SPECTRAL CAPITAL Corp 10-Q

Item 1: Financial Statements Our unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2025 and 2024 are part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. INDEX TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc. Condensed Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024 F-2 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited) F-3 Condensed Consolidated Statements of Stockholders' Deficit for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 (unaudited) F-6 Notes to the Condensed Consolidated Financial Statements (unaudited) F-7 F-1 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2025 AND DECEMBER 31, 2024 June 30, 2025 December 31, 2024 (Unaudited) Assets: Cash and cash equivalents $ 6,078 $ 107,475 Prepaid expenses - 6,500 Current assets 6,078 113,975 Total assets $ 6,078 $ 113,975 Liabilities and Stockholders' Deficit: Current liabilities Accounts payable and accrued liabilities $ 505,327 $ 482,462 Related party advances and accruals 159,589 550,700 Short Term Loan 10,000 - Current liabilities 674,916 1,033,161 Total liabilities 674,916 1,033,161 Commitments and contingencies Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized, no shares issued and outstanding - - Series Quantum Preferred Stock, par value $ 0.0001 , 2,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding as of June 30, 2025 and December 31, 2024 - 100 Common stock, par value $ 0.0001 , 1,000,000,000 shares authorized, 67,774,002 and 67,699,302 shares issued and outstanding as of June 30, 2025 and December 31, 2024 6,777 6,770 Additional paid-in capital 35,026,308 33,629,226 Accumulated deficit ( 35,480,037 ) ( 34,333,396 ) Total stockholders' deficit ( 446,952 ) ( 697,300 ) Non-controlling interest ( 221,886 ) ( 221,886 ) Total stockholders' deficit - Spectral Capital Corp. ( 668,838 ) ( 919,186 ) Total liabilities and stockholders' deficit $ 6,078 $ 113,975 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-2 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (UNAUDITED) Three Months Ended June 30, 2025 Three Months Ended June 30, 2024 Six Months Ended June 30, 2025 Six Months Ended June 30, 2024 Revenues $ - $ - $ - $ - Costs of sales - - - - Gross profit - - - - Operating expenses: Selling, general and administrative 450,613 448,425 1,074,641 477,289 Wages and benefits 36,000 36,000 72,000 72,000 Total operating expenses 486,613 484,425 1,146,641 549,289 Operating loss ( 486,613 ) ( 484,425 ) ( 1,146,641 ) ( 549,289 ) Other income and (expense): Extinguishment of debt - ( 265,596 ) - ( 265,596 ) Total other income (expense) - - - ( 265,596 ) Net loss before non-controlling interest ( 486,613 ) ( 750,021 ) ( 1,146,641 ) ( 814,885 ) Loss attributable to non-controlling interest - - - - Net loss attributable to Spectral Capital Corporation $ ( 486,613 ) $ ( 750,021 ) $ ( 1,146,641 ) $ ( 814,885 ) Basic and diluted loss per common share $ ( 0.01 ) $ ( 0.01 ) $ ( 0.02 ) $ ( 0.02 ) Weighted average shares - basic and diluted 67,717,203 54,684,149 67,708,302 48,351,049 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-3 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (UNAUDITED) Three Months Ended June 30, 2025 Series Quantum Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Total Stockholders' Deficit March 31, 2025 1,000,000 $ 100 67,699,302 $ 6,770 $ 34,045,045 $ ( 221,886 ) $ ( 34,993,424 ) $ ( 1,163,395 ) Sale of common stock - - 74,700 7 84,963 - - 84,970 Stock-based compensation - - - - 220,500 - - 220,500 Settlement of related party liabilities ( 1,000,000 ) ( 100 ) - - 675,800 675,700 Net loss - - - - - - ( 486,613 ) ( 486,613 ) June 30, 2025 - $ - 67,774,002 $ 6,777 $ 35,026,308 $ ( 221,886 ) $ ( 35,480,037 ) $ ( 668,838 ) Six Months Ended June 30, 2025 Series Quantum Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Total Stockholders' Deficit December 31, 2024 1,000,000 $ 100 67,699,302 $ 6,770 $ 33,629,226 $ ( 221,886 ) $ ( 34,333,396 ) $ ( 919,186 ) Sale of common stock - - 74,700 7 84,963 - - 84,970 Stock-based compensation - - - - 636,319 - - 636,319 Settlement of related party liabilities ( 1,000,000 ) ( 100 ) - - 675,800 675,700 Net loss - - - - - - ( 1,146,641 ) ( 1,146,641 ) June 30, 2025 - $ - 67,774,002 $ 6,777 $ 35,026,308 $ ( 221,886 ) $ ( 35,480,037 ) $ ( 668,838 ) F-4 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (UNAUDITED) Three Months Ended June 30, 2024 Common Stock Total Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Stockholders' Deficit March 31, 2024 42,017,948 $ 4,202 $ 30,948,057 $ ( 221,886 ) $ ( 31,127,716 ) $ ( 397,343 ) Proceeds from sale of common stock 15,250,000 1,526 198,514 - - 200,040 Issuance of common stock for liabilities 3,631,354 363 353,328 - - 353,691 Stock-based compensation 2,000,000 200 333,313 - - 333,513 Non-controlling interest - - - - - - Net loss - - - - ( 750,021 ) ( 750,021 ) June 30, 2024 62,899,302 $ 6,291 $ 31,833,212 $ ( 221,886 ) $ ( 31,877,737 ) $ ( 260,120 ) Six Months Ended June 30, 2024 Common Stock Total Shares Amount Additional Paid-in Capital Non-Controlling Interest Accumulated Deficit Stockholders' Deficit December 31, 2023 42,017,948 $ 4,202 $ 30,948,057 $ ( 221,886 ) $ ( 31,062,852 ) $ ( 332,479 ) Proceeds from sale of common stock 15,250,000 1,526 198,514 - - 200,040 Issuance of common stock for liabilities 3,631,354 363 353,328 - - 353,691 Stock-based compensation 2,000,000 200 333,313 - - 333,513 Non-controlling interest - - - - - - Net loss - - - - ( 814,885 ) ( 814,885 ) June 30, 2024 62,899,302 $ 6,291 $ 31,833,212 $ ( 221,886 ) $ ( 31,877,737 ) $ ( 260,120 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-5 