Item
1. Financial Statements
SUN
PACIFIC POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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|
As of
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As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
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Current Assets:
|
|
|
|
|
|
|
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|
Cash
and cash equivalents
|
|
$
|
12,958
|
|
|
$
|
90,077
|
|
Accounts receivable,
net of allowance for uncollectable accounts of $68,206 and $229,012, respectively
|
|
|
71,981
|
|
|
|
143,423
|
|
Deposits
|
|
|
7,112
|
|
|
|
-
|
|
Total current assets
|
|
|
92,051
|
|
|
|
233,500
|
|
|
|
|
|
|
|
|
|
|
Property and
Equipment, Net
|
|
|
300,524
|
|
|
|
391,043
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
392,575
|
|
|
$
|
624,543
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
258,654
|
|
|
$
|
572,200
|
|
Accounts payable,
related party
|
|
|
67,500
|
|
|
|
75,000
|
|
Accrued compensation
to officer
|
|
|
463,846
|
|
|
|
378,475
|
|
Accrued expenses
|
|
|
100,992
|
|
|
|
36,821
|
|
Accrued expenses,
related party
|
|
|
-
|
|
|
|
450,000
|
|
Dividends payable,
related party
|
|
|
6,413
|
|
|
|
3,288
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|
Advances from related
parties
|
|
|
539,268
|
|
|
|
281,390
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|
Vehicle installment
notes payable, current portion
|
|
|
22,408
|
|
|
|
25,975
|
|
Current portion
of convertible notes payable, net of discounts
|
|
|
1,018,017
|
|
|
|
-
|
|
Current
portion of convertible notes payable, related party, net of discounts
|
|
|
401,974
|
|
|
|
322,474
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|
Total current liabilities
|
|
|
2,879,072
|
|
|
|
2,145,623
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|
Long Term Liabilities:
|
|
|
|
|
|
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Convertible notes
payable, net of discounts and current portion
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|
-
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173,334
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Convertible notes
payable, related party, net of discounts and current portion
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-
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|
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|
75,000
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Vehicle
installment notes payable, net of current portion
|
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68,355
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|
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96,880
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|
Total
liabilities
|
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|
2,947,427
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|
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2,490,837
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Commitments and contingencies (see Note
7)
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Stockholders’ Deficit:
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Preferred stock $0.0001 par value,
20,000,000 million shares authorized:
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Series A preferred
stock: 12,000,000 shares designated; -0- and 2,000,000 shares issued and outstanding, respectively
|
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-
|
|
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|
200
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|
Series B preferred
stock: 1,000,000 shares designated; 1,000,000 and -0- shares issued and outstanding, respectively
|
|
|
100
|
|
|
|
-
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|
Series C preferred
stock: 500,000 shares designated; 500,000 and -0- shares issued and outstanding, respectively
|
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50
|
|
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|
-
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|
Common stock $0.0001
par value, 500,000,000 shares authorized, 8,923,390 and 1,948,308 shares issued and outstanding, respectively
|
|
|
892
|
|
|
|
195
|
|
Additional paid
in capital
|
|
|
424,938
|
|
|
|
792,467
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|
Accumulated
deficit
|
|
|
(2,980,832
|
)
|
|
|
(2,659,156
|
)
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Total
stockholders’ deficit
|
|
|
(2,554,852
|
)
|
|
|
(1,866,294
|
)
|
|
|
|
|
|
|
|
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|
Total liabilities
and stockholders’ deficit
|
|
$
|
392,575
|
|
|
$
|
624,543
|
|
See
notes to condensed consolidated financial statements.
