Risk Factors: Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors before making an investment decision.

·History of losses and going concern uncertainty: We have incurred significant operating losses and negative cash flows since inception and expect to continue incurring losses for the foreseeable future. These factors, along with our limited cash resources, raise substantial doubt about our ability to continue as a going concern without additional financing.

·Need for additional financing: We will require substantial additional capital to fund our operations and research and development activities, and such financing may not be available when needed on acceptable terms, if at all. If we are unable to obtain sufficient funding timely, we may be forced to delay, scale back, or cease our development efforts and business operations.

·Potential dilution from future offerings: Any additional equity financings to raise required capital could result in significant dilution to existing shareholders, and the securities issued may have rights, preferences, or privileges senior to those of our current common stock. If we incur debt financing, we may be subject to restrictive covenants and repayment obligations that could further constrain our business.

·Limited operating history and early-stage risks: We are a development-stage company with a very limited operating history in our current line of business, making it difficult to evaluate our prospects or forecast our revenues and earnings. Our business plan is unproven, and an investment in our company is highly speculative, involving numerous uncertainties common to early-stage companies in rapidly evolving industries.

·Unproven market; no assurance of commercial success: The market for our quantum computing and software technologies is still emerging and unproven. Even if we successfully develop our products, there is no guarantee they will achieve commercial feasibility or market acceptance. Our solutions may not perform as intended in real-world applications, and customers may not adopt our technology over existing or competing solutions, which would prevent us from generating meaningful revenue.

·Intense competition and competitive disadvantages: We face intense competition from both established technology companies and new entrants, many of which have far greater financial, technical, and marketing resources than we do. Our larger competitors have longer operating histories, well-established customer bases, and strong brand recognition, enabling them to respond more quickly to emerging technologies or pricing pressures – we may lack the resources to compete effectively, potentially losing market share and revenue.

·Rapid technological change and risk of obsolescence: We operate in a rapidly evolving industry. Frequent technological innovations and the introduction of new products or protocols could quickly render our existing technology or products obsolete or uncompetitive. If we fail to anticipate or keep pace with technological developments – for example, if competitors develop superior solutions or if changes in technology reduce the need for our encryption and quantum computing innovations – the demand for our products could decline significantly.

·Significant R&D investment with uncertain results: Our business model requires continuous and substantial investments in research and development, but these efforts are expensive and time-consuming with no guaranteed outcome. We may encounter unforeseen technical challenges that delay development, and even if we devote considerable resources, our R&D may not yield any viable or marketable products, improvements, cost savings, or other expected benefits. Failing to achieve meaningful returns on our R&D investments would materially and adversely affect our business and operating results.

·Intellectual property protection and infringement risks: Our success depends in part on our ability to obtain and protect patents, trade secrets, and other intellectual property for our proprietary technologies. We may be unable to adequately secure or enforce our intellectual property rights – for instance, patent applications may not result in issued patents or may fail to provide effective protection against competitors. In addition, third parties may allege that our technologies infringe on their intellectual property rights, leading to costly litigation or licensing requirements. Any inability to protect our own technology or defend against IP claims by others could harm our business by forcing us to suspend operations, alter products, or pay significant damage awards or royalties.

·Regulatory compliance costs and burdens: As a publicly traded company, we are subject to extensive SEC regulations, disclosure requirements, and accounting rules that impose significant compliance costs and administrative burdens on our small organization. Complying with these obligations (including establishing

15

effective internal controls and procedures) strains our managerial and financial resources. Any failure to maintain compliance with public company reporting and governance requirements could result in regulatory sanctions, reputational damage, or other adverse effects on our business.

·Data privacy and cybersecurity regulations: We are or may become subject to data protection, privacy, and cybersecurity laws and regulations in the jurisdictions where we operate. These laws are rapidly evolving and becoming more stringent over time. Failure to comply with applicable privacy and security requirements, or any actual or perceived compromise of personal data, could result in regulatory enforcement actions (including heavy fines and penalties) and significant harm to our reputation.

·Export controls and trade restrictions: Our products and technologies, particularly in encryption and advanced computing, could be subject to U.S. export control laws or other governmental trade restrictions. Any limitation on our ability to export or sell our products in certain markets – for example, due to export license requirements or trade sanctions – would likely adversely affect our business, financial condition, and growth prospects. Changes in trade policies or international relations could further impact our access to global markets and supply chains.

·Dependence on key personnel and limited human resources: We rely on a very small team of executives, engineers, and advisors to conduct our operations (we had only one full-time employee as of a recent fiscal year). The loss of any member of senior management or other key personnel, or our inability to attract and retain additional qualified employees (particularly those with specialized technical expertise), could significantly delay or prevent us from achieving our development and strategic objectives. With such limited staffing, even short-term personnel disruptions could have an outsized impact on our business.

