OZOP ENERGY SOLUTIONS, INC. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As ofSeptember 30, 2022 , the Company had an accumulated deficit of$212,351,054 and a working capital deficit of$23,000,162 (including derivative liabilities of$5,652,218 ). As ofSeptember 30, 2022 , the Company was in default of$15,369,247 plus accrued interest on debt instruments due to non-payment upon maturity dates. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for one year from the date of the issuance of these financial statements. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. F-6
InDecember 2019 , a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughoutthe United States , certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company's operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company's business and the duration for which it may have an impact cannot
be determined at this time. Management's Plans As a public company, Management believes it will be able to access the public equities market for fund raising for product development, sales and marketing and inventory requirements as we expand our distribution in the U.S. market.
The Company is in negotiations with its' lenders related to the debt instruments that are currently in default, to extend the maturity dates.
OnOctober 14, 2021 , the Company received a Notice of effectiveness related to the Company's Form S-3 Registration Statement (the "Registration Statement"). Pursuant to the Registration Statement the Company may offer and sell from time to time in one or more offerings of up tothirty million dollars ($30,000,000 ) in aggregate offering price. We may offer these securities in amounts, at prices and on terms determined at the time of offering. OnApril 4, 2022 , the Company andGHS Investments LLC ("GHS"). signed a Securities Purchase Agreement (the "GHS Purchase Agreement") for the sale of up to Two Hundred Million (200,000,000) shares of the Company's common stock to GHS. We may sell shares of our common stock from time to time over a six (6)- month period endingOctober 4, 2022 , at our sole discretion, to GHS under the GHS Purchase Agreement. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company's notice to GHS for the sale of the Company's common stock. OnApril 8, 2022 , the Company filed a Prospectus Supplement to the Registration Statement datedOctober 14, 2021 , regarding the GHS Purchase Agreement. As of the date of this Report the Company has sold the following securities pursuant to this Registration Statement: OnJuly 15, 2022 , the Company sold 15,353,952 shares to GHS at$0.010285 and received net proceeds of$152,732 , after deducting transaction and broker fees of$5,183 . OnAugust 1, 2022 , the Company sold 7,675,221 shares to GHS at$0.010965 and received net proceeds of$81,451 , after deducting transaction and broker fees of$2,708 . OnAugust 4, 2022 , the Company sold 8,136,272 shares to GHS at$0.010965 and received net proceeds of$86,405 , after deducting transaction and broker fees of$2,809 . OnAugust 10, 2022 , the Company sold 18,063,649 shares to GHS at$0.01088 and received net proceeds of$191,577 , after deducting transaction and broker fees of$4,956 .
OnAugust 30, 2022 , the Company sold 17,018,300 shares to GHS at$0.009435 and received net proceeds of$156,331 , after deducting transaction and broker fees of$4,236 . F-7
OnSeptember 15, 2022 , the Company sold 8,977,027 shares to GHS at$0.00918 and received net proceeds of$79,736 , after deducting transaction and broker fees of$2,673 .
OnSeptember 30, 2022 , the Company sold 8,430,640 shares to GHS at$0.00816 and received net proceeds of$66,393 , after deducting transaction and broker fees of$2,401 .
OnOctober 17, 2022 , the Company sold 12,526,048 shares to GHS at$0.005865 and received net proceeds of$70,971 , after deducting transaction and broker fees of$2,494 . OES is actively engaged in the renewable, electric vehicle ("EV"), energy storage and energy resiliency sectors. We are engaged in multiple business lines that include project development as well as equipment distribution. Our solar and energy storage projects involve large-scale battery and solar photovoltaics (PV) installations. Our utility-scale storage business model is based on an arbitrage business model in which we install multiple 1+ megawatt batteries, charge them with off-peak grid electricity under contract with the utility, then sell the power back during peak load hours at a premium, as dictated by prevailing electricity tariffs. Ozop Plus markets vehicle service contracts ("VSC's") for electric vehicles (EV's) that offer consumers to be able to purchase additional months and miles above the manufacturer's warranty and to also bring added value to EV owners by utilizing our partnerships and strengths in the energy market to offer unique and innovative services. Among EV owners' concerns are the EV battery repair and replacement costs, range anxiety, environmental responsibilities, roadside assistance, and the accelerated wear on additional components that EV vehicles experience. Management believes that the Ozop Plus marketed VSC's will give "peace of mind" to the EV buyer.
