Spectral Capital (FCCN) seeks Nasdaq listing via stock sale
Rhea-AI Filing Summary
Spectral Capital Corporation, a Nevada-based technology-focused holding company, is registering shares of common stock in a reasonable best efforts primary offering, which it will complete only if its common stock is approved for listing on the Nasdaq Capital Market under the symbol FCCN.
The company has shifted from pure intellectual property development toward operating telecommunications and messaging businesses, including 42 Telecom Ltd. and Telvantis Voice Services, serving about 335 enterprise customers in the global data infrastructure market and aiming to embed artificial intelligence and advanced analytics across these platforms.
The disclosure highlights substantial risk factors: a working capital deficiency and historical losses that raise substantial doubt about continuing as a going concern, dependence on new financing, complex integration of recent acquisitions and AI initiatives, identified material weaknesses in internal control over financial reporting, and a heavily IP-driven strategy despite having no issued patents and very limited registered intellectual property.
Positive
- None.
Negative
- The company reports substantial doubt about its ability to continue as a going concern due to working capital deficiency, historical losses and reliance on raising additional capital to fund operations.
- Management acknowledges material weaknesses in internal control over financial reporting, requiring an amended 2024 annual report and adding execution risk around complex acquisitions and technology integration.
Key Figures
Key Terms
reasonable best efforts public offering financial
over-allotment option financial
going concern financial
retrieval-augmented generation (RAG) technical
General Data Protection Regulation (GDPR) regulatory
right of first refusal financial
Offering Details
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
What is Spectral Capital (FCCN) offering in this S-1 filing?
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As filed with the U.S. Securities and Exchange Commission on July 17, 2026.
Registration No. 333-[______]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Exact Name of Registrant as Specified in its Charter)
| 7374 | 51-0520296 | |||
(State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
701 Fifth Avenue,
Suite 4200
Seattle, WA 98104
Tel: (206) 262-7799
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Jenifer Osterwalder
Chief Executive Officer
701 Fifth Avenue,
Suite 4200
Seattle, WA 98104
Tel: (206) 262-7799
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Ross D. Carmel, Esq. Jeffrey Wofford, Esq. Sichenzia Ross Ference Carmel LLP 1185 Avenue of the Americas, 31st Floor New York, NY 10036 Telephone: (212) 930-9700 Facsimile: (212) 930-9725 |
Richard A. Friedman, Esq. Sean Reid, Esq. Sheppard, Mullin, Richter & Hampton LLP 30 Rockefeller Plaza New York, NY 10112-0015 Tel: (212) 653-8700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.
The information in this preliminary prospectus supplement is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus supplement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED JULY 17, 2026 |
SPECTRAL CAPITAL CORPORATION
Up to shares of Common Stock
This is a reasonable best efforts public offering of shares of our common stock, $0.0001 par value per share (the “Common Stock”), at an assumed public offering price of $ per share of Common Stock (based on the last reported sales price for our Common Stock as quoted on the OTCQB on , 2026).
Our Common Stock is currently traded on the over-the-counter market and quoted on the OTCQB under the symbol “FCCN”. We have applied to list our Common Stock on the Nasdaq Capital Market, or Nasdaq, under the symbol “FCCN”. No assurance can be given that our application will be approved or that the trading prices of our Common Stock on the OTCQB will be indicative of the prices of our Common Stock if our Common Stock were traded on Nasdaq. We will not proceed with this offering in the event the Common Stock is not approved for listing on Nasdaq.
We are a “smaller reporting company,” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and have elected to take advantage of certain scaled disclosure available to smaller reporting companies.
An investment in our securities is highly speculative, involves a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 6 of this prospectus.
Neither the U.S. Securities and Exchange Commission nor any state or foreign securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Share | Total | |||||||
| Public offering price | $ | $ | ||||||
| Underwriting discounts and commissions (1) (2) | $ | $ | ||||||
| Proceeds to us, before expenses | $ | $ | ||||||
| (1) | Represents underwriting discounts equal to 7% per share of common stock, which is the underwriting discounts we have agreed to pay to the underwriters. |
| (2) | Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering, payable to the underwriters, or the reimbursement of certain expenses of the underwriters. For a description of the other terms of compensation to be received by the underwriters, see “Underwriting.” |
We have granted the underwriters a 45-day option to purchase up to additional shares of Common Stock to cover over-allotments, if any, at the public offering price per share of Common Stock, less the underwriting discounts payable by us.
The underwriters expect to deliver the shares of Common Stock on or about , 2026.
Sentinel Brokers Company, Inc.
The date of this prospectus is , 2026
TABLE OF CONTENTS
| Page | |
| INDUSTRY AND MARKET DATA | ii |
| TRADEMARKS, SERVICE MARKS AND TRADE NAMES | ii |
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | ii |
| PROSPECTUS SUMMARY | 1 |
| THE OFFERING | 5 |
| RISK FACTORS | 6 |
| USE OF PROCEEDS | 25 |
| DIVIDEND POLICY | 26 |
| CAPITALIZATION | 27 |
| DILUTION | 28 |
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 29 |
| BUSINESS | 46 |
| MANAGEMENT | 61 |
| EXECUTIVE AND DIRECTOR COMPENSATION | 66 |
| CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS | 68 |
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 70 |
| DESCRIPTION OF SECURITIES | 71 |
| SHARES ELIGIBLE FOR FUTURE SALE | 75 |
| CERTAIN INCOME TAX CONSIDERATIONS | 77 |
| UNDERWRITING | 80 |
| LEGAL MATTERS | 88 |
| EXPERTS | 88 |
| WHERE YOU CAN FIND MORE INFORMATION | 88 |
| INDEX TO FINANCIAL STATEMENTS | F-1 |
Please read this prospectus carefully. It describes our business, our financial condition, and our results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision. You should rely only on the information contained in this prospectus or in any related free writing prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus or in any related free writing prospectus.
Neither we, the selling stockholders nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we, the selling stockholders nor any of the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date, regardless of the time of delivery of this prospectus or of any sale of our common stock.
For investors outside the United States: Neither we, the selling stockholders nor any of the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.
i
INDUSTRY AND MARKET DATA
This prospectus includes market, industry and economic data which was obtained from various publicly available sources and other sources believed by the Company to be true. Although the Company believes it to be reliable, the Company has not independently verified any of the data from third party sources referred to in this prospectus or analyzed or verified the underlying reports relied upon or referred to by such sources, or ascertained the underlying economic and other assumptions relied upon by such sources. The Company believes that its market, industry and economic data is accurate and that its estimates and assumptions are reasonable, but there can be no assurance as to the accuracy or completeness thereof. The accuracy and completeness of the market, industry and economic data used throughout this prospectus are not guaranteed and the Company does not make any representation as to the accuracy or completeness of such information.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
We have proprietary rights to trademarks used in this prospectus that are important to our business that are to be subject to prosecution before the respective national intellectual property organizations responsible for trademark registration. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are without the ®, ™ and other similar symbols, but the absence of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
This prospectus contains additional trademarks, service marks and trade names of others. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other person.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere that constitute forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements include:
| ● | the timing of the development of future services, | |
| ● | projections of revenue, earnings, capital structure and other financial items, | |
| ● | statements regarding the capabilities of our business operations, | |
| ● | statements of expected future economic performance, | |
| ● | statements regarding competition in our market, and | |
| ● | assumptions underlying statements regarding us or our business. |
The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material risks under the heading “Risk Factors” above. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
ii
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed information about us, the shares of Common Stock that may be sold from time to time, and our consolidated financial statements and the notes to them, all of which appear elsewhere in this prospectus.
You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the notes to those statements and our management’s discussion and analysis of financial condition and results of operations. As used throughout this prospectus, the terms “Spectral,” “Spectral Capital,” the “Company,” “we,” “us,” or “our” refer to Spectral Capital Corporation.
Company Overview
Spectral Capital Corporation is a technology-focused holding company pursuing a growth strategy centered on the acquisition, integration, and advancement of businesses operating at the intersection of telecommunications, data infrastructure, and advanced computing technologies, including artificial intelligence–enabled platforms. The Company combines operating subsidiaries with proprietary intellectual property and emerging technology initiatives, with the objective of building scalable, revenue-generating businesses supported by differentiated technology capabilities.
Historically, Spectral focused on intellectual property development and advanced computing research. In recent periods, the Company has evolved into an operating company through the acquisition of established telecommunications and messaging services businesses, including 42 Telecom Ltd. and Telvantis Voice Services, Inc. (“TVS”). These subsidiaries provide Spectral with recurring revenue, enterprise customers, and international operational footprints, while also serving as platforms for the deployment of Spectral’s proprietary technology and artificial intelligence solutions.
For purposes of this Registration Statement, we define an “enterprise customer” as a telecommunications carrier, mobile network operator, or messaging aggregator that procures our voice, messaging, or data infrastructure services under a commercial contract, typically on a recurring or volume-based basis. Our enterprise customers operate within the global data infrastructure market, which independent research firm The Business Research Company estimates at approximately $307.86 billion in 2026, projected to grow to approximately $670.57 billion by 2030 (representing a compound annual growth rate of approximately 21.5%). As of March 31, 2026, the Company served approximately 335 enterprise customers through its operating subsidiaries, 42 Telecom Ltd. and TVS. Prior to August 1, 2025, the date on which the Company completed its acquisition of 42 Telecom, the Company had not yet commenced revenue-generating commercial operations and accordingly had no enterprise customers during that period.
Spectral’s business model emphasizes vertical integration, combining network services, software platforms, analytics, and automation to deliver higher-value offerings to enterprise customers. Through this approach, the Company seeks to move beyond commodity services toward differentiated products that improve efficiency, performance, fraud prevention, and customer engagement. Spectral intends to leverage artificial intelligence, data analytics, and advanced computing techniques to enhance routing, optimize pricing, automate operational processes, and improve decision-making across its subsidiaries’ platforms.
Strengths
The Company’s key strengths include:
| ● | Established Operating Revenue: Spectral owns operating subsidiaries with existing customers, infrastructure, and recurring revenues, providing a foundation for growth beyond pure research or development-stage activities. | |
| ● | Technology Integration Expertise: Spectral focuses on enhancing acquired businesses by integrating proprietary technology, artificial intelligence, and analytics into existing platforms to drive efficiency and margin improvement. | |
| ● | Enterprise-Focused Strategy: The Company targets enterprise customers requiring scalable, reliable, and compliant telecommunications and messaging solutions, supported by consultative service and long-term relationships. | |
| ● | Intellectual Property and Innovation Orientation: Spectral maintains a portfolio of proprietary technologies and research initiatives intended to support long-term differentiation and optionality in emerging computing and AI-enabled markets. | |
| ● | Disciplined Acquisition Strategy: The Company evaluates acquisitions based on technological fit, revenue potential, and the ability to enhance value through integration rather than solely through financial engineering. |
1
Business Strategy
Spectral’s strategy is to grow through a combination of organic expansion and selective acquisitions. The Company seeks businesses with strong core operations and customer relationships that can benefit from technology upgrades, automation, and data-driven optimization. Spectral intends to deploy capital toward product development, research and development, and strategic investments that support scalable growth, while maintaining flexibility to pursue additional acquisitions and partnerships as market opportunities arise.
As a public company preparing for listing on The Nasdaq Capital Market, Spectral is focused on strengthening governance, internal controls, and operational discipline while executing its long-term strategy of building a technology-enabled portfolio of operating businesses positioned for sustained growth.
Recent Developments
As part of our Business Strategy focused on both organic expansion and strategic acquisitions, on December 29, 2025, Spectral entered into a definitive Stock Purchase Agreement with Telvantis, Inc. (“Telvantis”), pursuant to which Spectral acquired TVS, a telecommunications services business with an established customer base and operating infrastructure. TVS provides voice and related communications services and contributes recurring revenue to Spectral’s consolidated operations. Management believes that TVS represents a platform opportunity for operational improvement and margin expansion through the application of Spectral’s proprietary technology, analytics, and automation capabilities.
In addition, on January 4, 2026, Spectral entered into a binding term sheet with Intermatica S.p.A., an Italian-based telecommunications and messaging services provider. The binding term sheet contemplates a strategic transaction subject to completion of financial, legal, and technical due diligence, including the execution of definitive transaction documents and satisfaction of customary closing conditions. There can be no assurance that a definitive agreement will be executed or that the contemplated transaction will be consummated on the terms described, or at all. Management views the Intermatica transaction as consistent with Spectral’s acquisition strategy of targeting operating businesses that can benefit from technology integration and enhanced enterprise offerings.
In June 2026, we issued 12,500 shares of common stock at $1.60 per share for aggregate proceeds of $20,000 pursuant to a private placement offering.
Listing on Nasdaq
Our Common Stock is currently quoted on the OTCQB. In connection with this offering, we have applied to list our Common Stock on Nasdaq under the symbol “FCCN”. If our listing application is approved, we expect to list our Common Stock on Nasdaq upon consummation of the offering, at which point our common stock will cease to be quoted on the OTCQB. No assurance can be given that our listing application will be approved. Prior to effectiveness, we will need to take the necessary steps to meet Nasdaq listing requirements, which include, among other things, a stock price threshold. If Nasdaq does not approve the listing of our Common Stock, we will not proceed with this offering. There can be no assurance that our Common Stock will be listed on Nasdaq.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On April 21, 2025, MG&A notified the Company that its previously issued financial statements contained numerous accounting errors, including errors related to prepaid assets, amortization, gains on extinguishment of debt, and unrecorded expenses (the “Accounting Matter”). MG&A advised the Company that the Accounting Matter materially affected the reliability of the Company’s financial statements for the quarters ended March 31, 2024, June 30, 2024, and September 30, 2024, and that such financial statements should be restated; however, as described below, the Company subsequently withdrew the non-reliance conclusion and such financial statements were not restated. As of the date of MG&A’s dismissal (April 30,2025), these matters had not been resolved to MG&A’s satisfaction.
As previously disclosed, the Company was unable to timely file its Annual Report on Form 10-K for the year ended December 31, 2024.
On April 30, 2025, Spectral Capital Corporation dismissed Michael Gillespie & Associates, PLLC (“MG&A”) as its independent registered public accounting firm and, on the same date, engaged RBSM LLP (“RBSM”) as its new independent registered public accounting firm. The decision to dismiss MG&A and engage RBSM was approved by the Company’s board of directors.
The Company authorized MG&A to respond fully to the inquiries of RBSM regarding the matters described above.
The Company provided MG&A with a copy of the disclosures contained herein, including the statements herein describing the disclosures contained in the Company’s Current Reports on Form 8-K/A filed under Item 4.02 on May 23, 2025, and June 26, 2025, and requested that MG&A furnish an updated letter addressed to the Securities and Exchange Commission stating whether it agrees with such statements. A copy of MG&A’s updated letter is filed as an exhibit to the registration statement.
2
On May 7, 2025, the Company disclosed under Item 4.02 of the Company’s Current Report on Form 8-K, by reference to the disclosures concerning MG&A’s advice described above, that the Company’s financial statements for the quarters ended March 31, 2024, June 30, 2024, and September 30, 2024 could no longer be relied upon. The Item 4.02 disclosure in that filing did not fully identify the periods subject to non-reliance.
On May 23, 2025, under Item 4.02 of the Company’s Current Report on Form 8-K/A, the Company amended its prior disclosure to identify the full scope of the affected reporting periods. The Company disclosed that on May 6, 2025, the Company’s board of directors, acting in the absence of an audit committee and after discussion with MG&A, had concluded that its previously issued financial statements for the fiscal years ended December 31, 2023 and 2022, and for interim periods within fiscal years 2023 and 2024 (collectively, the “Affected Periods”), should no longer be relied upon. This determination was based on errors in the application of accounting principles relating to the Company’s acquisition and consolidation of certain subsidiaries, including entities acquired from or affiliated with Sean Michael Brehm, which were subsequently determined to be unauditable due to insufficient supporting documentation and the inability to verify accounting records in accordance with PCAOB standards. MG&A concurred with this conclusion.
On June 4, 2025 the Company disclosed under Item 1.02 of the Company’s Current Report of the Company’s 8-K that on June 2, 2025 the Company also entered into settlement agreements with Mr. Brehm and his affiliated entities pursuant to which all prior agreements with such parties were rescinded. The Company, in connection with the Accounting Matter, excluded certain unauditable subsidiaries, including entities acquired from or affiliated with Mr. Brehm, from its consolidated financial statements.
On June 24, 2025, as disclosed in the Company’s 10K filing, the Company issued its financial statements for the fiscal year 2024.
On June 26, 2025, under Item 4.02 of the Company’s Current Report on Form 8-K/A, following the completion of the steps disclosed in the June 4, 2025 Form 8-K and the filing of its Annual Report on Form 10-K on June 24, 2025, the Company withdrew the prior non-reliance conclusion set forth in its May 7, 2025 Form 8-K, as amended by the May 23, 2025 Form 8-K/A. The Company also disclosed that the financial statements for the Affected Periods were not restated.
As a result, the Company’s previously issued financial statements for the fiscal years ended December 31, 2024, 2023 and 2022, and for interim periods within fiscal years 2023 and 2024 can be relied upon. The financial statements for the Affected Periods were not restated; following its internal re-evaluation, the Company concluded that there were no material errors in the financial statements for the Affected Periods.
As further described in the risk factor captioned “If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in our financial reporting and the value of our common stock could be adversely affected,” management’s conclusion in the Form 10-K for the fiscal year ended December 31, 2024 that internal control over financial reporting was effective as of December 31, 2024 was incorrect in light of the material weaknesses identified, and the Company has amended such filing in a 10K/A filed on June 5, 2026 to correct this conclusion.
Summary Risk Factors
Investing in our securities involves substantial risk. The risks described under the heading “Risk Factors” immediately following this summary may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include the following:
| ● | Limited Operating History as an Integrated Platform. While we own operating subsidiaries with established revenues, our strategy of integrating technology, intellectual property, and operating businesses is relatively recent and may not achieve its intended results. | |
| ● | Dependence on Acquisitions and Integration Risks. Our growth strategy relies in part on acquisitions and strategic transactions, including the integration of TVS, 42 Telecom, and potential future transactions such as the contemplated Intermatica transaction. Integration efforts may divert management attention, incur unanticipated costs, and fail to produce expected benefits. | |
| ● | Uncertainty of Proposed Transactions. Certain transactions, including those subject to binding term sheets or preliminary agreements, remain subject to due diligence, definitive documentation, regulatory considerations, and other closing conditions. There can be no assurance that such transactions will be completed on the anticipated terms or at all. | |
| ● | Technology Deployment and Execution Risk. Our strategy assumes that the selective deployment of proprietary technology, automation, and analytics will improve efficiency, margins, and competitiveness of our operating businesses. These technologies may not perform as expected or may not be adopted successfully. | |
| ● | Reliance on Telecommunications Markets. A significant portion of our current revenues is derived from telecommunications and messaging services, which are subject to intense competition, pricing pressure, regulatory oversight, and rapid technological change. | |
| ● | Intellectual Property Risk. Although we have developed and continue to develop a substantial portfolio of potentially patentable innovations and trade secrets, there can be no assurance that patents will be issued, that issued patents will provide meaningful protection, or that our intellectual property will generate material revenues. | |
| ● | Regulatory and Compliance Risk. Our operating businesses are subject to domestic and international telecommunications regulations, data protection laws, and other regulatory requirements. Non-compliance or changes in regulatory regimes could adversely affect our operations or increase costs. |
3
| ● | Dependence on Key Personnel. Our success depends on the continued services of senior management, technical personnel, and key consultants. The loss of any of these individuals could adversely affect our operations and strategy. | |
| ● | Liquidity and Capital Requirements. We have historically incurred losses and may require additional capital to fund operations, acquisitions, and technology development. There can be no assurance that additional financing will be available on acceptable terms, if at all. | |
| ● | Market Volatility and Nasdaq Listing Risk. The market price of our common stock may be volatile, and there can be no assurance that our application to list on The Nasdaq Capital Market will be approved or that such listing will improve liquidity or valuation. | |
| ● | Dilution Risk. Future equity issuances, including issuances in connection with acquisitions, financings, or employee compensation, could result in significant dilution to existing stockholders. | |
| ● | Going Concern Risk. Our historical financial statements include a going concern emphasis, and there can be no assurance that we will achieve or maintain profitability in the near term. |
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or, the “Exchange Act.” As a smaller reporting company, we may take advantage of certain reduced disclosure and reporting requirements that are otherwise applicable to public companies, including, among other things, providing reduced executive compensation disclosure, omitting certain information otherwise required in our periodic reports and proxy statements and presenting only two years of audited financial statements instead of three.
We may continue to rely on these reduced disclosure requirements for so long as we remain a smaller reporting company. As a result, our filings with the SEC may contain less information than filings made by companies that are not smaller companies, which may make it more difficult for investors to compare our company to other public companies.
Our Corporate Information
We were incorporated under the laws of the State of Nevada on September 13, 2000 under the name Galaxy Championship Wrestling, Inc. On August 11, 2010, we changed our name to Spectral Capital Corporation.
Our principal executive offices are located at 701 Fifth Avenue, Suite 4200, Seattle, Washington 98104. Our telephone number is (206) 262-7799. Our website address is www.spectralcapital.com. This website address is included in this prospectus as an inactive textual reference only. The information and other content appearing on our website are not part of this prospectus.
4
THE OFFERING
| Common Stock offered by us: | shares. | |
| Over-allotment option | We have granted the underwriters a 45-day option to purchase up to additional shares of our Common Stock to cover over-allotments, if any, at the price to the public, less the underwriting discounts and commissions, to cover over-allotments, if any. | |
| Number of shares of Common Stock outstanding after this offering (1) | shares (or shares if the underwriters exercise their over-allotment option in full). | |
| Use of Proceeds | We estimate that the net proceeds to us from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full, assuming a public offering price of $ per share (based on the last reported sales price for the common stock as quoted on the OTCQB on , 2026 of $ ), after deducting underwriting discounts and commissions and estimated offering expenses payable by us..
We intend to use the net proceeds received from this offering for general and working capital purposes. See “Use of Proceeds” on page 25 for a more complete description of the intended use of proceeds from this offering. | |
| Proposed Nasdaq Trading Symbol and Listing | We have applied to list our Common Stock for trading on The Nasdaq Capital Market (“Nasdaq”) under the symbol “FCCN”. No assurance can be given that our application will be approved or that the trading prices of our Common Stock on the OTCQB will be indicative of the prices of our Common Stock if our Common Stock were traded on Nasdaq. We will not proceed with this offering in the event the Common Stock is not approved for listing on Nasdaq. | |
| Lock-up Agreements | We have agreed with the underwriters, subject to certain exceptions, not to offer, pledge, sell, or dispose of, directly or indirectly, any of our Common Stock or securities convertible into or exchangeable or exercisable for any of our Common Stock during the six-month period following the closing of this offering.
Our executive officers, directors and certain shareholders beneficially owning more than 5% of our Common Stock prior to the offering, have agreed during the six-month period following the closing of this offering to substantially similar lock-up provisions, subject to certain exceptions. Please refer to the sections titled “Shares Eligible for Future Sale” and “Underwriting” for more information. | |
| Risk Factors | Investing in these securities involves a high degree of risk. Investors should carefully consider the information set forth in the “Risk Factors” section of this prospectus, beginning on page 6 before deciding to invest in our shares of common stock. |
| (1) | The number of shares of common stock to be outstanding immediately after this offering is based on 96,291,416 shares of Common Stock issued and outstanding as of July 15, 2026, which includes (i) 6,924,700 shares of common stock issued on May 21, 2026 in partial settlement of earn-out consideration under the Telvantis Purchase Agreement and (ii) 12,500 shares of common stock issued on June 1, 2026 in a private placement, and excludes the following as of such date; |
| ● | 3,846,875 shares of common stock issuable upon exercise of outstanding stock options under our stock option and award plan, with a weighted-average exercise price of approximately $0.62 per share. | |
| Unless otherwise indicated, all information in this prospectus assumes: | ||
| ● | no exercise of the outstanding warrants and options described above; and | |
| ● | no exercise by the underwriters of their over-allotment option. | |
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RISK FACTORS
Investing in our securities is speculative and involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this prospectus, including our consolidated financial statements and notes thereto, before you decide to purchase our securities. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be materially adversely affected, the value of our securities could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below.
Risks Related to Our Business
Our financial situation creates doubt whether we will continue as a going concern.
Since inception, the Company has had limited operations, and has a working capital deficiency. This deficiency and lack of operations raise substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances that we will be able to achieve a level of revenue adequate to generate sufficient cash flow from operations or obtain funding from this offering or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
If we are unable to keep up with rapid technological changes, our products may become obsolete.
The market for our products is characterized by significant and rapid change. Although we will continue to expand our product line capabilities in order to remain competitive, research and discoveries by others may make our processes, products or brands less attractive or even obsolete.
We may not have adequate capital to fund our business.
If our entire original capital is fully expended and additional costs cannot be funded from borrowings or capital from other sources, then our financial condition, results of operations, and business performance would be materially adversely affected. We may not be able to raise needed additional capital or financing due to market conditions or for regulatory or other reasons. We cannot assure that we will have adequate capital to conduct our business.
Competition could adversely affect our business.
Our industry in general is competitive. It is possible that future competitors could enter our market, thereby causing us to lose market share and revenues. In addition, some of our current or future competitors may have significantly greater financial, technical, marketing and other resources than we do or may have more experience or advantages in the markets in which we will compete that will allow them to offer lower prices or higher quality products. If we do not successfully compete with these competitors, we could fail to develop market share and our future business prospects could be adversely affected.
If we are unable to develop and maintain our brand and reputation for our product offerings, our business and prospects could be materially harmed.
Our business and prospects depend, in part, on developing and then maintaining and strengthening our brand and reputation in the markets we serve. If problems with our products cause our customers to have a negative experience or failure or delay in the delivery of our products to our customers, our brand and reputation could be diminished. If we fail to develop, promote and maintain our brand and reputation successfully, our business and prospects could be materially harmed.
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We depend heavily on key personnel, and turnover of key senior management could harm our business.
Our future business and results of operations depend in significant part upon the continued contributions of our senior management personnel. If we lose their services or if they fail to perform in their current positions, or if we are not able to attract and retain skilled personnel as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key personnel in managing the product acquisition, marketing and sales aspects of our business, any part of which could be harmed by turnover in the future. We may not have written employment agreements with all of our senior management. We do not have any key person insurance.
We are subject to government regulation, and unfavorable changes could substantially harm our business and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing our industries in the U.S. and other countries in which we operate. Uncertainty surrounding existing and future laws and regulations may impede our services and increase the cost of providing such services. These regulations and laws may cover taxation, tariffs, user pricing, distribution, consumer protection and the characteristics and quality of services.
Our success depends on our ability to develop, integrate, and commercialize new technologies and product offerings in rapidly evolving markets
The markets in which we operate, including artificial intelligence-enabled software, telecommunications platforms, and related data and network services, are characterized by rapid technological change, evolving customer requirements, and frequent introductions of new products and services. Our ability to compete successfully depends in significant part on our ability to develop new technologies, enhance and integrate existing platforms, and commercialize new products and services in a timely and cost-effective manner.
Our growth strategy relies in part on the development of proprietary technology and the integration of technologies, platforms, and personnel acquired through strategic transactions. Successfully introducing new or enhanced products and services requires us to anticipate market needs, allocate significant financial and management resources, and coordinate engineering, product development, sales, and marketing efforts. These efforts are complex and involve risks, including delays, cost overruns, technical challenges, and difficulties integrating acquired technologies into a cohesive and scalable product offering.
The success of our new product and technology initiatives depends on a number of factors, including, without limitation:
| ● | our ability to successfully integrate newly acquired technologies and platforms into our existing operations; | |
| ● | the performance, reliability, and scalability of our software and network-based solutions; | |
| ● | timely development and deployment of new features and functionality; | |
| ● | customer acceptance and adoption of new or enhanced products and services; | |
| ● | competition from larger, better-capitalized companies with greater development resources; and | |
| ● | our ability to protect and maintain our intellectual property. |
If we are unable to successfully develop, integrate, and commercialize new technologies and products, or if our product offerings do not achieve market acceptance, our revenues, operating results, and growth prospects could be adversely affected.
Our business depends in part on the successful development, deployment, and operation of artificial intelligence technologies, including AI-enabled solutions used in telecommunications and network-based services, which involve significant technical, regulatory, and commercial risks
We develop and deploy artificial intelligence-enabled technologies across certain aspects of our business, including applications in telecommunications, network services, data analytics, and related software platforms. In telecommunications and network-based environments, AI technologies may be used to support functions such as traffic routing, network optimization, fraud detection, analytics, customer engagement, and operational decision-making. These technologies are highly complex, rapidly evolving, and dependent on large volumes of data and reliable system performance.
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Our AI solutions utilize a combination of proprietary and third-party data sources and algorithms. Certain of our AI models and underlying algorithms are internally developed and proprietary, including those incorporated into our hallucination mitigation framework described below. In addition, certain of our AI solutions incorporate publicly available or open source data, frameworks, and algorithms, including, without limitation, open source large language model frameworks and publicly available telecommunications traffic datasets. Where we utilize open source or publicly available algorithms, we employ a validation process designed to assess the accuracy, reliability, and fitness-for-purpose of such algorithms prior to deployment. This validation process includes back-testing against historical data, performance benchmarking against proprietary baselines, and ongoing monitoring of output quality. Notwithstanding these validation measures, open source algorithms may contain errors, biases, or vulnerabilities that are not identified prior to deployment, and we cannot assure that our validation processes will be sufficient to prevent inaccurate or harmful outputs.
The specific AI models we currently utilize or are developing include, without limitation: (i) transformer-based large language models for natural language processing and customer engagement applications; (ii) gradient boosting and ensemble models for fraud detection and traffic anomaly identification; (iii) reinforcement learning models for dynamic routing optimization; and (iv) retrieval-augmented generation (RAG) architectures for knowledge-grounded response generation. Certain of these models are based on or derived from open source foundations, including publicly available model architectures, while others are developed entirely using proprietary methods and training data.
We have entered into, or in the future enter into agreements with third-party AI technology providers for access to AI platforms, application programming interfaces (APIs), and related services. As of the date of this prospectus, the Company has not entered into any material agreements with third-party AI providers that involve financial commitments that are individually material to the Company’s operations. However, we may in the future enter into such agreements, which could involve subscription fees, usage-based charges, minimum purchase commitments, or other financial obligations. The failure to maintain access to third-party AI platforms on commercially reasonable terms, or at all, could adversely affect our ability to develop and deploy AI-enabled products and services.
AI systems used in telecommunications and similar environments may produce inaccurate, incomplete, or unintended outputs, may not perform consistently across different networks, geographies, or traffic conditions, or may fail to adapt effectively to changing usage patterns or network configurations. Errors or deficiencies in our AI models, algorithms, data inputs, or system integration could result in service disruptions, degraded network performance, customer dissatisfaction, contractual disputes, regulatory scrutiny, or reputational harm.
In addition, the use of AI in telecommunications and data-driven services may be subject to heightened regulatory oversight, including regulations relating to data privacy, automated decision-making, transparency, network reliability, consumer protection, and cross-border data transfers. Compliance with existing and future laws and regulations governing artificial intelligence, telecommunications, and data usage may increase our costs, limit our ability to deploy certain AI-enabled features, or require us to modify, suspend, or discontinue certain products or services.
The successful commercialization of our AI-enabled offerings also depends on customer acceptance, demonstrable performance improvements, and our ability to compete with larger, better-capitalized companies that may have greater access to data, computing resources, and development talent. If we are unable to successfully develop, deploy, scale, and manage our AI technologies in telecommunications and other applications, or if our AI-enabled products and services do not perform as expected or achieve market acceptance, our business, financial condition, and results of operations could be adversely affected.
Additionally, the Company’s hallucination mitigation framework includes four layers of controls: (1) Deterministic Algorithmic Routing, which diverts computational, factual, and logic-based tasks to deterministic algorithms, bypassing generative models entirely; (2) Bounded Retrieval-Augmented Generation (RAG), constraining generative models to synthesize answers exclusively from the Company’s verified data repositories with mandatory citation metadata; (3) Closed-Loop Adversarial Validation, processing all generative output through a secondary proprietary review before user exposure; and (4) Dynamic Restraint Mechanisms, continuously quantifying output variance and throttling generative parameters when error rate increases are detected. Certain of the Company’s innovations may have been developed with the assistance of artificial intelligence tools. See “Risks Related to our Intellectual Property” for a discussion of inventorship considerations associated with the use of artificial intelligence in the Company’s development processes.
We are subject to complex and evolving data privacy, data protection, and cybersecurity laws and regulations, including the GDPR, which could increase our compliance costs, restrict our operations, and expose us to significant liabilities
Our business involves the collection, processing, storage, transmission, and analysis of data, including personal data, in multiple jurisdictions. As a result, we are subject to a wide range of data protection, privacy, cybersecurity, and data localization laws and regulations, including the European Union’s General Data Protection Regulation (“GDPR”), as well as U.S. federal and state privacy laws and other international regulations. These laws are complex, continue to evolve, and are subject to differing interpretations, creating uncertainty regarding compliance requirements.
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The GDPR and similar laws impose stringent obligations relating to data processing, security safeguards, transparency, consent, cross-border data transfers, and individual rights, and provide for significant penalties for non-compliance. For example, violations of the GDPR can result in administrative fines of up to the greater of €20 million or 4% of global annual revenue. Compliance with these requirements has required, and may continue to require, substantial investments in systems, processes, personnel, and legal resources, and may limit our ability to develop, deploy, or commercialize certain products or services.
In addition, many data protection laws impose strict requirements on the use of data in artificial intelligence and analytics applications, including limitations on automated decision-making, profiling, data retention, and secondary use of data. These restrictions may reduce the effectiveness or competitiveness of certain AI-enabled features or require material changes to our business practices.
We may also be subject to claims, investigations, enforcement actions, or litigation by regulators, customers, or data subjects arising from actual or alleged failures to comply with applicable data protection or cybersecurity laws, or from data security incidents, breaches, or unauthorized access to data. Any such events could result in significant fines, penalties, remediation costs, reputational harm, loss of customers, and adverse impacts on our business, financial condition, and results of operations.
Risks Related to Emerging Quantum and Quantum-Adjacent Technologies
Our business may rely in part on emerging quantum and quantum-adjacent technologies that are unproven, may not achieve commercial viability, and could require significant investment without corresponding returns.
Certain aspects of our technology roadmap and long-term strategy contemplate the use of emerging quantum computing technologies or quantum-adjacent approaches, including hybrid classical-quantum architectures and quantum-inspired algorithms. These technologies remain at an early stage of development and are subject to significant technical uncertainty. There can be no assurance that quantum computing technologies will mature to a level that enables practical, scalable, or commercially viable applications within anticipated timeframes, or at all.
The development of quantum technologies requires substantial investment in research, specialized expertise, and infrastructure, and progress is dependent on advances in hardware, error correction, software tooling, and ecosystem adoption that are largely outside of our control. Even if quantum or quantum-adjacent technologies become technically feasible, they may not be cost-effective, may be outperformed by advances in classical computing, or may fail to achieve meaningful customer adoption.
In addition, claims or expectations regarding quantum capabilities may be subject to heightened scrutiny by customers, investors, and regulators, particularly if perceived benefits are not realized or are difficult to validate. If our quantum-related initiatives do not progress as expected, require significant additional investment, or fail to produce commercially successful products or services, our growth prospects, operating results, and market perception could be adversely affected.
Adverse publicity associated with our products or ingredients, or those of similar companies, could adversely affect our sales and revenue.
Adverse publicity concerning any actual or purported failure by us to comply with applicable laws and regulations regarding any aspect of our business could have an adverse effect on the public perception of us. This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors or retailers for our products, which would have a material adverse effect on our ability to generate sales and revenue.
If our operations are found to be in violation of any of the federal and state fraud and abuse laws or any other governmental regulations that apply to us, we may be subject to criminal actions and significant civil monetary penalties, which would adversely affect our ability to operate our business and our results of operations.
If our operations are found to be in violation of any of the federal and state fraud and abuse laws, including, without limitation, anti-kickback statutes and false claims statutes or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government healthcare programs, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our product candidates are ultimately sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
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Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Such events could make it difficult or impossible for us to deliver our services to our customers and could decrease demand for our services. The World Health Organization declared the COVID-19 outbreak a pandemic. The extent of the impact of any similar outbreak, the impact on our customers and employees, may be uncertain and we may not be able to predict the impact on our business and operations.
Risks Related to the Integration of Acquired Businesses, Including 42 Telecom Ltd. and Telvantis Voice Services, and Any Future Acquisitions
We have recently completed the acquisitions of 42 Telecom Ltd. (“42 Telecom”) and Telvantis Voice Services, Inc. (“TVS”), and we may pursue additional acquisitions or strategic investments in the future. These acquisitions represent a significant expansion of our business from a historically research- and IP-focused enterprise with a much less complex operating business with fewer than 10 employees into a series of multi-national businesses with more than 50 employees operating in several locations with established customers, revenue streams, personnel, regulatory obligations, and operational infrastructures. Our ability to successfully integrate these businesses is subject to substantial risks and uncertainties, and there can be no assurance that the anticipated benefits of these transactions will be fully realized or realized on the expected timeline.
The integration of 42 Telecom and TVS requires the successful coordination of disparate business models, technologies, corporate cultures, financial controls, and operational processes. These companies operate in the telecommunications and messaging services sector, which differs materially from our historical emphasis on intellectual property development, licensing, and advanced computing research. As a result, management must devote significant time and resources to overseeing ongoing operations, ensuring service continuity, complying with international telecommunications regulations, and aligning these businesses with our broader strategic objectives. These integration efforts may divert management attention from other aspects of our business, including the development and commercialization of our proprietary technologies.
We may encounter difficulties in harmonizing information technology systems, accounting and internal control frameworks, cybersecurity protocols, billing and revenue recognition processes, and compliance programs across acquired entities. Any failure to effectively integrate these systems could result in operational disruptions, increased costs, data integrity issues, delayed financial reporting, or weaknesses in internal control over financial reporting. In addition, the integration process may involve unexpected expenses, restructuring costs, or the assumption of liabilities that were not fully anticipated at the time of acquisition.
Our acquisitions also depend on the retention and effective integration of key personnel from the acquired businesses. The loss of executives, engineers, sales personnel, or other critical employees of 42 Telecom or TVS—whether as a result of integration challenges, cultural differences, uncertainty, or otherwise—could adversely affect customer relationships, operational continuity, and institutional knowledge. Moreover, differences in corporate culture, management style, or employee expectations may impair collaboration and reduce productivity.
Future acquisitions present additional risks. We may not be able to identify suitable acquisition targets, complete acquisitions on favorable terms, or successfully integrate additional businesses into our operations. Acquired businesses may not perform as expected, may fail to achieve projected revenues or profitability, or may expose us to unanticipated regulatory, legal, operational, or financial risks. In some cases, we may issue equity as consideration for acquisitions, which could result in dilution to existing stockholders, or assume debt or contingent liabilities that increase our financial risk.
If we are unable to successfully integrate 42 Telecom, TVS, or any future acquired businesses, or if the integration process takes longer or is more costly than anticipated, our growth strategy, operating results, financial condition, and prospects could be materially and adversely affected, and the market price of our common stock could decline.
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Our Telecommunication Businesses Are Subject Rapid Change and Intense Competition
The telecommunications and messaging services markets in which 42 Telecom and TVS operate are subject to intense competition, rapid technological change, pricing pressure, and evolving regulatory requirements across multiple jurisdictions. Any inability to maintain service quality, customer relationships, or regulatory compliance during or after integration could result in customer attrition, reputational harm, contractual disputes, fines, penalties, or loss of operating licenses, any of which could materially and adversely affect our business, financial condition, and results of operations.
In addition, certain acquisition agreements, including those related to TVS, may include earn-out provisions, escrow arrangements, or performance-based consideration. Disputes may arise regarding the achievement of performance milestones, the calculation of financial metrics, or the interpretation of contractual terms. Any such disputes could result in litigation, arbitration, additional share issuance, cash payments, or other outcomes that may be adverse to us.
Risks Related to Our Ability to Improve the Operating Margins of 42 Telecom Ltd. and TVS Through the Integration of Our Technology and Intellectual Property
A key element of our growth strategy is the expectation that we can enhance the operating margins and long-term profitability of 42 Telecom Ltd. (“42 Telecom”) and Telvantis Voice Services, Inc. (“TVS”) by integrating our proprietary intellectual property, including emerging artificial intelligence–driven and advanced analytics solutions, into their existing telecommunications and messaging operations. This strategy involves deploying new technologies to improve routing efficiency, reduce fraud, optimize pricing, automate network management, enhance customer engagement, and lower operating costs. However, the integration of these technologies into live, revenue-generating telecommunications platforms is complex and subject to significant technical, operational, regulatory, and commercial risks. Our technologies are in varying stages of development and may require substantial customization to function effectively within the legacy systems, network architectures, and customer environments of 42 Telecom and TVS. Integration efforts may take longer than anticipated, require greater investment, disrupt existing operations, or fail to perform as intended, and any service instability, performance degradation, cybersecurity vulnerability, or data integrity issue could result in customer dissatisfaction, contract terminations, regulatory scrutiny, or reputational harm.
In addition, any anticipated margin improvements depend on factors beyond technology deployment, including customer adoption, pricing dynamics, competitive responses, and ongoing cost structures. Customers may be unwilling to pay higher prices for enhanced services or may demand concessions that offset efficiency gains, while competitors may adopt similar technologies or engage in aggressive pricing strategies. Further, any cost savings achieved through automation or optimization may be partially or fully offset by increased expenditures related to research and development, personnel, infrastructure, compliance, or customer support. Regulatory requirements applicable to telecommunications and data processing, particularly across international jurisdictions, may further limit the scope or effectiveness of technology-driven efficiencies. If we are unable to successfully integrate our technology and intellectual property into the operations of 42 Telecom and TVS, or if such integration fails to deliver meaningful or sustainable margin improvements, our growth strategy, financial condition, results of operations, and the market price of our common stock could be materially and adversely affected.
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Risks Related to our Financial Position and Capital Needs
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or other assets.
We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing ownership interests will be diluted and the terms of such financings may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property.
Our potential for rapid growth and our entry into new markets make it difficult for us to evaluate our current and future business prospects, and we may be unable to effectively manage any growth associated with these new markets, which may increase the risk of your investment and could harm our business, financial condition, results of operations and cash flow.
Our proliferation into new markets may place a significant strain on our resources and increase demands on our executive management, personnel and systems, and our operational, administrative and financial resources may be inadequate. We may also not be able to effectively manage any expanded operations, or achieve planned growth on a timely or profitable basis, particularly if the number of customers using our technology significantly increases or their demands and needs change as our business expands. If we are unable to manage expanded operations effectively, we may experience operating inefficiencies, the quality of our products and services could deteriorate, and our business and results of operations could be materially adversely affected.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and ability to achieve profitability.
Our effective income tax rate in the future could be adversely affected by a number of factors including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws. We regularly assess all of these matters to determine the adequacy of our tax provision which is subject to discretion. If our assessments are incorrect, it could have an adverse effect on our business and financial condition. There can be no assurance that income tax laws and administrative policies with respect to the income tax consequences generally applicable to us or to our subsidiaries will not be changed in a manner which adversely affects our shareholders.
Risks Related to our Intellectual Property
We have made changes to our strategy regarding intellectual property; we have elected not to pursue our provisional patent applications to date but instead to focus on utility patent applications for our core innovations.
At various points in our prior disclosures we have referenced aggregate figures for our intellectual property, including statements referring to several hundred or more innovations characterized as potentially patentable and statements referring to applications that had been filed or prepared. These figures combine matters at materially different stages, including provisional patent applications that have been filed with the United States Patent and Trademark Office, applications that have been prepared but not yet filed, and innovations that remain under internal evaluation and for which no application has been prepared. We have determined to streamline our intellectual property operations and are now focused on the approximately 40 innovations we believe are most closely aligned with our current strategic priorities, while we evaluate the remainder of our pipeline.
We have not executed any definitive license of our intellectual property to 42 Telecom or Telvantis, and our strategy of monetizing intellectual property through intercompany and third-party licensing may not be implemented.
A core element of our business model is the monetization of our intellectual property through licensing, including the integration of our technologies into the operations of our subsidiaries 42 Telecom and Telvantis. Although we have previously stated that we intend to license a portfolio of applications to 42 Telecom, we have not executed any definitive intercompany license agreement with 42 Telecom or Telvantis, the specific innovations to be licensed have not been finally determined, and we are currently evaluating the applicability of our innovations to the operations of those subsidiaries. We intend to move toward a formal license agreement with each of 42 Telecom and Telvantis in the third quarter of 2026.
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There can be no assurance that we will execute any such license agreement on the anticipated timeline, on favorable terms, or at all, or that the specific innovations we license will be applicable to, or improve the financial performance of, 42 Telecom or Telvantis. If we are unable to implement our intercompany and third-party licensing strategy, a core pillar of our business model may not be realized, and our business, financial condition, results of operations, and the market price of our common stock could be materially and adversely affected.
We may not adequately protect our software and other proprietary technology through copyright or other means, and the intellectual property underlying our acquired platforms, including SS7-based and Arcus platform technologies, may be subject to uncertain ownership or third-party rights.
A significant portion of the value of our technology resides in software, including software developed internally and software developed by or within our operating subsidiaries. We have not pursued a comprehensive copyright registration strategy for our software, and we may not have taken all steps necessary to protect, or to establish clear ownership of, internally developed software, including software developed within 42 Telecom.
In addition, the intellectual property underlying certain platforms we have acquired or operate, including our access to and use of SS7 signaling platforms that we have described as proprietary and the Arcus platform, may rely on technology, licenses, or rights held by third parties, and our ownership of, or rights in, the underlying intellectual property may be limited or unclear. If our software and platform technologies are not adequately protected, or if our claims of proprietary ownership in acquired platforms cannot be substantiated, competitors may use or replicate our technologies, our ability to enforce or monetize those technologies could be impaired, and we could face third-party claims, any of which could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
We do not own material non-U.S. patent rights and do not intend to pursue international patent protection at this time, which may leave our international operations and ambitions, including the contemplated Intermatica transaction, inadequately protected.
Our operating subsidiary 42 Telecom conducts operations internationally, and our growth strategy contemplates further international expansion, including the proposed acquisition of Intermatica S.p.A., an Italian telecommunications and enterprise messaging company. To date, our patent filings have consisted of provisional patent applications filed in the United States, which we are not pursuing. We do not currently own material non-U.S. patent rights and do not intend to pursue international patent protection at this time. Provisional applications do not themselves confer foreign patent rights, and the deadlines for claiming priority through foreign or international filings, including under the Paris Convention and the Patent Cooperation Treaty, may lapse before we make such filings, which could permanently foreclose our ability to obtain patent protection in foreign jurisdictions.
Without international patent protection, competitors and other third parties outside the United States may be able to make, use, sell, copy, or commercialize technologies similar to ours with limited risk of effective legal recourse, and we may be unable to prevent the importation of infringing products or services, and the effectiveness of intellectual property protection and enforcement varies significantly by jurisdiction. Our lack of global intellectual property protection could undermine our international operations and ambitions, including the anticipated benefits of the proposed Intermatica transaction, and could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
We have not obtained comprehensive freedom-to-operate analyses, and our products and services may infringe the intellectual property rights of third parties.
We operate in the artificial intelligence, telecommunications, and related fields, which are characterized by a large and growing number of patents and pending applications held by other companies, including operating companies and non-practicing entities. We have not obtained comprehensive freedom-to-operate analyses or opinions of counsel with respect to our technologies or with respect to the deployment of our technologies into the operations of 42 Telecom and Telvantis.
As a result, our products, services, and technologies may infringe, or may be alleged to infringe, the intellectual property rights of third parties. Claims of infringement, whether or not ultimately successful, could result in costly litigation, diversion of management attention, injunctions, the payment of damages or royalties, or the need to redesign or cease offering affected products or services or to obtain licenses on unfavorable terms. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
Our reliance on open-source software creates legal and intellectual property risks, including risks to patentability and inventorship.
Our software and technologies may incorporate open-source software, which is subject to license terms that may impose obligations or conditions on us, including, in the case of certain copyleft licenses, requirements to make available or license source code or to refrain from asserting certain intellectual property rights. Failure to comply with open-source license terms, or the incorporation of open-source software in ways that affect our proprietary code, could limit our ability to protect or commercialize our technologies, require us to release proprietary source code, or expose us to claims. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
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The intellectual property we acquired in the Eliznikcomp asset purchase and the Telvantis acquisition may be subject to limited representations and warranties and to disputes that could affect our title to those assets.
We acquired intellectual property in our asset purchase from Eliznikcomp and in our acquisition of Telvantis. The agreements governing those transactions may contain limited or no representations and warranties regarding the ownership of, absence of encumbrances on, or freedom to operate with respect to the acquired intellectual property, and may provide us with limited indemnification or other recourse in the event of a breach.
As a result, the acquired intellectual property may be subject to undisclosed encumbrances, ownership or inventorship defects, or third-party rights, and disputes regarding title to the acquired assets could arise. If our title to material acquired intellectual property is successfully challenged or is otherwise found to be defective, or if we have limited recourse against the sellers, our rights in those assets could be impaired or lost, and our business, financial condition, results of operations, and the market price of our common stock could be materially and adversely affected.
The minority stockholders of our Noot and Monitr subsidiaries hold rights of first refusal over the technologies underlying the NOOT and Monitr platforms, which could restrict our ability to sell, license, or otherwise monetize those technologies.
Our subsidiaries Noot Holdings, Inc. and Monitr Holdings, Inc. are 60% owned by the Company, with the remaining 40% interests held by Fiveseas Securities Ltd. and TL Global Inc., respectively. In connection with the original technology acquisition agreements, Fiveseas Securities Ltd. was granted a right of first refusal with respect to any subsequent sale of the technology underlying the NOOT platform, and TL Global Inc. was granted a right of first refusal with respect to any subsequent sale of the technology underlying the Monitr platform. These rights of first refusal could restrict our ability to sell the technologies underlying these platforms, and the minority holders could assert that the rights extend to licensing arrangements or other forms of monetization, or that they hold claims with respect to intellectual property developed within those subsidiaries following the original acquisitions.
We have not obtained waivers of these rights. Any disagreement regarding the scope of these rights could delay, complicate, or prevent a sale, license, financing, or other transaction involving the NOOT or Monitr technologies, could give rise to disputes or litigation with the minority holders, and could impair our ability to realize value from these platforms. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
Our use of artificial intelligence tools in our research, development, and innovation processes could give rise to inventorship challenges that affect the validity or enforceability of our patent applications.
We use artificial intelligence tools and systems in certain of our research, development, and innovation processes, including the proprietary AI-driven processes described elsewhere in this prospectus. Under current United States law and the law of most foreign jurisdictions, only a natural person may be named as an inventor on a patent application, and an artificial intelligence system cannot be a named inventor. If an artificial intelligence system is determined to have made a material contribution to the conception of a claimed invention, and the application names only human inventors, the application or any resulting patent could be challenged, found invalid, or rendered unenforceable.
The legal and regulatory framework governing the role of artificial intelligence in invention, including guidance from the United States Patent and Trademark Office and judicial decisions, continues to evolve and is subject to significant uncertainty. We have not completed a comprehensive assessment of the extent to which artificial intelligence tools contributed to the conception of the innovations in our pipeline. If any of our innovations were developed with material assistance from artificial intelligence systems, the inventorship of the resulting applications could be challenged, the scope of available protection could be narrowed, and the value of our intellectual property could be impaired, any of which could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
The platforms operated by our acquired subsidiaries, including the SS7 platform, the Arcus platform, and the Telvantis VoIP infrastructure, may incorporate open-source software that could undermine our proprietary claims or impose unanticipated obligations.
Our operating subsidiaries rely on software platforms that were developed prior to our acquisitions, including the SS7 signaling platform and the Arcus platform operated within 42 Telecom and the VoIP infrastructure operated within Telvantis. We have not completed a comprehensive audit of these platforms for open-source software components, and the acquisition agreements pursuant to which we acquired these businesses may contain limited or no representations and warranties regarding the presence or treatment of open-source software.
If these platforms incorporate open-source components subject to copyleft or other restrictive licenses, such as the GPL, LGPL, or AGPL, our ability to assert proprietary rights in those platforms could be limited, and we could be required to make source code available, to refrain from asserting certain intellectual property rights, or to modify or replace affected components. Any undisclosed open-source components that were not identified during due diligence may not be covered by indemnification or other recourse under the applicable acquisition agreements. In addition, we have not completed a comprehensive open-source audit of the intellectual property assets acquired from Eliznikcomp OÜ in October 2025, which are recorded on our consolidated balance sheet at approximately $19.7 million. To the extent that any of those assets incorporate open-source software subject to restrictive license terms, our ability to assert proprietary rights in, or to commercialize, those assets could be similarly impaired. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
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In the event of a bankruptcy of the Company or of a licensing counterparty, intellectual property licenses could be rejected under Section 365 of the United States Bankruptcy Code, which could impair our licensing strategy and the value of our intellectual property.
Our historical financial statements include a going concern emphasis, and our business model contemplates the monetization of intellectual property through licensing, including the intercompany license agreements we intend to negotiate with 42 Telecom and Telvantis. Intellectual property licenses are generally treated as executory contracts under the United States Bankruptcy Code. If the Company were to become a debtor in a bankruptcy proceeding, a trustee or debtor in possession could reject executory intellectual property license agreements under Section 365 of the Bankruptcy Code, which could deprive licensees of the right to continue using licensed technology, subject to the limited protections afforded to licensees under Section 365(n), which do not extend to all forms of intellectual property, including trademarks.
Conversely, if a licensor to the Company were to become a debtor in bankruptcy, our rights as a licensee could be limited or terminated depending on whether the license is assumed or rejected. The contemplated intercompany licenses with 42 Telecom and Telvantis would be subject to the same rejection risk in any insolvency proceeding involving any party to those agreements, and the perceived risk of rejection could deter prospective licensees from entering into license agreements with us or reduce the value they ascribe to such agreements. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
We have not confirmed ownership of all domain names used in our business, and domain name disputes or failures of transfer could harm our brand and operations.
We and our operating subsidiaries use a number of domain names in the conduct of our business, including domain names associated with the Company, 42 Telecom, Telvantis, and the Arcus platform. We have not completed a comprehensive review confirming that all domain names used by our operating subsidiaries are owned of record by the Company or the applicable subsidiary, that such domain names were transferred in connection with the applicable acquisitions, or that defensive registrations have been obtained to protect against cybersquatting or typosquatting.
If any domain name used in our business is held by a former owner, a third party, or an unaffiliated registrant, or if third parties register identical or confusingly similar domain names, we could lose access to web properties important to our operations, face customer confusion, or be required to engage in domain name dispute proceedings or rebranding. We are not currently aware of any pending domain name disputes; however, any of the foregoing could harm our brand and could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
Consultants who have contributed to our research, development, and patent preparation activities may be inventors of our innovations, and challenges to inventorship or to the validity of assignments could impair our ownership of our intellectual property.
We rely on consultants and technical advisors in our invention, research and development, and patent preparation processes, and certain of these consultants have contributed materially to the development of our innovations and the preparation of our patent applications. Individuals who contribute to the conception of a claimed invention are required to be named as inventors under United States patent law, and each named inventor must assign his or her rights to the Company in order for the Company to hold clear title to the resulting applications.
Although our practice is to obtain confidentiality and, where appropriate, invention assignment undertakings from consultants and advisors, we have not confirmed that written invention assignment agreements are in place with every consultant who may have made an inventive contribution, and we have not completed a review of the enforceability of the agreements that are in place. Consultant inventors could challenge the validity of assignments, assert co-ownership or compensation claims, or decline to cooperate in prosecution or enforcement. In addition, as described elsewhere in this prospectus, a number of the provisional patent applications affected by the rescinded Brehm transactions name as inventors persons who served as consultants to, or were affiliated with, Mr. Brehm or his affiliated entities. Any successful challenge to inventorship or to the validity of an assignment could impair or divest our ownership of affected applications and could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
We operate in a rapidly evolving patent and intellectual property legal environment, and changes in the law could adversely affect our ability to obtain, maintain, or enforce intellectual property rights.
The legal standards governing the patentability, validity, and enforceability of patents, particularly in the software, artificial intelligence, and computing fields in which we operate, continue to evolve and are subject to significant uncertainty. Judicial decisions, legislative changes, and changes in the policies and examination practices of the United States Patent and Trademark Office and foreign patent offices, including with respect to patent-eligible subject matter, the treatment of software and algorithmic inventions, and the role of artificial intelligence in invention, could narrow the scope of protection available to us, increase the cost and difficulty of obtaining and maintaining protection, or render certain of our innovations unpatentable. In addition, we have not conducted formal patentability, prior-art, or freedom-to-operate analyses with respect to the innovations in our pipeline, and there can be no assurance that any particular innovation is patentable, that any application we file will result in an issued patent, or that the practice of any innovation would not be alleged to infringe the intellectual property rights of third parties.
Because our intellectual property strategy depends on developments in this evolving environment, changes in applicable law or practice could adversely affect our ability to obtain, maintain, or enforce intellectual property rights, the value of our innovation pipeline, and our business, financial condition, results of operations, and the market price of our common stock.
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We have narrowed the focus of our intellectual property operations which may narrow the full scope of our protected intellectual property
A provisional patent application is not examined and does not itself result in an issued patent; it preserves a priority date only if a corresponding non-provisional application is filed within twelve months. Because we have changed our focus to emphasize trade secrets and focus on a more narrow range of innovations, many of our provisional applications will be protected as trade secrets rather than patents and we may not be able to stop third parties who develop such technologies independently from using them.
Our forward intellectual property efforts have been focused on the innovations most likely to produce near term revenue, as further described in this prospectus, including the innovations we acquired in the Eliznikcomp asset purchase. We intend to evaluate the status of the remainder of our innovation pipeline only after we have pursued these current material innovations and made sure that continued investment in each innovation is justified on a case by case basis. There can be no assurance that our current material innovations will result in filed applications, issued patents, or protectable rights, that we will pursue any additional innovations in our pipeline, or that our intellectual property efforts will generate any value, and any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
We have never had a patent issued to us, and we may never obtain issued patents.
We do not own any issued patents. Our patent-related assets have consisted of provisional patent applications and applications prepared but not filed, none of which confers enforceable patent rights unless and until a patent is examined and issued. We have decided not to pursue prosecution of our previously filed provisional applications, and our forward efforts are limited to a focused set of current innovations, which may not result in any issued patents.
Unless and until patents are issued to us, we will be unable to exclude others from making, using, or selling the technologies described in our applications, our ability to deter or pursue infringement will be limited, and the value attributable to our patent portfolio will be uncertain. There can be no assurance that any patent will ever be issued to us, and our business, financial condition, results of operations, and the market price of our common stock could be materially and adversely affected.
Our only trademark application is a single, unregistered application for the mark “Spectral Capital,” and we do not have registered trademark protection for our brand.
Our trademark portfolio currently consists of a single filed but unregistered trademark application for the mark “Spectral Capital.” We do not own any registered trademarks, and our pending application may not mature into a registration. We have not sought trademark protection for the names of our products, platforms, or other brands, including the names of our operating subsidiaries and platforms such as 42 Telecom, Telvantis, Arcus, NOOT, and Monitr.
Without registered trademark protection, our ability to prevent others from using identical or confusingly similar marks is limited, third parties may adopt or register marks that are the same as or similar to ours, and we could be required to rebrand or could face claims of infringement from prior users or registrants. Any of the foregoing could harm our brand and could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
We have not filed for copyright protection for any of our works, including our software.
We have not applied for or obtained copyright registrations for any of our works, including our software, documentation, or other copyrightable materials. While copyright protection may subsist in original works of authorship without registration in the United States, registration of a U.S. work is a prerequisite to bringing an infringement action and to the availability of statutory damages and attorneys fees, and the absence of registrations may limit our remedies against infringers and our ability to establish ownership and the scope of our rights.
Our failure to register copyrights, combined with the absence of issued patents and registered trademarks, may leave significant portions of our technology and content inadequately protected and could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock. We note that certain internally developed software at 42 Telecom has been capitalized on our consolidated balance sheet as an intangible asset; however, no copyright registrations have been obtained with respect to such software, and the absence of such registrations may limit our ability to enforce our rights or establish ownership in the event of a dispute.
Because we hold no issued patents and substantially no registered intellectual property, we may be unable to enforce, license, or realize value from our technologies and brand, and third parties may obtain rights that block or impair our operations.
Our intellectual property assets currently consist principally of unprosecuted provisional applications that we have decided to allow to expire, unregistered trade secrets and know-how, a single pending trademark application, and acquired innovations that have not yet matured into issued or registered rights. As a result, we may be unable to enforce our rights against infringers, to grant licenses that licensees regard as valuable, or to realize value from our intellectual property in a financing, licensing transaction, or sale.
In addition, third parties may independently develop, patent, register, or otherwise obtain rights in technologies, marks, or works that are the same as or similar to ours, which could block or impair our ability to use our own innovations and brand or could subject us to infringement claims. The absence of issued and registered intellectual property could materially and adversely affect our competitive position and our business, financial condition, results of operations, and the market price of our common stock.
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We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
A third party may sue us or one of our strategic collaborators for infringing its intellectual property rights. Likewise, we may need to resort to litigation to enforce licensed rights or to determine the scope and validity of third-party intellectual property rights.
The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. If we do not prevail in this type of litigation, we or our strategic collaborators may be required to pay monetary damages; stop commercial activities relating to the affected products or services; obtain a license in order to continue manufacturing or marketing the affected products or services; or attempt to compete in the market with a substantially similar product.
Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue some of our operations. In addition, a court may require that we pay expenses or damages, and litigation could disrupt our commercial activities.
Any inability to protect our intellectual property rights could reduce the value of our products and brands, which could adversely affect our financial condition, results of operations and business.
