SPECTRAL CAPITAL Corp 10-Q

Item 1: Financial Statements Our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2026 and 2025 are part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. INDEX TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc. Condensed Consolidated Balance Sheets as of June 30, 2026 (unaudited) and December 31, 2025 F-1 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2026 and 2025 (unaudited) F-2 Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2026 and 2025 (unaudited) F-3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2026 and 2025 (unaudited) F-4 Notes to the Condensed Consolidated Financial Statements (unaudited) F-5 1 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2026, AND DECEMBER 31, 2025 (In thousands, except per share data and share count) June 30, December 31, 2026 2025 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,267 $ 2,087 Restricted cash 21 21 Accounts receivable, net 116,395 32,528 Accounts receivable, related party 9,332 11,710 Contract assets 932 3,840 Contract assets, related party - 2,634 Due from related party 1,366 1,358 Prepaid expenses and other current assets 3,071 5,273 Total current assets 136,384 59,451 Property, plant and equipment, net 111 126 Intangible assets, net 37,892 41,438 Capital work-in-progress 182 439 Goodwill 48,697 48,697 Other receivable, related party 414 427 Right of use asset 131 168 Total assets $ 223,811 $ 150,746 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 112,846 $ 34,441 Accounts payable, related party 3,683 9,261 Accrued expenses and other current liabilities 3,346 2,407 Due to related party 7,895 7,997 Accounts receivable financing facility 17,457 12,674 Contingent consideration 16,394 34,839 Contract liabilities 352 335 Operating lease liability, current portion 64 65 Total current liabilities 162,037 102,019 Operating lease liability, net of current portion 67 102 Deferred tax liability 4,469 4,470 Total liabilities 166,573 106,591 Commitments and contingencies (Note 14) Stockholders’ equity: 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 shares issued and outstanding as of June 30, 2026 and December 31, 2025 - - Common stock, par value $ 0.0001 , 300,000,000 shares authorized 96,291,416 and 88,254,216 shares issued and outstanding as of June 30, 2026 and December 31, 2025 10 9 Common stock to be issued ( 500,000 and 1,500,000 shares as of June 30, 2026 and December 31, 2025) 1,135 3,407 Additional paid-in capital 91,710 74,243 Accumulated deficit ( 35,433 ) ( 33,415 ) Accumulated other comprehensive income/(loss) 38 133 Total stockholders’ equity 57,460 44,377 Non-controlling interest ( 222 ) ( 222 ) Total stockholders’ equity 57,238 44,155 Total liabilities and stockholders’ equity $ 223,811 $ 150,746 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 1 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND 2025 (UNAUDITED) (In thousands, except per share data and share count) Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Revenue $ 318,174 $ - $ 646,686 $ - Revenue, related party 104 104 Total revenues 318,278 - 646,790 - Cost of revenue 314,877 - 641,199 - Cost of revenue, related party 121 - 121 - Total cost of revenues 314,998 - 641,320 - Gross profit 3,280 - 5,470 - Operating expenses: Selling, general and administrative 2,402 451 4,842 1,075 Wages and benefits 731 36 1,472 72 Depreciation and amortization 2,004 - 3,992 - Total operating expenses 5,137 487 10,306 1,147 Loss from operations ( 1,857 ) ( 487 ) ( 4,836 ) ( 1,147 ) Other income (expense): Interest expense, net ( 470 ) - ( 885 ) - Change in fair value of contingent consideration 9,886 - 3,972 - Other income 1 - 4 - Total other income 9,417 - 3,091 - Income/(loss) before income taxes 7,560 ( 487 ) ( 1,745 ) ( 1,147 ) Income taxes 173 - 273 - Net income (loss) $ 7,387 $ ( 487 ) $ ( 2,018 ) $ ( 1,147 ) Net income/(loss) attributable to non-controlling interests $ - $ - $ - $ - Net income/(loss) attributable to the Company $ 7,387 $ ( 487 ) $ ( 2,018 ) $ ( 1,147 ) Other comprehensive income (loss): Foreign currency translation loss ( 8 ) - ( 95 ) - Total comprehensive income (loss) $ 7,379 $ ( 487 ) $ ( 2,113 ) $ ( 1,147 ) Net income/(loss) per share attributable to the Company Basic 0.08 ( 0.01 ) ( 0.02 ) ( 0.02 ) Diluted 0.08 ( 0.01 ) ( 0.02 ) ( 0.02 ) Weighted average shares outstanding Basic 92,050,072 67,717,203 90,523,116 67,708,302 Diluted 94,890,591 67,717,203 90,523,116 67,708,302 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 2 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND 2025 (UNAUDITED) (In thousands, except share count) Accumulated Series Quantum Preferred Stock Common Stock Common Stock to be issued Additional Paid-In Non-Controlling Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Interest Income Deficit Equity (Deficit) Balances at December 31, 2024 1,000,000 $ - 67,699,302 $ 7 - $ - $ 33,629 $ ( 222 ) $ - $ ( 34,333 ) $ ( 919 ) Stock-based compensation - - - - - - 416 - - - 416 Net loss - - - - - - - - - ( 660 ) ( 660 ) Balances at March 31, 2025 1,000,000 $ - 67,699,302 $ 7 - $ - $ 34,045 $ ( 222 ) $ - $ ( 34,993 ) $ ( 1,163 ) Sale of common stock - - 74,700 - - - 85 - - - 85 Stock-based compensation - - - - - - 220 - - - 220 Settlement of related party liabilities ( 1,000,000 ) - - - - - 676 - - - 676 Net loss - - - - - - - - - ( 487 ) ( 487 ) Balances at June 30, 2025 - $ - 67,774,002 $ 7 - $ - $ 35,026 $ ( 222 ) $ - $ ( 35,480 ) $ ( 669 ) Balances at December 31, 2025 - $ - 88,254,216 $ 9 1,500,000 $ 3,407 $ 74,243 $ ( 222 ) $ 133 $ ( 33,415 ) $ 44,155 Stock-based compensation - - - - - - 275 - - - 275 Common stock issued pursuant to business combination - - 1,000,000 - ( 1,000,000 ) ( 2,272 ) 2,272 - - - - Common stock issued pursuant to private placement - - 100,000 - - - 200 - - - 200 Net loss - - - - - - - - ( 87 ) ( 9,405 ) ( 9,492 ) Balances at March 31, 2026 - $ - 89,354,216 $ 9 500,000 $ 1,135 $ 76,990 $ ( 222 ) $ 46 $ ( 42,820 ) $ 35,138 Stock-based compensation 227 - - - 227 Common stock issued pursuant to business combination 6,924,700 1 14,473 - - - 14,474 Common stock issued pursuant to private placement - - 12,500 - - - 20 - - - 20 Net income ( 8 ) 7,387 7,379 Balances at June 30, 2026 - $ - 96,291,416 $ 10 500,000 $ 1,135 $ 91,710 $ ( 222 ) $ 38 $ ( 35,433 ) $ 57,238 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 3 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025 (UNAUDITED) (In thousands) Six Months Ended June 30, 2026 2025 Cash flows from operating activities: Net loss $ ( 2,018 ) $ ( 1,147 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 502 636 Amortization of right of use assets 36 - Change in fair value of contingent consideration ( 3,972 ) - Depreciation 28 - Amortization of intangibles 3,964 - Amortization of prepaid expenses 2,194 Provision for expected credit losses 597 Changes in operating assets and liabilities: Accounts receivable ( 82,085 ) - Contract assets 2,908 - Contract assets, related party 2,634 Prepaid expenses and other current assets 8 7 Other receivable, related party 13 - Due to / from related party ( 110 ) Accounts payable 78,405 - Accounts payable, related party ( 5,578 ) 72 Accrued expenses and other current liabilities 938 ( 49 ) Contract liabilities 17 - Deferred tax liability ( 0 ) - Operating lease liabilities, net ( 36 ) - Net cash used in operating activities ( 1,555 ) ( 481 ) Cash flows from investing activities: Purchase of property, plant and equipment ( 12 ) - Software development capitalization ( 162 ) - Net cash used in investing activities ( 174 ) - Cash flows from financing activities: Short-term advances - 295 Repayment of loan - - Accounts receivable financing facility 4,784 - Proceeds from sale of common stock 220 85 Net cash provided by financing activities 5,004 380 Effect of exchange rate changes on cash and cash equivalents ( 95 ) - Net change in cash and cash equivalents 3,180 ( 101 ) Cash and cash equivalents and restricted cash at beginning of period 2,108 107 Cash and cash equivalents and restricted cash at end of period $ 5,288 $ 6 Reconciliation of cash and restricted cash: Cash at beginning of period $ 2,087 $ 107 Restricted cash at beginning of period 21 - Cash and restricted cash at beginning of period $ 2,108 $ 107 Cash at end of period $ 5,267 $ 6 Restricted cash at end of period 21 - Cash and restricted cash at end of period $ 5,288 $ 6 Supplemental disclosure of cash flow information: Cash paid for income taxes $ - $ - Cash paid for interest $ 885 $ - Non-cash investing and financing activities: Settlement of related party liabilities $ - $ 676 Common stock issued in settlement of earn-out contingent consideration $ 14,474 $ - The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 4 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) NOTE 1 – BUSINESS AND NATURE OF OPERATIONS Spectral Capital Corporation (the “Company” or “Spectral”) was incorporated on September 13, 2000 under the laws of the State of Nevada. Spectral is focused on the identification, acquisition, development, and financing of technology that has the potential to transform existing industries. Spectral has acquired significant stakes in two recently reactivated technology companies (Noot and 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. On July 15, 2025, the Company 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, and the transaction closed on August 1, 2025, thereby making 42 Telecom a wholly owned subsidiary. In connection with the 42 Telecom acquisition, the Company also acquired three of its operating subsidiaries: 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta). 