the acquisition method, the Company recognizes the identifiable assets acquired and liabilities assumed at their fair values as of the acquisition date.

The excess of the consideration transferred over the net acquisition-date fair values of the assets acquired and liabilities assumed is recognized as goodwill.

Consideration transferred in a business combination may include cash, equity instruments, and contingent consideration.

Equity instruments issued as consideration are measured at acquisition-date fair value, adjusted where appropriate to reflect transfer restrictions and other factors affecting marketability.

Contingent consideration is recognized at acquisition-date fair value and classified as either a liability or equity based on the terms of the arrangement.

Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss.

During the measurement period, which may not exceed 12 months from the acquisition date, fair values of assets acquired and liabilities assumed may be adjusted with corresponding offsets to goodwill as additional information becomes available.

After the measurement period closes,

adjustments are recognized in the consolidated statements of operations and comprehensive loss.

Acquisition-related costs are expensed as incurred.

Goodwill represents the excess of the consideration transferred over the estimated fair value of the net identifiable assets acquired in a business combination.

In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill is not amortized but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is tested at the reporting unit level.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Qualitative factors considered include macroeconomic conditions, industry and market trends, cost factors, discount rates, competitive dynamics, and the financial performance of the reporting unit.

If the qualitative assessment indicates that impairment is more likely than not, a quantitative test is required.

The Company may also elect to bypass the qualitative assessment and proceed directly to the quantitative test in any given period.

Under the quantitative test, the estimated fair value of the reporting unit is compared to its carrying value including goodwill.

If the carrying value exceeds the fair value, a goodwill impairment charge equal to the excess is recognized, not to exceed the total goodwill allocated to that reporting unit.

Goodwill recognized in connection with the acquisitions of 42 Telecom and Telvantis represents the residual consideration after allocation to identifiable net assets and is preliminary and subject to change upon completion of the respective purchase price allocations.

No goodwill impairment indicators were identified for the year ended December 31, 2025.

Contingent Consideration

The Company records contingent consideration at its estimated acquisition-date fair value as part of the total consideration transferred in a business combination in accordance with ASC 805.

Contingent consideration is classified as either a liability or equity based on the terms of the arrangement.

Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss.

Upon settlement, the liability is relieved with a corresponding increase to common stock and additional paid-in capital.

The fair value of contingent consideration is estimated using a Monte Carlo simulation incorporating projected financial performance metrics, simulated share prices, equity volatility, and a discount for lack of marketability determined using a Black-Scholes put option model.

Because the valuation relies on significant unobservable inputs, contingent consideration is classified as Level 3 within the fair value hierarchy.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the five-step model:

(i) identify the contract with a customer, (ii) identify performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to performance obligations, and (v) recognize revenue when or as performance obligations are satisfied.

The Company generates revenue through the following streams, all of which were generated by 42 Telecom and its subsidiaries for the year ended December 31, 2025:

· Messaging Services – includes SMS aggregation, enterprise messaging, and instant messaging (Viber).

Revenue from these services is recognized at a point in time when each

message or lookup is successfully processed and transmitted.

Messaging services represented the substantial majority of the Company’s revenues.

· Platform Services – includes SS7 platform access, managed services, staff leasing arrangement, and the tourism platform-as-a-service.

Revenue from these services is recognized over time, as customers receive and consume the benefits of continuous access or managed service delivery.

The Company generally acts as principal in its arrangements, as it controls the services before transfer, bears responsibility for performance, and has discretion in pricing.

Customer contracts are typically short-term in nature, invoiced monthly based on actual usage or subscription terms, with no significant financing components.

The following table presents the disaggregated revenue for the years ended December 31, 2025 and 2024:

Messaging Services, at a point in time

Platform Leasing, over time

Contract Assets

Contract assets represent amounts recognized as revenue for performance obligations satisfied under customer contracts where the Company’s right to payment is not yet unconditional, primarily consisting of accrued income on December 2025 messaging traffic where services were delivered point-in-time during the month but invoices are issued following month-end volume reconciliation with counterparties, at which point the balance reclassifies to accounts receivable.

As of December 31, 2025 and 2024, contract assets were $ 6,474,163 , of which $2,633,806 is with a related party and $ 0 , respectively.

Contract Liabilities

Contract liabilities, historically referred to as deferred revenue, represent amounts billed or collected from customers in advance of satisfying performance obligations under customer contracts.

These balances are presented within current liabilities in the consolidated balance sheets, based on the expected timing of revenue recognition.

Contract liabilities are recognized as revenue when the related performance obligations are fulfilled.

As of December 31, 2025 and 2024, contract liabilities were $ 335,309 and $ 0 , respectively.

Cost of Revenue

Cost of revenue consists of direct expenses incurred in providing telecommunication and platform services and is recognized in the period in which the related revenues are earned.

Cost of revenue includes accruals for third-party service providers, purchases of services from both local and non-EU vendors, and charges for telecommunication services inside and outside the EU, including data, voice, and connectivity costs.

It also includes wholesale carrier and traffic fees, consultancy and technical service costs directly tied to service delivery, commissions and referral fees related to customer acquisition or usage.

Additionally, platform or PaaS licensing fees and other directly attributable costs necessary to fulfill service obligations, such as internally generated software amortization used in service infrastructure, are included.

These costs are recorded when incurred and matched to the related revenue in accordance with U.S.

GAAP expense recognition principles.

Selling, General and Administrative Expense

Selling, general and administrative expenses represent the routine costs of operating the Company.

They primarily consist of rent and facilities, marketing and travel, professional and administrative services, insurance and compliance costs, finance and bank charges, and other general operating expenses.

Depreciation and Amortization

Depreciation and amortization expenses are related to the Company’s property and equipment and intangible assets.

Depreciation and amortization is recognized on a straight-line basis over the estimated useful life of the respective assets.

Wages and Benefits Expense

Wages and benefit expenses include gross wages and salaries, bonuses, performance-related pay, casual wages, training expenses, staff welfare and wellness costs, employer social insurance contributions, pensions, insurance costs, education, maternity contributions and other staff-related costs.

These are recorded in accordance with the Company’s payroll policies and applicable labor, pension and social security regulations in each jurisdiction in which the Company operates.

Employee Benefits

Pursuant to Malta regulations, contributions to pension schemes are voluntary.

The Company provides pension contributions to team management members.

Pension contributions are expensed as incurred.

For the years ended December 31, 2025 and 2024, pension plan contributions totaled $ 3,711 and $ 0 , respectively.

Research and Development

The Company’s research and development activities are primarily focused on the design, testing, and enhancement of proprietary artificial intelligence, quantum computing, and communications technologies, as well as on software platform development initiatives.

Research and development expenses include personnel costs, contractor and consulting fees, materials and supplies, and other direct expenditures incurred in the development of new technologies, products, and enhancements to existing systems.

Expenditures for research activities and costs associated with the preliminary project stage of software development are expensed as incurred in accordance with ASC 730, Research and Development.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation, which requires all share-based payments to employees, directors, and non-employees to be recognized in the consolidated financial statements based on their grant-date fair values.

Compensation cost for awards with service conditions is recognized on a straight-line basis over the requisite service period.

For equity instruments issued to non-employees in exchange for services, compensation cost is measured at the grant-date fair value of the equity instruments issued.

The Company accounts for forfeitures as they occur;

accordingly, compensation expense is recognized only for awards that ultimately vest.

The fair value of stock options is estimated using the Black-Scholes option pricing model, which requires management to make assumptions regarding expected term, stock price volatility, risk-free interest rate, and dividend yield.

Changes in these assumptions can materially affect the estimated fair value of awards.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) as well as other changes in shareholders’ equity resulting from transactions and economic events other than those with shareholders.

In addition to net income (loss), comprehensive income (loss) encompasses other comprehensive income (loss) items that are excluded from net income under U.S.

For the Company, the only component of other comprehensive income (loss) for the year ended December 31, 2025 relates to foreign currency translation adjustments arising from the consolidation of 42 Telecom, whose functional currencies (EUR, SEK, and GBP) differ from the Company’s reporting currency (USD).

These translation adjustments are recorded in Other Comprehensive Income (Loss) and accumulated in stockholders’ equity (deficit) under Accumulated Other Comprehensive Income (Loss).

No other components of other comprehensive income (loss) were recognized for the year ended December 31, 2025.

Foreign Currency Transactions

The Company’s reporting currency is the U.S.

Each consolidated entity determines its functional currency based on the primary economic environment in which it operates.

The functional currencies of the Company’s foreign subsidiaries are as follows:

• 42 Telecom (Parent):

• 42 Telecom AB Ltd (Sweden):

Swedish Krona (SEK)

• 42 Telecom UK Ltd:

British Pound (GBP)

• Arcus Technologies Ltd:

For consolidation purposes, assets and liabilities of subsidiaries with functional currencies other than U.S.

dollar are translated at exchange rates prevailing at the balance sheet date.

Revenues and expenses are translated at average exchange rates for the reporting period.

Equity accounts, other than retained earnings, are translated at historical exchange rates.

The resulting translation adjustments are recorded in Other Comprehensive Income (Loss) and accumulated in stockholders’ equity under Accumulated Other Comprehensive Income (loss).

Transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the exchange rate on the transaction date.

Monetary assets and liabilities denominated in foreign currencies are remeasured at period-end exchange rates, and non-monetary assets and liabilities are carried at historical exchange rates.

