Item
1. FINANCIAL STATEMENTS
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Restated)
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
123,752
|
|
|
$
|
4,851
|
|
Cash
held in escrow
|
|
|
2,942,874
|
|
|
|
-
|
|
Prepaid
interest held in escrow
|
|
|
706,933
|
|
|
|
|
|
Accounts
receivable, net of allowance for uncollectable accounts of $145,155
|
|
|
55,593
|
|
|
|
77,137
|
|
Other
current assets
|
|
|
-
|
|
|
|
7,234
|
|
Total
current assets
|
|
|
3,829,152
|
|
|
|
89,222
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
|
196,512
|
|
|
|
204,951
|
|
Right-of-use
Asset
|
|
|
1,315,539
|
|
|
|
-
|
|
Deposits
|
|
|
1,716,087
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
7,057,290
|
|
|
$
|
294,173
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
202,827
|
|
|
$
|
245,125
|
|
Accounts
payable, related party
|
|
|
76,512
|
|
|
|
91,512
|
|
Accrued
compensation to officer
|
|
|
646,588
|
|
|
|
631,166
|
|
Accrued
expenses
|
|
|
338,982
|
|
|
|
203,670
|
|
Accrued
expenses, related party
|
|
|
34,890
|
|
|
|
31,745
|
|
Dividends
payable, related party
|
|
|
18,913
|
|
|
|
18,913
|
|
Advances
from related parties
|
|
|
613,551
|
|
|
|
612,023
|
|
Project
financing obligation
|
|
|
260,000
|
|
|
|
260,000
|
|
Vehicle
installment notes payable, current portion
|
|
|
21,631
|
|
|
|
28,943
|
|
Convertible
notes payable, net of discounts
|
|
|
445,323
|
|
|
|
423,454
|
|
Convertible
notes payable, related party, net of discounts
|
|
|
408,974
|
|
|
|
408,974
|
|
Note
payable
|
|
|
5,798,854
|
|
|
|
-
|
|
Lease
liability, current portion
|
|
|
36,926
|
|
|
|
-
|
|
Total
current liabilities
|
|
|
8,903,971
|
|
|
|
2,955,525
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities:
|
|
|
|
|
|
|
|
|
Lease
liability, net of current portion
|
|
|
1,296,846
|
|
|
|
-
|
|
Vehicle
installment notes payable, net of current portion
|
|
|
25,643
|
|
|
|
31,724
|
|
Total
long-term liabilities
|
|
|
1,322,489
|
|
|
|
31,724
|
|
Total
liabilities
|
|
|
10,226,460
|
|
|
|
2,987,249
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (see Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock $0.0001 par value, 20,000,000 million shares authorized:
|
|
|
|
|
|
|
|
|
Series
A preferred stock: 12,000,000 shares designated; 12,000,000 shares issued and outstanding
|
|
|
1,200
|
|
|
|
1,200
|
|
Series
B preferred stock: 1,000,000 shares designated; -0- shares issued and outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
Series
C preferred stock: 500,000 shares designated; -0- and 275,000 shares issued and outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
Common
stock $0.0001 par value, 500,000,000 shares authorized; 120,041,354 and 66,901,354 shares issued and outstanding, respectively
|
|
|
12,004
|
|
|
|
6,690
|
|
Additional
paid in capital
|
|
|
4,037,350
|
|
|
|
3,948,051
|
|
Accumulated
deficit
|
|
|
(7,043,980
|
)
|
|
|
(6,649,017
|
)
|
Total
deficit
|
|
|
(2,993,426
|
)
|
|
|
(2,693,076
|
)
|
Non-controlling
interest in subsidiary
|
|
|
(175,744
|
)
|
|
|
-
|
|
Total
stockholders’ deficit
|
|
|
(3,169,170
|
)
|
|
|
(2,693,076
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
7,057,290
|
|
|
$
|
294,173
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE
MONTHS ENDED MARCH 31, 2019 AND 2018
(Restated)
(Unaudited)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
108,365
|
|
|
$
|
120,740
|
|
Cost
of Revenues
|
|
|
86,993
|
|
|
|
87,009
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
21,372
|
|
|
|
33,731
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Wages
and compensation
|
|
|
33,488
|
|
|
|
182,787
|
|
Professional
fees
|
|
|
93,302
|
|
|
|
151,247
|
|
Insurance
|
|
|
2,509
|
|
|
|
-
|
|
Rent
|
|
|
8,753
|
|
|
|
7,746
|
|
General
and administrative
|
|
|
136,636
|
|
|
|
92,110
|
|
Total
operating expenses
|
|
|
274,688
|
|
|
|
433,890
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(253,316
|
)
|
|
|
(400,159
|
)
|
|
|
|
|
|
|
|
|
|
Other
Expenses:
|
|
|
|
|
|
|
|
|
Dividend
expense - preferred stock
|
|
|
-
|
|
|
|
(3,125
|
)
|
Interest
expense
|
|
|
(317,391
|
)
|
|
|
(7,161
|
)
|
Total
other expense
|
|
|
(317,391
|
)
|
|
|
(10,286
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(570,707
|
)
|
|
$
|
(410,445
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to non-controlling interest
|
|
|
175,744
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(394,963
|
)
|
|
$
|
(410,445
|
)
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Common Share - Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
86,473,465
|
|
|
|
60,889,512
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE
MONTHS ENDED MARCH 31, 2019 AND 2018
(Restated)
(Unaudited)
|
|
Series
A
Preferred Stock
|
|
|
Series
C Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid In
|
|
|
Accumulated
|
|
|
Non
-controlling
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficit
|
|
Three
Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2017
|
|
|
12,000,000
|
|
|
$
|
1,200
|
|
|
|
275,000
|
|
|
$
|
28
|
|
|
|
60,833,030
|
|
|
$
|
6,083
|
|
|
$
|
3,168,626
|
|
|
$
|
(4,873,536
|
)
|
|
$
|
-
|
|
|
$
|
(1,697,599
|
)
|
Issuance
of common stock for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
10
|
|
|
|
59,990
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
Issuance
of common stock warrants for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,474
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,474
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(410,445
|
)
|
|
|
-
|
|
|
|
(410,445
|
)
|
Balances
at March 31, 2018
|
|
|
