What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-14 compared with 2025-08-13 · 181 added, 39 removed, 184 unchanged (54% of the section changed)

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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.

In August 2025, the Company completed the acquisition of 42 Telecom Ltd., a global telecommunications and messaging infrastructure provider.

The transaction marked a major strategic shift, transforming Spectral from a pre-revenue R&D enterprise into an operating company with established revenue-generating activities.

Following the acquisition, 42 Telecom and its subsidiaries—became wholly owned subsidiaries of Spectral.

The acquired operations provide enterprise messaging, SMS aggregation, SS7 platform access, and PaaS communication solutions to customers across Europe and other regions.

As a result, Spectral’s consolidated financial results for the third quarter of 2025 reflect the inclusion of 42 Telecom’s operations beginning August 1, 2025.

Going forward, the Company’s performance will be driven by both its AI and quantum IP development initiatives and the commercial operations of 42 Telecom, which provide recurring service revenues, operating cash flows, and a foundation for integrating Spectral’s proprietary technologies.

The Company’s strategic platform is organized around four core pillars:

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Key Developments in Q3 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.

During the quarter ended September 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.

Acqusition of 42 Telecom Limited

On August 1, 2025, Spectral completed the acquisition of 42 Telecom Ltd.

(“42”), a global provider of enterprise messaging infrastructure.

The acquisition closed following the execution of a Closing Certificate confirming the satisfaction of all conditions in the Definitive Share Exchange Agreement signed July 15, 2025.

Under the agreement, Spectral acquired 100% of 42 Telecom’s issued and outstanding shares in exchange for 8 million shares of Spectral common stock, with an additional 8 million shares placed in escrow.

The transaction includes a contractual guarantee that 42 will generate at least $16 million in profitable revenue for fiscal year 2025.

The integration of Spectral Capital’s 31 patent-pending innovations—focused at the intersection of artificial intelligence and quantum computing—positions 42 Telecom Ltd.

to evolve into a global platform with transformative capabilities.

By embedding Spectral’s proprietary technologies into 42’s existing messaging infrastructure, the company can unlock unprecedented levels of intelligent automation, fraud prevention, predictive engagement, and dynamic routing.

These enhancements are expected to dramatically lower operating costs, optimize traffic monetization, and enable sophisticated enterprise-grade CRM and customer engagement features tailored for the U.S.

With scalable, AI-driven personalization and quantum-secure communications layered into its SMS platform, 42 Ltd.

is poised to differentiate itself in the high-margin U.S.

enterprise segment, capturing market share from legacy providers and accelerating growth through value-added, low-latency API integrations for marketing, support, and behavioral analytics applications.

42 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, 42also offers platform-as-a-service solutions tailored for the tourism sector.

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

42 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.

Patent Portfolio Expansion

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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.

As of September 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

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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.

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.

Agreement with Telvanis Voice Services

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;

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.

Platform and Operations

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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.

During the quarter ended September 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.

As of the date of this report, Spectral had filed or prepared over 500 utility and provisional 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

models optimized for quantum-accelerated platforms.

These inventions cover a range of advanced system architectures, signal optimization methods, photonic-qubit integration techniques, and AI 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.

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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.

Integrated Growth Platform

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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.

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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.

Spectral Capital enters the second half of 2025 with a clear strategic mandate:

As of September 30, 2025, Spectral Capital enters the final quarter of the year 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.

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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.

Comparison of the Three Months Ended September 30, 2025 and 2024:

Three Months Ended

September 30,

Cost of revenues

Selling, general and administrative

Wages and benefits

Research and development

Total operating expenses

Loss from operations

Total other income (expense)

$ (1,194,986)

Revenues and Cost of Revenues

Net revenues were $3,139,246 for the three months ended September 30, 2025, consisting of revenues derived from 42 Telecom operations after the closings of the acquisition on August 1, 2025.

Cost of revenues for the same period was $2,428,879.

The Company did not earn revenue for the three months ended September 30, 2024.