42 Telecom provides international telecommunications and messaging solutions, including SMS aggregation, enterprise messaging, OTT messaging, and subscription-based communication solutions, serving a global customer base of mobile network operators and enterprises. On December 29, 2025, the Company entered into a Definitive Stock Purchase Agreement to acquire 100 % of the issued and outstanding shares of Telvantis Voice Services, Inc. (“Telvantis”), a Florida corporation incorporated in 2020, and the transaction closed on December 31, 2025, thereby making Telvantis a wholly owned subsidiary. In connection with the Telvantis acquisition, the Company also acquired two of its operating subsidiaries: Phonetime, Inc. and Matchcom Telecommunications, Inc. Telvantis provides technology products and services to the telecommunications industry, specializing in voice traffic solutions — primarily VoIP-based international voice termination and SMS services — delivered on a business-to-business basis to telephone carrier customers. As such, the Company currently exists as a holding company with 42 Telecom Ltd. as a directly held subsidiary—through which 42 Telecom AB Ltd., 42 Telecom UK Ltd., and Arcus Technologies Ltd. operate—and Telvantis Voice Services, Inc. as a direct operating subsidiary, through which Phonetime, Inc. and Matchcom Telecommunications, Inc. operate. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. These financial statements do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows have been included. The condensed consolidated balance sheet as of December 31, 2025 was derived from the audited consolidated financial statements as of that date. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results expected for the full year ending December 31, 2026. All amounts in these unaudited condensed consolidated financial statements are presented in thousands of U.S. dollars, except per share data and share counts, unless otherwise noted. Going Concern The accompanying unaudited condensed 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 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. F- 5 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) As of June 30, 2026, the Company had cash and cash equivalents of $ 5,267 and an accumulated deficit of $ 35,433 . Total current liabilities of $ 162,037 exceeded total current assets of $ 136,384 , resulting in a working capital deficit of $ 25,653 . Included within current liabilities is $ 16,394 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 Company. Excluding contingent consideration, the working capital deficit was $ 9,259 as of June 30, 2026. 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 three and six months ended June 30, 2026, the Company generated total revenues of $ 318,278 and $ 646,790 , respectively, compared to $ 0 for the three months and six months ended June 30, 2025. The increase in revenue is attributable to the post-acquisition consolidation of 42 Telecom and Telvantis, both of which contributed telecommunications service revenue during the quarter. The Company reported a net income of $ 7,387 for the three months ended June 30, 2026, driven primarily by a non-cash gain of $ 9,886 from the change in fair value of contingent consideration. For the six months ended June 30, 2026, the Company reported a net loss of $ 2,018 , reflecting a net non-cash gain of $ 3,972 from the change in fair value of contingent consideration, comprising a $ 9,886 gain recognized during the second quarter that was more than offset by a $ 5,914 charge recognized earlier in the year. Net cash used in operating activities was $ 1,555 for the six months ended June 30, 2026, compared to $ 481 for the six months ended June 30, 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. On July 17, 2026, the Company publicly filed a Registration Statement on Form S-1 with the Securities and Exchange Commission for a proposed underwritten public offering of its common stock in connection with its planned listing on The Nasdaq Capital Market. There can be no assurance that the offering will be completed, that the Company’s Nasdaq listing application will be approved, or that sufficient proceeds will be raised on terms favorable to the Company, or at all. 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 unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Risks and Uncertainties 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 sustained profitability. Although the acquisitions of 42 Telecom and Telvantis 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 sustain 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 Telvantis, which closed on December 31, 2025. The successful integration of both acquired businesses continues to 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. F- 6 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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 continue to experience volatility and disruption following geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the Israel-Hamas conflict, and resulting sanctions, trade restrictions, and market disruptions could adversely affect the Company’s operations or its future capital-raising activities. 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, taxation, the U.S. regulatory environment, and inflation. 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. dollars. 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 unaudited condensed consolidated financial statements include the accounts of the Company and the following subsidiaries from their respective dates 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 Ltd. 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; and ● Telvantis Voice Services, Inc. and its wholly owned subsidiaries — Phonetime, Inc. (U.S.) and Matchcom Telecommunications, Inc. (U.S.) — wholly owned by Spectral from December 31, 2025. All intercompany accounts and transactions have been eliminated in consolidation. F- 7 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. 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: Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2: Inputs that are directly or indirectly observable in the marketplace. Level 3: 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 expenses and other current assets, 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 connection 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 unaudited condensed consolidated financial statements. 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 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 determined to be impaired. The Company also measures certain liabilities at fair value on a recurring basis. The contingent consideration liabilities recorded in connection with the acquisitions of 42 Telecom and Telvantis are remeasured to fair value each reporting period, with changes recognized in earnings, and are classified as Level 3. 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 4 — Fair Value Measurements for further details. Use of Estimates The preparation of unaudited condensed consolidated 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. 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; ● accrual of estimated liabilities; ● evaluation of goodwill for impairment; ● allowances 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 income (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. F- 8 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) Cash and Cash Equivalents 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 June 30, 2026 and December 31, 2025, the Company had restricted cash balances of $ 21 and $ 21 , respectively. Restricted cash is excluded from cash and cash equivalents and is presented separately on the condensed 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 three and six months ended June 30, 2026, the Company’s revenues were derived primarily from the international voice termination operations of Telvantis Voice Services, Inc. Three customers individually accounted for approximately 49 %, 22 %, and 21 % of consolidated revenues, respectively, for the three months ended June 30, 2026, and approximately 49 %, 23 %, and 21 % of consolidated revenues, respectively, for the six months ended June 30, 2026, collectively representing approximately 92 % and 93 % of consolidated revenues for the three and six months ended June 30, 2026, respectively. The loss of any one of these customers could have a material adverse effect on the Company’s results of operations and financial condition. The Company had no revenues for the three and six months ended June 30, 2025. The Company’s cost of revenues is similarly concentrated among a limited number of voice termination suppliers. Three vendors individually accounted for approximately 