NOTE 1 – BUSINESS AND NATURE OF OPERATIONS
Spectral Capital Corporation (the "Company" or "Spectral") was incorporated on September 13, 2000 under the laws of the
State of Nevada. Spectral is focused on the identification, acquisition, development, 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
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. The Company is in the development stage and has sustained substantial losses since inception. As of March 31, 2019, the Company has cash on hand of $1,054 and negative working capital of $793,710. The Company expects current cash on hand
will not be able to fund operations for a period in excess of 12 months. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.
To date management has funded its operations through selling equity securities and advances from related parties. The
ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations, however, there can be no assurance the
Company will be successful in these efforts. As of the date of these consolidated financial statements the Company does not have any firm commitments for capital. Without the required capital, the Company has had to reduce their development
expenditures which will delay the completion of products which are expected to generate future revenues.
Risks and Uncertainties
The Company has a limited operating history and has not generated revenues from our planned principal operations.
The Company's business and operations are sensitive to general business and economic conditions in the U.S. and
worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company's control could
cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could
have a material adverse effect on the Company's consolidated financial condition and the results of its operations.
The Company currently has no sales and limited marketing and/or distribution capabilities. The Company has limited
experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our current and future products. Developing a marketing and sales force is also time consuming and could
delay launch of our future products. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully
against these companies. In addition, the Company has limited capital to devote sales and marketing.
The Company's industry is characterized by rapid changes in technology and customer demands. As a result, the Company's
products may quickly become obsolete and unmarketable. The Company's future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and
cost-effective basis. Further, the Company's products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the
development, introduction or marketing of new products or enhanced versions of existing products. Also, the Company may not be able to adapt new or enhanced products to emerging industry standards, and the Company's new products may not be
favorably received. Nor may we have the capital resources to further the development of existing and/or new ones.
SPECTRAL CAPITAL CORPORATION
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, 2018. The
results of operations for the three months ended March 31, 2019 are not indicative of the results that may be expected for the full year.
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. 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
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Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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Level 2
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Include other inputs that are directly or indirectly observable in the marketplace.
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Level 3
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Unobservable inputs which are supported by little or no market activity.
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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 March 31, 2019 and December 31, 2018, the Company does not have any assets or liabilities which would be considered Level 2 or 3.
The Company’s financial instruments consist of cash and cash equivalents, investments in technologies and related party
advances. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial
statements.
The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost method investments
when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property and equipment and intangible assets that are written down to fair value when they are
held for sale or determined to be impaired. Excluding these items, the Company did not have any significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
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.
SPECTRAL CAPITAL CORPORATION
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 13,000,000 and 13,000,000 were outstanding at March 31, 2019 and 2018, respectively, representing outstanding warrants and options, and were not included in the computation of diluted earnings per share for the three
months ended March 31, 2019 and 2018, as their effect would have been anti-dilutive.
Non-Controlling Interests
Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 40% share
of net income (losses) of Noot Holdings, Inc. and Monitr Holdings, Inc. incurred during the three months ended March 31, 2019. The following table sets forth the changes in non-controlling interest for the three months ended March 31, 2019:
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Non-Controlling
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Interest
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Balance at December 31, 2018
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$
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(219,953
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)
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Net loss attributable to non-controlling interest
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(307
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)
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Balance at March 31, 2019
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$
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(220,260
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)
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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 in which require payment in a currency other than the United States Dollar, the Company
has recorded foreign currency (income) losses within the accompanying condensed consolidated statement of operations.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, for a public entity. The Company adopted the standard effective January 1, 2019 with no impact in the Company’s condensed consolidated financial statements.
NOTE 3– RELATED PARTY TRANSACTIONS
Akoranga, AG
At March 31, 2019 and December 31, 2018, $0 and $0, respectively, was owed to Akoranga AG, a Swiss Company owned by the
CEO of Spectral. Akoranga was formed to facilitate the Company’s business in Europe. In connection with the facilitation of the Company's operations which includes making payments on the Company's obligations, Akoranga charges the Company a 10% fee
on all transactions processed by Akoranga on behalf of the Company. The Company ceased using Akoranga services in August 2014. The advances do not incur interest and are payable upon demand. The decrease in amounts payable were due to changes in
foreign currency exchange rates. As of December 31, 2017, all loans with Akoranga have been forgiven. The forgiveness was treated as a capital contribution to additional paid-in capital as the Company's CEO also controls the operations of Akoranga.
SPECTRAL CAPITAL CORPORATION
Jenifer Osterwalder, the Company's Chief Executive Officer
Through August 2014, Akoranga charged the Company 12,350 CHF per month for the Company's CEO, Jenifer Osterwalder, for
services related to the Company. Starting in September 2014, these amounts were the responsibility of the Company. Total amounts expended in the Company's condensed consolidated financial statements in connection with the CEO's services was $36,922
and $39,311 for the three months ended March 31, 2019 and 2018, respectively. Amounts charged by Akoranga to the Company prior to August 2014 are included within the Akoranga liability disclosed above. As of March 31, 2019 and December 31, 2018,
amounts due to the CEO related to accrued salaries were $654,687 and $617,765, respectively.
Commencing in September 2014, from time to time due to the limited cash flow available, the Company's CEO pays certain
operating expenditures on behalf of the Company. These advances bear no interest and are due on demand. As of March 31, 2019 and December 31, 2018, the Company's CEO was due $139,035 and $125,069 in connection with these advances, respectively.
NOTE 4 – STOCKHOLDERS DEFICIT
Changes in Stockholders' Deficit
Net loss and non-controlling interest were the only changes to stockholders' deficit during the three months ended March 31,
2019 and 2018.
Employee Options
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC
Topic 718,
Compensation – Stock Compensation
which requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values.
The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees,
consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan
provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors.
On February 6, 2012, the Company granted 7,500,000 options to two employees. Stock-based compensation is being recognized
over the two year vesting period. The options were valued at $3,408,750 using the Black-Scholes Option Pricing Model.
Employee stock-based compensation
expense relating to options granted in 2010 and 2012, recognized during the three months ended March 31, 2019 and 2018 was $0 and $0, respectively.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
The Company leases office space on a three month basis in Seattle, Washington.
NOTE 5– SUBSEQUENT EVENTS
In accordance with ASC
855-10,
the Company has analyzed its operations subsequent to March 31, 2019 to the date these condensed consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in
these consolidated financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following discussion and analysis of our financial condition and results of our operations should be read in
conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in this report and those in
our Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission March 13, 2019 and all subsequent filings.
OVERVIEW
Spectral Capital Corporation (“Spectral” or the Company, also “We or Us”) is a 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. 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.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March
31, 2019 and March 31, 2018
Revenues
We are currently engaged in a technology development business and have exited natural resources. Revenues increased from
zero for the three months ended March 31, 2018 to $24 for the three months ended March 31, 2019. The increase is due to a purchase of a subscription to the Company’s consolidated entity Monitr.
Operating Expenses
Operating expenses decreased $2,922, from $53,677 for the three months ended March 31, 2018 to $50,779 for the three
months ended March 31, 2019. The decrease is due to the limited amount of capital available to the Company, thus, expenditures consists of costs related to keeping the Company current in their SEC reporting requirements.
Liquidity and Capital
Resources
As of March 31, 2019, we had $1,054 of cash on hand. We intend to fund operations through the use of cash on hand and
through additional advances from our chief executive officer and through debt and equity financings until sufficient cash flows from operations can be achieved.
Net cash used in operating activities decreased $795, from $14,365 for the three months ended March 31, 2018 to $13,570
for the three months ended March 31, 2019. This decrease was primarily related to the Company having limited operations, due to the cash flow limitations.
Net cash provided by financing activities decreased by $354 from $14,320 for the three months ended March 31, 2018 to
$13,966 for the three months ended March 31, 2019. Net cash provided by financing activities during the three months ended March 31, 2019 and 2018 related to net payments on advances from a related party in connection with payment of the Company's
obligations.
We believe that our current financial resources are not sufficient to meet our working capital requirements over the next
year. Additional funding will be necessary in order to expand portfolio operations and to reach our goals. Currently, the Company does not have any commitments or assurances for additional capital nor can the Company provide assurance that such
financing will be available to it on favorable terms, or at all. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it may
be forced to curtail its existing or planned future operations.
In addition, if necessary, we will
decrease expenses and redirect our efforts towards a sale of one
of more of our assets should funding become inadequate.
Our short-term prospects are promising given our success to date in securing the two portfolio companies, Noot and Monitr.
We believe we will experience significant operational and financial growth from these and other portfolio companies during the next 12 months. However, we need significant capital to implement our plan.
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.