SECTOR 10, Inc. - Quarter Report: 2010 September (Form 10-Q)

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x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2010
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

Delaware		000-24370		33-0565710
(State or other jurisdiction of incorporation)		(Commission File No.)		(IRS Employer Identification No.)

14553 South 790 West

Bluffdale, Utah 84065

 

Part I. Financial Information
Item 1.		Unaudited Consolidated Financial Statements
		Consolidated Balance Sheets  as of September 30, 2010 (Unaudited) and  March 31, 2010 (Audited)	3
		Unaudited Consolidated Statements of Operations for the six months ended September  30, 2010 and 2009 and for the period from inception, September 16, 2002 to September 30, 2010	4
		Unaudited Consolidated Statements of Operations for the three months ended September 30, 2010 and 2009.	5
		Unaudited Consolidated Statement of Changes in Shareholders’ Equity (Deficit) for the period March 31, 2010 to September 30, 2010	6
		Unaudited Consolidated Statements of Cash Flows for the six months ended September 30, 2010 and 2009 and for the period from inception, September 16, 2002, to September 30, 2010.	7
		Notes to the Unaudited Consolidated Financial Statements	9
Item 2.		Management’s Discussion and Analysis or Plan of Operation	19
Item 3		Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.		Controls and Procedures	25
Part II. Other Information
Item 1.		Legal Proceedings	26
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.		Defaults Upon Senior Securities	26
Item 4.		Submission of Matters to a Vote of Security Holders	26
Item 5.		Other Information	26
Item 6.		Exhibits	26
		Signatures	27

		September 30, 2010				March 31, 2010
ASSETS		(Unaudited)				(Audited)
Current assets:
Cash		$	5			$	70
Inventory, net			18,409				18,409
Prepaid assets			15,250				6,770
Total current assets			33,664				25,249
Fixed assets:
Furniture			9,182				9,182
Computers			13,068				13,068
Total fixed asset cost			22,250				22,250
Less: accumulated depreciation			(12,385	)			(10,160	)
Net fixed assets			9,865				12,090
Other assets:
Network acquisition/development costs			931,181				931,181
Refundable fees			59,000				-
Total other assets			990,181				931,181
Total assets		$	1,033,710			$	968,520
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities		$	1,758,448			$	1,143,308
Note payable - short term			213,718				252,500
Note payable - officer/shareholder			3,777				20,526
Total current liabilities			1,975,943				1,416,334
Long term liabilities:
Note payable			483,000				483,000
Total long term liabilities			483,000				483,000
Total liabilities			2,458,943				1,899,334
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; 49,743,268 and 42,693,268 shares issued and outstanding, respectively			49,743				42,693
Additional paid-in-capital			4,759,106				4,274,432
Deficit accumulated during development stage			(6,234,082	)			(5,247,939	)
Total shareholders' equity (deficit)			(1,425,233	)			(930,814	)
Total liabilities and shareholders' equity (deficit)		$	1,033,710				968,520

 

 

 

 

		Three Months Ended
		September 30, 2010				September 30, 2009
Sales		$	-			$	-
Cost of Sales			-				-
Gross Profit			-				-
Expenses:
General and administrative			511,021				311,191
Depreciation			2,077				1,112
Research and development			-				-
Total expenses			513,098				312,303
Income (loss) from operations			(513,098	)			(312,303	)
Interest expense			(123,094	)			(12,121	)
Other income: debt restructuring			-				-
Other expense: impairment loss			-				-
Net income (loss) before income taxes			(636,192	)			(324,424	)
Provision for income taxes			-				-
Net income (loss) after income taxes		$	(636,192	)		$	(324,424	)
Weighted Average Shares Outstanding - basic and diluted			51,216,094				11,448,789
Basic and diluted income (loss) per share
Continuing Operations		$	(0.01	)		$	(0.03	)
Net Income (Loss)		$	(0.01	)		$	(0.03	)

 

 

