Item
1. FINANCIAL STATEMENTS
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
98,442
|
|
|
$
|
55,740
|
|
Accounts receivable, net of allowance
for uncollectable accounts
|
|
|
68,216
|
|
|
|
76,729
|
|
Deposits
|
|
|
7,234
|
|
|
|
7,112
|
|
Total current assets
|
|
|
173,892
|
|
|
|
139,581
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
175,827
|
|
|
|
293,730
|
|
Other Assets
|
|
|
25,000
|
|
|
|
-
|
|
Total
assets
|
|
$
|
374,719
|
|
|
$
|
433,311
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
244,197
|
|
|
$
|
188,467
|
|
Accounts payable,
related party
|
|
|
80,742
|
|
|
|
85,012
|
|
Accrued compensation
to officer
|
|
|
564,231
|
|
|
|
451,166
|
|
Accrued expenses
|
|
|
178,537
|
|
|
|
100,612
|
|
Accrued interest,
related party
|
|
|
49,295
|
|
|
|
27,162
|
|
Dividends payable,
related party
|
|
|
22,038
|
|
|
|
12,663
|
|
Advances from related
parties
|
|
|
585,921
|
|
|
|
588,517
|
|
Project financing
obligation
|
|
|
260,000
|
|
|
|
-
|
|
Vehicle installment
notes payable, current portion
|
|
|
17,374
|
|
|
|
28,943
|
|
Convertible notes
payable, net of discounts
|
|
|
295,979
|
|
|
|
187,184
|
|
Convertible
notes payable, related party, net of discounts
|
|
|
408,974
|
|
|
|
403,474
|
|
Total current liabilities
|
|
|
2,707,288
|
|
|
|
2,073,200
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
Vehicle
installment notes payable, net of current portion
|
|
|
50,126
|
|
|
|
57,709
|
|
Total
liabilities
|
|
|
2,757,414
|
|
|
|
2,130,909
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note
6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
Series C preferred
stock: 500,000 shares designated; 275,000 shares issued and outstanding
|
|
|
28
|
|
|
|
28
|
|
Common stock $0.0001
par value, 500,000,000 shares authorized, 62,731,354 and 60,833,030 shares issued and outstanding, respectively
|
|
|
6,273
|
|
|
|
6,083
|
|
Additional paid
in capital
|
|
|
3,922,663
|
|
|
|
3,168,626
|
|
Accumulated
deficit
|
|
|
(6,312,859
|
)
|
|
|
(4,873,535
|
)
|
Total
stockholders’ deficit
|
|
|
(2,382,695
|
)
|
|
|
(1,697,598
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ deficit
|
|
$
|
374,719
|
|
|
$
|
433,311
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(Unaudited)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
170,495
|
|
|
$
|
153,034
|
|
|
$
|
436,574
|
|
|
$
|
1,067,551
|
|
Cost of Revenues
|
|
|
45,739
|
|
|
|
102,751
|
|
|
|
225,842
|
|
|
|
592,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
124,756
|
|
|
|
50,283
|
|
|
|
210,732
|
|
|
|
474,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and compensation
|
|
|
125,996
|
|
|
|
102,282
|
|
|
|
346,984
|
|
|
|
383,800
|
|
Professional fees
|
|
|
95,632
|
|
|
|
10,134
|
|
|
|
510,514
|
|
|
|
37,298
|
|
General
and administrative
|
|
|
196,361
|
|
|
|
44,410
|
|
|
|
531,678
|
|
|
|
302,302
|
|
Total
operating expenses
|
|
|
417,989
|
|
|
|
156,826
|
|
|
|
1,389,176
|
|
|
|
723,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(293,233
|
)
|
|
|
(106,543
|
)
|
|
|
(1,178,444
|
)
|
|
|
(248,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend expense
- preferred stock
|
|
|
(3,125
|
)
|
|
|
(9,502
|
)
|
|
|
(9,375
|
)
|
|
|
(28,505
|
)
|
Gain on sale of
property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,401
|
|
Interest
expense
|
|
|
(141,117
|
)
|
|
|
(5,581
|
)
|
|
|
(251,505
|
)
|
|
|
(48,779
|
)
|
Total
other expenses
|
|
|
(144,242
|
)
|
|
|
(15,083
|
)
|
|
|
(260,880
|
)
|
|
|
(72,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(437,475
|
)
|
|
$
|
(121,626
|
)
|
|
$
|
(1,439,324
|
)
|
|
$
|
