Item 1. Financial Statements
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SECTOR 5, INC.
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BALANCE SHEETS
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March 31,
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December 31,
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2016
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2015
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(unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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13
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$
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62
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Total Current Assets
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13
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62
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TOTAL ASSETS
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$
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13
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$
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62
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
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Accounts payable
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$
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2,021
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$
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23,063
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Other payable, related party
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41,600
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18,637
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Total Current Liabilities
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43,621
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41,700
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STOCKHOLDERS' EQUITY
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Common stock, $0.001 par value; 75,000,000 shares authorized; 20,000,000
shares issued and outstanding
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20,000
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20,000
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Additional paid in capital
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61,650
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61,650
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Accumulated deficit
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(125,258
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(123,288
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Total Stockholders' Equity
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(43,608
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(41,638
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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13
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$
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62
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The accompanying notes are an integral part of these unaudited financial statements.
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SECTOR 5, INC.
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STATEMENTS OF OPERATIONS
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For the Three Months Ended March 31,
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2016
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2015
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(unaudited)
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(unaudited)
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REVENUE:
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Sales
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$
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-
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$
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-
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-
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-
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COST OF GOODS SOLD
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-
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-
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GROSS MARGIN
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-
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-
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OPERATING EXPENSES
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Selling, general and administrative expenses
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1,970
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2,047
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TOTAL OPERATING EXPENSES
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1,970
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2,047
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LOSS FROM OPERATIONS
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(1,970
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(2,047
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OTHER EXPENSE (INCOME)
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Interest expense
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-
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-
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Interest income
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-
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-
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TOTAL OTHER EXPENSE (INCOME)
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-
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-
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NET LOSS
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$
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(1,970
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$
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(2,047
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NET LOSS PER COMMON SHARE, BASIC AND DILUTED
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$
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(0.00
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$
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(0.00
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING, BASIC AND DILUTED
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20,000,000
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20,000,000
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The accompanying notes are an integral part of these unaudited financial statements.
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SECTOR 5, INC.
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STATEMENT OF CASH FLOWS
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For the Three Months Ended March 31,
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2016
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2015
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(unaudited)
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(unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$
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(1,970
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$
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(2,047
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Adjustments to reconcile net loss to net cash and cash equivalents
provided by operating activities:
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Bank overdraft
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-
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6
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(Decrease) increase in accounts payable
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(21,042
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1,574
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Net cash used by operating activities
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(23,012
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(467
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Net cash used by investing activities
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-
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-
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Increase in other payable, related party
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22,963
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-
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Capital contribution from stockholder
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-
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450
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Net cash provided by financing activities
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22,963
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450
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Net decrease in cash and cash equivalents
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(49
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(17
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Cash and cash equivalents, beginning of period
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62
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17
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Cash and cash equivalents, end of period
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$
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13
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$
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-
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SUPPLEMENTAL CASH FLOW INFORMATION:
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Cash paid for interest
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$
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-
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$
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-
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Cash paid for taxes
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$
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-
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$
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-
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The accompanying notes are an integral part of these unaudited financial statements.
SECTOR 5, INC.
Notes to the Financial Statements
As of March 31, 2016
(unaudited)
1. Nature of Operations and Significant Accounting Policies
Nature of Operations
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.
Basis of Presentation
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 months ended March 31, 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.
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.
Use of Estimates
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.
Financial Instruments
The Company's balance sheet includes cash, 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.
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:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
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.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 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.
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.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash deposits and highly liquid financial instruments with a maturity of three months or less.
Cash Flow Reporting
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.
Accounts Receivable, Credit
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.
Share-based payments
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.
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.
Revenue recognition
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.
The Company has not generated revenue, has not issued guarantees or other warranties. The Company has not experienced any refund requests or committed to any adjustments for failed references. The Company does not believe that there is any liability.
Advertising
The costs of advertising are expensed as incurred. Advertising expense was $0 for the year ended March 31, 2016.
Research and Development
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. To current date, there have been no research and development expenses.