Our business is partly dependent upon our trademarks, trade secrets, copyrights and other intellectual property rights. Effective intellectual property rights protection, however, may not be available under the laws of every country in which we and our sub-licensees may operate. There is a risk of certain valuable trade secrets, beyond what is described publicly in patents, being exposed to potential infringers. Regardless of our technology being protected by patents or otherwise, there is a risk that other companies may employ the technology without authorization and without recompensing us.
The efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time consuming. There is a risk that we may have insufficient resources to counter adequately such infringements through negotiation or the use of legal remedies. It may not be practicable or cost effective for us to fully protect our intellectual property rights in some countries or jurisdictions. If we are unable to successfully identify and stop unauthorized use of our intellectual property, we could lose potential revenue and experience increased operational and enforcement costs, which could adversely affect our financial condition, results of operations and business.
The intellectual property behind our products may include unpublished know-how as well as existing and pending intellectual property protection. All intellectual property protection eventually expires, and unpublished know-how is dependent on key individuals.
The commercialization of our licensed products is partially dependent upon know-how and trade secrets held by certain individuals working with and for us. Because the expertise runs deep in these few individuals, if something were to happen to any or all of them, the ability to properly manufacture our products without compromising quality and performance could be diminished greatly.
Knowledge published in the form of any future intellectual property has finite protection, as all patents and trademarks have a limited life and an expiration date. While continuous efforts will be made to apply for patents and trademarks if appropriate, there is no guarantee that additional patents or trademarks will be granted. The expiration of patents and trademarks relating to our products may hinder our ability to sub-license or sell our products for a long period of time without the development of a more complex licensing strategy.
Our reliance on a combination of trade secrets and patents to protect our intellectual property, particularly in artificial intelligence and algorithmic technologies, exposes us to risks that could limit our ability to protect and monetize our innovations
We rely on a combination of intellectual property protections, including trademarks, patents, trade secrets, confidentiality agreements, and contractual restrictions, to protect our proprietary technologies, particularly in the areas of artificial intelligence, algorithms, software, and data-driven systems. As part of our intellectual property strategy, we may determine in certain circumstances that specific innovations are better protected as trade secrets rather than through patent protection. Accordingly, we may strategically abandon patent applications or allow provisional patent applications to expire when we believe that public disclosure through the patent process would increase the risk of imitation or reverse engineering.
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While trade secrets can provide potentially long-term protection, they are inherently more difficult to protect than patented technologies. Trade secret protection may be lost if the information becomes publicly known, is independently developed by competitors, or is improperly disclosed or misappropriated. We cannot be certain that the measures we take to protect our trade secrets, including confidentiality agreements, internal controls, and access restrictions, will be effective in preventing unauthorized use or disclosure, particularly as we expand our operations, integrate acquired businesses, or collaborate with third parties.
Our patent portfolio also involves significant risks and uncertainties. Patent applications may not be granted, may be narrowed during examination, or may take years to issue, if at all. Even if patents are issued, they may be challenged, invalidated, or found unenforceable, or they may be insufficient to prevent competitors from developing similar or competing technologies through alternative approaches that do not infringe our claims. In the artificial intelligence and software fields, in particular, competitors may be able to engineer around patents relatively easily or achieve comparable results using different algorithms, architectures, or data sources.
In addition, our technologies may inadvertently infringe upon the intellectual property rights of third parties, including patents held by competitors, non-practicing entities, or other technology companies. Claims of infringement, whether or not ultimately successful, could result in costly litigation, diversion of management attention, significant legal expenses, the requirement to obtain licenses on unfavorable terms, or the suspension or modification of our products or services. We may not have sufficient financial resources to aggressively defend our intellectual property rights or to pursue enforcement actions against infringers in all cases.
If we are unable to adequately protect our intellectual property through trademarks, trade secrets, patents, or other means, or if our intellectual property strategy proves ineffective, our competitive position, growth prospects, and operating results could be adversely affected.
Risks Related to Litigation and Disputes Arising from Acquisition Activities
Our business strategy includes the pursuit of acquisitions, strategic investments, and other corporate transactions, some of which may be completed, modified, rescinded, or not consummated at all. Transactions of this nature inherently involve complex negotiations, contractual arrangements, valuation judgments, and integration planning, and as a result may give rise to actual or perceived disagreements among counterparties, shareholders, former owners, advisors, or other stakeholders. Even where transactions are not completed, are terminated by mutual agreement, or are subsequently rescinded, parties may assert claims relating to alleged breaches of contract, representations or warranties, fiduciary duties, disclosure obligations, or other legal or equitable theories.
Although we are not currently a party to any litigation or dispute arising from our acquisition activities, and we are not aware of any claims that could be asserted in connection with completed, abandoned, or rescinded transactions, we operate in a business and regulatory environment that is inherently litigious. As a result, we may from time to time become subject to claims, demands, investigations, arbitration, or litigation arising out of past, present, or prospective acquisition-related activities. Defending against such matters, regardless of their ultimate merit, could result in substantial costs, diversion of management time and attention, reputational harm, delays in executing our business strategy, or adverse outcomes, any of which could materially and adversely affect our business, financial condition, results of operations, and the market price of our common stock.
Risks Related to Ownership of Our Securities
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”
We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements is time-consuming and results in increased costs to us and could have a negative effect on our results of operations, financial condition or business.
As a public company, we are subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our firm and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business.
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Our management has limited experience in managing the day-to-day operations of a public company and, as a result, we may incur additional expenses associated with the management of our Company.
The management team is responsible for the operations and reporting of the Company. The requirements of operating as a public company are many and sometimes difficult to navigate. This may require us to obtain outside assistance from legal, accounting, investor relations, or other professionals that could be more costly than planned. If we lack cash resources to cover these costs of being a public company in the future, our failure to comply with reporting requirements and other provisions of securities laws could negatively affect our stock price and adversely affect our potential results of operations, cash flow and financial condition after we commence operations.
Compliance with changing corporate governance regulations and public disclosures may result in additional risks and exposures.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new regulations from the SEC, have created uncertainty for public companies such as ours. These laws, regulations, and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased expense and significant management time and attention.
Certain of our stockholders hold a significant percentage of our outstanding voting securities, which could reduce the ability of minority stockholders to effect certain corporate actions.
Our officers and directors, and significant stockholders are the beneficial owners of approximately 33.34% of our outstanding voting securities. As a result, they possess significant influence over our elections and votes. As a result, their ownership and control may have the effect of facilitating and expediting a future change in control, merger, consolidation, takeover or other business combination, or encouraging a potential acquirer to make a tender offer. Their ownership and control may also have the effect of delaying, impeding, or preventing a future change in control, merger, consolidation, takeover or other business combination, or discouraging a potential acquirer from making a tender offer.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Once our common stock is quoted, if one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline.
Our issuance of additional common stock or preferred stock may cause our common stock price to decline, which may negatively impact your investment.
Issuances of a substantial number of additional shares of our common or preferred stock, or the perception that such issuances could occur, may cause prevailing market prices for our common stock to decline. In addition, our board of directors is authorized to issue additional series of shares of preferred stock without any action on the part of our stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any such series of shares of preferred stock that may be issued, including voting rights, conversion rights, dividend rights, preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue cumulative preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the market price of our common stock could decrease.
Our common stock is currently subject to the SEC’s “penny stock” rules, which may adversely affect the liquidity and market price of our common stock
The SEC has adopted regulations that generally define “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exemptions. Our common stock is currently quoted on the OTC market and has a market price of less than $5.00 per share. As a result, our common stock is currently subject to the SEC’s penny stock rules unless and until our common stock is listed on a national securities exchange.
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We have applied for the listing of our common stock on The Nasdaq Capital Market, which qualifies as a national securities exchange for purposes of the penny stock rules. However, there can be no assurance that our application will be approved or that we will successfully complete such listing. If our common stock is not listed on The Nasdaq Capital Market, the penny stock rules will continue to apply.
Under the penny stock rules, broker-dealers effecting transactions in penny stocks for customers other than institutional accredited investors must, among other things:
| ● | make a special written suitability determination for the purchaser; | |
| ● | obtain the purchaser’s prior written consent to the transaction; | |
| ● | provide the purchaser with a standardized risk disclosure document describing the risks associated with investing in penny stocks and the nature of the penny stock market; and | |
| ● | obtain a signed and dated acknowledgment from the purchaser confirming receipt of such disclosure. |
The additional requirements imposed by the penny stock rules may discourage broker-dealers from effecting transactions in our common stock, which could limit the liquidity of our common stock and make it more difficult for investors to sell their shares. As a result, the market price of our common stock may be adversely affected.
If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in our financial reporting and the value of our common stock could be adversely affected.
As an SEC-reporting company, we are required to maintain effective internal control over financial reporting and to disclose any material weaknesses in such internal control. We are also required to evaluate and report on changes in our internal control over financial reporting on a quarterly basis. In addition, we are required to provide a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures and our internal control over financial reporting were not effective as of December 31, 2025, due to the material weaknesses described below.
In addition, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed on June 24, 2025, management concluded that our disclosure controls and procedures were not effective as of December 31, 2024; however, management also erroneously concluded that our internal control over financial reporting was effective as of that date. This conclusion was incorrect. Because material weaknesses in our internal control over financial reporting existed as of December 31, 2024, management may not conclude that internal control over financial reporting is effective. Pursuant to Item 308(a)(3) of Regulation S-K, management’s conclusion regarding the effectiveness of internal control over financial reporting as of December 31, 2024 should have stated that such controls were not effective. On June 5, 2026, we filed Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 to correct this conclusion. Investors should not rely on management’s prior conclusion regarding the effectiveness of our internal control over financial reporting as of December 31, 2024 as set forth in the original filing.
Specifically, we have identified material weaknesses in our internal control over financial reporting, including (i) insufficient segregation of duties due to a limited number of personnel, (ii) a lack of formalized accounting policies and procedures appropriate for a public company, and (iii) limited financial reporting and compliance resources. These material weaknesses also adversely affected our disclosure controls and procedures.
As we continue to expand our operations, complete acquisitions, and prepare for listing on The Nasdaq Capital Market, our internal control over financial reporting will need to evolve and become more robust. Implementing, maintaining, and testing effective internal controls is a complex process that requires significant management attention, specialized expertise, and financial resources. There can be no assurance that our internal control over financial reporting will be effective in all respects or that we will not identify material weaknesses in the future.
We have begun to implement measures to remediate these material weaknesses, including hiring additional accounting and financial reporting personnel, engaging external consultants with expertise in public company compliance, and developing and implementing enhanced accounting policies, procedures, and internal controls. As of the date of this filing, these remediation efforts are ongoing.
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As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, the Company identified material weaknesses in its internal control over financial reporting relating to (i) insufficient accounting and financial reporting personnel with appropriate U.S. GAAP and SEC reporting expertise, (ii) ineffective controls over the financial close and reporting process, and (iii) ineffective controls over the accounting for complex transactions.
Remediation Actions Taken to Date
The Company has taken steps to remediate these material weaknesses, including:
| ● | the appointment of a Chief Financial Officer and Principal Accounting Officer in January 2026; |
| ● | the engagement of additional accounting and financial reporting resources, including external consultants; |
| ● | the implementation of enhanced review procedures for complex accounting matters; and |
| ● | the commencement of enhancements to financial reporting processes and documentation. |
Remediation Actions Remaining
The Company is implementing a comprehensive remediation plan, which includes:
| ● | expanding its finance and accounting organization; |
| ● | designing and implementing formalized internal controls over financial reporting; |
| ● | enhancing and standardizing financial reporting processes and systems; and |
| ● | testing the design and operating effectiveness of controls and remediating identified deficiencies. |
Estimated Timeline
The Company expects to complete the remediation of these material weaknesses within approximately 18 months. This timeline reflects the time required to implement controls and demonstrate their operating effectiveness over multiple reporting periods.
Estimated Costs
The Company estimates that it has incurred approximately $0.3 million to $0.5 million in remediation-related costs to date. The Company expects to incur additional costs of approximately $1.0 million to $1.3 million, resulting in total estimated remediation costs of approximately $1.3 million to $1.8 million. These costs primarily relate to additional personnel, external advisory support, process and system enhancements, and incremental audit and compliance expenses.
The Company has allocated financial and personnel resources that it believes are sufficient to execute its remediation plan within the expected timeframe. The Company will continue to evaluate the effectiveness of its remediation efforts and may modify its plan as necessary.
While the Company believes these actions will be effective, the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period and management has concluded, through testing, that these controls are operating effectively. There can be no assurance that the remediation plan will be completed within the estimated timeframe or that the measures implemented will be sufficient to fully remediate the identified material weaknesses.
If we identify material weaknesses in our internal control over financial reporting as we have in the past, if we are unable to maintain effective controls, or if we are unable to timely comply with the requirements of Section 404 of the Sarbanes-Oxley Act, investors may lose confidence in the accuracy and completeness of our financial statements. Any such loss of confidence could have an adverse effect on the market price of our common stock. In addition, we could become subject to regulatory scrutiny, including investigations or enforcement actions by the SEC or other regulatory authorities, which could require additional management time and financial resources.
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We have experienced a change in our independent registered public accounting firm, received adverse audit opinions, and identified material weaknesses in our financial reporting, which may impair our ability to comply with reporting requirements and maintain investor confidence.
On April 30, 2025, we dismissed our independent registered public accounting firm, Michael Gillespie & Associates, PLLC (“MG&A”), and engaged RBSM LLP (“RBSM”) as our new independent registered public accounting firm. Prior to its dismissal, our former auditor identified numerous accounting errors and advised that certain of our previously issued financial statements required restatement. As of the date of dismissal, these matters have not been resolved to the former auditor’s satisfaction.
Our former auditor issued audit reports on our financial statements for the fiscal years ended December 31, 2024, and 2023 that contained adverse opinions. The report for the fiscal year ended December 31, 2023, also included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. In addition, we were unable to timely file our Annual Report on Form 10-K for the year ended December 31, 2024.
These matters indicate deficiencies in our internal control over financial reporting and disclosure controls and procedures. If we are unable to remediate these deficiencies in a timely manner, we may be unable to meet our periodic reporting obligations, maintain compliance with applicable securities laws and stock exchange requirements, or prevent further errors in our financial statements. Any of the foregoing could result in increased regulatory scrutiny, loss of investor confidence, reduced access to capital markets, and a decline in the trading price of our securities.
We have failed to timely file certain reports and other documents required under the Exchange Act, which may subject us to regulatory scrutiny, adversely affect investor confidence, and impair our ability to access the capital markets.
We have experienced a pattern of late filings with the Securities and Exchange Commission, including the following:
Annual and Quarterly Reports. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 was due on March 31, 2025 and was not filed until June 24, 2025, a delay of approximately 85 days. Although the Company filed a notification of its inability to timely file, the extended delay reflects significant deficiencies in our financial reporting infrastructure.
Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 was due on May 15, 2025 and was not filed until July 7, 2025; no notification of inability to timely file was provided in connection with this filing. Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 was due on November 14, 2024 and was not filed until November 19, 2024. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 was due on May 15, 2024 and was not filed until May 17, 2024. Our Current Report on Form 8-K reporting an event that occurred on May 25, 2025 was due on May 29, 2025 and was not filed until June 4, 2025. Our Current Report on Form 8-K reporting an event that occurred on April 30, 2025 was due on May 6, 2025 and was not filed until May 7, 2025. Our Current Report on Form 8-K reporting events that occurred on September 10, 2024 was due on September 16, 2024; two separate Form 8-Ks relating to those events were not filed until September 17, 2024 and September 19, 2024, respectively.
These filing failures reflect deficiencies in our internal compliance processes and may expose us to regulatory scrutiny, including potential enforcement action by the Securities and Exchange Commission. Failure to comply with the periodic reporting requirements of the Exchange Act may also result in the loss of certain exemptions available to reporting companies, impair our ability to use certain registration statement forms, and adversely affect investor confidence in the accuracy and completeness of our public disclosures. In addition, continued or future failures to timely file required reports could adversely affect our ability to satisfy the continued listing requirements of The Nasdaq Capital Market, if our Common Stock is approved for listing, and could impair our ability to raise capital through the public markets. We have taken, and continue to take, steps to improve our compliance infrastructure; however, there can be no assurance that we will not experience additional filing delays in the future.
Certain of our directors failed to timely file initial statements of beneficial ownership on Form 3 as required under Section 16(a) of the Exchange Act, which may subject us and such individuals to regulatory scrutiny and adversely affect investor confidence.
Section 16(a) of the Exchange Act requires our directors, executive officers, and certain beneficial owners of our Common Stock to file initial statements of beneficial ownership on Form 3 with the Securities and Exchange Commission within ten days of becoming subject to Section 16. We are required to disclose in our public filings any failure by such persons to file required reports on a timely basis.
As of the date of this prospectus, the following Section 16 reporting deficiencies have occurred with respect to our current directors: Michael R. Turner was appointed to our Board of Directors on May 30, 2025. His Form 3 was due on June 6, 2025 but was not filed until January 9, 2026, a delay of approximately seven months. Gottfried Werner was appointed to our Board of Directors on November 19, 2025. His Form 3 was due on November 21, 2025 but was not filed until January 9, 2026, a delay of approximately seven weeks. Jeffrey Chong was appointed to our Board of Directors on May 30, 2025. His Form 3 was due on June 6, 2025 but was not filed until June 1, 2026, a delay of approximately twelve months. Olga Nezerenko was appointed to our Board of Directors on December 27, 2025. Her Form 3 was due on January 6, 2026 but was not filed until June 1, 2026, a delay of approximately five months. As of the date of this prospectus, each of our current directors has filed the required Form 3.
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These filing failures reflect deficiencies in our Section 16 compliance processes and may expose us and the applicable reporting persons to regulatory scrutiny, including potential enforcement action by the Securities and Exchange Commission. Failure to comply with Section 16(a) reporting obligations may adversely affect investor confidence in the accuracy and completeness of our public disclosures and could impair our ability to satisfy the continued listing requirements of The Nasdaq Capital Market, if our Common Stock is approved for listing. We have taken, and continue to take, steps to remediate these deficiencies and to improve our Section 16 compliance infrastructure; however, there can be no assurance that additional reporting failures will not occur in the future.
Risks Related to This Offering and Other Risks
If securities or industry analysts publish inaccurate or unfavorable research about our business, or they cease coverage of our common stock, our stock price could decline.
The trading market for our common stock may be influenced in part by the research and reports that securities or industry analysts publish about us or our business. We do not control the content, timing, or accuracy of any analyst reports or recommendations. If one or more of the analysts who elect to cover us publishes inaccurate or unfavorable research, issues an adverse recommendation, or ceases coverage of our common stock, the market price of our common stock could decline.
In addition, there may be a limited number of analysts who cover our common stock, particularly during the period following a potential listing on The Nasdaq Capital Market. A lack of analyst coverage, or the withdrawal of coverage, could result in reduced trading volume and decreased liquidity, which could also adversely affect the market price of our common stock.
Although our common stock is currently quoted on the OTC market, an active, liquid, and orderly trading market may not be sustained following this offering or a potential Nasdaq listing, which could make it difficult for you to sell your shares
Our common stock is currently quoted and traded on the OTC market. We have applied to list our common stock on The Nasdaq Capital Market; however, there can be no assurance that our application will be approved or that, even if approved, an active, liquid, and orderly trading market for our common stock will develop or be sustained following this offering or after any such listing.
The market price and trading volume of our common stock may be volatile and could be affected by a variety of factors, including changes in our operating results, investor perceptions, general market conditions, and the level of analyst coverage of our business. If trading in our common stock is limited or inactive, you may be unable to sell your shares in a timely manner or at prices that you consider attractive, or at all.
In addition, a lack of sustained trading liquidity could adversely affect our ability to raise capital through equity financings or to use our common stock as consideration in strategic transactions, including acquisitions or partnerships.
We may not be able to satisfy the listing requirements of The Nasdaq Capital Market, and even if our common stock is approved for listing, we may be unable to maintain such listing
We have applied to list our common stock on The Nasdaq Capital Market. Listing on The Nasdaq Capital Market is subject to Nasdaq’s approval and requires us to satisfy a number of quantitative and qualitative listing standards, including requirements relating to minimum stockholders’ equity, market value of publicly held shares, minimum bid price, corporate governance, and ongoing reporting obligations. There can be no assurance that our application for listing will be approved or that we will be able to satisfy all applicable listing requirements.
Even if our common stock is approved for listing on The Nasdaq Capital Market, we will be required to continue to meet Nasdaq’s ongoing listing standards. If we fail to comply with any of these requirements, our common stock could be subject to delisting. In addition, our board of directors may determine in the future that the costs associated with maintaining a listing on a national securities exchange outweigh the benefits of such listing.
If our common stock is not approved for listing on The Nasdaq Capital Market, or if it is delisted after listing, the liquidity of our common stock could be significantly reduced. A delisting could materially impair our stockholders’ ability to buy and sell our common stock, adversely affect the market price and trading volume of our common stock, and significantly impair our ability to raise capital or use our common stock as consideration in strategic transactions. As a result, the value of your investment could be adversely affected.
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Investing in our Company is highly speculative and could result in the entire loss of your investment.
Purchasing the offered shares is highly speculative and involves significant risk. The offered shares should not be purchased by any person who cannot afford to lose their entire investment. Our business objectives are also speculative, and it is possible that we would be unable to accomplish them. Our shareholders may be unable to realize a substantial or any return on their purchase of the offered shares and may lose their entire investment. For this reason, each prospective purchaser of the offered shares should read this prospectus and all of its exhibits carefully and consult with their attorney, business and/or investment advisor.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends on our common stock in the foreseeable future.
Our issuance of additional common stock or preferred stock may cause our common stock price to decline, which may negatively impact your investment.
Issuances of a substantial number of additional shares of our common or preferred stock, or the perception that such issuances could occur, may cause prevailing market prices for our common stock to decline. In addition, our board of directors is authorized to issue additional series of shares of preferred stock without any action on the part of our stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any such series of shares of preferred stock that may be issued, including voting rights, conversion rights, dividend rights, preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue cumulative preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the market price of our common stock could decrease.
Anti-takeover provisions in the Company’s charter and bylaws may prevent or frustrate attempts by stockholders to change the board of directors or current management and could make a third-party acquisition of the Company difficult.
The Company’s bylaws contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. Furthermore, the Board of Directors has the ability to increase the size of the Board and fill newly created vacancies without stockholder approval. These provisions could limit the price that investors might be willing to pay in the future for shares of the Company’s common stock.
The public offering price for our shares of common stock may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.
The public offering price for our shares of common stock may vary from the market price of our shares of common stock following our public offering. The financial markets in the United States and other countries have experienced significant price and volume fluctuations in the last few years. If you purchase our shares of common stock in our public offering, you may not be able to resell those shares at or above the public offering price. We cannot assure you that the public offering price of our shares of common stock, or the market price following our public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our public offering. The market price for our shares of common stock may be volatile and subject to wide fluctuations due to factors such as:
| ● | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; | |
| ● | actual or anticipated fluctuations in our quarterly operating results; | |
| ● | changes in financial estimates by securities research analysts; | |
| ● | negative publicity, studies or reports; | |
| ● | our capability to catch up with the technology innovations in the industry; | |
| ● | announcements by us or our competitors of acquisitions, strategic business relationships, joint ventures or capital commitments; and | |
| ● | addition or departure of key personnel. |
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our shares of common stock.
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USE OF PROCEEDS
Based upon an assumed public offering price of $ per share (the last reported sales price for the Common Stock as quoted on the OTCQB on , 2026), we estimate that the net proceeds we will receive from the sale of our Common Stock in this offering, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us, will be approximately $ . If the underwriters exercises their option to purchase up to an additional shares of Common Stock in full, we estimate our net proceeds will be $ , after deducting the underwriting discount and estimated offering expenses payable by us.
We currently intend to use the net proceeds from this offering for general corporate purposes, which may include, among other things:
| ● | working capital and general corporate expenses in the amount of $ ; | |
| ● | product development and technology enhancements in the amount of $ ; | |
| ● | research and development initiatives in the amount of $ ; | |
| ● | sales and marketing activities in the amount of $ ; | |
| ● | strategic acquisitions, investments, or partnerships in the amount of ;and | |
| ● | general administrative and operating expenses in the amount of $ . |
A portion of the net proceeds may also be used to pay accrued compensation, including accrued compensation owed to executive officers, in the ordinary course of business. We do not intend to use the net proceeds of this offering to repay any outstanding indebtedness owed to our officers, directors, or other related parties other than such accrued compensation.
We have not allocated the net proceeds among these uses at this time and will retain broad discretion over the use of the net proceeds. Accordingly, the actual use of the net proceeds may differ from the uses described above depending on our business needs, operating results, financial condition, and strategic opportunities. We have no present commitments or agreements with respect to any material acquisitions or investments as of the date of this prospectus.
A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds to us from this offering by $ , assuming the number of shares to be sold by us in this offering remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. Each increase (decrease) of 100,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us by approximately $ , assuming that the assumed public offering price remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.
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DIVIDEND POLICY
We have not historically declared dividends on our Common Stock and we do not intend to pay dividends in the foreseeable future. The declaration and payment of any future dividends on shares of our Common Stock, if any, will be at the sole discretion of our board of directors, out of funds legally available for dividends. As a Nevada corporation, we are not permitted to pay dividends if, after giving effect to such payment, we would not be able to pay our liabilities as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus any amounts needed to satisfy any preferential rights if we were dissolving.
Our ability to pay dividends to our stockholders in the future will depend on numerous factors, including compliance with applicable laws, financial performance, working capital requirements of the Company and its subsidiaries, as applicable and such other factors deemed relevant by our board of directors.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2026:
| ● | on an actual basis; |
| ● | on a pro forma basis to reflect, as if each had occurred on March 31, 2026: (i) the issuance of 6,924,700 shares of Common Stock on May 21, 2026 in partial settlement of the earn-out consideration payable under the Telvantis Voice Services stock purchase agreement; and (ii) the issuance of 12,500 shares of Common Stock on June 1, 2026 in a private placement at $1.60 per share for aggregate proceeds of $20,000; and | |
| ● | on a pro forma as adjusted basis to reflect the pro forma adjustments described above and the issuance and sale of the shares by us in this offering at the assumed public offering price of $ per share (based on the last reported sales price for the Common Stock as quoted on the OTCQB on , 2026), after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. |
| (In thousands, except per share data and share count) | ||||||||||||
| March 31, 2026 | ||||||||||||
| Actual | Pro Forma | Pro Forma as Adjusted | ||||||||||
| Cash | $ | 2,705 | $ | 2,725 | $ | - | ||||||
| Related party loan payable | 7,273 | 7,273 | - | |||||||||
| Financing facility | 13,747 | 13,747 | - | |||||||||
| Total liabilities | 21,020 | 21,020 | - | |||||||||
| Stockholders’ equity | ||||||||||||
| Preferred stock, par value $0.0001, 5,000,000 shares authorized no shares issued and outstanding | - | - | ||||||||||
| Series Quantum Preferred stock, par value $0.0001, 2,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||||||
| Common stock, par value $0.0001, 300,000,000 shares authorized 89,354,216 actual; 96,291,416 proforma and [ ] as adjusted | 9 | 10 | - | |||||||||
| Common stock to be issued | 1,135 | 1,135 | - | |||||||||
| Additional paid-in capital | 76,990 | 89,959 | - | |||||||||
| Accumulated deficit | (42,820 | ) | (49,910 | ) | - | |||||||
| Accumulated other comprehensive income/(loss) | 46 | 46 | - | |||||||||
| Non-controlling interest | (222 | ) | (222 | ) | - | |||||||
| Total stockholders’ equity | 35,138 | 41,018 | - | |||||||||
| Total capitalization | $ | 56,158 | $ | 62,038 | $ | - | ||||||
A $1.00 increase (decrease) in the assumed public offering price of $ per share shown on the cover page of this prospectus, would increase (decrease) the amount of cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization on an as adjusted basis by approximately $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters over-allotment option or the Representative’s Warrants. Similarly, each increase (decrease) of 100,000 shares offered by us would increase (decrease) cash and cash equivalents, total stockholders’ equity (deficit) and total capitalization on an as adjusted basis by approximately $ , assuming the assumed public offering price remains the same after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters over-allotment option or the Representative’s Warrants.
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DILUTION
If you invest in our Common Stock in this offering, you will experience immediate and substantial dilution in the as adjusted net tangible book value of your shares of Common Stock. Dilution in as adjusted net tangible book value represents the difference between the assumed price to the public per share of our Common Stock and the as adjusted net tangible book value per share of our Common Stock immediately following this offering.
Pro forma net tangible book value per share represents our total tangible assets (total assets less intangible assets) less total liabilities, divided by the outstanding shares of Common Stock. As of March 31, 2026, our net tangible book value was $[____], or $[___] per share. After giving effect to the sale and issuance of [_____] shares of our Common Stock in this offering at an assumed public offering price of $[___] per share, and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2026, would have been $[_____], or $[____] per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $[___] per share to our existing stockholders, and an immediate dilution of $[____] per share to new investors participating in this offering.
The following table illustrates this dilution:
| Assumed initial price to public per share | $ | |||
| Net tangible book value per share as of March 31, 2026 (1) | $ | |||
| Increase per share attributable to existing shareholders(2) | $ | |||
| Pro forma as adjusted net tangible book value per share after this offering(3) | $ | |||
| Dilution per share to new investors | $ |
The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.
Each $1.00 increase (decrease) in the assumed public offering price of $ per share, would increase (decrease) our pro forma as adjusted net tangible book value by approximately $[_____], or approximately $[___] per share, and increase (decrease) the dilution per share to investors participating in this offering by approximately $[___] per share per $1.00 increase and $[__] per share per $1.00 decrease, assuming that the number of shares offered by us remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 100,000 in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately $[_____], to $[___] per share, and increase (decrease) the dilution per share to investors participating in this offering by approximately $[___] per share per 100,000 share increase and $[__] per share per 100,000 share decrease, assuming that the assumed public offering price remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share after this offering would be $[___] per share, the incremental increase in the pro forma net tangible book value per share to our existing stockholders would be $[___] per share and the pro forma dilution to new investors participating in this offering would be $[___] per share.
If the underwriters exercise their option to purchase additional shares of Common Stock in full in this offering, the number of shares of Common Stock held by new investors will increase to [_____] , or [__]% of the total number of shares of Common Stock issued and outstanding after this offering, and the percentage of shares of Common Stock held by existing stockholders will decrease to [___]% of the total shares of Common Stock issued and outstanding.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our audited consolidated financial statements as of and for the years ended December 31, 2025, and 2024, and the related notes thereto (the “Financial Statements”). Unless the context indicates otherwise, references to “Spectral,” “the Company,” “we,” “us,” and “our” in this MD&A refer to Spectral Capital Corporation and its consolidated subsidiaries. All dollar amounts are in U.S. dollars unless otherwise stated.
OVERVIEW
Spectral Capital Corporation is a technology company focused on the development, monetization, and integration of proprietary intellectual property (IP) at the convergence of artificial intelligence (AI), hybrid classical computing, and emerging quantum technologies. In August 2025, the Company completed the acquisition of 42 Telecom a global telecommunications and messaging infrastructure provider. The transaction marked a major strategic shift, transforming Spectral from a pre-revenue R&D enterprise with operations focused on the identification and development of intellectual property to a much more complex company with established revenue-generating activities. The increase in complexity of our operations also included a substantial increase in personnel related to our telecommunications businesses. Following the acquisition, 42 Telecom and its subsidiaries became wholly owned subsidiaries of Spectral. 42 Telecom provides enterprise messaging, SMS aggregation, SS7 platform access, and PaaS communication solutions to customers across Europe and other regions. As a result, Spectral’s consolidated financial results for the year ended December 31, 2025 reflect the inclusion of 42 Telecom’s operations beginning August 1, 2025. Going forward, the Company’s performance will be driven by both its AI and quantum IP development initiatives and the commercial operations of 42 Telecom and TVS, which provide recurring service revenues, operating cash flows, and a foundation for integrating Spectral’s proprietary technologies.
The Company’s strategic platform is organized around four core pillars:
1. The development of potentially patentable and protectable IP;
2. The monetization of that IP through licensing arrangements and equity-based transactions;
3. The development and deployment of cost-effective software solutions derived from proprietary innovations; and
4. The acquisition and transformation of technology companies through the integration of Spectral’s IP.
Each product or service developed or acquired by Spectral is designed to derive from, reinforce, or scale one or more of these strategic growth pillars.
At the center of Spectral’s operations is its research and development capability, which identifies potentially protectable innovations that can improve revenue and operating margins in technology businesses or which are capable of generating stand-alone licensing value. Spectral uses this intellectual property to enhance its current businesses and to identify future businesses whose operations and profits might be enhanced by the integration of Spectral’s technology. Spectral also has an intellectual property licensing capability which enables third-party enterprises to incorporate Spectral-developed technologies into their own products and platforms. These licensing arrangements are intended to include a mix of upfront cash payments and equity participation, providing both near-term revenues and longer-term upside aligned with the growth of Spectral’s partners. The licensing model is especially attractive to companies operating in sectors such as artificial intelligence, cybersecurity, autonomous systems, logistics, and advanced data analytics, where integration of cutting-edge algorithms and architectures can provide meaningful competitive differentiation.
As of the date of this filing, Spectral has identified a pipeline of potentially patentable innovations in various stages of research and development across a broad array of emerging technology fields, with particular concentration at the intersection of artificial intelligence and data infrastructure. The Company is currently focused on the approximately 40 innovations in its pipeline that it believes are most closely aligned with its present strategic priorities, and it continues to evaluate the remaining innovations in its pipeline to determine whether, and in what form, to pursue them. Given the Company’s current focus on artificial intelligence, on improving the financial performance of the data infrastructure businesses it has acquired or may acquire, and on licensing within the data infrastructure space, the Company has determined to streamline its intellectual property operations and to concentrate its resources on this focused subset of its innovation pipeline. The Company is evaluating the applicability of these innovations to the operations of its subsidiaries 42 Telecom and TVS and is currently evaluating a formal license agreement with each of 42 Telecom and TVS. The Company has not executed any definitive intercompany license agreement with 42 Telecom or TVS, the specific innovations to be licensed have not been finally determined, and the applicability of these solutions to the operations of 42 Telecom and TVS is currently being evaluated. See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.”
As part of streamlining its intellectual property operations, the Company has determined not to pursue prosecution of any of its previously filed provisional patent applications, which will expire without maturing into issued patents. The Company’s determination to allow its provisional patent applications to lapse reflects its decision to concentrate its filing and prosecution resources on the approximately 40 innovations most closely aligned with its strategic focus on artificial intelligence and data center infrastructure, rather than an intent to convert those applications into a trade secret protection program; the Company may nonetheless continue to rely on related know-how and insights it has developed as trade secrets where appropriate. The Company is concentrating its forward intellectual property efforts on a focused set of current material innovations described in this prospectus, including the innovations acquired in the Eliznikcomp asset purchase, and intends to evaluate the status of the remainder of its innovation pipeline only after these current material innovations have been pursued. The Company does not own any issued patents and does not intend to pursue international patent protection at this time. See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.”
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In addition, Spectral is actively commercializing a growing suite of modular, AI-enhanced software products. These tools are designed for rapid deployment and include applications for secure data search, model optimization, pattern recognition, and probabilistic reasoning. These software offerings are particularly well-suited for enterprise customers seeking to improve decision-making, reduce compute overhead, and expand analytical capabilities without incurring major infrastructure costs. In many cases, the Company’s hybrid AI-quantum approaches offer material performance advantages over conventional software.
The Company is also in the R&D phase of developing an intelligent cloud compute environment optimized for high-dimensional AI and quantum-inspired workloads. This platform is being designed to integrate decentralized edge computing with scalable hybrid architectures, with a focus on low latency, high data privacy, and flexible deployment options. Target customers include enterprise and government clients with mission-critical or regulated workloads. The service is intended to support quantum-enhanced simulation, ultra-secure computation, and real-time distributed intelligence.
Spectral also pursues a targeted acquisition strategy focused on underperforming or undercapitalized technology businesses that can be revitalized through integration of Spectral’s IP and computing capabilities. Following acquisition of a particular company, Spectral deploys its proprietary innovations into the acquired business’s operations, driving improvements in revenue growth, margins, and overall market relevance. This transformation model is designed to generate both operational gains and strategic monetization opportunities through future joint ventures, divestitures, or public offerings.
Collectively, Spectral’s integrated approach to IP creation, software development, licensing, and acquisition positions the Company to generate diversified revenue streams while expanding the impact of its technology across multiple sectors.
While the Company believes its business model and proprietary technologies present significant long-term potential, it currently operates with limited financial resources and has not secured reliable capital sources to support ongoing operations. As such, unlike better-capitalized competitors with established revenue streams, operational scale, and customer networks, Spectral’s ability to develop and commercialize its technologies remains subject to continued access to funding and capital markets.
Key Developments in the Year Ended December 31, 2025
During the year ended December 31, 2025, Spectral Capital Corporation advanced a series of strategic, operational, and research initiatives in furtherance of its goal to build a differentiated technology platform at the intersection of artificial intelligence, quantum computing, and hybrid computational systems. The Company’s activities during the year reflect a continued focus on intellectual property development, disciplined capital allocation, and the strengthening of governance and commercialization infrastructure.
Acquisition of 42 Telecom Limited
On August 1, 2025, Spectral completed the acquisition of 42 Telecom, a global provider of enterprise messaging infrastructure. The acquisition closed following the execution of a Closing Certificate confirming the satisfaction of all conditions in the Definitive Share Exchange Agreement signed July 15, 2025.
Under the agreement, Spectral acquired 100% of 42 Telecom’s issued and outstanding shares in exchange for 8,000,000 shares of Spectral common stock issued at closing, together with an additional 8,000,000 shares of Spectral common stock placed in escrow. The escrow shares serve two purposes under the acquisition agreement. First, a portion of the escrow shares is issuable as performance-based bonus shares (the “Bonus Shares”) contingent upon 42 Telecom achieving a consolidated net profit threshold of $1,000,000 for the year ended December 31, 2025, with up to 1,000,000 Bonus Shares releasable for each $1,000,000 of consolidated net profit above that threshold. Second, the escrow shares secure a minimum valuation guarantee (the “Valuation Guarantee”) pursuant to which additional shares are issuable to the extent the aggregate 30-day volume-weighted average price of all shares issued in the transaction falls below a guaranteed value of $30,000,000, measured nine months following the completion of the 42 Telecom audit.
As of the date of this prospectus, no escrow shares have been released and no escrow shares are releasable pursuant to the Bonus Share provisions. The remaining escrow shares continue to be held in escrow pending determination of the Valuation Guarantee provisions.
The integration of Spectral’s innovations—focused at the intersection of artificial intelligence and quantum computing—positions 42 Telecom to evolve into a global platform with transformative capabilities. These innovations include both potentially patentable innovations as well as trade secrets that can enhance operating efficiency, lower costs and increase product capabilities. By embedding Spectral’s proprietary technologies into 42 Telecom’s existing messaging infrastructure, the company can unlock levels of intelligent automation, fraud prevention, predictive engagement, and dynamic routing. These enhancements are expected to lower operating costs, optimize traffic monetization, and enable sophisticated enterprise-grade CRM and customer engagement features tailored for the U.S. market. With scalable, AI-driven personalization and quantum-secure communications layered into its SMS platform, 42 Telecom Ltd. can potentially differentiate itself in the high-margin U.S. enterprise segment, capturing market share from legacy providers and accelerating growth through value-added, low-latency API integrations for marketing, support, and behavioral analytics applications.
42 Telecom provides international telecommunications and messaging solutions. Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions. Through Arcus Technologies Ltd, 42 Telecom also offers platform-as-a-service solutions tailored for the tourism sector. 42 Telecom serves a global customer base consisting primarily of mobile network operators and enterprises.
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42 Telecom generates revenue from following streams:
| ● | Messaging Services – includes SMS aggregation, enterprise messaging, and instant messaging. Revenue from these services is recognized at a point in time when each message or lookup is successfully processed and transmitted. |
| ● | Platform Services – includes SS7 platform access (see below), managed services provided to related parties, and the Arcus 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. Signaling System No. 7 (SS7) network, is the global signaling backbone used by telecom operators to set up, manage, route, and bill calls and messages between networks. |
Acquisition of TVS
On December 29, 2025, the Company entered into a Definitive Stock Purchase Agreement to acquire 100% of the issued and outstanding shares of TVS. The transaction closed on December 31, 2025. In connection with the acquisition, the Company also acquired TVS’s operating subsidiaries, Phonetime, Inc. and Matchcom Telecommunications, Inc.
The purchase consideration consisted of 1,500,000 shares of the Company’s common stock issued at closing and the right of the seller to receive up to an additional 8,500,000 shares of the Company’s common stock upon the achievement of specified post-closing performance milestones relating to revenue growth and operating profitability during fiscal year 2026.
Under the acquisition agreement, the shares issued in the transaction are subject to a twelve-month lock-up period and certain performance-based release provisions. The agreement also includes a contingent value protection mechanism pursuant to which the aggregate consideration is intended to achieve a minimum value threshold of $65 million based on the volume-weighted average trading price of the Company’s common stock during a specified measurement period. If the minimum value threshold is not achieved, the agreement provides for certain adjustment and rescission rights, including the Company’s ability, at its option, to issue additional shares to satisfy the minimum value requirement. See Note 3 (Business Combinations) and Note 4 (Fair Value Measurements) to the consolidated financial statements for additional information regarding the contingent consideration associated with the acquisition.
The agreement further provides for earn-out consideration based on the achievement of specified operating profit and revenue milestones and contains customary representations, warranties, covenants, indemnification provisions, and post-closing operating restrictions.
The Company acquired TVS to expand its telecommunications operations, strengthen its position in the international voice services market, and provide access to established carrier relationships, customer contracts, telecommunications infrastructure, and operational expertise. Because the acquisition closed on December 31, 2025, TVS did not contribute revenue or operating results to the Company’s consolidated results of operations for the year ended December 31, 2025.
Subsequent to year-end, 6,924,700 Earn-Out Shares have been issued, as reported on the Company’s Current Report on Form 8-K filed May 27, 2026. The shares issued to date were distributed to unaffiliated holders, none of whom beneficially owns 4.9% or more of the Company’s outstanding common stock. The partial issuance does not affect the achievement of the milestone; the remaining Earn-Out Shares have been earned and are issuable but have not yet been issued.
Relationship Between 42 Telecom and TVS
At the time of the Company’s acquisitions of 42 Telecom and TVS, certain ownership and management relationships existed among 42 Telecom, Heritage Ventures, Mexedia SpA, Telvantis, and TVS. 42 Telecom was wholly owned by Heritage Ventures, which was controlled by Orlando Taddeo. Heritage Ventures also controlled a majority interest in Mexedia SpA. Mexedia SpA owned approximately 75% of Telvantis, the parent company of TVS. Accordingly, while 42 Telecom and TVS operated as separate legal entities, indirect ownership relationships existed through Heritage Ventures and Mexedia SpA.
In addition, certain individuals served in management and director roles across these entities during portions of 2025. Prior to September 2025, Mr. Taddeo served as the sole director of 42 Telecom, President and a director of Telvantis Inc., and Chief Executive Officer and a director of Mexedia SpA. Daniel Gilcher served as Chief Financial Officer and a director of Mexedia SpA and as a director of Telvantis Inc. Daniel Contreras served as Chief Executive Officer and a director of Telvantis Inc.
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The Company has included this information to provide additional context regarding the ownership and management relationships that existed at the time of the acquisitions. These relationships subsequently changed during late 2025 and early 2026, including management transitions and changes in ownership interests among the applicable entities.
The diagram below shows the changes in ownership and management for the various entities.
Patent Portfolio Expansion
During the year, the Company continued to build out its intellectual property portfolio with the identification and development of new potentially patentable innovations across a range of advanced technologies, including artificial intelligence, quantum computing, and autonomous systems. These innovations support Spectral’s core commercialization strategy, which is centered on licensing, productization, and strategic joint ventures based on the strength of the intellectual property portfolio. The innovations identified and developed during the quarter are closely aligned with high-growth sectors in which Spectral is actively engaged. As of March 31, 2026, the Company had filed a number of provisional patent applications with the United States Patent and Trademark Office (“USPTO”), all of which the Company intends to abandon, and had prepared additional applications that have not yet been filed, any of which, if ultimately filed, would be filed as direct, non-provisional applications with the USPTO only. The Company has not committed to file any such application by any particular date and does not currently expect to make filing determinations with respect to such applications prior to the end of 2026. In addition, as of the date of this prospectus, the twenty-one (21) utility patent applications acquired from Eliznikcomp OÜ have been filed with the USPTO and are pending. The Company is now focusing its filing and prosecution resources on a streamlined subset of its innovation pipeline, as described under “Business,” under “Intellectual Property.” See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.”
Scientific Research and Innovation Pipeline
In addition to the focused subset of innovations on which the Company is currently concentrating its filing and prosecution resources, the Company has advanced foundational research reflected in a broader pipeline of additional candidate innovations that remain under evaluation. These candidate innovations are in various stages of internal validation, refinement, and drafting, and the Company has not determined whether, when, or in what form (whether by patent filing, trade secret protection, or otherwise) it will pursue protection for any particular innovation in this pipeline. Consistent with the streamlining of its intellectual property operations, the Company expects to pursue formal domestic filings only for a limited number of these innovations and to evaluate the remainder on an ongoing basis. There can be no assurance that any particular innovation in the Company’s pipeline will result in a filed application, an issued patent, or any commercial value.
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Rescission of Brehm Transactions and Confirmation of Intellectual Property Ownership
In the second quarter of 2025, the Company completed the rescission of several previously disclosed transactions involving former Chairman Sean Michael Brehm and his affiliated entities. These rescinded transactions, originally structured around entry into the semiconductor markets, were determined to be misaligned with Spectral’s long-term strategic and fiduciary priorities. As a result of the rescission, Spectral preserved full rights to its independently developed IP portfolio and clarified title to over 100 provisional patent applications. Title to these applications was clarified pursuant to the settlement agreement dated May 25, 2025 among the Company, Mr. Brehm, and his affiliated entities (the “Settlement Agreement”), under which all prior agreements with such parties were rescinded, the parties expressly confirmed that the Company retains sole ownership of the 104 provisional patent filings independently developed by the Company, and Mr. Brehm and his affiliates relinquished any right, title, or interest in those filings. Under the Settlement Agreement, Mr. Brehm assigned to the Company all of his right, title, and interest in and to all provisional patent applications on which he is a named inventor or co-inventor. Because the Company does not intend to convert or prosecute these provisional applications and they will be permitted to lapse by their terms, the Company does not intend to obtain or record further inventor-level assignments with respect to them. In connection with the rescission, the 1,000,000 shares of Series Quantum Preferred Stock that had been issued to Mr. Brehm on August 29, 2024 in exchange for the acquisition of Node Nexus Network Co. LLC (“NNN”) were returned to the Company and cancelled. Those shares had been recorded at par value (1,000,000 shares at $0.0001 par value, or $100) given the related-party and common-control nature of the original transaction, and they were cancelled at par value upon their return, with no gain or loss recognized. Separately, $675,700 of related-party demand advances from Mr. Brehm was relieved and recorded as an increase to additional paid-in capital. This action improved the Company’s governance posture, eliminated a potential source of dilution, and reaffirmed the integrity of the Company’s intellectual property strategy. The Company believes that the rescission preserved its rights to its independently developed intellectual property; however, because a number of the provisional patent applications affected by the prior Brehm transactions name as inventors persons who served as consultants to, or were otherwise affiliated with, Mr. Brehm or his entities, the rescission and the related assignments could give rise to questions regarding inventorship, the validity of assignments, or ownership with respect to those applications. See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.”
Agreement with Intrepid View Partners-Cancellation
On June 2, 2025, Spectral Capital Corporation entered into a Restated Share Transfer Agreement with Intrepid View Partners, LP, pursuant to which Spectral acquired 1,698,890 restricted common shares of a leading global autonomous vehicle company (the “WAV Company”) known for its next-generation, AI-driven approach to assisted and automated driving. The total consideration for the transaction was $16,988,900, payable in the form of 1,698,890 restricted shares of Spectral common stock valued at $10.00 per share. The acquired WAV shares are subject to a 12-month holding period and a three-year transfer restriction, mirroring restrictions on the Spectral shares issued in consideration. The transaction reflects Spectral’s continued strategy of leveraging its equity to gain exposure to transformative technologies in adjacent high-growth sectors, and was executed following restatement of a prior agreement to reflect recent corporate developments and updated disclosures. As of December 31, 2025, there has been no accounting recognition associated with the Restated Share Transfer Agreement. The Company elected to cancel this transaction as of March 11, 2026, as it decided to focus on data infrastructure businesses rather than autonomous vehicles. The parties have no remaining obligations to each other, and Spectral will not be issuing any of its shares nor will it be receiving shares of WAV.
Eliznikcomp OÜ - Asset Purchase (October 2025). On October 15, 2025, Spectral entered into an Asset Purchase Agreement with Eliznikcomp OÜ, an Estonian corporation, pursuant to which Spectral acquired all right, title, and interest in twenty-one (21) potentially patentable innovations related to native artificial intelligence operating systems developed in a Linux environment, FPGA optimization processes, and security and multi-application remote synchronization technology. As consideration, Spectral issued 9,000,000 shares of its common stock to the shareholders of Eliznikcomp. The transaction was structured as a taxable asset purchase. The acquired intellectual property has been recorded as §197 intangible assets and are being amortized over their respective estimated useful life for book purposes and over fifteen years for tax purposes.
Snack Prompt Corp. - Binding Term Sheet (October 2025). On October 3, 2025, Spectral entered into a Binding Term Sheet with Snack Prompt, a Delaware corporation, for the acquisition of 100% of the issued and outstanding capital stock of Snack Prompt. As consideration, Spectral agreed to issue up to 10,000,000 shares of its common stock, consisting of 1,500,000 initial shares and up to 8,500,000 earn-out shares. The transaction is subject to customary closing conditions, including delivery of financial statements audited under PCAOB standards, completion of due diligence, board approval, and execution of a definitive Stock Purchase Agreement. Spectral also committed to invest up to $5,000,000 into the Snack Prompt business unit upon satisfaction of certain conditions. The transaction had not closed as of December 31, 2025. Subsequent to the first quarter, the Binding Term Sheet was terminated due to the failure to satisfy closing conditions, including the non-completion of due diligence. The termination was effective as of the date of May 5, 2026, and neither party has any continuing obligations under the term sheet.
MultiCortex, LLC / Toroa, LLC - Binding Term Sheet (October 2025). On October 4, 2025, Spectral entered into a Binding Term Sheet with MultiCortex for the acquisition of 100% of the issued and outstanding equity of MultiCortex. As consideration, Spectral agreed to issue up to 10,000,000 shares of its common stock, consisting of 1,500,000 initial shares and up to 8,500,000 earn-out shares. Spectral also committed to invest up to $15,000,000 into the MultiCortex business unit upon satisfaction of certain conditions, including completion of an audit of MultiCortex financial statements under PCAOB standards and Spectral’s uplisting to the NASDAQ. Subsequent to year end, the Binding Term Sheet was terminated due to the failure to satisfy closing conditions, including the non-completion of due diligence. The termination was effective as of the date of the termination notice on March 31, 2026, and neither party has any continuing obligations under the term sheet.
Agreement with TVS
On September 29, 2025, Spectral entered into a binding term sheet with Telvantis, a Florida corporation, pursuant to which Spectral will acquire 100% of the issued and outstanding capital stock of TVS (the “Transaction”). Pursuant to the term sheet, the consideration consists of 10,000,000 shares of common stock of Spectral, including:
| ● | 1,500,000 initial shares issued at closing; and |
| ● | up to 8,500,000 additional earn-out shares, subject to performance milestones. |
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Telvantis’s shareholders may earn the additional shares if TVS achieves certain 2026 operating profit and/or revenue milestones, including:
| ● | $10,000,000 annualized operating profit, or |
| ● | $665,000,000 in annualized revenue at comparable margins. |
The shares will be subject to a 12-month lock-up period, with potential extension or cancellation if performance milestones are not met. Closing of the Transaction is subject to customary conditions, including: completion of due diligence, delivery of audited financial statements prepared under U.S. GAAP and audited by a PCAOB-registered accounting firm, and board approvals of both parties.
Closing of TVS Transaction
On December 31, 2025, Spectral completed the acquisition of 100% of the issued and outstanding capital stock of TVS, pursuant to a definitive Stock Purchase Agreement dated December 29, 2025, by and between Spectral and Telvantis, formerly Raadr, Inc., the sole shareholder of TVS. At the closing of the transaction, Spectral issued 1,500,000 shares of its common stock to the seller as initial consideration, with the right to issue up to an additional 8,500,000 shares of common stock subject to the achievement of specified post-closing performance milestones related to revenues and operating profitability. The shares issued and issuable in connection with the transaction are subject to contractual lock-up, resale, earn-out, and beneficial ownership limitation provisions, including a 4.9% ownership cap per holder. The transaction is intended to qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code. The acquisition will be reflected in the Company’s consolidated financial statements beginning in the first quarter of fiscal year 2026, and the Company is in the process of completing the allocation of the purchase price and related accounting adjustments.
Subsequent Event-Agreement with Intermatica S.p.A.
On January 4, 2026, Spectral entered into a binding term sheet with Intermatica S.p.A., (“Intermatica”) an Italy-based telecommunications and enterprise messaging company, outlining a proposed strategic transaction pursuant to which Spectral would contribute selected proprietary intellectual property and advanced software technologies in exchange for a combination of equity participation, commercial collaboration rights, and potential future consideration tied to performance milestones. The contemplated transaction was structured to enable Intermatica to integrate Spectral’s AI-enabled and advanced analytics technologies into its existing telecommunications and messaging platforms, with a focus on improving network efficiency, service differentiation, and margin performance, while providing Spectral with exposure to Intermatica’s established European operating footprint and customer relationships. Spectral would issue 5,000,000 shares of its common stock at closing, subject to an escrow, buy-back, and standstill arrangement designed to ensure a minimum liquidity value of $40.0 million. The transaction also contemplates the issuance of up to an additional 5,000,000 earn-out shares over a three-year period based on Intermatica’s achievement of defined free cash flow thresholds, subject to customary caps and a 4.9% ownership limitation per Intermatica shareholder. The proposed acquisition remains subject to completion of financial and legal due diligence, including an audit of Intermatica’s financial statements under PCAOB standards (or waiver thereof), execution of definitive transaction documents, and satisfaction of customary closing conditions, and there can be no assurance that the transaction will be consummated on the terms described or at all.
Platform and Operations
Intellectual Property Development
At the core of Spectral’s business model is the development of a forward-looking intellectual property portfolio, particularly at the intersection of artificial intelligence, quantum computing, and hybrid classical architectures. During the 12-month period ended December 31, 2025, Spectral continued its IP development efforts, preparing and filing patent applications across a broad array of emerging technology domains. These innovations are strategically aligned with enterprise, defense, and advanced infrastructure applications. As of the date of this filing, Spectral had 21 utility applications with the United States Patent and Trademark Office (“USPTO”) and had prepared additional utility applications that have not yet been filed and that, if ultimately filed, would be filed as direct, non-provisional applications with the USPTO only. The Company has not committed to file any such application by any particular date and does not currently expect to make filing determinations with respect to such applications prior to the end of 2026. The Company is now focusing its filing and prosecution resources on a streamlined subset of its innovation pipeline and is evaluating the remaining innovations on an ongoing basis, as described above and under “Risk Factors,” including “Risks Related to our Intellectual Property.”
Scientific Research and Innovation Pipeline
In parallel with the focused subset of innovations on which it is concentrating its filing and prosecution resources, the Company maintains a broader internal pipeline of additional candidate innovations that remain under evaluation, in various stages of validation and drafting, together with a library of know-how that the Company may elect to protect as trade secrets. These candidate innovations span a range of system architectures, signal optimization methods, and applied machine learning models. The Company has not determined whether, when, or in what form it will pursue protection for any particular candidate innovation, and, consistent with the streamlining of its intellectual property operations, the Company expects to pursue formal filings for only a limited number of these innovations while continuing to evaluate the remainder. There can be no assurance that the Company’s pipeline will result in any specified number of filed applications, issued patents, or protectable trade secrets, and the Company does not undertake to reach any particular aggregate count of innovations.
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IP Monetization and Licensing Strategy
Spectral intends to pursue an intellectual property monetization strategy through the negotiation and structuring of licensing arrangements that the Company believes could generate both near-term and long-term value, and which the Company expects may combine equity participation and cash components. The Company is currently evaluating the applicability of a focused set of its innovations to the operations of its subsidiaries 42 Telecom and TVS, with the goal of improving their financial performance. The Company also has more than a dozen potential acquisitions in its pipeline for evaluation, many of which have substantial intellectual property as part of their set of assets. In addition, the Company believes it can further develop processes and innovations from the various technical and business staff of eventually acquired companies that could substantially increase the breadth and value of its intellectual property portfolio. The Company has not executed any definitive intercompany license agreement with 42 Telecom or TVS, and the specific innovations that may be licensed, the scope of any license, and the consideration payable have not been finally determined. The Company is currently evaluating such formal license agreements with each of 42 Telecom and TVS, although there can be no assurance that any such agreement will be executed on the anticipated timeline, on favorable terms, or at all. As part of this approach, the Company seeks to embed proprietary technologies into operational platforms to enhance revenue and scalability while preserving core intellectual property ownership, and certain technologies may be co-developed by Spectral and the operating subsidiaries. See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.”
Integrated Growth Platform
Spectral’s four-pillar platform—comprising IP development, licensing, software productization, and acquisition—forms a tightly integrated and capital-efficient growth model. Each element reinforces the others: IP creation fuels product development and licensing; products validate market applications; and acquisitions provide pathways for embedding Spectral’s technology into operating businesses. The platform is designed to be agile, scalable, and high-leverage—enabling Spectral to expand its footprint without requiring extensive fixed infrastructure or deep operational overhead. As the Company matures from R&D-centric roots into a commercial-stage enterprise, this structure supports repeatable value creation and strategic optionality.
Market Position and Strategy
Spectral is building a differentiated market position at the convergence of artificial intelligence, hybrid classical computing, and quantum-enhanced infrastructure. Unlike companies that focus on narrow-point technologies—such as isolated quantum processor development or large-scale cloud infrastructure—Spectral is constructing a vertically integrated platform anchored in proprietary intellectual property and extensible across industries. This approach combines rigorous scientific research, modular software product development, and value-accretive acquisitions to create a scalable, capital-efficient growth engine.
The Company’s strategy is structured around four mutually reinforcing pillars:
1. The ongoing development of a robust portfolio of patents and trade secrets;
2. The monetization of that IP through cash and equity-based licensing agreements;
3. The creation of high-utility software products that generate measurable ROI for enterprise users; and
4. The acquisition or investment in companies where Spectral’s technologies can be integrated to unlock margin expansion, growth, and long-term strategic value.
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As of the date of this filing, Spectral had filed provisional patent applications with the USPTO, held twenty-one (21) utility patent applications acquired from Eliznikcomp OÜ, each of which has been filed with the USPTO and is pending, and had prepared utility patent applications that have not yet been filed and that, if ultimately filed, would be filed as direct, non-provisional applications with the USPTO only.
The Company is focusing its filing and prosecution resources on the approximately 40 innovations it believes are most closely aligned with its current strategic priorities while it evaluates the remaining innovations in its pipeline. The Company is evaluating the applicability of a focused set of these innovations to its subsidiaries 42 Telecom and TVS and is currently evaluating a formal license agreement with each of 42 Telecom and TVS. No definitive intercompany license agreement has been executed, and there can be no assurance that any such agreement will be executed on the anticipated timeline, on favorable terms, or at all. In addition, the Company is evaluating the intellectual property in companies in its acquisition pipeline and determining how best to protect the intellectual property therein for the acquisitions that close. At this moment, the Company believes that as artificial intelligence technology is developing in a fast-paced legal environment and it may be better for the Company to rely more on trade secret law for protection of its developing critical algorithms and emerging AI systems.
Spectral operates in a rapidly evolving landscape marked by increased demand for secure, high-performance, and energy-efficient computational capabilities. By focusing on critical domains such as cybersecurity, logistics, simulation, and real-time analytics, Spectral is positioned to meet urgent real-world needs—particularly in sectors requiring high-dimensional or low-latency compute. Through its hybrid AI-quantum architecture and software-first deployment strategy, the Company aims to minimize customer onboarding friction while preserving technological defensibility. To support this strategy, Spectral works with senior advisors and consultants specializing in quantum systems, IP commercialization, and regulatory frameworks. These experts complement the Company’s internal innovation engine and inform its ongoing technology, licensing, and go-to-market strategies. Spectral’s integrated platform—rooted in invention, monetization, and transformation—positions the Company to lead in the emerging category of AI- and quantum-enabled enterprise infrastructure.
Outlook
Our immediate goal continues to be to commercialize our streamlined intellectual property portfolio, scale licensing and product operations, and deploy our integrated platform across a growing number of industry verticals. The Company’s immediate priorities include executing new licensing agreements, validating its proprietary software products through pilot deployments, and completing the preparation and filing of utility patent applications for the focused set of approximately 40 innovations described in this prospectus, while continuing to evaluate the remainder of its innovation pipeline.
Spectral plans to sign a definitive agreement and hopes to close the Intermatica acquisition as well as develop additional in-house research and development capabilities. These developments support the growth of Spectral’s revenue generating operations as well as its research and development activities.
Spectral’s medium-term outlook is shaped by rising demand for AI- and quantum-enhanced solutions in sectors such as cybersecurity, predictive modeling, and advanced logistics. By offering modular, scalable, and capital-light access to complex computational technologies, Spectral intends to reduce adoption barriers while delivering strategic capabilities to enterprise and government clients. Its IP-first model and hybrid deployment architecture are designed to produce rapid ROI and defensibility across a range of verticals.
Near-Term (0–6 months): The Company’s immediate priorities are: (1) completing its Nasdaq Capital Market uplist; (2) closing the pending acquisitions of Intermatica S.p.A.and other undisclosed opportunities.; and (3) developing improved margins through AI innovations applied across its operating subsidiaries. The Company estimates these initiatives will require approximately $5 million to $20 million in capital and the addition of 3–5 technical staff members. Key risks include regulatory obstacles to the uplisting, uncertain capital markets reception for the Company’s equity or debt securities, and difficulty in hiring qualified AI technologists.
Medium-Term (6–18 months): Following the uplist and integration of pending acquisitions, the Company intends to pursue additional acquisitions, organic revenue growth, IP monetization and licensing, technology deployment into operating subsidiaries, international expansion, and research partnerships with universities. The Company estimates these initiatives will require an additional $20 million to $100 million in capital. Key challenges include rising acquisition costs as competing acquirers increasingly recognize the margin-improvement potential of AI-enabled integration, bureaucratic complexity of university research partnerships, and potential price compression across the Company’s industries as AI-driven efficiency gains become widespread.
Long-Term (18–48 months): The Company’s Q1 2026 revenue run rate approaches $1 billion on an annualized basis. The Company’s objective is to exceed $2 billion in annual revenue within 48 months through a combination of organic growth and selective acquisitions, while increasing aggregate net margins to approach 20% within 24 months and continuing to improve thereafter. There can be no assurance that these objectives will be achieved.
Looking ahead, the Company remains committed to disciplined innovation and strategic expansion. Spectral continues to evaluate potential joint ventures, spinouts, co-development partnerships, and other strategic alternatives that support commercialization while maintaining optionality. Management is focused on optimizing shareholder value while balancing bold technological advancement with prudent financial and operational execution.
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RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 2026 and 2025
Net Revenues and Cost of Revenues
Net revenues were $328,512 for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025. The Company generated no revenues in Q1 2025 as neither 42 Telecom nor TVS had been acquired as of that date. Q1 2026 revenues consisted of voice termination revenues from TVS of $324,499, messaging and platform revenues from 42 Telecom Ltd. of $3,776, and platform revenues from 42 Telecom AB of $237. The revenue growth between periods reflects the transformative impact of the Company’s acquisition strategy executed during 2025 and the first full quarter of consolidated operations across both subsidiaries.
Cost of revenues was $326,322 for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 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.
Gross profit was $2,190 for the three months ended March 31, 2026, representing a gross profit margin of approximately 0.7%. 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 $5,169 for the three months ended March 31, 2026, compared to $660 for the three months ended March 31, 2025, an increase of $4,509. The increase reflects the first full quarter of consolidated operations at both 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 $2,440 for the three months ended March 31, 2026, compared to $624 for the three months ended March 31, 2025, an increase of $1,816. The increase is primarily attributable to the consolidation of both 42 Telecom’s and TVS’s operating overhead during the first full quarter of combined operations, increased professional fees associated with SEC filings and expanded corporate activities in connection with the Company’s planned Nasdaq Stock Market uplisting.
Wages and benefits were $741 for the three months ended March 31, 2026, compared to $36 for the three months ended March 31, 2025, an increase of $705. 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.
Depreciation and amortization was $1,988 for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025. The increase reflects amortization of identifiable intangible assets recognized in connection with the acquisitions of 42 Telecom and TVS 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 $1,973 and depreciation of property, plant and equipment was $15 for the three months ended March 31, 2026. The absence of depreciation and amortization in Q1 2025 reflects the fact that neither the 42 Telecom nor the TVS acquisition had been completed as of that date.
Other Income (expense)
Total other expense was $6,326 for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025. The Q1 2026 balance includes a non-cash loss of $5,914 from the change in fair value of contingent consideration related to the 42 Telecom and TVS acquisitions, $415 in net interest expense related to the accounts receivable financing facilities and other obligations, partially offset by other income of $3. The change in fair value of contingent consideration arose primarily from the decline in the Company’s stock price from $4.13 at December 31, 2025 to $2.56 at March 31, 2026, which increased the estimated number of additional shares required under the minimum valuation guarantee provisions of the respective acquisition agreements. See Note 4 — Fair Value Measurements for further details.
Income Taxes
The Company recorded income tax expense of $100 for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025. The Q1 2026 tax expense reflects current tax obligations arising from the foreign operations of 42 Telecom in Malta and Sweden.
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Net Loss
Net loss was $9,405 for the three months ended March 31, 2026, compared to $660 for the three months ended March 31, 2025, representing an increase in net loss of $8,745. The increase was driven primarily by the non-cash loss from the change in fair value of contingent consideration of $5,914 and increased operating expenses associated with the Company’s expanded operations following the consolidation of both 42 Telecom and Telvantis, partially offset by gross profit of $2,190 generated by the telecommunications subsidiaries. Total comprehensive loss was $9,492 for the three months ended March 31, 2026, which includes $87 of foreign currency translation losses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2026, we had cash and cash equivalents of $2,705 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, and additional debt or equity financings as needed.
The following table summarizes our cash flows for the three months ended March 31, 2026 and 2025 (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities | $ | (523 | ) | $ | (220 | ) | ||
| Net cash used in investing activities | $ | (45 | ) | $ | - | |||
| Net cash provided by financing activities | $ | 1,273 | $ | 135 | ||||
Cash Used in Operating Activities
Net cash used in operating activities was $523 for the three months ended March 31, 2026, compared to $220 for the three months ended March 31, 2025. Despite reporting a net loss of $9,405, operating cash outflow was limited to $523 due to significant non-cash charges including the $5,914 change in fair value of contingent consideration, $1,973 in amortization of intangible assets, $15 in depreciation, $1,097 in amortization of prepaid stock-based compensation, and $275 in stock-based compensation expense.
Working capital movements during the three months ended March 31, 2026 were substantial but largely offsetting, reflecting the high-volume, low-margin nature of our international voice termination carrier operations. Accounts receivable increased by $237,821 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 $236,536 in accounts payable, reflecting the parallel payment terms on the supplier side of the VoIP carrier business.
Net cash used for the three months ended March 31,2025 in operating activities, $220 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 $45 for the three months ended March 31, 2026, compared to $0 for the three months ended March 31, 2025. Investing activities in Q1 2026 consisted of $39 in capitalized internally developed software costs at 42 Telecom and $6 in purchases of property, plant and equipment.
There were no investing activities for the three months ended March 31, 2025.
Cash Provided by Financing Activities
Net cash provided by financing activities was $1,273 for the three months ended March 31, 2026, compared to $135 for the three months ended March 31, 2025. The increase of $1,138 was primarily attributable to $1,073 in net borrowings under the accounts receivable financing facility and $200,000 in proceeds from the private placement of 100,000 shares of common stock at $2.00 per share under the offering approved by the Board of Directors on March 16, 2026.
Cash provided by financing activities for the three months ended March 31, 2025, consisted entirely of $135 in proceeds from short-term advances.
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Capital Requirements and Outlook
The Company has incurred recurring net losses and has an accumulated deficit of $42,820 as of March 31, 2026. We believe that our existing cash resources, together with anticipated cash flows from our telecommunications operations and proceeds from our private placement offering, 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. If we are unable to obtain additional financing when needed, we may be required to curtail or reduce our planned operations.
The Company has historically reported consolidated cash flows used in operating activities for the periods presented. In assessing whether the Company has sufficient liquidity to fund planned operations for at least the next twelve months, management considered those historical operating cash outflows together with the Company’s current operating structure following the acquisitions completed in late 2025. Management determined that the historical consolidated operating cash flows were affected by working capital timing, initial group consolidation and integration expenses, and other costs associated with the Company’s transition into its current operating structure, and therefore were not fully indicative of the Company’s expected future operating cash flows as a combined operating group.
Management also considered the expected operating cash generation of the Company’s operating subsidiaries, the Company’s demonstrated ability to access capital through private placement transactions completed in recent months, including aggregate gross proceeds of approximately $220,000 raised since January 1, 2026, and $1,834,970 during the year 2025, and the Company’s currently available capital resources.
Based on these factors, and without giving effect to any proceeds expected to be received from this offering, management believes that the Company will be able to conduct its planned operations for at least the next twelve months. Management does not believe that external capital is required to fund the Company’s planned operations during such twelve-month period.
Historically, the Company has funded holding company expenses, transaction costs, acquisition-related activities, and public company readiness initiatives through private placements and other financing activities. In addition, the Company’s operating subsidiaries generate cash flows from operations that management believes provide additional financial flexibility in supporting the Company’s ongoing activities.
The Company expects that the proceeds from this offering will provide additional capital to support the integration of acquired businesses, expansion initiatives, public company infrastructure, strategic opportunities, and general working capital requirements. While the Company believes the proceeds from this offering will enhance its financial flexibility and support its long-term growth objectives, management does not believe that the completion of this offering is necessary to fund the Company’s planned operations over the next twelve months.
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.
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 March 31, 2026, the aggregate contingent consideration liability was $40,753, comprising $6,614 related to the 42 Telecom acquisition and $34,139 related to the TVS acquisition. For the three months ended March 31, 2026, the Company recognized a non-cash loss of $5,914 from the change in fair value of contingent consideration, driven primarily by the decline in the Company’s stock price from $4.13 to $2.56 during the quarter. 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.
CONSOLIDATED RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 2025 and 2024
Net Revenues and Cost of Revenues
Net revenues were $21,839,868 for the year ended December 31, 2025, consisting of $14,551,774 in third-party revenue and $7,288,094 in related-party revenue derived from the operations of 42 Telecom and its subsidiaries following the acquisition closing on August 1, 2025. TVS was consolidated as of December 31, 2025 but contributed no revenues for the year ended December 31, 2025. The Company did not generate revenues for the year ended December 31, 2024.
Cost of revenue for the year ended December 31, 2025 was $18,956,178, consisting of $11,652,662 in third-party cost of revenue and $7,303,516 in related-party cost of revenue, derived from the operations of 42 Telecom and its subsidiaries following the acquisition closing on August 1, 2025. The Company had no cost of revenue for the year ended December 31, 2024.
Gross profit was $2,883,690, representing a gross profit margin of approximately 13.2%.
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Operating Expenses
Total operating expenses were $5,811,830 for the year ended December 31, 2025, compared to $3,004,948 for the year ended December 31, 2024, an increase of $2,806,882. The increase was primarily driven by the consolidation of 42 Telecom’s operations and the expansion of the Company’s corporate infrastructure in connection with its growth strategy.
Selling, general and administrative expenses were $3,187,054 for the year ended December 31, 2025, compared to $2,115,924 for the year ended December 31, 2024. The increase of $1,071,130 was primarily attributable to the addition of 42 Telecom’s operating overhead, increased professional fees associated with SEC filings, audit and legal costs related to business combinations, and expanded corporate activities in connection with the Company’s planned NASDAQ uplisting.
Wages and benefits expenses were $1,026,034 for the year ended December 31, 2025, compared to $144,000 for the year ended December 31, 2024. The increase of $882,035 was primarily due to the acquisition of 42 Telecom in August 2025, which added staff across operations, technology, and management functions. Wages and benefit expenses include gross wages and salaries, bonuses, performance-related pay, employer social insurance contributions, pensions, insurance costs, and other staff-related expenditures.
Depreciation and amortization was $1,598,742 for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. The increase reflects amortization of identifiable intangible assets recognized in connection with the acquisitions of 42 Telecom and Eliznikcomp OÜ, as well as depreciation of property, plant and equipment acquired through the 42 Telecom acquisition.
Research and development expenses were $0 for the year ended December 31, 2025, compared to $745,024 for the year ended December 31, 2024. During 2024, R&D expenses related primarily to the acquisition of the Node Nexus technology, which was subsequently rescinded. In 2025, the Company’s technology activities consisted primarily of patent application preparation and filing costs, which are not research and development activities.
Other Income (Expense)
Total other income was $3,349,000 for the year ended December 31, 2025, compared to total other expense of $(265,596) for the year ended December 31, 2024. The 2025 balance includes a $3,387,266 gain from the change in fair value of contingent consideration related to the 42 Telecom acquisition, partially offset by $5,573 in interest expense and $32,693 in other expenses. The 2024 other expense consisted entirely of a $265,596 loss on extinguishment of debt.
Income Taxes
The Company recorded an income tax benefit of $(497,495) for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. The 2025 tax benefit reflects the net effect of foreign income taxes in Malta and Sweden on 42 Telecom’s profitable operations, offset by a U.S. federal deferred tax benefit arising from the recognition of deferred tax liabilities in connection with the business combinations.
Net Income
Net income was $918,355 for the year ended December 31, 2025, compared to net loss of $(3,270,544) for the year ended December 31, 2024, representing an improvement of $4,188,899. The improvement was driven by the revenue and gross profit contributions from 42 Telecom’s operations and the non-cash gain from the change in fair value of contingent consideration, partially offset by increased operating expenses associated with the Company’s expanded operations and corporate infrastructure. Total comprehensive income was $1,050,906 for the year ended December 31, 2025, which includes $132,551 of foreign currency translation gains.
Revenue Concentration
For the year ended December 31, 2025, two customers individually accounted for more than 10% of the Company’s consolidated revenues. Customer A, which is not a related party of the Company, accounted for approximately 35.7% of consolidated revenues. Customer B , a related party, accounted for approximately 33.0% of consolidated revenues. See Note 11 - Related Party Transactions for further details regarding the Company’s transactions and balances with Customer B. The loss of either of these customers could have a material adverse effect on the Company’s results of operations, cash flows and financial condition.
For the year ended December 31, 2024, the Company had no revenues as it had not yet commenced revenue-generating commercial operations. Accordingly, no customer concentration disclosure is applicable for that period.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2025, the Company had cash and cash equivalents of $2,087,400 and restricted cash of $21,174, totaling $2,108,574, compared to $107,475 as of December 31, 2024. The increase of $2,001,099 was primarily attributable to cash acquired through the acquisition of 42 Telecom and Telvantis, proceeds from equity financings, and short-term borrowings, partially offset by cash used in operations and transaction-related expenses.
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (1,487,560 | ) | $ | (1,653,959 | ) | ||
| Net cash provided by investing activities | $ | 1,190,621 | $ | - | ||||
| Net cash provided by financing activities | $ | 2,165,487 | $ | 1,761,194 | ||||
Cash used in operating activities
Net cash used in operating activities was $(1,487,560) for the year ended December 31, 2025, compared to $(1,653,959) for the year ended December 31, 2024. The 2025 operating cash flows reflect net income of $918,355 adjusted for the significant non-cash items, $(3,387,266) non-cash gain from the change in fair value of contingent consideration, $(1,042,689) in deferred tax adjustments, $1,572,441 in amortization of intangible assets, $1,077,319 in stock-based compensation, $350,224 in common stock issued for professional and marketing services, $26,302 in depreciation of property, plant and equipment, $23,320 in amortization of right-of-use assets, and $12,995 in bad debt expense.
Changes in working capital reflected the consolidation of 42 Telecom’s operations and included increases in accounts payable of $3,882,906, accounts payable to related parties of $5,645,743, due to/from related party $163,922, accrued expenses of $841,566, and contract liabilities of $84,806, partially offset by increases in accounts receivable of $(5,646,523), contract assets of $(5,641,421), prepaid expenses and other current assets of $(282,650), and other receivables including related party of $(9,431), deferred tax liability of $(65,662), and operating lease liabilities of $(11,817).
Cash from investing activities
Net cash provided by investing activities was $1,190,621 for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. The 2025 investing activities consisted primarily of $1,391,391 in cash and restricted cash acquired through business combinations, partially offset by $40,399 in purchases of property, plant and equipment and $160,371 in software development capitalization.
Cash from financing activities
Net cash provided by financing activities was $2,165,487 for the year ended December 31, 2025, compared to $1,761,194 for the year ended December 31, 2024. The 2025 financing activities consisted primarily of $1,834,970 in proceeds from the sale of common stock, $331,432 in net proceeds from the accounts receivable financing facility with Fasanara, partially offset by $915 in loan repayments. For the year ended December 31, 2025, foreign currency translation had a favorable effect of $132,551 on cash and cash equivalents, reflecting the impact of changes in the Euro and Swedish Krona exchange rates relative to the U.S. dollar during the year. Subsequent to year-end, on March 13, 2026, the Company completed a private placement of 100,000 shares of common stock at $2.00 per share for aggregate proceeds of $200,000. This private placement was subsequently approved by the Board of Directors on March 16, 2026.
Going Concern
As of December 31, 2025, the Company had cash and cash equivalents of $2,087,400 and an accumulated deficit of $(33,415,041). Total current liabilities of $102,018,696 exceeded total current assets of $59,451,611, resulting in a working capital deficit of $(42,567,085). Included within current liabilities is $34,838,484 of contingent consideration arising from the acquisitions of 42 Telecom and Telvantis. Pursuant to the terms of the respective acquisition agreements, the contingent consideration obligations are settleable solely through the issuance of shares of the Company’s common stock upon achievement of specified performance conditions. Accordingly, the contingent consideration does not represent a cash funding requirement of the Company. Excluding contingent consideration, the working capital deficit was $(7,728,601).
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The Company has incurred recurring losses from operations 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.
Management’s plans to address the going concern conditions include continued revenue generation from the operations of 42 Telecom and TVS, utilization of the receivables financing arrangements with Fasanara Securitisation S.A. to support near-term working capital needs, the pursuit of additional equity capital through the Company’s planned NASDAQ uplisting and related capital raise, and continued moderation of discretionary expenditures. There can be no assurance that the Company will be successful in executing these plans or in obtaining sufficient additional financing on acceptable terms.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. For further discussion of the going concern assessment and management’s plans, see Note 2 — Going Concern to our consolidated financial statements included elsewhere in this Registration Statement.
PLAN OF OPERATIONS
Overview and Strategic Evolution
Spectral Capital Corporation operates as a technology-focused holding and operating company that combines proprietary research and development, intellectual property creation, and direct participation in revenue-generating operating businesses. Spectral has operated continuously as an operating company, however, prior to 2025, the Company’s operations were primarily research- and development-oriented and centered on the creation, refinement, and protection of intellectual property, including software, algorithmic, and data-driven technologies. During this earlier phase, Spectral devoted substantial management attention and capital resources to internal development efforts, experimentation, and patent strategy. While these activities resulted in the creation of intellectual property assets and technical expertise, the Company’s earlier software products achieved limited commercial traction, and operating revenues were modest.
Beginning in 2025, Spectral initiated a strategic transition toward a more diversified operating model that combines intellectual property development with direct ownership and operation of businesses that maintain established customer relationships and recurring revenues. This transition reflects management’s assessment that long-term value creation is best achieved by pairing technology development with operating platforms that can generate cash flow independently, while also providing practical environments in which Spectral’s technologies may be deployed, tested, and refined. As a result, Spectral now operates as a hybrid organization that integrates research and development, intellectual property strategy, and traditional commercial operations.
Acquired Businesses and Commercial Foundation
A central component of Spectral’s current plan of operations is the ownership and operation of technology-enabled businesses that provide services directly to customers and are not exclusively dependent on the commercialization of Spectral’s proprietary intellectual property. These businesses generate revenues through established commercial offerings and customer contracts, creating a financial foundation that supports ongoing operations and future growth.
Through its telecommunications and communications-platform operations, including the business acquired in 2025, Spectral provides services such as enterprise messaging, SMS aggregation, SS7 platform access, routing, and related communications infrastructure solutions. These services are offered to enterprise customers, aggregators, and service providers across multiple jurisdictions. The telecommunications operations are characterized by recurring usage-based revenues, ongoing customer relationships, and operational complexity involving network performance, routing efficiency, regulatory compliance, and fraud mitigation.
The Company’s plan of operations emphasizes maintaining and expanding these operating businesses by focusing on customer retention, service reliability, regulatory compliance, and selective expansion into new markets or service offerings. Management intends to prioritize disciplined operational execution, including cost management, margin optimization, and investment in systems and personnel necessary to support scalable operations.
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Role of Intellectual Property and Technology Development
While Spectral’s operating businesses are not exclusively dependent on its intellectual property portfolio, proprietary technologies remain an important component of the Company’s long-term strategy. Spectral continues to invest in research and development activities focused on artificial intelligence, data analytics, automation, and advanced computing approaches, including quantum-adjacent and hybrid computing concepts. These efforts are intended to produce technologies that can be deployed internally within Spectral’s operating businesses, licensed to third parties, or used to enhance the value of future acquisitions.
Management views intellectual property as a strategic asset that can complement and enhance operating performance rather than as the sole driver of revenue. For example, AI-enabled analytics, routing optimization tools, automation software, and fraud detection systems may be integrated into telecommunications operations to improve efficiency, reduce costs, enhance service quality, and support margin expansion. At the same time, Spectral may pursue external licensing or strategic partnerships where appropriate, although there can be no assurance that such arrangements will materialize.
Spectral’s intellectual property strategy includes a combination of patent filings and trade secret protection. In certain cases, management may determine that maintaining technologies as trade secrets provides greater long-term value than public disclosure through the patent process. This strategy involves inherent risks, including the potential for independent development or unauthorized disclosure.
Integration of Acquisitions
An important element of Spectral’s plan of operations is the integration of acquired businesses into a cohesive operating platform. Management intends to focus on integrating systems, processes, personnel, and reporting functions while preserving the customer relationships and operational expertise of acquired entities. Integration efforts may include aligning financial reporting, implementing centralized controls, rationalizing vendor relationships, and selectively deploying shared technologies across business units.
Spectral expects that integration activities will require significant management attention and resources and may involve operational challenges, including cultural differences, system incompatibilities, and transitional inefficiencies. The Company’s plan of operations emphasizes a measured approach to integration, prioritizing continuity of service and customer satisfaction while gradually implementing operational improvements.
Further, the Company currently has two identified acquisition targets: (a) Intermatica S.p.A., an Italian telecommunications company, for which the Company entered into a binding term sheet dated January 4, 2026, subject to completion of due diligence and negotiation of definitive documentation (no anticipated closing date); and(b) an undisclosed Kentucky corporation providing telecommunications and data infrastructure services, which it is in discussions regarding a potential acquisition under a definitive acquisition agreement which has not yet been signed.
The Company has completed three acquisitions: 42 Telecom Ltd. (closed August 1, 2025), TVS (closed December 31, 2025), and Eliznikcomp OÜ (asset purchase, closed October 15, 2025). Three previously pending transactions have been terminated or cancelled: Snackprompt (terminated May 5, 2026), MultiCortex (terminated March 31, 2026), and Intrepid View Partners/WAV (cancelled March 11, 2026).
With respect to the Company’s current acquisition targets, the Company is not aware of any officers, directors, or significant shareholders of Spectral Capital Corporation who are also officers, directors, or significant shareholders of the undisclosed Kentucky corporation. Daniel Gilcher, the Company’s Chief Financial Officer is the Chairman of Intermatica S.p.A’s Board of Directors. With respect to completed acquisitions, the Company notes the following overlaps: (i) Daniel Gilcher, the Company’s Chief Financial Officer, serves as Chief Financial Officer and a Director of Mexedia SpA, an entity previously affiliated with Heritage Ventures Ltd., the former sole shareholder of 42 Telecom Ltd.; and (ii) Orlando Taddeo, the beneficial owner of Heritage Ventures Ltd. and former sole director of 42 Telecom Ltd., also served as Chief Executive Officer and Director of Mexedia SpA, which is the 75% owner of Telvantis, the seller of TVS. Mr. Gilcher is also the Chief Financial Officer, director and shareholder of Telvantis. No officers, directors, or significant shareholders of the Company hold officer, director, or significant shareholder positions in Eliznikcomp OÜ, Snackprompt Corp., MultiCortex, LLC, or Intrepid View Partners, LP.
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Growth Strategy and Future Acquisitions
Spectral’s growth strategy contemplates a combination of organic growth within existing operating businesses and selective acquisitions of additional technology-enabled companies. Management intends to evaluate acquisition opportunities that offer established revenues, defensible market positions, and the potential to benefit from Spectral’s technology capabilities. The Company does not intend to pursue acquisitions solely for intellectual property; rather, target companies are expected to have ongoing commercial operations and customer relationships.
Future acquisitions, if any, may be financed through a combination of cash, equity, or other consideration, subject to market conditions and the availability of capital. There can be no assurance that Spectral will identify suitable acquisition targets, successfully complete acquisitions, or achieve anticipated benefits from any future transactions.
Research and Development Activities
Spectral plans to continue investing in research and development, with an emphasis on applied technologies that have potential commercial relevance to its operating businesses or target markets. R&D activities are expected to focus on software development, algorithm design, data analytics, and automation tools, rather than speculative or purely theoretical research. Management intends to allocate R&D resources in a disciplined manner, balancing innovation objectives with the need to manage costs and achieve near- and medium-term operational goals.
Certain research initiatives may involve emerging or experimental technologies, including quantum-inspired or hybrid computing approaches. These initiatives are exploratory in nature and may require substantial additional development, validation, and investment before they can be commercialized, if at all. The Company’s plan of operations does not assume that any specific R&D initiative will result in commercially viable products.
Human Capital and Organizational Development
Spectral’s plan of operations depends on its ability to attract, retain, and motivate skilled personnel, including engineers, data scientists, operations specialists, and management professionals. As the Company transitions to a more diversified operating model, management intends to invest in organizational development, including the establishment of appropriate governance structures, internal controls, and operational processes.
The Company expects to incur additional costs associated with personnel, compliance, and systems as it scales its operations and prepares for listing on a national securities exchange. Management believes that these investments are necessary to support sustainable growth, but they may adversely affect operating margins and cash flows in the near term.
Capital Resources and Liquidity
Spectral’s plan of operations assumes access to capital from a combination of operating cash flows, equity financings, and other sources as needed. The Company intends to use available capital to support operating businesses, fund research and development, pursue selective acquisitions, and meet regulatory and compliance obligations. There can be no assurance that additional capital will be available on acceptable terms, or at all.
Management expects to exercise discretion in allocating capital between operating needs and growth initiatives, with an emphasis on maintaining liquidity and financial flexibility. The Company’s ability to execute its plan of operations will depend in part on market conditions, investor sentiment, and the performance of its operating businesses.
Regulatory and Compliance Considerations
Spectral operates in regulated industries, including telecommunications and data-driven services, and is subject to various laws and regulations across multiple jurisdictions. Compliance with regulatory requirements is an ongoing component of the Company’s plan of operations and requires dedicated resources, systems, and expertise. Management intends to continue investing in compliance infrastructure to support existing operations and any future expansion.
Outlook
Spectral’s plan of operations reflects management’s belief that combining intellectual property development with direct ownership of operating businesses provides a more resilient and flexible foundation for long-term growth. While the Company continues to face risks associated with technology development, integration, competition, and regulatory compliance, management believes that the diversified operating model positions Spectral to pursue growth opportunities while reducing reliance on the commercialization of any single technology or intellectual property asset.
There can be no assurance that Spectral will successfully execute its plan of operations or achieve its strategic objectives. The Company’s results of operations, cash flows and financial condition will depend on a variety of factors, many of which are beyond its control.
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CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). A summary of our significant accounting policies is included in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Registration Statement. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We consider an estimate to be critical when it (i) requires significant judgment or the use of assumptions about matters that are inherently uncertain and (ii) changes in the estimate or different estimates that could reasonably have been used could have a material effect on our consolidated financial statements. Our critical accounting estimates are described below.
Business Combinations and Purchase Price Allocation The acquisition method requires us to allocate the purchase price of each acquired business to identifiable assets acquired and liabilities assumed at their respective acquisition-date fair values. This process involves significant judgment, particularly in valuing identifiable intangible assets such as customer relationships, developed technology, and trade names. Key assumptions include projected cash flows, discount rates, customer retention rates, royalty rates, and discounts for lack of marketability. Changes in these assumptions could materially affect the amounts allocated to intangible assets and goodwill, and the resulting amortization charges and impairment assessments in future periods.
Contingent Consideration Contingent consideration arising from the 42 Telecom and Telvantis acquisitions is classified as a liability and remeasured at fair value at each reporting date using Monte Carlo simulation models. Key assumptions include projected revenues, operating profit, and stock price volatility. Changes in these assumptions, or in actual operating performance relative to projections, could result in material changes in the fair value of contingent consideration recognized in the consolidated statements of comprehensive income (loss).
Goodwill Impairment Goodwill recognized in connection with the 42 Telecom and Telvantis acquisitions is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment assessment requires significant judgment regarding projected future cash flows, discount rates, and market conditions applicable to each reporting unit. A deterioration in operating performance or adverse changes in macroeconomic conditions could result in impairment charges that may be material to our consolidated financial statements.
Income Taxes The Company operates across multiple tax jurisdictions including the United States, Malta, Sweden, and the United Kingdom. Significant judgment is required in determining the income tax provision, the recoverability of deferred tax assets, and the need for valuation allowances. The Company has recorded a full valuation allowance against its U.S. federal and state deferred tax assets. Changes in management’s assessment of the recoverability of these assets, or in the enacted tax rates or regulations in any of our operating jurisdictions, could materially affect the income tax provision and net deferred tax balances.
Useful Lives of Intangible Assets The estimated useful lives assigned to acquired intangible assets directly affect the amount and timing of amortization expense recognized in each period. Useful lives are determined based on the expected period over which the asset will contribute to future cash flows, considering factors such as historical customer attrition rates, contract durations, and the pace of technological change. A reduction in the estimated useful life of any significant intangible asset would result in a material increase in amortization expense in the period of change and in future periods.
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BUSINESS
OVERVIEW
Spectral Capital Corporation is a publicly traded technology company that operates as a hybrid research, intellectual property, and operating business. Spectral has operated continuously as an operating company; however, for much of its history, the Company’s operations were relatively small in scale and primarily focused on research and development, software experimentation, and intellectual property creation. While these efforts resulted in the development of proprietary technologies and technical know-how, Spectral’s earlier software products achieved limited commercial adoption and did not generate meaningful recurring revenues.
Beginning in 2024 and accelerating through 2025, Spectral initiated a strategic transformation designed to reduce reliance on speculative or long-cycle technology commercialization and to build a more diversified, revenue-oriented operating model. This transformation reflects management’s view that long-term shareholder value is best created by pairing intellectual property development with direct ownership of operating businesses that maintain established customer relationships, generate recurring revenues, and can benefit from the selective deployment of Spectral’s technologies. As a result, Spectral now operates as an integrated platform that combines ongoing research and development, intellectual property strategy, software development, and the ownership and operation of technology-enabled businesses.
Strategic Transformation and Focus
Spectral’s strategic evolution has not been a shift away from technology development, but rather a rebalancing of its business model. Historically, the Company functioned primarily as a technology incubator, with emphasis on invention, patent strategy, and early-stage software concepts. While this approach produced a growing body of intellectual property, it did not, on its own, result in sustained commercial traction.
The Company’s current strategy emphasizes building operating businesses that can function independently as commercial enterprises while also serving as practical environments for the application of Spectral’s intellectual property. These businesses are not exclusively dependent on the success of any single patent, algorithm, or software product. Instead, they generate revenues through established services and customer relationships, with Spectral’s technologies positioned as complementary tools that may enhance efficiency, margins, scalability, or competitive positioning over time.
Key Developments
Intellectual Property Development
Spectral continues to invest in the development of proprietary intellectual property across artificial intelligence, data processing, software architecture, and emerging computing approaches, including quantum-adjacent and hybrid computing concepts. To date, the Company has identified a pipeline of candidate innovations covering a broad range of system architectures, algorithms, and applied technologies, and it is currently focused on the most financially promising and highest potential innovations it believes are most closely aligned with its present strategic priorities while it evaluates the remainder of its pipeline. These innovations were identified across multiple technical domains rather than in support of any single product, and the Company makes no assurance as to the number of innovations that will ultimately result in filed applications, issued patents, or protectable trade secrets.
In parallel, Spectral maintains an internal pipeline of additional inventions that are subject to internal technical review, commercial relevance assessment, and prioritization, and may be pursued through future patent filings, trade secret protection, or other defensive measures. There can be no assurance that any such inventions will result in issued patents or commercially viable products.
Scientific and Technical Development
Spectral’s research and development activities focus on applied technologies intended for deployment in real-world commercial environments. These activities include software development, algorithm design, data analytics, automation tools, and system integration techniques. While the Company monitors and evaluates developments in advanced and emerging computing fields, including quantum-inspired approaches, many such initiatives remain exploratory in nature and may require substantial additional investment, validation, and time to achieve commercial readiness, if at all.
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Corporate Governance and Transactional Cleanup
During 2025, Spectral undertook actions to simplify its corporate structure and clarify ownership of its intellectual property. This included the rescission of certain historical transactions that management determined were not aligned with long-term shareholder value. These actions preserved the Company’s independently developed intellectual property, reduced structural complexity, and allowed management to refocus resources on current operating priorities and strategic initiatives.
Platform and Operations
Telecommunications Businesses
A core component of Spectral’s current business model is the ownership and operation of technology-enabled businesses that provide services directly to customers, which have grown into the domain of telecommunications in 2025. These businesses maintain their own customer relationships, generate recurring revenues, and operate within established commercial markets. Spectral’s operating subsidiaries provide services such as telecommunications infrastructure, enterprise messaging, routing, analytics, and related technology-enabled solutions across multiple jurisdictions.
Management’s operating strategy emphasizes service reliability, regulatory compliance, customer retention, and disciplined cost management. These operating businesses provide a commercial foundation that supports Spectral’s broader platform strategy and reduces dependence on speculative technology commercialization.
Role of Intellectual Property
Spectral’s intellectual property portfolio is intended to complement and enhance its operating businesses rather than serve as the sole driver of revenues. Proprietary technologies may be deployed internally to improve operational efficiency, automate workflows, enhance analytics, reduce fraud, or support margin expansion. In addition, Spectral may pursue licensing, strategic collaborations, or joint development arrangements where appropriate, although there can be no assurance that such arrangements will be completed.
Spectral’s intellectual property strategy includes a combination of patent filings and trade secret protection. In certain cases, management may determine that maintaining technologies as trade secrets provides greater long-term value than public disclosure through the patent process. This strategy involves inherent risks, including the potential for independent development or unauthorized disclosure.
Software Development
The Company develops proprietary software tools derived from its internal research and intellectual property. These products are designed to be scalable and cost-efficient to develop and deploy, with a focus on practical applications that support data analysis, automation, decision support, and operational intelligence. Software products may be deployed internally within operating businesses or offered to third parties, depending on market demand and strategic priorities.
Growth Strategy and Acquisitions
Spectral’s growth strategy contemplates a combination of organic growth within its operating businesses and selective acquisitions of additional technology-enabled companies. Management evaluates acquisition opportunities based on commercial viability, customer base, operational performance, and the potential for Spectral’s technologies to enhance value. The Company does not pursue acquisitions solely for intellectual property and does not assume that technology integration alone will result in improved performance.
Future acquisitions may be financed through a combination of cash, equity, or other consideration, subject to market conditions and the availability of capital. Integration efforts are expected to require management attention and resources, and there can be no assurance that anticipated benefits will be realized.
Market Position
Spectral operates in markets characterized by rapid technological change, increasing demand for data-driven services, and heightened regulatory and competitive pressures. The Company seeks to differentiate itself through a diversified operating model that combines commercial execution with selective technology deployment. Unlike companies that rely exclusively on the commercialization of emerging technologies, Spectral’s strategy emphasizes operational stability, incremental innovation, and disciplined capital allocation.
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Outlook
Spectral’s business strategy is focused on executing its operating model, integrating acquired businesses, selectively deploying proprietary technologies, and pursuing growth opportunities in a disciplined manner. While the Company continues to invest in research and intellectual property development, management does not assume that any particular technology initiative will result in material revenue. The Company’s future results will depend on a variety of factors, including operating performance, market conditions, regulatory developments, and access to capital. There can be no assurance that Spectral will achieve its strategic objectives or generate sustained profitability.
Spectral Capital Corporation, a Nevada corporation (“us”, “we”, “our” or the “Company”) was formed in the state of Nevada on September 13, 2000.
Our principal executive offices are located at 701 Fifth Avenue, Suite 4200, Seattle, Washington 98104. Our phone number is (206) 262-7799. Our website is www.spectralcapital.com.
CORPORATE HISTORY AND DEVELOPMENT
We were incorporated in the State of Nevada on September 13, 2000 as Galaxy Championship Wrestling, Inc., a media and entertainment company. As disclosed in our Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 27, 2023, since our inception, we have had various names and failed business plans. Since August 11, 2010, we have operated under the name Spectral Capital Corporation.
On August 8, 2022, we increased our common stock, $0.0001 par value per share, from 500,000,000 to 1,000,000,000 (the “Increase in Authorized Capital”). On November 22, 2022, we effected a reverse stock split of our common stock whereby every ten (10) shares of issued and outstanding common stock was combined into one (1) share of common stock (the “Reverse Stock Split”).
On February 26, 2013, we signed a definitive Technology Acquisition Agreement to acquire mobile search engine and mobile sharing technology from Fiveseas Securities Ltd. (“Fiveseas”). Under the agreement, we issued Fiveseas 5,000,000 shares of our common stock, par value $0.0001. The agreement called for the technology to reside within a newly formed Delaware corporation called Noot Holdings, Inc. (“Noot”), which we formed on February 28, 2013 and are a 60% owner of and Fiveseas is a 40% owner of. Fiveseas was granted a right of first refusal for any subsequent sale of the technology.
On November 26, 2013, we signed a definitive Technology Acquisition Agreement to acquire a technology application and service that enhances the way people find, consume, analyze, share and discuss financial news and topics, equities, commodities and currencies on the web from TL Global Inc (“TL Global”). Under the agreement, we issued TL Global 5,000,000 shares of our common stock, par value $0.0001. The agreement called for the technology to reside within a newly formed Delaware corporation called Monitr Holdings, Inc. (“Monitr”), which we formed on November 26, 2013 and are a 60% owner of and TL Global is a 40% owner of. TL Global was granted a right of first refusal for any subsequent sale of the technology.
In May 13, 2024, Sean Michael Brehm joined Spectral as a member of the Board of Directors. At this time, the Company began pursuing a new direction as a quantum computing as a service (QaaS) technology accelerator, leveraging the Company’s previous expertise at incubating and accelerating cutting edge technologies, such as the Company’s Noot and Monitr technologies.
Node Nexus Network Co. LLC (August 2024) – Spectral acquired Node Nexus, a developer of decentralized cloud and quantum computing technologies, in August 2024 which was subsequently restructured as an asset purchase in November 2024. This transaction formed the core of Spectral’s flagship Vogon Cloud platform, bringing in proprietary DQ-LDB ledger technology and “QuantumVM” middleware for hybrid classical/quantum computing. The Node Nexus acquisition provided Spectral with a secure, immutable distributed ledger for data storage and a highly efficient virtual machine to integrate classical and quantum workloads, establishing the foundation for the Company’s QaaS offerings.
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Quantomo OU (September 2024) – In September 2024, Spectral acquired Quantomo, a pioneer in quantum tomography algorithms for advanced search and data analysis . Quantomo’s technology leverages quantum parallelism to dramatically accelerate search functions and AI inference across distributed datasets. This acquisition is being integrated into Spectral’s platform to power next-generation search engine capabilities and other data-intensive applications, enhancing the analytical functionality of the Vogon Cloud . This transaction was subsequently rescinded and is being restructured as an asset purchase so that the technology can be more efficiently integrated into Spectral.
crwdunit, Inc. (agreement September 2024, closed December 2024) – Spectral entered into an agreement to acquire crwdunit, Inc. in September 2024 and formally closed the acquisition in December 2024 . crwdunit developed a proprietary resource quantization mechanism that optimizes computing workloads (CPU, memory, storage, and bandwidth) in decentralized cloud environments. The asset purchase added crwdunit’s performance-measurement technology and its community of stakeholders to Spectral’s portfolio . Together with Node Nexus and Quantomo, this addition broadened Spectral’s intellectual property and technical expertise, improving the performance and efficiency of the Vogon Cloud platform and strengthening the Company’s position in decentralized “edge” computing. Subsequently, this transaction was rescinded and is being restructured to more efficiently be able to integrate the crwdunit technology into Spectral and more efficiently distribute the specified Spectral shares to crwdunit shareholders pursuant to the original intent of the acquisition.
Verdant Quantum OU (December 2024)- Spectral entered into an Agreement between the Company and Verdant Quantum OU and Moshik Cohen dated December 15, 2024 whereby Spectral acquired certain plasmonic technology for the development of room temperature semiconductors.
Subsequently all transactions with Sean Brehm, crwdunit, Quantomo, Node Nexus and Verdant Quantum and related entities were rescinded.
We have not been involved in a material bankruptcy, receivership, or similar proceeding. Other than as set forth above, in the prior five years, we have not been involved in any material reclassification, merger or consolidation.
PRINCIPAL PRODUCTS AND SERVICES
Products and Services
Spectral Capital Corporation’s products and services are organized around a diversified operating model that combines direct customer-facing businesses with ongoing technology development and intellectual property creation. While the Company continues to invest in proprietary software, algorithms, and data-driven technologies, its current operations are not exclusively dependent on the commercialization of intellectual property. Instead, Spectral seeks to deploy its technologies in ways that complement and enhance its operating businesses and selected third-party platforms.
Spectral’s strategy is organized around four interrelated areas:
| (1) | the development and protection of proprietary intellectual property, including patents and trade secrets; |
| (2) | selective monetization of intellectual property through licensing and strategic arrangements; |
| (3) | development of proprietary software tools derived from internal research; and |
| (4) | the ownership and operation of technology-enabled businesses with established customer relationships and recurring revenues. |
Intellectual Property Licensing and Strategic Arrangements
Spectral may enter into licensing or strategic collaboration arrangements that allow third parties to utilize certain proprietary technologies developed by the Company. These arrangements may include cash-based licensing fees, equity consideration, or a combination of both, depending on the structure of the transaction and the strategic objectives of the parties. Licensing arrangements are pursued selectively and are intended to complement the Company’s operating businesses rather than replace them as a primary source of revenue. There can be no assurance that any licensing arrangements will be completed or that they will generate material revenue.
Software Products and Internal Tools
Spectral develops proprietary software tools and platforms based on its internal research and intellectual property. These tools are designed to support data analysis, automation, operational intelligence, and decision-support functions and may be deployed internally within Spectral’s operating businesses or, in certain cases, offered to third parties. Software development efforts are focused on practical, scalable applications rather than speculative or purely experimental technologies. The Company does not assume that any individual software product will achieve broad market adoption or generate material standalone revenues.
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NOOT and Monitr Platforms
The Company has previously developed software platforms known as NOOT and Monitr, each of which remains in a limited development or testing phase. These platforms were designed to explore collaborative intelligence, secure information management, and data aggregation concepts. Neither platform is currently commercialized at scale, and neither generates material revenue. The technologies underlying these platforms were acquired pursuant to agreements granting the 40% minority holders of Noot Holdings, Inc. and Monitr Holdings, Inc. rights of first refusal with respect to any subsequent sale of the applicable technology. See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.” Spectral continues to evaluate whether further development, integration, licensing, or discontinuation of these platforms is appropriate based on resource availability, strategic priorities, and market conditions.
Acquisition and Operating Business Model
A central component of Spectral’s current business is the ownership and operation of technology-enabled businesses that provide services directly to customers. Through acquisitions completed in 2025, the Company now operates telecommunications and messaging infrastructure businesses that generate recurring revenues through established commercial services. These operating businesses are not dependent on the commercialization of Spectral’s intellectual property, although the Company may selectively deploy proprietary technologies to improve efficiency, analytics, automation, or scalability over time.
Spectral may pursue additional acquisitions of operating businesses that meet defined criteria, including established customer bases, recurring revenues, and opportunities for operational improvement. The Company does not pursue acquisitions solely for intellectual property and does not assume that integration of proprietary technology will necessarily result in improved performance.
Competition
Spectral operates in highly competitive markets that include telecommunications services, data-driven software, artificial intelligence-enabled tools, and emerging computing technologies. Competition varies by business line and includes established multinational technology companies, specialized service providers, and smaller technology firms. In the telecommunications sector, the Company competes with other infrastructure providers, aggregators, and platform operators. In software and technology development, competition includes firms offering analytics, automation, and AI-enabled solutions.
Many of the Company’s competitors have longer operating histories, greater brand recognition, larger customer bases, and substantially greater financial, technical, and marketing resources than Spectral. These competitors may be able to respond more quickly to technological change, devote greater resources to product development, or offer more favorable pricing. As a result, Spectral may face challenges in gaining or maintaining market share.
The Company’s ability to compete effectively depends on operational execution, customer service, regulatory compliance, and disciplined capital allocation. There can be no assurance that Spectral will be able to compete successfully in all of its markets.
Principal Agreements Affecting Our Ordinary Business
Except for agreements entered into in the ordinary course of business, including customer contracts, vendor agreements, and agreements relating to its acquired operating businesses, the Company does not currently have any material long-term agreements that are outside the ordinary course of its business.
Information Technology and Governmental Regulation
Spectral’s operations are subject to a variety of U.S. federal, state, and foreign laws and regulations applicable to technology, telecommunications, data processing, privacy, cybersecurity, and cross-border commerce. These laws and regulations are complex, continue to evolve, and may be subject to differing interpretations.
Compliance with applicable laws and regulations requires ongoing investment in systems, processes, and personnel and may increase operating costs or limit certain business activities. Regulatory requirements may affect the manner in which the Company collects, processes, stores, and transmits data; provides telecommunications services; and deploys software and technology solutions. Failure to comply with applicable laws and regulations could result in fines, penalties, litigation, reputational harm, or restrictions on the Company’s operations, any of which could adversely affect the Company’s business, financial condition, and results of operations.
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Environmental Matters
We do not anticipate any significant impact of environmental regulations on our business.
OPERATIONS
Spectral Capital Corporation operates as a technology platform company focused on the systematic development, protection, and commercialization of advanced intellectual property and software systems in artificial intelligence, algorithmic computing, and hybrid classical computing architectures. Historically, Spectral operated as a research-driven company with limited commercial operations and modest revenue generation. In recent periods, the Company has begun transitioning toward an operating model that combines intellectual property creation with direct commercial engagement, including licensing, software deployment, and the operation of acquired businesses that maintain customer relationships independent of Spectral’s intellectual property, while remaining complementary to it.
Our operations are organized around four interrelated pillars:
| (1) | intellectual property and trade secret development, |
| (2) | selective licensing and structured commercialization of IP, |
| (3) | development and deployment of proprietary software products, and |
| (4) | integration and operation of acquired technology-enabled businesses. |
This structure is designed to balance long-term value creation through invention with nearer-term revenue generation and operational scale.
| 1. | Intellectual Property and Trade Secret Development |
The foundation of Spectral’s operations is its internal invention and technology development process, which is designed to continuously generate novel algorithms, system architectures, and computational methods. Our innovation efforts focus primarily on artificial intelligence architectures, optimization and probabilistic modeling, secure computation, algorithmic decision systems, and hybrid classical computing approaches.
During 2024 and 2025, Spectral filed a substantial number of provisional patent applications, and prepared utility patent applications that have not yet been filed and that, if ultimately filed, would be filed as direct, non-provisional applications in the United States only, reflecting inventions developed internally and through collaboration with consultants and technical advisors. In October 2025, the Company acquired twenty-one (21) utility patent applications from Eliznikcomp OÜ, each of which has been filed with the USPTO and is pending. As disclosed elsewhere in this registration statement, the previously filed provisional patent applications will be permitted to lapse by their terms and do not form part of the Company’s forward intellectual property strategy, and there can be no assurance that any pending or future application will mature into an issued patent or that any issued patent will provide commercially meaningful protection.
In addition to patents, Spectral strategically relies on trade secrets to protect certain innovations, particularly in areas where public disclosure could enable reverse engineering or where rapid iteration may outpace the patent process. As part of this strategy, we may elect not to pursue patent protection for certain inventions, may abandon patent applications, or may allow provisional applications to expire when management determines that continued confidentiality provides stronger protection. This approach reflects the realities of software- and AI-driven innovation, where competitive advantage may depend more on implementation detail, data, and operational know-how than on formal patent claims.
Our intellectual property development process includes internal invention review, technical vetting, legal evaluation, and strategic assessment of whether patenting, trade secret protection, or a hybrid approach is most appropriate. While we maintain a growing pipeline of potentially patentable concepts, not all inventions are expected to be filed, issued, or commercialized, and there can be no assurance that our intellectual property strategy will prevent competitors from developing similar technologies.
| 2. | Licensing and Structured IP Monetization |
Spectral seeks to monetize certain elements of its intellectual property through selective licensing arrangements, structured to balance near-term economics with longer-term strategic value. Licensing arrangements may include upfront fees, royalties, milestone payments, equity interests, or combinations thereof. In many cases, licensing discussions are exploratory in nature and may not result in executed agreements.
We target licensing opportunities where our technologies can be integrated into third-party platforms in sectors such as data analytics, telecommunications-adjacent services, enterprise software, and automation. However, we do not expect licensing alone to be the primary driver of our operating revenues, and we do not assume that our intellectual property will be broadly adopted across markets without substantial customer validation and integration effort.
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Because many of our technologies are emerging and application-specific, licensing discussions often involve extended evaluation periods, technical diligence, and customization. There can be no assurance that these discussions will result in material revenue or that licensees will successfully commercialize products incorporating our technologies.
| 3. | Software Product Development and Deployment |
In parallel with IP development, Spectral develops proprietary software tools and platforms that operationalize elements of its research and algorithmic capabilities. These products are designed to demonstrate practical application of our technologies and to support revenue generation independent of patent enforcement.
Our software development efforts emphasize modular architectures, reusable algorithmic components, and API-driven deployment models. Products may be delivered as standalone applications, integrated services, or internal platforms used within acquired operating businesses. Software development is conducted with a focus on capital efficiency, and products may be iterated, delayed, or discontinued based on customer feedback, technical feasibility, or resource constraints.
Historically, Spectral’s software products achieved limited commercial traction. Management believes that recent operational changes, including closer alignment with end-user needs and integration with operating businesses, may improve adoption; however, there can be no assurance that future software offerings will achieve market acceptance or generate material revenue.
| 4. | Acquisition, Integration, and Operation of Technology-Enabled Businesses |
Spectral’s operating strategy includes the acquisition and operation of technology-enabled businesses that possess existing customers, revenue streams, and operational infrastructure. These businesses are not solely dependent on Spectral’s intellectual property for their viability but are expected to benefit from selective application of Spectral’s technologies over time.
The Company’s recent acquisitions represent a significant expansion from a historically small, research-oriented organization into a more complex operational structure involving multiple jurisdictions, employees, regulatory frameworks, and customer relationships. Integration efforts focus on maintaining service continuity, regulatory compliance, and customer satisfaction while evaluating opportunities to improve efficiency and margins through automation, analytics, and software enhancements.
Not all anticipated benefits of these acquisitions may be realized, and integration efforts may require greater time, capital, and management attention than expected. In some cases, Spectral may determine that operational improvements are limited by market conditions, customer pricing sensitivity, or regulatory constraints.
Organizational Capabilities and Infrastructure
Spectral operates with a lean organizational structure, supplemented by consultants and advisors with expertise in engineering, intellectual property, and corporate development. This model is intended to control fixed costs while allowing access to specialized talent. However, reliance on external contributors introduces execution risk and may limit scalability.
Spectral does not currently have a full-time Chief Technology Officer at the corporate level, but instead relies on a combination of consultants, contractors and technologists at the subsidiary level who are close to the specific technological implementations of our intellectual property into current products. Spectral expects to significantly expand its technical staff as it looks to increase commercialization of its intellectual property and continues to build out that intellectual property.
As the Company expands its operating footprint, it is enhancing internal controls, financial reporting processes, and operational oversight to meet the requirements of a public company and a potential Nasdaq listing. These efforts may divert resources from product development and commercialization.
Outlook for Operations
Spectral’s near-term operational focus is on stabilizing and scaling its operating businesses, continuing disciplined intellectual property development, and selectively commercializing technologies through software and partnerships. While management believes this integrated approach provides multiple paths to value creation, the Company remains subject to significant execution, market, and financial risks.
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There can be no assurance that Spectral will successfully transition from a primarily research-driven organization to a sustainably profitable operating company, or that its intellectual property and software initiatives will result in meaningful long-term returns for stockholders.
Outlook for Operations
In 2026, Spectral plans to significantly expand its operational footprint in all four pillars. We anticipate a sharp increase in patent filings, a broadening of our licensing relationships, a commercial launch of multiple proprietary software tools, and follow-on acquisitions to reinforce our transformation strategy. These activities will be supported by continued expansion of our expert network and disciplined capital allocation aimed at maximizing shareholder value. We believe our integrated approach—rooted in original invention and practical deployment—uniquely positions Spectral to thrive in a rapidly evolving technological landscape.
RESEARCH AND DEVELOPMENT
For the year ended December 31, 2024, we incurred research and development expenses of $745,024 related to the development of our current software products. This expense consists of expenses related to our technology acquisitions, primarily the acquisition of the Node Nexus Network technology which were subsequently rescinded.
SIGNIFICANT CUSTOMERS AND SUPPLIERS
For the year ended December 31, 2024, the Company did not have any customers, as its activities during that period were primarily focused on research and development, intellectual property creation, and strategic planning, and it had not yet commenced revenue-generating commercial operations.
Subsequent to December 31, 2024, the Company completed the acquisitions of 42 Telecom Ltd. and TVS, each of which operates an established telecommunications and messaging services business with an active customer base. As a result, the Company currently derives revenue from customers through its operating subsidiaries.
Voice and Messaging Services
Through TVS and 42 Telecom, the Company provides international voice and messaging services to telecommunications carriers, mobile network operators, messaging aggregators, and other enterprise customers. The international carrier market is characterized by bilateral commercial relationships in which carriers may act as either buyers or sellers of voice termination capacity and messaging services depending on destination-specific routing economics, pricing, quality, capacity, and traffic demand.
Customers contract directly with the Company for the delivery and termination of telecommunications traffic. The Company utilizes telecommunications switching and routing infrastructure and maintains commercial relationships with multiple carriers and service providers to fulfill customer requirements. The Company is responsible for determining routing decisions, selecting the underlying carriers or service providers used to complete services, negotiating commercial terms with both customers and suppliers, monitoring service quality, and fulfilling its contractual obligations to customers.
The Company may source capacity from multiple carriers for the same destination and may change underlying suppliers without customer approval based on pricing, service quality, technical requirements, network performance, regulatory considerations, or other commercial factors. Customers do not direct routing decisions or specify the carriers used to complete services. Suppliers provide termination or messaging capacity to the Company, but the Company remains responsible to its customers for service delivery.
Termination rates and messaging rates are generally established through bilateral commercial negotiations and may be adjusted periodically based on market conditions, destination, volume, quality, routing availability, and other commercial factors. The Company invoices its customers directly based on actual usage and is separately invoiced by its suppliers. Billing and settlement terms are generally determined by the applicable bilateral agreement or rate confirmation and may include periodic invoicing and settlement based on traffic volumes processed during the applicable billing period.
The Company maintains direct contractual relationships with its customers, determines routing, selects suppliers, negotiates pricing, bears responsibility for fulfillment and service quality, and assumes commercial risks, including customer collection risk, supplier cost risk, and margin risk. As a result, management believes the Company controls the services prior to transfer to customers and acts as principal in these arrangements.
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The Company is party to bilateral voice and messaging service agreements with Mexedia SpA and Mexedia DAC under which either party may act as a customer or vendor depending on destination-specific routing economics. These are ordinary-course carrier service agreements and are not material to the Company’s business. The Company is not dependent on Mexedia SpA or Mexedia DAC as either customers or suppliers, the agreements do not restrict the Company’s ability to source services from alternative vendors, and the Company may route traffic through other carriers without the approval of Mexedia, its customers, or its suppliers.
Fiscal Year Ended December 31, 2025
For the year ended December 31, 2025, two customers each individually accounted for more than 10% of the Company’s consolidated revenues. Customer A, which is not a related party of the Company, accounted for approximately 35.7% of consolidated revenues. Customer B, a related party of the Company, accounted for approximately 33.0% of consolidated revenues. See Note 11 — Related Party Transactions for further details. Revenues for the year ended December 31, 2025 are derived solely from the operations of 42 Telecom Limited, as the acquisition of Telvantis Voice Services, Inc. was completed on December 31, 2025 and accordingly no Telvantis revenues are included in the consolidated results for the year then ended.
As of December 31, 2025, two customers each individually accounted for more than 10% of the Company’s net accounts receivable. Customer C accounted for approximately 19.6% and Customer D, a related party of the Company, accounted for approximately 19.3% of net accounts receivable. Accounts receivable as of December 31, 2025 include balances of Telvantis Voice Services, Inc., as the acquisition was completed on December 31, 2025 and Telvantis balances are included in the consolidated balance sheet as of that date.
The Company’s cost of revenues was similarly concentrated. Supplier A, the same entity as Customer A, accounted for approximately 36.0% of consolidated cost of revenues. Supplier B, the same entity as Customer B and a related party of the Company, accounted for approximately 39.1% of consolidated cost of revenues for the year ended December 31, 2025. Cost of revenues for the year ended December 31, 2025 are derived solely from the operations of 42 Telecom Limited, consistent with the revenue disclosure above.
As of December 31, 2025, three suppliers each individually accounted for more than 10% of the Company’s accounts payable. Supplier C accounted for approximately 16.0%, Supplier A accounted for approximately 10.4%, and Supplier B, a related party of the Company, accounted for approximately 11.4% of accounts payable. Accounts payable as of December 31, 2025 include balances of Telvantis Voice Services, Inc. for the same reason described above.
The Company had no revenues, cost of revenues, accounts receivable, or accounts payable for the year ended December 31, 2024.
For the Three Months Ended March 31, 2026
For the three months ended March 31, 2026, the Company’s revenues were derived primarily from the international voice termination operations of Telvantis Voice Services, Inc. Three customers each individually accounted for more than 10% of consolidated revenues for the three months ended March 31, 2026. Customer E, Customer F, and Customer G accounted for approximately 49%, 23%, and 22% of consolidated revenues, respectively, collectively representing approximately 94% of consolidated revenues. As of March 31, 2026, Customer E, Customer F, and Customer G accounted for approximately 40%, 20%, and 26% of the Company’s net accounts receivable, respectively. None of Customer E, Customer F, or Customer G is a related party of the Company.
The Company’s cost of revenues is similarly concentrated among the same counterparties. Supplier E, Supplier F, and Supplier G accounted for approximately 49%, 23%, and 22% of consolidated cost of revenues, respectively, for the three months ended March 31, 2026, collectively representing approximately 94% of consolidated cost of revenues. As of March 31, 2026, Supplier E, Supplier F, and Supplier G accounted for approximately 40%, 21%, and 27% of the Company’s accounts payable, respectively. Customer E, Customer F, and Customer G are the same entities as Supplier E, Supplier F, and Supplier G, respectively, 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.
Customer E, Customer F, and Customer G are different counterparties from Customer A, Customer B, Customer C, and Customer D referenced above for the fiscal year ended December 31, 2025.
The loss of any one of these customers or suppliers could have a material adverse effect on the Company’s results of operations, cash flows, and financial condition.
The Company had no revenues or cost of revenues for the three months ended March 31, 2025, as neither 42 Telecom nor Telvantis had been acquired as of that date, and accordingly no customer or supplier concentration disclosure is applicable for that period.
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INTELLECTUAL PROPERTY
Intellectual Property and Technology Portfolio
Spectral Capital Corporation has developed a broad and evolving portfolio of proprietary technologies focused on advanced computation, algorithmic optimization, artificial intelligence, security, and hybrid classical computing architectures. The Company’s intellectual property strategy emphasizes systematic invention, selective patent prosecution, and the strategic use of trade secrets, rather than reliance on any single technology or patent family. The Company has not conducted formal patentability, freedom-to-operate, landscape, or similar analyses with respect to the innovations in its pipeline, and references in this prospectus to potentially patentable innovations reflect management’s belief only.
To date, Spectral has developed a portfolio of innovations covering a wide range of methods and systems relating to hybrid classical and quantum computing, algorithmic task orchestration, probabilistic modeling, error mitigation, security, cryptography, simulation, and data optimization. These innovations reflect internally developed concepts as well as inventions developed with the assistance of technical consultants and collaborators. The Company currently does not intend to file or pursue patent prosecution with respect to the provisional patent applications previously filed with the United States Patent and Trademark Office.
In addition to applications already filed or prepared, Spectral maintains an active pipeline of additional candidate innovations that are currently under evaluation, documentation, or internal review. Not all innovations in this pipeline are expected to be filed as patent applications. Management regularly assesses whether particular inventions are more effectively protected through patent filings, trade secret protection, or a combination of both. In certain cases, the Company may elect not to pursue patent protection, may withdraw applications, or may allow provisional applications to expire where continued confidentiality, implementation complexity, or rapid iteration is believed to provide stronger protection than public disclosure.
Spectral’s intellectual property portfolio spans several functional domains, including:
| ● | hybrid classical and quantum task allocation, optimization, and error mitigation methods; |
| ● | algorithmic security, cryptography, authentication, and data integrity systems; |
| ● | synthetic data generation, simulation, and probabilistic modeling frameworks; |
| ● | software-based orchestration of distributed, decentralized, and cloud-based computing environments; and |
| ● | materials, hardware-adjacent, and physics-informed computational models evaluated at a research or exploratory stage. |
The Company’s intellectual property portfolio consists of (i) twenty-one (21) utility patent applications acquired from Eliznikcomp OÜ in October 2025 (collectively, the “Eliznikcomp Applications”); (ii) nineteen (19) flagship utility patent applications developed internally by the Company (collectively, the “Flagship Applications”); and (iii) a portfolio of additional innovations protected as trade secrets and know-how. The Company also relies on contractual protections to safeguard certain proprietary technologies.
