FCCN 10-Q
SPECTRAL CAPITAL Corp (FCCN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE | |
| SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE | |
| SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File No.
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer Identification Number) |
(Address of principal executive offices) | (Zip/Postal Code) |
( | |
(Telephone Number) | |
(Former name or former address if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
[X] | Smaller reporting company | ||
| Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report to its management’s assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [ ]
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Act). Yes
As of August 12, 2025, we have
SPECTRAL CAPITAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
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Item 1. | F-1 | |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
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Item 3. | 24 | |
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Item 4. | 25 | |
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PART II - OTHER INFORMATION |
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Item 1. | 26 | |
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Item 1A. | 26 | |
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Item 2. | 26 | |
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Item 3. | 26 | |
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Item 4. | 26 | |
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Item 5. | 26 | |
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Item 6. | 27 | |
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28 | ||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q, press releases and certain information provided periodically in writing or verbally by our officers or our agents contain statements which constitute forward-looking statements. The words “may”, “would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions and variations thereof are intended to specifically identify forward-looking statements. These statements appear in a number of places in this Form 10-Q and include all statements that are not statements of historical fact regarding the intent, belief or current expectations of us, our directors or our officers, with respect to, among other things: (i) our liquidity and capital resources; (ii) our financing opportunities and plans; (iii) our ability to generate revenues; (iv) competition in our business segments; (v) market and other trends affecting our future financial condition or results of operations; (vi) our growth strategy and operating strategy and ; (vii) the declaration and/or payment of dividends.
Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as the result of various factors. The factors that might cause such differences include, among others, those set forth in Part II, Item 7 of this annual report on Form 10-Q, entitled Management’s Discussion and Analysis or Plan of Operation, including without limitation the risk factors contained therein. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Form 10-Q after the date of this report.
Item 1: Financial Statements
Our unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2025 and 2024 are part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS | ||
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Condensed Consolidated Financial Statements of Spectral Capital Corporation, Inc. |
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| Condensed Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024 | F-2 |
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| F-3 | |
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| Notes to the Condensed Consolidated Financial Statements (unaudited) | F-7 |
F-1
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2025 AND DECEMBER 31, 2024
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| June 30, 2025 |
| December 31, 2024 |
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Assets: |
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Cash and cash equivalents |
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Prepaid expenses |
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Current assets |
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Total assets |
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Liabilities and Stockholders' Deficit: |
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Current liabilities |
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Accounts payable and accrued liabilities |
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Related party advances and accruals |
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Short Term Loan |
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Current liabilities |
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Total liabilities |
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Commitments and contingencies |
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Preferred stock, par value $ |
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Series Quantum Preferred Stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' deficit |
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Non-controlling interest |
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Total stockholders' deficit - Spectral Capital Corp. |
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Total liabilities and stockholders' deficit |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024
(UNAUDITED)
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Revenues |
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Costs of sales |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Wages and benefits |
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Total operating expenses |
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Operating loss |
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Other income and (expense): |
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Extinguishment of debt |
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Total other income (expense) |
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Net loss before non-controlling interest |
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Loss attributable to non-controlling interest |
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Net loss attributable to Spectral Capital Corporation |
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Basic and diluted loss per common share |
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Weighted average shares - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024
(UNAUDITED)
Three Months Ended June 30, 2025 | |||||||||||||||
| Series Quantum Preferred Stock |
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| Shares |
| Amount |
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| Additional Paid-in Capital |
| Non-Controlling Interest |
| Accumulated Deficit |
| Total Stockholders' Deficit |
March 31, 2025 |
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Sale of common stock |
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Stock-based compensation |
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Settlement of related party liabilities | ( |
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Net loss |
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June 30, 2025 |
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Six Months Ended June 30, 2025 | ||||||||||||||||
| Series Quantum Preferred Stock |
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| Shares |
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| Accumulated Deficit |
| Total Stockholders' Deficit | |
December 31, 2024 |
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Sale of common stock |
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Stock-based compensation |
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Settlement of related party liabilities | ( |
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Net loss |
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June 30, 2025 |
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F-4
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024
(UNAUDITED)
Three Months Ended June 30, 2024 |
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Shares |
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March 31, 2024 |
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Proceeds from sale of common stock |
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Issuance of common stock for liabilities |
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Net loss |
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June 30, 2024 |
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Six Months Ended June 30, 2024 |
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December 31, 2023 |
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Non-controlling interest |
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Net loss |
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June 30, 2024 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
SPECTRAL CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024
(UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss attributable to Spectral Capital Corporation |
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Adjustments to reconcile net loss to net cash |
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Stock-based compensation |
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Changes in operating assets and liabilities: |
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Due to related parties - accrued salary |
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Accounts payable and accrued expenses |
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Net cash used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Short-term advances |
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Proceeds from sale of common and preferred stock |
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Change in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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Supplemental disclosures of cash flow information: |
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Cash paid for interest |
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Cash paid for income taxes |
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Non-cash investing and financing activities: |
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Settlement of related party liabilities |
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Common stock issued to settle liabilities |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
NOTE 1 – BUSINESS AND NATURE OF OPERATIONS
Spectral Capital Corporation (the “Company” or “Spectral”) was incorporated on September 13, 2000 under the laws of the State of Nevada. Spectral is focused on the identification, acquisition, development, and financing of technology that has the potential to transform existing industries. Spectral has acquired significant stakes in two recently reactivated technology companies (Noot and Monitr) as well as interests within telecommunications, data and switching services, specifically providing international long distance reselling services on a business-to-business (B2B) basis and a newly emergent business in the field of deploying Quantum Computing as a Service (“QAAS”) technologies as well as supporting start-ups in that field with shared technological, marketing and other resources.