? In
Inc., a member of
will market GSFSGroup's EV VSC's in all states (except,
dealerships and other eligible entities. In addition to acting as an agent
for the marketing, Ozop also has the right to white label the product under
its' Ozop Plus brand. Ozop's role won't be limited to marketing the product.
GSFSGroup plans to tap into Ozop's experience relative to battery collection
and disposal and has agreed to insurance risk sharing in connection with the
insurance policies that back the VSC's. GSFSGroup is working on getting the
approvals needed for the above four (4) states.
? On
will market Royal's EV VSC's and has the right to white label it under Ozop
Plus. Royal has agreed to allow Ozop Plus on all VSC's, marketed by Royal
and the Company, to assume all of the risk related to the electric battery
at an agreed upon premium. The battery premium is dependent on the
consumer's selection of the duration of the VSC, the miles selected for
coverage and the type of vehicle that the consumer has purchased, with a key
component being the kWh size of the battery. These VSC's have a maximum of
10 years and 150,000 miles and cover new and used cars from model year 2017
and newer. Royal's VSCs are now effective in 35 states and the others have
various waiting times or approvals needed.
? On October 13, 2022 , EVCO entered into a Reinsurance Contract (the
"Contract") with
the "Ceding Company"). Royal is the Administrator of the Contract. Pursuant
to the terms of the Contract, ABIC will cede 100% of the battery coverage
portion of all electric vehicle service contracts to
ABIC and
reinsurer agrees to deposit an amount equal to unearned premium reserves,
plus losses reported but unpaid, plus the estimated amount of losses
incurred but not reported to the trust account. Permissible investments
(with a maturity of no more than five (5) years) of the assets of the Trust
account include:
? U.S. Treasury Securities
? Cash or cash instruments
? U.S agency issues
? Other investments as Ceding Company approves
F-8
In April, 2022, OED began operations and has generated$38,100 of revenues and currently has six employees in sales, marketing installation and services. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OnSeptember 1, 2022 , the Board of Directors of the Company authorizedPCTI to file and prosecute to completion a Chapter 7 proceeding; that the best interest of creditors and other interested parties will be served thereby. The President ofPCTI was authorized, empowered and directed, in the name of and on behalf ofPCTI to execute and verify the Petition for Relief under the Bankruptcy Code as well as all other ancillary documents, and to cause the same to be filed in theUnited States Bankruptcy Court for the Western District of Pennsylvania . The Petition was filed onOctober 3, 2022 ; Case No. 22-21958-CMB.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of theSEC . Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted inthe United States of America for annual financial statements. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as ofSeptember 30, 2022 , and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months endedSeptember 30, 2022 , are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company's Current Report on Form 10-K/A filed onApril 26, 2022 . The unaudited condensed consolidated financial statements include the accounts of the Company and the Company's wholly owned subsidiaries;Ozop Energy Systems, Inc. Ozop Engineering and Design, Inc. ,PCTI ,Ozop Capital Partners, Inc. ,EV Insurance Company, Inc. ,Ozop HK and Spinus, LLC ("Spinus"). All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalent balances may, at certain times, exceed federally insured limits. The Company has no cash equivalents atSeptember 30, 2022 , andDecember 31, 2021 .
Sales Concentration and credit risk
Following is a summary of customer(s) who accounted for more than ten percent (10%) of the Company's revenues for the three and nine months endedSeptember 30, 2022 , and 2021, and their accounts receivable balance as ofSeptember 30, 2022 :
SCHEDULES OF CONCENTRATION OF RISK, BY RISK FACTOR
Sales %
Sales % Sales % Sales % Nine Accounts
Three Nine Three Months receivable
Months Months Months Ended balance
Ended September Ended September Ended September September 30, September 30,
30, 2022 30, 2022 30, 2021 2021 2022
Customer A 77.5 % 44.5 % N/A N/A $ 172,224
F-9
Accounts Receivable
The Company records accounts receivable at the time products and services are
delivered. An allowance for losses is established through a provision for losses
charged to expenses. Receivables are charged against the allowance for losses
when management believes collectability is unlikely. The allowance (if any) is
an amount that management believes will be adequate to absorb estimated losses
on existing receivables, based on evaluation of the collectability of the
accounts and prior loss experience.
