Spectral Capital (FCCN) surges to $646.8M revenue but warns on going concern
Spectral Capital Corporation, a Nevada-based holding company focused on telecommunications and emerging technology, reported its first material operating results following the 2025 acquisitions of 42 Telecom and Telvantis. For the quarter ended June 30, 2026, total revenues were $318.3M, and for the six months they reached $646.8M, almost entirely from international voice and messaging services at Telvantis. Gross profit for the quarter was $3.3M, reflecting very thin margins.
The company posted quarterly net income of $7.4M, but this was driven by a $9.9M non‑cash gain from remeasuring contingent consideration; for the six months it recorded a net loss of $2.0M and used $1.6M in operating cash. At June 30, 2026, Spectral held $5.3M of cash and cash equivalents and total assets of $223.8M, including $37.9M of intangible assets and $48.7M of goodwill.
Current liabilities of $162.0M exceeded current assets of $136.4M, creating a working capital deficit of $25.7M (or $9.3M excluding non‑cash contingent consideration). Management disclosed substantial doubt about the company’s ability to continue as a going concern and is pursuing additional financing, including an S‑1 filing for a proposed underwritten Nasdaq listing and continued use of receivables financing facilities. Revenue and cost of revenue are highly concentrated in a few large carrier customers and vendors, which management notes as a key risk.
Positive
- Post‑acquisition scale with $646.8M revenue in six months, entirely new versus 2025.
- Quarterly net income of $7.4M, aided by a $9.9M non‑cash gain on contingent consideration.
- Filed an S‑1 for a planned Nasdaq Capital Market listing to raise additional equity capital.
Negative
- Explicit going‑concern warning due to recurring losses and liquidity pressures, despite new revenues.
- Working capital deficit of $25.7M, or $9.3M even excluding contingent consideration.
- Revenue concentration risk: three customers contributed about 92–93% of 2026 year‑to‑date revenues.
- Heavy dependence on a receivables financing facility for near‑term liquidity and working capital.
Filing Explained
Existing holders face a higher share count, while the proposed offering remains uncompleted and could add shares only if completed.
This unaudited quarterly report records Spectral Capital having 96,291,416 common shares outstanding at
The issued shares increase the share count and therefore reduce existing holders’ percentage ownership absent offsetting changes; the remaining consideration is expected to be settled through additional common shares but had not yet been issued.
The company’s
Customer and supplier concentration is quantified at three customers representing 92% of second-quarter revenue and three vendors representing 87% of second-quarter cost of revenue; for the six months, the figures were 93% and 91%, respectively.
The remaining Telvantis Min $65,000 Share-Value Guarantee was still outstanding at
Key Figures
Key Terms
going concern financial
contingent consideration financial
Master Participation Agreement financial
Telco Services financial
Monte Carlo simulation financial
discount for lack of marketability financial
Earnings Snapshot
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
How much revenue did Spectral Capital (FCCN) generate in Q2 2026?
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What is the liquidity position of Spectral Capital (FCCN) as of June 30, 2026?
Does Spectral Capital (FCCN) have a going‑concern warning?
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________ to ________
Commission File No.
(Exact name of Registrant as specified in its charter)
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Act). Yes ☐ No
As of August 10, 2026, we have
SPECTRAL CAPITAL CORPORATION
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| Item 4. | Controls and Procedures | 7 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 8 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3. | Defaults Upon Senior Securities | 8 |
| Item 4. | Mine Safety Disclosures | 9 |
| Item 5. | Other Information | 9 |
| Item 6. | Exhibits | 9 |
| SIGNATURES | 10 | |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q, press releases and certain information provided periodically in writing or verbally by our officers or our agents contain statements which constitute forward-looking statements. The words “may”, “would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions and variations thereof are intended to specifically identify forward-looking statements. These statements appear in a number of places in this Form 10-Q and include all statements that are not statements of historical fact regarding the intent, belief or current expectations of us, our directors or our officers, with respect to, among other things: (i) our liquidity and capital resources; (ii) our financing opportunities and plans; (iii) our ability to generate revenues; (iv) competition in our business segments; (v) market and other trends affecting our future financial condition or results of operations; (vi) our growth strategy and operating strategy; (vii) the declaration and/or payment of dividends.
Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as the result of various factors. The factors that might cause such differences include, among others, those set forth in Part I, Item 2 of this Quarterly Report on Form 10-Q, entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, including without limitation the risk factors contained therein. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Form 10-Q after the date of this report.
