10-Q

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 June 30, 2014

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 August 16, 2014 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 June 30, 2014 and  March 31, 2014	3
	Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2014 and 2013 and for the period from inception, September 16, 2002 to June 30, 2014	4
	Unaudited Consolidated Statements of Cash Flows for the three months ended June 30, 2014 and 2013 and for the period from inception, September 16, 2002, to June 30, 2014.	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	12
Item 4.	Controls and Procedures	13
Part II. Other Information
Item 1.	Legal Proceedings	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	14
Item 6.	Exhibits	14
	Signatures	15

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Item 1. 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.

Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,  2014			March 31, 2014
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		(22,250	)		(22,250	)
Net fixed assets		-			0
Total assets	$	18,409		$	18,409
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	4,643,502		$	4,375,134
Note payable - short term		240,615			240,615
Total current liabilities		4,884,117			4,615,749
Long term liabilities:
Note payable		483,000			483,000
Total long term liabilities		483,000			483,000
Total liabilities		5,367,117			5,098,749
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			6,148,229
Deficit accumulated during development stage		(11,497,243	)		(11,228,875	)
Total shareholders' equity (deficit)		(5,348,708	)		(5,080,340	)
Total liabilities and shareholders' equity (deficit)	$	18,409			18,409

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

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Sector 10, Inc.

 (A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, 2014 and 2013 and for the Period From Inception,

September 16, 2002 to June 30, 2014

	Three Months Ended						Inception to
	June 30,  2014			June 30,  2013			June 30,  2014
	(Unaudited)			(Unaudited)
Sales	$	-		$	-		$	18,500
Cost of Sales		-			-			(18,032	)
Gross Profit		-			-			468
Expenses:
General and administrative		208,096			193,460			9,654,584
Depreciation		-			-			24,106
Research and development		-			-			226,108
Total expenses		208,096			193,460			9,904,798
Income (loss) from operations		(208,096	)		(193,460	)		(9,904,330	)
Interest expense		(60,272	)		(47,892	)		(962,118	)
Other income (expense)		-			-			(630,795	)
Net income (loss) before income taxes		(268,368	)		(241,352	)		(11,497,243	)
Provision for income taxes		-			-			-
Net income (loss) after income taxes	$	(268,368	)	$	(241,352	)	$	(11,497,243	)
Weighted Average Shares Outstanding - basic and diluted *		305,778			305,778
Basic and diluted income (loss) per share
Continuing Operations	$	(0.88	)	$	(0.79	)
Net Income (Loss)	$	(0.88	)	$	(0.79	)

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

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Sector 10, Inc.

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended June 30, 2014 and 2013 and for the Period From Inception,

September 16, 2002 to June 30, 2014

	Three Months Ended						Inception to
	June 30,  2014			June 30,  2013			June 30,  2014
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities:
Net Loss	$	(268,368	)	$	(241,352	)	$	(11,497,243	)
Adjustments to reconcile  net loss to net cash used in operating activities:
Stock for services		-			-			5,114,493
Depreciation		-			-			24,106
Net discount on convertible debt		-			-			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		268,368			241,352			5,138,796
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		-			-			(113,947	)
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	$	2,000		$	-		$	24,295
Cash paid for income taxes	$	-		$	-		$	-

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

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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 three month period ended June 30, 2014.  Therefore, total inventory remains at $18,409 for the three month period ended June 30, 2014.  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 three month period ended June 30, 2014, the Company has a reserve of $12,491.

Note 3 – NOTES PAYABLE

Johnson Financing

The interest accrued for the three month period ended June 30, 2014 was $2,598.

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 three month period ended June 30, 2014 was $ 9,056 comprised of Dutro Company - $4,687, Vick Davis - $3,150 and William Dutro - $1,219. Total contingent reserve - interest for the period ended June 30, 2014 is $161,785 comprised of Dutro Company - $91,885, Vick Davis - $50,400 and William Dutro - $19,500.

Employee Agreement:

The financial statements reflect an accrual of interest on unpaid wages and other compensation in the amount of 426,923 of which $45,537 is accrued during the three month period ended June 30, 2014.  As of June 30, 2014, no election has been made to convert any portion of the balance due under the agreement to common shares.

Other Notes

Individuals – short term

 Total interest accrued as of June 30, 2014 was $53,297 of which $3,081 was accrued during the three month period ended June 30, 2014.

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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 June 30, 2014 was $22,602 of which $1,300 was accrued during the three month period ended June 30, 2014.  The current period interest is included as part of other notes interest.