Inventory
Inventories are valued at the lower of cost or net realizable value, with cost
determined on the first-in, first-out basis. Inventory costs include finished
goods, material, labor and manufacturing overhead. In evaluating the net
realizable value of inventory, management also considers, if applicable, other
factors, including known trends, market conditions, currency exchange rates and
other such issues. Finished goods inventories at September 30, 2022 , and
December 31, 2021 , were $1,197,883 and $788,110 , respectively. As of September
30, 2022 , the Company has on deposit with vendor(s) approximately $2,870,000 and
has a balance due of approximately $8,351,000 . The remaining balance is
partially due when the vendor ships the product, with the final balance dueprior to delivery. Purchase concentration OES purchases finished renewable energy products from its' suppliers. For the three months endedSeptember 30, 2022 , there was one supplier that accounted for 91.7%, and for the nine months endedSeptember 30, 2022 , there were four suppliers that accounted for 34.9%, 27.2%, 11.3% and 11.2%, respectively. For the three and nine months endedSeptember 30, 2021 , there were two suppliers that accounted for 46.8% and 20.1% and 38 and 23.4%%, respectively. There are only a handful of major suppliers, and we currently have supply arrangements with some of those vendors. One of these vendors requires a 20% down payment with the 30% balances due on shipment and 50% due prior to delivery, while other vendors terms are due in full immediately prior to delivery. We also buy product from other distributors, if we are not able to purchase direct from the manufacturer. While management believes all of its relationships with its vendors are good, if we are unable to continue to use and/or find alternative suppliers, when we cannot buy direct, it may have a material negative effect on our business
Property, plant and equipment
Property and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the assets.
The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment is as follows:
SCHEDULE OF USEFUL LIFE OF PROPERTY AND EQUIPMENT ASSETS
Building and building improvements 10-25 years Office furniture and equipment 3-5 years Warehouse equipment 7 years Revenue Recognition The Company recognizes revenue in accordance with ASC 606, from the commercial sales of products by: (1) identify the contract (if any) with a customer; (2) identify the performance obligations in the contract (if any); (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract (if any); and (5) recognize revenue when each performance obligation is satisfied. The Company has no outstanding contracts with any of its' customers. The Company recognizes revenue when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product and is based on the applicable shipping
terms. F-10
For contracts with customers, ownership of the goods and associated revenue are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments. Advance payments are typically required for commercial customers and are recorded as current liability until revenue is recognized. Advance payments are not required for government customers. The majority of contracts typically require payment within 30 to 60 days after transfer of ownership to the customer.
For the periods covered herein, we did not have post shipment obligations such as training or installation, customer acceptance provisions, credits and discounts, rebates and price protection, or other similar privileges.
The following table disaggregates our revenue by major source for the three and
nine months ended
DISAGGREGATION OF REVENUE
2022 2021 2022 2021
Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
Sourced and distributed products $ 3,907,318 $ 4,716,607 $ 11,576,017 $ 5,971,589
OED Installations 21,600 - 38,100 -
Total $ 3,928,918 $ 4,716,607 $ 11,614,117 $ 5,971,589 Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company brings the finished goods into ourCalifornia warehouse to fill orders as well as to build inventory for future sales orders. From time to time for some of our larger orders we may have our suppliers ship directly to our customers to avoid extra shipping charges.
Advertising and Marketing Expenses
The Company expenses advertising and marketing costs as incurred. For the three and nine months endedSeptember 30, 2022 , the Company recorded advertising and marketing expenses of$8,045 and$13,233 , respectively, and for the three and nine months endedSeptember 30, 2021 , the Company recorded advertising and marketing expenses of$9,487 and$20,263 , respectively. Research and Development
Costs and expenses that can be clearly identified as research and development
are charged to expense as incurred. For the three and nine months ended
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of this note transaction and the effective conversion price embedded in this note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. F-11 The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting
liabilities. Discontinued Operations In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations. OnSeptember 1, 2022 , the BOD of the Company authorized the filing of a Chapter 7 proceeding (see Note 2) which meets the definition of a discontinued operation. Accordingly, the operating results ofPCTI are reported as a loss from discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months endedSeptember 30, 2022 , and 2021. For additional information, see Note 14- Discontinued Operations.