ii
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 | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, related party | ||||||||
| Contract assets | ||||||||
| Contract assets, related party | - | |||||||
| Due from related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Capital work-in-progress | ||||||||
| Goodwill | ||||||||
| Other receivable, related party | ||||||||
| Right of use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Due to related party | ||||||||
| Accounts receivable financing facility | ||||||||
| Contingent consideration | ||||||||
| Contract liabilities | ||||||||
| Operating lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value $ | - | - | ||||||
| Series Quantum Preferred stock, par value $ | - | - | ||||||
| Common stock, par value $ | ||||||||
| Common stock to be issued ( | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income/(loss) | ||||||||
| Total stockholders’ equity | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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 | $ | $ | - | $ | $ | - | ||||||||||
| Revenue, related party | ||||||||||||||||
| Total revenues | - | - | ||||||||||||||
| Cost of revenue | - | - | ||||||||||||||
| Cost of revenue, related party | - | - | ||||||||||||||
| Total cost of revenues | - | - | ||||||||||||||
| Gross profit | - | - | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Wages and benefits | ||||||||||||||||
| Depreciation and amortization | - | - | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | - | ( | ) | - | ||||||||||
| Change in fair value of contingent consideration | - | - | ||||||||||||||
| Other income | - | - | ||||||||||||||
| Total other income | - | - | ||||||||||||||
| Income/(loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income taxes | - | - | ||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income/(loss) attributable to non-controlling interests | $ | - | $ | - | $ | - | $ | - | ||||||||
| Net income/(loss) attributable to the Company | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation loss | ( | ) | - | ( | ) | - | ||||||||||
| Total comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income/(loss) per share attributable to the Company | ||||||||||||||||
| Basic | ( | ) | ( | ) | ( | ) | ||||||||||
| Diluted | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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 | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at March 31, 2025 | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Sale of common stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Settlement of related party liabilities | ( | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at June 30, 2025 | - | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | - | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Balances at December 31, 2025 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to business combination | - | - | - | ( | ) | ( | ) | - | - | - | - | |||||||||||||||||||||||||||||||||
| Common stock issued pursuant to private placement | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balances at March 31, 2026 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to business combination | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to private placement | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Net income | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2026 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
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 | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right of use assets | - | |||||||
| Change in fair value of contingent consideration | ( | ) | - | |||||
| Depreciation | - | |||||||
| Amortization of intangibles | - | |||||||
| Amortization of prepaid expenses | ||||||||
| Provision for expected credit losses | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | - | |||||
| Contract assets | - | |||||||
| Contract assets, related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other receivable, related party | - | |||||||
| Due to / from related party | ( | ) | ||||||
| Accounts payable | - | |||||||
| Accounts payable, related party | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Contract liabilities | - | |||||||
| Deferred tax liability | ( | ) | - | |||||
| Operating lease liabilities, net | ( | ) | - | |||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | - | |||||
| Software development capitalization | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Short-term advances | - | |||||||
| Repayment of loan | - | - | ||||||
| Accounts receivable financing facility | - | |||||||
| Proceeds from sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | - | |||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash and restricted cash: | ||||||||
| Cash at beginning of period | $ | $ | 107 | |||||
| Restricted cash at beginning of period | - | |||||||
| Cash and restricted cash at beginning of period | $ | $ | 107 | |||||
| Cash at end of period | $ | $ | ||||||
| Restricted cash at end of period | - | |||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | $ | - | |||||
| Non-cash investing and financing activities: | ||||||||
| Settlement of related party liabilities | $ | - | $ | |||||
| Common stock issued in settlement of earn-out contingent consideration | $ | $ | - | |||||
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
On July 15, 2025, the Company entered into a definitive share-exchange agreement to acquire
On December 29, 2025, the Company entered into a Definitive Stock Purchase Agreement to acquire
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 $
For the three and six months ended June 30, 2026, the Company generated total revenues of $
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. ( |
| ● | Monitr Holdings, Inc. ( |
| ● | 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 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 $
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
The Company’s cost of revenues is similarly concentrated among a limited number of voice termination suppliers. Three vendors individually accounted for approximately
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 $
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 $
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 $
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 – |
| ● | Computers – |
| ● | Furniture and Fittings – |
| ● | 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 — |
| ● | Customer relationships — 42 Telecom — |
| ● | Trade name — 42 Telecom — |
| ● | Customer relationships — Telvantis — |
| ● | Trade name — Telvantis — |
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
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
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
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 | $ | $ | - | $ | $ | - | ||||||||||
| Messaging Services, at a point in time | ||||||||||||||||
| Platform Leasing, over time | - | - | ||||||||||||||
| $ | $ | - | $ | $ | - | |||||||||||
For the three and six ended June 30, 2026, Telvantis and its subsidiaries contributed approximately
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 $
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 $
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 $
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 |
| - | For the six months ended June 30, 2026, average rate |
For the three and six months ended June 30, 2026, the Company recorded foreign currency translation adjustments of $(
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
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
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 $(
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
The total purchase price consideration was $
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 | $ | |||
| Restricted cash | ||||
| Accounts receivables, net | ||||
| Contract assets | ||||
| Prepaid expenses and other current assets | ||||
| Property, plant and equipment, net | ||||
| Capital work-in-progress | ||||
| Intangible assets: | ||||
| Developed technology | ||||
| Customer relationships | ||||
| Tradename | ||||
| Goodwill | ||||
| Other receivable, related party | ||||
| Right of use asset | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses and other current liabilities | ( | ) | ||
| Contract liabilities | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Loan payable | ( | ) | ||
| Deferred tax liability- Intangible asset | ( | ) | ||
| Deferred tax liability - pre existing temporary differences | ( | ) | ||
| Purchase price consideration | $ | |||
Goodwill of $
Acquisition of Telvantis Voice Services, Inc.
