iQSTEL Inc 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain statements in this Annual Report constitute forward-looking statements. See " Forward-Looking Statements" immediately prior to Item 1 of Part I of this report for factors relating to these statements and "Risk Factors" in Item 1A of Part I of this report for a discussion of certain risk factors applicable to our business, financial condition, results of operations, liquidity or prospects. 30 Table of Contents Results of Operations for the Years Ended December 31, 2025 and 2024 Net Revenue Our net revenue for the year ended December 31, 2025 was $316,899,498 as compared with $283,220,442 for the year ended December 31, 2024. These numbers reflect an increase of 12% year over year on our consolidated Revenues. When looking at the numbers by subsidiary, we have the following breakout for the years ended December 31, 2025 and 2024: Revenue Year Ended December 31, Subsidiary 2025 2024 IQSTEL Inc $ 220,755 $ — Etelix.com USA, LLC 31,748,230 75,405,682 SwissLink Carrier AG 22,394,346 13,349,998 QGlobal LLC 1,766,881 1,694,891 IoT Labs LLC 117,370,459 94,170,000 Smartbiz Telecom 12,743,474 21,435,486 Whisl Telecom 2,916,447 4,301,577 QXTEL Limited 141,624,991 95,681,790 GlobeTopper LLC 27,955,101 — $ 358,740,684 $ 306,039,424 Intercompany eliminations (41,841,186 ) (22,818,982 ) $ 316,899,498 $ 283,220,442 The continued growth in revenue is the result of the development of our commercial strategy, including the strengthening of our commercial and operational activities, as well as intercompany synergies developed throughout the year. The largest revenue concentration comes from IOT, which increased by 25% compared to last year, and QXTEL, which since its inclusion in mid-2024 continues to represent the highest share of revenue, accounting for 39% of the total volume for this period. The increase also includes the contribution from the newly acquired subsidiary, GlobeTopper LLC, which was consolidated starting July 1, 2025. In 2024, our revenue was entirely derived from telecommunications services, with approximately 33.91% generated from SMS and 66.09% from voice. In 2025, our revenue mix evolved meaningfully: SMS increased to 36.6%, voice represented 54.51%, and our newly launched fintech operations contributed 8.89% of total revenue. The continued expansion of SMS traffic is strategically beneficial, as SMS services generally carry higher gross margins than traditional voice offerings, supporting improvements in our overall profitability profile. In addition, the introduction of fintech as a new revenue-generating segment reflects the early stages of a broader diversification strategy, reducing reliance on a single business line and positioning the Company with a more balanced and resilient revenue base over time. Intercompany eliminations rose as well, driven by higher transactions among group entities, which are removed to avoid double counting at the consolidated level. These intercompany transactions are part of our strategy to optimize operations across subsidiaries by leveraging more efficient routing alternatives for our voice and SMS services, cost reductions, and improved service delivery. This synergy among our entities strengthens our position in the market and contributes to enhanced gross margin results. 31 Table of Contents Cost of Revenue Our total cost of revenue for the year ended December 31, 2025 was $307,442,244 as compared with $274,948,693 for the year ended December 31, 2024. When looking at the numbers by subsidiary, we have the following breakout for the years ended December 31, 2025 and 2024: Cost of Revenue Year Ended December 31, Subsidiary 2025 2024 IQSTEL Inc $ 52,770 $ — Etelix.com USA, LLC 31,097,001 74,848,503 SwissLink Carrier AG 21,568,250 12,541,394 QGlobal LLC 1,183,985 1,300,453 IoT Labs LLC 116,258,375 92,196,261 Smartbiz Telecom 11,801,401 20,508,454 Whisl Telecom 2,441,573 3,606,438 QXTEL Limited 136,995,565 92,486,843 GlobeTopper LLC 27,403,231 — $ 348,802,151 $ 297,488,346 Intercompany eliminations (41,359,907 ) (22,539,653 ) $ 307,442,244 $ 274,948,693 Our cost of revenue consists of direct charges from vendors that the Company incurs to deliver services to its customers. These costs primarily consist of usage charges for calls and SMS terminated in vendor’s network, as well as the costs of the digital prepaid products related to Fintech (GlobeTopper) operations. The behavior in the costs shows a logical correlation with the behavior of the revenue commented above. We have reached a higher volume of revenue and every additional unit sold (Telecom and Fintech) has its corresponding termination cost. Our cost of revenue for the year