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number
of
its equity shares.
Once the Company determines that a financial instrument should not be classified
as a liability, the Company determines whether the financial instrument should
be presented between the liability section and the equity section of the balance
sheet ("temporary equity"). The Company will determine temporary equity
classification if the redemption of the financial instrument is outside the
control of the Company (i.e. at the option of the holder). Otherwise, the
Company accounts for the financial instrument as permanent equity.
Our CEO and Chairman holds sufficient shares of the Company's voting preferred
stock that give sufficient voting rights under the articles of incorporation and
bylaws of the Company such that the CEO and Chairman can at any time
unilaterally vote to increase the number of authorized shares of common stock of
the Company, without the need to call a general meeting of common shareholders
of the Company.
Initial Measurement
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement - Financial Instruments Classified as Liabilities
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income (expenses). F-12
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
? Level 1 - Observable inputs that reflect quoted market prices in active
markets for identical assets or liabilities.? Level 2 - Inputs reflect quoted prices for identical assets or liabilities in
markets that are not active; quoted prices for similar assets or liabilities
in active markets; inputs other than quoted prices that are observable for the
assets or liabilities; or inputs that are derived principally from or
corroborated by observable market data by correlation or other means.
? Level 3 - Unobservable inputs reflecting the Company's assumptions
incorporated in valuation techniques used to determine fair value. These
assumptions are required to be consistent with market participant assumptions
that are reasonably available.
From time to time, certain of the Company's embedded conversion features on debt and outstanding warrants have been treated as derivative liabilities for accounting purposes under ASC 815 due to the conversion features within the instrument and that the company has insufficient authorized shares to fully settle conversion features of the instruments if exercised. In this case, the Company utilized the latest inception date sequencing method to reclassify outstanding instruments as derivative instruments. These contracts were recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled. The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.
The following table represents the Company's derivative instruments that are
measured at fair value on a recurring basis as of
SCHEDULE OF DERIVATIVE INSTRUMENTS
Derivative
September 30, 2022 Liabilities Total
Level I $ - $ -
Level II $ - $ -
Level III $ 5,652,218 $ 5,652,218
Derivative
December 31, 2021 Liabilities Total
Level I $ - $ -
Level II $ - $ -
Level III $ 20,966,701 $ 20,966,701
Leases
The Company accounts for leases under ASU 2016-02 (see Note 14), applying the
package of practical expedients to leases that commenced before the effective
date whereby the Company elected to not reassess the following: (i) whether any
expired or existing contracts contain leases; (ii) the lease classification for
any expired or existing leases; and (iii) initial direct costs for any existing
leases. For contracts entered into on or after the effective date, at the
inception of a contract the Company assess whether the contract is, or contains,
a lease. Our assessment is based on: (1) whether the contract involves the use
of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and
(3) whether we have the right to direct the use of the asset. We allocate the
consideration in the contract to each lease component based on its relative
stand-alone price to determine the lease payments.
F-13
Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company used an incremental borrowing rate of 7.5%, for the existing lease, based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized pursuant to on a straight-line basis over the lease term and is included in rent in the condensed consolidated statements of operations. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented. Segment Policy
The Company has no reportable segments as it operates in one segment; renewable energy.
Earnings (Loss) Per Share The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. As ofSeptember 30, 2022 , and 2021, the Company's dilutive securities are convertible into approximately 7,826,372,485 and 7,516,857,490, respectively, shares of common stock. The following table represents the classes of dilutive securities as ofSeptember 30, 2022 , and 2021: SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARESeptember 30, 2022 September 30, 2021
Convertible preferred stock (1) 7,059,027,462
6,918,544,466
Unexercised common stock purchase warrants (1) (1) 672,024,518
597,024,518
Convertible notes payable 6,529,409 1,288,506
Promissory note payable (1) 88,791,096 -
TOTAL 7,826,372,485 7,516,857,490
(1) The potentially dilutive shares included in the above table are limited
whereby the conversion or exercise cannot result in the beneficial owner
holding more than 4.99% of the then outstanding shares of common stock
subsequent to any conversion or exercise.