49 %, 22 %, and 16 % of consolidated cost of revenues, respectively, for the three months ended June 30, 2026, and approximately 49 %, 23 %, and 19 % of consolidated cost of revenues, respectively, for the six months ended June 30, 2026, collectively representing approximately 87 % and 91 % of consolidated cost of revenues for the three and six months ended June 30, 2026, respectively. The Company had no cost of revenues for the three and six months ended June 30, 2025. Where possible and commercially sensible, we attempt to mitigate our credit risk related to specific Telvantis Voice Services, Inc. customers by also buying services from the customer. Under certain circumstances, which we do not fully control, this can create an opportunity to offset our payables and receivables with the customer. If effectively implemented, we can continue to sell services to these customers while reducing our receivable exposure risk. When it is possible and practical to do so, we can attempt to increase our purchases from Telvantis Voice Services customers with receivable balances that exceed our applicable payables in order to maximize the mutually agreed offset and reduce our credit risk. While this is common practice in our industry, there is no guarantee or formal framework to suggest that such arrangements can be broadly expected or assumed to persist in the future as these arrangements appear only on a case-by-case basis, depending on various external variables outside of the company’s control. The same counterparties that represent the Company’s largest customers can also represent its largest vendors, reflecting the nature of the international VoIP carrier business in which carriers act as both buyers and sellers of voice termination capacity depending on destination-specific routing economics. The Company presents accounts receivable and accounts payable with these counterparties on a gross basis in the condensed consolidated balance sheets in accordance with ASC 210-20-45, as the conditions necessary to offset — including a legally enforceable right of setoff and intent to settle net — have not been met with respect to these trade balances. The gross accounts receivable and accounts payable attributable to these reciprocal counterparties were approximately $ 119,508 and $ 98,637 , respectively, as of June 30, 2026. Included within these amounts are $ 9,332 of accounts receivable and $ 3,679 of accounts payable attributable to Mexedia SpA and Mexedia DAC, related parties of the Company as described in Note 11 — Related Party Transactions. 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 and Telvantis. 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. In accordance with ASC 326, Financial Instruments — Credit Losses, the allowance for credit losses represents management’s estimate of expected losses based on historical experience, current conditions, and reasonable and supportable forecasts over the contractual life of accounts receivable. As of June 30, 2026 and December 31, 2025, the allowance for credit losses was $ 2,925 and $ 2,469 , respectively. F- 9 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) Accounts receivable, related party, represents amounts due from Mexedia SpA and Mexedia DAC arising from telecommunications and messaging services provided by 42 Telecom and Telvantis under bilateral 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 Fasanara Securitisation S.A. (“Fasanara”), 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 condensed 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 unaudited condensed consolidated statements of operations and comprehensive 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 consulting and marketing 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 June 30, 2026 and December 31, 2025, prepaid expenses and other current assets totaled $ 3,071 and $ 5,273 , respectively. Property, Plant and Equipment, Net Property, plant and equipment, net (“PP&E”) is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is computed using the straight-line method over the assets’ estimated useful lives 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 that do not significantly improve or extend the useful life of the assets are expensed as incurred. Upon 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 unaudited condensed consolidated statements 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 during the three and six months ended June 30, 2026 and 2025. F- 10 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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. These assets are amortized on a straight-line basis over their estimated useful lives as follows: ● Developed technology — 42 Telecom — 5 years ● Customer relationships — 42 Telecom — 7 years ● Trade name — 42 Telecom — 3 years ● Customer relationships — 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 accounted for as an asset acquisition under ASC 805-50, as no workforce, customers, operational processes, or revenue-generating activities were transferred. 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 . 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. As of June 30, 2026 and December 31, 2025, capital work-in-progress related to software development totaled $ 182 and $ 439 , respectively. As of June 30, 2026 and December 31, 2025, $ 325 and $ 294 , respectively, 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 during the three and six months ended June 30, 2026. The Company had no long-lived assets during the three and six months ended June 30, 2025. F- 11 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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 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 during the three and six months ended June 30, 2026 and 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 income/(loss), until the arrangement is settled or expires. Upon settlement through the issuance of common stock, the liability is remeasured to fair value immediately prior to the settlement date, with the corresponding gain or loss recognized in earnings, and is then relieved with a corresponding increase to common stock and additional paid-in capital based on the fair value of the shares issued. 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 the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when or as performance obligations are satisfied. F- 12 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) The Company generates revenue through the following streams: Messaging and Voice Services — includes SMS aggregation, enterprise messaging, instant messaging (Viber), and VoIP-based international voice termination services. Revenue is recognized at a point in time when each message, call minute, or lookup is successfully processed and transmitted. Revenue is generated through the duration of telephone traffic between carrier customers calculated on a minute-by-minute basis for voice services, and on a per-message basis for messaging services. These services represented substantially all of the Company’s revenues for the three and six months ended June 30, 2026. Platform Services — includes SS7 platform access, managed services, and 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 to the customer, bears responsibility for fulfillment, and has discretion in pricing. Customer contracts are typically short-term in nature, invoiced based on actual usage or subscription terms, with no significant financing components. In the international wholesale voice termination and messaging market, the same counterparty may act as both a customer and a supplier to the Company depending on destination-specific routing economics. In such arrangements, the Company evaluates each commercial relationship independently. Revenue from services provided to a counterparty in its capacity as a customer, and cost of revenue for services purchased from that counterparty in its capacity as a supplier, are each recognized on a gross basis. The receivable from the counterparty in its customer capacity and the payable to the counterparty in its supplier capacity represent separate contractual obligations and services arising under distinct bilateral agreements with independent pricing, invoicing, and settlement terms. The Company does not have a legally enforceable right to net-settle these trade balances. Accordingly, the conditions for offsetting under ASC 210-20-45 are not met, and gross accounts receivable and gross accounts payable with these reciprocal counterparties are presented separately on the consolidated balance sheets. The Company generates revenue from the provision of international voice and messaging services to telecommunications carriers, aggregators and enterprise customers. The Company contracts directly with its customers, establishes the pricing charged to customers, and is responsible for providing the promised services. To fulfill its performance obligations, the Company may utilize third-party carriers and network providers. The Company separately negotiates pricing with such suppliers and bears the economic risk associated with the difference between the amounts billed to customers and the amounts paid to