SUN
PACIFIC POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STAEMENTS OF OPERATIONS
(UNAUDITED)
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|
Three months ended September
30,
|
|
|
Nine months ended September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
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|
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Revenues
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|
$
|
153,034
|
|
|
$
|
887,078
|
|
|
$
|
1,067,551
|
|
|
$
|
2,577,000
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|
Cost of Revenues
|
|
|
102,751
|
|
|
|
154,454
|
|
|
|
592,931
|
|
|
|
746,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross
profit
|
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|
50,283
|
|
|
|
732,624
|
|
|
|
474,620
|
|
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|
1,830,426
|
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|
|
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|
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Operating expenses:
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|
|
|
|
|
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|
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|
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|
|
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|
Wages and compensation
|
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|
102,282
|
|
|
|
476,261
|
|
|
|
383,800
|
|
|
|
1,263,823
|
|
Professional fees
|
|
|
10,134
|
|
|
|
68,913
|
|
|
|
37,298
|
|
|
|
115,048
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|
Insurance
|
|
|
21,575
|
|
|
|
9,696
|
|
|
|
50,226
|
|
|
|
43,429
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|
Rent
|
|
|
10,264
|
|
|
|
41,689
|
|
|
|
78,630
|
|
|
|
102,052
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|
General
and administrative
|
|
|
12,571
|
|
|
|
350,511
|
|
|
|
173,446
|
|
|
|
866,773
|
|
Total
operating expenses
|
|
|
156,826
|
|
|
|
947,070
|
|
|
|
723,400
|
|
|
|
2,391,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(106,543
|
)
|
|
|
(214,446
|
)
|
|
|
(248,780
|
)
|
|
|
(560,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other (Income) Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Dividend expense
- preferred stock
|
|
|
(9,502
|
)
|
|
|
(6,255
|
)
|
|
|
(28,505
|
)
|
|
|
(6,255
|
)
|
Gain on sale of
propery and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
4,401
|
|
|
|
-
|
|
Interest
expense
|
|
|
(5,581
|
)
|
|
|
(7,506
|
)
|
|
|
(48,779
|
)
|
|
|
(16,369
|
)
|
Total
other income (expense)
|
|
|
(15,083
|
)
|
|
|
(13,761
|
)
|
|
|
(72,883
|
)
|
|
|
(22,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(121,626
|
)
|
|
$
|
(228,207
|
)
|
|
$
|
(321,663
|
)
|
|
$
|
(583,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per
Common Share - Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted Average Shares Outstanding
- Basic
|
|
|
5,536,650
|
|
|
|
1,633,229
|
|
|
|
3,391,922
|
|
|
|
1,613,818
|
|
See
notes to the condensed consolidated financial statements.
SUN
PACIFIC POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STAEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine months ended September
30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(321,663
|
)
|
|
$
|
(583,323
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
63,888
|
|
|
|
61,641
|
|
Amortization of
debt discount - interest expense
|
|
|
16,500
|
|
|
|
-
|
|
Allowance for uncollectable
accounts
|
|
|
83,812
|
|
|
|
-
|
|
Gain on sale of
property and equipment
|
|
|
(6,773
|
)
|
|
|
-
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(12,370
|
)
|
|
|
(245,025
|
)
|
Deposits
|
|
|
(7,112
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(297,758
|
)
|
|
|
251,973
|
|
Accounts payable,
related party
|
|
|
(7,500
|
)
|
|
|
-
|
|
Accrued compensation
to officer
|
|
|
85,371
|
|
|
|
138,462
|
|
Accrued expenses
|
|
|
64,171
|
|
|
|
25,645
|
|
Accrued expenses,
related party
|
|
|
-
|
|
|
|
-
|
|
Dividends
payable, related party
|
|
|
3,125
|
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(336,309
|
)
|
|
|
(350,627
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property
and equipment
|
|
|
-
|
|
|
|
(64,069
|
)
|
Proceeds
from sale of property and equipment
|
|
|
2,500
|
|
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
2,500
|
|
|
|
(64,069
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from advances
from related parties
|
|
|
271,878
|
|
|
|
798,126
|
|
Repayments of advances
from related parties
|
|
|
-
|
|
|
|
(119,350
|
)
|
Repayment
of vehicle installment notes payable
|
|
|
(15,188
|
)
|
|
|
(19,648
|
)
|
Net
cash provided by financing activities
|
|
|
256,690
|
|
|
|
659,128
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(77,119
|
)
|
|
|
244,432
|
|
Cash at beginning of period
|
|
|
90,077
|
|
|
|
18,796
|
|
Cash at end of period
|
|
$
|
12,958
|
|
|
$
|
263,228
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Taxes
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Settlement
of amounts due to related party with issuance of 4,500,000 shares of common stock
|
|
$
|
450,000
|
|
|
$
|
-
|
|
Assumption
of convertible debt from reverse merger
|
|
$
|
833,787
|
|
|
$
|
-
|
|
See
notes to the condensed consolidated financial statements.
SUN
PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 - DESCRIPTION OF THE BUSINESS
Organization
The
Company was incorporated under the laws of the State of New Jersey on July 28, 2009, as Sun Pacific Power Corporation and together
with its subsidiaries, are referred to as the “Company”. On August 24, 2017, the Company entered into an Acquisition
Agreement with EXOlifestyle, Inc. whereby the Company became a wholly owned subsidiary of EXOlifestyle, Inc. The acquisition was
accounted for as a reverse merger, resulting in the Company being considered the accounting acquirer. Accordingly, the accompanying
condensed consolidated financial statements included the accounts of EXOlifestyle, Inc. since August 24, 2017.
On
October 3, 2017, pursuant to the written consent of the majority of the shareholders in lieu of a meeting, Sun Pacific Holding
Corp., f/k/a EXOlifestyle, Inc. (the “Company”) filed a Certificate of Amendment with the state of Nevada to change
the name of the Company from EXOlifestyle, Inc. to Sun Pacific Holding Corp.
On
October 3, 2017, the Company’s board of directors declared a 1 for 50 reverse stock split. All share amounts for all periods
presented have been restated to reflect the reverse stock split.
Description
of business
The
Company currently generates revenues through its general commercial and residential contracting business. The Company has focused
is activities in five areas, as a General Commercial Contractor, installers of Solar Powered Bus Shelters, Electrical Contracting,
Plumbing and Securities Systems.
Currently,
the Company has 4 subsidiary holdings. Bella Electric, LLC that in conjunction with the Company operates our electrical contracting
work. Bella Electric, LLC is a Pennsylvania limited liability company. The Company also formed Sun Pacific Security Corp., a New
Jersey corporation. Currently the Company has not begun operations in the security sector, but plans to provide residential and
commercial security solutions, including installation and monitoring. The Company also formed National Mechanical Group Corp,
a New Jersey corporation focused on plumbing operations in the New Jersey and Pennsylvania areas. The Company also formed Street
Smart Outdoor Corp, a Wyoming corporation, that acts as a holding company for the Company’s state specific operations in
unique advertising through solar bus stops, solar trashcans and “street kiosks”., which is currently the Company’s
only operations.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting
Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations
of the U.S Securities and Exchange Commission (“SEC”) for interim financial information. The unaudited condensed consolidated
financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for
a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily
indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited
condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and
Results of Operations contained in this report and the audited consolidated financial statements and accompanying notes included
in the Company’s Form 8-K filed with the SEC on August 29, 2017.
Use
of estimates in the preparation of financial statements
Preparation
of financial statements in conformity with accounting principles generally accepted in the United States requires management to
make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results
could differ from those estimates. Significant estimates include the allowance for doubtful accounts and impairment assessments
related to long-lived assets.
Consolidation
The
condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, cash includes demand deposits and short-term liquid investments with original
maturities of three months or less when purchased. As of September 30, 2017, the Federal Deposit Insurance Corporation (FDIC)
provided insurance coverage of up to $250,000, per depositor, per institution. At September 30, 2017, none of the Company’s
cash balances were in excess of federally insured limits.
Accounts
Receivable
In
the normal course of business, we decide to extend credit to certain customers without requiring collateral or other security
interests. Management reviews its accounts receivable at each reporting period to provide for an allowance against accounts receivable
for an amount that could become uncollectible. This review process may involve the identification of payment problems with specific
customers. Periodically we estimate this allowance based on the aging of the accounts receivable, historical collection experience,
and other relevant factors, such as changes in the economy and the imposition of regulatory requirements that can have an impact
on the industry. These factors continuously change, and can have an impact on collections and our estimation process. The Company’s
allowance for doubtful accounts totaled $68,206 and $229,012 as of September 30, 2017 and December 31,2016, respectively.
Contingencies
Certain
conditions may exist as of the date financial statements are issued, which may result in a loss but which will only be resolved
when one or more future events occur or do not occur. We assess such contingent liabilities, and such assessment inherently involves
an exercise of judgment. In assessing loss contingencies related to pending legal proceedings that are pending against us or unasserted
claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency
indicates that it is probable that a liability has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable would be disclosed.
Fair
value of financial instruments
The
carrying amounts of the Company’s accounts payable, accrued expenses, and shareholder advances approximate fair value due
to their short-term nature. The Company’s long-term debt approximates fair value based on prevailing market rates.
Property
and equipment
Property
and equipment is stated at cost. Additions and improvements that significantly add to the productive capacity or extend the life
of an asset are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line
method over three to five years for vehicles and five to ten years for equipment. Leasehold improvements are amortized over the
lesser of the estimated remaining useful life of the asset or the remaining lease term.
Impairment
of long-lived assets
The
Company periodically reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be realizable. An impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual disposition is less than its carrying amount. At September 30, 2017
and 2016, the Company has not identified any such impairment losses.