F-14
Recent Accounting Pronouncements
InAugust 2020 , the FASB issued Accounting Standards Update ("ASU") No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging -Contracts in Entity' Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity' Own Equity ("ASU 2020-06"), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company does not believe the adoption of the ASU will have a material impact on the Company's financial position, results of operations or cash flows. Other than the above, there have no recent accounting pronouncements or changes in accounting pronouncements during the period endedSeptember 30, 2022 , that are of significance or potential significance to the Company.
NOTE 4 - PROPERTY AND EQUIPMENT
The following table summarizes the Company's property and equipment:
PROPERTY AND EQUIPMENT
September 30, 2022 December 31, 2021
Office equipment $ 214,454 $ 157,370Building and building improvements 771,278
-
Less: Accumulated Depreciation (84,361 ) (44,929 ) Property and Equipment, Net $ 901,371 $ 112,441 OnSeptember 6, 2022 , the Company was assigned the title to a property located at55 Ronald Reagan Blvd ,Warwick, NY 10990, in exchange for 1,000,000 shares of common stock that were issued to the building owner inJanuary 2021 (see Note 10). The Company valued the shares at$0.0063 , (the market value of the common stock on the date of the agreement) and initially recorded$630,000 as a prepaid expense. The Deed was recorded in the name of the Company onOctober 4, 2022 . The Company recorded the$630,000 as fixed asset and credited the prepaid expense. During the nine months endedSeptember 30, 2022 , the company expended$141,278 in capital improvements.
Depreciation expense was
NOTE 5 - CONVERTIBLE NOTES PAYABLE
OnJuly 10, 2020 ,PCTI (the accounting acquirer) assumed the balance of a past-due 15% convertible note issued by the Company onSeptember 13, 2017 . As ofSeptember 30, 2022 , andDecember 31, 2021 , the outstanding principal balance of this note was$25,000 .
NOTE 6 - DERIVATIVE LIABILITIES
The Company determined the conversion feature of the convertible notes, which all contain variable conversion rates, represented an embedded derivative since the notes were convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt under ASC 815 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. At any given time, certain of the Company's embedded conversion features on debt and outstanding warrants may be treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant toSEC staff guidance that permits a sequencing approach based on the use of ASC 815-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the latest maturity date. F-15 The Company valued the derivative liabilities atSeptember 30, 2022 , andDecember 31, 2021 , at$5,652,218 and$20,966,701 , respectively. For the derivative liability associated with convertible notes, the Company used the Monte Carlo simulation valuation model with the following assumptions as ofSeptember 30, 2022 , andDecember 31, 2021 , risk free interest rates at 3.92% and 0.19%, respectively, and volatility of 70% and 92%, respectively. The following assumptions were utilized in the Black-Scholes valuation of outstanding warrants atSeptember 30, 2022 , andDecember 31, 2021 , risk free interest rate of 4.11% to 4.24%, and .48% to .99%, respectively, volatility of 109% to 310%, and 344% to 366%, respectively, and exercise prices of$0.006 to$0.15 .