ended December 31, 2025 was $307,442,244 as compared with $ 274,948,693 for the year ended December 31, 2024. These numbers reflect an increase of 12% year over year. The consolidation of GlobeTopper, along with the traffic volumes generated by QXTEL and the portfolio reorganization among subsidiaries, highlights the synergies created through the group’s commercial and operational integration. As a result, intercompany transactions have increased, supporting our strategy to optimize routing and improve cost efficiency. This is expected to contribute positively to future revenue and margin performance. Gross Margin Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, increased from $8,271,749 in 2024 to $9,457,254 in 2025, which is an increase of 14% year-over-year. The Company’s traffic mix continues to shift toward higher-margin services, reinforcing the strategic evolution of its telecom portfolio. In 2025, the business carried 17.4 billion SMS and short-code messages, up from 13.9 billion in 2024, an increase of 3.5 billion messages or 25.18% year over year. While this growth follows an exceptional 32.94% expansion from 2023 to 2024, the sustained double-digit trajectory highlights the strengthening role of SMS within the Company’s service mix. Because SMS consistently delivers superior gross margins compared to traditional voice, this shift not only expands volumes but also enhances the overall profitability profile of the communications segment, signaling a deliberate and effective enrichment of the Company’s product offering 32 Table of Contents This trend is reflected in our quarterly performance: total gross margin increased from 2.74% in the fourth quarter of 2024 to 3.46% in the fourth quarter of 2025, representing a 26.17% year-over-year improvement. Cost of Revenue for the Three Months Ended December 31, Description 2025 2024 Revenue $ 84,215,893 $ 98,920,186 Cost of Revenue 81,305,798 96,211,006 $ 2,910,095 $ 2,709,180 Gross margin % 3.46 % 2.74 % Operating Expenses Operating expenses for the year ended December 31, 2025 were $13,709,264 as compared with $9,105,813 for the year ended December 31, 2024. The detail by major category is reflected in the table below: Operating Expenses Year Ended December 31, Category 2025 2024 Salaries, Wages and Benefits $ 3,803,370 $ 3,639,319 Technology 1,617,232 1,192,185 Professional Fees 916,349 1,110,773 Legal & Regulatory 351,570 328,500 Travel & Events 286,176 234,295 Public Cost 120,945 102,773 Advertising 1,878,274 968,206 Bank Services and Fees 238,725 211,591 Depreciation and Amortization 627,667 499,535 Office, Facility and Other 1,370,092 529,892 Insurances 18,902 63,534 Bad debt expense 6,397 1991 $ 11,235,699 $ 8,882,594 Stock-based compensation 305,013 223,219 Impairment loss of goodwill 2,168,552 — $ 13,709,264 $ 9,105,813 When looking at the numbers by subsidiary, we have the following: Operating Expenses Year Ended December 31, Subsidiary 2025 2024 IQSTEL Inc $ 4,158,073 $ 2,881,662 Etelix.com USA, LLC 495,897 428,603 SwissLink Carrier AG 989,396 974,233 Itsbchain 2,639 14,788 QGlobal LLC 380,029 552,388 IoT Labs LLC 293,111 246,254 Global Money One 1,006 762 Smartbiz Telecom 960,303 800,922 Whisl Telecom 334,937 978,760 QXTEL Limited 3,883,944 2,227,441 GlobeTopper LLC 547,002 — $ 12,046,337 $ 9,105,813 Intercompany eliminations (505,625 ) — $ 11,540,712 $ 9,105,813 Impairment loss of goodwill 2,168,552 — $ 13,709,264 $ 9,105,813 33 Table of Contents General and administration expenses increased from $9,105,813 to $13,709,264 as of December 2025. IQSTEL represents the largest share of general and administration expenses for the period at 30%, followed by QXTEL with 28%. The increase compared to the prior year is mainly driven by the expansion of the group and the consolidation of QXTEL and GlobeTopper. The most significant variations include the increase in technology expenses related to the deployment and upgrade of the switching platform to support all subsidiaries, which is expected to generate cost efficiencies once the migration process is completed. Additionally, the Company recognized a non-cash goodwill impairment of $2,168,552. Including this effect, total operating expenses reached $13,709,264, representing an increase of 50.56% compared to the prior year. This adjustment is non-recurring in nature and does not impact cash flow. The underlying increase in operating expenses is primarily related to higher salaries, depreciation and amortization, and general administrative costs, in line with the growth of the business and the integration of newly consolidated subsidiaries. Advertising expenses also increased to support commercial expansion, while insurance