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)
CONSOLIDATED BALANCE SHEETS
For the Years Ended March 31, 2019 and 2018
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
ASSETS
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
-
|
|
Inventory, net
|
|
|
-
|
|
|
|
-
|
|
Total current assets
|
|
|
-
|
|
|
|
-
|
|
Fixed assets cost
|
|
|
22,250
|
|
|
|
22,250
|
|
Less: accumulated depreciation
|
|
|
(22,250
|
)
|
|
|
(22,250
|
)
|
Net fixed assets
|
|
|
-
|
|
|
|
-
|
|
Other assets - Network acquisition/development costs
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
10,234,025
|
|
|
$
|
8,928,642
|
|
Note payable - short term
|
|
|
803,615
|
|
|
|
803,615
|
|
Total current liabilities
|
|
|
11,037,640
|
|
|
|
9,732,257
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Note payable
|
|
|
-
|
|
|
|
-
|
|
Total long term liabilities
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
11,037,640
|
|
|
|
9,732,257
|
|
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
|
|
|
(17,186,175
|
)
|
|
|
(15,880,792
|
)
|
Total shareholders' equity (deficit)
|
|
|
(11,037,640
|
)
|
|
|
(9,732,257
|
)
|
Total liabilities and shareholders' equity (deficit)
|
|
$
|
0
|
|
|
|
0
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Sector 10, Inc.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 31, 2019 and 2018 and for the Period From Inception,
September 16, 2002 to March 31, 2019
|
|
Years Ended
|
|
|
Inception to
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,500
|
|
Cost of Sales
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,032
|
)
|
Gross Profit
|
|
|
-
|
|
|
|
-
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
832,025
|
|
|
|
800,575
|
|
|
|
13,578,148
|
|
Depreciation
|
|
|
0
|
|
|
|
0
|
|
|
|
24,106
|
|
Research and development
|
|
|
0
|
|
|
|
0
|
|
|
|
226,108
|
|
Total expenses
|
|
|
832,025
|
|
|
|
800,575
|
|
|
|
13,828,362
|
|
Income (loss) from operations
|
|
|
(832,025
|
)
|
|
|
(800,575
|
)
|
|
|
(13,827,894
|
)
|
Interest expense
|
|
|
(473,358
|
)
|
|
|
(420,557
|
)
|
|
|
(2,727,486
|
)
|
Other income (expense)
|
|
|
0
|
|
|
|
0
|
|
|
|
(630,795
|
)
|
Net income (loss) before income taxes
|
|
|
(1,305,383
|
)
|
|
|
(1,221,132
|
)
|
|
|
(17,186,175
|
)
|
Provision for income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net income (loss) after income taxes
|
|
$
|
(1,305,383
|
)
|
|
$
|
(1,221,132
|
)
|
|
$
|
(17,186,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - basic and diluted
|
|
|
305,778
|
|
|
|
305,778
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(4.27
|
)
|
|
$
|
(3.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(4.27
|
)
|
|
$
|
(3.99
|
)
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
Sector 10, Inc.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
For the period from September 16, 2002 (inception) through March 31, 2019
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
During
Development
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
Balance at Inception, September, 16, 2002
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issued Shares
|
|
|
10,000
|
|
|
|
10
|
|
|
|
(1,414
|
)
|
|
|
-
|
|
Net loss for the period 12/31/2002
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,586
|
)
|
Net loss for the period 1/1/2003 to 3/31/2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recapitalization
|
|
|
5,464
|
|
|
|
6
|
|
|
|
(703,166
|
)
|
|
|
-
|
|
Net loss for the period 3/31/2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(123,946
|
)
|
Issued Shares 3/31/2009
|
|
|
20,256
|
|
|
|
20
|
|
|
|
1,702,738
|
|
|
|
-
|
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
10,850
|
|
|
|
-
|
|
Net loss for the period 3/31/2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(532,775
|
)
|
Issued Shares 3/31/2010
|
|
|
65,099
|
|
|
|
65
|
|
|
|
3,265,424
|
|
|
|
-
|
|
Net loss for the period 3/31/2010
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,587,632
|
)
|
Balance at March 31, 2010 (audited)
|
|
|
100,819
|
|
|
|
101
|
|
|
|
4,274,432
|
|
|
|
(5,247,939
|
)
|
Issued Shares
(unaudited)
|
|
|
243,443
|
|
|
|
243
|
|
|
|
1,199,745
|
|
|
|
-
|
|
Adjustment to value of stock options at 3/31/ 2011
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
116,455
|
|
|
|
-
|
|
Discount on Convertible notes
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
206,324
|
|
|
|
-
|
|
Net loss for the period 3/31/2011
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,572,447
|
)
|
Issued Shares
(unaudited)
|
|
|
(23,315
|
)
|
|
|
(23
|
)
|
|
|
76,988
|
|
|
|
-
|
|
Adjust for 500-to 1 reverse split
(unaudited)
|
|
|
(15,169
|
)
|
|
|
(15
|
)
|
|
|
152,451
|
|
|
|
-
|
|
Adjustment to value of stock options at 3/31/2012
