SPECTRAL CAPITAL Corp - Quarter Report: 2013 June (Form 10-Q)

spectral.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, 2013

[_] 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) 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 File[ ]	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 July 30, 2013, there are issued and outstanding only common equity shares in the amount of 112,857,623 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 June 30, 2013 and December 31, 2012 (unaudited)	4

	Interim Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 and the period from inception on February 9, 2005 through June 30, 2013 (unaudited)	5

	Interim Consolidated Statement of Stockholders’ Equity from inception on February 9, 2005 through June 30, 2013 (unaudited)	6

	Interim Consolidated Statement of Cash Flows for the six months ended June 30, 2013 and 2012 and the period from inception on February 9, 2005 through June 30, 2013 (unaudited)	9

	Notes to Financial Statements (unaudited)	10

Item 2.	Plan of Operation	15

Item 3.	Quantitative and Qualitative Disclosures about market risk	21

Item 4.	Controls and Procedures	21

Item 4T.	Controls and Procedures	21

PART II.	OTHER INFORMATION	22

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.	Mine Safety Disclosures	22

Item 5.	Other Information	23

Item 6.	Exhibits & Signature	24

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
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(unaudited)

	June 30, 2013			December 31, 2012
Assets:
Cash and cash equivalents	$	1,058,796		$	84,091
Accounts receivable - related party		323,978			323,978
Share subscription receivable		40			-
Current assets		1,382,814			408,069

Property and equipment, net		239			717
Investment in Kontexto, Inc.		537,000			-
Internet search technology		3,072,022			-
Total assets	$	4,992,075		$	408,786

Liabilities and Stockholders' Equity:
Current liabilities
Accrued liabilities		16,500			14,000
Due to related parties		314,345			97,696
Current liabilities		330,845			111,696
Total liabilities		330,845			111,696

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, 112,857,623 and101,207,623 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively		11,286			10,121
Additional paid-in capital		22,318,413			12,683,132
Common stock warrants		1,831,500			-
Prepaid consulting		(331,407	)		(615,469	)
Deficit accumulated during the development/exploration stage		(19,168,602	)		(11,780,694	)
Total stockholders' equity		4,661,190			297,090
Non-controlling interest		40
Total equity		4,661,230			297,090
Total liabilities and stockholders' equity	$	4,992,075		$	408,786

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

SPECTRAL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

	Three Months Ended June 30, 2013			Three Months Ended June 30, 2012			Six Months Ended June 30, 2013			Six Months Ended June 30, 2012			Period from February 9, 2005 (Inception) to June 30, 2013

Revenues	$	-		$	27,487		$	-		$	27,487		$	301,227

Operating expenses:
Selling, general and administrative		73,494			41,263			133,509			108,049			3,898,288
Wages and benefits		38,913			39,009			38,913			88,560			2,505,667
Legal fees		-			13,429			-			68,300			651,057
Research and development		-			-			-			-			1,965,424
Exploration costs		-			141,243			-			614,811			1,018,500
Stock-based compensation		676,754			226,914			1,353,508			226,914			4,305,667
Beneficial conversion expense		-			-			-			-			230,900
Depreciation and amortization		239			239			478			478			23,780
Impairment of cost investment		5,861,500			-			5,861,500			-			5,861,500
Total operating expenses		6,650,900			462,097			7,387,908			1,107,112			20,460,783

Operating loss		(6,650,900	)		(434,610	)		(7,387,908	)		(1,079,625	)		(20,159,556	)

Other income and (expense)
Interest expense		-			(22,752	)		-			(45,131	)		(113,761	)
Gain on sale of oil business		-			-			-			-			845,680
Other income (expense)		-			-			-			-			(10,651	)
Total other income (expensee)		-			(22,752	)		-			(45,131	)		721,268

Loss from operations and before non-controlling interest		(6,650,900	)		(457,362	)		(7,387,908	)		(1,124,756	)		(19,438,288	)