Spectral’s business model is built on four synergistic pillars: (1) the development of a robust intellectual property portfolio—including patents and trade secrets—at the intersection of artificial intelligence and hybrid classical computing; (2) monetization of that IP through licensing agreements that include both cash payments and equity in licensee companies; (3) creation of high-impact software tools derived from Spectral’s core IP that are modular, cost-efficient, and capable of producing significant risk-adjusted returns; and (4) acquisition and transformation of smaller technology companies through the strategic application of Spectral’s proprietary technology.
In 2024, Spectral filed 104 patent applications across artificial intelligence, quantum computing, and autonomous systems, while concurrently developing an internal pipeline of over 400 additional patentable innovations. The Company also engaged a network of senior scientific and commercial advisors to enhance IP defensibility and commercialization readiness. These efforts support an expanding pipeline of licensing negotiations and product development initiatives.
The Company’s legacy as a technology incubator included several historical acquisitions, such as Noot Holdings and Monitr Holdings. In 2024, Spectral entered a new strategic phase through a series of acquisitions and platform developments in quantum and decentralized computing. However, in 2025, the Company formally rescinded certain transactions involving former Chairman Sean Michael Brehm and related entities. These rescissions preserved Spectral’s independently developed intellectual property, clarified ownership of over 100 provisional patents, and returned in excess of $100 million in share-based consideration to shareholders—thereby restoring strategic focus and corporate governance alignment.
Spectral’s current operations are focused on licensing its IP, developing quantum- and AI-enhanced software products, and executing acquisitions where its technologies can drive transformative growth. The Company has not yet generated revenues and reported net losses for the six months ended June 30, 2025 and 2024. Management is actively pursuing strategic partnerships and financing opportunities to support operational expansion and long-term commercialization efforts.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has recently discontinued revenue generating activities and has sustained substantial losses since inception. As of June 30, 2025, the Company has cash on hand of $
To date management has funded its operations through selling equity securities and advances from related parties. The ability of the Company to continue as a going concern is dependent on the Company generating cash from its recently established operations, the sale of its common stock and/or obtaining debt financing and attaining future profitable operations, however, there can be no assurance the Company will be successful in these efforts. As of the date of these unaudited condensed consolidated financial statements the Company does not have any firm commitments for capital. Without the required capital, the Company has had to reduce its development expenditures which will delay the completion of products which are expected to generate future revenues.
F-7
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
Risks and Uncertainties
The Company has a limited operating history and has not generated revenues from our planned principal operations.
The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on the Company’s consolidated financial condition and the results of its operations.
The Company currently has no sales and limited marketing and/or distribution capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our current and future products. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote sales and marketing.
The Company’s industry is characterized by rapid changes in technology and customer demands. As a result, the Company’s products may quickly become obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, the Company’s products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products.
Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2024. The results of operations for the six months ended June 30, 2025 is not indicative of the results that may be expected for the full year.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, Spectral Holdings, Inc., its wholly-owned subsidiary from the date of acquisition (August 29, 2024), and its 60% owned subsidiaries, Noot Holdings, Inc. from its date of incorporation of February 28, 2013, and Monitr Holdings, Inc. from its date of incorporation of December 1, 2013. All material intercompany accounts and transactions have been eliminated in consolidation. See Note 1 and Note 3 for discussion of the acquisition and then rescindment of the NNN acquisition.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
F-8
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
Level 1 | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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Level 2 | Include other inputs that are directly or indirectly observable in the marketplace. |
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Level 3 | Unobservable inputs which are supported by little or no market activity. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of June 30, 2025 and December 31, 2024, the Company does not have any assets or liabilities which would be considered Level 2 or 3.
The Company’s financial instruments consist of cash and cash equivalents, investments in technologies and related party advances. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. Excluding these items, the Company did not have any significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
The Company follows ASC Topic 505-50, Equity: Equity-Based Payments to Non-Employees for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered. The Company accounts for forfeitures as they occur. Accordingly, compensation expense is recognized only for awards that ultimately vest. Forfeitures are recognized in the period in which they occur, and no estimations or adjustments are made for anticipated forfeitures.
Because the Company’s stock-based compensation options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, amounts estimated using the Black-Scholes option pricing model may differ materially from the actual fair value of the Company’s stock-based compensation options.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
F-9
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
Segments
The Company has evaluated the criteria for segment reporting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, and has determined that it operates as a single operating and reportable segment. This conclusion is based on the following factors:
·The chief operating decision maker (“CODM”) reviews financial information on a consolidated basis for purposes of evaluating performance and allocating resources.
·The Company’s operations exhibit similar economic characteristics and are managed and reported as a single business unit.
·The Company’s products and services are offered in a consistent manner across its markets, with no discrete business lines requiring separate reporting.
As a result, no additional segment disclosures are required.
Revenue Recognition
The Company revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers”. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company is not currently deriving revenue from its QAAS, Monitr, Noot or data center offerings but anticipates that this will change within the next 90-120 days. No revenues were generated during the three and six months ended June 30, 2025 and 2024.
Basic Loss Per Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. During the three and six months ended June 30, 2025 the Company had options to purchase 3,646,875 shares of common stock for which the effects were anti-dilutive. During the three and six months ended June 30, 2024, the Company did not have any dilutive shares.
Non-Controlling Interests
Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 40% share of net income (losses) of Noot Holdings, Inc. and Monitr Holdings, Inc. incurred during the six months ended June 30, 2025. The following table sets forth the changes in non-controlling interest for the six months ended June 30, 2025:
|
| Non-Controlling |
Balance at December 31, 2024 |
| $( |
|
|
|
Net loss attributable to non-controlling interest |
| |
Balance at June 30, 2025 |
| $( |
Balance at December 31, 2023 |
| $( |
|
|
|
Net loss attributable to non-controlling interest |
| |
Balance at June 30, 2024 |
| $( |
F-10
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
Foreign Currency
The Company's functional currency is the United States Dollar. Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the unaudited condensed statements of operations. As a result of these foreign currency transactions in which require payment in a currency other than the United States Dollar, the Company has recorded foreign currency (income) losses within the accompanying condensed consolidated statement of operations.