Summary of Interest and Notes Payable

Interest expense	June 30,  2014		June 30,  2013
Interest – Johnson		2,598		1,299
Interest – Dutro Group		9,056		9,056
Interest  - Employee Group		45,537		34,457
Interest – Other Notes		3,081		3,080
Total interest expense	$	60,272	$	47,892

Note Payable Balance	June 30,  2014		March 31,  2014
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 June 30, 2014, the annual maturities for notes payable are scheduled as follows:

Fiscal Year	Amount
March 31, 2014	$	0
March 31, 2015	$	723,615
March 31, 2016	$	0
Total	$	723,615

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Note 4 – EQUITY

During the Quarter ended: June 30, 2014:

No equity transactions occurred in the period ended June 30, 2014.

Note 5 – GOING CONCERN

The Company generated minimal revenues prior to the current fiscal year.  No revenues were generated for the three month period ended June 30, 2014. 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.  It is expected that the restructuring will be completed after the current litigation is completed.  After the restructuring is completed, revenues are not expected to be generated at the earliest by the end of the year ended March 31, 2015.

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 three month period ended June 30, 2014 and 2013 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 June 30, 2014 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 2011.

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.

1) 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.

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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’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.

Going Concern Qualification

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 end of the fiscal year ended March 31, 2015. 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.

Results of Operations

Three Months Ended June 30, 2014 as Compared to the Three Months Ended June 30, 2013

Revenues -

The Company had no revenues for the three months ended June 30, 2014.

The Company had no revenues for the three months ended June 30, 2013.

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Other Income-

The Company had no other income for the three months ended June 30, 2014.

The Company had no other income for the three months ended June 30, 2013.

Cost of Sales -

The Company had no cost of sales or other operating expenses for the fiscal year ended June 30, 2014.

The Company had no cost of sales or other operating expenses for the fiscal year ended June 30, 2013.

All expenses for the Company were treated as general and administrative expenses.

General and Administrative Expenses -

General and administrative expenses were $208,096 for the three months ended June 30, 2014. These expenses are made up of accrued and unpaid wages – $148,500, Legal & professional fees – $40,000, accrued payroll taxes – $14,850, Insurance expense - $3,336 and Filing, financing and other fees - $1,410.

General and administrative expenses were $193,460 for the three months ended June 30, 2013. These expenses are made up of accrued and unpaid wages – $136,500, Legal & professional fees – $40,000, accrued payroll taxes – $13,650 and Filing, financing and other fees - $3,310.

Depreciation Expense –

Depreciation expense for the three month period ended June 30, 2014 was $0.

Depreciation expense for the three month period ended June 30, 2013 was $0.

Interest Expense –

Interest expense for the three month period ended June 30, 2014 was $60,272 for interest accrued on notes payable.

Interest expense for the three month period ended June 30, 2013 was $47,892 for interest accrued on notes payable.

Liquidity and Capital Resources

`

As of June 30, 2014, 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, 2015 or for any future period.

Total Assets -

The Company had $18,409 in total assets as of June 30, 2014, comprised of cash - $0 and Inventory of $18,409.

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 period ended June 30, 2014.

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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.

Total Liabilities -

Current liabilities as of June 30, 2014 were $4,884,117. The balance was composed of accounts payable and accrued liabilities of $4,643,502, note payable to outside investors of $240,615.

Long term liabilities as of June 30, 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.

Total liabilities as of June 30, 2014 were $5,367,117.

Cash flows -

	Three Months Ended		Three Months Ended
	June 30,		June 30,
Sources and Uses of Cash	2014		2013
Net cash provided by / (used in)
Operating activities	$	-	$	-
Investing activities		-		-
Financing activities		-		-
Increase/(decrease) in cash and cash equivalents	$	-	$	-
Period ended June 30, 2014 and 2013
Cash and cash equivalents	$	-	$	-

Operating Activities -

Cash used in operations for the three months ended June 30, 2014 was $0.

Cash used in operations for the three months ended June 30, 2013 was $0.

Investing Activities –

Cash used from investing activities for the three months ended for June 30, 2014 was $0.

Cash used from investing activities for the three months ended for June 30, 2013 was $0.

Financing Activities -

Cash provided from financing activities for the three months ended June 30, 2014 was $0.

Cash provided from financing activities for the three months ended June 30, 2013 was $0.

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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

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 end of the fiscal year ended March 31, 2015. 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.

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 Company relies on outsourced manufacturers for the production of all Sector 10 products.  Litigation is pending regarding the breach of contract by the former outsourced manufacturer and other issues resulting in indefinite delays in production capability and capacity.

