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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2020

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

 

SECTOR 10, Inc.

(Exact name of small business issuer as specified in its charter)

 

Delaware

 

000-24370

 

33-0565710

(State or other jurisdiction of incorporation)

 

(Commission File No.)

 

(IRS Employer Identification No.)

 

10900 NE 4th Street, Suite 2300

Bellevue, WA  98004

 

(Address of principal executive offices, including zip code)

 

Issuer’s telephone number, including area code (425) 331-9620

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes o No x

 

Indicate by check mark whether the registrant (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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

x

Smaller reporting company

 

 

Emerging Growth Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No x

 

As of September 30, 2020, the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed based on the average bid and asked price of the common stock, was $3,297,816.

 

As of October 30, 2020 the issuer had 305,778 shares of common stock outstanding.


1

        


 

 

 

 

TABLE OF CONTENTS

 

Sector 10, Inc.

 

 Part I. Financial Information

 

 

 

Item 1.

Unaudited Consolidated Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets  as of September 30, 2020 and  March 31, 2020

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended September 30, 2020 and 2019 and for the period from inception, September 16, 2002 to September 30, 2020

4

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and 2019 and for the period from inception, September 16, 2002, to September 30, 2020.

5

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

 6

 

 

 

Item 2.

Management’s Discussion and Analysis or Plan of Operation

9

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

12

 

 

 

Item 4.

Controls and Procedures

13

 

 

 

Part II. Other Information

 

Item 1.

Legal Proceedings

13

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

14

 

 

 

Item 3.

Defaults Upon Senior Securities

14

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

14

 

 

 

Item 5.

Other Information

14

 

 

 

Item 6.

Exhibits

15

 

 

 

 

Signatures

15

 


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Item 1. FINANCIAL STATEMENTS

 

NOTE: THE FINANCIAL STATEMENTS, RELATED NOTES AND THE OTHER INFORMATION INCLUDED IN THIS REPORT HAVE NOT BEEN REVIEWED BY THE COMPANY’S OUTSIDE ACCOUNTANT PRIOR TO THE FILING OF THIS REPORT.

 

Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

September 30,    2020

 

 

March 31, 2020

 

 

(Unaudited)

 

 

(Unaudited)

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

$

                 -

 

$

                 -

Inventory, net

 

-

 

 

 -

Total current assets

 

      -

 

 

       -

 

 

 

 

 

 

Fixed assets –cost

 

      22,250

 

 

       22,250

Less: accumulated depreciation

 

     (22,250)

 

 

    (22,250)

Net fixed assets

 

         -

 

 

     -

Total assets

$

       -

 

$

     -

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

$

11,662,634

 

$

11,592,288

Note payable - short term

 

803,615

 

 

803,615

Total current liabilities

 

12,466,249

 

 

12,395,903

Long term liabilities:

 

 

 

 

 

Note payable

 

-

 

 

-

Total long term liabilities

 

-

 

 

-

Total liabilities

 

12,466,249

 

 

12,395,903

Shareholders' equity (deficit)

 

 

 

 

 

Preferred shares - $0.001 par value; 1,000,000 authorized, no shares issued or outstanding

 

-

 

 

-

Common shares - $0.001 par value; 199,000,000 authorized; 305,778 and 305,778 shares issued and outstanding, respectively

 

306

 

 

306

Additional paid-in-capital

 

6,148,229

 

 

6,148,229

Deficit accumulated during development stage

 

(18,614,784)

 

 

(18,544,438)

Total shareholders' equity (deficit)

 

(12,466,249)

 

 

(12,395,903)

Total liabilities and shareholders' equity (deficit)

$

-

 

 

-

 

 

 

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


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Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Six Months Ended September 30, 2020 and 2019 and

for the Period From Inception, September 16, 2002 to September 30, 2020

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Inception to

 

September 30,

2020

 

 

September 30,

2019

 

 

September 30,

2020

 

 

September 30,

2019

 

 

September 30,

2020

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

Sales

$

                 -

 

$

                 -

 

$

                 -

 

$

                 -

 