Business Combination
ASC 805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets acquired, and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While the Company provided its best estimates and assumptions when accurately valuing assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” This standard requires disclosure of specific information about costs and expenses and becomes effective January 1, 2027. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-04, “Debt - Debt with Conversions and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments” (“ASU 2024-04”). ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. The requirements of ASU 2024-04 are effective for the Company for fiscal years beginning after December 15, 2025, and interim periods within those periods. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
The FASB issues ASUs to amend the authoritative literature in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company’s financial statement.
NOTE 3 – RELATED PARTY TRANSACTIONS
Jenifer Osterwalder, the Company’s Chief Executive Officer, charges the Company $12,000 per month beginning January 1, 2021 for services rendered. Total amounts expended in the Company's condensed consolidated financial statements in connection with the CEO's services was $
On February 5, 2025, the Company entered into a loan agreement with B Holdings OU, which is associated with the beneficiary owner of DecusPro, Boriss Aleksandrov, a shareholder of the Company. During the six months ended June 30, 2025, the Company received a total of $
F-11
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
In June 2025, the Company entered into a loan agreement with SKY PLL OU, a shareholder of the Company, whereby the Company may borrow up to a total principal amount of $500,000. During the six months ended June 30, 2025, the Company received a total of $
From time to time due to the limited cash flow available, the Company's CEO pays certain operating expenditures on behalf of the Company. These advances bear no interest and are due on demand. As of June 30, 2025 and December 31, 2024, the Company's CEO was due $
During the six months ended June 30, 2025 and 2024, the Company received $
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 $
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
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
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
Effective May 30, 2025, five members of the Board of Directors—Sean Brehm, Sam Lee, Aby Alexander, Chad Lemming, and Paul Breitenbach—resigned. On the same date, the Board appointed Michael Turner and Jeffrey Chong as new directors. These changes are part of the Company’s broader governance overhaul in preparation for a potential Nasdaq uplisting.
F-12
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
NOTE 4 – STOCKHOLDERS’ DEFICIT
Preferred Stock
On August 30, 2024, the Company filed a Certificate of Designation for the newly designated Series Quantum Preferred Stock. The number of Series Quantum Preferred Stock designated is
On August 29, 2024, the Company issued
As of June 30, 2025 and December 31, 2024, the Company had
Restated Share Transfer Agreement
On May 30, 2025, the Company executed a Restated Share Transfer Agreement with Intrepid View Partners, LP, under which Spectral acquired 169,889 common shares of a global autonomous vehicle company (the “WAV Company”) for an aggregate purchase price of $16,988,900, which will be paid via the issuance of 1,698,890 restricted shares of Spectral’s common stock.
The WAV Company shares are subject to a 12-month delivery restriction, and both the WAV Company shares and the Spectral shares issued as consideration are subject to a three-year lock-up period. Delivery is contingent upon satisfaction of certain regulatory and procedural requirements, which may involve delays. The Seller makes no representations regarding the financial condition or value of the WAV Company, and the transaction is structured as an “as-is” investment. Both parties have agreed to customary representations, warranties, and mutual indemnification provisions. As of June 30, 2025, the transaction was not yet finalized and as a result, there has been no accounting recognition associated with the Restated Share Transfer Agreement.
Private Placements
On April 22, 2024, the Board of Directors approved a Private Placement Offering pursuant to Rule 506(b) of the Securities Act of 1933, as amended (the “Securities Act”) for up to
In June 2024, the Company commenced an additional offering looking to raise up to $1,000,000 at a price of $0.20 per shares. As of June 30, 2024, total proceeds of $
In June 2025, the Company commenced an additional private placement offering for up to 3,333,333 shares of the Company’s common stock at a price of $1.00 per share, or an aggregate of $3,333,333. During the six months ended June 30, 2025, the Company issued 74,700 shares of common stock for total proceeds of $
F-13
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
Settlement of Advances
During the six months ended June 30, 2024, the Company issued
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 $
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
Employee Options
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors. During the six months ended June 30, 2024, the Company issued options to purchase
During the six months ended June 30, 2025 and 2024, $
The following is a summary of stock option activity for the six months ended June 30, 2025:
| Stock Options | Weighted Average Exercise Price | Weighted Average Life Remaining |
|
|
|
|
Outstanding, December 31, 2024 | | ||
Issued | | ||
Exercised | - | - | - |
Forfeited/Expired | ( | | |
Outstanding, June 30, 2025 | $ | | |
Vested, June 30, 2025 | $ | 8.95 |
F-14
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company leases virtual office space on a month-to-month basis in Seattle, Washington.
Litigation
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. The Company is not aware of any such legal proceedings that will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results. There was a claim made by a third party entity regarding Mr. Brehm and Node Nexus Network. The Company believes there is no basis for this claim and that the Company has no legal exposure on this claim and has been provided with an indemnity by Mr. Brehm for the same.
The Company previously owed Rubenstein Public Relations $30,000. There was a dispute regarding the proper amount of the invoice and the parties agreed to settle the amount due for $24,000 and signed a settlement agreement to that effect. The amount was paid in full in June 2025.
Asset Acquisitions
On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Quantomo OU., an Estonian corporation (“Quantomo”), whereby the Company agreed to acquire from Quantomo 100% of the Quantomo’s outstanding shares in exchange for 2,000,000 shares of the Company’s common stock and a one-time cash payment of $135,000 or (120,000 Euros) which was paid and expensed in 2024. The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of the certain closing conditions as defined within the agreement. As of June 30, 2025, the agreement was rescinded without an accounting impact on any period.
