Sector 5, Inc.

Pursuant to the terms of the employment agreement with Erick Kuvshinikov, CEO, effective February 13, 2018, the Company granted Mr. Kuvshinikov 1,000,000 shares of common stock, all of which were fully vested as of September 30, 2018. The shares were valued at the closing stock price on the day they vested of $.30 for total non-cash expense of $300,000. In addition, Mr. Kuvshinikov will also receive a salary of $2,500 a month for six months. Mr. Kuvshinikov’s agreement was extended for another year.

The first tranche of $420,000, net of $80,000 of OID and fees was received on August 7, 2018. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $311,461 based on the Black Scholes Merton pricing model, a loss on issuance of $6,682 and a corresponding debt discount of $241,562 to be amortized utilizing the interest method of accretion over the term of the note. As of September 30, 2018, the Company fair valued the derivative at $1,262,597. In addition, $83,532 of the debt discount has been amortized to interest expense.

On September 27, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Auctus Fund, LLC pursuant to which, upon the terms and subject to the conditions thereof, Auctus is committed to purchase shares of the Company’s common stock at an aggregate price of up to $10,000,000 over the course of its 24-month term. The actual amount of proceeds received pursuant to each Put Notice (each, the “Put Amount”) is to be determined by multiplying the Put Amount Request by the applicable purchase price. The purchase price for each of the Purchase Shares equals 87.5% of the “Market Price,” which is defined as the lesser of the (i) lowest closing bid price of our common stock for any trading day during the five trading days immediately preceding the date of the respective Put Notice, or (ii) lowest closing bid price of the common stock for any trading day during the five trading days immediately following the clearing date associated with the applicable Put Notice (the “Valuation Period”). Within three trading days following the end of the Valuation Period, the Buyer will deliver the Put Amount to us via wire transfer. The Put Amount Request pursuant to any single Put Notice must have an aggregate value of at least $25,000, and cannot exceed the lesser of (i) 150% of the average daily trading value of the common stock in the five trading days immediately preceding the Put Notice or (ii) such number of shares of common stock that has an aggregate value of $300,000.

On September 27, 2018, pursuant to the terms of the Equity Purchase Agreement with Auctus Fund, LLC, the Company granted Auctus 400,000 shares of common as a commitment fee, subject to a 50% “true-up” on the value of the ccommitment shares. The true-up would occur on the earlier of (i) ten trading days after the Registration Statement is declared effective or (ii) ten trading days after six months from the Closing Date. At that time, if the share price is less than it was at the Closing Date, then additional shares would be issued such that the Buyer has received shares with a value of at least what 200,000 shares were worth at the Closing Date. The shares were valued at $0.39, the closing stock price on the date of grant, for total non-cash expense of $156,000. The $156,000 has been debited to prepaid expenses to be amortized when shares are purchased under the agreement.

Sector 5, Inc. is committed to offering the best in value computing solutions for the education, business, and consumer electronic markets in North America, and is a devoted member of the Google for Education partner program utilizing Chrome OS and Android OS. We are an OEM and ODM with extensive experience working with tier-1 designers, best-in-class suppliers, and Chinese factories to combine the strengths of East and West to create products with the latest technology, that are easy to use, and offer innovative features such as wireless charging and resilience in extreme environments. Being a purpose-driven organization is integral to our success, allowing us to focus on providing reliable market-tailored solutions that minimize costs of initial deployment and ongoing operations while maximizing user and administrator productivity, sets the standards for our commitment to excellent customer support and key account management, and enables us to have faster time to market, continue to provide fair pricing, and exceed market expectations. Sector 5’s promise to the world is defined by our pursuit of simplicity and innovation, and our commitment to service.