SECI Sector 10 Inc (CE)

ITEM 8. 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.

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

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

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

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

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Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - ORGANIZATION AND BUSINESS OPERATIONS

The Company markets the MRU – SRU product lines and the various solutions related to mobile assets

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

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-K 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.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

It is the Company’s policy to invest cash with financial institutions judged to be highly secure. For purposes of the statement of cash flow, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. The Company reviews outstanding receivables, and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company has no sales and no receivables outstanding for the fiscal year ended March 31, 2022.

Inventory

Inventories are valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. There was no sales activity and no inventory on hand at the fiscal year ended March 31, 2022. The inventory has been recorded at no value as of March 31, 2022. Therefore, for the fiscal year ended March 31, 2022, all inventory and the related reserve was $0.

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Property and Equipment and Depreciation

Property and equipment are carried at historical cost less accumulated depreciation. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized. The cost and the related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.

The Company provides for depreciation of property and equipment principally by use of the straight-line method for financial reporting purposes. Depreciation begins in the month that depreciable assets are placed in service. The only assets currently placed in service are computers and furniture and equipment. Computers and depreciable equipment are estimated to have a useful life of 5 years. Depreciation is computed based on a straight line basis over the estimated useful life. All property and equipment is fully depreciated at the end of the fiscal year end. And is no longer reflected as an asset.

Contingencies

We account for loss contingencies in accordance with ASC 450, "Accounting for Contingencies." Accordingly, when management determines that it is probable that an asset has been impaired or a liability has been incurred, we accrue our best estimate of the loss if it can be reasonably estimated. Our legal costs related to litigation are expensed as incurred.

Income Tax

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss, 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 basis. 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 the tax laws and rates on the date of enactment.

Earnings / Loss Per Share

In accordance with ASC 280, "Earnings Per Share," we report basic loss per common share, which excludes the effect of potentially dilutive securities, and diluted loss per common share, which includes the effect of all potentially dilutive securities unless their impact is anti-dilutive.

Share-Based Compensation

We may, from time to time, issue common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to persons other than employees or directors are recorded on the basis of their fair value.

Long Lived Assets

The Company maintains a Long Lived Asset which is reviewed regularly for impairment. In its review for impairment, the Company prepares estimates of future cash flows to assist in the determination of the asset’s recoverability. If there is an issue regarding recoverability, an independent valuation will be obtained to determine any required adjustment for impairment The estimates used in determining for recoverability are updated by the Company on a regular basis to provide guidance for management’s quarterly and annual reporting.

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Revenue Recognition

The Company had no sales activity during the current fiscal year ended March 31, 2022. The Company records sales of its products based upon the terms of the contract; when title passes to its customers; and, when collectability is reasonably assured.

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 3 – INVENTORY

There were no sales in the year ended March 31, 2022. The inventory reflected on the books was $0 for the fiscal year ended March 31. 2022.

Note 4 – NOTES PAYABLE

Johnson Financing

Total interest accrued as of March 31, 2022 is $0 . A total of $2,598 was accrued in the first three months ended June 30, 2021. In the period ended September 30, 2021, an additional review of the Dutro settlement impact was conducted. In the review of the settlement impact, three loans were considered to be included within the terms of the settlement agreement including the Johnson loan. The full amount of the loan balances plus all accrued interest was treated as a gain on the extinguishment of debt as a result of the Court’s decision. No interest was accrued since June 30, 2021. No further interest shall be accrued in future periods.

Dutro Financing:

In October 2020, The Court dismissed the Dutro Litigation with no amounts due either party. As a result of the Court’s decision, the contingent interest along with the full outstanding loan balance was forgiven and no future interest is due. No interest was accrued in the current period. No further interest shall be accrued in future periods.

In the period ended September 30, 2021, an additional review of the Dutro settlement impact was conducted. In the review of the settlement impact, three loans were considered to be included within the terms of the settlement agreement including two individual loans totaling $70,000. The full amount of the loan balances plus all accrued interest of $35,816 was treated as a gain on the extinguishment of debt as a result of the Court’s decision. No interest was accrued on these loans since June 30, 2021. No further interest shall be accrued on these loans in future periods.

Asher Enterprises, Inc.

Total interest accrued as of March 31, 2022 was $62,902 of which $5,200 was accrued during the fiscal year ended March 31, 2022. The current period interest is included as part of other notes interest.

All interest is due under the terms of the various agreements. However future interest payments will not be made until cash flow issues are resolved, funding is available and a satisfactory revised payment arrangement is completed by all parties.

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Note 5 – EQUITY

During the Fiscal Year ended: March 31, 2022:

No equity transactions occurred in the period ended March 31, 2022

During the Fiscal Year ended: March 31, 2021:

No equity transactions occurred in the period ended March 31, 2021

Note 6 – GOING CONCERN

The Company generated minimal revenues prior to the current fiscal year. No revenues were generated for the fiscal year ended March 31, 2022. 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.

Note 7 - 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.

Net deferred tax assets /liabilities consist of the following components as of March 31, 2022 and 2021:

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The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rate to pretax income from continuing operations for the years ended March 31, 2022 and 2021 due to the following:

At March 31, 2022, the Company had net operating loss carryforwards of approximately $1,635,777 that may be offset against future taxable income. No tax provision has been reported in the March 31, 2022 financial statements since the potential tax benefit is offset by a the NOL carryover of the same amount.

Net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. No limitations applied to the current year as losses used were generated from pre-2018 tax years. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

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 March 31, 2022 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 2017.

NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, payables, and notes payable. The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments.

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Note 9 – OTHER INCOME

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. Based on this ruling, as of the fiscal year ended March 31, 2021, the Company has recognized other income for the extinguishment of debt released in the amount of $2,115,532. The amount includes the direct costs associated with the litigants as well as the legal fees that have been established over the years as a contingent reserve due to the Dutro Litigation. The total breakdown of the components of the Gain on the Extinguishment of Debt is as follows:

In the period ended September 30, 2021, an additional review of the Dutro settlement impact was conducted and additional debts and liabilities were identified that should be released due to the terms of the settlement. The Company in the period ended September 30, 2021 has recognized other income for the extinguishment of debt released in the amount of $576,426. The total breakdown of the components of the Gain on the Extinguishment of Debt is as follows: .

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