suppliers. Because the Company controls the promised services before transfer to the customer and is the principal in these arrangements, revenue is recognized on a gross basis and the related amounts paid to suppliers are recorded as cost of revenue. The following table presents disaggregated revenue for the three and six months ended June 30, 2026 and 2025: Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Voice Services, at a point in time $ 313,904 $ - $ 638,403 $ - Messaging Services, at a point in time 4,348 8,321 Platform Leasing, over time 26 - 66 - $ 318,278 $ - $ 646,790 $ - For the three and six ended June 30, 2026, Telvantis and its subsidiaries contributed approximately 99 % of consolidated revenues, with 42 Telecom and its subsidiaries contributing the remaining 1 %. No revenue was recognized during the three and six months ended June 30, 2025, as the acquisitions of 42 Telecom and Telvantis had not yet closed as of that date. F- 13 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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 messaging and voice traffic where services were delivered at a point in time during the period but invoices are issued following month-end volume reconciliation with counterparties, at which point the balance reclassifies to accounts receivable. As of June 30, 2026 and December 31, 2025, contract assets were $ 932 and $ 6,474 , respectively, of which $ 0 and $ 2,634 were with related parties. Contract Liabilities Contract liabilities 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 condensed consolidated balance sheets based on the expected timing of revenue recognition and are recognized as revenue when the related performance obligations are fulfilled. As of June 30, 2026 and December 31, 2025, contract liabilities were $ 352 and $ 335 , respectively. Cost of Revenue Cost of revenue consists of direct expenses incurred in providing telecommunications 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 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. It also includes network operations costs, co-location fees for server hosting, personnel costs associated with customer care. 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. F- 14 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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 three and six months ended June 30, 2026, pension plan contributions totaled $ 2 and $ 4 , respectively. For the three and six months ended June 30, 2025, pension plan contribution was $ 0 . 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 stockholders’ equity resulting from transactions and economic events other than those with shareholders. For the Company, the only component of other comprehensive income (loss) for the three and six months ended June 30, 2026 and 2025 relates to foreign currency translation adjustments arising from the consolidation of 42 Telecom, whose functional currencies include the Euro, Swedish Krona, British Pound, which differ from or are translated into the Company’s reporting currency of U.S. dollars. These translation adjustments are recorded in other comprehensive income (loss) and accumulated in stockholders’ equity under accumulated other comprehensive loss. No other components of other comprehensive income (loss) were recognized during the three and six months ended June 30, 2026 and 2025. Foreign Currency Transactions The Company’s reporting currency is the U.S. dollar. 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 Limited (Parent): Euro (EUR) ● 42 Telecom AB Ltd (Sweden): Swedish Krona (SEK) ● 42 Telecom UK Ltd: British Pound (GBP) ● Arcus Technologies Ltd: Euro (EUR) Telvantis Voice Services, Inc. and its U.S. subsidiaries, Phonetime, Inc. and Matchcom Telecommunications, Inc., have the U.S. dollar as their functional currency and accordingly do not give rise to translation adjustments. F- 15 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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 unaudited condensed consolidated statements of operations and comprehensive loss. The exchange rates used in the preparation of the unaudited condensed consolidated financial statements are as follows: The relevant translation rate are as follows: - For the six months ended June 30, 2026, closing rate 1.14068 US$: EURO, 0.10283 US$: SEK, 1.32297 US$: GBP. - For the six months ended June 30, 2026, average rate 1.15731 US$: EURO, 0.10568 US$: SEK, 1.33423 US$: GBP. For the three and six months ended June 30, 2026, the Company recorded foreign currency translation adjustments of $( 8 ) and $( 95 ), respectively, which are included in other comprehensive income (loss). No foreign currency translation adjustments were recorded during the three and six months ended June 30, 2025, as the acquisition of 42 Telecom had not yet closed as of that date. Leases 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 outstanding, 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 three months ended June 30, 2026, the Company had 3,846,875 stock options outstanding with a weighted-average exercise price of $ 0.62 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 average market price of the Company’s common stock of $ 2.37 per share during the three months ended June 30, 2026, resulting in 2,840,519 incremental dilutive shares. For the six months ended June 30, 2026, and for the three and six months ended June 30, 2025, all potentially dilutive securities, including 3,846,875 and 6,810,000 stock options outstanding, respectively, were excluded from the computation of diluted net loss per share as their inclusion would have been anti-dilutive. F- 16 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) Non-Controlling Interests 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. Noot Holdings, Inc. and Monitr Holdings, Inc. had no operations during the three and six months ended June 30, 2026 and 2025, and accordingly no net income or loss was attributable to non-controlling interests during either period. The non-controlling interest balance remained $( 222 ) as of both June 30, 2026 and December 31, 2025. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability 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, and are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to reverse. A valuation allowance is recorded 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. For interim reporting purposes, the Company estimates its annual effective tax rate and applies that rate to year-to-date pre-tax income or loss in accordance with ASC 740-270, Interim Reporting — Income Taxes. The Company operates across multiple tax jurisdictions, including the United States, Malta, Sweden, and the United Kingdom, and the calculation of the tax provision involves significant judgment in the application of complex tax regulations across these jurisdictions. The Company recognizes uncertain tax positions only when it is more likely than not that the position will be sustained upon examination, with the tax benefit measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Interest and penalties related to uncertain tax positions are recognized within the income tax provision. NOTE 3 – BUSINESS COMBINATIONS The Company evaluated the acquisitions of 42 Telecom and Telvantis under ASC 805, Business Combinations, and determined that both transactions constitute business combinations. Under the acquisition method, identifiable assets acquired and liabilities assumed are recognized at their acquisition-date fair values, with the excess of consideration transferred recognized as goodwill. Full details of the acquisition consideration, valuation methodology, and purchase price allocations are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Acquisition of 42 Telecom Ltd. On August 1, 2025, the Company acquired 100 % of the issued and outstanding shares of 42 Telecom Ltd. (“42 Telecom”) and its wholly owned subsidiaries — 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta). The results of operations of 42 Telecom have been consolidated from August 1, 2025. The total purchase price consideration was $ 20,000 , consisting of $ 12,880 of common stock issued and $ 7,120 of contingent consideration measured at acquisition-date fair value. Contingent consideration is classified as a liability and remeasured at fair value at each reporting date, with changes recognized in the unaudited condensed consolidated statements of operations. See Note 4 — Fair Value Measurements for further details. F- 17 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) The following table summarizes the purchase price allocation as of August 1, 2025: Total Cash and cash equivalents $ 276 Restricted cash 21 Accounts receivables, net 1,271 Contract assets 833 Prepaid expenses and other current assets 424 Property, plant and equipment, net 112 Capital work-in-progress 279 Intangible assets: Developed technology 5,800 Customer relationships 3,100 Tradename 600 Goodwill 12,520 Other receivable, related party 417 Right of use asset 191 Accounts payable ( 1,289 ) Accrued expenses and other current liabilities ( 741 ) Contract liabilities ( 251 ) Operating lease liability ( 180 ) Loan payable ( 1 ) Deferred