On December 31, 2025, the Company acquired
The total purchase price consideration was $
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
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 | $ | |||
| Accounts receivables, net | ||||
| Due from related party | ||||
| Prepaid expenses and other current assets | ||||
| Deferred tax assets | ||||
| Intangible assets: | ||||
| Customer relationships | ||||
| Tradename | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses and other current liabilities | ( | ) | ||
| Accounts receivable financing facility | ( | ) | ||
| Deferred tax liability- Intangible asset | ( | ) | ||
| Due to related party | ( | ) | ||
| Purchase price consideration | $ | |||
Goodwill of $
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. | $ | - | $ | - | $ | $ | ||||||||||
| Contingent consideration - Telvantis Voice Services, Inc. | $ | - | $ | - | $ | $ | ||||||||||
| Total liabilities | $ | - | $ | - | $ | $ | ||||||||||
| December 31, 2025 | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration - 42 Telecom Ltd. | $ | - | $ | - | $ | $ | ||||||||||
| Contingent consideration - Telvantis Voice Services, Inc. | $ | - | $ | - | $ | $ | ||||||||||
| Total liabilities | $ | - | $ | - | $ | $ | ||||||||||
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 $
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 $
On May 22, 2026, the Company issued
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
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 | $ | |||
| Change in fair value - 42 Telecom Ltd. | ( | ) | ||
| Change in fair value - Telvantis Voice Servies, Inc. | ( | ) | ||
| Contingent consideration settled through issuance of common stock | ( | ) | ||
| Balance, June 30, 2026 | $ | |||
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 | $ | $ | ||||||
| Deposits | ||||||||
| VAT and taxes | ||||||||
| Prepaid expenses | ||||||||
| Settlement receivable | - | |||||||
| Other receivable | ||||||||
| Prepaid and other current assets | $ | $ | ||||||
Prepaid consulting and marketing services represents the unamortized portion of equity 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 $
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 | $ | $ | ||||||
| Computers | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Less : Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
For the three and six months ended June 30, 2026, depreciation expense was $
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Developed technology | $ | $ | ||||||
| Interally developed software | ||||||||
| Customer relationships | ||||||||
| Tradenames | ||||||||
| Acquired intellectual property | ||||||||
| Less : Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Developed technology of $
Internally developed software represents capitalized software development costs at 42 Telecom, amortized on a straight-line basis over 5 years.
Customer relationships of $
Acquired intellectual property of $
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 $
The following table presents the estimated future amortization expense for intangible assets as of June 30, 2026:
| 2026 (remaining 6 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| $ |
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 | $ | $ | ||||||
| VAT and taxes payable | ||||||||
| Other | ||||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
NOTE 9 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting. The Company’s Chief Executive Officer serves as the CODM and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources to the Telco Services segment. The measure of segment profit or loss regularly reviewed by the CODM is consolidated net 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
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 | $ | $ | - | $ | $ | - | ||||||||||
| Revenue, related party | - | - | ||||||||||||||
| Total revenues | - | - | ||||||||||||||
| Cost of revenue | - | - | ||||||||||||||
| Cost of revenue, related party | - | - | ||||||||||||||
| Gross profit | - | - | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Wages and benefits | ||||||||||||||||
| Depreciation and amortization | - | - | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | - | ( | ) | - | ||||||||||
Change in FV of contingent consideration | - | - | ||||||||||||||
| Other income | - | - | ||||||||||||||
| Total other income | - | - | ||||||||||||||
Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income taxes | - | - | ||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
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 | $ | $ | - | $ | $ | - | ||||||||||
| Malta | ||||||||||||||||
| Sweden | ||||||||||||||||
| $ | $ | - | $ | $ | - | |||||||||||
For the three and six months ended June 30, 2026, the United States represented approximately
Substantially all of the Company’s property, plant and equipment is held by 42 Telecom and its subsidiaries in Europe.
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Malta | $ | $ | ||||||
| Sweden | ||||||||
| $ | $ | |||||||
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.
