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Item 1. Financial Statements

2025-11-14 compared with 2025-08-13 · 780 added, 261 removed, 263 unchanged (80% of the section changed)

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.

Our unaudited interim condensed consolidated financial statements for the three and nine months ended September 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.

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Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc.

Condensed Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited)

Condensed Consolidated Statements of Stockholders' Deficit for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited)

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 (unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2025 (unaudited) and December 31, 2024

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited)

Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited)

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (unaudited)

Notes to the Condensed Consolidated Financial Statements (unaudited)

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CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2025 AND DECEMBER 31, 2024

June 30, 2025

December 31, 2024

Cash and cash equivalents

Prepaid expenses

AS OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024

September 30,

Current assets:

Liabilities and Stockholders' Deficit:

Cash and cash equivalents

Restricted cash

Accounts receivable, net

Contract assets

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Intangible assets, net

Capital work-in-progress

Other receivable, related party

Right of use asset

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

Accounts payable

Accrued expenses and other current liabilities

Related party advances and accruals

Short Term Loan

Current liabilities

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

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

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

Commitments and contingencies (Note 12)

Stockholders' equity (deficit):

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

September 30, 2025 and December 31, 2024

Common stock, par value $ 0.0001 , 1,000,000,000 shares authorized

76,094,216 and 67,699,302 shares issued and outstanding as of

September 30, 2025 and December 31, 2024

Additional paid-in capital

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( 34,333,396 )

Total stockholders' deficit

Accumulated other comprehensive income/(loss)

Total Spectral stockholders' equity (deficit)

Non-controlling interest

Total stockholders' deficit - Spectral Capital Corp.

Total liabilities and stockholders' deficit

Total stockholders' deficit

Total liabilities and stockholders' equity (deficit)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024

Three Months Ended

June 30, 2025

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Three Months Ended

June 30, 2024

Six Months Ended

June 30, 2025

Six Months Ended

June 30, 2024

Costs of sales

September 30,

Nine Months Ended

September 30,

Cost of revenue

Operating expenses:

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Wages and benefits

Research and development

Total operating expenses

Operating loss

Loss from operations

( 1,194,986 )

Other income and (expense):

Extinguishment of debt

Total other income (expense)

Net loss before non-controlling interest

( 2,118,810 )

Loss attributable to non-controlling interest

Net loss attributable to Spectral Capital Corporation

( 1,744,275 )

Other income (expense):

Interest expense, net

Extinguishment of debt

Total other (expense)

Loss before income taxes

( 1,194,986 )

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$ ( 964,603 )

Basic and diluted loss per common share

Weighted average shares - basic and diluted

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SPECTRAL CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024

Three Months Ended June 30, 2025

Series Quantum Preferred Stock

Additional Paid-in Capital

Non-Controlling Interest

Accumulated Deficit

Total Stockholders' Deficit

March 31, 2025

$ ( 1,194,986 )

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$ ( 2,009,871 )

Sale of common stock

Stock-based compensation

Settlement of related party liabilities

Other comprehensive income (loss):

Foreign currency translation income (loss)

Total comprehensive loss

$ ( 945,786 )

June 30, 2025

$ ( 1,194,986 )

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$ ( 2,009,871 )

Six Months Ended June 30, 2025

Series Quantum Preferred Stock

Additional Paid-in Capital

Non-Controlling Interest

Accumulated Deficit

Total Stockholders' Deficit

December 31, 2024

Basic and diluted net loss per share

Weighted average shares outstanding - basic and diluted

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SPECTRAL CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Series Quantum

Accumulated Other

Preferred Stock

Non-Controlling

Comprehensive

Stockholders'

Equity (Deficit)

Balances at December 31, 2023

$ ( 221,886 )

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$ ( 332,479 )

Sale of common stock

Stock-based compensation

Settlement of related party liabilities

Balances at March 31, 2024

( 29,361,463 )

Proceeds from sale of common stock

Issuance of common stock for liabilities

Stock-based compensation

Balances at June 30, 2024

( 30,111,484 )

Common and preferred stock issued for cash and acquisiton

Stock-based compensation

( 1,194,986 )

June 30, 2025

( 1,194,986 )

Balances at September 30, 2024

$ ( 221,886 )

$ ( 31,306,470 )

SPECTRAL CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024

Three Months Ended June 30, 2024

Additional Paid-in Capital

Non-Controlling Interest

Accumulated Deficit

Stockholders' Deficit

March 31, 2024

Balances at December 31, 2024

$ ( 221,886 )

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$ ( 919,186 )

Proceeds from sale of common stock

Issuance of common stock for liabilities

Stock-based compensation

Non-controlling interest

June 30, 2024

$ ( 221,886 )

$ ( 31,877,737 )

Balances at March 31, 2025

( 34,993,424 )

Six Months Ended June 30, 2024

Additional Paid-in Capital

Non-Controlling Interest

Accumulated Deficit

Stockholders' Deficit

December 31, 2023

( 1,163,395 )

Common stock issued pursuant to private placement

Stock-based compensation

Settlement of related party liabilities

( 1,000,000 )