· 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.

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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 June 30, 2014, 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

The Company is aware of the following situation regarding litigation, pending or threatened, to which it is a party.

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 at least into the fiscal year ended March 31, 2015. The Company has filed a claim against the Dutro Group to seek relief for the damages incurred by Dutro Group actions. The Company believes that sufficient reserves are included in the financial statements for exposures for the issues represented in these actions.

 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 were pending in litigation. A settlement was reached in the Johnson case on November 14, 2013.  Under the settlement, the parties agreed to retain the judgment for collection of the outstanding debt and drop all other claims and counter claims.  Payment of the judgment will be made based on a payment of $2,000 at settlement and then a payment of $2,000 every 90 days.  Proceeds from other litigation (if any) will be used as the primary source of funds to pay off the judgment.  The judgment including accrued interest was agreed to be $115,198 as of May 1, 2013.  Interest will accrue on the principal of $86,615 at an annual rate of 12% until the judgment is paid in full.  The outstanding loan had been accruing interest at a rate of 6% per year.  The impact of the settlement and the resulting increase in interest to 12% has been reflected in the current financial statements, Payments are allocated first to unpaid interest and then principal.

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 Court dismissed the case under grounds that the Company believes has no legal basis.  The Company has filed an appeal to reinstate the litigation.  The appeal is expected to be heard during the fiscal year ended March 31, 2015.

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

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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

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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.
August 19, 2014	By: /s/ Pericles DeAvila
Date	Pericles DeAvila, President
August 19, 2014	By: /s/ Laurence A. Madison
Date	Laurence A. Madison Chief Financial Officer

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EX-31.1

EXHIBIT 31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Pericles DeAvila, certify that:

1. I have reviewed this quarterly report on 10-Q of Sector 10, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 19, 2014

By: /s/ Pericles DeAvila

Pericles DeAvila

Principal Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

I, Laurence A. Madison, certify that:

1. I have reviewed this quarterly report on 10-Q of Sector 10, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 19, 2014

By: /s/ Laurence A. Madison

Laurence A. Madison

Chief Financial Officer

EX-32.1

EXIBIT 32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

In connection with the Quarterly Report of Sector 10, Inc.; on Form 10-Q for the quarterly period ended June 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), Pericles DeAvila, Principal Executive Officer of the Company, does hereby certify, pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By: /s/ Pericles DeAvila

Name: Pericles DeAvila

Principal Executive Officer

August 19, 2014

EX-32.2

EXIBIT 32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

In connection with the Quarterly Report of Sector 10, Inc.; on Form 10-Q for the quarterly period ended June 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), Laurence A. Madison, Chief Financial Officer of the Company, does hereby certify, pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By: /s/ Laurence A. Madison

Name: Laurence A. Madison

Chief Financial Officer

August 19, 2014

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Note 4 - Equity

3 Months Ended

Jun. 30, 2014

Notes

Note 4 - Equity

Note 4 – EQUITY

During the Quarter ended: June 30, 2014:

No equity transactions occurred in the period ended June 30, 2014.

XML

Note 3 - Notes Payable

3 Months Ended

Jun. 30, 2014

Notes

Note 3 - Notes Payable

Note 3 – NOTES PAYABLE

Johnson Financing

The interest accrued for the three month period ended June 30, 2014 was $2,598.

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 three month period ended June 30, 2014 was $ 9,056 comprised of Dutro Company - $4,687, Vick Davis - $3,150 and William Dutro - $1,219. Total contingent reserve - interest for the period ended June 30, 2014 is $161,785 comprised of Dutro Company - $91,885, Vick Davis - $50,400 and William Dutro - $19,500.  

Employee Agreement:

The financial statements reflect an accrual of interest on unpaid wages and other compensation in the amount of 426,923 of which $45,537 is accrued during the three month period ended June 30, 2014.  As of June 30, 2014, no election has been made to convert any portion of the balance due under the agreement to common shares.

Other Notes

Individuals – short term

 Total interest accrued as of June 30, 2014 was $53,297 of which $3,081 was accrued during the three month period ended June 30, 2014.

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 June 30, 2014 was $22,602 of which $1,300 was accrued during the three month period ended June 30, 2014.  The current period interest is included as part of other notes interest. 