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Europe | $ | $ | ||||||
| United States | ||||||||
| $ | $ | |||||||
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 €
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 | $ | $ | ||||||
| Operating lease liability, current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Weighted Average Remaining Lease Term (in years) | ||||
| Weighted Average Discount Rate | % |
The operating lease costs for the three and six months ended June 30, 2026 totaled $
The following table presents the maturity of operating lease liabilities as of June 30, 2026:
| June 30, | ||||
| 2026 (remaining 6 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| Less : imputed interest | ( | ) | ||
| Total | $ |
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 $
As of June 30, 2026 and December 31, 2025, accounts receivable from Mexedia DAC and Mexedia SpA were $
In addition, Telvantis has pre-acquisition loan obligations to Mexedia DAC totaling $
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
Transaction with Former Shareholder of 42 Telecom
Heritage Ventures Ltd. (“Heritage”), an Irish corporation controlled by Mr. Orlando Taddeo, was the
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
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 $
Chief Executive Officer Compensation
Jenifer Osterwalder, the Company’s Chief Executive Officer, charges the Company $
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 $
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 $
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, $
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 $
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
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 $
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
Private Placement
In June 2025, the Company commenced a private placement offering for up to
On March 16, 2026, the Board of Directors approved a private placement offering of up to $
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
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
During the three and six months ended June 30, 2026, the Company granted options to purchase an aggregate of
During the three and six months ended June 30, 2026 and 2025, the Company recognized stock-based compensation expense related to stock options of $
As of June 30, 2026, total unrecognized compensation expense related to unvested stock options was $
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 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | - | - | - | |||||||||
| Forfeited/Expired | - | - | - | |||||||||
| Outstanding, June 30, 2026 | $ | |||||||||||
| Vested, December 31, 2025 | $ | |||||||||||
| Vested, June 30, 2026 | $ | |||||||||||
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 $
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 €
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 $
F-29
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in this report and those in our Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission on March 31, 2026.
OVERVIEW
Spectral Capital Corporation is a Nevada corporation focused on the identification, acquisition, and development of technology and telecommunications businesses. The three and six months ended June 30, 2026 represent a continuation of the transformational period for the Company, marking the second full quarter of consolidated operations across both of our telecommunications subsidiaries — 42 Telecom Ltd. (“42 Telecom”), acquired on August 1, 2025, and Telvantis Voice Services, Inc. (“TVS”), acquired on December 31, 2025.
TVS operates as an international voice over internet protocol (“VoIP”) carrier providing voice termination services to telecommunications carriers and service providers globally through its subsidiaries Phonetime, Inc. and Matchcom Telecommunications, Inc. TVS contributed approximately 99% of consolidated revenues of $318,278 for the three months ended June 30, 2026 and approximately 99% of consolidated revenues of $646,790 for the six months ended June 30, 2026. 42 Telecom, operating through its subsidiaries in Malta, Sweden, and the United Kingdom, contributed the remaining approximately 1% of revenues through its messaging and platform services operations.
Our financial results for the three and six months ended June 30, 2026 reflect both the scale of the consolidated telecommunications business and the impact of non-cash accounting charges associated with our acquisition structure. Our financial results for the three months ended June 30, 2026 reflect net income of $7,387, driven primarily by a non-cash gain of $9,886 from the remeasurement of contingent consideration liabilities at fair value, which is reported within other income (expense) and is not reflected in operating results. Loss from operations was $1,857 for the three months ended June 30, 2026, which includes $2,004 in depreciation and amortization, $1,097 in amortization of prepaid stock-based compensation, and $227 in stock option expense, reflecting integration costs and corporate overhead associated with our consolidated operations.
For the six months ended June 30, 2026, we reported a net loss of $2,018, reflecting a net non-cash gain of $3,972 from the remeasurement of contingent consideration liabilities at fair value — comprising a $5,914 charge recognized during the three months ended March 31, 2026 and a $9,886 gain recognized during the three months ended June 30, 2026 — which is reported within other income (expense) and is not reflected in operating results. Loss from operations was $4,836 for the six months ended June 30, 2026, which included $3,991 in depreciation and amortization, $2,194 in amortization of prepaid stock-based compensation, and $502 in stock option expense, reflecting integration costs and corporate overhead associated with our consolidated operations.
Key Developments in Q2 2026
Proposed Acquisition of Intermatica S.p.A
On January 4, 2026, the Company entered into a binding term sheet with Intermatica S.p.A. (“Intermatica”), an Italy-based telecommunications and enterprise messaging company, for a proposed strategic transaction pursuant to which Spectral would contribute selected proprietary intellectual property and advanced software technologies in exchange for equity participation, commercial collaboration rights, and potential future consideration tied to performance milestones. As of the date of this report, no definitive agreement has been executed, the proposed transaction remains subject to completion of financial, legal and operational due diligence (including, unless waived, an audit of Intermatica’s financial statements under PCAOB standards), approval by the boards of directors of both parties, and the execution of definitive agreements, and there can be no assurance that the proposed transaction will be consummated on the terms described or at all.
2
Nasdaq Uplisting Initiative and Private Placement
The Company continues to actively pursue a listing on the Nasdaq Stock Market as a strategic priority. On March 16, 2026, the Board of Directors approved a private placement offering of up to $1,000 in restricted shares of common stock at a price below market value, to remain open until the Company achieves a listing on the Nasdaq Stock Market. During the three months ended June 30, 2026, the Company raised $20 under this offering through the issuance of 12,500 shares at $1.60 per share on June 1, 2026, bringing the aggregate amount raised under the offering to $220 through the issuance of 112,500 shares during the six months ended June 30, 2026.
On July 17, 2026, the Company publicly filed a Registration Statement on Form S-1 with the Securities and Exchange Commission covering a proposed underwritten public offering of its common stock, with Sentinel Brokers Company, Inc. acting as representative of the underwriters. The Company has applied to list its common stock on The Nasdaq Capital Market under the symbol “FCCN.” If the listing application is approved, the Company expects its common stock to be listed on Nasdaq upon consummation of the offering, at which point it will cease to be quoted on the OTCQB. There can be no assurance that the listing application will be approved or that the offering will be completed.