(unaudited
)
|
|
|
-
|
|
|
|
-
|
|
|
|
97,048
|
|
|
|
-
|
|
Net loss for the period 3/31/2012 (
unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,447,492
|
)
|
Adjustment to value of stock options at 3/31/2013
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
24,786
|
|
|
|
-
|
|
Net loss for the period 3/31/2013
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(963,191
|
)
|
Net loss for the period 3/31/2014
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(997,806
|
)
|
Net loss for the period 3/31/2015
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,074,487
|
)
|
Net loss for the period 3/31/2016
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,137,218
|
)
|
Net loss for the period 3/31/2017
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,219,080
|
)
|
Net loss for the period 3/31/2018
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,221,132
|
)
|
Balance at March 31, 2018
(unaudited)
|
|
|
305,778
|
|
|
$
|
306
|
|
|
$
|
6,148,229
|
|
|
$
|
(15,880,792
|
)
|
Net loss for the period 3/31/2019
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,305,383
|
)
|
Balance at March 31, 2019
(unaudited)
|
|
|
305,778
|
|
|
$
|
306
|
|
|
$
|
6,148,229
|
|
|
$
|
(17,186,175
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
Sector 10, Inc.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended March 31, 2019 and 2018
and for the Period From Inception,
September 16, 2002, to March 31, 2019
|
|
Years Ended
|
|
|
Inception to
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
March 31,
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,305,383
|
)
|
|
$
|
(1,221,132
|
)
|
|
$
|
(17,186,175
|
)
|
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
|
|
|
1,305,383
|
|
|
|
1,221,132
|
|
|
|
10,747,728
|
|
Net cash used in operating activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(467,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
737,500
|
|
Net Proceeds (payments) from shareholder / officers
|
|
|
-
|
|
|
|
-
|
|
|
|
(113,947
|
)
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
33,586
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
657,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements
Sector 10, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS OPERATIONS
The Company markets the MRU and SRU products and the PLX-3D technology. In 2009, the Company was planning to
release the technology and its MRU and SRU products in San Francisco and other cities in the US with the help of the Gage Group and other parties.
In 2009, the outside Manufacturer breached the manufacturing contract. In 2009 and in subsequent years, it was
also discovered that the manufacturer and its affiliates had been conducting a technology transfer to other parties. Litigation is pending regarding these matters in Utah state court
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-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.
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, 2019.
Inventory
Inventories are valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out
basis. Due to pending litigation, there was no sales activity and no inventory on hand at the fiscal year ended March 31, 2019. Due to the impact of the extended litigation, the inventory has been recorded at no value as of March 31, 2019.
Therefore, for the fiscal year ended March 31, 2019, all inventory and the related reserve was $0.
.
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.
Notes Payable
The Company received funding from outside investors. The Company is currently in litigation and any additional funding
(if any) will be used for legal fees. No additional operational funding is expected until at least during the fiscal year ended March 31, 2020.
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.
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.
Revenue Recognition
The Company had no sales activity during the current fiscal year ended March 31, 2019. 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, 2019. The inventory reflected on the books was $0 for the fiscal year
ended March 31. 2019.
Note 4 – NOTES PAYABLE
Johnson Financing
Total interest accrued as of March 31, 2019 was $60,080 (net of $6,000 payments made in prior years) of which $10,394 was
accrued during the fiscal year ended March 31, 2019.
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 fiscal year ended March 31, 2019 was $36,225 comprised of Dutro Company - $18,750, Vick Davis - $12,600 and William Dutro - $4,875. Total contingent reserve -
interest for the period ended March 31, 2019 is $333,854 comprised of Dutro Company - $180,948, Vick Davis - $110,250 and William Dutro - $42,656.