(321,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per
Common Share - Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
- Basic and Diluted
|
|
|
62,731,354
|
|
|
|
5,536,650
|
|
|
|
61,904,063
|
|
|
|
3,391,922
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(Unaudited)
|
|
2018
|
|
|
2017
|
|
Cash flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,439,324
|
)
|
|
$
|
(321,663
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
117,903
|
|
|
|
63,888
|
|
Gain on sale of
equipment
|
|
|
-
|
|
|
|
(6,773
|
)
|
Amortization of
debt discount - interest expense
|
|
|
204,036
|
|
|
|
16,500
|
|
Warrants issued
for services
|
|
|
130,641
|
|
|
|
83,812
|
|
Stock issued for
services
|
|
|
84,184
|
|
|
|
-
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,513
|
|
|
|
(12,370
|
)
|
Deposits
|
|
|
(122
|
)
|
|
|
(7,112
|
)
|
Investmentin other
assets
|
|
|
(25,000
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
50,730
|
|
|
|
(297,758
|
)
|
Accounts payable,
related party
|
|
|
(4,270
|
)
|
|
|
(7,500
|
)
|
Accrued compensation
to officer
|
|
|
113,065
|
|
|
|
85,371
|
|
Accrued expenses
|
|
|
77,925
|
|
|
|
64,171
|
|
Accrued interst,
related party
|
|
|
22,133
|
|
|
|
-
|
|
Dividends
payable, related party
|
|
|
9,375
|
|
|
|
3,125
|
|
Net
cash used in operating activities
|
|
|
(650,211
|
)
|
|
|
(336,309
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Investment in other
assets
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from sale of equipment
|
|
|
-
|
|
|
|
2,500
|
|
Net
cash provided by investing activities
|
|
|
-
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from (repayments
of) advances from related parties
|
|
|
(2,596
|
)
|
|
|
271,878
|
|
Proceeds from issuance
of common stock
|
|
|
173,001
|
|
|
|
-
|
|
Proceeds from project
financing obligation
|
|
|
260,000
|
|
|
|
-
|
|
Procceeds from convertible
notes payable, net of issuance costs
|
|
|
281,660
|
|
|
|
-
|
|
Repayment
of vehicle installment notes payable
|
|
|
(19,152
|
)
|
|
|
(15,188
|
)
|
Net
cash provided by financing activities
|
|
|
692,913
|
|
|
|
256,690
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
42,702
|
|
|
|
(77,119
|
)
|
Cash at beginning of period
|
|
|
55,740
|
|
|
|
90,077
|
|
Cash at end of period
|
|
$
|
98,442
|
|
|
$
|
12,958
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Taxes
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Convertible
debt dscounts for beneficial conversin features
|
|
$
|
69,981
|
|
|
$
|
-
|
|
Convertible
debt dscounts for detachable warrants
|
|
$
|
296,420
|
|
|
$
|
-
|
|
Settlement
of debt through AP
|
|
$
|
5,000
|
|
|
$
|
-
|
|
Issuance
costs from convertible debt
|
|
$
|
68,340
|
|
|
$
|
-
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
SUN
PACIFIC HOLDING CORP.
NOTES
TO CONDENSED CONSOLIDATED FINACNIAL STATEMENTS
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(Unaudited)
NOTE
1 - DESCRIPTION OF THE BUSINESS
Organization
The
Company was incorporated under the laws of the State of New Jersey on July 28, 2009, as Sun Pacific Power Corporation and together
with its subsidiaries, are referred to as the “Company”. On August 24, 2017, the Company entered into an Acquisition
Agreement with EXOlifestyle, Inc. whereby the Company became a wholly owned subsidiary of EXOlifestyle, Inc. The acquisition was
accounted for as a reverse merger, resulting in the Company being considered the accounting acquirer. Accordingly, the accompanying
condensed consolidated financial statements included the accounts of EXOlifestyle, Inc. since August 24, 2017.