$

18,500

Cost of Sales

 

                 -

 

 

                 -

 

 

                 -

 

 

                 -

 

 

(18,032)

Gross Profit

 

                 -

 

 

                 -

 

 

                 -

 

 

                 -

 

 

468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

(171,951)

 

 

194,876

 

 

37,677

 

 

402,794

 

 

14,447,931

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

24,106

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

226,108

Total expenses

 

(171,951)

 

 

194,876

 

 

37,677

 

 

402,794

 

 

14,698,145

Income (loss) from operations

 

171,951

 

 

(194,876)

 

 

(37,677)

 

 

(402,794)

 

 

(14,697,677)

Interest expense

 

107,182

 

 

(129,702)

 

 

(32,669)

 

 

(256,353)

 

 

(3,286,312)

Other income (expense)

 

-

 

 

-

 

 

-

 

 

-

 

 

(630,795)

Net income (loss) before income taxes

 

279,133

 

 

(324,578)

 

 

(70,346)

 

 

(659,147)

 

 

(18,614,784)

Provision for income taxes

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net income (loss) after income taxes

$

279,133

 

$

(324,578)

 

$

(70,346)

 

$

(659,147)

 

$

(18,614,784)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding - basic and diluted*

 

305,778

 

 

305,778

 

 

305,778

 

 

305,778

 

 

 

Basic and diluted income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

$

0.91

 

$

(1.06)

 

$

(0.23)

 

$

(2.16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

$

0.91

 

$

(1.06)

 

$

(0.23)

 

$

(2.16)

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements


4

        


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Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended September 30, 2020 and 2019 and for the Period From Inception,     

September 16, 2002 to September 30, 2020

 

 

Six Months Ended

 

 

Inception to

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Loss

$

(70,346)

 

$

(659,147)

 

$

(18,614,784)

Adjustments to reconcile  net loss to net cash used in operating activities:

 

  

  

 

  

 

 

 

Stock for services

 

                   -

 

 

                   -

 

 

5,114,493

Depreciation

 

                    -

 

 

                    -

 

 

24,106

Net discount on convertible debt

 

                   -

 

 

                   -

 

 

206,324

Loss due to Impairment / Gain on restructuring

 

                    -

 

 

                    -

 

 

630,795

Changes in:

 

 

 

 

 

 

 

 

Inventory and other current assets

 

                    -

 

 

                    -

 

 

(4,869)

Accounts payable and accrued liabilities

 

70,346

 

 

659,147

 

 

12,176,337

Net cash used in operating activities

 

-

 

 

-

 

 

(467,598)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

  

 

 

  

 

 

  

Fixed asset  / Other asset purchases

 

                 -

 

 

                 -

 

 

(189,541)

Net cash used in investing activities

 

                -

 

 

                -

 

 

(189,541)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Net Proceeds from general financing

 

      -

 

 

      -

 

 

737,500

Net Proceeds (payments) from shareholder / officers

-

 

 

                 -

 

 

(113,947)

Proceeds from issuance of common stock

 

                 -

 

 

                 -

 

 

33,586

Net cash provided by financing activities

 

      -

 

 

      -

 

 

657,139

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

                 -

 

 

                 -

 

 

                   -

Beginning of period - continuing operations

 

                 -

 

 

                 -

 

 

                   -

End of period - continuing operations

$

                 -

 

$

                 -

 

$

                   -

 

 

 

 

 

 

 

 

 

Cash paid for interest

$

-

 

$

                -

 

$

24,295

Cash paid for income taxes

$

                 -

 

$

                -

 

$

-

 

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


5

        


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SECTOR 10, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 - BASIS OF PRESENTATION

 

The accompanying unaudited consolidated condensed financial statements of Sector 10, Inc. (“Sector 10” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and required by Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited consolidated financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.

 

Impact of Recent Accounting Pronouncements

 

Sector 10 does not expect the adoption of any recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.

 

Note 2 – INVENTORY

 

There were no sales in the six months ended September 30, 2020.  The inventory reflected on the books was $0 for the six months ended September 30, 2020.  