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024 (UNAUDITED) Six Months Ended June 30, 2025 Six Months Ended June 30, 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss attributable to Spectral Capital Corporation $ ( 1,146,641 ) $ ( 814,885 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 636,319 333,513 Extinguishment of debt - 265,591 Changes in operating assets and liabilities: Prepaids and other assets 6,500 - Due to related parties - accrued salary 72,000 72,000 Accounts payable and accrued expenses ( 49,135 ) 688 Net cash used in operating activities ( 480,957 ) ( 143,093 ) CASH FLOWS FROM INVESTING ACTIVITIES: Net cash used in investing activities - - CASH FLOWS FROM FINANCING ACTIVITIES: Short-term advances 294,590 45,500 Proceeds from sale of common and preferred stock 84,970 200,040 Net cash provided by financing activities 379,560 245,540 Effect of exchange rate changes on cash - - Change in cash and cash equivalents ( 101,397 ) 102,447 Cash and cash equivalents, beginning of period 107,475 240 Cash and cash equivalents, end of period $ 6,078 $ 102,687 Supplemental disclosures of cash flow information: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Settlement of related party liabilities $ 675,800 $ - Common stock issued to settle liabilities $ - $ 88,100 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-6 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (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. 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 2024, Spectral filed 104 patent applications across artificial intelligence, quantum computing, and autonomous systems, while concurrently developing an internal pipeline of over 400 additional patentable innovations. The Company also engaged a network of senior scientific and commercial advisors to enhance IP defensibility and commercialization readiness. These efforts support an expanding pipeline of licensing negotiations and product development initiatives. The Company’s legacy as a technology incubator included several historical acquisitions, such as Noot Holdings and Monitr Holdings. In 2024, Spectral entered a new strategic phase through a series of acquisitions and platform developments in quantum and decentralized computing. However, 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, clarified ownership of over 100 provisional patents, and returned in excess of $100 million in share-based consideration to shareholders—thereby restoring strategic focus and corporate governance alignment. Spectral’s current operations are focused on licensing its IP, developing quantum- and AI-enhanced software products, and executing acquisitions where its technologies can drive transformative growth. The Company has not yet generated revenues and reported net losses for the six months ended June 30, 2025 and 2024. Management is actively pursuing strategic partnerships and financing opportunities to support operational expansion and long-term commercialization efforts. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going Concern The accompanying unaudited condensed 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 June 30, 2025, the Company has cash on hand of $ 6,078 and negative working capital of $ 668,838 . 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 unaudited condensed 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 JUNE 30, 2025 (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 unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2024. The results of operations for the six months ended June 30, 2025 is not indicative of the results that may be expected for the full year. Principles of Consolidation The accompanying unaudited condensed 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. See Note 1 and Note 3 for discussion of the acquisition and then rescindment of the NNN acquisition. Basis of Presentation The unaudited condensed consolidated 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: F-8 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) 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. 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 June 30, 2025 and December 31, 2024, 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. Stock-Based Compensation The Company accounts for employee stock-based compensation in accordance with the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 follows ASC Topic 505-50, Equity: Equity-Based Payments to Non-Employees for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered. The Company accounts for forfeitures as they occur. Accordingly, compensation expense is recognized only for awards that ultimately vest. Forfeitures are recognized in the period in which they occur, and no estimations or adjustments are made for anticipated forfeitures. Because the Company’s stock-based compensation options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, amounts estimated using the Black-Scholes option pricing model may differ materially from the actual fair value of the Company’s stock-based compensation options. 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. F-9 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) Segments The Company has evaluated the criteria for segment reporting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting , and has determined that it operates as a single operating and reportable segment. This conclusion is based on the following factors: · The chief operating decision maker (“CODM”) reviews financial information on a consolidated basis for purposes of evaluating performance and allocating resources. · The Company’s operations exhibit similar economic characteristics and are managed and reported as a single business unit. · The Company’s products and services are offered in a consistent manner across its markets, with no discrete business lines requiring separate reporting. As a result, no additional segment disclosures are required. 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. No revenues were generated during the three and six months ended June 30, 2025 and 2024. Basic Loss Per Share Basic loss per share is calculated by dividing the Company’s net 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 six months ended June 30, 2025 the Company had options to purchase 3,646,875 shares of common stock for which the effects were anti-dilutive. During the three and six months ended June 30, 2024, 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 six months ended June 30, 2025. The following table sets forth the changes in non-controlling interest for the six months ended June 30, 2025: Non-Controlling Interests Balance at December 31, 2024 $ ( 221,886 ) Net loss attributable to non-controlling interest - Balance at June 30, 2025 $ ( 221,886 ) Balance at December 31, 2023 $ ( 221,886 ) Net loss attributable to non-controlling interest - Balance at June 30, 2024 $ ( 221,886 ) F-10 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (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 unaudited condensed 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 In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” This standard requires disclosure of specific information about costs and expenses and becomes effective January 1, 2027. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-04, “Debt - Debt with Conversions and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments” (“ASU 2024-04”). ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. The requirements of ASU 2024-04 are effective for the Company for fiscal years beginning after December 15, 2025, and interim periods within those periods. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. 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 $ 36,000 and $ 72,000 for the three and six months ended June 30, 2025 and 2024, respectively. As of June 30, 2025 and December 31, 2024, amounts due to the CEO related to accrued salaries were $ 504,000 and $ 432,000 respectively. On February 5, 2025, the Company entered into a loan agreement with B Holdings OU, which is associated with the beneficiary owner of DecusPro, Boriss Aleksandrov, a shareholder of the Company. During the six months ended June 30, 2025, the Company received a total of $ 139,590 under this agreement. The loan bears interest at 10% per annum repayable on demand and matures in 12 months. F-11 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) 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 six months ended June 30, 2025, the Company received a total of $ 10,000 under this agreement. The loan bears no interest and matures on December 31, 2025. As of June 30, 2025, the total amount due under this agreement was $10,000. 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 June 30, 2025 and December 31, 2024, the Company's CEO was due $ 0 in connection with these advances. During the six months ended June 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 . During the six months ended June 30, 2025 and 2024, the Company received $ 125,000 and $ 29,000 , respectively, in total demand advances from the Chairman of the Board of Directors, Sean Michael Brehm. 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. In June 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. As a result of the settlement, the total outstanding balance of $ 675,700 was relieved and recorded to additional paid-in capital. As of June 30, 2025 and December 31, 2024, amounts due under the note totaled $ 0 and $ 550,700 , respectively. Accrued interest on the note was insignificant to the financial statements as of June 30, 2025. 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 June 30, 2025, the total amount due under this note was $10,000. Sean Michael Brehm, the Company’s former 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 $ 4,955 in cash. The pre-acquisition financial results of NNN were not significant. Due to the cancellation, the initial transaction was recorded at par value. 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, controlled by Sean Michael Brehm, which was assigned the intellectual property previously owned by NNN. The new entity was recently established and had no operations. 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 foregoing technologies 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 5,050,000 purchased by Brehm which were fully paid for. As of June 30, 2025, these entities did not have any assets or liability as to be reflected as discontinued operations. Additionally, the Company intends to continue the development of its intellectual property and software development on its own and does not require any resources, assets or inputs from any of the above entities or individuals to continue the development of its technologies. Effective May 30, 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. These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting. F-12 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) 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. Due to the subsequent cancellation of the acquisition, the initial transaction was recorded at par value. See Note 3. As of June 30, 2025 and December 31, 2024, the Company had 0 and 1,000,000 shares of Series Quantum Preferred Stock outstanding, respectively. Restated Share Transfer Agreement On May 30, 2025, the Company executed a Restated Share Transfer Agreement with Intrepid View Partners, LP, under which Spectral acquired 169,889 common shares of a global autonomous vehicle company (the “WAV Company”) for an aggregate purchase price of $16,988,900, which will be paid via the issuance of 1,698,890 restricted shares of Spectral’s common stock. 