On
October 3, 2017, pursuant to the written consent of the majority of the shareholders in lieu of a meeting, Sun Pacific Holding
Corp., f/k/a EXOlifestyle, Inc. (the “Company”) filed a Certificate of Amendment with the state of Nevada to change
the name of the Company from EXOlifestyle, Inc. to Sun Pacific Holding Corp. On October 3, 2017, the Company’s board of
directors declared a 1 for 50 reverse stock split. All share amounts for all periods presented have been restated to reflect the
reverse stock split.
Description
of business
Utilizing
managements long 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. A facility that has the ability to
handle medical waste that we believe may provide the Company with a model that we can replicate in other jurisdictions across
the United States of America.
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 subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, cash includes demand deposits and short-term liquid investments with original
maturities of three months or less when purchased. As of September 30, 2018, the Federal Deposit Insurance Corporation (FDIC)
provided insurance coverage of up to $250,000, per depositor, per institution. At September 30, 2018, none of the Company’s
cash balances were in excess of federally insured limits.
Accounts
Receivable
In
the normal course of business, we decide to extend credit to certain customers without requiring collateral or other security
interests. Management reviews its accounts receivable at each reporting period to provide for an allowance against accounts receivable
for an amount that could become uncollectible. This review process may involve the identification of payment problems with specific
customers. Periodically we estimate this allowance based on the aging of the accounts receivable, historical collection experience,
and other relevant factors, such as changes in the economy and the imposition of regulatory requirements that can have an impact
on the industry. These factors continuously change, and can have an impact on collections and our estimation process. The Company’s
allowance for doubtful accounts totaled $169,036 and $118,221 as of September 30, 2018 and December 31, 2017, respectively.
Contingencies
Certain
conditions may exist as of the date financial statements are issued, which may result in a loss but which will only be resolved
when one or more future events occur or do not occur. We assess such contingent liabilities, and such assessment inherently involves
an exercise of judgment. In assessing loss contingencies related to pending legal proceedings that are pending against us or unasserted
claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency
indicates that it is probable that a liability has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable would be disclosed.
Fair
value of financial instruments
The
carrying amounts of the Company’s accounts payable, accrued expenses, and shareholder advances approximate fair value due
to their short-term nature. The Company’s long-term debt approximates fair value based on prevailing market rates.
Property
and equipment
Property
and equipment is stated at cost. Additions and improvements that significantly add to the productive capacity or extend the life
of an asset are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line
method over three to five years for vehicles and five to ten years for equipment. Leasehold improvements are amortized over the
lesser of the estimated remaining useful life of the asset or the remaining lease term.
Impairment
of long-lived assets
The
Company periodically reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be realizable. An impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual disposition is less than its carrying amount. At September 30, 2018
and December 31, 2017, 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 and nine months ended September 30, 2018. 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 FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single
set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It is effective
for annual and interim reporting periods beginning after December 15, 2017. The new standard did not have a material impact on
our consolidated financial position and consolidated results of operations, as it did not change the manner or timing of recognizing
revenue of our revenue transactions for the three and Nine months ended September 30, 2018.
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 and nine months ended September 30, 2018 and 2017, 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 and nine months ended September 30, 2018 and 2017, the following potential shares have been excluded from the calculation
of diluted loss per share because their impact was anti-dilutive:
|
|
2018
|
|
|
2017
|
|
Convertible Debt
|
|
|
37,557,004
|
|
|
|
14,278,461
|
|
Stock Options
|
|
|
-
|
|
|
|
50,000
|
|
Warrants
|
|
|
8,324,727
|
|
|
|
275,945
|
|
|
|
|
45,881,731
|
|
|
|
14,604,406
|
|
Recent
Accounting Pronouncements
ASU
No. 2014-09, Revenue from Contracts with Customers (Topic 606) -
This standard provides a single set of guidelines for revenue
recognition to be used across all industries and requires additional disclosures, which we are currently evaluating. It is effective
for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption and the use of
either the retrospective or cumulative-effect transition method. The Company adopted this standard effective January 1, 2018 without
a significant impact on its condensed consolidated financial statements.