12,000,000
|
|
|
$
|
1,200
|
|
|
|
275,000
|
|
|
$
|
28
|
|
|
|
60,933,030
|
|
|
$
|
6,093
|
|
|
$
|
3,365,090
|
|
|
$
|
(5,283,981
|
)
|
|
$
|
-
|
|
|
$
|
(1,911,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2018
|
|
|
12,000,000
|
|
|
$
|
1,200
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
66,901,354
|
|
|
$
|
6,690
|
|
|
$
|
3,948,051
|
|
|
$
|
(6,649,017
|
)
|
|
$
|
-
|
|
|
$
|
(2,693,076
|
)
|
Issuance
of common stock for conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,140,000
|
|
|
|
5,314
|
|
|
|
89,299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94,613
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(394,963
|
)
|
|
|
(175,744
|
)
|
|
|
(570,707
|
)
|
Balances
at March 31, 2019
|
|
|
12,000,000
|
|
|
$
|
1,200
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
120,041,354
|
|
|
$
|
12,004
|
|
|
$
|
4,037,350
|
|
|
$
|
(7,043,980
|
)
|
|
$
|
(175,744
|
)
|
|
$
|
(3,169,170
|
)
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE
MONTHS ENDED MARCH 31, 2019 AND 2018
(Restated)
(Unaudited)
|
|
2019
|
|
|
2018
|
|
Cash flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(570,707
|
)
|
|
$
|
(410,445
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
16,276
|
|
|
|
39,301
|
|
Amortization of debt discount - interest expense
|
|
|
145,318
|
|
|
|
3,332
|
|
Conversion fees settled with common stock
|
|
|
7,564
|
|
|
|
-
|
|
Warrants issued for services
|
|
|
-
|
|
|
|
136,474
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
21,544
|
|
|
|
27,625
|
|
Deposits
|
|
|
7,234
|
|
|
|
(1,000
|
)
|
Accounts payable
|
|
|
(42,296
|
)
|
|
|
20,052
|
|
Accounts payable, related party
|
|
|
(15,000
|
)
|
|
|
-
|
|
Accrued compensation to officer
|
|
|
15,422
|
|
|
|
45,695
|
|
Accrued expenses
|
|
|
144,142
|
|
|
|
43,000
|
|
Accrued expenses, related party
|
|
|
3,145
|
|
|
|
-
|
|
Dividends payable, related party
|
|
|
-
|
|
|
|
3,125
|
|
Right-to-use asset and obligation
|
|
|
18,233
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(249,125
|
)
|
|
|
(92,841
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
(7,839
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(7,839
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from advances from related parties
|
|
|
1,528
|
|
|
|
1,031
|
|
Proceeds from note payable released from escrow
|
|
|
387,730
|
|
|
|
-
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
60,000
|
|
Repayment of vehicle installment notes payable
|
|
|
(13,393
|
)
|
|
|
(5,950
|
)
|
Net cash provided by financing activities
|
|
|
375,868
|
|
|
|
55,081
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
118,901
|
|
|
|
(37,760
|
)
|
Cash at beginning of period
|
|
|
4,851
|
|
|
|
55,740
|
|
Cash at end of period
|
|
$
|
123,752
|
|
|
$
|
17,980
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Cash held in escrow from note payable
|
|
$
|
5,046,692
|
|
|
$
|
-
|
|
Prepaid interest held in escrow from note payable
|
|
$
|
706,933
|
|
|
$
|
-
|
|
Discount from note payable
|
|
$
|
271,375
|
|
|
$
|
-
|
|
Conversion of convertible notes and accrued interest
|
|
$
|
87,050
|
|
|
$
|
-
|
|
Deposits on equipment from cash
held in escrow
|
|
$
|
1,716,087
|
|
|
$
|
-
|
|
Right of use asset and operating lease liability
|
|
$
|
1,338,686
|
|
|
$
|
-
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
NOTES
TO RESTATED CONDENSED CONSOLIDATED FINACNIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2019 AND 2018
(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.
Currently,
the Company has six (6) subsidiary holdings. Sun Pacific Power Corp which was the initial company that specialized in solar, electrical
and general construction, 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 is reviewing 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.” MedRecycler, LLC, is a wholly owned subsidiary duly
formed in the state of Nevada. MedRecycler, LLC was created in 2018 to act as a holding company for potential waste to energy
projects. MedRecycler, LLC, currently owns 51% of MedRecycler RI, Inc. a Rhode Island Corporation. MedRecycler RI, Inc. was created
for the Medical Waste to Energy facility that the Company is attempting to finance and operate in West Warrick, Rhode Island.
Description
of business
Utilizing
managements history and contacts in general contracting, coupled with our subject matter expertise and intellectual property (“IP”)
knowledge of solar panels and other environmentally friendly technologies, Sun Pacific Holding (“the Company”) is
focused on building a “Next Generation” green energy company. The Company offers competitively priced “Next
Generation” solar panel and lighting products by working closely with design, engineering, integration and installation
firms in order to deliver turnkey solar and other energy efficient solutions. The Company provides
solar
bus stops, solar trashcans and “street kiosks” that utilize our unique advertising offerings that provide State and
local municipalities with costs efficient solutions.
The Company
provides general,
electrical, and plumbing contracting services to a range of both public and commercials customers in support of our goals of expanding
our green energy market reach. In conjunction with these general contracting services and as part of our effort to expand our
green energy marketplace, we have recently started the process to develop and build out a Waste to Energy plant in the state of
Rhode Island.
Since
August 24, 2017, Nicholas Campanella has put forth all his efforts in trying to revitalize the Company and getting it solvent.
