SPECTRAL CAPITAL Corp - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - SPECTRAL CAPITAL Corp	Financial_Report.xls
EX-32.1 - CERTIFICATION OF THE COMPANY?S CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - SPECTRAL CAPITAL Corp	spectralexh321.htm
EX-32.2 - CERTIFICATION OF THE COMPANY?S CHIEF FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - SPECTRAL CAPITAL Corp	spectralexh322.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 - SPECTRAL CAPITAL Corp	spectralexh312.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 - SPECTRAL CAPITAL Corp	spectralexh311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

[_] 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. 000-50274

Spectral Capital Corporation

(Exact name of Registrant as specified in its charter)

Nevada	51-0520296
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

701 Fifth Avenue, Suite 4200, Seattle, WA	98104
(Address of principal executive offices)	(Zip/Postal Code)

(206) 262-7820
(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] YES [ ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller 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	[ ]

Non Accelerated Filer	[ ] (Do not check if smaller reporting company)	Smaller Reporting Company	[ X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. [ ] Yes [ X] No

As of November 6, 2014, there are issued and outstanding only common equity shares in the amount of 117,857,623 shares, par value $0.0001, of which there is only a single class. There are 5,000,000 preferred shares authorized and none issued and outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Interim Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (unaudited)	4

	Interim Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited)	5

	Interim Consolidated Statement of Cash Flows for the three and nine months ended September 30, 2014 (unaudited)	6

	Notes to Financial Statements (unaudited)	7

Item 2.	Plan of Operation	14

Item 3.	Quantitative and Qualitative Disclosures about market risk	19

Item 4.	Controls and Procedures	19

Item 4T.	Controls and Procedures	19

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.	Defaults Upon Senior Securities	20

Item 4.	Mine Safety Disclosures	20

Item 5.	Other Information	20

Item 6.	Exhibits & Signature	21

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Report contains forward-looking statements. Such forward-looking statements are generally accompanied by words such as "intends," "projects," "strategies," "believes," "anticipates," "plans," and similar terms that convey the uncertainty of future events or outcomes. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in ITEM 2 of this Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof and are in all cases subject to the Company's ability to cure its current liquidity problems. There is no assurance that the Company will be able to generate sufficient revenues from its current business activities to meet day-to-day operation liabilities or to pursue the business objectives discussed herein.

The forward-looking statements contained in this Report also may be impacted by future economic conditions. Any adverse effect on general economic conditions and consumer confidence may adversely affect the business of the Company.

Spectral Capital Corporation undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

Item 1: Financial Statements

SPECTRAL CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
	September 30, 2014			December 31, 2013
Assets:
Cash and cash equivalents	$	300,611		$	786,137
Accounts receivable - related party		323,978			323,978
Current assets		624,589			1,110,115

Property and equipment, net		-			-
Other assets:
Investment in Kontexto, Inc.		537,000			537,000
Intangible assets, net		3,415,014			4,693,770
Total assets	$	4,576,603		$	6,340,885

Liabilities and Stockholders' Equity:
Current liabilities
Accounts payable	$	-		$	-
Accounts payable and accrued liabilities		33,295			-
Related party advances		383,277			398,112
Current liabilities		416,572			398,112
Total liabilities		416,572			398,112

Stockholders' Equity:
Preferred stock, par value $0.0001, 5,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, par value $0.0001, 500,000,000 shares authorized, 117,857,623 shares issued and outstanding as of September 30, 2014 and December 31, 2013		11,786			11,786
Additional paid-in capital		25,155,277			24,687,359
Common stock warrants		1,831,500			1,831,500
Prepaid consulting		-			(47,345	)
Accumulated deficit		(24,022,933	)		(22,339,584	)
Total stockholders' equity		2,975,630			4,143,716
Non-controlling interest		1,184,401			1,799,057
Total equity		4,160,031			5,942,773
Total liabilities and stockholders' equity	$	4,576,603		$	6,340,885

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

SPECTRAL CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(unaudited)

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013			Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013

Revenues	$	-		$	-		$	-		$	-

Operating expenses:
Selling, general and administrative		25,319			49,369			136,681			182,878
Wages and benefits		51,963			39,260			112,824			78,173
Research and development		85,340			-			254,481			-
Stock-based compensation		108,629			676,754			515,263			2,030,262
Depreciation and amortization		426,252			239			1,278,756			717
Impairment of investments		-			-			-			5,861,500
Total operating expenses		697,503			765,622			2,298,005			8,153,530

Net loss	$	(697,503	)	$	(765,622	)	$	(2,298,005	)	$	(8,153,530	)

Loss attributable to non-controlling interest		207,543			-			614,656			-

Net loss attributable to Spectral Capital Corporation	$	(489,960	)	$	(765,622	)	$	(1,683,349	)	$	(8,153,530	)

Basic and diluted loss per common share	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.07	)
Weighted average shares - basic and diluted		117,857,623			112,857,823			117,857,623			110,077,770

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

SPECTRAL CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)

	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to Spectral Capital Corporation	$	(1,683,349	)	$	(8,153,530	)
Adjustments to reconcile net loss to net cash used in by operating activities:
Non-controlling interest		(614,656	)		-
Depreciation and amortization		1,278,756			717
Stock-based compensation		515,263			2,030,262
Impairment of investments		-			5,861,500
Changes in operating assets and liabilities:
Accounts payable and accrued expenses		33,295			2,500
Net cash used in operating activities		(470,691	)		(258,551	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Development of internet search technology		-			(115,022	)
Net cash used in investing activities		-			(115,022	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party advances		(14,835	)		172,447
Proceeds from sale of common stock		-			1,000,000
Net cash (used in) provided by financing activities		(14,835	)		1,172,447

Change in cash and cash equivalents		(485,526	)		798,874
Cash and cash equivalents, beginning of period		786,137			84,091
Cash and cash equivalents, end of period	$	300,611		$	882,965

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

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

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

NOTE 1 – NATURE OF OPERATIONS

Spectral Capital Corporation (the "Company" or "Spectral") was incorporated on September 13, 2000 under the laws of the State of Nevada. The Company was formerly in the business of developing internet search engine technology. From August 2010 until December 2012, the Company evaluated and sought out opportunities in the natural resource sector. Spectral acquired various interests in natural resource assets in Russia, Kazakhstan and Alberta, Canada. In December 2012, Spectral changed its corporate focus from the natural resource sector and back to information technology. Spectral has divested of its principal natural resource asset in Alberta, Canada and intends to divest any remaining natural resources in the near future and focus solely on acquiring and developing information technology. See Notes 5 and 6 for disclosures regarding the acquisition of certain technology and a cost investment.

Spectral is focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. The Company looks for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in three technology companies currently and actively works with management to drive these companies toward increasing market penetration in their particular verticals. Spectral intends to own, in full or in part, technology companies whose founders and key management can take advantage of the deep networks and experience in technology development embodied in Spectral management.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Managements' Plans

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited operating history, has not generated revenues from our planned principal operations and has sustained substantial losses since inception. However, as of September 30, 2014, the Company has cash on hand of $300,611 and positive working capital of $208,017. The Company expects current cash on hand will be able to fund operations for up to 12 months. In view of this matter, the ability of the Company to continue as a going concern is dependent upon growth of revenues.

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 interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2013. The results of operations for the three and nine months ended September 30, 2014 are not indicative of the results that may be expected for the full year.

Risks and Uncertainties

We have a limited operating history and have not generated revenues from our planned principal operations.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Our 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 our 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 our financial condition and our results of operations.

We currently have no sales and limited marketing and/or distribution capabilities. We have 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, we 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.

Our industry is characterized by rapid changes in technology and customer demands. As a result, our products may quickly become obsolete and unmarketable. Our 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, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced products to emerging industry standards, and our new products may not be favourably received.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, Spectral Holdings, Inc, 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. Previously, the Company included the operations of Extractive Resources Corporation and Shamrock Oil and Gas, Ltd. Shamrock was 60% owned by Extractive Resources Corporation which were disposed on December 31, 2012. All material intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2	Include other inputs that are directly or indirectly observable in the marketplace.

Level 3	Unobservable inputs which are supported by little or no market activity.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 September 30, 2014 and December 31, 2013, the Company doesn't have any assets or liabilities in which would be considered Level 2 or 3.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable from related party, investments in technologies, accounts payable and accrued expenses 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. During the year ended December 31, 2013, the Company acquired various technologies and an investment in a third party in which the investment is being treated under the cost basis of accounting. See Notes 4 and 5, for discussion regarding day one impairment charges related to these items. 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.

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.

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. Common share equivalents totalling 20,400,000 and 20,400,000 were outstanding at September 30, 2014 and 2013, respectively, representing outstanding warrants and options, and were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2014 and 2013, as their effect would have been anti-dilutive.

Investment in Securities

The Company’s investments consisting of common shares of non-controlled entities are accounted for on the cost basis. Impairment losses will be recorded when indicators of impairment are present. See Note 5 for additional information.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Non-Controlling Interests

Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 's 40% share of net losses of Noot Holdings, Inc. and Monitr Holdings, Inc incurred during the three and nine months ended September 30, 2014. The following table sets forth the changes in non-controlling interest for the nine months ended September 30, 2014:

	Non-Controlling
	Interest

Balance at December 31, 2013	$	1,799,057
Contribution of intangible assets by minority shareholder		-
Net loss attributable to non-controlling interest		614,656
Balance at September 30, 2014	$	2,413,713

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 consolidated statements of operations. As a result of these foreign currency transactions, the Company has recorded foreign currency losses of $0 and $0 during the nine months ended September 30, 2014 and 2013, respectively, recorded within selling, general, and administrative expenses on the accompanying consolidated statement of operations.

New Accounting Pronouncements

The Financial Accounting Standards Board issued Accounting Standard Updates (“ASU”) to amend the authoritative literature in ASC. ASU 2014-10, Development Stage Entities (Topic 915) Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation in June 2014 aims to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements for development stage entities by removing all incremental financial reporting requirements from development stage entities. Users of financial statements of development stage entities determined that the development stage entity distinction, the inception-to-date information, and certain other disclosures has limited relevance and is generally not useful. ASU 2014-10 is effective for annual reporting periods beginning after December 15, 2014. We have elected early adoption of ASU 2014-10 for this filing. We have provided additional disclosures as described in the preceding paragraphs under ASC 275 Risks and Uncertainties as required by this ASU.

NOTE 3 – DISCONTINUED OPERATIONS

In prior years, the Company had limited activity related to mineral, oil and gas properties. All such activities and business in such properties were discontinued, sold/transferred either prior to or during the year ended December 31, 2012. The transactions do not have an impact on the financial statements being presented as of September 30, 2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013. There were no material assets or liabilities associated with discontinued operations.

Shamrock Oil & Gas Ltd

On December 31, 2012, the Company entered into an agreement with Akoranga AG, a Company owned by the CEO of Spectral to transfer its ownership interests in the Shamrock Oil and Gas properties for $950,000, the value of Spectral’s contributions to the project to that date. In satisfaction of the purchase price, Akoranga agreed to offset liabilities of Spectral in the amount of $626,022. The balance owing Spectral of $323,978 is non-interest bearing and was to be repaid within a one year period. During the prior year, the due date of the receivable under the agreement was extended to December 31, 2014.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

NOTE 4 – TECHNOLOGY ASSETS

On February 26, 2013, the Company, through its subsidiary, Spectral Holdings, Inc. signed a definitive Technology Acquisition Agreement (“Agreement”) to acquire mobile search engine and mobile sharing technology from Fiveseas Securities Ltd (“Fiveseas"). Under the Agreement, the Company issued Fiveseas 5,000,000 shares of the Company's common stock. The Agreement called for the technology to reside within a newly formed entity called Noot Holdings, Inc.( “Noot”), a Delaware corporation, which the Company is a 60% owner of and Fiveseas is a 40% owner of. Fiveseas was granted a right of first refusal for any subsequent sale of the technology. The common shares were valued at $3,000,000 based on the closing market price of the Company's common stock as of the date of the agreement. In addition, the fair value assigned to the asset contributed by Fiveseas was $2,000,000, resulting in total intangible assets of $5,000,000 being recorded. The Company has recorded the value as an investment in technology as the in process development did not constitute a business. The Company records income/losses from Noot attributable to the percentage owned by Fiveseas as a non-controlling interest. The Company completed substantial development of the technology acquired during September 2013. Costs were capitalized in relation to the technology’s development through September 30, 2013. During the year ended December 31, 2013, costs of approximately $115,000 were capitalized in connection with the continued development. Starting October 1, 2013, the Company began amortizing the asset over three years and expects to record annual amortization expense of approximately $1,705,000, $1,705,000 and $1,279,000 in 2014, 2015, and 2016, respectively. During the nine months ended September 30, 2014 and 2013, the Company amortized $1,278,756 and $0, respectively to depreciation and amortization on the accompanying consolidated statements of operations.

On December 1, 2013, the Company, through its subsidiary, Spectral Holdings, Inc. signed a definitive Technology Acquisition Agreement (“Agreement”) to acquire technology which enhances the way people find, consume, analyze, share and discuss financial news and topics, equities, commodities and currencies on the web from TL Global, Inc. (“TL Global"). Under the Agreement, the Company issued TL Global 5,000,000 shares of the Company's common stock. The Agreement calls for the technology to reside within a newly formed entity called Monitr Holdings, Inc.( “Monitr”), a Delaware corporation, which the Company is a 60% owner of and TL Global is a 40% owner of. TL Global was granted a right of first refusal for any subsequent sale of the technology. The common shares were valued at $1,300,000 based on the closing market price of the Company's common stock as of the date of the agreement. In addition, the fair value assigned to the asset contributed by TL Global was $866,667, resulting in total assets of $2,166,667 being recorded. The Company has recorded the value as an investment in technology as the in process development did not constitute a business. The Company determined that the technology required extensive development in order to achieve technological feasibility, and expensed $2,161,667, the entire value of the investment except for $5,000 assigned to the website domain. The Company records income/losses from Monitr attributable to the percentage owned by TL Global as a non-controlling interest. Costs will be capitalized in relation to the technology’s development assuming they meet the qualifications.

NOTE 5 – COST INVESTMENT

On March 14, 2013, the Company entered into an agreement to purchase 8% of the issued and outstanding common shares of Kontexto, Inc., (“Kontexto”) a Canadian corporation. The Company purchased the shares from Sargas Capital, Ltd., a minority shareholder in exchange for 5,000,000 common shares of the Company's common stock and warrants to purchase 5,000,000 shares of the Company's common stock at $0.85 per share, expiring on March 13, 2015 (see Note 7). The Company's CEO is an officer of Sargas Capital, Ltd. but does not have any holdings in Sargas Capital, Ltd. The Company valued the common stock using the closing price of the Company's common stock on the date of the agreement and the warrants were valued using the Black-Scholes pricing model. The Company’s investment in 8% of the common shares, initially valued at $6,398,500, is accounted for on the cost basis. During the year ended March 31, 2013, a third party valuation specialist valued the investment in Kontexto using a hybrid between the market and income methods and determined that the fair value was $537,500. Accordingly, an impairment loss of $5,861,500 was recognized during the year ended December 31, 2013.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

NOTE 6 – RELATED PARTY TRANSACTIONS

At September 30, 2014 and December 31, 2013, $383,277 and $398,112, respectively, was owed to the CEO of Spectral and Akoranga AG, a Swiss Company owned by the CEO of Spectral. Akoranga was formed to facilitate Spectral’s business in Europe. Fees charged for services provided by Akoranga totaled approximately $18,239 and $77,065 for nine months ended September 30, 2014 and 2013, respectively. Fees charged by Akoranga are calculated at 10% of transactions processed by them on behalf of the Company.

See Note 3 for an additional transaction with Akoranga.

NOTE 7 – STOCKHOLDERS EQUITY

Common Stock Issuances

On February 26, 2013, the Company issued 5,000,000 shares of common stock with a deemed value of $3,000,000 for technology assets (see Note 4).

On March 7, 2013, Spectral sold 1,650,000 common shares at approximately $0.61 per share and received a total of $1,000,000 in financing proceeds. Contemporaneously, Spectral issued warrants to purchase 1,650,000 common shares at an exercise price of $0.80 per share. The warrants expire March 7, 2015. The warrants were valued using the Black-Scholes pricing model and $283,000 of the proceeds were allocated to the warrants.

On March 14, 2013, the Company issued 5,000,000 shares of common stock and 5,000,000 warrants to purchase common shares at $0.85 per share for a cost investment (see Note 5). The warrants expire on March 13, 2015. The shares and warrants had a deemed value of $4,850,000 and $1,548,500, respectively.

Stock Option Plan

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.

Employee stock-based compensation expense relating to options granted in 2010 and 2012 and recognized during the nine months ended September 30, 2014 and 2013 totalled $515,263 and $2,030,262, respectively. At September 30, 2014, unrecognized expense of $458,624 remains to be recognized through 2015.

During the nine months ended September 30, 2014, $47,345 of prepaid consulting expense, which related to stock options granted to non-employees in prior years, was charged to stock-based compensation on the accompanying statement of operations. No unamortized prepaid consulting expense remains as of September 30, 2014.

SPECTRAL CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

	Stock Options		Weighted Average Exercise Price		Weighted Average Life Remaining


Outstanding, December 31, 2013		13,750,000	$	0.75		7.50
Issued		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding, September 30, 2014		13,750,000	$	0.75		6.75
Vested, September 30, 2014		12,950,000	$	0.73		6.79

Warrants

As of September 30, 2014 and December 31, 2013, the Company has 6,650,000 outstanding warrants.

NOTE 8– SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

	Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013
Non cash investing and financing activities:
Issuance of common stock warrants	$	-	$	1,548,500
Issuance of stock for technology asset and cost investment	$	-	$	7,850,000

NOTE 9– SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2014 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.

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.

OVERVIEW

Spectral Capital Corporation (“Spectral” or the Company, also “We or Us”) is an exploration stage technology company focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. We look for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in two technology companies currently and actively works with management to drive these companies toward increasing market penetration in their particular verticals. Spectral intends to own, in full or in part, technology companies whose founders and key management can take advantage of the deep networks and experience in technology development embodied in Spectral management.

CORPORATE HISTORY AND DEVELOPMENT

These consolidated financial statements include the accounts of the Spectral Capital Corporation (“Spectral”) and its wholly-owned subsidiary, Extractive Resources Corporation (“Extractive Resources”). Extractive Resources was incorporated on January 21, 2011 under the laws of the state of Delaware.

Galaxy Championship Wrestling Inc. was incorporated on September 13, 2000 under the laws of the State of Nevada and changed its name to FUSA Capital Corporation on June 17, 2005. On March 7, 2005, the Company acquired all of the issued and outstanding shares of FUSA Technology Investments, Inc., formed on February 9, 2005 under the laws of the State of Nevada. For accounting purposes, the transaction was accounted for as a recapitalization such that the historical transactions of the acquired company were carried forward.

On July 27, 2010, the Company changed its name to Spectral Capital Corporation.

The Company was formerly in the business of developing internet search engine technology. From August 2010 until December 2012, the Company evaluated and sought out opportunities in the natural resource sector. Spectral acquired various interests in natural resource assets in Russia, Kazakhstan and Alberta, Canada. In December, 2012, Spectral changed its corporate focus from the natural resource sector and back to information technology. Spectral has divested of its principal natural resource asset in Alberta, Canada and intends to divest any remaining natural resources in the near future and focus solely on acquiring and developing information technology.

On February 26, 2013, the Company formed an entity called Noot Holdings, Inc., a Delaware corporation, which the Company will be a 60% owner, in order to acquire mobile search engine technology. Under the Agreement, the Company issued 5,000,000 common shares of Spectral Capital Corporation, par value $0.0001.

On March 7, 2013, the Company sold 1,650,000 common shares, par value $0.0001 at approximately $0.61 per share and received a total of $1,000,000 USD in financing proceeds. Spectral also issued warrants to purchase 1,650,000 common shares, par value $0.0001 to the purchasers at an exercise price of $0.80 per share. The warrants expire on March 6, 2015.

On March 14, 2013, the Company purchased 8% of the issued and outstanding shares of Kontexto, Inc., a Canadian corporation. Spectral purchased the shares from Sargas Capital, Ltd. , a minority shareholder, in exchange for 5,000,000 common shares of Spectral stock, par value $0.0001 and warrants to purchase 5,000,000 common shares at $0.85 per share, expiring on March 13, 2015. The Company's CEO is an officer of Sargas Capital, Ltd. but does not have any holdings in Sargas Capital, Ltd.

On December 1, 2013, the Company formed Monitr Holdings, Inc., a Delaware corporation, which the Company will be a 60% owner of, in order to acquire a technology application and service. Under the Agreement, the Company issued 5,000,000 common shares of Spectral Capital Corporation, par value $0.0001.

RESULTS OF OPERATIONS

Financial Condition and Liquidity

Overview

We are currently engaged in a technology development business and have exited natural resources.

Our consolidated financial statements contained herein have been prepared on a going concern basis, which assumes that we will be able to realize our assets and discharge our obligations in the normal course of business. In the period from February 9, 2005 to September 30, 2014, the has generated an approximate net loss of $24,023,000 resulting from costs of general and administrative expenses, website development, stock compensation, impairments, expenses on oil and gas properties and interest expenses.

Cash and Working Capital

The Company's cash balance as of September 30, 2014 was $300,611 as compared to the cash balance of $786,137 of December 31, 2013. The Company had a working capital deficit of $115,961 as of September 30, 2014.

Three Months Ended September 30, 2014 and 2013

Operating expenses for the three months ended September 30, 2014 totalled $697,503, compared to $765,622 for the similar prior year period. The major expenses during the three months ended September 30, 2014 were for stock based compensation, research and development, technology amortization and general and administrative expenses. The major expenses during the three months ended September 30, 2013 were for stock based compensation, wages, and general and administrative expenses.

In a company like Spectral that has not produced significant revenue from its operations, quarter-to-quarter expense comparisons can be difficult, especially as we have recently entered the technology application sector. We had a small amount of revenues from our oil production activities in 2012, but have since disposed of these and have no current revenue.

Nine months Ended September 30, 2014 and 2013

Operating expenses for the nine months ended September 30, 2014 totalled $2,298,005, compared to $8,153,530 for the similar prior year period. The major expenses during the nine months ended September 30, 2014 were for stock based compensation, research and development, technology amortization and general, wages, and administrative expenses. The major expenses during the nine months ended September 30, 2013 were for stock based compensation, impairment of investments, wages, and general and administrative expenses.

Liquidity and Capital Resources

For the nine months ended September 30, 2014, net cash used by operating activities, consisting mostly of loss from operations, was $470,691 compared to $258,551 for the nine months ended September 30, 2013. The increase in net cash used by operating activities is a result of increased expenditures during the nine months ended September 30, 2014 in connection with the continued development of technology products within our Noot and Monitor subsidiaries. The subsidiaries were formed in 2013 and had little or no activity during the nine months ended September 30, 2013.

For the nine-month period ended September 30, 2014 and 2013 net cash used by investing activities, was $0 and $115,022, respectively. During the nine months ended September 30, 2013 cash used in investing activities was solely related to the development of our internet search technology.

Net cash used in financing activities was $14,835 compared to net cash provided by financing activities of $1,172,447 for the nine months ended September 30, 2014 and 2013, respectively. During the nine months ended September 30, 2013, we received approximately $1,000,000 in proceeds from the sale of shares of our common stock. Such proceeds have been used to fund our operations.

We believe that our current financial resources are sufficient to meet our working capital requirements over the next year, given that our current cash balance is in excess of our expected minimum cash expenditures, provided we do not significantly increase our development expenses and develop our portfolio companies as cash permits. We are seeking to raise additional capital though private equity and debt financings. As of the date of this quarterly report on Form 10-Q for the nine months ended September 30, 2014, we do not have any specific financing terms from any particular financier. We are currently engaged in a number of discussions with potential financiers. There can be no assurance that we will be able to secure these financings, or, if we are able to secure these financings, that it will be on terms favourable, or even acceptable, to us. If necessary, we may explore strategic alternatives, including a merger, asset sale, joint venture or other comparable transactions in order to maximize the value of our assets, though we have no present plans, intentions or negotiations toward such arrangements. Any inability to obtain additional financing would have a material adverse effect on our business, financial condition, and results of operations.

Our short-term prospects are promising given our success to date in securing the three portfolio companies, Noot, Monitr and Kontexto and the success that they have enjoyed in the market to date. We believe we will experience significant operational and financial growth from these and other portfolio companies during the next 12 months.

Future Financings

We anticipate that we will pursue additional financing and that the financing would be an equity financing achieved through the sale of our common stock. There can be no assurance that we will be able to secure these financings, or, if we are able to secure these financings, that it will be on terms favourable, or even acceptable, to us.

Off Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

PLAN OF OPERATION

Spectral is focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. We look for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in three technology companies currently and actively works with management to drive these companies toward increasing market penetration in their particular verticals. Spectral intends to own, in full or in part, technology companies whose founders and key management can take advantage of the deep networks and experience in technology development embodied in Spectral management.

Companies within the technology development and commercialization sector have a variety of areas of principal competence. Some companies focus on aggressively developing a portfolio of intellectual property and then licensing that property and defending it through litigation. Others focus on a technology embodied in a software product or device which has the potential to be acquired by businesses and/or consumers at a profit. Others seek to develop and commercialize technology that attracts a significant number of users who can be monetized through advertising. Of course, technology development and commercialization is a vast and complex field. Spectral has had an initial focus on information technology with a direct value proposition to businesses or consumers.

Like all companies that seek to develop a portfolio of high impact technologies and the corporate and organizational structure to monetize those technologies, Spectral must do the specialized work of lowering the risk profile of the commercialization of a particular technology to the point where it is able to grow at a reasonable customer acquisition cost.

We have deep management expertise, developed knowledge within the search, media and analytics fields, attractive positioning, the ability to identify and close transactions quickly and a willingness to invest in technology that is mispriced relative to its economic potential. Although the 2008 financial crisis has abated and technology companies generally are enjoying some robust growth, it still remains a challenge for early stage technology companies to find the financial and human resources to foster required growth. This challenge creates an environment where Spectral can seek out and find high impact technology and invest in or acquire this technology at reasonable valuations.

Our business differs from those companies whose capital reserves, successful previous ability to monetize technology and scale, efficiencies and existing customer base allow them to select and develop technology by flooding the technology with financial and human resources. Spectral’s approach is much more targeted. We only develop technology that we believe has a very specific fit with our expertise and limited capital. We develop technology that does not require massive investments in sale and marketing in order to reach an initial audience.

We also intend to continue to identify and acquire desirable technologies throughout the United States, Canada, India and elsewhere within other regions in as much as we are able to acquire and develop such technologies under similar terms and conditions to those of the portfolio companies we have acquired interests in.

We anticipate spending significant sums on hiring a senior management team with substantial technology experience, including a VP of Information Security and a VP of Sales and Marketing. These executive expenditures, together with expenses related to the development of our portfolio companies technology and expenses we anticipate over the next 12 months, mean that we could spend as much as $5-$10 million over the next 12 months or more, depending on the availability and timing of financing.

Our twelve-month plan projects us to accomplish the following steps:

o	Continue to grow Kontexto’s customer base around the world and increase revenues and earnings;

o	Grow the user base for the Noot Mobile Application;

o	Grow Monitr’s user base along with consistent revenue stream from product sales

o	Build the necessary infrastructure and complete the necessary staff expertise to close on several additional portfolio company purchases/investments in the next 12 to 24 months ;

o	Complete one or more private equity placements to provide funding for developing of our current technologies and the acquisition of additional portfolio companies;

o	Hire a senior management team with a proven track record at the development of high growth, high impact technology.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency and Credit Risk. The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company’s reporting currency is the US Dollar. We previously undertook mineral and oil development activities in Canada and Kazakhstan and currently undertake financial and consultative activities in Europe, which involve transactions in the Canadian dollar, Euro and Swiss Franc, respectively.

Fair Value of Financial Instruments. The carrying value of the Company's financial instruments, including prepaid expenses, related party receivables, accounts payable and accrued liabilities at September 30, 2014 approximates their fair values due to the short-term nature of these financial instruments.

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 September 30, 2014 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.

The material weaknesses were first identified in our annual report on Form 10-K for the year ended December 31, 2012 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.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of the Company’s Chief Financial and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 INS	XBRL Instance Document*

101 SCH	XBRL Schema Document*

101 CAL	XBRL Calculation Linkbase Document*

101 DEF	XBRL Definition Linkbase Document*

101 LAB	XBRL Labels Linkbase Document*

101 PRE	XBRL Presentation Linkbase Document*

* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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.

	Spectral Capital Corporation

	/s/ Jenifer Osterwalder
	Jenifer Osterwalder
	President and Chief Executive Officer

Dated: November 6, 2014

SPECTRAL CAPITAL Corp - FORM 10-Q - November 6, 2014

Attached files

SPECTRAL CAPITAL Corp Reports