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Item 1. Financial Statements

2026-05-13 compared with 2025-11-14 · 662 added, 754 removed, 289 unchanged (83% of the section changed)

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.

Our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2026 and 2025 are part of this quarterly report.

They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.

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Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc.

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

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

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

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

Condensed Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2026 and 2025 (unaudited)

Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three Months Ended March 31, 2026 and 2025 (unaudited)

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (unaudited)

Notes to the Condensed Consolidated Financial Statements (unaudited)

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CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024

September 30,

AS OF MARCH 31, 2026, AND DECEMBER 31, 2025

(In thousands, except per share data and share count)

Current assets:

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Accounts receivable, net

Accounts receivable, related party

Contract assets

Contract assets, related party

Due from related party

Prepaid expenses and other current assets

8 unchanged sentences

Accounts payable

Accounts payable, related party

Accrued expenses and other current liabilities

Related party advances and accruals

Short Term Loan

Due to related party

Accounts receivable financing facility

Contingent consideration

6 unchanged sentences

Commitments and contingencies (Note 14)

Stockholders' equity (deficit):

Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized

no shares issued and outstanding

Series Quantum Preferred stock, par value $ 0.0001 , 2,000,000 shares

authorized, 0 and 1,000,000 shares issued and outstanding as of

September 30, 2025 and December 31, 2024

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

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

September 30, 2025 and December 31, 2024

Stockholders' equity:

Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized no shares issued and outstanding

Series Quantum Preferred stock, par value $ 0.0001 , 2,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2026 and December 31, 2025

Common stock, par value $ 0.0001 , 300,000,000 shares authorized 89,354,216 and 88,254,216 shares issued and outstanding as of March 31, 2026 and December 31, 2025

Common stock to be issued (500,000 and 1,500,000 shares as of March 31, 2026 and December 31, 2025)

Additional paid-in capital

Accumulated deficit

( 36,444,640 )

( 34,333,396 )

Accumulated other comprehensive income/(loss)

Total Spectral stockholders' equity (deficit)

Accumulated other comprehensive income

Total stockholders' equity

Non-controlling interest

Total stockholders' deficit

Total liabilities and stockholders' equity (deficit)

Total liabilities and stockholders' equity

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

SPECTRAL CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(In thousands, except per share data and share count)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Total revenues

Cost of revenue

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Wages and benefits

Research and development

Depreciation and amortization

Total operating expenses

Loss from operations

( 1,194,986 )

( 2,118,810 )

( 1,744,275 )

Other income (expense):

Interest expense, net

Extinguishment of debt

Loss from change in fair value of contingent consideration

Total other expense

Loss before income taxes

( 1,194,986 )

( 2,107,754 )

$ ( 964,603 )

$ ( 1,194,986 )

$ ( 2,111,244 )

$ ( 2,009,871 )

Net loss attributable to non-controlling interests

Net loss attributable to the Company

Other comprehensive income (loss):

Foreign currency translation income (loss)

Foreign currency translation loss

Total comprehensive loss

$ ( 945,786 )

$ ( 1,194,986 )

$ ( 2,092,427 )

$ ( 2,009,871 )

Basic and diluted net loss per share

Weighted average shares outstanding - basic and diluted

Net loss per share attributable to the Company

Weighted average shares outstanding

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

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

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

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(In thousands, except share count)

Series Quantum

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Preferred Stock

Common Stock to be issued

Non-Controlling

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Balances at December 31, 2024

$ ( 221,886 )

$ ( 29,296,599 )

$ ( 332,479 )

Balances at March 31, 2024

( 29,361,463 )

Proceeds from sale of common stock

Issuance of common stock for liabilities

Stock-based compensation

Balances at June 30, 2024

( 30,111,484 )

Common and preferred stock issued for cash and acquisiton

Stock-based compensation

( 1,194,986 )

Balances at September 30, 2024

$ ( 221,886 )

$ ( 31,306,470 )

Balances at December 31, 2024

$ ( 221,886 )

$ ( 34,333,396 )

$ ( 919,186 )

Stock-based compensation

Balances at March 31, 2025

( 34,993,424 )

( 1,163,395 )

Common stock issued pursuant to private placement

Balances at December 31, 2025

Stock-based compensation

Settlement of related party liabilities

( 1,000,000 )

Balances at June 30, 2025

( 35,480,037 )

Common stock issued pursuant to business combination

Common stock issued pursuant to private placement

Stock-based compensation

Balances at September 30, 2025

( 1,000,000 )

$ ( 36,444,640 )

Common stock issued pursuant to private placement

Balances at March 31, 2026

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Nine Months Ended

September 30,

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(In thousands)

Three Months Ended

Cash flows from operating activities:

$ ( 2,111,244 )

$ ( 2,009,871 )

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

Allowances for credit losses

Stock-based compensation

Amortization of ROU assets

Amortization of right of use assets

Change in fair value of contingent consideration

Amortization of intangibles

Deferred tax adjustment

Excess value of common stock issued to settle liabilities

Amortization of prepaid expenses

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable, net

Contract assets

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Other receivable, related party

Due to related parties - accrued salary

Due to / from related party

Accounts payable

Lease liability

Accounts payable, related party

Accrued expenses and other current liabilities

Contract liabilities

Deferred tax liability

Operating lease liabilities, net

Net cash used in operating activities

Cash flows from investing activities:

Cash and restricted cash acquired from business combination

Purchase of property, plant and equipment

Software development capitalization

Deposit paid for acquisition

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities:

Short-term advances, related party

Repayment of loan

Short-term loan

Short-term advances

Accounts receivable financing facility, net

Proceeds from sale of common stock

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Cash paid for interest

Supplemental disclosure of non-cash investing and financing activities:

Issuance of common stock pursuant to business combination

Contingent consideration liability recognized with business combination

Settlement of related party liabilities

Issuance of common stock in settlement of liabilities

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

(In thousands, except per share data and share count)

NOTE 1 – BUSINESS AND NATURE OF OPERATIONS

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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.:

On July 15, 2025, the Company entered into a definitive share-exchange agreement to acquire 100% of the issued and outstanding shares of 42 Telecom Ltd.

("42 Telecom"), a Maltese-organized telecommunications infrastructure provider, and the transaction closed on August 1, 2025, thereby making 42 Telecom a wholly owned subsidiary.

In connection with the 42 Telecom acquisition, the Company also acquired three of its operating subsidiaries:

42 Telecom AB Ltd.

· 42 Telecom UK Ltd.

(United Kingdom)

· Arcus Technologies Ltd.

42 Telecom provides international telecommunications and messaging solutions.

Its activities include SMS aggregation, enterprise messaging, OTT messaging (including Viber traffic), access to proprietary SS7 and messaging platforms, and subscription-based communication solutions.

Through Arcus Technologies Ltd, 42 Telecom also offers platform-as-a-service solutions tailored for the tourism sector.

42 Telecom serves a global customer base consisting primarily of mobile network operators and enterprises.

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

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

(Sweden), 42 Telecom UK Ltd.

(United Kingdom), and Arcus Technologies Ltd.

42 Telecom provides international telecommunications and messaging solutions, including SMS aggregation, enterprise messaging, OTT messaging, and subscription-based communication solutions, serving a global customer base of mobile network operators and enterprises.

On December 29, 2025, the Company entered into a Definitive Stock Purchase Agreement to acquire 100% of the issued and outstanding shares of Telvantis Voice Services, Inc.

("Telvantis"), a Florida corporation incorporated in 2020, and the transaction closed on December 31, 2025, thereby making Telvantis a wholly owned subsidiary.

In connection with the Telvantis acquisition, the Company also acquired two of its operating subsidiaries:

Phonetime, Inc.

and Matchcom Telecommunications, Inc.

Telvantis provides technology products and services to the telecommunications industry, specializing in voice traffic solutions — primarily VoIP-based international voice termination and SMS services — delivered on a business-to-business basis to telephone carrier customers.

As such, the Company currently exists as a holding company with 42 Telecom Ltd.

as a directly held subsidiary—through which 42 Telecom AB Ltd., 42 Telecom UK Ltd., and Arcus Technologies Ltd.

operate—and Telvantis Voice Services, Inc.

as a direct operating subsidiary, through which Phonetime, Inc.

and Matchcom Telecommunications, Inc.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles ("U.S.

GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting on Form 10-Q.

These financial statements do not include all of the information and footnotes required by U.S.

GAAP for complete annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows have been included.

The condensed consolidated balance sheet as of December 31, 2025 was derived from the audited consolidated financial statements as of that date.

The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results expected for the full year ending December 31, 2026.

All amounts in these unaudited condensed consolidated financial statements are presented in thousands of U.S.

dollars, except per share data and share counts, unless otherwise noted.

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.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred recurring operating losses since inception and has not yet generated consistent positive cash flows from operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that these financial statements are issued.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

As of March 31, 2026, the Company had cash and cash equivalents of $ 2,705 and an accumulated deficit of $ 42,820 .

Total current liabilities of $ 340,498 exceeded total current assets of $ 290,867 , resulting in a working capital deficit of $ 49,631 .

Included within current liabilities is $ 40,753 of contingent consideration arising from the acquisitions of 42 Telecom and Telvantis.