Mr. Campanella has had limited success in raising capital sufficient to kick start expansion of its businesses. Any financing
that has been received has been very limited and merely sufficient to cover basic costs of being a public company. As of the date
of this filing, revenues are heavily concentrated in operations of the subsidiary Street Smart Outdoor Corp., which operates in
the outdoor advertising space. These cashflows, however, have not been sufficient to provide working capital for the parent or
to expand operations. Although there are prospective contracting and construction contracts for Sun Pacific Power Corp., a wholly
owned subsidiary, revenues generated by Sun Pacific Power Corp. have been limited. Despite its best efforts, Sun Pacific Power
Corp. and the Company have been unable to secure financing to complete UL testing for the glassless solar panel. As a result,
contracts have lapsed, and we are unable to assess the marketability of the glassless solar panel product at this time.
The
Company has been unable to produce positive cashflows since inception resulting in the Company relying heavily upon convertible
promissory notes and equity financing. As a result, the Company’s shareholders have suffered from highly dilutive financings.
Currently,
management is focused on 2 main areas of operations. 1) Expanding the outdoor advertising operated under Street Smart Outdoor
Corp. through the engagement of a third-party management service. 2) erecting a waste to energy facility in the state of Rhode
Island. Regarding the outdoor advertising, the Company has yet to secure a relationship with a third-party operator that could
alleviate some of the cashflow constraints of Street Smart Outdoor. As for the Rhode Island waste to energy project, we currently
require additional financing to complete the installation and build out of the facility. Currently, MedRecycler-RI, Inc. is indebted
$6,025,000 through a promissory note held by UMB Bank, N.A. as trustee (See Note 5). In order to secure the financing, all interest
in MedRecycler-RI, Inc., including minority interests have been pledged. All repayment under the promissory note has been guaranteed
by the Company and Street Smart Outdoor Corp. Additionally, in order to secure the financing, Nicholas Campanella, our CEO, has
pledged substantial personal assets, including all controlling interest in the Company. Although Mr. Campanella was issued thirty
nine percent (39%) interest in MedRecycler-RI, Inc. for his personal contribution, all said interest has been pledged to the Trustee
(See Note 5). The success of the waste to energy project we estimate will require no less than $10,500,000 in additional financing
and may still not be successful. Even with timely and fully functioning operations, profits derived from the facility will be
dedicated to servicing the debt for the foreseeable future.
Restatement
The Company is restating its financial
statements for the three months ended March 31, 2019, due to errors that occurred during the processing of this report on Form
10Q.
The following summarizes restatements to the Company’s condensed
consolidated balance sheet as of March 31, 2019:
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Cash held in escrow
|
|
$
|
2,892,827
|
|
|
$
|
50,047
|
|
|
$
|
2,942,874
|
|
Current Assets
|
|
$
|
3,779,105
|
|
|
$
|
50,047
|
|
|
$
|
3,829,152
|
|
Total Assets
|
|
$
|
7,007,243
|
|
|
$
|
50,047
|
|
|
$
|
7,057,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
$
|
(7,094,027
|
)
|
|
$
|
50,047
|
|
|
$
|
(7,043,980
|
)
|
Total Stockholder’s Deficit
|
|
$
|
(3,219,217
|
)
|
|
$
|
50,047
|
|
|
$
|
(3,169,170
|
)
|
The following summarizes restatements to
the Company’s condensed consolidated statement of operations for the three months ended March 31, 2019:
|
|
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Professional fees
|
|
$
|
143,349
|
|
|
$
|
(50,047
|
)
|
|
$
|
93,302
|
|
Total operating expenses
|
|
$
|
324,735
|
|
|
$
|
(50,047
|
)
|
|
$
|
274,688
|
|
Net loss
|
|
$
|
(620,754
|
)
|
|
$
|
50,047
|
|
|
$
|
(570,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.01)
|
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
consolidated financial statements include the accounts of the Company and its wholly owned, and less-than-wholly owned
subsidiaries of which the Company holds a controlling interest. All significant intercompany balances and transactions have
been eliminated. Amounts attributable to minority interests in the Company’s less-than-wholly owned subsidiary are
presented as non-controlling interest on the accompanying condensed consolidated balance sheets and statements of
operations.
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 March 31, 2019, the Federal Deposit Insurance Corporation (FDIC) provided
insurance coverage of up to $250,000, per depositor, per institution. At March 31, 2019, none of the Company’s cash balances
were in excess of federally insured limits with the exception of $2,892,827 of cash balances held in escrow at UMB Bank, NA under
a project fund that the Company is drawing balances against for the development of its Medical Waste to Energy project in Rhode
Island.
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 $145,055 as of
March 31, 2019 and December 31, 2018.
Leases
In
February 2016, the FASB issued ASU No. 2016-02 (Topic 842). Topic 842 amends several aspects of lease accounting, including requiring
lessees to recognize leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at
the present value of the lease payments. In July 2018, the FASB issued supplemental adoption guidance and clarification to Topic
842 within ASU 2018-10 “Codification Improvements to Topic 842, Leases” and ASU 2018-11 “Leases (Topic 842):
Targeted Improvements.” The new guidance aims to increase transparency and comparability among organizations by requiring
lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about
leasing arrangements. A modified retrospective application is required with an option to not restate comparative periods in the
period of adoption.
The
Company, effective January 1, 2019 has adopted the provisions of the new standard. The Company has operating leases for warehouses
and offices. Management evaluates each lease independently to determine the purpose, necessity to its future operations in addition
to other appropriate facts and circumstances.
We
adopted Topic 842 using a modified retrospective approach for all existing leases at January 1, 2019. The adoption of Topic 842
impacted our balance sheet by the recognition of the operating lease right-of-use assets and the liability for operating leases.
Accordingly, upon adoption, leases that were classified as operating leases under the previous guidance were classified as operating
leases under Topic 842. The lease liability is based on the present value of the remaining lease payments, discounted using a
market based incremental borrowing rate as the effective date of January 1, 2019 using current estimates as to lease term including
estimated renewals for each operating lease. As of January 1, 2019, the Company recorded an adjustment of approximately $1,339,000
to operating lease right-of-use assets (“ROU”) and the related lease liability (Note 7).
Deposits
During
the three months ended March 31, 2019, the Company made deposits of approximately $1,700,000 pursuant to a purchase of equipment
costing approximately $7,200,000, currently expected to be delivered in August 2019 for assembly onsite at MedRecycler-RI, Inc.’s
West Warwick, Rhode Island facility.