tax liability- Intangible asset ( 3,268 ) Deferred tax liability - pre existing temporary differences ( 114 ) Purchase price consideration $ 20,000 Goodwill of $ 12,520 reflects the expected synergies from 42 Telecom’s telecommunications operations, the going-concern value of the assembled workforce, and future economic benefits from assets that do not qualify for separate recognition. Goodwill includes a $ 3,268 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identified intangible assets, as no step-up in tax basis was obtained, and a $ 691 measurement period adjustment arising from a pre-acquisition dividend declared payable to Heritage Ventures Ltd. in respect of pre-acquisition retained earnings. As of June 30, 2026, the dividend remains unpaid and is reflected in accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheet. The purchase price allocation for 42 Telecom remains within the 12-month measurement period ending August 1, 2026. No measurement period adjustments were recorded during the three and six months ended June 30, 2026. Goodwill recognized in connection with the 42 Telecom acquisition is not deductible for income tax purposes. Acquisition of Telvantis Voice Services, Inc. On December 31, 2025, the Company acquired 100 % of the issued and outstanding shares of Telvantis Voice Services, Inc. (“Telvantis”), a Florida corporation, and its wholly owned subsidiaries — Phonetime, Inc. and Matchcom Telecommunications, Inc. The results of operations of Telvantis have been consolidated from January 1, 2026, as the acquisition closed on December 31, 2025 and Telvantis contributed no revenues or expenses to the consolidated statements of operations for the year ended December 31, 2025. The total purchase price consideration was $ 34,513 , consisting of $ 3,407 of common stock issued and $ 31,106 of contingent consideration measured at acquisition-date fair value. During the three and six months ended June 30, 2026, 1,000,000 of the shares previously classified as common stock to be issued were formally issued, with the remaining 500,000 shares continuing to be classified as common stock to be issued within stockholders’ equity as of June 30, 2026. Contingent consideration is classified as a liability and remeasured to fair value at each reporting date, with changes recognized in the unaudited condensed consolidated statements of operations, until settled or expired. On May 22, 2026, the Company issued 6,924,700 shares of common stock in partial settlement of the earn-out component of the contingent consideration. Immediately prior to issuance, the earn-out component was remeasured to fair value, with the resulting gain of $ 1,214 recognized in the unaudited condensed consolidated statements of operations. The contingent consideration liability was then partially relieved for $ 14,474 — the fair value of the shares issued, based on the quoted closing price on the issuance date — with a corresponding increase to common stock and additional paid-in capital. The Company’s Min $ 65,000 Share-Value Guarantee obligation was not settled and remains outstanding as of June 30, 2026, continuing to be remeasured at fair value each reporting period. See Note 4 — Fair Value Measurements for further details. F- 18 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) The following table summarizes the provisional purchase price allocation as of December 31, 2025: Total Cash and cash equivalents $ 1,094 Accounts receivables, net 37,334 Due from related party 1,358 Prepaid expenses and other current assets 482 Deferred tax assets 42 Intangible assets: Customer relationships 10,700 Tradename 3,100 Goodwill 35,487 Accounts payable ( 32,402 ) Accrued expenses and other current liabilities ( 825 ) Accounts receivable financing facility ( 12,342 ) Deferred tax liability- Intangible asset ( 2,238 ) Due to related party ( 7,277 ) Purchase price consideration $ 34,513 Goodwill of $ 35,487 reflects the expected synergies from combining Telvantis’ voice termination and telecommunications services with the Company’s platform, the going-concern value of the assembled workforce, and future economic benefits from assets that do not qualify for separate recognition. Goodwill includes a $ 2,238 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identified intangible assets, as no step-up in tax basis was obtained. The purchase price allocation is provisional and subject to adjustment within the 12-month measurement period ending December 31, 2026. No measurement period adjustments were recorded during the three and six months ended June 30, 2026. Goodwill recognized in connection with the Telvantis acquisition is not deductible for income tax purposes. NOTE 4 – FAIR VALUE MEASUREMENTS The following table presents the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025, classified within the fair value hierarchy: Level 1 Level 2 Level 3 Total June 30, 2026 Liabilities: Contingent consideration - 42 Telecom Ltd. $ - $ - $ 932 $ 932 Contingent consideration - Telvantis Voice Services, Inc. $ - $ - $ 15,462 $ 15,462 Total liabilities $ - $ - $ 16,394 $ 16,394 December 31, 2025 Liabilities: Contingent consideration - 42 Telecom Ltd. $ - $ - $ 3,733 $ 3,733 Contingent consideration - Telvantis Voice Services, Inc. $ - $ - $ 31,106 $ 31,106 Total liabilities $ - $ - $ 34,839 $ 34,839 The Company had no assets measured at fair value on a recurring basis as of June 30, 2026 or December 31, 2025. 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 six months ended June 30, 2026. The fair value of the 42 Telecom contingent consideration was remeasured at June 30, 2026 using a risk-neutral Monte Carlo simulation of projected FCCN share prices, consistent with the methodology applied at the acquisition date and at prior reporting dates. The net change in fair value of the 42 Telecom contingent consideration resulted in a loss of $ 2,882 for the three months ended March 31, 2026 and a gain of $ 5,683 for the three months ended June 30, 2026, for a net gain of $ 2,801 for the six months ended June 30, 2026, recognized within change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations and comprehensive income (loss). The gain recognized during the six months ended June 30, 2026 reflects two factors: (i) based on Section 4.2 of the Share Exchange Agreement, that Forty Two’s fiscal year 2025 net profit did not exceed the threshold required for Bonus Shares to be issuable, resulting in no liability for that component as of June 30, 2026; and (ii) FCCN’s stock price declining from $ 4.13 to $ 2.56 per share during the first quarter, which increased the probability of the $ 30,000 minimum valuation guarantee triggering, followed by an increase in the stock price to $ 4.60 per share by June 30, 2026, which reduced that probability and drove the majority of the gain recognized during the second quarter. F- 19 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) The fair value of the Telvantis contingent consideration was remeasured using a risk-neutral Monte Carlo simulation incorporating correlated gross revenue and operating profit projections, consistent with the methodology applied at the acquisition date and prior reporting dates, together with a Monte Carlo simulation of projected FCCN share prices for the Min $ 65,000 Share-Value Guarantee component. The net change in fair value of the Telvantis contingent consideration resulted in a loss of $ 3,031 for the three months ended March 31, 2026 and a gain of $ 4,203 for the three months ended June 30, 2026, for a net gain of $ 1,170 for the six months ended June 30, 2026, recognized within change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations and comprehensive income (loss). The gain recognized during the three months ended June 30, 2026 reflects three components: (i) a gain of $ 1,214 from remeasuring the earn-out component of the liability to fair value on May 21, 2026, immediately prior to the issuance discussed below; (ii) a loss of $ 9,112 from remeasuring the residual earn-out component to fair value at June 30, 2026, reflecting the increase in FCCN’s stock price from $ 2.09 per share on May 22, 2026 to $ 4.60 per share on June 30, 2026; and (iii) a gain of $ 12,099 from remeasuring the Min $ 65,000 Share-Value Guarantee component to fair value at June 30, 2026, as the increase in FCCN’s stock price over the same period reduced both the probability of the guarantee triggering and the number of additional shares that would be required to satisfy it. On May 22, 2026, the Company issued 6,924,700 shares of common stock in partial settlement of the earn-out component of the Telvantis contingent consideration, pursuant to the Board-approved determination of achievement dated May 22, 2026. The contingent consideration liability was relieved for $ 14,474 , the fair value of the shares issued based on FCCN’s quoted closing price of $ 2.09 per share on the issuance date, with a corresponding increase to common stock and additional paid-in capital. The Min $ 65,000 Share-Value Guarantee obligation was not settled and remains outstanding as of June 30, 2026, continuing to be remeasured to fair value each reporting period. In estimating the fair value of the