Pursuant to the terms of the respective acquisition agreements, the contingent consideration obligations are expected to be settled through the issuance of shares of the Company's common stock upon achievement of specified performance conditions.

Accordingly, the contingent consideration does not represent a cash funding requirement of the Company.

Excluding contingent consideration, the working capital deficit was $ 8,878 as of March 31, 2026.

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 three months ended March 31, 2026, the Company generated total revenues of $ 328,512 , compared to $ 0 for the three months ended March 31, 2025.

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

The Company reported a net loss of $ 9,405 for the three months ended March 31, 2026, which includes a non-cash charge of $ 5,914 from the change in fair value of contingent consideration.

Net cash used in operating activities was $ 523 for the three months ended March 31, 2026, compared to $ 220 for the three months ended March 31, 2025.

Although management expects continued revenue generation from 42 Telecom and Telvantis, current cash and cash equivalents on hand may not be sufficient to fund operations.

To date, the Company has funded operations primarily through the sale of equity securities and advances from related parties.

The Company's ability to continue as a going concern is dependent upon generating sufficient cash flows from operations, securing additional capital through the issuance of equity or debt, and ultimately achieving profitable operations.

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

In addition, 42 Telecom and Telvantis maintain a Master Participation Agreement with Fasanara Securitisation S.A.

pursuant to which Fasanara provides funding against a specified percentage of trade receivables arising from telecommunications services, providing the Company with access to working capital liquidity against its receivables base.

The Company intends to continue utilizing this arrangement to support near-term operating cash needs.

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

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.

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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.

Although the acquisitions of 42 Telecom and Telvantis introduced the Company's initial revenue streams, the Company continues to depend on external financing to fund operations and there can be no assurance that it will achieve or sustain profitability in the future.

Integration and acquisition risks:

The Company completed two significant acquisitions during 2025 — 42 Telecom, which closed on August 1, 2025, and Telvantis, which closed on December 31, 2025.

The successful integration of both acquired businesses involves significant operational, financial, and management challenges, including the coordination of personnel, technology platforms, customer relationships, and financial reporting processes across multiple jurisdictions.

Failure to integrate these businesses effectively, or to realize the anticipated benefits of either acquisition, could adversely affect the Company's financial condition, results of operations, and cash flows.

Market and economic conditions:

The Company's business and financial performance are affected by general economic and business conditions in the United States and globally, including changes in inflation, interest rates, capital-market liquidity, and access to financing.

Adverse macroeconomic trends or 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.

Adverse macroeconomic trends or recessionary conditions could reduce demand for technology and telecommunications services and have a material adverse effect on the Company's results and cash flows.

The United States and global markets continue to experience volatility and disruption following geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the Israel-Hamas conflict, and resulting sanctions, trade restrictions, and market disruptions could adversely affect the Company's operations or its future capital-raising activities.

Furthermore, changes to policy implemented by the U.S.

Congress or the current or any

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

(In thousands, except per share data and share count)

future administration may impact, among other things, the U.S.

and global economy, international trade relations, taxation, the U.S.

regulatory environment, and inflation.

The Company has not been materially affected by these conflicts or related tariffs to date.

Foreign exchange and geopolitical risks:

The Company conducts a substantial portion of its operations internationally through 42 Telecom and its subsidiaries, whose functional currencies include the Euro, Swedish Krona, and British Pound.

The Company is therefore exposed to foreign currency fluctuations that affect the translation of foreign-denominated revenues, expenses, assets, and liabilities into U.S.

In addition, geopolitical instability, trade restrictions, sanctions, and regional conflicts in the markets in which the Company operates could disrupt operations, increase costs, or adversely affect reported financial results and cash flows.

Technological change and competitive pressures:

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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.

The Company competes with organizations that possess significantly greater financial, technical, and marketing resources than the Company currently has.

Operational and cybersecurity risks:

The Company's operations may be affected by supply-chain disruptions, cybersecurity threats, data-privacy and data-protection requirements across multiple jurisdictions, and other operational risks inherent in the telecommunications and technology industries.

A cybersecurity incident, systems failure, or data breach could result in significant liability, regulatory penalties, reputational harm, and material disruption to the Company's operations and customer relationships.

Management continuously monitors these risk factors and may implement mitigation strategies, including management of foreign-currency exposures, diversification of its customer and supplier base, cost management initiatives, and pursuit of additional capital resources.

However, the effects of these risks and uncertainties cannot be predicted with certainty, and actual results may differ materially from management's expectations.

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.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the following subsidiaries from their respective dates of acquisition:

· Spectral Holdings, Inc.

(wholly owned, from August 29, 2024);

· Noot Holdings, Inc.

(60% owned, from February 28, 2013);

· Monitr Holdings, Inc.

(60% owned, from December 1, 2013);

· 42 Telecom Ltd.

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.

and its wholly owned subsidiaries — 42 Telecom AB Ltd.

(Sweden), 42 Telecom UK Ltd.

(United Kingdom), and Arcus Technologies Ltd.

(Malta) — each wholly owned by Spectral from August 1, 2025;

· Telvantis Voice Services, Inc.

and its wholly owned subsidiaries — Phonetime, Inc.

(U.S.) and Matchcom Telecommunications, Inc.

(U.S.) — wholly owned by Spectral from December 31, 2025.

All intercompany accounts and transactions have been eliminated in consolidation.

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:

The Company follows the three-level fair value hierarchy established under U.S.

GAAP, which maximizes the use of observable inputs and minimizes the use of unobservable inputs:

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

Include other inputs that are directly or indirectly observable in the marketplace.

Inputs that are directly or indirectly observable in the marketplace.

Unobservable inputs which are supported by little or no market activity.

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, contract assets, accounts receivable — related party, prepaid expenses and other current assets, other receivables, related party receivables and advances, accounts payable and accrued liabilities, contract liabilities, financing liabilities arising from the Company's receivables participation arrangements, amounts due to related parties, and deferred tax liabilities recognized in connection with business combinations.

The carrying amount of these financial instruments

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.

The Company’s operating lease liability and right-of-use asset are recorded based on the present value of future lease payments in accordance with ASC 842.

The Company measures certain assets at fair value on a nonrecurring basis.

These assets include cost method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a 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

(In thousands, except per share data and share count)

approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these unaudited condensed consolidated financial statements.

The Company's operating lease liability and right-of-use asset are recorded based on the present value of future lease payments discounted at the rate implicit in the lease or the Company's incremental borrowing rate, in accordance with ASC 842, Leases.

The Company measures certain assets and liabilities at fair value on a nonrecurring basis, including assets acquired and liabilities assumed in business combinations, and property, plant and equipment and intangible assets written down to fair value when determined to be impaired.

The contingent consideration liabilities recorded in connection with the acquisitions of 42 Telecom and Telvantis are classified as Level 3 liabilities under the fair value hierarchy.

The fair value of these liabilities is determined using a Monte Carlo simulation incorporating a Black-Scholes framework and a discount for lack of marketability determined using a Black-Scholes put option model.

See Note 4 — Fair Value Measurements for further details.

Use of Estimates

The preparation of financial statements in conformity with U.S.

The preparation of unaudited condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures.

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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),

· discount rate applied in determining right-of-use assets and operating lease liabilities;

· allowances for income taxes, related valuation allowances, and uncertain tax positions;

· recoverability of long-lived assets and their related estimated lives, including internally developed software and acquired intangible assets;

· accrual of estimated liabilities;

· evaluation of goodwill for impairment;

· provision for doubtful debts,

· evaluation of equity method investment and

· business combinations and purchase price allocations

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

Prior to the acquisition of 42 Telecom Ltd.

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

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

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

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

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

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

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

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

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

· allowances for credit losses on accounts receivable and contract assets;

· fair value of share-based compensation and equity issued for services;

· fair value of assets acquired and liabilities assumed in business combinations, including the identification, valuation, and estimated useful lives of acquired intangible assets, and the fair value of contingent consideration.

Segment Reporting

The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting.

The Company's Chief Executive Officer serves as the Chief Operating Decision Maker ("CODM") and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources.

The measure of segment profit or loss regularly reviewed by the CODM is consolidated net loss.

The Company identified two operating segments based on legal entity groupings — 42 Telecom and subsidiaries, and Telvantis and subsidiaries — and determined that both meet the aggregation criteria under ASC 280-10-50-11 based on similar nature of products and services, production processes, customer class, distribution methods, and regulatory environment, and are therefore presented as a single reportable segment.

Spectral holds intellectual property assets and is developing AI infrastructure and IP monetization capabilities;

these activities are at an early stage, do not currently generate revenue, and do not constitute a separately managed business with discrete financial information reviewed by the CODM, and are accordingly treated as unallocated corporate overhead.

See Note 9 — Segment and Geographic Information for further details, including significant segment expenses regularly provided to the CODM and geographic revenue information.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less at the date of purchase, including certificates of deposit and money market funds that are readily convertible into known amounts of cash.

The Company also maintains restricted cash representing collateral required in connection with its corporate credit card program.

As of March 31, 2026 and December 31, 2025, the Company had restricted cash balances of $ 21 and $ 21 , respectively.

Restricted cash is excluded from cash and cash equivalents and is presented separately on the condensed consolidated balance sheets.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, certificates of deposits and money market funds that are readily convertible into cash, all with original maturity dates of three months or less.