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 are 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 March 31, 2019
and December 31, 2018, 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
100%
of the Company’s revenue for the three months ended March 31, 2019 is recognized based on the Company’s satisfaction
of distinct performance obligations identified in each agreement, generally at a point in time as defined by Topic 606, as amended.
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers. This standard replaced most existing revenue recognition guidance and is codified in FASB ASC Topic 606. Effective
January 1, 2018, the Company adopted ASU No. 2014-09 using the modified retrospective method. Under the new guidance, the Company
recognizes revenue from contracts based on the Company’s satisfaction of distinct performance obligations identified in
each agreement. The adoption of the guidance under ASU No. 2014-09 did not result in a material impact on the Company’s
consolidated revenues, results of operations, or financial position. As part of the implementation of ASC 606 the Company must
present disaggregation of revenues from contracts with customers into categories that depict how the nature, timing, and uncertainty
of revenue and cash flows are affected by economic factors. Quantitative disclosures on the disaggregation of revenue are as follows:
|
|
Three
Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
Outdoor
Advertising Shelter Revenues
|
|
$
|
44,043
|
|
|
$
|
29,860
|
|
Contracting
Service Revenues
|
|
|
64,322
|
|
|
|
90,880
|
|
|
|
$
|
108,365
|
|
|
$
|
120,740
|
|
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 three months ended March 31, 2019 and 2018, 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 three
months ended March 31, 2019 and 2018, the following potential shares have been excluded from the calculation of diluted loss per
share because their impact was anti-dilutive:
|
|
2019
|
|
|
2018
|
|
Convertible
Debt
|
|
|
146,760,000
|
|
|
|
18,596,912
|
|
Warrants
|
|
|
8,324,757
|
|
|
|
1,020,000
|
|
|
|
|
155,084,757
|
|
|
|
19,616,912
|
|
Recent
Accounting Pronouncements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying condensed consolidated financial statements.
NOTE
3 - 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 three months ended March 31, 2019 and 2018, the Company incurred losses of $570.707 and $410,445,
respectively, and used $249,125 and $92,841, respectively, of cash in operations. The Company has a working capital deficit
of $5,074,819 as of March 31, 2019. 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
4 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
Furniture
and equipment
|
|
$
|
279,654
|
|
|
$
|
271,817
|
|
Vehicles
|
|
|
189,012
|
|
|
|
189,012
|
|
Leasehold
Improvements
|
|
|
66,077
|
|
|
|
66,077
|
|
Less:
Accumulated Depreciation
|
|
|
(338,231
|
)
|
|
|
(321,955
|
)
|
Property
and equipment, net
|
|
$
|
196,512
|
|
|
$
|
204,951
|
|
Depreciation
expenses totaled $16,276 and $39,301 for the three months ended March 31, 2019 and 2018, respectively.
NOTE
5 - 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 March 31, 2019, 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. As of March 31, 2019, and
December 31, 2018, the balance of the notes totaled $47,274 and $60,667, 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 matured 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 was 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. In August 2018, the
holders of the notes agreed to extend the maturity date of the notes to December 31, 2018, in exchange for warrants to acquire
600,000 shares of common stock for an exercise price of $0.31 per share, exercisable over three years. The Company estimated the
fair value of the warrants, totaling $16,401, using the Black Scholes Method and recorded an additional discount against the note
that was amortized over the extend term of the notes. As of March 31, 2019 and December 31, 2018, the balance of the notes totaled
$196,850, and no unamortized discounts remained.
In
April 2018, the Company issued convertible notes with an aggregate principal balance of $350,000, for net proceeds after issuance
costs which were recorded as a discount against the debt to be amortized into interest expense through the maturity of the notes,
of $281,660. The notes mature in April 2019, accrue interest at an annual rate of 10% and are convertible into common stock at
a conversion rate equal to the lesser of $0.05 and 60% times the lowest trading price of the Company’s common stock during
the 18 trading days prior to conversion. Because the conversion feature is indexed to the Company’s stock, and there is
an explicit cap to the total number of shares issuable upon conversion, the Company determine that the embedded conversion option
did not require bifurcation and liability presentation. The investors in the notes also received warrants to acquire an aggregate
of 6,349,457 shares of common stock for an exercise price of $0.11 per share, exercisable for 2 years. The Company estimated the
fair value of the warrants using the Black Scholes model and the following assumptions: volatility – 261.8% to 268.7%; expected
term – 2.0 years; dividend rate – 0.0%; risk free rate – 2.49%, and allocated $173,355 of the proceeds to the
warrants, which was recorded as a discount against the debt to be amortized into interest expense through the maturity of the
notes. Based on the allocation of proceeds to the debt, the Company determined there was a beneficial conversion feature totaling
$176,645, which was recorded as a discount against the debt to be amortized into interest expense through the maturity of the
notes. During the months ended March 31, 2019, a holder of one of the notes elected to convert principal, interest, and
conversion fees totaling $94,613 into 53,140,000 shares of common stock. During the months ended March 31, 2019, the Company amortized
$100,089 of the discounts. As of March 31, 2019, the notes are carried at $248,608, net of unamortized discounts of $56,732.
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 (Note 8). 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 March 31, 2019 and December 31, 2018, the balances of the notes totaled $332,474. As of March 31, 2019, there was $34,890
of accrued interest on these advances, included in accounts payable and accrued expenses on the accompanying condensed consolidated
balance sheet.
On
August 24, 2016, a total of $76,500 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 (Note 8), pursuant to a private placement memorandum.
The note matured on August 24, 2018, has an annual interest rate of 12.5% and is past due. 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 of March 31, 2019, and December 31, 2018, the balance of the notes was $76,500.