Balances at June 30, 2025

( 35,480,037 )

Proceeds from sale of common stock

Issuance of common stock for liabilities

Common stock issued pursuant to business combination

Common stock issued pursuant to private placement

Stock-based compensation

Non-controlling interest

June 30, 2024

$ ( 221,886 )

Balances at September 30, 2025

$ ( 221,886 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024

Six Months Ended

June 30, 2025

Six Months Ended

June 30, 2024

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Nine Months Ended

September 30,

Cash flows from operating activities:

Net loss attributable to Spectral Capital Corporation

$ ( 2,111,244 )

$ ( 2,009,871 )

Adjustments to reconcile net loss to net cash

used in operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Extinguishment of debt

Amortization of ROU assets

Amortization of intangibles

Deferred tax adjustment

Excess value of common stock issued to settle liabilities

Changes in operating assets and liabilities:

Prepaids and other assets

Accounts receivable

Contract assets

Prepaid expenses and other current assets

Other receivable, related party

Due to related parties - accrued salary

Accounts payable and accrued expenses

Accounts payable

Lease liability

Accrued expenses and other current liabilities

Contract liabilities

Net cash used in operating activities

Cash flows from investing activities:

Net cash used in investing activities

Cash and restricted cash acquired from business combination

Purchase of property, plant and equipment

Software development capitalization

Deposit paid for acquisition

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Short-term advances

Proceeds from sale of common and preferred stock

Short-term advances, related party

Repayment of loan

Short-term loan

Proceeds from sale of common stock

Net cash provided by financing activities

Effect of exchange rate changes on cash

Change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

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

Non-cash investing and financing activities:

Cash paid for interest

Supplemental disclosure of non-cash investing and financing activities:

Issuance of common stock pursuant to business combination

Contingent consideration liability recognized with business combination

Settlement of related party liabilities

Common stock issued to settle liabilities

Issuance of common stock in settlement of liabilities

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

SEPTEMBER 30, 2025

NOTE 1 – BUSINESS AND NATURE OF OPERATIONS

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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.

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, in exchange for a) the issuance of 8,000,000 shares of Spectral common stock and b) the placement of an additional 8,000,000 shares into escrow subject to earn-out and performance milestones (“Escrow Shares”).

The transaction was completed on August 1, 2025, upon execution of a Closing Certificate confirming that all conditions to closing were satisfied;

42 Telecom Ltd.

is now a wholly owned subsidiary of Spectral.

The acquisition also included the following wholly owned subsidiaries of 42 Telecom Ltd.:

· 42 Telecom AB Ltd.

· 42 Telecom UK Ltd.

(United Kingdom)

· Arcus Technologies Ltd.

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.

Following the acquisition, Company’s current operations are focused on licensing its IP, developing quantum- and AI-enhanced software products, executing acquisitions where its technologies can drive transformative growth, and integrating the infrastructure and operations of 42 Telecom to realize near-term revenue generation while preserving long-term innovation scalability.

Management is actively pursuing strategic partnerships and financing opportunities to support operational expansion and long-term commercialization efforts.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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.

The Company has incurred recurring operating losses and has sustained substantial losses since inception.

While management has recently implemented strategic initiatives—including the acquisition of 42 Telecom Ltd.—the Company’s operations have not yet generated consistent positive cash flows from operations.

As of September 30, 2025, the Company had total assets of approximately $23.8 million, including cash and cash equivalents of $426,295.

Current assets totaled $3.8 million compared with current liabilities of $6.2 million, resulting in negative working capital of approximately $2.4 million.

Lease liabilities due within twelve months total approximately $64,000, and the Company’s loan obligations are immaterial.

The Company does not have any significant long-term debt maturities within the evaluation period and is not in breach of any financial covenants.

For the nine months ended September 30, 2025, the Company generated total revenues of approximately $3.1 million, compared to $0 for the same period in 2024.

The increase in revenue is attributable to the post-acquisition consolidation of 42 Telecom Ltd., which contributed telecommunications service income during the quarter.

Despite the revenue improvement, the Company reported a net loss of $2.1 million for the nine-month period and had an accumulated deficit of $36.4 million as of September 30, 2025.

Although management expects continued revenue generation from 42 Telecom Ltd.

and other developing business segments, current cash on hand will not be sufficient to fund operations for a period in excess of twelve months.

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.

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.

There can be no assurance that such financing or operational success will be achieved on terms favorable to the Company, or at all.

As of the issuance date of these unaudited condensed consolidated financial statements, the Company does not have any firm commitments for additional capital.

Management continues to explore financing options, including private placements and strategic investment arrangements, while moderating discretionary and development expenditures to preserve liquidity.

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 acquisition of 42 Telecom Ltd.

has introduced initial revenue streams, the Company remains in the early stages of operational development and continues to depend on external financing to fund operations.

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 recessions could reduce demand for technology and telecommunications services and have a material adverse effect on the Company’s results.