Issuance of Telvantis Earn-Out Shares. On May 22, 2026, based on the Acquired Company’s results and accruals for the portion of fiscal year 2026 then elapsed, the Board of Directors determined that the Earn-Out Milestones under the Stock Purchase Agreement for Telvantis Voice Services, Inc., tied to the Acquired Company’s revenue and operating profit during fiscal year 2026 (which will not be complete until December 31, 2026), had been achieved or duly accrued for issuance, and that the Earn-Out Shares were presently issuable in accordance with the terms of the Stock Purchase Agreement. Pursuant to that determination, the Company issued an aggregate of 6,924,700 shares of common stock to the designated recipients on May 22, 2026, as reported on the Company’s Current Report on Form 8-K filed May 27, 2026. The shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, and are subject to lock-up, trickle-out and beneficial ownership limitation agreements. Included in that issuance were 1,041,000 shares issued on May 22, 2026 to an entity controlled by Daniel Gilcher, the Company’s Chief Financial Officer, in settlement of certain obligations of Telvantis, Inc.; those shares were not compensation for services to the Company. The issuance constitutes a partial settlement of the contingent consideration liability recognized in connection with the Telvantis acquisition; the fair value of the shares issued was approximately $14,474, based on the closing price of the Company’s common stock of $2.09 per share on May 22, 2026.
Termination of Snack Prompt Binding Term Sheet. Effective May 5, 2026, the binding term sheet relating to the proposed acquisition of the Snack Prompt business was terminated for failure to satisfy closing conditions, including the non-completion of due diligence. Neither party has any continuing obligations under the term sheet.
Amendment to Annual Report for the Year Ended December 31, 2024. On June 5, 2026, the Company filed Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 to correct management’s conclusion regarding the effectiveness of internal control over financial reporting as of December 31, 2024. Because material weaknesses existed as of that date, internal control over financial reporting was not effective, and investors should not rely on the conclusion set forth in the original filing.
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RESULTS OF OPERATIONS
Results of Operations for the Three and Six Months Ended June 30, 2026 and 2025
Net Revenues and Cost of Revenues
Net revenues were $318,278 for the three months ended June 30, 2026, compared to $0 for the three months ended June 30, 2025. The Company generated no revenues in the second quarter of 2025 as neither 42 Telecom nor TVS had been acquired as of that date. For the three months ended June 30, 2026 revenues consisted of voice termination revenues from TVS of $313,904, messaging and platform revenues from 42 Telecom Ltd. of $4,157, and platform revenues from 42 Telecom AB of $216, with de minimis revenue from Arcus Technologies Ltd. The revenue growth between periods reflects the continued impact of the Company’s acquisition strategy executed during 2025 and the second full quarter of consolidated operations across both subsidiaries.
Net revenues were $646,790 for the six months ended June 30, 2026, compared to $0 for the six months ended June 30, 2025, for the same reason as discussed above. For the six months ended June 30, 2026 revenues consisted of voice termination revenues from TVS of $638,403, messaging and platform revenues from 42 Telecom Ltd. of $7,917, platform revenues from 42 Telecom AB of $454, and $15 related to Arcus Technologies Ltd.
Cost of revenues was $314,998 for the three months ended June 30, 2026 and $641,320 for the six months ended June 30, 2026, compared to $0 for both the three and six months ended June 30, 2025. Cost of revenues consists primarily of voice termination costs, interconnection charges, and network costs associated with TVS’s VoIP carrier operations, together with messaging termination costs incurred by 42 Telecom. For the three months ended June 30, 2026, cost of revenues consisted of $311,768 from TVS, $2,370 from 42 Telecom Ltd., and $860 from 42 Telecom AB, with de minimis cost of revenue from Arcus Technologies Ltd. and 42 Telecom UK Ltd. For the six months ended June 30, 2026, cost of revenues consisted of $635,146 from TVS, $4,410 from 42 Telecom Ltd., $1,749 from 42 Telecom AB, and $14 from Arcus Technologies Ltd., with de minimis cost of revenue from 42 Telecom UK Ltd.
Gross profit was $3,280 for the three months ended June 30, 2026, representing a gross profit margin of approximately 1.0%. Gross profit was $5,470 for the six months ended June 30, 2026, representing a gross profit margin of approximately 0.8%. The gross margin reflects the nature of the international voice termination business, which is characterized by high revenue volumes and narrow per-minute margins driven by competitive market pricing. Management is focused on optimizing routing economics, customer mix, and operational efficiencies to improve gross margins over time.