Project
Financing Obligation
In
June 2018, the Company received proceeds of $260,000 pursuant to a partnership agreement and related partnership contribution
agreements with third party investors, pursuant which investors have agreed to provide financing for no less than (10) ten new
bus shelters being installed annually. Each investment in the partnership grants the investor the right to preferential distributions
of profits related to the Company’s contract with Rhode Island. The investors receive 100% of the profits from the Rhode
Island contract to install 20 bus shelters until 100% of the initial investments are returned. Thereafter, the investors receive
20% of the remaining profits from Rhode Island contract. As of March 31, 2019, no profits have been earned on the Rhode Island
contract, no repayments have occurred, and the total amount of investments received totaling $260,000 is reflected
on the accompanying condensed consolidated balance sheet as a Project Financing Obligation. During the 2
nd
quarter
of 2019, the Company received from the manufacturer the respective Bus Shelters and presently they are in the process of
being assembled and installed accordingly.
Line
of credit, related party
On
October 23, 2015, the Company entered into a line of credit agreement with Nicholas Campanella, Chief Executive officer 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
March 31, 2019, and December 31, 2018, the balance of the debt to related party was $163,157 and is include in advances from
related parties on the accompanying condensed consolidated balance sheets.
Indenture
of Trust
In
January 2019, MedRecycler, LLC, a 51%-owned subsidiary of Sun Pacific Holding organized in the state of Rhode Island for the development
of waste to energy projects in the state of Rhode Island. Currently, MedRecycler-RI, Inc. has entered into an Indenture of Trust
in the amount of $6,025,000.00 as bridge financing for a project in West Warwick, Rhode Island. The proceeds from the indenture
are held in escrow to be used to (i) to provide for the financing of certain waste to energy facility and related improvements
(the “Improvements”); (ii) to provide for the financing or refinancing of certain equipment to be used in connection
with the Improvements (the “Equipment” and together with the Improvements, the “Project”); (iii)
to provide for the financing of capitalized interest; and (iv) to pay certain costs incurred in connection with the Project.
The principal balance of the indenture accrues interest at an annual rate of 12%, payable semi-annually, and matures
on January 29, 2020. The Company incurred debt issuance costs of $271,375, which were recorded as a discount against the
indenture to be amortized into interest expense through the maturity of the indenture. For the three months ended March 31, 2019,
the Company amortized $45,229 of the discount, and as of March 31, 2019, the indenture is carried at $5,798,854, net of unamortized
discount of $226,146.
The
Company’s estimated future maturities of the Company’s debt, as of March 31, 2019, are as follows:
Twelve
Months Ending March 31,
|
|
Amount
|
|
2019
|
|
$
|
7,110,728
|
|
2020
|
|
|
23,887
|
|
2021
|
|
|
11,486
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
7,146,101
|
|
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 March 31, 2019. As of March 31, 2019,
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. As of March 31, 2019, there were 12,000,000
shares of Series A preferred stock outstanding.
In
connection with the reverse merger, the Company issued 275,000 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 months ended March 31, 2018, the Company recorded dividend expense of $3,125. The Series C
Preferred Stock was automatically redeemed during the year ended December 31, 2018. $18,913 is reflected as dividends
payable, related party on the accompanying condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018.
Common
stock
During
the three months ended March 31, 2018, the Company sold 100,000 shares of common stock for cash of $60,000.
During
the three months ended March 31, 2019, the Company issued 53,140,000 shares of common stock upon the conversion of convertible
debt principal, interest and conversion fees totaling $94,613.
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. The Company estimated
the fair value of the warrants, $7,000 and recognized $1,167 of expense during the year ended December 31, 2017 based on the portion
of the contract period that had expired and the remaining $5,833 during the three months ended March 31, 2018.
In
October 2017, the Company issued warrants to acquire 100,000 shares of common stock at an exercise price of $0.10 per share and
900,000 shares of common stock at an exercise price of $45.00 per share, exercisable over 10 years, for services to be rendered
over a six-month period. The Company estimated the fair value of the warrants to be $261,282, of which $130,641 was expensed during
the year ended December 31, 2017 and $130,641 was expensed during the three months ended March 31, 2018.
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 March
31, 2019 and December 31, 2018, the Company had accrued compensation of $646,588 and $631,166, respectively, and recorded the
related expenses in ‘general and administrative’ on the accompanying condensed consolidated statements of operations.
Leases
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.
The
Company entered into a lease in February 2019 for the rental of a 48,167 square foot space in Rhode Island to be used
for the Company’s MedRecycler operations. The lease has a term of 123 months commencing on March 1, 2019,
requiring annual rental payments totaling $144,501 for the first year, increasing annually to $258,930 in the final
year. The lease also requires the Company to pay a portion of the building’s common area maintenance. The Company
recorded a right-to-use asset and corresponding obligation equal to the present value of the required lease payments using a
discount rate of 12% based on the Company’s incremental borrowing rate.
The
following is a schedule showing the future minimum lease payments under leases for the next five years and the present value of
the minimum lease payments as of March 31, 2019.
Remainder
of 2019
|
|
$
|
146,012
|
|
2020
|
|
|
243,249
|
|
2021
|
|
|
250,317
|
|
2022
|
|
|
217,361
|
|
2023
|
|
|
215,797
|
|
Thereafter
|
|
|
1,286,696
|
|
Total
minimum lease payments
|
|
|
2,359,433
|
|
Less:
Amount representing interest
|
|
|
(1,025,661
|
)
|
Present
value of minimum lease payments
|
|
$
|
1,333,772
|
|
For
the three months ended March 31, 2019, lease expense was approximately $8,753 inclusive of short-term leases.
The
related lease balance included in the condensed consolidated balance sheet as of March 31, 2019 were as follows:
Assets:
|
|
|
|
|
|
|
|
Operating
lease right-of use asset
|
|
$
|
1,315,539
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Lease
liability – current portion
|
|
$
|
36,926
|
|
|
|
|
|
|
Lease
liability – long-term portion
|
|
|
1,296,846
|
|
|
|
|
|
|
Total
operating lease liabilities
|
|
$
|
1,333,772
|
|
NOTE
8 - RELATED PARTY TRANSACTIONS
For purposes of these 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 years ended December 31, 2018 and 2017. During the years ended December 31, 2018 and 2017, the affiliates made
non-interest-bearing advances of $23,506 and $321,127, respectively. The balance of these advances, which are due on demand and
include the Line of Credit (See Note 5), totaled $613,551 and $612,023 as of March 31, 2019 and December
31, 2018, respectively. Included in accounts payable related parties as of March 31, 2019 and December 31, 2018, are expenses
incurred with these affiliates totaling $76,512 and $91,512, respectively.