There
were other new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be
adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have
a material impact on the Company’s financial statements.
NOTE
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 nine months ended September 30, 2018 and 2017, the Company incurred losses
of $1,439,324 and $321,663. The Company had a working capital deficit of $2,533,396 as of September 30, 2018. 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 September 30, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
Furniture and equipment
|
|
$
|
271,817
|
|
|
$
|
271,817
|
|
Vehicles
|
|
|
189,012
|
|
|
|
189,012
|
|
Leasehold Improvements
|
|
|
66,077
|
|
|
|
66,077
|
|
Less: Accumulated
Depreciation
|
|
|
(351,079
|
)
|
|
|
(233,176
|
)
|
Property
and equipment, net
|
|
$
|
175,827
|
|
|
$
|
293,730
|
|
Depreciation
expenses totaled $117,903 and $78,602 for the nine months ended September 30, 2018 and 2017, 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 September 30, 2018, 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 September 30, 2018,
and December 31, 2017, the balance of the notes totaled $67,500 and $86,652, 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 is contingent
upon i) the successful filing of a registration statement to become publicly traded, and ii) the company stock has become publicly
quoted on the OTC Markets and iii) the conversion price is above $0.10. In connection with the notes, the predecessor Company
issued a total of 200,000 shares of Series B preferred stock, which was canceled upon the reverse merger. 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
to be amortized over the extend term of the notes. As of September 30, 2018 and December 31, 2017, the balance of the notes totaled
$196,850, which is the carried at $185,153 as of September 30, 2018, net of unamortized discounts of $11,697.
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 nine months ended September 30, 2018, the Company amortized $179,166 of the discounts. As of September 30, 2018,
the notes are carried at $110,826, net of unamortized discounts of $239,174.
Convertible
notes payable, related party
On
October 23, 2015, a total of $332,474 in advances from a related party was converted into two one-year unsecured convertible notes
payable to Nicholas Campanella, Chief Executive Officer of the Company. The notes have an annual interest rate of 6% and are currently
past due. At the election of the holder, the notes can be converted into common stock of the Company at a conversion price per
share equal to 20% of the average bid price for the three consecutive business days prior to conversion. As of September 30, 2018
and December 31, 2017, the balances of the notes totaled $332,474.
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, 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 September 30, 2018, and December 31, 2017, the balance of the notes was $76,500, which is the carrying
amount of the note as of September 30, 2018.
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 September 30, 2018, no profits have been earned on the Rhode Island
contract, no repayments have occurred and the total amount of investments received totaling $260,00 is reflected on the accompanying
condensed consolidated balance sheet as a Project Financing Obligation.
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 September
30, 2018, and December 31, 2017, the balance of the debt to related party was $1135,528, and is include in advances from related
parties on the accompanying condensed consolidated balance sheets.
The
Company’s estimated future maturities of the Company’s debt, as of September 30, 2018, are as follows:
Year
ending December 31,
|
|
|
Amount
|
|
2018 (Remainder
of Year)
|
|
|
$
|
1,010,007
|
|
2019
|
|
|
|
373,472
|
|
2020
|
|
|
|
23,887
|
|
2021
|
|
|
|
11,486
|
|
Thereafter
|
|
|
|
-
|
|
|
|
|
$
|
1,418,852
|
|
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 December 31, 2017. As of December
31, 2017, the Company has designated 12,000,000 shares of Series A Preferred Stock, 1,000,000 shares of Series B Convertible Preferred
Stock, and 500,000 shares of Series C Convertible Stock.
Each
share of Series A Preferred Stock is entitled to 125 votes on all matters submitted to a vote to the stockholders of the Company,
and does not have conversion, dividend or distribution upon liquidation rights. As of December 31, 2017 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 and nine months ended September 30, 2018, the Company recorded dividend expense of $3,125 and $9,375,
respectively, of which $22,038 is reflected as dividends payable, related party on the accompanying condensed consolidated balance
sheet as of September 30, 2018.