 

Note 3 – NOTES PAYABLE

 

Johnson Financing

 

Total interest accrued is $101,670 of which $5,197 is accrued for the six months ended September 30, 2020.

 

Dutro Financing:

 

The contingent reserve - interest includes all interest accrued on the Dutro Company note and all interest accrued after July 1, 2010 for the Vicki Davis and William Dutro note.  Interest accrued during the six months ended September 30, 2020 was $18,112 comprised of Dutro Company - $9,325, Vick Davis - $6,300 and William Dutro - $2,437. Total contingent reserve - interest for the period ended September 30, 2020 is $379,135 comprised of Dutro Company - $204,385, Vick Davis - $126,000 and William Dutro - $48,750.  

 

Employee Agreement:

 

The financial statements reflect an accrual of interest on unpaid wages and other compensation in the amount of $2,357,414 of which $0 is accrued during the six month period ended September 30, 2020.    In September 2020, the Company made a decision to stop all accruals of salary and employee contract interest as of the end of the last fiscal year.  As a result, all wages and interest accrued in Q1 were reversed in Q2 resulting in no accrued interest for employee contracts or accrued employee wages as of September 30, 2020. The interest adjustment made in the period ended September 30, 2020 was ($123,517). No future accruals will be made for either interest on unpaid wages or on accrued wages.

 

Other Notes

 

Individuals – short term

 

Total interest accrued as of September 30, 2020 was $100,530 of which $6,760 was accrued during the six months ended September 30, 2020.

 

 


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Asher Enterprises, Inc.

 

Total interest accrued (without discount amortization) as of September 30, 2020 was $55,102 of which $2,600 was accrued during the six months ended September 30, 2020 The current period interest is included as part of other interest.  

 

Summary of Interest and Notes Payable

 

Interest expense  

 

September 30,  2020

 

 

March 31,  2020

 

 

 

 

 

 

 

 

Interest – Johnson

 

5,197

 

 

10,394

 

Interest – Dutro Group

 

18,112

 

 

36,225

 

Interest  - Employee Group

 

0

 

 

460,818

 

Interest – Other Notes

 

9,360

 

 

18,720

 

   Total interest expense

$

32,669

 

$

526,157

 

 

Note Payable Balance

 

September 30,    2020

 

 

March 31,  2020

 

 

 

 

 

 

 

 

Edward Johnson – Johnson Financing

$

86,615

 

$

86,615

 

Various Individuals – Other Notes

 

169,000

 

 

169,000

 

Asher Enterprises, Inc. – Other Notes

 

65,000

 

 

65,000

 

Vicki Davis -  Dutro Group

 

168,000

 

 

168,000

 

William Dutro – Dutro Group

 

65,000

 

 

65,000

 

Dutro Company – Dutro Group

 

250,000

 

 

250,000

 

  Total Note Payable – short term

$

803,615

 

$

803,615

 

  Total Note Payable – long term

$

-

 

$

-

 

 

 

 

 

 

 

 

Total Notes Payable

$

803,615

 

$

803,615

 

 

Debt Maturity Schedule

 

As of September 30, 2020, the annual maturities for notes payable are scheduled as follows:

Fiscal Year

 

Amount

March 31, 2021

$

803,615

March 31, 2020

$

-

 

 

 

Total

$

803,615

All interest is due under the terms of the various agreements.  However future interest payments will not be made until all pending litigation is resolved and a satisfactory revised payment arrangement is completed by all parties.

 

Note 4 – EQUITY

 

During the Quarter ended: June 30, 2020

 

No equity transactions occurred in the period ended June 30, 2020

 

During the Quarter ended: September 30, 2020

 

No equity transactions occurred in the period ended September 30, 2020


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Note 5 – GOING CONCERN

 

The Company generated minimal revenues prior to the current fiscal year.  No revenues were generated for the six month period ended September 30, 2020. This level of revenues is not sufficient for the Company to meet its future obligations. This factor raises substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is in the midst of the Dutro litigation.   The litigation has hindered the operation of the Company and has set back the ability to raise capital and develop ongoing business in order to continue forward as a going concern. It is expected that litigation will continue to hinder the ability to continue as a going concern through the end of the fiscal year ended March 31, 2021 and possibly beyond.