A summary of the activity related to derivative liabilities for the nine months
ended
SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE
Derivative
liabilities
Derivative associated
liabilities with Total
associated with convertible derivative
warrants notes liabilities
Balance December 31, 2021 $ 20,938,755 $ 27,946 $ 20,966,701
Change in fair value (15,315,297 ) 814 (15,314,483 )
Balance September 30, 2022 $ 5,623,458 $ 28,760 $ 5,652,218
NOTE 7 - NOTES PAYABLE
The Company has the following note payables outstanding:
SCHEDULE OF NOTES PAYABLE
September 30, 2022 December 31, 2021
Notes payable, interest at 8%, matured January
5, 2020, in default $ 45,000 $ 45,000
Other, due on demand, interest at 6%, currently
in default 50,000 50,000
Note payable $750,000 face value, interest at
12%, matured August 24, 2021, in default 375,000 375,000
Note payable $389,423 face value, interest at
18%, matures November 6, 2023 389,423 389,423
Note payable $1,000,000 face value, interest at
12%, matured November 13, 2021, in default 1,000,000 1,000,000
Note payable$2,200,000 face value, interest at 12%, maturesOctober 31, 2024 , net of discount of$243,833 (2021) 2,200,000
1,956,167
Note payable$11,110,000 face value, interest at 12%, maturesOctober 31, 2024 (as amended), net of discount of$2,314,583 (2021) 11,110,000
8,795,417
Note payable$3,300,000 face value, interest at 12%, maturesOctober 31, 2024 , net of discount of$637,412 (2022) and$3,099,524 (2021) 2,662,588
200,476
Sub- total notes payable 17,832,011 12,811,483
Less long-term portion 389,423 389,423
Current portion of notes payable, net of
discount $ 17,442,588 $ 12,422,060 OnDecember 7, 2021 , the Company entered into a 12%,$3,300,000 face value promissory note with a third- party lender with an initial maturity date ofDecember 7, 2022 . OnOctober 31, 2022 , the lender agreed to extend the maturity date toOctober 31, 2024 . The Company agreed to increase the interest rate to 15% and to issue a warrant to purchase 75,000,000 shares of common stock at$0.0067 per share with an expiry date ofOctober 31, 2025 . In exchange for the issuance of the$3,300,000 note, inclusive of an original issue discount of$300,000 , the Company received proceeds of$3,000,000 onDecember 13, 2021 , from the lender. In conjunction with the note, the Company issued a warrant to purchase 75,000,000 shares of common stock at$0.039 per share (subject to adjustments) with an expiry date on the three- year anniversary of the note. For the nine months endedSeptember 30, 2022 , amortization of the costs of$225,000 was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of$2,982,815 has been recorded as an initial debt and an initial derivative liability of$2,982,815 . For the nine months endedSeptember 30, 2022 , amortization of the warrant discount of$2,337,111 was charged to interest expense. As ofSeptember 30, 2022 , andDecember 31, 2021 , the outstanding principal balance of this note was$3,300,000 with a carrying value of$2,662,588 and$200,476 , respectively, net of unamortized discounts of$637,412 and$3,099,524 , respectively. F-16 OnMarch 17, 2021 , the Company entered into a 12%,$11,110 ,000face value promissory note with a third- party lender with an initial maturity date ofMarch 17, 2022 . OnOctober 31, 2022 , the lender agreed to extend the maturity date toOctober 31, 2024 . The Company agreed to increase the interest rate to 15% and to issue a warrant to purchase 250,000,000shares of common stock at$0 .0067per share with an expiry date ofOctober 31, 2025 . This note is now in default. In exchange for the issuance of the$11,110 ,000note, inclusive of an original issue discount of$1,000 ,000and lender costs of$110 ,000the Company received proceeds of$10,000 ,000onMarch 23, 2021 , from the lender. In conjunction with the note, the Company issued a warrant to purchase 250,000,000shares of common stock at$0 .13per share (subject to adjustments) with an expiry date on the three- year anniversary of the note. For the nine months endedSeptember 30, 2022 , amortization of the costs of$231 ,250was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of$33,248 ,433has been recorded as an initial debt discount of$10,000,000 , interest expense of$23,248 ,433and initial derivative liability of$32,248,433 . For the nine months endedSeptember 30, 2022 , amortization of the warrant discount of$2,083 ,333was charged to interest expense. As ofSeptember 30, 2022 , andDecember 31, 2021 , the outstanding principal balance of this note was$11,110 ,000with a carrying value of$11,100 ,000and$8,795,417 , respectively, net of unamortized discounts of$2,314 ,583as ofDecember 31, 2021 . As ofSeptember 30, 2022 , andDecember 31, 2021 , the accrued interest is$2,019 ,889and$1,033,687 , respectively. OnFebruary 9, 2021 , the Company entered into a 12%,$2,200 ,000face value promissory note with a third- party lender with an initial