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0001550737
2015-04-01
2015-06-30
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Sector 5, Inc.
0001550737
10-Q
2016-06-30
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--12-31
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Nature of Operations</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">SECTOR 5, INC. ("Sector 5" or the
"Company") was incorporated in the State of Nevada on April 11, 2012. On March 18, 2016 a change in control of the Company
occurred. The change in control includes plans to relaunch the Company to sell branded electronic products targeting the educational
and consumer electronics markets. Sector 5 plans to take advantage of the educational market using a supply-chain methodology involving
Open Innovation. Sector 5 has relationships with Chinese suppliers and American ingenuity that allow us to create products with
the latest technology, matching market expectations at the best pricing. Furthermore, we intend to use mobile carriers as sales
channels on some unique new 4G LTE products which employ mobile data networks.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Basis of Presentation</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. The accompanying
financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for
the fiscal year ended December 31, 2015. The results of operations for the three and six months ended June 30, 2016 and 2015 are
not necessarily indicative of those to be expected for the entire year. and should be read in conjunction with Form 10-K.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Use of Estimates</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Financial Instruments</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company's balance sheet includes cash,
inventory, accounts payable and related party payables. 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify">Level 1 - Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify">Level 3 - Inputs that are both significant
to the fair value measurement and unobservable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management as of June 30, 2016. The respective carrying
value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Cash and Cash Equivalents</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash and cash equivalents includes all cash
deposits and highly liquid financial instruments with a maturity of three months or less.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Cash Flow Reporting</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company follows ASC 230, Statement of
Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing,
or financing activities and provides definitions of each category, and uses the indirect or reconciliation method ("Indirect
method") as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net
income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating
cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are
included in net income that do not affect operating cash receipts and payments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Accounts Receivable</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company currently has generated revenues
from receivables from the sale of electronic devices. The Company regularly reviews accounts receivable for any bad debt based
on an analysis of the customer's credit worthiness and current economic trends. After all attempts to collect the receivable have
failed, the receivable is written off against the allowance for doubtful accounts. No allowance for doubtful accounts is considered
necessary at June 30, 2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Inventory</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory consists of finished goods and is
stated at the lower of cost, determined by first-in, first-out method, or market. Market is determined based on the net realizable
value, with appropriate consideration given to obsolescence, excessive levels, deterioration and other factors. At June 30, 2016,
the Company has made $25,950 payment to purchase additional inventory items, this amount is included in Advance Payment on Inventory
on the Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Share-based payments</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 issued shares during the periods
presented, however it anticipates that shares may be issued in the future.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Revenue recognition</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has generated minimal revenue,
has not issued guarantees or other warranties. The Company has not experienced any refund requests or committed to any adjustments
for failed sales. The Company does not believe that there is any liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Advertising</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The costs of advertising are expensed as incurred.
Advertising expense was $7,250 for both of the three and six months ended June 30, 2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Research and Development</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses research and development
costs when incurred. Research and development costs include software 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. During the three
and six months ended June 30, 2016, the Company incurred $33,010 of research and development expenses.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Income taxes</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Earnings (loss) per share</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Recent Accounting Pronouncements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time, new accounting pronouncements
are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not
yet effective may have an impact on our results of operations and financial position.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">ASU Update 2014-09 <i>Revenue from Contracts
with Customers </i>(Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on recognizing revenue in contracts with
customers on an effective date after December 31, 2017 will be evaluated as to impact and implemented accordingly.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">ASU Update 2014-15 <i>Presentation of Financial
Statements-Going Concern </i>(Sub Topic 205-40) issued August 27, 2014 by FASB defines managements responsibility to evaluate whether
there is a substantial doubt about an organizations ability to continue as a going concern. The additional disclosure required
is effective after December 31, 2016 and will be evaluated as to impact and implemented accordingly.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU No.
2016-02, <i>Leases, </i>to improve financial reporting about leasing transactions. This ASU will require organizations that lease
assets ("lessees") to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with
terms of more than twelve months. A lease liability is a lessee's obligation to make lease payments arising from a lease, measured
on a discounted basis and a right-of-use asset represents the lessee's right to use, or control use of, a specified asset for
the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees
must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased
to the lessee ("lessor") largely unchanged except for targeted improvements to align it with the lessee accounting model
and Topic 606, Revenue from Contracts with Customers.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The amendments in ASU 2016-02 are effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and
operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for leases that expired before the
earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company
is evaluating the potential impact of ASU 2016-02 on its Financial Statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 established an ongoing
source of revenues sufficient to cover its operating cost, and requires additional capital to commence its operating plan. The
Company has incurred a net loss for the three and six months ended June 30, 2016 in the amount of $92,755 and $94,725, respectively.
The Company has a history of losses, resulting in an accumulated deficit of $218,013. Furthermore, the Company has negative working
capital of $141,269. 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has generated operating losses
from operations to date; based on uncertainties concerning its ability to generate taxable income in future periods any 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company did not take any uncertain tax
positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for
the year ended December 31, 2015.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><br />
Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. As of June 30, 2016 the
Company has net operating loss carry forwards of approximately $218,000, which begin to expire in 2032.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Due to the change in ownership provisions of
the Income Tax laws of United States of America, net operating loss carry forwards for federal income tax reporting purposes are
subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in
future years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Loans from Shareholder</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30, 2016,
a related party assisted the Company in support of its operations by providing payments to the Company's vendors and advances for
operations of $284,693 and an additional $18,637 during the year ended December 31, 2015. The Company has recorded the liability
to this related party in other payables, as the amounts are temporary in nature and have not been formalized by a promissory note.
These amounts are considered due on demand and non-interest bearing.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In support of the Company's efforts and cash
requirements, the Company is relying on advances from related parties until such time as the Company can support its operations
or attains adequate financing through sales of equity or traditional debt financing. Amounts represent advances or amounts paid
in satisfaction of certain liabilities as they come due. The majority shareholder has pledged their support to fund continuing
operations; however, there is no written commitment to this effect.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company utilizes space provided by the
majority shareholder without charge for certain operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company does not have an employment contract
with its key employee who is the Company's Chief Executive Officer, Chief Accounting Officer, Treasurer and Secretary.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 is issued Kirkland Holding Co., a Delaware corporation controlled by Roger B. McKeague, 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><br />
There are no preferred shares authorized or outstanding. There have been no warrants or options issued or outstanding.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 18, 2016, Rafael Solorio, the Chief
Executive Officer and a significant shareholder of the Company, privately sold 15,000,000 shares of common stock of the Company,
to Kirkland Holding Co., a Delaware corporation ("Kirkland") controlled by Roger B. McKeague, pursuant to a stock purchase
agreement. As a result of the privately-negotiated sale, a change in control of the Company occurred and Kirkland now owns approximately
75% of the total outstanding shares of our Common Stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Kirkland purchased the shares for a total of
$400,000 in cash. The terms of the purchase and sale transaction were as a result of arm's-length negotiations between Mr. Solorio
and Kirkland. Neither party had any relationship with the other prior to the transaction.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the change in control, Mr.
Solorio, the Company's then sole officer, resigned from his positions, as to which there were no prior disagreements or disputes
with the Company. Mr. Solorio appointed Roger B. McKeague to the Company's Board of Directors and to be the Company's Chief Executive
Officer, Chief Accounting Officer, Treasurer and Secretary, and subsequently resigned as the Company's former sole director.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">SECTOR 5, INC. ("Sector 5" or the
"Company") was incorporated in the State of Nevada on April 11, 2012. On March 18, 2016 a change in control of the Company
occurred. The change in control includes plans to relaunch the Company to sell branded electronic products targeting the educational
and consumer electronics markets. Sector 5 plans to take advantage of the educational market using a supply-chain methodology involving
Open Innovation. Sector 5 has relationships with Chinese suppliers and American ingenuity that allow us to create products with
the latest technology, matching market expectations at the best pricing. Furthermore, we intend to use mobile carriers as sales
channels on some unique new 4G LTE products which employ mobile data networks.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. The accompanying
financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for
the fiscal year ended December 31, 2015. The results of operations for the three and six months ended June 30, 2016 and 2015 are
not necessarily indicative of those to be expected for the entire year. and should be read in conjunction with Form 10-K.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company's balance sheet includes cash,
inventory, accounts payable and related party payables. 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify">Level 1 - Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 22.5pt; text-align: justify">Level 3 - Inputs that are both significant
to the fair value measurement and unobservable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management as of June 30, 2016. The respective carrying
value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash and cash equivalents includes all cash
deposits and highly liquid financial instruments with a maturity of three months or less.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company follows ASC 230, Statement of Cash
Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing,
or financing activities and provides definitions of each category, and uses the indirect or reconciliation method ("Indirect
method") as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net
income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating
cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are
included in net income that do not affect operating cash receipts and payments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company currently has generated revenues
from receivables from the sale of electronic devices. The Company regularly reviews accounts receivable for any bad debt based
on an analysis of the customer's credit worthiness and current economic trends. After all attempts to collect the receivable have
failed, the receivable is written off against the allowance for doubtful accounts. No allowance for doubtful accounts is considered
necessary at June 30, 2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 issued shares during the periods
presented, however it anticipates that shares may be issued in the future.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has generated minimal revenue,
has not issued guarantees or other warranties. The Company has not experienced any refund requests or committed to any adjustments
for failed sales. The Company does not believe that there is any liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The costs of advertising are expensed as incurred.
Advertising expense was $7,250 for both of the three and six months ended June 30, 2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses research and development
costs when incurred. Research and development costs include software 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. During the three
and six months ended June 30, 2016, the Company incurred $33,010 of research and development expenses.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time, new accounting pronouncements
are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not
yet effective may have an impact on our results of operations and financial position.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">ASU Update 2014-09 <i>Revenue from Contracts
with Customers </i>(Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on recognizing revenue in contracts with
customers on an effective date after December 31, 2017 will be evaluated as to impact and implemented accordingly.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">ASU Update 2014-15 <i>Presentation of Financial
Statements-Going Concern </i>(Sub Topic 205-40) issued August 27, 2014 by FASB defines managements responsibility to evaluate whether
there is a substantial doubt about an organizations ability to continue as a going concern. The additional disclosure required
is effective after December 31, 2016 and will be evaluated as to impact and implemented accordingly.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU No.
2016-02, <i>Leases, </i>to improve financial reporting about leasing transactions. This ASU will require organizations that lease
assets ("lessees") to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with
terms of more than twelve months. A lease liability is a lessee's obligation to make lease payments arising from a lease, measured
on a discounted basis and a right-of-use asset represents the lessee's right to use, or control use of, a specified asset for
the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees
must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased
to the lessee ("lessor") largely unchanged except for targeted improvements to align it with the lessee accounting model
and Topic 606, Revenue from Contracts with Customers.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The amendments in ASU 2016-02 are effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and
operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition accounting for leases that expired before the
earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company
is evaluating the potential impact of ASU 2016-02 on its Financial Statements.</p>
0.001
0.001
75000000
75000000
25950
7250
7250
33010
33010
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10416
105536
4906
104
104
23159
23159
23159
23159
14506
14506
8653
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103378
8603
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6556
48354
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8603
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory consists of finished goods and is
stated at the lower of cost, determined by first-in, first-out method, or market. Market is determined based on the net realizable
value, with appropriate consideration given to obsolescence, excessive levels, deterioration and other factors. At June 30, 2016,
the Company has made $25,950 payment to purchase additional inventory items, this amount is included in Advance Payment on Inventory
on the Balance Sheet.</p>
None.
-41638
-136363