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 March 31, 2013

OR

[_] 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 Filer [     }	Accelerated Filer [   ]
Non Accelerated Filer [   ]     (Do not check if smaller reporting company)	Smaller Reporting Company [ X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. [  ] Yes  [ X] No

As of April 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 March 31, 2013 and December 31, 2012 (unaudited)	4
	Interim Consolidated Statements of Operations for the three months ended March 31, 2013 and March 31, 2012 and cumulative from inception on February 9, 2005 through March 31, 2013 (unaudited)	5
	Interim Consolidated Statement of Stockholders’ Deficit from inception on February 9, 2005 through March 31, 2013 (unaudited)	6
	Interim Consolidated Statement of Cash Flows for the three months ended March 31, 2013 and March 31, 2012 and cumulative from inception on February 9, 2005 through March 31, 2013 (unaudited)	8
	Notes to Financial Statements (unaudited)	9
Item 2.	Plan of Operation	21
Item 3.	Quantitative and Qualitative Disclosures about market risk	26
Item 4.	Controls and Procedures
Item 4T.	Controls and Procedures
		26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	18
Item 6.	Exhibits & Signature	28

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

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

3

SPECTRAL CAPITAL CORPORATION

 (A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS (unaudited)

AS OF MARCH 31, 2013 AND DECEMBER 31, 2012

	March 31, 2013			December 31, 2012
ASSETS
Current Assets
Cash and cash equivalents	$	1,058,882		$	84,091
Account receivable – related party		323,978			323,978
Share subscription receivable		40			-
Prepaid consulting		-			-
Total Current Assets		1,382,900			408,069
Property and Equipment
Office equipment		2,870			2,870
Less: accumulated depreciation		(2,392	)		(2,153	)
Property and Equipment, net		478			717
Other Assets
Investment in Kontexto, Inc., at cost		6,398,500			-
Internet search technology		3,000,000			-
Mineral properties, net		-			-
Total Other Assets		9,398,500			-
Total Assets	$	10,781,878		$	408,786
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current Liabilities
Accrued expenses	$	16,500		$	14,000
Due to related parties		130,002			97,696
Total Liabilities		146,502			111,696
Stockholders’ Equity
Preferred stock, par value $0.0001, 5,000,000 shares authorized, no shares issued and outstanding		0			0
Common stock, par value $0.0001, 500,000,000 shares authorized, 112,857,623  shares issued and outstanding (December 31, 2012 -101,207,623)		11,286			10,121
Additional paid in capital		21,783,690			12,683,132
Common stock warrants		1,831,500			-
Prepaid consulting		(473,438	)		(615,469	)
Deficit accumulated during the exploration stage		(12,517,702	)		(11,780,694	)
Total  Stockholders’ Equity		10,635,336			297,090
Non-controlling interest		40			-
Total  Equity		10,635,376			297,090
Total Liabilities and Stockholders' Equity	$	10,781,878		$	408,786

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

4

SPECTRAL CAPITAL CORPORATION

 (A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

PERIOD FROM FEBRUARY 9, 2005 (INCEPTION) TO MARCH 31, 2013

	Three months ended  March 31, 2013			Three months ended March 31, 2012			Period from February 9, 2005 (Inception) to March 31, 2013
REVENUES	$	-		$	-		$	301,227
OPERATING EXPENSES
Selling, general and administrative		60,015			66,785			3,824,794
Wages and benefits		-			49,551			2,466,754
Legal fees		-			54,871			651,057
Research and development		-			-			1,965,424
Exploration costs		-			473,568			1,018,500
Stock based compensation		676,754			-			3,628,913
Beneficial conversion expense		-			-			230,900
Depreciation and amortization		239			239			23,541
TOTAL OPERATING EXPENSES		737,008			645,014			13,809,883
LOSS FROM OPERATIONS		(737,008	)		(645,014	)		(13,508,656	)
OTHER INCOME (EXPENSE)		-
Interest expense		-			(22,379	)		(113,761	)
Gain on sale of oil business		-			-			845,680
Other income(expense)		-						(10,651	)
TOTAL OTHER INCOME (EXPENSE)		-			(22,379	)		721,268
LOSS FROM OPERATIONS AND BEFORE NON-CONTROLLING INTEREST		(737,008	)		(667,393	)		(12,787,388	)
LESS: LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		-			203,527			(269,686	)
LOSS BEFORE INCOME TAX PROVISION		(737,008	)		(463,866	)		(12,517,702	)
PROVISION FOR INCOME TAXES		-			-			-
NET LOSS ATTRIBUTABLE TO SPECTRAL CAPITAL CORPORATION	$	(737,008	)	$	(463,866	)	$	(12,517,702	)
NET LOSS PER SHARE: BASIC AND DILUTED	$	(0.01	)	$	(0.00	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED		104,554,845			101,207,623