 

Note 6 - INCOME TAX

 

Income taxes are accounted for using the asset and liability method. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

The Company’s financial statements for the six month period ended September 30, 2020and 2019 do not include any provision for income taxes.   No income tax accrual has been recorded based on the expectation that the Company will be in a net loss position for the overall applicable fiscal year. Accordingly, deferred tax assets have been entirely offset by valuation allowances. The difference between the amounts of income tax benefit that would result from applying domestic federal statutory income tax rates to the net loss and the net deferred tax assets is related to certain nondeductible expenses, state income taxes, and the change in the valuation allowance.

 

The Financial Accounting Standards Board ("FASB") has issued ASC 740 for Accounting for Income Taxes that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of ASC 740, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC 740.

 

The Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.

 

The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of September 30, 2020 the Company had no accrued interest or penalties related to uncertain tax positions.

 

The Company files income tax returns in the U.S. federal jurisdiction and in the states of Delaware, Utah and any other jurisdiction where required. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2016.

 

Note 7 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events per the requirements of ASC Topic 855 and has determined that the following events should be disclosed.  

 

1)A motion alerting the Court of a Rule 54B was filed with the Court to review the facts of previous Court rulings. The motion was denied on September 29, 2020 and the prior rulings were upheld. 

 

2)On October 21, 2020, Sector 10 and the Dutro/Reality defendants settled an 11 year legal conflict over disputed technology migration. Each side is responsible for their own legal expenditures and owing each other nothing. 


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3)The impact of the issues surrounding the litigation impact the Company’s ability to obtain funding needed to operate the Company according to their strategic plans.  

 

 

Item 2. Management’s Discussion And Analysis Or Plan Of Operation

 

This report contains forward-looking statements within the meaning of Section 29a of the Securities Act of 1933, as amended, and Section 21e of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from historical or anticipated results. You should not place undue reliance on such forward-looking statements, and, when considering such forward-looking statements, you should keep in mind the risk factors noted in this report, including the section of this report entitled “Risks Related to Our Business and Operations.” You should also keep in mind that all forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. The following discussion and analysis should be read in conjunction with the Company’s financial statements and notes thereto, which are included elsewhere in this report.

 

Overview

 

The Company markets the MRU and SRU products and the PLX-3D technology. In 2009, the Company was planning to release the technology and its MRU and SRU products in San Francisco and other cities in the US with the help of the Gage Group and other parties.  

 

In 2009, the Company had a dispute with the outside Manufacturer which led to litigation.

 

Going Concern Qualification

 

Our notes to the financial statements disclose that the Company has generated no revenue or cash flow, has incurred net losses for the fiscal year and has a working capital deficiency. Due to the pending litigation, the Company operations are not likely to produce positive cash flow until at least the end of the fiscal year ended March 31, 2020. These factors raise substantial doubt about our ability to continue as a going concern. Our going concern uncertainty may affect our ability to raise additional capital, and may also affect our relationships with suppliers and customers. Investors should carefully examine our financial statements and read the notes to the financial statements.

 

Results of Operations

 

Six Months Ended September 30, 2020 as Compared to the Six Months Ended September 30, 2019

 

Revenues -

 

The Company had no revenues for the six months ended September 30, 2020.

 

The Company had no revenues for the six months ended September 30, 2019.

 

Other Income-

 

The Company had no other income for the six months ended September 30, 2020.

 

The Company had no other income for the six months ended September 30, 2019.


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Operating Expenses -

 

The Company had no operating expenses for the six months ended September 30, 2020.

 

The Company had no operating expenses for the six months ended September 30, 2019.