Foreign exchange and geopolitical risks:

The Company conducts a portion of its activities internationally through 42 Telecom Ltd.

and is exposed to foreign exchange fluctuations, geopolitical instability, trade restrictions, and regional conflicts that could disrupt operations, increase costs, or impact profitability.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

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

SEPTEMBER 30, 2025

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 also competes with organizations possessing greater financial, technical, and marketing resources

Operational and environmental risks:

The Company’s operations may be affected by supply-chain disruptions, cybersecurity threats, data-privacy requirements, and environmental factors, including potential effects of climate change and related regulatory developments that could increase operating costs or limit access to certain markets.

Management continuously monitors these risk factors and may implement mitigation strategies, including hedging of foreign-currency exposures, diversification of customer and supplier bases, cost management, 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.

Unaudited 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.

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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.

The results of operations for the three and nine months ended September 30, 2025 are not necessarily 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.

from its date of incorporation of February 28, 2013, Monitr Holdings, Inc.

from its date of incorporation of December 1, 2013, and 42 Telecom Ltd., its wholly-owned subsidiary since August 1, 2025.

42 Telecom Ltd.

Includes operating subsidiaries as noted in Note 1.

All material intercompany accounts and transactions have been eliminated in consolidation.

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There are three levels of inputs that may be used to measure fair value:

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

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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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, investments in technologies, related party advances, accounts payable and accrued liabilities.

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 in accordance with ASC 842.

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.

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 non-monetary 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.

The Company’s contingent consideration recorded in connection with the 42 Telecom acquisition (see Note 3) is a Level 3 liability.

The liability is valued using a probability weighted analysis of the respective earn out provisions

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,

· evaluation of goodwill for impairment,

· provision for doubtful debts,

· evaluation of equity method investment and

· business combinations and purchase price allocations

The Company’s operating segments are determined based on the financial information reviewed by its Chief Executive Officer, who serves as the Chief Operating Decision Maker (“CODM”).

Prior to the acquisition of 42 Telecom Ltd.

and its subsidiaries on August 1, 2025, the Company operated as a single business focused on the development, protection, and monetization of proprietary intellectual property (“IP”) and the management of strategic technology investments.

Following the 42 Telecom acquisition, the Company now manages two distinct lines of business:

Technology and IP Development – activities include the creation, licensing, and commercialization of proprietary artificial intelligence and quantum computing technologies, as well as strategic holdings in technology companies such as NOOT and Monitr, which leverage Spectral’s intellectual property and support its broader platform strategy;

Telecommunications and Platform Services – activities include international messaging aggregation, enterprise A2P and OTT messaging, SS7 platform access, and platform-as-a-service (“PaaS”) offerings through 42 Telecom Ltd.

and its subsidiaries (42 Telecom AB Ltd., 42 Telecom UK Ltd., and Arcus Technologies Ltd.).

At present, the CODM reviews the Company’s financial performance and allocates resources on a consolidated basis, as discrete financial information for these business components is still being integrated.

Accordingly, the Company has determined that it currently operates as a single reportable segment.

Management expects to reassess this determination in future reporting periods as the Company continues to refine internal reporting and resource allocation processes.

If the CODM begins to evaluate performance separately for the Technology and IP Development and Telecommunications and Platform Services businesses, the Company will disclose multiple reportable segments at that time.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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 September 30, 2025 and December 31, 2024, the Company had restricted cash balances of $ 21,106 and $ 0 respectively, included as a component of total cash and restricted cash as presented on the accompanying unaudited 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 nine months ended September 30, 2025, one customer accounted for 14% of the Company’s revenues, and another customer accounted for 13% of the Company’s revenues.

As of September 30, 2025, one customer accounted for 31% of total accounts receivable.

The Company may be negatively affected by the loss of one of these customers.

For the comparative period ended September 30, 2024, the Company had no revenues and no accounts receivable.

There were no vendor concentrations during the nine months ended September 30, 2025, or the comparative period ended September 30, 2024.

Accounts Receivable, net

The Company’s accounts receivable consist primarily of amounts due from customers related to 42 Telecom’s telecommunications and messaging services.

Receivables are recorded at the invoiced amount and are typically due under standard credit terms.

Collateral is currently not required.

The Company maintains an allowance for doubtful accounts to estimate potential losses from the inability of customers to make payments.

Management periodically reviews the adequacy of this allowance based on factors such as the customers’ payment history, creditworthiness, the aging of receivable balances, current economic conditions, and historical collection trends.

Accounts determined to be uncollectible are written off against the allowance when collection efforts are exhausted.

As of September 30, 2025 and December 31, 2024, the allowance for doubtful accounts was $ 98,063 and $ 0 , respectively.

Factoring Arrangements

During the period, the Company, through 42 Telecom Ltd.

and 42 Telecom AB, maintained a non-recourse factoring and invoice discounting facility with Fasanara Capital (the “Fasanara Facility”).

Under 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.

Payments from factored customers are remitted directly to a designated Goldman Sachs account controlled by Fasanara.

Because the arrangement is non-recourse, the Company has no continuing involvement with the transferred receivables after sale, and such receivables are derecognized from the consolidated balance sheet in accordance with ASC 860, Transfers and Servicing.