Telvantis contingent consideration, the Company applies a discount for lack of marketability (“DLOM”) to shares issuable under the arrangement that have not yet been issued, reflecting the transfer restrictions applicable to such shares prior to issuance. The DLOM is estimated using a Black-Scholes put option model, with inputs including the estimated remaining restriction period and FCCN’s equity volatility. No DLOM is applied to shares once issued. Pursuant to ASC 820-10-35-44A and 35-44B, a contractual restriction on the sale of an equity security is not a separate unit of account and is not considered in measuring the fair value of the security, regardless of whether the security remains subject to transfer restrictions. Accordingly, the 6,924,700 shares issued on May 22, 2026 were valued at their unadjusted quoted closing price notwithstanding any contractual restrictions on resale, while the fair value of unissued shares underlying the residual earn-out and the Min $ 65,000 Share-Value Guarantee continues to reflect a DLOM as of June 30, 2026, as those shares have not yet been issued and remain part of the contingent consideration liability. The following table presents the changes in fair value of contingent consideration measured at fair value for the six months ended June 30, 2026: Contingent Consideration Balance, December 31, 2025 $ 34,839 Change in fair value - 42 Telecom Ltd. ( 2,801 ) Change in fair value - Telvantis Voice Servies, Inc. ( 1,170 ) Contingent consideration settled through issuance of common stock ( 14,474 ) Balance, June 30, 2026 $ 16,394 There were no liabilities measured at fair value on a recurring basis during the three and six months ended June 30, 2025. NOTE 5 – PREPAID AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of the following: June 30, December 31, 2026 2025 Prepaid consulting and marketing services $ 2,143 $ 4,336 Deposits 37 37 VAT and taxes 179 40 Prepaid expenses 243 217 Settlement receivable - 173 Other receivable 470 470 Prepaid and other current assets $ 3,071 $ 5,273 Prepaid consulting and marketing services represents the unamortized portion of equity and cash consideration paid to third party vendors under consulting and marketing service agreements, recognized on a straight-line basis over the respective service periods. During the three and six months ended June 30, 2026, the Company recognized amortization of $ 1,097 and $ 2,194 , respectively, related to these arrangements, consisting of $ 1,020 and $ 2,040 in marketing expense and $ 77 and $ 154 in professional fees expense for the three and six months ended June 30, 2026, respectively. There was no comparable amortization expense during the three and six months ended June 30, 2025. 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 12 — Accounts Receivable Financing Facility F- 20 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment consist of the following: June 30, December 31, 2026 2025 Office equipment $ 5 $ 5 Computers 125 115 Furniture and fixtures 25 26 Leasehold improvements 7 7 163 153 Less : Accumulated depreciation ( 52 ) ( 27 ) Property, plant and equipment, net $ 111 $ 126 For the three and six months ended June 30, 2026, depreciation expense was $ 13 and $ 28 , respectively. For the three and six months ended June 30, 2025, depreciation expense was $ 0 . NOTE 7 – INTANGIBLE ASSETS Intangible assets consist of the following: June 30, December 31, 2026 2025 Developed technology $ 5,479 $ 5,479 Interally developed software 750 321 Customer relationships 13,800 13,800 Tradenames 3,700 3,700 Acquired intellectual property 19,710 19,710 43,439 43,010 Less : Accumulated amortization ( 5,547 ) ( 1,572 ) Intangible assets, net $ 37,892 $ 41,438 Developed technology of $ 5,479 , customer relationships of $ 3,100 , and trade name of $ 600 were identified and measured at fair value in connection with the acquisition of 42 Telecom on August 1, 2025, and are amortized on a straight-line basis over estimated useful lives of 5 years, 7 years, and 3 years, respectively. Internally developed software represents capitalized software development costs at 42 Telecom, amortized on a straight-line basis over 5 years. Customer relationships of $ 10,700 and trade name of $ 3,100 were identified and measured at fair value in connection with the acquisition of Telvantis on December 31, 2025, and are amortized on a straight-line basis over estimated useful lives of 8 years and 4 years, respectively, commencing January 1, 2026. Acquired intellectual property of $ 19,710 represents artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies acquired pursuant to an asset acquisition on October 15, 2025, in exchange for 9,000,000 shares of the Company’s common stock at $ 2.19 per share, and is amortized on a straight-line basis over 5 years. F- 21 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) Amortization expense for the three and six months ended June 30, 2026, was $ 1,991 and $ 3,964 , respectively. There was no amortization expense during the three and six months ended June 30, 2025, as none of the underlying intangible assets had been acquired as of that date. No impairment charges were recognized during the three and six months ended June 30, 2026 and 2025. The following table presents the estimated future amortization expense for intangible assets as of June 30, 2026: 2026 (remaining 6 months) $ 4,000 2027 8,000 2028 7,917 2029 7,800 2030 5,644 Thereafter 4,531 $ 37,892 NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: June 30, December 31, 2026 2025 Accrued cost of revenue $ 630 $ 823 VAT and taxes payable 1,389 1,257 Other 1,327 327 Accrued expenses and other current liabilities $ 3,346 $ 2,407 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 income (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. Neither 42 Telecom nor Telvantis was consolidated during the three and six months ended June 30, 2025, as both acquisitions were completed subsequent to that period. Accordingly, the Company reported no revenues or operating expenses from its Telco Services segment for the three and six months ended June 30, 2025. For the three and six months ended June 30, 2026, Telvantis and its subsidiaries contributed approximately 99 % of consolidated revenues, with 42 Telecom and its subsidiaries contributing the remaining 1 %. F- 22 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) The following table presents significant segment expenses regularly provided to the CODM and used to assess segment performance for the three and six months ended June 30, 2026 and 2025: Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Revenue $ 318,174 $ - $ 646,686 $ - Revenue, related party 104 - 104 - Total revenues 318,278 - 646,790 - Cost of revenue 314,877 - 641,199 - Cost of revenue, related party 121 - 121 - Gross profit 3,280 - 5,470 - Operating expenses: Selling, general and administrative 2,402 451 4,842 1,075 Wages and benefits 731 36 1,472 72 Depreciation and amortization 2,004 - 3,992 - Total operating expenses 5,137 487 10,306 1,147 Loss from operations ( 1,857 ) ( 487 ) ( 4,836 ) ( 1,147 ) Other income (expense): Interest expense, net ( 470 ) - ( 885 ) - Change in FV of contingent consideration 9,886 - 3,972 - Other income 1 - 4 - Total other income 9,417 - 3,091 - Income (loss) before income taxes 7,560 ( 487 ) ( 1,745 ) ( 1,147 ) Income taxes 173 - 273 - Net income (loss) $ 7,387 $ ( 487 ) $ ( 2,018 ) $ ( 1,147 ) Geographic Information For the three and six months ended June 30, 2026 and 2025, revenues attributable to operations by geography were as follows: Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Unites States $ 313,904 $ - $ 638,403 $ - Malta 4,156 7,932 Sweden 218 455 $ 318,278 $ - $ 646,790 $ - For the three and six months ended June 30, 2026, the United States represented approximately 99 % of consolidated revenues, reflecting the first two quarters of consolidation of Telvantis Voice Services, Inc. and its subsidiaries following their acquisition on December 31, 2025. Malta and Sweden revenues are generated by 42 Telecom Ltd., Arcus Technologies Ltd., and 42 Telecom AB Ltd., respectively. No revenues were generated in the United States, Malta, or Sweden during the three and six months ended June 30, 2025, as the acquisitions of Telvantis and 42 Telecom had not yet closed as of that date. 