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

5

SPECTRAL CAPITAL CORPORATION

 (A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)

AS OF MARCH 31, 2013

	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.

6

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)

AS OF MARCH 31, 2013

	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 endedDecember 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	)		0			0			(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	-		-		-		142,031			-		-		-			142,031
Acquisition of stock in subsidiary	-		-		-		-			-		40		-			40
Stock options issued as compensation	-		-		534,723		-			-		-		-			534,723
Shares issued for technology asset	5,000,000		500		2,999,500		-			-		-		-			3,000,000
							-			-		-		-
Shares issued to acquire investment	5,000,000		500		4,849,500		-			1,548,500		-		-			6,398,500
Net loss for the period ended March 31, 2013	-		-		-		-			-		-		(737,008	)		(737,008	)
Balance, March 31, 2013	112,857,623	$	11,286	$	21,783,690	$	(473,438	)	$	1,831,500	$	40	$	(12,517,702	)	$	10,635,376

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

7

SPECTRAL CAPITAL CORPORATION

 (A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

PERIOD FROM FEBRUARY 9, 2005 (INCEPTION) TO MARCH 31, 2013

	Three months ended March 31, 2013			Three months ended March 31, 2012			Period from February 9, 2005  (Inception) to March 31, 2013
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period	$	(737,008	)	$	(463,866	)	$	(12,517,702	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-controlling interest		-			(203,527	)		(269,686	)
Depreciation and amortization		239			239			23,542
Share-based services		676,754						7,431,970
Beneficial conversion feature on warrant issue		-			-			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
Changes in assets and liabilities:
Legal trust account					-			(14,207	)
Prepaid expenses					-			-
Accounts payable & accrued expenses		2,500			292,508			143,735
Due to related parties		-			379,453			36,579
Cash flows provided by (used in) operating activities		(57,515	)		4,807			(5,749,865	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas property		-			-			(219,093	)
Purchase of property and equipment		-			-			(54,197	)
Proceeds from disposal of property and equipment		-			-			494
Increase in security deposits		-			-			(27,810	)
Cash flows used in investing activities		-			-			(300,606	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in recapitalization of the Company		-			-			184
Proceeds from note payable		-			-			50,000
Proceeds from issuance of common stock		1,000,000			-			5,412,000
Offering costs from issuance of common stock		-			-			(4,000	)
Net advances from related parties		32,306			-			1,651,169
Cash flows provided by financing activities		1,032,306			-			7,109,353
Net increase  in cash and cash equivalents		974,791			4,807			1,058,882
Cash and cash equivalents, beginning of the period		84,091			730,922			-
Cash and cash equivalents, end of the period	$	1,058,882		$	735,729		$	1,058,882
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	0		$	0		$	59,574
Income taxes paid	$	0		$	0		$	0

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

8

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 1 – NATURE OF OPERATIONS

The accompanying unaudited interim financial statements have been prepared by Spectral Capital Corporation (the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission.  Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included.  Such adjustments consist of normal recurring adjustments.  These interim financial statements should be read in conjunction with the audited financial statements of the Company for the fiscal year ended December 31, 2012.  These consolidated financial statements include the accounts of the Spectral Capital Corporation (“Spectral”) and its 60% owned subsidiary Noot Holdings, Inc. for the period ended March 31, 2013 and Extractive Resources Corporation and Shamrock  Oil and Gas Ltd. for the period ended March 31, 2012.  Noot Holdings, Inc. was incorporated on February 28, 2013 under the laws of the state of Delaware.