The Company has restricted cash as a result of its corporate card program through its bank, which requires a collateral balance.

As of September 30, 2025 and December 31, 2024, the Company had restricted cash balances of $ 21,106 and $ 0 respectively, included as a component of total cash and restricted cash as presented on the accompanying unaudited condensed consolidated statements of cash flows.

Concentration of Credit Risks

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.

All of the Company’s bank accounts are held at foreign institutions and are not insured by the Federal Deposit Insurance Corporation.

Concentrations

During the nine months ended September 30, 2025, one customer accounted for 14% of the Company’s revenues, and another customer accounted for 13% of the Company’s revenues.

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

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

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

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

Accounts Receivable, net

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

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

Collateral is currently not required.

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

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

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

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

Factoring Arrangements

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

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

Under the Master Agreements, certain invoices issued to pre-approved customers may be sold to Fasanara.

Upon submission of an eligible invoice, Fasanara advances approximately 90% of the invoice value to the Company, with the remaining balance—net of interest and fees—remitted upon customer payment.

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

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

(In thousands, except per share data and share count)

Concentration of Credit Risks and Significant Customers and Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

The Company maintains its cash balances at financial institutions located in Malta, Sweden, the United Kingdom, and the United States.

The balances located outside the United States are not insured by the Federal Deposit Insurance Corporation ("FDIC") or equivalent government deposit protection schemes in the respective jurisdictions.

The Company has not experienced any losses on its cash balances to date.

For the three months ended March 31, 2026, the Company's revenues were derived primarily from the international voice termination operations of Telvantis Voice Services, Inc.

Three customers individually accounted for approximately 49%, 23%, and 22% of consolidated revenues, respectively, for the three months ended March 31, 2026, collectively representing approximately 94% of consolidated revenues.

The loss of any one of these customers could have a material adverse effect on the Company's results of operations and financial condition.

The Company had no revenues for the three months ended March 31, 2025.

The Company's cost of revenues is similarly concentrated among a limited number of voice termination suppliers.

Three vendors individually accounted for approximately 49%, 23%, and 22% of consolidated cost of revenues, respectively, for the three months ended March 31, 2026, collectively representing approximately 94% of consolidated cost of revenues.

The same counterparties that represent the Company's largest customers also represent its largest vendors, reflecting the nature of the international VoIP carrier business in which carriers act as both buyers and sellers of voice termination capacity depending on destination-specific routing economics.

The Company had no cost of revenues for the three months ended March 31, 2025.

Where possible and commercially sensible, we attempt to mitigate our credit risk related to specific Telvantis Voice Services, Inc.

customers by also buying services from the customer.

Under certain circumstances, which we do not fully control, this can create an opportunity to offset our payables and receivables with the customer.

If effectively implemented, we can continue to sell services to these customers while reducing our receivable exposure risk.

When it is possible and practical to do so, we can attempt to increase our purchases from Telvantis Voice Services customers with receivable balances that exceed our applicable payables in order to maximize the mutually agreed offset and reduce our credit risk.

While this is common practice in our industry, there is no guarantee or formal framework to suggest that such arrangements can be broadly expected or assumed to persist in the future as these arrangements appear only on a case-by-case basis, depending on various external variables outside of the company's control.

The same counterparties that represent the Company's largest customers can also represent its largest vendors, reflecting the nature of the international VoIP carrier business in which carriers act as both buyers and sellers of voice termination capacity depending on destination-specific routing economics.

The Company presents accounts receivable and accounts payable with these counterparties on a gross basis in the condensed consolidated balance sheets in accordance with ASC 210-20-45, as the conditions necessary to offset — including a legally enforceable right of setoff and intent to settle net — have not been met with respect to these trade balances.

The gross accounts receivable and accounts payable attributable to these reciprocal counterparties were approximately $233.4 million and $232.5 million, respectively, as of March 31, 2026.

Accounts Receivable, net and Accounts Receivable, Related Party

The Company's accounts receivable consist primarily of amounts due from customers for telecommunications and messaging services provided by 42 Telecom and Telvantis.

Receivables are recorded at the invoiced amount and do not bear interest.

The Company maintains an allowance for credit losses based on management's periodic assessment of factors including customer payment history, creditworthiness, aging of receivable balances, current economic conditions, and historical collection experience.

Receivables determined to be uncollectible are written off against the allowance when collection efforts have been exhausted.

In accordance with ASC 326, Financial Instruments — Credit Losses, the allowance for credit losses represents management's estimate of expected losses based on historical experience, current conditions, and reasonable and supportable forecasts over the contractual life of accounts receivable.

As of March 31, 2026 and December 31, 2025, the allowance for credit losses was $ 2,610 and $ 2,469 , respectively.

Accounts receivable, related party, represents amounts due from Mexedia SpA and Mexedia DAC arising from telecommunications and messaging services provided by 42 Telecom and Telvantis under bilateral service agreements.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

These receivables are recorded at the invoiced amount on the same basis as third-party accounts receivable and are subject to the same credit loss assessment methodology described above.

Receivables Financing Arrangements

The Company, through 42 Telecom and Telvantis, maintains participation arrangements with Fasanara Securitisation S.A.

("Fasanara"), a third-party financing provider, under which funding is advanced against a specified percentage of eligible trade receivables.

The Company retains responsibility for customer billing, collection, and servicing under these arrangements and maintains direct customer relationships.

Management evaluated the substance of these arrangements under ASC 860, Transfers and Servicing, and concluded that they do not qualify for sale accounting, as the Company retains continuing involvement with the receivables and the receivables are not fully isolated from the Company and its creditors.

Accordingly, the arrangements are accounted for as receivables financing.

The underlying receivables remain recognized on the condensed consolidated balance sheets until collected, and the associated financing obligations are classified within short-term borrowings.

Interest and fees incurred under these arrangements are recognized as interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

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.

Prepaid expenses and other current assets primarily consist of advance payments for services and operational costs to be consumed within one year, prepaid taxes, and deposits related to the Company's telecommunications and technology operations.

Prepaid consulting and marketing services representing common stock issued for future services are recorded at the fair value of the shares on the date of issuance and recognized ratably as expense over the contractual service period.

As of March 31, 2026 and December 31, 2025, prepaid expenses and other current assets totaled $ 4,075 and $ 5,273 , 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:

Property, plant and equipment, net ("PP&E") is stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is computed using the straight-line method over the assets' estimated useful lives as follows:

· Office Equipment and tools – 3 - 5 years

2 unchanged sentences

· Leasehold improvements – Shorter of the estimate useful life or remaining lease term

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Capitalized costs associated with capital work-in-progress are not depreciated until the related assets are placed into service, at which time the capitalized balance will be transferred to the appropriate account of PP&E.

Capital work-in-progress is stated at the lower of cost or fair value, which includes the cost of construction and other direct costs attributable to the construction.

The costs are capitalized as incurred or as payments are made pursuant to relevant construction contracts.

Major renewals and improvements are capitalized.

Replacements, maintenance, and repairs, which do not significantly improve or extend the useful life of the assets, are expensed when incurred.

Upon the sale or retirement of assets, costs and the related accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in the results of operations.

The Company has not identified any such impairment losses for the three and nine months ended September 30, 2025 and 2024.

Replacements, maintenance, and repairs that do not significantly improve or extend the useful life of the assets are expensed as incurred.

Upon disposal or retirement of an asset, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the unaudited condensed consolidated statements of operations in the period of disposal.

The Company reviews PP&E for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

No impairment losses were identified during the three months ended March 31, 2026 and 2025.

Intangible Assets, net

The Company’s intangible assets primarily consist of 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”).

The Company's intangible assets primarily consist of (i) identifiable intangible assets acquired in connection with the acquisitions of 42 Telecom and Telvantis, including developed technology, customer relationships, and trade names, and (ii) intellectual property assets acquired pursuant to an Asset Purchase Agreement dated October 15, 2025, consisting of a portfolio of patentable innovations and proprietary technologies including artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies.

All intangible assets are carried net of accumulated amortization and any accumulated impairment losses.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

(In thousands, except per share data and share count)

Intangible Assets Acquired in Business Combinations

Identifiable intangible assets acquired in the 42 Telecom and Telvantis business combinations were valued as of the respective acquisition dates in accordance with ASC 805, Business Combinations.

These assets are amortized on a straight-line basis over their estimated useful lives as follows:

· Developed technology — 42 Telecom — 5 years

· Customer relationships — 42 Telecom — 7 years

· Trade name — 42 Telecom — 3 years

· Customer relationships — Telvantis — 8 years

· Trade name — Telvantis — 4 years

The useful lives assigned to each asset class reflect entity-specific factors assessed as of the respective acquisition dates, including customer attrition rates, contract durations, and brand recognition, which differ between the two acquired businesses.

Intellectual Property Asset Acquisition

On October 15, 2025, the Company acquired a portfolio of intellectual property assets pursuant to an Asset Purchase Agreement.

The acquired assets consist of patentable innovations and proprietary technologies, including artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies.

The transaction was accounted for as an asset acquisition under ASC 805-50, as no workforce, customers, operational processes, or revenue-generating activities were transferred.

The total purchase consideration consisted of 9,000,000 shares of Spectral common stock measured at fair value based on the quoted market price of $2.19 per share on the acquisition date, resulting in total consideration of $ 19,710 .