Resulting foreign exchange gains and losses are recognized within other income (expense), net in the consolidated statements of operations and comprehensive income (loss).

The exchange rates used in the preparation of the consolidated financial statements are as follows:

• For the year ended December 31, 2025, closing rate 1.1763 US:

1 EURO, 0.1088US:1퐸푈푅푂,0.1088푈푆:

1 SEK, and 1.3491 US:

• For the year ended December 31, 2025, average rate 1.1596 US:

1 EURO, 0.1055US::1퐸푈푅푂,0.1055푈푆 1 SEK, 1.3361 US:

For the years ended December 31, 2025 and 2024, the Company recorded foreign currency translation adjustments of $ 132,551 and $ 0 , respectively, which are included in other comprehensive income (loss).

The Company accounts for leases under ASC 842, Leases.

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term.

For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term.

Variable lease expenses are recorded when incurred.

In calculating the right of use asset and lease liability, the Company has elected not to combine lease and non-lease components.

The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

Earnings Per Share (EPS)

Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for the dilutive effect of potentially dilutive securities using the treasury stock method.

Potentially dilutive securities include stock options, warrants, convertible instruments, and contingently issuable shares.

In periods of net loss, all potentially dilutive securities are excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive.

For the year ended December 31, 2025, the Company had 3,646,875 stock options outstanding with a weighted-average exercise price of $0.43 per share, which were dilutive as the Company reported net income for the period.

The dilutive effect was computed using the treasury stock method based on the weighted-average market price of the Company's common stock of $2.31 per share during the year ended December 31, 2025.

For the year ended December 31, 2024, all 3,646,875 stock options outstanding were excluded from the computation of diluted net loss per share as their inclusion would have been anti-dilutive.

Non-Controlling Interests

Non-controlling interests disclosed within the consolidated statement of operations represent the minority ownership’s 40% share of net losses of Noot Holdings, Inc.

and Monitr Holdings, Inc incurred during the years ended December 31, 2024 and 2023.

The following table sets forth the changes in non-controlling interest for the years ended December 31, 2024 and 2023:

Non-Controlling

Noncontrolling interests represent the equity interests in consolidated subsidiaries that are not attributable to the Company.

The Company consolidates Noot Holdings, Inc.

and Monitr Holdings, Inc., in each of which the Company holds a 60% controlling interest, with the remaining 40% held by noncontrolling interest holders.

Noncontrolling interests are presented as a separate component of stockholders’ equity in the consolidated balance sheets.

Net income or loss attributable to noncontrolling interests is presented separately in the consolidated statements of operations and comprehensive loss.

The following table sets forth the changes in non-controlling interest for the year ended December 31, 2025 and 2024:

Non-Controlling Interests

Balance at December 31, 2024

2 unchanged sentences

Balance at December 31, 2025

$ ( 221,886 )

Balance at December 31, 2023

$ ( 221,886 )

Net loss attributable to non-controlling interest

1 unchanged sentence

$ ( 221,886 )

Foreign Currency

The Company’s functional currency is the United States Dollar.

Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the consolidated statements of operations.

Noot Holdings, Inc.

and Monitr Holdings, Inc.

had no operations during the years ended December 31, 2025 and 2024, and accordingly no net income or loss was attributable to noncontrolling interests during either year.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as well as for net operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations and comprehensive loss in the period in which the change is enacted.

The Company records a valuation allowance against deferred tax assets to the extent it is more likely than not that some or all of the deferred tax assets will not be realized, based on all available positive and negative evidence, including historical operating results, projected future taxable income, and the expected timing of reversals of existing temporary differences.

The Company recognizes and measures uncertain tax positions using a two-step process in accordance with ASC 740-10.

In the first step, the Company evaluates whether a tax position is more likely than not to be sustained upon examination by the relevant taxing authority.

In the second step, for positions that meet the recognition threshold, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

The Company recognizes interest and penalties related to uncertain tax positions within the income tax provision in the consolidated statements of operations and comprehensive loss.

The Company operates across multiple tax jurisdictions, including the United States, Malta, Sweden, and the United Kingdom.

The calculation of the Company’s tax provision involves significant judgment in the application of complex tax regulations across these jurisdictions.

The Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities.

Recent Accounting Pronouncements

In March 2024, the FASB issued ASU No.

2024-01, “Compensation—Stock Compensation (Topic 718):

Scope Applications of Profits Interests and Similar Awards” (“ASU 2024-01”).

ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S.

ASU 2024-01 is effective for annual periods beginning after December 15, 2025, although early adoption is permitted.

Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated financial statements.

In March 2024, the FASB issued ASU No 2024-02, “Codification Improvements - Amendments to Remove References to the Concepts Statements” (“ASU 2024-02”).

ASU 2024-02 removes references to various Concepts Statements.

In most instances, the references are extraneous and not required to understand or apply the guidance.

ASU 2024-02 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

ASU 2024-02 can be applied prospectively or retrospectively.

Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU No.

2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” This standard requires disclosure of specific information about costs and expenses and becomes effective January 1, 2027.

We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-04, “Debt - Debt with Conversions and Other Options (Subtopic 470-20):

Induced Conversions of Convertible Debt Instruments” (“ASU 2024-04”).

ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion.

The requirements of ASU 2024-04 are effective for the Company for fiscal years beginning after December 15, 2025, and interim periods within those periods.

We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024,

with early adoption permitted.

The Company adopted this standard in the year ended December 31, 2024.

The adoption did not have a material effect on the Company’s consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company adopted this standard in the year ended December 31, 2024.

The adoption did not have a material effect on the Company’s consolidated financial statements.

The FASB issues ASUs to amend the authoritative literature in the FASB Accounting Standards Codification (“ASC”).

There have been a number of ASUs to date, including those above, that amend the original text of ASC.

Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company’s financial statements.

Recently Adopted Standards

ASU 2023-09 — Income Taxes (Topic 740):

Improvements to Income Tax Disclosures:

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The ASU requires public business entities to disclose, on an annual basis, a rate reconciliation presented in both dollar amounts and percentages, with specific categories and

further disaggregation of those categories based on a quantitative threshold equal to 5% or more of the amount determined by multiplying pre-tax income (loss) by the applicable statutory rate.

The ASU also requires disclosure of income taxes paid disaggregated by federal, state, and foreign jurisdictions.

The Company adopted ASU 2023-09 effective January 1, 2025 on a prospective basis.

The adoption had a financial statement disclosure impact only and did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Standards Not Yet Adopted

ASU 2024-03 — Disaggregation of Income Statement Expenses:

In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

The ASU requires public business entities to disclose specified information about certain costs and expenses included in expense line items presented on the face of the income statement.

The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements and related disclosures.

ASU 2025-05 — Measurement of Credit Losses for Accounts Receivable and Contract Assets:

In July 2025, the FASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets.

The ASU provides a practical expedient permitting entities to assume that conditions at the balance sheet date remain unchanged over the life of current accounts receivable and current contract assets when estimating expected credit losses.

The guidance is effective for annual and interim reporting periods beginning after December 15, 2025, with early adoption permitted.

The Company does not expect ASU 2025-05 to have a material impact on its consolidated financial statements.

ASU 2025-06 — Targeted Improvements to the Accounting for Internal-Use Software:

In September 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software.

The ASU requires entities to begin capitalizing software development costs when management has authorized and committed to funding the project and it is probable the project will be completed and the software will be used to perform its intended function.

The amendments are effective for annual reporting periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of ASU 2025-06 and will assess the impact upon adoption.

NOTE 3 – BUSINESS COMBINATIONS

The Company evaluated the acquisitions of 42 Telecom and Telvantis under ASC 805 and ASU 2017-01, Business Combinations (Topic 805) which clarifies the definition of a business for purposes of applying the acquisition method.

Both acquisitions were determined to constitute business combinations.

Under the acquisition method, the identifiable assets acquired and liabilities assumed are recognized at their fair values as of the respective acquisition dates.

Goodwill recognized in connection with each acquisition represents the excess of consideration transferred over the fair value of net identifiable assets acquired and reflects the expected synergies, assembled workforce, and other economic benefits anticipated from each transaction that do not qualify for separate recognition as identifiable intangible assets.

Acquisition of 42 Telecom Ltd.

On July 15, 2025, the Company entered into a Share Exchange Agreement with Heritage Ventures Ltd.

(“Heritage”) and 42 Telecom, pursuant to which Heritage transferred 100% of the issued and outstanding shares to Spectral in exchange for shares of the Company’s common stock.

The acquisition closed on August 1, 2025, and the results of operations of 42 Telecom and its subsidiaries — 42 Telecom AB Ltd.

(Sweden), 42 Telecom UK Ltd.

(United Kingdom), and Arcus Technologies Ltd.

(Malta) — have been consolidated from that date.

The total purchase price consideration was $ 20,000,000 , consisting of the following:

Common stock issued

Contingent consideration

Purchase price consideration

(1) Represents the fair value of 8,000,000 shares of the Company's common stock issued to Heritage Ventures Ltd.

at closing on August 1, 2025.

The shares had a marketable value of $18,400,000 based on the closing market price of $2.30 per share on the acquisition date.

The fair value was adjusted to $12,880,000 to reflect a 30% discount for lack of marketability, using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 10-month trickle-out release restrictions applicable to the shares under the Exchange Agreement.

(2) Represents the acquisition-date fair value of contingent consideration consisting of two components.

First, up to 1,000,000 bonus shares of the Company's common stock are issuable to Heritage Ventures Ltd.

contingent upon 42 Telecom achieving a consolidated net profit threshold of $1,000,000 for the year ended December 31, 2025, with pro-rata releases of 1,000,000 shares for each $1,000,000 of net profit above the threshold.

Second, up to 4,307,080 additional shares are issuable to satisfy a $30,000,000 minimum valuation guarantee measured 12 months from the closing date, with additional shares issued to the extent the aggregate 30-day VWAP of all shares issued in the transaction falls below the guaranteed amount.

The acquisition-date fair value of each component was determined using a risk-neutral Monte Carlo simulation incorporating the Company's projected financial results, applicable volatility assumptions, and a 30% discount for lack of marketability determined using a Black-Scholes put option model, reflecting the lock-up and trickle-out release restrictions applicable to the shares.

The aggregate acquisition-date fair value of both components was determined $7,120,000 using a risk-neutral Monte Carlo simulation of projected FCCN share prices, incorporating an equity volatility factor of 90% and applicable risk-free and corporate bond discount rates to reflect counterparty risk.

The contingent consideration is classified as a liability and remeasured at fair value at each reporting date with changes in fair value recognized in the consolidated statements of operations.

See Note 4 — Fair Value Measurements for the remeasured fair value as of December 31, 2025.

The following table summarizes the provisional purchase price allocation to the identifiable assets acquired and liabilities assumed from the acquisition of 42 Telecom as of August 1, 2025:

Cash and cash equivalents

Restricted cash

Accounts receivables, net

Contract assets

Prepaid expenses and other current assets

Property, plant and equipment, net

Capital work-in-progress

Intangible assets:

Developed technology

Customer relationships

Other receivable, related party

Right of use asset

Accounts payable

( 1,289,041 )

Accrued expenses and other current liabilities

Contract liabilities

Operating lease liability

Deferred tax liability on identified intangible assets

( 3,268,425 )

Deferred tax liability on pre existing temporary differences

Purchase price consideration

Goodwill of $ 12,519,695 presented in the purchase price allocation table above represents $ 9,251,270 pertaining to the excess of consideration transferred over the fair value of net identifiable assets acquired as of August 1, 2025, and a $ 3,268,425 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identifiable intangible assets, as further described below.

Total goodwill recognized in the consolidated balance sheet is $ 13,210,565 , reflecting the measurement period adjustment of $ 690,870 described below.

The goodwill reflects the expected synergies from 42 Telecom's telecommunications operations, the going-concern value of the assembled workforce, and future economic benefits arising from assets that do not qualify for separate recognition at the acquisition date.

Deferred Tax Adjustment

Pursuant to ASC 805-740-25-8, the deferred tax liability of $ 3,268,425 presented in the purchase price allocation table above represents the temporary difference between the fair values assigned to identifiable intangible assets — developed technology $ 5,800,000 , customer relationships $ 3,100,000 , and trade name $ 600,000 , totaling $ 9,500,000 — and their respective tax bases of $0, as the acquisition was structured as an equity acquisition for income tax purposes and no step-up in tax basis was obtained.

A corresponding increase to goodwill of $ 3,268,425 was recorded.

Measurement Period Adjustment

During the measurement period, the Board of Directors of 42 Telecom resolved on October 31, 2025 to distribute a dividend of EUR 600,600, ($ 690,870 ) to Heritage representing 42 Telecom’s retained earnings for the year ended December 31, 2024.

The Company determined that the purchase price allocation included assets attributable to pre-acquisition profits that were not intended to transfer to the Company.

Accordingly, the purchase price allocation was adjusted pursuant to ASC 805-10-25-13 to exclude such assets from net identifiable assets acquired, resulting in an increase to goodwill from $12,519,695 to $ 13,210,565 .

The goodwill adjustment of $690,870 was recorded at the acquisition-date EUR/USD exchange rate.

The adjustment had no effect on the consolidated statements of operations and comprehensive income (loss) or accumulated deficit.

As of December 31, 2025, the dividend of EUR 600,600 remains unpaid and

is reflected in due to related party in the consolidated balance sheet Note 11 — Related Party Transactions.

The results of 42 Telecom have been included in the consolidated financial statements since the date of its acquisitions i.e.

August 1, 2025.

42 Telecom’s revenue and net income included in the consolidated financial statements since the acquisition date were $ 21,839,868 and $ 1,211,954 , respectively.

Acquisition of Telvantis Voice Services, Inc.

On December 29, 2025, the Company entered into a Stock Purchase Agreement to acquire 100% of the issued and outstanding shares of Telvantis.

The acquisition closed on December 31, 2025.

Telvantis and its subsidiaries — Phonetime, Inc.

(U.S.) and Matchcom Telecommunications, Inc.

(U.S.) — were consolidated as of December 31, 2025 and contributed no revenues or expenses to the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2025.

The total purchase price consideration was $ 34,513,000 , consisting of the following:

Common stock issued

Contingent consideration

Purchase price consideration

(1) Represents the fair value of 1,500,000 shares of the Company's common stock issuable to the sellers at closing.

As the shares had not been formally issued as of December 31, 2025, the obligation is reflected as common stock to be issued within stockholders' equity in the consolidated balance sheet.

The shares had a marketable value of $6,195,000 based on the closing market price of $4.13 per share on the acquisition date.

The fair value was adjusted to $3,407,250 to reflect a 45% discount for lack of marketability, determined by an independent valuation specialist using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 30-month trickle-out release restrictions applicable to the shares.

(2) Represents the acquisition-date fair value of contingent consideration consisting of two components.

First, up to 8,500,000 earn-out shares of the Company's common stock are issuable to the sellers contingent upon Telvantis achieving specified performance thresholds for the year ending December 31, 2026:

(i) 1,000,000 earn-out shares for each $1,000,000 of annualized net operating profit above $1,500,000, up to a maximum of 8,500,000 shares upon achievement of $10,000,000 of net operating profit;

or alternatively, (ii) the equivalent number of shares upon achievement of total annualized gross revenues of $665,000,000 with an equivalent or superior operating margin as compared to 2025 results.

Second, additional shares are issuable to the extent the aggregate 30-day VWAP of all shares issued in the transaction falls below a $65,000,000 minimum share value measured as of December 31, 2026, with Spectral having the option to satisfy the shortfall through issuance of additional shares or other consideration.

The acquisition-date fair value of each component was determined using a risk-neutral Monte Carlo simulation incorporating correlated gross revenue and operating profit projections, a gross revenue volatility factor of 25%, an operating profit volatility factor of 65%, an 80% correlation between gross revenue and operating profit., and a 45% discount for lack of marketability determined using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 30-month trickle-out release restrictions applicable to the shares.

The aggregate acquisition-date fair value of both components was $31,105,750.

The contingent consideration is classified as a liability and remeasured at fair value at each

reporting date with changes in fair value recognized in the consolidated statements of operations.

See Note 4 — Fair Value Measurements for the remeasured fair value as of December 31, 2025.

The following table summarizes the provisional purchase price allocation to the identifiable assets acquired and liabilities assumed from the acquisition of Telvantis Voice Services, Inc.

as of December 31, 2025:

Cash and cash equivalents

Accounts receivables, net

Due from related party

Prepaid expenses and other current assets

Deferred tax assets

Intangible assets:

Customer relationships

Accounts payable

( 32,402,097 )

Accrued expenses and other current liabilities

Accounts receivable financing facility

( 12,342,163 )

Deferred tax liability on identified intangible assets

( 2,238,117 )

Due to related party

( 7,276,918 )

Purchase price consideration

Goodwill of $ 35,486,899 represents $ 33,248,782 the excess of consideration transferred over the fair value of net identifiable assets acquired as of December 31, 2025, and a $ 2,238,117 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identifiable intangible assets as further described below.

The goodwill reflects the expected synergies from combining Telvantis’ voice termination and telecommunications services with Spectral's platform, the going-concern value of the assembled workforce, and future economic benefits arising from assets that do not qualify for separate recognition at the acquisition date.

The purchase price allocation as of December 31, 2025 is subject to adjustment within the 12-month measurement period ending December 31, 2026.

Deferred Tax Adjustment

Pursuant to ASC 805-740-25-8, the deferred tax liability of $ 2,238,117 presented in the purchase price allocation table above represents the temporary difference between the fair values assigned to identifiable intangible assets — customer relationships $ 10,700,000 and trade name $ 3,100,000 , totaling $ 13,800,000 — and their respective tax bases of $0, as the acquisition was structured as an equity acquisition for income tax purposes and no step-up in tax basis was obtained.

A corresponding increase to goodwill of $ 2,238,117 was recorded in the consolidated balance sheet.

Neither the 42 Telecom nor the Telvantis acquisition was structured as an asset acquisition for income tax purposes;

accordingly, goodwill recognized in connection with each acquisition is not deductible for income tax purposes.

Pro Forma Financial Information (unaudited)

The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisitions of 42 Telecom and Telvantis had occurred on January 1, 2024.

The pro forma financial information includes adjustments for amortization of acquired intangible assets based on their fair values and useful lives as determined in the purchase price allocations.

The pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations would have been had the acquisitions occurred at the beginning of the periods presented, nor is it intended to project the future results of operations of the combined company.

$ 259,800,594

$ ( 8,186,604 )

$ ( 3,297,967 )

Net loss per common share

NOTE 4 – FAIR VALUE MEASUREMENTS

The following table presents the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024, classified within the fair value hierarchy:

Fair Value Measurements

December 31, 2025

Contingent consideration - 42 Telecom Ltd.

Contingent consideration - Telvantis Voice Services, Inc.

Total liabilities

December 31, 2024

Total liabilities

The Company had no assets measured at fair value on a recurring basis as of December 31, 2025 or 2024.

The contingent consideration liabilities are classified as Level 3 within the fair value hierarchy as their valuation requires significant unobservable inputs.

There were no transfers between levels during the year ended December 31, 2025.

The fair value of the 42 Telecom contingent consideration was remeasured at December 31, 2025 using a risk-neutral Monte Carlo simulation of projected FCCN share prices, consistent with the methodology applied at the acquisition date.

Key inputs to the remeasurement included an updated FCCN stock price of $4.13, updated risk-free rates, and a remaining term of approximately 7 months to the guarantee measurement date of July 31, 2026 and a probability of achieving the bonus share trigger of 100%, based on 42 Telecom’s full year 2025 net income of exceeded the $1,000,000 threshold.

The net change in fair value of the contingent consideration for the year ended December 31, 2025 resulted in a gain of $ 3,387,266 , recognized within other income (expense) in the consolidated statements of operations and comprehensive Income (loss).

The decrease in fair value reflects the net effect of the increased stock price offset by the reduction in the remaining lock-up period and updated discount for lack of marketability.

The Telvantis contingent consideration was initially recognized at its acquisition-date fair value of $31,105,750 on December 31, 2025.

As the acquisition closed on December 31, 2025, no remeasurement was required during the year ended December 31, 2025.

The following table presents changes in fair value of contingent consideration measured at fair value for the years ended December 31, 2025 and 2024:

Consideration

Balance, December 31, 2023

Purchase price consideration

Change in fair value

Balance, December 31, 2024

Purchase price consideration - 42 Telecom Ltd.

Purchase price consideration - Telvantis Voice Services, Inc.

Change in fair value

( 3,387,266 )

Balance, December 31, 2025

NOTE 5 – PREPAID AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

Prepaid consulting and marketing services

VAT and taxes

Prepaid expenses

Settlement receivable

Other receivable

Prepaid and other current assets

Prepaid consulting and marketing services represents the unamortized portion of equity consideration paid to Data Center Constructors LLC and Finplays LLC under consulting and marketing service agreements, amortized straight-line over the respective service periods.

Settlement receivables represent amounts held in dedicated collection accounts under the Fasanara receivables financing arrangements that have been remitted by customers but not yet contractually settled against the outstanding facility balances.

See Note 13 — Accounts Receivable Financing Facility and Note 14 — Equity Transactions for further details.

NOTE 6- PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:

Office equipment

Furniture and fixtures

Leasehold improvements

Accumulated depreciation

Property, plant and equipment, net

For the years ended December 31, 2025 and 2024, depreciation expense was $ 26,753 and $ 0 , respectively.

NOTE 7 – INTANGIBLE ASSETS

Intangible assets consist of the following:

Developed technology

Internally developed software

Customer relationships

Acquired intellectual property

Accumulated amortization

( 1,572,441 )

Intangible assets, net

Intangible assets of $ 5,479,102 , $ 3,100,000 , and $ 600,000 represent developed technology, customer relationships, and trade name, respectively, identified and measured at fair value pursuant to the acquisition of 42 Telecom completed on August 1, 2025 (see note 3).

Internally developed software of $ 320,898 represents capitalized software development costs recognized at 42 Telecom and measured at fair value as of the acquisition date.

Intangible assets of $ 10,700,000 and $ 3,100,000 represent customer relationships and trade name, respectively, identified and measured at fair value pursuant to the acquisition of Telvantis completed on December 31, 2025 (see note 3).

As the acquisition closed on the last day of the fiscal year, no amortization was recorded during the year ended December 31, 2025.

Amortization will be recognized on a straight-line basis over estimated useful lives of 8 years for customer relationships and 4 years for trade name, commencing January 1, 2026.

On October 15, 2025, the Company completed an asset acquisition pursuant to which it acquired certain artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies in exchange for 9,000,000 shares of the Company’s common stock.

The transaction was determined to be an asset acquisition rather than a business combination.

Accordingly, no goodwill was recognized and the total consideration of $ 19,710,000 , representing the fair value of 9,000,000 shares at $2.19 per share, was allocated entirely to the acquired intangible assets.

Amortization is recognized on a straight-line basis over an estimated useful life of 5 years.

No impairment charges were recognized during the years ended December 31, 2025 or 2024.

The following table presents the estimated future amortization expense for intangible assets as of December 31, 2025:

Year Ended December 31, 2025

NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

Accrued cost of revenue

VAT and taxes payable

Accrued expenses and other current liabilities

NOTE 9 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting.

The Company's Chief Executive Officer serves as the CODM and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources to the Telco Services segment.

The measure of segment profit or loss regularly reviewed by the CODM is consolidated net loss.

Telvantis and its subsidiaries were consolidated as of December 31, 2025 and contributed no revenues or expenses to the consolidated statements of operations and comprehensive loss for the year ended December 31, 2025.

The following table presents significant segment expenses regularly provided to the CODM and used to assess segment performance for the years ended December 31, 2025 and 2024:

Revenue, related party

Total revenues

Cost of revenue

Cost of revenue, related party

Operating expenses:

Selling, general and administrative

Wages and benefits

Depreciation and amortization

Research and development

Total operating expenses

Loss from operations

( 2,928,140 )

( 3,004,948 )

Other income (expense):

Interest expense, net

Extinguishment of debt

Change in FV of contingent consideration

Other expense

Total other income (expense)

Income (loss) before income taxes

( 3,270,544 )

Net income (loss)

$ ( 3,270,544 )

Geographic Information

For the year ended December 31, 2025 and 2024, revenues attributable to operations by geography were as follows:

For the year ended December 31, 2025, approximately 97% of total consolidated revenues were attributable to operations in Malta, with the remaining 3% attributable to Sweden.

Telvantis and its subsidiaries were consolidated as of December 31, 2025 and contributed no revenues to the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2025.

There were no revenues during the year ended December 31, 2024.

Substantially all of the Company’s property, plant and equipment is held by 42 Telecom and its subsidiaries in Europe.

The following table presents property, plant and equipment, net by geographic location as of December 31, 2025 and 2024.

The Company’s intangible assets are held across multiple jurisdictions — business combination intangibles recognized in connection with the acquisition of 42 Telecom are held in Europe, business combination intangibles recognized in connection with the acquisition of Telvantis are held in the United States, and the acquired IP intangible assets are held by the Spectral in the United States.

The following table presents Intangibles, net by geographic location as of December 31, 2025 and 2024.

United States

NOTE 10 – LEASE OBLIGATIONS

In connection with the acquisition of 42 Telecom on August 1, 2025, the Company assumed an operating lease for office l premises located on the third and fourth floors of Hyundai Block, Valley Road, Msida, Malta.

The lease commenced upon handover on July 24, 2023 and has a contractual term of five years, of which the first two years are non-cancellable and the remaining three years may be terminated by the Company with two months’ notice.

Annual base rent is €60,000 plus VAT, payable quarterly in advance.

Lease costs are included in the consolidated statements of operations as selling, general and administrative expenses.

The following is the summary of operating lease assets and liabilities:

Operating Leases

Right-of-use assets

Operating lease liability, current portion

Operating lease liability, net of current portion

Total lease liabilities

Weighted Average Remaining Lease Term (in years)

Weighted Average Discount Rate

The operating lease costs totaled $ 28,927 and $ 0 , for the years ended December 31, 2025 and 2024, respectively.

The following is the summary of future minimum payments as of:

Total lease payments

imputed interest

NOTE 11 – RELATED PARTY TRANSACTIONS

Jenifer Osterwalder, the Company’s Chief Executive Officer

42 Telecom Acquisition

On July 15, 2025, the Company entered into a Definitive Share Exchange Agreement (the “Agreement”) with Heritage, an Irish corporation, and 42 Telecom, a Maltese corporation.

Pursuant to the Agreement, the Company acquired 100% of the outstanding capital stock of 42 Telecom in exchange for 8,000,000 shares of the Company’s common stock, plus 8,000,000 escrow shares subject to performance-based and valuation-adjustment provisions (see Note 3 – Business Combinations).

Under the terms of the Agreement, each Heritage holder’s beneficial ownership of the Company’s outstanding common stock is expressly limited to 4.9% or less at all times.

This ownership limitation is intended to prevent any holder from being deemed an “affiliate” under SEC Rule 144 and to ensure that no post-closing shareholder obtains control or significant influence over the Company’s management or policies.

At the time the Agreement was executed and the transaction consummated, neither Heritage nor 42 Telecom was a related party to the Company as defined in ASC 850-10-20 and PCAOB AS 2410.02-.03, since no common ownership, control, or significant influence existed.

The transaction was negotiated and completed on an arm’s-length basis and approved by the independent members of the Company’s Board of Directors.

Accordingly, management has concluded that the share exchange does not constitute a related-party transaction for purposes of ASC 850-10-50 or Regulation S-X § 4-08(k).

The acquisition accounted for as a business combination under ASC 805, with the identifiable assets acquired and liabilities assumed recognized at their estimated fair values as of the closing date.

The Company’s post-acquisition financial statements includes the results of 42 Telecom beginning on the date of acquisition.

See Note 3 for further detail.

Transaction with Mexedia SpA

42 Telecom is party to bilateral messaging service agreements with Mexedia SpA, an Italian telecommunications company, under which either party may act as a customer or vendor depending on destination-specific routing economics.

The Company has determined that Mexedia SpA was a related party of the Company for the period August 1 through December 31, 2025.

Orlando Taddeo served as the sole director of 42 Telecom throughout the post-acquisition period while simultaneously serving as Chief Executive Officer and Director of Mexedia SpA through October 2025 and retaining a controlling ownership interest in Mexedia SpA through Heritage through December 31, 2025.

For the period August 1 through December 31, 2025, revenues recognized from Mexedia SpA were $7,288,094 and cost of revenues incurred from Mexedia SpA as a termination services vendor were $7,303,516, each presented on a gross basis as 42 Telecom acts as principal under ASC 606.

Transactions between 42 Telecom and Mexedia SpA are conducted pursuant to bilateral messaging service agreements on a destination-specific routing basis and are priced based on market rates for telecommunications termination services.

At December 31, 2025, accounts receivable from Mexedia SpA of $11,709,931 and contract assets of $2,633,806 representing December 2025 messaging services billed to Mexedia SpA in January 2026 are reflected in accounts receivable, related party and contract assets, respectively, in the consolidated balance sheets.

Accounts payable to Mexedia SpA of $9,260,754 are reflected in accounts payable, related party in the consolidated balance sheets.

Daniel Gilcher served as Chief Financial Officer and Director of Mexedia SpA throughout the year ended December 31, 2025 and held no executive role at the Company during that period.

Gilcher received 400,000 shares of Spectral common stock in connection with the 42 Telecom acquisition and 175,000 shares in connection with the Telvantis acquisition from the respective sellers and did not constitute compensation for services rendered to the Company.

He was appointed Chief Financial Officer of the Company effective January 3, 2026.

Transaction With Former Shareholder of 42 Telecom

Heritage is the 100% owner of 42 Telecom prior to its acquisition by the Company on August 1, 2025.

The beneficial owner of Heritage is Mr.

Orlando Taddeo.

Heritage is considered a related party of the Company through Mr.

Taddeo’s continued service as sole director of 42 Telecom through December 31, 2025.

The beneficial owner of Heritage, Mr.

Orlando Taddeo, bought 42 Telecom (through Heritage) in September 2023.

At the time, Mexedia SpA verbally promised a share option incentive scheme to staff if 42 Telecom reached an EBITDA of €1.2 million in 2024.

Further, payments were made due to the 2024 performance of 42 Telecom, but it was not something that was included in employee agreements.

Employees had regular payments that were made and accrued for within the 2024 results, but this payment was separate from those.

It was only in July, 2025 that agreements were distributed and signed by employees, and those agreements were provided by Heritage.

It was determined that 42 Telecom acted solely as a paying agent in the transaction whereby Heritage will pay cash bonuses to 42 Telecom’s employees.

The transaction is deemed payable in the third quarter of 2025, when the final determination was made.

Heritage, as the primary obligor will record the P&L impact on its books and 42 Telecom will record the pass-through transaction.

Accordingly, during the year ended December 31, 2025, the Company distributed €1.3 million to the employee and related tax payable by employees depending on their tax band.

Heritage, the former sole shareholder of 42 Telecom and an entity controlled by Mr.

Orlando Taddeo, provided management services to 42 Telecom.

Management fee invoices of EUR 102,000 were issued by Heritage to 42 Telecom for services in the first half of 2025 and subsequently reversed in full by credit note on June 30, 2025, resulting in no net management fee expense recognized during the year ended December 31, 2025.

During the year ended December 31, 2025, cash payments totaling approximately $180,000 (EUR 153,000) were made to Heritage in settlement of management fees accrued in prior periods.

At December 31, 2025, approximately $100,000 (EUR 85,000) remained payable to Heritage in respect of prior period management fees and is included in accounts payable, related party in the consolidated balance sheets.

A dividend of EUR 600,600 in respect of 42 Telecom’s retained earnings for the year ended December 31, 2024 was declared on October 31, 2025, payable to Heritage as the former 100% shareholder of 42 Telecom.

The dividend remained unpaid at December 31, 2025 and is reflected as a liability of $706,492, due to related party in the consolidated balance sheets.

See Note 3 — Business Combinations for further details.

42 Telecom - Other receivable

As part of the acquisition of 42 Telecom on August 1, 2025, the Company acquired a receivable from Nexora Holdings Ltd.

(“Nexora”) amounting to €362,597 (approximately $ 417,095 ).

Nexora is an entity controlled by Mr.

Orlando Taddeo and is therefore considered a related party under ASC 850.

The receivable originated from an Intellectual Property Transfer Agreement dated July 1, 2025, between 42 Telecom and Nexora.

Under this agreement, 42 Telecom transferred certain proprietary software and related IP to Nexora in exchange for consideration of €362,597.

The payment is subject to a five-year moratorium, during which no cash settlement is required unless Nexora generates profits directly from the transferred IP, in which case partial or full payment becomes due earlier.

The receivable was recognized as part of the purchase-price allocation in connection with the 42 Telecom acquisition and remains outstanding as of December 31, 2025, with a carrying amount of US $426,526.

The change in U.S.

dollar equivalent from the acquisition date is solely due to foreign currency translation adjustments.

Management continues to monitor the balance for collectability.

No additional transactions occurred with Nexora Holdings Ltd.

during the period.

The Company concluded that the IP sale did not constitute a discontinued operation as per ASC 205.

Chief Executive Officer Compensation

Jenifer Osterwalder, the Company’s Chief Executive Officer, charges the Company $12,000 per month beginning January 1, 2021 for services rendered.

Total amounts expended in the Company's consolidated financial statements in connection with the CEO's services were $ 144,000 and $ 144,000 for the years ended December 31, 2024 and 2023, respectively.

Total amounts expended in the Company’s condensed consolidated financial statements in connection with the CEO’s services was $ 144,000 for the both years ended December 31, 2025 and 2024, respectively.

As of December 31, 2025 and 2024, amounts due to the CEO related to accrued salaries were $ 576,000 and $ 432,000 respectively.

From time to time due to the limited cash flow available, the Company's CEO pays certain operating expenditures on behalf of the Company.

These advances bear no interest and are due on demand.

As of December 31, 2024 and 2023, the Company's CEO was due $ 0 and $ 6,150 in connection with these advances, respectively.

During the year ended December 31, 2024, the Company issued 68,311 shares of common stock in satisfaction of $ 6,150 in advances.

During the year ended December 31, 2024, the Company received $ 550,700 in total demand advances from the Chairman of the Board of Directors, Sean Michael Brehm.

During the year ended December 31, 2024, the Company issued 68,311 shares of common stock in satisfaction of $6,150 in advances previously made by the Chief Executive Officer on behalf of the Company, resulting in a loss on extinguishment of $501.

Loans from Related Parties

On February 5, 2025, the Company entered into a loan agreement with B Holdings OU, which is associated with the beneficial owner of DecusPro, Mr.

Boriss Aleksandrov, a shareholder of the Company.

During the year ended December 31, 2025, the Company received total of proceeds of $ 204,590 under this agreement and repaid the full amount during the same year.

The loan bore interest at 10% per annum repayable on demand and matured in 12 months.

As of December 31, 2025, no balance was outstanding under this agreement.

In June 2025, the Company entered into a loan agreement with SKY PLL OU, a shareholder of the Company, whereby the Company may borrow up to a total principal amount of $500,000.

During the year ended December 31, 2025, the Company received a total of $ 10,000 under this agreement.

The loan bears no interest and matures on December 31, 2025.

As of December 31, 2025, the total amount due under this agreement was $ 10,000 .

The Company is currently in extension discussions regarding payment term.

On June 2, 2025, the Company entered into a promissory note with Mr.

Michael Turner, a member of the Board of Directors, for a principal amount of $ 10,000 .

The note bears interest at 5% per annum, unless repaid in full within 60 days of issuance, in which case no interest is due.

The principal and any accrued interest are payable on demand.

As of December 31, 2025, the total amount due under this note was $ 10,000 .

Telvantis Voice Services, Inc.

— Assumed Related Party Balances

In connection with the acquisition of Telvantis, on December 31, 2025 the Company assumed certain pre-existing related party balances.

As of December 31, 2025, amounts due to related parties of $7,276,918 are included in current liabilities in the consolidated balance sheets, representing loans payable to Mexedia, $7,276,918.

Mexedia SpA is a related party of the Company as described above.

The loans were incurred in the ordinary course of Telvantis's pre-acquisition operations.

Additionally, as of December 31, 2025, amounts due from related parties of $1,357,768 are included in current assets, representing $1,299,468 owed by Telvantis Inc.

(the seller), and $58,300 owed by Mexedia SpA.

These balances are expected to be settled in the ordinary course of business.

Transactions with Former Chairman and Affiliates

During the years ended December 31, 2025 and 2024, the Company received $ 125,000 and $ 550,700 , respectively, in total demand advances from the former Chairman of the Board of Directors, Sean Michael Brehm.

These advances are documented under a promissory note dated November 14, 2024 (“Note”).

2 unchanged sentences

The Note must be repaid by the Company, including accrued interest at 4% APR at the end of five years.

As of December 31, 2024, accrued interest on the note was insignificant to the financial statements.

The Note balance may be applied to the exercise of Mr.

Brehm’s options to acquire common stock in the Company at any time while the Note is outstanding.

Subsequently, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements and no longer owes Mr.

Brehm compensation for the demand advances (see Note 7).

Sean Michael Brehm, the Company’s Chairman and a member of the board of directors, is also the sole shareholder of NNN, which the Company has acquired in exchange for 1,000,000 shares of newly designated Series Quantum Preferred Stock effective August 29, 2024;

In June 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements and no longer owes Mr.

Brehm compensation for the demand advances.

As a result of the settlement, the total outstanding balance of $ 675,700 was relieved and recorded to additional paid-in capital.

As of December 31, 2025 and 2024, amounts due under the note totaled $ 0 and $ 550,700 , respectively.

Sean Michael Brehm, the Company’s former Chairman and a member of the Board of Directors, is also the sole shareholder of Node Nexus Network Co.

LLC (“NNN”), which the Company had acquired in exchange for 1,000,000 shares of newly designated Series Quantum Preferred Stock effective August 29, 2024;

In connection with the acquisition, Sean Michael Brehm also purchased 5,050,000 of the Company’s common shares at $0.20 per share for a total purchase price of $ 1,010,000 .

2 unchanged sentences

The pre-acquisition financial results of NNN were not significant.

Due to the cancellation, the initial transaction recorded at par value.

Due to the rescission below, the initial transaction was recorded at par value.

Prior to the close of the acquisition, the Company paid approximately $ 145,000 to NNN for development services.

2 unchanged sentences

The new entity was recently established and had no operations.

See Note 7 for subsequent event regarding the return of the 1,000,000 Series Quantum Preferred Shares.

NOTE 4 – STOCKHOLDERS’ DEFICIT

On August 8, 2022, we increased our common stock, $ 0.0001 par value per share, from 500,000,000 to 1,000,000,000 (the “Increase in Authorized Capital”).

On November 22, 2022, we effected a reverse stock split of our common stock whereby every ten (10) shares of issued and outstanding common stock was combined into one (1) share of common stock (the “Reverse Stock Split”).

The Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior acquisitions and planned collaborations involving Node Nexus Network, Vogon Cloud, Quantomo, and Crwdunit.

Under the agreement, Spectral retains ownership of 104 patent filings developed during the course of the collaboration.

Brehm and his affiliates will pursue independent commercial development of the technology associated with Node Nexus Network, Vogon Cloud, Quantomo, and Crwdunit in a separate private vehicle.

All shares previously issued to Brehm and his affiliates have been returned and cancelled except for the private placement shares of 5,050,000 purchased by Brehm which were fully paid for.

As of December 31, 2025, these entities did not have any assets or liabilities as to be reflected as discontinued operations.

Additionally, the Company intends to continue the development of its intellectual property and software development on its own and does not require any resources, assets or inputs from any of the above entities or individuals to continue the development of its technologies.

Governance Changes

Effective May 30, 2025, five members of the Board of Directors—Sean Brehm, Sam Lee, Aby Alexander, Chad Lemming, and Paul Breitenbach—resigned.

On the same date, the Board appointed Michael Turner and Jeffrey Chong as new directors.

Subsequently, Gottfried Werner and Olga Nezerenko were appointed to the board on November 19, 2025 and December 27, 2025 respectively.

These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting.

NOTE 12 – DEBT

On April 21, 2025, the Company entered into a short-term loan agreement with a third-party lender for a total principal amount of $ 10,000 .

The loan bears no interest and matures on October 21, 2025.

On October 29, 2025, the Company issued 10,000 shares of its common stock at $1.00 per share in full settlement of the outstanding loan balance pursuant to a Subscription Agreement.

As of December 31, 2025, no balance was outstanding under this agreement.

NOTE 13 – ACCOUNTS RECEIVABLE FINANCING FACILITY

Fasanara Participation Arrangement — 42 Telecom Ltd

42 Telecom, a wholly owned subsidiary of the Company, is party to a Master Participation Agreement dated February 20, 2025 with Fasanara Securitisation S.A.

(“Fasanara”), pursuant to which Fasanara provides funding against a specified percentage of trade receivables arising from telecommunications services.

42 Telecom retains servicing responsibilities, maintains direct customer relationships, and retains a portion of the credit risk associated with the receivables.

The arrangements are undisclosed, meaning customers are not notified of Fasanara’s participation.

Accordingly, the participation arrangements do not meet the criteria for sale accounting under ASC 860, Transfers and Servicing of Financial Assets, and are accounted for as receivables financing.

The outstanding funded amount $ 331,432 recognized as current liabilities in the consolidated balance sheets.

Customer payments are remitted to a bank account maintained at Goldman Sachs used exclusively for customer collections under the arrangement.

Because the Company does not control or have withdrawal rights over this account, amounts held therein do not meet the definition of cash or cash equivalents or restricted cash under ASC 305, Cash and Cash Equivalents and are classified within other current assets as a settlement receivable.

Accounts receivable are reduced upon customer remittance as the customer’s obligation is extinguished at that time.

The Fasanara financing liability is not reduced until customer collections are contractually settled or applied against the outstanding balance.

Fasanara Participation Arrangement — Telvantis Voice Services, Inc.

In connection with the acquisition of Telvantis on December 31, 2025, the Company assumed a pre-existing receivables financing facility with Fasanara with an outstanding balance of $ 12,342,163 , recognized at carrying value.

There was no post-acquisition activity under this facility during the year ended December 31, 2025.

NOTE 14 – STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

1 unchanged sentence

The number of Series Quantum Preferred Stock designated is 2,000,000 .

The Series Quantum Preferred Stock contain a liquidation preference over common shareholders equal to 40 times the amount per share to be distributed to the common shareholders.

The Series Quantum Preferred Stock contains a liquidation preference over common shareholders equal to 40 times the amount per share to be distributed to the common shareholders.

The Series Quantum Preferred Stock is convertible at the option of the Company or the holder into 40 shares of the Company’s common stock, contingent upon the Company having enough authorized shares to effectuate the conversion.

2 unchanged sentences

On August 29, 2024, the Company issued 1,000,000 shares of Series Quantum Preferred Stock to Sean Michael Brehm in connection with the acquisition of NNN.

See Note 7 for subsequent event regarding the return of the 1,000,000 Series Quantum Preferred Shares.

Due to the cancellation, the initial transaction recorded at par value.

The acquisition was subsequently rescinded and the transaction was recorded at par value.

In connection with the settlement agreement entered into in June 2025, all 1,000,000 shares of Series Quantum Preferred Stock were returned and cancelled.

See Note 11 for further details.

As of December 31, 2025 and 2024, the Company had 0 and 1,000,000 shares of Series Quantum Preferred Stock outstanding, respectively.

Restated Share Transfer Agreement

On May 30, 2025, the Company executed a Restated Share Transfer Agreement with Intrepid View Partners, LP, under which Spectral acquired 1,698,890 common shares of a global autonomous vehicle company (the “WAV Company”) for an aggregate purchase price of $16,988,900, which will be paid via the issuance of 1,698,890 restricted shares of Spectral’s common stock.

The WAV Company shares are subject to a 12-month delivery restriction, and both the WAV Company shares and the Spectral shares issued as consideration are subject to a three-year lock-up period.

Delivery is contingent upon satisfaction of certain regulatory and procedural requirements, which may involve delays.

The Seller makes no representations regarding the financial condition or value of the WAV Company, and the transaction is structured as an “as-is” investment.

Both parties have agreed to customary representations, warranties, and mutual indemnification provisions.

As of December 31, 2025, the transaction was not yet finalized and as a result, there has been no accounting recognition associated with the Restated Share Transfer Agreement.

Private Placements

In June 2025, the Company commenced an additional private placement offering for up to 3,333,333 shares of the Company’s common stock at a price of $1.00 - $1.49 per share, or an aggregate of $3,333,333.

During the year ended December 31, 2025, the Company issued 1,494,700 shares of common stock for total proceeds of $ 1,834,970 under this offering .

On April 22, 2024, the Board of Directors approved a Private Placement Offering pursuant to Rule 506(b) of the Securities Act of 1933, as amended (the “Securities Act”) for up to 15,000,000 restricted shares of the Company’s common stock at a price of $0.01 per share, or an aggregate of $150,000.

The offering commenced on April 22, 2024 and ended on June 3, 2024.

The $150,000 was used for operating capital.

As of the date of this filing, the Company has received $ 150,041 in proceeds from this offering.

During the year ended December 31, 2024, the Company has received $ 150,040 in proceeds from this offering.

In June 2024, the Company commenced an additional offering looking to raise up to $1,000,000 at a price of $0.20 per shares.

As of December 31, 2024, total proceeds of $ 1,010,000 had been received from this offering.

In addition, cash contributed through NNN was $4,955.

As further discussed in Note 11, this offering was consummated with a related party in connection with the acquisition of NNN.

Business Combinations

On August 1, 2025, the Company issued 8,000,000 shares of common stock in connection with the acquisition of 42 Telecom Ltd., recorded at a fair value of $ 12,880,000 .

See Note 3 — Business Combinations for further details.

On December 31, 2025, in connection with the acquisition of Telvantis Voice Services, Inc., the Company became obligated to issue 1,500,000 shares of common stock to the former shareholders, recorded at a fair value of $3,407,250.

As the shares had not been formally issued as of December 31, 2025, the obligation is reflected as common stock to be issued within stockholders' equity in the consolidated balance sheets.