Less: Loss attributable to non-controlling interest		-			112,121			-			263,502			269,686

Loss before tax provision		(6,650,900	)		(345,241	)		(7,387,908	)		(861,254	)		(19,168,602	)

Provision for income taxes		-			-			-			-			-

Net loss attributable to Spectral Capital Corporation	$	(6,650,900	)	$	(345,241	)	$	(7,387,908	)	$	(861,254	)	$	(19,168,602	)

Basic and diluted loss per common share	$	(0.06	)	$	(0.00	)	$	(0.07	)	$	(0.01	)
Weighted average shares - basic and diluted		112,899,078			101,207,623			108,706,260			101,267,623

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

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

AS OF JUNE 30, 2013

(unaudited)

	Common Stock						Additional Paid in			Prepaid		Common Stock		Non-Controlling		Deficit Accumulated During the Development			Total Stockholders’
	Shares			Amount			Capital			Consulting		Warrants		Interest		Stage			Equity

Balance, February 9, 2005, Inception		-		$	-		$	-		$	-	$	-	$	-		-		$	-

Stock based compensation		19,883			2,983			2,914,209			-		-		-		-			2,917,192

Net loss for the period ended March 6, 2005		-			-			-			-		-		-		(11,605	)		(11,605	)

Restated recapitalization, March 7, 2005		18,299			2,744			(104,701	)		-		-		-		-			(101,957	)

PPMs		620			93			305,907			-		-		-		-			306,000

Beneficial conversion feature		-			-			230,900			-		-		-		-			230,900

Net loss for the year ended December 31, 2005		-			-			-			-		-		-		(4,079,552	)		(4,079,552	)

Balance, December 31, 2005		38,802			5,820			3,346,315			-		-		-		(4,091,157	)		(739,022	)

Stock options		-			-			11,724			-		-		-		-			11,724

Shares issued for services		23			4			37,996			-		-		-		-			38,000

PPMs		757			112			951,888			-		-		-		-			952,000

Shares exchanged for debt		716			107			985,026			-		-		-		-			985,133

Cancellation of shares issued for compensation		(400	)		(60	)		(731,940	)		-		-		-		-			(732,000	)

Net loss for the year ended December 31, 2006		-			-			-			-		-		-		(435,407	)		(435,407	)

Balance, December 31, 2006		39,898			5,983			4,601,009			-		-		-		(4,526,564	)		80,428

PPMs		1,733			260			649,740			-		-		-		-			650,000

Share par value adjustments		-			(6,239	)		6,239			-		-		-		-			-

Net loss for the year ended December 31, 2007		-			-			-			-		-		-		(720,112			(720,112	)

Balance, December 31, 2007,		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 1500:1 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	)

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

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

AS OF JUNE 30, 2013

(unaudited)

	Common Stock				Additional Paid in			Prepaid			Common Stock			Non- Controlling			Deficit Accumulated During the Development			Total Stockholders’
	Shares		Amount		Capital			Consulting			Warrants			Interest			Stage			Equity

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

Conversion of debt to common stock		10,000		1		9,999			-			-			-			-			10,000

Issuance of common stock for cash @ $0.001 per share		50,000,000		5,000		45,000			-			-			-			-			50,000

Conversion of debt to common stock		50,000,000		5,000		51,181			-			-			-			-			56,181

Exercise of 150,000 warrants @$1.00 per share		150,000		15		170,985			-			(21,000	)		-			-			150,000

Stock options issued as compensation		-		-		1,170,713			-			-			-			-			1,170,713

Stock warrants issued for mineral properties		-		-		-			-			1,311,508			-			-			1,311,508

Issuance of stock warrants		-		-		(2,821,069	)		-			2,821,069			-			-			-

Issuance of common stock for cash @ $2.00 per share		1,000,000		100		1,999,900			-			-			-			-			2,000,000

Net loss for the year ended December 31, 2010		-		-		-						-			-			(1,449,474	)		(1,449,474	)

Balance, December 31, 2010		101,207,623		10,121		6,184,696			-			4,111,577						(7,066,458	)		3,239,936

Stock warrants issued to acquire mineral properties		-		-		-			-			15,547,500			-			-			15,547,500

Stock warrants rescinded and cancelled		-		-		-			-			(15,547,500	)		-			-			(15,547,500	)

Stock warrants rescinded and cancelled		-		-		-			-			(1,311,508	)		-			-			(1,311,508	)

Stock options issued for consultant		-		-		400,425			-			-			-			-			400,425

Stock options issued as compensation		-		-		434,517			-			-			-			-			434,517

Net loss for the year ended December 31 2011		-		-		-			-			-			-			(2,057,865	)		(2,057,865	)

Balance, December 31, 2011		101,207,623		10,121		7,019,638			-			2,800,069			-			(9,124,323	)		705,505

Stock options issued as compensation		-		-		3,133,111			(615,469	)		-			-			--			2,517,642

Stock warrants expired		-		-		2,800,069			-			(2,800,069	)		-			-			-

Termination of non-controlling interest		-		-		(269,686	)		-			-			269,686			-			-

Net loss for the year ended December 31, 2012		-		-		-			-			-			(269,686	)		(2,656,371	)		(2,926,057	)

Balance, December 31, 2012		101,207,623	$	10,121	$	12,683,132		$	(615,469	)	$	-		$	-		$	(11,780,694	)	$	297,090

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

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

AS OF JUNE 30, 2013

(unaudited)

	Common Stock				Additional Paid in		Prepaid			Common Stock		Non- Controlling		Deficit Accumulated During the Development			Total Stockholders’
	Shares		Amount		Capital		Consulting			Warrants		Interest		Stage			Equity

Balance, December 31, 2012		101,207,623	$	10,121	$	12,683,132	$	(615,469	)	$	-	$	-	$	(11,780,694	)	$	297,090

Shares issued for cash		1,650,000		165		716,835		-			283,000		-		-			1,000,000

Stock options issued for consulting		-		-		-		284,062			-		-		-			284,062

Stock options issued as compensation		-		-		1,069,446		-			-		-		-			1,069,446

Shares issued for technology asset		5,000,000		500		2,999,500		-			-		-		-			3,000,000

Shares issued for investment		5,000,000		500		4,849,500		-			1,548,500		-		-			6,398,500

Acquisition of stock in subsidiary		-		-		-		-			-		40		-			40

Net loss for the period ended June 30, 2013		-		-		-		-			-		-		(7,387,908	)		(7,387,908	)

Balance, June 30, 2013		112,857,623	$	11,286	$	22,318,413	$	(331,407	)	$	1,831,500	$	40	$	(19,168,602	)	$	4,661,230

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

SPECTRAL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(unaudited)


	Six Months ended June 30, 2013			Six Months ended June 30, 2012			Period from February 9, 2005 (Inception) to June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,387,908	)	$	(1,124,756	)	$	(19,168,602	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-controlling interest		-			-			(269,686	)
Depreciation and amortization		478			478			23,781
Share-based services		1,353,508			226,914			8,108,724
Beneficial conversion feature on warrant issued		-			-			230,900
Gain on sale of oil business		-			-			(845,680	)
Loss on disposal of property and equipment		-			-			5,879
Property and equipment traded for services		-			-			24,805
Impairment of cost investment		5,861,500			-			5,861,500
Changes in operating assets and liabilities:
Legal trust account		-						(14,207	)
Prepaids and other assets		-			(27,810	)		-
Accounts payable and accrued expenses		2,500			68,965			143,735
Due to related parties					-			36,579
Net cash used in operating activities		(169,922	)		(856,209	)		(5,862,272	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		-			-			(54,197	)
Increase in security deposits		-			-			(27,810	)
Proceeds from disposal of property and equipment		-			-			494
Purchase of oil and gas properties		-			(219,093	)		(219,093	)
Net cash used in investing activities		-			(219,093	)		(300,606	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in recapitalization of the Company		-			-			184
Proceeds from related party advances		216,649			556,060			1,835,512
Proceeds from sale of common stock		927,978			-			5,339,978
Proceeds from note payable		-			-			50,000
Offering costs from issuance of common stock		-			-			(4,000	)
Net cash provided by financing activities		1,144,627			556,060			7,221,674

Change in cash and cash equivalents		974,705			(519,242	)		1,058,796
Cash and cash equivalents, beginning of period		84,091			730,922			-
Cash and cash equivalents, end of period	$	1,058,796		$	211,680		$	1,058,796

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-		$	59,574
Cash paid for income taxes	$	-		$	-		$	-

Non cash investing and financing activities:
Value of shares issued for acquisition of asset management company	$	-		$	-		$	-
Non-monetary net liabilities assumed in recapitalization	$	-		$	-		$	101,956
Properties acquired through assumption of debt	$	-		$	2,134,949		$	2,134,949
Debt assumed by buyer in sale of oil and gas business	$	-		$	-		$	2,291,739
Common stock issued for debt	$	-		$	-		$	1,000
Stock warrants issued for acquisition of mineral properties	$	-		$	-		$	16,859,008
Stock warrants rescinded and cancelled	$	-		$	-		$	16,859,008
Issuance of common stock warrants	$	1,831,500		$	-		$	4,652,569
Issuance of stock for prepaid consulting	$	-		$	-		$	615,469
Issuance of stock for technology asset and cost investment	$	7,639,022		$	-		$	7,639,022
Expiration of warrants	$	-		$	-		$	2,800,069

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

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying unaudited interim 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 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 year ended December 31, 2012. The results of operations for the three and six months ended June 30, 2013 are not indicative of the results that may be expected for the full year.

Development Stage Company

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles related to accounting and reporting by development-stage companies. A development-stage company is one in which planned principal operations have not commenced, or if its operations have commenced, there has been no significant revenues there from.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, Spectral Holdings, Inc, and its 60% owned subsidiary, Noot Holdings, Inc. from its date of incorporation of February 28, 2013. Previously, the Company included the operations of Extractive Resources Corporation and Shamrock Oil and Gas, Ltd. Shamrock is 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

The Company's financial instruments consist of cash and cash equivalents, accounts receivable – related party, accrued expenses, and due to related parties. The carrying amount of these financial instruments approximates fair value due to either length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

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.

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

The Company follows ASC Topic 505-50, Equity: Equity-Based Payments to Non-Employees for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

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.

Revenue Recognition

The Company recognizes revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.

Basic Income (Loss) Per Share

Basic income (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 20,250,000 and 14,600,000 were outstanding at June 30, 2013 and 2012, respectively, representing outstanding warrants and options, and were not included in the computation of diluted earnings per share for the periods ended June 30, 2013 and 2012, 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 6 for additional information.

Reclassifications

Certain accounts in these financial statements have been reclassified to correct a typographical error in the prior period.

NOTE 3– GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained substantial losses since inception, and is in need of additional capital to grow its operations so that it can become profitable.

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

In view of this matter, the ability of the Company to continue as a going concern is dependent upon growth of revenues and the ability of the Company to raise additional capital. Management believes that its successful ability to raise capital and increases in revenues will provide the opportunity for the Company to continue as a going concern.

NOTE 4 – 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 has been discontinued, sold/transferred in 2012. Management reviewed discontinued operations and determined they were not material to the financial statements taken as a whole. Accordingly, gains/losses and net assets/liabilities were not presented in the accompanying consolidated statements of operations or balance sheet.

NOTE 5 – 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 calls for the technology to reside within a newly formed entity called Noot Holdings, Inc.("Noot"), a Delaware corporation, which the Company will be a 60% owner of and Fiveseas will be 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. The Company has recorded the value as an investment in technology as the in process development did not constitute a business. The Company intends to record the future income/losses from Noot attributable to the percentage owned by Fiveseas as a non-controlling interest. The Company is currently developing the technology acquired and is currently in the beta phase of testing and thus is capitalizing any costs in connection with that development. During the six months ended June 30, 2013 costs of $72,022 were capitalized in connection with the continued development.

NOTE 6– 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 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 10). 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 three and six months ended June 30, 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 in the statements of operations for the three and six months ended June 30, 2013.

NOTE 7– RELATED PARTY TRANSACTIONS

At June 30, 2013 and December 31, 2012, $315,937 and $97,696, 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 expensed for services provided by Akoranga totaled $38,913 and $17,583 for the six months ended June 30, 2013 and 2012, respectively.

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

At December 31, 2012, the Company sold its oil and gas business to Akoranga for $950,000 plus the assumption of of all debt related to the oil and gas business. As a result of that transaction, Akoranga owes $323,978 to the Company and is reflected on the accompanying balance sheet as accounts receivable - related party. The balance is due on December 31, 2013. Related party loans are unsecured, and non-interest bearing and have no specific terms of repayment unless otherwise noted.

NOTE 8 – CAPITAL STOCK

The Company has 5,000,000 shares of $0.0001 par value preferred stock, and 500,000,000 shares of $0.0001 par value common stock authorized.

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 5).

On March 7, 2013, the Company sold 1,650,000 shares of common stock at $0.65 per share and 1,650,000 warrants, and received a total of $1,000,000 USD in financing proceeds. The shares and warrants had a deemed value of $717,000 and $283,000, respectively (see Note 10)

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. The warrants expire on March 13, 2015. The shares and warrants had a deemed value of $4,850,000 and $1,548,500 respectively (see Note 6).

NOTE 9- STOCK-BASED COMPENSATION

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 $4,541,096 using the Black-Scholes Option Pricing Model.

Employee stock-based compensation expense relating to options granted in 2010 and 2012 and recognized in the six months ended June 30, 2013 and 2012 totalled $1,069,446 and $226,914, respectively. At June 30, 2013, unrecognized expense of $1,995,989 remains to be recognized through 2015.

There were 2,500,000 options initially valued at $1,136,250 using the Black-Shcoles pricing model issued to an advisor on February 6, 2012. Based on the vesting term, $520,781 was charged to consulting expense and $615,469 was recorded as prepaid consulting. During the six months ended June 30, 2013, $284,062 of the prepaid consulting expense was charged to financial consulting expense. Unamortized prepaid consulting expense of $331,407 remains as of June 30, 2013.

Because the Company’s stock-based compensation options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, amounts estimated using the Black-Scholes option pricing model may differ materially from the actual fair value of the Company’s stock-based compensation options.

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 10– STOCK WARRANTS

On March 7, 2013, Spectral sold 1,650,000 common shares, par value $0.0001 at $0.65 per share and received a total of $1,000,000 USD in financing proceeds. Contemporaneously, Spectral issued warrants to purchase 1,650,000 common shares, par value $0.0001 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.

See Note 6 for discussion of warrants issued in connection with a cost investment.

As of June 30, 2013 and December 31, 2012, the Company has 6,650,000 and zero outstanding warrants, respectively.

NOTE 11– COMMITMENTS AND CONTINGENCIES

Effective March 31, 2012, Spectral and International Asset Holdings Corp (“IAHC”) entered into a Property Acquisition Option Agreement and Definitive Financing Agreement Rescission restating Spectral’s position in the Bayankol property in light of the difficulties with local regulation and title transfer. The agreement rescinded the original transaction of January 14, 2011.

NOTE 12– SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2013 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these 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

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. In March of 2005 we also entered into a 3 for one stock dividend payable to our shareholders.

From April, 2005 until September 2010, we were engaged continuously in the development and operation of consumer focused media search engine technologies and portals. During the last six months of 2009, 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 ceased operating our Internet properties in December 2010.

We had 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 was cancellable after 30 days notice. We cancelled this agreement in September 2009. We were not able to operate the site properly internally or through an external provider.

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 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 as amended in 2011, subject to certain terms and conditions, Trafalgar is obligated to exercise at least $1,000,000 worth of these warrants over the next 24 months or Spectral will receive back 5,000,000 of the shares.

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.

In September 2010, the Company purchased an interest in mineral properties in the Chita region of the Russian Federation. The Kadara and Kaltagay license is located in the Mogochinsky district of the Chita Region in the Russian Federation. Initially, we purchased 47% of the License for prospecting, exploration and production of gold and all other metals. The length of the License runs to August 31, 2031. The size of the License is 186 square kilometers or 18,200 hectares. Development and exploration activities are currently being undertaken. In December, 2010, we purchased an additional interest of 5% in this property, bringing our total interest in the property to 52%.

In January, 2011, we purchased a 65% interest in mineral properties in the Bayankol River region of Kazakhstan (“Bayankol”).

In July, 2011, we conveyed our interest in our Chita property back to our counterparty in exchange for cancellation of warrants to purchase Spectral common stock issued in the transaction and our right to be reimbursed for incurred costs to date. We have not yet sought any reimbursement under this agreement.

In September, 2011, we developed a partnership in Saratov, Russia to acquire and develop oil leases in the region.

In December, 2011, we restructured our interest in our Bayankol property The agreement rescinded the original transaction of January 14, 2011 and the previously issued warrants were cancelled. Spectral agreed to issue 1,000,000 common shares of Spectral stock in exchange for an option to purchase 65% of the property. Spectral will also have an obligation to find third party debt financing of $200,000,000 over five years to maintain its interest in the Bayankol property.

In February, 2012, we acquired a 60% interest in a Canadian oil and gas field in the Red Earth region of Alberta for a cash payment of $750,000, which we paid. Under the agreement, we also have the right to fund additional drilling on the property up to $17,500,000 on a secured creditor basis. The property is currently in production and producing oil. There are eight permitted drilling locations on the property.

In December, 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 Alberta oil and gas properties for $950,000, the value of Spectral’s contributions to the project to date. In satisfaction of the purchase price, Akoranga agreed to offset liabilities of Spectral in the amount of $626,022. The balance owing of $323,978 is non-interest bearing and is to be repaid within a one year period.

On February 26, 2013, Spectral Capital Corporation, 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. Under the Agreement, Spectral issued Fiveseas 5,000,000 common shares of Spectral Capital Corporation, par value $0.0001. The Agreement calls for the technology to reside within a newly formed entity called Noot Holdings, Inc., a Delaware corporation, which Spectral will be a 60% owner of and Fiveseas will be a 40% owner of. Fiveseas was granted a right of first refusal for any subsequent sale of the technology.

On March 7, 2013, Spectral sold 1,650,000 common shares, par value $0.0001 at $0.65 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. The shares were sold in a private placement to a non-US purchaser. There were no commissions paid in the financing and no registration rights granted.

On March 14, 2013, Spectral Capital Corporation purchased 8% of the issued and outstanding shares of Kontexto, Inc., a Canadian corporation. Spectral purchased the shares from 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. There were no commissions associated with the transaction and the shares are to be issued to non US shareholders of a Sargas Capital, Ltd., a Canadian company through a process still to be determined.

Our principal executive offices are located at 701 Fifth Avenue, Suite 4200, Seattle, Washington 98104. Our phone number is (206) 262-7820. The Company’s year-end is December 31.

RESULTS OF OPERATIONS

Financial Condition and Liquidity

Overview

We are currently engaged in a technology development business and have exited natural resources. We incurred revenues in 2012 due to our oil and gas business, which is discontinued, so comparisons with 2012 and the quarter ending March 31, 2013, may not be illustrative of our comparative performance.

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, 2013, the Company generated $301,227 in revenues and posted a net loss of $19,168,602 resulting from costs of general and administrative expenses, website development, stock compensation, impairments, expenses on oil and gas properties and interest expenses. The Company was considered an exploration stage company and is now considered a development stage company.

Cash and Working Capital

The Company's cash balance as of June 30, 2013 was $1,058,796, as compared to the cash balance of $84,091 of December 31, 2012.

Three month Period Ending June 30, 2013 and June 30, 2012

Operating expenses for the three-month period ended June 30, 2013 totalled $6,650,900, compared to $462,097 for the similar prior year period. The company experienced a net loss of $6,650,900 and $345,241 for the three month periods ended June 30, 2013 and 2012, respectively. The major expenses during this three-month period ended June 30, 2013 were for stock based compensation, wages, general and administrative expenses and impairment of investment.

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 exited the natural resource 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. It can be meaningful to compare operating expenses between the three-month period ending June 30, 2013 and the three-month period ending June 30, to assess the trajectory of operating expenses with respect to operations not dependent on natural resources.

Six month Period Ending June 30, 2013 and June 30, 2012 and from Inception to March 31, 2013

Operating expenses for the six-month period ended June 30, 2013 totalled $7,387,908, compared to $1,107,112 for the similar prior year period. The company experienced a net loss of $7,387,908 and $861,254 for the six month periods ended June 30, 2013 and 2012, respectively. The major expenses during this six-month period ended June 30, 2013 were for stock based compensation, wages, general and administrative expenses and impairment of investment.

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 exited the natural resource sector. We have had a small amount of revenues from our oil production activities in 2012, but have since disposed of these and have no current revenue. It can be meaningful to compare operating expenses between the six-month period ending June 30, 2013 and the six-month period ending June 30, to assess the trajectory of operating expenses with respect to operations not dependent on natural resources.

Liquidity and Capital Resources

For the six-month period ended June 30, 2013, net cash used by operating activities, consisting mostly of loss from operations, was $169,922 compared to $856,209 for the six months ended June 30, 2012 and $5,862,272 for the period from Inception to June 30, 2013.

Net cash provided by financing activities was $1,144,627, $556,060, and $7,221,674 for the six months ended June 30, 2013, 2012 and the period from Inception to June 30, 2013, respectively.

We believe that our current financial resources are sufficient to meet our working capital requirements over the next year, given that we have closed a financing subsequent to the end of the period of this report, 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 annual report on Form 10-Q for the period ended June 30, 2013, we do not have any specific financing terms from any particular financier other than the financing we closed in March 2013. 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 and would diminish our ability to adequately exploit our mineral properties and could result in the diminution of our interest in those properties.

Our short-term prospects are promising given our success to date in securing the two portfolio companies, Noot and Kontexto and the success that Kontexto has 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.

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 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.

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 a 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 two 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:

●	Continue to Grow Kontexto’s customer base around the world and increase revenues and earnings;

●	Complete and launch the Noot Mobile Application;

●	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 ;

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

●	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 do undertake mineral and oil development activities in Canada Kazakhstan and financial and consultative activities in Europe, which involve transactions in the Canadian dollar, Tenge, and Euro 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 June 30, 2013 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, 2012. Accordingly, we concluded that our disclosure controls and procedures were not effective as of December 31, 2012.

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 weaknesses identified in our annual report on Form 10-K for the year ended December 31, 2012 were 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. The weaknesses still exists at June 30, 2013.

(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

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

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*

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 Captial Corporation

	/s/ Jenifer Osterwalder
	Jenifer Osterwalder
	President and Chief Executive Officer
	/s/ Stephen Spalding
	Chief Financial Officer
	(Duly Authorized Officer and Principal
	Financial and Accounting Officer)

Dated: July __, 2013