Edgar Filing: SECTOR 10 INC

sector10.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 2012

o	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.)

222 South Main Street, 5th Floor

Salt Lake City, UT 84101

(Address of principal executive offices, including zip code)

Issuer’s telephone number, including area code (206) 853-4866

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 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of February 16, 2013 the issuer had 305,778 shares of common stock outstanding.

Transitional Small Business Disclosure Format (check one): Yes o No x

TABLE OF CONTENTS

Sector 10, Inc.

Part I. Financial Information

Item 1.	Unaudited Consolidated Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2012 and March 31, 2012	3

	Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended December 31, 2012 and 2011 and for the period from inception, September 16, 2002 to December 31, 2012	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011 and for the period from inception, September 16, 2002, to December 31, 2012.	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	13

Item 4.	Controls and Procedures	14

Part II. Other Information

Item 1.	Legal Proceedings	14

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	15

Item 6.	Exhibits	15

	Signatures	15

Item 1. FINANCIAL STATEMENTS

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

	December 31, 2012			March 31, 2012
ASSETS	(Unaudited)			(Unaudited)
Current assets:
Cash	$	-		$	-
Inventory, net		18,409			18,409
Total current assets		18,409			18,409

Fixed assets –cost		22,250			22,250
Less: accumulated depreciation		(22,071	)		(19,060	)
Net fixed assets		179			3,190

Total assets	$	18,588		$	21,599

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	3,122,810		$	2,442,113
Note payable - short term		240,615			240,615
Total current liabilities		3,363,425			2,682,728
Long term liabilities:
Note payable		483,000			483,000
Total long term liabilities		483,000			483,000
Total liabilities		3,846,425			3,165,728
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			6,123,443
Deficit accumulated during development stage		(9,976,372	)		(9,267,878	)
Total shareholders' equity (deficit)		(3,827,837	)		(3,144,129	)
Total liabilities and shareholders' equity (deficit)	$	18,588			21,599

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

Note* Shares adjusted to reflect 500 to 1 reverse stock split completed on 2/14/2012

Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Nine Months Ended December 31, 2012 and 2011 and

for the Period From Inception, September 16, 2002 to December 31, 2012

	Three Months Ended						Nine Months Ended						Inception to
	December 31, 2012			December 31, 2011			December 31, 2012			December 31, 2011			December 31, 2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Sales	$	-		$	-		$	-		$	-		$	18,500
Cost of Sales		-			-			-			-			(18,032	)
Gross Profit		-			-			-			-			468

Expenses:
General and administrative		226,501			136,270			585,287			496,829			8,465,950
Depreciation		785			1,113			3,010			3,338			23,927
Research and development								-			-			226,108
Total expenses		227,286			137,383			588,297			500,167			8,715,985
Income (loss) from operations		(227,286	)		(137,383	)		(588,297	)		(500,167	)		(8,715,517	)
Interest expense		(42,752	)		(33,202	)		(120,197	)		(107,799	)		(630,060	)
Other income (expense)		-			-			-			-			(630,795	)
Net income (loss) before income taxes		(270,038	)		(170,585	)		(708,494	)		(607,966	)		(9,976,372	)
Provision for income taxes		-			-			-			-			-
Net income (loss) after income taxes	$	(270,038	)	$	(170,585	)	$	(708,494	)	$	(607,966	)	$	(9,976,372	)

Weighted Average Shares Outstanding - basic and diluted*		305,778			291,114			305,778			271,382
Basic and diluted income (loss) per share
Continuing Operations	$	(0.88	)	$	(.59	)	$	(2.32	)	$	(2.24	)

Net Income (Loss)	$	(0.88	)	$	(.59	)	$	(2.32	)	$	(2.24	)

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

Note* Shares adjusted to reflect 500 to 1 reverse stock split completed on 2/14/2012

Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended December 31, 2012 and 2011 and

for the Period From Inception, September 16, 2002 to December 31, 2012

	Nine Months Ended						Inception to
	December 31, 2012			December 31, 2011			December 31, 2012
Cash Flows from Operating Activities:
Net Loss	$	(708,494	)	$	(607,966	)	$	(9,976,372	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock for services		24,786			122,806			5,114,493
Depreciation		3,010			3,338			23,927
Net discount on convertible debt		-			15,065			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		680,698			466,757			3,618,104
Net cash used in operating activities		-			-			(387,598	)

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		-			-			657,500
Net Proceeds (payments) from shareholder / officers		-			-			-
Proceeds from issuance of common stock		-			-			33,586
Net cash provided by financing activities		-			-			577,139

Net increase (decrease) in cash		-			-			-
Beginning of period - continuing operations		-			-			-
End of period - continuing operations	$	-		$	-		$	-

Cash paid for interest	$	-		$	-		$	18,295
Cash paid for income taxes	$	-		$	-		$	-

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.