Income
taxes
Under
ASC Topic 740, “Income Taxes”, the Company is required to account for its income taxes through the establishment of
a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit
carry forwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets
and liabilities for book and tax purposes during the year.
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. Deferred tax assets are recognized for deductible temporary differences
and operating losses, and tax credit carry forwards. A valuation allowance is established to reduce that deferred tax asset if
it is “more likely than not” that the related tax benefits will not be realized.
Revenue
recognition
The
Company recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence
of an arrangement exists and the price is fixed or determinable.
Earnings
Per Share
Under
ASC 260, “Earnings Per Share” (“EPS”), the Company provides for the calculation of basic and diluted earnings
per share. Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could
share in the earnings or losses of the entity. For the nine months ended September 30, 2017 and 2016, basic and diluted loss per
share are the same as the calculation of diluted per share amounts would result in an anti-dilutive calculation. For the nine
months ended September 30, 2017, the following potential shares have been excluded from the calculation of diluted loss per share
because their impact was anti-dilutive:
|
|
2017
|
|
Convertible Debt
|
|
|
18,596,912
|
|
Warrants
|
|
|
1,000,000
|
|
|
|
|
19,596,912
|
|
Recent
Accounting Pronouncements
ASU
No. 2014-09, Revenue from Contracts with Customers (Topic 606) -
This standard provides a single set of guidelines for revenue
recognition to be used across all industries and requires additional disclosures, which we are currently evaluating. It is effective
for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption and the use of
either the retrospective or cumulative-effect transition method. The Company is continuing to evaluate the standard’s impact
on its results of operations and financial condition, but does not expect a significant impact.
ASU
No. 2016-02, Leases (Topic 842)
- This standard requires all leases that have a term of over 12 months to be recognized on
the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present
value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent
upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized
as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated
and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest
on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019, and must
be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements. We do not plan to adopt this standard early. We are currently evaluating the potential
impact of this standard on our financial position, but we do not expect it to have a material impact on our results of operations.
There
were other new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be
adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have
a material impact on the Company’s financial statements.
NOTE
2 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America, assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. For the period ended September 30, 2017 and 2016, the Company incurred losses
from operations of $248,780 and $560,699, respectively. The Company had a working capital deficit of $2,787,021 as of September
30, 2017. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s
ability to continue as a going concern is dependent on its ability to raise the additional capital to meet short and long-term
operating requirements. Management is continuing to pursue external financing alternatives to improve the Company’s working
capital position however additional financing may not be available upon acceptable terms, or at all. If the Company is unable
to obtain the necessary capital, the Company may have to cease operations.
NOTE
3 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following as of September 30, 2017 and December 31, 2016:
|
|
2017
|
|
|
2016
|
|
Furniture and equipment
|
|
$
|
260,699
|
|
|
$
|
265,700
|
|
Vehicles
|
|
|
189,012
|
|
|
|
239,214
|
|
Leasehold Improvements
|
|
|
66,077
|
|
|
|
66,077
|
|
Less: Accumulated
Depreciation
|
|
|
(215,264
|
)
|
|
|
(179,948
|
)
|
Property
and equipment, net
|
|
$
|
300,524
|
|
|
$
|
391,043
|
|
Depreciation
expenses totaled $63,888 and $61,641 for the nine months ended September 30, 2017 and 2016, respectively.
NOTE
4 - BORROWINGS
Vehicle
installment notes payable
The
Company’s vehicle installment notes payable consist of several installment notes for various vehicles used in the Company’s
operations. At September 30, 2017 and 2016, the notes have annual interest rates between 3.49% and 4.07% and require monthly minimum
payments of principal and interest ranging from $370 to $434. The Company’s installment notes are collateralized by the
vehicles purchased with the respective installment notes. The notes mature from November 2020 to August 2021. During the nine
months ended September 30, 2017, the Company sold one of the vehicles securing a note with a principal balance of $16,904, which
was settled as a result of the sale. As of September 30, 2017, and December 31, 2016, the balance of the notes totaled $90,763
and $122,855, respectively.