Summary of Interest and Notes Payable

Interest expense		June 30,  2014		June 30,     2013
Interest – Johnson		2,598		1,299
Interest – Dutro Group		9,056		9,056
Interest  - Employee Group		45,537		34,457
Interest – Other Notes		3,081		3,080
Total interest expense	$	60,272	$	47,892

Note Payable Balance		June 30,   2014		March 31,   2014
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 June 30, 2014, the annual maturities for notes payable are scheduled as follows:

Fiscal Year		Amount
March 31, 2014	$	0
March 31, 2015	$	723,615
March 31, 2016	$	0
Total	$	723,615

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2014	Mar. 31, 2014
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	(22,250)	(22,250)
Net fixed assets
Total assets	18,409	18,409
Current liabilities:
Accounts payable and accrued liabilities	4,643,502	4,375,134
Note payable - short term	240,615	240,615
Total current liabilities	4,884,117	4,615,749
Long term liabilities:
Note payable	483,000	483,000
Total long term liabilities	483,000	483,000
Total liabilities	5,367,117	5,098,749
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	6,148,229
Deficit accumulated during development stage	(11,497,243)	(11,228,875)
Total shareholders' equity (deficit)	(5,348,708)	(5,080,340)
Total liabilities and shareholders' equity (deficit)	$ 18,409	$ 18,409

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Note 1 - Basis of Presentation

3 Months Ended

Jun. 30, 2014

Notes

Note 1 - Basis of Presentation

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.

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Note 3 - Notes Payable: Schedule Of Debt Table TextBlock (Details) (USD $)	Jun. 30, 2014	Mar. 31, 2014
Note payable - short term	$ 240,615	$ 240,615
Note payable	483,000	483,000
Notes Payable	723,615	723,615
EdwardJohnsonJohnsonFinancingMember
Note payable - short term	86,615	86,615
PatrickMadisonOtherNotesMember
Note payable - short term	20,000	20,000
LionelBrownOtherNotesMember
Note payable - short term	20,000	20,000
PatriciaFieldingOtherNotesMember
Note payable - short term	22,000	22,000
MarkMadisonOtherNotesMember
Note payable - short term	10,000	10,000
RichardLongOtherNotesMember
Note payable - short term	17,000	17,000
AsherEnterprisesIncOtherNotesMember
Note payable - short term	65,000	65,000
VickiDavisDutroGroupMember
Note payable	168,000	168,000
WilliamDutroDutroGroupMember
Note payable	65,000	65,000
DutroCompanyDutroGroupMember
Note payable	$ 250,000	$ 250,000

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Note 2 - Inventory

3 Months Ended

Jun. 30, 2014

Notes

Note 2 - Inventory

Note 2 – INVENTORY

There were no sales in the three month period ended June 30, 2014.  Therefore, total inventory remains at $18,409 for the three month period ended June 30, 2014.  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 three month period ended June 30, 2014, the Company has a reserve of $12,491.

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CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICAL (USD $)	Jun. 30, 2014	Mar. 31, 2014
CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICAL
Preferred shares par value	$ 0.001	$ 0.001
Preferred shares authorized	1,000,000	1,000,000
Preferred shares issued
Preferred shares outstanding
Common shares par value	$ 0.001	$ 0.001
Common shares authorized	199,000,000	199,000,000
Common shares issued	305,778	305,778
Common shares outstanding	305,778	305,778

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Note 2 - Inventory (Details) (USD $)	Jun. 30, 2014	Mar. 31, 2014
Details
Inventory, net	$ 18,409	$ 18,409
Inventory Valuation Reserves	$ 12,491

XML

Document and Entity Information	3 Months Ended
	Jun. 30, 2014	Aug. 16, 2014
Document and Entity Information
Entity Registrant Name	SECTOR 10 INC
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Entity Central Index Key	0000925661
Current Fiscal Year End Date	--03-31
Entity Common Stock, Shares Outstanding		305,778
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1

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Note 3 - Notes Payable (Details) (USD $)	Jun. 30, 2014
Johnson Financing - Interest Accrued	$ 2,598
Contingent Reserve Interest Accrued	9,056
Total Contingent Reserve -Interest	161,785
DutroCompanyDutroGroupMember
Contingent Reserve Interest Accrued	4,687
Total Contingent Reserve -Interest	91,885
VickiDavisDutroGroupMember
Contingent Reserve Interest Accrued	3,150
Total Contingent Reserve -Interest	50,400
WilliamDutroDutroGroupMember
Contingent Reserve Interest Accrued	1,219
Total Contingent Reserve -Interest	$ 19,500