In accordance with ASC 805-50, no goodwill was recognized;

the entire consideration was allocated to the acquired intangible assets.

The acquired intellectual property is amortized on a straight-line basis over an estimated useful life of five years from the acquisition date.

Capitalized Software Development

42 Telecom capitalizes certain costs incurred during the application development stage of internal-use software projects in accordance with ASC 350-40, Internal-Use Software.

Capitalized costs include direct labor and related benefits for employees engaged in software development activities and qualifying third-party contractor fees.

Costs incurred during the preliminary project and post-implementation stages, including training, maintenance, and data conversion, are expensed as incurred.

Capitalized software costs are amortized on a straight-line basis over five years upon being placed into service.

As of March 31, 2026 and December 31, 2025, capital work-in-progress related to software development totaled $ 331 and $ 439 , respectively.

As of March 31, 2026 and December 31, 2025, $ 417 and $ 294 , respectively, internally developed software placed into services classified as Intangible assets, net in the consolidated balance sheet.

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.

The Company reviews long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Recoverability is assessed by comparing the carrying amount to the sum of undiscounted future net cash flows expected to be generated by the asset or asset group.

If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized equal to the excess of the carrying amount over the asset’s fair value, generally determined using estimated discounted future cash flows.

No impairment indicators were identified during the three months ended March 31, 2026.

The Company had no long-lived assets during the three months ended March 31, 2025.

Business Combinations

ASC 805 applies the acquisition method of accounting for business combinations to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged.

ASC 805 establishes principles and requirements for how the acquirer:

a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree;

b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase;

and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets acquired, and the liabilities assumed at their acquisition-date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed.

While the Company provided its best estimates and assumptions when valuing assets acquired and liabilities assumed at the acquisition date, such estimates are preliminary and subject to adjustment.

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

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

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

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

Goodwill is tested for impairment at the reporting unit level.

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

The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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

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

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

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

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

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

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

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

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

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

The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805.

Under the acquisition method, the Company recognizes the identifiable assets acquired and liabilities assumed at their fair values as of the acquisition date.

The excess of the consideration transferred over the net acquisition-date fair values of the assets acquired and liabilities assumed is recognized as goodwill.

Consideration transferred in a business combination may include cash, equity instruments, and contingent consideration.

Equity instruments issued as consideration are measured at acquisition-date fair value, adjusted where

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

(In thousands, except per share data and share count)

appropriate to reflect transfer restrictions and other factors affecting marketability.

Contingent consideration is recognized at acquisition-date fair value and classified as either a liability or equity based on the terms of the arrangement.

Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss.

During the measurement period, which may not exceed 12 months from the acquisition date, fair values of assets acquired and liabilities assumed may be adjusted with corresponding offsets to goodwill as additional information becomes available.

After the measurement period closes, adjustments are recognized in the consolidated statements of operations and comprehensive loss.

Acquisition-related costs are expensed as incurred.

Goodwill represents the excess of the consideration transferred over the estimated fair value of the net identifiable assets acquired in a business combination.

In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill is not amortized but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is tested at the reporting unit level.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Qualitative factors considered include macroeconomic conditions, industry and market trends, cost factors, discount rates, competitive dynamics, and the financial performance of the reporting unit.

If the qualitative assessment indicates that impairment is more likely than not, a quantitative test is required.

The Company may also elect to bypass the qualitative assessment and proceed directly to the quantitative test in any given period.

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

If the carrying value exceeds the fair value, a goodwill impairment charge equal to the excess is recognized, not to exceed the total goodwill allocated to that reporting unit.

Goodwill recognized in connection with the acquisitions of 42 Telecom and Telvantis represents the residual consideration after allocation to identifiable net assets and is preliminary and subject to change upon completion of the respective purchase price allocations.

No goodwill impairment indicators were identified during the three months ended March 31, 2026 and 2025.

Contingent Consideration

The Company records 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.

The Company records contingent consideration at its estimated acquisition-date fair value as part of the total consideration transferred in a business combination in accordance with ASC 805.

Contingent consideration is classified as either a liability or equity based on the terms of the arrangement.

Contingent consideration classified as a liability is remeasured to fair value at each reporting date, with changes recognized in the consolidated statements of operations and comprehensive loss.

Upon settlement, the liability is relieved with a corresponding increase to common stock and additional paid-in capital.

The fair value of contingent consideration is estimated using a Monte Carlo simulation incorporating projected financial performance metrics, simulated share prices, equity volatility, and a discount for lack of marketability determined using a Black-Scholes put option model.

Because the valuation relies on significant unobservable inputs, contingent consideration is classified as Level 3 within the fair value hierarchy.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the five-step model:

(i) identify the contract with a customer, (ii) identify performance obligations, (iii) determine the

transaction price, (iv) allocate the transaction price to performance obligations, and (v) recognize revenue when or as performance obligations are satisfied.

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.

(i) identify the contract with a customer, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when or as performance obligations are satisfied.

The Company generates revenue through the following streams:

Messaging and Voice Services — includes SMS aggregation, enterprise messaging, instant messaging (Viber), and VoIP-based international voice termination services.

Revenue is recognized at a point in time when each message, call minute, or lookup is successfully processed and transmitted.

Revenue is generated through the duration of telephone traffic between carrier customers calculated on a minute-by-minute basis for voice services, and on a per-message basis for messaging services.

These services represented substantially all of the Company's revenues for the three months ended March 31, 2026.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

(In thousands, except per share data and share count)

Platform Services — includes SS7 platform access, managed services, and tourism platform-as-a-service.

Revenue from these services is recognized over time as customers receive and consume the benefits of continuous access or managed service delivery.

The Company generally acts as principal in its arrangements, as it controls the services before transfer to the customer, bears responsibility for fulfillment, and has discretion in pricing.

Customer contracts are typically short-term in nature, invoiced based on actual usage or subscription terms, with no significant financing components.

The following table presents disaggregated revenue for the three months ended March 31, 2026 and 2025:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Voice Services, at a point in time

Messaging Services, at a point in time

Platform Leasing, over time

For the three months ended March 31, 2026, Telvantis and its subsidiaries contributed approximately 99% of consolidated revenues, with 42 Telecom and its subsidiaries contributing the remaining 1%.

Contract Assets

Contract assets represent amounts recognized as revenue for performance obligations satisfied under customer contracts where the Company’s right to payment is not yet unconditional.

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 assets represent amounts recognized as revenue for performance obligations satisfied under customer contracts where the Company's right to payment is not yet unconditional, primarily consisting of accrued income on messaging and voice traffic where services were delivered at a point in time during the period but invoices are issued following month-end volume reconciliation with counterparties, at which point the balance reclassifies to accounts receivable.

As of March 31, 2026 and December 31, 2025, contract assets were $ 793 and $ 6,474 , respectively, of which $ 0 and $ 2,634 were with related parties.

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.

Contract liabilities represent amounts billed or collected from customers in advance of satisfying performance obligations under customer contracts.

These balances are presented within current liabilities in the condensed consolidated balance sheets based on the expected timing of revenue recognition and are recognized as revenue when the related performance obligations are fulfilled.

As of March 31, 2026 and December 31, 2025, contract liabilities were $ 257 and $ 335 , respectively.

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 consists of direct expenses incurred in providing telecommunications and platform services and is recognized in the period in which the related revenues are earned.

Cost of revenue includes accruals for third-party service providers, purchases of services from both local and non-EU vendors, and charges for telecommunication services inside and outside the EU, including data, voice, and connectivity costs.

It 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.

It includes wholesale carrier and traffic fees, consultancy and technical service costs directly tied to service delivery, commissions and referral fees related to customer acquisition or usage.

It also includes network operations costs, co-location fees for server hosting, personnel costs associated with customer care.

Additionally, platform or PaaS licensing fees and other directly attributable costs necessary to fulfill service obligations, such as internally generated software amortization used in service infrastructure, are included.

3 unchanged sentences

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.

They primarily consist of rent and facilities, marketing and travel, professional and administrative services, insurance and compliance costs, finance and bank charges, and other general operating expenses.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

Depreciation and Amortization

Depreciation and amortization expenses are related to the Company’s property and equipment and intangible assets.

Depreciation and amortization is recognized on a straight-line basis over the estimated useful life of the respective assets.

Wages and Benefits Expense

Wages and benefit expenses include gross wages and salaries, bonuses, performance-related pay, casual wages, training expenses, staff welfare and wellness costs, employer social insurance contributions, pensions, insurance costs, education, maternity contributions and other staff-related costs.

These are recorded in accordance with the Company’s payroll policies and applicable labor, pension and social security regulations in each jurisdiction.

These are recorded in accordance with the Company’s payroll policies and applicable labor, pension and social security regulations in each jurisdiction in which the Company operates.

Employee Benefits

Pursuant to Malta regulations, contributions to pension schemes are voluntary.

The Company provides pension contributions to management team members.

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

Research and Development

The Company’s research and development activities are primarily focused on the design, testing, and enhancement of proprietary artificial intelligence, quantum computing, and communications technologies, as well as on software platform development initiatives.

Research and development expenses include personnel costs, contractor and consulting fees, materials and supplies, and other direct expenditures incurred in the development of new technologies, products, and enhancements to existing systems.