On September 10, 2024, the Company entered into an Acquisition Agreement to exchange shares with Crowdpoint Technologies, Inc., a Texas corporation (“Crowdpoint”), a company controlled by Sean Michael Brehm, and its wholly owned subsidiary, Crwdunit Inc., a Delaware corporation (“Target”), whereby the Company agreed to acquire from Crowdpoint 100% of the Target’s outstanding shares in exchange for 3,750,000 shares of the Company’s common stock. The closing of the transaction was expected to occur by December 10, 2024, subject to the satisfaction of certain closing conditions as defined within the agreement. As of June 30, 2025, the agreement was rescinded without an accounting impact on the any period.
Spectral entered into an Agreement between the Company and Verdant Quantum OU and Moshik Cohen dated December 15, 2024 whereby Spectral acquired certain plasmonic technology for the development of room temperature semiconductors. As of June 30, 2025 the agreement was rescinded without an accounting impact on the any period.
On May 25, 2025, the Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior agreements and no longer owes Mr. Brehm compensation for the demand advances.
Investment in White Label Loyalty
In May 2025, the Company entered into a non-binding term sheet to invest $15,000,000 in White Label Loyalty, a UK-based SaaS provider of enterprise-grade loyalty and customer engagement platforms. The investment was structured as a primary equity infusion to support White Label Loyalty’s product development and international expansion. The Company has elected to let the term sheet expire according to its terms and not to pursue this financing.
Short Term Loans
On April 21, 2025, the Company entered into a short-term loan agreement with a third-party lender for a total principal amount of $10,000. The loan bears no interest and matures on October 21, 2025.
F-15
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025
(UNAUDITED)
NOTE 6 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2025 to the date these condensed consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, other than disclosed below.
The Company elected not to pursue an investment in White Label Loyalty, see Note 5 above.
On July 15, 2025 (subsequent to the quarter ended June 30, 2025), the Company entered into a binding agreement to acquire 100% of the equity of 42 Telecom Ltd. ("Forty Two"), a Maltese-based telecommunications infrastructure provider with global operations. Under the terms of the agreement, Spectral will issue 8,000,000 shares of its common stock to Heritage Ventures Ltd., the sole shareholder of Forty Two. An additional 8,000,000 shares will be placed in escrow to support earnout and valuation protection provisions tied to Forty Two's 2025 performance metrics. The transaction closed on August 1, 2025.
See Note 4 for subsequent shares issued under a private placement offering.
F-16
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in this report and those in our Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission on June 24, 2025 and all subsequent filings.
OVERVIEW
Spectral Capital Corporation is a technology company focused on the development, monetization, and integration of proprietary intellectual property (IP) at the convergence of artificial intelligence (AI), hybrid classical computing, and emerging quantum technologies. The Company’s strategic platform is organized around four core pillars:
1. The development of patentable and protectable IP;
2. The monetization of that IP through licensing arrangements and equity-based transactions;
3. The development and deployment of cost-effective software solutions derived from proprietary innovations; and
4. The acquisition and transformation of technology companies through the integration of Spectral’s IP.
Each product or service developed or acquired by Spectral is designed to derive from, reinforce, or scale one or more of these strategic growth pillars.
At the center of Spectral’s operations is its IP licensing business, which enables third-party enterprises to incorporate Spectral-developed technologies into their own products and platforms. These licensing arrangements typically include a mix of upfront cash payments and equity participation, providing both near-term revenues and longer-term upside aligned with the growth of Spectral’s partners. The licensing model is especially attractive to companies operating in sectors such as artificial intelligence, cybersecurity, autonomous systems, logistics, and advanced data analytics, where integration of cutting-edge algorithms and architectures can provide meaningful competitive differentiation.
As of the date of this filing, Spectral has identified 504 patentable innovations in various stages of prosecution and development in a broad array of emerging technology fields, with particular concentration at the intersection of artificial intelligence and quantum computing. These applications span innovations in quantum-enhanced machine learning, secure multiparty computation, hybrid neural architectures, synthetic training data generation, and autonomous system optimization. In connection with the Company's acquisition of 42 Telecom Ltd., Spectral licensed a portfolio of 31 of these patent applications to 42 Ltd., thereby enabling the integration of advanced messaging infrastructure with proprietary Spectral technologies for commercial deployment.
In addition, Spectral is actively commercializing a growing suite of modular, AI-enhanced software products. These tools are designed for rapid deployment and include applications for secure data search, model optimization, pattern recognition, and probabilistic reasoning. These software offerings are particularly well-suited for enterprise customers seeking to improve decision-making, reduce compute overhead, and expand analytical capabilities without incurring major infrastructure costs. In many cases, the Company’s hybrid AI-quantum approaches offer material performance advantages over conventional software.
The Company is also in the R&D phase of developing an intelligent cloud compute environment optimized for high-dimensional AI and quantum-inspired workloads. This platform is being designed to integrate decentralized edge computing with scalable hybrid architectures, with a focus on low latency, high data privacy, and flexible deployment options. Target customers include enterprise and government clients with mission-critical or regulated workloads. The service is intended to support quantum-enhanced simulation, ultra-secure computation, and real-time distributed intelligence.
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Spectral also pursues a targeted acquisition strategy focused on underperforming or undercapitalized technology businesses that can be revitalized through integration of Spectral’s IP and computing capabilities. Following acquisition, Spectral deploys its proprietary innovations into the acquired business’s operations, driving improvements in revenue growth, margins, and overall market relevance. This transformation model is designed to generate both operational gains and strategic monetization opportunities through future joint ventures, divestitures, or public offerings.
The Company’s current beta-stage software products include:
NOOT: A collaborative intelligence platform that leverages quantum computing and Spectral’s proprietary Distributed Quantum Ledger Database (DQLDB) to derive secure, cross-disciplinary insights from collective expertise. NOOT is currently in limited beta deployment.
