The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(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 a technology company focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. We look for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in two technology companies and partnerships within the telecommunications industry and intends to increase its portfolio over time.
In January 2022, the Company commenced a new line of business which is providing data and telecommunications reselling services on a global basis. On February 15, 2022 the company entered into a telecommunications services agreement with Sky Data PLL OU (Estonia) to provide long distance switching services. The contract does not contain a fixed term or value and is on an as needed basis via invoice for Sky Data PLL OU. The company is focusing on this line of business and is currently expanding its network on an as needed basis by adding as many ports as its customers require in any given month. We provide business to business (B2) telecommunications interconnection services to mainly Asia, South America and Africa. This is done by negotiating directly with international private and public carriers for telecommunications rates based on certain volume and transaction levels.
Our wholesale voice services provide global routing solutions and direct bilateral connections with many major PTTs, Tier-1 carriers and Mobile operators around the world to further expand our network and improve voice quality. Our global network is comprised of over 100 Tier 1 carriers, Mobile Operators & PTTs from across all continents. A geographically-load balanced, multi-data center architecture design ensures 99.999% uptime and business continuity with 24-hour fully redundant, state-of-the-art Network Operations Center (NOC) and we conduct routine security audits.
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 has recently commenced revenue generating activities and has sustained substantial losses since inception. As of March 31, 2022, the Company has cash on hand of $86,550 and negative working capital of $1,198,653. 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 its recently established operations, 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.
F-5
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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 generated limited revenues 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 favourably received. Nor may we have the capital resources to further the development of existing and/or new ones.
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, 2021. The results of operations for the three months ended March 31, 2022 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.
F-6
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1
| Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
Level 2
| Include other inputs that are directly or indirectly observable in the marketplace.
|
|
|
Level 3
| Unobservable inputs which are supported by little or no market activity.
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of March 31, 2022 and December 31, 2021, 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.
Revenue Recognition
The Company revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers”. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues during the three months ended March 31, 2022, were provided primarily to one customer. The loss of this customer would have a significant impact on the Company’s financial statements
F-7
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Basic Income (Loss) Per Share
Basic loss per share is calculated by dividing the Company’s net income (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 10,000,000 were outstanding at March 31, 2021 representing outstanding warrants and options, and were not included in the computation of diluted earnings per share for the three months ended March 31, 2021, as their effect would have been anti-dilutive. During the three months ended March 31, 2022, the Company included dilutive shares of 252,321,800 related to convertible notes payable in the calculation of dilutive net income per share.
Non-Controlling Interests
Non-controlling interest disclosed within the consolidated statement of operations represents the minority ownership 40% share of net income (losses) of Noot Holdings, Inc. and Monitr Holdings, Inc. incurred during the three months ended March 31, 2022. The following table sets forth the changes in non-controlling interest for the three months ended March 31, 2022:
|
| Non-Controlling
|
|
| Interest
|
Balance at December 31, 2021
|
| $(221,724)
|
|
|
|
Net loss attributable to non-controlling interest
|
| (18)
|
Balance at March 31, 2022
|
| $(221,742)
|
Foreign Currency
The Company's functional currency is the United States Dollar. Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the consolidated statements of operations. As a result of these foreign currency transactions in which require payment in a currency other than the United States Dollar, the Company has recorded foreign currency (income) losses within the accompanying condensed consolidated statement of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2022 with no impact on the financial statements.
The FASB issues ASUs to amend the authoritative literature in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact the Company’s financial statements.
F-8
SPECTRAL CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE 3– RELATED PARTY TRANSACTIONS
Jenifer Osterwalder, the Company's Chief Executive Officer
Jenifer Osterwalder charges the Company $12,000 per month beginning January 1, 2021 for services rendered. Previously, she was charging 12,350 CHF per month for services rendered. Total amounts expended in the Company's condensed consolidated financial statements in connection with the CEO's services was $36,000 and $36,000 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, amounts due to the CEO related to accrued salaries were $36,000 and $1,054,653, respectively. Decrease in the current quarter is due to the conversion of accounts payable into a related party convertible note payable.
From time to time due to the limited cash flow available, the Company's CEO pays certain operating expenditures on behalf of the Company. These advances bear no interest and are due on demand. As of March 31, 2022 and December 31, 2021, the Company's CEO was due $0 and $206,956 in connection with these advances, respectively. Decrease in the current quarter is due to the conversion of accounts payable into a related party convertible note payable.
