SPECTRAL CAPITAL Corp 10-Q

Item 1: Financial Statements 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. INDEX TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc. Condensed Consolidated Balance Sheets as of September 30, 2025 (unaudited) and December 31, 2024 F-2 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) F-3 Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (unaudited) F-6 Notes to the Condensed Consolidated Financial Statements (unaudited) F-7 F-1 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024 September 30, December 31, 2025 2024 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 426,295 $ 107,475 Restricted cash 21,106 - Accounts receivable, net 1,456,551 - Contract assets 1,667,579 - Prepaid expenses and other current assets 287,237 6,500 Total current assets 3,858,768 113,975 Property, plant and equipment, net 143,309 - Intangible assets, net 14,471,425 - Capital work-in-progress 309,713 - Goodwill 4,432,318 - Other receivable, related party 425,159 - Right of use asset 183,097 - Total assets $ 23,823,789 $ 113,975 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,655,257 $ 482,461 Accrued expenses and other current liabilities 836,087 - Related party advances and accruals 94,588 550,700 Short Term Loan 10,000 - Contingent consideration 2,300,000 - Contract liabilities 335,196 - Operating lease liability, current portion 64,309 - Total current liabilities 6,295,437 1,033,161 Loan payable - - Operating lease liability, net of current portion 118,788 - Deferred tax liability 83,688 - Total liabilities 6,497,913 1,033,161 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 - 100 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 7,609 6,770 Additional paid-in capital 53,965,976 33,629,226 Accumulated deficit ( 36,444,640 ) ( 34,333,396 ) Accumulated other comprehensive income/(loss) 18,817 - Total Spectral stockholders' equity (deficit) 17,547,762 ( 697,300 ) Non-controlling interest ( 221,886 ) ( 221,886 ) Total stockholders' deficit 17,325,876 ( 919,186 ) Total liabilities and stockholders' equity (deficit) $ 23,823,789 $ 113,975 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-2 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024 (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Revenue $ 3,139,246 $ - $ 3,139,246 $ - Cost of revenue 2,428,879 - 2,428,879 - Gross profit 710,367 - 710,367 - Operating expenses: Selling, general and administrative 1,240,552 610,588 2,315,193 1,087,877 Wages and benefits 441,984 36,000 513,984 108,000 Research and development - 548,398 - 548,398 Total operating expenses 1,682,536 1,194,986 2,829,177 1,744,275 Loss from operations ( 972,169 ) ( 1,194,986 ) ( 2,118,810 ) ( 1,744,275 ) Other income (expense): Interest expense, net ( 2,802 ) - ( 2,802 ) - Extinguishment of debt - - - ( 265,596 ) Other income 13,858 - 13,858 - Total other (expense) 11,056 - 11,056 ( 265,596 ) Loss before income taxes ( 961,113 ) ( 1,194,986 ) ( 2,107,754 ) - Income taxes ( 3,490 ) - ( 3,490 ) - Net loss $ ( 964,603 ) $ ( 1,194,986 ) $ ( 2,111,244 ) $ ( 2,009,871 ) Other comprehensive income (loss): Foreign currency translation income (loss) 18,817 - 18,817 - Total comprehensive loss $ ( 945,786 ) $ ( 1,194,986 ) $ ( 2,092,427 ) $ ( 2,009,871 ) Basic and diluted net loss per share $ ( 0.01 ) $ ( 0.02 ) $ ( 0.03 ) $ ( 0.04 ) Weighted average shares outstanding - basic and diluted 73,029,654 65,351,476 69,495,611 54,059,221 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-3 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024 (UNAUDITED) Series Quantum Additional Accumulated Other Total Preferred Stock Common Stock Paid-In Non-Controlling Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Capital Interest Income Deficit Equity (Deficit) Balances at December 31, 2023 - $ - 42,017,948 $ 4,202 $ 29,181,804 $ ( 221,886 ) $ - $ ( 29,296,599 ) $ ( 332,479 ) Net loss ( 64,864 ) ( 64,864 ) Balances at March 31, 2024 - - 42,017,948 4,202 29,181,804 ( 221,886 ) - ( 29,361,463 ) ( 397,343 ) Proceeds from sale of common stock - - 15,250,000 1,526 198,514 - - - 200,040 Issuance of common stock for liabilities - - 3,631,354 363 353,328 - - - 353,691 Stock-based compensation - - 2,000,000 200 333,313 - - - 333,513 Net loss - - - - - - - ( 750,021 ) ( 750,021 ) Balances at June 30, 2024 - - 62,899,302 6,291 30,066,959 ( 221,886 ) - ( 30,111,484 ) ( 260,120 ) Common and preferred stock issued for cash and acquisiton 1,000,000 100 4,800,000 480 965,375 - - - 965,955 Stock-based compensation - - - - 415,819 - - - 415,819 Net loss - - - - - - - ( 1,194,986 ) ( 1,194,986 ) Balances at September 30, 2024 1,000,000 $ 100 67,699,302 $ 6,771 $ 31,448,153 $ ( 221,886 ) $ - $ ( 31,306,470 ) $ ( 73,332 ) Balances at December 31, 2024 1,000,000 $ 100 67,699,302 $ 6,770 $ 33,629,226 $ ( 221,886 ) $ - $ ( 34,333,396 ) $ ( 919,186 ) Stock-based compensation - - - - 415,819 - - - 415,819 Net loss - - - - - - - ( 660,028 ) ( 660,028 ) Balances at March 31, 2025 1,000,000 100 67,699,302 6,770 34,045,045 ( 221,886 ) - ( 34,993,424 ) ( 1,163,395 ) Common stock issued pursuant to private placement - - 74,700 7 84,963 - - - 84,970 Stock-based compensation - - - - 220,500 - - - 220,500 Settlement of related party liabilities ( 1,000,000 ) ( 100 ) - - 675,800 - - - 675,700 Net loss - - - - - - - ( 486,613 ) ( 486,613 ) Balances at June 30, 2025 - - 67,774,002 6,777 35,026,308 ( 221,886 ) - ( 35,480,037 ) ( 668,838 ) Common stock issued pursuant to business combination - - 8,000,000 800 18,399,200 - - - 18,400,000 Common stock issued pursuant to private placement - - 320,000 32 319,968 - - - 320,000 Stock-based compensation - - 214 - 220,500 - - - 220,500 Net loss - - - - - - 18,817 ( 964,603 ) ( 945,786 ) Balances at September 30, 2025 - $ - 76,094,216 $ 7,609 $ 53,965,976 $ ( 221,886 ) $ 18,817 $ ( 36,444,640 ) $ 17,325,876 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-4 SPECTRAL CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024 (UNAUDITED) Nine Months Ended September 30, 2025 2024 Cash flows from operating activities: Net loss $ ( 2,111,244 ) $ ( 2,009,871 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 856,819 749,332 Amortization of ROU assets 11,071 - Depreciation 8,225 - Amortization of intangibles 635,675 - Deferred tax adjustment 1,587 - Excess value of common stock issued to settle liabilities - 265,591 Changes in operating assets and liabilities: Accounts receivable ( 183,227 ) - Contract assets ( 834,824 ) - Prepaid expenses and other current assets 131,582 - Other receivable, related party ( 8,064 ) - Due to related parties - accrued salary 144,000 72,000 Accounts payable 883,874 36,688 Lease liability ( 11,071 ) - Accrued expenses and other current liabilities ( 112,523 ) - Contract liabilities 84,687 - Net cash used in operating activities ( 503,433 ) ( 886,260 ) Cash flows from investing activities: Cash and restricted cash acquired from business combination 297,421 5,955 Purchase of property, plant and equipment ( 39,500 ) - Software development capitalization ( 67,022 ) - Deposit paid for acquisition - ( 134,862 ) Net cash provided by (used in) investing activities 190,899 ( 128,907 ) Cash flows from financing activities: Short-term advances, related party 219,588 45,500 Repayment of loan ( 915 ) - Short-term loan 10,000 - Proceeds from sale of common stock 404,970 1,160,040 Net cash provided by financing activities 633,643 1,205,540 Effect of exchange rate changes on cash and cash equivalents 18,817 1 Net change in cash and cash equivalents 339,926 190,374 Cash and cash equivalents and restricted cash at beginning of period 107,475 240 Cash and cash equivalents and restricted cash at end of period $ 447,401 $ 190,614 Reconciliation of cash and restricted cash: Cash at beginning of period $ 107,475 $ 240 Restricted cash at beginning of period - - Cash and restricted cash at beginning of period $ 107,475 $ - Cash at end of period $ 426,295 $ 190,614 Restricted cash at end of period 21,106 - Cash and restricted cash at end of period $ 447,401 $ 190,614 Supplemental disclosure of cash flow information: Cash paid for income taxes $ - $ - Cash paid for interest $ - $ - Supplemental disclosure of non-cash investing and financing activities: Issuance of common stock pursuant to business combination $ 18,400,000 $ - Contingent consideration liability recognized with business combination $ 2,300,000 $ - Settlement of related party liabilities $ 675,700 $ - Issuance of common stock in settlement of liabilities $ - $ 88,100 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F-5 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) NOTE 1 – BUSINESS AND NATURE OF OPERATIONS Spectral Capital Corporation (the “Company” or “Spectral”) was incorporated on September 13, 2000 under the laws of the State of Nevada. Spectral is focused on the identification, acquisition, development, and financing of technology that has the potential to transform existing industries. Spectral has acquired significant stakes in two recently reactivated technology companies (Noot and Monitr) as well as interests within telecommunications, data and switching services, specifically providing international long distance reselling services on a business-to-business (B2B) basis and a newly emergent business in the field of deploying Quantum Computing as a Service (“QAAS”) technologies as well as supporting start-ups in that field with shared technological, marketing and other resources. Spectral’s business model is built on four synergistic pillars: (1) the development of a robust intellectual property portfolio—including patents and trade secrets—at the intersection of artificial intelligence and hybrid classical computing; (2) monetization of that IP through licensing agreements that include both cash payments and equity in licensee companies; (3) creation of high-impact software tools derived from Spectral’s core IP that are modular, cost-efficient, and capable of producing significant risk-adjusted returns; and (4) acquisition and transformation of smaller technology companies through the strategic application of Spectral’s proprietary technology. In 2024, Spectral filed 104 patent applications across artificial intelligence, quantum computing, and autonomous systems, while concurrently developing an internal pipeline of over 400 additional patentable innovations. The Company also engaged a network of senior scientific and commercial advisors to enhance IP defensibility and commercialization readiness. These efforts support an expanding pipeline of licensing negotiations and product development initiatives. The Company’s legacy as a technology incubator included several historical acquisitions, such as Noot Holdings and Monitr Holdings. In 2024, Spectral entered a new strategic phase through a series of acquisitions and platform developments in quantum and decentralized computing. However, in 2025, the Company formally rescinded certain transactions involving former Chairman Sean Michael Brehm and related entities. These rescissions preserved Spectral’s independently developed intellectual property, clarified ownership of over 100 provisional patents, and returned in excess of $100 million in share-based consideration to shareholders—thereby restoring strategic focus and corporate governance alignment. 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. (Sweden) · 42 Telecom UK Ltd. (United Kingdom) · Arcus Technologies Ltd. (Malta) 42 Telecom provides international telecommunications and messaging solutions. Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions. Through Arcus Technologies Ltd, 42 Telecom also offers platform-as-a-service solutions tailored for the tourism sector. 42 Telecom serves a global customer base consisting primarily of mobile network operators and enterprises. 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. F-6 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has 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. F-7 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2024. The results of operations for the 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, 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. See Note 1 and Note 9 for discussion of the acquisition and then rescindment of the NNN acquisition. Basis of Presentation The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value: Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Include other inputs that are directly or indirectly observable in the marketplace. Level 3 Unobservable inputs which are supported by little or no market activity. F-8 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 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 Segments 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: 1. 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; and 2. 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. F-9 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 F-10 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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”). F-11 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 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. F-12 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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. F-13 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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, 2025 2024 2025 2024 Messaging Services, at a point in time $ 3,121,927 $ - $ 3,121,927 $ - Platform Leasing, over time 17,319 - 17,319 - Total $ 3,139,246 $ - $ 3,139,246 $ - 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 F-14 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) preliminary project stage of software development are expensed as incurred in accordance with ASC 730, Research and Development. Stock-Based Compensation The Company accounts for employee stock-based compensation in accordance with the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company follows ASC Topic 505-50, Equity: Equity-Based Payments to Non-Employees for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered. The Company accounts for forfeitures as they occur. Accordingly, compensation expense is recognized only for awards that ultimately vest. Forfeitures are recognized in the period in which they occur, and no estimations or adjustments are made for anticipated forfeitures. Because the Company’s stock-based compensation options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, amounts estimated using the Black-Scholes option pricing model may differ materially from the actual fair value of the Company’s stock-based compensation options. Comprehensive Income (loss) Comprehensive income (loss) includes net income (loss) as well as other changes in shareholders’ equity resulting from transactions and economic events other than those with shareholders. In addition to net income (loss), comprehensive income (loss) encompasses other comprehensive income (loss) items that are excluded from net income under U.S. GAAP. For the Company, the only component of other comprehensive income (loss) for the 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): Euro (EUR) · 42 Telecom AB Ltd (Sweden): Swedish Krona (SEK) · 42 Telecom UK Ltd: British Pound (GBP) · Arcus Technologies Ltd: Euro (EUR) 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. F-15 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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$: GBP. - For the nine months ended September 30, 2025, average rate 1.1071 US$: EURO, 0.1043 US$: SEK, 1.3332 US$: GBP. - 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. Leases The Company accounts for its leases under ASC 842, Leases . Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. In calculating the right of use asset and lease liability, the Company has elected not to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term. Earnings Per Share (EPS) Basic earnings (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 Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 40% share of net income (losses) of Noot Holdings, Inc. and Monitr Holdings, Inc. incurred during the nine months ended September 30, 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 September 30, 2025 $ ( 221,886 ) Balance at December 31, 2023 $ (221,886) Net loss attributable to non-controlling interest - Balance at September 30, 2024 $ ( 221,886 ) F-16 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) Income Tax 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).” 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): Induced Conversions of Convertible Debt Instruments” (“ASU 2024-04”). ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. The requirements of ASU 2024-04 are effective for the Company for fiscal years beginning after December 15, 2025, and interim periods within those periods. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. The FASB issues ASUs to amend the authoritative literature in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company’s financial statement. F-17 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 $ 20,700,000 (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: Total Cash and cash equivalents $ 276,716 Restricted cash 20,705 Accounts receivables, net 1,273,324 Contract assets 832,755 Prepaid expenses and other current assets 412,319 Property, plant and equipment, net 112,034 Internally developed software 320,898 Capital work-in-progress 278,893 Intangible assets: Developed technology 13,000,000 Customer relationships 1,750,000 Goodwill 4,432,318 Other receivable, related party 417,095 Right of use asset 179,624 Accounts payable ( 1,288,922 ) Accrued expenses and other current liabilities ( 804,610 ) Contract liabilities ( 250,509 ) Operating lease liability ( 179,624 ) Loan payable ( 915 ) Deferred tax liability ( 82,101 ) Purchase price consideration $ 20,700,000 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, September 30, 2025 2024 2025 2024 Net revenues $ 4,179,820 $ 5,897,476 $ 10,631,715 $ 24,342,888 Net loss $ ( 1,250,105 ) $ ( 1,700,968 ) $ ( 4,106,759 ) $ ( 3,703,456 ) Net loss per common share $ ( 0.02 ) 4 ( 0.02 ) $ ( 0.06 ) $ ( 0.06 ) NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment consist of the following: September 30, December 31, 2025 2024 Office equipment $ 7,587 $ - Computers 111,493 - Furniture and fixtures 25,105 - Leasehold improvements 7,349 - 151,534 - Less : Accumulated depreciation 8,225 - Property, plant and equipment, net $ 143,309 $ - Depreciation expense was $ 8,225 for the three and nine months ended September 30, 2025, respectively. F-18 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) NOTE 5 – INTANGIBLE ASSETS Intangible assets consist of the following: September 30, December 31, 2025 2024 Developed technology (42 Telecom acquisition) $ 13,000,000 $ - Customer relationships (42 Telecom acquisition) 1,750,000 - Internally developed software 355,679 - Computer software 1,420 - Website - - 15,107,099 - Less : Accumulated amortization 635,675 - Intangible assets, net $ 14,471,425 $ - 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, December 31, 2025 2024 Accrued cost of revenue $ 623,727 $ - Accrued payroll and benefits 9,300 - VAT and taxes payable 70,285 - Other 132,775 - Accrued expenses and other current liabilities $ 836,087 $ - 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 F-19 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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, December 31, 2025 2024 Operating Leases Right-of-use assets $ 183,097 $ - Operating lease liability, current portion 64,309 - Operating lease liability, net of current portion 118,788 - Total lease liabilities $ 183,097 $ - Weighted Average Remaining Lease Term (in years) 2.75 Weighted Average Discount Rate 4 % 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: December 31, 2025 (three months remaining) $ 35,176 2026 70,352 2027 70,352 2028 35,176 Total lease payments 211,057 Less : imputed interest ( 27,960 ) Total $ 183,097 NOTE 9 – RELATED PARTY TRANSACTIONS 42 Telecom Acquisition F-20 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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). F-21 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 September 30, 2025 and December 31, 2024, the Company's CEO was due $ 0 in connection with these advances. During the nine months F-22 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 . 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”). The Note provides for up to $2,500,000 in advances under the Note by Mr. Brehm to Spectral. The Note must be repaid by the Company, including accrued interest at 4% APR at the end of five years. The Note balance may be applied to the exercise of Mr. Brehm’s options to acquire common stock in the Company at any time while the Note is outstanding. In June 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements and no longer owes Mr. Brehm compensation for the demand advances. As a result of the settlement, the total outstanding balance of $ 675,700 was relieved and recorded to additional paid-in capital. As of 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; see Note 11. In connection with the acquisition, Sean Michael Brehm also purchased 5,050,000 of the Company’s common shares at $0.20 per share for a total purchase price of $ 1,010,000 . Due to the related party and common control nature of this transaction, the acquisition was accounted for at the carrying value of the acquired net assets of NNN. Assets acquired consisted of approximately $ 4,955 in cash. The pre-acquisition financial results of NNN were not significant. Due to the cancellation, the initial transaction was recorded at par value. Prior to the close of the acquisition, the Company paid approximately $ 145,000 to NNN for development services. Subsequently, on November 13, 2024, the transaction was rescinded. The 1,000,000 Series Quantum Preferred Shares that were issued have been assigned to a new Delaware corporation, controlled by Sean Michael Brehm, which was assigned the intellectual property previously owned by NNN. The new entity was recently established and had no operations. The Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior acquisitions and planned collaborations involving Node Nexus Network, Vogon Cloud, Quantomo, and Crwdunit. Under the agreement, Spectral retains ownership of 104 patent filings developed during the course of the collaboration. Brehm and his affiliates will pursue independent commercial development of the foregoing technologies in a separate private vehicle. All shares previously issued to Brehm and his affiliates have been returned and cancelled except for the private placement shares of 5,050,000 purchased by Brehm which were fully paid for. As of 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. F-23 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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. On the same date, the Board appointed Michael Turner and Jeffrey Chong as new directors. These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting. 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 Preferred Stock On August 30, 2024, the Company filed a Certificate of Designation for the newly designated Series Quantum Preferred Stock. The number of Series Quantum Preferred Stock designated is 2,000,000 . The Series Quantum Preferred Stock contain a liquidation preference over common shareholders equal to 40 times the amount per share to be distributed to the common shareholders. The Series Quantum Preferred Stock is convertible at the option of the Company or the holder into 40 shares of the Company’s common stock, contingent upon the Company having enough authorized shares to effectuate the conversion. In addition, the conversion right shall not become exercisable by the holder until 12 months have elapsed from the date of issuance of the Series Quantum Preferred Stock. The holders of the Series Quantum Preferred Stock have the right to vote on an as-converted-to-common basis, such that one share of Series Quantum Preferred Stock has 40 votes. On August 29, 2024, the Company issued 1,000,000 shares of Series Quantum Preferred Stock to Sean Michael Brehm in connection with the acquisition of NNN. Due to the subsequent cancellation of the acquisition, the initial transaction was recorded at par value. See Note 9. 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 On May 30, 2025, the Company executed a Restated Share Transfer Agreement with Intrepid View Partners, LP, under which Spectral acquired 169,889 common shares of a global autonomous vehicle company (the “WAV Company”) for an aggregate purchase price of $16,988,900, which will be paid via the issuance of 1,698,890 restricted shares of Spectral’s common stock . The WAV Company shares are subject to a 12-month delivery restriction, and both the WAV Company shares and the Spectral shares issued as consideration are subject to a three-year lock-up period. Delivery is contingent upon satisfaction of certain regulatory and procedural requirements, which may involve delays. The Seller makes no representations regarding the financial condition or value of the WAV Company, and the transaction is structured as an “as-is” investment. Both parties have agreed to customary representations, warranties, and mutual indemnification provisions. As of 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 On April 22, 2024, the Board of Directors approved a Private Placement Offering pursuant to Rule 506(b) of the Securities Act of 1933, as amended (the “Securities