Section 9 - Financial Statements and Exhibits

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

and

See notes to consolidated financial statements

See notes to consolidated financial statements

See notes to consolidated financial statements

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of the business

Organization

We were 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”. Our principal executive offices are located at 215 Gordons Corner Road, Manalapan, New Jersey, 07726.

Description of business

Sun Pacific Power Corp, (“Sun Pacific”) 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. We have also created Sun Pacific Security Corp., a New Jersey corporation. Currently we have not begun operations in the security sector, but our goal will be to provide residential and commercial security solutions, including installation and monitoring. We recently have created National Mechanical Group Corp, a New Jersey corporation focused on plumbing operations in the New Jersey Pennsylvania areas. Lastly, we have created Street Smart Outdoor Corp, a Wyoming corporation, that acts as a holding company for our state specific operations in unique advertising through solar bus stops, solar trashcans and “street kiosks”. Currently, we only operate a single subsidiary of Street Smart Outdoor Corp, Sun Pacific Coast Corp. our Florida advertising operations.

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.

Consolidation

The consolidated financial statements include the accounts of the Company and our 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 December 31, 2016, the Federal Deposit Insurance Corporation (FDIC) provided insurance coverage of up to $250,000, per depositor, per institution. At December 31, 2016, none of the Company’s cash was 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 incurred bad debt expenses of $86,676 and $150,309 during the years ended December 31, 2016 and 2015, respectively.

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to its consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the consolidated balance sheet dates, nor gains or losses reported in the consolidated statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at December 31, 2016 and 2015.

Fair value measurements

ASC Topic 820, Fair Value Measurement, defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, the fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

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 December 31, 2016 and 2015, 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.

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Research and development expense

Research and development costs are expensed as incurred.

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.

Subsequent events

The Company has evaluated subsequent events from December 31, 2016 and through August 21, 2017, to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included. (See Note 10)

Recent accounting pronouncements

During the year ended December 31, 2016 and through August 21, 2017, there were several 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 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 years ended December 31, 2016 and 2015, the Company incurred losses from operations of $1,491,223 and $223,782, respectively. At December 31, 2016 and 2015, the Company had a stockholders’ deficit of $1,866,294 and $419,071, respectively, and a working capital deficit of $1,563,674 and $346,769, respectively. 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 - Net loss 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 years ended December 31, 2016 and 2015, basic and diluted loss per share are the same as the calculation of diluted per share amounts would result in an anti-dilutive calculation.

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 December 31, 2016 and 2015, the notes have annual interest rates between 3.49% and 4.07% and require monthly minimum payments of principal and interest ranging from $380 to $434. The Company’s installment notes are collateralized by the vehicles purchased with the respective installment notes.

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, have an annual interest rate of 12.5% and are due at maturity. 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 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 Company issued a total of 200,000 shares of Series B preferred stock, as further described in Note 6. As of December 31, 2016, the balances of the notes totaled $200,000.

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 December 31, 2016 and 2015, 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, 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 December 31, 2016, 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 has a stated annual interest rate of 6.00%. During the years ended December 31, 2016 and 2015, the Company did not draw on the line of credit.

The Company’s estimated future maturities of its borrowings, as of December 31, 2016, are as follows:

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Preferred stock and common stock

Preferred Stock

Our board of directors has the authority to designate and issue up to 10,000,000 shares of $0.00001 par value preferred stock in one or more series, and to fix and determine the relative economic rights and preferences of preferred shares any or all of which may be greater than the rights of our common stock, as well as the authority to issue such shares without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock. In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult. Preferred stock is designated 1,040,000 shares to Series A-1 at December 31, 2016 and 2015, respectively, and 500,000 to Series B.

Series A-1 Preferred Stock

As of December 31, 2016 and 2015, we have 1,040,000 and 1,040,000 shares of Series A-1 preferred stock issued and outstanding, respectively. Each share of the Series A-1 Preferred Stock has voting preferences of 350 votes on all matters presented to be voted on by the holders of common stock. Each holder of shares of Series A-1 Preferred Stock may, at any time, and from time to time, convert each of its shares of Series A-1 Preferred Stock into a number of fully paid and non-assessable shares of Common Stock at a 100 to one conversion.

Series B preferred stock

As of December 31, 2016 and 2015, we have 275,000 and zero shares of Series B preferred stock issued and outstanding, respectively. Each share of Series B is entitled to a simple dividend of 12.5% per annum. Series B Preferred Stock is automatically redeemed at zero cost by the Company and returned to the Company for cancellation, as unissued, non-designated, preferred shares in August of 2018. Series B Preferred Stock has no conversion rights and no voting rights on any matters presented to be voted on by the holders of common stock.

