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
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
ASSETS
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
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
|
|
$
|
8,005,582
|
|
|
$
|
7,707,510
|
|
Note payable - short term
|
|
|
803,615
|
|
|
|
803,615
|
|
Total current liabilities
|
|
|
8,809,197
|
|
|
|
8,511,125
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Note payable
|
|
|
-
|
|
|
|
-
|
|
Total long term liabilities
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
8,809,197
|
|
|
|
8,511,125
|
|
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
|
|
|
(14,957,732
|
)
|
|
|
(14,659,660
|
)
|
Total shareholders' equity (deficit)
|
|
|
(8,809,197
|
)
|
|
|
(8,511,125
|
)
|
Total liabilities and shareholders' equity (deficit)
|
|
$
|
-
|
|
|
|
-
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Sector 10, Inc.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2017 and 2016 and for the Period From Inception,
September 16, 2002 to June 30, 2017
|
|
Three Months Ended
|
|
|
Inception to
|
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,500
|
|
Cost of Sales
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,032
|
)
|
Gross Profit
|
|
|
-
|
|
|
|
-
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
197,820
|
|
|
|
188,501
|
|
|
|
12,143,368
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
24,106
|
|
Research and development
|
|
|
-
|
|
|
|
-
|
|
|
|
226,108
|
|
Total expenses
|
|
|
197,820
|
|
|
|
188,501
|
|
|
|
12,393,582
|
|
Income (loss) from operations
|
|
|
(197,820
|
)
|
|
|
(188,501
|
)
|
|
|
(12,393,114
|
)
|
Interest expense
|
|
|
(100,252
|
)
|
|
|
(85,452
|
)
|
|
|
(1,933,823
|
)
|
Other income (expense)
|
|
|
0
|
|
|
|
-
|
|
|
|
(630,795
|
)
|
Net income (loss) before income taxes
|
|
|
(298,072
|
)
|
|
|
(273,953
|
)
|
|
|
(14,957,732
|
)
|
Provision for income taxes
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) after income taxes
|
|
$
|
(298,072
|
)
|
|
$
|
(273,953
|
)
|
|
$
|
(14,957,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - basic and diluted *
|
|
|
305,778
|
|
|
|
305,778
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(0.97
|
)
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(0.97
|
)
|
|
$
|
(0.90
|
)
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
Sector 10, Inc.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2017 and 2016 and for the Period From Inception,
September 16, 2002 to June 30, 2017
|
|
Three Months Ended
|
|
|
Inception to
|
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(298,072
|
)
|
|
$
|
(273,953
|
)
|
|
$
|
(14,957,732
|
)
|
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
|
|
|
298,072
|
|
|
|
243,953
|
|
|
|
8,519,285
|
|
Net cash used in operating activities
|
|
|
-
|
|
|
|
(30,000
|
)
|
|
|
(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
|
|
|
-
|
|
|
|
30,000
|
|
|
|
737,500
|
|
Net Proceeds (payments) from shareholder / officers
|
|
|
-
|
|
|
|
-
|
|
|
|
(113,947
|
)
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
33,586
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
30,000
|
|
|
|
657,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
-
|
|
|
|
-
|
|
|
|
0
|
|
Beginning of period - continuing operations
|
|
|
-
|
|
|
|
-
|
|
|
|
0
|
|
End of period - continuing operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
24,295
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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 three months ended June 30, 2017. The inventory reflected on the books was $0 for the three months ended June 30. 2017.
Note 3 – NOTES PAYABLE
Johnson Financing
Total interest accrued is $47,890 of which $2,598 is accrued for the three months ended June 30, 2017.
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 three months
ended June 30, 2017
was $9,057 comprised of Dutro Company - $4,688, Vick Davis - $3,150 and William Dutro - $1,219. Total contingent reserve - interest for the period ended June 30, 2017 is $270,460 comprised of Dutro Company - $148,135, Vick Davis - $88,200 and William Dutro - $34,125.
Employee Agreement:
The financial statements reflect an accrual of interest on unpaid wages and other compensation in the amount of $1,217,277 of which $83,917 is accrued during the
three month period ended June 30, 2017
.
Other Notes
Individuals – short term
Total interest accrued as of June 30, 2017 was $56,589 of which $3,380 was accrued during the three months ended June 30, 2017.
Asher Enterprises, Inc.
Total interest accrued (without discount amortization) as of June 30, 2017 was $38,202 of which $1,300 was accrued during the three months ended June 30, 2017. The current period interest is included as part of other interest.
Summary of Interest and Notes Payable
Interest expense
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
Interest – Johnson
|
|
|
2,598
|
|
|
|
10,394
|
|
Interest – Dutro Group
|
|
|
9,057
|
|
|
|
36,225
|
|
Interest - Employee Group
|
|
|
83,917
|
|
|
|
302,418
|
|
Interest – Other Notes
|
|
|
4,680
|
|
|
|
15,254
|
|
Total interest expense
|
|
$
|
100,252
|
|
|
$
|
364,291
|
|
Note Payable Balance
|
|
June 30,
2016
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
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 June 30, 2016, the annual maturities for notes payable are scheduled as follows:
Fiscal Year
|
|
Amount
|
|
March 31, 2018
|
|
$
|
803,615
|
|
March 31, 2019
|
|
$
|
-
|
|
|
|
|
|
|
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, 2017:
No equity transactions occurred in the period ended June 30, 2017.
Note 5 – GOING CONCERN
The Company generated minimal revenues prior to the current fiscal year. No revenues were generated for the three month period ended June 30, 2017. 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 and other litigation. The litigation has hindered the operation of the Company and have 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, 2018 and 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 three month period ended June 30, 2017 and 2016 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 June 30, 2017 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 2014.
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)
|
Litigation involving
Dutro Company, Reality Engineering, William Dutro, Vicki Davis, Lee Allen, Valley Inception, LLC, Incisive Software Corporation and Proximex Corporation
continues and is expected to continue for the foreseeable future. Company Counsel is preparing for dependent depositions. A trial date is expected to be set before the end of the fiscal year ended March 31, 2018. Any delays could extend the
trial date into the next fiscal year.
|
|
|
2)
|
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.
|
|
|
3)
|
Federal and State authorities have and will continue to be updated on the litigation issues and proceedings. Additional information concerning the litigations is available at
www.whitecollarfacades.com
.
|