Monitr: A web-based document management and collaboration platform designed for integration with both quantum and traditional infrastructures. Monitr enables individuals, businesses, and investment clubs to store, organize, and share information securely using the DQLDB architecture. Monitr is also in beta testing.
Collectively, Spectral’s integrated approach to IP creation, software development, licensing, and acquisition positions the Company to generate diversified revenue streams while expanding the impact of its technology across multiple sectors.
While the Company believes its business model and proprietary technologies present significant long-term potential, it currently operates with limited financial resources and has not secured reliable capital sources to support ongoing operations. As such, unlike better-capitalized competitors with established revenue streams, operational scale, and customer networks, Spectral’s ability to develop and commercialize its technologies remains subject to continued access to funding and capital markets.
Key Developments in Q2 2025
During the quarter ended June 30, 2025, Spectral Capital Corporation advanced a series of strategic, operational, and research initiatives in furtherance of its goal to build a differentiated technology platform at the intersection of artificial intelligence, quantum computing, and hybrid computational systems. The Company’s activities during the quarter reflect a continued focus on intellectual property development, disciplined capital allocation, and the strengthening of governance and commercialization infrastructure.
Patent Portfolio Expansion
During the quarter, the Company continued to build out its global intellectual property portfolio with new filings across a range of advanced technologies, including artificial intelligence, quantum computing, and autonomous systems. These filings support Spectral’s core commercialization strategy, which is centered on licensing, productization, and strategic joint ventures. The patent applications filed during the quarter span both U.S. and international jurisdictions and are closely aligned with high-growth sectors in which Spectral is actively engaged. As of June 30, 2025, the Company had filed or prepared more than 500 patent applications, with additional filings anticipated in the coming quarters.
Scientific Research and Innovation Pipeline
In addition to its active filings, the Company advanced foundational research that has produced a pipeline of more than 400 additional patentable innovations. These innovations—currently in various stages of internal validation, refinement, and drafting—cover a broad array of novel system architectures, signal processing methods, applied machine learning models, and quantum-photonic integration techniques. The Company expects to continue phased filings of these innovations through 2025 and 2026. This pipeline positions Spectral as a potential long-term partner to corporate, academic, and governmental institutions seeking frontier innovation in complex computational environments.
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Strategic Consultant Engagements
During the quarter, Spectral deepened its engagement with several senior scientific and commercial consultants with expertise in intellectual property development, deep tech commercialization, and regulatory strategy. These consultants—who include former engineers, patent counsel, and executives from major firms in AI, semiconductors, and quantum computing—have materially contributed to the Company’s R&D velocity and patent quality. Their input has strengthened Spectral’s claim construction, accelerated the innovation capture process, and provided market insights that enhance the Company's strategic positioning in global IP and commercialization frameworks.
Rescission of Brehm Transactions and Preservation of Core IP
In Q2 2025, the Company successfully completed the rescission of several previously disclosed transactions involving former Chairman Sean Michael Brehm and his affiliated entities. These rescinded transactions—originally structured around purported IP contributions—were determined to be misaligned with Spectral’s long-term strategic and fiduciary priorities. As a result of the rescission, Spectral preserved full rights to its independently developed IP portfolio, clarified title to over 100 provisional patent applications, and canceled approximately $100 million in share-based consideration. This action improved governance posture, eliminated potential sources of dilution, and reaffirmed the integrity of the Company’s intellectual property strategy.
White Label Loyalty Investment – Term Sheet and Decision not to Pursue
In May 2025, the Company entered into a non-binding term sheet to invest up to $15 million in White Label Loyalty (WLL), a UK-based loyalty and behavioral analytics company. The contemplated investment was intended to complement Spectral’s growing interest in consumer-facing AI technologies. Following subsequent diligence and strategic review, Spectral elected not to proceed with the investment. This decision reflects the Company’s commitment to maintaining alignment between capital deployment and core IP leverage, and underscores a disciplined approach to strategic partnerships.
Agreement with Intrepid View Partners
On May 30, 2025, Spectral Capital Corporation entered into a Restated Share Transfer Agreement with Intrepid View Partners, LP, pursuant to which Spectral acquired 169,889 restricted common shares of a leading global autonomous vehicle company (the “WAV Company”) known for its next-generation, AI-driven approach to assisted and automated driving. The total consideration for the transaction was $16,988,900, payable in the form of 1,698,890 restricted shares of Spectral common stock valued at $10.00 per share. The acquired WAV shares are subject to a 12-month holding period and a three-year transfer restriction, mirroring restrictions on the Spectral shares issued in consideration. The transaction reflects Spectral’s continued strategy of leveraging its equity to gain exposure to transformative technologies in adjacent high-growth sectors, and was executed following restatement of a prior agreement to reflect recent corporate developments and updated disclosures. As of June 30, 2025, the transaction was not yet finalized and as a result, there has been no accounting recognition associated with the Restated Share Transfer Agreement.
Platform and Operations
Intellectual Property Development
At the core of Spectral Capital’s business model is the development of a defensible and forward-looking intellectual property portfolio, particularly at the intersection of artificial intelligence, quantum computing, and hybrid classical architectures. During the quarter ended June 30, 2025, Spectral continued its aggressive IP development efforts, filing patent applications across a broad array of emerging technology domains. These filings span U.S. and international jurisdictions and are strategically aligned with enterprise, defense, and advanced infrastructure applications. As of quarter end, Spectral had filed or prepared over 500 patent applications, and anticipates continued momentum in this area throughout 2025 and 2026.