In
January 11, 2019, the Company entered into that certain Forbearance Agreement between the Company and Nicholas Campanella. Mr.
Campanella is owed approximately $648,400 in principal and interest on loans and lines of credit issued by the Company. Those
debt obligations are currently in default. As consideration for the forbearance of those debts, the Company has agreed to provide
a pledge of 100% membership interest in MedRecycler, LLC, and wholly owned subsidiary of the Company organized in the state of
Nevada which holds 51,000 shares of MedRecycler-RI, Inc. as security against the moneys owed. The amounts owed to Mr. Campanella
date back nearly five years and represent cash payments made by Mr. Campanella to Sun Pacific Power Corp. On April 3, 2019, Mr.
Campanella agreed to extend the forbearance until December 31, 2020.
In
order to secure financing for the MedRecycler-RI, Inc. West Warrick, Rhode Island waste to energy facility, Mr. Campanella agreed
that upon initial financing of the project, he shall pledge substantially all of his holdings in the Company, assign his pledges
in MedRecycler, LLC, and certain properties held by Mr. Campanella, personally, in order to collateralize the debt obligations.
As consideration for his inducement, the Board of Directors has deemed it fair consideration to issue Mr. Campanella 39,000 shares
of MedRecycler-RI, Inc. In addition, MedRecycler-RI, Inc. has engaged the services of Marmac Capital Advisors, LLC and Eilers
Law Group, P.A. to oversee, negotiate and to facility the financing and capital structure MedRecycler-RI, Inc. As neither party
has received compensation for their services for the Company or MedRecycler-RI, Inc. since August of 2018, the Board of Directors
has deemed it fair consideration to issue Marmac Capital Advisors, LLC and Eilers Law Group, P.A. 8,000 and 2,000 shares of MedRecycler-RI,
Inc., respectively. As a result, the Company shall maintain 51% of the ownership of MedRecycler-RI, Inc. through its MedRecycler,
LLC holdings.
On
February 7, 2019, pursuant to an Indenture of Trust entered into by our subsidiary, MedRecycler-RI, Inc., a Rhode Island corporation
and UMB Bank, N.A., a national banking association (“UMB”) (the “Indenture”), Sun Pacific Holding Corp.
(the “Company”) entered into that certain Guarantee of Payment and Performance with UMB acting as Trustee, whereby
the Company agreed to guarantee any and all payments and/or other obligations owed by MedRecycler-RI, Inc. pursuant to the Indenture.
In
order to secure the financing described herein, Mr. Campanella, Marmac Capital Advisors, LLC and Eilers Law Group, P.A. have further
agreed to pledge, upon funding, 100% of their ownership in MedRecycler-RI, Inc. as well as Mr. Campanella’s assignment of
his pledge from the Company of 100% of the membership interests of MedRecycler, LLC. As a result, 100% of MedRecycler-RI, Inc.
will be pledged, upon funding, to the lending party as security for the note and/or bond.
NOTE
9- SUBSEQUENT EVENTS
On or about April 9, 2019, we issued 5,900,000
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.00144
per share of common stock.
On or about April 16, 2019, we issued 6,000,000
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.0014
per share of common stock.
On or about April 26, 2019, we issued 5,978,800
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.00128
per share of common stock.
On or about May 1, 2019, we issued 5,978,800
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.00132
per share of common stock.
On or about May 1, 2019, we issued 6,700,000
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.001485
per share of common stock.
On or about May 6, 2019, we issued 6,871,000
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.001
per share of common stock.
On or about May 8, 2019, we issued 7,700,000
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.001035
per share of common stock.
On or about May 9, 2019, we issued 7,846,500
shares of common stock to one entity pursuant to the conversion of a certain convertible debenture at a conversion price of $0.00092
per share of common stock.
On May 20, 2019, Nicholas Campanella, our Chairman
and CEO, agreed to forbear his right to convert certain related party debts into common stock of the Company until such time as
the Company had sufficient shares to honor his full conversion of principal and interest owed on his related party debts.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have
prepared in accordance with accounting principles generally accepted in the United States of America. This discussion should be
read in conjunction with the other sections of this Form 10-K, including “Risk Factors,” and the Financial Statements.
The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current
expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K.
See “Forward-Looking Statements.” Our actual results may differ materially. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during
the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below.
We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As
used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except
where the context otherwise requires, the term “we,” “us,” “our,” or “the Company,”
refers to the business of Sun Power Holdings Corp.
Company
History and Overview
Utilizing
managements history in general contracting, coupled with our subject matter expertise and intellectual property (“IP”)
knowledge of solar panels and other leading-edge technologies, Sun Pacific Holding (“the Company”) is focused on building
a “Next Generation” green energy company. The Company offers competitively priced “Next Generation” solar
panel and lighting products by working closely with design, engineering, integration and installation firms in order to deliver
turnkey solar and other energy efficient solutions. We provide
solar
bus stops, solar trashcans and “street kiosks” that utilize our unique advertising offerings that provide State and
local municipalities with costs efficient solutions. We provide general, electrical, and plumbing contracting services to a range
of both public and commercials customers in support of our goals of expanding our green energy market reach. In conjunction with
these general contracting services and as part of our effort to expand our green energy marketplace, we have recently started
the process to develop and build out a Waste to Energy plant in the State of Rhode Island.
Our
green energy solutions can be customized to meet most enterprise and/or government mandated regulations and advanced system requirements.
Our portfolio of products and services allow our clients to select a solution that enables them to establish a viable standard
product offering that focuses on the goals of the client’s entire organization.