Employee Agreement:
The financial statements reflect an accrual of interest on unpaid wages and other compensation in the amount of $1,896,596
of which $408,019 is accrued during the fiscal year ended March 31, 2019.
Other Notes
Individuals – short
term
Total interest accrued as of March 31, 2019 was $80,250 of which $13,520 was accrued during the fiscal year ended March
31, 2019. The current period interest is included as part of other notes interest.
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 March 31, 2019 was $47,302 of which $5,200 was accrued during
the fiscal year ended March 31, 2019. The current period interest is included as part of other notes interest.
Summary of Interest
and Notes Payable
Interest expense
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
|
|
|
|
|
|
Interest – Johnson
|
|
|
10,394
|
|
|
|
10,394
|
|
Interest – Dutro Group
|
|
|
36,225
|
|
|
|
36,225
|
|
Interest - Employee Group
|
|
|
408,019
|
|
|
|
355,218
|
|
Interest – Other Notes
|
|
|
18,720
|
|
|
|
18,720
|
|
Total interest expense
|
|
$
|
473,358
|
|
|
$
|
420,557
|
|
Note Payable Balance
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
|
|
|
|
|
|
Edward Johnson – Johnson Financing
|
|
$
|
86,615
|
|
|
$
|
86,615
|
|
Various Individuals – Other Notes
|
|
|
169,000
|
|
|
|
169,000
|
|
Asher Enterprises, Inc. – Other Notes
|
|
|
65,000
|
|
|
|
65,000
|
|
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 – short term
|
|
$
|
803,615
|
|
|
$
|
803,615
|
|
Total Note Payable – long term
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
$
|
803,615
|
|
|
$
|
803,615
|
|
Debt Maturity Schedule
As of March 31, 2019 the annual maturities for notes payable are scheduled as follows:
Fiscal Year
|
|
Amount
|
|
|
|
|
|
March 31, 2020
|
|
|
803,615
|
|
March 31, 2021
|
|
|
-
|
|
March 31, 2022
|
|
|
-
|
|
|
|
|
|
|
Total
|
|
$
|
803,615
|
|
All interest is due under the terms of the various agreements. However future interest payments will not be made until
all pending litigation is resolved and a satisfactory revised payment arrangement is completed by all parties.
Note 5 – EQUITY
During the Fiscal Year ended: March 31,
2018:
No equity transactions occurred in the period ended March 31, 2018
During the Fiscal Year ended: March 31,
2019:
No equity transactions occurred in the period ended March 31, 2019
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, 2019. 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 in order to continue forward as a going concern. It is expected that litigation will continue to hinder the ability to continue as a going concern through the
end of the fiscal year ended March 31, 2020.
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, 2019 and 2018:
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
NOL Carryover
|
|
$
|
433,761
|
|
|
$
|
433,761
|
|
Related Party Accruals
|
|
|
2,878,532
|
|
|
|
2,454,304
|
|
Accrued Expenses
|
|
|
1,112,738
|
|
|
|
1,027,866
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(4,425,031
|
)
|
|
|
(3,915,931
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2019 and 2018 due to the following:
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
|
|
|
|
|
|
|
Book Income
|
|
$
|
(509,099
|
)
|
|
$
|
(476,241
|
)
|
Depreciation
|
|
|
0
|
|
|
|
0
|
|
Meals & Entertainment
|
|
|
0
|
|
|
|
0
|
|
Stock for Services & Finance
|
|
|
0
|
|
|
|
0
|
|
Related Party Accruals
|
|
|
424,228
|
|
|
|
400,145
|
|
Accrued Expenses
|
|
|
84,872
|
|
|
|
76,097
|
|
Impairment Loss
|
|
|
0
|
|
|
|
0
|
|
Valuation Allowance
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At March 31, 2019, the Company had net operating loss carryforwards of approximately $1,112,209 that may be offset against
future taxable income from the year 2020 through 2039. No tax benefit has been reported in the March 31, 2019 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. 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, 2019 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 2015.
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.
Note 9 – 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
Dutro
Company, Reality Engineering, William Dutro, Vicki Davis, Lee Allen, Valley Inception, LLC, Incisive Software Corporation and Promixex Corporation
continues and is expected to continue for the foreseeable future. Counsel is
preparing for defendant depositions and other discovery proceedings. The Company expects a trial date is expected to be set before the end of the fiscal year ended March 31, 2020.
|
|
|
2)
|
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.
|
|
|
3)
|
Federal and Stater authorities have and will continue to be updated on the litigation issues and proceedings
|