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 related to the Company’s telecommunications and technology operations.

As of September 30, 2025 and December 31, 2024, prepaid expenses and other current assets totaled $ 287,237 and $ 6,500 , respectively.

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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 three and nine months ended September 30, 2025 and 2024.

Intangible Assets, net

The Company’s intangible assets primarily consist of developed technology, customer relationships, and capitalized software development costs associated with its wholly owned subsidiary, 42 Telecom Ltd., acquired in August 2025.

Capitalized software development assets are stated at cost, while developed technology and customer relationships, which represent acquired intangible assets, are recorded at their estimated fair value on the acquisition date, net of accumulated amortization and any impairment losses.

Developed Technology and Customer Relationships

In connection with the acquisition of 42 Telecom Ltd., the Company preliminarily recognized identifiable intangible assets consisting of developed technology and customer relationships in accordance with ASC 805, Business Combinations .

· Developed technology represents proprietary telecommunications and messaging platforms that form the core of 42 Telecom’s service offerings.

· Customer relationships represent established contractual and recurring customer connections that are expected to provide future economic benefits.

These assets are amortized on a straight-line basis over their estimated useful lives, which management has determined to be four years.

Capitalized Software Development

42 Telecom 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 those related to training, maintenance, data conversion, and general overhead, are expensed as incurred.

When 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 four years, which management believes reflects the expected period of economic benefit.

Amortization related to software used directly in service delivery is included in cost of revenue.

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.

Management evaluates intangible assets for indicators of impairment in accordance with ASC 360 and determined that no indicators of impairment were present during the three and nine months ended September 30, 2025.

Acquired Intangible Assets

The allocation of the purchase price related to the 42 Telecom acquisition, including the valuation of identifiable intangible assets, is preliminary and subject to adjustment as the Company finalizes its assessment.

The Company intends to engage an independent valuation specialist to assist in determining the final fair values of identifiable intangible assets and other acquired assets and liabilities.

The final purchase price allocation is expected to be completed within the measurement period of 12 months from the acquisition date, as permitted by ASC 805, Business Combinations (“ASC 805”).

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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.

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 valuing assets acquired and liabilities assumed at the acquisition date, such estimates are preliminary and subject to adjustment.

The Company intends to engage an independent valuation specialist to assist in determining the final fair values of identifiable intangible assets and other acquired assets and liabilities.

The final purchase price allocation is expected to be completed within the measurement period of 12 months from the acquisition date, as permitted under ASC 805.

Goodwill is an asset representing the excess cost over the fair market value of net assets acquired in business combinations.

In accordance with Intangibles - Goodwill and Other (Topic 350) , goodwill is not amortized but is tested annually for impairment or on an interim basis when indicators of potential impairment exist.

Goodwill is tested for impairment at the reporting unit level.

The Company’s reporting units discrete financial information is available and management regularly reviews the operating results.

The Company has the option to first assess qualitative factors 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 assessed for each of the applicable reporting units include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, discount rates, competitive environments and financial performance of the reporting units.

If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.

The Company also has the option to proceed directly to the quantitative test.

Under the quantitative impairment test, the estimated fair value of each reporting unit is compared to its carrying value, including goodwill.

If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit.

Management can resume the qualitative assessment in any subsequent period for any reporting unit.

For the three and nine months ended September 30, 2025, management concluded that no events or circumstances indicated that it was more likely than not that the fair value of our reporting units was less than its respective carrying values.

As such, a quantitative goodwill test was not required, and no goodwill impairment was recognized during the period.

The goodwill recognized in connection with the 42 Telecom acquisition is preliminary and represents the residual amount of the purchase price after allocation to net tangible assets and intangibles.

The final determination of goodwill is subject to change upon completion of the purchase price allocation within the measurement period of 12 months from acquisition date.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Contingent Consideration

The Company records a contingent consideration liability relating to potential additional shares to be issued pursuant to its acquisition.

The estimated fair value of the contingent consideration is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions.

Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations.

The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating result scenarios.

Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results.

The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved.

Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid-in capital in the stockholders’ equity section of the Company’s consolidated balance sheets.

42 Telecom Earnout

The 42 Telecom agreement contains an earn out provision providing for the issuance of 1 million Escrow Shares if 42 Telecom has achieved consolidated net profit above US$1,000,000 for FY2025.

An additional 1 million shares (up until the total 8 million Escrow Shares) shall be released for each US$1,000,000 in profit above the threshold, with pro rata releases for fractional increments (“Bonus Shares”).

The Company determined the preliminary fair value of the contingent consideration was $ 2,300,000 , which is a Level 3 financial instrument.

There was no change to the fair value for the contingent consideration for the period ended September 30, 2025.

The fair value of the contingent consideration is preliminary and may be subject to change based on facts and circumstances that arise prior to final measurement at year-end.

The Company intends to reassess and, if necessary, adjust the valuation of the contingent consideration as additional financial performance data for 42 Telecom becomes available.