Currently,
the Company has six (6) subsidiary holdings. Sun Pacific Power Corp which was the initial company that specialized in solar, electrical
and general construction, 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 is reviewing 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.” MedRecycler, LLC, is a wholly owned subsidiary duly
formed in the state of Nevada. MedRecycler, LLC was created in 2018 to act as a holding company for potential waste to energy
projects. MedRecycler, LLC, currently owns 51% of MedRecycler RI, Inc. a Rhode Island Corporation. MedRecycler RI, Inc. was created
for the Medical Waste to Energy facility that the Company is attempting to finance and operate in West Warrick, Rhode Island.
As
of today, our principal source of revenues is derived from Street Smart Outdoor Corp. operations in the outdoor advertising business
with contracts in place in Rhode Island and Tallahassee, Florida, along with some other minor contracting work. We are currently
in discussions with a nationally known outdoor advertising firm to manage and expand our operations, either through a joint venture,
partnership, and or a management arrangement as a result of the company’s insufficient working capital and as an option
to allow for the expansion of our technologies and or contracts by working with other parties that can bring management expertise
and or other resources that may allow us to further optimize our growth strategies.
Sun
Pacific Power Corp. continues to make bids for construction projects throughout the Northeast region. However, as of today, we
have limited operations in Sun Pacific Power Corp.
Bella
Electric, LLC and Sun Pacific Security Corp. have generally ceased operations, but we maintain the subsidiaries in case we find
opportunities to relaunch our operations.
MedRecycler,
LLC, a wholly owned subsidiary of Sun Pacific Holding Company currently holds fifty one percent (51%) of MedRecycler-RI, Inc.,
a corporation formed in the state of Rhode Island for the development of waste to energy projects in the state of Rhode Island.
Currently, MedRecycler-RI, Inc. has entered into an Indenture of Trust in the amount of $6,025,000.00 as bridge financing for
a project in West Warwick, Rhode Island (the “Rhode Island Project”). The original plan was for a facility in Johnston,
Rhode Island, but through our negotiations, determined that the West Warwick location was more suitable. The Indenture of Trust
has been secured by all equity holdings in MedRecycler-RI, Inc., all personal holdings of equity in the Company held by Nick Campanella,
our CEO and member of the Board of Directors. Mr. Campanella has further pledged personal property located in Manapalan in excess
of $1,000,000. Payment for the Indenture of Trust is further guaranteed by the Company and Street Smart Outdoor Corp. Currently,
MedRecycler-RI, Inc. has entered into a lease agreement in West Warwick, Rhode Island, has taken preliminary steps to order the
equipment and is beginning to engage specialists and staff for building out the Rhode Island Project. In order to secure actual
operations of the Rhode Island Project, we estimate that MedRecycler-RI, Inc. must still secure a minimum of $10,500,000 in long
term financing. MedRecycler-RI, Inc. is currently negotiating with the state of Rhode Island and potential bond financiers to
secure the long financing for the Rhode Island Project. Although we anticipate, assuming the long-term financing is secured, the
Rhode Island Project may be fully operation as early as the fourth quarter of 2019. Initially, all operational earnings will be
earmarked for interest, principal repayment, and the fulfillment of other covenants of the long term financing, As we have not
secured long term financing, we can make no statement regarding the long term success of the Rhode Island Project, though, even
in a best case scenario, the Rhode Island Project may not be cash flow positive until fully operational and proceeds fulfill covenants
under the terms of the yet to be finalized debt financing. Through MedRecycler, LLC, the Company owns fifty-one percent (51%)
of MedRecycler-RI, Inc., which was pledged by the Company to Mr. Campanella pursuant to a forbearance agreement related to debts
owed to Mr. Campanella. The remaining forty nine percent (49%) of MedRecycler-RI, Inc. is held by Nicholas Campanella, personally,
Marmac Corporate Advisors, LLC, and Eilers Law Group, P.A., holding thirty nine percent (39%), eight percent (8%), two percent
(2%), respectfully. Mr. Campanella received his ownership as consideration for his personal pledges securing the Indenture of
Trust, Marmac Corporate Advisors, LLC and Eilers Law Group, P.A. received their respective ownership as consideration for efforts
and services performed. One hundred percent (100%) of the ownership of MedRecycler-RI, Inc. has been pledged to bridge financing,
including any pledge rights held by Mr. Campanella in MedRecycler, LLC.
Currently,
the Company has been and is insolvent if you factor in the Company’s debt obligations. Over its history and to augment
the Company’s strategy, it has sought out partnerships and other arrangements with professionals and companies at the operating
subsidiary level to counter its insolvent state, coupled with the Company’s use of debt and equity financings. The
Company continues to look for opportunities that will allow it to partner with others in the form of debt and or equity
and other contributions at the subsidiary level, and where possible attempt to keep control of at least fifty one percent (51%)
of those subsidiaries. While it will also look for the means to correct its insolvent state at the holding company level, given
its current negative economic condition, many parties continue to prefer to work with the Company at an operational subsidiary
level. The Company is currently exploring other equity and or debt opportunities to correct its overall insolvent state. Although
we continue operations through our subsidiary holdings, revenues generated do not fully produce cash flows sufficient to
meet our basic capital requirements. In order to meet our reporting requirements alone, we will have to seek additional capital
through debt or equity financing and/or request deferred payment or other in-kind payments for services. Street Smart Outdoor
is undercapitalized making expansion of our advertising products highly unlikely or difficult to expand without the use of
potential partnerships and or commission only sales representatives. Neither the Company nor Street Smart Outdoor have secured
additional financing to support operations. We are attempting to partner or otherwise develop a capital strategy to allow us to
grow the outdoor advertising business that includes financing outdoor structures with other parties, in which we arrange financing
arrangements, and we continue to look for other professional organizations that we can partner with in expanding our contracts.
Our Rhode Island Project currently represents a liability of over $6,000,000 and has yet to commence. It will require additional
financing, we estimate, of not less than $10,500,000 to complete the build out of phase one for the facility and $16,500,000
if you include consolidating the current $6,000,000 short term indenture. We have plans upon the successful launch of our phase
one to double the capacity of the facility, which will require additional financing. MedRecycler-RI, Inc. has yet to secure any
additional financing. Failure to be successful with Rhode Island Project could lead to bankruptcy of the Company.