All right, title, and interest in the Eliznikcomp Applications and the pending trademark application for the mark “Spectral Capital” are held of record by Spectral Capital Corporation, the parent registrant. The Flagship Applications are owned by Spectral Capital Corporation; however, because the Flagship Applications have not been filed with the USPTO, assignments with respect to such applications cannot be recorded with the USPTO, and the Company is in the process of confirming and conforming the assignment documentation for the Flagship Applications, including reconciling differences between the titles used in the assignment agreements and the titles of the applications. Internally developed software used in the operations of the Company’s subsidiaries, including the internally developed software capitalized at 42 Telecom, is owned by the subsidiary that developed it. As of the date of this Registration Statement, no intercompany license agreements with respect to any intellectual property have been executed between Spectral Capital Corporation and its operating subsidiaries; the Company intends to move toward a formal license agreement with each of 42 Telecom and Telvantis in the third quarter of 2026. See “Risk Factors” and, in particular, “Risks Related to our Intellectual Property.”
None of the prepared utility patent applications claims priority to, or depends from, any of the Company’s previously filed provisional patent applications, and any such application that is ultimately filed will be filed directly as a non-provisional utility application with the United States Patent and Trademark Office.
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Each utility patent application listed below is owned by the Company and is entitled to a statutory term of twenty (20) years from its earliest non-provisional filing date in the United States. Each of the listed Eliznikcomp Applications has been filed with the United States Patent and Trademark Office.
Eliznikcomp Patent Applications
On October 15, 2025, the Company acquired the Eliznikcomp Applications pursuant to an Asset Purchase Agreement with Eliznikcomp OÜ. The Eliznikcomp Applications cover technologies relating to native artificial-intelligence operating-system architectures, kernel-level cybersecurity, processor and memory optimization, distributed-systems scheduling, and operating-system control-plane design. Each Eliznikcomp Application has been prepared as a complete non-provisional utility patent application, including a specification, claims, and drawings, and is owned by the Company. Each Eliznikcomp Application has been filed with the United States Patent and Trademark Office (“USPTO”) as a direct, non-provisional application and does not claim priority to any provisional application.
| Patent Application | Description | Type of Protection | Ownership | Jurisdiction |
| Neural Kernel Scheduler | Adaptive scheduling of AI workloads at the operating-system kernel using neural-network-based scheduling policies. | Utility Patent Application Filed | Owned | United States |
| Autonomous Resource Allocator | Self-optimizing engine for dynamic allocation of compute, memory, and input/output resources in operating-system architectures. | Utility Patent Application Filed | Owned | United States |
| Predictive Paging Engine | AI-driven memory management system that predicts and pre-fetches memory pages to reduce latency. | Utility Patent Application Filed | Owned | United States |
| Adversarial Pipeline Optimizer | Generative-adversarial-network-based optimization of processor instruction pipelines for performance and power efficiency. | Utility Patent Application Filed | Owned | United States |
| Adaptive Kernel Defense | Self-learning cybersecurity layer integrated at the operating-system kernel for real-time intrusion detection. | Utility Patent Application Filed | Owned | United States |
| Predictive Threat Mitigation | Autonomous framework for predicting and mitigating cybersecurity threats before exploitation. | Utility Patent Application Filed | Owned | United States |
| Federated Security Updates | Federated-learning-based system for delivering operating-system security updates without centralized data collection. | Utility Patent Application Filed | Owned | United States |
| Neural Power Manager | Neural-network-driven power management and energy-optimization system for data center and edge computing environments. | Utility Patent Application Filed | Owned | United States |
| Adaptive Process Isolation | AI-driven process isolation and fault-containment architecture for multi-tenant operating environments. | Utility Patent Application Filed | Owned | United States |
| Compiler-Runtime Co-Optimizer | Dynamic engine for joint optimization of compiler output and runtime execution paths. | Utility Patent Application Filed | Owned | United States |
| Multi-Agent RL Scheduler | Multi-agent reinforcement-learning scheduler for distributed and heterogeneous computing systems. | Utility Patent Application Filed | Owned | United States |
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| Patent Application | Description | Type of Protection | Ownership | Jurisdiction |
| Adaptive Traffic Router | AI-based system for prioritization and adaptive routing of network traffic. | Utility Patent Application Filed | Owned | United States |
| Self-Healing OS | Self-healing operating-system architecture that detects, isolates, and recovers from faults autonomously. | Utility Patent Application Filed | Owned | United States |
| Context-Aware Policy Engine | Context-aware policy-enforcement engine for adaptive operating-system security controls. | Utility Patent Application Filed | Owned | United States |
| AI Container Optimizer | AI-guided optimization of virtualization and container deployment for resource efficiency. | Utility Patent Application Filed | Owned | United States |
| Predictive Load Balancer | Deep-learning-based predictive load balancing across distributed system resources. | Utility Patent Application Filed | Owned | United States |
| ML Patch Optimizer | Machine-learning-driven optimization of operating-system update and patch deployment. | Utility Patent Application Filed | Owned | United States |
| AI Secure Boot | AI-enhanced secure-boot and trusted-execution-environment system for hardware-level integrity. | Utility Patent Application Filed | Owned | United States |
| Autonomous Configuration Manager | Autonomous management of system and network configuration in dynamic operating environments. | Utility Patent Application Filed | Owned | United States |
| Behavioral Anomaly Detector | Operating-system-level behavioral anomaly detection using machine-learning models. | Utility Patent Application Filed | Owned | United States |
| AI Control Plane | AI-native control-plane architecture for scalable, adaptive operating systems. | Utility Patent Application Filed | Owned | United States |
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Flagship Patent Applications
The Flagship Applications cover technologies that the Company considers core to its operating businesses and competitive position. Each Flagship Application has been prepared as a complete non-provisional utility patent application, including a specification, claims, and drawings, and is owned by the Company. As of the date of this Registration Statement, none of the Flagship Applications have been filed with the USPTO because the Company is evaluating, on an application-by-application basis, whether continued protection of the underlying technology as a trade secret would provide stronger commercial protection than public disclosure through the patent process. Each Flagship Application that is ultimately filed with the USPTO will be filed as a direct, non-provisional application and will not claim priority to any provisional application. The Company has not committed to file any of the Flagship Applications by any particular date, and does not currently expect to make filing determinations with respect to the Flagship Applications prior to the end of 2026. The Company notes that the assignment agreements for the Flagship Applications are in the process of being confirmed and recorded, and there can be no assurance that all such assignments will be verified or recorded prior to filing.
Other Internally Developed Provisional Patent Applications
In addition to the Eliznikcomp Applications and the Flagship Applications, the Company has developed a broader pipeline of additional candidate innovations across a range of technical domains, including artificial intelligence and machine-learning architectures, hybrid classical-quantum computing methods, cryptography and secure communications, data analytics and synthetic-data generation, and applied modeling and simulation techniques. The Company does not intend to pursue patent prosecution with respect to previously filed provisional patent applications, and such applications will be permitted to lapse. The Company evaluates each candidate innovation on a continuing basis to determine whether to pursue patent protection, trade secret protection, or other means of protection. The Company does not consider any individual previously filed provisional patent application to be material to its business, financial condition, or results of operations as of the date of this Registration Statement.
The Company does not consider any individual previously filed provisional patent application to be material to its business, financial condition, or results of operations as of the date of this Registration Statement. The Company has determined to allow all previously filed provisional patent applications to lapse without conversion, and the portfolio of such applications, taken as a whole, does not form a component of the Company’s forward intellectual property strategy.
Trade Secrets and Know-How
The Company also protects certain of its proprietary technologies, processes, and methods through trade secret protection rather than through patent filings. The Company’s trade secret strategy includes the use of confidentiality and non-disclosure agreements with employees, consultants, contractors, customers, and other counterparties; internal access controls and information-security measures; and contractual restrictions on the use and disclosure of proprietary information. There can be no assurance that the Company’s trade secret protections will be adequate to prevent unauthorized use or disclosure of its proprietary technologies. See “Risk Factors — Risks Related to Our Intellectual Property.”
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Intellectual Property Portfolio – Functional Areas
Spectral’s intellectual property portfolio encompasses a broad range of computational methods, algorithmic frameworks, and system architectures. The Company’s inventions are generally intended to address challenges associated with complexity, uncertainty, efficiency, and security in advanced computing environments. While the Company does not commercialize all inventions and does not operate quantum computing hardware, its patent applications and trade secrets generally relate to the following functional areas:
Hybrid Classical and Advanced Computing Methods
A substantial portion of Spectral’s intellectual property relates to algorithmic frameworks designed to coordinate, optimize, and manage workloads across heterogeneous computing environments. These inventions include methods for agent-based task migration, workload scoring, and dynamic allocation of computational resources based on latency, efficiency, energy consumption, and reliability considerations. Certain inventions address preprocessing and post-processing techniques intended to improve performance or reduce noise and error when integrating advanced or emerging computational approaches with conventional systems. These methods are designed to be adaptable to evolving hardware and software environments and are generally research-oriented in nature.
Materials and Hardware-Adjacent Computational Models
The Company has developed computational models and simulation techniques applicable to advanced materials, devices, and hardware-adjacent systems. These inventions generally focus on algorithmic design, modeling, and optimization rather than physical fabrication or manufacturing. Potential areas of application include materials discovery, catalysis, and device-level performance modeling. These inventions are primarily exploratory and may be evaluated for potential relevance to future research, licensing, or collaboration opportunities, but may never be commercialized.
Security, Cryptography, and Network Intelligence
Spectral’s intellectual property also includes algorithmic approaches relating to cybersecurity, cryptography, authentication, and network intelligence. These inventions address topics such as anomaly detection, risk scoring, behavioral analysis, and secure data handling within distributed or networked environments. Certain concepts are designed to support adaptability to evolving security standards, cryptographic methods, and threat models. These inventions are intended to complement existing security infrastructure rather than replace established cryptographic or network security systems.
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Applied Modeling, Simulation, and Decision Support
The Company has developed computational methods intended to support complex modeling, simulation, and decision-support use cases. These inventions generally involve synthetic data generation, probabilistic modeling, scenario analysis, and large-scale simulation techniques. Potential applications may include environmental modeling, logistics optimization, fraud and risk detection, resource planning, and other data-intensive analytical contexts. These methods are designed to support analysis and forecasting rather than to provide definitive predictions or automated decision-making outcomes.
Many of the Company’s inventions are early-stage, conceptual, or research-oriented and may never be commercialized. The Company does not represent that it currently owns or operates quantum computing hardware, nor that any invention will result in commercially viable products or services. Commercialization, if any, may occur through internal software development, selective licensing, integration into operating businesses, or strategic collaborations.
The Company’s ability to protect its intellectual property depends on a number of factors, including the scope and enforceability of patents that may issue, the effectiveness of trade secret protections, the cost of enforcement, and the willingness of courts in various jurisdictions to uphold intellectual property rights. In certain jurisdictions, particularly outside the United States and Western Europe, enforcement of intellectual property rights may be limited or uncertain.
Conclusion
Spectral Capital Corporation’s potentially patentable innovations reflect a broad set of research-oriented and applied innovations focused on advanced computational methods, algorithmic optimization, and security-related systems. Collectively, these inventions illustrate the Company’s emphasis on hybrid computing approaches, data-driven optimization techniques, and methods intended to improve efficiency, reliability, and analytical capability in complex computing environments. Many of these innovations remain exploratory in nature and may be protected through a combination of patent filings and trade secret practices, and there can be no assurance that any particular invention will result in commercially viable products or services.
Trade Secrets
Whenever we deem it important for purposes of maintaining the secrecy of information, such as sensitive and valuable search algorithms, we plan to require parties with whom we share, or who otherwise are likely to become privy to, our trade secrets or other confidential information to execute and deliver to us confidentiality and/or non-disclosure agreements. Among others, this may include employees, consultants and other advisors, each of whom we may require to execute such an agreement upon commencement of their employment, consulting or advisory relationships. These agreements will generally provide that all confidential information developed or made known to the individual by us during the course of the individual’s relationship with us is to be kept confidential and not to be disclosed to third parties except under specific circumstances.
As of the date of this filing, we have executed non-disclosure agreements with key consultants or advisors.
HUMAN CAPITAL
As of the date of this filing, we had 59 full-time employees and 10 consultants.
We are not subject to any collective bargaining agreements and believe that our relationships with our employees and consultants are good.
Properties
We rent a virtual office located at 701 Fifth Avenue, Suite 4200, Seattle, Washington, 98104, under a month-to-month basis. We pay monthly rent of $378.00 for this location. We believe that our current facilities are sufficient to meet our current and near-term needs and that, should it be needed, suitable additional space will be available.
Legal Proceedings
We are not party to any material legal matters. In the future, we may become party to other legal matters and claims arising in the ordinary course of business. We cannot predict the outcome of any such legal matters or claims, and despite the potential outcomes, the existence thereof may have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. There was a claim made by a third-party entity regarding Mr. Brehm and Node Nexus Network. A claim was previously asserted by a third-party individual alleging that Node Nexus Network owed the claimant money. This claim has since been abandoned without any liability, payment, or settlement by the Company. The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim and has been provided with an indemnity by Mr. Brehm for the same. Even if the claim were to be reasserted, the amount in controversy would be less than $500,000. Accordingly, the Company does not believe further disclosure is required.
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MANAGEMENT
Executive Officers, Directors
The following table sets forth our executive officers and directors, their ages and the positions held by them:
Our board of directors was elected and will serve until their successor is duly elected and qualified or until their earlier resignation. The following table sets forth our directors and executive officers and their ages as of July 15, 2026.
| Name | Age | Position | ||
| Jenifer Osterwalder | 62 | Chief Executive Officer, President and Director | ||
| Daniel Gilcher | 39 | Chief Financial Officer and Principal Accounting Officer | ||
| Jeffrey Chong | 49 | Director | ||
| Michael Turner | 54 | Director | ||
| Gottfried Werner | 51 | Director | ||
| Olga Nezerenko | 44 | Director |
Jenifer Osterwalder - Chief Executive Officer, President, and Director
Jenifer Osterwalder has served as our Chief Executive Officer, Principal Accounting Officer, President, Treasurer, Secretary and as a director since March 7, 2005. Previously, from January 2005 to March 2005, Ms. Osterwalder served as President, Chief Executive Officer, Treasurer, Secretary and as a director of FUSA Technology Investments Corp. From January 2000 to January 2005, she served as a consultant investment banker to Five Seas Securities, Ltd., a securities firm in British Columbia, Canada. Ms. Osterwalder received her Bachelor of Science in Business Administration in marketing and logistics from Ohio State University.
Daniel Gilcher – Chief Financial Officer and Principal Accounting Officer
Daniel Gilcher was appointed Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer of Spectral Capital Corporation, effective January 3, 2026.
Mr. Gilcher brings extensive international public-company financial leadership experience across technology, telecommunications and capital markets. Prior to joining Spectral, he served as Chief Financial Officer and a Director of Mexedia, an Italian listed technology and communications company, and previously served as Interim Chief Financial Officer and a Director of Nuvo, an Israel-based healthcare company. In these and other roles, he has worked closely with management teams, boards of directors and auditors in multiple jurisdictions on financial reporting, public-market governance, mergers and acquisitions, due diligence, negotiation and post-merger integration.
Earlier in his career, Mr. Gilcher worked in investment analysis and portfolio management at Shareholder Value Management AG. He holds a Ph.D. in Empirical Finance from EBS Business School, an MBA from the Indian Institute of Management Ahmedabad, an M.Sc. in Finance from EBS Business School and an M.A. from Johannes Gutenberg University Mainz. His academic research has been published in peer-reviewed journals.
In connection with the previously disclosed acquisition of 42 Telecom Ltd.,
Mr. Gilcher received a total of 575,000 shares of Spectral common stock as acquisition consideration on August 1, 2025 and December 31, 2025 prior to his appointment as an executive officer. These issuances were made under the terms of the acquisitions. On May 22, 2026 Mr. Gilcher received additional 1,041,000 shares of Spectral common stock as acquisition consideration. None of these issuances was compensation for services.
As Chief Financial Officer, Mr. Gilcher oversees Spectral’s finance, accounting, reporting and capital markets functions as the Company advances its preparation for a planned listing on The Nasdaq Capital Market.
Jeffrey Chong-Director
Jeffrey Chong has been employed as an economist, capital markets expert and Chief Investment Officer for more than 20 years. Since November 2024, Mr. Chong has been employed as an independent capital markets consultant to Spectral Capital. Previously, he served as the Chief Investment officer of Turicum Asset Management AG (Zurich, Switzerland) from March of 2021 to September of 2023. Mr. Chong has a bachelor’s degree in Economics from the University of Victoria.
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Michael R. Turner, Director
Michael R. Turner has over 20 years of leadership and operational experience across the energy and advanced technology sectors. He has held senior executive roles including President of Operations and Vice President, where he led the implementation of advanced ultrasonic and hydrocarbon technologies, process optimization initiatives, and environmentally focused systems. Mr. Turner has extensive experience in facility commissioning, regulatory compliance, technology commercialization, and operational scaling. His background includes oversight of complex projects, collaboration on patent development, and executive leadership in both public and private organizations in Canada and internationally.
Gottfried Werner, Director
Mr. Werner began his career in tax consultancy before becoming Director of an international, Swiss-based leasing company. He later founded his own investment and consulting firm with a focus on Impact, IT, Telecommunications, Media, Entertainment, and Human Resources. Today, he operates the largest independent telecommunications retail network in Germany and serves on the boards of several companies. In addition, he owns a consulting firm specializing in lobbying and facilitating business relations between the German and English-speaking markets.
Olga Nezerenko-Director
Dr. Nezerenko holds a PhD in Economics and Business Administration from Tallinn University of Technology and is a senior expert recognized for her strategic oversight of complex systems, quality assurance, and long-term program management. She has served since 2004 as Head of the Logistics Study Programme at the Estonian Entrepreneurship University of Applied Sciences, where she has led curriculum development, supervised applied research, and managed industry partnerships. Dr. Nezerenko is actively involved in professional and sectoral organizations, including long-standing membership in the Estonian Logistics and Freight Forwarding Association and representation within the Transport and Logistics Professional Chamber.
Involvement In Certain Legal Proceedings
During the past ten years, none of our directors, executive officers and control persons have been involved in any of the following events: any bankruptcy petition filed by or against any business of which such person was an executive officer either at the time of the bankruptcy or within two years prior to that time; any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Family Relationships
There are no family relationships among any of our officers or directors.
Corporate Governance
Corporate governance refers to the policies and structure of the board of directors of a corporation, whose members are elected by and are accountable to the shareholders of the company. Corporate governance encourages establishing a reasonable degree of independence of the board from executive management and the adoption of policies to ensure the board recognizes the principles of good management. Our Board is committed to sound corporate governance practices, as such practices are both in the interests of shareholders and help to contribute to effective and efficient decision-making.
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Board of Directors
Our Board is responsible for the stewardship of the Company, overseeing management and the enhancement of shareholder value. The Board is responsible for:
| (a) | adopting a strategic plan for the Company and reviewing the plan in light of management’s assessment of emerging trends, the competitive environment, the opportunities for the business of the Company, risk issues, and significant business practices and products; |
| (b) | ensuring that the risk management of the Company is prudently addressed; |
| (c) | reviewing the Company’s approach to human resource management and overseeing succession planning for management; |
| (d) | reviewing the Company’s approach to corporate governance, including an evaluation of the adequacy of the mandate of the Board, director independence standards and compliance with the Company’s Code of Business Conduct and Ethics to be adopted upon the consummation of this offering and; |
| (e) | upholding a comprehensive policy for communications with shareholders and the public at large. |
The frequency of meetings of the Board and the nature of agenda items may change from year to year depending upon the activities of Spectral. Our board of directors intend to meet at least quarterly and at each meeting there is a review of the business of Spectral.
Our Board facilitates its exercise of independent supervision over the Company’s management through meetings of the board held for the purposes of obtaining an update on significant corporate activities and plans, both with and without members of the Company’s management being in attendance.
Board Composition; Independence
The NASDAQ listing standards require that a majority of our board of directors must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that Olga Nezerenko, Michael Turner and Gottfried Werner, are considered to be independent. Our Board currently consists of five directors, three of whom are independent.
Board Committees
Our Board directs the management of our business and affairs and conducts its business through meetings of the Board and its standing committees. As of the date hereof, the Board has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues.
Audit Committee
Our audit committee consists of Ms. Nezerenko, Messrs. Turner, and Werner serving as the chairman. Our Board has determined that Gottfried Werner is an “audit committee financial expert” within the meaning of the SEC regulations. Our Board has also determined that each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the Board has examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. The functions of this committee include:
| ● | selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; |
| ● | helping to ensure the independence and performance of the independent registered public accounting firm; |
| ● | discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results; |
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| ● | developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters; |
| ● | reviewing our policies on risk assessment and risk management; |
| ● | reviewing related party transactions; |
| ● | obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes our internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and |
| ● | approving (or, as permitted, pre-approving) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm |
Compensation Committee
Our compensation committee consists of Mr. Turner, and Ms. Nezerenko. The functions of the compensation committee will include:
| ● | reviewing and approving, or recommending that our Board approve, the compensation of our executive officers; |
| ● | reviewing and recommending that our Board approve the compensation of our directors; |
| ● | reviewing and approving, or recommending that our Board approve, the terms of compensatory arrangements with our executive officers; |
| ● | administering our stock and equity incentive plans; |
| ● | selecting independent compensation consultants and assessing conflict of interest compensation advisers; |
| ● | reviewing and approving, or recommending that our Board approve, incentive compensation and equity plans; and |
| ● | reviewing and establishing general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Mr. Turner and Ms. Nezerenko,
The functions of the nominating and governance committee will include:
| ● | identifying and recommending candidates for membership on our Board; |
| ● | including nominees recommended by stockholders; |
| ● | reviewing and recommending the composition of our committees; |
| ● | overseeing our code of business conduct and ethics, corporate governance guidelines and reporting; and |
| ● | making recommendations to our Board concerning governance matters. |
The nominating and corporate governance committee also annually reviews the nominating and corporate governance committee charter and the committee’s performance.
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Board Leadership Structure and Role in Risk Oversight
Our Board is primarily responsible for overseeing our risk management processes. Our Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our assessment of risks. Our Board focuses on the most significant risks we face our general risk management strategy, and also ensures that risks we undertake are consistent with our Board’s appetite for risk. While our Board oversees our risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our Board leadership structure supports this approach.
Our bylaws provide our Board with flexibility in its discretion to combine or separate the positions of Chairman of the Board and Chief Executive Officer. The Board currently separates the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. Our Chief Executive Officer, who is also a member of our Board, is responsible for setting the strategic direction of the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for the Board meetings, presides over meetings of the Board and tries to reach a consensus on Board decisions. Although these roles are currently separate, the Board believes it should be able to freely select the Chairman of the Board based on criteria that it deems to be in the best interest of the Company and its stockholders, and therefore one person may, in the future, serve as both the Chief Executive Officer and Chairman of the Board.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics, applicable to all of our directors, officers, employees and all persons performing similar functions. A copy of the code is attached as Exhibit 14.1 to the Registration Statement of which this prospectus forms a part thereof. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed in our public filings with the Commission.
Corporate Governance Guidelines
We have adopted a corporate governance guidelines that serve as a flexible framework within which our Board and its committees operate. These guidelines cover a number of areas including the size and composition of the Board, Board membership criteria and director qualifications, director responsibilities, Board agenda, roles of the chairman of the Board and Chief Executive Officer and Chief Financial Officer, meetings of independent directors, committee responsibilities and assignments, Board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines is attached hereto as Exhibit 14.2 to the Registration Statement of which this prospectus forms a part thereof.
Family Relationships
None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
Involvement in Certain Legal Proceedings
We are not party to any material legal matters. In the future, we may become party to other legal matters and claims arising in the ordinary course of business. We cannot predict the outcome of any such legal matters or claims, and despite the potential outcomes, the existence thereof may have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. There was a claim made by a third party entity regarding Mr. Brehm and Node Nexus Network. The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim and has been provided with an indemnity by Mr. Brehm for the same.
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EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation Table
The following sets forth information about the compensation paid to or accrued by our named executive officers, as that term is defined in Item 402(m)(2) of Regulation S-K, as of December 31, 2025.
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All
Other Compensation | Total | |||||||||||||||||||||||||
| Jenifer Osterwalder | 2025 | $ | 144,000 | - | - | - | - | - | - | $ | 144,000 | |||||||||||||||||||||||
| President and Chief Executive Officer | 2024 | $ | 144,000 | - | - | - | - | - | - | $ | 144,000 | |||||||||||||||||||||||
| Daniel Gilcher, | 2025 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Chief Financial and Accounting Officer (1) (2) | 2024 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| (1) | Daniel Gilcher was appointed Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer of the Company effective January 3, 2026. Mr. Gilcher has not entered into an employment agreement with the Company and has not received any cash or equity compensation for his services as of the date of this prospectus. |
| (2) | Mr. Gilcher beneficially owns 1,616,000 shares of the Company’s common stock, which were issued in connection with the acquisitions of 42 Telecom Ltd. and TVS. Such shares were issued as acquisition consideration and not as compensation for services rendered to the Company. The Company is currently negotiating an employment arrangement with Mr. Gilcher. |
EMPLOYMENT AGREEMENTS
Our President and CEO, Ms. Osterwalder, does not currently have an employment agreement; however, we pay Ms. Osterwalder $12,000 a month beginning January 1, 2020 for services rendered. As of December 31, 2025 and 2024, amounts due to the CEO related to accrued salaries were $576,000 and $432,000 respectively. Daniel Gilcher, Spectral CFO and Principal Accounting Officer, does not yet have an employment agreement and is in the process of negotiating an employment package. He is a shareholder of 1,616,000 Spectral shares.
As of the date of this filing, we have no other employment agreements in place with any of our other executive officers, directors or employees.
OUTSTANDING EQUITY AWARDS AT YEAR END
(As of December 31, 2025)
| Name | Number
of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||
| Jenifer Osterwalder (1) | 2,694,371 | 305,629 | 0.43 | June 12, 2034 | ||||||||||
| (1) | Represents stock options granted to Ms. Osterwalder on June 12, 2024, with an exercise price of $0.43 per share. The options vest in equal monthly installments over 24 months and expire on June 12, 2034. |
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COMPENSATION OF DIRECTORS
Pursuant to authority granted under Article II, Section 2.16 of our bylaws, directors are entitled to such compensation as our board of directors shall, from time to time, determine. The following table sets forth the compensation of our directors for the year ended December 31, 2025, and for December 31, 2024.
DIRECTOR COMPENSATION
As of December 31, 2025
| Name | Fees
Earned or Paid in Cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All
Other Compensation | Total | |||||||||||||||||||||
| Jenifer Osterwalder (2) | $ | 144,000 | (1) | 3,000,000 | ||||||||||||||||||||||||
| Jonathon Walton | 15,625 | |||||||||||||||||||||||||||
| ● | (1) Was accrued but unpaid |
| ● | (2) immediately exercisable options to purchase 3,000,000 shares of common stock at an exercise price of $0.43 per share that are subject to 2 year monthly vesting beginning March 12, 2024. |
There was no compensation paid to the Directors during the year 2024 or 2025.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions or series of transactions since our incorporation, to which we were or are to be a participant and in which the amount involved exceeds the lesser of $120,000 or 1% of the average of the total assets at December 31, 2025 and 2024, and in which any of our directors, executive officers or persons who we know hold more than five percent of any class of our capital stock, including their immediate family members, had or will have a direct or indirect material interest, other than compensation arrangements with our directors and executive officers.
Related Party Transactions
Jenifer Osterwalder, President, Director and Chief Executive Officer
Jenifer Osterwalder charges the Company $12,000 per month beginning January 1, 2020 for services rendered. The total amounts expended in the Company’s consolidated financial statements in connection with Ms. Osterwalder’s services was $144,000 for each of the years ended December 31, 2025 and 2024. As of December 31, 2025 and 2024, amounts due to the CEO related to accrued salaries were $576,000and $432,000 respectively.
Daniel Gilcher, the Company’s Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer
Daniel Gilcher holds shares of the Company’s common stock that were issued prior to his appointment as an executive officer. Specifically, on August 1, 2025 and December 31, 2025, the Company issued a total of 575,000 shares of its common stock to Mr. Gilcher and an entity he controls in connection with the acquisition of 42 Telecom Ltd. and Telvantis Voice Services Inc., pursuant to the terms of the definitive acquisition agreements. Mr. Gilcher received such shares solely in his capacity as an advisor of the selling shareholders of 42 Telecom Ltd. and Telvantis Voice Services Inc. and not as compensation for services to the Company. On May 22, 2026 the Company issued additional 1,041,000 shares of its common stock to an entity controlled by Mr. Gilcher in connection with the acquisition of Telvantis Voice Services Inc. These shares were issued to settle certain obligations of Telvantis Inc. and not as compensation for services to the Company.
Mr. Gilcher was appointed Chief Financial Officer effective January 3, 2026. No shares of common stock or other equity securities have been issued to Mr. Gilcher as compensation for services, and he has not entered into any employment agreement or equity incentive arrangement with the Company providing for the issuance of equity securities as of the date of these financial statements.
Other than the foregoing, there were no related party transactions between the Company and Mr. Gilcher during the periods presented that required disclosure under applicable accounting standards.
Spectral Capital Corporation engages in transactions with certain related parties, including directors, officers, significant shareholders, and affiliates. The Company’s policy is that any related party transaction must be reviewed and approved by disinterested members of the Board of Directors to ensure fairness and compliance with corporate governance best practices. Below are the related party transactions that occurred during the fiscal year ended December 31, 2025.
Mexedia SpA and Mexedia DAC
42 Telecom Ltd. and Telvantis Voice Services, Inc. (“TVS”) are each party to bilateral messaging service agreements with Mexedia SpA, an Italian telecommunications company, and Mexedia DAC, an Irish telecommunications entity, respectively, under which either party may act as a customer or vendor depending on destination-specific routing economics. Mexedia SpA is identified as Customer B and Supplier B, and Mexedia DAC is identified as Customer D, in “Business — Significant Customers and Suppliers.”
The Company has determined that Mexedia SpA was a related party of the Company for the period from August 1, 2025 (the date of the Company’s acquisition of 42 Telecom) through December 31, 2025, because Mr. Orlando Taddeo served as the sole director of 42 Telecom throughout that period while simultaneously serving as Chief Executive Officer and a director of Mexedia SpA through October 2025 and retaining a controlling ownership interest in Mexedia SpA, through Heritage Ventures Ltd., through December 31, 2025. For that period, revenues recognized from Mexedia SpA were $7,288,094 and cost of revenues incurred from Mexedia SpA were $7,303,516, each presented on a gross basis as 42 Telecom acts as principal under ASC 606. As of December 31, 2025, accounts receivable from and accounts payable to Mexedia SpA were $2,699,665 and $5,415,984, respectively. Separately, Mexedia DAC is a wholly owned subsidiary of TVS that has historically been excluded from the scope of TVS’s audited carve-out financial statements. Because Mexedia DAC falls outside that reporting scope, the Company has determined that transactions and balances between TVS and Mexedia DAC are treated as related-party transactions as of December 31, 2025. As of December 31, 2025, accounts receivable from Mexedia DAC were $9,010,266, representing approximately 19.32% of the Company’s net accounts receivable, and accounts payable to Mexedia DAC were $3,168,784. See Note 11 — Related Party Transactions to the consolidated financial statements for further detail.
SKY PLL OU
On July 7, 2025, the Company entered into a loan agreement with SKY PLL OU, a shareholder of the Company, whereby the Company may borrow up to a total principal amount of $500,000. The Company received a total of $10,000 under this agreement. The loan bears no interest and matured on December 31, 2025. The total amount due under this agreement was $10,000, and has been fully paid as of April 29, 2026.
SKY PLL OÜ. SKY PLL OÜ (’SKY’) is a private limited company organized under the laws of the Republic of Estonia, with its registered office at Ahtri tn 6a, Kesklinna linnaosa, 10151 Tallinn, Harju maakond, Estonia. The principal of SKY is Vladimir Ivanov, a citizen of Estonia. The Company’s contractual relationship with SKY commenced in January 2022 pursuant to a Reciprocal Carrier Services Agreement (the ‘2022 RCSA’). Pursuant to the 2022 RCSA and a related loan agreement, SKY extended loans to the Company on an as-needed basis to support the Company’s working capital requirements. On April 25, 2024, in connection with the repayment of certain loans extended by SKY to the Company, the Company issued 3,563,043 restricted shares of Common Stock to SKY pursuant to a resolution of the Board of Directors.
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As of April 27, 2025, all loans previously extended by SKY to the Company had been repaid in full, and there were no further amounts outstanding under the 2022 RCSA, the loan agreement, or any related instrument.
On May 1, 2024 Mr. Ivanov transferred ownership and control of Scandere to an unrelated third party.
In April 2024, the 2022 RCSA was terminated and replaced with a substantially similar Reciprocal Carrier Services Agreement between the Company and Scandere OÜ (‘Scandere’), an Estonian private limited company also principaled by Mr. Ivanov. Scandere continues to provide consulting services to the Company in support of the Company’s telecommunications portfolio businesses. The Company issued 2,000,000 restricted shares of Common Stock to Scandere as consideration for services rendered under the Reciprocal Carrier Services Agreement, pursuant to a resolution of the Board of Directors.
On May 1, 2024 Mr. Ivanov transferred ownership and control of Scandere to an unrelated third party. At the time the Company entered into the Scandere Reciprocal Carrier Services Agreement in April 2024, Scandere was related to SKY through common control by Mr. Ivanov, who was the principal of both entities. Scandere became unrelated to Mr. Ivanov, and to SKY, only upon his transfer of ownership and control of Scandere on May 1, 2024; the reference to an “unrelated third party” in this section refers to that subsequent transfer and not to the status of Scandere at the inception of the April 2024 agreement. As of March 31, 2026, SKY held 3,563,043 shares of Common Stock, representing approximately 4.0% of the Company’s outstanding Common Stock, and Scandere held 2,000,000 shares of Common Stock, representing approximately 2.2% of the Company’s outstanding Common Stock.
In June 2025, the Company entered into a separate loan agreement with SKY pursuant to which the Company could borrow up to $500,000 in aggregate principal amount. The loan was non-interest bearing and was scheduled to mature on December 31, 2025. During the three months ended March 31, 2026, the Company drew $10,000 under this loan agreement. The $10,000 outstanding balance was repaid in full on April 29, 2026, and there are no amounts currently outstanding under this loan agreement.
Michael Turner
On June 2, 2025, the Company entered into a promissory note with Michael Turner, a member of the Board of Directors, for a principal amount of $10,000. The note bears interest at 5% per annum, unless repaid in full within 60 days of issuance, in which case no interest is due. The principal and any accrued interest are payable on demand. As of March 31, 2026, the total amount due under this note was $10,000, and has been fully repaid as of April 29, 2026.
Director Independence
As a smaller reporting company, Spectral is not required to comply with the stricter corporate governance requirements applicable to large publicly traded firms. However, the Board of Directors recognizes the importance of independent oversight in reviewing transactions and strategic decisions.
Currently, the Company’s Board consists of five directors, three of whom are considered independent under SEC guidelines. These independent directors have no material relationships with the Company outside of their board service and stock ownership. The Board intends to continue strengthening its governance practices and may expand its independent oversight in the future.
Policy on Related Party Transactions
Spectral has adopted a formal policy requiring that any transaction involving an officer, director, or significant shareholder be reviewed and approved by the disinterested members of the Board. This policy is intended to ensure:
| ● | Fairness in business dealings |
| ● | Alignment with shareholder interests |
| ● | Compliance with regulatory and corporate governance standards |
From time to time, due to the limited cash flow available, Ms. Osterwalder pays certain operating expenditures on behalf of the Company. These advances bear no interest and are due on demand.
Independent Directors
The Board of Directors has determined that a director is an independent director under standards established by the Securities and Exchange Commission. The following Directors are considered independent directors: Olga Nezerenko, Gottfried Werner, and Michael Turner.
Review, Approval or Ratification of Transactions with Related Persons
The board of directors may ratify a “Related Transaction” by a majority vote of the disinterested directors that are voting at any Special or Regularly scheduled board meeting. A Related Transaction is defined as a material agreement, contract, or other transaction between a current officer, director, or shareholder of the Company and the Company itself. Additionally, under no circumstances may the Related Transaction that is ratified be on less favorable terms to the Company than it would have it been negotiated with an unrelated third party.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information with respect to the beneficial ownership of our shares of common stock for:
| ● | each shareholder known by us to be the beneficial owner of more than 5% of our outstanding shares of Common Stock, |
| ● | each of our directors, |
| ● | each of our named executive officers, and |
| ● | all of our directors and executive officers as a group. |
We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, beneficial ownership includes any shares of Common Stock over which the individual has sole or shared voting power or investment power as well as any shares of common stock that the individual has the right to subscribe for within 60 days of July 15, 2026, through the exercise of any warrants or other rights. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. None of the shareholders listed in the table are a broker-dealer or an affiliate of a broker dealer.
Applicable percentage ownership prior to the offering is based on 96,291,416 shares of Common Stock outstanding as of July 15, 2026, and [____] shares after the offering (assuming no exercise of the over-allotment option by the underwriters). Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Spectral Capital Corporation, 701 Fifth Avenue, Suite 4200, Seattle, WA 98104.
| Shares Beneficially Owned | Percentage of Shares Beneficially Owned | |||||||||||
| Name | before Offering | Before Offering | After Offering | |||||||||
| Directors and Named Executive Officers | ||||||||||||
| Jenifer Osterwalder(1) | 2,944,371 | 3.06 | % | |||||||||
| Daniel Gilcher(2) | 1,616,000 | 1.67 | % | |||||||||
| Michael Turner (3) | 20,830 | * | ||||||||||
| Jeffrey Chong | ||||||||||||
| Gottfried Werner (4) | 20,830 | * | ||||||||||
| Olga Nezerenko | ||||||||||||
| 5% Stockholders | ||||||||||||
| Decus Pro OU (5) | 26,323,186 | 27.3 | % | |||||||||
| All Directors and Officers as a group (6 persons) | 4,602,031 | 4.77 | % | |||||||||
| * | Less than 1% of the outstanding shares of common stock of the Company as of the date hereof. |
| (1) | Consists of 69,371 shares owned directly and immediately exercisable options to purchase 3,000,000 shares of common stock at an exercise price of $0.43 per share that are subject to vesting requirements of which 2,875,000 are exercisable as of July 15, 2026, and which vest 125,000 shares per month thereafter at $0.43 per share. |
| (2) | Consists of 400,000 common shares beneficially owned and held by Adama GmbH,175,000 shares directly owned and 1,041,000 shares beneficially owned and held by Otus LLC. |
| (3) | Consists of 100,000 options to acquire common stock at $3.99 per share that vest monthly at 4166 per month. |
| (4) | Consists of 100,000 options to acquire common stock at $3.99 per share that vest monthly at 4166 per month. |
| (5) | The beneficial owner of DecusPro is Boriss Aleksandrov. Their address is DecusPro, OU. J. Sutiste tee 19a-200, 13419 Tallinn ESTONIA. |
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DESCRIPTION OF SECURITIES
The following description of our capital stock and the provisions of our articles of incorporation and our bylaws are summaries and are qualified by reference to the articles of incorporation and the bylaws. We have filed copies of these documents with the SEC as exhibits to our registration statement of which this prospectus forms a part.
General
As of the date of this filing, our authorized capital stock consists of 305,000,0000 shares, of which 300,000,000 shares are authorized as common stock, par value $0.0001 per share, 5,000,000 shares are authorized as Preferred Stock, $0.0001 par value per share and within the preferred series, 2,000,000 shares are designated as Series Quantum preferred Stock, $0.0001 par value per share.
Common Stock
As of July 15, 2026, there were 96,291,416 shares of our common stock issued and outstanding.
Voting rights
Subject to the rights granted to holders of any preferred stock issued by us, each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of stockholders. The holders are not permitted to vote their shares cumulatively.
Dividend rights
Subject to the rights granted to holders of any preferred stock issued by us, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board out of funds legally available.
Rights upon liquidation
Subject to the rights granted to holders of any preferred stock issued by us, upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities.
Other rights
Holders of our Common Stock do not have any pre-emptive rights or other subscription rights, conversion rights, redemption or sinking fund provisions.
Preferred Stock
Currently there are no shares of preferred stock are outstanding. We have no present plans to issue shares of preferred stock.
Quantum Preferred Stock
On August 30, 2024, the Company filed a Certificate of Designation for the newly designated Series Quantum Preferred Stock. The number of Series Quantum Preferred Stock designated is 2,000,000. The Series Quantum Preferred Stock contain a liquidation preference over common shareholders equal to 40 times the amount per share to be distributed to the common shareholders. The Series Quantum Preferred Stock is convertible at the option of the Company or the holder into 40 shares of the Company’s common stock, contingent upon the Company having enough authorized shares to effectuate the conversion. In addition, the conversion right shall not become exercisable by the holder until 12 months have elapsed from the date of issuance of the Series Quantum Preferred Stock. The holders of the Series Quantum Preferred Stock have the right to vote on an as-converted-to-common basis, such that one share of Series Quantum Preferred Stock has 40 votes.
On August 29, 2024, the Company issued 1,000,000 shares of Series Quantum Preferred Stock to Sean Michael Brehm in connection with the acquisition of NNN. See Note 3. See Note 7 for subsequent event regarding the return of the 1,000,000 Series Quantum Preferred Shares. Due to the cancellation, the initial transaction recorded at par value. There are no shares of Series Quantum Preferred Stock issued and outstanding as a result of the cancellation.
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Anti-Takeover Effects of Nevada Law and Our Articles of Incorporation and Bylaws
General. Certain provisions of our Articles of Incorporation and our Bylaws, and certain provisions of the NRS could make our acquisition by a third-party, a change in our incumbent management, or a similar change of control more difficult. These provisions, which are summarized below, may reduce our vulnerability to an unsolicited proposal for the restructuring or sale of all or substantially all of our assets or an unsolicited takeover attempt. The summary of the provisions set forth below does not purport to be complete and is qualified in its entirety by reference to our Articles of Incorporation and our Bylaws and the applicable provisions of the NRS.
Advance Notice Requirements. Stockholders wishing to nominate or re-nominate persons for election to our board of directors at an annual meeting or to propose any business to be considered by our stockholders at an annual meeting must comply with certain advance notice and other requirements set forth in our Bylaws. Likewise, if our board of directors has determined that directors shall be elected at a special meeting of stockholders, stockholders wishing to nominate or re-nominate persons for election to our board of directors at such special meeting must comply with certain advance notice and other requirements set forth in our Bylaws.
Special Meetings. Our Bylaws provide that special meetings of stockholders may only be called by the board of directors acting pursuant to a resolution approved by the affirmative vote by a majority of the directors then in office.
Board Vacancies. Any vacancy on our board of directors, howsoever resulting, may be filled by a majority vote of the directors then in office even if less than a quorum is present. Any director elected to fill a vacancy shall hold office for a term expiring at the next annual meeting of stockholders, at which their successors are elected or appointed, or until his or her earlier resignation or removal.
Removal of Directors. Our Bylaws provide that any director, or the entire board of directors, may be removed from office at any time with or without cause by the vote or written consent of stockholders representing not less than two-thirds of the issued and outstanding voting capital stock of the corporation.
Nevada Anti-Takeover Statutes. Nevada’s “acquisition of controlling interest” statutes (NRS 78.378 through 78.3793, inclusive) contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These “control share” laws provide generally that any person that acquires a “controlling interest” in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. These laws will apply to us as of a particular date if we were to have 200 or more stockholders of record (at least 100 of whom have addresses in Nevada appearing on our stock ledger at all times during the 90 days immediately preceding that date) and do business in the State of Nevada directly or through an affiliated corporation, unless our articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise. These laws provide that a person acquires a “controlling interest” whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares” to which the voting restrictions described above apply. Our Articles of Incorporation include a provision electing that we be governed by these laws. These laws may have a chilling effect on certain transactions by for example discouraging companies or persons interested in acquiring a significant interest in or control of us, regardless of whether such transactions may be in the interest of our stockholders, unless our Articles of Incorporation or Bylaws are amended to provide that these provisions generally do not apply to us or to an acquisition of a controlling interest, or if our disinterested stockholders do not confer voting rights in the control shares. However, at this time, we do not believe we have 100 stockholders of record resident of Nevada and we do not conduct business in Nevada directly or through an affiliated corporation. Therefore, the provisions of the control share acquisition act are believed not to apply to acquisitions of our shares at this time and will not until such time as these requirements have been met.
Nevada’s “combinations with interested stockholders” statutes (NRS 78.411 through 78.444, inclusive) provide that specified types of business “combinations” between certain Nevada corporations and any person deemed to be an “interested stockholder” of the corporation are prohibited for two years after such person first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination (or the transaction by which such person becomes an “interested stockholder”) in advance, or unless the combination is approved by the board of directors and sixty percent of the corporation’s voting power not beneficially owned by the interested stockholder, its affiliates and associates. Furthermore, in the absence of prior approval certain restrictions may apply even after such two-year period. For purposes of these statutes, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding shares of the corporation. The definition of the term “combination” is sufficiently broad to cover most significant transactions between a corporation and an “interested stockholder”. These laws generally apply to Nevada corporations with 200 or more stockholders of record. Our Articles of Incorporation include a provision electing that we not be governed by these laws.
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In addition, NRS 78.139 also provides that directors may resist a change or potential change in control of the corporation if the board of directors determines that the change or potential change is opposed to or not in the best interest of the corporation upon consideration of any relevant facts, circumstances, contingencies or constituencies pursuant to NRS 78.138(4).
Potential Effects of Authorized but Unissued Stock
We have additional shares of Common Stock available for future issuance without stockholder approval. We may utilize these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock.
The existence of unissued and unreserved common stock and preferred stock may enable our Board to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. In addition, our Board has the discretion to determine designations, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the fullest extent permissible under the NRS and subject to any limitations set forth in our articles of incorporation. The purpose of authorizing the Board to issue preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock.
Limitations of Director Liability and Indemnification of Directors, Officers and Employees
Nevada law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors.
Our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and may indemnify employees and other agents. Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding.
We also maintain customary directors’ and officers’ liability insurance.
Our bylaws, subject to the provisions of Nevada Law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he or she reasonably believed was in the best interest of the corporation. Insofar as indemnification for liabilities arising under the Securities Act of 1933 as amended, or the Securities Act, may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
The limitation of liability and indemnification provisions in our bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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Requirements for Advance Notification of Stockholder Nominations and Proposals
Our bylaws establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors.
Limits on Special Meetings
Special meetings may be called for any purpose and at any time by the Chairman of the Board, the President (if there be one) or by any member of the Board. Business transacted at each special meeting shall be confined to the purposes stated in the notice of such meeting.
Election and Removal of Directors
Our Board is elected annually by our stockholders. Directors are elected by a majority of the votes of shares of our capital stock present in person or represented by proxy at a meeting and entitled to vote in the election of directors. Each director shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal.
Newly created directorships resulting from any increase in the number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or any other cause may be filled, so long as there is at least one remaining director, only by the Board, provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director. Directors elected to fill a newly created directorship or other vacancies shall hold office until such director’s successor has been duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.
Any director may be removed from office, with or without cause, by the vote or written consent of stockholders representing not less than two-thirds of the issued and outstanding voting capital stock of the corporation.
Our articles of incorporation and bylaws do not provide for cumulative voting in the election of directors.
Amendments to Our Governing Documents
The affirmative vote of the holders of a majority of the shares entitled to vote at a meeting at which a quorum is present shall decide any question brought before such meeting, unless the question is one on which, by express provision of law, the articles of incorporation, or the bylaws, the vote of a greater number of shares is required, in which case such express provision shall govern and control the decision of such question..
Our bylaws may be amended or repealed and new bylaws may be adopted by the stockholders and/or the Board. Any bylaws adopted, amended or repealed by the Board may be amended or repealed by the stockholders.
Listing
We have applied to list our Common Stock on the Nasdaq Capital Market under the symbol “FCCN”. We will not proceed with this offering in the event our Common Stock is not approved for listing on Nasdaq.
Transfer Agent, Warrant Agent and Registrar
The transfer agent and registrar for our Common Stock is Pacific Stock Transfer. The transfer agent and registrar’s address is 6725 Via Austi Pkwy #300, Las Vegas, NV 89119. The transfer agent’s telephone number is (800) 785-7782.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, shares of our Common Stock were quoted on the OTCQB under the symbol “FCCN.” Future sales of substantial amounts of our Common Stock in the public market, including shares issued upon the exercise of outstanding options or warrants or the anticipation of these sales, could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of equity securities.
Upon completion of this offering we estimate that we will have outstanding shares of our Common Stock, or shares outstanding assuming the underwriters exercise their over-allotment option in full.
Sale of Restricted Securities
The shares of our Common Stock sold pursuant to this offering will be registered under the Securities Act, and therefore freely transferable, except for our affiliates. Our affiliates will be deemed to own “control” securities that are not registered for resale under the registration statement covering this prospectus. Individuals who may be considered our affiliates after this offering include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates are not permitted to resell their shares of our Common Stock unless such shares are separately registered under an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act is available, such as Rule 144.
Rule 144
| ● | Pursuant to Rule 144 of the Securities Act, a person who has beneficially owned restricted shares of our Common Stock or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale, (ii) we are subject to the Exchange Act reporting requirements for at least 90 days before the sale and (iii) if the sale occurs prior to satisfaction of a one-year holding period, we provide current information at the time of sale. |
| ● | Persons who have beneficially owned restricted shares of our Common Stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of: 1% of total shares outstanding and the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a 144 notice with respect to such sale (which average volume criteria only applies if the company’s securities become listed on Nasdaq or an exchange). |
These provisions are, in each case, dependent on us being subject to the Exchange Act periodic reporting requirements for at least three months before the sale. However, since our shares are quoted on the OTCQB, which is not an “automated quotation system”, our stockholders will not be able to rely on the market-based volume limitation described in the second bullet above. If, in the future, our securities are listed on an exchange or quoted on Nasdaq, then our stockholders would be able to rely on the market-based volume limitation. Unless and until our stock is so listed or quoted, our stockholders can only rely on the percentage based volume limitation described in the first bullet above.
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144. The selling stockholders will not be governed by the foregoing restrictions when selling their shares pursuant to this prospectus.
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Rule 144(i)(1) also prohibits reliance on the rule for sales of restricted stock and any stock held by affiliates of the issuing company into the public market if the issuing company is now or at any time previously has been a “shell company”, unless the requirements of Rule 144(i)(2) are satisfied.
Lock-Up Agreements
As of the effective date of the registration statement of which this prospectus is a part, we and our executive officers, directors and certain shareholders beneficially owning more than 5% of our Common Stock prior to the offering have entered into lock-up agreements with respect to the disposition of their shares. See “Underwriting — Lock-Up Agreements” for additional information.
Regulation S
Regulation S under the Securities Act provides that securities owned by any person may be sold without registration in the United States, provided that the sale is affected in an “offshore transaction” and no “directed selling efforts” are made in the United States (as these terms are defined in Regulation S), subject to certain other conditions. In general, this means that our shares of common stock may be sold in some manner outside the United States without requiring registration in the United States.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our shares of common stock pursuant to a written compensatory plan or contract and who is not deemed to have been our affiliate during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits our affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701 and are subject to the lock-up agreements described above.
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CERTAIN INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material U.S. federal income tax considerations with respect to the ownership and disposition of shares of our common stock and Warrants applicable to non-U.S. holders who acquire our securities in this offering. This discussion is based on current provisions of the Internal Revenue Code, U.S. Treasury regulations promulgated thereunder and administrative rulings and court decisions in effect as of the date hereof, all of which are subject to change at any time, possibly with retroactive effect.
For purposes of this discussion, the term “non-U.S. holder” means a beneficial owner of our securities that is not, for U.S. federal income tax purposes, a partnership or any of the following:
| ● | a citizen or resident of the United States; |
| ● | a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
| ● | a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes. |
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of our securities, the tax treatment of a person treated as a partner generally will depend on the status of the partner and the activities of the partnership. Persons that for U.S. federal income tax purposes are treated as a partner in a partnership holding shares of our securities should consult their tax advisors.
This discussion assumes that a non-U.S. holder holds shares of our securities as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be important to a non-U.S. holder in light of that holder’s particular circumstances or that may be applicable to holders subject to special treatment under U.S. federal income tax law (including, for example, financial institutions, brokers or dealers in securities, “controlled foreign corporations,” “passive foreign investment companies,” traders in securities that elect mark-to-market treatment, insurance companies, tax-exempt entities, holders who acquired our securities pursuant to the exercise of employee stock options or otherwise as compensation, entities or arrangements treated as partnerships for U.S. federal income tax purposes, holders liable for the alternative minimum tax, certain former citizens or former long-term residents of the United States and holders who hold our securities as part of a hedge, straddle, constructive sale or conversion transaction). In addition, this discussion does not address U.S. federal tax laws other than those pertaining to the U.S. federal income tax, nor does it address any aspects of the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, any U.S. federal estate and gift taxes, or any U.S. state, local or non-U.S. taxes. Accordingly, prospective investors should consult with their own tax advisors regarding the U.S. federal, state, local, non-U.S. income and other tax considerations of acquiring, holding and disposing of shares of our securities.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES. WE RECOMMEND THAT PROSPECTIVE HOLDERS OF OUR SECURITIES CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY FEDERAL, STATE, LOCAL, NON-U.S. INCOME AND OTHER TAX LAWS) OF THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES.
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Dividends
In general, any distributions we make to a non-U.S. holder with respect to its shares of our common stock that constitute dividends for U.S. federal income tax purposes will be subject to U.S. withholding tax at a rate of 30% of the gross amount (or a reduced rate prescribed by an applicable income tax treaty) unless the dividends are effectively connected with a trade or business carried on by the non-U.S. holder within the United States (and, if an income tax treaty applies, are attributable to a permanent establishment of the non-U.S. holder within the United States). A distribution will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any distribution not constituting a dividend will be treated as first reducing the adjusted basis in the non-U.S. holder’s shares of our common stock and, to the extent it exceeds the adjusted basis in the non-U.S. holder’s shares of our common stock, as gain from the sale or exchange of such shares. Any such gain will be subject to the treatment described below under “—Gain on Sale or Other Disposition of our Common Stock.”
Subject to the discussion below regarding “—Foreign Account Tax Compliance,” dividends effectively connected with a U.S. trade or business (and, if an income tax treaty applies, attributable to a U.S. permanent establishment) of a non-U.S. holder generally will not be subject to U.S. withholding tax if the non-U.S. holder complies with applicable certification and disclosure requirements. Instead, such dividends generally will be subject to U.S. federal income tax on a net income basis, in the same manner as if the non-U.S. holder were a resident of the United States. A non-U.S. holder that is a corporation may be subject to an additional “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on its “effectively connected earnings and profits,” subject to certain adjustments.
Gain on Sale or Other Disposition of Our Securities
In general, a non-U.S. holder will not be subject to U.S. federal income or, subject to the discussion below under the headings “Information Reporting and Backup Withholding” and “Foreign Account Tax Compliance,” withholding tax on any gain realized upon the sale or other disposition of our securities unless:
| ● | the gain is effectively connected with a trade or business carried on by the non-U.S. holder within the United States and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder; |
| ● | the non-U.S. holder is an individual and is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are satisfied; or |
| ● | we are or have been a U.S. real property holding corporation (a “USRPHC”) for U.S. federal income tax purposes at any time within the shorter of the five-year period ending on the date of the disposition and the non-U.S. holder’s holding period and certain other conditions are satisfied. We believe that we currently are not and we do not anticipate becoming, a USRPHC. |
Gain that is effectively connected with the conduct of a trade or business in the United States generally will be subject to U.S. federal income tax, net of certain deductions, at regular U.S. federal income tax rates. If the non-U.S. holder is a foreign corporation, the branch profits tax described above also may apply to such effectively connected gain. An individual non-U.S. holder who is subject to U.S. federal income tax because the non-U.S. holder was present in the United States for 183 days or more during the year of sale or other disposition of our securities will generally be subject to a flat 30% tax on the gain derived from such sale or other disposition, which may be offset by U.S. source capital losses, provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
Information Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established.
U.S. backup withholding tax (currently, at a rate of 28%) is imposed on certain payments to persons that fail to furnish the information required under the U.S. information reporting rules. Dividends paid to a non-U.S. holder generally will be exempt from backup withholding if the non-U.S. holder provides a properly executed IRS Form W-8BEN or W-8BEN-E, or otherwise establishes an exemption.
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Under U.S. Treasury regulations, the payment of proceeds from the disposition of our securities by a non-U.S. holder effected at a U.S. office of a broker generally will be subject to information reporting and backup withholding, unless the beneficial owner, under penalties of perjury, certifies, among other things, its status as a non-U.S. holder or otherwise establishes an exemption. The payment of proceeds from the disposition of our securities by a non-U.S. holder effected at a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except in the case of proceeds from a disposition of our securities by a non-U.S. holder effected at a non-U.S. office of a broker that is:
| ● | a U.S. person; |
| ● | a “controlled foreign corporation” for U.S. federal income tax purposes; |
| ● | a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or |
| ● | a foreign partnership if at any time during its tax year (a) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership, or (b) the foreign partnership is engaged in a U.S. trade or business. |
Information reporting will apply unless the broker has documentary evidence in its files that the owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no knowledge or reason to know to the contrary). Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that the owner is a U.S. person.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder generally can be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner. Non-U.S. holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them.
Foreign Account Tax Compliance
Under Sections 1471 through 1474 of the Code and the Treasury regulations and administrative guidance promulgated thereunder (collectively, “FATCA”), a U.S. federal withholding tax of 30% generally is imposed on any dividends paid on our common stock and a U.S. federal withholding tax of 30% generally will be imposed on gross proceeds from the disposition of our securities (beginning January 1, 2019) paid to (i) a “foreign financial institution” (as specifically defined under FATCA) unless such institution enters into an agreement with the U.S. tax authorities to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) and (ii) certain other foreign entities unless such entity provides the withholding agent with a certification identifying its direct and indirect “substantial U.S. owners” (as defined under FATCA) or, alternatively, provides a certification that no such owners exist and, in either case, complies with certain other requirements. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules and properly certifies its exempt status to a withholding agent or is deemed to be in compliance with FATCA. Application of FATCA tax does not depend on whether the payment otherwise would be exempt from U.S. federal withholding tax under the other exemptions described above. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. Prospective non-U.S. holders should consult with their tax advisors regarding the possible implications of FATCA on their investment in our securities.
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UNDERWRITING
We expect to enter into an underwriting agreement with Sentinel Brokers Company, Inc. to act as the representative (the “Representative”) of the underwriters named below, with respect to the shares of Common Stock in this offering. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally and not jointly agreed to purchase from us, at the public offering price per share of Common Stock, less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of Common Stock listed next to its name in the following table:
| Underwriter | Number of Shares | |||
| Sentinel Brokers Company, Inc. | ||||
| Total | ||||
The underwriters are committed to purchase all the shares of Common Stock offered by us other than those covered by the over-allotment option described below (if any are purchased). The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased, or the offering may be terminated. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. The underwriters are offering the shares of Common Stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Over-Allotment Option
We have granted to the Representative an option, exercisable one or more times in whole or in part, not later than 45 days after the closing date of this offering, to purchase from us up to an additional shares of our Common Stock (which equals 15% of the shares of Common Stock initially sold in this offering), at the initial public offering price set forth on the cover page of this prospectus, less the underwriting discounts and commissions to cover over-allotments, if any. To the extent that the Representative exercises this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional shares of Common Stock as the number of shares of Common Stock to be purchased by it in the above table bears to the total number of shares of Common Stock offered by this prospectus. We will be obligated, pursuant to the option, to sell these additional shares of Common Stock to the underwriters to the extent the option is exercised. If any additional shares of Common Stock are purchased, the underwriters will offer the additional shares of Common Stock on the same terms as those on which the other shares of Common Stock are being offered hereunder. If this option is exercised in full, the total offering price to the public will be $ and the total net proceeds, before expenses and after the credit to the underwriting commissions described below, to us will be $ (based on an assumed public offering price of $ per share, the last reported sales price for our Common Stock on the OTCQB on , 2026).
Discounts and Commissions; Expenses
The following table shows the public offering price, underwriting discount, commissions and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the Representative of the over-allotment option.
| Per Share | Total
Without Over-allotment Option | Total With Full Over-allotment Option | ||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discounts and commissions (7.0%) | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ | |||||||||
The underwriters propose to offer the shares of Common Stock offered by us to the public at the public offering price per share of Common Stock set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares of Common Stock to other securities dealers at such price less a concession of $ per share of Common Stock. The underwriters may allow, and certain dealers may reallow, a discount from the concession to certain brokers and dealers. After the offering, the public offering price, concession, and re-allowance to dealers may be changed.
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We have also agreed to reimburse the Representative for reasonable and accountable out-of-pocket expenses (including legal fees, settlement and clearing costs, market data, roadshow expenses and background checks) not to exceed $175,000 in the aggregate. In addition, we have agreed to pay the Representative a non-accountable expense allowance in the amount of 1.0% of the gross proceeds of the offering, which shall be deducted from the proceeds thereof.
We estimate that total expenses payable by us in connection with this offering, other than the underwriting discount, will be approximately $[__].
Discretionary Accounts
The underwriters do not intend to confirm sales of the shares of Common Stock offered hereby to any accounts over which they have discretionary authority.
Indemnification
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
Lock-Up Agreements
We and our officers and directors, and the holders of 5.0% or more of the outstanding shares of our Common Stock as of the effective date of the registration statement of which this prospectus is a part, have agreed, subject to limited exceptions, for a period of one hundred eighty (180) days after the closing of this offering, not to (i) offer, sell, contract to sell, pledge, grant any option, right or warrant to purchase, purchase any option to sell, make any short sale, lend or otherwise dispose of, directly or indirectly any shares of our Common Stock or any securities convertible into or exchangeable for our Common Stock either owned as of the date of the underwriting agreement or thereafter acquired or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital stock, in each case, without the prior written consent of the Representative. In addition, during the same period and subject to limited exceptions, we have agreed not to (a) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock or (b) complete any offering of debt securities. The Representative may, in its sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up agreements. Notwithstanding the foregoing restrictions, the lock-up agreements permit transfers of without the prior written consent of the Representative in the following limited circumstances and subject to the conditions set forth in the lock-up agreement: (i) securities acquired in open market transactions after the completion of this offering, provided that no filing under Section 13 or Section 16(a) of the Exchange Act, or other public announcement, is required or is voluntarily made during the Lock-Up Period in connection with any subsequent sale of such securities; (ii) transfers as a bona fide gift, by will or intestacy, or to a family member or to a trust established for the benefit of a family member, where “family member” means any person related to the holder by blood, marriage, or adoption, and not more remote than a first cousin, (iii) transfers to a charity or educational institution; and (iv) if a holder directly or indirectly controls a corporation, partnership, limited liability company, or other business entity, the holder may transfer its securities to any shareholder, partner, member, or owner of a similar equity interest in such entity.