Common
stock
During
the nine months ended September 30, 2018, the Company sold 1,230,00 shares of common stock for cash of $173,000.
During
the nine months ended September 30, 2018, the Company issued 668,324 shares of common stock for services rendered with a fair
value of $84,184, based on the trading price of the common stock on the date of grant.
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 share 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 Nine months ended September 30, 2018.
In
April 2018, in connection with the issuance of convertible debt, the Company issued 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. See Note 5.
In
August 2018, the holders of the convertible notes, dated August 24 2016, 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. See note 5.
NOTE
7 - COMMITMENTS AND CONTINGENCIES
Employment
agreement
On
December 20, 2014, the Company entered into a five-year employment agreement with Nicholas Campanella, Chief Executive Officer.
Under the terms of the agreement, the Company is required to pay a base compensation of $180,000 annually, subject to increases
in cost of living and performance bonuses as awarded by the Board of Directors. After 5 years, the agreement is automatically
renewed for an additional two years unless terminated by either party. As part of the agreement Mr. Campanella opted to defer,
with no interest, the receipt of compensation under the agreement until the Company has the funds to pay its obligation. At September
30, 2018 and December 31, 2017, the Company had accrued compensation of $564,231 and $451,166, respectively, and recorded the
related expenses in ‘general and administrative’ on the accompanying condensed consolidated statements of operations.
Lease
agreement
During
March 2017, the Company entered into a five-year lease agreement. Under the terms of the agreement, the Company is obligated to
pay monthly rent payments starting at $3,556 and escalating over the life of the lease. Rent expense for the nine months ended
September 30, 2018 was $30,835. Future minimum rental payments under this agreement are as follows:
Year
ending December 31,
|
|
Amount
|
|
2018 (Remainder of the
year)
|
|
$
|
11,112
|
|
2019
|
|
|
44,648
|
|
2020
|
|
|
45,764
|
|
2021
|
|
|
46,908
|
|
Thereafter
|
|
|
7,850
|
|
|
|
$
|
156,282
|
|
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. These affiliates have made non-interest bearing advances. The balance of these
advances, which are due on demand, and the line of credit (see Note 5) totaled $585,921 and $588,517, as of September 30, 2018
and December 31, 2017, respectively. Included in accounts payable related parties as of September 30, 2018 and December 31, 2017,
are expenses incurred with these affiliates totaling $80,752 and $85,012, respectively.
NOTE
9- SUBSEQUENT EVENTS
On
November 13, 2018, the Company entered into 2 separate extensions EMA Financial, LLC and Auctus Fund, LLC, respectively, whereby
each EMA Financial, LLC and Auctus Fund, LLC agreed to extend the “Prepayment Termination Date, as defined in the respective
Promissory Notes issued by the Company to each EMA Financial, LLC and Auctus Fund, LLC in exchange for the addition of 25,000.00
to the principal of the principal of each note. As a result, the principal owed to each EMA Financial, LLC and Auctus Fund, LLC
shall be $200,000.00 each.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following presentation of management’s discussion and analysis of our financial condition and results of operations should
be read in conjunction with our financial statements, the accompanying notes thereto and other financial information appearing
elsewhere in this quarterly report on Form 10-Q. This section and other parts of this quarterly report on Form 10-Q contain forward-looking
statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Company
History and Overview
Utilizing
managements long 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. A facility that has the ability to
handle medical waste that we believe may provide the Company with a model that we can replicate in other jurisdictions across
the United States of America.
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.” The Company has also formed Medrecycler, LLC as a limited
liability subsidiary in the state of Nevada to act as a central holding company for waste to energy projects.
Our
Services
Our
objective is to grow our business and services 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 will allow us to grow a group
of profitable business lines in solar, waste to energy, efficient lighting, and other unique energy related areas.
We
design products that use solar panels as the power source. These products have commercial applications both in the United States
and in foreign countries. We have designed our products with the general idea that being environmentally proactive is what consumers
are starting to demand of large industries and thus these markets we believe are starting to open and need to be filled.