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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

The following table presents the disaggregated revenue for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended

September 30,

Nine Months Ended

September 30,

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.

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 $ 1,667,579 and $ 0 as of September 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 September 30, 2025 and December 31, 2024, contract liabilities were $ 335,196 and $ 0 , 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.

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, 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 three and nine months ended September 30, 2025 and 2024, pension plan contributions totaled $ 1,959 and $ 0 , respectively.

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

preliminary project stage of software development are expensed as incurred in accordance with ASC 730, Research and Development.

Stock-Based Compensation

8 unchanged sentences

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.

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.

For the Company, the only component of other comprehensive income (loss) for the period relates to foreign currency translation adjustments arising from the consolidation of 42 Telecom Ltd., 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 shareholders’ equity under Accumulated Other Comprehensive Income (AOCI).

No other components of other comprehensive income (loss) were recognized during the three and nine months ended September 30, 2025.

Foreign Currency Transactions

The Company’s consolidated financial statements include the accounts of 42 Telecom Ltd.

and its subsidiaries.

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):

· 42 Telecom AB Ltd (Sweden):

Swedish Krona (SEK)

· 42 Telecom UK Ltd:

British Pound (GBP)

· Arcus Technologies Ltd:

The accompanying unaudited condensed consolidated financial statements are presented in U.S.

dollars (USD), which is the Company’s reporting currency.

For consolidation purposes, the assets and liabilities of subsidiaries with functional currencies other than USD are translated at exchange rates prevailing at the balance sheet date.

Revenues and expenses are translated at average exchange rates during 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 shareholders’ equity under 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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

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.

SEPTEMBER 30, 2025

The relevant translation rate are as follows:

- For the nine months ended September 30, 2025, closing rate 1.1725 US$:

EURO, 0.1063 US$:

SEK, 1.3432US$:

- For the nine months ended September 30, 2025, average rate 1.1071 US$:

EURO, 0.1043 US$:

SEK, 1.3332 US$:

- For the three and nine months ended September 30, 2025, the Company recorded foreign currency translation adjustments income of $ 18,817 , which are included in other comprehensive Income.

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 (loss) per share (“EPS”) is computed by dividing the Company’s net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period.

Diluted EPS is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding, adjusted for the effect of potentially dilutive securities, including stock options, warrants, convertible instruments, and contingently issuable shares.

For the three and nine months ended September 30, 2025, the Company had options to purchase 3,646,875 shares of common stock that were anti-dilutive due to the net loss for the period.

Accordingly, basic and diluted net loss per share are the same for all periods presented.

Non-Controlling Interests

1 unchanged sentence

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

incurred during the nine months ended September 30, 2025.

The following table sets forth the changes in non-controlling interest for the nine months ended September 30, 2025 and 2024:

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 September 30, 2025

Balance at December 31, 2023

$ ( 221,886 )

Net loss attributable to non-controlling interest

Balance at June 30, 2024

$ ( 221,886 )

Balance at September 30, 2024

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

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.

SEPTEMBER 30, 2025

The Company follows ASC 740, Income Taxes for recording the provision for income taxes.

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Tax law and rate changes are reflected in income in the period such changes are enacted.

The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company includes interest and penalties related to income taxes, including unrecognized tax benefits, within the income tax provision.

The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes.

The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

The Company recognizes windfall tax benefits associated with share-based awards directly to stockholders’ equity only when realized.

A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded.

When assessing whether a tax benefit relating to share-based compensation has been realized, the Company follows the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.

We are currently delinquent with respect to our U.S.

federal income tax filings for the past several years.

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.

2024-03, “Income Statement - 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.

In November 2024, the FASB issued ASU 2024-04, “Debt - Debt with Conversions and Other Options (Subtopic 470-20):

6 unchanged sentences

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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

NOTE 3 – BUSINESS COMBINATIONS

The Company evaluated the acquisition of 42 Telecom Ltd, with its subsidiaries 42 Telecom AB Ltd , 42 Telecom UK Ltd., Arcus Technologies Ltd.

pursuant to ASC 805 and ASU 2017-01, Topic 805, Business Combinations .

The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition.

Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition.

The following is a summary of the preliminary purchase price consideration:

Common stock issued

$ 18,400,000 (1)

Contingent consideration

2,300,000 (2)

Purchase price consideration

(1) Represents the 8,000,000 shares of the Company’s common stock issued to the former shareholders of 42 Telecom Ltd.

as part of the purchase consideration.

The fair value of these shares was determined to be $18,400,000 based on the closing market price of the Company’s common stock on the acquisition date.

(2) Represents the preliminary fair value of contingent consideration based on potential Escrow Shares to be issued pursuant to the terms of the 42 Telecom acquisition agreement.

These shares are issuable upon the achievement of specified post-acquisition performance milestones by 42 Telecom Ltd.

and its subsidiaries.

The Company initially estimated a $1.5 million net profit for fiscal year 2025 when completing the Form 8-K/A based on preliminary discussions with 42 Telecom management.