Convertible
notes payable
On
August 24, 2016, the Company issued two two-year unsecured convertible notes payable totaling $200,000 pursuant to a private placement
memorandum. The notes mature on August 24, 2018 and have an annual interest rate of 12.5%. At the election of the holder, upon
the occurrence of certain events, the notes can be converted into common stock of the Company at a conversion price per share
equal to 50% of the average bid price for the 30 consecutive business days prior to conversion. The conversion feature is contingent
upon i) the successful filing of a registration statement to become publicly traded, and ii) the company stock has become publicly
quoted on the OTC Markets and iii) the conversion price is above $0.10. In connection with the notes, the predecessor Company
issued a total of 200,000 shares of Series B preferred stock, which was canceled upon the reverse merger. As of September 30,
2017, and December 31, 2016, the balance of the notes totaled $198,896 and $200,000, respectively.
On
August 24, 2017, in connection with the reverse merger, the Company assumed convertible notes with an aggregate principal balance
of $833,787. The notes automatically converted into 17,052,925 shares of common stock on October 3, 2017 upon the effective date
of the Company’s reverse split in accordance with the convertible note agreements. The notes had a maturity date of October
23, 2017.
Convertible
notes payable, related party
On
October 23, 2015, a total of $332,474 in advances from a related party was converted into two one-year unsecured convertible notes
payable to Nicholas Campanella, Chief Executive Officer of the Company. The notes have an annual interest rate of 6% and are currently
past due. At the election of the holder, the notes can be converted into common stock of the Company at a conversion price per
share equal to 20% of the average bid price for the three consecutive business days prior to conversion. As of September 30, 2017,
and 2016, the balances of the notes totaled $332,474.
On
August 24, 2016, a total of $75,000 in advances from a related party was converted into a two-year unsecured convertible note
payable to Nicholas Campanella, Chief Executive Officer of the Company, pursuant to a private placement memorandum. The note matures
on August 24, 2018, has an annual interest rate of 12.5% and is due at maturity. At the election of the holder, upon the occurrence
of certain events, the note can be converted into common stock of the Company at a conversion price per share equal to 50% of
the average bid price for the 30 consecutive business days prior to conversion. The conversion feature is contingent upon i) the
successful filing of a registration statement to become publicly traded, and ii) the company stock has become publicly quoted
on the OTC Markets and iii) the conversion price is above $0.10. In connection with this note, the Company issued 75,000 shares
of Series B preferred stock, as further described in Note 6. As of September 30, 2017, the balance of the notes was $75,000.
Line
of credit, related party
On
October 23, 2015, the Company entered a line of credit agreement with Nicholas Campanella, Chief Executive Office of the Company,
for a total value of $250,000. The line of credit does not bear an interest rate and is payable on demand. As of September 30,
2017, the balance of the debt to related party was $111,625.
The
Company’s estimated future maturities of the Company’s debt, as of September 30, 2017, are as follows:
Year
ending December 31,
|
|
Amount
|
|
2017 (remainder of the
year)
|
|
$
|
843,090
|
|
2018
|
|
|
608,821
|
|
2019
|
|
|
23,472
|
|
2020
|
|
|
23,887
|
|
2021
|
|
|
11,486
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
1,510,756
|
|
NOTE
6 - PREFERRED STOCK AND COMMON STOCK
Preferred
stock
The
Company is authorized to issue 20,000,000 shares of $0.0001 par value preferred stock as of September 30, 2017. As of September
30, 2017, the Company has designated 12,000,000 shares of Series A Preferred Stock, 1,000,000 shares of Series B Convertible Preferred
Stock, and 500,000 shares of Series C Convertible Stock.
Each
share of Series A Preferred Stock is entitled to 125 votes on all matters submitted to a vote to the stockholders of the Company,
and does not have conversion, dividend or distribution upon liquidation rights. In connection with the reverse merger, all of
the outstanding shares of Series A Preferred Stock, totaling 2,000,000 shares were cancelled.
In
connection with the reverse merger, the Company issued 2,000,000 shares of Series B Preferred Stock. Each share of Series B Preferred
Stock automatically converted into 30.8565 shares of common stock after giving effect to the reverse stock split that occurred
on October 3, 2017. Holders of Series B Preferred Stock is entitled to vote and receive distributions upon liquidation with common
stockholders on an as-if converted basis.
