SPECTRAL CAPITAL Corp 10-Q

Item 1: Financial Statements Our unaudited interim financial statements for the three and nine months ended September 30, 2024 and 2023 are part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. INDEX TO UNAUDITED FINANCIAL STATEMENTS Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc. Condensed Consolidated Balance Sheets as of S eptember 30 , 2024 and December 31, 2023 (unaudited) F-2 Condensed Consolidated Statements of Operations for the Three and N ine Months Ended September 30 , 202 4 and 2023 (unaudited) F-3 Condensed Consolidated Statements of Stockholders' Deficit for the Three A nd Nine Months Ended September 30 , 2024 and 2023 (unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30 , 2024 and 2023 (unaudited) F-6 Notes to the Condensed Consolidated Financial Statements (unaudited) F-7 F-1 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023 (UNAUDITED) September 30, 2024 December 31, 2023 Assets: Cash and cash equivalents $ 190,614 $ 240 Current assets 190,614 240 Deposits 134,862 - Total assets $ 325,476 $ 240 Liabilities and Stockholders' Deficit: Current liabilities Accounts payable and accrued liabilities $ 398,808 $ 290,119 Related party advances and accruals - 6,150 Short-term advances - 36,450 Current liabilities 398,808 332,719 Total liabilities 398,808 332,719 Commitments and contingencies Stockholders' Deficit: Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized, no shares issued and outstanding - - Series Quantum Preferred Stock, 2,000,000 and 0 shares authorized, 1,000,000 and 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023 100 - Common stock, par value $ 0.0001 , 1,000,000,000 and 500,000,000 shares authorized, 67,699,302 and 42,017,948 shares issued and outstanding as of September 30, 2024 and December 31, 2023 6,771 4,202 Additional paid-in capital 31,448,153 29,181,804 Accumulated deficit ( 31,306,470 ) ( 29,296,599 ) Total stockholders' deficit 148,554 ( 110,593 ) Non-controlling interest ( 221,886 ) ( 221,886 ) Total stockholders' deficit - Spectral Capital Corp. ( 73,332 ) ( 332,479 ) Total liabilities and stockholders' deficit $ 325,476 $ 240 The accompanying notes are an integral part of these consolidated financial statements. F-2 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED) Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 Revenues $ - $ - $ - $ - Costs of sales - - - - Gross profit - - - - Operating expenses: Selling, general and administrative 610,588 9,722 1,087,877 65,133 Wages and benefits 36,000 36,000 108,000 108,000 Research and development 548,398 - 548,398 - Total operating expenses 1,194,986 45,722 1,744,275 173,133 Operating loss ( 1,194,986 ) ( 45,722 ) ( 1,744,275 ) ( 173,133 ) Other income and (expense): Extinguishment of debt - - ( 265,596 ) - Total other income (expense) - - ( 265,596 ) - Net loss before non-controlling interest ( 1,194,986 ) ( 45,722 ) ( 2,009,871 ) ( 173,133 ) Loss attributable to non-controlling interest - 18 - 54 Net loss attributable to Spectral Capital Corporation $ ( 1,194,986 ) $ ( 45,704 ) $ ( 2,009,871 ) $ ( 173,079 ) Basic and diluted loss per common share $ ( 0.02 ) $ ( 0.00 ) $ ( 0.04 ) $ ( 0.00 ) Weighted average shares - basic and diluted 65,351,476 42,017,948 54,059,221 42,017,948 The accompanying notes are an integral part of these consolidated financial statements. 0 F-3 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED) Three Months Ended September 30, 2024 Series Quantum Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Total Stockholders' Deficit June 30, 2024 - $ - 62,899,302 $ 6,291 $ 30,066,959 $ ( 221,886 ) $ ( 30,111,484 ) $ ( 260,120 ) Common and preferred stock issued for cash and acquisition 1,000,000 100 4,800,000 480 965,375 - - 965,955 Stock-based compensation - - - - 415,819 - - 415,819 Net loss - - - - - - ( 1,194,986 ) ( 1,194,986 ) September 30, 2024 1,000,000 $ 100 67,699,302 $ 6,771 $ 31,448,153 $ ( 221,886 ) $ ( 31,306,470 ) $ ( 73,332 ) Nine Months Ended September 30, 2024 Series Quantum Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Total Stockholders' Deficit December 31, 2023 - $ - 42,017,948 $ 4,202 $ 29,181,804 $ ( 221,886 ) $ ( 29,296,599 ) $ ( 332,479 ) Sale of common stock - - 15,000,000 1,501 148,540 - - 150,041 Issuance of common stock for liabilities - - 3,631,354 363 353,328 - - 353,691 Common and preferred stock issued for cash and acquisition 1,000,000 100 5,050,000 505 1,015,349 - - 1,015,954 Stock-based compensation - - 2,000,000 200 749,132 - - 749,332 Net loss - - - - - - ( 2,009,871 ) ( 2,009,871 ) September 30, 2024 1,000,000 $ 100 67,699,302 $ 6,771 $ 31,448,153 $ ( 221,886 ) $ ( 31,306,470 ) $ ( 73,332 ) The accompanying notes are an integral part of these consolidated financial statements. F-4 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED) Three Months Ended September 30, 2023 Common Stock Total Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Stockholders' Deficit June 30, 2023 42,017,948 $ 4,202 $ 29,106,804 $ ( 221,832 ) $ ( 29,208,587 ) $ ( 319,413 ) Non-controlling interest - - - ( 18 ) - ( 18 ) Net loss - - - - ( 45,704 ) ( 45,704 ) September 30, 2023 42,017,948 $ 4,202 $ 29,106,804 $ ( 221,850 ) $ ( 29,254,291 ) $ ( 365,135 ) Nine Months Ended September 30, 2023 Common Stock Total Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Stockholders' Deficit December 31, 2022 42,017,948 $ 4,202 $ 29,106,804 $ ( 221,796 ) $ ( 29,081,212 ) $ ( 192,002 ) Non-controlling interest - - - ( 54 ) - ( 54 ) Net loss - - - - ( 173,079 ) ( 173,079 ) September 30, 2023 42,017,948 $ 4,202 $ 29,106,804 $ ( 221,850 ) $ ( 29,254,291 ) $ ( 365,135 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED) Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss attributable to Spectral Capital Corporation $ ( 2,009,871 ) $ ( 173,079 ) Adjustments to reconcile net loss to net cash used in operating activities: Non-controlling interest - ( 54 ) Stock-based compensation 749,332 - Excess value of common stock issued to settle liabilities 265,591 - Changes in operating assets and liabilities: Accounts receivable - 25,000 Due to related parties - accrued salary 72,000 108,000 Accounts payable and accrued expenses 36,688 - Net cash used in operating activities ( 886,260 ) ( 40,133 ) CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired from business combination 5,955 - Deposit paid for acquisition ( 134,862 ) - Net cash used in investing activities ( 128,907 ) - CASH FLOWS FROM FINANCING ACTIVITIES: Short-term advances 45,500 30,200 Proceeds from related party advances - 377 Proceeds from sale of common stock 1,160,040 - Net cash provided by financing activities 1,205,540 30,577 Effect of exchange rate changes on cash 1 - Change in cash and cash equivalents 190,374 ( 9,556 ) Cash and cash equivalents, beginning of period 240 10,672 Cash and cash equivalents, end of period $ 190,614 $ 1,116 Supplemental disclosures of cash flow information: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Issuance of common stock in settlement of liabilities $ 88,100 $ - The accompanying notes are an integral part of these consolidated financial statements. F-6 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) NOTE 1 – BUSINESS AND NATURE OF OPERATIONS Spectral Capital Corporation (the “Company” or “Spectral”) was incorporated on September 13, 2000 under the laws of the State of Nevada. Spectral is focused on the identification, acquisition, development, and financing of technology that has the potential to transform existing industries. Spectral has acquired significant stakes in two recently reactivated technology companies (Noot and Monitr) as well as interests within telecommunications, data and switching services, specifically providing international long distance reselling services on a business-to-business (B2B) basis and a newly emergent business in the field of deploying Quantum Computing as a Service (“QAAS”) technologies as well as supporting start-ups in that field with shared technological, marketing and other resources. In January 2022, the Company commenced a new line of business which is providing data and telecommunications reselling services on a global basis. On January 3, 2022, the Company entered into a telecommunications services agreement with Sky Data PLL OU (Estonia) (“Sky”) to provide long distance switching services. The contract does not contain a fixed term or value and is on an as needed basis via invoice from Sky. The Company has paused this line of business and plans to resume activities within the 2025 fiscal year. We intend to keep our partnership with Sky through a new entity named Scandere and together form partnerships with existing carriers who have substantial customers and without third party intervention. We intend to provide business to business (B2B) telecommunications interconnection services to international clientele and are currently in talks with vendors. We believe our emerging capabilities in the QAAS field will have a significant positive impact on the growth of this business by creating demand for exactly the type of data center solutions Scandere can help with. We believe the underlying technologies for both Noot and Monitr have the potential to create profitable businesses on their own but require substantial capital to upgrade their software to become competitive. We have recently begun the process of upgrading this software from a QAAS framework. We anticipate this work will be ongoing. In April of 2024, Spectral commenced a new business in the area of Quantum Computing and related technologies. Spectral engaged additional management and board resources to enhance its expertise in this area. The Company believes it can derive revenue through the development, acquisition and sale of Quantum Computing as a Service (QAAS) as well as providing services, support and platforms to Company’s operating in that sector. Toward this end, the Company has signed an agreement on June 7, 2024 for a share exchange with a Quantum Computing technology company, Node Nexus Network Co. LLC (“NNN”) in order to enhance its Quantum Computing offerings through acquiring NNN. The share exchange agreement closed effective August 29, 2024. Subsequently, on November 13, 2024, the transaction was rescinded. The 1,000,000 Series Quantum Preferred Shares that were issued have been assigned to a new Delaware corporation which was assigned the intellectual property previously owned by NNN. There is no longer a connection between NNN and Spectral. See Note 3. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has recently discontinued revenue generating activities and has sustained substantial losses since inception. As of September 30, 2024, the Company has cash on hand of $ 190,614 and negative working capital of $ 208,194 . The Company expects current cash on hand will not be able to fund operations for a period in excess of 12 months. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. To date management has funded its operations through selling equity securities and advances from related parties. The ability of the Company to continue as a going concern is dependent on the Company generating cash from its recently established operations, the sale of its common stock and/or obtaining debt financing and attaining future profitable operations, however, there can be no assurance the Company will be successful in these efforts. As of the date of these consolidated financial statements the Company does not have any firm commitments for capital. Without the required capital, the Company has had to reduce its development expenditures which will delay the completion of products which are expected to generate future revenues. F-7 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) Risks and Uncertainties The Company has a limited operating history and has not generated revenues from our planned principal operations. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on the Company’s consolidated financial condition and the results of its operations. The Company currently has no sales and limited marketing and/or distribution capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our current and future products. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote sales and marketing. The Company’s industry is characterized by rapid changes in technology and customer demands. As a result, the Company’s products may quickly become obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, the Company’s products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products. Interim Consolidated Financial Statements The accompanying unaudited interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2023. The results of operations for the three and nine months ended September 30, 2024 is not indicative of the results that may be expected for the full year. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, Spectral Holdings, Inc,, its wholly-owned subsidiary from the date of acquisition (August 29, 2024), and its 60% owned subsidiaries, Noot Holdings, Inc. from its date of incorporation of February 28, 2013, and Monitr Holdings, Inc. from its date of incorporation of December 1, 2013. All material intercompany accounts and transactions have been eliminated in consolidation. Basis of Presentation The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. 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. There are three levels of inputs that may be used to measure fair value: Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Include other inputs that are directly or indirectly observable in the marketplace. F-8 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) Level 3 Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of September 30, 2024 and December 31, 2023, the Company does not have any assets or liabilities which would be considered Level 2 or 3. The Company’s financial instruments consist of cash and cash equivalents, investments in technologies and related party advances. 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 measures certain assets at fair value on a nonrecurring basis. These assets include cost method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. Excluding these items, the Company did not have any significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers”. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company is not currently deriving revenue from its QAAS, Monitr, Noot or data center offerings but anticipates that this will change within the next 90-120 days. Basic Income (Loss) Per Share Basic loss per share is calculated by dividing the Company’s net income (loss) applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. During the three and nine months ended September 30, 2024, the Company had options to purchase 6,810,000 shares of common stock for which the effects were anti-dilutive. During the three and nine months ended September 30, 2023, the Company did not have any dilutive shares. Non-Controlling Interests Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 40% share of net income (losses) of Noot Holdings, Inc. and Monitr Holdings, Inc. incurred during the nine months ended September 30, 2024. The following table sets forth the changes in non-controlling interest for the nine months ended September 30, 2024: Non-Controlling Interest Balance at December 31, 2023 $ ( 221,886 ) Net loss attributable to non-controlling interest - Balance at September 30, 2024 $ ( 221,886 ) F-9 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) Foreign Currency The Company's functional currency is the United States Dollar. Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the consolidated statements of operations. As a result of these foreign currency transactions in which require payment in a currency other than the United States Dollar, the Company has recorded foreign currency (income) losses within the accompanying condensed consolidated statement of operations. Business Combination ASC 805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets acquired, and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While the Company provided its best estimates and assumptions when accurately valuing assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Recent Accounting Pronouncements The FASB issues ASUs to amend the authoritative literature in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company’s financial statement. NOTE 3– RELATED PARTY TRANSACTIONS 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 $ 108,000 and $ 108,000 for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and December 31, 2023, amounts due to the CEO related to accrued salaries were $ 396,000 and $ 288,000 respectively. From time to time due to the limited cash flow available, the Company's CEO pays certain operating expenditures on behalf of the Company. These advances bear no interest and are due on demand. As of September 30, 2024 and December 31, 2023, the Company's CEO was due $ 0 and $ 6,150 in connection with these advances, respectively. During the nine months ended September 30, 2024, the Company issued 68,311 shares of common stock in satisfaction of $ 6,150 in advances. On the date of the agreement, the fair market value of the common stock per the Company’s closing stock price was $6,651 resulting an extinguishment of debt of $ 501 . Sean Michael Brehm, the Company’s Chairman and a member of the board of directors, is also the sole shareholder of NNN, which the Company has acquired in exchange for 1,000,000 shares of newly designated Series Quantum Preferred Stock effective August 29, 2024; see Note 4. In connection with the acquisition, Sean Michael Brehm also purchased 5,050,000 of the Company’s common shares at $0.20 per share for a total purchase price of $ 1,010,000 . Due to the related party and common control nature of this transaction, the acquisition was accounted for at the carrying value of the acquired net assets of NNN. Assets acquired consisted of approximately $ 6,000 in cash. The pre-acquisition financial results of NNN were not significant. It was originally determined that the share exchange agreement closed effective August 29, 2024. However, the Company has determined that the transaction was never formally closed or title to the IP formally delivered to Spectral F-10 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) because of problems NNN had with its record keeping and ability to deliver certificates and other requirements under the agreement and that Spectral never formally received the shares in NNN as required by the agreement. Therefore, it was an error to state that the transaction had formally closed. Rather than revisit the transaction in an effort to cure defects, the Company and NNN decided to rescind the transaction. On November 14, 2024, the transaction was rescinded. The 1,000,000 Series Quantum Preferred Shares that were issued have been assigned to a new Delaware corporation which was assigned the intellectual property previously owned by NNN. There is no longer a connection between NNN and Spectral. See Note 3. Prior to the close of the acquisition, the Company paid approximately $145,000 to NNN for development services. Subsequently, on November 13, 2024, the transaction was rescinded. The 1,000,000 Series Quantum Preferred Shares that were issued have been assigned to a new Delaware corporation which was assigned the intellectual property previously owned by NNN. There is no longer a connection between NNN and Spectral. As a result of the rescission, it is not an accurate representation of the Company’s financial statements to provide financial statements consolidated with NNN as there is no relationship between the parties and the transaction was rescinded. On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Crowdpoint Technologies, Inc., a Texas corporation (“Crowdpoint”), a company controlled by Sean Michael Brehm, and its wholly owned subsidiary, Crwdunit Inc., a Delaware corporation (“Target”), whereby the Company agreed to acquire from Crowdpoint 100% of the Target’s outstanding shares in exchange for 3,750,000 shares of the Company’s common stock. The closing of the transaction is expected to occur by December 10, 2024, subject to the satisfaction of certain closing conditions as defined within the agreement. As this transaction has not yet closed, the financial results of Crwdunit are not consolidated with the Company’s. NOTE 4 – STOCKHOLDERS’ DEFICIT Preferred Stock On August 30, 2024, the Company filed a Certificate of Designation for the newly designated Series Quantum Preferred Stock. The number of Series Quantum Preferred Stock designated is 2,000,000 . The Series Quantum Preferred Stock 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. 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. The Board of Directors believes that $150,000 will be used for operating capital. As of the date of this filing, the Company has received $ 150,041 in proceeds from this offering. In June 2024, the Company commenced an additional offering looking to raise up to $1,000,000 at a price of $0.20 per shares. As of September 30, 2024, total proceeds of $ 1,010,000 had been received from this offering. As further discussed in Note 3, this offering was consummated with a related party in connection with the acquisition of NNN. F-11 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) Settlement of Advances During the nine months ended September 30, 2024, the Company issued 3,563,043 shares of common stock in satisfaction of $ 81,950 in advances. On the date of the agreement, the fair