Galaxy Championship Wrestling Inc. was incorporated on September 13, 2000 under the laws of the State of  Nevada and changed its name to FUSA Capital Corporation on June 17, 2005.  On March 7, 2005, the Company acquired all of the issued and outstanding shares of FUSA Technology Investments, Inc., formed on February 9, 2005 under the laws of the State of Nevada. For accounting purposes, the transaction was accounted for as a recapitalization such that the historical transactions of the acquired company were carried forward.

On July 27, 2010, the Company changed its name to Spectral Capital Corporation.

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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 consolidation financial statements include the accounts of the Company and its 60% owned subsidiary, Noot Holdings, Inc. (2013) and in 2012,  Extractive Resources Corporation and Shamrock Oil and Gas, Ltd. Shamrock was 60% owned by Extractive Resources Corporation. All material intercompany accounts and transactions have been eliminated in consolidation.

9

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results to be expected for a full year. The unaudited consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year.  The financial statements of the Company are presented in US dollars.

Accounting Basis

The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted a December 31 fiscal year end.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.  At March 31, 2013, the Company had $1,058,882 of unrestricted cash to be used for future business operations.

Concentrations of Credit Risk

The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Fair Value of Financial Instruments

Spectral Capital’s financial instruments consist of cash and cash equivalents, subscription receivable, accounts payable, and 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.

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 20,400,000 and 13,750,000 were outstanding at March 31, 2013 and December 31, 2012, respectively, representing outstanding warrants and options, and were not included in the computation of diluted earnings per share for the periods ended March 31, 2013 and March 31, 2012, as their effect would have been anti-dilutive.

10

SPECTRAL CAPITAL CORPORATION)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation

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. Stock-based compensation expense recognized in the periods ended March 31, 2013 and 2012 totalled $534,723 and $434,517, respectively, for these options. Unrecognized expense of $2,530,712 remains to be recognized through 2015.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” 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. There were 2,500,000 options valued at $1,136,250 issued to an advisor in 2012. Based on the vesting term, $520,781 was charged to consulting expense and $615,469 was recorded as prepaid consulting in 2012. During the period ended March 31, 2013, $142,031 of the prepaid consulting balance was charged to consulting expense. There were 750,000 options issued in 2011 to settle a dispute with an advisor. These options were valued at $400,425 using the Black-Scholes pricing model.

Income Taxes

Income taxes are computed using the asset and liability method.  Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws.  A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of March 31, 2013, there have been no interest or penalties incurred on income taxes.

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.

11

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Mineral Properties

Costs of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred.  Mineral property acquisition costs are capitalized including licenses and lease payments.  Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company's title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.  Impairment losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.

Investment in Securities

The Company’s investment in 8% of the outstanding common shares of Kontexto, Inc. is accounted for on the cost basis. The Company is currently having the asset valued by a third party valuator and will be reviewed for any resulting adjustment in fair value in the quarter ending June 30, 2013.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is computed on the straight line method over the estimated useful lives of the assets, which are three years for the assets currently owned by the Company

Recent Accounting Pronouncements

Spectral Capital does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flows.

NOTE 3 – MINERAL PROPERTIES

On September 20, 2010, Spectral Capital Corporation entered into a Definitive Financing Agreement ("Agreement")  with Gamma Investment Holdings Ltd. (“Gamma”) regarding the acquisition of a 47% undivided interest in two mineral properties in the Chita region of the Russian Federation.  Spectral owns 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. Under the Agreement, Spectral has agreed to invest a minimum of $35,000,000 into the development of the mineral properties over the next two years as follows: March 20, 2011 - $2,500,000; September 20, 2011 - $2,500,000; September 20, 2012 - $30,000,000, plus additional investments as determined by a Joint Venture Board that is to be formed under the terms and conditions of the Agreement. Spectral also granted a net smelter royalty of 2% on gold and 1% on other minerals extracted from the property to Gamma.   The Company is currently evaluating the feasibility of its involvement in the project and may abandon its interest in exchange for the cancellation of the outstanding warrants.

Concurrently, the parties entered into a Joint Venture Agreement that specifies how the development of the mineral properties is to take place.  Under the Agreement and the Joint Venture Agreement, Spectral has agreed to provide all of the financing that the Joint Venture requires to develop the mineral properties.  