During preparation of the September 30, 2025 Form 10-Q, the Company obtained detailed FY2025 projections for 42 Telecom and refined its contingent consideration liability to be included in the preliminary purchase price allocation.

Under the acquisition agreement, one million Escrow Shares (“Bonus Shares”) are to be released for each US$1,000,000 in consolidated net profit above the US$1,000,000 threshold, with pro-rata releases for fractional increments.

Based on updated projections and performance results available as of the acquisition date, the Company determined that issuance of 1,000,000 Bonus Shares was probable.

The fair value of the contingent consideration was estimated at $2,300,000 based on estimated net profits and the fair value of the Company’s common stock at the acquisition date.

The Company has made an estimated allocation of the purchase price in regards to the 42 Telecom acquisition related to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the preliminary purchase price allocation:

Cash and cash equivalents

Restricted cash

Accounts receivables, net

Contract assets

Prepaid expenses and other current assets

Property, plant and equipment, net

Internally developed software

Capital work-in-progress

Intangible assets:

Developed technology

Customer relationships

Other receivable, related party

Right of use asset

Accounts payable

( 1,288,922 )

Accrued expenses and other current liabilities

Contract liabilities

Operating lease liability

Deferred tax liability

Purchase price consideration

Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible assets that qualify for separate recognition.

The goodwill is not deductible for tax purposes.

The Company is currently evaluating any potential deferred tax liability effects as part of the purchase price allocation.

The allocation of the purchase price, including the valuation of identifiable intangible assets and other acquired assets and liabilities, is preliminary and subject to adjustment.

The Company intends to engage an independent valuation specialist to assist in determining the final fair values of identifiable intangible assets and other acquired assets and liabilities.

The final purchase price allocation is expected to be completed within the measurement period of 12 months from the acquisition date.

The results of 42 Telecom have been included in the consolidated financial statements since the date of its acquisitions.

42 Telecom’s revenue and net income included in the consolidated financial statements since the acquisition date were $ 3,139,246 and $ 151,374 , respectively.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the Company’s financial results as if the 42 Telecom acquisition had occurred as of January 1, 2024.

The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date.

In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results.

The unaudited pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition:

Three Months Ended

Nine Months Ended

September 30,

( 1,250,105 )

( 1,700,968 )

( 4,106,759 )

( 3,703,456 )

Net loss per common share

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:

September 30,

Office equipment

Furniture and fixtures

Leasehold improvements

Accumulated depreciation

Property, plant and equipment, net

Depreciation expense was $ 8,225 for the three and nine months ended September 30, 2025, respectively.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

NOTE 5 – INTANGIBLE ASSETS

Intangible assets consist of the following:

September 30,

Developed technology (42 Telecom acquisition)

Customer relationships (42 Telecom acquisition)

Internally developed software

Computer software

Accumulated amortization

Intangible assets, net

Intangible assets of $ 13,000,000 and $ 1,750,000 represent developed technology and customer relationships, respectively, identified pursuant to the 42 Telecom business combination (see Note 3).

The amount represents preliminary estimates of fair value and are subject to adjustment as the Company finalizes its purchase price allocation.

The Company recorded amortization of $ 541,667 pertaining to developed technology and $ 72,917 pertaining to customer relationships during the three and nine months ended September 30, 2025.

There was no amortization expense recorded during the three and nine months ended September 30, 2024.

Amortization expense of $ 21,091 was recognized on internally developed software for the three and nine months ended September 30, 2025.

In addition, as of September 30, 2025 and December 31, 2024, the Company had Capital Work in Progress in the amount of $ 309,713 and $ 0 .

NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

September 30,

Accrued cost of revenue

Accrued payroll and benefits

VAT and taxes payable

Accrued expenses and other current liabilities

NOTE 7 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company, through its wholly owned subsidiary 42 Telecom., provides international messaging services, enterprise communications, and platform-based solutions, including SMS aggregation, enterprise A2P messaging, Viber instant messaging, SS7 platform access, and SaaS solutions.

In addition, through Arcus Technologies Ltd., the Company offers platform-as-a-service (PaaS) solutions for telecommunications and enterprise customers.

The majority of the Company’s revenues and long-lived assets are attributable to 42 Telecom, which serves as the principal operating entity within the consolidated group.

The Company manages its operations on a consolidated basis and has determined that it operates in a single reportable

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

segment under ASC 280, Segment Reporting .

This conclusion is consistent with the financial information reviewed regularly by the Chief Executive Officer, who serves as the Chief Operating Decision Maker (CODM), 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 the primary performance measures.

Significant segment expenses include cost of revenue, selling, general and administrative expenses, and wages and benefits, each of which is separately presented in the Company’s unaudited condensed consolidated statements of operations.

For the three and nine months ended September 30, 2025, approximately 99% of total consolidated revenue was generated from European operations, primarily through 42 Telecom Ltd.

Revenues generated from Sweden accounted for approximately 1% of total consolidated revenue during the nine-month period ended September 30, 2025.

The United Kingdom operations did not generate material revenues in either period.