		Common Stock								Additional Paid-In				Deficit Accumulated During Development
		Shares				Amount				Capital				Stage
Balance at March 31, 2010			42,693,268			$	42,693			$	4,274,432			$	(5,247,939	)
Issue shares on June 24, 2010 @$0.0423 per share in conversion of $55,000 debt. (unaudited)			1,300,000				1,300				53,700				-
Issue shares on July 1, 2010 @$0.04 per share in conversion of $40,000 debt. (unaudited)			1,000,000				1,000				39,000				-
Issue shares on July 8, 2010 @$0.03 per share in conversion of $45,000 debt. (unaudited)			1,500,000				1,500				43,500				-
Issue shares on July 13, 2010 @ $.03 per share from Form S-8 filing for option exercise. (unaudited)			1,000,000				1,000				29,000				-
Adjustment to bring option exercise to fair value @ $.07 per share.  (unaudited)			-				-				40,000				-
Issue shares on July 13, 2010 @$.07 per share from a Form S-8 filing for legal fees under agreement. (unaudited)			1,000,000				1,000				69,000				-
Issue shares to CityVac on August 1, 2010 @$0.03 per share for investor relations services. (unaudited)			750,000				750				21,750				-
Issue shares to CityVac on September 15, 2010 @$0.01 per share for investor relations services. (unaudited)			500,000				500				4,500				-
Discount on convertible notes (unaudited)			-				-				184,224				-
Net loss for the period (unaudited)			-				-				-				(986,143	)
Balance at September 30, 2010			49,743,268			$	49,743			$	4,759,106			$	(6,234,082	)

		Six Months Ended								Inception to
		September 30, 2010				September 30, 2009				September 30, 2010
Cash Flows from Operating Activities:
Net Loss		$	(986,143	)		$	(745,120	)		$	(6,234,082	)
Adjustments to reconcile  net loss to net cash used in operating activities:
Stock for services			63,250				290,794				3,790,799
Depreciation			4,082				2,225				14,242
Net discount on convertible debt			138,827				-				138,827
Gain on debt restructuring			-				-				(517,200	)
Loss due to impairment			-				-				216,814
Changes in:
Accounts receivable			-				2,000				-
Prepaid expenses			6,770				-				13,540
Inventory			-				-				(18,409	)
Deposits			-				10,000				-
Accounts payable and accrued liabilities			631,755				374,919				2,249,560
Net cash used in operating activities			(141,459	)			(65,182	)			(345,909	)
Cash Flows from Investing Activities:
Fixed asset purchases			(19,296	)			-				(41,546	)
Network acquisition / development costs			-				-				(147,995	)
Net cash used in investing activities			(19,296	)			-				(189,541	)
Cash Flows from Financing Activities:
Proceeds from notes payable			130,000				63,786				612,500
Proceeds from shareholder / officers			1,190				31,396				934,253
Payments to shareholders / officers			(500	)			(64,220	)			(1,044,884	)
Proceeds from issuance of common stock			-				-				3,586
Proceeds from option exercise			30,000				-				30,000
Net cash provided by financing activities			160,690				30,962				535,455
Net increase (decrease) in cash			(65	)			(34,220	)			5
Beginning of period - continuing operations			70				35,016				-
End of period - continuing operations		$	5			$	796			$	5
Cash paid for interest		$	8,738			$	-			$	24,913
Cash paid for income taxes		$	-			$	-			$	-

 

Supplemental disclosures:		Net Fixed Assets				Accounts Payable				Accrued Expenses				Note Payable					Common Stock			APIC
Noncash investing & financing activities disclosure:
Transfer vehicle via distribution to shareholder		$	(17,439	)		$	-			$	-			$	17,439			$	-			$	-
Mazuma purchase of  note payable and conversion to common stock and APIC			-				-				-				(55,000	)			1,300				53,700
Mazuma purchase of  note payable and conversion to common stock and APIC			-				-				-				(40,000	)			1,000				39,000
Mazuma purchase of  note payable and conversion to common stock and APIC			-				-				-				(45,000	)			1,500				43,500
Transfer Johnson accrued interest to Notes Payable			-				-				(26,615	)			26,615				-				-
Transfer accrued interest to contingent reserve A/P			-				18,431				(18,431	)			-				-				-
Transfer from Note Payable to Contingent Reserve AP			-				10,000				-				(10,000	)			-				-
Total		$	(17,439	)		$	28,431			$	(45,046	)		$	(105,946	)		$	3,800			$	136,200

 

 

     

   

 

 

Transaction Date		Total Funding				Legal Fees				Financing Fee			Net funds			Date Received
April 30, 2010		$	53,000			$	3,000			$	5,300		$	44,700		May 10, 2010
May 26, 2010		$	30,000			$	2,500			$	2,700		$	24,800		June 2, 2010
July 8, 2010		$	30,000			$	2,500			$	2,700		$	24,800		July 16, 2010
Total		$	113,000			$	8,000			$	10,700		$	94,300

 

Transaction Date		Amount Purchased				Conversion Rate per share				Common Shares issued				Net Balance of Johnson Note
Beginning Balance														$	226,615
June 21, 2010		$	55,000				.0423				1,300,000			$	171,615
July 1, 2010		$	40,000				.04				1,000,000			$	131,615
July 8, 2010		$	45,000				.03				1,500,000			$	86,215

 

 

Interest expense		September 30, 2010				September 30, 2009
Sector 10 Holdings, Inc.  – Shareholder		$	483			$	474
Pericles DeAvila – Officer			277				288
Total related party interest expense			760				762
Interest – Johnson			2,586				6,500
Interest – Dutro Group			18,114				11,898
Interest  - Employee Group			17,528				1,270
Interest – Other Notes			5,801				50
Total interest expense without amortization of discount			44,789				20,480
Interest – Amortization of  Discount on Asher Enterprises, Inc. Note(s)			37,827				-
Interest – Amortization of Discount on Mazuma Funding Note			101,000				-
Total interest expense		$	183,616			$	20,480

Note Payable Balance		September 30, 2010				March 31, 2010
Sector 10 Holdings, Inc.  – Shareholder		$	(3,719	)		$	13,737
Pericles DeAvila – Officer			7,496				6,789
Total Note Payable – Officer / Shareholder		$	3,777			$	20,526
Edward Johnson – Johnson Financing		$	86,615			$	200,000
Patrick Madison – Other Notes			20,000				15,000
Lionel Brown – Other Notes			7,500				7,500
Patricia Fielding – Other Notes			22,000				20,000
Mark Madison – Other Notes			10,000				10,000
Calm Seas Capital, LLC			-				-
Asher Enterprises, Inc. – Other Notes			113,000				-
Total Note Payable – short term without discount			259,115				252,500
Net Discount on Convertible Notes (Asher)			(45,397	)			-
Total Note Payable – short term		$	213,718			$	252,500
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 – long term		$	483,000			$	483,000
Total Notes Payable		$	700,495			$	756,026

 

Fiscal Year		Amount
March 31, 2011		$	217,495
March 31, 2012		$	0
March 31, 2013		$	0
March 31, 2014		$	0
March 31, 2015		$	483,000
Total		$	700,495

 
 

1)	ATT Industry & Mobility Alliance Program

 

 

 

 

 

 

		Six Months Ended				Six Months Ended
		September 30,				September 30,
Sources and Uses of Cash		2010				2009
Net cash provided by / (used in)
Operating activities		$	(141,459	)		$	(65,182	)
Investing activities			(19,296	)			-
Financing activities			160,690				30,962
Increase/(decrease) in cash and cash equivalents		$	(65	)		$	(34,220	)
Period ended September 30, 2010 and 2009
Cash and cash equivalents		$	5			$	796

  
  

 

 

 

·

intentional manipulation of the price of the Common Stock by existing or future stockholders;

·

short selling of the Common Stock or related derivative securities;

·

a single acquisition or disposition, or several related acquisitions or dispositions, of a large number of the Company’s shares of Common Stock;

·

the interest, or lack of interest, of the market in the Company’s business sector, without regard to the Company’s financial condition or results of operations;

·

the adoption of governmental regulations and similar developments in the United States or abroad that may affect the Company’s ability to offer the Company’s products and services or affect the Company’s cost structure;

·

developments in the businesses of companies that purchase the Company’s products; and

·

economic and other external market factors, such as a general decline in market prices due to poor economic indicators or investor distrust.

 

 

·

Is priced under five dollars;

·

Is not traded on a national stock exchange, the Nasdaq Global Market or the Nasdaq Capital Market;

·

Is issued by a company that has less than $5 million in net tangible assets (if it has been in business less than three years) or has less than $2 million in net tangible assets (if it has been in business for at least three years); and

·

Is issued by a company that has average revenues of less than $6 million for the past three years.

·

Certain broker-dealers who recommend penny stock to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale.

·

Prior to executing any transaction involving a penny stock, certain broker-dealers must deliver to certain purchasers a disclosure schedule explaining the risks involved in owning penny stock, the broker-dealer’s duties to the customer, a toll-free telephone number for inquiries about the broker-dealer’s disciplinary history and the customer’s rights and remedies in case of fraud or abuse in the sale.

·

In connection with the execution of any transaction involving a penny stock, certain broker-dealers must deliver to certain purchasers the following:

o

bid and offer price quotes and volume information;

o

the broker-dealer’s compensation for the trade;

o

the compensation received by certain salespersons for the trade;

o

monthly accounts statements; and

o

a written statement of the customer’s financial situation and investment goals.

(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, 2010, 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.

 

Exhibit No.	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.

 

 

			Sector 10, Inc.
	November 15,  2010		By: /s/ Pericles DeAvila
	Date		Pericles DeAvila, President
	November 15, 2010		By: /s/ Laurence A. Madison
	Date		Laurence A. Madison Chief Financial Officer