Operating Expenses
Total operating expenses were $5,137 for the three months ended June 30, 2026, compared to $487 for the three months ended June 30, 2025, an increase of $4,650. Total operating expenses were $10,306 for the six months ended June 30, 2026, compared to $1,147 for the six months ended June 30, 2025, an increase of $9,159. The increase in both periods reflects the consolidation of 42 Telecom and TVS, as well as the associated corporate overhead of operating a significantly larger and more complex organization.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,402 for the three months ended June 30, 2026, compared to $451 for the three months ended June 30, 2025, an increase of $1,951. Selling, general and administrative expenses were $4,842 for the six months ended June 30, 2026, compared to $1,075 for the six months ended June 30, 2025, an increase of $3,767. The increase is primarily attributable to the consolidation of both 42 Telecom’s and Telvantis’s operating overhead, increased professional fees associated with SEC filings, the Company’s Registration Statement on Form S-1 and expanded corporate activities in connection with the Company’s planned Nasdaq Stock Market uplisting.
Wages and benefits were $731 for the three months ended June 30, 2026, compared to $36 for the three months ended June 30, 2025, an increase of $695. Wages and benefits were $1,472 for the six months ended June 30, 2026, compared to $72 for the six months ended June 30, 2025, an increase of $1,400. The increase reflects the consolidation of employee compensation costs at 42 Telecom and TVS following their respective acquisitions, which added staff across operations, technology, finance, and management functions. Wages and benefits expenses include gross wages and salaries, bonuses, performance-related pay, employer social insurance contributions, pensions, insurance costs, and other staff-related expenditures across the Company’s operations in the United States, Malta, Sweden, and the United Kingdom.
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Depreciation and amortization was $2,004 for the three months ended June 30, 2026, compared to $0 for the three months ended June 30, 2025. Depreciation and amortization was $3,992 for the six months ended June 30, 2026, compared to $0 for the six months ended June 30, 2025. The increase in both periods reflects amortization of identifiable intangible assets recognized in connection with the acquisitions of 42 Telecom and Telvantis Voice Services, Inc. and the Eliznikcomp OÜ asset purchase, as well as depreciation of property, plant and equipment acquired through the 42 Telecom acquisition. Amortization of intangible assets was $1,991 and depreciation of property, plant and equipment was $13 for the three months ended June 30, 2026; amortization of intangible assets was $3,964 and depreciation of property, plant and equipment was $28 for the six months ended June 30, 2026. The absence of depreciation and amortization in the corresponding 2025 periods reflects the fact that neither the 42 Telecom nor the Telvantis acquisition had been completed as of that date.
Other Income (expense)
Total other income was $9,417 for the three months ended June 30, 2026, compared to $0 for the three months ended June 30, 2025. The other income for the three months ended June 30, 2026 includes a non-cash gain of $9,886 from the change in fair value of contingent consideration related to the 42 Telecom and Telvantis acquisitions, $470 in net interest expense related to the accounts receivable financing facilities and other obligations, and other income of $1.
Total other income was $3,091 for the six months ended June 30, 2026, compared to $0 for the six months ended June 30, 2025. The other income for the six months ended June 30, 2026 includes a net non-cash gain of $3,972 from the change in fair value of contingent consideration, comprised of a $5,914 non-cash loss recognized during the three months ended March 31, 2026 and a $9,886 non-cash gain recognized during the three months ended June 30, 2026, $885 in net interest expense related to the accounts receivable financing facilities and other obligations, and other income of $4.
The change in fair value of contingent consideration during the three months ended June 30, 2026 arose primarily from the increase in the Company’s stock price from $2.56 at March 31, 2026 to $4.60 at June 30, 2026, which decreased the estimated number of additional shares required under the minimum valuation guarantee provisions of the 42 Telecom acquisition agreement, together with the partial settlement of the Telvantis contingent consideration liability through the issuance of 6,924,700 shares of common stock on May 21, 2026. See Note 3 — Business Combinations and Note 4 — Fair Value Measurements for further details.
Income Taxes
The Company recorded income tax expense of $173 for the three months ended June 30, 2026 and $273 for the six months ended June 30, 2026, compared to $0 for both the three and six months ended June 30, 2025. The tax expense for the three and six months ended June 30, 2026 reflects current tax obligations arising from the foreign operations of 42 Telecom in Malta and Sweden.
Net Income (Loss)
Net income was $7,387 for the three months ended June 30, 2026, compared to a net loss of $487 for the three months ended June 30, 2025, representing an improvement of $7,874. The improvement was driven primarily by the non-cash gain from the change in fair value of contingent consideration of $9,886, partially offset by increased operating expenses associated with the Company’s expanded operations. Total comprehensive income was $7,379 for the three months ended June 30, 2026, which includes $8 of foreign currency translation losses.
Net loss was $2,018 for the six months ended June 30, 2026, compared to $1,147 for the six months ended June 30, 2025, representing a increase in net loss of $871. The increase was driven primarily by higher operating expenses associated with the Company's expanded operations following the consolidation of both 42 Telecom and Telvantis, which more than offset the net non-cash gain from the change in fair value of contingent consideration of $3,972 and gross profit of $5,470 generated by the telecommunications subsidiaries. Total comprehensive loss was $2,113 for the six months ended June 30, 2026, which includes $95 of foreign currency translation losses.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2026, we had cash and cash equivalents of $5,267 and restricted cash of $21, compared to cash and cash equivalents of $2,087 and restricted cash of $21 as of December 31, 2025. We intend to fund our operations through cash flows generated from our telecommunications subsidiaries, proceeds from our private placement offering approved in March 2026, the proposed underwritten public offering registered on our Registration Statement on Form S-1, and additional debt or equity financings as needed.