Note 2 – INVENTORY

There were no sales in the nine month period ended December 31, 2012. Therefore, total inventory remains at $18,409 for the nine month period ended December 31, 2012. The carrying value of inventory is periodically reviewed and impairments, if any, are recognized when the expected future benefit from the inventory is less than its carrying value. If applicable, the Company will establish inventory reserves for estimated obsolescence or unmarketable inventory which is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. For the nine month period ended December 31, 2012, the Company has a reserve of $12,491.

Note 3 – NOTES PAYABLE

Johnson Financing

The interest accrued for the nine month period ended December 31, 2012 was $3,898.

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 nine month period ended December 31, 2012 was $27,168 comprised of Dutro Company - $14,062, Vick Davis - $9,450 and William Dutro - $3,656. Total contingent reserve - interest for the period ended December 31, 2012 is $107,447 comprised of Dutro Company - $63,760, Vick Davis - $31,500 and William Dutro - $ 12,187.

Employee Agreement:

The financial statements reflect an accrual of interest on unpaid wages and other compensation in the amount of $166,304 of which $50,914 is accrued during the nine month period ended December 31, 2012.

Other Notes

Individuals – short term

Total interest accrued as of December 31, 2012 was $17,474 of which $3,221 was accrued during the nine month period ended December 31, 2012.

Asher Enterprises, Inc.

The Company entered into multiple financing transactions with Asher Enterprises, Inc. to raise capital for Company operations. Each transaction was structured as a Convertible Debenture due 9 months after the issue accruing interest at an annual rate of 8%

Total interest accrued (without discount amortization) as of December 31, 2012 was $13,502 of which $2,600 was accrued during the nine month period ended December 31, 2012. The current period interest of $2,600 is included as part of other interest. Total amortization of discount included as part of interest expenses amounted to $15,065 for the nine month period ended December 31, 2011. No net unamortized discount remains at December 31, 2012.

Summary of Interest and Notes Payable

Interest expense	December 31, 2012		December 31, 2011

Interest – Johnson		3,898		3,898
Interest – Dutro Group		27,168		27,168
Interest - Employee Group		80,231		52,032
Interest – Other Notes		8,900		9,636
Total interest expense without amortization of discount		120,197		92,734
Interest – Amortization of Discount on Asher Enterprises, Inc. Note(s)		-		15,065
Interest – Amortization of Discount on Mazuma Funding Note		-		-
Total interest expense	$	120,197	$	107,799

Note Payable Balance	December 31, 2012		March 31, 2012

Edward Johnson – Johnson Financing	$	86,615	$	86,615
Patrick Madison – Other Notes		20,000		20,000
Lionel Brown – Other Notes		20,000		20,000
Patricia Fielding – Other Notes		22,000		22,000
Mark Madison – Other Notes		10,000		10,000
Richard Long – Other Notes		17,000		17,000
Asher Enterprises, Inc. – Other Notes		65,000		65,000
Total Note Payable – short term	$	240,615	$	240,615

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	$	723,615	$	723,615

Debt Maturity Schedule

As of December 31, 2012, the annual maturities for notes payable is scheduled as follows:

Fiscal Year	Amount

March 31, 2013	$	240,615
March 31, 2014	$	0
March 31, 2015	$	483,000

Total	$	723,615

Note 4 – EQUITY

During the Quarter ended: June 30, 2012:

In June 2012, recorded an additional adjustment of $24,786 to additional paid-in capital which represents the fair value of the vested portion of the stock options granted on December 1, 2010. Total adjustments recorded through the period ended June 30, 2012 amounted to $198,289.

No other equity transactions occurred in the period ended June 30, 2012.

During the Quarter ended: September 30, 2012:

No equity transactions occurred in the period ended September 30, 2012.

During the Quarter ended: December 31, 2012:

No equity transactions occurred in the period ended December 31, 2012.

Note 5 – GOING CONCERN

The Company generated minimal revenues prior to the current fiscal year. No revenues were generated for the nine month period ended December 31, 2012. 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. The Company is in the process of restructuring the business in order to continue forward as a going concern. Revenues are not expected to be generated until litigation is completed. It is expected that the restructuring will be completed during the year ended March 31, 2014. At this time, it is uncertain as to when the litigation will be completed.