In
order to meet certain contractual requirements under promissory notes outstanding and/or in order to recapitalize the common stock
of the Company, the Board may recommend to the shareholders a) a reverse stock split; and/or b) an increase in the number of authorized
shares of common stock. Such an action could have a dilutive effect on existing shareholders. Currently, Nicholas Campanella,
our Chairman and CEO, has super voting rights in the form of his Series A Preferred Stock holdings. Therefore, if the board makes
any such recommendation, such actions will be approved by the shareholders of the Company.
Strategic
Vision
Our
objective is to grow our business profitably as a premier green energy-based provider of both product and services to the public
and private sectors. We are working to deploy our strategy in building upon our general and other contracting expertise in conjunction
with our intellectual property and subject matter expertise in green energy that may allow us to grow a group of profitable business
lines in solar, waste to energy, efficient lighting, and other unique energy related areas.
Recent
advances in a multitude of different yet converging technologies have significantly improved the ability to integrate energy efficient
products and solutions into infrastructure related projects. These technological advances decrease the requirements needed to
jointly operate a multitude of differing assets, devices, and tools that create new ways to integrate evolving new technologies.
This technological change and convergence in energy efficient devices, integrated communications among devices, and societal needs
to more effectively and environmentally friendly handle the removal of waste, we believe presents a significant opportunity for
us in providing and supporting simple to complex integrated solutions.
Our
challenges continue to be reaching critical mass in our solar shelter business, expanding into other green energy related projects,
completion of the Rhode Island Project and securing operational capital. Except for the bridge financing for the Rhode Island
Project, we do not have any existing financing arrangements in place. While the Company has never been adequately funded from
inception, the Company has attempted to use debt, equity, and other opportunistic in-kind compensation to further the Company’s
strategic vision.
Going
Concern
The
Company has an accumulated deficit of approximately $7,043,980 as of March 31, 2019. The Company’s continuation as
a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it
has not been able to accomplish to date, and/or obtain additional financing from its stockholders and/or other third parties.
In
order to further implement its business plan and satisfy its working capital requirements, the Company will need to raise additional
capital. There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms,
if at all.
There
is no assurance that the Company will ever be profitable. These consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of
liabilities that may result should the Company be unable to continue as a going concern.
Results
of Operations
Three
Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018
Revenues
:
Revenues decreased by approximately $12,375 from $120,740 for the Quarter ended March 31, 2018 to $108,365 for the Quarter ended
March 31, 2019 due to delays of our migration away from General Contracting services towards the development of Green Energy Projects
including the sale of Solar powered shelters and other energy related projects that derive income from advertising sources. The
Company has entered into revenue sharing agreements with the City of Tallahassee, the State of Rhode Island Transportation Authority,
and the State of New Jersey, along with others to provide and manage up to approximately 1,700 Solar powered shelters and other
related products for a period of up to Ten (10) years that may include providing WiFi Signal Boosters and Advertising in conjunction
with the shelters and other related other outdoor related products. Depending upon the timing of installation and advertising
revenue generated per shelter and or other advertising-based product, the Company’s Revenue may increase materially from
this green energy offering. The Company has recently raised capital to build and deploy up to 20 bus shelters in Rhode Island
as part of an income sharing arrangement with an investment group. The Company has recently had 20 bus shelters delivered and
is in the process of assembling and deploying the bus shelters into the marketplace. The Company is also presently in the process
of adding up to 60 bus benches in the City of Tallahassee and has engaged two new commissioned sales individuals to assist the
company in increasing its advertising revenues in the City of Tallahassee market place, along with adding improved sales advertising
capabilities in an effort to improve advertising utilization. The Company has also started the process of developing and building
in the State of Rhode Island a Waste to Energy Facility. Depending upon the successful completion of raising the necessary capital
and completing the facility timely, Revenues may also increase materially from this additional green energy offering. These items
along with other revenue generating opportunities under review by the Company may cause dramatic shifts in the Company’s
comparative revenue profile of the products and services that the Company provides in the future.
Cost
of revenues
: Cost of revenues has comparatively remained the same from March 31, 2018 to March 31, 2019 Upon the successful
launch and completion of the Company’s Waste to Energy facility and the increase in the Company’s bus shelters and
other outdoor advertising producing assets, along with an additional other related construction services, the Company’s
Cost of Revenues may increase.
Operating
Expenses
: Operating expenses decreased by approximately $159,202 from $433,890 for the three months ended March
31, 2018 to $274,688 for the three months ended March 31, 2019 due materially to decreases in wages which were slightly offset
by an increase in general and administrative expenses that were associated with project development costs for the Company’s
Medical Waste to Energy initiative, other development projects associated with green energy development initiatives that the Company
is currently exploring. The Company’s Operating expenses may vary quarter to quarter as a result in upfront development
costs for permits, engineering reviews, and other costs associated with the Company’s new development projects related to
its Medical Waste to Energy projects as well as other projects that it is currently reviewing.
Other
Expenses
: Other Expenses increased by approximately $307,105 from $10,286 for the three months ended March 31,
2018 to $317,391 for the three months ended March 31, 2019 as a result of greater amounts of interest expense as a result
of the issuance of convertible debt and other capital related events. Given the Company’s financing requirements in developing
its new business models, the Company’s other (income) expenses may increase over time as the Company explores the use of
additional debt financing.
Net Loss:
As a result of the above,
Net Loss increased approximately $160,262 from $410,445 for the three months ended March 31, 2018 to $570,707 for
the three months ended March 31, 2019.
Continuing Operations, Liquidity and Capital
Resources
As of March 31, 2019, we had a working capital
deficit of approximately $5,074,819. 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 three months ended March 31, 2019,
we used approximately $249,125 in operating activities driven materially from our operating loss offset by non-cash expenses.
During the three months ended March 31, 2019,
we used approximately $7,839 for the purchase of furniture.
During the three months ended March 31, 2019,
we received approximately $375,865 from financing proceeds driven materially from the proceeds of the bridge financing
for the Waste to Energy project.
Off-Balance
Sheet Arrangements
As
of March 31, 2019, 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.