Substantially all of the Company’s long-lived assets, consisting primarily of property, plant and equipment and intangible assets, were located in Europe and held by 42 Telecom Ltd.

as of September 30, 2025.

There were no revenues during the comparative period ended September 30, 2024.

NOTE 8 – LEASE OBLIGATION

42 Telecom Ltd maintains an office lease 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.

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:

September 30,

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 $ 11,383 for the nine months ended September 30, 2025.

The following is the summary of future minimum payments as of:

2025 (three months remaining)

Total lease payments

imputed interest

NOTE 9 – 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.

42 Telecom Acquisition

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

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.

SEPTEMBER 30, 2025

On July 7, 2025, the Company entered into a Definitive Share Exchange Agreement with Heritage Ventures Ltd.

(“Heritage”), an Irish corporation, and 42 Telecom Ltd.

(“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).

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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 percent 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 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 will be 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 will include the results of 42 Telecom beginning on the date of acquisition.

See Note 3 for further detail.

Transaction With Former Shareholder of 42 Telecom

Heritage Ventures Ltd (“Heritage”) is the 100% owner of 42 Telecom Ltd (“42”) up to the date of sale to Spectral Capital.

The beneficiary owner of Heritage is Orlando Taddeo, who bought 42 Telecom Ltd (through Heritage) in September 2023.

At the time, it 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 last month that agreements were distributed and signed by employees, and those agreements were provided by Heritage Ventures.

It was determined that 42 acted solely as a paying agent in the transaction whereby Heritage will pay cash bonuses to 42’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 will record the pass-through transaction.

Accordingly, during the period ended September 30, 2025, the Company distributed €1.3 million to the employee and related tax payable by employees depending on their tax band.

42 Telecom - Other receivable

As part of the acquisition of 42 Telecom Ltd.

on August 1, 2025, the Company acquired a long-term receivable from Nexora Holdings Ltd.

amounting to €362,597 (approximately US $ 417,095 ).

As of September 30, 2025.

Nexora Holdings Ltd.

is owned by a director of 42 Telecom Ltd.

and is therefore considered a related party under ASC 850, Related Party Disclosures.

The receivable originated from an Intellectual Property Transfer Agreement dated July 1, 2025, between 42 Telecom Ltd.

and Nexora Holdings Ltd.

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 September 30, 2025, with a carrying amount of US $425,159.

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 $ 36,000 and $ 108,000 for the three and nine months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025 and December 31, 2024, amounts due to the CEO related to accrued salaries were $ 540,000 and $ 432,000 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 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.

As of September 30, 2025 and December 31, 2024, the Company's CEO was due $ 0 in connection with these advances.

During the nine months

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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 .

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.

Loans from related parties

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 nine months ended September 30, 2025, the Company received a total of proceeds of $ 204,590 under this agreement and repaid $130,000 during the same period.

The loan bears interest at 10% per annum repayable on demand and matures in 12 months.

As of September 30, 2025, the outstanding balance under this agreement was $ 74,590 .

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 nine months ended September 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 September 30, 2025, the total amount due under this agreement was $ 10,000 .

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 September 30, 2025, the total amount due under this note was $ 10,000 .

Transactions with Former Chairman and Affiliates

During the nine months ended September 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”).

7 unchanged sentences

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.

As of September 30, 2025 and December 31, 2024, amounts due under the note totaled $ 0 and $ 550,700 , respectively.

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;

12 unchanged sentences

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.

As of September 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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Governance Changes

Effective May 30, 2025, five members of the Board of Directors—Sean Brehm, Sam Lee, Aby Alexander, Chad Lemming, and Paul Breitenbach—resigned.

1 unchanged sentence

These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

NOTE 10 – LOAN

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.

On October 29, 2025, the Company issued 10,000 shares of common stock as settlement for the loan.

NOTE 11 – STOCKHOLDERS’ DEFICIT

8 unchanged sentences

Due to the subsequent cancellation of the acquisition, the initial transaction was recorded at par value.

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.

As of September 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

4 unchanged sentences

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.

As of September 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

1 unchanged sentence

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.

During the nine months ended September 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.

As of September 30, 2024, total proceeds of $ 1,010,000 had been received from this offering.

As further discussed in Note 9, this offering was consummated with a related party in connection with the acquisition of NNN.

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 - $1.49 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.

During the nine months

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

SEPTEMBER 30, 2025

ended September 30, 2025, the Company issued 394,700 shares of common stock for total proceeds of $ 404,970 under this offering.

Business Combination

On August 1, 2025, the Company issued 8,000,000 shares of its common stock to the former shareholders of 42 Telecom Ltd.

in connection with the acquisition of 42 Telecom and its subsidiaries.

The shares were valued at $ 18,400,000 , based on the closing market price of the Company’s common stock on the acquisition date, and were recorded as part of the total purchase consideration.

In addition, pursuant to the terms of the acquisition agreement, the Company may issue up to an additional 8,000,000 shares of common stock, subject to the achievement of specified post-acquisition performance milestones by 42 Telecom Ltd.

and its subsidiaries.