expenses decreased during the period. We are continually identifying operational synergies among all of our subsidiaries to be more cost efficient. Other Income (Expenses) We had other expenses of $4,136,551 for the year ended December 31, 2025, as compared with other expense of $3,951,942 for the year ended December 31, 2024. The increase in Other Expenses in 2025 compared to 2024 is due largely to the loss on settlement of debt and salary payable of $2,441,462 for the year ended December 31, 2025 compared to $482,085 for the year ended December 31, 2024. Net Loss We finished the year ended December 31, 2025 with a net loss of $8,510,266 as compared to a loss of $5,180,036 during the year ended December 31, 2024. The results for the period were significantly impacted by expenses at the holding entity (IQSTEL), which include a high component of interest and other financial expenses related to the funds borrowed for the acquisition of QXTEL Limited. Additionally, during 2025, the Company recognized a non-cash goodwill impairment of $2,168,552, which represents a material, non-recurring expense for the period and does not impact the Company’s cash flow. Excluding this effect, the variation in net loss would have been less pronounced. Our Telecom Division, currently the primary source of revenue for the Company, continued to generate positive Operating Income. Meanwhile, our pre-revenue companies are operating with minimal expenses, focused solely on completing product and service development prior to their market launch. As we have indicated on several occasions, our strategy is to strengthen our telecommunications division so that it can serve as a lever for the development of new lines of business, such as Fintech which is already generating revenue, Cybersecurity and AI. A comparison of the tables below highlights the progress of our Telecom Division, as evidenced by the increase in revenue, gross profit, and operating income for both the three- and twelve-month periods ended December 31, 2025. As we have previously stated, our strategy remains centered on strengthening the telecommunications segment to serve as a growth engine for the development and expansion of new business lines. Our telecom division revenues have increased year over year. Additionally, its gross profit has risen by 6%, going from $8,271,749 to $8,737,399. On the other hand, our Fintech division continues to strengthen its position within the Group’s strategy. For the year ended 2025, the division reported revenues of $27,955,101 and operating expenses of $547,002, resulting in operating income of $4,868 and net income of $2,176. 34 Table of Contents This performance reflects the initial contribution from GlobeTopper, which was incorporated during 2025 and represents an important milestone for the development of this business line. While the division did not generate profits in 2024, the progress achieved in 2025 demonstrates the Company’s commitment to expanding its presence in the fintech segment and leveraging new opportunities that can also support the growth of our other business lines. Telecom Division Fintech Division Pre-revenue companies IQSTEL Consolidated Year Ended Dec 31, 2025 Year Ended Dec 31, 2024 Year Ended Dec 31, 2025 Year Ended Dec 31, 2024 Year Ended Dec 31, 2025 Year Ended Dec 31, 2024 Year Ended Dec 31, 2025 Year Ended Dec 31, 2024 Year Ended Dec 31, 2025 Year Ended Dec 31, 2024 Revenues 288,723,642 283,220,442 27,955,101 — — — 220,755 — 316,899,498 283,220,442 Cost of revenue 279,986,243 274,948,693 27,403,231 — — — 52,770 — 307,442,244 274,948,693 Gross profit 8,737,399 8,271,749 551,870 — — — 167,985 — 9,457,254 8,271,749 Operating expenses General and administration 6,831,992 6,208,601 547,002 — 3,645 15,550 4,158,073 2,881,662 11,540,712 9,105,813 Impairment loss of goodwill — — — — — — 2,168,552 — 2,168,552 — Total Operating Expenses 6,831,992 6,208,601 547,002 — 3,645 15,550 6,326,625 2,881,662 13,709,264 9,105,813 Operating income/(loss) 1,905,407 2,063,148 4,868 — (3,645 ) (15,550 ) (6,158,640 ) (2,881,662 ) (4,252,010 ) (834,064 ) Other income (expense) (113,219 ) 41,124 (2,692 ) — (120 ) (4,020,640 ) (3,992,946 ) (4,136,551 ) (3,951,942 ) Net income (loss) before income taxes 1,792,188 2,104,272 2,176 — (3,645 ) (15,670 ) (10,179,280 ) (6,874,608 ) (8,388,561 ) (4,786,006 ) Income taxes (118,143 ) (394,030 ) — — — — (3,562 ) — (121,705 ) (394,030 ) Net income (loss) 1,674,045 1,710,242 2,176 — (3,645 ) (15,670 ) (10,182,842 ) (6,874,608 ) (8,510,266 ) (5,180,036 ) Depreciation and Amortization 619,253 499,535 8,414 — — — — — 627,667 499,535 Interest expense 31,147 41,611 2,692 — — — 1,120,567 2,117,814 1,154,406 2,159,425 FX Gains/Losses 