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 June 30, 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 six months ended June 30, 2024, the Company has received $ 150,040 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 June 30, 2024, total proceeds of $ 50,000 had been received from this offering. Subsequent to June 30, 2024, the Company has received an additional $960,000 in proceeds. In June 2025, the Company commenced an additional private placement offering for up to 3,333,333 shares of the Company’s common stock at a price of $1.00 per share, or an aggregate of $3,333,333. During the six months ended June 30, 2025, the Company issued 74,700 shares of common stock for total proceeds of $ 84,970 under this offering. Subsequent to June 30, 2025, the Company issued an additional 200,000 shares of common stock for total proceeds of $200,000. F-13 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) Settlement of Advances During the six months ended June 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 . 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 $ 675,500 . See Note 3 and Note 5 for additional discussion. Stock for Services 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 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 six months ended June 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 . During the six months ended June 30, 2025 and 2024, $ 636,319 and $ 138,713 was expensed to selling, general and administrative, respectively. As of June 30, 2025, total unrecognized compensation expense from stock options was $ 808,500 and is expected to be expensed over 1 year. In May 2025, five members of the Board of Directors resigned which resulted in the forfeiture of 3,163,125 options and approximately $930,000 in total unrecognized compensation expense. The following is a summary of stock option activity for the six months ended June 30, 2025: Stock Options Weighted Average Exercise Price Weighted Average Life Remaining Outstanding, December 31, 2024 6,810,000 0.43 9.45 Issued - - - Exercised - - - Forfeited/Expired ( 3,163,125 ) 0.43 8.95 Outstanding, June 30, 2025 3,646,875 $ 0.43 8.95 Vested, June 30, 2025 1,846,875 $ 0.43 8.95 F-14 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) NOTE 5 – COMMITMENTS AND CONTINGENCIES The Company leases virtual office space on a month-to-month basis in Seattle, Washington. Litigation From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, 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. The Company is not aware of any such legal proceedings that will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results. 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. The Company previously owed Rubenstein Public Relations $30,000. There was a dispute regarding the proper amount of the invoice and the parties agreed to settle the amount due for $24,000 and signed a settlement agreement to that effect. The amount was paid in full in June 2025. Asset 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 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) which was paid and expensed in 2024. The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of the certain closing conditions as defined within the agreement. As of June 30, 2025, the agreement was rescinded without an accounting impact on any period. 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 was expected to occur by December 10, 2024, subject to the satisfaction of certain closing conditions as defined within the agreement. As of June 30, 2025, the agreement was rescinded without an accounting impact on the any period. 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 June 30, 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 $15,000,000 in White Label Loyalty, a UK-based SaaS provider of enterprise-grade loyalty and customer engagement platforms. The investment was structured as a primary equity infusion to support White Label Loyalty’s product development and international expansion. The Company has elected to let the term sheet expire according to its terms and not to pursue this financing. Short Term Loans On April 21, 2025, the Company entered into a short-term loan agreement with a third-party lender for a total principal amount of $10,000. The loan bears no interest and matures on October 21, 2025. F-15 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2025 (UNAUDITED) NOTE 6 – SUBSEQUENT EVENTS In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2025 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. The Company elected not to pursue an investment in White Label Loyalty, see Note 5 above. On July 15, 2025 (subsequent to the quarter ended June 30, 2025), the Company entered into a binding agreement to acquire 100% of the equity of 42 Telecom Ltd. ("Forty Two"), a Maltese-based telecommunications infrastructure provider with global operations. Under the terms of the agreement, Spectral will issue 8,000,000 shares of its common stock to Heritage Ventures Ltd., the sole shareholder of Forty Two. An additional 8,000,000 shares will be placed in escrow to support earnout and valuation protection provisions tied to Forty Two's 2025 performance metrics. The transaction closed on August 1, 2025. See Note 4 for subsequent shares issued under a private placement offering. F-16