42 Telecom’s revenue consisted of the following:

Three Months Ended

September 30,

Messaging Services, at a point in time

Platform Leasing, over time

42 Telecom’s cost of revenue consists of direct expenses incurred in providing telecommunication and platform services and is recognized in the period in which the related revenues are earned.

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

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

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

These costs are recorded when incurred and matched to the related revenue in accordance with U.S.

GAAP expense recognition principles.

Selling, general and administrative

Selling, general and administrative expenses were $1,240,552 for the three months ended September 30, 2025, compared to $610,588 for the three months ended September 30, 2024.

The increase was primarily due to the acquisition of 42 Telecom in August, 2025.

Selling, general and administrative expenses include rent and facilities, marketing and travel, professional and administrative services, depreciation, insurance and compliance costs, finance and bank charges, and other operating expenses.

Wages and benefits

Wages and benefits expenses were $441,984 for the three months ended September 30, 2025, compared to $36,000 for the three months ended September 30, 2024.

The increase was primarily due to the acquisition of 42 Telecom in August, 2025.

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.

Research and Development costs

Research and development cost were $0 for the three months ended September 30, 2025, compared to $548,398 for the three months ended September 30, 2024.

During the 2024 period, R&D activities primarily related to the advancement of Spectral’s proprietary artificial intelligence and quantum computing initiatives, including patent filings, prototype testing, and software tool development.

Other income (expense), net

Other income (expense), net, totaled $11,056 for the three months ended September 30, 2025, compared to ($265,596) for the same period in 2024.

The 2025 balance primarily reflects foreign exchange gains and losses, minor interest expense on short-term borrowings following the acquisition and consolidation of 42 Telecom Ltd.

and its subsidiaries.

Comparison of the Nine Months Ended September 30, 2025 and 2024:

Nine Months Ended

September 30,

Cost of revenues

Selling, general and administrative

Wages and benefits

Research and development

Total operating expenses

Loss from operations

Total other income (expense)

$ (2,111,244)

$ (2,009,871)

Revenues and Cost of Revenues

Net revenues were $3,139,246 for the nine months ended September 30, 2025, consisting of revenues derived from 42 Telecom operations after the closings of the acquisition on August 1, 2025.

Cost of revenues for the same period was $2,428,879.

The Company did not earn revenue for the nine months ended September 30, 2024.

42 Telecom’s revenue consisted of the following:

Nine Months Ended

September 30,

Messaging Services, at a point in time

Platform Leasing, over time

Selling, general and administrative

Selling, general and administrative expenses were $2,315,193 for the nine months ended September 30, 2025, compared to $1,087,877 for the nine months ended September 30, 2024.

The increase was primarily due to the acquisition of 42 Telecom in August, 2025.

Wages and benefits

Wages and benefits expenses were $513,984 for the nine months ended September 30, 2025, compared to $108,000 for the nine months ended September 30, 2024.

The increase was primarily due to the acquisition of 42 Telecom in August, 2025.

Research and Development costs

Research and development cost were $0 for the nine months ended September 30, 2025, compared to $548,398 for the nine months ended September 30, 2024.

Other income (expense), net

Other income (expense), net, totaled $11,056 for the nine months ended September 30, 2025, compared to $0 for the same period in 2024.

The 2025 balance primarily reflects foreign exchange gains and losses, minor interest expense on short-term borrowings following the acquisition and consolidation of 42 Telecom Ltd.

and its subsidiaries

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.

As of September 30, 2025, the Company had cash and restricted cash totaling $447,401, compared to $107,475 as of December 31, 2024, representing an increase primarily attributable to the acquisition of 42 Telecom Ltd.

and the consolidation of its operating cash balances.

The acquisition added active revenue-generating operations and working capital resources, partially offset by transaction-related expenses and integration costs incurred during the quarter.

Spectral continues to fund its operations through a combination of cash on hand, short-term financing arrangements, and equity-based transactions.

Management expects that the continued integration of 42 Telecom’s telecommunications and enterprise-messaging operations will provide improved near-term liquidity through recurring revenue and cash collections.

However, the Company remains in an early growth stage and is dependent on external capital to fund its broader research, development, and corporate initiatives.