See Note 3 — Business Combinations for further details.

In January 2026, the Company issued 1,000,000 shares of common stock to the former shareholders of Telvantis Voice Services, Inc.

Settlement of Advances

On May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements.

Pursuant to the agreement, the Company no longer owes Mr.

Brehm compensation for outstanding demand advances totaling $ 675,500 .

See Note 11 for additional discussion.

On October 29, 2025, the Company issued 10,000 shares of its common stock at $1.00 per share in full settlement of a $10,000 outstanding loan balance due to Quantum Investment Fund 1 LLC.

See Note 12— Debt for further details.

During the year ended December 31, 2024, the Company issued 3,563,043 shares of common stock in satisfaction of $81,950 in advances.

On the date of the agreement, the fair market value of the common stock per the Company’s closing stock price was $347,040 resulting in an extinguishment of debt of $265,090 .

During the year ended December 31, 2023, a shareholder of the Company satisfied various liabilities totaling $75,000 which were recorded as contributed capital.

See Note 3 for additional share issuances.

Asset Acquisitions

On October 15, 2025, the Company issued 9,000,000 shares of its common stock at a fair value of $2.19 per share, based on the closing market price on the acquisition date, as consideration for the acquisition of certain intellectual property assets from Eliznikcomp OÜ, an Estonian corporation, for total consideration of $19,710,000.

See Note 7 — Intangible Assets for further discussion.

Stock for Services

On October 28, 2025, the Company entered into a twelve-month consulting agreement with Data Center Constructors LLC (“DCC”) for strategic advisory, partnership development, and government relations services.

As consideration, the Company issued 50,000 shares of common stock at a fair value of $2.15 per share, valued $107,500 and $200,000 had been paid in cash as of December 31, 2025.

Total consideration paid through December 31, 2025 was $ 307,500 .

On December 3, 2025, the Company entered into a marketing services agreement with Finplays LLC (“Finplays”) for investor awareness and public relations services through December 31, 2026.

As consideration, the Company issued 2,000,000 restricted shares of common stock at a fair value of $2.16 per share, valued $4,320,000 and agreed to fund a $100,000 cash marketing budget, for total consideration of $ 4,420,000 .

The restricted shares are subject to a six-month resale restriction from the date of issuance.

On April 26, 2024, we entered into a consulting contract with Scandere OU (Estonia) (“Scandere”).

Scandere has the same management and has been contracted on behalf of Sky Data PPL and has experience in the telecommunications industry.

Scandere will provide us with management services, CDR processing, fraud management, reporting and analytics and credit and finance management to facilitate our entry into the data center market.

Scandere has the same management and been contracted on behalf of Sky Data PPL and has experience in the telecommunications industry.

Scandere will provide us with management services, CDR processing, fraud management, reporting and analytics and credit and finance management to facilitate our reentry into telecommunication reselling operations.

The contract shall remain in force until the completion of the services or the earlier termination of the agreement.

As payment for its services, Scandere receives 2,000,000 restricted shares of the Company’s common stock, valued at $ 194,800 based upon the closing price of the Company’s common stock on the date of the agreement.

Asset Acquisitions

On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Quantomo OU., an Estonian corporation (“Quantomo”), whereby the Company agreed to acquire from Quantomo 100% of the Quantomo’s outstanding shares in exchange for 2,000,000 shares of the Company’s common stock and a one-time cash payment of $ 135,000 or (120,000 Euros) which was paid and expensed in 2024.

The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of the certain closing conditions as defined within the agreement.

Subsequent to December 31, 2024, the agreement was rescinded without an impact on the year ended December 31, 2024.

On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Crowdpoint Technologies, Inc., a Texas corporation (“Crowdpoint”), a company controlled by Sean Michael Brehm, and its wholly owned subsidiary, Crwdunit Inc., a Delaware corporation (“Target”), whereby the Company agreed to acquire from Crowdpoint 100% of the Target’s outstanding shares in exchange for 3,750,000 shares of the Company’s common stock.

The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of certain closing conditions as

defined within the agreement.

Subsequent to December 31, 2024, the agreement was rescinded without an impact on the year ended December 31, 2024.

Spectral entered into an Agreement between the Company and Verdant Quantum OU and Moshik Cohen dated December 15, 2024 whereby Spectral acquired certain plasmonic technology for the development of room temperature semiconductors.

Subsequent to December 31, 2024, the agreement was rescinded without an impact on the year ended December 31, 2024.

Employee Options

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risk free rate of 3.5 % and no dividend yield.

The total grant date fair value was $ 3,345,600 with $ 1,165,151 being expensed to selling, general and administrative during the year ended December 31, 2024, respectively.

As of December 31, 2024, the remaining value of approximately $2.4 million is expected to be expensed over 3.45 years.

The following is a summary of stock option activity for the nine months ended December 31, 2024:

The total grant date fair value was $ 3,345,600 .

During the years ended December 31, 2025 and 2024, $ 1,077,319 and $ 1,165,151 was expensed to selling, general and administrative, respectively.

As of December 31, 2025, total unrecognized compensation expense from stock options was $ 367,500 and is expected to be expensed over 0.5 year.

In May 2025, five members of the Board of Directors resigned which resulted in the forfeiture of 3,163,125 options and approximately $ 930,000 in total unrecognized compensation expense.

The following is a summary of stock option activity for the years ended December 31, 2025 and 2024:

Exercise Price

Outstanding, December 31, 2023

Forfeited/Expired

Outstanding, December 31, 2024

Forfeited/Expired

( 3,163,125 )

Outstanding, December 31, 2025

Vested, December 31, 2025

Subsequent to December 31, 2024, various board members resigned resulting the forfeiture of approximately 3.6 million options.

NOTE 5 – INCOME TAXES

As of December 31, 2024, the Company had net operating loss carry forwards of approximately $ 16,600,000 that may be available to reduce future years’ taxable income through 2037.

Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

The difference between the Company’s tax rate and the statutory rate is due to a full valuation allowance.

The provision for Federal income tax consists of the following:

Federal income tax benefit attributable to:

Current operations

valuation allowance

Net provision of income taxes

The cumulative tax effect at the expected rate of 21 % of significant items comprising our net deferred tax amount is as follows:

Deferred tax asset attributable to:

Net operating loss carryforward

valuation allowance

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Refer to Note 10 for the Company’s lease obligation.

In addition, Company leases virtual office space on a month-to-month basis in Seattle, Washington.

From time to time, the Company and its subsidiaries may become involved in various lawsuits and legal proceedings arising in the ordinary course of business.

Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company's business.

Telvantis Voice Services Inc.

f/k/a Mexedia Inc.

(Broward County, Florida;

Cace-25-017748).

On January 1, 2023, Telvantis Voice Services Inc.

("Telvantis"), now a wholly owned subsidiary of the Company, entered into a stock purchase agreement with Tellza, Inc.

to acquire Tellza's ownership interest in Phonetime, Inc.

and Matchcom Telecommunications, Inc.

as part of a $3,000,000 purchase price.

Telvantis was required to pay $250,000 on January 1, 2024 and did not make this payment.

Tellza filed suit to recover the $250,000.

Telvantis filed a motion to dismiss, and the parties subsequently entered into an Agreed Order.

Based on the facts as presently known, the Company is unable to determine the likelihood of an unfavorable outcome;

however, a loss contingency in the range of zero to $250,000 is reasonably possible.

No accrual has been recorded as of December 31, 2025 as the loss is not considered probable.

The Company acquired Telvantis effective December 31, 2025.

42 Telecom Ltd.

Symplify Technologies AB (Malta;

42 Telecom Limited ("FortyTwo"), a wholly owned subsidiary of the Company, instituted legal proceedings in the Civil Court, First Hall, of the Republic of Malta against Symplify Technologies AB, a Swedish corporation, for recovery of €443,118.70 (approximately $478,000) in unpaid invoices for telecommunications services.

The case was filed September 15, 2025.

Subsequent to year-end, on March 26, 2026, the Court entered judgment in favor of FortyTwo for the full amount of €443,118.70 plus legal interest and costs.

The defendant did not appear or contest the proceedings.

The judgment is now subject to collection.

The Company has not recorded a receivable for the judgment amount as collectability has not yet been assessed.

Arcus Technologies Ltd.

Arcus Technologies Limited, an indirect subsidiary of the Company, entered into a settlement agreement with a customer relating to outstanding debt, with monthly payments.

The matter has been resolved by agreement.

There was also a claim made by a third-party entity regarding former Chairman Sean Michael Brehm and Node Nexus Network.

The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim because an indemnity has been provided by Mr.

On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Quantomo OU., an Estonian corporation (“Quantomo”), whereby the Company agreed to acquire from Quantomo 100% of the Quantomo’s outstanding shares in exchange for 2,000,000 shares of the Company’s common stock and a one-time cash payment of $135,000 or (120,000 Euros) which was paid and expensed in 2024.

The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of the certain closing conditions as defined within the agreement.

As of December 31, 2025, the agreement was rescinded without an accounting impact on any period.

The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of certain closing conditions as defined within the agreement.

As of December 31, 2025, the agreement was rescinded without an accounting impact on the any period.

As of December 31, 2025 the agreement was rescinded without an accounting impact on the any period.

On May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements and no longer owes Mr.

Brehm compensation for the demand advances.