Scientific Research and Innovation Pipeline
In parallel with its formal filings, the Company advanced a growing internal pipeline of over 400 additional patentable innovations, now in various stages of validation, drafting, and scheduling for submission. These inventions cover a range of advanced system architectures, signal optimization methods, photonic-qubit integration techniques, and AI
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models optimized for quantum-accelerated platforms. This pipeline is the result of sustained internal research and reflects Spectral’s long-term commitment to frontier innovation. The Company views this scientific foundation as a key strategic asset supporting future licensing, spinouts, and co-development with academic, corporate, and governmental partners globally.
IP Monetization and Licensing Strategy
Spectral continues to execute on its IP monetization strategy through the negotiation and structuring of licensing agreements that generate both near-term and long-term value. These agreements often combine equity participation and cash components, enabling Spectral to capture immediate upside and longer-term alignment with its licensees’ success. During the quarter, Spectral licensed a portfolio of 31 patent applications to 42 Telecom Ltd. in connection with the execution of a definitive share exchange agreement. This transaction exemplifies Spectral’s approach to embedding proprietary technologies into operational platforms to enhance revenue and scalability, while preserving core IP ownership.
Software Product Development
Spectral develops proprietary software tools built upon its patented technologies and trade secrets. These applications are designed to be modular, lightweight, and rapidly deployable—offering scalable solutions in areas such as secure data access, pattern recognition, probabilistic inference, and quantum-inspired simulation. The Company’s current beta-stage offerings include NOOT, a collaborative intelligence platform leveraging Spectral’s Distributed Quantum Ledger Database (DQLDB), and Monitr, a secure document management system designed for integration with both quantum and classical infrastructure. These products not only serve as proof points for the market value of Spectral’s IP but are also structured to generate near-term customer validation and recurring revenue.
Strategic Consultant Engagements
During the quarter, Spectral expanded its engagement with senior consultants in the fields of quantum computing, AI architecture, IP law, and regulatory strategy. These experts—many of whom have backgrounds at top-tier technology firms and government institutions—have contributed to accelerating Spectral’s internal R&D velocity, enhancing the defensibility of its claims, and supporting global IP protection efforts. Their input also informs strategic decisions around commercialization pathways, licensing jurisdictions, and potential regulatory implications of Spectral’s core technologies.
Value-Driven Acquisition and Investment Strategy
Spectral pursues a disciplined strategy of acquiring or investing in undercapitalized technology companies where the integration of Spectral’s IP can drive transformative growth. On May 30, 2025, Spectral entered into a Restated Share Transfer Agreement with Intrepid View Partners, LP, through which it acquired 169,889 restricted shares of a global autonomous vehicle company with a next-generation AI-based driving platform. The $16.99 million consideration was satisfied through the issuance of 1,698,890 restricted shares of Spectral stock. The WAV shares are subject to a one-year holding period and a three-year transfer restriction, in line with Spectral’s long-term investment philosophy. The transaction exemplifies Spectral’s approach of leveraging equity capital to gain strategic exposure to disruptive adjacent technologies.
Additionally, the Company entered into a non-binding term sheet in May 2025 for a potential $15 million investment in White Label Loyalty, a UK-based behavioral analytics firm. After completing its due diligence, Spectral elected not to pursue the transaction—demonstrating management’s commitment to disciplined capital deployment and alignment with core technological and strategic priorities.
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Integrated Growth Platform
Spectral’s four-pillar platform—comprising IP development, licensing, software productization, and acquisition—forms a tightly integrated and capital-efficient growth model. Each element reinforces the others: IP creation fuels product development and licensing; products validate market applications; and acquisitions provide pathways for embedding Spectral’s technology into operating businesses. The platform is designed to be agile, scalable, and high-leverage—enabling Spectral to expand its footprint without requiring extensive fixed infrastructure or deep operational overhead. As the Company matures from R&D-centric roots into a commercial-stage enterprise, this structure supports repeatable value creation and strategic optionality.
Market Position and Strategy
Spectral Capital is building a differentiated market position at the convergence of artificial intelligence, hybrid classical computing, and quantum-enhanced infrastructure. Unlike companies that focus on narrow-point technologies—such as isolated quantum processor development or large-scale cloud infrastructure—Spectral is constructing a vertically integrated platform anchored in proprietary intellectual property and extensible across industries. This approach combines rigorous scientific research, modular software product development, and value-accretive acquisitions to create a scalable, capital-efficient growth engine.
The Company’s strategy is structured around four mutually reinforcing pillars:
1. The ongoing development of a defensible portfolio of patents and trade secrets;
2. The monetization of that IP through cash and equity-based licensing agreements;
3. The creation of high-utility software products that generate measurable ROI for enterprise users; and
4. The acquisition or investment in companies where Spectral’s technologies can be integrated to unlock margin expansion, growth, and long-term strategic value.
By the end of Q2 2025, Spectral had filed or prepared over 500 patent applications, with a further 400+ inventions in active development. The Company licensed 31 of these patents to 42 Telecom Ltd. in conjunction with a definitive share exchange agreement, demonstrating its ability to embed proprietary technology into operational platforms. Spectral also executed a $16.99 million share-for-share investment in a global autonomous vehicle company via its May 2025 agreement with Intrepid View Partners, providing long-term exposure to the evolution of AI-driven transportation technologies.
At the same time, Spectral made the strategic decision not to proceed with a proposed $15 million investment in White Label Loyalty, a behavioral analytics firm, following due diligence. This decision reflects the Company’s commitment to aligning capital deployment with its core innovation roadmap and technology leverage model.
Spectral operates in a rapidly evolving landscape marked by increased demand for secure, high-performance, and energy-efficient computational capabilities. By focusing on critical domains such as cybersecurity, logistics, simulation, and real-time analytics, Spectral is positioned to meet urgent real-world needs—particularly in sectors requiring high-dimensional or low-latency compute. Through its hybrid AI-quantum architecture and software-first deployment strategy, the Company aims to minimize customer onboarding friction while preserving technological defensibility.