43,461 — 6,701 — — — (1,501 ) 48,661 Loss on settlement of debt — — — — — — 2,224,481 482,085 2,224,481 482,085 Loss on settlement of salary payable — — — — — — 216,981 216,981 — Stock-based compensation — — — — — — 305,013 223,219 305,013 223,219 Impairment loss of goodwill — — 2,168,552 2,168,552 — Other non recurrent 153,786 — — — — — — — 153,786 — Taxes 189,365 394,030 0 — — — 3,562 — 192,927 394,030 Change in fair value of derivatives 1,393,046 1,393,046 Adjusted EBITDA 2,711,057 2,645,418 19,983 — (3,645 ) (15,670 ) (4,145,187 ) (2,658,444 ) (1,417,792 ) (28,696 ) 35 Table of Contents In evaluating our financial performance, we utilize Adjusted EBITDA as a supplemental measure to provide insights into the profitability of our core operations. (Please see Adjusted EBITDA, which is reconciled to the Net Income in the table above.) Adjusted EBITDA excludes, in addition to non-operational expenses like interest expenses, taxes, depreciation and amortization; items that we believe are not indicative of our operating performance, such as: · Change in Fair Value of Derivative Liabilities: These adjustments reflect unrealized gains or losses that are non-operational and subject to market volatility. · Loss on Settlement of Debt: This represents non-recurring expenses associated with specific financing activities and does not impact ongoing business operations. · Stock-Based Compensation: As a non-cash expense, this adjustment eliminates variability caused by equity-based incentives. · Impairment loss of Goodwill: This represents a non-cash, non-recurring charge related to the deterioration in the value of goodwill and does not impact the Company’s cash flow. · Tax Provision: This adjustment reflects the recognition of income tax expense, which may vary depending on jurisdictional results and does not directly reflect the Company’s core operating performance. We believe Adjusted EBITDA offers a clearer view of the cash-generating potential of our business, excluding non-recurring, non-cash, and non-operational impacts. According to our adjusted EBITDA analysis, our Telecommunications division continues to be a high-performing segment generating solid operating profits, as adjusted EBITDA for the current period increased by 2.35% compared to the prior period. Meanwhile, the contribution of our Fintech business, which debuted with an EBITDA of $19,983, representing a significant milestone in the diversification of our business lines and supporting the Company's long-term growth strategy. Consolidated figures show a negative Adjusted EBITDA; while this isn’t ideal, we are in a transitional period, scaling operations and investing heavily in growth initiatives with the execution of our M&A plan. Management has also identified areas for cost-cutting and operational improvements and has acted in that direction Goodwill Impairment Analysis During the year ended December 31, 2025, the Company performed its annual goodwill impairment assessment in accordance with ASC 350, Intangibles—Goodwill and Other . Consistent with our policy, each reporting unit was evaluated by comparing its estimated fair value to its carrying amount. Management engaged an independent valuation firm to assist in the determination of fair value using a discounted cash flow approach and market participant assumptions. The analysis indicates, “the carrying value of SwissLink Carrier AG, IoT Labs, LLC, Smartbiz Telecom, LLC and Whisl Telecom are in excess of its fair value indicating impairment in the amount of $402,445, $81,782, $796,690, and $887,635, respectively.” Based on this analysis, the Company recorded total goodwill impairment charges of approximately $2.17 million for the year ended December 31, 2025. These non-cash charges reflect changes in the long-term financial outlook of the affected reporting units, including updated assumptions regarding revenue growth, margin performance, and discount rates. The impairment charges do not impact the Company’s liquidity, cash flows from operations, or compliance with debt covenants. Management will continue to monitor macroeconomic conditions, reporting-unit performance, and other triggering events that may require interim impairment testing. 36 Table of Contents Liquidity and Capital Resources As of December 31, 2025 we had total current assets of $36,162,424, compared with total current liabilities of $34,606,407, resulting in a positive working capital of $ 1,556,017 and a current ratio of approximately 1.04 to 1. Following is a table with summary data from the consolidated statements of cash flows for the years ended December 31, 2025 and 2024, as presented. 