market value of the common stock per the Company’s closing stock price was $ 347,040 resulting in an extinguishment of debt of $ 265,090 . See Note 3 for additional share issuances. Stock for Services On April 26, 2024, we entered into a consulting contract with Scandere OU (Estonia) (“Scandere”). Scandere has the same management and has been contracted on behalf of Sky Data PPL and has experience in the telecommunications industry. Scandere will provide us with management services, CDR processing, fraud management, reporting and analytics and credit and finance management to facilitate our reentry into telecommunication reselling operations. The contract shall remain in force until the completion of the services or the earlier termination of the agreement. As payment for its services, Scandere receives 2,000,000 restricted shares of the Company’s common stock, valued at $ 194,800 based upon the closing price of the Company’s common stock on the date of the agreement. Employee Options The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors. During the nine months ended September 30, 2024, the Company issued options to purchase 6,810,000 shares of common stock at prices ranging from $ 0.43 to $ 0.61 per share. The Company used the following variables to determine the fair value of the options: Closing stock prices ranging from $ 0.50 - $ 0.72 ; expected lives ranging from 6.0 to 7.0 years; volatility of 203.49 %; risk free rate of 3.5 % and no dividend yield. The total grant date fair value was $ 3,345,600 with $ 415,819 and $ 554,532 being expensed to selling, general and administrative during the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, the remaining value of approximately $2.8 million is expected to be expensed over 3.7 years. The following is a summary of stock option activity for the nine months ended September 30, 2024: Stock Options Weighted Average Exercise Price Weighted Average Life Remaining Outstanding, December 31, 2023 - $ - - Issued 6,810,000 0.43 10.00 Exercised` - - - Expired - - - Outstanding, September 30, 2024 6,810,000 $ 0.43 9.70 Vested, September 30, 2024 847,500 $ 0.43 9.70 NOTE 5 – COMMITMENTS AND CONTINGENCIES The Company leases virtual office space on a month-to-month basis in Seattle, Washington. On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Quantomo OU., an Estonian corporation (“Quantomo”), whereby the Company agreed to acquire from Quantomo 100% of the Quantomo’s outstanding shares in exchange for 2,000,000 shares of the Company’s common stock and a one-time cash payment of $ 135,000 or (120,000 Euros). The closing of the transaction is expected to occur by December 10, 2024, subject to the satisfaction of the certain closing conditions as defined within the agreement. As of September F-12 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2024 (UNAUDITED) 30, 2024, the Company has made the cash payment which has been recorded within Deposits in the accompanying consolidated balance sheet. The transaction has not yet closed. NOTE 6– SUBSEQUENT EVENTS In accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2024 to the date these condensed consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, other than disclosed below. Between October 16, 2024 and November 14, 2024, the Company received $185,000 in total demand advances from the Chairman of the Board of Directors, Sean Michael Brehm. Mr. Brehm intends that the advances be applied to the exercise of his outstanding options, but we have not yet received his exercise notice. These advances are documented under a promissory note dated November 14, 2024 (“Note”). The Note provides for up to $2,500,000 in advances under the Note by Mr. Brehm to Spectral. The Note must be repaid by the Company, including accrued interest at 4% APR at the end of five years. The Note balance may be applied to the exercise of Mr. Brehm’s options to acquire common stock in the Company at any time while the Note is outstanding. Due to tax considerations and the applicability of US Federal Research and Development grants and due to the Company’s desire to solicit sensitive US government work, the stock exchange transaction entered into with Node Nexus Network, LLC, a UAE limited liability company (“NNN”) that closed on August 29, 2024 has been modified in a post-closing amendment effective November 13, 2024. The post closing amendment specifies that the intellectual property being acquired by the Company from NNN has been assigned to a newly formed Delaware US entity called Vogon Cloud, Inc., a Delaware corporation (“Vogon Cloud”). The original NNN transaction has been rescinded and the shares reissued to Vogon Cloud for the above reasons. Therefore, the Company will proceed with an audit of Vogon Cloud and will continue to commercialize the intellectual property without interruption. There is no longer any relationship between the Company and NNN and the parties have signed a mutual release to that effect. The licenses to the NNN intellectual property were transferred to Vogon Cloud and are now held by the Company through its interest in Vogon Cloud. On November 14, 2024, the Company entered into a one-month consulting arrangement with JRZ Capital LLC, (“JRZ”) whereby the Company agreed to pay $50,000 for strategic consulting services. The arrangement automatically terminates after 30 days and the Company will have no further obligations. F-13