Representative Warrants
We have agreed to issue to the Representative (or its permitted designees) warrants to purchase up to a total of shares of Common Stock (5.0% of the shares of Common Stock issued in this offering, including shares of Common Stock sold upon exercise of the over-allotment option, if any). The warrants will be non-exercisable for nine (9) months after the commencement of sales of the Common Stock in this offering and will expire three (3) years after the commencement of sales, which is also the effective date of the registration statement of which this prospectus is a part, which period is in compliance with applicable FINRA rules. The warrants are exercisable at a per share price equal to 125% of the public offering price per share of Common Stock issued in this offering. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(l)(A) of FINRA. The Representative (or permitted assignees under Rule 5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of one hundred eighty (180) days beginning on the date of commencement of sales of the offering. The Representative’s warrants will have piggyback registration rights at our expense, which rights will terminate no later than seven (7) years from the commencement of sales of the offering in compliance with FINRA Rule 5110(g)(8)(D) (provided such registration rights will not apply to any universal shelf registration statement). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger, or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of Common Stock at a price below the warrant exercise price.
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Right of First Refusal
We have granted the Representative of the underwriters, a right of first refusal, for a period of 12 months from the closing of this offering, to (i) act as lead or joint underwriter, for each and every future public underwritten offering, including all equity linked financings, carried out in the U.S with U.S. based investors (but, for the avoidance of doubt, excluding any PIPEs, private placements or similar financings consummated, placed or arranged by us with pre-existing contacts or by non-US persons), and (ii) to act as advisor for each M&A or other similar transaction initiated by Benchmark (it is being contemplated that we and the Representative would consider in good faith to collaborate with respect to other M&A opportunities as well, if any), in each case for us, or any successor to or any subsidiary of ours, on customary market terms for a period of 12 months following the successful consummation of the offering.
Nasdaq Capital Market Listing
We have applied to have our Common Stock listed on the Nasdaq Capital Market under the symbol “FCCN”. No assurance can be given that our listing application will be approved by the Nasdaq Capital Market. If the application is not approved, we will not proceed with this offering.
Transfer Agent and Registrar
The transfer agent and registrar of our Common Stock is Pacific Stock Transfer. The transfer agent and registrar’s address is 6725 Via Austi Pkwy #300, Las Vegas, NV 89119. The transfer agent’s telephone number is (800) 785-7782.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act:
| ● | Stabilizing transactions permit bids to purchase securities so long as the stabilizing bids do not exceed a specified maximum. |
| ● | Over-allotment involves sales by the underwriters of securities in excess of the number of securities the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of securities over-allotted by the underwriters is not greater than the number of securities that they may purchase in the over-allotment option. In a naked short position, the number of securities involved is greater than the number of securities in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing securities in the open market. |
| ● | Syndicate covering transactions involve purchases of the securities in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option. A naked short position occurs if the underwriters sell more securities than could be covered by the over-allotment option. This position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in this offering. |
| ● | Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when securities originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of the securities. As a result, the price of our shares of Common Stock may be higher than the price that might otherwise exist in the open market. These transactions may be discontinued at any time.
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Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our shares of Common Stock. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these transactions or that any transaction, if commenced, will not be discontinued without notice.
Passive Market Making
In connection with this offering, the underwriters and selling group members may also engage in passive market making transactions in our Common Stock. Passive market making consists of displaying bids limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of the shares of Common Stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
Electronic Distribution
This prospectus in electronic format may be made available on websites or through other online services maintained by the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other websites maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters in their capacity as underwriters, and should not be relied upon by investors.
Other Relationships
The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates may, in the future, provide investment and commercial banking and financial advisory services to us and our affiliates in the ordinary course of business, for which they may receive customary fees and commissions. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of ours.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
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Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI33-105 regarding underwriter conflicts of interest in connection with this offering.
Cayman Islands
No invitation, whether directly or indirectly, may be made to the public in the Cayman Islands to subscribe for our securities.
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
| ● | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| ● | to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements); |
| ● | to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or |
| ● | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive. |
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code Monétaire et Financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
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Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be affected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
| ● | to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and |
| ● | in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended. |
Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
| ● | made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and |
| ● | in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws. |
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
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Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
86
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
87
LEGAL MATTERS
Certain legal matters relating to the offering as to U.S. federal law and the law of the State of New York in connection with this offering will be passed upon for us by Sichenzia Ross Ference Carmel LLP, New York, New York. The underwriters are being represented by Sheppard Mullin Richter & Hampton LLP, New York, New York.
EXPERTS
The financial statements of the Company as of and for the fiscal years ended December 31, 2025, and 2024, included in this prospectus have been audited by RBSM LLP, independent registered public accounting firm as set forth in their report thereon appearing elsewhere herein, and included in reliance on such report upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the shares of common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance, we refer you to the copy of such contract or other document filed as an exhibit to the registration statement.
We are subject to the information and periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy statements and other information with the SEC. These periodic reports, and other information are available for inspection and copying at the website of the SEC referred to above. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus. A copy of the registration statement and the exhibits filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
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| INDEX TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS | |
| Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc. | |
| Condensed Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025 | F-2 |
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2026 and 2025 (unaudited) | F-3 |
| Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2026 and 2025 (unaudited) | F-4 |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (unaudited) | F-5 |
| Notes to the Condensed Consolidated Financial Statements (unaudited) | F-6 |
F-1
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2026, AND DECEMBER 31, 2025
(In thousands, except per share data and share count)
| March 31, | 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 | ||||||||
| Total stockholders’ equity | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity | ||||||||
| $ | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
(In thousands, except per share data and share count)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Revenue | $ | $ | ||||||
| Total revenues | ||||||||
| Cost of revenue | ||||||||
| 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 | ( | ) | ||||||
| Loss from change in fair value of contingent consideration | ( | ) | ||||||
| Other income | ||||||||
| Total other expense | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to non-controlling interests | $ | $ | ||||||
| Net loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation loss | ( | ) | ||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net 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-3
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
(In thousands, except share count)
| Series Quantum | Common Stock to | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | be issued | Paid-In | Non-Controlling | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Interest | Income | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances at March 31, 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 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
(In thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowances for credit losses | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right of use assets | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Depreciation | ||||||||
| Amortization of intangibles | ||||||||
| Amortization of prepaid expenses | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Contract assets | ||||||||
| 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 | ||||||||
| Accounts receivable financing facility, net | ||||||||
| 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 | $ | $ | ||||||
| Restricted cash at beginning of period | ||||||||
| Cash and restricted cash at beginning of period | $ | $ | ||||||
| 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 | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
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 100% of the issued and outstanding shares of 42 Telecom Ltd. (“42 Telecom”), a Maltese-organized telecommunications infrastructure provider, and the transaction closed on August 1, 2025, thereby making 42 Telecom a wholly owned subsidiary. In connection with the 42 Telecom acquisition, the Company also acquired three of its operating subsidiaries: 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta). 42 Telecom provides international telecommunications and messaging solutions, including SMS aggregation, enterprise messaging, OTT messaging, and subscription-based communication solutions, serving a global customer base of mobile network operators and enterprises.
On
December 29, 2025, the Company entered into a Definitive Stock Purchase Agreement to acquire
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 months ended March 31, 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.
F-6
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.
As
of March 31, 2026, the Company had cash and cash equivalents of $
For
the three months ended March 31, 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. 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.
F-7
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 involves significant operational, financial, and management challenges, including the coordination of personnel, technology platforms, customer relationships, and financial reporting processes across multiple jurisdictions. Failure to integrate these businesses effectively, or to realize the anticipated benefits of either acquisition, could adversely affect the Company’s financial condition, results of operations, and cash flows.
Market and economic conditions: The Company’s business and financial performance are affected by general economic and business conditions in the United States and globally, including changes in inflation, interest rates, capital-market liquidity, and access to financing. Adverse macroeconomic trends or recessionary conditions could reduce demand for technology and telecommunications services and have a material adverse effect on the Company’s results and cash flows. The United States and global markets continue to experience volatility and disruption following geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the Israel-Hamas conflict, and resulting sanctions, trade restrictions, and market disruptions could adversely affect the Company’s operations or its future capital-raising activities. Furthermore, changes to policy implemented by the U.S. Congress or the current or any future administration may impact, among other things, the U.S. and global economy, international trade relations, taxation, the U.S. regulatory environment, and inflation. The Company has not been materially affected by these conflicts or related tariffs to date.
Foreign exchange and geopolitical risks: The Company conducts a substantial portion of its operations internationally through 42 Telecom and its subsidiaries, whose functional currencies include the Euro, Swedish Krona, and British Pound. The Company is therefore exposed to foreign currency fluctuations that affect the translation of foreign-denominated revenues, expenses, assets, and liabilities into U.S. dollars. In addition, geopolitical instability, trade restrictions, sanctions, and regional conflicts in the markets in which the Company operates could disrupt operations, increase costs, or adversely affect reported financial results and cash flows.
Technological change and competitive pressures: The Company operates in industries characterized by rapid technological innovation and evolving customer demands. Failure to anticipate or adapt to such changes could render the Company’s technologies or products less competitive or obsolete. The Company competes with organizations that possess significantly greater financial, technical, and marketing resources than the Company currently has.
Operational and cybersecurity risks: The Company’s operations may be affected by supply-chain disruptions, cybersecurity threats, data-privacy and data-protection requirements across multiple jurisdictions, and other operational risks inherent in the telecommunications and technology industries. A cybersecurity incident, systems failure, or data breach could result in significant liability, regulatory penalties, reputational harm, and material disruption to the Company’s operations and customer relationships.
Management continuously monitors these risk factors and may implement mitigation strategies, including management of foreign-currency exposures, diversification of its customer and supplier base, cost management initiatives, and pursuit of additional capital resources. However, the effects of these risks and uncertainties cannot be predicted with certainty, and actual results may differ materially from management’s expectations.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the following subsidiaries from their respective dates of acquisition:
| ● | Spectral Holdings, Inc. (wholly owned, from August 29, 2024); | |
| ● | Noot Holdings, Inc. (60% owned, from February 28, 2013); | |
| ● | Monitr Holdings, Inc. (60% owned, from December 1, 2013); | |
| ● | 42 Telecom Ltd. and its wholly owned subsidiaries — 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta) — each wholly owned by Spectral from August 1, 2025; and | |
| ● | Telvantis Voice Services, Inc. and its wholly owned subsidiaries — Phonetime, Inc. (U.S.) and Matchcom Telecommunications, Inc. (U.S.) — wholly owned by Spectral from December 31, 2025. |
All intercompany accounts and transactions have been eliminated in consolidation.
F-8
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 contingent consideration liabilities recorded in connection with the acquisitions of 42 Telecom and Telvantis are classified as Level 3 liabilities under the fair value hierarchy. The fair value of these liabilities is determined using a Monte Carlo simulation incorporating a Black-Scholes framework and a discount for lack of marketability determined using a Black-Scholes put option model. See Note 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. |
F-9
Segment Reporting
The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting. The Company’s Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”) and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources. The measure of segment profit or loss regularly reviewed by the CODM is consolidated net loss.
The Company identified two operating segments based on legal entity groupings — 42 Telecom and subsidiaries, and Telvantis and subsidiaries — and determined that both meet the aggregation criteria under ASC 280-10-50-11 based on similar nature of products and services, production processes, customer class, distribution methods, and regulatory environment, and are therefore presented as a single reportable segment. Spectral holds intellectual property assets and is developing AI infrastructure and IP monetization capabilities; these activities are at an early stage, do not currently generate revenue, and do not constitute a separately managed business with discrete financial information reviewed by the CODM, and are accordingly treated as unallocated corporate overhead. See Note 9 — Segment and Geographic Information for further details, including significant segment expenses regularly provided to the CODM and geographic revenue information.
Cash and Cash Equivalents
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 March 31,
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 months ended March 31, 2026, the
Company’s revenues were derived primarily from the international voice termination operations of Telvantis Voice Services, Inc.
Three customers each individually accounted for more than 10% of consolidated revenues for the three months ended March 31, 2026. Customer
E, Customer F, and Customer G accounted for approximately
The Company’s cost of revenues is similarly concentrated among a limited number of voice termination suppliers. Supplier E, Supplier F, and Supplier G accounted for approximately 49%, 23%, and 22% of consolidated cost of revenues, respectively, for the three months ended March 31, 2026, collectively representing approximately 94% of consolidated cost of revenues. As of March 31, 2026, Supplier E, Supplier F, and Supplier G accounted for approximately 40%, 21%, and 27% of the Company’s accounts payable, respectively. Customer E, Customer F, and Customer G are the same entities as Supplier E, Supplier F, and Supplier G, respectively. The same counterparties that represent the Company’s largest customers also represent its largest suppliers, 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 had no cost of revenues for the three months ended March 31, 2025.
F-10
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 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 March
31, 2026 and December 31, 2025, the allowance for credit losses was $
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.
F-11
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 March 31, 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 months ended March 31, 2026 and 2025.
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 potentially 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 —8 years | |
| ● | 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.
F-12
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 potentially 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 five years upon being placed into service. As of March 31, 2026 and December 31, 2025, capital work-in-progress related to
software development totaled $
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 months ended March 31, 2026. The Company had no long-lived assets during the three months ended March 31, 2025.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805. Under the acquisition method, the Company recognizes the identifiable assets acquired and liabilities assumed at their fair values as of the acquisition date. The excess of the consideration transferred over the net acquisition-date fair values of the assets acquired and liabilities assumed is recognized as goodwill.
Consideration transferred in a business combination may include cash, equity instruments, and contingent consideration. Equity instruments issued as consideration are measured at acquisition-date fair value, adjusted where appropriate to reflect transfer restrictions and other factors affecting marketability. Contingent consideration is recognized at acquisition-date fair value and classified as either a liability or equity based on the terms of the arrangement. Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss.
During the measurement period, which may not exceed 12 months from the acquisition date, fair values of assets acquired and liabilities assumed may be adjusted with corresponding offsets to goodwill as additional information becomes available. After the measurement period closes, adjustments are recognized in the consolidated statements of operations and comprehensive loss. Acquisition-related costs are expensed as incurred.
F-13
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 months ended March 31, 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 loss. Upon settlement, the liability is relieved with a corresponding increase to common stock and additional paid-in capital. The fair value of contingent consideration is estimated using a Monte Carlo simulation incorporating projected financial performance metrics, simulated share prices, equity volatility, and a discount for lack of marketability determined using a Black-Scholes put option model. Because the valuation relies on significant unobservable inputs, contingent consideration is classified as Level 3 within the fair value hierarchy.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the five-step model: (i) identify the contract with a customer, (ii) identify 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.
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 months ended March 31, 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.
F-14
The following table presents disaggregated revenue for the three months ended March 31, 2026 and 2025:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Voice Services, at a point in time | $ | $ | ||||||
| Messaging Services, at a point in time | ||||||||
| Platform Leasing, over time | ||||||||
| $ | $ | |||||||
For the three months ended March 31, 2026, Telvantis and its subsidiaries contributed approximately 99% of consolidated revenues, with 42 Telecom and its subsidiaries contributing the remaining 1%.
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 March 31, 2026 and December 31, 2025, contract assets were $
Contract Liabilities
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.
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 March 31, 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.
F-15
Wages and Benefits Expense
Wages and benefit expenses include gross wages and salaries, bonuses, performance-related pay, casual wages, training expenses, staff welfare and wellness costs, employer social insurance contributions, pensions, insurance costs, education, maternity contributions and other staff-related costs. These are recorded in accordance with the Company’s payroll policies and applicable labor, pension and social security regulations in each jurisdiction in which the Company operates.
Employee Benefits
Pursuant
to Malta regulations, contributions to pension schemes are voluntary. The Company provides pension contributions to team management members.
Pension contributions are expensed as incurred. For the three months ended March 31, 2026 and 2025, 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 loss
Comprehensive loss includes net 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 loss for the three months ended March 31, 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 loss and accumulated in stockholders’ equity under accumulated other comprehensive loss. No other components of other comprehensive loss were recognized during the three months ended March 31, 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.
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).
F-16
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 three months ended March 31, 2026, closing rate 1.1482 US$: EURO, 0.1051 US$: SEK, 1.3220 US$: GBP. | |
| - | For the three months ended March 31, 2026, average rate 1.1610 US$: EURO, 0.1068 US$: SEK, 1.3337 US$: GBP. |
For
the three months ended March 31, 2026 and 2025, 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.
For
the three months ended March 31, 2026, the Company reported a net loss; accordingly, all potentially dilutive securities, including
Non-Controlling Interests
Noncontrolling interests represent the equity interests in consolidated subsidiaries that are not attributable to the Company. The Company consolidates Noot Holdings, Inc. and Monitr Holdings, Inc., in each of which the Company holds a 60% controlling interest, with the remaining 40% held by noncontrolling interest holders. Noncontrolling interests are presented as a separate component of stockholders’ equity in the consolidated balance sheets. Net income or loss attributable to noncontrolling interests is presented separately in the consolidated statements of operations and comprehensive loss.
F-17
Noot
Holdings, Inc. and Monitr Holdings, Inc. had no operations during the three months ended March 31, 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 100% of the issued and outstanding shares of 42 Telecom Ltd. (“42 Telecom”) and its wholly owned subsidiaries — 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta). The results of operations of 42 Telecom have been consolidated from August 1, 2025.
The
total purchase price consideration was $
F-18
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 100% of the issued and outstanding shares of Telvantis Voice Services, Inc. (“Telvantis”), a Florida corporation, and its wholly owned subsidiaries — Phonetime, Inc. and Matchcom Telecommunications, Inc. The results of operations of Telvantis have been consolidated from January 1, 2026, as the acquisition closed on December 31, 2025 and Telvantis contributed no revenues or expenses to the consolidated statements of operations for the year ended December 31, 2025.
The
total purchase price consideration was $
F-19
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 March 31, 2026 and December 31, 2025, classified within the fair value hierarchy:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| March 31, 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 March 31, 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 three months ended March 31, 2026.
F-20
The
fair value of the 42 Telecom contingent consideration was remeasured at March 31, 2026 using a risk-neutral Monte Carlo simulation of
projected FCCN share prices, consistent with the methodology applied at the acquisition date and at December 31, 2025. The net change
in fair value of the 42 Telecom contingent consideration for the three months ended March 31, 2026 resulted in a loss of $
The
fair value of the Telvantis contingent consideration was remeasured at March 31, 2026 using a risk-neutral Monte Carlo simulation incorporating
correlated gross revenue and operating profit projections, consistent with the methodology applied at the acquisition date. The net change
in fair value of the Telvantis contingent consideration for the three months ended March 31, 2026 resulted in a loss of $
The following table presents the changes in fair value of contingent consideration measured at fair value for the three months ended March 31, 2026:
| Contingent | ||||
| Consideration | ||||
| Balance, December 31, 2025 | $ | |||
| Change in fair value - 42 Telecom Ltd. | ||||
| Change in fair value - Telvantis Voice Servies, Inc. | ||||
| Balance, March 31, 2026 | $ | |||
There were no liabilities measured at fair value on a recurring basis during the three months ended March 31, 2025.
NOTE 5 – PREPAID AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
| March 31, | 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
months ended March 31, 2026 and 2025, the Company recognized amortization of $
F-21
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of the following:
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Office equipment | $ | $ | ||||||
| Computers | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
For
the three months ended March 31, 2026 and 2025, depreciation expense was $
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Developed technology | $ | $ | ||||||
| Internally 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 $
Amortization
expense for the three months ended March 31, 2026 and 2025 was $
F-22
The following table presents the estimated future amortization expense for intangible assets as of March 31, 2026:
| 2026 (remaining 9 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| $ |
NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| March 31, | 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 loss. The CODM uses consolidated net loss as the primary measure of segment profit or loss in assessing the overall performance of the Company’s Telco Services segment. In evaluating performance, the CODM analyzes trends in revenues, gross profit, operating expenses, and consolidated net loss to assess profitability, operating efficiency, cash generation, and the effectiveness of strategic initiatives. In allocating resources, the CODM considers these measures together with expected returns on investment, strategic growth opportunities, acquisition and integration initiatives, technology development priorities, and capital requirements. These assessments are used to establish operating budgets, determine personnel and infrastructure investments, evaluate acquisition opportunities, prioritize integration activities, assess potential capital returns, and allocate capital among the Company’s operating and strategic initiatives.
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 months ended March 31, 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 months ended March 31, 2025. For the three months ended March 31, 2026, Telvantis and its subsidiaries contributed approximately 99% of consolidated revenues, with 42 Telecom and its subsidiaries contributing the remaining 1%.
F-23
The following table presents significant segment expenses regularly provided to the CODM and used to assess segment performance for the three months ended March 31, 2026 and 2025:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Revenue | $ | $ | ||||||
| Total revenues | ||||||||
| Cost of revenue | ||||||||
| 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 expense | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
Geographic Information
For the three months ended March 31, 2026 and 2025, revenues attributable to operations by geography were as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Unites States | $ | |||||||
| Malta | ||||||||
| Sweden | ||||||||
| $ | $ | |||||||
For the three months ended March 31, 2026, the United States represented approximately 99% of consolidated revenues, reflecting the first full quarter of consolidation of Telvantis Voice Services, Inc. and its subsidiaries following their acquisition on December 31, 2025. Malta and Sweden revenues are generated by 42 Telecom Ltd., Arcus Technologies Ltd., and 42 Telecom AB Ltd., respectively.
Substantially
all of the Company’s property, plant and equipment is held by 42 Telecom and its subsidiaries in Europe.
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Malta | $ | $ | ||||||
| Sweden | ||||||||
| $ | $ | |||||||
F-24
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.
| March 31, | 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 €60 plus VAT, payable quarterly in advance. Lease costs are included in the unaudited condensed consolidated statements of operations and comprehensive loss as selling, general and administrative expenses.
The following table summarizes operating lease assets and liabilities as of March 31, 2026 and December 31, 2025:
| March 31, | 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 totaled $
The following table presents the maturity of operating lease liabilities as of March 31, 2026:
| March 31, | ||||
| 2026 (remaining 9 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ | |||
F-25
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.
During late 2025, Mexedia revised its strategic focus and is no longer principally engaged in international voice and messaging termination activities. In addition, following the sale of Telvantis Voice Services by Telvantis Inc. and subsequent changes in management and business strategy, commercial activity between the Company and the Mexedia entities declined significantly. Accordingly, while the bilateral agreements remain in place, transaction volumes under such agreements were not material during the three months ended March 31, 2026. For the three months ended March 31, 2026, 42 Telecom recognized no revenue from Mexedia SpA and incurred cost of revenues of approximately $16 from Mexedia SpA, and Telvantis recognized revenue of approximately $117 from Mexedia DAC in January 2026 and had no further activity with Mexedia DAC during February or March 2026.
For
the three months ended March 31, 2026, 42 Telecom recognized no revenue from Mexedia SpA and incurred cost of revenues of approximately
$
As
of March 31, 2026 and December 31, 2025, accounts receivable from Mexedia SpA and Mexedia DAC were $
In
addition, Telvantis has pre-acquisition loan obligations to Mexedia DAC totaling $
Transaction with Former Shareholder of 42 Telecom
Heritage Ventures Ltd. (“Heritage”), an Irish corporation controlled by Mr. Orlando Taddeo, was the 100% owner of 42 Telecom prior to its acquisition by the Company on August 1, 2025. Mr. Taddeo resigned as sole director of 42 Telecom effective December 31, 2025 and Heritage is no longer considered a related party of the Company from January 1, 2026. A dividend of EUR 601 in respect of 42 Telecom’s retained earnings for the year ended December 31, 2024 was declared payable to Heritage on October 31, 2025 and remained unpaid as of March 31, 2026. This obligation of $690 and $706 as of March 31, 2026 and December 31, 2025, respectively, is reflected in accrued expenses and other current liabilities and due to related party, respectively, in the unaudited condensed consolidated balance sheets.
42 Telecom – Other receivable
As
part of the acquisition of 42 Telecom on August 1, 2025, the Company acquired a receivable from Nexora Holdings Ltd. (“Nexora”)
amounting to EUR 363 (approximately $
F-26
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 March 31, 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 $12 per month for services rendered. Total compensation
expensed during the three months ended March 31, 2026 and 2025 was $
Loans from Related Parties
In
June 2025, the Company entered into a loan agreement with SKY PLL OU, a shareholder of the Company, whereby the Company may borrow up
to $500. The loan bears no interest. As of March 31, 2026 and December 31, 2025, the total amount outstanding under this agreement was
$
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
March 31, 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.
F-27
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 months ended March 31, 2026, Telvantis utilized this facility in the ordinary course of its operations. As of
March 31, 2026 and December 31, 2025, the outstanding balance was $
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
Business Combination — Telvantis Voice Services, Inc.
In connection with the acquisition of Telvantis Voice Services, Inc. on December 31, 2025, the Company was obligated to issue 1,500,000 shares of common stock to the former shareholders, reflected as common stock to be issued within stockholders’ equity as of December 31, 2025. During the three months ended March 31, 2026, the Company formally issued 1,000,000 of these shares. The remaining 500,000 shares continue to be reflected as common stock to be issued within stockholders’ equity as of March 31, 2026. See Note 3 — Business Combinations for further details.
Private Placement
Employee Options
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors.
F-28
During
the three months ended March 31, 2026 and 2025, the Company recognized stock-based compensation expense related to stock options of $
As
of March 31, 2026, total unrecognized compensation expense related to unvested stock options was $
The following table summarizes stock option activity for the three months ended March 31, 2026:
| Weighted | Weighted | |||||||||||
| Stock | Average | Average Life | ||||||||||
| Options | Exercise Price | Remaining | ||||||||||
| Outstanding, December 31, 2025 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited/Expired | - | |||||||||||
| Outstanding, March 31, 2026 | $ | |||||||||||
| Vested, December 31, 2025 | $ | |||||||||||
| Vested, March 31, 2026 | $ | |||||||||||
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Lease
Refer to Note 10 for the Company’s lease obligation. In addition, Company leases virtual office space on a month-to-month basis in Seattle, Washington.
Litigation
From time to time, the Company and its subsidiaries may become involved in various lawsuits and legal proceedings arising in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.
Tellza, Inc. v. Telvantis Voice Services Inc. f/k/a Mexedia Inc. (Broward County, Florida; Case No. Cace-25-017748). On January 1, 2023, Telvantis Voice Services Inc. (“Telvantis”), now a wholly owned subsidiary of the Company, entered into a stock purchase agreement with Tellza, Inc. to acquire Tellza’s ownership interest in Phonetime, Inc. and Matchcom Telecommunications, Inc. as part of a $3,000 purchase price. Telvantis was required to pay $250 on January 1, 2024 and did not make this payment. Tellza filed suit to recover the $250. Telvantis filed a motion to dismiss, and the parties subsequently entered into an Agreed Order. Based on the facts as presently known, the Company is unable to determine the likelihood of an unfavorable outcome; however, a loss contingency in the range of zero to $250 is reasonably possible. No accrual has been recorded as of March 31, 2026 as the loss is not considered probable.
F-29
42 Telecom Ltd. v. Symplify Technologies AB (Malta; Case No. 937/2025). 42 Telecom Limited (“FortyTwo”), a wholly owned subsidiary of the Company, instituted legal proceedings in the Civil Court, First Hall, of the Republic of Malta against Symplify Technologies AB, a Swedish corporation, for recovery of €443 (approximately $478) in unpaid invoices for telecommunications services. The case was filed September 15, 2025. On March 26, 2026, the Court entered judgment in favor of FortyTwo for the full amount of €443 plus legal interest and costs. The defendant did not appear or contest the proceedings. The judgment is now subject to collection. The Company has not recorded a receivable for the judgment amount as collectability has not yet been assessed.
Arcus Technologies Ltd.
Arcus Technologies Limited, an indirect subsidiary of the Company, entered into a settlement agreement with a customer relating to outstanding debt, with monthly payments. The matter has been resolved by agreement.
NOTE 15 - SUBSEQUENT EVENTS
Repayment of Related Party Obligations
On
April 28, 2026, the Company repaid in full the $
On
April 29, 2026, the Company repaid in full the $
Issuance of Telvantis Earn-Out Shares
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. (the “Telvantis Purchase Agreement”) had been achieved for the fiscal year ended December 31, 2025.
Pursuant to that determination, the Company issued an aggregate of
The
issuance of the Earn-Out Shares constitutes a partial settlement of the contingent consideration liability recognized in connection with
the Telvantis acquisition. The Company will recognize in the second quarter of 2026 a remeasurement of the contingent consideration liability
to its fair value as of May 21, 2026 and a settlement loss representing the excess of the fair value of the shares issued over the carrying
amount of the contingent consideration derecognized, in accordance with ASC 805-30-35-1. The fair value of the
Private Placement
Subsequent to
March 31, 2026, the Company issued an additional
F-30
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Spectral Capital Corporation (a Nevada corporation)
Our audited consolidated financial statements for the years ended December 31, 2025, and 2024 are included in this Registration Statement. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. In addition, the following financial statements are included in the body of this Registration Statement beginning on page F-71: the audited consolidated financial statements of 42 Telecom Limited as of and for the years ended December 31, 2024 and 2023; the unaudited condensed consolidated interim financial statements of 42 Telecom Limited as of and for the six months ended June 30, 2025; the audited carve-out combined financial statements of Telvantis Voice Services, Inc. as of and for the years ended December 31, 2024 and 2023; the unaudited carve-out combined financial statements of Telvantis Voice Services, Inc. as of September 30, 2025 and for the nine months ended September 30, 2025 and 2024; and the related unaudited pro forma condensed combined financial information.
| Report of Independent Registered Public Accounting Firm | F-32 |
| Consolidated Balance Sheets as of December 31, 2025 and 2024 | F-34 |
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2025 and 2024 | F-35 |
| Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2025 and 2024 | F-36 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 | F-37 |
| Notes to the Consolidated Financial Statements | F-38 |
F-31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Spectral Capital Corporation and subsidiaries,
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Spectral Capital Corporation (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit and a working capital deficit which raise substantial doubt about its ability to continue as going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-32
Goodwill and Other Intangibles – Refer to Notes 3 to the consolidated financial statements
Critical Audit Matter Description
As disclosed in Note 3, Goodwill arises in connection with acquisitions. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. The Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.
As disclosed in Note 3, on August 1, 2025, the Company completed an acquisition referred to as the 42 Telecom Ltd. acquisition in accordance with the stock purchase agreement. The consideration included an initial payment of $12,880,000 through common stock. In addition to the initial payment amount, the Company agreed to issue an earn-out to the selling stockholders that is subject to an earn-out adjustment based on actual EBITDA achieved in 2026 with total guarantee minimum share value consideration of $30,000,000. The Company gave a fair value of approximately $7,120,000 to the earn-out on the date of acquisition which is considered a contingent liability.
Also, as disclosed in Note 3, on December 31, 2025, the Company completed an acquisition referred to as the Telvantis Voice Services, Inc. acquisition in accordance with the stock purchase agreement. The consideration included an initial payment of $3,407,250 through common stock. In addition to the initial payment amount, the Company agreed to issue an earn-out agreement to the selling stockholders that is subject to an earn-out adjustment based on actual EBITDA achieved in 2026 with total guarantee minimum share value consideration of $65,000,000. The Company gave a fair value of approximately $31,105,750 to the earn-out on the date of acquisition which is considered a contingent liability.
Given the significant judgments made by management to estimate the earn-outs as well as intangible assets acquired with the 42 Telecom Ltd acquisition and Telvantis Voice Services, Inc. acquisition, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
| ● | We utilized personnel with specialized knowledge and skill in valuation to assist in; a) assessing the appropriateness and relative weighting of valuation methodology for the various intangible assets, including the Multi-Period Excess Earnings Method, Cost to Replace, Relief from Royalty and Monte Carlo Simulation model, b) evaluating the reasonableness of the growth rates, percent of revenues lost without existing agreements, discount rate used in the income approach and the discount rate used for lack of marketability of the Company’s common stock and, c) evaluating the reasonableness of the assumptions and estimates used in the various valuation methodologies. | |
| ● | Evaluate the reasonableness of management’s significant estimates and assumptions including revenue growth rates and EBITDA margins, discount rates and futures market conditions. | |
| ● | Evaluate if there have been events and circumstances that might indicate Goodwill has been impaired. | |
| ● | Reviewed and assessed the appropriateness of adjustments to Goodwill, Other Intangibles and other Assets and Liabilities acquired based on changes to their estimated fair values. |
| /s/ RBSM LLP | |
We have served as the Company’s auditor since 2025. PCAOB ID 587 | |
| New York, NY | |
| March 31, 2026 | |
F-33
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2025 AND 2024
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| 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 15) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| 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 (deficit) | ( | ) | ||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | ( | ) | ||||||
| $ | $ | |||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-34
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| 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 | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | ( | ) | ||||||
| Extinguishment of debt | ( | ) | ||||||
| Change in fair value of contingent consideration | ||||||||
| Other expense | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income taxes (benefit) | ( | ) | ||||||
| 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 income (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 audited consolidated financial statements.
F-35
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
| Series Quantum | Common Stock to | Additional | Non- | Accumulated Other | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | be issued | Paid-In | Controlling | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Interest | Income | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Proceeds from sale of common stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for liabilities | ||||||||||||||||||||||||||||||||||||||||||||
| Common and preferred stock issued for cash | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued pursuant to private placement | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to business combination | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock to be issued pursuant to business combination | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to assets purchase agreement | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt settlement | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to services | ||||||||||||||||||||||||||||||||||||||||||||
| Settlement of related party liabilities | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-36
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debt | ||||||||
| Stock-based compensation | ||||||||
| Common stock issued for professional and marketing services | ||||||||
| Amortization of right of use assets | ||||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Depreciation | ||||||||
| Amortization of intangibles | ||||||||
| Deferred tax adjustments | ( | ) | ||||||
| Excess value of common stock issued to settle liabilities | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| 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: | ||||||||
| Cash and restricted cash acquired from business combinations | ||||||||
| Purchase of property, plant and equipment | ( | ) | ||||||
| Software development capitalization | ( | ) | ||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Short-term advances, related party | ||||||||
| Repayment of loan | ( | ) | ||||||
| Accounts receivable financing facility | ||||||||
| Proceeds from sale of common and preferred stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents and restricted cash at beginning of year | ||||||||
| Cash and cash equivalents and restricted cash at end of year | $ | $ | ||||||
| Reconciliation of cash and restricted cash: | ||||||||
| Cash at beginning of year | $ | $ | ||||||
| Restricted cash at beginning of year | ||||||||
| Cash and restricted cash at beginning of year | $ | $ | ||||||
| Cash at end of year | $ | $ | ||||||
| Restricted cash at end of year | ||||||||
| Cash and restricted cash at end of year | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash operating activities: | ||||||||
| Issuances of common stock for consulting and marketing services - prepaid expense | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Purchase of intangible assets in exchange of issuance of common stock | $ | $ | ||||||
| Dividend payable to former owner of 42 arising from measurement year adjustment to goodwill | $ | $ | ||||||
| Contingent consideration liability recognized with business combination | $ | $ | ||||||
| Issuance of common stock pursuant to business combination | $ | $ | ||||||
| Common stock to be issued pursuant to business combination | $ | $ | - | |||||
| Settlement of related party liabilities | $ | $ | - | |||||
| Issuance of common stock in settlement of liabilities | $ | $ | ||||||
| Deferred tax adjustment to goodwill | $ | $ | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-37
SPECTRAL CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS AND NATURE OF OPERATIONS
Spectral
Capital Corporation (the “Company” or “Spectral”) was incorporated on
Spectral’s business model is built on four synergistic pillars: (1) the development of a robust intellectual property portfolio—including patents and trade secrets—at the intersection of artificial intelligence and hybrid classical computing; (2) monetization of that IP through licensing agreements that include both cash payments and equity in licensee companies; (3) creation of high-impact software tools derived from Spectral’s core IP that are modular, cost-efficient, and capable of producing significant risk-adjusted returns; and (4) acquisition and transformation of smaller technology companies through the strategic application of Spectral’s proprietary technology.
In 2025, the Company formally rescinded certain
transactions involving former Chairman Sean Michael Brehm and related entities. These rescissions preserved Spectral’s independently
developed intellectual property and clarified ownership of over 100 provisional patents. In connection with the rescissions, the
Acquisition of 42 Telecom Ltd.
On July 15, 2025, Spectral entered into a definitive share-exchange agreement to acquire 100% of the issued and outstanding shares of 42 Telecom Ltd. (“42 Telecom”), a Maltese-organized telecommunications infrastructure provider. The transaction closed on August 1, 2025; 42 Telecom is now a wholly owned subsidiary of Spectral. As consideration, the Company issued 8,000,000 shares of its common stock and placed an additional 8,000,000 shares into escrow subject to earn-out and performance milestones (the “Escrow Shares”).
The acquisition included the following wholly owned subsidiaries of 42 Telecom:
| ● | 42 Telecom AB Ltd. (Sweden) |
| ● | 42 Telecom UK Ltd. (United Kingdom) |
| ● | Arcus Technologies Ltd. (Malta) |
42 Telecom provides international telecommunications and messaging solutions. Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions. Through Arcus Technologies Ltd., 42 Telecom also offers platform-as-a-service solutions tailored for the tourism sector. 42 Telecom serves a global customer base consisting primarily of mobile network operators and enterprises.
Acquisition of Telvantis Voice Services. Inc.
On December 29, 2025, Spectral entered into a Definitive Stock Purchase Agreement with Telvantis, Inc. (formerly Raadr, Inc.), a Nevada corporation, to acquire 100% of the issued and outstanding shares of Telvantis Voice Services, Inc. (“Telvantis”), a Florida corporation. At the time of the acquisition, Telvantis was considered a related party of the Company, as Telvantis is 75% owned by Mexedia SpA, an entity that is a related party of Spectral through the common directorship of Mr. Orlando Taddeo, who served as director of 42 Telecom (a wholly owned Spectral subsidiary) and retained a controlling ownership interest in Mexedia SpA through Heritage Ventures Ltd. through December 31, 2025.
F-38
The acquisition included the following wholly owned subsidiaries of Telvantis:
| ● | Phonetime, Inc. (U.S.) — A subsidiary providing international voice termination services |
| ● | Matchcom Telecommunications, Inc. (U.S.) — A subsidiary focused on customer care and telecom solutions |
Telvantis is a telecommunications services provider specializing in VoIP and voice traffic solutions delivered primarily to telecommunications businesses on a business-to-business basis, with a focus on high-quality, cost-effective international voice services.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring operating losses from operations since inception and has not yet generated consistent positive cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.
As
of December 31, 2025, the Company had cash and cash equivalents of $
For
the year ended December 31, 2025, 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. In addition, 42 Telecom and Telvantis maintain a Master Participation Agreement with Fasanara Securitisation S.A. pursuant to which Fasanara provides funding against a specified percentage of trade receivables arising from telecommunications services, providing the Company with access to working capital liquidity against its receivables base. The Company intends to continue utilizing this arrangement to support near-term operating cash needs. There can be no assurance that such financing or operational success will be achieved on terms favorable to the Company, or at all. Accordingly, the accompanying audited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
F-39
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 profitability. Although the acquisition of 42 Telecom on August 1, 2025 introduced the Company’s initial revenue streams, the Company continues to depend on external financing to fund operations and there can be no assurance that it will achieve or attain profitability in the future.
Integration and acquisition risks. The Company completed two significant acquisitions during 2025 — 42 Telecom, which closed on August 1, 2025 and contributed revenues during the year, and Telvantis, which closed on December 31, 2025 and accordingly its operations are not reflected in the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2025. The successful integration of both acquired businesses involves significant operational, financial, and management challenges, including the coordination of personnel, technology platforms, customer relationships, and financial reporting processes across multiple jurisdictions. Failure to integrate these businesses effectively, or to realize the anticipated benefits of either acquisition, could adversely affect the Company’s financial condition, results of operations and cash flows.
Market and economic conditions: The Company’s business and financial performance are affected by general economic and business conditions in the United States and globally, including changes in inflation, interest rates, capital-market liquidity, and access to financing. Adverse macroeconomic trends or recessionary conditions could reduce demand for technology and telecommunications services and have a material adverse effect on the Company’s results and cash flows. The United States and global markets are experiencing volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the Israel-Hamas conflict. In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions among a number of nations. The invasion of Ukraine by Russia and the Israel-Hamas conflict and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyberattacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. Furthermore, changes to policy implemented by the U.S. Congress or the current or any future administration may impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine, the Israel-Hamas conflict and subsequent sanctions or related actions, could adversely affect the Company’s operations or its future capital-raising activities. The Company has not been materially affected by these conflicts or related tariffs to date.”
Foreign exchange and geopolitical risks: The Company conducts a substantial portion of its operations internationally through 42 Telecom and its subsidiaries, whose functional currencies include the Euro, Swedish Krona, and British Pound. The Company is therefore exposed to foreign currency fluctuations that affect the translation of foreign-denominated revenues, expenses, assets, and liabilities into U.S. 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.
F-40
Technological change and competitive pressures: The Company operates in industries characterized by rapid technological innovation and evolving customer demands. Failure to anticipate or adapt to such changes could render the Company’s technologies or products less competitive or obsolete. The Company competes with organizations that possess significantly greater financial, technical, and marketing resources than the Company currently has.
Operational and cybersecurity risks: The Company’s operations may be affected by supply-chain disruptions, cybersecurity threats, data-privacy and data-protection requirements across multiple jurisdictions, and other operational risks inherent in the telecommunications and technology industries. A cybersecurity incident, systems failure, or data breach could result in significant liability, regulatory penalties, reputational harm, and material disruption to the Company’s operations and customer relationships.
Management continuously monitors these risk factors and may implement mitigation strategies, including management of foreign-currency exposures, diversification of its customer and supplier base, cost management initiatives, and pursuit of additional capital resources. However, the effects of these risks and uncertainties cannot be predicted with certainty, and actual results may differ materially from management’s expectations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and the following subsidiaries from their respective date of acquisition:
| ● | Spectral Holdings, Inc. (wholly owned, from August 29, 2024); |
| ● | Noot Holdings, Inc. (60% owned, from February 28, 2013); |
| ● | Monitr Holdings, Inc. (60% owned, from November 26, 2013); |
| ● | 42 Telecom and its wholly owned subsidiaries — 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta) — each wholly owned by Spectral from August 1, 2025; and |
| ● | Telvantis Voice Services, Inc. and its wholly owned subsidiaries — Phonetime, Inc. (U.S.) and Matchcom Telecommunications, Inc. (U.S.). |
All intercompany accounts and transactions have been eliminated in consolidation. Refer to Note 1 for further description of the Company’s acquisitions. In May 2025, the Company entered into a settlement agreement with former Chairman Sean Michael Brehm and affiliated entities to rescind all prior acquisitions and planned collaborations, including Node Nexus Network and related entities. Refer to Note 11 for further detail.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulation of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-K and are presented in US dollars. The accompanying consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.
Fair Value of Financial Instruments
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. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. 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 | Include other inputs that are directly or indirectly observable in the marketplace. | |
| Level 3 | Unobservable inputs which are supported by little or no market activity. |
F-41
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, contract assets, accounts receivable- related party, prepaid expense and other current assts, other receivables, related party receivables and advances, accounts payable and accrued liabilities, contract liabilities, financing liabilities arising from the Company’s receivables participation arrangements, amounts due to related parties, and deferred tax liabilities recognized in connections with business combinations. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements. The Company’s operating lease liability and right-of-use asset are recorded based on the present value of future lease payments discounted at the rate implicit in the lease or the Company’s incremental borrowing rate, in accordance with ASC (Accounting Standards Codification) 842, Leases.
The Company measures certain assets and liabilities at fair value on a nonrecurring basis, including assets acquired and liabilities assumed in business combinations, and property, plant and equipment and intangible assets written down to fair value when held for sale or determined to be impaired.
The contingent consideration liabilities recorded in connection with the acquisitions of 42 Telecom and Telvantis are classified as Level 3 liabilities under the fair value hierarchy. The fair value of these liabilities is determined using a Monte Carlo simulation incorporating a Black-Scholes framework and a discount for lack of marketability determined using a Black-Scholes put option model. See Note 3 — Business Combinations and Note 4 — Fair Value Measurements for further details.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures in financial statements and accompanying notes. Actual results could differ materially from those estimates. Areas requiring significant estimates and assumptions by the Company include, but are not limited to:
| ● | discount rate applied in determining right-of-use assets and operating lease liabilities; |
| ● | allowances for income taxes, related valuation allowances, and uncertain tax positions; |
| ● | recoverability of long-lived assets and their related estimated lives, including internally developed software and acquired intangible assets; |
| ● | accruals for estimated liabilities; |
| ● | evaluation of goodwill for impairment; |
| ● | allowance for credit losses on accounts receivable and contract assets; |
| ● | fair value of share-based compensation and equity issued for services and |
| ● | fair value of assets acquired and liabilities assumed in business combinations, including the identification, valuation, and estimated useful lives of acquired intangible assets, and the fair value of contingent consideration. |
Segment Reporting
The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting. The Company’s Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”) and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources. The measure of segment profit or loss regularly reviewed by the CODM is consolidated net loss. The Company identified two operating segments based on legal entity groupings — 42 Telecom and subsidiaries, and Telvantis and subsidiaries — and determined that both meet the aggregation criteria under ASC 280-10-50-11 based on similar nature of products and services, production processes, customer class, distribution methods, and regulatory environment, and are therefore presented as a single reportable segment. Spectral holds intellectual property assets and is developing AI infrastructure and IP monetization capabilities; these activities are at an early stage, do not currently generate revenue, and do not constitute a separately managed business with discrete financial information reviewed by the CODM and are accordingly treated as unallocated corporate overhead. See Note 9 - Segment and Geographic Information for further details, including significant segment expenses regularly provided to the CODM and geographic revenue information.
F-42
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 December
31, 2025 and 2024, 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 year ended December 31, 2025, two customers each individually accounted for more than 10% of the Company’s consolidated revenues. Customer A accounted for approximately 35.7% of consolidated revenues, and Customer B, a related party of the Company, accounted for approximately 33.0% of consolidated revenues. See Note 11 — Related Party Transactions for further details regarding the Company’s transactions and balances with Customer B. Revenues for the year ended December 31, 2025 are derived solely from the operations of 42 Telecom Limited, as the acquisition of Telvantis Voice Services, Inc. was completed on December 31, 2025 and accordingly no Telvantis revenues are included in the consolidated results for the year then ended.
As of December 31, 2025, two customers each individually accounted for more than 10% of the Company’s net accounts receivable. Customer C and Customer D accounted for approximately 19.6% and 19.32% of net accounts receivable, respectively. Customer D is a related party of the Company. Accounts receivable as of December 31, 2025 include balances of Telvantis Voice Services, Inc., as the acquisition was completed on December 31, 2025 and Telvantis balances are included in the consolidated balance sheet as of that date. The loss of any one of these customers could have a material adverse effect on the Company’s results of operations, cash flows, and financial condition.
The Company’s cost of revenues is similarly concentrated among a limited number of voice termination suppliers. Supplier A accounted for approximately 36.0% of consolidated cost of revenues, and Supplier B, a related party of the Company, accounted for approximately 39.1% of consolidated cost of revenues, for the year ended December 31, 2025. Customer A and Customer B are the same entities as Supplier A and Supplier B, respectively. Cost of revenues for the year ended December 31, 2025 are derived solely from the operations of 42 Telecom Limited, consistent with the revenue disclosure above.
As of December 31, 2025, three suppliers each individually accounted for more than 10% of the Company’s accounts payable. Supplier C accounted for approximately 16.0%, Supplier A accounted for approximately 10.4%, and Supplier B, a related party of the Company, accounted for approximately 11.4% of accounts payable, respectively. Accounts payable as of December 31, 2025 include balances of Telvantis Voice Services, Inc. for the same reason described above. The loss of any one of these suppliers could have a material adverse effect on the Company’s results of operations and financial condition.
Accounts Receivable, net and Accounts Receivable, related party
The Company’s accounts receivable consist
primarily of amounts due from customers for telecommunications and messaging services provided by 42 Telecom. Receivables are recorded
at the invoiced amount and do not bear interest. The Company maintains an allowance for credit losses based on management’s periodic
assessment of factors including customer payment history, creditworthiness, aging of receivable balances, current economic conditions,
and historical collection experience. Receivables determined to be uncollectible are written off against the allowance when collection
efforts have been exhausted. As of December 31, 2025 and 2024, the allowance for credit losses was $
F-43
Accounts receivable, related party, represents amounts due from Mexedia and Mexedia SpA, a related party of the Company, arising from telecommunications and messaging services provided by 42 Telecom under bilateral messaging service agreements. These receivables are recorded at the invoiced amount on the same basis as third-party accounts receivable and are subject to the same credit loss assessment methodology described above.
Receivables Financing Arrangements
The Company, through 42 Telecom and Telvantis, maintains participation arrangements with a third-party financing provider under which funding is advanced against a specified percentage of eligible trade receivables. The Company retains responsibility for customer billing, collection, and servicing under these arrangements and maintains direct customer relationships. Management evaluated the substance of these arrangements under ASC 860, Transfers and Servicing, and concluded that they do not qualify for sale accounting, as the Company retains continuing involvement with the receivables and the receivables are not fully isolated from the Company and its creditors. Accordingly, the arrangements are accounted for as receivables financing. The underlying receivables remain recognized on the consolidated balance sheets until collected, and the associated financing obligations are classified within short-term borrowings. Interest and fees incurred under these arrangements are recognized as interest expense in the consolidated statements of operations and comprehensive income (loss).
Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets primarily consist of advance payments for services and operational costs to be consumed within one-year,
prepaid taxes and deposits related to the Company’s telecommunications and technology operations. Prepaid services representing
common stock issued for future services are recorded at the fair value of the shares on the date of issuance and recognized ratably as
expense over the contractual service period. As of December 31, 2025 and 2024, prepaid expenses and other current assets totaled $
Property, Plant and Equipment, Net
Property, plant and equipment, net (“PP&E”) is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. Depreciation is computed using the straight-line method over the assets’ estimated useful lives. The estimated useful lives of PP&E are as follows:
Office
Equipment and tools –
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, which do not significantly improve or extend the useful life of the assets, are expensed as incurred.
Upon the disposal or retirement of an asset, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the consolidated statement of operations in the period of disposal.
The Company reviews PP&E for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment losses were identified for the years ended December 31, 2025 and 2024.
Intangible Assets, net
The Company’s intangible assets primarily consist of (i) identifiable intangible assets acquired in connection with the acquisitions of 42 Telecom and Telvantis, including developed technology, customer relationships, and trade names and (ii) intellectual property assets acquired pursuant to an Asset Purchase Agreement dated October 15, 2025, consisting of a portfolio of potentially 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.
F-44
Intangible Assets Acquired in Business Combinations
Identifiable intangible assets acquired in the 42 Telecom and Telvantis business combinations were valued as of the respective acquisition dates in accordance with ASC 805, Business Combinations (“ASC 805”). These assets are amortized on a straight-line basis over their estimated useful lives as follows:
Developed
technology – 42 Telecom –
Customer
relationship – 42 Telecom –
Trade
name – 42 Telecom –
Customer relationship – Telvantis –8 years
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 potentially patentable innovations and proprietary technologies, including artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies. The transaction was evaluated under ASC 805 and determined not to constitute a business combination, as no workforce, customers, operational processes, or revenue-generating activities were transferred. Accordingly, the transaction was accounted for as an asset acquisition under ASC 805-50.
The
total purchase consideration consisted of
Capitalized Software Development
42
Telecom capitalizes certain costs incurred during the application development stage of internal-use software projects in accordance with
ASC 350-40, Internal-Use Software. Capitalized costs include direct labor and related benefits for employees engaged in software development
activities and qualifying third-party contractor fees. Costs incurred during the preliminary project and post-implementation stages,
including training, maintenance, and data conversion, are expensed as incurred. Capitalized software costs are amortized on a straight-line
basis over five years upon being placed into service. Amortization of software used directly in service delivery is classified within
cost of revenue. As of December 31, 2025, the Company had $
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability is assessed by comparing the carrying amount to the sum of undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized equal to the excess of the carrying amount over the asset’s fair value, generally determined using estimated discounted future cash flows. No impairment indicators were identified for the years ended December 31, 2025 or 2024.
F-45
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805. Under the acquisition method, the Company recognizes the identifiable assets acquired and liabilities assumed at their fair values as of the acquisition date. The excess of the consideration transferred over the net acquisition-date fair values of the assets acquired and liabilities assumed is recognized as goodwill.
Consideration transferred in a business combination may include cash, equity instruments, and contingent consideration. Equity instruments issued as consideration are measured at acquisition-date fair value, adjusted where appropriate to reflect transfer restrictions and other factors affecting marketability. Contingent consideration is recognized at acquisition-date fair value and classified as either a liability or equity based on the terms of the arrangement. Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss.
During the measurement period, which may not exceed 12 months from the acquisition date, fair values of assets acquired and liabilities assumed may be adjusted with corresponding offsets to goodwill as additional information becomes available. After the measurement period closes, adjustments are recognized in the consolidated statements of operations and comprehensive loss. Acquisition-related costs are expensed as incurred.
Goodwill
Goodwill represents the excess of the consideration transferred over the estimated fair value of the net identifiable assets acquired in a business combination. In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill is not amortized but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested at the reporting unit level.
The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors considered include macroeconomic conditions, industry and market trends, cost factors, discount rates, competitive dynamics, and the financial performance of the reporting unit. If the qualitative assessment indicates that impairment is more likely than not, a quantitative test is required. The Company may also elect to bypass the qualitative assessment and proceed directly to the quantitative test in any given period. Under the quantitative test, the estimated fair value of the reporting unit is compared to its carrying value including goodwill. If the carrying value exceeds the fair value, a goodwill impairment charge equal to the excess is recognized, not to exceed the total goodwill allocated to that reporting unit.
Goodwill recognized in connection with the acquisitions of 42 Telecom and Telvantis represents the residual consideration after allocation to identifiable net assets and is preliminary and subject to change upon completion of the respective purchase price allocations. No goodwill impairment indicators were identified for the year ended December 31, 2025.
Contingent Consideration
The Company records contingent consideration at its estimated acquisition-date fair value as part of the total consideration transferred in a business combination in accordance with ASC 805. Contingent consideration is classified as either a liability or equity based on the terms of the arrangement. Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss. Upon settlement, the liability is relieved with a corresponding increase to common stock and additional paid-in capital. The fair value of contingent consideration is estimated using a Monte Carlo simulation incorporating projected financial performance metrics, simulated share prices, equity volatility, and a discount for lack of marketability determined using a Black-Scholes put option model. Because the valuation relies on significant unobservable inputs, contingent consideration is classified as Level 3 within the fair value hierarchy.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the five-step model: (i) identify the contract with a customer, (ii) identify performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to performance obligations, and (v) recognize revenue when or as performance obligations are satisfied.
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The Company generates revenue through the following streams, all of which were generated by 42 Telecom and its subsidiaries for the year ended December 31, 2025:
| ● | Messaging Services – includes SMS aggregation, enterprise messaging, and instant messaging (Viber). Revenue from these services is recognized at a point in time when each message or lookup is successfully processed and transmitted. Messaging services represented the substantial majority of the Company’s revenues. |
| ● | Platform Services – includes SS7 platform access, managed services, staff leasing arrangement, and the tourism platform-as-a-service. Revenue from these services is recognized over time, as customers receive and consume the benefits of continuous access or managed service delivery. |
The Company generally acts as principal in its arrangements, as it controls the services before transfer, bears responsibility for performance, and has discretion in pricing. Customer contracts are typically short-term in nature, invoiced monthly based on actual usage or subscription terms, with no significant financing components.
In the international wholesale 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 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 following table presents the disaggregated revenue for the years ended December 31, 2025 and 2024:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Messaging Services, at a point in time | $ | $ | ||||||
| Platform Leasing, over time | ||||||||
| $ | $ | |||||||
Contract Assets
Contract
assets represent amounts recognized as revenue for performance obligations satisfied under customer contracts where the Company’s
right to payment is not yet unconditional, primarily consisting of accrued income on December 2025 messaging traffic where services were
delivered point-in-time during the month but invoices are issued following month-end volume reconciliation with counterparties, at which
point the balance reclassifies to accounts receivable. As of December 31, 2025 and 2024, contract assets were $
Contract Liabilities
Contract
liabilities, historically referred to as deferred revenue, represent amounts billed or collected from customers in advance of satisfying
performance obligations under customer contracts. These balances are presented within current liabilities in the consolidated balance
sheets, based on the expected timing of revenue recognition. Contract liabilities are recognized as revenue when the related performance
obligations are fulfilled. As of December 31, 2025 and 2024, contract liabilities were $
Cost of Revenue
Cost of revenue consists of direct expenses incurred in providing telecommunication and platform services and is recognized in the period in which the related revenues are earned. Cost of revenue includes accruals for third-party service providers, purchases of services from both local and non-EU vendors, and charges for telecommunication services inside and outside the EU, including data, voice, and connectivity costs. It also includes wholesale carrier and traffic fees, consultancy and technical service costs directly tied to service delivery, commissions and referral fees related to customer acquisition or usage. Additionally, platform or PaaS licensing fees and other directly attributable costs necessary to fulfill service obligations, such as internally generated software amortization used in service infrastructure, are included. These costs are recorded when incurred and matched to the related revenue in accordance with U.S. GAAP expense recognition principles.
Selling, General and Administrative Expense
Selling, general and administrative expenses represent the routine costs of operating the Company. They primarily consist of rent and facilities, marketing and travel, professional and administrative services, insurance and compliance costs, finance and bank charges, and other general operating expenses.
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Depreciation and Amortization
Depreciation and amortization expenses are related to the Company’s property and equipment and intangible assets. Depreciation and amortization is recognized on a straight-line basis over the estimated useful life of the respective assets.
Wages and Benefits Expense
Wages and benefit expenses include gross wages and salaries, bonuses, performance-related pay, casual wages, training expenses, staff welfare and wellness costs, employer social insurance contributions, pensions, insurance costs, education, maternity contributions and other staff-related costs. These are recorded in accordance with the Company’s payroll policies and applicable labor, pension and social security regulations in each jurisdiction in which the Company operates.
Employee Benefits
Pursuant
to Malta regulations, contributions to pension schemes are voluntary. The Company provides pension contributions to team management members.
Pension contributions are expensed as incurred. For the years ended December 31, 2025 and 2024, pension plan contributions totaled $
Research and Development
The Company’s research and development activities are primarily focused on the design, testing, and enhancement of proprietary artificial intelligence, quantum computing, and communications technologies, as well as on software platform development initiatives. Research and development expenses include personnel costs, contractor and consulting fees, materials and supplies, and other direct expenditures incurred in the development of new technologies, products, and enhancements to existing systems. Expenditures for research activities and costs associated with the preliminary project stage of software development are expensed as incurred in accordance with ASC 730, Research and Development.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation, which requires all share-based payments to employees, directors, and non-employees to be recognized in the consolidated financial statements based on their grant-date fair values. Compensation cost for awards with service conditions is recognized on a straight-line basis over the requisite service period. For equity instruments issued to non-employees in exchange for services, compensation cost is measured at the grant-date fair value of the equity instruments issued. The Company accounts for forfeitures as they occur; accordingly, compensation expense is recognized only for awards that ultimately vest.
The fair value of stock options is estimated using the Black-Scholes option pricing model, which requires management to make assumptions regarding expected term, stock price volatility, risk-free interest rate, and dividend yield. Changes in these assumptions can materially affect the estimated fair value of awards.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) as well as other changes in shareholders’ equity resulting from transactions and economic events other than those with shareholders. In addition to net income (loss), comprehensive income (loss) encompasses other comprehensive income (loss) items that are excluded from net income under U.S. GAAP. For the Company, the only component of other comprehensive income (loss) for the year ended December 31, 2025 relates to foreign currency translation adjustments arising from the consolidation of 42 Telecom, whose functional currencies (EUR, SEK, and GBP) differ from the Company’s reporting currency (USD). These translation adjustments are recorded in Other Comprehensive Income (Loss) and accumulated in stockholders’ equity (deficit) under Accumulated Other Comprehensive Income (Loss). No other components of other comprehensive income (loss) were recognized for the year ended December 31, 2025.
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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 (Parent): Euro (EUR) |
| ● | 42 Telecom AB Ltd (Sweden): Swedish Krona (SEK) |
| ● | 42 Telecom UK Ltd: British Pound (GBP) |
| ● | Arcus Technologies Ltd: Euro (EUR) |
For consolidation purposes, assets and liabilities of subsidiaries with functional currencies other than U.S. dollar are translated at exchange rates prevailing at the balance sheet date. Revenues and expenses are translated at average exchange rates for the reporting period. Equity accounts, other than retained earnings, are translated at historical exchange rates. The resulting translation adjustments are recorded in Other Comprehensive Income (Loss) and accumulated in stockholders’ equity under Accumulated Other Comprehensive Income (loss).
Transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the exchange rate on the transaction date. Monetary assets and liabilities denominated in foreign currencies are remeasured at period-end exchange rates, and non-monetary assets and liabilities are carried at historical exchange rates. Resulting foreign exchange gains and losses are recognized within other income (expense), net in the consolidated statements of operations and comprehensive income (loss).