Expenditures for research activities and costs associated with the

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

The Company provides pension contributions to team management members.

Pension contributions are expensed as incurred.

For the three months ended March 31, 2026 and 2025, pension plan contributions totaled $ 2 and $ 0 , respectively.

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 stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation, which requires all share-based payments to employees, directors, and non-employees to be recognized in the consolidated financial statements based on their grant-date fair values.

Compensation cost for awards with service conditions is recognized on a straight-line basis over the requisite service period.

For equity instruments issued to non-employees in exchange for services, compensation cost is measured at the grant-date fair value of the equity instruments issued.

The Company accounts for forfeitures as they occur;

accordingly, compensation expense is recognized only for awards that ultimately vest.

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.

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.

The fair value of stock options is estimated using the Black-Scholes option pricing model, which requires management to make assumptions regarding expected term, stock price volatility, risk-free interest rate, and dividend yield.

Changes in these assumptions can materially affect the estimated fair value of awards.

Comprehensive loss

Comprehensive loss includes net loss as well as other changes in stockholders' equity resulting from transactions and economic events other than those with shareholders.

For the Company, the only component of other comprehensive loss for the three months ended March 31, 2026 and 2025 relates to foreign currency translation adjustments arising from the consolidation of 42 Telecom, whose functional currencies include the Euro, Swedish Krona, British Pound, which differ from or are translated into the Company's reporting currency of U.S.

These translation adjustments are recorded in other comprehensive loss and accumulated in stockholders' equity under accumulated other comprehensive loss.

No other components of other comprehensive loss were recognized during the three months ended March 31, 2026 and 2025.

Foreign Currency Transactions

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

and its subsidiaries.

The Company’s reporting currency is the U.S.

Each consolidated entity determines its functional currency based on the primary economic environment in which it operates.

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· Arcus Technologies Ltd:

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

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

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

Revenues and expenses are translated at average exchange rates during the reporting period.

Telvantis Voice Services, Inc.

subsidiaries, Phonetime, Inc.

and Matchcom Telecommunications, Inc., have the U.S.

dollar as their functional currency and accordingly do not give rise to translation adjustments.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

For consolidation purposes, assets and liabilities of subsidiaries with functional currencies other than U.S.

dollar are translated at exchange rates prevailing at the balance sheet date.

Revenues and expenses are translated at average exchange rates for the reporting period.

Equity accounts, other than retained earnings, are translated at historical exchange rates.

The resulting translation adjustments are recorded in Other Comprehensive Income (Loss) and accumulated in shareholders’ equity under Accumulated Other Comprehensive Income (AOCI).

The resulting translation adjustments are recorded in Other Comprehensive Income (Loss) and accumulated in stockholders’ equity under Accumulated Other Comprehensive Income (loss).

Transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the exchange rate on the transaction date.

Monetary assets and liabilities denominated in foreign currencies are remeasured at period-end exchange rates, and non-monetary assets and liabilities are carried at historical exchange rates.

Resulting foreign exchange gains and losses are recognized in Other income (expense), net in the condensed consolidated statements of operations.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Resulting foreign exchange gains and losses are recognized within other income (expense), net in the unaudited condensed consolidated statements of operations and comprehensive loss.

The exchange rates used in the preparation of the unaudited condensed consolidated financial statements are as follows:

The relevant translation rate are as follows:

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

- For the three months ended March 31, 2026, closing rate 1.1482 US$:

EURO, 0.1051 US$:

SEK, 1.3220 US$:

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

- For the three months ended March 31, 2026, average rate 1.1610 US$:

EURO, 0.1068 US$:

SEK, 1.3337 US$:

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

The Company accounts for its leases under ASC 842, Leases .

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

For the three months ended March 31, 2026 and 2025, the Company recorded foreign currency translation adjustments of $( 87 ) and $ 0 , respectively, which are included in other comprehensive income (loss).

The Company accounts for leases under ASC 842, Leases.

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term.

5 unchanged sentences

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:

Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of potentially dilutive securities using the treasury stock method.

Potentially dilutive securities include stock options, warrants, convertible instruments, and contingently issuable shares.

For the three months ended March 31, 2026, the Company reported a net loss;

accordingly, all potentially dilutive securities, including 3,846,875 stock options outstanding with a weighted-average exercise price of $0.62 per share, were excluded from the computation of diluted net loss per share as their inclusion would have been anti-dilutive During the three months ended March 31, 2025, the Company had options to purchase 6,810,000 shares of common stock, the effects of which were also anti-dilutive.

Non-Controlling Interests

Balance at December 31, 2024

Net loss attributable to non-controlling interest

Balance at September 30, 2025

Balance at December 31, 2023

Net loss attributable to non-controlling interest

Balance at September 30, 2024

Noncontrolling interests represent the equity interests in consolidated subsidiaries that are not attributable to the Company.

The Company consolidates Noot Holdings, Inc.

and Monitr Holdings, Inc., in each of which the Company

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

federal income tax filings for the past several years.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU No.

2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” 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.

(In thousands, except per share data and share count)

holds a 60% controlling interest, with the remaining 40% held by noncontrolling interest holders.

Noncontrolling interests are presented as a separate component of stockholders’ equity in the consolidated balance sheets.

Net income or loss attributable to noncontrolling interests is presented separately in the consolidated statements of operations and comprehensive loss.

Noot Holdings, Inc.

and Monitr Holdings, Inc.

had no operations during the three months ended March 31, 2026 and 2025, and accordingly no net income or loss was attributable to non-controlling interests during either period.

The non-controlling interest balance remained $( 222 ) as of both March 31, 2026 and December 31, 2025.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as well as for net operating loss and tax credit carryforwards, and are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to reverse.

A valuation allowance is recorded against deferred tax assets to the extent it is more likely than not that some or all of the deferred tax assets will not be realized.

For interim reporting purposes, the Company estimates its annual effective tax rate and applies that rate to year-to-date pre-tax income or loss in accordance with ASC 740-270, Interim Reporting — Income Taxes.

The Company operates across multiple tax jurisdictions, including the United States, Malta, Sweden, and the United Kingdom, and the calculation of the tax provision involves significant judgment in the application of complex tax regulations across these jurisdictions.

The Company recognizes uncertain tax positions only when it is more likely than not that the position will be sustained upon examination, with the tax benefit measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

Interest and penalties related to uncertain tax positions are recognized within the income tax provision.

NOTE 3 – BUSINESS COMBINATIONS

The Company evaluated the acquisitions of 42 Telecom and Telvantis under ASC 805, Business Combinations, and determined that both transactions constitute business combinations.

Under the acquisition method, identifiable assets acquired and liabilities assumed are recognized at their acquisition-date fair values, with the excess of consideration transferred recognized as goodwill.

Full details of the acquisition consideration, valuation methodology, and purchase price allocations are disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

Acquisition of 42 Telecom Ltd.

On August 1, 2025, the Company acquired 100% of the issued and outstanding shares of 42 Telecom Ltd.

("42 Telecom") and its wholly owned subsidiaries — 42 Telecom AB Ltd.

(Sweden), 42 Telecom UK Ltd.

(United Kingdom), and Arcus Technologies Ltd.

The results of operations of 42 Telecom have been consolidated from August 1, 2025.

The total purchase price consideration was $ 20,000 , consisting of $ 12,880 of common stock issued and $ 7,120 of contingent consideration measured at acquisition-date fair value.

Contingent consideration is classified as a liability and remeasured at fair value at each reporting date, with changes recognized in the unaudited condensed consolidated statements of operations.

See Note 4 — Fair Value Measurements for further details.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

NOTE 3 – BUSINESS COMBINATIONS

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

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

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

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

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

Common stock issued

$ 18,400,000 (1)

Contingent consideration

2,300,000 (2)

Purchase price consideration

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

as part of the purchase consideration.

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

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

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

and its subsidiaries.

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

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

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

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

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

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

The following table summarizes the preliminary purchase price allocation:

(In thousands, except per share data and share count)

The following table summarizes the purchase price allocation as of August 1, 2025:

Cash and cash equivalents

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Property, plant and equipment, net

Internally developed software

Capital work-in-progress

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Accounts payable

( 1,288,922 )

Accrued expenses and other current liabilities

1 unchanged sentence

Operating lease liability

Deferred tax liability

Deferred tax liability- Intangible asset

Deferred tax liability - pre existing temporary differences

Purchase price consideration

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

The goodwill is not deductible for tax purposes.

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

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

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

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

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

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

Unaudited Pro Forma Financial Information

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

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

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

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

Three Months Ended

Nine Months Ended

September 30,

( 1,250,105 )

( 1,700,968 )

( 4,106,759 )

( 3,703,456 )

Net loss per common share

Goodwill of $ 12,520 reflects the expected synergies from 42 Telecom's telecommunications operations, the going-concern value of the assembled workforce, and future economic benefits from assets that do not qualify for separate recognition.

Goodwill includes a $ 3,268 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identified intangible assets, as no step-up in tax basis was obtained, and a $691 measurement period adjustment arising from a pre-acquisition dividend declared payable to Heritage Ventures Ltd.

in respect of pre-acquisition retained earnings.

As of March 31, 2026, the dividend remains unpaid and is reflected in accrued expenses and other current liabilities in the unaudited condensed consolidated balance sheet.