Investment in White Label Loyalty

In May 2025, the Company entered into a non-binding term sheet to invest $15,000,000 in White Label Loyalty, a UK-based SaaS provider of enterprise-grade loyalty and customer engagement platforms.

The investment was structured as a primary equity infusion to support White Label Loyalty’s product development and international expansion.

The Company has elected to let the term sheet expire according to its terms and not to pursue this financing.

NOTE 16 – INCOME TAX

Provision for Income Taxes

The provision (benefit) for income taxes consisted of the following:

$ ( 836,347 )

Foreign — Malta LTD:

Other subsidiaries — Telecom AB:

Income tax expense

Total provision (benefit) for income taxes

$ ( 497,495 )

Net deferred tax asset

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations.

Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.

The Company is subject to routine audits by taxing jurisdictions;

however, there are currently no audits for any tax periods in progress.

The Company believes they are no longer subject to income tax examinations for years prior to 2012.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

The Company leases virtual office space on a month-to-month basis in Seattle, Washington and office space in Lugano, Switzerland on a six-month basis.

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.

However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

The Company is not aware of any such legal proceedings that will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

There was a claim made by a third party entity regarding Mr.

Brehm and Node Nexus Network.

The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim and has been provided with an indemnity by Mr.

Brehm for the same.

The Company previously owed Rubenstein Public Relations $30,000.

There was a dispute regarding the proper amount of the invoice and the parties agreed to settle the amount due for $24,000 and signed a settlement agreement to that effect.

The amount was paid in full in June 2025.

RESEARCH AND DEVELOPMENT

For the year ended December 31, 2024, we incurred research and development expenses of $ 745,024 related to the development of our current software products.

This expense consists of expenses related to our technology acquisitions, primarily the acquisition of the Node Nexus Network technology which were subsequently rescinded.

SIGNIFICANT CUSTOMERS AND SUPPLIERS

In the year ended December 31, 2024, we had 0 customers.

And presently have 1 customer whom we are entirely dependent on for our current revenue.

We expect this to change over the next 180 days.

Income (Loss) Before Income Taxes

Income (loss) before income taxes by jurisdiction:

Domestic (U.S.)

$ ( 1,129,939 )

$ ( 3,270,544 )

Effective Tax Rate Reconciliation

The following table reconciles the U.S.

federal statutory income tax rate to the Company’s effective income tax rate.

Effective Rate

Expected tax benefit at U.S.

statutory rate (21%)

State and local income taxes, net of federal benefit

Foreign statutory rate differential

Change in fair value of contingent consideration (a)

Acquisitions and dispositions

Non-deductible expenses and permanent differences

Changes in valuation allowance:

Total provision (benefit) for income taxes

$ ( 497,495 )

(a) Represents the tax effect of a $3,387,266 non-cash gain from the change in fair value of contingent consideration recognized in connection with the Company's business combinations.

This item is not deductible for U.S.

federal income tax purposes and represents a permanent difference.

Deferred Tax Assets and Liabilities

Significant components of deferred tax assets and liabilities as of December 31:

Deferred Tax Assets:

Net operating loss carryforwards — U.S.

Stock-based compensation — U.S.

Total deferred tax assets

Valuation allowance — U.S.

( 1,399,867 )

Net deferred tax assets

Deferred Tax Liabilities (net):

Purchased intangibles — U.S.

(42 Telecom / Telvantis), net

$ ( 1,401,770 )

Purchased intangibles — Foreign (Malta LTD)

( 3,110,317 )

Deferred tax asset — Telvantis (b)

Right-of-use assets and other — Foreign

Total deferred tax liabilities, net

( 4,470,480 )

Net deferred tax liability

$ ( 4,470,480 )

(b) Represents a deferred tax asset recognized at Telvantis in connection with temporary differences arising at acquisition.

The net deferred tax liability of $(4,470,480) is presented within non-current liabilities on the consolidated balance sheet as of December 31, 2025.

Net Operating Loss Carryforwards

As of December 31, 2025, the Company had U.S.

federal net operating loss carryforwards of approximately $ 5,589,000 available to offset future taxable income.

Under the Tax Cuts and Jobs Act of 2017, U.S.

federal NOLs generated after December 31, 2017 carry forward indefinitely but are limited to 80% of taxable income in any given year.

Utilization of these NOLs may be subject to annual limitations under Section 382 of the Internal Revenue Code as a result of ownership changes

Valuation Allowance

The Company maintains a full valuation allowance against its U.S.

net deferred tax assets of $ 1,399,867 .

Management has evaluated the available positive and negative evidence, including the Company's history of cumulative operating losses in the U.S.

and the absence of sufficient objectively verifiable positive evidence to support realization, and has concluded that it is more likely than not that the U.S.

net deferred tax assets will not be realized.

Accordingly, a full valuation allowance has been recorded as of December 31, 2025.

Deferred tax liabilities related to acquired intangible assets from the business combinations of 42 Telecom and Telvantis are recorded with no corresponding deferred tax asset offset, as these arise from purchase price allocation temporary differences that are expected to reverse through future amortization charges.

Income Taxes Paid

The following table presents income taxes paid (net of refunds received), disaggregated by jurisdiction

state and local

Foreign — Malta

Total income taxes paid

Uncertain Tax Positions

The Company had no unrecognized tax benefits as of December 31, 2025 and 2024, and does not anticipate any significant changes in unrecognized tax benefits within the next twelve months.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense.

No material interest or penalties were accrued as of December 31, 2025.

NOTE 17 - SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2024 to the date these consolidated financial statements were issued and has determined that it has the following material subsequent events to disclose in these consolidated financial statements, other than those disclosed above and below.

From the end of fiscal 2024 through June 3, 2025, Spectral Capital Corporation (“Spectral” or the “Company”) completed several significant corporate actions.

These events are summarized below:

Investment in White Label Loyalty (May 2025):

In May 2025, the Company entered into a definitive agreement to invest $15,000,000 in White Label Loyalty, a UK-based SaaS provider of enterprise-grade loyalty and customer engagement platforms.

The investment was structured as a primary equity infusion to support White Label Loyalty’s product development and international expansion.

The transaction exemplifies Spectral’s strategy of acquiring or investing in scalable software

businesses that can be enhanced through integration with the Company’s proprietary intellectual property and platform technologies.

This investment was financed in part through the Company’s existing equity resources.

Restated Share Transfer Agreement (May 30, 2025):

On May 30, 2025, the Company executed a Restated Share Transfer Agreement with Intrepid View Partners, LP, under which Spectral acquired 169,889 common shares of a global autonomous vehicle company for an aggregate purchase price of $16,988,900, paid via the issuance of 1,698,890 restricted shares of Spectral’s common stock.

Rescission of Transactions with Sean Brehm and Affiliates:

Under the agreement, Spectral retains ownership of 104 patent filings developed during the course of the collaboration.

Brehm and his affiliates will pursue independent commercial development of the foregoing technologies in a separate private vehicle.

All shares previously issued to Brehm and his affiliates have been returned and cancelled except for the private placement shares of 5,050,000 purchased by Brehm which were fully paid for.

As of December 31, 2024, these entities did not have any assets or liability as to be reflected as discontinued operations.

Board of Directors Changes:

Effective May 30, 2025, five members of the Board of Directors—Sean Brehm, Sam Lee, Aby Alexander, Chad Lemming, and Paul Breitenbach—resigned.

On the same date, the Board appointed Michael Turner and Jeffrey Chong as new directors.

These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AN ACCOUNTING FINANCIAL DISCLOSURE

Not applicable.

On January 3, 2026, the Board of Directors appointed Mr.

Daniel Gilcher as Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer of the Company, effective January 3, 2026.

On January 4, 2026, the Company entered into a binding term sheet with Intermatica S.p.A., a società per azioni organized under the laws of Italy, setting forth the principal terms of a proposed acquisition of 100% of the issued and outstanding equity interests of Intermatica.

The proposed transaction is subject to the negotiation and execution of definitive acquisition documentation and the satisfaction of customary closing conditions.

Pursuant to the term sheet, the consideration contemplated to be paid at closing consists of the issuance of 5,000,000 shares of the Company’s common stock, subject to certain escrow, buy-back, standstill, and minimum value protection provisions.

The term sheet also contemplates the potential issuance of up to an additional 5,000,000 shares of the Company’s common stock as earn-out consideration upon the achievement of specified post-closing performance milestones, for a maximum potential aggregate consideration of 10,000,000 shares.

The term sheet provides that no Intermatica shareholder may beneficially own more than 4.9% of the Company’s issued and outstanding common stock at any time.

The proposed transaction is subject to, among other conditions, the completion of financial, legal, and operational due diligence (including, unless waived, an audit of Intermatica’s financial statements under PCAOB standards), approval by the boards of directors of both parties, and the execution of definitive agreements.

As of the date of issuance of these financial statements, no definitive agreement has been executed and there can be no assurance that the proposed transaction will be consummated.

On March 13, 2026, the Company entered into a private placement subscription agreement pursuant to Rule 506(b) of Regulation D under the Securities Act of 1933, as amended, for the issuance of 100,000 shares of the Company’s common stock at a price of $2.00 per share, for aggregate proceeds of $200,000.

The Company received full payment on March 13, 2026.

The shares have not been registered under the Securities Act and bear a restrictive legend.

Management has considered all events through the date of issuance and determined that none of these subsequent events require adjustment to amounts recognized in the consolidated financial statements as of the reporting date.

All described items are considered non-adjusting subsequent events under U.S.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data