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		141 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Sales			$ 18,500
Cost of Sales			(18,032)
Gross Profit			468
General and administrative	208,096	193,460	9,654,584
Depreciation			24,106
Research and development			226,108
Total expenses	208,096	193,460	9,904,798
Income (loss) from operations	(208,096)	(193,460)	(9,904,330)
Interest expense	(60,272)	(47,892)	(962,118)
Other income (expense)			(630,795)
Net income (loss) before income taxes	(268,368)	(241,352)	(11,497,243)
Provision for income taxes
Net income (loss) after income taxes	$ (268,368)	$ (241,352)	$ (11,497,243)
Weighted Average Shares Outstanding - basic and diluted *	305,778	305,778
Continuing Operations	$ (0.88)	$ (0.79)
Net Income (Loss)	$ (0.88)	$ (0.79)

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Note 7 - Subsequent Events

3 Months Ended

Jun. 30, 2014

Notes

Note 7 - Subsequent Events

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. 

1)       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.

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Note 6 - Income Tax

3 Months Ended

Jun. 30, 2014

Notes

Note 6 - Income Tax

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 three month period ended June 30, 2014 and 2013 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 June 30, 2014 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 2011.

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Note 3 - Notes Payable: Schedule of maturities of notes payable (Details) (USD $)	Jun. 30, 2014	Mar. 31, 2014
Details
Long-term Debt, Maturities, Repayments of Principal, Remainder of Fiscal Year	$ 0
Long-term Debt, Maturities, Repayments of Principal in Year Two	723,615
Long Term Debt Maturities Repayments Of Principal In Year Three	0
Notes Payable	$ 723,615	$ 723,615

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Note 3 - Notes Payable: Employee Agreement (Details) (USD $)	3 Months Ended
	Jun. 30, 2014
Details
Accrual of interest on unpaid wages and other compensation	$ 45,537

XML

Note 3 - Notes Payable: Schedule Of Debt Table TextBlock (Tables)

3 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule Of Debt Table TextBlock

Note Payable Balance		June 30,   2014		March 31,   2014
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

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Note 6 - Income Tax: Income Tax, Policy (Policies)

3 Months Ended

Jun. 30, 2014

Policies

Income Tax, Policy

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 three month period ended June 30, 2014 and 2013 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 June 30, 2014 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 2011.

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Note 3 - Notes Payable: Summary of Interest Expense (Tables)

3 Months Ended

Jun. 30, 2014

Tables/Schedules

Summary of Interest Expense

Interest expense		June 30,  2014		June 30,     2013
Interest – Johnson		2,598		1,299
Interest – Dutro Group		9,056		9,056
Interest  - Employee Group		45,537		34,457
Interest – Other Notes		3,081		3,080
Total interest expense	$	60,272	$	47,892

XML

Note 3 - Notes Payable: Schedule of maturities of notes payable (Tables)

3 Months Ended

Jun. 30, 2014

Tables/Schedules

Schedule of maturities of notes payable

Fiscal Year		Amount
March 31, 2014	$	0
March 31, 2015	$	723,615
March 31, 2016	$	0
Total	$	723,615

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Note 3 - Notes Payable: Summary of Interest Expense (Details) (USD $)	3 Months Ended		15 Months Ended	141 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2014
Interest expense	$ 60,272	$ 47,892	$ 47,892	$ 962,118
Johnson
Interest expense	2,598		1,299
Dutro Group
Interest expense	9,056		9,056
Employee Group
Interest expense	45,537		34,457
Other Notes
Interest expense	$ 3,081		$ 3,080

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	141 Months Ended
	Jun. 30, 2014
Cash Flows from Operating Activities:
Net income (loss) after income taxes	$ (11,497,243)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock for services	5,114,493
Depreciation	24,106
Net discount on convertible debt	206,324
Loss due to Impairment / Gain on restructuring	630,795
Changes in inventory and other current assets	(4,869)
Changes in accounts payable and accrued liabilities	5,138,796
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	(113,947)
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	24,295
Cash paid for income taxes

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Note 5 - Going Concern

3 Months Ended

Jun. 30, 2014

Notes

Note 5 - Going Concern

Note 5 – GOING CONCERN

The Company generated minimal revenues prior to the current fiscal year.  No revenues were generated for the three month period ended June 30, 2014. 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.  It is expected that the restructuring will be completed after the current litigation is completed.  After the restructuring is completed, revenues are not expected to be generated at the earliest by the end of the year ended March 31, 2015.

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Note 3 - Notes Payable: Other Notes (Details) (USD $)	3 Months Ended
	Jun. 30, 2014
Details
Inividuals - short-term Interest accrued	$ 3,081
Asher Enterprises, Inc. - Interest Accrued	$ 1,300