Act”) for up to 15,000,000 restricted shares of the Company’s common stock at a price of $0.01 per share, or an aggregate of $150,000. The offering commenced on April 22, 2024 and ended on June 3, 2024. During the 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 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 nine months F-24 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 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 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 . On May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements. Pursuant to the agreement, the Company no longer owes Mr. Brehm compensation for outstanding demand advances totaling $ 675,500 . See Note 9 and Note 11 for additional discussion. Stock for Services On April 26, 2024, we entered into a consulting contract with Scandere OU (Estonia) (“Scandere”). Scandere has the same management and been contracted on behalf of Sky Data PPL and has experience in the telecommunications industry. Scandere will provide us with management services, CDR processing, fraud management, reporting and analytics and credit and finance management to facilitate our reentry into telecommunication reselling operations. The contract shall remain in force until the completion of the services or the earlier termination of the agreement. As payment for its services, Scandere receives 2,000,000 restricted shares of the Company’s common stock, valued at $ 194,800 based upon the closing price of the Company’s common stock on the date of the agreement. Employee Options The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors. During the nine months ended September 30, 2024, the Company issued options to purchase 6,810,000 shares of common stock at prices ranging from $ 0.43 to $ 0.61 per share. The Company used the following variables to determine the fair value of the options: Closing stock prices ranging from $ 0.50 - $ 0.72 ; expected lives ranging from 6.0 to 7.0 years; volatility of 203.49 %; risk free rate of 3.5 % and no dividend yield. The total grant date fair value was $ 3,345,600 . 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. F-25 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) The following is a summary of stock option activity for the nine months ended September 30, 2025: Stock Options Weighted Average Exercise Price Weighted Average Life Remaining Outstanding, December 31, 2024 6,810,000 0.43 9.45 Issued - - - Exercised - - - Forfeited/Expired ( 3,163,125 ) 0.43 8.95 Outstanding, September 30, 2025 3,646,875 $ 0.43 8.70 Vested, September 30, 2025 2,296,875 $ 0.43 8.70 NOTE 12 – COMMITMENTS AND CONTINGENCIES Lease 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. Litigation From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. The Company is not aware of any such legal proceedings that will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results. There was a claim made by a third party entity regarding Mr. Brehm and Node Nexus Network. The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim and has been provided with an indemnity by Mr. Brehm for the same. The Company previously owed Rubenstein Public Relations $30,000. There was a dispute regarding the proper amount of the invoice and the parties agreed to settle the amount due for $24,000 and signed a settlement agreement to that effect. The amount was paid in full in June 2025. Asset Acquisitions On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Quantomo OU., an Estonian corporation (“Quantomo”), whereby the Company agreed to acquire from Quantomo 100% of the Quantomo’s outstanding shares in exchange for 2,000,000 shares of the Company’s common stock and a one-time cash payment of $135,000 or (120,000 Euros) which was paid and expensed in 2024. The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of the certain closing conditions as defined within the agreement. As of 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 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 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. F-26 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) Investment in White Label Loyalty In May 2025, the Company entered into a non-binding term sheet to invest $15,000,000 in White Label Loyalty, a UK-based SaaS provider of enterprise-grade loyalty and customer engagement platforms. The investment was structured as a primary equity infusion to support White Label Loyalty’s product development and international expansion. The Company has elected to let the term sheet expire according to its terms and not to pursue this financing. NOTE 13 - SUBSEQUENT EVENTS 1. 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. 2. 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. 3. 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. 4. 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. 5. 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. F-27 SPECTRAL CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2025 (UNAUDITED) 6. 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. 7. 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. GAAP. F-28