 

General and Administrative Expenses -

 

General and administrative expenses were $37,677 for the six months ended September 30, 2020 which was made up primarily of Professional fees – Legal & Accounting fees $20,000, Insurance - $6,957, litigation expenses/travel - $5,000, State fees – $700, other expense - $20, Wages - $0 and Accrued payroll tax - $0. In September 2020, the Company made a decision to stop all accruals of wages and payroll tax as of the end of the last fiscal year.  As a result, all wages and payroll taxes accrued in Q1 were reversed in Q2 resulting in no accrued wages or payroll taxes as of September 30, 2020. The adjustment made in the period ended September 30, 2020 was accrued wages – ($165,000) and accrued payroll tax – ($16,500). No future accruals will be made for either wages or payroll taxes.

 

General and administrative expenses were $402,794 for the six months ended September 30, 2019 which was made up primarily of Wages - $330,000, Accrued payroll tax - $33,000, Professional fees – Legal & Accounting fees $26,285, Insurance - $11,162, State fees – $2,147 and other expense - $200.

 

Depreciation Expense –

 

Depreciation expense for the six months ended September 30, 2020 was $0.

 

Depreciation expense for the six months ended September 30, 2010 was $0.

 

Interest Expense –

 

Interest expense for the six month period ended September 30, 2020 was $32,669. In September 2020, the Company made a decision to stop all accruals of interest on unpaid employee wages interest as of the end of the last fiscal year.  As a result, interest on unpaid employee wages accrued in Q1 were reversed in Q2 resulting in no accrued interest for employee contracts or accrued employee wages as of September 30, 2020. The interest adjustment made in the period ended September 30, 2020 was ($123,517). No future accruals will be made for interest on unpaid employee wages.

 

Interest expense for the six month period ended September 30, 2019 was $256,353.

 

Three Months Ended September 30, 2020 as Compared to the Three Months Ended September 30, 2019

 

Revenues -

 

The Company had no revenues for the three months ended September 30, 2020.

 

The Company had no revenues for the three months ended September 30, 2019.

 

Other Income-

 

The Company had no other income for the three months ended September 30, 2020.

 

The company had no other income for the three months ended September 30, 2019.

 

Operating Expenses -

 

The Company had no operating expenses for the three months ended September 30, 2020.

 

The Company had no operating expenses for the three months ended September 30, 2019.


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General and Administrative Expenses -

 

General and administrative expenses were (171,951) for the three months ended September 30, 2020 which was made up primarily of Wages – ($165,000), Accrued Payroll Taxes – ($16,500), Professional fees – Legal & Accounting fees $0,  Insurance - $3,829, litigation expenses/travel - $5,000, State fees – $700, other expense - $20. In September 2020, the Company made a decision to stop all accruals of wages and payroll tax as of the end of the last fiscal year.  As a result, all wages and payroll taxes accrued in Q1 were reversed in Q2 resulting in no accrued wages or payroll taxes as of September 30, 2020. The adjustment made in the period ended September 30, 2020 was accrued wages – ($165,000) and accrued payroll tax – ($16,500). No future accruals will be made for either wages or payroll taxes.

 

General and administrative expenses were $194,876 for the three months ended September 30, 2019 which was made up primarily of Wages - $165,000, Accrued Payroll Taxes - $16,500, Professional fees – Legal & Accounting fees $6,285, Insurance - $5,581, State fees – 1,410 and other expenses - $100.

 

Depreciation Expense –

 

Depreciation expense for the three months ended September 30, 2020 was $0.

 

Depreciation expense for the three months ended September 30, 2019 was $0.

 

Interest Expense –

 

Interest expense for the three month period ended September 30, 2020 was (107,182) which was composed of an interest adjustment in Q2 of ($123,517) and other interest of $16,335. In September 2020, the Company made a decision to stop all accruals of interest on unpaid employee wages interest as of the end of the last fiscal year.  As a result, interest on unpaid employee wages accrued in Q1 were reversed in Q2 resulting in no accrued interest for employee contracts or accrued employee wages as of September 30, 2020. The interest adjustment made in the period ended September 30, 2020 was ($123,517). No future accruals will be made for interest on unpaid employee wages.

 

Interest expense for the three month period ended September 30, 2019 was $129,702.

