SECTOR 10, Inc. - Quarter Report: 2010 June (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 June 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	3
	Consolidated Balance Sheets - as of June 30, 2010 (Unaudited) and  March 31, 2010 (Audited)	3
	Unaudited Consolidated Statements of Operations for the three months ended June 30, 2010 and 2009 and for the period from inception, September 16, 2002 to June 30, 2010	4
	Unaudited Consolidated Statement of Changes in Shareholders’ Equity (Deficit) for the period March 31, 2010 to June 30, 2010	5
	Unaudited Consolidated Statements of Cash Flows for the three months ended June 30, 2010 and 2009 and for the period from inception, September 16, 2002, to June 30, 2010.	6
	Notes to the Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis or Plan of Operation	15
Item 3	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	21
Part II. Other Information
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
	Signatures	22

 

 

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

 

 

		Three Months Ended								Inception to
		June 30, 2010				June 30, 2009				June 30, 2010
Sales		$	-			$	-			$	18,500
Cost of Sales			-				-				(18,032	)
Gross Profit			-				-				468
Expenses:
General and administrative			287,424				301,224				5,521,889
Depreciation			2,005				1,113				12,165
Research and development			-				110,000				226,108
Total expenses			289,429				412,337				5,760,162
Income (loss) from operations			(289,429	)			(412,337	)			(5,759,694	)
Interest expense			(60,522	)			(8,359	)			(138,582	)
Other income: debt restructuring			-				-				517,200
Other expense: impairment loss			-				-				(216,814	)
Net income (loss) before income taxes			(349,951	)			(420,696	)			(5,597,890	)
Provision for income taxes			-				-				-
Net income (loss) after income taxes		$	(349,951	)		$	(420,696	)		$	(5,597,890	)
Weighted Average Shares Outstanding - basic and diluted			42,778,938				10,636,384
Basic and diluted income (loss) per share
Continuing Operations		$	(0.01	)		$	(0.04	)
Net Income (Loss)		$	(0.01	)		$	(0.04	)

 

 

		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				-
Discount on convertible notes (unaudited)			-				-				97,500				-
Net loss for the period (unaudited)			-				-				-				(349,951	)
Balance at June 30, 2010			43,993,268			$	43,993			$	4,425,632			$	(5,597,890	)

 

		Three Months Ended								Inception to
		June 30, 2010				June 30, 2009				June 30, 2010
Cash Flows from Operating Activities:
Net Loss		$	(349,951	)		$	(420,696	)		$	(5,597,890	)
Adjustments to reconcile  net loss to net cash used in operating activities:
Stock for services			13,500				91,874				3,741,049
Depreciation			2,005				1,113				12,165
Amortization of debt discount			47,255				-				47,255
Gain on debt restructuring			-				-				(517,200	)
Loss due to impairment			-				-				216,814
Changes in:
Accounts receivable			-				-				-
Prepaid expenses			3,499				-				10,269
Inventory			-				-				(18,409	)
Deposits			-				10,000				-
Accounts payable and accrued liabilities			198,044				310,060				1,815,849
Deferred revenue			-				-				-
Net cash used in operating activities			(85,648	)			(7,649	)			(290,098	)
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			134,500				-				617,000
Payments on notes payable			(55,000	)			-				(55,000	)
Proceeds from shareholder / officers			405				19,974				933,468
Payments to shareholders / officers			(500	)			-				(1,044,884	)
Cash for exercise of options			30,000				-				30,000
Proceeds from issuance of common stock			-				(47,300	)			3,586
Net cash provided by financing activities			109,405				(27,326	)			484,170
Net increase (decrease) in cash			4,461				(34,975	)			4,531
Beginning of period - continuing operations			70				35,016				-
End of period - continuing operations		$	4,531			$	41			$	4,531
Cash paid for interest		$	4,369			$	-			$	20,544
Cash paid for income taxes		$	-			$	-			$	-

Supplemental disclosures:		Accounts Payable				Accrued Expenses				Note Payable				Note Payable				Common Stock				APIC
Noncash investing & financing activities disclosure:
Mazuma purchase of  note payable and conversion to common stock and APIC		$	-			$	-			$	(55,000	)		$	-			$	1,300			$	53,700
Total		$	-			$	-			$	(55,000	)		$	-			$	1,300			$	53,700

 

 

 

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
Total		$	83,000			$	5,500			$	8,000		$	69,500

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

Interest expense		June 30, 2010				June 30, 2009
Sector 10 Holdings, Inc.  – Shareholder		$	268			$	259
Pericles DeAvila – Officer			137				144
Total related party interest expense			405				403
Interest – Johnson			1,650				3,250
Interest – Dutro Group			9,056				4,706
Interest  - Employee Group			-				-
Interest – Other Notes			2,156				-
Total interest expense without amortization of discount			13,267				8,359
Interest – Amortization of  Discount on Asher Enterprises, Inc. Note(s)			11,255				-
Interest – Amortization of Discount on Mazuma Funding Note			36,000				-
Total interest expense		$	60,522			$	8,359