On August 24, 2016, the Company issued a total of 275,000 shares of Series B preferred stock in connection with three convertible notes payable totaling $275,000 (Note 5) pursuant to a private placement memorandum.

The Company recorded a discount on the associated debt based on the relative fair value of the Series B preferred shares of $44,000 in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company calculated the value of the Series B preferred shares by calculating the present value of the annual 12.5% dividends with the following assumptions: annual dividend expense of $34,375; term of 2 years; and cost of debt of 8.25% and accounted for them as a debt discount, which will be amortized over the term of the convertible notes payable. During the year ended December 31, 2016, the Company amortized $7,334 of the debt discount as interest expense .

Common Stock

We are authorized to issue up to 750 million shares of $0.00001 par value common stock. Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the holders of our common stock. Subject to the rights of the holders of any class of our capital stock having any preference or priority over our common stock, the holders of shares of our common stock are entitled to receive dividends that are declared by our board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in our net assets remaining after payment of liabilities, subject to prior rights of preferred stock, if any, then outstanding. Our common stock has no preemptive rights, conversion rights, redemption rights, or sinking fund provisions, and there are no dividends in arrears or in default. All shares of our common stock have equal distribution, liquidation and voting rights and have no preferences or exchange rights.

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Common stock purchase warrants

No common stock purchase warrants were issued in during the years ended December 31, 2016 or 2015. All remaining outstanding common stock purchase warrants expired during the year ended December 31, 2016.

Note 7 - Income taxes

We have recorded no provision or benefit for income taxes. The difference between tax at the statutory rate and no tax is primarily due to the full valuation allowance.

The increase in the valuation allowance was $507,000, and $74,000 during the years ended December 31, 2016 and 2015, respectively. A valuation allowance has been recorded in the full amount of total deferred tax assets as it has not been determined that it is more likely than not that these deferred tax assets will be realized.

As of December 31, 2016, we have net operating loss carry forwards of approximately $1.1 million, which begin to expire in 2030 and will continue to expire through 2035 if not otherwise utilized. Our ability to use such net operating losses and tax credit carry forwards is subject to annual limitations due to change of control provisions under Sections 382 and 383 of the Internal Revenue Code, and such limitation would be significant. Realization is dependent on generating sufficient taxable income prior to expiration.

Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities and related valuation allowances at December 31, 2016 and 2015 are as follows:

SUN PACIFIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - 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 December 31, 2016 and 2015, the Company had accrued compensation of $378,475 and $195,340, respectively, and recorded the related expenses in ‘general and administrative’ on the accompanying consolidated statements of operations.

Consulting agreement

During the year ended December 31, 2014, the Company issued 2,208,684 shares of the Company’s common stock pursuant to a one-year consulting agreement with Summit Trading Limited for consulting services. The consulting agreement expired during November 2015.

Lease agreement

Our corporate headquarters and facilities were leased at a monthly rate of $7,500 from Triplet Square, LLC, a related party, under a five-year agreement expiring in August 2020. The Company had the option to extend the lease for an additional 5 years. Rent expense for the years ended December 31, 2016 and 2015 was $90,000 and $43,644, respectively, and was recorded in ‘general and administrative’ on the accompanying consolidated statements of operations. At December 31, 2016, the Company had a payable balance totaling $75,000 related to 2016 lease expenses under this agreement. Subsequent to December 31, 2016, the facility was sold and the Company was released from its obligations. (See Note 10)

Significant customers

At December 31, 2016 and 2015, and for each of the years then ended, the Company had the following customer concentrations:

* Less than 10%

Due to various contractual arrangements with certain customers, Consultative fees are paid to those customers. During the twelve months ended December 31, 2016 and 2015, respectively, Consultative fees paid to significant customers were as follows:

Note 9 - 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, 2016 and 2015. All material transactions with these investors and other related parties for the years ended December 31, 2016 and 2015, not listed elsewhere, are listed below.

During the year ended December 31, 2015, the Company awarded Christopher Campanella, Danielle Campanella, and Nicholas Campanella a total of $450,000 for services provided to the Company. During January 2017, the Company issued 4,500,000 shares of the Company’s common stock at a fair value of $0.10 per share to settle the liability.

Note 10 - Subsequent events

Stock issuance

During January 2017, the Company issued 160,000 shares of the Company’s common stock as compensation for services rendered under a private placement memorandum dated August 26, 2016.

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. Future minimum rental payments under this agreement are as follows:

Acquisition and merger

On August 17, 2017 the Company entered into an acquisition and merger agreement with EXOlifestyle, Inc. whereby 100% of Sun Pacific Power Corp. (“SPPC”) was purchased for certain shares of common and preferred shares of the EXOlifestyle, Inc. (“EXOL”). Pursuant to the Agreement the shareholders of SPPC shall exchange their shares for shares of EXOL as follows: