Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2015
OR
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________ to ________
Commission File No. 000-50274
Spectral Capital Corporation
(Exact name of Registrant as specified in its charter)
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Nevada
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51-0520296
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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701 Fifth Avenue, Suite 4200, Seattle, WA
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98104
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(Address of principal executive offices)
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(Zip/Postal Code)
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(206) 262-7820
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(Telephone Number)
___________
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(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
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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x
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(Do not check if a smaller reporting company)
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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 31, 2015, there are issued and outstanding only common equity shares in the amount of 117,857,623 shares, par value $0.0001, of which there is only a single class. There are 5,000,000 preferred shares authorized and none issued and outstanding.
SPECTRAL CAPITAL CORPORATION
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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3
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Item 1.
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Financial Statements
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3
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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4
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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6
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Item 4.
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Controls and Procedures
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6
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PART II - OTHER INFORMATION
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7
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Item 1.
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Legal Proceedings
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7
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Item 1A.
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Risk Factors
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7
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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7
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Item 3.
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Defaults Upon Senior Securities
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7
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Item 4.
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Mine Safety Disclosures
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7
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Item 5.
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Other Information
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7
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Item 6.
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Exhibits
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8
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SIGNATURES
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9
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1
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.
2
Item 1: Financial Statements
Our unaudited interim financial statements for the three and six month ended June 30, 2015 and 2014 form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.
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INDEX TO UNAUDITED FINANCIAL STATEMENTS
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Financial Statements of Spectral Capital Corporation, Inc.
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Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (unaudited)
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F-1
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Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014 (unaudited)
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F-2
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (unaudited)
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F-3
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Notes to the Consolidated Financial Statements (unaudited)
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F-4
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3
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2015 AND DECEMBER 31, 2014
(UNAUDITED)
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June 30,
2015
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December 31,
2014
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Assets:
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Cash and cash equivalents
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$ | 3,830 | $ | 48,919 | ||||
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Prepaid consulting
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- | 11,000 | ||||||
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Current assets
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3,830 | 59,919 | ||||||
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Property and equipment, net
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- | - | ||||||
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Other assets:
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Investment in Kontexto, Inc.
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232,000 | 232,000 | ||||||
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Intangible assets, net
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5,000 | 5,000 | ||||||
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Total assets
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$ | 240,830 | $ | 296,919 | ||||
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Liabilities and Stockholders' Equity:
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Current liabilities
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Accounts payable and accrued liabilities
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- | - | ||||||
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Related party advances and accruals
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462,954 | 371,181 | ||||||
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Current liabilities
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462,954 | 371,181 | ||||||
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Total liabilities
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462,954 | 371,181 | ||||||
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Stockholders' Equity:
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Preferred stock, par value $0.0001, 5,000,000 shares authorized, no shares issued and outstanding
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- | - | ||||||
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Common stock, par value $0.0001, 500,000,000 shares authorized, 117,857,623 shares issued and outstanding as of June 30, 2015 and December 31, 2014
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11,786 | 11,786 | ||||||
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Additional paid-in capital
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27,312,664 | 25,263,906 | ||||||
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Common stock warrants
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- | 1,831,500 | ||||||
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Accumulated deficit
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(27,322,577 | ) | (26,964,108 | ) | ||||
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Total stockholders' equity
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1,873 | 143,084 | ||||||
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Non-controlling interest
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(223,997 | ) | (217,346 | ) | ||||
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Total equity
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(222,124 | ) | (74,262 | ) | ||||
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Total liabilities and stockholders' equity
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$ | 240,830 | $ | 296,919 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 1
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)
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Three Months
Ended
June 30,
2015
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Three Months
Ended
June 30,
2014
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Six Months
Ended
June 30,
2015
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Six Months
Ended
June 30,
2014
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Revenues
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Operating expenses:
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Selling, general and administrative
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26,845 | 9,433 | 73,463 | 111,362 | ||||||||||||
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Wages and benefits
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39,343 | 26,705 | 74,399 | 60,861 | ||||||||||||
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Research and development
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- | 112,102 | - | 169,141 | ||||||||||||
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Stock-based compensation
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108,629 | 108,629 | 217,258 | 406,634 | ||||||||||||
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Depreciation and amortization
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- | 426,252 | - | 852,504 | ||||||||||||
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Total operating expenses
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174,817 | 683,121 | 365,120 | 1,600,502 | ||||||||||||
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Operating loss
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(174,817 | ) | (683,121 | ) | (365,120 | ) | (1,600,502 | ) | ||||||||
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Loss from operations and before non-controlling interest and provision for income taxes
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(174,817 | ) | (683,121 | ) | (365,120 | ) | (1,600,502 | ) | ||||||||
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Provision for income taxes
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- | - | - | - | ||||||||||||
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Net loss before non-controlling interest
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(174,817 | ) | $ | (683,121 | ) | (365,120 | ) | (1,600,502 | ) | |||||||
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Loss attributable to non-controlling interest
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5,889 | 213,797 | 6,651 | 407,113 | ||||||||||||
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Net loss attributable to Spectral Capital Corporation
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$ | (168,928 | ) | $ | (469,324 | ) | $ | (358,469 | ) | $ | (1,193,389 | ) | ||||
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Basic and diluted loss per common share
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
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Weighted average shares - basic and diluted
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117,857,623 | 117,857,623 | 117,857,623 | 117,857,623 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 2
SPECTRAL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)
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Six Months
Ended
June 30,
2015
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Six Months
Ended
June 30,
2014
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss attributable to Spectral Capital Corporation
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$ | (358,469 | ) | $ | (1,193,389 | ) | ||
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Adjustments to reconcile net loss to net cash used in by operating activities:
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Non-controlling interest
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(6,651 | ) | (407,113 | ) | ||||
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Depreciation and amortization
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- | 852,504 | ||||||
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Stock-based compensation
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217,258 | 406,634 | ||||||
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Prepaids and other assets
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11,000 | - | ||||||
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Due to related parties - accrued salary
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74,400 | - | ||||||
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Net cash used in operating activities
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(62,462 | ) | (341,364 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from related party advances
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17,373 | 12,431 | ||||||
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Net cash provided by financing activities
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17,373 | 12,431 | ||||||
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Change in cash and cash equivalents
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(45,089 | ) | (328,933 | ) | ||||
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Cash and cash equivalents, beginning of period
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48,919 | 786,137 | ||||||
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Cash and cash equivalents, end of period
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$ | 3,830 | $ | 457,204 | ||||
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Supplemental disclosures of cash flow information:
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Cash paid for interest
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$ | - | $ | - | ||||
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Cash paid for income taxes
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$ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
SPECTRAL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
(UNAUDITED)
NOTE 1 – BUSINESS AND NATURE OF OPERATIONS
Spectral Capital Corporation (the "Company" or "Spectral") was incorporated on September 13, 2000 under the laws of the State of Nevada. Spectral is focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. The Company looks for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in three technology companies currently and actively works with management to drive these companies toward increasing market penetration in their particular verticals. Spectral intends to own, in full or in part, technology companies whose founders and key management can take advantage of the deep networks and experience in technology development embodied in Spectral management.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company is in the development stage and has sustained substantial losses since inception. As of June 30, 2015, the Company has cash on hand of $3,830 and negative working capital of $459,124. The Company expects current cash on hand will not be able to fund operations for a period in excess of 12 months. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.
To date management has funded its operations through selling equity securities and advances from related parties. The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations, however, there can be no assurance the Company will be successful in these efforts. As of the date of these consolidated financial statements the Company does not have any firm commitments for capital. Without the required capital, the Company has had to reduce their development expenditures which will delay the completion of products which are expected to generate future revenues.
Risks and Uncertainties
The Company has a limited operating history and has not generated revenues from our planned principal operations.
The Company's business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company's control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on the Company's consolidated financial condition and the results of its operations.
The Company currently has no sales and limited marketing and/or distribution capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our current and future products. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote sales and marketing.
The Company's industry is characterized by rapid changes in technology and customer demands. As a result, the Company's products may quickly become obsolete and unmarketable. The Company's future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, the Company's products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, the Company may not be able to adapt new or enhanced products to emerging industry standards, and the Company's new products may not be favorably received. Nor may we have the capital resources to further the development of existing and/or new ones.
F - 4
SPECTRAL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
(UNAUDITED)
Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2014. The results of operations for the three and six months ended June 30, 2015 are not indicative of the results that may be expected for the full year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, Spectral Holdings, Inc, and its 60% owned subsidiaries, Noot Holdings, Inc. from its date of incorporation of February 28, 2013, and Monitr Holdings, Inc. from its date of incorporation of December 1, 2013. All material intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
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Level 1
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Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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Level 2
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Include other inputs that are directly or indirectly observable in the marketplace.
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Level 3
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Unobservable inputs which are supported by little or no market activity.
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The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of June 30, 2015 and December 31, 2014, the Company does not have any assets or liabilities which would be considered Level 2 or 3.
The Company’s financial instruments consist of cash and cash equivalents, investments in technologies and related party advances. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
The Company measures certain assets at fair value on a nonrecurring basis. These assets include cost method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. Excluding these items, the Company did not have any significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
F - 5
SPECTRAL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
(UNAUDITED)
Basic Loss Per Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Common share equivalents totalling 13,750,000 and 20,400,000 were outstanding at June 30, 2015 and 2014, respectively, representing outstanding warrants and options, and were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2015 and 2014, as their effect would have been anti-dilutive.
Non-Controlling Interests
Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 40% share of net losses of Noot Holdings, Inc. and Monitr Holdings, Inc incurred during the six months ended June 30, 2015. The following table sets forth the changes in non-controlling interest for the six months ended June 30, 2015:
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Non-Controlling
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Interest
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Balance at December 31, 2014
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$ | (217,346 | ) | |
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Net loss attributable to non-controlling interest
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(6,651 | ) | ||
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Balance at June 30, 2015
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$ | (223,997 | ) | |
Foreign Currency
The Company's functional currency is the United States Dollar. Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the consolidated statements of operations. As a result of these foreign currency transactions, the Company has recorded foreign currency losses of $20,868 and $8,382 during the six months ended June 30, 2015 and 2014, respectively, recorded within selling, general, and administrative expenses on the accompanying consolidated statement of operations.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-15, “Presentation of Financial Statements—Going Concern”, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. Management is still in the process of assessing the impact of ASU 2014-15 on the Company’s consolidated financial statements.
NOTE 3– COST INVESTMENT
On March 14, 2013, the Company entered into an agreement to purchase 8% of the issued and outstanding common shares of Kontexto, Inc., (“Kontexto”) a Canadian corporation. The Company purchased the shares from Sargas Capital, Ltd. The Company's CEO is an officer of Sargas Capital, Ltd. but does not have any holdings in Sargas Capital, Ltd. As of June 30, 2015 and December 31, 2014, the carrying value of the cost investment is $232,000.
NOTE 4– RELATED PARTY TRANSACTIONS
At June 30, 2015 and December 31, 2014, $373,487 and $352,619, respectively, was owed to Akoranga AG, a Swiss Company owned by the CEO of Spectral. Akoranga was formed to facilitate Spectral’s business in Europe. The Company ceased using Akoranga services in August 2014. Fees charged for services provided by Akoranga totaled approximately $0 and $14,698 for the six months ended June 30, 2015 and 2014, respectively. The amounts do not incur interest and are due on demand.
At June 30, 2015 and December 31, 2014, $89,216 and $18,310, respectively, was owed to Jenifer Osterwalder, the Company's CEO, for a combination of her monthly salary and expenditures paid on behalf of the Company. The amounts do not incur interest and are due on demand.
F - 6
SPECTRAL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
(UNAUDITED)
NOTE 5 – STOCKHOLDERS EQUITY
Stock Option Plan
The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors.
Employee stock-based compensation expense relating to options granted in 2010 and 2012 and recognized in the six months ended June 30, 2015 and 2014 totalled $217,258 and $359,290, respectively. At June 30, 2015, unrecognized expense of $132,737 remains to be recognized through 2015.
During the six months ended June 30, 2014, $47,345 of the prepaid consulting expense, which related to stock options granted to non-employees, was charged to stock-based compensation on the accompanying statement of operations.
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Stock Options
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Weighted
Average
Exercise Price
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Weighted
Average
Life Remaining
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Outstanding, December 31, 2014
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13,750,000 | $ | 0.75 | 7.50 | ||||||||
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Issued
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- | - | - | |||||||||
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Exercised
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- | - | - | |||||||||
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Expired
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- | - | - | |||||||||
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Outstanding, June 30, 2015
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13,750,000 | $ | 0.75 | 6.00 | ||||||||
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Vested, June 30, 2015
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12,950,000 | $ | 0.74 | 6.02 | ||||||||
Warrants
As of June 30, 2015 and December 31, 2014, the Company has 0 and 6,650,000 outstanding warrants, respectively. All warrants outstanding expired in March 2015.
NOTE 6– SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2015 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
F - 7
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Item 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this report and those in our Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission March 19, 2015 and all subsequent filings.
OVERVIEW
Spectral Capital Corporation (“Spectral” or the Company, also “We or Us”) is a technology company focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. We look for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in three technology companies currently and actively works with management to drive these companies toward increasing market penetration in their particular verticals. Spectral intends to own, in full or in part, technology companies whose founders and key management can take advantage of the deep networks and experience in technology development embodied in Spectral management.
Spectral Capital is a technology startup accelerator that invests in early stage companies. Spectral targets industry verticals and solutions where disruption and network effects allow for rapid adoption and displacement of incumbents. We work with startups focusing them on rapid development, getting to market, and refining their products and services with innovative features that reflect direct customer and market feedback. In addition to meeting some of the financing needs of our portfolio companies, we provide our teams with executive support at the technology, marketing and operations level in effort to bring optimal results.
Spectral has entered some of the fastest growing industries in technology: Big Data, Mobile Technology, Mobile Search, News Aggregation and Sentiment Analysis. Below is a list of our current portfolio companies:
Noot: Noot is a mobile search technology firm that has launched its first product as a news discovery engine. The technology finds news and information for people and and acts as a personal search assistant. Noot learns over time what preferences a user has and adapts accordingly, making a unique stream of news for each user. Noot was built to utilize the power of today's devices for its search process, which provides economies of scale to millions of users with little to no additional costs, making for a very cost efficient and sustainable business.
Monitr: Monitr is a technology and financial data services company. Monitr specializes in the analysis of news, opinion and social media to determine the aggregate sentiment and trends of equities, commodities and currencies across world markets. It offers these services direct to customers on the web as Software as a Service and via customized data feeds for financial institutions and hedge funds.
Kontexto: Kontexto is a technology company that provides products and services for digital media and intelligence teams with Publishflow and restful API services for software developers that need access to rich link based metadata via the Metafull platform.
4
Spectral's twelve-month plan includes the following goals/targets:
· Complete one or more private equity placements to provide funding for developing of our current technologies and the acquisition of additional portfolio companies;
· Hire sales professionals for Monitr;
· Hire customer service professionals for Monitr;
· Market and grow the free user base for Monitr;
· Increase conversion rate from free to paid subscribers for Monitr;
· Obtain subscription revenue from Monitr data sales through the API;
· Market and grow the user base for the Noot Mobile Application;
· Support Kontexto in securing additional revenues.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2015 and June 30, 2014
Operating expenses for the three months ended June 30, 2015 totalled $174,817, compared to $683,121 for the three months ended June 30, 2014, a decrease of $508,304 or 74.4%. The significant decrease from the prior year is directly related to our limitations of capital. In the prior year, we expended significant amounts related to the development of our products, whereby, during the current quarter there were no expenditures due to limited capital. In addition, during the prior year we depreciated the cost of Noot product, in which was impaired during the 2014 fourth quarter resulting in no depreciation during the current period. Major expenses during the three months ended June 30, 2015, related to salaries accrued to our Chief Executive Officer and professional fees paid in connection with our public filings.
Comparison of the Six Months Ended June 30, 2015 and June 30, 2014
Operating expenses for the six months ended June 30, 2015 totalled $365,120, compared to $1,600,502 for the six months ended June 30, 2014, a decrease of $1,235,382 or 77.2%. The significant decrease from the prior year is directly related to our limitations of capital. In the prior year, we expended significant amounts related to the development of our products, whereby, during the current quarter there were no expenditures due to limited capital. In addition, during the prior year we depreciated the cost of Noot product, in which was impaired during the 2014 fourth quarter resulting in no depreciation during the current period. Major expenses during the six months ended June 30, 2015, related to salaries accrued to our Chief Executive Officer and professional fees paid in connection with our public filings.
The Company’s financial statements are prepared using 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. For the six months ended June 30, 2015, net cash used by operating activities, consisting primarily of loss from operations offset by non-cash stock based compensation and the accrual of our Chief Executive Officers salary, was $62,462 compared to $341,364 for the six months ended June 30, 2014. The decrease in net cash used by operating activities was a result of decreased expenditures during the six months ended June 30, 2015 in connection with the development of our technology products. The reduction of development expenditures was directly related to the limited capital available.
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Net cash provided by financing activities was $17,373 and $12,431 for the six months ended June 30, 2015 and 2014, respectively. During the current period the Company was dependent upon advances provided by the Chief Executive Officer. It is expected that the Chief Executive Officer will continue to fund operations until sufficient capital is obtained.
We believe that our current financial resources are not sufficient to meet our working capital requirements over the next year. Additional funding will be necessary in order to expand portfolio operations and to reach our goals. Currently, the Company does not have any commitments or assurances for additional capital nor can the Company provide assurance that such financing will be available to it on favorable terms, or at all. As of June 30, 2015, the Company has limited the amount of capital spent on the development of their technologies. If, after utilizing the remaining sources of capital available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations even further. In addition, if necessary, we will decrease expenses further and redirect our efforts towards a sale of one of more of our assets should funding become inadequate.
Our short-term prospects are promising given our success to date in securing the three portfolio companies, Noot, Kontexto, and Monitr 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. However, we need significant capital to implement our plan.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures were not effective as of June 30, 2015 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting & Financial Officers as appropriate to allow timely decisions regarding required disclosure.
The material weaknesses were first identified in our annual report on Form 10-K for the year ended December 31, 2012 in which related to a lack of an accounting staff resulting in a lack of segregation of duties necessary for an effective system of internal control. The weakness in segregation of duties will continue to exist until such time as management can retain internal staff to properly segregate duties.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
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Item 6. Exhibits
EXHIBITS
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List of Exhibits
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3(i)(1)
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Articles of Incorporation of Spectral Capital Corporation, dated September 13, 2000, incorporated by reference to Exhibit 3(a) on Form 10-SB filed May 1, 2003.
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3(i)(2)
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Certificate of Amendment to Articles of Incorporation of Spectral Capital Corporation, dated June 17, 2007, incorporated by reference to Exhibit 2.1 on Form 8-K filed July 7, 2004.
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3(ii)
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By-laws of Spectral Capital Corporation, dated September 14, 2000, incorporated by reference to Exhibit 3(b) on Form 10-SB filed May 1, 2003.
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
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31.2
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Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
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32.1
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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
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32.2
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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
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101 INS
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XBRL Instance Document*
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101 SCH
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XBRL Schema Document*
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101 CAL
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XBRL Calculation Linkbase Document*
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101 DEF
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XBRL Definition Linkbase Document*
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101 LAB
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XBRL Labels Linkbase Document*
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101 PRE
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XBRL Presentation Linkbase Document*
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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.
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Spectral Capital Corporation
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/s/ Jenifer Osterwalder
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Jenifer Osterwalder
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President and Chief Executive Officer
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Dated: August 12, 2015
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