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SECTOR 10 INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

July 14, 2014

Plan of Operation

The Company's cash balance is insufficient to satisfy the Company's cash requirements for the next 12 months. Due to issues surrounding Dutro Group and other pending litigation, the ability to deliver products to customers has been delayed. Litigation involving various parties continues and is expected to continue for the foreseeable future. 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.

Our notes to the financial statements disclose that the cash flow of the Company has been absorbed in operating activities, has incurred net losses for the fiscal year and has a working capital deficiency. Due to the pending litigation and the current restructuring, the Company operations are not likely to produce positive cash flow until at least the fiscal year ended March 31, 2013. These factors raise substantial doubt about our ability to continue as a going concern. Our going concern uncertainty may affect our ability to raise additional capital, and may also affect our relationships with suppliers and customers. Investors should carefully examine our financial statements and read the notes to the financial statements.

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Results of Operations for the year ended March 31, 2014 as compared to the year ended March 31, 2013.

Revenues -

The Company had no revenues for the fiscal year ended March 31, 2014.

The Company had no revenues for the fiscal year ended March 31, 2013.

Other Income-

The Company had no other income for the fiscal year ended March 31, 2014.

The Company had no other income for the fiscal year ended March 31, 2013.

Cost of Sales -

The Company had no cost of sales or other operating expenses for the fiscal year ended March 31, 2014.

The Company had no cost of sales or other operating expenses for the fiscal year ended March 31, 2013.

General and Administrative Expenses -

General and administrative expenses were $771,263 for the fiscal year ended March 31, 2014. These expenses are made up of wages - $546,000, professional fees - $145,000, payroll taxes - 54,600, registration/filing /transfer fees - $12,980, insurance expenses - $8,283 , financing fees of - $4,000 and franchise tax - $400.

General and administrative expenses were $794,561 for the fiscal year ended March 31, 2013. These expenses are made up of wages - $522,786, professional fees - $245,000, registration/filing /transfer fees - $21,775 and financing fees of - $5,000.

Depreciation Expense -

Depreciation expense was $0 for the fiscal year ended March 31, 2014.

Depreciation expense was $3,189 for the fiscal year ended March 31, 2013.

Interest expense

The Company had interest expense of $226,543 for the year ended March 31, 2014.

The Company had interest expense of $165,440 for the year ended March 31, 2013.

Other expense

The Company had no other expense for the year ended March 31, 2014.

The Company had no other expense for the year ended March 31, 2013.

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Liquidity and Capital Resources

Cash and cash equivalents -

We believe our bank balance of $0 with a deficit in working capital of $4,597,340 as of March 31, 2014 is not sufficient to meet our working capital requirements for the coming year.

Total assets -

We currently have $18,409 in total assets for the year ended March 31, 2014. Our total assets are comprised of Cash - $ 0, Inventory - $18,409 and Net fixed assets - $0.

Working capital -

Since the merger on November 20, 2007, we initially have financed the operations exclusively through advances from shareholders and officers. Beginning in May 2008, outside investors have assisted in provided working capital. Total cumulative outside capital received amounted to $657,500 as of the fiscal year ended March 31, 2014.

As of this filing date, the Company is in the midst of litigation and 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 will not be complete until the litigation has been completed. Potential funding for operations is not expected until sometime in the fiscal year ended March 31, 2015 or beyond.

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. 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.

Liabilities -

Current liabilities as of March 31, 2014 were $4,615,749. The balance was composed of accounts payable and accrued liabilities of $4,375,134 and note payable to outside investors of $240,615.

Current liabilities as of March 31, 2013 were $3,617,943. The balance was composed of accounts payable and accrued liabilities of $3,377,328 and note payable to outside investors of $240,615.

Long term liabilities as of March 31, 2014 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.

Long term liabilities as of March 31, 2013 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 March 31, 2014 were $5,098,749. Total liabilities as of March 31, 2013 were $4,100,943.

7 -------------------------------------------------------------------------------- Cash flows - Year Ended Year Ended March 31, March 31, Sources and Uses of Cash 2014 2013 Net cash provided by / (used in) Operating activities $ 0 $ 0 Investing activities 0 0 Financing activities 0 0 Increase/(decrease) in cash and cash equivalents $ 0 $ 0 Years ended March 31, 2014 and 2013 Cash and cash equivalents $ 0 $ 0



Operating Activities -

Cash used in operations for the year ended March 31, 2014 was $0. This included a loss from operation of ($997,806) and a net change in accounts payable and accrued liabilities of $997,806.

Cash used in operations for the year ended March 31, 2013 was $0. This included a loss from operation of ($963,191), net change in accounts payable and accrued liabilities of $935,216, stock issued for services of $24,786 and an adjustment for non cash depreciation expense of $3,189.

Investing Activities -

There was no cash used in Investing Activities for the year ended March 31, 2014.

There was no cash used in Investing Activities for the year ended March 31, 2013.

Financing Activities -

There was no cash provided in financing activities for the year ended March 31, 2014.

There was no cash provided in financing activities for the year ended March 31, 2013.

Critical Accounting Policies

The discussions and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon the financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the impairment of its intangible assets. Actual results could differ from the estimates. We believe the following are the critical accounting policies used in the preparation of the consolidated financial statements.

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Revenue -

The Company had no sales activity during the current fiscal year ended March 31, 2014. 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.

Income Taxes -

The amount of income taxes recorded by us requires the interpretation of complex rules and regulations of various taxing jurisdictions throughout the world. We have recognized deferred tax assets and liabilities for all significant temporary differences, operating losses and tax credit carryforwards. We routinely assess the potential realization of our deferred tax assets and reduce such assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. We routinely assess potential tax contingencies and, if required, establish accruals for such contingencies. The accruals for deferred tax assets and liabilities are subject to a significant amount of judgment by us and we review and adjust routinely our estimates based on changes in facts and circumstances. Although we believe our tax accruals are adequate, material changes in these accruals may occur in the future, based on the progress of ongoing tax audits, changes in legislation and resolution of pending tax matters.

Litigation -

An estimated loss from a loss contingency is recorded when information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal matters requires the use of judgment as to the probability of the outcome and the amount. Many legal contingencies can take years to be resolved. An adverse outcome could have a material impact on our financial condition, operating results and cash flows.

Going Concern Qualification

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


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Source: Edgar Glimpses


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