The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025 (in thousands):
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities | $ | (1,555 | ) | $ | (481 | ) | ||
| Net cash used in investing activities | $ | (174 | ) | $ | - | |||
| Net cash provided by financing activities | $ | 5,004 | $ | 380 | ||||
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Cash Used in Operating Activities
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. Despite reporting a net loss of $2,018, operating cash outflow reflected significant non-cash charges and working capital movements, including a $3,972 non-cash gain from the change in fair value of contingent consideration, $3,964 in amortization of intangible assets, $27 in depreciation, $2,194 in amortization of prepaid expenses, $502 in stock-based compensation expense, $597 in provision for expected credit losses, and $36 in amortization of right of use assets.
Working capital movements during the six months ended June 30, 2026 were substantial but largely offsetting, reflecting the high-volume, low-margin nature of our international voice termination carrier operations. Accounts receivable increased by $82,085, driven by TVS’s international voice termination billing cycles, where large volumes of traffic are invoiced to carriers on monthly payment terms. This increase was substantially offset by a corresponding increase of $78,405 in accounts payable, reflecting the parallel payment terms on the supplier side of the VoIP carrier business.
Net cash used in operating activities for the six months ended June 30, 2025 related primarily to corporate overhead and professional fees prior to the completion of the Company’s telecommunications acquisitions, with no significant working capital movements.
Cash Used in Investing activities
Net cash used in investing activities was $174 for the six months ended June 30, 2026, compared to $0 for the six months ended June 30, 2025. Investing activities for the six months ended June 30, 2026 consisted of $162 in capitalized internally developed software costs at 42 Telecom and $12 in purchases of property, plant and equipment.
There were no investing activities for the six months ended June 30, 2025.
Cash Provided by Financing Activities
Net cash provided by financing activities was $5,004 for the six months ended June 30, 2026, compared to $380 for the six months ended June 30, 2025. The increase of $4,624 was primarily attributable to $4,784 in net borrowings under the accounts receivable financing facility and $220 in proceeds from the private placement of common stock under the offering approved by the Board of Directors on March 16, 2026, described further in Note 13 — Stockholders’ Equity.
Net cash provided by financing activities for the six months ended June 30, 2025 consisted of $295 in proceeds from short-term advances and $85 in proceeds from the sale of common stock.
Capital Requirements and Outlook
The Company has incurred recurring net losses and has an accumulated deficit of $35,433 as of June 30, 2026. We believe that our existing cash resources, together with anticipated cash flows from our telecommunications operations, proceeds from our private placement offering and the working capital advance made by our Chief Executive Officer in July 2026, will be sufficient to fund our operations for the near term. However, we may require additional financing to fund our operations and execute our growth strategy, including in connection with the proposed Intermatica transaction and our planned Nasdaq uplisting. There can be no assurance that additional financing will be available on acceptable terms or at all, that our Registration Statement on Form S-1 will be declared effective, or that the proposed underwritten public offering will be completed. If we are unable to obtain additional financing when needed, we may be required to curtail or reduce our planned operations.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, except as described below.
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Fair Value of Contingent Consideration
The most significant critical accounting estimate relates to the fair value measurement of contingent consideration liabilities associated with the acquisitions of 42 Telecom and TVS. These liabilities are classified as Level 3 within the fair value hierarchy and are remeasured at each reporting date using significant unobservable inputs including the Company’s stock price, equity volatility, risk-free rates, projected revenues and operating profits, and a discount for lack of marketability. As of June 30, 2026, the aggregate contingent consideration liability was $16,394, comprising $932 related to the 42 Telecom acquisition and $15,462 related to the TVS acquisition, after giving effect to the partial settlement of the Telvantis contingent consideration through the issuance of 6,924,700 shares of common stock on May 22, 2026. For the three months ended June 30, 2026, the Company recognized 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 recognized a net non-cash gain of $3,972, comprising a $5,914 non-cash loss recognized during the three months ended March 31, 2026 and a $9,886 non-cash gain recognized during the three months ended June 30, 2026. In addition, the Company recognized a settlement of contingent consideration of $14,474 during the six months ended June 30, 2026, representing the fair value of shares issued in satisfaction of the Telvantis earn-out obligation in accordance with ASC 805-30-35-1. See Note 4 — Fair Value Measurements for further details.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures were not effective as of June 30, 2026 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting & Financial Officers as appropriate to allow timely decisions regarding required disclosure.