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 June 30, 2026 and December 31, 2025: June 30, December 31, 2026 2025 Malta $ 106 $ 119 Sweden 5 7 $ 111 $ 126 F- 23 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) 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 intellectual property intangible assets are held by Spectral in the United States. The following table presents intangible assets, net by geographic location as of June 30, 2026 and December 31, 2025: June 30, December 31, 2026 2025 Europe $ 8,230 $ 8,749 United States 29,662 32,689 $ 37,892 $ 41,438 NOTE 10 – LEASE OBLIGATION In connection with the acquisition of 42 Telecom on August 1, 2025, the Company assumed an operating lease for office 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 plus VAT, payable quarterly in advance. Lease costs are included in the unaudited condensed consolidated statements of operations and comprehensive loss as selling, general and administrative expenses. The following table summarizes operating lease assets and liabilities as of June 30, 2026 and December 31, 2025: June 30, December 31, 2026 2025 Operating Leases Right-of-use assets $ 131 $ 168 Operating lease liability, current portion 64 65 Operating lease liability, net of current portion 67 102 Total lease liabilities $ 131 $ 167 Weighted Average Remaining Lease Term (in years) 2 Weighted Average Discount Rate 4 % The operating lease costs for the three and six months ended June 30, 2026 totaled $ 18 and $ 36 , respectively and for the three and months ended June 30, 2025, $ 0 . The following table presents the maturity of operating lease liabilities as of June 30, 2026: June 30, 2026 (remaining 6 months) $ 34 2027 68 2028 34 Total lease payments 136 Less : imputed interest ( 5 ) Total $ 131 F- 24 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) NOTE 11 – RELATED PARTY TRANSACTIONS Transactions with Mexedia SpA and Mexedia DAC Telvantis Voice Services, Inc. and 42 Telecom Ltd. are party to bilateral voice and messaging service agreements with Mexedia SpA, an Italian telecommunications company, and Mexedia DAC, an Irish telecommunications entity, under which either party may act as a customer or vendor depending on destination-specific routing economics. Mexedia SpA and Mexedia DAC are considered related parties of the Company as Daniel Gilcher, who was appointed Chief Financial Officer of the Company effective January 3, 2026, simultaneously serves as Chief Financial Officer and Director of Mexedia SpA. Mexedia DAC was historically a wholly owned subsidiary of Telvantis Voice Services, Inc. (“TVS”) but was carved out of TVS prior to the Company’s acquisition of TVS and was excluded from the scope of TVS’s historical carve-out financial statements; accordingly, Mexedia DAC was not acquired by the Company in the December 31, 2025 acquisition of TVS. The Company continues to treat Mexedia DAC as a related party following the acquisition due to its historical affiliation with TVS. For the three and six months ended June 30, 2026, 42 Telecom recognized revenue of $ 104 from Mexedia SpA and incurred cost of revenues of $ 121 from Mexedia SpA. As of June 30, 2026 and December 31, 2025, accounts receivable from Mexedia DAC and Mexedia SpA were $ 9,332 and $ 11,710 , respectively, reflected in accounts receivable, related party in the unaudited condensed consolidated balance sheets. Accounts payable to Mexedia DAC and Mexedia SpA were $ 3,683 and $ 9,261 , respectively, reflected in accounts payable, related party in the unaudited condensed consolidated balance sheets. In addition, Telvantis has pre-acquisition loan obligations to Mexedia DAC totaling $ 7,247 and $ 7,277 as of June 30, 2026 and December 31, 2025, respectively, reflected in due to related party in the unaudited condensed consolidated balance sheets. These obligations were assumed as part of the Telvantis acquisition on December 31, 2025 and were incurred in the ordinary course of Telvantis’s pre-acquisition operations. Pursuant to the terms of the loan agreement, Telvantis was required to make monthly payments of $ 75 commencing after the acquisition date. No scheduled payments have been made to date, the outstanding balance of $ 7,247 is due and payable as of June 30, 2026 in accordance with the terms of the agreement. As of June 30, 2026 and December 31, 2025, amounts due from Mexedia SpA were $ 58 and $ 58 , respectively, and amounts due from Telvantis Inc. were $ 1,308 and $ 1,299 , respectively, included in due from related party in the unaudited condensed consolidated balance sheets. Issuance of Telvantis Earn-Out Shares to CFO-Controlled Entity As described in Note 3 — Business Combinations, on May 22, 2026, the Company issued an aggregate of 6,924,700 shares of common stock in settlement of the earn-out component of the contingent consideration recognized in connection with the Telvantis acquisition. Included within this issuance were 1,041,000 shares issued to OTUS LLC, an entity controlled by Daniel Gilcher, the Company’s Chief Financial Officer. These shares did not constitute compensation for services rendered to the Company and were issued on the same terms, and subject to the same lock-up, trickle-out, and beneficial ownership limitation provisions, applicable to the other recipients of the Telvantis earn-out shares. Transaction with Former Shareholder of 42 Telecom Heritage Ventures Ltd. (“Heritage”), an Irish corporation controlled by Mr. Orlando Taddeo, was the 100 % owner of 42 Telecom prior to its acquisition by the Company on August 1, 2025. Mr. Taddeo resigned as sole director of 42 Telecom effective December 31, 2025 and Heritage is no longer considered a related party of the Company from January 1, 2026. A dividend of EUR 601 in respect of 42 Telecom’s retained earnings for the year ended December 31, 2024 was declared payable to Heritage on October 31, 2025 and remained unpaid as of June 30, 2026. This obligation of $ 685 and $ 706 as of June 30, 2026 and December 31, 2025, respectively, is reflected in accrued expenses and other current liabilities and due to related party, respectively, in the unaudited condensed consolidated balance sheets. 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 EUR 363 (approximately $ 414 ), arising from an Intellectual Property Transfer Agreement dated July 1, 2025, under which 42 Telecom transferred certain proprietary software and related intellectual property to Nexora in exchange for consideration of EUR 363 . Nexora is considered a related party of the Company as Nexora and 42 Telecom share common management. F- 25 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) The payment is subject to a five-year moratorium, during which no cash settlement is required unless Nexora generates profits directly from the transferred intellectual property, in which case partial or full payment becomes due earlier. As of June 30, 2026 and December 31, 2025, the carrying amount of the receivable was $ 414 and $ 427 , respectively, reflected in other receivable, related party in the condensed consolidated balance sheets. The change in carrying amount from December 31, 2025 to June 30, 2026 is attributable to foreign currency translation adjustments. Management continues to monitor the balance for collectability. No additional transactions occurred with Nexora during the three and six months ended June 30, 2026. Chief Executive Officer Compensation Jenifer Osterwalder, the Company’s Chief Executive Officer, charges the Company $ 12 per month for services rendered. Total compensation expensed during the three and six months ended June 30, 2026 and 2025 was $ 36 and $ 72 , and $ 36 and $ 72 , respectively. As of June 30, 2026 and December 31, 2025, amounts due to the CEO related to accrued compensation were $ 648 and $ 576 , respectively. Loans from Related Parties 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 $ 500 . The loan bears no interest. During the three and six months ended June 30, 2026, the Company repaid the outstanding balance of $ 10 in full. As of June 30, 2026 and December 31, 2025, the total amount outstanding under this agreement was $ 0 and $ 10 , respectively. 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 . The note bears interest at 5 % per annum unless repaid within 60 days of issuance. During the three and six months ended June 30, 2026, the Company repaid the outstanding balance of $ 10 in full. As of June 30, 2026 and December 31, 2025, the total amount outstanding under this note was $ 0 and $ 10 , respectively. NOTE 12 – 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 as of June 30, 2026 and December 31, 2025, $ 0 and $ 332 , recognized as current liabilities in the unaudited 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. Telvantis Voice Services, Inc. is also party to a receivables financing arrangement with Fasanara, assumed by the Company in connection with the acquisition of Telvantis on December 31, 2025. The arrangement operates on substantially the same basis as the 42 Telecom facility described above. During the three and six months ended June 30, 2026, Telvantis utilized this facility in the ordinary course of its operations. As of June 30, 2026 and December 31, 2025, the outstanding balance was $ 17,457 and $ 12,342 , respectively, recognized as a current liability in the unaudited condensed consolidated balance sheets. F- 26 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT) Preferred Stock On August 30, 2024, the Company filed a Certificate of Designation for the newly designated Series Quantum Preferred Stock. The number of Series Quantum Preferred Stock designated is 2,000,000 . 