Income taxes
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.
Earnings (loss) per share
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.
Recent Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
2. Going Concern
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 months ended March 31, 2016 in the amount of $1,970. The Company has a history of losses, resulting in an accumulated deficit of $125,258. Furthermore, the Company has negative working capital of $43,608. 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.
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.
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.
3. Income Taxes
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.
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.
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 years ended December 31, 2015 or 2014.
Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. As of March 31, 2016 the Company has net operating loss carry forwards of approximately $125,000, which begin to expire in 2032.
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.
4. Related Party Transactions
Loans from Shareholder
During the three months ended March 31, 2016, a related party assisted the Company in support of its operations by providing payments to the Company's vendors for $22,963 and an additional $18,637 provided 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.
In support of the Company's efforts and cash requirements, the Company is relying on advances from related parties until such time that 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 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.
The Company utilizes space provided by the majority shareholder without charge. Rent was $0 for all periods presented.
The Company does not have an employment contract with its key employee, the sole shareholder who is the Chief Executive and Chief Technical Officer.
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.
5. Equity
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.
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.
There are no preferred shares authorized or outstanding. There have been no warrants or options issued or outstanding.
Effective December 31, 2014 the board of directors cancelled 15,000,000 common shares of our former officer and director, Jeannie Bacal. Effective December 31, 2014, the board of directors issued Rafael Solorio 15,000,000 common shares of stock for appointment as an officer and director. The shares were effectively transferred under a private equity transaction; therefore, no gain or loss was recognized by this transaction.
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.
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.
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.
6. Contingencies
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.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing in this report and are hereby referenced. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. We believe it is important to communicate our expectations. However, our management disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
These forward-looking statements are based on our management's current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify a forward-looking statement by the use of the forward-terminology, including words such as "may", "will", "believes", "anticipates", "estimates", "expects", "continues", "should", "seeks", "intends", "plans", and/or words of similar import, or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. These forward-looking statements relate to, among other things: our sales, results of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; sales, general and administrative expenses; our ability to maintain and develop relationship with our existing and potential future customers; and, our ability to maintain a level of investment that is required to remain competitive. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including, but not limited to: variability of our revenues and financial performance; risks associated with technological changes; the acceptance of our products in the marketplace by existing and potential customers; disruption of operations or increases in expenses due to our involvement with litigation or caused by civil or political unrest or other catastrophic events; general economic conditions, government mandates; and, the continued employment of our key personnel and other risks associated with competition.
On March 18, 2016, a change in control of Sector 5 occurred. The change in control included plans of new management to relaunch Sector 5 to sell branded electronic products using the Sector 5 name targeting the educational and consumer electronics markets. No such activities had previously occurred and Sector 5 has commenced only minimal operations to date and has not generated revenues. Sector 5 will not be profitable until it derives sufficient revenues and cash flows from planned operations.
The consolidated financial statements included in this Annual Report on Form 10-K relate to our prior operations that relate to women's fashion design. Due to the change in control and management's determination to relaunch our business, as noted above, we believe the financial statements are not necessarily meaningful to a review of our company.
Plan of Operation
Sector 5 plans to sell branded electronic products targeting the educational and consumer electronics markets. Sector 5 intends to target the retail consumer electronics market using a supply-chain methodology involving "Open Innovation." This is accomplished through Sector 5's relationships with Chinese suppliers and American ingenuity that allows us to create products using the latest technology and matching market expectations at the best pricing. This approach will be accomplished through the involvement of a talented staff, including designers and innovators, coupled with strong relationships with "best in class" suppliers.
Sector 5's distribution channel strategy includes both B2B (especially schools), as well as utilization of existing relationships with distributors that have retail channels looking for new innovative products. Furthermore, we intend to use mobile carriers as sales channels on some unique new 4G LTE products which employ mobile data networks. Building and maintaining distribution relationships will be an essential element of our plan. In our product planning efforts, we expect to listen to these sales channels for what opportunities they have, as well as providing them new product opportunities we are planning. The latter will become increasingly important as we intend to grow a portfolio of products uniquely ours in late 2016.