In
connection with the reverses merger, the Company issued 200,000 shares of Series C Preferred Stock. Holders of Series C Preferred
Stock are not entitled to voting rights or preferential rights upon liquidation. Each share of Series C Preferred Stock shall
pay an annual dividend in the amount of $0.125 per year, for a total of $0.25, over an eighteen (18) month term, from the date
of issuance (the “Commencement Date”). Dividend payments shall be payable as follows: (i) dividend in the amount of
$0.0625 per share of Series C Preferred Stock at the end of each of the third quarter and fourth quarter of the first twelve (12)
months of the twenty-four (24) month period after the Commencement Date; and (ii) dividend in the amount of $0.03125 per share
of Series C Preferred Stock at the end of each of the four quarters of the second twelve (12) months of the twenty-four (24) month
period after the Commencement Date. The source of payment of the dividends will be derived from up to thirty-five percent (35%)
of net revenues (“Net Revenues”) from the Street Furniture Division of the Corporation following the seventh (7th)
month after the Commencement Date. To the extent the amount derived from the Net Revenues of the Street Furniture Division is
insufficient to pay dividends of Series C Preferred Stock, if a sufficient amount is available, the next quarterly payment date
the funds will first pay dividends of Series C Preferred Stock past due. At the conclusion of twenty-four months after the Commencement
Date, and upon the payment of all dividends due and owing on said Series C Preferred Stock, the Series C Preferred Stock shall
automatically be redeemed by the Corporation and returned to the Corporation for cancellation, as unissued, non-designated, preferred
shares. During the three and nine months ended September 30, 2017, the Company recorded dividend expense of $9,502 and $28,505,
of which $6,413 is reflected as dividends payable, related party on the accompanying condensed consolidated balance sheet as of
September 30, 2017.
Common
stock
In
January 2017, the Company issued 4,500,000 shares of common stock in settlement of $450,000 due to an affiliate, which was reclassified
into additional paid in capital.
In
January 2017, the Company issued 160,000 shares of the Company’s common stock as compensation for services rendered related
to a private placement memorandum dated August 26, 2016.
On
August 24, 2017, in connection with the reverse merger, the Company issued 5,665,092 shares of common stock to the previous stockholders
of the Company.
Warrants
In
September 2017, the Company agreed to issue a warrant to purchase 20,000 shares of common stock for an aggregate exercise price
of $10.00 as consideration for consulting services to be provided from October 2017 through March 2018. No expense was recognized
during the nine months ended September 30, 2017, because services were not provided until October 2017.
NOTE
7 - COMMITMENTS AND CONTINGENCIES
Employment
agreement
On
December 20, 2014, the Company entered into a five-year employment agreement with Nicholas Campanella, Chief Executive Officer.
Under the terms of the agreement, the Company is required to pay a base compensation of $180,000 annually, subject to increases
in cost of living and performance bonuses as awarded by the Board of Directors. After 5 years, the agreement is automatically
renewed for an additional two years unless terminated by either party. As part of the agreement Mr. Campanella opted to defer,
with no interest, the receipt of compensation under the agreement until the Company has the funds to pay its obligation. At September
30, 2017 and December 31, 2016, the Company had accrued compensation of $463,846 and $378,475, respectively, and recorded the
related expenses in ‘general and administrative’ on the accompanying condensed consolidated statements of operations.
Lease
agreement
During
March 2017, the Company entered into a five-year lease agreement. Under the terms of the agreement, the Company is obligated to
pay monthly rent payments starting at $3,556 and escalating over the life of the lease. Rent expense for the nine months ended
September 30, 2017 was $45,763. Future minimum rental payments under this agreement are as follows:
Year
ending December 31,
|
|
Amount
|
|
2017 (remainder of the
year)
|
|
$
|
7,112
|
|
2018
|
|
|
43,559
|
|
2019
|
|
|
44,648
|
|
2020
|
|
|
45,764
|
|
2021
|
|
|
46,908
|
|
Thereafter
|
|
|
7,850
|
|
|
|
$
|
195,841
|
|
Significant
customers
For
the nine months ended September 30, 2017 and 2016, the Company had the following customer concentrations:
|
|
Percentage of Revenues
|
|
|
Accounts Receivable as
of September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
Customer A
|
|
|
38
|
%
|
|
|
35
|
%
|
|
$
|
-
|
|
Customer B
|
|
|
15
|
%
|
|
|
26
|
%
|
|
|
-
|
|
Customer C
|
|
|
13
|
%
|
|
|
24
|
%
|
|
|
7,469
|
|
Customer D
|
|
|
12
|
%
|
|
|
*
|
|
|
|
3,897
|
|
*
Less than 10%
NOTE
8 - RELATED PARTY TRANSACTIONS
For
purposes of these condensed consolidated financial statements, Summit Trading Limited, Zimmerman LLC, the Campanella family, Jody
Samuels, Frank Capria, and Triplet Square LLC are considered related parties due to their beneficial ownership (shareholdings
or voting rights) in excess of 5%, or their affiliate status, during the nine months ended September 30, 2017 and 2016. All material
transactions with these investors and other related parties for the nine months ended September 30, 2017 and year ended December
31, 2016, not listed elsewhere, are listed below.