2025 2024 Net cash used in operating activities $ (3,844,872 ) $ (2,930,306 ) Net cash used in investing activities (239,651 ) (3,162,971 ) Net cash provided by financing activities 3,729,525 7,240,966 Net change in cash $ (354,998 ) $ 1,147,689 Our operating activities used $3,844,872 in the year ended December 31, 2025, as compared with $2,930,306 used in operating activities in the year ended December 31, 2024. Our cash flow from operations varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Investing activities used $239,651 for the year ended December 31, 2025, as compared with $3,162,971 used in investing activities for the year ended December 31, 2024. The cash used in 2024 in investing activities is largely due to the acquisition of QXTEL, where the Company invested $2,955,121, while in 2025 the cash used in investing activities was largely purchases of property and equipment totaling $113,020. Financing activities provided $3,729,525 for the year ended December 31, 2025, as compared to $7,240,966 provided for the year ended December 31, 2024. The cash provided in 2025 was largely from loans. We have financed our operations largely through private placements and secured and unsecured debt. Material Cash Requirements The Company’s material cash requirements include: Working capital needs associated with high-volume telecom traffic settlement cycles. Vendor and carrier payments, including interconnection fees, SMS termination costs, and network capacity charges. Debt service obligations, including interest and scheduled principal payments under existing credit facilities. Capital expenditures related to network infrastructure, platform development, and AI-driven software enhancements. Regulatory and compliance costs, including licensing, audits, and data protection requirements across multiple jurisdictions. Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We have not attained profitable operations and even though the Company maintains a cash position very close to one third year's operating expenses, we are dependent upon obtaining financing or generating revenue from operations to continue operations for the next twelve months. Our future is dependent upon our ability to obtain financing or upon future profitable operations. We reserve the right to seek additional funds through private placements of our common stock and/or through debt financing. Our ability to raise additional financing is unknown. We do not have any formal commitments or arrangements for the advancement or loan of funds. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all. Inflation Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the twelve-month period ended December 31, 2025. 37 Table of Contents Critical Accounting Policies A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2025; however, we consider our critical accounting policies to be those related to the allowance for doubtful accounts, valuation of assets, significant estimates in the valuation of financial instruments and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See the Consolidated Financial Statements in this Annual Report for a complete discussion of our significant accounting policies. Accounts Receivable and Allowance for Uncollectible Accounts Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company estimates expected credit losses related to accounts receivable balances based on a review of available and relevant information including current economic conditions, projected economic conditions, historical loss experience, account aging, and other factors that could affect collectability. No allowance for doubtful accounts was recorded as of December 31, 2025 or 2024. During the years ended December 31, 2025 and 2024, the Company recorded bad debt expense of $6,397 and $1,991, respectively. Long-Lived Assets Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. Intangible Assets Intangible assets represent mainly the interconnection agreements acquired from the acquisition of QXTEL. The acquired intangible asset was recognized and measured at fair value at the time of acquisition and is amortized on a straight-line basis over the estimated economic useful life of the respective asset. The estimated useful life of the acquired interconnection agreements is 16 years. Impairment of tangible and intangible assets Tangible and intangible assets (excluding goodwill) are assessed at each reporting date for indications that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset's recoverable amount. The asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or a group of assets exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the group of assets. 