As noted above, all amounts due to the Chief Executive Officer as December 31, 2021, were converted into a convertible note payable. The note is due and demand and convertible at $0.005 per share. Subsequent to quarter end, the Chief Executive Officer sold $1,054,653 to a third party which was then converted into approximately 211 million shares. The convertible note of $206,956 remains outstanding.
NOTE 4 – STOCKHOLDERS’ DEFICIT
Changes in Stockholders' Deficit
During the three months ended March 31, 2021, the Company sold 50 million shares of common stock resulting in proceeds of $49,930.
Employee Options
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors. As of March 31, 2022, all options were expired.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company leases office space on a three month basis in Seattle, Washington.
NOTE 6– SUBSEQUENT EVENTS
On March 31, 2022, the board of directors of Spectral resolved to convert $1,054,653 of debt owed by the Company to Decus Pro OU into 210,930,660 shares of common stock. On the same date, our board of directors also resolved to convert $206,956 of debt owed to Decus Pro OU into 41,391,200 shares of common stock. These conversions constituted a change of control of the Company to Decus Pro OU, which is owned by Boriss Aleksandrov. The debt was converted into equity in an effort to clean up the Company's balance sheet and to attract further investment in the future. These debt conversions account for substantially all of the long term debt on the Company's book and the Company has no convertible instruments left on its books.
F-9
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. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in this report and those in our Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 4, 2022 and all subsequent filings.
OVERVIEW
Spectral Capital Corporation (“Spectral,” the “Company,” “we” or “us”) is a technology company focused on the identification, acquisition, development, financing of technology that has the potential to transform existing industries. We look for technology that can be protected through patents or laws regarding trade secrets. Spectral has acquired significant stakes in two technology companies and we have developed important partnerships within the telecommunications industry. We intend to increase our portfolio over time through further partnerships.
In January 2022, the Company commenced a new line of business that provides data and telecommunications reselling services on a global basis. On February 15, 2022, the Company entered into a telecommunications services agreement with Sky Data PLL OU (Estonia) to provide long distance switching services. The contract does not contain a fixed term or value and is on an as needed basis via invoice for Sky Data PLL OU. The Company is focusing on this line of business and is currently expanding its network on an as needed basis by adding as many ports as its customers require in any given month. We provide business to business (B2) telecommunications interconnection services to mainly Asia, South America and Africa. This is done by negotiating directly with international private and public carriers for telecommunications rates based on certain volume and transaction levels.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2022 and March 31, 2021
Revenues
We are currently engaged in a technology development business and recently commenced operations within the telecom industry. Revenues increased from $0 for the three months ended March 31, 2021 to $453,340 for the three months ended March 31, 2022. The increase is due to launching of our new business venture.
Cost of Revenues
We are currently engaged in a technology development business and recently commenced operations within the telecom industry. Cost of revenues increased from $0 for the three months ended March 31, 2021 to $354,877 for the three months ended March 31, 2022. The increase is due to launching of our new business venture.
Operating Expenses
Operating expenses increased $43,951, from $40,614 for the three months ended March 31, 2021 to $84,565 for the three months ended March 31, 2022. The significant increase was due to the expansion of our operations due to our new line of business.
10
Liquidity and Capital Resources
As of March 31, 2022, we had $86,550 of cash on hand. We intend to fund operations through the use of cash on hand, cash flows from operations and through debt and equity financings until sufficient cash flows from operations can be achieved.
Net cash provided from operating activities increased $41,598 from $(5,242) cash used during the three months ended March 31, 2021 to $36,356 cash provided for the three months ended March 31, 2022. This increase was primarily related to the Company having increased operations.
Net cash provided by financing activities increased by $44,742 from $5,188 for the three months ended March 31, 2021 to $49,930 for the three months ended March 31, 2022. Net cash provided by financing activities during the three months ended March 31, 2022 and 2021 related to net proceeds from advances from a related party in connection with payment of the Company's obligations and proceeds from the sale of common stock.
We believe that our current financial resources are not sufficient to meet our working capital requirements over the next year. Additional funding will be necessary in order to expand portfolio operations and to reach our goals. Currently, the Company does not have any commitments or assurances for additional capital nor can the Company provide assurance that such financing will be available to it on favorable terms, or at all. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations. In addition, if necessary, we will decrease expenses and redirect our efforts towards a sale of one of more of our assets should funding become inadequate.
Our short-term prospects are promising given our success to date in securing the two portfolio companies, Noot and Monitr. We believe we will experience significant operational and financial growth from these and other portfolio companies during the next 12 months. However, we need significant capital to implement our plan.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.