To support this strategy, Spectral has formalized relationships with senior advisors and consultants specializing in quantum systems, IP commercialization, and regulatory frameworks. These experts complement the Company’s internal innovation engine and inform its ongoing technology, licensing, and go-to-market strategies. Spectral’s integrated platform—rooted in invention, monetization, and transformation—positions the Company to lead in the emerging category of AI- and quantum-enabled enterprise infrastructure.
Outlook
Spectral Capital enters the second half of 2025 with a clear strategic mandate: to commercialize its expanding intellectual property portfolio, scale licensing and product operations, and deploy its integrated platform across a growing number of industry verticals. The Company’s immediate priorities include executing new licensing agreements, validating its proprietary software products through pilot deployments, and completing follow-on filings from its internal innovation pipeline of over 400 additional inventions.
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Initial licensing success—including the 31-patent portfolio licensed to 42 Telecom Ltd.—demonstrates growing market appetite for Spectral’s core innovations. Beta-stage software solutions, such as NOOT and Monitr, are expected to generate early customer validation and recurring revenue opportunities in the coming quarters. These developments support the transition of Spectral from a research-intensive organization to a revenue-generating platform company with operational momentum.
Spectral’s medium-term outlook is shaped by rising demand for AI- and quantum-enhanced solutions in sectors such as cybersecurity, predictive modeling, and advanced logistics. By offering modular, scalable, and capital-light access to complex computational technologies, Spectral intends to reduce adoption barriers while delivering strategic capabilities to enterprise and government clients. Its IP-first model and hybrid deployment architecture are designed to produce rapid ROI and defensibility across a range of verticals.
Looking ahead, the Company remains committed to disciplined innovation and strategic expansion. Spectral continues to evaluate potential joint ventures, spinouts, co-development partnerships, and other strategic alternatives that support commercialization while maintaining optionality. Management is focused on optimizing shareholder value while balancing bold technological advancement with prudent financial and operational execution.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2025 and 2024
Operating Expenses
Operating expenses increased by $2,188, or approximately 0.5%, from $484,425 for the three months ended June 30, 2024, to $486,613 for the three months ended June 30, 2025. The modest increase primarily reflects targeted investments in strategic consulting, technology validation, and professional services to support intellectual property development, licensing execution, and corporate governance enhancements. While stock-based compensation remained a meaningful component of expenses, the Company also incurred incremental legal and advisory costs related to the rescission of prior transactions and the execution of new strategic agreements.
Comparison of the Six Months Ended June 30, 2025 and 2024
Operating Expenses
Operating expenses increased by $597,352, or approximately 108.8%, from $549,289 for the six months ended June 30, 2024, to $1,146,641 for the three months ended June 30, 2025. The modest increase primarily reflects targeted investments in strategic consulting, technology validation, and professional services to support intellectual property development, licensing execution, and corporate governance enhancements. While stock-based compensation remained a meaningful component of expenses, the Company also incurred incremental legal and advisory costs related to the rescission of prior transactions and the execution of new strategic agreements.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2025, the Company had cash on hand of $6,078, a decrease from the December 31, 2024 balance of $107,475. Spectral continues to fund its operations through a combination of cash on hand, opportunistic short-term financings, and equity-based transactions. While the Company believes it will be able to secure sufficient external funding to support near-term operations, there can be no assurance that such capital will be available on favorable terms or at all.
Operating Activities
Net cash used in operating activities increased by $337,863 to $480,956 for the six months ended June 30, 2025, compared to $143,093 for the six months ended June 30, 2024. The increased cash usage reflects the Company’s expanded investment in patent development, professional fees related to corporate restructuring, and increased product development activity in its beta-stage software offerings.
Financing Activities
Net cash provided by financing activities increased by $134,019 to $379,559 for the six months ended June 30, 2025, compared to $245,540 for the six months ended June 30, 2024. This funding was primarily attributable to short-term advances from investors and insiders in support of R&D and general working capital needs.
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Capital Requirements and Outlook
The Company does not currently have sufficient financial resources to meet its working capital and investment needs over the next twelve months without additional financing. Management is actively pursuing various sources of equity and strategic capital to address this shortfall and advance the commercialization of its intellectual property portfolio. However, there are no assurances that additional capital will be secured in a timely manner or on acceptable terms. If adequate funding is not obtained, the Company may need to scale back operations, delay investment initiatives, or divest one or more of its assets.
Despite current liquidity constraints, management believes that Spectral’s short-term prospects remain promising. The Company has made significant progress in developing and protecting a robust portfolio of over 500 patent filings and more than 400 additional innovations in active development. Strategic execution during the quarter—including the successful licensing of 31 patents to 42 Telecom Ltd., the acquisition of a $16.99 million equity stake in a leading autonomous vehicle company, and the decision to withdraw from a proposed investment in White Label Loyalty—demonstrates a disciplined capital allocation approach aligned with long-term value creation.
Management believes Spectral is well-positioned to generate operational and financial growth as it expands its licensing activities, advances its beta-stage software solutions (NOOT and Monitr), and explores broader applications of its quantum and AI technologies in enterprise infrastructure and defense markets.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Item 1.01. Entry into a Material Definitive Agreement.
Investment in White Label Loyalty (May 2025): 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 transaction exemplifies Spectral’s strategy of acquiring or investing in scalable software businesses that can be enhanced through integration with the Company’s proprietary intellectual property and platform technologies. This investment was financed in part through the Company’s existing equity resources. The company let the agreement expire in accordance with its terms and has elected not to pursue the transaction.
Restated Share Transfer Agreement (May 30, 2025): 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 for an aggregate purchase price of $16,988,900, paid via the issuance of 1,698,890 restricted shares of Spectral’s common stock. As of June 30, 2025, the transaction was not yet finalized and as a result, there has been no accounting recognition associated with the Restated Share Transfer Agreement.