On July 8, 2011, the Company entered into an agreement with Gamma Investment Holdings Ltd. to convey to Gamma it’s 52% interest in a gold mining property in the Chita region of Russia previously granted under the agreement of September 20, 2010 and related agreements thereto.  The conveyance was in exchange for the cancellation of Gamma’s 5,000,000 outstanding warrants in the Company and the reimbursement of the Company by Gamma of all expenditures on the project to date. Spectral has not sought reimbursement under the agreement.

12

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 3 – MINERAL PROPERTIES (CONTINUED)

On January 14, 2011, Spectral entered into a Definitive Financing Agreement with International Asset Holding Corp. (“IAHC”) whereby Spectral acquired a 65% interest in a gold mining property in the Bayankol River region of Kazakhstan.  In order to facilitate license transfer of this property and financing, Spectral formed a wholly-owned Delaware subsidiary called Extractive Resources Corporation, which was the party to this Definitive Financing Agreement.  Under this Agreement, IAHC was entitled to 5,000,000 warrants of Spectral with a five year term for $3.50 per share.  Extractive also agreed to provide $200,000,000 in financing over a five year term to maintain its rights in the property and to pay a 1% net smelter royalty on minerals extracted from the property.

Effective March 31, 2012, Spectral and 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 and the previous warrants were cancelled.

NOTE 4 – CAPITAL STOCK

The Company has 5,000,000 shares of $.0001 par value preferred stock, and 500,000,000 shares of $.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. The assets were contributed to its subsidiary Noot Holdings Inc.

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 March 7, 2015.The shares and warrants had a deemed value of $ 717,000 and $283,000, respectively.

On March 14, 2013, the Company issued 5,000,000 shares of common stock and 5,000,000 warrants to purchase common shares at $.85 per share.  The warrants expire on March 13, 2015.  The shares and warrants had deemed values of $ 4,850,000 and $ 1,548,500 respectively.

NOTE 5 – TECHNOLOGY ASSETS

On February 26, 2013, Spectral Capital Corporation, 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.  The shares issued had a deemed value of $ 3,000,000 as at the date of the agreement. The Company is currently having the asset valued by a third party valuator and will be reviewed for any resulting adjustment in fair value in the quarter ending June 30, 2013.

13

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 6 – OIL AND GAS PROPERTIES

On February 13, 2012, Spectral Capital Corporation (the "Company") closed its planned purchase of an oil and gas property in the Red Earth Region of Alberta, Canada, which property Spectral purchased from receivership though its newly formed Canadian subsidiary, Shamrock Oil & Gas Ltd. Spectral is the 60% owner of the Canadian subsidiary and its Canadian joint venture partner owns 40% of the subsidiary. The total purchase price for the property was $2,134,949, in the form of the assumption of secured and unsecured claims on the property. Additionally, Spectral has advanced $750,000 in working capital to its Canadian subsidiary to operate the property and service the assumed debts.  Spectral has the right, but not the obligation, to fund the project’s requirements on a first position secured creditor basis for up to $17,500,000 at 10% annual interest.  If Spectral fails to provide such financing within 24 months, Spectral’s operating joint venture partner may seek co-dilutive financing with Spectral having a right of first refusal on such financing.

On December 31, 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 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.

As part of the agreement, Akoranga, agreed to assume all liabilities of Shamrock Oil and Gas Ltd. as of December 31, 2012.  These liabilities had previously been recorded on the balance sheet of Spectral and as a result, the Company recognized a gain of $845,680 in 2012 on the transfer of liabilities related to the assumption.

NOTE 7– RELATED PARTY TRANSACTIONS

Accounts payable totaling $16,468 at March 31, 2013 and December 31, 2012, are owed to the CEO of the Company for reimbursement of expenses incurred on behalf of the Company.

At March 31, 2013 and December 31, 2012, $113,535 and $81,229, respectively, were owed to 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 $ nil and $24,184 in 2013 and 2012 respectively.

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

NOTE 8– INVESTMENT IN KONTEXTO, INC.