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, 2012 and 2011 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 December 31, 2012 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 2009.

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.

The Company continues in litigation that continues to hinder the current operations of the Company. The Company has identified various parties that have interfered with the Company operations and with the current litigation. The Company intends to include in its litigation proceedings any party that is involved in such interference.

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

Sector 10 has developed and seeks to market pre-deployed emergency and disaster response equipment with the world’s first patented Stationary Response Units (SRU) and Mobile Response Units (MRU). Sector 10 has patents issued in the United States and patent applications pending with U.S. and international agencies. Sector 10’s initial SRU and MRU design has been developed, produced, nationally test marketed and sold. The Company is involved in litigation with parties that the Company asserts has committed fraud and breached various contractual agreements and has committed theft of Company property. Such actions have prevented the Company from conducting it business. Additional parties have been identified that have assisted the primary litigants in their efforts against the Company. The Company is pursuing all legal options against all parties involved in these actions.

Going Concern Qualification

The notes to the Company’s consolidated financial statements disclose that the limited cash flow of the Company has been absorbed in operating activities, the Company has incurred net losses since inception, and the Company has a working capital deficiency. In the event that funding from internal sources or from public or private financing is insufficient to fund the Company’s business, the Company will have to substantially cut back its level of spending, which could substantially curtail the Company’s operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s going concern uncertainty may affect its ability to raise additional capital, and may also affect its ability to raise additional capital, and may also affect its relationships with suppliers and customers. Investors should carefully examine the Company’s financial statements.

Results of Operations

Nine Months Ended December 31, 2012 as Compared to the Nine Months Ended December 31, 2011

Revenues -

The Company had no revenues for the nine months ended December 31, 2012.

The Company had no revenues for the nine months ended December 31, 2011.

Other Income-

The Company had no other income for the nine months ended December 31, 2012.

The Company had no other income for the nine months ended December 31, 2011.

Operating Expenses -

The Company had no operating expenses for the nine months ended December 31, 2012.

The Company had no operating expenses for the nine months ended December 31, 2011.

General and Administrative Expenses -

General and administrative expenses were $585,287 for the nine months ended December 31, 2012 which was made up primarily of Wages - $398,286, Professional fees – Legal & Accounting - $185,000 and other expenses of $2,001.

General and administrative expenses were $496,829 for the nine months ended December 31, 2011 which was made up primarily of Wages - $412,476, Financing Fee - $68,041, Professional fees – Legal & Accounting - $14,731and other expenses of $1,581.

Depreciation Expense –

Depreciation expense for the nine months ended December 31, 2012 was $3,010.

Depreciation expense for the nine months ended December 31, 2011 was $3,338.

Interest Expense –

Interest expense for the nine months ended December 31, 2012 was $120,197.

Interest expense for the nine months ended December 31, 2011 was $107,799.

Three Months Ended December 31, 2012 as Compared to the Three Months Ended December 31, 2011

Revenues -

The Company had no revenues for the three months ended December 31, 2012.

The Company had no revenues for the three months ended December 31, 2011.

Other Income-

The Company had no other income for the three months ended December 31, 2012.

The Company had no other income for the three months ended December 31, 2011.

Operating Expenses -

The Company had no operating expenses for the three months ended December 31, 2012.

The Company had no operating expenses for the three months ended December 31, 2011.

General and Administrative Expenses -

General and administrative expenses were $226,501 for the three months ended December 31, 2012 which was made up primarily of Wages - $124,500, Professional fees – Legal & Accounting - $100,000 and other expenses of $2,001.

General and administrative expenses were $136,270 for the three months ended December 31, 2011 which was made up primarily of Wages - $135,766 and other expenses of $504.

Depreciation Expense –

Depreciation expense for the three months ended December 31, 2012 was $785.

Depreciation expense for the three months ended December 31, 2011 was $1,113.

Interest Expense –

Interest expense for the three month period ended December 31, 2012 was $42,752.

Interest expense for the three month period ended December 31, 2011 was $33,202.

Liquidity and Capital Resources

As of December 31, 2012, 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, 2013 or for any future period.

Total Assets -

The Company had $18,588 in total assets as of December 31, 2012, comprised of cash - $0, Inventory - $18,409 and Net Fixed Assets - $179.