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, is convertible at the option of the Company or the holder into 40 shares of common stock, contingent upon the Company having enough authorized shares to effectuate the conversion, and carries voting rights on an as-converted-to-common basis such that one share of Series Quantum Preferred Stock has 40 votes. The conversion right shall not become exercisable by the holder until 12 months have elapsed from the date of issuance. As of June 30, 2026 and December 31, 2025, no shares of Series Quantum Preferred Stock were outstanding. Settlement of Related Party Advance On May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements, including the arrangements under which the Series Quantum Preferred Stock discussed above had been issued. Pursuant to the agreement, the Company no longer owes Mr. Brehm compensation for outstanding demand advances totaling $ 676 , and the 1,000,000 shares of Series Quantum Preferred Stock previously issued to Mr. Brehm were cancelled. The settlement was recorded as a capital contribution of $ 676 to additional paid-in capital. Business Combination — Telvantis Voice Services, Inc. In connection with the acquisition of Telvantis Voice Services, Inc. on December 31, 2025, the Company was obligated to issue 1,500,000 shares of common stock to the former shareholders, reflected as common stock to be issued within stockholders’ equity as of December 31, 2025. In January 2026, the Company formally issued 1,000,000 of these shares. The remaining 500,000 shares continue to be reflected as common stock to be issued within stockholders’ equity as of June 30, 2026. See Note 3 — Business Combinations for further details. Private Placement In June 2025, the Company commenced a private placement offering for up to 3,333,333 shares of the Company’s common stock at a price of $ 1.00 per share, or an aggregate of up to $ 3,333 . During the six months ended June 30, 2025, the Company issued 74,700 shares of common stock for total proceeds of $ 85 under this offering. On March 16, 2026, the Board of Directors approved a private placement offering of up to $ 1,000 in restricted shares of the Company’s common stock at a price below market value, to remain open until the Company achieves a listing on the Nasdaq Stock Market. In March, 2026, the Company issued 100,000 shares of common stock at $ 2.00 per share for aggregate proceeds of $ 200 under this offering. In June 2026, the Company issued an additional 12,500 shares of common stock at $ 1.60 per share for aggregate proceeds of $ 20 under this offering. During the six months ended June 30, 2026, the Company issued a total of 112,500 shares of common stock for aggregate proceeds of $ 220 under this offering. F- 27 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) Earnout share – TVS In connection with the acquisition of Telvantis Voice Services, Inc., the Company agreed to issue up to 8,500,000 additional shares of common stock (the “Earn-Out Shares”) upon achievement of specified post-closing performance milestones tied to the Acquired Company’s revenue and operating profit during fiscal year 2026 (the “Earn-Out Milestones”), as described in Note 3 — Business Combinations and Note 4 — Fair Value Measurements. On May 22, 2026, the Board of Directors determined that the Earn-Out Milestones had been achieved or duly accrued for issuance, and the Company issued 6,924,700 Earn-Out Shares to the former shareholders of the Acquired Company in settlement thereof. No cash proceeds were received by the Company in connection with this issuance. The contingent consideration liability was reduced by $ 14,474 , the fair value of the Earn-Out Shares issued, based on the quoted closing price of FCCN’s common stock on the issuance date. The Earn-Out Shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder, are restricted securities bearing a customary restrictive legend, and are subject to a lock-up and trickle-out schedule and a 4.9 % beneficial ownership cap pursuant to a Lock-Up and Trickle-Out Agreement entered into by each recipient. As of June 30, 2026, 1,575,300 Earn-Out Shares remained unissued and available for future issuance under the Purchase Agreement, subject to achievement of the remaining Earn-Out Milestones. The Min $ 65,000 Share-Value Guarantee was not settled in connection with this issuance and remains outstanding as of June 30, 2026. See Note 4 — Fair Value Measurements for further information. Employee Options The Company accounts for employee stock-based compensation in accordance with the guidance of FASB 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 has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors. During the three and six months ended June 30, 2026, the Company granted options to purchase an aggregate of 200,000 shares of common stock to two independent members of the Board of Directors pursuant to a Board resolution dated January 3, 2026. The options have an exercise price of $ 3.99 per share, representing the closing market price on the grant date, vest over 24 months at a rate of 4,166 shares per month commencing the first full month following the grant date, and are exercisable for five years from the grant date. The grant-date fair value of each award was estimated using the Black-Scholes option pricing model with the following assumptions: stock price and exercise price of $ 3.99 ; expected term of 5 years; annualized volatility of 113.18 %; risk-free rate of 3.74 %; and no dividend yield. The per-option grant-date fair value was $ 3.24 , resulting in aggregate grant-date fair value of $ 649 for both awards combined. No options were granted during the three and six months ended June 30, 2025. During the three and six months ended June 30, 2026 and 2025, the Company recognized stock-based compensation expense related to stock options of $ 227 and $ 502 , and $ 221 and $ 636 , respectively, included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. As of June 30, 2026, total unrecognized compensation expense related to unvested stock options was $ 514 , which is expected to be recognized over a weighted-average period of approximately 1.51 years. The following table summarizes stock option activity for the six months ended June 30, 2026: Weighted Weighted Stock Average Average Life Options Exercise Price Remaining Outstanding, December 31, 2025 3,646,875 $ 0.43 8.45 Issued 200,000 3.99 5 Exercised - - - Forfeited/Expired - - - Outstanding, June 30, 2026 3,846,875 $ 0.62 7.78 Vested, December 31, 2025 2,746,875 $ 0.43 8.45 Vested, June 30, 2026 3,688,535 $ 0.47 7.92 F- 28 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except per share data and share count) NOTE 14 – COMMITMENTS AND CONTINGENCIES Lease 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. Litigation 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. Tellza, Inc. v. Telvantis Voice Services Inc. f/k/a Mexedia Inc. (Broward County, Florida; Case No. 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 purchase price. Telvantis was required to pay $ 250 on January 1, 2024 and did not make this payment. Tellza filed suit to recover the $ 250 . 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 is reasonably possible. No accrual has been recorded as of June 30, 2026 as the loss is not considered probable. 42 Telecom Ltd. v. Symplify Technologies AB (Malta; Case No. 937/2025). 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 (approximately $ 478 ) in unpaid invoices for telecommunications services. The case was filed September 15, 2025. On March 26, 2026, the Court entered judgment in favor of FortyTwo for the full amount of € 443 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. NOTE 15 – SUBSEQUENT EVENTS The Company has evaluated events through August 10, 2026, the filing date of this Quarterly Report on Form 10-Q and determined that there have been no additional subsequent events that occurred that would require adjustments to our disclosures in the unaudited condensed consolidated financial statements, other than as follows: Filing of Registration Statement on Form S-1 and Proposed Public Offering On July 17, 2026, the Company publicly filed a Registration Statement on Form S-1 with the Securities and Exchange Commission relating to a proposed underwritten public offering of shares of its common stock. Sentinel Brokers Company, Inc. is acting as representative of the underwriters pursuant to an Assignment and Assumption Agreement dated July 1, 2026 among the Company, Sentinel Brokers Company, Inc. and Revere Securities LLC. The Company has applied to list its common stock on The Nasdaq Capital Market under the symbol “FCCN.” The Registration Statement has not been declared effective, and there can be no assurance that the offering will be completed or that the listing application will be approved. Related Party Working Capital Advance On July 20, 2026, Jenifer Osterwalder, the Company’s President and Chief Executive Officer and a member of the Board of Directors, agreed to provide the Company with working capital advances of up to $ 100,000 , evidenced by a promissory note bearing interest at 4 % per annum with a fixed 90-day term maturing October 18, 2026, subject to an automatic 90-day extension upon the written request of the Company’s Chief Financial Officer. As of the date of this report, Ms. Osterwalder had advanced an aggregate of $ 50,000 to the Company under this arrangement, consisting of $ 20,000 advanced on July 24, 2026 and $ 30,000 advanced on July 27, 2026. The Board of Directors approved the advance as a related party transaction under NRS 78.140 on July 22, 2026. F- 29