On March 14, 2013, the Company 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, and warrants to purchase 5,000,000 common shares at $0.85 per share, expiring on March 13, 2013.  The shares issued were valued at $4,850,000, and the warrants issued were valued using the Black-Scholes pricing model at $1,548,500 for a total investment of $6,398,500. The Company is currently having the asset valued by a third party valuator and will be reviewed for any resulting adjustment in fair value in the quarter ending June 30, 2013.

14

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 9 - STOCK-BASED COMPENSATION

The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors.

On February 6, 2012, the Company granted 7,500,000 options to two employees. Stock-based compensation is being recognized over the two year vesting period. The options were valued at $3,408,750 using the Black-Scholes Option Pricing Model with the following assumptions:

	Employee Stock Options
Stock Price	$	0.55
Exercise Price	$	.61
Expected volatility		84.47	%
Risk-free rate		1.93	%
Vesting period	2 years
Expected term	10 years

Employee stock-based compensation expense relating to options granted in 2010 and 2012, and  recognized in March 31, 2013 and March 31, 2012 totalled $534,723 and $nil, respectively. Unrecognized expense of $2,530,712 remains to be recognized through 2015.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” 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 or prepaid expense and additional paid-in capital over the period during which services are rendered. There were 2,500,000 options valued at $1,136,250 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 period ended March 31, 2013, $142,031 of the prepaid consulting expense was charged to financial consulting expense. There were 750,000 options issued in 2011 to settle a dispute with an advisor. These options were valued at $400,425 using the Black-Scholes pricing model.

15

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 9- STOCK-BASED COMPENSATION (CONTINUED)

A summary of changes in stock options during the period ended March 31, 2013 is as follows:

	Stock Options		Weighted Average  Exercise Price		Expiry Date
Outstanding, December 31, 2010		3,000,000	$	1.00	10/21/20
Issued		750,000		1.55	2/11/16
Exercised		0		0
Expired		0		0
Outstanding, December 31, 2011		3,750,000		1.39
Issued		10,000,000		.61	2/6/22
Exercised		0		0
Expired		0		0
Outstanding, December 31, 2012		13,750,000	$	.75
Issued		0		0
Exercised		0		0
Expired		0		0
Outstanding, March 31, 2013		13,750,000	$	.75

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.

NOTE 10– STOCK WARRANTS

In 2010, the Company issued 5,000,000 warrants in connections with the Definitive Financing Agreement entered into with Gamma Investment Holdings Ltd. (“Gamma”) regarding the acquisition of a 47% undivided interest in two mineral properties in the Chita region of the Russian Federation. The warrants issued to Gamma were capitalized as acquisition costs of the mineral interests. The Company has estimated the fair value of the warrants issued in connection with the acquisition of mineral interests at $1,311,508 as of the grant date using the Black-Scholes option pricing model. The Gamma warrants were cancelled in 2011.

On January 14, 2011, the Company issued 5,000,000 warrants in connection with a definitive financing agreement with International Asset Holding Corp. regarding the acquisition of a 65% interest in a mining property in Kazakhastan. The company estimated the fair value of the warrants issued in connection with the acquisition of the mineral interest at $15,547,500. These warrants were cancelled on March 31, 2012 due to problems with title transfer of the property. The Company accounted for these warrants as equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and as such, were classified in stockholders’ equity. The Company estimates the fair value of their warrants using the Black-Scholes pricing model.

16

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 10 – STOCK WARRANTS (CONTINUED)

On March 7, 2013, Spectral sold 1,650,000 common shares, par value $0.0001 at $0.6061 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 March 7, 2015. The Company estimates the fair value of their warrants using the Black-Scholes pricing model. The shares and warrants had deemed fair values of $717,000 and $283,000 respectively.

On March 23, 2013, the Company issued 5,000,000 shares of common stock and 5,000,000 warrants to purchase common shares at $.85 per share.  The warrants expire on March 22, 2015.  The shares and warrants had deemed values of $4,850,000 and $1,548,500, respectively. The Company estimates the fair value of their warrants using the Black-Scholes pricing model.

As of March 31, 2013, the Company has 6,650,000 outstanding warrants.