During
the year ended December 31, 2016, the Company incurred expenses with management and affiliates totaling $450,000 for services
provided to the Company. On January 5, 2017, the Company issued 4,500,000 shares of the Company’s common stock to settle
the liability.
NOTE
10 - SUBSEQUENT EVENTS
In
October 2017, the Company sold 762,500 shares of common stock for gross proceeds of $152,500. In October 2017, the Company agreed
to issue 1,800,000 shares of common stock pursuant to a consulting agreement for services to be rendered. Pursuant to the consulting
agreement, the Company has the right to repurchase the shares for $0.22 per share.
On
August 24, 2017, in connection with the reverse merger, the Company assumed convertible notes with an aggregate principal balance
of $833,787. The notes automatically converted into 17,052,925 shares of common stock on October 3, 2017 upon the effective date
of the Company’s reverse split in accordance with the convertible note agreements.
In
connection with the reverses merger, the Company issued 2,000,000 shares of Series B Preferred Stock. The Series B Preferred Stock
automatically converted into 30,856,553 shares of common stock after giving effect to the reverse stock split that occurred on
October 3, 2017.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following presentation of management’s discussion and analysis of our financial condition and results of operations should
be read in conjunction with our financial statements, the accompanying notes thereto and other financial information appearing
elsewhere in this quarterly report on Form 10-Q. This section and other parts of this quarterly report on Form 10-Q contain forward-looking
statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Company
History and Overview
We
were incorporated under the laws of the State of New Jersey on July 28, 2009, as Sun Pacific Power Corp. Our principal executive
offices are located at 215 Gordons Corner Road, Manalapan, New Jersey, 07726.
Originally,
Sun Pacific Power Corp, (“SPPC” or the “Company”) was formed to provide renewable energy solutions to
large consumers of fossil fuel derived power. The idea was to develop a light-weight, non-glass, durable solar panel that could
withstand extreme weather conditions. It was important to develop this product in such a way it gave the Company a differential
advantage to compete in a marketplace that has organizations with years of history and knowledge in the solar panel industry.
Although there are high barrier entry costs and the competition has started to consolidate as the industry matures, the founder
of the Company believes the need for environmentally friendly products with renewable and sustainable uses has long lasting impact
that will sustain Company growth. Solar panel manufactures have started to address some of the needs their larger commercial consumers’
desire. SPPC is poised to enter the marketplace as standards are changing and developing, requiring a more rigorous panel. We
are working on being the first to market with a light weight panel that has the capacity to withstand over 250 mph winds and hailstones
close to 8 cm in diameter. The non-glass panel development is currently in its final stages of testing and is expected to obtain
its Underwriters Laboratory (“UL”) certification shortly. We have a letter of interest from a wholesale power provider
and are in talks with several other companies that have multinational contracts that are willing to also give us letters of interest
and purchase orders.
Our
Services
The
Company has developed several service divisions. Because solar power cannot always be guaranteed due to weather conditions, at
times extreme, back up electricity is important to our business model. To that end we started an Electrical Division in order
to maintain power at all times in our Solar Powered Bus shelters. Over the last couple of years the Company has been able to do
commercial electrical installations and are now also general contractors for Lowes. We do electrical installations for six (6)
stores and do kitchen and baths for three (3) of the stores in the New Jersey area. We are also now doing construction work for
three of the Lowes stores that do over a million dollars in sales of home improvement renovations per store.
SPPC
has contracted with sixteen (16) municipalities to install “Smart Bus Shelters”, and “Smart Green Bins”
in five (5) states. For this business segment we designed, developed, manufactured and marketed advanced Solar Paneled Bus Shelters
and Solar Trash Bins.
We
design products that exclusively use solar panels as the power source. These products have commercial applications both in the
United States and in foreign countries. We have designed our products with the general idea that being environmentally proactive
is what consumers are starting to demand of large industries and thus these markets are starting to open and need to be filled.
Our
strategic plan for the next five (5) years consists of building the solar product(s) divisions and continuing with electrical
contracting work as well as expanding our solar panel bus shelter program. In addition, as financing and market conditions allow
we will begin to manufacture and market our innovative solar technology, specializing in specific niche markets.
Results
of Operations
Three
Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Revenues
:
Revenues decreased by $734,044, or 83%, from $887,078 for the three months ended September 30, 2016 to $153,034 for the three
months ended September 30, 2017. The Company was still active in staffing projects last year – revenues in the new business
areas is still minimal.