·Operational and growth management challenges: Our current infrastructure and systems may be inadequate to support rapid growth or multiple concurrent projects. Any significant expansion of our business will place a heavy strain on our management and operational resources. We may experience difficulties in scaling our operations, including challenges in financial controls, project management, and regulatory compliance across different jurisdictions. If we cannot effectively manage our growth or operational complexity, our business and financial results could suffer.

·Market conditions and external risks: Our business can be materially affected by external factors beyond our control, including general economic and market conditions. Economic downturns, inflationary pressures, disruptions in credit or capital markets, or geopolitical events (such as international conflicts or trade wars) could reduce the demand for emerging technologies like ours and make it more difficult or expensive to raise additional capital. Adverse macroeconomic conditions or instability in financial markets may therefore pose significant risks to our business outlook and ability to execute our plans.

·Low trading volume and penny stock status: Our common stock is thinly traded on the OTC market and is considered a “penny stock.” As a result, investors may experience limited liquidity and extreme stock price volatility. FINRA rules impose additional requirements on broker-dealers for transactions involving penny stocks, which may discourage brokerage firms from recommending or trading our shares, thereby limiting shareholders’ ability to buy or sell our stock. Low market liquidity and investor perception of penny stock risks could lead to further volatility and make it difficult for us to attract new investors or use our stock as currency for fundraising.

Item 1B. Unresolved Staff Comments. Unresolved Staff Comments.

None.

Item 1C. CYBERSECURITY

Spectral maintains a comprehensive cybersecurity risk management program designed to identify, protect against, detect, respond to, and mitigate reasonably foreseeable cybersecurity threats to the Company’s operations. This program incorporates internal controls and safeguards aligned with industry standards – including access controls, data encryption, network monitoring, and employee cybersecurity training – to protect the confidentiality, integrity, and availability of the Company’s information assets. We utilize a range of security tools and procedures to continuously monitor our systems and prevent unauthorized access or data loss. In addition, the Company has implemented a formal incident response plan that outlines procedures for promptly addressing and containing cybersecurity incidents. This incident response plan is tested and updated periodically (e.g., through tabletop simulations and third-party penetration testing) to ensure preparedness and effective remediation of any identified security events.

Oversight and Governance: Cybersecurity risk management is overseen at the highest levels of the Company’s leadership. The Board of Directors, through its Audit Committee, is responsible for monitoring the Company’s cybersecurity risks and related risk management practices. The Audit Committee receives regular reports from management on cybersecurity matters, including updates on risk assessments, security improvements, and any relevant threat developments or incidents. Senior management has designated personnel (including information technology and security officers) to manage day-to-day cybersecurity operations and to implement cybersecurity policies, controls, and procedures. These personnel regularly brief the Audit Committee and the Board on the status of the Company’s cybersecurity posture and risk mitigation activities. The Company also provides periodic cybersecurity training to all employees to reinforce security awareness and protocol compliance as part of its internal control framework.

16

Risk Management Processes: Spectral conducts regular assessments of cybersecurity vulnerabilities and emerging threats across its systems and products. Our risk management approach draws on widely accepted frameworks (such as the NIST Cybersecurity Framework) to prioritize risks and guide the implementation of appropriate security measures. We engage independent security experts to perform evaluations of our cybersecurity program – including periodic third-party security audits and penetration testing – in order to test the effectiveness of our safeguards and to identify areas for improvement. Additionally, the Company maintains a third-party risk management program that assesses and monitors the cybersecurity practices of critical vendors and partners, helping ensure that our service providers uphold robust data security standards. Findings from these ongoing risk assessments and tests are used to continually enhance our internal controls and cybersecurity defenses.

As of the date of this Annual Report, the Company has not experienced any known cybersecurity incidents that had a material effect on our business, operations, or financial condition. During the reporting period, no cybersecurity breach or attack has been identified that resulted in significant data loss, financial costs, or operational disruptions for Spectral. Nevertheless, cybersecurity threats continue to evolve rapidly, and no security program can guarantee absolute protection against all attacks. A significant cybersecurity incident in the future could potentially cause substantial harm to the Company, including business interruptions, remediation costs, reputational damage, loss of sensitive information, or legal and regulatory consequences. Spectral remains proactive in updating and strengthening its cybersecurity measures in light of new threats and technological changes. For further information on the risks associated with cybersecurity and data protection, refer to the “Risk Factors” section of this Annual Report (Item 1A) which discusses these risks in more detail.

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