While the Company believes it will be able to secure sufficient external funding to support near-term operations and post-acquisition integration, there can be no assurance that such capital will be available on favorable terms or at all.

Management continues to evaluate strategic financing options—including private placements, joint ventures, and debt facilities—to strengthen the Company’s liquidity position and support long-term commercialization objectives.

The following table summarizes our cash flows from operating, investing, and financing activities:

Nine Months Ended

September 30,

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

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.

Net cash used in operating activities for the nine months ended September 30, 2025 was $503,433, primarily due to our net loss of $2,111,244, partially offset by non-cash expenses of $1,513,376, and 94,434 in cash used in operating assets and liabilities.

Net cash used in operating activities for the nine months ended September 30, 2024 was $886,260, primarily due to our net loss of $2,009,871, partially offset by non-cash expenses of $1,041,923, and 108,688 in cash provided by operating assets and liabilities.

Investing activities

Net cash provided by investing activities totaled $190,899 for the nine months ended September 30, 2025.

The primary source of cash was funds acquired in connection with the 42 Telecom acquisition, which contributed to a net increase in investing cash flows.

This inflow was partially offset by capital expenditures of $39,500 related to the purchase of property, plant, and equipment and $67,022 in payments for intangible assets, including software development.

Net cash used in investing activities totaled $128,907 for the nine months ended September 30, 2024, primarily related to the cash payment made in connection with the Quantomo proposed acquisition further discussed in Note 11.

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.

Net cash provided by financing activities totaled $633,643 for the nine months ended September 30, 2025, primarily due to capital raised through private offering and proceeds from short term advances.

Net cash provided by financing activities $1,205,540 for the nine months ended September 30, 2024.

Net cash provided by financing activities during the nine months ended September 30, 2024 related to proceeds from short term advances and capital raised through our offerings.

Capital Requirements and Outlook

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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.

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.

Rescission of Transactions with Sean Brehm and Affiliates:

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All shares previously issued to Brehm and his affiliates have been returned and cancelled except for the private placement shares of 5,050,000 purchased by Brehm which were fully paid for.

As of June 30, 2025, these entities did not have any assets or liability as to be reflected as discontinued operations.

As of September 30, 2025, these entities did not have any assets or liability as to be reflected as discontinued operations.

Additionally, the Company intends to continue the development of its intellectual property and software development on its own and does not require any resources, assets or inputs from any of the above entities or individuals to continue the development of its technologies.

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.

During the nine months period ended September 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.

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.

42 Telecom Acquisition:

On August 1, 2025 Spectral Capital Corporation completed the acquisition of 42 Telecom Ltd.

pursuant to Share Exchange Agreement dated July 15, 2025.

Under the terms of the agreement, Spectral agreed to acquire 100% of the issued and outstanding equity interests of 42 Telecom Ltd.

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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.

Telvantis Acquisition:

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;

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.

Completion of Acquisition or Disposition of Assets.

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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.

As consideration for the acquisition, the Company issued 8,000,000 shares of its common stock to the former shareholders of 42 Telecom Ltd.

and agreed to issue an additional 8,000,000 shares of common stock as contingent consideration, subject to the achievement of specified post-acquisition performance milestones.

Based on management’s current assessment, it is estimated that 1,000,000 contingent shares will ultimately be issued.

The fair value of the total consideration was approximately $20.7 million.

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.

Following the closing, 42 Telecom Ltd.

and its subsidiaries—42 Telecom AB Ltd.

(Sweden), 42 Telecom UK Ltd.

(United Kingdom), and Arcus Technologies Ltd.

(Malta)—became wholly owned subsidiaries of Spectral Capital Corporation.

The Company is currently focused on integrating 42 Telecom’s high-volume international messaging platform, PaaS solutions, and telecommunications infrastructure with Spectral’s proprietary AI and quantum computing technologies.

Management believes the integration will enhance Spectral’s ability to deliver scalable enterprise communications solutions and create recurring revenue opportunities across global markets.

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.

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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 2. Management’s Discussion and Analysis