The purchase price allocation for 42 Telecom remains within the 12-month measurement period ending August 1, 2026.

No measurement period adjustments were recorded during the three months ended March 31, 2026.

Goodwill recognized in connection with the 42 Telecom acquisition is not deductible for income tax purposes.

Acquisition of Telvantis Voice Services, Inc.

On December 31, 2025, the Company acquired 100% of the issued and outstanding shares of Telvantis Voice Services, Inc.

("Telvantis"), a Florida corporation, and its wholly owned subsidiaries — Phonetime, Inc.

and Matchcom Telecommunications, Inc.

The results of operations of Telvantis have been consolidated from January 1, 2026, as the acquisition closed on December 31, 2025 and Telvantis contributed no revenues or expenses to the consolidated statements of operations for the year ended December 31, 2025.

The total purchase price consideration was $ 34,513 , consisting of $ 3,407 of common stock issued and $ 31,106 of contingent consideration measured at acquisition-date fair value.

During the three months ended March 31, 2026, 1,000,000 of the shares previously classified as common stock to be issued were formally issued, with the remaining 500,000 shares continuing to be classified as common stock to be issued within stockholders' equity as of March 31, 2026.

Contingent consideration is classified as a liability and remeasured at fair value at each reporting date, with changes recognized in the unaudited condensed consolidated statements of operations.

See Note 4 — Fair Value Measurements for further details.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

The following table summarizes the provisional purchase price allocation as of December 31, 2025:

Cash and cash equivalents

Accounts receivables, net

Due from related party

Prepaid expenses and other current assets

Deferred tax assets

Intangible assets:

Customer relationships

Accounts payable

Accrued expenses and other current liabilities

Accounts receivable financing facility

Deferred tax liability- Intangible asset

Due to related party

Purchase price consideration

Goodwill of $ 35,487 reflects the expected synergies from combining Telvantis' voice termination and telecommunications services with the Company's platform, the going-concern value of the assembled workforce, and future economic benefits from assets that do not qualify for separate recognition.

Goodwill includes a $ 2,238 increase pursuant to ASC 805-740-25-8 for the recognition of a deferred tax liability on identified intangible assets, as no step-up in tax basis was obtained.

The purchase price allocation is provisional and subject to adjustment within the 12-month measurement period ending December 31, 2026.

No measurement period adjustments were recorded during the three months ended March 31, 2026.

Goodwill recognized in connection with the Telvantis acquisition is not deductible for income tax purposes.

NOTE 4 – FAIR VALUE MEASUREMENTS

The following table presents the Company's liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025, classified within the fair value hierarchy:

March 31, 2026

Contingent consideration - 42 Telecom Ltd.

Contingent consideration - Telvantis Voice Services, Inc.

Total liabilities

December 31, 2025

Contingent consideration - 42 Telecom Ltd.

Contingent consideration - Telvantis Voice Services, Inc.

Total liabilities

The Company had no assets measured at fair value on a recurring basis as of March 31, 2026 or December 31, 2025.

The contingent consideration liabilities are classified as Level 3 within the fair value hierarchy as their valuation requires significant unobservable inputs.

There were no transfers between levels during the three months ended March 31, 2026.

The fair value of the 42 Telecom contingent consideration was remeasured at March 31, 2026 using a risk-neutral Monte Carlo simulation of projected FCCN share prices, consistent with the methodology applied at the acquisition date and at December 31, 2025.

The net change in fair value of the 42 Telecom contingent consideration for the three months ended March 31, 2026 resulted in a loss of $ 2,882 , recognized within change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations and comprehensive loss.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

in fair value reflects the net effect of a decline in FCCN stock price from $4.13 to $2.56 per share, which increased the probability of the $30,000 minimum valuation guarantee triggering, partially offset by the reduction in the discount for lack of marketability arising from the shortened remaining lock-up period.

The fair value of the Telvantis contingent consideration was remeasured at March 31, 2026 using a risk-neutral Monte Carlo simulation incorporating correlated gross revenue and operating profit projections, consistent with the methodology applied at the acquisition date.

The net change in fair value of the Telvantis contingent consideration for the three months ended March 31, 2026 resulted in a loss of $ 3,032 , recognized within change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations and comprehensive loss.

The increase in fair value reflects the decline in FCCN stock price from $4.13 to $2.56 per share, which reduced the aggregate market value of shares already issued to the sellers and correspondingly increased the number of additional shares expected to be required to satisfy the $65,000 minimum share value guarantee, resulting in a higher estimated liability at March 31, 2026.

The following table presents the changes in fair value of contingent consideration measured at fair value for the three months ended March 31, 2026:

Consideration

Balance, December 31, 2025

Change in fair value - 42 Telecom Ltd.

Change in fair value - Telvantis Voice Servies, Inc.

Balance, March 31, 2026

There were no liabilities measured at fair value on a recurring basis during the three months ended March 31, 2025.

NOTE 5 – PREPAID AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

Prepaid consulting and marketing services

VAT and taxes

Prepaid expenses

Settlement receivable

Other receivable

Prepaid and other current assets

Prepaid consulting and marketing services represents the unamortized portion of equity and cash consideration paid to third party vendors under consulting and marketing service agreements, recognized on a straight-line basis over the respective service periods.

During the three months ended March 31, 2026 and 2025, the Company recognized amortization of $ 1,097 and $0, respectively, related to these arrangements.

Amortization expense for the three months ended March 31, 2026, consisting of $ 1,020 in marketing expense and $ 77 in professional fees expense.

Settlement receivables represent amounts held in dedicated collection accounts under the Fasanara receivables financing arrangements that have been remitted by customers but not yet contractually settled against the outstanding facility balances.

See Note 12 — Accounts Receivable Financing Facility

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

NOTE 6- PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:

September 30,

Office equipment

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Property, plant and equipment, net

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

For the three months ended March 31, 2026 and 2025, depreciation expense was $ 14 and $ 0 , respectively.

NOTE 7 – INTANGIBLE ASSETS

Intangible assets consist of the following:

September 30,

Developed technology (42 Telecom acquisition)

Customer relationships (42 Telecom acquisition)

Developed technology

Internally developed software

Computer software

Customer relationships

Acquired intellectual property

Accumulated amortization

Intangible assets, net

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

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

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

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

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

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

Developed technology of $ 5,479 , customer relationships of $ 3,100 , and trade name of $ 600 were identified and measured at fair value in connection with the acquisition of 42 Telecom on August 1, 2025, and are amortized on a straight-line basis over estimated useful lives of 5 years, 7 years, and 3 years, respectively.

Internally developed software represents capitalized software development costs at 42 Telecom, amortized on a straight-line basis over 5 years.

Customer relationships of $ 10,700 and trade name of $ 3,100 were identified and measured at fair value in connection with the acquisition of Telvantis on December 31, 2025, and are amortized on a straight-line basis over estimated useful lives of 8 years and 4 years, respectively, commencing January 1, 2026.

Acquired intellectual property of $ 19,710 represents artificial intelligence operating systems, FPGA-based technologies, and cybersecurity technologies acquired pursuant to an asset acquisition on October 15, 2025, in exchange for 9,000,000 shares of the Company's common stock at $2.19 per share, and is amortized on a straight-line basis over 5 years.

Amortization expense for the three months ended March 31, 2026 and 2025 was $ 1,973 and $ 0 , respectively.

No impairment charges were recognized during the three months ended March 31, 2026 and 2025.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

The following table presents the estimated future amortization expense for intangible assets as of March 31, 2026:

2026 (remaining 9 months)

NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

September 30,

Accrued cost of revenue

Accrued payroll and benefits

VAT and taxes payable

1 unchanged sentence

NOTE 9 – 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

The Company manages its operations as a single reportable segment — Telco Services — in accordance with ASC 280, Segment Reporting.

The Company's Chief Executive Officer serves as the CODM and regularly reviews consolidated revenues, cost of revenue, gross profit, selling general and administrative expenses, and wages and benefits to evaluate performance and allocate resources to the Telco Services segment.

The measure of segment profit or loss regularly reviewed by the CODM is consolidated net loss.

Neither 42 Telecom nor Telvantis was consolidated during the three months ended March 31, 2025, as both acquisitions were completed subsequent to that period.

Accordingly, the Company reported no revenues or operating expenses from its Telco Services segment for the three months ended March 31, 2025.

For the three months ended March 31, 2026, Telvantis and its subsidiaries contributed approximately 99% of consolidated revenues, with 42 Telecom and its subsidiaries contributing the remaining 1%.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

segment under ASC 280, Segment Reporting .

This conclusion is consistent with the financial information reviewed regularly by the Chief Executive Officer, who serves as the Chief Operating Decision Maker (CODM), for purposes of evaluating performance, allocating resources, setting incentive compensation, and planning and forecasting.

The CODM utilizes gross margin, operating income (loss), and net income (loss) as the primary performance measures.

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

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

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

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

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

as of September 30, 2025.