Working capital -

As of this filing date, the Company is 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 is expected to be completed by the end of the fiscal year ended March 31, 2014. Potential funding is not expected until sometime in the fiscal year ended March 31, 2014.

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.

Total Liabilities -

Current liabilities as of December 31, 2012 were $3,363,425. The balance was composed of accounts payable and accrued liabilities of $3,122,810 and note payable to outside investors of $240,615.

Long term liabilities as of December 31, 2012 were $483,000. The balance consists of Notes Payable to Dutro Company - $250,000, Vicki Davis Living Trust - $168,000 and William Dutro - $65,000.

Total liabilities as of December 31, 2012 were $3,846,425.

Cash flows -

		Nine Months Ended	Nine Months Ended
		December 31,	December 31,
Sources and Uses of Cash		2012	2011
Net cash provided by / (used in)
Operating activities	$	-	$	-
Investing activities		-		-
Financing activities		-		-

Increase/(decrease) in cash and cash equivalents	$	-	$	-

Period ended December 31, 2012 and 2011
Cash and cash equivalents	$	-	$	-

Operating Activities -

Cash used in operations for the nine months ended December 31, 2012 was $0. Operating activities were affected by Net loss from operations – ($708,494), stock for services - $24,786; depreciation expense - $3,010; and change in accounts payable and accrued liabilities - $680,698.

Cash used in operations for the nine months ended December 31, 2011 was $0. Operating activities were affected by Net loss from operations – ($607,966), stock for services - $122,806; depreciation expense - $3,338; net discount on convertible debt - $15,065 and change in accounts payable and accrued liabilities - $466,757.

Investing Activities -

Cash used from investing activities for the nine months ended for December 31, 2012 was $0.

Cash used from investing activities for the nine months ended for December 31, 2011 was $0.

Financing Activities -

Cash provided from financing activities for the nine months ended for December 31, 2012 was $0.

Cash provided from financing activities for the nine months ended for December 31, 2011 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 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

The Company has generated limited cash flow, has incurred net losses since inception and has a working capital deficiency. In the event that funding from internal sources or from public or private financing is insufficient to fund the Company’s business, the Company will not be able to generate revenues sufficient to cover anticipated expenses. If the Company is unable to quickly generate capital from operating activities or from external sources, the Company will have to substantially curtail its operations and will likely need to suspend its operations entirely. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s going concern uncertainty will likely affect its ability to raise additional capital, and may also affect its relationships with suppliers and prospective customers. Investors should carefully examine the Company’s 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 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 December 31, 2012, 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

Dutro Group, Dutro Company & Reality Engineering

The Dutro Group consists of Dutro Company, Reality Engineering, William Dutro, Vicki Davis and Lee Allen and other parties. The litigation is ongoing and is expected to continue into the fiscal year ended March 31, 2014. The Company has engaged attorneys to dispute the claims filed by the Dutro Group and to vigorously seek relief for the damages incurred by Dutro Group actions including among others, fraud, breach of contract and theft of company property and rights. The Company believes that sufficient reserves are included in the financial statements for exposures for the issues represented in these actions. The Company has identified other parties that it believes has assisted the Dutro Group in its efforts to harm the Company. The Company intends on including all parties that are involved in the interference of the Company operations and/or the litigation.

Edward Johnson

The Company is past due on the unpaid balance of a note payable plus accrued interest to Edward Johnson. The note collection and other issues are pending in current litigation. The litigation is not expected to be resolved until at least during the fiscal year ended March 31, 2014. The Company believes that sufficient reserves are included in the financial statements for exposures for this case

Doty Scott

Doty Scott is a consultant that delivered services to the Company prior to November 20, 2007 which was the date of the merger between SKRM Interactive, Inc. and Sector 10 USA, Inc. (now Sector 10, Inc.) The amount due the consultant is at dispute in pending litigation. Settlement discussions have been ongoing but no resolution has been achieved as of the date of this filing. The litigation is not expected to be resolved until at least during the fiscal year ended March 31, 2014. Based on the facts of the case, the Company believes that sufficient reserves are included in the financial statements for exposures for this case.

Bank of America

The Company and its affiliates are currently in litigation seeking damages resulting from actions and activities involving certain parties affiliated with the parties involved in the case. The litigation is not expected to be resolved until at least during the fiscal year ended March 31, 2014.

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

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.


	February 19, 2013		By: /s/ Pericles DeAvila
	Date		Pericles DeAvila, President

	February 19, 2013		By: /s/ Laurence A. Madison
	Date		Laurence A. Madison Chief Financial Officer