Our
strategic plan for the next five (5) years consists of building the solar product(s) subsidiaries and continuing with electrical
contracting work as well as expanding our solar panel bus shelter program, while we also expand in our develop plans to add medical
waste to energy services to our portfolio of green energy projects. In addition, as financing and market conditions allow we may
begin to manufacture and market our innovative solar technology, specializing in specific niche markets.
Going
Concern
The
Company has an accumulated deficit of approximately $6.3 million as of September 30, 2018. 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 September 30, 2018 compared to Three Months Ended September 30, 2017
Revenues
:
Revenues increased by approximately $17,000 from $153,000 for the Quarter ended September 30, 2017 to $170,000 for the Quarter
ended September 30, 2018 due to the 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 includes 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 also entered into an agreement with the State
of Rhode Island to develop and build 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 decreased by approximately $57,000 from $103,000 for the three months ended September 30,
2017 to $46,000 for the three months ended September 30, 2018 due to lesser revenues generated from General Contracting services
in the Company’s migration to Green Energy Projects. 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 a additional other related construction services, the Company’s Cost of Revenues may increase.
Operating
Expenses
: Operating expenses increased by approximately $261,000 from $157,000 for the three months ended September 30,
2017 to $418,000 for the three months ended September 30, 2018 due materially to increases in professional fees and general and
administrative fees 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, along
with some other insurance audit payments related to higher sales in prior periods that were reconciled and paid for during the
2
nd
quarter of 2018. 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
(Income) Expenses
: Other (Income) Expenses increased by approximately $129,000 from $15,000 for the three months ended September
30, 2017 to $144,000 for the three months ended September 30, 2018 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 $315,000 from $122,000 for the three months ended September
30, 2017 to $437,000 for the three months ended September 30, 2018.
Nine
Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Revenues
:
Revenues decreased by approximately $631,000 from $1,068,000 for the nine months ended September 30, 2017 to $437,000 for the
nine month period ended September 30, 2018 due to the 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 several cities and manage up to approximately1,700
Solar powered shelters and other related products for a period of up to Ten (10) years that includes 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 also entered into
an agreement with the State of Rhode Island to develop and build 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 decreased by approximately $367,000 from $593,000 for the nine months ended September 30,
2017 to $226,000 for the nine months ended September 30, 2018 due to lesser revenues generated from General Contracting services
in the Company’s migration to Green Energy Projects. Upon the successful launch and completion of the Company’s Waste
to Energy facility and the increase in the Company’s Solar shelters and other improvements in the Company’s advertising
performance, the Company’s Cost of Revenues may increase.
Operating
Expenses
: Operating expenses increased by approximately $666,000 from $723,000 for the nine months ended September 30,
2017 to $1,389,000 for the nine months ended September 30, 2018 due materially to increases in professional fees and other general
and administrative costs associated with developing the Company’s various initiates including its Medical Waste to Energy
project and other revenue generating projects under review by management.
Other
(Income) Expenses
: Other (Income) Expenses increased by approximately $188,000 from $73,000 for the nine months ended September
30, 2017 to $261,000 for the nine months ended September 30, 2018 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 $1,117,000 from approximately $322,000 for the nine months
ended September 30, 2017 to $1,439,000 for the nine months ended September 30, 2018.
Continuing
Operations, Liquidity and Capital Resources
As
of September 30, 2018, we had a working capital deficit of approximately $2.5 million. We intend to seek additional financing
for our working capital, in the form of equity or debt, to provide us with the necessary capital to accomplish our plan of operation.
There can be no assurance that we will be successful in our efforts to raise additional capital.
During
the nine months ended September 30, 2018, we used approximately $625,000 in operatng activities driven materially from our operating
loss offset by non-cash expenses.
During
the nine months ended September 30, 2017, we used approximately $25,000 in investments activities driven materially from investments
in other assets.
During
the nine months ended September 30, 2018, we received approximately $693,000 from financing proceeds driven materially from the
sale of common stock, convertible debt, and offset slightly from the repayment of vehicle installment notes as compared to approximately
$99,000 in proceeds provided by financing activities for the period ending September 30, 2017, reflecting the proceeds from related
parted advances offset slightly by the repayment of vehicle installment notes.
Off-Balance
Sheet Arrangements
As
of September 30, 2018, 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.