38 Table of Contents Goodwill Impairment Goodwill represents the excess purchase consideration over the fair value of identifiable net assets acquired in business combinations. We test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. The impairment test requires significant judgment and the use of estimates, including projected future cash flows, long-term growth rates, discount rates, and market participant assumptions. For the annual impairment test performed as of December 31, 2025, the Company engaged an independent valuation specialist to assist in determining the fair value of each reporting unit. The valuation was performed under ASC 350 using a discounted cash flow methodology and fair value measurement concepts under ASC 820. As described in the analysis, fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The analysis concluded that four reporting units—SwissLink Carrier AG, IoT Labs, LLC, Smartbiz Telecom, LLC, and Whisl Telecom—had carrying values that exceeded their estimated fair values, resulting in goodwill impairments of $402,445, $81,782, $796,690, and $887,635, respectively. The determination of fair value is highly sensitive to changes in key assumptions. For example, variations in discount rates, long-term growth rates, or projected cash flows could materially affect the estimated fair value of a reporting unit and potentially result in additional impairment charges in future periods. Management believes the assumptions used in the impairment analysis are reasonable and consistent with those a market participant would apply. However, because these estimates involve inherent uncertainty, actual results may differ, and future impairment charges may be required if reporting-unit performance falls short of expectations or if macroeconomic conditions deteriorate. Financial Instruments The Company follows ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value 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 on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: Level 1 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The carrying values of our financial instruments, including, cash; accounts receivable; prepaid and other current assets; goodwill; accounts payable; accrued liabilities and other current liabilities; and due from/to related parties approximate their fair values due to the short-term maturities of these financial instruments. 39 Table of Contents Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due to related parties due to their related party nature. Income Taxes The Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets, liabilities, the carry forward of operating losses and tax credits, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. Off Balance Sheet Arrangements As of December 31, 2025, there were no off-balance sheet arrangements. Recently Issued Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires public business entities to provide disaggregated disclosures of certain income statement expense captions in the notes to the financial statements. The ASU does not change the presentation of expense captions on the face of the income statement. This guidance will be effective for the Company on January 1, 2027, and the Company is currently evaluating the impact of adoption. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which enhances the transparency and decision-usefulness of income tax disclosures, including expanded rate reconciliation categories and disaggregation of income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024. The adoption of the ASU had an impact on our annual income tax disclosures in our consolidated financial statements. We added disclosures for income/(loss) before tax by jurisdiction. We expanded our rate reconciliation disclosures to include disaggregated reconciling items by nature utilizing the 5% threshold and added applicable percentages for each item disclosed. Additionally, we added expanded disclosures for income taxes paid, by jurisdiction utilizing a quantitative threshold of 5% of total income taxes paid. The new standard allows for prospective or retrospective adoption of these disclosure items, and management adopted the ASU on a prospective basis. In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements , which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11. In December 2025, the FASB issued ASU No. 2025-12, Codification Improvements . The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this Update are not intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026. The adoption method of this ASU may vary, on an issue-by-issue basis. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements. The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements. 40 Table of Contents