We have identified material weaknesses in our Annual Report on Form 10-K for the year ended December 31, 2025 which related to a lack of an accounting staff resulting in a lack of segregation of duties necessary for an effective system of internal control. The weakness in segregation of duties will continue to exist until such time as management can retain internal staff to properly segregate duties. On June 5, 2026, the Company filed Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 to correct management’s conclusion that internal control over financial reporting was effective as of December 31, 2024; because material weaknesses existed as of that date, internal control over financial reporting was not effective, and investors should not rely on the conclusion set forth in the original filing.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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. Refer to Note 14 — Commitments and Contingencies for a description of the Company’s current legal proceedings, including the Tellza, Inc. v. Telvantis Voice Services Inc. matter and the 42 Telecom Ltd. v. Symplify Technologies AB matter. There were no material developments in these matters during the six months ended June 30, 2026, other than as described in Note 14.
Item 2. Unregistered Sales of Securities and Use of Proceeds
During the six months ended June 30, 2026, the Company issued an aggregate of 8,037,200 shares of common stock in the following unregistered transactions:
On January 9, 2026, the Company issued 1,000,000 shares of common stock to former shareholders of Telvantis Voice Services, Inc. in connection with the Company's acquisition of Telvantis on December 31, 2025, pursuant to the Stock Purchase Agreement. The issuance of these shares was made in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D. The shares were issued for non-cash consideration as part of the total purchase price for the Telvantis acquisition.
On March 24, 2026, the Company issued 100,000 shares of common stock at a purchase price of $2.00 per share for total gross proceeds of $200 pursuant to the private placement offering approved by the Board of Directors on March 16, 2026. The offering was conducted under Rule 506(b) of Regulation D of the Securities Act of 1933, as amended. The offering was made to accredited investors only. None of the transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D. All investors represented that they were acquiring the securities for investment purposes and not with a view to distribution. No general solicitation or advertising was used in connection with the offer or sale of these securities.
On May 21, 2026, the Board of Directors determined that the revenue-based performance milestone under the Stock Purchase Agreement for Telvantis Voice Services, Inc. had been achieved for the fiscal year ended December 31, 2025 and, pursuant to that determination, the Company issued an aggregate of 6,924,700 shares of common stock to the designated recipients, as reported on the Company’s Current Report on Form 8-K filed May 27, 2026. The issuance of these shares was made in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and the shares are subject to lock-up, trickle-out and beneficial ownership limitation agreements. The shares were issued for non-cash consideration in partial settlement of the earn-out consideration payable under the Telvantis Stock Purchase Agreement. Included in that issuance were 1,041,000 shares issued on May 22, 2026 to an entity controlled by Daniel Gilcher, the Company’s Chief Financial Officer, in settlement of certain obligations of Telvantis, Inc. and those shares did not constitute compensation for services to the Company.
On June 1, 2026, the Company issued 12,500 shares of common stock at a purchase price of $1.60 per share for total gross proceeds of $20 pursuant to the private placement offering approved by the Board of Directors on March 16, 2026. The offering was conducted under Rule 506(b) of Regulation D of the Securities Act of 1933, as amended, and was made to a single non-affiliated accredited investor. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D. The investor represented that it was acquiring the securities for investment purposes and not with a view to distribution. No general solicitation or advertising was used in connection with the offer or sale of these securities.
The net proceeds from the private placement have been and will be used to fund ongoing operations, corporate infrastructure, and working capital requirements in connection with the Company’s planned Nasdaq Stock Market uplisting.
Item 3. Defaults Upon Senior Securities
Not Applicable.
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Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information
During the six months ended June 30, 2026, no director or officer of the Company
Item 6. Exhibits
| List of Exhibits | ||
| 3(i)(1) | Articles of Incorporation of Spectral Capital Corporation, dated September 13, 2000, incorporated by reference to Exhibit 3(a) on Form 10-SB filed May 1, 2003. | |
| 3(i)(2) | Certificate of Amendment to Articles of Incorporation of Spectral Capital Corporation, dated June 17, 2007, incorporated by reference to Exhibit 2.1 on Form 8-K filed July 7, 2004. | |
| 3(ii) | By-laws of Spectral Capital Corporation, dated September 14, 2000, incorporated by reference to Exhibit 3(b) on Form 10-SB filed May 1, 2003. | |
| 10.1 | Definitive Share Exchange (previously filed on form 8K on July 15, 2025). between Spectral Capital Corporation and 42 Telecom Ltd. | |
| 10.2 | Closing Certificated dated August 1, 2025, executed by Spectral Capital Corporation, Heritage Ventures Ltd., and 42 Telecom Ltd. (previously filed on form 8K on August 4, 2025) | |
| 10.3 | Addendum dated August 1, 2025 to the Definitive Share Exchange Agreement dated July 15, 2025, by and among Spectral Capital Corporation, Heritage Ventures Ltd., and 42 Telecom Ltd. (previously filed on form 8K on August 4, 2025) | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of the Company’s Chief Financial and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: August 10, 2026 | Spectral Capital Corporation |
| /s/ Jenifer Osterwalder | |
| Jenifer Osterwalder | |
| President and Chief Executive Officer | |
| /s/ Daniel Gilcher | |
| Daniel Gilcher | |
| Chief Financial Officer and Principal Financial and Accounting Officer |
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