Note Payable Balance		June 30, 2010				March 31, 2010
Sector 10 Holdings, Inc.  – Shareholder		$	13,505			$	13,737
Pericles DeAvila – Officer			6,926				6,789
Total Note Payable – Officer / Shareholder		$	20,431			$	20,526
Edward Johnson – Johnson Financing		$	145,000			$	200,000
Patrick Madison – Other Notes			15,000				15,000
Lionel Brown – Other Notes			7,500				7,500
Patricia Fielding – Other Notes			20,000				20,000
Mark Madison – Other Notes			10,000				10,000
Calm Seas Capital, LLC			10,000				-
Asher Enterprises, Inc. – Other Notes			83,000				-
Total Note Payable – short term without discount			290,500				252,500
Net Discount on Convertible Notes (Asher)			(50,245	)			-
Total Note Payable – short term		$	240,255			$	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		$	793,931			$	756,026

 

Fiscal Year		Amount
March 31, 2011		$	310,931
March 31, 2012		$	0
March 31, 2013		$	0
March 31, 2014		$	0
March 31, 2015		$	483,000
Total		$	793,931

 

 
 

1)

A Form S-8 Registration statement was filed on July 14, 2010.  The S-8 registration statement covers options to key officers, directors and consultants for up to 16,000,000 shares of common stock that may be issued pursuant to three types of option awards granted outside of the registrant’s stock option plans (the “2010 Special Stock Option Awards”): (i) option awards granted to certain members of senior management and consultants of the registrant to purchase up to an aggregate of 12,000,000 shares of common stock of which 4,000,000 are exercisable at $0.03 and 4,000,000 are exercisable at $0.06 and 4,000,000 are exercisable at $0.09  (ii) stock grant for 4,000,000 shares.

2)	Filing Claim against Dutro Company – July 8, 2010

3)	ATT Industry & Mobility Alliance Program

4)	The following summarizes the additional Mazuma Funding Corp. purchases of Ed Johnson Note through various transactions closing subsequent to June 30, 2010:

Transaction Date		Amount Purchased				Conversion Rate per share				Common Shares issued				Net Balance of Johnson Note
Balance @ June 30, 2010														$	171,615
Closed July 1, 2010		$	40,000				.04				1,000,000			$	131,615
Closed July 8, 2010		$	45,000				.03				1,500,000			$	86,615
Total		$	85,500								2,500,000

5)	The following summarizes the additional funding received from Asher Enterprises, Inc. subsequent to June 30, 2010.  Each transaction was structured as a Convertible Debenture due 9 months after the issue accruing interest at an annual rate of 8%.  No conversion occurred as of August 16, 2010

Transaction Date	Total Funding				Legal Fees				Financing Fee				Net funds				Date Received
July 8, 2010		$	30,000			$	2,500			$	2,700			$	24,800		July 16, 2010

6)

An investor relations consulting agreement was entered into with CityVac on July 30, 2010 to perform IR services for the Contract term August 1, 2010 to December 1, 2010.  Included in the proposal is the presentation and showcase the Company at the San Francisco, Toronto and London World Money Shows.  The fee for the IR services including the Money Shows is 1,250,000 restricted common shares.  A total of 750,000 shares are due immediately and the balance of 500,000 shares are held until September 15, 2010.

7)	Common shares were issued subsequent to June 30, 2010 was as follows:

Description		Number of Shares
Issue shares to Mazuma  Funding Corp on 7/1/2010			1,000,000
Issue shares to Mazuma Funding Corp on 7/8/2010			1,500,000
Issue shares to Ron Kaufman on 7/13/2010 for exercise of option under Form S-8			1,000,000
Issue shares to Ron Kaufman on 7/13/2010 for compensation of legal services			1,000,000
Issue shares to CitiVac for IR services on 8/1/2010			750,000
Total shares issued			5,250,000

 

 

 

 

 

 

		Three Months Ended				Three Months Ended
		June 30,				June 30,
Sources and Uses of Cash		2010				2009
Net cash provided by / (used in)
Operating activities		$	(85,648	)		$	(7,649	)
Investing activities			(19,296	)			-
Financing activities			109,405				(27,326	)
Increase/(decrease) in cash and cash equivalents		$	4,461			$	(34,975	)
Period ended June 30, 2010 and 2009
Cash and cash equivalents		$	4,531			$	41

 

 

 

·

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

·

short selling of the Common Stock or related derivative securities;

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

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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;

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

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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 June 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.
	August 16, 2010		By: /s/ Pericles DeAvila
	Date		Pericles DeAvila, President
	August 16, 2010		By: /s/ Laurence A. Madison
	Date		Laurence A. Madison Chief Financial Officer

 

 

 

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