As of September 30, 2025, the contingent shares had not yet been issued, as the performance conditions remained outstanding.

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.

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 .

15 unchanged sentences

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.

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:

4 unchanged sentences

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.

During the three and nine months ended September 30, 2025, $ 220,500 and $ 856,819 was expensed to selling, general and administrative, respectively.

During the three and nine months ended September 30, 2024, $ 415,819 and $ 554,532 was expensed to selling, general and administrative, respectively As of September 30, 2025, total unrecognized compensation expense from stock options was $ 588,000 and is expected to be expensed over 0.75 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:

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

The following is a summary of stock option activity for the nine months ended September 30, 2025:

Stock Options

4 unchanged sentences

( 3,163,125 )

Outstanding, June 30, 2025

Vested, June 30, 2025

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

Outstanding, September 30, 2025

Vested, September 30, 2025

NOTE 12 – COMMITMENTS AND CONTINGENCIES

The Company leases virtual office space on a month-to-month basis in Seattle, Washington.

Refer to Note 8 for the Company’s lease obligation.

In addition, Company leases virtual office space on a month-to-month basis in Seattle, Washington.

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.

11 unchanged sentences

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.

As of September 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.

As of September 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.

As of September 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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Investment in White Label Loyalty

2 unchanged sentences

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.

NOTE 13 - SUBSEQUENT EVENTS

On September 29, 2025, Spectral Capital Corporation (“Spectral”) entered into a binding term sheet with Telvantis Voice Services, Inc.

(“Telvantis”), a Florida corporation, pursuant to which Spectral will acquire 100% of the issued and outstanding capital stock of Telvantis (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.

Telvantis shareholders may earn the additional shares if Telvantis 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.

The term sheet is binding and enforceable upon execution, and the parties intend to negotiate and enter into a definitive stock purchase agreement and related documents.

On October 7, 2025, the Company entered into a binding term sheet to acquire SnackPrompt Corp.

(“SnackPrompt”), a marketplace for AI workflow automation solutions.

Under the terms of the transaction, the Company will issue up to 10,000,000 shares of its common stock to the shareholders of SnackPrompt at closing and in subsequent earn-outs, subject to customary closing conditions.

Management has concluded this constitutes a non-adjusting subsequent event.

On October 8, 2025, the Company executed a definitive term sheet with MultiCortex, LLC (“MultiCortex”), a developer of heterogeneous computing systems optimized for artificial intelligence and quantum-ready architectures.

The consideration under the agreement includes the issuance by the Company of 10,000,000 shares of its common stock at closing and in subsequent earn-outs, subject to satisfaction of due diligence and completion of definitive documentation.

Management has concluded this constitutes a non-adjusting subsequent event.

On October 2, 2025, the Company completed a private placement of its common stock for gross proceeds of approximately $1.3 million, issuing 1,000,000 shares to accredited investors pursuant to a private placement memorandum and subject to customary closing conditions.

The proceeds are intended to be used for working capital, research and development, patent filings and general corporate purposes.

This transaction is a non-adjusting subsequent event.

On October 15, 2025, the Company entered into an Asset Purchase Agreement with Eliznikcomp OÜ, an Estonian corporation, to acquire certain intellectual property and related assets.

The acquired assets include twenty-one (21) patentable innovations related to native Artificial Intelligence (AI) operating systems developed in a Linux environment, as well as proprietary processes for optimizing field-programmable gate arrays (FPGAs) and technologies for security and multi-application remote synchronization.

In consideration for the acquisition, Spectral will issue 9,000,000 shares of its common stock to the shareholders of Eliznikcomp OÜ at closing.

The signing and closing of the transaction occurred simultaneously on October 15, 2025.

The Company evaluated this transaction as an asset purchase and not a business combination.

The acquired assets will be recorded as intangible assets and evaluated for capitalization, useful life, and potential impairment.

As of the date of this filing the shares have not yet been issued and the asset yet to be acquired.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

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.

SEPTEMBER 30, 2025

As of the date these unaudited condensed consolidated financial statements were authorized for issuance, the Company has filed a total of 302 provisional and utility patent applications covering artificial intelligence, quantum computing and hybrid AI-quantum systems.

Management views this as a material indicator of the strength and scope of the Company’s research and development pipeline, although it is not a discrete recognized event requiring adjustment to the financial statements.

On October 31, 2025, Arcus, a wholly owned subsidiary of 42 Telecom Ltd., which itself is a wholly owned subsidiary of Spectral Capital Corporation, entered into a Repayment and Settlement Agreement with the counterparty identified therein.

Under the terms of the agreement, Arcus agreed to the repayment obligations and settlement terms set forth in the contract, including the schedule and conditions for repayment of outstanding amounts, mutual releases, and related covenants.

The agreement resolves the matters described in the settlement document and constitutes a final settlement between the parties.

Spectral evaluated this agreement and determined that it represents a Type 2 subsequent event, as the conditions giving rise to the settlement did not exist as of September 30, 2025.

The Company has concluded that no adjustment to the consolidated financial statements as of, and for the period ended, September 30, 2025, is required.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements