SPECTRAL CAPITAL Corp - Quarter Report: 2010 June (Form 10-Q)

spectral10q20100630.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 June 30, 2010

[_] 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	510520296
(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) 274-5107
(Telephone Number)

FUSA Capital Corporation

(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 August 18, 2010 there are issued and outstanding only common equity shares in the amount of 100,057,623 shares, par value $0.0001, of which there is only a single class.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Interim Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009 (audited)	5

	Interim Consolidated Statements of Operations for the six months ended June 30, 2010 and June 30, 2009 and cumulative from inception on February 9, 2005 through June 30, 2010 (unaudited)	6

	Interim Consolidated Statement of Stockholders’ Deficit from inception on February 9, 2005 through June 30, 2010 (unaudited)	7

	Interim Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and June 30, 2009 and cumulative from inception on February 9, 2005 through June 30, 2010 (unaudited)	8

	Notes to Financial Statements (unaudited)	9

Item 2.	Plan of Operation	15

Item 3.	Quantitative and Qualitative Disclosures about market risk	21

Item 4.	Controls and Procedures	21

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	Submission of Matters to a Vote of Security Holders.	22

Item 5.	Other Information	22

Item 6.	Exhibits & Signature	23

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.

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

FINANCIAL STATEMENTS

JUNE 30, 2010

SPECTRAL CAPITAL CORP.

(AN DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

AS OF MARCH 2010 AND DECEMBER 31, 2009

	June 30, 2010, (unaudited)		December 31, 2009 (audited)
ASSETS
Current assets
Cash and cash equivalents	$	3,967	$	6,098
Total Current Assets		3,967		6,098

Total Assets	$	3,967	$	6,098

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	32,377	$	8,409
Accrued expenses		6,681		6,681
Due to related parties		-		-
Note payable		50,000		50,000
Total Liabilities		89,058		65,090

Stockholders’ equity (deficit)
Common stock, par value $0.0001, 333,333 shares authorized, 47,623 shares issued and outstanding		5		5
Additional paid-in capital		5,557,987		5,557,987
Deficit accumulated during the development stage		-5,643,083		-5,616,984
Total Stockholders’ Equity (Deficit)		-85,091		-58,992

Total Liabilities and Stockholders' Equity (Deficit)	$	3,967	$	6,098

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

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

PERIOD FROM AUGUST 25, 2003 (INCEPTION) TO JUNE 30, 2010

(unaudited)

	Three Months Ended June 30, 2010		Three Months Ended June 30, 2009 (Restated)		Six Months Ended June 30, 2010			Six Months Ended June 30, 2009 (Restated)		Period from August 25, 2003 (Inception) To June 30, 2010
REVENUES	$	-	$	1,739	$	287		$	9,552	$	119,058

OPERATING EXPENSES
Selling, general and administrative		8,612		15,895		12,645			31,184		2,490,333
Wages and benefits		-		9,999		-			20,090		756,845
Legal fees		5,000		12,333		11,241			15,933		290,324
Research and development		-		-		-			-		1,961,563
Beneficial conversion expense		-		-		-			-		230,900
Depreciation		-		-		-			-		21,150
TOTAL OPERATING EXPENSES		13,612		38,227		23,886			67,207		5,751,115

LOSS FROM OPERATIONS		-13,612		-36,488		-23,599			-57,655		-5,632,057

OTHER INCOME (EXPENSE)		-1,250		-1,618		-2,500			-1,618		-11,026

LOSS BEFORE INCOME TAXES		-14,862		-38,106		-26,099			-59,273		-5,643,083

PROVISION FOR INCOME TAXES		-				-					-
NET LOSS	$	-14,862	$	-38,106	$	26,099	)	$	-59,273	$	-5,643,083

NET LOSS PER SHARE: BASIC AND DILUTED	$	-0.32	$	-0.82	$	-0.56		$	-1.27

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED, restated for 1,500:1 reverse split		46,631		46,631		46,631			46,631

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

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (RESTATED)

AS OF JUNE 30, 2010

(unaudited)

	Common Stock				Additional		Deficit Accumulated During the Development		Total Stockholders’
	Shares		Amount		Paid in Capital		Stage		Equity (Deficit)

Balance, December 31, 2007, as originally reported		41,631	$	4	$	5,256,988	$	-5,252,623	$	4,369

Correction of an accounting error								5,947		5,947

Balance, December 31, 2007, as Restated		41,631		4		5,256,988		-5,246,676		10,316

Issuance of common stock for cash @ $0.04 per share		5,000		1		299,999		-		300,000

Net loss for the year ended December 31, 2008		-		-		-		-292,310		-292,310

Balance, December 31, 2008		46,631		5		5,556,987		-5,538,986		18,006

Conversion of debt to common stock		133		-		1,000				1,000

Reverse stock split 1,500:1, fractional shares issued		859		-		-		-		-

Net loss for the year ended December 31, 2009		-		-		-		-77,998		-77,998

Balance, December 31, 2009		47,623		5		5,557,987		-5,616,984		-58,992

Net loss for the period ended June 30, 2010		-		-		-		-26,099		-26,099

Balance, June 30, 2010		47,623	$	5	$	5,557,987	$	-5,643,083	$	-85,091

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

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

PERIOD FROM AUGUST 25, 2003 (INCEPTION) TO JUNE 30, 2010

(unaudited)

	Six Months Ended June 30, 2010		Six Months Ended June 30, 2009 (Restated)		Period from August 25, 2003 (Inception) to June 30, 2010
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period	$	-26,099	$	-59,273	$	-5,643,083
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		-		-		21,150
Common stock issued for compensation		-		-		2,129,250
Common stock issued for services		-		-		47,000
Stock options issued for services		-		-		55,669
Beneficial conversion feature on warrant issue		-		-		230,900
Loss on disposal of property and equipment		-		-		5,879
Property and equipment traded for services		-		-		24,805
(Increase) decrease in accounts receivable		-		280		-
(Increase) decrease in prepaid expenses		-		500		-
Increase (decrease) in accounts payable & accrued expenses		23,968		-4,131		28,379
Cash flows used in operating activities		-2,131		-62,624		-3,100,051

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		-		-		-51,327
Proceeds on disposal of capital assets						494
Cash flows used in investing activities		-		-		-50,833

CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in recapitalization of the Company		-		-		184
Proceeds from note payable		-		50,000		50,000
Proceeds from issuance of common stock		-		-		2,212,000
Offering costs from issuance of common stock		-		-		-4,000
Net advances		-		-		896,667
Cash flows provided by financing activities		-		50,000		3,154,851

NET INCREASE (DECREASE) IN CASH		-2,131		-12,624		3,967
Cash, beginning of the period		6,098		25,866		-
Cash, end of the period	$	3,967	$	13,242	$	3,967

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	-	$	-	$	-
Income taxes paid	$	-	$	-	$	-
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-monetary net liabilities assumed in recapitalization of the Company on March 7, 2005	$	-	$	-	$	101,956
Shares issued to settle debt	$	-	$	-	$	1,000

The accompanying notes are an integral part of these financial statements

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 1- NATURE OF OPERATIONS AND BASIS OF REPORTING

The accompanying unaudited interim financial statements have been prepared by Spectral Capital Corporation (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 financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with the audited financial statements of the Company for the fiscal year ended December 31, 2009.

The results of operations for the six months ended June 30, 2010 are not indicative of the results that may be expected for the full year.

Galaxy Championship Wrestling Inc., a development stage company 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. a development stage Nevada Corporation, 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.

The Company is in the business of developing internet search engine technology. It has limited revenue and in accordance with SFAS # 7 (ASC 915-10), is considered to be in the development stage

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

These financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States 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 of the financial statements and the reported amounts of revenues and expenses during the year. The more significant areas requiring the use of estimates include asset impairment, stock-based compensation, and future income tax amounts. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Per Share

Net income (loss) per common share is computed based on the weighted average number of common shares outstanding and common stock equivalents, if not anti-dilutive. The Company has not issued any potentially dilutive common shares.

Basic loss per share is calculated using the weighted average number of common shares outstanding and the treasury stock method is used to calculate diluted earnings per share. For the years presented, this calculation proved to be anti-dilutive.

Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during the period shown.

Revenue Recognition

The Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured.

Income Taxes

The Company provides for income taxes using an asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. No provision for income taxes is included in the statement due to its immaterial amount, net of the allowance account, based on the likelihood of the Company to utilize the loss carry-forward.

Stock-Based Compensation

The Company did not issue any stock-based payments to its employees in 2010, 2009 or 2008. The Company uses the modified prospective method of accounting for stock-based compensation. Under this transition method, stock compensation expense includes compensation expense for all stock-based compensation awards granted on or after January 1, 2006, based on the estimated grant-date fair value.

Recent Accounting Pronouncements

In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively. The adoption of SFAS 165 (ASC 855-10) during the year ended December 31, 2009 did not have a significant effect on the Company’s financial statements as of that date. In connection with the preparation of the accompanying financial statements as of June 30, 2010, management evaluated subsequent events through August 18, 2010, the date that such financial statements were issued.

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.

As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.

With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.

Research and development costs

Pursuant to SFAS No. 2 (ASC 730-10), “Accounting for Research and Development Costs”, our research and development costs which relate to the development of software to be used in our search engine technology, were expensed as technological feasibility of the software had not been reached as of June 30, 2010.

The cost of materials and equipment that are acquired for research and development activities and that have alternative future uses are capitalized when acquired, such as computer equipment.

Foreign currency transactions

The business of the Company from Canada involves incurring a substantial number of operational transactions in Canada for which it transacts payments in Canadian currency through a bank account maintained for that purpose. Included in such transactions are payments for salaries, rent, consulting and many other expenses. At the time of payment, each Canadian disbursement is translated into the U. S. dollar equivalent amount and an exchange gain or loss on currency is recorded at that time. As of June 30, 2010, the Canadian bank account balance, which was the only account balance maintained in foreign currency at that date was converted into a U. S. dollar equivalent amount.

NOTE 3 – RELATED PARTY TRANSACTIONS

During the period ended June 30, 2010, in lieu of paying its technology officer his earned compensation directly of $ nil, (2009-$ 8,001) it paid it to a consulting company owned by the Officer. This amount relates principally to his efforts in furthering the development of the Company’s video and audio search enging technology.

NOTE 4 – NOTE PAYABLE

The convertible promissory note payable bears interest at 10% per annum and was due December 31, 2009. At the option of the note holder, the promissory note payable balance outstanding with any accrued interest, may be converted into common shares of the Company. The number of shares issued will be calculated at a per share conversion price of $.005

The promissory note holder converted accrued interest of $1,000 on the note into 200,000 (133 post-reverse split) common shares of the Company in July 2009 and has agreed to extend the due date of the promissory note payable to April 30, 2010.

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 5 – INCOME TAXES

The provision for Federal income tax consists of the following:

	June 30, 2010		June 30, 2009
Refundable Federal income tax attributable to:
Current operations	$	8,875	$	20,150
Less: valuation allowance		-8,875		-20,150
Net provision for Federal income taxes	$	-	$	-

The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:

	June 30, 2010
Deferred tax asset attributable to:
Net operating loss carryover	$	1,918,650
Less: valuation allowance		-1,918,650
Net deferred tax asset	$	-

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.

NOTE 6 – GOING CONCERN

The Company's financial statements are prepared using the accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has not begun to generate revenues, and has incurred a significant operating loss as of June 30, 2010.

The Company is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful. Without sufficient financing, or the achievement of profitable operations, it would be unlikely for the Company to continue as a going concern.

NOTE 7 – CORRECTION OF ERRORS AND RESTATEMENTS

The Company restated its balance sheet and statement of operations at December 31, 2008 to correct errors in its accounting. Property and equipment were disposed of with a net book value of $8,824. Correspondingly, depreciation expense was reduced by $7,089. In addition, accrued liabilities in the amount of $15,913 were reversed. Also, an expense paid in 2008 in the amount of $59,004 related to a prior period. The net effect of these adjustments was to increase the December 31, 2007 accumulated deficit by $59,004 and reduce the net loss for the year by $66,092.

The December 31, 2008 balance sheet was restated to correct the property and equipment, accounts payable and accrued expenses, and stockholders’equity (deficit). The December 31, 2008 statement of operations was restated to reflect the changes in expenses.

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 7 – CORRECTION OF ERRORS AND RESTATEMENTS (continued)

The June 30, 2009 statement of operations has been restated to reflect the reduction of depreciation expense in the amount of $ 1,629.

The following are the before and after balances as restated for the year ended December 31, 2008:

Balance Sheet
Property and Equipment, net of depreciation
Before	$	8,824
After	$	0
Current Liabilities
Before	$	154,250
After	$	138,337
Stockholders’ Equity
Before	$	(141,719	)
After		(134,630	)

Statement of Operations
Operating Expenses
Before	$	2,756,922
After	$	2,733,620
Other Income (Expense0
Before	$	0
After	$	(16,214	)
Income (Loss) from Operations
Before	$	(2,756,922	)
After	$	(2,690,830	)
Net Income (Loss)
Before	$	(2,756,922	)
After	$	(2,690,830	)

SPECTRAL CAPITAL CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 8 – SUBSEQUENT EVENTS

Subsequent to year end, the Company converted accounts payable to related parties of $10,000 into 10,000 common shares of the company.

On July 27, 2010, our shareholders voted to change our name to Spectral Capital Corporation and to increase number of shares of our authorized common stock from 333,333, par value $0.0001 to 500,000,000, par value $0.0001.

On August 18, 2010, we entered into a financing with a third party, Trafalgar Wealth Management. Under the terms of the financing, for aggregate consideration of $50,000 or $0.001 per common share, we sold 50,000,000 common shares and issued warrants to purchase 10,000,000 common shares at an exercise price of $1.00 per share. Under the terms of the agreements, subject to certain terms and conditions, Trafalgar is obligated to exercise at least $1,000,000 worth of these warrants over the next 12 months or the warrants will be cancelled and the 50,000,000 common shares would subject to repurchase by the company at $0.001 per share. 50,000,000 shares represents approximately 49.9% of our current issued and outstanding shares. Spectral may rescind the agreement in the event that a subsequently appointed independent director of the Company fails to ratify the transaction or the Company fails to obtain an opinion of fairness from an independent, third party valuation expert within 90 days.

Pursuant to a notice of conversion by holders of our April 2009 promissory notes, we converted the outstanding of interest and principal under the notes, which was in excess of $50,000, for a settled amount of $50,000. Under the terms of the April 2009 note, we are required to convert these shares at the current financing price of $0.001 per share. Therefore, on August 18, 2010 we issued 50,000,000 shares to various holders of the April 2009 promissory notes, which represents 49.9% of our current issued and outstanding shares.

The Company has analyzed its operations subsequent to June 30, 2010 through August 18, 2010, the date these financial statements were issued and has determined that it has no other material subsequent events to disclose.

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

We are a development stage technology company focused on the refinement and marketing of a comprehensive suite of media search engine technologies. Our objective is to maintain the media search engine properties and technologies we currently have and to eventually enhance and grow those properties and technologies. We currently operate the website newstowatch.com. Newstowatch.com is a breaking news discovery service that programatically reads thousands of current news stories and intelligently categorizes, organizes and ranks the most popular stories and topics from around the web. We also operate the consumer media search websites searchforvideo.com, podanza.com and iheard.com. We hope to be able to maintain our existing suite of on-line properties and technologies through the current challenging financial environment and to eventually be able to expand and grow our web properties and technologies in the future. In August, 2010, our management decided to expand our business focus beyond the scope of the current search engine offerings we have. Toward that end, we changed our name to Spectral Capital Corporation and our management has been actively seeking out new business partners and new technologies that are either complimentary to the existing Spectral internet properties or that offer any opportunity for the company to expand into a different field or fields. As the currently operated web technologies have never produced sufficient revenue to cover our operating expenses, our management feels that expanding the current scope of our corporate activities is critical to our future.

CORPORATE HISTORY AND DEVELOPMENT

We were incorporated in the State of Nevada on September 13, 2000 as Galaxy Championship Wrestling, Inc., a media and entertainment company focused on developing, producing and marketing live entertainment in the professional wrestling sphere.

On March 31, 2004, unable to generate sufficient revenues to sustain our professional wrestling business, we ceased operations in this field and began exploring other business opportunities.

Also on March 31, 2004 our controlling shareholders entered into a certain private stock purchase agreement, wherein they sold an aggregate of 5,750,000 of our common shares, representing a sixty-two and seventeen twentieths percent (62.85%) controlling interest, to an unrelated third party.

By certificate of amendment filed June 17, 2004, we changed our name from Galaxy Championship Wrestling, Inc. to FUSA Capital Corporation.

During the period from March 31, 2004 until March 7, 2005 we had no meaningful operations and did not carry on any active business, focusing instead on identifying and evaluating the merits of alternative potential business and acquisition opportunities which might allow us to restart operations.

On March 7, 2005 we entered into a certain plan and agreement of reorganization with FUSA Technology Investments Corp. ("FTIC"), a Nevada corporation engaged in the emerging growth field of audio and video search engine technology, whereby we acquired all of the issued and outstanding capital stock of FTIC in addition to obtaining certain intellectual property concepts related to search engine technology as developed by FTIC and its principals.

On April 22, 2005, our board of directors declared a three-for-one common stock dividend, wherein each holder of record of our common shares as of May 3, 2005 received two additional shares for each common share then held. Unless otherwise noted, all references to the number of common shares included in this annual report on Form 10-K for the fiscal year ended December 31, 2008 are stated on a post-dividend basis. Per share amounts have also been restated to reflect the common share dividend.

Since April, 2005, we have been engaged continuously in the development and operation of consumer focused media search engine technologies and portals. During the last six months of 2008, we began to substantially curtail our operations and ongoing technology development as a consequence of (i) having completed a substantial portion of our planned principal technology development work and (ii) being unable to raise sufficient funds through revenue or sales of debt or equity securities to continue our previous levels of operation and development.

We have consistently lost money on our on-line consumer media properties due to the expenses involved in hosting, promotion, development and management of those sites. In an effort to maintain as much traffic as possible on our most popular media site, www.searchforvideo.com, which is also responsible for a large proportion of our expenses, we contracted with Brass Consulting Ltd. to maintain the site in exchange for net revenue produced from the site. This agreement is cancellable after 30 days notice. This agreement allows us to maintain www.searchforvideo.com in the absence of adequate personnel or financial resources and to preserve its value for the future when we may have sufficient resources to maintain the site ourselves and grow its user base and revenue potential.

On June 29, 2009, our Board of Directors resolved to amend the Articles of Incorporation pursuant to Nevada Revised Statues 78.207 to decrease the number of authorized shares of our common stock, par value $.0001, from 500,000,000 to 333,333 shares. Correspondingly, our Board of Directors affirmed a reverse split of one thousand and five hundred (1,500) to one (1) in which each shareholder was issued one (1) share in exchange for every one thousand and five hundred (1,500) common shares of their currently issued common stock. The record date for the reverse split was July 6, 2009. On July 23, 2009, we filed a Certificate of Change pursuant to NRS 89.209 in connection with the transaction with the Nevada Secretary of State for the decrease in authorized shares and reverse split. Under the Nevada Revised Statutes, shareholder approval was not required.

Our principal executive offices are located at 701 Fifth Avenue, Suite 4200, Seattle, Washington 98104. Our phone number is (206) 274-5107.

The Company’s fiscal year end is December 31.

RESULTS OF OPERATIONS

Financial Condition and Liquidity

Overview

Our 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. We have limited capital resources. In the period from February 9, 2005 (Date of Inception) to June 30, 2010, the Company generated $119,058 in revenues and posted a net loss of $5,643,083 resulting from costs of general and administrative expenses, website development stock compensation and interest expenses. The Company is considered a development stage company.

The Company had its independent auditors re-audit its December 31, 2008 financial statements and the Company restated its financial statements for the period ending March 31, 2008 in its 10K for the period ended December 31, 2009.

Cash and Working Capital

The Company's cash balance as of June 30, 2010 was $3,967, as compared to the cash balance of $6,098 as of December 31, 2009.

Three Month Period Ending June 30, 2010 and June 30, 2009 and from Inception to June 30, 2010

Operating expenses for the six month period ended June 30, 2010 totaled $13,612, for the six month period ended June 30, 2009 $28,890 and from inception to the period ended June 30, 2010 totaled $5,737,503. The company experienced a net loss of $38,106 $59,273 and $5,643,083 for the six month period ended June 30, 2010, June 30, 2009 and from inception to period ended June 30, 2010, respectively, against $287 in revenues from operations for the six month period ending June 30, 2010, $9,552 for the six month period ended June 30, 2009 and $119,058 in revenue from the period since inception. The major expenses during this six month period were for general and administrative expenses, legal and accounting fees.

Revenues decreased during the period as compared with comparable periods in 2009. We believe this was due to a lack of funds to pay for marketing to support traffic to our Internet websites. Less traffic leads to less revenue from advertising on our sites.

The earnings per share (fully diluted -- weighted average) consisted of a net loss of $0.32 for the three month period ended June 30, 2010 and $0.56 for the six month period ended June 30, 2010, which reflects our 1500 to 1 reverse split as of the record date of July 6, 2009.

Liquidity and Capital Resources

For the six month period ended June 30, 2010, net cash used in operating activities, consisting mostly of loss from operations was $26,099. For the period from inception to June 30, 2010, net cash used in operating activities, consisting mostly of loss from operations net of non-cash compensation, was $3,100,051.

For the period from inception to June 30, 2010, net cash resulting from financing activities was in the amount of $3,154,851. There were no financings during the period.

Our capital resources have been limited. We have not yet generated sufficient revenues to cover our expenses, and to date have relied on the sale of equity and related party loans for cash required for our activities. No investment banking agreements are in place and there is no guarantee that the company will be able to raise capital in the future should that become necessary.

Future Financings

We anticipate that if we pursue any additional financing, the financing would be an equity financing achieved through the sale of our common stock. We do not have any arrangement in place for any debt or equity financing. If we are successful in completing an equity financing, existing shareholders will experience dilution of their interest in our company.

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.

Significant Contingencies

Our financial statements have been prepared assuming we will continue as a going concern. Our independent auditors have made reference to the substantial doubt about our ability to continue as a going concern in their report of independent registered public accounting firm on our audited financial statements for the year ended December 31, 2009. Our continuation is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern.

PLAN OF OPERATION

Over the next six to twelve months we intend to maintain our current web properties and make whatever modest efforts we are capable of, given our limited resources, to slow the deterioration of user traffic on these properties while we search for additional financing to allow us to promote and update our properties. We believe our sites, www.newstowatch.com, www.searchforvideo.com, www.iheard.com and www.podanza.com, will continue to deteriorate in spite of consumers recognizing the unique content, ease-of-use, speed of search tools and quality of indexed content due to lack of promotion and updating of the properties. We will not be able to expand our participatory media offerings over the course of the year due to lack of resources. It is believed that the combination of the growth of our participatory media website, www.Newstowatch.com and the organic growth of our other consumer portals could increase the company’s overall value by increasing its assets and marketability if we had the resources to promote and update our properties. In the absence of additional resources, our properties are likely to continue to have their user traffic deteriorate.

We also anticipate spending very little on operations and salaries and costs related to marketing and no money related to research and development over the course of the next twelve months now that principal development on our consumer portals has been completed and we lack the resources to improve or promote our properties . We anticipate our largest expenses will be hosting, administrative, legal and accounting expenses, and the salary of our chief executive officer, Jenifer Osterwalder. We are currently unable to pay the salary of our chief executive officer, who has nevertheless continued to serve in that capacity.

We have recently received $50,000 in financing proceeds that are allowing us to continue to operate. In August, 2010, our management decided to expand our business focus beyond the scope of the current search engine offerings we have. Toward that end, we changed our name to Spectral Capital Corporation and our management has been actively seeking out new business partners and new technologies that are either complimentary to the existing Spectral internet properties or that offer any opportunity for the company to expand into a different field or fields. As the currently operated web technologies have never produced sufficient revenue to cover our operating expenses, our management feels that expanding the current scope of our corporate activities is critical to our future. We can have no assurance that these expansion activities will be successful or that we will be able to find any complimentary technology or any business opportunity that we will have the financial and management resources to pursue.

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

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Minimizing the deterioration of user traffic on our websites;

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Raise additional funds in order to promote and improve our sites;

•

Compile usage statistics for our websites;

•

Develop rapport with likely strategic partners ; and

•

Seek out additional partners and business opportunities that will help us to increase revenues or build assets.

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 do undertake software development expenses in Canada which must be paid in Canadian dollars and are subject to cost variations based in currency rate fluctuations.

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 June 30, 2010 and June 30, 2009 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.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). As a result of this evaluation, we identified material weaknesses in our internal control over financial reporting as of December 31, 2009. Accordingly, we concluded that our disclosure controls and procedures were not effective as of December 31, 2009.

As required by SEC Rule 15d-15(b), our Chief Executive Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures are not effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of the deficiency in our internal control over financial reporting discussed below.

The material weakness identified in our annual report on Form 10-K for the year ended December 31, 2009 was related to a lack of an accounting staff resulting in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control.

(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

We have had a dispute with various noteholders of our April 2009 promissory note. On August 18, 2010, we resolved this dispute and the note holders elected to convert their note into our common stock, thus resolving the dispute.

Item 2. Unregistered Sales of Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBITS

List of 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
99.1	Common Stock and Warrant Purchase Agreement between the Registrant and Trafalgar Wealth Management Ltd. dated August 18, 2010

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
	Chief Executive Officer
	(Duly Authorized Officer and Principal
	Financial and Accounting Officer)

Dated: August 20, 2010