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

(In thousands, except per share data and share count)

The following table presents significant segment expenses regularly provided to the CODM and used to assess segment performance for the three months ended March 31, 2026 and 2025:

Three Months Ended

Total revenues

Cost of revenue

Operating expenses:

Selling, general and administrative

Wages and benefits

Depreciation and amortization

Total operating expenses

Loss from operations

Other income (expense):

Interest expense, net

Change in FV of contingent consideration

Total other expense

Loss before income taxes

Geographic Information

For the three months ended March 31, 2026 and 2025, revenues attributable to operations by geography were as follows:

Three Months Ended

Unites States

For the three months ended March 31, 2026, the United States represented approximately 99% of consolidated revenues, reflecting the first full quarter of consolidation of Telvantis Voice Services, Inc.

and its subsidiaries following their acquisition on December 31, 2025.

Malta and Sweden revenues are generated by 42 Telecom Ltd., Arcus Technologies Ltd., and 42 Telecom AB Ltd., respectively.

Substantially all of the Company's property, plant and equipment is held by 42 Telecom and its subsidiaries in Europe.

The following table presents property, plant and equipment, net by geographic location as of March 31, 2026 and December 31, 2025:

The Company's intangible assets are held across multiple jurisdictions — business combination intangibles recognized in connection with the acquisition of 42 Telecom are held in Europe, business combination intangibles recognized in

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data and share count)

connection with the acquisition of Telvantis are held in the United States, and the acquired intellectual property intangible assets are held by Spectral in the United States.

The following table presents intangible assets, net by geographic location as of March 31, 2026 and December 31, 2025:

United States

NOTE 10 – 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.

In connection with the acquisition of 42 Telecom on August 1, 2025, the Company assumed an operating lease for office premises located on the third and fourth floors of Hyundai Block, Valley Road, Msida, Malta.

The lease commenced upon handover on July 24, 2023 and has a contractual term of five years, of which the first two years are non-cancellable and the remaining three years may be terminated by the Company with two months' notice.

Annual base rent is €60 plus VAT, payable quarterly in advance.

Lease costs are included 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,

Lease costs are included in the unaudited condensed consolidated statements of operations and comprehensive loss as selling, general and administrative expenses.

The following table summarizes operating lease assets and liabilities as of March 31, 2026 and December 31, 2025:

Operating Leases

5 unchanged sentences

Weighted Average Discount Rate

The operating lease costs totaled $ 11,383 for the nine months ended September 30, 2025.

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

2025 (three months remaining)

The operating lease costs totaled $ 17 and $ 0 , for the three months ended March 31, 2026 and 2025, respectively.

The following table presents the maturity of operating lease liabilities as of March 31, 2026:

2026 (remaining 9 months)

Total lease payments

1 unchanged sentence

NOTE 11 – RELATED PARTY TRANSACTIONS

42 Telecom Acquisition

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

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

(“42 Telecom”), a Maltese corporation.

Pursuant to the Agreement, the Company acquired 100 of the outstanding capital stock of 42 Telecom in exchange for 8,000,000 shares of the Company’s common stock, plus 8,000,000 escrow shares subject to performance-based and valuation-adjustment provisions (see Note 3 – Business Combinations).

Transactions with Mexedia SpA and Mexedia DAC

Telvantis Voice Services, Inc.

and 42 Telecom Ltd.

are party to bilateral voice and messaging service agreements with Mexedia SpA, an Italian telecommunications company, and Mexedia DAC, an Irish telecommunications entity, under which either party may act as a customer or vendor depending on destination-specific routing economics.

Mexedia SpA and Mexedia DAC are considered related parties of the Company as Daniel Gilcher, who was appointed Chief Financial Officer of the Company effective January 3, 2026, simultaneously serves as Chief Financial Officer and Director of Mexedia SpA.

For the three months ended March 31, 2026, 42 Telecom recognized no revenue from Mexedia SpA and incurred cost of revenues of approximately $16 from Mexedia SpA representing residual termination charges.

Telvantis recognized

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Under the terms of the Agreement, each Heritage holder’s beneficial ownership of the Company’s outstanding common stock is expressly limited to 4.9 percent or less at all times.

This ownership limitation is intended to prevent any holder from being deemed an “affiliate” under SEC Rule 144 and to ensure that no post-closing shareholder obtains control or significant influence over the Company’s management or policies.

At the time the Agreement was executed and the transaction consummated, neither Heritage nor 42 Telecom was a related party to the Company as defined in ASC 850-10-20 and PCAOB AS 2410.02-.03, since no common ownership, control, or significant influence existed.

The transaction was negotiated and completed on an arm’s-length basis and approved by the independent members of the Board of Directors.

Accordingly, management has concluded that the share exchange does not constitute a related-party transaction for purposes of ASC 850-10-50 or Regulation S-X § 4-08(k).

The acquisition will be accounted for as a business combination under ASC 805, with the identifiable assets acquired and liabilities assumed recognized at their estimated fair values as of the closing date.

The Company’s post-acquisition financial statements will include the results of 42 Telecom beginning on the date of acquisition.

See Note 3 for further detail.

(In thousands, except per share data and share count)

revenue of $117 from Mexedia DAC in January 2026, with no further activity in February or March 2026, and incurred no cost of revenues from Mexedia DAC during the three months ended March 31, 2026.

As of March 31, 2026 and December 31, 2025, accounts receivable from Mexedia SpA and Mexedia DAC were $9,332 and $11,710, respectively, reflected in accounts receivable, related party in the unaudited condensed consolidated balance sheets.

Accounts payable to Mexedia SpA and Mexedia DAC were $3,683 and $9,261, respectively, reflected in accounts payable, related party in the unaudited condensed consolidated balance sheets.

In addition, Telvantis has pre-acquisition loan obligations to Mexedia DAC totaling $7,259 and $7,277 as of March 31, 2026 and December 31, 2025, respectively, reflected in due to related party in the unaudited condensed consolidated balance sheets.

These obligations were assumed as part of the Telvantis acquisition on December 31, 2025 and were incurred in the ordinary course of Telvantis's pre-acquisition operations.

Pursuant to the terms of the loan agreement, Telvantis was required to make monthly payments of $75 commencing after the acquisition date.

As no payments have been made to date, the full outstanding balance of $7,259 is due and payable in full as of March 31, 2026 in accordance with the terms of the agreement.

As of March 31, 2026 and December 31, 2025, amounts due from Mexedia SpA were $58 and $58, respectively, and amounts due from Telvantis Inc.

were $1,299 and $1,299, respectively, included in due from related party in the unaudited condensed consolidated balance sheets.

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.

Heritage Ventures Ltd.

("Heritage"), an Irish corporation controlled by Mr.

Orlando Taddeo, was the 100% owner of 42 Telecom prior to its acquisition by the Company on August 1, 2025.

Taddeo resigned as sole director of 42 Telecom effective December 31, 2025 and Heritage is no longer considered a related party of the Company from January 1, 2026.

A dividend of EUR 601 in respect of 42 Telecom's retained earnings for the year ended December 31, 2024 was declared payable to Heritage on October 31, 2025 and remained unpaid as of March 31, 2026.

This obligation of $690 and $706 as of March 31, 2026 and December 31, 2025, respectively, is reflected in accrued expenses and other current liabilities and due to related party, respectively, in the unaudited condensed consolidated balance sheets.

42 Telecom – Other receivable

As part of the acquisition of 42 Telecom 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.

As part of the acquisition of 42 Telecom on August 1, 2025, the Company acquired a receivable from Nexora Holdings Ltd.

("Nexora") amounting to EUR 363 (approximately $ 416 ), arising from an Intellectual Property Transfer Agreement dated July 1, 2025, under which 42 Telecom transferred certain proprietary software and related intellectual property to Nexora in exchange for consideration of EUR 363.

Nexora is considered a related party of the Company as Nexora and 42 Telecom share common management.

The payment is subject to a five-year moratorium, during which no cash settlement is required unless Nexora generates profits directly from the transferred intellectual property, in which case partial or full payment becomes due earlier.

As of March 31, 2026 and December 31, 2025, the carrying amount of the receivable was $ 416 and $ 427 , respectively, reflected in other receivable, related party in the condensed consolidated balance sheets.

The change in carrying amount from December 31, 2025 to March 31, 2026 is attributable 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.

No additional transactions occurred with Nexora during the three months ended March 31, 2026.

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

ended September 30, 2024, the Company issued 68,311 shares of common stock in satisfaction of $ 6,150 in advances.

On the date of the agreement, the fair market value of the common stock per the Company’s closing stock price was $6,651 resulting an extinguishment of debt of $ 501 .

Jenifer Osterwalder, the Company's Chief Executive Officer, charges the Company $12 per month for services rendered.

Total compensation expensed during the three months ended March 31, 2026 and 2025 was $ 36 and $ 36 , respectively.

As of March 31, 2026 and December 31, 2025, amounts due to the CEO related to accrued compensation were $ 612 and $ 576 , respectively.

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;

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.

In June 2025, the Company entered into a loan agreement with SKY PLL OU, a shareholder of the Company, whereby the Company may borrow up to $500.

The loan bears no interest.

As of March 31, 2026 and December 31, 2025, the total amount outstanding under this agreement was $ 10 , reflected in due to related party in the unaudited condensed consolidated balance sheets.

Subsequent to March 31, 2026, the Company repaid the outstanding balance in full.

See Note 15 — Subsequent Events for further details.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

Governance Changes

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

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

(In thousands, except per share data and share count)

On June 2, 2025, the Company entered into a promissory note with Mr.

Michael Turner, a member of the Board of Directors, for a principal amount of $ 10 .