The exchange rates used in the preparation of the consolidated financial statements are as follows:
| ● | For the year ended December 31, 2025, closing rate 1.1763 US: 1 EURO, 0.1088US:1𝐸𝑈𝑅𝑂,0.1088𝑈𝑆: 1 SEK, and 1.3491 US: 1 GBP. |
| ● | For the year ended December 31, 2025, average rate 1.1596 US: 1 EURO, 0.1055US::1𝐸𝑈𝑅𝑂,0.1055𝑈𝑆 1 SEK, 1.3361 US: 1 GBP. |
For
the years ended December 31, 2025 and 2024, 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 of common stock outstanding during the period, adjusted for the dilutive effect of potentially dilutive securities using the treasury stock method. Potentially dilutive securities include stock options, warrants, convertible instruments, and contingently issuable shares. In periods of net loss, all potentially dilutive securities are excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive.
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For
the year ended December 31, 2025, the Company had
Non-Controlling Interests
Noncontrolling
interests represent the equity interests in consolidated subsidiaries that are not attributable to the Company. The Company consolidates
Noot Holdings, Inc. and Monitr Holdings, Inc., in each of which the Company holds a 60% controlling interest, with the remaining 40%
held by noncontrolling interest holders. Noncontrolling interests are presented as a separate component of stockholders’ equity
in the consolidated balance sheets. Net income or loss attributable to noncontrolling interests is presented separately in the consolidated
statements of operations and comprehensive loss.
| Non-Controlling Interests | ||||
| Balance at December 31, 2024 | $ | ( | ) | |
| Net loss attributable to non-controlling interest | ||||
| Balance at December 31, 2025 | $ | ( | ) | |
| Balance at December 31, 2023 | $ | ( | ) | |
| Net loss attributable to non-controlling interest | ||||
| Balance at December 31, 2024 | $ | ( | ) | |
Noot Holdings, Inc. and Monitr Holdings, Inc. had no operations during the years ended December 31, 2025 and 2024, and accordingly no net income or loss was attributable to noncontrolling interests during either year.
Income Tax
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as well as for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations and comprehensive loss in the period in which the change is enacted.
The Company records a valuation allowance against deferred tax assets to the extent it is more likely than not that some or all of the deferred tax assets will not be realized, based on all available positive and negative evidence, including historical operating results, projected future taxable income, and the expected timing of reversals of existing temporary differences.
The Company recognizes and measures uncertain tax positions using a two-step process in accordance with ASC 740-10. In the first step, the Company evaluates whether a tax position is more likely than not to be sustained upon examination by the relevant taxing authority. In the second step, for positions that meet the recognition threshold, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to uncertain tax positions within the income tax provision in the consolidated statements of operations and comprehensive loss.
The Company operates across multiple tax jurisdictions, including the United States, Malta, Sweden, and the United Kingdom. The calculation of the Company’s tax provision involves significant judgment in the application of complex tax regulations across these jurisdictions. The Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities.
F-50
Recent Accounting Pronouncements
Recently Adopted Standards
ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures: In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires public business entities to disclose, on an annual basis, a rate reconciliation presented in both dollar amounts and percentages, with specific categories and further disaggregation of those categories based on a quantitative threshold equal to 5% or more of the amount determined by multiplying pre-tax income (loss) by the applicable statutory rate. The ASU also requires disclosure of income taxes paid disaggregated by federal, state, and foreign jurisdictions. The Company adopted ASU 2023-09 effective January 1, 2025 on a prospective basis. The adoption had a financial statement disclosure impact only and did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Standards Not Yet Adopted
ASU 2024-03 — Disaggregation of Income Statement Expenses: In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires public business entities to disclose specified information about certain costs and expenses included in expense line items presented on the face of the income statement. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements and related disclosures.
ASU 2025-05 — Measurement of Credit Losses for Accounts Receivable and Contract Assets: In July 2025, the FASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU provides a practical expedient permitting entities to assume that conditions at the balance sheet date remain unchanged over the life of current accounts receivable and current contract assets when estimating expected credit losses. The guidance is effective for annual and interim reporting periods beginning after December 15, 2025, with early adoption permitted. The Company does not expect ASU 2025-05 to have a material impact on its consolidated financial statements.
ASU 2025-06 — Targeted Improvements to the Accounting for Internal-Use Software: In September 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The ASU requires entities to begin capitalizing software development costs when management has authorized and committed to funding the project and it is probable the project will be completed and the software will be used to perform its intended function. The amendments are effective for annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of ASU 2025-06 and will assess the impact upon adoption.
NOTE 3 – BUSINESS COMBINATIONS
The Company evaluated the acquisitions of 42 Telecom and Telvantis under ASC 805 and ASU 2017-01, Business Combinations (Topic 805) which clarifies the definition of a business for purposes of applying the acquisition method. Both acquisitions were determined to constitute business combinations. Under the acquisition method, the identifiable assets acquired and liabilities assumed are recognized at their fair values as of the respective acquisition dates. Goodwill recognized in connection with each acquisition represents the excess of consideration transferred over the fair value of net identifiable assets acquired and reflects the expected synergies, assembled workforce, and other economic benefits anticipated from each transaction that do not qualify for separate recognition as identifiable intangible assets.
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Acquisition of 42 Telecom Ltd.
On July 15, 2025, the Company entered into a Share Exchange Agreement with Heritage Ventures Ltd. (“Heritage”) and 42 Telecom, pursuant to which Heritage transferred 100% of the issued and outstanding shares to Spectral in exchange for shares of the Company’s common stock. The acquisition closed on August 1, 2025, and the results of operations of 42 Telecom and its subsidiaries — 42 Telecom AB Ltd. (Sweden), 42 Telecom UK Ltd. (United Kingdom), and Arcus Technologies Ltd. (Malta) — have been consolidated from that date.
The
total purchase price consideration was $
| Common stock issued | $ | (1) | ||
| Contingent consideration | (2) | |||
| Purchase price consideration | $ |
| (1) |
| (2) |
| 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 on identified intangible assets | ( | ) | ||
| Deferred tax liability on pre existing temporary differences | ( | ) | ||
| Purchase price consideration | $ | |||
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Goodwill
of $
Deferred Tax Adjustment
Pursuant
to ASC 805-740-25-8, the deferred tax liability of $
Measurement Period Adjustment
During
the measurement period, the Board of Directors of 42 Telecom resolved on October 31, 2025 to distribute a dividend of EUR 600,600,
($
The
results of 42 Telecom have been included in the consolidated financial statements since the date of its acquisitions i.e. August 1, 2025.
42 Telecom’s revenue and net income included in the consolidated financial statements since the acquisition date were $
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Acquisition of Telvantis Voice Services, Inc.
On December 29, 2025, the Company entered into a Stock Purchase Agreement to acquire 100% of the issued and outstanding shares of Telvantis. The acquisition closed on December 31, 2025. Telvantis and its subsidiaries — Phonetime, Inc. (U.S.) and Matchcom Telecommunications, Inc. (U.S.) — were consolidated as of December 31, 2025 and contributed no revenues or expenses to the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2025.
The
total purchase price consideration was $
| Common stock issued | $ | (1) | ||
| Contingent consideration | (2) | |||
| Purchase price consideration | $ |
| (1) | Represents the fair value of 1,500,000 shares of the Company’s common stock issuable to the sellers at closing. As the shares had not been formally issued as of December 31, 2025, the obligation is reflected as common stock to be issued within stockholders’ equity in the consolidated balance sheet. The shares had a marketable value of $6,195,000 based on the closing market price of $4.13 per share on the acquisition date. The fair value was adjusted to $3,407,250 to reflect a 45% discount for lack of marketability, determined by an independent valuation specialist using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 30-month trickle-out release restrictions applicable to the shares. |
| (2) | Represents the acquisition-date fair value of contingent consideration consisting of two components. First, up to 8,500,000 earn-out shares of the Company’s common stock are issuable to the sellers contingent upon Telvantis achieving specified performance thresholds for the year ending December 31, 2026: (i) 1,000,000 earn-out shares for each $1,000,000 of annualized net operating profit above $1,500,000, up to a maximum of 8,500,000 shares upon achievement of $10,000,000 of net operating profit; or alternatively, (ii) the equivalent number of shares upon achievement of total annualized gross revenues of $665,000,000 with an equivalent or superior operating margin as compared to 2025 results. Second, additional shares are issuable to the extent the aggregate 30-day VWAP of all shares issued in the transaction falls below a $65,000,000 minimum share value measured as of December 31, 2026, with Spectral having the option to satisfy the shortfall through issuance of additional shares or other consideration. The acquisition-date fair value of each component was determined using a risk-neutral Monte Carlo simulation incorporating correlated gross revenue and operating profit projections, a gross revenue volatility factor of 25%, an operating profit volatility factor of 65%, an 80% correlation between gross revenue and operating profit., and a 45% discount for lack of marketability determined using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 30-month trickle-out release restrictions applicable to the shares. The aggregate acquisition-date fair value of both components was $31,105,750. The contingent consideration is classified as a liability and remeasured at fair value at each reporting date with changes in fair value recognized in the consolidated statements of operations. See Note 4 — Fair Value Measurements for the remeasured fair value as of December 31, 2025. |
The following table summarizes the provisional purchase price allocation to the identifiable assets acquired and liabilities assumed from the acquisition of Telvantis Voice Services, Inc. as of December 31, 2025:
| 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 on identified intangible assets | ( | ) | ||
| Due to related party | ( | ) | ||
| Purchase price consideration | $ | |||
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Goodwill
of $
Deferred Tax Adjustment
Pursuant
to ASC 805-740-25-8, the deferred tax liability of $
Neither the 42 Telecom nor the Telvantis acquisition was structured as an asset acquisition for income tax purposes; accordingly, goodwill recognized in connection with each acquisition is not deductible for income tax purposes.
Pro Forma Financial Information (unaudited)
The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisitions of 42 Telecom and Telvantis had occurred on January 1, 2024. The pro forma financial information includes adjustments for amortization of acquired intangible assets based on their fair values and useful lives as determined in the purchase price allocations. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations would have been had the acquisitions occurred at the beginning of the periods presented, nor is it intended to project the future results of operations of the combined company.
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Net revenues | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share | $ | ( | ) | $ | ( | ) | ||
NOTE 4 – FAIR VALUE MEASUREMENTS
The following table presents the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024, classified within the fair value hierarchy:
| Fair Value Measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| December 31, 2025 | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration - 42 Telecom Ltd. | $ | $ | $ | $ | ||||||||||||
| Contingent consideration - Telvantis Voice Services, Inc. | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
The Company had no assets measured at fair value on a recurring basis as of December 31, 2025 or 2024. The contingent consideration liabilities are classified as Level 3 within the fair value hierarchy as their valuation requires significant unobservable inputs. There were no transfers between levels during the year ended December 31, 2025.
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The
fair value of the 42 Telecom contingent consideration was remeasured at December 31, 2025 using a risk-neutral Monte Carlo simulation
of projected FCCN share prices, consistent with the methodology applied at the acquisition date. Key inputs to the remeasurement included
an updated FCCN stock price of $4.13, updated risk-free rates, and a remaining term of approximately 7 months to the guarantee measurement
date of July 31, 2026 and a probability of achieving the bonus share trigger of 100%, based on 42 Telecom’s full year 2025 net
income of exceeded the $1,000,000 threshold. The net change in fair value of the contingent consideration for the year ended December
31, 2025 resulted in a gain of $
The Telvantis contingent consideration was initially recognized at its acquisition-date fair value of $31,105,750 on December 31, 2025. As the acquisition closed on December 31, 2025, no remeasurement was required during the year ended December 31, 2025.
The following table presents changes in fair value of contingent consideration measured at fair value for the years ended December 31, 2025 and 2024:
| Contingent | ||||
| Consideration | ||||
| Balance, December 31, 2023 | $ | |||
| Purchase price consideration | ||||
| Change in fair value | ||||
| Balance, December 31, 2024 | ||||
| Purchase price consideration - 42 Telecom Ltd. | ||||
| Purchase price consideration - Telvantis Voice Services, Inc. | ||||
| Change in fair value | ( | ) | ||
| Balance, December 31, 2025 | $ | |||
NOTE 5 – PREPAID AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| 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 consideration paid to Data Center Constructors LLC and Finplays LLC under consulting and marketing service agreements, amortized straight-line over the respective service periods. Settlement receivables represent amounts held in dedicated collection accounts under the Fasanara receivables financing arrangements that have been remitted by customers but not yet contractually settled against the outstanding facility balances. See Note 13 — Accounts Receivable Financing Facility and Note 14 — Equity Transactions for further details.
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NOTE 6- PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of the following:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Office equipment | $ | $ | ||||||
| Computers | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Less: Accumulated depreciation | ( | ) | ||||||
| Property, plant and equipment, net | $ | $ | ||||||
For
the years ended December 31, 2025 and 2024, depreciation expense was $
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Developed technology | $ | |||||||
| Internally developed software | $ | |||||||
| Customer relationships | ||||||||
| Tradenames | ||||||||
| Acquired intellectual property | ||||||||
| Less: Accumulated amortization | ( | ) | ||||||
| Intangible assets, net | $ | $ | ||||||
Intangible
assets of $
Internally
developed software of $
Intangible
assets of $
On
October 15, 2025, the Company completed an asset acquisition pursuant to which it acquired certain artificial intelligence operating
systems, FPGA-based technologies, and cybersecurity technologies in exchange for 9,000,000 shares of the Company’s common stock.
The transaction was determined to be an asset acquisition rather than a business combination. Accordingly, no goodwill was recognized
and the total consideration of $
F-57
No
impairment charges were recognized during the years ended December 31, 2025 or 2024.
| Year Ended December 31, 2025 | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| $ | ||||
NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| 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 loss. The CODM uses consolidated net loss as the primary measure of segment profit or loss in assessing the overall performance of the Company’s Telco Services segment. In evaluating performance, the CODM analyzes trends in revenues, gross profit, operating expenses, and consolidated net loss to assess profitability, operating efficiency, cash generation, and the effectiveness of strategic initiatives. In allocating resources, the CODM considers these measures together with expected returns on investment, strategic growth opportunities, acquisition and integration initiatives, technology development priorities, and capital requirements. These assessments are used to establish operating budgets, determine personnel and infrastructure investments, evaluate acquisition opportunities, prioritize integration activities, assess potential capital returns, and allocate capital among the Company’s operating and strategic initiatives.
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. Telvantis and its subsidiaries were consolidated as of December 31, 2025 and contributed no revenues or expenses to the consolidated statements of operations and comprehensive loss for the year ended December 31, 2025.
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The following table presents significant segment expenses regularly provided to the CODM and used to assess segment performance for the years ended December 31, 2025 and 2024:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| 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 | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | ( | ) | ||||||
| Extinguishment of debt | ( | ) | ||||||
| Change in FV of contingent consideration | ||||||||
| Other expense | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income taxes | ( | ) | ||||||
| Net income (loss) | $ | $ | ( | ) | ||||
Geographic Information
For the year ended December 31, 2025 and 2024, revenues attributable to operations by geography were as follows:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Malta | ||||||||
| Sweden | ||||||||
| $ | $ | |||||||
For the year ended December 31, 2025, approximately 97% of total consolidated revenues were attributable to operations in Malta, with the remaining 3% attributable to Sweden. Telvantis and its subsidiaries were consolidated as of December 31, 2025 and contributed no revenues to the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2025. There were no revenues during the year ended December 31, 2024.
Substantially
all of the Company’s property, plant and equipment is held by 42 Telecom and its subsidiaries in Europe.
F-59
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Malta | ||||||||
| Sweden | ||||||||
| $ | $ | |||||||
The
Company’s intangible assets are held across multiple jurisdictions — business combination intangibles recognized in connection
with the acquisition of 42 Telecom are held in Europe, business combination intangibles recognized in connection with the acquisition
of Telvantis are held in the United States, and the acquired IP intangible assets are held by the Spectral in the United States.
| Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Europe | ||||||||
| United States | ||||||||
| $ | $ | |||||||
NOTE 10 – LEASE OBLIGATIONS
In connection with the acquisition of 42 Telecom on August 1, 2025, the Company assumed an operating lease for office l premises located on the third and fourth floors of Hyundai Block, Valley Road, Msida, Malta. The lease commenced upon handover on July 24, 2023 and has a contractual term of five years, of which the first two years are non-cancellable and the remaining three years may be terminated by the Company with two months’ notice. Annual base rent is €60,000 plus VAT, payable quarterly in advance.
Lease costs are included in the consolidated statements of operations as selling, general and administrative expenses.
The following is the summary of operating lease assets and liabilities:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating Leases | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Operating lease liability, current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Weighted Average Remaining Lease Term (in years) | ||||
| Weighted Average Discount Rate | % |
The
operating lease costs totaled $
The following is the summary of future minimum payments as of:
| December 31, | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| Less : imputed interest | ( | ) | ||
| Total | $ | |||
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NOTE 11 – RELATED PARTY TRANSACTIONS
42 Telecom Acquisition
On July 15, 2025, the Company entered into a Definitive Share Exchange Agreement (the “Agreement”) with Heritage, an Irish corporation, and 42 Telecom, a Maltese corporation. Pursuant to the Agreement, the Company acquired 100% of the outstanding capital stock of 42 Telecom in exchange for 8,000,000 shares of the Company’s common stock, plus 8,000,000 escrow shares subject to performance-based and valuation-adjustment provisions (see Note 3 – Business Combinations).
Under the terms of the Agreement, each Heritage holder’s beneficial ownership of the Company’s outstanding common stock is expressly limited to 4.9% or less at all times. This ownership limitation is intended to prevent any holder from being deemed an “affiliate” under SEC Rule 144 and to ensure that no post-closing shareholder obtains control or significant influence over the Company’s management or policies.
At the time the Agreement was executed and the transaction consummated, neither Heritage nor 42 Telecom was a related party to the Company as defined in ASC 850-10-20 and PCAOB AS 2410.02-.03, since no common ownership, control, or significant influence existed. The transaction was negotiated and completed on an arm’s-length basis and approved by the independent members of the Company’s Board of Directors. Accordingly, management has concluded that the share exchange does not constitute a related-party transaction for purposes of ASC 850-10-50 or Regulation S-X § 4-08(k).
The acquisition accounted for as a business combination under ASC 805, with the identifiable assets acquired and liabilities assumed recognized at their estimated fair values as of the closing date. The Company’s post-acquisition financial statements includes the results of 42 Telecom beginning on the date of acquisition. See Note 3 for further detail.
Transaction with Mexedia SpA and Mexedia DAC
42 Telecom is party to bilateral messaging service agreements with Mexedia SpA, an Italian telecommunications company, under which either party may act as a customer or vendor depending on destination-specific routing economics. The Company has determined that Mexedia SpA was a related party of the Company for the period August 1 through December 31, 2025. Mr. Orlando Taddeo served as the sole director of 42 Telecom throughout the post-acquisition period while simultaneously serving as Chief Executive Officer and Director of Mexedia SpA through October 2025 and retaining a controlling ownership interest in Mexedia SpA through Heritage through December 31, 2025.
For the period August 1 through December 31, 2025, revenues recognized from Mexedia SpA were $7,288,094 and cost of revenues incurred from Mexedia SpA as a termination services vendor were $7,303,516, each presented on a gross basis as 42 Telecom acts as principal under ASC 606. Transactions between 42 Telecom and Mexedia SpA are conducted pursuant to bilateral messaging service agreements on a destination-specific routing basis and are priced based on market rates for telecommunications termination services.
At December 31, 2025, accounts receivable from Mexedia SpA of $2,699,665 and contract assets of $2,633,806 representing December 2025 messaging services billed to Mexedia SpA in January 2026 are reflected in accounts receivable, related party and contract assets, respectively, in the consolidated balance sheets. Accounts payable to Mexedia SpA of $5,415,984 are reflected in accounts payable, related party in the consolidated balance sheets.
Daniel Gilcher served as Chief Financial Officer and Director of Mexedia SpA throughout the year ended December 31, 2025 and held no executive role at the Company during that period. Mr. Gilcher received 400,000 shares of Spectral common stock in connection with the 42 Telecom acquisition and 175,000 shares in connection with the Telvantis acquisition from the respective sellers and did not constitute compensation for services rendered to the Company. He was appointed Chief Financial Officer of the Company effective January 3, 2026.
Mexedia
DAC is a wholly owned subsidiary of TVS that has historically been excluded from the scope of TVS’s audited carve-out financial statements.
Because Mexedia DAC falls outside that reporting scope, the Company has determined that transactions and balances between TVS and Mexedia
DAC are treated as related-party transactions as of December 31, 2025. The Company maintains a customer and vendor relationship with
Mexedia DAC arising in the ordinary course of TVS’s business. As of December 31, 2025, accounts receivable from Mexedia DAC were $
F-61
Transaction With Former Shareholder of 42 Telecom
Heritage is the 100% owner of 42 Telecom prior to its acquisition by the Company on August 1, 2025. The beneficial owner of Heritage is Mr. Orlando Taddeo. Heritage is considered a related party of the Company through Mr. Taddeo’s continued service as sole director of 42 Telecom through December 31, 2025.
The beneficial owner of Heritage, Mr. Orlando Taddeo, bought 42 Telecom (through Heritage) in September 2023. At the time, Mexedia SpA verbally promised a share option incentive scheme to staff if 42 Telecom reached an EBITDA of €1.2 million in 2024. Further, payments were made due to the 2024 performance of 42 Telecom, but it was not something that was included in employee agreements. Employees had regular payments that were made and accrued for within the 2024 results, but this payment was separate from those. It was only in July, 2025 that agreements were distributed and signed by employees, and those agreements were provided by Heritage. It was determined that 42 Telecom acted solely as a paying agent in the transaction whereby Heritage will pay cash bonuses to 42 Telecom’s employees. The transaction is deemed payable in the third quarter of 2025, when the final determination was made. Heritage, as the primary obligor will record the P&L impact on its books and 42 Telecom will record the pass-through transaction. Accordingly, during the year ended December 31, 2025, the Company distributed €1.3 million to the employee and related tax payable by employees depending on their tax band.
Heritage, the former sole shareholder of 42 Telecom and an entity controlled by Mr. Orlando Taddeo, provided management services to 42 Telecom. Management fee invoices of EUR 102,000 were issued by Heritage to 42 Telecom for services in the first half of 2025 and subsequently reversed in full by credit note on June 30, 2025, resulting in no net management fee expense recognized during the year ended December 31, 2025. During the year ended December 31, 2025, cash payments totaling approximately $180,000 (EUR 153,000) were made to Heritage in settlement of management fees accrued in prior periods. At December 31, 2025, approximately $100,000 (EUR 85,000) remained payable to Heritage in respect of prior period management fees and is included in accounts payable, related party in the consolidated balance sheets.
A dividend of EUR 600,600 in respect of 42 Telecom’s retained earnings for the year ended December 31, 2024 was declared on October 31, 2025, payable to Heritage as the former 100% shareholder of 42 Telecom. The dividend remained unpaid at December 31, 2025 and is reflected as a liability of $706,492, due to related party in the consolidated balance sheets. See Note 3 — Business Combinations for further details.
42 Telecom - Other receivable
As
part of the acquisition of 42 Telecom on August 1, 2025, the Company acquired a receivable from Nexora Holdings Ltd. (“Nexora”) amounting
to €362,597 (approximately $
The receivable originated from an Intellectual Property Transfer Agreement dated July 1, 2025, between 42 Telecom and Nexora. Under this agreement, 42 Telecom transferred certain proprietary software and related IP to Nexora in exchange for consideration of €362,597. The payment is subject to a five-year moratorium, during which no cash settlement is required unless Nexora generates profits directly from the transferred IP, in which case partial or full payment becomes due earlier. The receivable was recognized as part of the purchase-price allocation in connection with the 42 Telecom acquisition and remains outstanding as of December 31, 2025, with a carrying amount of US $426,526. The change in U.S. dollar equivalent from the acquisition date is solely due to foreign currency translation adjustments. Management continues to monitor the balance for collectability. No additional transactions occurred with Nexora Holdings Ltd. during the period. The Company concluded that the IP sale did not constitute a discontinued operation as per ASC 205.
Chief Executive Officer Compensation
Jenifer
Osterwalder, the Company’s Chief Executive Officer, charges the Company $12,000 per month beginning January 1, 2021 for services
rendered. Total amounts expended in the Company’s condensed consolidated financial statements in connection with the CEO’s
services was $
During the year ended December 31, 2024, the Company issued 68,311 shares of common stock in satisfaction of $6,150 in advances previously made by the Chief Executive Officer on behalf of the Company, resulting in a loss on extinguishment of $501.
F-62
Loans from Related Parties
On
February 5, 2025, the Company entered into a loan agreement with B Holdings OU, which is associated with the beneficial owner of DecusPro,
Mr. Boriss Aleksandrov, a shareholder of the Company. During the year ended December 31, 2025, the Company received total of proceeds
of $
In
June 2025, the Company entered into a loan agreement with SKY PLL OU, a shareholder of the Company, whereby the Company may borrow up
to a total principal amount of $500,000. During the year ended December 31, 2025, the Company received a total of $
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 $
Telvantis Voice Services, Inc. — Assumed Related Party Balances
In connection with the acquisition of Telvantis, on December 31, 2025 the Company assumed certain pre-existing related party balances. As of December 31, 2025, amounts due to related parties of $7,276,918 are included in current liabilities in the consolidated balance sheets, representing loans payable to Mexedia, $7,276,918. Mexedia SpA is a related party of the Company as described above. The loans were incurred in the ordinary course of Telvantis’s pre-acquisition operations. Additionally, as of December 31, 2025, amounts due from related parties of $1,357,768 are included in current assets, representing $1,299,468 owed by Telvantis Inc. (the seller), and $58,300 owed by Mexedia SpA. These balances are expected to be settled in the ordinary course of business.
Transactions with Former Chairman and Affiliates
During the years ended December 31, 2025 and
2024, the Company received $
Sean
Michael Brehm, the Company’s former Chairman and a member of the Board of Directors, is also the sole shareholder of Node Nexus
Network Co. LLC (“NNN”), which the Company had acquired in exchange for
Prior
to the close of the acquisition, the Company paid approximately $
F-63
The
Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior acquisitions and planned collaborations
involving Node Nexus Network, Vogon Cloud, Quantomo, and Crwdunit. Under the agreement, Spectral retains ownership of 104 patent filings
developed during the course of the collaboration. Brehm and his affiliates will pursue independent commercial development of the technology
associated with Node Nexus Network, Vogon Cloud, Quantomo, and Crwdunit in a separate private vehicle. All shares previously issued to
Brehm and his affiliates have been returned and cancelled except for the private placement shares of
Governance Changes
Effective June 2, 2025, five members of the Board of Directors—Sean Brehm, Sam Lee, Aby Alexander, Chad Lemming, and Paul Breitenbach—resigned. On the same date, the Board appointed Michael Turner and Jeffrey Chong as new directors. Subsequently, Gottfried Werner and Olga Nezerenko were appointed to the board on November 19, 2025 and December 27, 2025 respectively. These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting.
NOTE 12 – DEBT
On
NOTE 13 – ACCOUNTS RECEIVABLE FINANCING FACILITY
Fasanara Participation Arrangement — 42 Telecom Ltd
42
Telecom, a wholly owned subsidiary of the Company, is party to a Master Participation Agreement dated February 20, 2025 with Fasanara
Securitisation S.A. (“Fasanara”), pursuant to which Fasanara provides funding against a specified percentage of trade receivables
arising from telecommunications services. 42 Telecom retains servicing responsibilities, maintains direct customer relationships, and
retains a portion of the credit risk associated with the receivables. The arrangements are undisclosed, meaning customers are not notified
of Fasanara’s participation. Accordingly, the participation arrangements do not meet the criteria for sale accounting under ASC
860, Transfers and Servicing of Financial Assets, and are accounted for as receivables financing. The outstanding funded amount $
Customer payments are remitted to a bank account maintained at Goldman Sachs used exclusively for customer collections under the arrangement. Because the Company does not control or have withdrawal rights over this account, amounts held therein do not meet the definition of cash or cash equivalents or restricted cash under ASC 305, Cash and Cash Equivalents and are classified within other current assets as a settlement receivable. Accounts receivable are reduced upon customer remittance as the customer’s obligation is extinguished at that time. The Fasanara financing liability is not reduced until customer collections are contractually settled or applied against the outstanding balance.
Fasanara Participation Arrangement — Telvantis Voice Services, Inc.
In
connection with the acquisition of Telvantis on December 31, 2025, the Company assumed a pre-existing receivables financing facility
with Fasanara with an outstanding balance of $
F-64
NOTE 14 – 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
On
August 29, 2024, the Company issued
As
of December 31, 2025 and 2024, the Company had
Restated Share Transfer Agreement
The WAV Company shares are subject to a 12-month delivery restriction, and both the WAV Company shares and the Spectral shares issued as consideration are subject to a three-year lock-up period. Delivery is contingent upon satisfaction of certain regulatory and procedural requirements, which may involve delays. The Seller makes no representations regarding the financial condition or value of the WAV Company, and the transaction is structured as an “as-is” investment. Both parties have agreed to customary representations, warranties, and mutual indemnification provisions. As of December 31, 2025, the transaction was not yet finalized and as a result, there has been no accounting recognition associated with the Restated Share Transfer Agreement.
Private Placements
On
April 22, 2024, the Board of Directors approved a Private Placement Offering pursuant to Rule 506(b) of the Securities Act of 1933, as
amended (the “Securities Act”) for up to 15,000,000 restricted shares of the Company’s common stock at a price of $0.01
per share, or an aggregate of $150,000. The offering commenced on April 22, 2024 and ended on June 3, 2024. During the year ended December
31, 2024, the Company has received $
In
June 2024, the Company commenced an additional offering looking to raise up to $1,000,000 at a price of $0.20 per shares. As of December
31, 2024, total proceeds of $
F-65
Business Combinations
On
August 1, 2025, the Company issued
On December 31, 2025, in connection with the acquisition of Telvantis Voice Services, Inc., the Company became obligated to issue 1,500,000 shares of common stock to the former shareholders, recorded at a fair value of $3,407,250. As the shares had not been formally issued as of December 31, 2025, the obligation is reflected as common stock to be issued within stockholders’ equity in the consolidated balance sheets. See Note 3 — Business Combinations for further details. In January 2026, the Company issued 1,000,000 shares of common stock to the former shareholders of Telvantis Voice Services, Inc.
Settlement of Advances
On
May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements.
Pursuant to the agreement, the Company no longer owes Mr. Brehm compensation for outstanding demand advances totaling $
On October 29, 2025, the Company issued 10,000 shares of its common stock at $1.00 per share in full settlement of a $10,000 outstanding loan balance due to Quantum Investment Fund 1 LLC. See Note 12— Debt for further details.
Asset Acquisitions
On October 15, 2025, the Company issued 9,000,000 shares of its common stock at a fair value of $2.19 per share, based on the closing market price on the acquisition date, as consideration for the acquisition of certain intellectual property assets from Eliznikcomp OÜ, an Estonian corporation, for total consideration of $19,710,000. See Note 7 — Intangible Assets for further discussion.
Stock for Services
On
October 28, 2025, the Company entered into a twelve-month consulting agreement with Data Center Constructors LLC (“DCC”)
for strategic advisory, partnership development, and government relations services. As consideration, the Company issued 50,000 shares
of common stock at a fair value of $2.15 per share, valued $107,500 and $200,000 had been paid in cash as of December 31, 2025. Total
consideration paid through December 31, 2025 was $
On
December 3, 2025, the Company entered into a marketing services agreement with Finplays LLC (“Finplays”) for investor awareness
and public relations services through December 31, 2026. As consideration, the Company issued 2,000,000 restricted shares of common stock
at a fair value of $2.16 per share, valued $4,320,000 and agreed to fund a $100,000 cash marketing budget, for total consideration of
$
On
April 26, 2024, we entered into a consulting contract with Scandere OU (Estonia) (“Scandere”). Scandere has the same management
and been contracted on behalf of Sky Data PPL and has experience in the telecommunications industry. Scandere will provide us with management
services, CDR processing, fraud management, reporting and analytics and credit and finance management to facilitate our reentry into
telecommunication reselling operations. The contract shall remain in force until the completion of the services or the earlier termination
of the agreement. As payment for its services, Scandere receives
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.
F-66
The
Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and
advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms
and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000
common shares for employees, consultants, directors, and advisors. During the year ended December 31, 2024, the Company issued options
to purchase
During
the years ended December 31, 2025 and 2024, $
The following is a summary of stock option activity for the years ended December 31, 2025 and 2024:
| Stock | Weighted Average | Weighted Average Life | ||||||||||
| Options | Exercise Price | Remaining | ||||||||||
| Outstanding, December 31, 2023 | - | |||||||||||
| Issued | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited/Expired | ||||||||||||
| Outstanding, December 31, 2024 | ||||||||||||
| Issued | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited/Expired | ( | ) | ||||||||||
| Outstanding, December 31, 2025 | $ | |||||||||||
| Vested, December 31, 2025 | $ | |||||||||||
NOTE 15 – 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 $
F-67
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.
There was also a claim made by a third-party entity regarding former Chairman Sean Michael Brehm and Node Nexus Network. The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim because an indemnity has been provided by Mr. Brehm.
Acquisitions
On
September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Quantomo OU., an Estonian corporation (“Quantomo”),
whereby the Company agreed to acquire from Quantomo
On
September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Crowdpoint Technologies, Inc., a Texas
corporation (“Crowdpoint”), a company controlled by Sean Michael Brehm, and its wholly owned subsidiary, Crwdunit Inc., a
Delaware corporation (“Target”), whereby the Company agreed to acquire from Crowdpoint
Spectral entered into an Agreement between the Company and Verdant Quantum OU and Moshik Cohen dated December 15, 2024 whereby Spectral acquired certain plasmonic technology for the development of room temperature semiconductors. As of December 31, 2025 the agreement was rescinded without an accounting impact on the any period.
On May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements and no longer owes Mr. Brehm compensation for the demand advances.
Investment in White Label Loyalty
In
May 2025, the Company entered into a non-binding term sheet to invest $
F-68
NOTE 16 – INCOME TAX
Provision for Income Taxes
The provision (benefit) for income taxes consisted of the following:
| 2025 | 2024 | |||||||
| Federal: | - | - | ||||||
| Current | ||||||||
| Deferred | $ | ( | ) | |||||
| State: | - | - | ||||||
| Current | ||||||||
| Deferred | ||||||||
| Foreign — Malta LTD: | - | - | ||||||
| Current | $ | |||||||
| Deferred | ( | ) | ||||||
| Other subsidiaries — Telecom AB: | - | - | ||||||
| Income tax expense | $ | ( | ) | |||||
| - | ||||||||
| Total provision (benefit) for income taxes | $ | ( | ) | |||||
Income (Loss) Before Income Taxes
Income (loss) before income taxes by jurisdiction:
| 2025 | 2024 | |||||||
| Domestic (U.S.) | $ | ( | ) | $ | ( | ) | ||
| Foreign | ||||||||
| Total | $ | $ | ( | ) | ||||
Effective Tax Rate Reconciliation
The following table reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate.
| Amount | Effective Rate | |||||||
| Expected tax benefit at U.S. statutory rate (21%) | $ | % | ||||||
| State and local income taxes, net of federal benefit (c) | ( | ) | ( | )% | ||||
| Foreign statutory rate differential (b) | $ | % | ||||||
| Change in fair value of contingent consideration (a) | ( | ) | ( | )% | ||||
| Tax credits | % | |||||||
| Acquisitions and dispositions | % | |||||||
| Non-deductible expenses and permanent differences | $ | |||||||
| Changes in valuation allowance: | % | |||||||
| Total provision (benefit) for income taxes | $ | ( | ) | ( | )% | |||
| (a) |
| (b) |
| (c) |
F-69
Tax Years Open to Examination
The Company is subject to U.S. federal income tax examinations for tax years 2022 through 2025 and U.S. state income tax examinations for tax years 2022 through 2025. The Company’s foreign subsidiaries — 42 Telecom MT Ltd. (Malta), 42 Telecom AB Ltd. (Sweden), and 42 Telecom UK Ltd. (United Kingdom) — were acquired effective August 1, 2025 and are subject to income tax examinations by their respective local tax authorities for tax years 2021 through 2025 (Malta), 2020 through 2025 (Sweden), and 2022 through 2025 (United Kingdom).
Deferred Tax Assets and Liabilities
Significant components of deferred tax assets and liabilities as of December 31:
| 2025 | 2024 | |||||||
| Deferred Tax Assets: | ||||||||
| Net operating loss carryforwards — U.S. federal | $ | $ | ||||||
| Stock-based compensation — U.S. | ||||||||
| Other | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance — U.S. | ( | ) | ||||||
| Net deferred tax assets | ||||||||
| 2025 | 2024 | |||||||
| Deferred Tax Liabilities (net): | ||||||||
| Purchased intangibles — U.S. (42 Telecom / Telvantis), net | $ | ( | ) | |||||
| Purchased intangibles — Foreign (Malta LTD) | ( | ) | ||||||
| Deferred tax asset — Telvantis (b) | ||||||||
| Right-of-use assets and other — Foreign | ||||||||
| Total deferred tax liabilities, net | ( | ) | ||||||
| Net deferred tax liability | $ | ( | ) | $ | ||||
| (b) |
The net deferred tax liability of $(4,470,480) is presented within non-current liabilities on the consolidated balance sheet as of December 31, 2025.
Net Operating Loss Carryforwards
As
of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $
Valuation Allowance
The
Company maintains a full valuation allowance against its U.S. net deferred tax assets of $
Deferred tax liabilities related to acquired intangible assets from the business combinations of 42 Telecom and Telvantis are recorded with no corresponding deferred tax asset offset, as these arise from purchase price allocation temporary differences that are expected to reverse through future amortization charges.
Income Taxes Paid
The following table presents income taxes paid (net of refunds received), disaggregated by jurisdiction
| Jurisdiction | 2025 | 2024 | ||||||
| U.S. federal | ||||||||
| U.S. state and local | ||||||||
| Foreign — Malta | $ | (c) | ||||||
| Total income taxes paid | $ | |||||||
| (c) |
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Uncertain Tax Positions
The Company had no unrecognized tax benefits as of December 31, 2025 and 2024, and does not anticipate any significant changes in unrecognized tax benefits within the next twelve months. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. No material interest or penalties were accrued as of December 31, 2025.
NOTE 17 - SUBSEQUENT EVENTS
| 1. | On January 3, 2026, the Board of Directors appointed Mr. Daniel Gilcher as Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer of the Company, effective January 3, 2026. On May 22, 2026 Mr. Gilcher received 1,041,000 shares of Spectral common stock in connection with the Telvantis acquisition from the respective sellers and did not constitute compensation for services rendered to the Company. |
| 2. | On January 4, 2026, the Company entered into a binding term sheet with Intermatica S.p.A., a società per azioni organized under the laws of Italy, setting forth the principal terms of a proposed acquisition of 100% of the issued and outstanding equity interests of Intermatica. The proposed transaction is subject to the negotiation and execution of definitive acquisition documentation and the satisfaction of customary closing conditions. Pursuant to the term sheet, the consideration contemplated to be paid at closing consists of the issuance of 5,000,000 shares of the Company’s common stock, subject to certain escrow, buy-back, standstill, and minimum value protection provisions. The term sheet also contemplates the potential issuance of up to an additional 5,000,000 shares of the Company’s common stock as earn-out consideration upon the achievement of specified post-closing performance milestones, for a maximum potential aggregate consideration of 10,000,000 shares. The term sheet provides that no Intermatica shareholder may beneficially own more than 4.9% of the Company’s issued and outstanding common stock at any time. The proposed transaction is subject to, among other conditions, the completion of financial, legal, and operational due diligence (including, unless waived, an audit of Intermatica’s financial statements under PCAOB standards), approval by the boards of directors of both parties, and the execution of definitive agreements. As of the date of issuance of these financial statements, no definitive agreement has been executed and there can be no assurance that the proposed transaction will be consummated. |
| 3. | On March 13, 2026, the Company entered into a private placement subscription agreement pursuant to Rule 506(b) of Regulation D under the Securities Act of 1933, as amended, for the issuance of 100,000 shares of the Company’s common stock at a price of $2.00 per share, for aggregate proceeds of $200,000. The Company received full payment on March 13, 2026. The shares have not been registered under the Securities Act and bear a restrictive legend. This private placement was subsequently approved by the Board of Directors on March 16, 2026. |
Management has considered all events through the date of issuance and determined that none of these subsequent events require adjustment to amounts recognized in the consolidated financial statements as of the reporting date. All described items are considered non-adjusting subsequent events under U.S. GAAP.
F-71
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information presents the unaudited pro forma combined statements of operations based upon the combined historical financial statements of Spectral Capital Corporation, 42 Telecom Ltd., and Telvantis Voice Services, Inc., after giving effect to the 42 Telecom Acquisition and the TVS Acquisition and the adjustments described in the accompanying notes.
The unaudited pro forma combined statements of operations for the year ended December 31, 2025 combine the historical results and operations of Spectral Capital Corporation, 42 Telecom Ltd., and Telvantis Voice Services, Inc., giving effect to the transactions as if they had occurred on January 1, 2025. The unaudited pro forma combined statements of operations for the year ended December 31, 2025 also separately include the results of operations of 42 Telecom Ltd., which was acquired by Spectral Capital Corporation on August 1, 2025. Because Telvantis Voice Services, Inc. was acquired on December 31, 2025, the last day of the fiscal year, its results of operations are not reflected in Spectral’s historical consolidated statements of operations for the year ended December 31, 2025; accordingly, the pro forma combined statement of operations for the year ended December 31, 2025 reflects a full 12 months of TVS’s historical results of operations. The consolidated balance sheet as of December 31, 2025 in the accompanying financial statements already includes the balance sheet effect of the 42 Telecom Acquisition and the TVS Acquisition.
The unaudited pro forma combined financial information should be read in conjunction with the audited historical financial statements of each of Spectral Capital Corporation, 42 Telecom Ltd., and Telvantis Voice Services, Inc. and the notes thereto. Additional information about the basis of presentation of this information is provided in the notes below.
The unaudited pro forma combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma adjustments reflecting the transactions have been prepared in accordance with business combination accounting guidance as provided in Accounting Standards Codification Topic 805, Business Combinations, and reflect the provisional allocation of the purchase price to the acquired assets and liabilities based upon the provisional estimate of fair values, using the assumptions set forth in the notes to the unaudited pro forma combined financial information.
The unaudited pro forma combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been completed as of the dates set forth above, nor is it indicative of the future results or financial position of the combined company. In connection with the pro forma financial information, Spectral Capital Corporation allocated the purchase price using its best estimates of fair value. The unaudited pro forma combined financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies, or cost savings that may result from the transactions, or any integration costs. Furthermore, the unaudited pro forma combined statements of operations do not include certain nonrecurring charges and the related tax effects which result directly from the transactions as described in the notes to the unaudited pro forma combined financial information.
F-72
SPECTRAL CAPITAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2025
| Pro Forma | Combined | ||||||||||||||||||||
| Spectral | 42 Telecom | TVS | Adjustments | Notes | Pro Forma | ||||||||||||||||
| Revenue | $ | 14,551,774 | $ | 7,323,664 | 237,783,369 | $ | - | $ | 259,658,807 | ||||||||||||
| Revenue, related party | 7,288,094 | 141,787 | - | 7,429,881 | |||||||||||||||||
| Total revenues | 21,839,868 | 7,465,451 | 237,783,369 | 267,088,688 | |||||||||||||||||
| Cost of revenue | 11,652,662 | 5,141,519 | 236,966,998 | - | 253,761,178 | ||||||||||||||||
| Cost of revenue, related party | 7,303,516 | 562,801 | - | 7,866,317 | |||||||||||||||||
| Gross profit | 2,883,690 | 1,761,131 | 816,371 | - | 13,327,510 | ||||||||||||||||
| Operating expenses: | |||||||||||||||||||||
| Selling, general and administrative | 3,187,054 | 351,967 | 3,377,381 | - | 6,916,402 | ||||||||||||||||
| Wages and benefits | 1,026,034 | 1,184,556 | 1,387,136 | - | 3,597,726 | ||||||||||||||||
| Depreciation and amortization | 1,598,742 | 1,129,100 | (1,129,100 | ) | (b) | 1,598,742 | |||||||||||||||
| 1,051,667 | (a) | 1,051,667 | |||||||||||||||||||
| 2,112,500 | (b) | 2,112,500 | |||||||||||||||||||
| Total operating expenses | 5,811,830 | 1,536,523 | 5,893,617 | 2,035,067 | 15,277,037 | ||||||||||||||||
| Income (loss) from operations | (2,928,140 | ) | 224,608 | (5,077,246 | ) | (2,035,067 | ) | (1,949,527 | ) | ||||||||||||
| Other income (expense): | |||||||||||||||||||||
| Interest expense, net | (5,573 | ) | (1,954 | ) | (1,065,712 | ) | - | (1,073,239 | ) | ||||||||||||
| Change in fair value of contingent consideration | 3,387,266 | - | - | - | 3,387,266 | ||||||||||||||||
| Other expense | (32,693 | ) | (38,973 | ) | - | - | (71,666 | ) | |||||||||||||
| Total other income (expense), net | 3,349,000 | (40,927 | ) | (1,065,712 | ) | - | 3,315,600 | ||||||||||||||
| Income (loss) before income taxes | 420,860 | 183,681 | (6,142,958 | ) | (2,035,067 | ) | (7,573,483 | ) | |||||||||||||
| Income taxes (benefit) | (497,495 | ) | (18,484 | ) | - | (515,979 | ) | ||||||||||||||
| Net income (loss) | $ | 918,355 | $ | 202,165 | $ | (6,142,958 | ) | $ | (2,035,067 | ) | $ | (7,057,504 | ) | ||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||
| Foreign currency translation income (loss) | 132,551 | 62,579 | - | - | 195,130 | ||||||||||||||||
| Total comprehensive income (loss) | $ | 1,050,906 | $ | 264,744 | $ | (6,142,958 | ) | $ | (2,035,067 | ) | $ | (6,862,374 | ) | ||||||||
| Net income (loss) per share attributable to the Company | $ | 0.01 | $ | (0.09 | ) | ||||||||||||||||
| Basic | $ | 0.01 | $ | (0.09 | ) | ||||||||||||||||
| Diluted | |||||||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||
| Basic | 73,438,957 | 79,607,450 | |||||||||||||||||||
| Diluted | 76,406,977 | 82,575,470 | |||||||||||||||||||
F-73
Notes to Unaudited Pro Forma Financial Information
1. Description of Transactions
Acquisition of 42 Telecom Ltd.
On July 15, 2025, Spectral Capital Corporation (the “Company” or “Spectral”) entered into a definitive Share Exchange Agreement (the “42 Telecom SEA”) with Heritage Ventures Ltd. (“Heritage”), the sole shareholder of 42 Telecom Ltd. (“42 Telecom”), a Maltese-organized international telecommunications and messaging infrastructure provider. Pursuant to the 42 Telecom SEA, Heritage transferred 100% of the issued and outstanding shares of 42 Telecom to Spectral in exchange for shares of the Company’s common stock. The transaction closed on August 1, 2025, at which time 42 Telecom became a wholly owned subsidiary of Spectral. The acquisition included the following wholly owned subsidiaries of 42 Telecom:
| ● | 42 Telecom AB Ltd. (Sweden) |
| ● | 42 Telecom UK Ltd. (United Kingdom) |
| ● | Arcus Technologies Ltd. (Malta) |
42 Telecom provides international telecommunications and messaging solutions, including SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions. Through Arcus Technologies Ltd., 42 Telecom also offers a platform-as-a-service solution tailored for the tourism sector. 42 Telecom serves a global customer base consisting primarily of mobile network operators and enterprises. As consideration for the acquisition, the Company issued 8,000,000 shares of its common stock to Heritage at closing and placed an additional 8,000,000 shares into escrow subject to earn-out and performance milestones.
Acquisition of Telvantis Voice Services, Inc.
On December 29, 2025, the Company entered into a Definitive Stock Purchase Agreement (the “TVS SPA”) with Telvantis, Inc. (formerly Raadr, Inc.), a Nevada corporation, to acquire 100% of the issued and outstanding shares of Telvantis Voice Services, Inc. (“TVS” or “Telvantis”), a Florida corporation. The transaction closed on December 31, 2025, at which time TVS became a wholly owned subsidiary of Spectral. The acquisition included the following wholly owned subsidiaries of TVS:
| ● | Phonetime, Inc. (U.S.) — international voice termination services |
| ● | Matchcom Telecommunications, Inc. (U.S.) — customer care and telecom solutions |
Telvantis is a telecommunications services provider specializing in VoIP and international voice traffic solutions delivered on a business-to-business basis. At the time of the acquisition, TVS was considered a related party of the Company, as Telvantis, Inc. is 75% owned by Mexedia SpA, an entity that is a related party of Spectral through the common directorship of Mr. Orlando Taddeo.
As consideration for the acquisition, the Company issued 1,500,000 shares of its common stock at closing and agreed to issue up to an additional 8,500,000 shares subject to fiscal year 2026 performance milestones. Because TVS was acquired on December 31, 2025, it contributed no revenues or expenses to the Company’s consolidated statements of operations for the year ended December 31, 2025.
F-74
2. Basis of Presentation
The historical financial information has been adjusted to give pro forma effect to events that are (i) directly attributable to the transactions, (ii) factually supportable, and (iii) expected to have a continuing impact on the combined results of operations. The Telvantis Voice Services carve-out financial statements reflect the historical revenues, expenses, assets and liabilities directly attributable to the Telvantis Voice Services business and its subsidiaries. No parent-company corporate overhead or shared-service expenses were allocated to the carve-out financial statements.
As background, Telvantis Voice Services historically operated as a stand-alone operating business before Telvantis Inc. became its parent company in late 2024. Telvantis Inc. was inserted above Telvantis Voice Services in the corporate structure through a reverse-takeover transaction involving an OTC reporting company. As a result, Telvantis Inc. did not historically develop, maintain or operate centralized corporate functions, personnel, systems, processes or shared-service infrastructure that were available to, or used by, Telvantis Voice Services in the conduct of its business.
Management reviewed the historical relationship between Telvantis Inc. and Telvantis Voice Services, including management oversight, finance, accounting, information technology, legal, human resources, treasury, corporate administration and other corporate support functions. Based on this review, management determined that Telvantis Inc. did not provide shared services or incur parent-company corporate overhead or other expenses for the benefit of Telvantis Voice Services during the periods presented that were required to be allocated to the carve-out financial statements.
Accordingly, the carve-out financial statements include the historical costs of the Telvantis Voice Services business as recorded in its books and records during the periods presented. The historical carve-out results may not be indicative of the financial position, results of operations or cash flows of Telvantis Voice Services in the future or of what they would have been had Telvantis Voice Services operated as a standalone public company during the periods presented.
The transactions were accounted for as business combinations wherein 42 Telecom and TVS are the accounting acquirees and Spectral Capital Corporation is the accounting acquirer. The unaudited pro forma adjustments reflecting the transactions have been prepared in accordance with business combination accounting guidance as provided in ASC Topic 805, Business Combinations, and reflect the provisional allocation of the purchase price to the acquired assets and liabilities based upon the provisional estimate of fair values, using the assumptions set forth in these notes.
The unaudited pro forma combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been completed as of the dates set forth above, nor is it indicative of the future results or financial position of the combined company. The pro forma acquisition price adjustments are provisional and subject to further adjustment as additional information becomes available and as additional analyses are performed. The unaudited pro forma combined financial information does not give effect to any anticipated synergies, operating efficiencies, or cost savings that may result from the transactions, or any integration costs.
3. Consideration Transferred
Acquisition of 42 Telecom Ltd.
The total fair value of the purchase price consideration associated with the 42 Telecom Acquisition was determined as follows:
| Common stock issued | $ | 12,880,000 | (1) | |
| Contingent consideration | 7,120,000 | (2) | ||
| Purchase price consideration | $ | 20,000,000 |
| (1) | Represents the fair value of 8,000,000 shares of the Company’s common stock issued to Heritage Ventures Ltd. at closing on August 1, 2025. The shares had a marketable value of $18,400,000 based on the closing market price of $2.30 per share on the acquisition date. The fair value was adjusted to $12,880,000 to reflect a 30% discount for lack of marketability, using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 10-month trickle-out release restrictions applicable to the shares under the Exchange Agreement. |
F-75
| (2) | Represents the acquisition-date fair value of contingent consideration consisting of two components. First, up to 1,000,000 bonus shares of the Company’s common stock are issuable to Heritage Ventures Ltd. contingent upon 42 Telecom achieving a consolidated net profit threshold of $1,000,000 for the year ended December 31, 2025, with pro-rata releases of 1,000,000 shares for each $1,000,000 of net profit above the threshold. Second additional shares are issuable to satisfy a $30,000,000 minimum valuation guarantee measured 9 months from the completion date of the 42 Telecom audit, with additional shares issued to the extent the aggregate 30-day VWAP of all shares issued in the transaction falls below the guaranteed amount. The acquisition-date fair value of each component was determined using a risk-neutral Monte Carlo simulation incorporating the Company’s projected financial results, applicable volatility assumptions, and a 30% discount for lack of marketability determined using a Black-Scholes put option model, reflecting the lock-up and trickle-out release restrictions applicable to the shares. The aggregate acquisition-date fair value of both components was determined $7,120,000 using a risk-neutral Monte Carlo simulation of projected FCCN share prices, incorporating an equity volatility factor of 90% and applicable risk-free and corporate bond discount rates to reflect counterparty risk. The contingent consideration is classified as Level 3 liability and remeasured at fair value at each reporting date. The following table summarizes the provisional purchase price allocation to the identifiable assets acquired and liabilities assumed from the acquisition of 42 Telecom as of August 1, 2025: |
| Total | ||||
| Cash and cash equivalents | $ | 276,229 | ||
| Restricted cash | 20,705 | |||
| Accounts receivables, net | 1,271,006 | |||
| Contract assets | 832,742 | |||
| Prepaid expenses and other current assets | 423,957 | |||
| Property, plant and equipment, net | 111,957 | |||
| Capital work-in-progress | 278,893 | |||
| Intangible assets: | ||||
| Developed technology | 5,800,000 | |||
| Customer relationships | 3,100,000 | |||
| Tradename | 600,000 | |||
| Goodwill | 12,519,695 | |||
| Other receivable, related party | 417,095 | |||
| Right of use asset | 191,127 | |||
| Accounts payable | (1,289,041 | ) | ||
| Accrued expenses and other current liabilities | (741,002 | ) | ||
| Contract liabilities | (250,503 | ) | ||
| Operating lease liability | (179,624 | ) | ||
| Loan payable | (915 | ) | ||
| Deferred tax liability on identified intangible assets | (3,268,425 | ) | ||
| Deferred tax liability on pre existing temporary differences | (113,896 | ) | ||
| Purchase price consideration | $ | 20,000,000 | ||
Goodwill of $12,519,695 presented in the purchase price allocation table above represents $9,251,270 pertaining to the excess of consideration transferred over the fair value of net identifiable assets acquired as of August 1, 2025, and a $3,268,425 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identifiable intangible assets, as further described below. Total goodwill recognized in the consolidated balance sheet is $13,210,565, reflecting the measurement period adjustment of $690,870 relating to a pre-acquisition dividend resolved by the 42 Telecom Board of Directors on October 31, 2025. The goodwill reflects the expected synergies from 42 Telecom’s telecommunications operations, the going-concern value of the assembled workforce, and future economic benefits arising from assets that do not qualify for separate recognition at the acquisition date.
Acquisition of Telvantis Voice Services, Inc.
The total fair value of the purchase price consideration associated with the TVS Acquisition was determined as follows:
| Common stock issued | $ | 3,407,250 | (1) | |
| Contingent consideration | 31,105,750 | (2) | ||
| Purchase price consideration | $ | 34,513,000 |
| (1) | Represents the fair value of 1,500,000 shares of the Company’s common stock issuable to the sellers at closing. As the shares had not been formally issued as of December 31, 2025, the obligation is reflected as common stock to be issued within stockholders’ equity in the consolidated balance sheet. The shares had a marketable value of $6,195,000 based on the closing market price of $4.13 per share on the acquisition date. The fair value was adjusted to $3,407,250 to reflect a 45% discount for lack of marketability, determined by an independent valuation specialist using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 30-month trickle-out release restrictions applicable to the shares. |
F-76
| (2) | Represents the acquisition-date fair value of contingent consideration consisting of two components. First, up to 8,500,000 earn-out shares of the Company’s common stock are issuable to the sellers contingent upon Telvantis achieving specified performance thresholds for the year ending December 31, 2026: (i) 1,000,000 earn-out shares for each $1,000,000 of annualized net operating profit above $1,500,000, up to a maximum of 8,500,000 shares upon achievement of $10,000,000 of net operating profit; or alternatively, (ii) the equivalent number of shares upon achievement of total annualized gross revenues of $665,000,000 with an equivalent or superior operating margin as compared to 2025 results. Second, additional shares are issuable to the extent the aggregate 30-day VWAP of all shares issued in the transaction falls below a $65,000,000 minimum share value measured as of December 31, 2026, with Spectral having the option to satisfy the shortfall through issuance of additional shares or other consideration. The acquisition-date fair value of each component was determined using a risk-neutral Monte Carlo simulation incorporating correlated gross revenue and operating profit projections, a gross revenue volatility factor of 25%, an operating profit volatility factor of 65%, an 80% correlation between gross revenue and operating profit., and a 45% discount for lack of marketability determined using a Black-Scholes put option model, reflecting the 12-month lock-up period and subsequent 30-month trickle-out release restrictions applicable to the shares. The aggregate acquisition-date fair value of both components was $31,105,750. The contingent consideration is classified as Level 3 liability and remeasured at fair value at each reporting date. The following table summarizes the provisional purchase price allocation to the identifiable assets acquired and liabilities assumed from the acquisition of TVS as of December 31, 2025: |
| Total | ||||
| Cash and cash equivalents | $ | 1,094,457 | ||
| Accounts receivables, net | 37,333,769 | |||
| Due from related party | 1,357,768 | |||
| Prepaid expenses and other current assets | 482,420 | |||
| Deferred tax assets | 41,607 | |||
| Intangible assets: | ||||
| Customer relationships | 10,700,000 | |||
| Tradename | 3,100,000 | |||
| Goodwill | 35,486,899 | |||
| Accounts payable | (32,402,097 | ) | ||
| Accrued expenses and other current liabilities | (824,625 | ) | ||
| Accounts receivable financing facility | (12,342,163 | ) | ||
| Deferred tax liability on identified intangible assets | (2,238,117 | ) | ||
| Due to related party | (7,276,918 | ) | ||
| Purchase price consideration | $ | 34,513,000 | ||
Goodwill of $35,486,899 represents $33,248,782 the excess of consideration transferred over the fair value of net identifiable assets acquired as of December 31, 2025, and a $2,238,117 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identifiable intangible assets. The goodwill reflects the expected synergies from combining Telvantis’ voice termination and telecommunications services with Spectral’s platform, the going-concern value of the assembled workforce, and future economic benefits arising from assets that do not qualify for separate recognition at the acquisition date. The purchase price allocation as of December 31, 2025 is subject to adjustment within the 12-month measurement period ending December 31, 2026.
4. Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma combined statements of operations are as follows:
| (a) | To record amortization on the intangible assets recognized in connection with the acquisition of 42 Telecom Ltd. The Company recognized developed technology of $5,800,000 (5-year useful life), customer relationships of $3,100,000 (7-year useful life), and trade name of $600,000 (3-year useful life), resulting in total annual amortization of $1,802,857. The pro forma adjustment of $1,051,667 for the year ended December 31, 2025 represents the incremental seven months of amortization (January 1 through July 31, 2025) not reflected in Spectral’s historical consolidated results, as 42 Telecom was consolidated beginning August 1, 2025. The pro forma adjustment of $1,802,857 for the year ended December 31, 2024 represents a full 12 months of amortization, as 42 Telecom had not been acquired as of any date during 2024. |
| (b) | To record the net pro forma amortization adjustment in connection with the acquisition of Telvantis Voice Services, Inc., consisting of two components: (i) the elimination of $1,129,100 of amortization reflected in TVS’s historical statements of operations, which relates to legacy intangible asset carrying values that are superseded by the acquisition-date fair value step-up under ASC 805; and (ii) the addition of $2,112,500 of amortization on the identifiable intangible assets recognized in the provisional purchase price allocation for TVS, consisting of customer relationships of $10,700,000 (8-year useful life) and trade name of $3,100,000 (4-year useful life;), resulting in total annual PPA-based amortization of $2,112,500 on a full-year basis. |
F-77
Index to Unaudited Condensed Consolidated Financial Statements
| Page(s) | |
| Unaudited Condensed Consolidated Financial Statements | |
| Condensed Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024 | F-79 |
| Condensed Consolidated Statements of Operations and Comprehensive Income for the Six Months Ended June 30, 2025 (unaudited) and June 30, 2024(unaudited) | F-80 |
| Condensed Consolidated Statements of Stockholder’s Equity for the Six Months Ended June 30, 2025 (unaudited) and June 30, 2024 (unaudited) | F-81 |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 (unaudited) and June 30, 2024 (unaudited) | F-82 |
| Notes to the Condensed Consolidated Financial Statements (unaudited) | F-83 to F-94 |
F-78
42 Telecom Ltd.
Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 431,166 | $ | 292,736 | ||||
| Restricted cash | 21,089 | 18,748 | ||||||
| Accounts receivable, net | 1,057,382 | 1,374,352 | ||||||
| Accounts receivable, related party | 355,631 | 983,286 | ||||||
| Contract assets | 754,739 | 636,959 | ||||||
| Prepaid expenses and other current assets | 368,098 | 402,695 | ||||||
| Total current assets | 2,988,105 | 3,708,776 | ||||||
| Property, plant and equipment, net | 117,268 | 117,646 | ||||||
| Intangible assets, net | 877,334 | 787,719 | ||||||
| Capital work-in-progress | 210,740 | 187,351 | ||||||
| Right of use asset | 198,608 | 203,751 | ||||||
| Total assets | $ | 4,392,055 | $ | 5,005,243 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,318,212 | $ | 1,997,174 | ||||
| Accounts payable, related party | 311,188 | 588,255 | ||||||
| Accrued expenses and other current liabilities | 699,944 | 645,755 | ||||||
| Contract liabilities | 228,181 | 192,187 | ||||||
| Operating lease liability, current portion | 63,624 | 55,390 | ||||||
| Total current liabilities | 2,621,149 | 3,478,761 | ||||||
| Loan payable | 936 | 806 | ||||||
| Operating lease liability, net of current portion | 134,984 | 148,361 | ||||||
| Deferred tax liability | 72,440 | 72,440 | ||||||
| Total liabilities | 2,829,509 | 3,700,368 | ||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, 1,300 shares authorized, 1,300 issued and outstanding as of both June 30, 2025 and December 31, 2024 | 1,430 | 1,430 | ||||||
| Retained earnings | 1,291,599 | 1,407,862 | ||||||
| Accumulated other comprehensive income (loss) | 269,517 | (104,417 | ) | |||||
| Total stockholders’ equity | 1,562,546 | 1,304,875 | ||||||
| Total liabilities and stockholders’ equity | $ | 4,392,055 | $ | 5,005,243 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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42 Telecom Ltd.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | 6,328,621 | $ | 9,652,549 | ||||
| Revenue, related party | 123,274 | 8,792,863 | ||||||
| Total revenues | 6,451,895 | 18,445,412 | ||||||
| Cost of revenue | 4,990,858 | 16,541,810 | ||||||
| Gross profit | 1,461,037 | 1,903,602 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 568,341 | 429,185 | ||||||
| Wages and benefits | 961,655 | 806,656 | ||||||
| Total operating expenses | 1,529,996 | 1,235,841 | ||||||
| Income (loss) from operations | (68,959 | ) | 667,761 | |||||
| Other income (expense): | ||||||||
| Interest expense, net | (1,177 | ) | - | |||||
| Interest income | 89 | 14 | ||||||
| Other expense | (36,287 | ) | (1,852 | ) | ||||
| Total other (expense) | (37,375 | ) | (1,838 | ) | ||||
| Income (loss) before income taxes | (106,334 | ) | 665,923 | |||||
| Income taxes | (9,929 | ) | (9,776 | ) | ||||
| Net income | $ | (116,263 | ) | $ | 656,147 | |||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation income (loss) | 373,934 | (378,958 | ) | |||||
| Total comprehensive income | $ | 257,671 | $ | 277,189 | ||||
| Basic and diluted net income (loss) per share | $ | (89 | ) | $ | 505 | |||
| Weighted average shares outstanding - basic and diluted | 1,300 | 1,300 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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42 Telecom Ltd.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| Accumulated Other | Total | |||||||||||||||||||
| Common Stock | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||
| Shares | Amount | Income | Loss | Equity | ||||||||||||||||
| Balances at December 31, 2023 | 1,300 | $ | 1,430 | $ | 883,432 | $ | (20,524 | ) | $ | 864,338 | ||||||||||
| Net income (loss) | - | - | 656,147 | (378,958 | ) | 277,189 | ||||||||||||||
| Balances at June 30, 2024 | 1,300 | $ | 1,430 | $ | 1,539,579 | $ | (399,482 | ) | $ | 1,141,527 | ||||||||||
| Balances at December 31, 2024 | 1,300 | $ | 1,430 | $ | 1,407,862 | $ | (104,417 | ) | $ | 1,304,875 | ||||||||||
| Net income (loss) | - | - | (116,263 | ) | 373,934 | 257,671 | ||||||||||||||
| Balances at June 30, 2025 | 1,300 | $ | 1,430 | $ | 1,291,599 | $ | 269,517 | $ | 1,562,546 | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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42 Telecom Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (116,263 | ) | $ | 656,147 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation | 26,871 | 29,443 | ||||||
| Amortization of capitalized software | 200,553 | 161,424 | ||||||
| Deferred tax adjustment | - | 214,196 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 316,970 | (5,729,227 | ) | |||||
| Accounts receivable, related party | 627,654 | 476,468 | ||||||
| Contract assets | (117,780 | ) | 47,105 | |||||
| Prepaid expenses and other current assets | 34,597 | 10,249 | ||||||
| Accounts payable | (678,961 | ) | 4,768,720 | |||||
| Accounts payable, related party | (277,067 | ) | (38,014 | ) | ||||
| Accrued expenses and other current liabilities | 54,189 | (505,564 | ) | |||||
| Deferred revenue | 35,994 | 3,464 | ||||||
| Net cash provided by operating activities | 106,757 | 94,411 | ||||||
| Cash flows from investing activities: | ||||||||
| Software development capitalization | (313,557 | ) | (160,961 | ) | ||||
| Purchase of property, plant and equipment | (26,493 | ) | (18,589 | ) | ||||
| Net cash used in investing activities | (340,050 | ) | (179,550 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 374,064 | (379,001 | ) | |||||
| Net change in cash and cash equivalents | 140,771 | (464,140 | ) | |||||
| Cash and cash equivalents and restricted cash at beginning of period | 311,484 | 555,253 | ||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 452,255 | $ | 91,113 | ||||
| Reconciliation of cash and restricted cash: | ||||||||
| Cash at beginning of period | $ | 292,736 | $ | 525,455 | ||||
| Restricted cash at beginning of period | 18,748 | 29,798 | ||||||
| Cash and restricted cash at beginning of period | $ | 311,484 | $ | 555,253 | ||||
| Cash at end of period | $ | 431,166 | $ | 71,832 | ||||
| Restricted cash at end of period | 21,089 | 19,281 | ||||||
| Cash and restricted cash at end of period | $ | 452,255 | $ | 91,113 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Changes in loan due to foreign currency translation | $ | 130 | $ | 43 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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42 Telecom Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Nature of Operations
42 Telecom Limited (“42 Telecom”, “MT Ltd.” or the “Company”) was incorporated in Malta as a private limited liability company under the Companies Act (Cap. 386) with registration number C 50141. The registered office of the Company is located at Level 1, 303 Business Centre, Territorials Street, Mriehel, B’Kara, BKR 3000, Malta.
The unaudited condensed consolidated financial statements include the accounts of 42 Telecom Limited and its wholly owned subsidiaries (collectively, the “Group”):
| ● | 42 Telecom AB Ltd (Sweden) – acquired 100% ownership from Trillian Group Limited effective June 30, 2023 |
| ● | 42 Telecom UK Ltd (United Kingdom) |
| ● | Arcus Technologies Ltd (Europe) |
Acquisition of 42 Telecom AB
On June 30, 2023, 42 Telecom Limited acquired 100% of the issued share capital of 42 Telecom AB from Trillian Group Limited, its former parent company, pursuant to a Share Transfer Agreement. The transfer was executed at the nominal value of SEK 100,000, fully paid. As part of the agreement, Trillian Group Limited forfeited all rights, claims, receivables, and entitlements to realized or unrealized profits of 42 Telecom AB, with such rights vesting fully in 42 Telecom Limited.
Because both 42 Telecom Limited and 42 Telecom AB were ultimately controlled by Trillian Group Limited before and after the transfer, the transaction was accounted for as a common control transaction in accordance with Accounting Standards Codification (“ASC”) 805-50, Business Combinations – Related Issues. Accordingly, the assets and liabilities of 42 Telecom AB were transferred at their historical carrying amounts, and no goodwill was recognized. The unaudited condensed consolidated financial statements include the financial position and results of operations of 42 Telecom AB as if the combination had occurred at the beginning of the earliest period presented, rather than from the legal transfer date.
Nature of Operations
The Group provides international telecommunications and messaging solutions. Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions. Through Arcus Technologies Ltd, the Group also offers platform-as-a-service solutions tailored for the tourism sector.
The Group serves a global customer base consisting primarily of mobile network operators, enterprises, and related-party affiliates.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are presented in U.S. dollars (“USD”), which is the Group’s reporting currency.
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Unaudited Interim Financial Information
The unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, within the rules and regulations of the SEC. Certain information and disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the results for the interim periods presented and of the financial condition as of the date of the interim balance sheet. The financial data and the other information disclosed in these notes to the interim financial statements related to the six-month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of 42 Telecom Limited (“the Company” or “Parent”) and its wholly owned subsidiaries (together, the “Group”). All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. 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 considered for right of use (“ROU”) and lease liability |
| ● | allowances for income taxes and related valuation allowances and tax uncertainties, |
| ● | recoverability of long-lived assets and their related estimated lives (including internally developed software), |
| ● | accrual of estimated liabilities, |
| ● | impairment assessments, and |
| ● | provision for doubtful debts |
Risks and Uncertainties
The Company faces certain risks and uncertainties that could have a material impact on its operations, financial position, and cash flows. These include, but are not limited to:
| ● | Foreign exchange risk arising from transactions and balances in currencies other than the functional currency; |
| ● | Economic and financial risks such as changes in inflation rates, interest rates, or other macroeconomic conditions; |
| ● | Geopolitical risks including armed conflicts, trade restrictions, and political instability; |
| ● | Environmental risks including potential effects of climate change and related regulations on operations and costs; and |
| ● | Other uncertainties that may affect markets, supply chains, or operational continuity. |
Management monitors these factors on an ongoing basis and may take measures to mitigate potential impacts; however, the effects of these factors cannot be predicted with certainty.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. In addition to net income (loss), comprehensive income (loss) includes other comprehensive income (loss) items that are excluded from net income under U.S. GAAP.
For the Group, the only component of other comprehensive income (loss) relates to foreign currency translation adjustments arising from the consolidation of subsidiaries whose functional currencies (EUR, SEK, GBP) differ from the reporting currency (USD). These translation adjustments are recorded in other comprehensive income (loss) and accumulated in equity under Accumulated Other Comprehensive Income (AOCI).
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Foreign Currency Transaction
Each entity within the Group determines its functional currency based on the primary economic environment in which it operates. The functional currencies of the Group’s entities 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) |
The unaudited condensed consolidated financial statements are presented in U.S. dollars (USD), which is the Group’s reporting currency.
For consolidation purposes, the assets and liabilities of entities with functional currencies other than USD are translated into USD at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the reporting period. Equity accounts, other than retained earnings, are translated at historical rates. The resulting translation adjustments are reported in Other Comprehensive Income (Loss) and accumulated in equity within Accumulated Other Comprehensive Income (AOCI).
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 in Other income (expense), net in the condensed consolidated statements of operations.
The relevant translation rate are as follows:
For the six months ended June 30, 2025, closing rate 1.17 US$: EURO, 0.10 US$: SEK, 1.37 US$: GBP
For the six months ended June 30, 2025, average rate 1.10 US$: EURO, 0.09 US$: SEK, 1.31 US$; GBP
For the six months ended June 30, 2024, closing rate 1.07 US$: EURO, 0.09 US$: SEK, 1.26 US$: GBP
For the six months ended June 30, 2024, average rate 1.08 US$: EURO, 0.09 US$: SEK, 1.26 US$; GBP
For the six months ended June 30, 2025 and 2024, the Group recorded foreign currency translation adjustments income/(loss) of $196,374 and ($378,958), respectively, which are included in other comprehensive loss.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, certificates of deposits and money market funds that are readily convertible into cash, all with original maturity dates of three months or less. The Company has restricted cash as a result of its corporate card program through its bank, which requires a collateral balance. As of June 30, 2025 and December 31, 2024, the Company had restricted cash balances of $21,089 and $18,748 respectively, included as a component of total cash and restricted cash as presented on the accompanying condensed consolidated statements of cash flows.
Concentration of Credit Risks
The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.
All of the Company’s bank accounts are held at foreign institutions and are not insured by the Federal Deposit Insurance Corporation.
Concentrations
During the six months ended June 30, 2024, a related party customer accounted for 48% of the Company’s revenues, and another customer accounted for 20% of the Company’s revenues. As of June 30, 2025, one related party customer accounted for 25% of total accounts receivable, and another customer accounted for 13%. The Company may be negatively affected by the loss of one of these customers.
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Accounts Receivable
The Company’s account receivables are due from sales billed to customers. Collateral is currently not required. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance. The allowance for doubtful accounts as of June 30, 2025 and December 31, 2024 amounted to $97,980 and $100,552, respectively.
Factoring Arrangements
During the period, the Company entered into a non-recourse factoring and invoice discounting facility with Fasanara Capital (the “Fasanara Facility”) applicable to both 42 Telecom Ltd and 42 Telecom AB. Under the terms of the Master Agreements, certain invoices issued to pre-approved customers may be sold to Fasanara. Upon submission of an eligible invoice, Fasanara advances approximately 90% of the invoice value to the Company, with the remaining balance (net of interest and fees) remitted upon customer payment.
Customers are instructed to remit payments directly into a designated Goldman Sachs account controlled by Fasanara. As the arrangement is without recourse, the Company has no continuing obligation in respect of the transferred receivables, and these receivables are derecognized from the balance sheet in accordance with ASC 860, Transfers and Servicing.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The hierarchy is presented down into three levels based on the reliability of the inputs.
Level 1 Quoted prices are available in active markets for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short- term nature of these instruments.
The Company’s operating lease liability and right-of-use asset are recorded based on the present value of future lease payments in accordance with ASC 842.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets primarily consists of prepaid expenses for cost of revenue vendors, prepaid taxes and deposits.
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Property, Plant and Equipment, Net
Property, plant and equipment, net (“PP&E”) is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. Depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives. The estimated useful lives of PP&E are as follows:
Office Equipment and tools – 3-5 years
Computers – 3-5 years
Furniture and Fittings – 8-10 years
Leasehold improvements – Shorter of the estimate useful life or remaining lease term
Capitalized costs associated with capital work-in-progress are not depreciated until the related assets are placed into service, at which time the capitalized balance will be transferred to the appropriate account of PP&E. Capital work-in-progress is stated at the lower of cost or fair value, which includes the cost of construction and other direct costs attributable to the construction. The costs are capitalized as incurred or as payments are made pursuant to relevant construction contracts.
Major renewals and improvements are capitalized. Replacements, maintenance, and repairs, which do not significantly improve or extend the useful life of the assets, are expensed when incurred.
Upon the sale or retirement of assets, costs and the related accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in the results of operations.
The Company has not identified any such impairment losses for the six months ended June 30, 2025 and 2024.
Intangible Assets – Capitalized Software Development
The Group capitalizes certain costs incurred in connection with the development of internal-use software in accordance with ASC 350-40, Internal-Use Software. Capitalized costs include direct payroll and related employee benefits for personnel engaged in software development, third-party contractor fees, and other expenditures directly attributable to the development of the software. Costs incurred during the preliminary project stage, as well as costs related to training, maintenance, data conversion, and general overhead, are expensed as incurred.
Once the software is ready for its intended use, capitalized costs are transferred from capital work-in-progress to capitalized software and are amortized on a straight-line basis over the estimated useful life of four years, which management believes reflects the period over which the software is expected to provide economic benefit. Amortization of software used directly in the delivery of services is recorded in Cost of Revenue,
Management evaluates capitalized software for indicators of impairment in accordance with ASC 360 and determined that no indicators of impairment were present during the six months ended June 30, 2025 and 2024.
Capital work-in-progress represents costs for software projects that have not yet been placed into service. Upon completion, such amounts are reclassified to capitalized software and amortization begins.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment and intangible assets, or asset groups for indicators of possible impairment by determining whether there were any triggering events that could impact on the Company’s assets. If events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable the Company performs a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by such asset or asset group. Should an impairment exist, the impairment loss is measured based on the excess carrying value of the asset over the asset’s fair value generally determined by estimates of future discounted cash flows.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the five-step model: (i) identify the contract with a customer, (ii) identify performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to performance obligations, and (v) recognize revenue when or as performance obligations are satisfied.
F-87
The Company generates revenue from following streams:
| ● | Messaging Services – includes SMS aggregation, enterprise messaging, and instant messaging (Viber). Revenue from these services is recognized at a point in time when each message or lookup is successfully processed and transmitted. |
| ● | Platform Services – includes SS7 platform access, managed services provided to related parties, and the Arcus tourism platform-as-a-service. Revenue from these services is recognized over time, as customers receive and consume the benefits of continuous access or managed service delivery. |
The Company generally acts as principal in its arrangements, as it controls the services before transfer, bears responsibility for performance, and has discretion in pricing. Customer contracts are typically short-term in nature, invoiced monthly based on actual usage or subscription terms, with no significant financing components.
The following table presents the disaggregated revenue for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Messaging Services, at a point in time | $ | 6,306,417 | $ | 18,333,373 | ||||
| Platform Leasing, over time | 43,398 | 60,144 | ||||||
| Tourist Platform-as-a-Service, over time | 102,080 | 51,895 | ||||||
| $ | 6,451,895 | $ | 18,445,412 | |||||
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. These balances are similar to accrued income, arising when services have been provided or milestones achieved, but invoices have not yet been issued. Contract assets are transferred to trade receivables once the right to payment becomes unconditional. Contract assets totaled $754,739 and $636,959 as of June 30, 2025 and December 31, 2024, respectively.
Contract Liabilities
Contract liabilities, historically referred to as deferred revenue, represent amounts billed or collected from customers in advance of satisfying performance obligations under customer contracts. These balances are presented within current liabilities in the condensed consolidated balance sheets, based on the expected timing of revenue recognition. Contract liabilities are recognized as revenue when the related performance obligations are fulfilled.
As of June 30, 2025 and December 31, 2024, contract liabilities were $228,181 and $192,187, respectively, all consisting of deferred revenue.
Cost of Revenue
Cost of revenue consists of direct expenses incurred in providing telecommunication and platform services and is recognized in the period in which the related revenues are earned. Cost of revenue includes accruals for third-party service providers, purchases of services from both local and non-EU vendors, and charges for telecommunication services inside and outside the EU, including data, voice, and connectivity costs. It also includes wholesale carrier and traffic fees, consultancy and technical service costs directly tied to service delivery, commissions and referral fees related to customer acquisition or usage. Additionally, platform or PaaS licensing fees and other directly attributable costs necessary to fulfill service obligations, such as internally generated software amortization used in service infrastructure, are included. These costs are recorded when incurred and matched to the related revenue in accordance with U.S. GAAP expense recognition principles.
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Selling, General and Administrative Expense
Selling, general and administrative expenses represent the routine costs of operating the Group. They primarily consist of rent and facilities, marketing and travel, professional and administrative services, depreciation, insurance and compliance costs, finance and bank charges, and other operating expenses.
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.
Employee Benefits
Pursuant to Malta regulations, contributions to pension schemes are voluntary. The Company provides pension contributions to management team members. During the six months ended June 30, 2025 and 2024, pension plan contributions totaled $6,639 and $4,567, respectively.
Leases
The Company accounts for its 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 condensed 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 earnings per share (“EPS”) is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. The Company had no potentially dilutive securities outstanding as of June 30, 2025 and December 31, 2024. Accordingly, basic and diluted EPS are the same for both periods. Earnings per share is calculated based on net income (loss) attributable to common shareholders and does not include other comprehensive income (loss).
Income Tax
The Company accounts for income taxes in accordance with the asset and liability method under ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The need for a valuation allowance is evaluated periodically, taking into account cumulative results of operations, forecasts of future taxable income, the expiration periods of carryforwards, and feasible tax-planning strategies.
The Company evaluates uncertain tax positions in accordance with ASC 740 using a two-step approach. First, a tax position is evaluated to determine whether it is more likely than not to be sustained upon examination by taxing authorities. If that threshold is met, the Company measures the benefit as the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement. Liabilities for unrecognized tax benefits, including related interest and penalties, are recorded as a component of income tax expense in the condensed consolidated statements of operations.
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Management exercises significant judgment in determining the provision for income taxes, the recognition of deferred tax assets and liabilities, and the need for any related valuation allowances. These judgments are based on interpretations of tax laws, expectations of future taxable income, and advice from tax and legal advisers. Changes in these estimates or in the Company’s assessment of uncertain tax positions may result in material adjustments to the provision for income taxes in future periods.
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures by requiring, a more detailed reconciliation between the effective tax rate and the statutory federal income tax rate, with both percentage and dollar amounts presented. Disaggregated categories in the reconciliation, including (i) state and local income taxes (net of federal benefit), (ii) foreign tax effects, (iii) effects of changes in tax laws or rates, (iv) valuation allowance changes, (v) tax credits, (vi) nontaxable or nondeductible items, and (vii) changes in unrecognized tax benefits. Enhanced disclosure of income taxes paid, disaggregated by federal, state, and foreign jurisdictions. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments should be applied on a prospective basis, although retrospective application is also permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures. Because the Company operates subsidiaries in multiple jurisdictions and computes taxes at the subsidiary level prior to consolidation into U.S. GAAP reporting, management expects the new guidance will primarily affect the presentation and disaggregation of the income tax rate reconciliation and income taxes paid disclosures. The adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.
In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The guidance is intended to improve the transparency of public business entities’ expense disclosures by requiring further disaggregation of the natural components of significant expense captions, such as cost of revenue, selling, general and administrative expenses, wages and benefits, depreciation, amortization, and other operating costs. The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted.
Although the Company is not yet required to adopt the standard, management evaluated the impact of the new guidance in the context of its existing expense structure, which includes cost of revenue, selling, general and administrative expenses, and wages and benefits as separately presented captions in the consolidated statements of operations. Based on this evaluation, the Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements or related disclosures, as the Company already presents its operating expenses in a manner largely consistent with the forthcoming requirements. The Company will continue to monitor the guidance and implement any additional disaggregation or disclosures as required upon the effective date.
Note 3. Going Concern
Management has evaluated whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued, in accordance with the guidance in ASC 205-40, Presentation of Financial Statements – Going Concern.
As of June 30, 2025, the Company had total assets of approximately $4.4 million, including cash and cash equivalents of $431,166. Current assets totaled $2.9 million compared with current liabilities of $2.6 million, resulting in a current ratio of approximately 1.14:1. The Company’s loan obligations are immaterial, and lease liabilities due within twelve months total approximately $63,000. The Company does not have significant long-term debt maturities within the evaluation period and is not in breach of any financial covenants.
For the six months ended June 30, 2025, the Company generated total revenues of approximately $6.5 million, compared to $18.4 million for the same period in 2024. The Company reported a net loss of $116,263 compared to net income of $656,147 for the prior period.
F-90
Management has implemented measures to strengthen the Company’s liquidity profile, including active monitoring of working capital, cost optimization initiatives, and maintaining access to external financing sources, though additional material financing is not anticipated to be required within the next twelve months.
Based on these factors, management has concluded that no conditions or events exist that raise substantial doubt about the Company’s ability to continue as a going concern within one year after issuance of these consolidated financial statements. Accordingly, the condensed consolidated financial statements have been prepared under the going concern basis of accounting.
Note 4. Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Office equipment | $ | 44,287 | $ | 32,045 | ||||
| Computers | 696,653 | 607,980 | ||||||
| Furniture and fixtures | 143,805 | 127,845 | ||||||
| Leasehold improvements | 14,099 | 12,534 | ||||||
| 898,844 | 780,404 | |||||||
| Less : Accumulated depreciation | 781,576 | 662,758 | ||||||
| Property, plant and equipment, net | $ | 117,268 | $ | 117,646 | ||||
Depreciation expense was $26,871 and $29,443 for the six months ended June 30, 2025 and 2024, respectively.
Note 5. Intangible Assets
Intangible assets consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Internally developed software | $ | 3,114,654 | $ | 2,587,740 | ||||
| Computer software | 42,064 | 37,396 | ||||||
| Website | 66,375 | 59,008 | ||||||
| 3,223,093 | 2,684,144 | |||||||
| Less : Accumulated amortization | 2,345,759 | 1,896,425 | ||||||
| Intangible assets, net | $ | 877,334 | $ | 787,719 | ||||
Amortization expense was $200,553 and $161,424 for the six months ended June 30, 2025 and 2024, respectively.
Capital work-in-progress for internally developed software not yet placed in service was $210,740 and $187,351, respectively. The change primarily reflects the impact of foreign currency translation.
F-91
Note 6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued cost of revenue | $ | 498,931 | $ | 398,845 | ||||
| Accrued payroll and benefits | 114,776 | 78,099 | ||||||
| VAT and taxes payable | 20,628 | 90,444 | ||||||
| Other | 65,609 | 78,367 | ||||||
| Accrued expenses and other current liabilities | $ | 699,944 | $ | 645,755 | ||||
Note 7. Stockholder’s Equity
The Company is authorized to issue 1,300 ordinary shares with a par value of €1.00 each. As of June 30, 2025 and December 31, 2024, all 1,300 ordinary shares were issued and outstanding are wholly owned by the Company’s parent entity. For presentation in the unaudited condensed consolidated financial statements, share capital has been translated into U.S. dollars at historical rates.
Note 8. Segment and Geographic Information
The Company is focused on providing international messaging services, enterprise communications, and platform-based solutions, including SMS aggregation, enterprise A2P messaging, Viber instant messaging, SS7 platform access, and SaaS solutions. The Company also offers platform-as-a-service (“PaaS”) solutions through Arcus Technologies Ltd. The majority of the Group’s revenues and long-lived assets are attributable to its parent company, 42 Telecom Ltd, which serves as the principal operating entity within the Group.
The Company manages its business activities on a consolidated basis and operates in one reportable segment. This determination is consistent with the financial information that the Chief Executive Officer, the Group’s Chief Operating Decision Maker (“CODM”), regularly reviews for purposes of evaluating performance, allocating resources, setting incentive compensation, and planning and forecasting. The CODM utilizes gross margin, operating income (loss), and net income (loss) as primary performance measures. Significant segment expenses include cost of revenue, selling, general and administrative expenses, and wages and benefit, each of which is presented separately in the Company’s unaudited condensed consolidated statements of operations. Other segment items within net income (loss) include interest and other income (expense), net, and income tax expense.
For the six months ended June 30, 2025, revenues generated from Europe accounted for approximately 88% of total consolidated revenue, compared to 89% for the six months ended June 30, 2024. Revenues generated from Sweden accounted for approximately 12% of total consolidated revenue during the six months ended June 30, 2025, compared to 11% during the six months ended June 30, 2024. The United Kingdom operations did not generate material revenues in either period.
Substantially all of the Group’s long-lived assets, consisting primarily of property, plant and equipment as well as intangible assets, were located in Europe and held by 42 Telecom Ltd as of June 30, 2025 and December 31, 2024.
Note 9. Lease Obligation
On June 27, 2023, the Company entered into an office lease with Pater Holding Company Ltd. for premises located on the third and fourth floors of Hyundai Block, Valley Road, Msida, Malta. The lease commenced upon handover on July 24, 2023 and has a contractual term of five years, of which the first two years are non-cancellable and the remaining three years may be terminated by the Company with two months’ notice. Annual base rent is €60,000 plus VAT, payable quarterly in advance.
F-92
Lease costs are included on the unaudited condensed consolidated statements of operations as selling, general and administrative expenses.
The following is the summary of operating lease assets and liabilities:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Operating Leases | ||||||||
| Right-of-use assets | $ | 198,608 | $ | 203,751 | ||||
| Operating lease liability, current portion | 63,624 | 55,390 | ||||||
| Operating lease liability, net of current portion | 134,984 | 148,361 | ||||||
| Total lease liabilities | $ | 198,608 | $ | 203,751 | ||||
The operating lease costs totaled $33,128 and $32,577 for the six months ended June 30, 2025 and 2024, respectively.
The following is the summary of future minimum payments as of:
| June 30, 2025 | ||||
| 2025 | $ | 35,148 | ||
| 2026 | 70,296 | |||
| 2027 | 70,296 | |||
| 2028 | 35,148 | |||
| Total lease payments | 210,888 | |||
| Less : imputed interest | (12,280 | ) | ||
| Total | $ | 198,608 | ||
Note 10. Loan Payable
As of June 30, 2025 and December 31, 2024 the Company had an outstanding loan payable balance of $936 and $806. The change in balance year-over-year primarily reflects foreign currency translation adjustments.
Note 11. Related Party Transactions
The Company enters into transactions with entities under common ownership and/or management control. These transactions primarily relate to revenues earned from service arrangements and expenses incurred under management and financing agreements. Related party balances as of June 30, 2025 and December 31, 2024 and transactions for the six months ended June 30, 2025 and 2024 are summarized in the table below.
The Company had the following outstanding balances with related parties as of June 30, 2025 and December 31, 2024:
| Nature of | June 30, | December 31, | ||||||||
| Relationship | 2025 | 2024 | ||||||||
| Accounts receivable - Mexedia SpA and Mexedia DAC | Common ownership and management | $ | 355,631 | $ | 983,286 | |||||
| Accounts payable - Mexedia SpA and Mexedia DAC | Common ownership and management | $ | 32,350 | $ | 556,447 | |||||
| Accounts payable - Heritage Ventures Ltd | Parent entity | $ | 278,838 | $ | 31,808 | |||||
F-93
The Company had the following related party transactions for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | ||||||||||
| 2025 | 2024 | |||||||||
| Revenue from Mexedia SpA and Mexedia DAC | Common ownership and management | $ | 123,274 | $ | 8,792,863 | |||||
Note 12. Commitments and Contingencies
From time to time, the Company may be involved in legal proceedings, claims, and regulatory matters arising in the normal course of business. While the outcome of such matters cannot be predicted with certainty, management does not believe that the resolution of any currently pending or threatened proceedings will have a material adverse effect on the Company’s business, financial condition, or results of operations.
Lease
Refer to Note 9 for the Company’s lease obligation.
Note 13. Subsequent Events
The Group evaluated subsequent events through October 15, 2025, the date the unaudited condensed consolidated financial statements were available to be issued.
Acquisition by Spectral Capital Corporation
On August 1, 2025, Spectral Capital Corporation (“Spectral”), a Delaware corporation, completed the acquisition of 42 Telecom Ltd pursuant to a Definitive Share Exchange Agreement dated July 15, 2025. As consideration, Spectral issued 8,000,000 shares of its common stock and placed an additional 8,000,000 shares in escrow, subject to performance and earn-out conditions. The acquisition was executed upon satisfaction of closing conditions, including a Closing Certificate confirming the transfer. This event represents a change in control and is disclosed as a non-adjusting subsequent event.
No other material events occurred subsequent to June 30, 2025, that require adjustment to or further disclosure in the unaudited condensed consolidated financial statements.
F-94
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information presents the unaudited pro forma combined balance sheet and statement of operations based upon the combined historical financial statements of Spectral Capital Corporation and 42 Telecom Limited (“42 Telecom”) after giving effect to the business combinations and adjustments described in the accompanying notes.
The unaudited pro forma combined balance sheets of Spectral and 42 Telecom as of June 30, 2025 has been prepared to reflect the effects of the acquisition as if it occurred on June 30, 2025. The unaudited pro forma combined statements of operations for six months ended June 30, 2025 combine the historical results and operations of Spectral and 42 Telecom giving effect to the transaction as if it occurred on January 1, 2025. The unaudited pro forma combined statements of operations for the period ended December 31, 2024 combine the historical results and operations of Spectral and 42 Telecom giving effect to the transactions as if they occurred on January 1, 2024.
The unaudited pro forma combined financial information should be read in conjunction with the audited and unaudited historical financial statements of Spectral and 42 Telecom and the notes thereto. Additional information about the basis of presentation of this information is provided in Note 2 below.
The unaudited pro forma combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma adjustments reflecting the transaction have been prepared in accordance with business combination accounting guidance as provided in Accounting Standards Codification Topic 805, Business Combinations and reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon the preliminary estimate of fair values, using the assumptions set forth in the notes to the unaudited pro forma combined financial information.
The unaudited pro forma combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transaction had been completed as of the dates set forth above, nor is it indicative of the future results or financial position of the combined company. In connection with the pro forma financial information, Spectral allocated the purchase price using its best estimates of fair value. Accordingly, the pro forma acquisition price adjustments are preliminary and subject to further adjustments as additional information becomes available and as additional analyses are performed. The unaudited pro forma combined financial information also does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the transaction or any integration costs.
Furthermore, the unaudited pro forma combined statements of operations do not include certain nonrecurring charges and the related tax effects which result directly from the transaction as described in the notes to the unaudited pro forma combined financial information.
F-95
Spectral Capital Corporation
Unaudited Pro Forma Combined Balance Sheets
As of June 30, 2025
| Pro Forma | Combined | |||||||||||||||||
| Spectral | 42 Telecom | Adjustments | Notes | Pro Forma | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash | $ | 6,078 | $ | 431,166 | $ | - | (c) | $ | 437,244 | |||||||||
| Restricted cash | - | 21,089 | - | 21,089 | ||||||||||||||
| Accounts receivable, net | - | 1,057,382 | - | 1,057,382 | ||||||||||||||
| Accounts receivable, related party | - | 355,631 | - | 355,631 | ||||||||||||||
| Contract assets | - | 754,739 | - | 754,739 | ||||||||||||||
| Prepaid expenses and other current assets | - | 368,098 | - | 368,098 | ||||||||||||||
| Total current assets | 6,078 | 2,988,105 | - | 2,994,183 | ||||||||||||||
| Property, plant and equipment, net | 117,268 | - | 117,268 | |||||||||||||||
| Intangible assets, net | - | 877,334 | 15,215,591 | (a) | 10,387,079 | |||||||||||||
| (5,705,846 | ) | (b) | - | |||||||||||||||
| Goodwill | - | - | 5,071,863 | (a) | 5,071,863 | |||||||||||||
| Capital work-in-progress | - | 210,740 | - | 210,740 | ||||||||||||||
| Right of use asset | - | 198,608 | - | 198,608 | ||||||||||||||
| Total assets | $ | 6,078 | $ | 4,392,055 | $ | 14,581,608 | $ | 18,979,741 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable | $ | 505,327 | $ | 1,318,212 | $ | - | $ | 1,823,539 | ||||||||||
| Accounts payable, related party | - | 311,188 | - | 311,188 | ||||||||||||||
| Related party advances and accruals | 159,589 | - | - | 159,589 | ||||||||||||||
| Short term loan | 10,000 | - | - | 10,000 | ||||||||||||||
| Accrued expenses and other current liabilities | - | 699,944 | - | 699,944 | ||||||||||||||
| Contingent consideration | - | - | 3,450,000 | (a) | 3,450,000 | |||||||||||||
| Deferred revenue | - | 228,181 | - | 228,181 | ||||||||||||||
| Operating lease liability, current portion | - | 63,624 | - | 63,624 | ||||||||||||||
| Total current liabilities | 674,916 | 2,621,149 | 3,450,000 | 6,746,065 | ||||||||||||||
| Loan payable | - | 936 | - | 936 | ||||||||||||||
| Operating lease liability, net of current portion | - | 134,984 | - | 134,984 | ||||||||||||||
| Deferred tax liability | - | 72,440 | - | 72,440 | ||||||||||||||
| Total liabilities | 674,916 | 2,829,509 | 3,450,000 | 6,954,425 | ||||||||||||||
| Stockholders’ equity (deficit) | ||||||||||||||||||
| Preferred stock | - | - | - | - | ||||||||||||||
| Common stock | 6,777 | 1,430 | (1,430 | ) | (a) | 6,777 | ||||||||||||
| 800 | (a) | 800 | ||||||||||||||||
| Additional paid-in capital | 35,026,308 | - | 18,399,200 | (a) | 53,425,508 | |||||||||||||
| Accumulated deficit | (35,480,037 | ) | 1,291,599 | (1,291,599 | ) | (a) | (35,480,037 | ) | ||||||||||
| (5,705,846 | ) | (b) | (5,705,846 | ) | ||||||||||||||
| Accumulated other comprehensive income | - | 269,517 | (269,517 | ) | (a) | - | ||||||||||||
| Total stockholders’ equity (deficit) | (446,952 | ) | 1,562,546 | 11,131,608 | 12,247,202 | |||||||||||||
| Non-controlling interest | (221,886 | ) | - | (221,886 | ) | |||||||||||||
| Total stockholders’ deficit - Spectral Capital Corp | (668,838 | ) | 1,562,546 | 11,131,608 | 12,025,316 | |||||||||||||
| Total liabilities and stockholders’ equity (deficit) | $ | 6,078 | $ | 4,392,055 | $ | 14,581,608 | $ | 18,979,741 | ||||||||||
F-96
Spectral Capital Corporation
Unaudited Pro Forma Combined Statements of Operations
Six Months Ended June 30, 2025
| Pro Forma | Combined | |||||||||||||||||
| Spectral | 42 Telecom | Adjustments | Notes | Pro Forma | ||||||||||||||
| Revenue | $ | - | $ | 6,328,621 | $ | - | $ | 6,328,621 | ||||||||||
| Revenue, related party | - | 123,274 | 123,274 | |||||||||||||||
| Total revenues | - | 6,451,895 | 6,451,895 | |||||||||||||||
| Cost of revenue | - | 4,990,858 | - | 4,990,858 | ||||||||||||||
| Gross profit | 1,461,037 | - | 1,461,037 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Selling, general and administrative | 1,074,641 | 568,341 | - | 1,642,982 | ||||||||||||||
| Wages and benefits | 72,000 | 961,655 | - | 1,033,655 | ||||||||||||||
| Amortization | - | - | 1,901,949 | (b) | 1,901,949 | |||||||||||||
| Total operating expenses | 1,146,641 | 1,529,996 | 1,901,949 | 4,578,586 | ||||||||||||||
| Income (loss) from operations | (1,146,641 | ) | (68,959 | ) | (1,901,949 | ) | (3,117,549 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||||
| Interest expense, net | - | (1,177 | ) | - | (1,177 | ) | ||||||||||||
| Interest income | - | 89 | - | 89 | ||||||||||||||
| Other expense | - | (36,287 | ) | - | (36,287 | ) | ||||||||||||
| Total other income (expense), net | - | (37,375 | ) | - | (37,375 | ) | ||||||||||||
| Income (loss) before income taxes | (1,146,641 | ) | (106,334 | ) | (1,901,949 | ) | (3,154,924 | ) | ||||||||||
| Provision for income taxes | - | (9,929 | ) | - | (9,929 | ) | ||||||||||||
| Net income (loss) | $ | (1,146,641 | ) | $ | (116,263 | ) | $ | (1,901,949 | ) | $ | (3,164,853 | ) | ||||||
| Other comprehensive income/(loss): | ||||||||||||||||||
| Foreign currency translation Income | - | 373,934 | - | 373,934 | ||||||||||||||
| Total comprehensive income (loss) | $ | (1,146,641 | ) | $ | 257,671 | $ | (1,901,949 | ) | $ | (2,790,919 | ) | |||||||
| Net income (loss) before non-controlling interest | $ | (1,146,641 | ) | $ | 257,671 | $ | (1,901,949 | ) | (2,790,919 | ) | ||||||||
| Loss attributable to non-controlling interest | - | - | - | - | ||||||||||||||
| Net loss attributable to Spectral Capital Corporation | (1,146,641 | ) | 257,671 | (1,901,949 | ) | (2,790,919 | ) | |||||||||||
| Basic and diluted loss per common share | $ | (0.02 | ) | $ | - | $ | (0.04 | ) | ||||||||||
| Weighted average shares - basic and diluted | 67,708,302 | - | 75,708,302 | |||||||||||||||
F-97
Spectral Capital Corporation
Unaudited Pro Forma Combined Statements of Operations
Period Ended December 31, 2024
| Pro Forma | Combined | |||||||||||||||||
| Spectral | 42 Telecom | Adjustments | Notes | Pro Forma | ||||||||||||||
| Revenue | $ | - | $ | 16,649,347 | $ | - | $ | 16,649,347 | ||||||||||
| Revenue, related party | - | 9,452,117 | 9,452,117 | |||||||||||||||
| Total revenues | - | 26,101,464 | 26,101,464 | |||||||||||||||
| Cost of revenue | - | 22,808,436 | - | 22,808,436 | ||||||||||||||
| Gross profit | 3,293,028 | - | 3,293,028 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Selling, general and administrative | 2,115,924 | 858,161 | - | 2,974,085 | ||||||||||||||
| Wages and benefits | 144,000 | 1,655,473 | - | 1,799,473 | ||||||||||||||
| Research and development | 745,024 | - | - | 745,024 | ||||||||||||||
| Amortization | - | - | 3,803,898 | (b) | 3,803,898 | |||||||||||||
| Total operating expenses | 3,004,948 | 2,513,634 | 3,803,898 | 9,322,480 | ||||||||||||||
| Income (loss) from operations | (3,004,948 | ) | 779,394 | (3,803,898 | ) | (6,029,451 | ) | |||||||||||
| Other income (expense): | ||||||||||||||||||
| Extinguishment of debt | (265,596 | ) | - | - | (265,596 | ) | ||||||||||||
| Interest expense, net | - | 272 | - | 272 | ||||||||||||||
| Other income | - | 6,846 | - | 6,846 | ||||||||||||||
| Total other income (expense), net | (265,596 | ) | 7,118 | - | (258,478 | ) | ||||||||||||
| Income (loss) before income taxes | (3,270,544 | ) | 786,512 | (3,803,898 | ) | (6,287,930 | ) | |||||||||||
| Provision for income taxes | - | (262,082 | ) | - | (262,082 | ) | ||||||||||||
| Net income (loss) | $ | (3,270,544 | ) | $ | 524,430 | $ | (3,803,898 | ) | $ | (6,550,012 | ) | |||||||
| Other comprehensive loss: | - | |||||||||||||||||
| Foreign currency translation loss | - | (83,893 | ) | - | (83,893 | ) | ||||||||||||
| Total comprehensive income (loss) | $ | (3,270,544 | ) | $ | 440,537 | $ | (3,803,898 | ) | $ | (6,633,905 | ) | |||||||
| Net income (loss) before non-controlling interest | $ | (3,270,544 | ) | $ | 440,537 | $ | (3,803,898 | ) | (6,633,905 | ) | ||||||||
| Loss attributable to non-controlling interest | - | - | - | $ | - | |||||||||||||
| Net loss attributable to Spectral Capital Corporation | (3,270,544 | ) | 440,537 | (3,803,898 | ) | (6,633,905 | ) | |||||||||||
| Basic and diluted loss per common share | $ | (0.06 | ) | $ | - | $ | (0.10 | ) | ||||||||||
| Weighted average shares - basic and diluted | 57,925,034 | - | 65,925,034 | |||||||||||||||
F-98
Spectral Capital Corporation
Notes to Unaudited Pro Forma Financial Statements
1. Description of Transactions
On August 1, 2025, Spectral Capital Corporation (the “Company” or “Spectral”) completed the acquisition of 42 Telecom Ltd. (“42 Telecom”) pursuant to a Definitive Share Exchange Agreement dated July 15, 2025 (the “Exchange Agreement”) by and among Spectral, Heritage Ventures Ltd. (“Heritage”), and 42 Telecom. Under the terms of the Exchange Agreement, Heritage transferred 1,300 ordinary shares of 42 Telecom, representing 100% of its issued and outstanding share capital, to Spectral in exchange for the issuance of 8,000,000 shares of Spectral’s common stock (the “Spectral Shares”) at closing. In addition, pursuant to the Bonus Shares and Valuation Guarantee provisions of the Exchange Agreement and the related Addendum Agreement dated July 31, 2025, Spectral issued an additional 8,000,000 shares of its common stock (the “Spectral Escrow Shares”), which were deposited into escrow under a Spectral Shares Escrow Agreement among Spectral, Heritage, and the escrow agent.
The Spectral Escrow Shares are subject to performance-based earn-out conditions. Under the Bonus Share Allocation provision, Escrow Shares will be released to Heritage upon confirmation that 42 Telecom has achieved consolidated net profit above US $1,000,000 for fiscal year 2025, with 1,000,000 Spectral shares released for each US $1,000,000 in profit above that threshold and pro rata releases for fractional amounts. Under the Valuation Guarantee provision, at the end of the lock-up period—defined as the earlier of nine months following completion of the PCAOB audit of 42 Telecom or August 31, 2026— Escrow Shares may be released as necessary to ensure that the aggregate market value of all Spectral shares issued in the transaction equals US $30,000,000, calculated based on the 30-day volume-weighted average price of Spectral’s common stock. If 42 Telecom fails to achieve the agreed performance targets for fiscal years 2025 and 2026, Spectral may instruct the escrow agent to cancel or return for cancellation such number of Escrow Shares as provided under the Exchange Agreement.
Following completion of the transaction, 42 Telecom became a wholly owned subsidiary of Spectral. In connection with the acquisition, the parties entered into a Lock-Up and Trickle-Out Agreement dated July 25, 2025, restricting Heritage and its affiliates from selling or transferring the Spectral Shares during a lock-up period ending on the earlier of nine months after completion of the PCAOB audit of 42 Telecom or a specified termination date. After expiration of the lock-up period, Heritage may sell or transfer up to 10% of the Spectral Shares per month during a trickle-out release period unless otherwise approved by Spectral. The Addendum Agreement further grants Heritage a call option to reacquire all outstanding shares of 42 Telecom in exchange for returning the Spectral Shares and related consideration if Heritage does not realize a minimum aggregate value of US $30 million within the agreed time frame, and Spectral retains a corresponding put option under the same terms.
The transaction was consummated following satisfaction of customary closing conditions, including approval by the boards of directors and shareholders of each of the parties. The Company believes that the acquisition of 42 Telecom will enhance its technology portfolio and expand its commercial footprint through integration of 42 Telecom’s high-volume messaging platform and global communications infrastructure.
2. Basis of Presentation
The historical financial information has been adjusted to give pro forma effect to events that are directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined balance sheets and unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results.
The transaction was accounted for as a business acquisition whereas 42 Telecom is the accounting acquiree and Spectral is the accounting acquirer.
F-99
3. Consideration Transferred
| Common stock | $ | 18,400,000 | ||
| Contingent consideration | 3,450,000 | |||
| Preliminary purchase price consideration | $ | 21,850,000 |
Contingent consideration represents the fair value of potential shares to be issued to the sellers (“Escrow Shares”) based on the achievement of defined post-closing performance targets. The estimated amount of $3,450,000 was determined using a probability-weighted scenario analysis, which incorporates a 19% probability-weighted outcome as applicable. This amount is reflected as a liability in the unaudited combined pro forma balance sheet in accordance with ASC 805, Business Combinations. Changes in the estimated fair value of the contingent consideration, if any, will be recognized in earnings in subsequent periods as required under ASC 805-30-35.
4. Preliminary Purchase Price Allocation
Based on the preliminary purchase price allocation (“PPA)”, the Company allocated the excess of the total purchase consideration over the fair value of net tangible assets acquired primarily to identifiable intangible assets and goodwill. Approximately 75% of the excess purchase price was allocated to intangible assets, primarily consisting of developed technology and customer relationships, and the remaining 25% was allocated to goodwill.
This allocation reflects management’s preliminary assessment and assumptions that the majority of the value will be derived from 42 Telecom’s developed technology and established customer relationships.
As the PPA is preliminary, the fair values of the identifiable intangible assets are subject to final valuation procedures. Upon completion of the independent valuation analysis as part of the audit and PPA review, the final allocation of purchase consideration may differ from these preliminary estimates.
The following table shows the preliminary allocation of the purchase price for 42 Telecom to the acquired net identifiable assets and pro forma goodwill:
| Assets acquired | $ | 4,392,055 | ||
| Intangible assets - customer relationships and developed technology | 15,215,591 | |||
| Goodwill | 5,071,863 | |||
| Liabilities assumed | (2,829,509 | ) | ||
| Purchase price consideration | $ | 21,850,000 |
| a) | To record the preliminary purchase price allocation of the 42 Telecom pro forma acquisition, including the recognition of intangible assets and goodwill, purchase price consideration by Spectral, and elimination of 42 Telecom’s equity. The preliminary identifiable intangible assets acquired include customer relations and developed technology. |
| b) | To record the amortization on intangible assets recognized as a result of the 42 Telecom acquisition using a preliminary estimated useful life of 4 years. |
F-100
Unaudited Carved Out Combined Financial Statements of Telvantis Voice Services, Inc. as of September 30, 2025 and for the Nine Months Ended September 30, 2025 and 2024
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED BALANCE SHEETS
(In whole dollars)
| September 30, 2025 (Unaudited) | December 31, 2024 (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 718,998 | $ | 47,890 | ||||
| Accounts receivable, net | 51,617,560 | 30,934,266 | ||||||
| Accounts receivable from related parties | 50,955,227 | - | ||||||
| Other current assets | 929,168 | 3,810 | ||||||
| Total current assets | 104,220,953 | 30,985,966 | ||||||
| Non-current assets: | ||||||||
| Deferred tax asset | 41,607 | 41,607 | ||||||
| Intangible assets, net | 8,670,975 | 9,517,800 | ||||||
| Goodwill | 1,610,261 | 1,610,261 | ||||||
| Loans receivable, non-current | 469,721 | - | ||||||
| Total assets | $ | 115,013,517 | $ | 42,155,634 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | 53,342,121 | 30,669,928 | ||||||
| Accounts payable — related parties | 42,727,070 | - | ||||||
| Income taxes payable | 651,282 | 534,081 | ||||||
| Loan payable | 9,412,142 | 900,000 | ||||||
| Other current liabilities | 284,076 | 1,153 | ||||||
| Total current liabilities | 106,416,691 | 32,105,162 | ||||||
| Non-current liabilities: | ||||||||
| Due to related parties | 7,358,590 | 5,978,704 | ||||||
| Total liabilities | 113,775,281 | 38,083,866 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $1 par value; 100 shares authorized, issued and outstanding | 100 | 100 | ||||||
| Retained earnings | 1,238,136 | 4,071,668 | ||||||
| Total stockholders’ equity | 1,238,236 | 4,071,768 | ||||||
| Total liabilities and stockholders’ equity | $ | 115,013,517 | $ | 42,155,634 | ||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-101
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED STATEMENTS OF OPERATIONS
(In whole dollars)
| Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Revenues | $ | 102,293,642 | $ | 20,070,248 | ||||
| Revenues from related parties | 47,383,672 | 279,918 | ||||||
| Total revenues | 149,677,314 | 20,350,166 | ||||||
| Operating expenses: | ||||||||
| Costs of revenues | 105,295,797 | 18,657,046 | ||||||
| Costs of revenues from related parties | 44,119,278 | 287,065 | ||||||
| Total cost of revenues | 149,415,075 | 18,944,111 | ||||||
| General and administrative | 665,180 | 471,556 | ||||||
| Sales and marketing | 414,890 | 292,351 | ||||||
| Amortization expense | 846,825 | 846,825 | ||||||
| Total operating expenses | 151,341,970 | 20,554,843 | ||||||
| Loss from operations | (1,664,656 | ) | (204,677 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (744,353 | ) | - | |||||
| Other income (expense), net | (372,953 | ) | (83,869 | ) | ||||
| Total other expense, net | (1,117,306 | ) | (83,869 | ) | ||||
| Loss before income taxes | (2,781,962 | ) | (288,546 | ) | ||||
| Income tax expense | - | 178 | ||||||
| Net loss | $ | (2,781,962 | ) | $ | (288,724 | ) | ||
See accompanying notes to the Carved Out Combined Financial Statements.
F-102
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited, in whole dollars)
| Units | Common Stock Amount | Retained Earnings | Total Equity | |||||||||||||
| Balance at December 31, 2023 | 100 | $ | 100 | $ | 708,164 | $ | 708,264 | |||||||||
| Net loss | - | (288,724 | ) | (288,724 | ) | |||||||||||
| Balance at September 30, 2024 (Unaudited) | 100 | $ | 100 | $ | 419,440 | $ | 419,540 | |||||||||
| Balance at December 31, 2024 | 100 | $ | 100 | $ | 4,071,668 | $ | 4,071,768 | |||||||||
| Net loss | - | (2,781,962 | ) | (2,781,962 | ) | |||||||||||
| Balance at September 30, 2025 (Unaudited) | 100 | $ | 100 | $ | 1,289,706 | $ | 1,289,806 | |||||||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-103
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED STATEMENTS OF CASH FLOWS
(In whole dollars)
| Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,781,962 | ) | $ | (288,724 | ) | ||
| Adjustments to reconcile net loss to net cash: | ||||||||
| Amortization of intangible assets | 846,825 | 846,825 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (20,641,297 | ) | (1,217,897 | ) | ||||
| Accounts receivable from related parties | (8,228,157 | ) | - | |||||
| Other current assets | (8,547,929 | ) | (2,161 | ) | ||||
| Accounts payable and accrued expenses | 22,672,193 | (59,745 | ) | |||||
| Accounts payable — related parties | 42,727,070 | - | ||||||
| Income taxes payable | 117,201 | 42 | ||||||
| Other current liabilities | 282,923 | 1,039 | ||||||
| Net cash used in operating activities | (7,371,133 | ) | (1,441,621 | ) | ||||
| Cash flows from investing activities: | - | |||||||
| Loan receivables | (789,721 | ) | - | |||||
| Net cash used in investing activities | (789,721 | ) | - | |||||
| Cash flows from financing activities: | - | - | ||||||
| Net proceeds from factoring facility | 8,315,480 | - | ||||||
| Net proceeds from related party loans | 496,565 | 1,041,808 | ||||||
| Net cash provided by financing activities | 8,812,045 | 1,041,808 | ||||||
| Effect of exchange rate changes on cash | 16,917 | 381,215 | ||||||
| Net increase (decrease) in cash | 671,108 | (18,598 | ) | |||||
| Cash and cash equivalents — beginning of period | 47,890 | 24,303 | ||||||
| Cash and cash equivalents — end of period | $ | 718,998 | $ | 5,705 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 744,353 | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-104
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2024 AND 2023
TABLE OF CONTENTS
|
INDEPENDENT AUDITOR’S REPORT |
F-106 |
| CARVED OUT COMBINED BALANCE SHEETS | F-107 |
| CARVED OUT COMBINED STATEMENTS OF OPERATIONS AND INCOME | F-108 |
| CARVED OUT COMBINED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY | F-109 |
| CARVED OUT COMBINED STATEMENTS OF CASH FLOWS | F-110 |
| NOTES TO THE CARVED OUT COMBINED FINANCIAL STATEMENTS | F-111 |
F-105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Telvantis Voice Services Inc.
Opinion on the Carved Out Combined Financial Statements
We have audited the accompanying carved out combined balance sheets of Telvantis Voice Services Inc. (the “Company”) as of December 31, 2024 and 2023, and the related carved out combined statements of operations and income, changes in shareholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2024 and the related notes (collectively referred to as the “carved out combined financial statements”). In our opinion, the carved out combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These carved out combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the carved out combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the carved out combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the carved out combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ HTL International, LLC
We have served as the Company’s auditor since 2025.
Houston, TX
December 31, 2025
F-106
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED BALANCE SHEETS
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 47,890 | $ | 24,303 | ||||
| Accounts receivable, net | 30,976,263 | 30,895,059 | ||||||
| Other current assets | 3,420 | 8,668 | ||||||
| Total Current Assets | 31,027,573 | 30,928,030 | ||||||
| Non-current assets: | ||||||||
| Deferred tax asset | - | - | ||||||
| Intangible assets, net | 9,517,800 | 10,646,900 | ||||||
| Goodwill | 1,610,261 | 1,610,261 | ||||||
| Total Assets | 42,155,634 | 43,185,191 | ||||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | 30,669,928 | 36,117,779 | ||||||
| Income taxes payable | 534,081 | 528,341 | ||||||
| Loan payable | 900,000 | - | ||||||
| Other current liabilities | 1,153 | 155,767 | ||||||
| Total Current Liabilities | 32,105,162 | 36,801,887 | ||||||
| Non-current liabilities: | ||||||||
| Due to related parties | 5,978,704 | 5,675,040 | ||||||
| Total Liabilities | 38,083,866 | 42,476,927 | ||||||
| Commitments and contingencies (Note 11) | ||||||||
| Equity: | ||||||||
| Common stock | 100 | 100 | ||||||
| Retained earnings | 4,071,668 | 708,164 | ||||||
| Total Equity | 4,071,768 | 708,264 | ||||||
| Total Liabilities and Equity | 42,155,634 | 43,185,191 | ||||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-107
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED STATEMENTS OF OPERATIONS AND INCOME
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Revenues | $ | 22,172,495 | $ | 201,103,887 | ||||
| Revenues from Related Parties | 309,238 | 14,249,038 | ||||||
| Total Revenues | 22,481,733 | 215,352,925 | ||||||
| Operating Expenses: | ||||||||
| Costs of revenues | 22,053,041 | 204,568,894 | ||||||
| Costs of revenues from Related Parties | 317,134 | 3,169,183 | ||||||
| Total cost of revenues | 22,370,175 | 207,738,077 | ||||||
| General and administrative | 715,704 | 1,086,992 | ||||||
| Sales and marketing | 374,683 | 1,581,697 | ||||||
| Amortization expense | 1,129,100 | 1,129,100 | ||||||
| Total Operating Expenses | 24,589,662 | 211,535,866 | ||||||
| Income (Loss) from Operations | (2,107,929 | ) | 3,817,059 | |||||
| Interest expense | (38,020 | ) | (1,928,631 | ) | ||||
| Other income (expense) | 5,515,193 | (492,804 | ) | |||||
| Income (Loss) before income taxes | 3,369,244 | 1,395,624 | ||||||
| Income tax expense | 5,740 | 528,341 | ||||||
| Net Income (Loss) | 3,363,504 | 867,283 | ||||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-108
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | Retained | |||||||||||||||
| Units | Amount | Earnings | Total Equity | |||||||||||||
| Balance at December 31, 2022 | 100 | $ | 100 | $ | (159,119 | ) | $ | (159,019 | ) | |||||||
| Net income | 867,283 | 867,283 | ||||||||||||||
| Balance at December 31, 2023 | 100 | 100 | 708,164 | 708,264 | ||||||||||||
| Net income | 3,363,504 | 3,363,504 | ||||||||||||||
| Balance at December 31, 2024 | 100 | 100 | 4,071,768 | 4,071,768 | ||||||||||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-109
TELVANTIS VOICE SERVICES, INC.
CARVED OUT COMBINED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income | $ | 3,363,504 | $ | 867,283 | ||||
| Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
| Amortization | 1,129,100 | 1,129,100 | ||||||
| Allowance for credit losses | 263,693 | 492,804 | ||||||
| Write-off accounts receivable | 268,582 | 87,241 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Changes in accounts receivable | (613,480 | ) | 30,005,882 | |||||
| Changes in other current assets | 5,248 | 1,896,869 | ||||||
| Changes in accounts payable and accrued expenses | (5,447,851 | ) | (38,923,834 | ) | ||||
| Changes in other current liabilities | (154,614 | ) | 122,433 | |||||
| Changes in income taxes payable | 5,740 | 528,341 | ||||||
| Changes in related party balances | 303,665 | 82,652 | ||||||
| Net Cash (used in) provided by Operating Activities | (876,413 | ) | (3,711,229 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash from acquisition of subsidiaries, net of cash paid | - | 1,171,875 | ||||||
| Collection of loan receivable | - | 2,538,390 | ||||||
| Net Cash used in Investing Activities | - | 3,710,265 | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from borrowings | 900,000 | - | ||||||
| Net Cash provided by Financing Activities | 900,000 | - | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 23,587 | (964 | ) | |||||
| Cash and Cash Equivalents, Beginning of Period | 24,303 | 25,267 | ||||||
| Cash and Cash Equivalents, End of Year | $ | 47,890 | $ | 24,303 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | - | $ | 1,925,620 | |||||
| Cash paid for taxes | $ | 27,282 | - | |||||
| Net liabilities acquired in acquisition | - | $ | 2,782,136 | |||||
See accompanying notes to the Carved Out Combined Financial Statements.
F-110
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Telvantis Voice Services Inc. (“Telvantis Voice Services” or the “Company”) is a corporation organized in 2020 in the state of Florida. The Company formerly did business as Mexedia Inc. Telvantis Voice Services’ organizational structure consists of the following 100% owned subsidiaries: Mexedia DAC (an Ireland corporation outside of the scope of this financial statement), Phonetime, Inc. (“Phonetime”), and Matchcom Telecommunications, Inc. (“Matchcom”), together the “US Subsidiaries”. On January 1, 2023, Telvantis Voice Services acquired all the shares of Phonetime and Matchcom. Telvantis Voice Services provides technology products and services to the telecommunication industry. Telvantis Voice Services specializes in voice traffic solutions, supporting businesses with reliable and efficient telecommunications services. The Company leverages advanced technologies to deliver seamless voice connectivity tailored to client needs.
The Telvantis Voice Services carve-out combined financial statements reflect the historical revenues, expenses, assets and liabilities directly attributable to the Telvantis Voice Services business and its subsidiaries. No parent-company corporate overhead or shared-service expenses were allocated to the carve-out combined financial statements.
As background, Telvantis Voice Services historically operated as a stand-alone operating business before Telvantis Inc. became its parent company in late 2024. Telvantis Inc. was inserted above Telvantis Voice Services in the corporate structure through a reverse-takeover transaction involving an OTC reporting company. As a result, Telvantis Inc. did not historically develop, maintain or operate centralized corporate functions, personnel, systems, processes or shared-service infrastructure that were available to, or used by, Telvantis Voice Services in the conduct of its business.
Management reviewed the historical relationship between Telvantis Inc. and Telvantis Voice Services, including management oversight, finance, accounting, information technology, legal, human resources, treasury, corporate administration and other corporate support functions. Based on this review, management determined that Telvantis Inc. did not provide shared services or incur parent-company corporate overhead or other expenses for the benefit of Telvantis Voice Services during the periods presented that were required to be allocated to the carve-out combined financial statements.
Accordingly, the carve-out combined financial statements include the historical costs of the Telvantis Voice Services business as recorded in its books and records during the periods presented. The historical carve-out results may not be indicative of the financial position, results of operations or cash flows of Telvantis Voice Services in the future or of what they would have been had Telvantis Voice Services operated as a standalone public company during the periods presented.