A summary of changes in share purchase warrants during the period ended March 31, 2013 is as follows:

	Number of Warrants
Outstanding, December 31, 2010		15,850,000
Issued		5,000,000
Exercised		0
Cancelled		(10,000,000	)
Outstanding, December 31, 2011		10,850,000
Issued		0
Expired		(10,850,000	)
Outstanding, December 31, 2012		0
Issued		6,650,000
Expired		0
Outstanding, March 31, 2013		6,650,000

NOTE 11– 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.

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.

17

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 12 – INCOME TAXES

As of March 31, 2013, the Company had net operating loss carry forwards of approximately $12,518,000 that may be available to reduce future years’ taxable income through 2033. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

The provision for Federal income tax consists of the following:

	March 31, 2013			March 31, 2012
Federal income tax benefit attributable to:
Current operations	$	250,580		$	157,300
Less: valuation allowance		(250,580	)		(157,300	)
Net provision for Federal income taxes	$	0		$	0

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

	March 31, 2013			December 31, 2012
Deferred tax asset attributable to:
Net operating loss carryover	$	4,396,380		$	4,145,800
Less: valuation allowance		(4,396,380	)		(4,145,800	)
Net deferred tax asset	$	0		$	0

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

NOTE 13 – SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES	Three months ended March 31, 2013		Three months ended March 31,  2012		Inception through  March 31, 2013
Non-monetary net liabilities assumed in recapitalization	$	0	$	0	$	101,956
Common stock issued for debt	$	0	$	0	$	1,000
Shares issued for technology asset	$	3,000,000	$	0	$	3,000,000
Shares and warrants issued for  asset	$	6,398,500	$	0	$	6,398,500
Stock warrants issued for acquisition of mineral properties	$	0	$	0	$	16,859,008
Stock warrants rescinded and cancelled	$	0	$	0	$	15,547,500
Stock warrants rescinded and cancelled	$	0	$	0	$	1,311,508
Issuance of common stock warrants	$	0	$	0	$	2,821,069
Issuance of stock for prepaid consulting	$	0	$	0	$	615,469
Acquisition of oil and gas business by assumption of debt	$	0	$	2,134,949	$	2,134,949
Debt assumed by buyer in sale of oil and gas business	$	0	$	0	$	2,291,739
Expiration of warrants	$	0	$	0	$	2,800,069

18

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 14 – COMMITMENTS AND CONTINGENCIES

On September 20, 2010, Spectral Capital Corporation entered into a Definitive Financing Agreement ("Agreement")  with Gamma Investment Holdings Ltd. (“Gamma”) regarding the acquisition of a 47% undivided interest in two mineral properties in the Chita region of Russia.  Under the Agreement, Spectral has agreed to invest a minimum of $35,000,000 into the development of the mineral properties over the next two years as follows: March 20, 2011 - $2,500,000; September 20, 2011 - $2,500,000; September 20, 2012 - $30,000,000, plus additional investments as determined by a Joint Venture Board that is to be

formed under the terms and conditions of the Agreement.  Also, under the Agreement, Spectral must maintain a Market Capitalization Minimum as follows:  Beginning 12 months from the date of this Agreement, Spectral will maintain a minimum market capitalization on the OTC Bulletin Board, AMEX, NASDAQ or NYSE exchange of at least $100,000,000 based on thirty day trailing volume weighted average closing price ("VWAP") or it would owe Gamma an additional payment of $1,000,000 due within 90 days of the failure to achieve such a VWAP price.  Such a minimum capitalization requirement will continue as long as any of Gamma's Warrants granted under the Warrant Agreement remain valid but unexercised. Spectral also granted a net smelter royalty of 2% on gold and 1% on other minerals extracted from the property to Gamma.  

Gamma was also issued a warrant to purchase 5,000,000 shares of Spectral common stock at a per share exercise price of $1.00 for a term of five years.  The warrant provides for a cashless exercise provision,

provides anti-dilution protections to Gamma and provides penalties to Spectral for failure to promptly issue common shares under the exercised warrants.

Concurrently, the parties entered into a Joint Venture Agreement that specifies how the development of the mineral properties is to take place.  Under the Agreement and the Joint Venture Agreement, Spectral has agreed to provide all of the financing that the Joint Venture requires to develop the mineral properties.  In the event that Spectral does not meet minimum financing covenants under the Agreement, Spectral's development payments would be converted to a five year, 5% interest bearing loan and Spectral will lose its interest in the mineral properties.  In the event that Spectral does meet the minimum financing covenants, but fails to fully fund the development of the mineral properties, Spectral would experience a reduction in its ownership.