Sector 5's foundation of promise is defined by a pursuit of simplicity and a commitment to innovation. Quay, reliability and excellent customer support will be an integral component of that commitment.
Results of Operations for the Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015
Revenues
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The Company did not have any revenue for the three months ended March 31, 2016 and 2015.
Selling, General and Administrative Expenses
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Selling, general and administrative expenses for the three months ended March 31, 2016 were $1,970 as compared to $2,047 for the three months ended March 31, 2015. General and administrative expenses decreased because the Company did not incur consulting expenses.
Liquidity and Capital Resources
We measure our liquidity in a number of ways, including the following:
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As of
March 31,
2016
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As of
December 31, 2015
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Cash and Cash Equivalents
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$
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13
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$
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62
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Working Capital (Deficit)
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(43,608
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)
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(41,638
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)
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Debt (current)
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43,621
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41,700
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The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. 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 the Company's ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources.
Impact of Inflation
We believe that the rate of inflation has had negligible effect on our operations. We believe we can absorb most, if not all, increased non-controlled operating costs by increasing sales prices, whenever deemed necessary and by operating our Company in the most efficient manner possible.
Net Cash Used in Operating Activities
We experienced no cash flow from operating activities for the three months ended March 31, 2016. The cash used in operating activities during this period was used to fund the net loss of $1,970, adjusted for the decrease in accounts payable from prior legal and accounting services. We experienced negative cash flow from operating activities for the three months ended March 31, 2016 in the amount of $23,012.
Net Cash Used in Investing Activities
The cash used in investing activities during the three months ended March 31, 2016 and 2015 was $0.
Net Cash Provided by Financing Activities
Cash provided by financing activities during the three months ended March 31, 2016 was $22,963 and $450 during the three months ended March 31, 2015.
Availability of Additional Funds
Based on our working capital as of March 31, 2016, we will need additional equity and/or debt financing to continue our operations during the next 12 months. We have limited funds to continue our operating activities. Future operating activities are expected to be funded by loans from officers, directors and major shareholders, until we begin to raise capital from non-officers or non-directors or generate cash flows from operations.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes have been prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP") applied on a consistent basis. The preparation of financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Our significant estimates and assumptions include amortization, the fair value of our stock, and the valuation allowance relating to the Company's deferred tax assets.
We qualify as an "emerging growth company", as defined in the Jumpstart Our Business Startups Act, which became law in April, 2012. Under the JOBS Act, "emerging growth companies", can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Material Commitments
There was no material commitment during the three months ended March 31, 2016.
Purchase of Furniture and Equipment
We purchased no equipment during the three months ended March 31, 2016.
Recent Accounting Pronouncements
We have adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on our financial position or results of operations.
Off Balance Sheet Arrangements
As of March 31, 2016, we had no off balance sheet arrangements.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer (being the same person), to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and financial officer and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of March 31, 2016. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.
Based on an evaluation under the supervision and with the participation of the Company's management, the Company's principal executive officer and principal financial officer has concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of March 31, 2016 (the "Evaluation Date"), to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Each of the following is deemed a material weakness in our internal control over financial reporting:
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We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an "audit committee financial expert," as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management's view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.
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We did not maintain proper segregation of duties for the preparation of our financial statements. We currently have only one officer overseeing all transactions. This has resulted in several deficiencies, including the lack of control over preparation of financial statements and proper application of accounting policies.
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Management believes that the material weaknesses set forth in the two items above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management's Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures once we have the financial resources to do so:
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We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to an audit committee resulting in a fully functioning audit committee, which will undertake the oversight in the establishment and monitoring of required internal controls and procedures, such as reviewing and approving estimates and assumptions made by management when funds are available to us.
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Management believes that the appointment of outside directors to a fully functioning audit committee, would remedy the lack of a functioning audit committee.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Quarterly Report does not include an attestation report of the Company's registered independent public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Quarterly Report.