Rescission of Transactions with Sean Brehm and Affiliates: The Company entered into a settlement agreement with Sean Brehm and affiliated entities to rescind all prior acquisitions and planned collaborations involving Node Nexus Network, Vogon Cloud, Quantomo, and Crwdunit. Under the agreement, Spectral retains ownership of 104 patent filings developed during the course of the collaboration. Brehm and his affiliates will pursue independent commercial development of the foregoing technologies in a separate private vehicle. All shares previously issued to Brehm and his affiliates have been returned and cancelled except for the private placement shares of 5,050,000 purchased by Brehm which were fully paid for. As of June 30, 2025, these entities did not have any assets or liability as to be reflected as discontinued operations. Additionally, the Company intends to continue the development of its intellectual property and software development on its own and does not require any resources, assets or inputs from any of the above entities or individuals to continue the development of its technologies.
During the period ended June 30, 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.
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Forty Two Telecom Acquisition: On July 15, 2025, Spectral Capital Corporation ("Spectral") entered into a Definitive Share Exchange Agreement with 42 Telecom Ltd., a company organized under the laws of Malta and its subsidiaries, and the shareholders of 42 Telecom Ltd. Under the terms of the agreement, Spectral agreed to acquire 100% of the issued and outstanding equity interests of 42 Telecom Ltd. in exchange for an aggregate of 16,000,000 shares of Spectral’s common stock, consisting of:
8,000,000 shares issued at closing, and 8,000,000 shares placed in escrow, subject to release based on the achievement of certain performance-based earnout milestones during calendar years 2025 and 2026.
In connection with the execution of the Share Exchange Agreement, Spectral and 42 Telecom Ltd. also entered into a Technology License Agreement, under which Spectral granted 42 Telecom a non-exclusive license to a portfolio of 31 patent applications owned or controlled by Spectral. These patent applications include innovations in secure messaging, AI-assisted fraud detection, quantum-classical communication protocols, and distributed communications infrastructure.
The licensing arrangement is designed to enable 42 Telecom to incorporate Spectral’s proprietary IP into its enterprise messaging platform and product offerings. The agreement reflects Spectral’s strategy of embedding its intellectual property into operating businesses with established revenue, infrastructure, and commercial reach.
The foregoing descriptions of the Share Exchange Agreement and the Technology License Agreement are summaries only and are qualified in their entirety by reference to the full agreements, are filed as exhibits attached hereto.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On August 1, 2025 Spectral Capital Corporation completed the acquisition of 42 Telecom Ltd. pursuant to the Share Exchange Agreement dated July 15, 2025. As consideration for the acquisition, Spectral is obligated to issue 8,000,000 shares of its common stock at closing and agreed to issue an additional 8,000,000 shares, which will be held in escrow and subject to performance-based earnout conditions. Spectral is awaiting instructions from 42 as to how the 8,000,000 shares are distributed to the 42 Telecom shareholders and will then immediately issue the shares. The transaction was consummated following the satisfaction of customary closing conditions, including board and shareholder approvals.
As a result of the acquisition, 42 Telecom Ltd. became a wholly owned subsidiary of Spectral Capital Corporation. The Company expects that the integration of 42 Telecom’s high-volume messaging platform and global infrastructure with Spectral’s proprietary intellectual property will significantly expand its commercial footprint and recurring revenue potential.
In accordance with Rule 3-05 of Regulation S-X, the Company will file the audited financial statements of 42 Telecom Ltd., along with any required pro forma financial information, within the time period prescribed by the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
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ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures were not effective as of June 30, 2025 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting & Financial Officers as appropriate to allow timely decisions regarding required disclosure.
We have identified material weaknesses in our annual report on Form 10-K for the year ended December 31, 2024 in which related to a lack of an accounting staff resulting in a lack of segregation of duties necessary for an effective system of internal control. The weakness in segregation of duties will continue to exist until such time as management can retain internal staff to properly segregate duties.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are not party to any material legal matters. In the future, we may become party to other legal matters and claims arising in the ordinary course of business. We cannot predict the outcome of any such legal matters or claims, and despite the potential outcomes, the existence thereof may have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. 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.
Item 2. Unregistered Sales of Securities and Use of Proceeds
During the six months ended June 30, 2025, the Company was obligated to issue an aggregate of 74,700 shares of common stock for total gross proceeds of $84,970 pursuant to a private placement offering commenced in June 2025 which shares were issued in July 2025. The offering was conducted under Rule 506(b) of Regulation D of the Securities Act of 1933, as amended, and contemplated the issuance of up to 3,333,333 shares of common stock at a purchase price of $1.00 - $1.49 per share, for total potential gross proceeds of $3,333,333 to $4,966,666. Subsequent to June 30, 2025, the Company issued an additional 200,000 shares in connection with this offering for $200,000 in gross proceeds.
These offerings were made to accredited investors only. None of the transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D. All investors represented that they were acquiring the securities for investment purposes and not with a view to distribution, and each received access to such information as would be made available in a registration statement. No general solicitation or advertising was used in connection with the offer or sale of these securities.
In addition, as previously disclosed, on August 29, 2024, the Company sold 5,050,000 shares of common stock at a price of $0.20 per share to its then-Chairman of the Board, Sean Michael Brehm, for total gross proceeds of $1,010,000. These shares were issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act.
The net proceeds from these unregistered sales of equity securities have been or will be used to fund ongoing operations, research and development, corporate infrastructure, and working capital requirements.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information
None.
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Item 6. Exhibits
List of Exhibits |
|
3(i)(1) | |
3(i)(2) | |
3(ii) | |
10.1 | |
10.2 | |
10.3 | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
31.2 | |
32.1 | |
32.2 |
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 12, 2025 | Spectral Capital Corporation |
|
|
| /s/ Jenifer Osterwalder |
| Jenifer Osterwalder |
| President and Chief Executive Officer |
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