The Company has historically operated as a 100% subsidiary of Telvantis Inc. (“Parent”) and not as a standalone company. The accompanying carved out combined financial statements represent the historical voice services operations of the Company and its US Subsidiaries (but excluding its Irish voice services subsidiary Mexedia DAC) and have been derived from Parent’s historical accounting records. The carve-out financial statements are prepared in accordance with US GAAP. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company and its US Subsidiaries are included in the financial statements. All significant transactions between the Company and Parent as well as between Company and its Irish subsidiary have been included in the accompanying carved out combined financial statements. All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying carved out combined financial statements.
Principles of Consolidation
The accompanying carved out combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates include but are not limited to revenue recognition and intangible asset amortization periods.
F-111
Management believes that the estimates, and judgments upon which it relies, are reasonable based upon information available to the Company at the time that these estimates and judgments were made. Actual results experienced by the Company may differ from management’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial statements will be affected.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of December 31, 2024, the Company has retained earnings of $4.1 million but negative working capital of $1.1 million. In addition, during the year ended December 31, 2024 the Company generated negative cash flows from operating activities of $0.9 million primarily due to a decrease of accounts payable of $5.4 million. The Company believes that based on its current operating plan, its current financial resources will enable it to fund its operating expenses and capital expenditure requirements for at least 12 months following the issuance date of the financial statements. The Company’s revenues in fiscal year 2024 declined sharply due to a sudden and unexpected halt of its third-party working capital financing in early 2024. This led to an effective halt in sales activity while the Company’s Management worked on resolving the matter. The Company successfully restructured the existing funding instrument and obtained additional working capital financing towards the end of 2024. The Company also substantially reduced its overhead throughout the year and now operates on a much leaner spending base. The Company’s revenues have since then recovered sharply and continue to recover together with profitability. As a result, Management believes the Company will be able to meet its operational cash flow needs. Additionally, the Company is working to possibly increase its cash and capital position through the offering of equity.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments enhance disclosures related to reportable segments, including additional information about significant segment expenses regularly provided to the chief operating decision maker.
The Company operates and manages its business as one reportable and operating segment, which is the business of providing technology products and services to the telecommunication industry. The Company’s chief executive officer, who is the chief operating decision maker, or CODM, reviews financial information on an aggregate basis for allocating resources and evaluating financial performance.
The CODM also reviews certain financial results included in the segment income (loss) from operations which is reported on the consolidated statements of operations as net income (loss). The measure of segment assets is reported on the balance sheets as total assets. The Company does not distinguish further between markets or other segments for the purpose of internal reporting. Refer to the Company’s primary financial statements for the segment information.
Foreign Currency
The Company’s functional currency is the US Dollar. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value. Bank overdrafts are shown within other current liabilities.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount less an allowance for credit losses that are not expected to be recovered. The Company records an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to consider current market conditions and the Company’s customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts monthly. Uncollectable balances are written off after all collection efforts have ceased. The Company adopted Accounting Standards Codification Topic 326, Financial Instruments—Credit Losses (“CECL”), which requires the recognition of expected credit losses over the contractual life of accounts receivable. The allowance for credit losses represents management’s estimate of expected losses based on historical experience, current conditions, and reasonable and supportable forecasts.
F-112
Intangible fixed assets other than goodwill
Intangible fixed assets acquired separately from a business are recognized at cost and are subsequently measured at cost less accumulated amortization and accumulated impairment losses.
Intangible assets acquired on business combinations are recognized separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.
Amortization is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
|
Customer relationships |
Over 10 years |
| Trade names | Over 15 years |
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairment charges related to long-lived assets recognized during the years ended December 31, 2024 and 2023.
Goodwill
Goodwill represents the excess of consideration transferred over the estimated fair value of net assets acquired in business combinations accounted for by the acquisition method. Goodwill and certain intangible assets are presumed to have indefinite useful lives and are thus not amortized, but subject to an impairment test annually or more frequently if indicators of impairment arise. The Company completes the annual goodwill and indefinite-lived intangible asset impairment tests at the end of each fiscal year. To test for goodwill impairment, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit, of which the Company has two, is less than its carrying value. If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach. The fair value of a reporting unit is compared with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.
F-113
Accounts Payable
These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are invoiced and unpaid. Trade payables are presented as current liabilities unless payment is not due within 12 months after the reporting period, in which case, they will be presented as non-current liability.
Loans Payable
Loans payable are initially recognized at their fair value, which typically equals the loan proceeds, net of direct issuance cost. Subsequently the loans are measured at their amortized cost calculated using the effective interest method.
Offsetting
Offsetting is a debtor’s right, by contract or otherwise, to settle and otherwise eliminate all or a portion of an amount due to a creditor by applying against that amount, an amount due from the creditor. Two conditions must exist for an entity to offset a financial liability, the entity must have both the intent and legally enforceable right to offset.
Fair Value of Financial Instruments
The fair value of a financial instrument is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Assets and liabilities subject to ongoing fair value measurement are categorized and disclosed into one of the three categories depending on observable or unobservable inputs employed in the measurement. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows:
Level 1: Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3: Unobservable inputs that are supported by little or no market activity that are significant to the fair value of the assets or liabilities and that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The carrying amount of cash equivalents approximates fair value because they are highly liquid and their maturity is less than three months. The Company has no other financial instruments measured at fair value on a recurring basis.
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Equity
Common stock issued by the Company are recorded at the proceeds received. Dividends payable on equity are recognized as liabilities once they are no longer at the discretion of the Company.
Revenues
The Company derives its revenues primarily from sale of voice and text termination services and operates as the intermediary operator between telephone users using VoIP technology (Voice over Internet Protocol). Revenues are generated through the duration of telephone traffic between telephone carrier customers calculated on a minute-by-minute basis.
Revenues are recognized when it satisfies performance obligations under the terms of its contracts, by transferring control of the delivered service to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. This process involves identifying the customer contract, determining the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.
For transactions that include third-party providers, we evaluate whether we are the principal or as the agent with respect to the services provided to the customer. We evaluate whether the facts and circumstances of the arrangement indicate that the services were controlled by us prior to transferring them to the customer, by considering various factors including whether we are primarily responsible for fulfillment, bear risk of loss and have discretion over pricing.
Revenues from voice minutes and text segments provided to customers is recognized over time based on the number of minutes or segments, respectively, provided during the reporting period, when the Company has the right to invoice the customer, in the amount to which it has a right to invoice.
Costs of Revenues
Costs of subscriptions revenue primarily consists of costs of network capacity purchased from third-party telecommunications providers, network operations, costs to build out and maintain data centers, including co-location fees for the right to place the Company’s servers in data centers owned by third parties, depreciation of the servers and equipment, along with related utilities and maintenance costs, amortization of acquired technology related intangible assets, personnel costs associated with customer care and support of the functionality of the Company’s platform and data center operations and allocated costs of facilities and information technology. Costs of subscriptions revenue is expensed as incurred.
Business Combinations
The Company accounts for business combinations using the acquisition method. The Company recognizes the acquired identifiable assets and liabilities at their acquisition-date fair values. The excess of the fair value of consideration transferred over the fair values of. these identifiable assets and liabilities is recorded as goodwill. As required, preliminary fair values are determined upon acquisition, with the final determination of the fair values being completed within the measurement period, which shall not exceed one year from the date of acquisition. The valuation of acquired assets and assumed liabilities requires significant judgment and estimates, especially with respect to intangible assets. The valuation of intangible assets requires that the Company use valuation techniques such as the income approach. The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue, expenses, capital expenditures and other costs, and discount rates. The Company estimates the fair value based upon assumptions that management believes to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Acquisition-related costs are recognized separately from the business combination and are expensed as incurred.
F-115
Income Taxes
The tax expense represents the sum of the tax currently payable and deferred tax.
Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred Tax
Deferred tax liabilities are generally recognized for all timing differences and deferred tax assets are recognized to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognized if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities, and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
Uncertain Tax Positions
The Company’s accounting for uncertain tax positions includes the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements, under which a company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Accordingly, as needed, the Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.
F-116
Recently Issued Accounting Pronouncements, Not Adopted by the Company
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In November 2024, the FASB issued ASU No. 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03)”. The new guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis. This guidance will be effective for annual periods beginning the year ended December 31, 2027 and for interim periods thereafter. The new standard permits early adoption and can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
Note 3. Accounts receivable
Accounts receivable consisted of the following:
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Accounts receivable | $ | 31,732,760 | $ | 31,387,863 | ||||
| Allowance for credit losses | (756,497 | ) | (492,804 | ) | ||||
| Accounts receivable, net | 30,976,263 | 30,895,059 | ||||||
Allowance for credit losses for the years ended December 31, 2024 and 2023 was $263,693 and $492,804 respectively. Accounts receivable write-off expense for the years ended December 31, 2024 and 2023 was $268,582 and $87,241 respectively. Management performed an assessment on the likelihood of collection for each overdue receivable, following the Company’s policy. The Company believes this to be a conservative and responsible approach considering the Company’s financial results in fiscal year 2024.
Note 4. Intangible assets
Intangible assets consisted of the following:
| For the Years Ended December 31, | ||||||||||
| 2024 | 2023 | Remaining Life | ||||||||
| Customer relationships | 10,321,000 | 10,321,000 | 8 | |||||||
| Trade names | 1,455,000 | 1,455,000 | 13 | |||||||
| Total intangible assets | 11,776,000 | 11,776,000 | ||||||||
| Less accumulated amortization | (2,258,200 | ) | (1,129,100 | ) | ||||||
| Total intangible assets, net | 9,517,800 | 10,646,900 | ||||||||
Amortization expense for the years ended December 31, 2024 and 2023 was $1.1 million and $1.1 million, respectively. For the succeeding 5 years, amortization expense relating to intangible assets are $1.1 million in 2025, $1.1 million in 2026, $1.1 million in 2027, $1.1 million in 2028, and $1.1 million in 2029.
F-117
Note 5. Goodwill
Goodwill consisted of the following:
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | 1,610,261 | $ | - | ||||
| Additions due to business combinations | - | 1,610,261 | ||||||
| Balance, end of period | 1,610,261 | 1,610,261 | ||||||
There was no impairment recognized against goodwill at the beginning or end of the periods presented.
Note 6. Revenues
Revenues consisted of the following:
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Voice | $ | 20,480,255 | $ | 213,524,709 | ||||
| SMS | 2,001,478 | 1,828,216 | ||||||
| Total revenues | 22,481,733 | 215,352,925 | ||||||
Note 7. Loans Payable
In December 2024, the Company entered into a facility agreement with Fasanara Securitisation S.A. (“Fasanara” or the “Purchaser”). Fasanara loaned $900,000 in December 2024 at a stated annual interest rate of 13%. Principal and accrued interest are due on February 21, 2025. As of December 31, 2024, the Company has not accrued interest related to this loan.
Note 8. Business Combinations
Acquisition of Phonetime and Matchcom
In January 2023, Mexedia Inc acquired all of the outstanding shares of Phonetime, Inc. and Matchcom Telecommunications, Inc. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The initial aggregate purchase consideration on the date of acquisition was $3,000,000. Subsequent to the acquisition date, but during the measurement period, management became aware that certain account receivables that were contingent on the final payment of $2,500,000 were not collected. As a result, management believes Mexedia Inc is not entitled to make that payment based on the terms of the contract. Additionally, management believes the second payment of $250,000, due twelve months after closing, is also not due since it was tied to the collection of the same receivables. Therefore, management has adjusted the consideration due and the related goodwill amount to account for foregoing these payments. As a result, the final purchase price after measurement period adjustments is $250,000.
F-118
Fair value of assets acquired and liabilities assumed are as follows:
| Customer relations | $ | 10,321,000 | ||
| Goodwill | 1,610,261 | |||
| Tradenames | 1,455,000 | |||
| Total intangible assets | 13,386,261 | |||
| Cash | 1,421,875 | |||
| Accounts Receivable | 61,480,985 | |||
| Prepaids expenses and other current assets | 1,902,492 | |||
| Accounts payable and accrued expenses | (75,041,613 | ) | ||
| Due to related parties | (2,900,000 | ) | ||
| Total net working capital | (13,136,261 | ) | ||
| Purchase price | 250,000 |
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired and primarily reflects the value of expected synergies arising from the acquisition, including opportunities to expand the Company’s service offerings, future economic benefits from the assembled workforce, and anticipated cost efficiencies and operational synergies. Goodwill also includes the value of intangible assets that do not qualify for separate recognition under U.S. GAAP. The goodwill recognized was recorded on the historical balance sheet of the acquired company and was carried forward as part of the acquisition accounting. None of the goodwill recognized is expected to be deductible for income tax purposes.
Note 9. Equity
As of December 31, 2024, the Company is authorized to issue 100 shares of $1 par value common stock entitled to one vote per share on each matter submitted to a vote of shareholders. As of December 31, 2024, the Company has 100 issued and outstanding shares.
Note 10. Income Taxes
The federal and state income tax provision is summarized as follows:
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Current | ||||||||
| Federal | $ | 5,740 | $ | 415,917 | ||||
| State | - | 112,424 | ||||||
| Total current | 5,740 | 528,341 | ||||||
| Deferred | ||||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Total deferred | - | - | ||||||
| Total | $ | 5,740 | $ | 528,341 | ||||
F-119
The reconciliation of taxes at the federal statutory rate to our income tax expense for the years ended December 31, 2024 and 2023 is as follows:
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net income before tax | $ | 3,369,244 | $ | 1,395,624 | ||||
| Income tax expense at statutory federal rate | $ | 713,270 | $ | 293,081 | ||||
| Reconciliation to income tax expense | ||||||||
| State tax | 186,809 | 76,759 | ||||||
| Related party interest | - | 27,280 | ||||||
| Non-deductible expenses | 70,023 | 131,221 | ||||||
| Change in valuation allowance | (964,362 | ) | - | |||||
| Income tax expense | $ | 5,740 | $ | 528,341 | ||||
The deferred tax assets consists of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Allowance for credit losses | 200,472 | 130,593 | ||||||
| Net operating losses | - | 1,803,103 | ||||||
| 200,472 | 1,933,696 | |||||||
| Valuation allowance | (200,472 | ) | (1,933,696 | ) | ||||
| Balance at end of period | - | - | ||||||
Note 11. Commitments and Contingencies
The Company is subject to various claims and legal proceedings that arise in the ordinary course of business activities. Although the outcome of any legal proceeding cannot be predicted with certainty, the ultimate liability of the Company, if any, will not have a material effect on the Company’s financial position or operations.
The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using reasonably available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Actual claims could settle or be adjudicated against the Company in the future for materially different amounts than the Company has accrued due to the inherently unpredictable nature of litigation. Legal fees are expensed in the period in which they are incurred.
For the years ended December 31, 2024 and 2023, the Company had no open legal matters.
F-120
Note 12. Related Party Transactions
All contracts with related parties are executed in the ordinary course of business. Telvantis Voice Services Inc., a wholly owned subsidiary of Telvantis Inc., is comprised of Mexedia DAC, Phonetime, and Matchcom. Telvantis Inc. is majority owned by Mexedia SpA. Related party transactions are summarized as follows:
Amounts owed:
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Televantis Inc. (formerly Raadr Inc.) | (883,331 | ) | - | |||||
| Mexedia DAC | 6,773,226 | 5,675,040 | ||||||
| Mexedia SpA | 88,809 | - | ||||||
| Total due to related parties | 5,978,704 | 5,675,040 | ||||||
These amounts are due in the normal course of business and carry no interest. The amounts are due in July 2026.
Related Party Sales
The Company recognized revenue from sales to related parties of $309,238 and $14,249,038 for the years ended December 31, 2024 and 2023, respectively. These transactions primarily relate to termination of international voice and messaging services.
Sales to related parties were conducted pursuant to written agreements or purchase orders that specify pricing, delivery, and payment terms. While such transactions are not presumed to be conducted on an arm’s-length basis, management believes the pricing and other substantive terms are generally consistent with those that would be negotiated with unaffiliated third parties for similar transactions, based on its evaluation of market conditions, volume, and other relevant factors.
Related Party Cost of Goods Sold
The Company recorded cost of goods sold from purchases with related parties of $317,134 and $3,169,183 for the years ended December 31, 2024 and 2023, respectively. These costs primarily relate to the purchase of termination services for international voice and messaging products.
Purchases from related parties were made pursuant to commercials agreements that define pricing mechanisms, service specifications, and payment terms. Although these transactions are not presumed to be conducted on an arm’s-length basis, management believes the pricing and terms are generally consistent with those available from unaffiliated suppliers for comparable products or services, taking into consideration factors such as quality, capacity, reliability, and volume.
Note 13. Customer and Supplier Concentrations
The Company’s operating results and cash flows are partially dependent on a limited number of customers and suppliers. A customer or supplier is considered significant if it represents 10% or more of the Company’s consolidated revenues or consolidated cost of revenues, respectively, for any period presented.
For the years ended December 31, 2023 and December 31, 2024, Customer A accounted for approximately 17.8% and 41.4% of consolidated revenues. For the same period, the same customer accounted for 16.6% and 46.4% of cost of revenues, respectively. For the year ended December 31, 2023 Customer B accounted for 26.3% of revenues. For the same period, the same customer accounted for 31.2% of cost of revenues respectively. For the year ended December 31, 2024 Customer C accounted for approximately 13.4% of revenues. For the same period, the same customer accounted for 14.7% of cost of revenues respectively. No other individual customer accounted for 10% or more of consolidated revenues or cost of revenues during either period.
Note 14. Subsequent Events
Sale of Telvantis Voice Services Inc.
On 26 September 2025, the Company’s parent entity Telvantis Inc. entered into a binding Term Sheet with Spectral Capital Corporation (“Spectral”) to sell Spectral 100% of the shares of Telvantis Voice Services Inc. and its US Subsidiaries. The details of this transaction have been disclosed publicly in different press releases. The transaction is expected to close on or around 31 December 2025. The company’s operational management, executives and strategic orientation are expected to remain unchanged.
F-121
42 Telecom Ltd.
Index
December 31, 2024 and 2023
Index to Consolidated Financial Statements
| Page(s) | |
| Consolidated Financial Statements | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID NO:587) | F-123 |
| Consolidated Balance Sheets as of December 31, 2024 and 2023 | F-124 |
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2024 and 2023 | F-125 |
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023. | F-126 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 | F-127 |
| Notes to the Consolidated Financial Statements | F-128 to F-141 |
F-122
Report of Independent Registered Public Accounting Firm
 |
New York Office: |
| 805 Third Avenue | |
| New York, NY 10022 | |
| 212.838-5100 | |
| www.rbsmllp.com |
To the Board of Directors and Stockholders of
42 Telecom Ltd. and subsidiaries,
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of 42 Telecom Ltd. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ RBSM LLP | |
We have served as the Company’s auditor since 2025. PCAOB ID 587 | |
| New York, NY | |
| October 15, 2025 | |
F-123
42 Telecom Ltd.
Consolidated Balance Sheets
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 292,736 | $ | 525,455 | ||||
| Restricted cash | 18,748 | 29,798 | ||||||
| Accounts receivable, net | 1,374,352 | 1,214,865 | ||||||
| Accounts receivable, related party | 983,286 | 476,468 | ||||||
| Contract assets | 636,959 | 2,289,605 | ||||||
| Prepaid expenses and other current assets | 402,695 | 218,956 | ||||||
| Total current assets | 3,708,776 | 4,755,147 | ||||||
| Property, plant and equipment, net | 117,646 | 148,305 | ||||||
| Intangible assets, net | 787,719 | 666,591 | ||||||
| Capital work-in-progress | 187,351 | 251,638 | ||||||
| Deferred tax asset | - | 150,034 | ||||||
| Right of use asset | 203,751 | 271,813 | ||||||
| Total assets | $ | 5,005,243 | $ | 6,243,528 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,997,174 | $ | 2,656,065 | ||||
| Accounts payable, related party | 588,255 | 38,014 | ||||||
| Accrued expenses and other current liabilities | 645,755 | 2,031,287 | ||||||
| Contract liabilities | 192,187 | 381,131 | ||||||
| Operating lease liability, current portion | 55,390 | 56,306 | ||||||
| Total current liabilities | 3,478,761 | 5,162,803 | ||||||
| Loan payable | 806 | 880 | ||||||
| Operating lease liability, net of current portion | 148,361 | 215,507 | ||||||
| Deferred tax liability | 72,440 | - | ||||||
| Total liabilities | 3,700,368 | 5,379,190 | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, 1,300 shares authorized, 1,300 issued and outstanding as of both December 31, 2024 and 2023 | 1,430 | 1,430 | ||||||
| Accumulated Income | 1,407,862 | 883,432 | ||||||
| Accumulated other comprehensive loss | (104,417 | ) | (20,524 | ) | ||||
| Total stockholders’ equity | 1,304,875 | 864,338 | ||||||
| Total liabilities and stockholders’ equity | $ | 5,005,243 | $ | 6,243,528 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-124
42 Telecom Ltd.
Consolidated Statements of Operations and
Comprehensive Income (Loss)
| Year
Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | 16,649,347 | $ | 16,922,848 | ||||
| Revenue, related party | 9,452,117 | 1,969,044 | ||||||
| Total revenues | 26,101,464 | 18,891,892 | ||||||
| Cost of revenue | 22,808,436 | 17,126,338 | ||||||
| Gross profit | 3,293,028 | 1,765,554 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 858,161 | 922,907 | ||||||
| Wages and benefits | 1,655,473 | 1,690,956 | ||||||
| Total operating expenses | 2,513,634 | 2,613,863 | ||||||
| Income (loss) from operations | 779,394 | (848,309 | ) | |||||
| Other income (expense): | ||||||||
| Interest expense, net | 272 | (37,201 | ) | |||||
| Other expense | - | (14,223 | ) | |||||
| Other income | 6,846 | - | ||||||
| Total other income (expense) | 7,118 | (51,424 | ) | |||||
| Income (loss) before income taxes | 786,512 | (899,733 | ) | |||||
| Income taxes | (262,082 | ) | 209,807 | |||||
| Net income (loss) | $ | 524,430 | $ | (689,926 | ) | |||
| Other comprehensive income/(loss): | ||||||||
| Foreign currency translation income/(loss) | (83,893 | ) | 46,884 | |||||
| Total comprehensive income/(loss) | $ | 440,537 | $ | (643,042 | ) | |||
| Basic and diluted net income (loss) per share | $ | 403 | $ | (531 | ) | |||
| Weighted average shares outstanding - basic and diluted | 1,300 | 1,300 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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42 Telecom Ltd.
Consolidated Statements of Stockholders’ Equity
| Accumulated Other | Total | |||||||||||||||||||
| Common Stock | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||
| Shares | Amount | Income | Loss | Equity | ||||||||||||||||
| Balances at December 31, 2022 | 1,300 | $ | 1,430 | $ | 1,573,358 | $ | (67,408 | ) | $ | 1,507,380 | ||||||||||
| Net income (loss) | - | - | (689,926 | ) | 46,884 | (643,042 | ) | |||||||||||||
| Balances at December 31, 2023 | 1,300 | 1,430 | 883,432 | (20,524 | ) | 864,338 | ||||||||||||||
| Net income (loss) | - | - | 524,430 | (83,893 | ) | 440,537 | ||||||||||||||
| Balances at December 31, 2024 | 1,300 | $ | 1,430 | $ | 1,407,862 | $ | (104,417 | ) | $ | 1,304,875 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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42 Telecom Ltd.
Consolidated Statements of Cash Flows
Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 524,430 | $ | (689,926 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | 57,021 | 50,721 | ||||||
| Amortization of capitalized software | 320,433 | 337,972 | ||||||
| Bad debt | 45,825 | 24,885 | ||||||
| Deferred tax adjustment | 222,473 | (215,870 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (183,171 | ) | 348,349 | |||||
| Accounts receivable, related party | (528,958 | ) | (476,468 | ) | ||||
| Contract assets | 1,652,645 | (133,453 | ) | |||||
| Prepaid expenses and other current assets | (183,739 | ) | (33,765 | ) | ||||
| Accounts payable | (658,892 | ) | 781,267 | |||||
| Accounts payable, related party | 550,241 | 18,015 | ||||||
| Accrued expenses and other current liabilities | (1,385,532 | ) | 289,240 | |||||
| Operating lease liabilities, net | (11,558 | ) | ||||||
| Deferred revenue | (188,944 | ) | 242,992 | |||||
| Net cash provided by operating activities | 243,832 | 532,401 | ||||||
| Cash flows from investing activities: | ||||||||
| Software development capitalization | (377,273 | ) | (461,362 | ) | ||||
| Purchase of property, plant and equipment | (26,361 | ) | (71,419 | ) | ||||
| Net cash used in investing activities | (403,634 | ) | (532,781 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Loan repayment | - | (1,321 | ) | |||||
| Due to related parties | - | (962,236 | ) | |||||
| Net cash used in financing activities | - | (963,557 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (83,967 | ) | 46,825 | |||||
| Net change in cash and cash equivalents | (243,769 | ) | (917,112 | ) | ||||
| Cash and cash equivalents and restricted cash at beginning of year | 555,253 | 1,472,365 | ||||||
| Cash and cash equivalents and restricted cash at end of year | $ | 311,484 | $ | 555,253 | ||||
| Reconciliation of cash and restricted cash: | ||||||||
| Cash at beginning of year | $ | 525,455 | $ | 1,443,543 | ||||
| Restricted cash at beginning of year | 29,798 | 28,822 | ||||||
| Cash and restricted cash at beginning of year | $ | 555,253 | $ | 1,472,365 | ||||
| Cash at end of year | $ | 292,736 | $ | 525,455 | ||||
| Restricted cash at end of year | 18,748 | 29,798 | ||||||
| Cash and restricted cash at end of year | $ | 311,484 | $ | 555,253 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | - | $ | 37,202 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Recognition of right of use assets and liabilities under ASC 842 | $ | - | $ | 268,935 | ||||
| Changes in loan due to foreign currency translation | $ | 74 | $ | 59 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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42 Telecom Ltd.
Notes to the Consolidated Financial Statements
Note 1. Organization and Nature of Operations
42 Telecom Limited (“42 Telecom”, “MT Ltd.” or the “Company”) was incorporated in Malta as a private limited liability company under the Companies Act (Cap. 386) with registration number C 50141. The registered office of the Company is located at Level 1, 303 Business Centre, Territorials Street, Mriehel, B’Kara, BKR 3000, Malta.
The consolidated financial statements include the accounts of 42 Telecom Limited and its wholly owned subsidiaries (collectively, the “Group”):
| ● | 42 Telecom AB Ltd (Sweden) – acquired 100% ownership from Trillian Group Limited effective June 30, 2023 | |
| ● | 42 Telecom UK Ltd (United Kingdom) | |
| ● | Arcus Technologies Ltd (Europe) |
Acquisition of 42 Telecom AB
On June 30, 2023, 42 Telecom Limited acquired 100% of the issued share capital of 42 Telecom AB from Trillian Group Limited, its former parent company, pursuant to a Share Transfer Agreement. The transfer was executed at the nominal value of SEK 100,000, fully paid. As part of the agreement, Trillian Group Limited forfeited all rights, claims, receivables, and entitlements to realized or unrealized profits of 42 Telecom AB, with such rights vesting fully in 42 Telecom Limited.
Because both 42 Telecom Limited and 42 Telecom AB were ultimately controlled by Trillian Group Limited before and after the transfer, the transaction was accounted for as a common control transaction in accordance with Accounting Standards Codification (“ASC”) 805-50, Business Combinations – Related Issues. Accordingly, the assets and liabilities of 42 Telecom AB were transferred at their historical carrying amounts, and no goodwill was recognized. The consolidated financial statements include the financial position and results of operations of 42 Telecom AB as if the combination had occurred at the beginning of the earliest period presented, rather than from the legal transfer date.
Nature of Operations
The Group provides international telecommunications and messaging solutions. Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions. Through Arcus Technologies Ltd, the Group also offers platform-as-a-service solutions tailored for the tourism sector.
The Group serves a global customer base consisting primarily of mobile network operators, enterprises, and related-party affiliates.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements are presented in U.S. dollars (“USD”), which is the Group’s reporting currency.
Principles of Consolidation
The consolidated financial statements include the accounts of 42 Telecom Limited (“the Company” or “Parent”) and its wholly owned subsidiaries (together, the “Group”). All intercompany balances and transactions have been eliminated in consolidation.
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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. 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 considered for right of use (“ROU”) and lease liability |
| ● | allowances for income taxes and related valuation allowances and tax uncertainties, |
| ● | recoverability of long-lived assets and their related estimated lives (including internally developed software), |
| ● | accrual of estimated liabilities, |
| ● | impairment assessments, and |
| ● | provision for doubtful debts |
Risks and Uncertainties
The Company faces certain risks and uncertainties that could have a material impact on its operations, financial position, and cash flows. These include, but are not limited to:
| ● | Foreign exchange risk arising from transactions and balances in currencies other than the functional currency; |
| ● | Economic and financial risks such as changes in inflation rates, interest rates, or other macroeconomic conditions; |
| ● | Geopolitical risks including armed conflicts, trade restrictions, and political instability; |
| ● | Environmental risks including potential effects of climate change and related regulations on operations and costs; and |
| ● | Other uncertainties that may affect markets, supply chains, or operational continuity. |
Management monitors these factors on an ongoing basis and may take measures to mitigate potential impacts; however, the effects of these factors cannot be predicted with certainty.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. In addition to net income (loss), comprehensive income (loss) includes other comprehensive income (loss) items that are excluded from net income under U.S. GAAP.
For the Group, the only component of other comprehensive income (loss) relates to foreign currency translation adjustments arising from the consolidation of subsidiaries whose functional currencies (EUR, SEK, GBP) differ from the reporting currency (USD). These translation adjustments are recorded in other comprehensive income (loss) and accumulated in equity under Accumulated Other Comprehensive Income (AOCI).
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Foreign Currency Transaction
Each entity within the Group determines its functional currency based on the primary economic environment in which it operates. The functional currencies of the Group’s entities 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) |
The consolidated financial statements are presented in U.S. dollars (USD), which is the Group’s reporting currency.
For consolidation purposes, the assets and liabilities of entities with functional currencies other than USD are translated into USD at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the reporting period. Equity accounts, other than retained earnings, are translated at historical rates. The resulting translation adjustments are reported in Other Comprehensive Income (Loss) and accumulated in equity within Accumulated Other Comprehensive Income (AOCI).
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 in Other income (expense), net in the consolidated statements of operations.
The relevant translation rate are as follows:
For the year ended December 31, 2024, closing rate 1.04 US$: EURO, 0.09 US$: SEK, 1.26 US$: GBP
For the year ended December 31, 2024, average rate 1.07 US$: EURO, 0.09 US$: SEK, 1.26 US$; GBP
For the year ended December 31, 2023, closing rate 1.10 US$: EURO, 0.10 US$: SEK, 1.27 US$: GBP
For the year ended December 31, 2023, average rate 1.08 US$: EURO, 0.10 US$: SEK, 1.24 US$; GBP
For the years ended December 31, 2024 and 2023, the Group recorded foreign currency translation adjustments income (loss) of ($83,893) and $46,884, respectively, which are included in Other Comprehensive Loss.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, certificates of deposits and money market funds that are readily convertible into cash, all with original maturity dates of three months or less. The Company has restricted cash as a result of its corporate card program through its bank, which requires a collateral balance. As of December 31, 2024 and 2023, the Company had restricted cash balances of $18,748 and $29,798, respectively, included as a component of total cash and restricted cash as presented on the accompanying consolidated statements of cash flows.
Concentration of Credit Risks
The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.
All of the Company’s bank accounts are held at foreign institutions and are not insured by the Federal Deposit Insurance Corporation.
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Concentrations
During the year ended December 31, 2024, a related party customer accounted for 36% of the Company’s revenues, and another customer accounted for 20% of the Company’s revenues. During the year ended December 31, 2023, a related party customer accounted for 10% of the Company’s revenues, and another two customers accounted for 25% and 19% of the Company’s revenues, respectively. As of December 31, 2024, one related party customer accounted for 42% of total accounts receivable, and two other customers accounted for 22% and 13% of total accounts receivable, respectively. As of December 31, 2023, one related party customer accounted for 29% of total accounts receivable, and another customer accounted for 30% of total accounts receivable. The Company may be negatively affected by the loss of one of these customers.
Accounts Receivable
The Company’s account receivables are due from sales billed to customers. Collateral is currently not required. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to make payments as well as historical collection trends for its customers as a whole. Based on this review, the Company specifically reserves for those accounts deemed uncollectible or likely to become uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance. The allowance for doubtful accounts as of December 31, 2024 and 2023 amounted to $100,552 and $92,872, respectively. During the years ended December 31, 2024 and 2023, the Company recognized $45,825 and $24,885, respectively, in bad debt expense.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The hierarchy is presented down into three levels based on the reliability of the inputs.
| Level 1 | Quoted prices are available in active markets for identical assets or liabilities. |
| Level 2 | Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 | Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations. |
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short- term nature of these instruments.
The Company’s operating lease liability and right-of-use asset are recorded based on the present value of future lease payments in accordance with ASC 842.
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Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets primarily consists of prepaid expenses for cost of revenue vendors, prepaid taxes and deposits.
Property, Plant and Equipment, Net
Property, plant and equipment, net (“PP&E”) is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. Depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives. The estimated useful lives of PP&E are as follows:
Office Equipment and tools – 3-5 years
Computers – 3-5 years
Furniture and Fittings – 8-10 years
Leasehold improvements – Shorter of the estimate useful life or remaining lease term
Capitalized costs associated with capital work-in-progress are not depreciated until the related assets are placed into service, at which time the capitalized balance will be transferred to the appropriate account of PP&E. Capital work-in-progress is stated at the lower of cost or fair value, which includes the cost of construction and other direct costs attributable to the construction. The costs are capitalized as incurred or as payments are made pursuant to relevant construction contracts.
Major renewals and improvements are capitalized. Replacements, maintenance, and repairs, which do not significantly improve or extend the useful life of the assets, are expensed when incurred.
Upon the sale or retirement of assets, costs and the related accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in the results of operations.
The Company has not identified any such impairment losses for the years ended December 31, 2024 and 2023.
Intangible Assets – Capitalized Software Development
The Group capitalizes certain costs incurred in connection with the development of internal-use software in accordance with ASC 350-40, Internal-Use Software. Capitalized costs include direct payroll and related employee benefits for personnel engaged in software development, third-party contractor fees, and other expenditures directly attributable to the development of the software. Costs incurred during the preliminary project stage, as well as costs related to training, maintenance, data conversion, and general overhead, are expensed as incurred.
Once the software is ready for its intended use, capitalized costs are transferred from capital work-in-progress to capitalized software and are amortized on a straight-line basis over the estimated useful life of four years, which management believes reflects the period over which the software is expected to provide economic benefit. Amortization of software used directly in the delivery of services is recorded in Cost of Revenue.
Management evaluates capitalized software for indicators of impairment in accordance with ASC 360 and determined that no indicators of impairment were present during the years ended December 31, 2024 and 2023.
Capital work-in-progress represents costs for software projects that have not yet been placed into service. Upon completion, such amounts are reclassified to capitalized software and amortization begins.
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Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment and intangible assets, or asset groups for indicators of possible impairment by determining whether there were any triggering events that could impact on the Company’s assets. If events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable the Company performs a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by such asset or asset group. Should an impairment exist, the impairment loss is measured based on the excess carrying value of the asset over the asset’s fair value generally determined by estimates of future discounted cash flows.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the five-step model: (i) identify the contract with a customer, (ii) identify performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to performance obligations, and (v) recognize revenue when or as performance obligations are satisfied.
The Company generates revenue from following streams:
| ● | Messaging Services – includes SMS aggregation, enterprise messaging, and instant messaging (Viber). Revenue from these services is recognized at a point in time when each message or lookup is successfully processed and transmitted. |
| ● | Platform Services – includes SS7 platform access, managed services provided to related parties, and the Arcus tourism platform-as-a-service. Revenue from these services is recognized over time, as customers receive and consume the benefits of continuous access or managed service delivery. |
The Company generally acts as principal in its arrangements, as it controls the services before transfer, bears responsibility for performance, and has discretion in pricing. Customer contracts are typically short-term in nature, invoiced monthly based on actual usage or subscription terms, with no significant financing components.
The following table presents the disaggregated revenue for the year ended December 31, 2024 and 2023:
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Messaging Services, at a point in time | $ | 25,876,959 | $ | 18,590,651 | ||||
| Platform Leasing, over time | 120,455 | 178,965 | ||||||
| Tourist Platform-as-a-Service, over time | 104,050 | 122,276 | ||||||
| $ | 26,101,464 | $ | 18,891,892 | |||||
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. These balances are similar to accrued income, arising when services have been provided or milestones achieved, but invoices have not yet been issued. Contract assets are transferred to trade receivables once the right to payment becomes unconditional. Contract assets totaled $636,959 and $2,289,605 as of December 31, 2024 and 2023, respectively.
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The movement in contract assets for the years ended December 31, 2024 and 2023 was as follows:
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance, beginning of year | $ | 2,289,605 | $ | 2,156,151 | ||||
| Additions | 636,959 | 2,289,605 | ||||||
| Transfer to receivables | (2,289,605 | ) | (2,156,151 | ) | ||||
| Balance, end of year | $ | 636,959 | $ | 2,289,605 | ||||
Contract Liabilities
Contract liabilities, historically referred to as deferred revenue, represent amounts billed or collected from customers in advance of satisfying performance obligations under customer contracts. These balances are presented within current liabilities in the consolidated balance sheets, based on the expected timing of revenue recognition. Contract liabilities are recognized as revenue when the related performance obligations are fulfilled.
As of December 31, 2024 and 2023, contract liabilities were $192,187 and $381,131, respectively, all consisting of deferred revenue. As of December 31, 2024, all contract liabilities will be recognized as revenue in 2025.
Cost of Revenue
Cost of revenue consists of direct expenses incurred in providing telecommunication and platform services and is recognized in the period in which the related revenues are earned. Cost of revenue includes accruals for third-party service providers, purchases of services from both local and non-EU vendors, and charges for telecommunication services inside and outside the EU, including data, voice, and connectivity costs. It also includes wholesale carrier and traffic fees, consultancy and technical service costs directly tied to service delivery, commissions and referral fees related to customer acquisition or usage. Additionally, platform or PaaS licensing fees and other directly attributable costs necessary to fulfill service obligations, such as internally generated software amortization used in service infrastructure, are included. These costs are recorded when incurred and matched to the related revenue in accordance with U.S. GAAP expense recognition principles.
Selling, General and Administrative Expense
Selling, general and administrative expenses represent the routine costs of operating the Group. They primarily consist of rent and facilities, marketing and travel, professional and administrative services, depreciation, insurance and compliance costs, finance and bank charges, and other operating expenses.
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.
Employee Benefits
Pursuant to Malta regulations, contributions to pension schemes are voluntary. The Company provides pension contributions to management team members. During the years ended December 31, 2024 and 2023, pension plan contributions totaled $9,010 and $10,964, respectively.
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Leases
The Company accounts for its 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 earnings per share (“EPS”) is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. The Company had no potentially dilutive securities outstanding as of December 31, 2024 and 2023. Accordingly, basic and diluted EPS are the same for both years. Earnings per share is calculated based on net income (loss) attributable to common shareholders and does not include other comprehensive income (loss).
Income Tax
The Company accounts for income taxes in accordance with the asset and liability method under ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The need for a valuation allowance is evaluated periodically, taking into account cumulative results of operations, forecasts of future taxable income, the expiration periods of carryforwards, and feasible tax-planning strategies.
The Company evaluates uncertain tax positions in accordance with ASC 740 using a two-step approach. First, a tax position is evaluated to determine whether it is more likely than not to be sustained upon examination by taxing authorities. If that threshold is met, the Company measures the benefit as the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement. Liabilities for unrecognized tax benefits, including related interest and penalties, are recorded as a component of income tax expense in the consolidated statements of operations.
Management exercises significant judgment in determining the provision for income taxes, the recognition of deferred tax assets and liabilities, and the need for any related valuation allowances. These judgments are based on interpretations of tax laws, expectations of future taxable income, and advice from tax and legal advisers. Changes in these estimates or in the Company’s assessment of uncertain tax positions may result in material adjustments to the provision for income taxes in future periods.
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Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures by requiring, a more detailed reconciliation between the effective tax rate and the statutory federal income tax rate, with both percentage and dollar amounts presented. Disaggregated categories in the reconciliation, including (i) state and local income taxes (net of federal benefit), (ii) foreign tax effects, (iii) effects of changes in tax laws or rates, (iv) valuation allowance changes, (v) tax credits, (vi) nontaxable or nondeductible items, and (vii) changes in unrecognized tax benefits. Enhanced disclosure of income taxes paid, disaggregated by federal, state, and foreign jurisdictions. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments should be applied on a prospective basis, although retrospective application is also permitted.
The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures. Because the Company operates subsidiaries in multiple jurisdictions and computes taxes at the subsidiary level prior to consolidation into U.S. GAAP reporting, management expects the new guidance will primarily affect the presentation and disaggregation of the income tax rate reconciliation and income taxes paid disclosures. The adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.
In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The guidance is intended to improve the transparency of public business entities’ expense disclosures by requiring further disaggregation of the natural components of significant expense captions, such as cost of revenue, selling, general and administrative expenses, wages and benefits, depreciation, amortization, and other operating costs. The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted.
Although the Company is not yet required to adopt the standard, management evaluated the impact of the new guidance in the context of its existing expense structure, which includes cost of revenue, selling, general and administrative expenses, and wages and benefits as separately presented captions in the consolidated statements of operations. Based on this evaluation, the Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements or related disclosures, as the Company already presents its operating expenses in a manner largely consistent with the forthcoming requirements. The Company will continue to monitor the guidance and implement any additional disaggregation or disclosures as required upon the effective date.
Note 3. Going Concern
Management has evaluated whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued, in accordance with the guidance in ASC 205-40, Presentation of Financial Statements – Going Concern.
As of December 31, 2024, the Company had total assets of approximately $5 million, including cash and cash equivalents of $292,736. Current assets totaled $3.7 million compared with current liabilities of $3.4 million, resulting in a current ratio of approximately 1.07:1. The Company’s loan obligations are immaterial, and lease liabilities due within twelve months total approximately $55,000. The Company does not have significant long-term debt maturities within the evaluation period and is not in breach of any financial covenants.
The Company experienced a significant improvement in operating performance during the year ended December 31, 2024. Revenues increased 37% year-over-year to $26.1 million, and the Company generated operating income of $779,394 and net income of $524,430, compared to a net loss of $689,926 in the prior year. These improvements reflect both revenue growth and operating efficiencies. Management expects positive operating performance to continue, supported by a strong customer pipeline and demand for telecom services.
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Management has also implemented measures to strengthen the Company’s liquidity profile, including active monitoring of working capital, cost optimization initiatives, and maintaining access to external financing sources, though additional material financing is not anticipated to be required within the next twelve months.
Based on these factors, management has concluded that no conditions or events exist that raise substantial doubt about the Company’s ability to continue as a going concern within one year after issuance of these consolidated financial statements. Accordingly, the consolidated financial statements have been prepared under the going concern basis of accounting.
Note 4. Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Office equipment | $ | 32,045 | $ | 30,196 | ||||
| Computers | 607,980 | 618,349 | ||||||
| Furniture and Fixtures | 127,845 | 135,336 | ||||||
| Leasehold improvements | 12,534 | 13,281 | ||||||
| 780,404 | 797,162 | |||||||
| Less : Accumulated depreciation | 662,758 | 648,857 | ||||||
| Property, plant and equipment, net | $ | 117,646 | $ | 148,305 | ||||
Depreciation expense was $57,021 and $50,721 for the year ended December 31, 2024 and 2023, respectively.
Note 5. Intangible Assets
Intangible assets consist of the following:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Internally developed software | $ | 2,587,740 | $ | 2,243,730 | ||||
| Computer software | 37,396 | 39,625 | ||||||
| Website | 59,008 | 62,525 | ||||||
| 2,684,144 | 2,345,880 | |||||||
| Less : Accumulated amortization | 1,896,425 | 1,679,289 | ||||||
| Intangible assets, net | $ | 787,719 | $ | 666,591 | ||||
Amortization expense was $320,433 and $337,972 for the year ended December 31, 2024 and 2023, respectively.
Capital work-in-progress for internally developed software not yet placed in service was $187,351 and $251,638, respectively.
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Note 6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Accrued cost of revenue | $ | 398,845 | $ | 1,838,789 | ||||
| Accrued payroll and benefits | 78,099 | 58,843 | ||||||
| VAT and taxes payable | 90,444 | 52,770 | ||||||
| Other | 78,367 | 80,885 | ||||||
| Accrued expenses and other current liabilities | $ | 645,755 | $ | 2,031,287 | ||||
Note 7. Stockholder’s Equity
The Company is authorized to issue 1,300 ordinary shares with a par value of €1.00 each. As of December 31, 2024 and 2023, all 1,300 ordinary shares were issued and outstanding are wholly owned by the Company’s parent entity.
For presentation in the consolidated financial statements, share capital has been translated into U.S. dollars at historical rates.
Note 8. Segment and Geographic Information
The Company is focused on providing international messaging services, enterprise communications, and platform-based solutions, including SMS aggregation, enterprise A2P messaging, Viber instant messaging, SS7 platform access, and SaaS solutions. The Company also offers platform-as-a-service (“PaaS”) solutions through Arcus Technologies Ltd. The majority of the Group’s revenues and long-lived assets are attributable to its parent company, 42 Telecom Ltd, which serves as the principal operating entity within the Group.
The Company manages its business activities on a consolidated basis and operates in one reportable segment. This determination is consistent with the financial information that the Chief Executive Officer, the Group’s Chief Operating Decision Maker (“CODM”), regularly reviews for purposes of evaluating performance, allocating resources, setting incentive compensation, and planning and forecasting. The CODM utilizes gross margin, operating income (loss), and net income (loss) as primary performance measures. Significant segment expenses include cost of revenue, selling, general and administrative expenses, and wages and benefit, each of which is presented separately in the Company’s consolidated statements of operations. Other segment items within net income (loss) include interest and other income (expense), net, and income tax expense.
During the year ended December 31, 2024, revenues generated from Europe accounted for approximately 89% of total consolidated revenue, compared to 85% for the year ended December 31, 2023. Revenues generated from Sweden accounted for approximately 11% of total consolidated revenue in 2024, compared to 15% in 2023. The United Kingdom operations did not generate material revenues in either period.
Substantially all of the Group’s long-lived assets, consisting primarily of property, plant and equipment as well as intangible assets, were located in Europe and held by 42 Telecom Ltd as of December 31, 2024 and 2023.
Note 9. Lease Obligation
On June 27, 2023, the Company entered into an office lease with Pater Holding Company Ltd. for premises located on the third and fourth floors of Hyundai Block, Valley Road, Msida, Malta. The lease commenced upon handover on July 24, 2023 and has a contractual term of five years, of which the first two years are non-cancellable and the remaining three years may be terminated by the Company with two months’ notice. Annual base rent is €60,000 plus VAT, payable quarterly in advance.
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Lease costs are included on the consolidated statements of operations as selling, general and administrative expenses.
The following is the summary of operating lease assets and liabilities:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating Leases | ||||||||
| Right-of-use assets | $ | 203,751 | $ | 271,813 | ||||
| Operating lease liability, current portion | 55,390 | 56,306 | ||||||
| Operating lease liability, net of current portion | 148,361 | 215,507 | ||||||
| Total lease liabilities | $ | 203,751 | $ | 271,813 | ||||
| Weighted Average Remaining Lease Term (in years) | 3.5 | 4.5 | ||||||
| Weighted Average Discount Rate | 4 | % | 4 | % | ||||
The operating lease costs totaled $64,356 and $55,023 during 2024 and 2023, respectively
The following is the summary of future minimum payments:
| December 31, 2024 | ||||
| 2025 | $ | 62,400 | ||
| 2026 | 62,400 | |||
| 2027 | 62,400 | |||
| 2028 | 31,200 | |||
| Total lease payments | 218,400 | |||
| Less : imputed interest | (14,649 | ) | ||
| Total | $ | 203,751 | ||
Note 10. Loan Payable
As of December 31, 2024, the Company had an outstanding loan payable balance of $806 (2023: $880). The change in balance year-over-year primarily reflects foreign currency translation adjustments.
Note 11. Income Taxes
The Company’s income (loss) before income taxes for the years ended December 31, 2024 and 2023 was as follows:
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Profit/(loss) before tax | 786,512 | (899,733 | ) | |||||
Income Tax expense/(benefit)
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Current tax expense | 39,608 | 1,901 | ||||||
| Deferred tax expense | 222,474 | (211,708 | ) | |||||
| Total income tax expense/(benefit) | 262,082 | (209,807 | ) | |||||
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Reconciliation of Statutory to Effective Tax Rate
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Statutory tax rate effect (35%) | 275,279 | (314,907 | ) | |||||
| Tax credits | (5,375 | ) | (4,050 | ) | ||||
| Disallowable expenses | 759 | 652 | ||||||
| Unrecognized deferred tax movements / valuation allowance | (8,581 | ) | 108,498 | |||||
| Total income tax expense/(benefit) | 262,082 | (209,807 | ) | |||||
Deferred Tax Assets and Liabilities
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Opening DTL / (DTA) | (150,034 | ) | 61,674 | |||||
| Movement during the year | 222,474 | (211,708 | ) | |||||
| Closing DTL / (DTA) | 72,440 | (150,034 | ) | |||||
| Valuation Reserve | (72,440 | ) | 150,034 | |||||
| Total | - | - | ||||||
The Company recognizes deferred tax assets and liabilities for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A valuation allowance is recorded when management determines it is more likely than not that some portion of the deferred tax assets will not be realized. A full valuation reserve has been recorded to offset both the net deferred asset, deferred liability balances.
Note 12. Related Party Transactions
The Company enters into transactions with entities under common ownership and/or management control. These transactions primarily relate to revenues earned from service arrangements and expenses incurred under management and financing agreements. Related party balances and transactions as of and for the years ended December 31, 2024 and 2023 are summarized in the table below.
The Company had the following outstanding balances with related parties as of December 31, 2024 and 2023:
| December 31, | ||||||||||
| Nature of Relationship | 2024 | 2023 | ||||||||
| Accounts receivable - Mexedia SpA and Mexedia DAC | Common ownership and management | $ | 983,286 | $ | 476,468 | |||||
| Accounts payable - Mexedia SpA and Mexedia DAC | Common ownership and management | $ | 556,447 | $ | 490 | |||||
| Accounts payable - Heritage Ventures Ltd | Parent entity | $ | 31,808 | $ | 37,524 | |||||
| Contract liabilities - Mexedia SpA and Mexedia DAC | Common ownership and management | $ | - | $ | 144,772 | |||||
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The Company had the following related party transactions during the years ended December 31, 2024 and 2023:
| Year Ended | ||||||||||
| December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Revenue from Mexedia SpA and Mexedia DAC | Common ownership and management | $ | 9,452,117 | $ | 1,969,044 | |||||
| Management fees paid to Heritage | Parent entity | $ | 218,810 | $ | 230,436 | |||||
| Interest expense paid to 42 Invest PLC | Common ownership and management | $ | - | $ | 37,403 | |||||
Note 13. Commitments and Contingencies
From time to time, the Company may be involved in legal proceedings, claims, and regulatory matters arising in the normal course of business. While the outcome of such matters cannot be predicted with certainty, management does not believe that the resolution of any currently pending or threatened proceedings will have a material adverse effect on the Company’s business, financial condition, or results of operations.
Lease
Refer to Note 9 for the Company’s lease obligation.
Note 14. Subsequent Events
The Group evaluated subsequent events through October 15, 2025, the date the consolidated financial statements were available to be issued.
Acquisition by Spectral Capital Corporation
On August 1, 2025, Spectral Capital Corporation (“Spectral”), a Delaware corporation, completed the acquisition of 42 Telecom Ltd pursuant to a Definitive Share Exchange Agreement dated July 15, 2025. As consideration, Spectral issued 8,000,000 shares of its common stock and placed an additional 8,000,000 shares in escrow, subject to performance and earn-out conditions. The acquisition was executed upon satisfaction of closing conditions, including a Closing Certificate confirming the transfer. This event represents a change in control and is disclosed as a non-adjusting subsequent event.
No other material events occurred subsequent to December 31, 2024, that require adjustment to or further disclosure in the consolidated financial statements.
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shares of Common Stock
SPECTRAL CAPITAL CORPORATION
PROSPECTUS
Sentinel Brokers Company, Inc.
, 2026
Until , 2026, (25 days after commencement of our public offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the issuance and distribution of the securities being registered hereunder. All amounts are estimates except the SEC registration fee.
| SEC registration fee | $ | |||
| FINRA filing fee | $ | |||
| NASDAQ listing fee | $ | |||
| Legal fees and expenses | $ | |||
| Printing fees and expenses | $ | |||
| Accounting fees and expenses | $ | |||
| Miscellaneous fees and expenses | $ | |||
| Total | $ |
Item 14. Indemnification of Directors, Officers, Employees and Agents
Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.
NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
During 2025, the Company completed several issuances of unregistered securities in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with a private placement conducted pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D, the Company issued an aggregate of 394,700 shares of common stock between July and September 2025 for gross proceeds of approximately $404,970. On August 1, 2025, the Company issued 8,000,000 shares of common stock to the former shareholders of 42 Telecom Ltd. as consideration in a private acquisition transaction exempt from registration under Section 4(a)(2) and Rule 506(b).
On October 2, 2025, the Company completed a private placement of 1,000,000 shares of common stock to accredited investors for gross proceeds of approximately $1.3 million pursuant to a private placement memorandum. On October 15, 2025, the Company issued 9,000,000 shares of its common stock to various shareholders of Eliznikcomp OÜ in connection with an asset purchase agreement for the acquisition of certain intellectual property and related assets, in a transaction exempt from registration under Section 4(a)(2) of the Securities Act. Additionally, on November 17, 2025, the Company completed a separate private placement issuing 100,000 shares of common stock for gross proceeds of $130,000.
On March 16, 2026, the Board of Directors approved a private placement offering of up to $1,000,000 in restricted shares of the Company’s common stock at a price below market value, to remain open until the Company achieves a listing on the Nasdaq Stock Market. During the three months ended March 31, 2026, the Company issued 100,000 shares of common stock at $2.00 per share for aggregate proceeds of $200,000 under this offering.
In June 2026, the Company issued 12,500 shares of common stock at $1.60 per share for aggregate proceeds of $20,000 pursuant to a private placement offering conducted pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D.
No underwriting discounts or commissions were paid in connection with these issuances. All securities issued in the foregoing transactions were deemed “restricted securities” and were issued without registration under the Securities Act.
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Item 16. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
| Exhibit No. | Exhibit Description | |
| 1.1* | Form of Underwriting Agreement | |
| 3.1 | 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). | |
| 3.2 | 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). | |
| 3.3 | Certificate of Amendment to Articles of Incorporation of Spectral Capital Corporation, dated November 22, 2022, filed with the secretary of state of Nevada and effective on December 2, 2022 (Incorporated by reference to Exhibit 3.4 on Form 10-K, filed June 23, 2025). | |
| 3.4 | 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). | |
| 3.5 | Certificate of Designation of Series Quantum Preferred Stock of Spectral Capital Corporation dated August 28, 2024 (incorporated by reference to Exhibit 10.24 on Form 8-K filed on August 29, 2024) | |
| 4.1** | Form of Representative’s Warrant | |
| 5.1* | Opinion of Sichenzia Ross Ference Carmel LLP | |
| 10.1 | Telecommunications services agreement with Sky Data PLL OU (Estonia) dated January 3, 2022. (Incorporated by reference to Exhibit 10.1 on Form 10-K, filed June 23, 2025). | |
| 10.2 | Reciprocal Carrier Services Agreement entered into between EZ Mobile, LLC and Spectral Capital Corp. dated February 15, 2022. (Incorporated by reference to Exhibit 10.2 on Form 10-K, filed June 23, 2025). | |
| 10.3** | Equity Incentive Plan | |
| 10.4 | Asset Purchase Agreement between Spectral Capital Corporation and Eliznikcomp OŰ, dated October 15, 2025 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed October 16, 2025) | |
| 10.5 | Subscription Agreement relating to the Private Placement dated October 2, 2025 (incorporated by reference to Exhibit 10.2 to the Form 8-K filed October 16, 2025) | |
| 10.6 | Definitive Stock Purchase Agreement with Telvantis, Inc., formerly Raadr, Inc., a Nevada corporation and Spectral Capital Corporation dated December 29, 2025 (incorporated by reference to Exhibit 2.1 on Form 8-K filed January 5, 2026) | |
| 10.7 | Definitive Share Exchange dated July 13, 2025, by and among Spectral Capital Corporation, Heritage Ventures Ltd., and 42 Telecom Ltd. (incorporated by reference to Exhibit 10.1 on Form 8-K filed July 15, 2025) | |
| 10.8 | 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. (incorporated by reference to Exhibit 2.3 on Form 8-K filed August 4, 2025) | |
| 10.9 | Restated Share Transfer Agreement with Intrepid View Partners, LP and Spectral Capital Corporation dated June 2, 2025 (incorporated by reference to Exhibit 10.1 on Form 8-K filed June 4, 2025) | |
| 10.10 | Settlement Agreement dated May 25, 2025, between Spectral Capital Corporation and Sean Brehm (and affiliated entries) (incorporated by reference to Exhibit 10.2 on Form 8-K filed June 4, 2025) | |
| 10.11 | Definitive Acquisition Agreement with Quantomo OU, an Estonian company and the Company dated December 26, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K dated December 26, 2024) | |
| 10.12 | Definitive Acquisition Agreement with Verdant Quantum, OU, an Estonian company, Moshik Cohen and the Company dated December 16, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K filed December 19, 2024) | |
| 10.13 | Agreement and Plan of Business Combination, by and among Spectral Capital Corporation, Spectral QDA Holdings, Inc., crwdunit, inc. and Crowdpoint Technologies, Inc., as Security Holder Representative dated as of December 10, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on December 11, 2024) | |
| 10.14 | IP Assignment Agreement between the Company and Node Nexus Co. LLC, a UAW corporation, Sean Michael Brehm and Vogon Cloud Inc., a Delaware corporation dated November 13, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K filed November 19, 2024) |
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| 10.15 | Subscription Agreement with SparkMarket LLC and Extension (incorporated by reference to Exhibit 10.1 on Form 8-K filed October 1, 2024) | |
| 10.16 | Subscription Agreement with Ras al Khaimah Investment and Development Co LLC and Extension (incorporated by reference to Exhibit 10.5 on Form 8-K filed on October 1, 2024) | |
| 10.17 | Agreement between Spectral Capital Corporation and CrowdPoint Technologies, Inc. dated September 10, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on September 19, 2024) | |
| 10.18 | Affiliate Acquisition Agreement between the Registrant and crwdunit Inc. dated August 1 2024 (incorporated by reference to Exhibit 10.19 on Form 8-K filed August 29, 2024) | |
| 10.19 | Amendment to Share Exchange Agreement dated June 7, 2024 (incorporated by reference to Exhibit 10.16 on Form 8-K filed on July 24, 2024) | |
| 10.20 | Escrow Letter dated July 22, 2024 (incorporated by reference to Exhibit 10.17 on Form 8-K filed on July 24, 2024) | |
| 10.21 | Licensing Agreement dated June 23, 2024 (incorporated by reference to Exhibit 10.18 on Form 8-K filed on July 24, 2024) | |
| 10.22 | Share Exchange Agreement (incorporated by reference to Exhibit 10.4 on Form 8-K filed on June 7, 2024) | |
| 10.23 | Form of Subscription Agreement (incorporated by reference to Exhibit 10.5 on Form 8-K filed on June 7, 2024) | |
| 10.24** | Loan Agreement by and Between the Company and B Holdings OU dated February 5, 2025 | |
| 10.25** | Loan Agreement by and between SKY PLL OU dated July 7, 2025 | |
| 10.26** | Promissory Note to Michael Turner dated June 2, 2025 | |
| 10.27** | Scandere OÜ Reciprocal Carrier Services Agreement dated April 26, 2024 | |
| 10.28** | Intermatica S.p.A. Binding Term Sheet dated January 4, 2026 | |
| 16.1* | Letter from Michael Gillespie & Associates, PLLC | |
| 21.1* | List of Subsidiaries | |
| 23.1* | Consent of RBSM LLP, an independent registered public accounting firm | |
| 23.2** | Consent of HTL International, LLC, an independent registered public accounting firm | |
| 23.3* | Consent of Sichenzia Ross Ference Carmel LLP (included in exhibit 5.1) | |
| 23.4* | Consent of RBSM LLP, an independent registered public accounting firm | |
| 24.1* | Power of Attorney (included in signature page to this registration statement) | |
| 99.1* | Insider Trading Policy | |
| 99.2* | Audit Committee Charter | |
| 99.3* | Nomination and Corporate Governance Committee Charter | |
| 99.4* | Compensation Committee Charter | |
| 107* | Fee Table |
| * | Filed herewith |
| ** | To be filed by amendment |
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Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
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(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered hereby, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that it will:
(1) for determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.
(2) for determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Seattle, State of Washington on July 17, 2026.
| SPECTRAL CAPITAL CORPORATION | ||
| By: | /s/ Jenifer Osterwalder | |
| Jenifer Osterwalder | ||
| President and Chief Executive Officer | ||
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Jenifer Osterwalder, (with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Jenifer Osterwalder | President and Chief Executive Officer | July 17, 2026 | ||
| Jenifer Osterwalder | (Principal Executive Officer) | |||
| /s/ Daniel Gilcher | Chief Financial Officer | July 17, 2026 | ||
| Daniel Gilcher | (Principal Accounting and Financial Officer) | |||
| /s/ Jeffrey Chong | Director | July 17, 2026 | ||
| Jeffrey Chong | ||||
| /s/ Michael Turner | Director | July 17, 2026 | ||
| Michael Turner | ||||
| /s/ Olga Nezerenko | Director | July 17, 2026 | ||
| Olga Nezerenko | ||||
| /s/ Gottfried Werner | Director | July 17, 2026 | ||
| Gottfried Werner |
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