 

Liquidity and Capital Resources

 

As of September 30, 2020, Sector 10 had cash of $0.  This amount is not sufficient to meet the Company’s working capital requirements for the balance of the fiscal year ending March 31, 2021 or for any future period.

 

Total Assets -

 

The Company had no assets as of September 30, 2020.

 

Working capital -

 

As of this filing date, the Company is in the midst of litigation and in the process of restructuring its operations in order to raise capital and continue in its efforts to manufacture and distribute its products.  The restructuring will not be complete until the litigation has been completed.  Potential funding for operations is not expected until sometime in the fiscal year ended March 31, 2021 or beyond.

 

Our auditors are of the opinion that our continuation as a going concern is in doubt. Our continuation as a going concern is dependent upon continued financial support from our shareholders and other related parties.  THE FINANCIAL STATEMENTS, RELATED NOTES AND THE OTHER INFORMATION INCLUDED IN THIS REPORT HAVE NOT BEEN REVIEWED BY THE COMPANY’S OUTSIDE ACCOUNTANT PRIOR TO THE FILING OF THIS REPORT.


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Total Liabilities -

 

Current liabilities as of September 30, 2020 were $12,466,249. The balance was composed of accounts payable and accrued liabilities of $11,662,634 and note payable to outside investors of $803,615.    

 

Long term liabilities as of September 30, 2020 were $0.

 

Total liabilities as of September 30, 2020 were $12,466,249.  

 

Cash flows -

 

   

Six Months Ended

  

 

Six Months Ended

 

 

September 30,

 

 

September 30,

Sources and Uses of Cash

 

2020

 

 

2020

Net cash provided by / (used in)

 

 

 

 

 

Operating activities

$

-

 

$

-

Investing activities

 

-

 

 

-

Financing activities

 

-

 

 

-

 

 

 

 

 

 

Increase/(decrease) in cash and cash equivalents

$

-

 

$

-

 

 

 

 

 

 

Period ended September 30, 2020 and 2019

 

 

 

 

 

Cash and cash equivalents

$

-

 

$

-

 

Operating Activities -

 

Cash used in operations for the six months ended September 30, 2019 was $0. Operating activities were affected by net loss – ($70,346) and change in accounts payable and accrued liabilities - $70,346.

 

Cash used in operations for the six months ended September 30, 2019 was $0. Operating activities were affected by net loss – ($659,147) and change in accounts payable and accrued liabilities - $659,147.

 

Investing Activities –

 

Cash used from investing activities for the six months ended for September 30, 2020 was $0.

 

Cash used from investing activities for the six months ended for September 30, 2019 was $0.

 

Financing Activities –

 

Cash provided from financing activities for the six months ended September 30, 2020 was $0.

 

Cash provided from financing activities for the six months ended September 30, 2098 was $0.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Risks Related to the Company’s Business and Operations

 

Investing in the Common Stock involves a high degree of risk. You should carefully consider the risks described below, and all of the other information set forth in this report before deciding to invest in shares of the Company’s common stock. In addition to historical information, the information in this report contains forward-looking statements about the Company’s future business and performance. The Company’s actual operating results and financial performance may be different from what the Company’s management expects as of the date of this report. The risks described in this report represent the risks that the Company’s management has identified and determined to be material to the Company. Additional risks and uncertainties not currently known to the Company’s


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management, or that the Company’s management currently deems to be immaterial, may also materially harm the Company’s business operations and financial condition.

 

Going Concern Qualification

 

Our notes to the financial statements disclose that the Company has generated no revenue or cash flow, has incurred net losses for the fiscal year and has a working capital deficiency. Due to the pending litigation, the Company operations are not likely to produce positive cash flow until at least the end of the fiscal year ended March 31, 2021. These factors raise substantial doubt about our ability to continue as a going concern. Our going concern uncertainty may affect our ability to raise additional capital, and may also affect our relationships with suppliers and customers. Investors should carefully examine our financial statements and read the notes to the financial statements.

 

Other risk factors to be considered include the following:

 

·The Company has not generated revenues and has not executed any significant contracts for the sale of the Company’s products. 

·The Company uses outside sources to fulfill contract obligations and has limited control over the provider’s ability to meet the Company obligations. 

·The directors, executive officers and principal shareholders of the Company have effective control of the Company, preventing non-affiliate shareholders from significantly influencing the Company’s direction and future. 

·The Company relies on outsourced manufacturers for the production of all Sector 10 products.  Litigation is pending regarding the breach of contract by the former outsourced manufacturer and other issues resulting in indefinite delays in production capability and capacity.  

·The market for the Company’s stock is thin and subject to manipulation. 

·The market price for the Common Stock is volatile and may change dramatically at any time. 

·Our business may be affected by increased compensation and benefits costs. 

·The Company has not paid dividends and does not anticipate paying dividends in the future. 

·The Common Stock is a “low-priced stock” or “penny stock” and subject to regulation that limits or restricts the potential market for the stock. 

·Compliance with existing and new regulations of corporate governance and public disclosure may result in additional expenses. 

 

Item 4.  Controls and Procedures

 

(a)Based on the evaluation of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by paragraph (b) of Rules 13a-15 or 15d-15, the Company’s principal executive officer and principal financial officer concluded that as of September 30, 2020, the Company’s disclosure controls and procedures were effective. 

 

(b)There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

The Company is aware of the following situation regarding litigation, pending or threatened, to which it is a party.

 

Dutro Group, Dutro Company & Reality Engineering

The Company has filed a claim against the Dutro Group and other defendants to seek relief for the damages incurred by Group’s actions.  The Dutro Group consists of Dutro Company, Reality Engineering, William Dutro, Vicki Davis, Lee Allen, Valley Inception, LLC, Incisive Software Corporation and Promixex Corporation.  The case has been ongoing for over 10 years.


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On October 21, 2020, Sector 10 and the Dutro/Reality defendants have settled an 11 year legal conflict over disputed technology migration. Each side is responsible for their own legal expenditures and owing each other nothing.

 

Sector 10 faced some hard realities in making the decision to settle.  In 2018, the court awarded the defendants ownership of the master code and ruled that Reality Engineering and Dutro were not related entities. We were not timely advised of the events surrounding these rulings by our prior counsel. Sector 10 recently hired an appellate attorney and sought advice.  Sector 10 concluded and disagreed with the Court’s decisions and recently filed motions to amend.  The motions were denied on September 29, 2020 and the prior rulings were upheld leaving us with only an appeal option under Rule 54B.  

 

As Sector 10 approached trial in 2020, the judge bifurcated the case into two trials.  A bench trial was scheduled in November 2020 to cover all claims against Dutro. A second trial, a jury trial, was to be scheduled in 2021 pending scheduling issues surrounding COVID. We would have had to then appeal the denied motions to reverse the 2018 Court Rulings under a Rule 54B and moved to a third trial and possible other legal actions.

 

Sector 10 litigation evolved from one trial to multiple trials with a future full of appellate procedures that could take years, all requiring a tremendous infusion of capital.  Due to the overwhelming financial burden and legal obstacles presented, the Company, with the assistance of our legal teams/Counsel, determined that a settlement was the best option at this time.  Our effort to seek a fair trial has failed, due in part to, and as evidence shows, various omissions and negligence of our prior counsel.  Our pursuit of justice must take another form as Sector 10 is considering all available legal options going forward.  

 

 

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

None 

 

Item 3. Defaults Upon Senior Securities

None 

 

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

None 

 

Item 5.  Other Information

None 


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Item 6. Exhibits

 

Exhibit

 

 

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the Principal Financial Officer 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

 

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

Sector 10, Inc.

 

 

 

 

 

 

 

 

 

November 4, 2020

 

By: /s/ Pericles DeAvila

 

Date

 

Pericles DeAvila, President

 

 

 

 

 

November 4, 2020

 

By: /s/ Laurence A. Madison

 

Date

 

Laurence A. Madison

Chief Financial Officer

  


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