0001550737
2014-01-01
2014-06-30
0001550737
2014-06-30
0001550737
2013-12-31
0001550737
2014-08-11
0001550737
2013-06-30
0001550737
2012-12-31
0001550737
2014-04-01
2014-06-30
0001550737
2013-04-01
2013-06-30
0001550737
2013-01-01
2013-06-30
iso4217:USD
xbrli:shares
iso4217:USD
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Sector 5, Inc.
0001550737
10-Q
2014-06-30
false
--12-31
No
No
Yes
Smaller Reporting Company
Q2
2014
882
12276
0.001
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75000000
-11394
-8376
-11673
-26516
2012-04-11
State of Nevada
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Nature
of Operations</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">SECTOR
5, INC. (“Sector 5” or the “Company”) was incorporated in the State of Nevada on April 11, 2012. Sector 5
plans to market its own brand under the brand name “Urban Street Apparel”. Because of the brand name Urban Street Apparel
we plan to take advantage of the “USA” acronym in its marketing campaign. Sector 5’s intentions are to stay on
the cutting edge of the swiftly changing young woman’s apparel market. Sector 5 plans to position itself deep in the fashion
culture by introducing new styles and designs on an ongoing basis. As Urban Street Apparel will be a new brand coming into the
marketplace, we also plan on reselling current existing popular brands as a draw to attract potential new customers while showcasing
our own brand. That combined, with our innovative “fifth pocket” design and marketing, Urban Street Apparel plans to
carve a distinctive niche in this lucrative, high margin, garment sector.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Our
efforts to date have been concentrated on financing, administrative efforts towards public compliance and our product’s development.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Management’s
plan in regard to the development of operations, upon adequate funding, is to develop our base software. Work is planned for mapping-out
the site structure and workforce questionnaires. Our overall goal is to complete the software questionnaire base content and link
the software to web and mobile devices for marketplace launch.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Basis
of Presentation and Unaudited Interim Financial Statements</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
the financial statements do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">In
the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods
presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the
financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative
of operations for a full year.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Use
of Estimates</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Financial Statements have been prepared in conformity with U.S. GAAP, which requires using management’s best estimates and
judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the
reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these
good faith estimates and judgments.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Financial
Instruments</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company’s balance sheet includes certain financial instruments, including cash and accounts payable. The carrying amounts
of current assets and current liabilities approximate their fair value because of the relatively short period of time between
the origination of these instruments and their expected realization.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”
(ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date.. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels
of the fair value hierarchy are described below:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 5%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">·</font></td>
<td style="width: 95%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Level 1 - Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">·</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Level 2 - Inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted
prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">·</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Level 3 - Inputs that are both significant
to the fair value measurement and unobservable.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as
of June 30, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values
due to the short-term nature of these instruments.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption
of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company’s financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">As
of June 30, 2014 and the fair values of the Company’s financial instruments approximate their historical carrying amount.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Cash
and Cash Equivalents</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Cash
and cash equivalents includes all cash deposits and highly liquid financial instruments with a maturity of three months or less.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Accounts
Receivable, Credit</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company currently has not generated any revenue from operations. The Company will be charging for referral fees at the time a
referral is placed. Fee for referral will be based on a negotiation between third parties. There is no subscription base for belonging
to the group. Billings will occur at the point of referral transmission and collection on customer accounts through credit cards
or direct payments. The Company does not issue credit on services provided, therefore there will be no accounts receivable. No
allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there
has been no credit issued.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Software
Development Costs and Capital Technology</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730,
Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased,
or Marketed and FASB ASC 350-50, Website Development Costs. The Company has capitalized the cost of the proprietary website technology,
purchased from unrelated third party developers. Additional costs to customize, modify and betterment to the existing product
was charged to expense as it was incurred.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Capitalized
software costs are stated at cost. The estimated useful life of costs capitalized is currently being amortized over five years.
Amortization is computed on a straight line basis. The carrying amount of all long-lived assets is evaluated periodically to determine
if adjustment to the amortization period or the unamortized balance is warranted.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">As
of June 30, 2014, there were no capitalized costs.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Long-lived
assets and intangible property:</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Long-lived
assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate
that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based
on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar
assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable
from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value
of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted
at a rate commensurate with the risk associated with the recovery of the assets. The Company did not recognize any impairment
losses for any periods presented.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Share-based
payments</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Share-based
payments to employees, including grants of employee stock options are recognized as compensation expense in the financial statements
based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an
employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting
period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.
The company may issue shares as compensation in the future periods for employee services.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company may issue restricted stock to consultants for various services. Cost for these transactions will be measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the
counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete. The
company has not issue shares during the periods presented, however it anticipates that shares may be issued in the future.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Revenue
recognition</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, Revenue Recognition. In all cases, revenue is
recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed
and collectability is reasonably assured.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company has not issued guarantees or other warrantees on the success or results of references paid. The Company has no history
and has not experienced any refund requests or committed to any adjustments for failed references. The Company does not believe
that there is any required liability.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 10pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Advertising</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
costs of advertising are expensed as incurred. Advertising expense was $0 for the three and six months ended June 30, 2014 and
2013.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Research
and Development</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company expenses research and development costs when incurred. Research and development costs include engineering and testing
of product and outputs. Indirect costs related to research and developments are allocated based on percentage usage to the research
and development. To current date, there have been no research and development expenses.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Income
taxes</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC
740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Earnings
(loss) per share</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Basic
earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average number of shares outstanding
during the year. Diluted earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average
number of shares. The Company does not have any potentially dilutive instruments and, thus, anti-dilution issues are not applicable.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Recent
Accounting Pronouncements</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Except
for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered
standards, the FASB Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP literature recognized
by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect
will not have a material impact on the Company’s present or future financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">In
June 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10, “Development Stage Entities (Topic 915) Elimination
of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”.
This ASU does the following among other things: a) eliminates the requirement to present inception-to-date information on the
statements of income, cash flows, and shareholders’ equity, b) eliminates the need to label the financial statements as those
of a development stage entity, c) eliminates the need to disclose a description of the development stage activities in which the
entity is engaged, and d) amends FASB ASC 275, Risks and Uncertainties, to clarify that information on risks and uncertainties
for entities that have not commenced planned principal operations is required. The amendments in ASU No. 2014-10 related
to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275 are effective for public companies for
annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has evaluated
this ASU and determined that it will early adopt beginning with the quarterly period ended June 30, 2014.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company’s financial statements are prepared using accounting principles generally accepted in the United States of America
applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. The Company has not yet emerged from its development stage, has not established an ongoing source of revenues sufficient
to cover its operating cost, and requires additional capital to commence its operating plan. The ability of the Company to continue
as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.
If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt
about its ability to continue as a going concern.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plan to obtain such resources for the Company include: sales of equity instruments; traditional financing, such as loans; and
obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management
cannot provide any assurance that the Company will be successful in accomplishing any of its plans.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">There
is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available,
will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues
received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities
are determined based on the differences between financial reporting basis and the tax basis of the assets and liabilities and
are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance
against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company has not recognized operating losses generated from operations to date, based on uncertainties concerning its ability to
generate taxable income in future periods. The tax benefit for the periods presented is offset by a valuation allowance established
against deferred tax assets arising from operating losses and other temporary differences, the realization of which could not
be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management
considers realization of such amounts to be more likely than not. As of June 30, 2014, deferred taxes amounted to approximately
$19,500, off-set by a 100% valuation allowance.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company provides for income taxes for the period ended June 30, 2014 is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><i>Current provision</i></font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td colspan="2"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font: 10pt Times New Roman, Times, Serif">Income tax provision (benefit) at statutory
rate</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(21,800</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">State income tax expense (benefit), net of federal benefit</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Subtotal</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(21,800</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Valuation allowance</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">21,800</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">---</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> <br />
Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. As of June 30, 2014 the
Company has net operating loss carry forwards of approximately $21,800, which begin to expire in 2032.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Loans
from Shareholder</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">In
support of the Company’s efforts and cash requirements, it is relying on advances from related parties until such time that
the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing.
Amounts represent advances or amounts paid in satisfaction of certain liabilities as they come due. The advances are considered
temporary in nature and have not been formalized by a promissory note. Notes are considered payable on demand and is non-interest
bearing. The majority shareholder has pledged her support to fund continuing operations; however there is no written commitment
to this effect. The Company is dependent upon the continued support of this member.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company utilizes space provided by the majority shareholder without charge. Rent was $0 for all periods presented.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company does not have an employment contract with its key employee, the sole shareholder who is the Chief Executive and Chief
Technical Officer.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred
had comparable transactions been entered into with independent third parties.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
total number of shares of capital stock which the Company shall have authority to issue is seventy five million (75,000,000) common
shares with a par value of $0.001, of which 15,000,000 have been issued to the founder and 5,000,000 have been issued under a
Form S1 registration statement at $0.01 per share. The Company intends to issue additional shares in an effort to raise capital
to fund its operations. Common shareholders will have one vote for each share held.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">No
holder of shares of stock of any class is entitled as a matter of right to subscribe for or purchase or receive any part of any
new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether
now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">There
are no preferred shares authorized or outstanding. There have been no warrants or options issued or outstanding.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Some
of the officers and directors of the Company are involved in other business activities and may, in the future, become involved
in other business opportunities that become available. They may face a conflict in selecting between the Company and other business
interests. The Company has not formulated a policy for the resolution of such conflicts.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">From
time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that
there are no current matters that would have a material effect on the Company’s financial position or results of operations.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">SECTOR
5, INC. (“Sector 5” or the “Company”) was incorporated in the State of Nevada on April 11, 2012. Sector
5 plans to market its own brand under the brand name “Urban Street Apparel”. Because of the brand name Urban Street
Apparel we plan to take advantage of the “USA” acronym in its marketing campaign. Sector 5’s intentions are
to stay on the cutting edge of the swiftly changing young woman’s apparel market. Sector 5 plans to position itself deep
in the fashion culture by introducing new styles and designs on an ongoing basis. As Urban Street Apparel will be a new brand
coming into the marketplace, we also plan on reselling current existing popular brands as a draw to attract potential new customers
while showcasing our own brand. That combined, with our innovative “fifth pocket” design and marketing, Urban Street
Apparel plans to carve a distinctive niche in this lucrative, high margin, garment sector.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Our
efforts to date have been concentrated on financing, administrative efforts towards public compliance and our product’s
development.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Management’s
plan in regard to the development of operations, upon adequate funding, is to develop our base software. Work is planned for mapping-out
the site structure and workforce questionnaires. Our overall goal is to complete the software questionnaire base content and link
the software to web and mobile devices for marketplace launch.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
the financial statements do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">In
the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods
presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the
financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative
of operations for a full year.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Financial Statements have been prepared in conformity with U.S. GAAP, which requires using management’s best estimates and
judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the
reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these
good faith estimates and judgments.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company’s balance sheet includes certain financial instruments, including cash and accounts payable. The carrying amounts
of current assets and current liabilities approximate their fair value because of the relatively short period of time between
the origination of these instruments and their expected realization.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”
(ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date.. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels
of the fair value hierarchy are described below:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 5%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">·</font></td>
<td style="width: 95%; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Level 1 - Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">·</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Level 2 - Inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted
prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">·</font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Level 3 - Inputs that are both significant
to the fair value measurement and unobservable.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as
of June 30, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values
due to the short-term nature of these instruments.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption
of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company’s financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">As
of June 30, 2014 and the fair values of the Company’s financial instruments approximate their historical carrying amount.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Cash
and cash equivalents includes all cash deposits and highly liquid financial instruments with a maturity of three months or less.</font></p>
<p style="margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The Company currently has not
generated any revenue from operations. The Company will be charging for referral fees at the time a referral is placed. Fee for
referral will be based on a negotiation between third parties. There is no subscription base for belonging to the group. Billings
will occur at the point of referral transmission and collection on customer accounts through credit cards or direct payments.
The Company does not issue credit on services provided, therefore there will be no accounts receivable. No allowance for doubtful
accounts is considered necessary to be established for amounts that may not be recoverable, since there has been no credit issued.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730,
Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased,
or Marketed and FASB ASC 350-50, Website Development Costs. The Company has capitalized the cost of the proprietary website technology,
purchased from unrelated third party developers. Additional costs to customize, modify and betterment to the existing product
was charged to expense as it was incurred.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Capitalized
software costs are stated at cost. The estimated useful life of costs capitalized is currently being amortized over five years.
Amortization is computed on a straight line basis. The carrying amount of all long-lived assets is evaluated periodically to determine
if adjustment to the amortization period or the unamortized balance is warranted.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">As
of June 30, 2014, there were no capitalized costs.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Long-lived
assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate
that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based
on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar
assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable
from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value
of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted
at a rate commensurate with the risk associated with the recovery of the assets. The Company did not recognize any impairment
losses for any periods presented.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Share-based
payments to employees, including grants of employee stock options are recognized as compensation expense in the financial statements
based on their fair values, in accordance with FASB ASC Topic 718. That expense is recognized over the period during which an
employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting
period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods presented.
The company may issue shares as compensation in the future periods for employee services.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company may issue restricted stock to consultants for various services. Cost for these transactions will be measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The value of the common stock is to be measured at the earlier of (i) the date at which a firm commitment for performance by the
counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete. The
company has not issue shares during the periods presented, however it anticipates that shares may be issued in the future.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, Revenue Recognition. In all cases, revenue is
recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed
and collectability is reasonably assured.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company has not issued guarantees or other warrantees on the success or results of references paid. The Company has no history
and has not experienced any refund requests or committed to any adjustments for failed references. The Company does not believe
that there is any required liability.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
costs of advertising are expensed as incurred. Advertising expense was $0 for the three and six months ended June 30, 2014 and
2013.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company expenses research and development costs when incurred. Research and development costs include engineering and testing
of product and outputs. Indirect costs related to research and developments are allocated based on percentage usage to the research
and development. To current date, there have been no research and development expenses.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC
740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Basic
earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average number of shares outstanding
during the year. Diluted earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average
number of shares. The Company does not have any potentially dilutive instruments and, thus, anti-dilution issues are not applicable.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Except
for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered
standards, the FASB Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP literature
recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes
any effect will not have a material impact on the Company’s present or future financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">In
June 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10, “Development Stage Entities (Topic 915) Elimination
of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”.
This ASU does the following among other things: a) eliminates the requirement to present inception-to-date information on the
statements of income, cash flows, and shareholders’ equity, b) eliminates the need to label the financial statements as
those of a development stage entity, c) eliminates the need to disclose a description of the development stage activities in which
the entity is engaged, and d) amends FASB ASC 275, Risks and Uncertainties, to clarify that information on risks and uncertainties
for entities that have not commenced planned principal operations is required. The amendments in ASU No. 2014-10 related
to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275 are effective for public companies for
annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has evaluated
this ASU and determined that it will early adopt beginning with the quarterly period ended June 30, 2014.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company provides for income taxes for the period ended June 30, 2014 is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><i>Current provision</i></font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td colspan="2"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font: 10pt Times New Roman, Times, Serif">Income tax provision (benefit) at statutory
rate</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 8%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(21,800</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">State income tax expense (benefit), net of federal benefit</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Subtotal</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(21,800</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Valuation allowance</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">21,800</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">---</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
-21800
0
-21800
21800
21800
0
0
0
0
0
0