The note bears interest at 5% per annum unless repaid within 60 days of issuance.

As of March 31, 2026 and December 31, 2025, the total amount outstanding under this note was $ 10 , reflected in due to related party in the unaudited condensed consolidated balance sheets.

Subsequent to March 31, 2026, the Company repaid the outstanding balance in full.

See Note 15 — Subsequent Events for further details.

NOTE 12 – ACCOUNTS RECEIVABLE FINANCING FACILITY

Fasanara Participation Arrangement — 42 Telecom Ltd

42 Telecom, a wholly owned subsidiary of the Company, is party to a Master Participation Agreement dated February 20, 2025 with Fasanara Securitisation S.A.

(“Fasanara”), pursuant to which Fasanara provides funding against a specified percentage of trade receivables arising from telecommunications services.

42 Telecom retains servicing responsibilities, maintains direct customer relationships, and retains a portion of the credit risk associated with the receivables.

The arrangements are undisclosed, meaning customers are not notified of Fasanara’s participation.

Accordingly, the participation arrangements do not meet the criteria for sale accounting under ASC 860, Transfers and Servicing of Financial Assets, and are accounted for as receivables financing.

The outstanding funded amount as of March 31, 2026 and December 31, 2025, $ 88 and $ 332 , recognized as current liabilities in the unaudited consolidated balance sheets.

Customer payments are remitted to a bank account maintained at Goldman Sachs used exclusively for customer collections under the arrangement.

Because the Company does not control or have withdrawal rights over this account, amounts held therein do not meet the definition of cash or cash equivalents or restricted cash under ASC 305, Cash and Cash Equivalents and are classified within other current assets as a settlement receivable.

Accounts receivable are reduced upon customer remittance as the customer’s obligation is extinguished at that time.

The Fasanara financing liability is not reduced until customer collections are contractually settled or applied against the outstanding balance.

Fasanara Participation Arrangement — Telvantis Voice Services, Inc.

Telvantis Voice Services, Inc.

is also party to a receivables financing arrangement with Fasanara, assumed by the Company in connection with the acquisition of Telvantis on December 31, 2025.

The arrangement operates on substantially the same basis as the 42 Telecom facility described above.

During the three months ended March 31, 2026, Telvantis utilized this facility in the ordinary course of its operations.

As of March 31, 2026 and December 31, 2025, the outstanding balance was $ 13,659 and $ 12,342 , respectively, recognized as a current liability in the unaudited condensed consolidated balance sheets.

NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

1 unchanged sentence

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.

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

The Series Quantum Preferred Stock contains a liquidation preference over common shareholders equal to 40 times the amount per share to be distributed to the common shareholders, is convertible at the option of the Company or the holder into 40 shares of common stock, contingent upon the Company having enough authorized shares to effectuate the conversion, and carries voting rights on an as-converted-to-common basis such that one share of Series Quantum Preferred Stock has 40 votes.

The conversion right shall not become exercisable by the holder until 12 months have elapsed from the date of issuance.

As of March 31, 2026 and December 31, 2025, no shares of Series Quantum Preferred Stock were outstanding.

Business Combination — Telvantis Voice Services, Inc.

In connection with the acquisition of Telvantis Voice Services, Inc.

on December 31, 2025, the Company was obligated to issue 1,500,000 shares of common stock to the former shareholders, reflected as common stock to be issued within stockholders' equity as of December 31, 2025.

During the three months ended March 31, 2026, the Company formally issued 1,000,000 of these shares.

The remaining 500,000 shares continue to be reflected as common stock to be issued within stockholders' equity as of March 31, 2026.

See Note 3 — Business Combinations for further details.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

Business Combination

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

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

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

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

and its subsidiaries.

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

Settlement of Advances

During the 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.

(In thousands, except per share data and share count)

Private Placement

On March 16, 2026, the Board of Directors approved a private placement offering of up to $1,000 in restricted shares of the Company's common stock at a price below market value, to remain open until the Company achieves a listing on the Nasdaq Stock Market.

During the three months ended March 31, 2026, the Company issued 100,000 shares of common stock at $2.00 per share for aggregate proceeds of $200 under this offering.

No shares were issued under a private placement during the three months ended March 31, 2025 .

Employee Options

4 unchanged sentences

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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

Stock Options

Weighted Average Exercise Price

Weighted Average Life Remaining

During the three months ended March 31, 2026, the Company granted options to purchase an aggregate of 200,000 shares of common stock to two independent members of the Board of Directors pursuant to a Board resolution dated January 3, 2026.

The options have an exercise price of $3.99 per share, representing the closing market price on the grant date, vest over 24 months at a rate of 4,166 shares per month commencing the first full month following the grant date, and are exercisable for five years from the grant date.

The grant-date fair value of each award was estimated using the Black-Scholes option pricing model with the following assumptions:

stock price and exercise price of $3.99;

expected term of 5 years;

annualized volatility of 113.18%;

risk-free rate of 3.74%;

and no dividend yield.

The per-option grant-date fair value was $3.24, resulting in aggregate grant-date fair value of $649 for both awards combined.

No options were granted during the three months ended March 31, 2025.

During the three months ended March 31, 2026 and 2025, the Company recognized stock-based compensation expense related to stock options of $ 275 and $ 416 , respectively, included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2026, total unrecognized compensation expense related to unvested stock options was $ 742 , which is expected to be recognized over a weighted-average period of approximately 1.45 years.

The following table summarizes stock option activity for the three months ended March 31, 2026:

Exercise Price

Outstanding, December 31, 2025

Forfeited/Expired

( 3,163,125 )

Outstanding, September 30, 2025

Vested, September 30, 2025

Outstanding, March 31, 2026

Vested, December 31, 2025

Vested, March 31, 2026

NOTE 14 – COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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

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

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.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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.

(In thousands, except per share data and share count)

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

Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company's business.

Telvantis Voice Services Inc.

f/k/a Mexedia Inc.

(Broward County, Florida;

Cace-25-017748).

On January 1, 2023, Telvantis Voice Services Inc.

("Telvantis"), now a wholly owned subsidiary of the Company, entered into a stock purchase agreement with Tellza, Inc.

to acquire Tellza's ownership interest in Phonetime, Inc.

and Matchcom Telecommunications, Inc.

as part of a $3,000 purchase price.

Telvantis was required to pay $250 on January 1, 2024 and did not make this payment.

Tellza filed suit to recover the $250.

Telvantis filed a motion to dismiss, and the parties subsequently entered into an Agreed Order.

Based on the facts as presently known, the Company is unable to determine the likelihood of an unfavorable outcome;

however, a loss contingency in the range of zero to $250 is reasonably possible.

No accrual has been recorded as of March 31, 2026 as the loss is not considered probable.

42 Telecom Ltd.

Symplify Technologies AB (Malta;

42 Telecom Limited ("FortyTwo"), a wholly owned subsidiary of the Company, instituted legal proceedings in the Civil Court, First Hall, of the Republic of Malta against Symplify Technologies AB, a Swedish corporation, for recovery of €443 (approximately $478) in unpaid invoices for telecommunications services.

The case was filed September 15, 2025.

On March 26, 2026, the Court entered judgment in favor of FortyTwo for the full amount of €443 plus legal interest and costs.

The defendant did not appear or contest the proceedings.

The judgment is now subject to collection.

The Company has not recorded a receivable for the judgment amount as collectability has not yet been assessed.

Arcus Technologies Ltd.

Arcus Technologies Limited, an indirect subsidiary of the Company, entered into a settlement agreement with a customer relating to outstanding debt, with monthly payments.

The matter has been resolved by agreement.

NOTE 15 - SUBSEQUENT EVENTS

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

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

Pursuant to the term sheet, the consideration consists of 10,000,000 shares of common stock of Spectral, including:

1,500,000 initial shares issued at closing;

and up to 8,500,000 additional earn-out shares, subject to performance milestones.

Telvantis shareholders may earn the additional shares if Telvantis achieves certain 2026 operating profit and/or revenue milestones, including:

$10,000,000 annualized operating profit, or $665,000,000 in annualized revenue at comparable margins.

The shares will be subject to a 12-month lock-up period, with potential extension or cancellation if performance milestones are not met.

Closing of the Transaction is subject to customary conditions, including:

completion of due diligence, delivery of audited financial statements prepared under U.S.

GAAP and audited by a PCAOB-registered accounting firm, and board approvals of both parties.

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

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

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

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

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

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

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

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

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

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

This transaction is a non-adjusting subsequent event.

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

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

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

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

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

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

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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

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

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

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

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

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

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

Management has considered all events through the date of issuance and determined that none of these subsequent events require adjustment to amounts recognized in the consolidated financial statements as of the reporting date.

All described items are considered non-adjusting subsequent events under U.S.

Repayment of Related Party Obligations

On April 28, 2026, the Company repaid in full the $10 promissory note outstanding to Mr.

Michael Turner, a member of the Board of Directors, originally dated June 2, 2025.

The note has been fully discharged and cancelled with no further obligations outstanding.

On April 29, 2026, the Company repaid in full the $10 loan outstanding to SKY DATA PLL, an Estonian corporation and shareholder of the Company.

The loan has been fully discharged and cancelled with no further obligations outstanding.

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

What changed 10-Q

Item 1. Financial Statements