Cost
of revenues
: Cost of revenues decreased by $51,703, or 33%, from $154,454 for the three months ended September
30, 2016 to $102,751 for the three months ended September 30, 2017. The Company was still active in staffing projects last year
– revenues in the new business areas is still minimal.
Salaries
and salary related costs
: Salaries and salary related costs decreased by $373,979 from $476,261 for the three
months ended September 30, 2016 to $102,282 for the three months ended September 30, 2017 due to the company investing in product
development.
Professional
fees
: Professional fees decreased by $58,779, or 85%, from $68,913 for the three months ended September 30,
2016 to $10,134 for the three months ended September 30, 2017 due to one-time payments made to investment bankers.
Rent
expense
: Rent expense decreased by $31,425, or 75% from $41,689 for the three months ended September 30, 2016
to $10,264 for the three months ended September 30, 2017 due to the Company not renewing the office lease in Bellevue.
General
and administrative
: General and administrative expenses decreased by $337,940, or 96% from $350,511 for the
three months ended September 30, 2016 to $12,571 for the three months ended September 30, 2017 due to the elimination of consulting
fees from 2016 to 2017.
Interest
expense
: Interest expense decreased by $1,925, or 26% from $7,506 for the three months ended September 30,
2016 to $5,581 for the three months ended September 30, 2017 due to reduction in vehicle loans.
Nine
Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Revenues
:
Revenues decreased by $1,509,449, or 59%, from $2,577,000 for the nine months ended September 30, 2016 to $1,067,551 for the nine
months ended September 30, 2017. The Company was still active in staffing projects last year – revenues in the new business
areas is still minimal.
Cost
of revenues
: Cost of revenues decreased by $153,643, or 21%, from $746,574 for the nine months ended September
30, 2016 to $592,931 for the nine months ended September 30, 2017. The Company was still active in staffing projects last year
although revenues were in a decline.
Salaries
and salary related expenses
: Salaries and salary related expenses decreased by $880,023, or 70%, from $1,263,823
for the nine months ended September 30, 2016 to $383,800 for the nine months ended September 30, 2017 due to due to decrease in
staffing.
Professional
fees
: Professional fees decreased by $77,750, or 68%, from $115,048 for the nine months ended September 30, 2016
to $37,298 for the nine months ended September 30, 2017 due to due to one-time payments made for evaluating and soliciting incoming
investments.
Rent
expense
: Rent expense decreased by $23,422, or 23% from $102,052 for the nine months ended September 30, 2016 to
$78,630 for the nine months ended September 30, 2017 due to due to the Company not renewing the office lease in Bellevue.
General
and administrative
: General and administrative expenses decreased by $693,327, or 80% from $866,773 for the nine
months ended September 30, 2016 to $173,446 for the nine months ended September 30, 2017 due to tight control on expenses during
the transition to an analytics company
Interest
expense
: Interest expense increased by $32,410, or 198% from $16,369 for the nine months ended September 30, 2016
to $48,779 for the nine months ended September 30, 2017 due to payments on loans taken to invest in product development.
Continuing
Operations, Liquidity and Capital Resources
As
of September 30, 2017, we had a working capital deficit of $2,787,021. We intend to seek additional financing for our working
capital, in the form of equity or debt, to provide us with the necessary capital to accomplish our plan of operation. There can
be no assurance that we will be successful in our efforts to raise additional capital.
During
the nine months ended September 30, 2017, we used $336,309 in operations, consisting of our loss from operations, offset by no
cash expenses for depreciation, allowance of uncollectible accounts, and amortization of debt discounts of $164,200 and changes
in our current assets and liabilities of $172,073. During the nine months ended September 30, 2016, we used $350,627 in operations,
consisting of our loss from operations, offset by no cash expense for depreciation of $61,641 and changes in our current assets
and liabilities of $171,055.
During
the nine months ended September 30, 2017, we generated $2,500 from investing activities, consisting of proceeds from the sale
of property and equipment. During the nine months ended September 30, 2016, we used $64,069 in investing activities for the purchase
of property and equipment.
During
the nine months ended September 30, 2017, we generated $256,690 of cash from financing activities, consisting of $271,878 of advances
from related parties, offset by repayments of vehicle installments of $15,188.
Off-Balance
Sheet Arrangements
As
of September 30, 2017, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement”
generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party,
under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained
or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market
risk support for such assets.