On July 8, 2011, the Company entered into an agreement with Gamma Investment Holdings Ltd. to convey to Gamma it’s 52% interest in a gold mining property in the Chita region of Russia previously granted under the agreement of September 20, 2010 and related agreements thereto.  The conveyance was in exchange for the cancellation of Gamma’s 5,000,000 outstanding warrants in the Company and the reimbursement of the Company by Gamma of all expenditures on the project to date. Spectral has not sought reimbursement under the agreement.

On July 8, 2011 Spectral Capital Corporation entered into a Project Partnership and Financing Agreement ("Agreement") with representatives of the ROEL Group of companies based in Moscow, Russia to develop oil and gas projects in the Saratov Oblast of Russia.  Under the terms of the Agreement and ancillary documents, Spectral has agreed to obtain financing necessary to pay all expenses related to the development of an oil and gas property in the Saratov Oblast of Russia, including immediate commitments to provide for financing of geological work, legal expenses and procurement expenses involved in having a license to the oil property issued to a newly constructed special purpose corporate entity where the project license and assets will reside.  The agreements give Spectral a 74% interest in the project for an initial financing commitment of $10,000,000 and a subsequent financing commitment that could be as much as $100,000,000 if the property meets relevant production and growth criteria.  The partnership is also focused on the securing of additional oil and gas and gold properties in the region.

19

SPECTRAL CAPITAL CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

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.

The Company leases office space on a month to month basis.

NOTE 15 – SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 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.

20

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.

21

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.

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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, 2013.  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 March 31, 2013, the Company generated $301,227 in revenues and posted a net loss of $12,517,702 resulting from costs of general and administrative expenses, website development, stock compensation, impairments on mineral properties, expenses on oil and gas properties and interest expenses. The Company is considered an exploration stage company.

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Cash and Working Capital

The Company's cash balance as of March 31, 2013 was $1,058,882, as compared to the cash balance of $84,091 of December 31, 2012.

Three month Period Ending March 31, 2013 and March 31, 2012 and from Inception to March 31, 2013

Operating expenses for the three-month period ended March 31, 2013 totaled $737,008, for the three month period ended March 31, 2012, $645,014 and from inception to the period ended March 31, 2013 totaled $13,809,883. The company experienced a net loss of $737,008, $463,866 and $12,517,702 for the three month periods ended March 31, 2013, March 31, 2012 and from inception to period ended March 31, 2013, respectively, against $0 in revenues from operations for the three month period ending March 31, 2013, $0 for the three month period ended March 31, 2012 and $307,227 in revenue from the period since inception. The major expenses during this three-month period ended March 31, 2013 were for stock based compensation, wages, general and administrative expenses and legal and accounting fees.

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.   however weather issues and an unusually high water cut in the oil not typical for the region make these results possibly not representative of what future production results would be. It can be meaningful to compare operating expenses between the three-month period ending March 31, 2013 and the three-month period ending March 31, 2012, to assess the trajectory of operating expenses with respect to operations not dependent on natural resources.

The earnings per share (fully diluted -- weighted average) consisted of a net loss of $0.01 for the three-month period ended March 31, 2013 and $0.00 for the three-month period ended March 31, 2012.

Liquidity and Capital Resources

For the three-month period ended March 31, 2013, net cash used by operating activities, consisting mostly of loss from operations, was $57,515.  For the period from inception to March 31, 2013, net cash used in operating activities, consisting mostly of loss from operations net of non-cash compensation, was $5,749,865.

For the period from inception to March 31, 2013, net cash resulting from financing activities was in the amount of $7,109,353 and for the three month period ending March 31, 2013 was $1,058,882.

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 March 31, 2013, we do not have any specific financing terms from any particular financier other than the financing we closed in February, 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 favorable, 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.

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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.

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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 September 30, 2012 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 weakness still exists at March 31, 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.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Securities and Use of Proceeds

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.  The proceeds will be used for general working capital and to fund the development of Spectral’s technology assets.

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, 2013.  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.

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

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*

*           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or 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.

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: May 15, 2013

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