maturity date ofFebruary 9, 2022 . OnOctober 31, 2022 , the lender agreed to extend the maturity date toOctober 31, 2024 . The Company agreed to increase the interest rate to 15% and to issue a warrant to purchase 50,000,000shares of common stock at$0 .0067per share with an expiry date ofOctober 31, 2025 . This note is now in default. In exchange for the issuance of the$2,200 ,000note, inclusive of an original issue discount of$200 ,000the Company received proceeds of$2,000 ,000onFebruary 16, 2021 , from the lender. In conjunction with the note, the Company issued a warrant to purchase 50,000,000shares of common stock at$0 .15per share (subject to adjustments) with an expiry date on the three- year anniversary of the note. For the nine months endedSeptember 30, 2022 , amortization of the costs of$22 ,167was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of$17,659 ,506has been recorded as an initial debt discount of$2,000,000 , interest expense of$15,659 ,506and initial derivative liability of$17,659,506 . For the nine months endedSeptember 30, 2022 , amortization of the warrant discount of$221 ,667was charged to interest expense. As ofSeptember 30, 2022 , andDecember 31, 2021 , the outstanding principal balance of this note was$2,200 ,000with a carrying value as ofDecember 31, 2021 , of$1,956,167 , net of unamortized discounts of$243,833 . As ofSeptember 30, 2022 , andDecember 31, 2021 , the accrued interest is$426 ,016and$230,729 , respectively. OnNovember 13, 2020 , the Company entered into a 12%,$1,000,000 face value promissory note with a third-party dueNovember 13, 2021 . Principal payments shall be made in six instalments of$166,667 commencing 180 days from the issue date and continuing each 30 days thereafter for 5 months and the final payment of principal and interest due on the maturity date. The Company received proceeds of$890,000 onNovember 20, 2020 , and the Company reimbursed the investor for expenses for legal fees and due diligence of$110,000 . In conjunction with this note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 125,000,000 shares of common stock at an exercise price of$0.008 , subject to adjustments and expires on the five-year anniversary of the issue date. As ofSeptember 30, 2022 andDecember 31, 2021 , the outstanding principal balance of this note was$1,000,000 . This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As ofSeptember 30, 2022 , andDecember 31, 2021 , the accrued interest is$312,986 and$135,452 , respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note. F-17 OnNovember 6, 2020 , the Company entered into a Settlement Agreement with the holder of$120,000 of convertible notes with accrued and unpaid interest of$8,716 and a$210,000 Promissory Noted datedJune 23, 2020 with accrued and unpaid interest of$15,707 . The Company issued a new 12% Promissory Note with a face value of$389,423 and a maturity date ofNovember 6, 2023 . In conjunction with this settlement, the Company issued a warrant to purchase 60,000,000 shares of common stock at an exercise price of$0.0075 , subject to adjustments and expires on the five-year anniversary of the issue date. The Company analyzed the transaction and concluded that this was a modification to the existing debt. The investor exercised the warrant onJanuary 14, 2021 . OnAugust 24, 2020 (the "Issue Date"), the Company entered into a 12%,$750,000 face value promissory note with a third-party (the "Holder") dueAugust 24, 2021 (the "Maturity Date"). Principal payments shall be made in six instalments of$125,000 commencing 180 days from the Issue Date and continuing each 30 days thereafter for 5 months and the final payment of principal and interest due on the Maturity Date. The Holder shall have the right from time to time, and at any time following an event of default, as defined on the agreement, to convert all or any part of the outstanding and unpaid principal, interest and any other amounts due into fully paid and non-assessable shares of common stock of the Company, at the lower of i) the Trading Price (as defined in the agreement) during the previous five trading days prior to the Issuance Date or ii) the volume weighted average price during the five trading days ending on the day preceding the conversion date. The Company received proceeds of$663,000 onAugust 25, 2020 , and the Company reimbursed the investor for expenses for legal fees and due diligence of$87,000 . For the year endedDecember 31, 2021 , amortization of the costs of$56,188 was charged to interest expense. In conjunction with this Note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 122,950,819 shares of common stock at an exercise price of$0.0061 , subject to adjustments and expires on the five-year anniversary of the Issue Date. The warrants issued resulted in a debt discount of$750,000 . During the year endedDecember 31, 2021 , the Company paid$375,000 to the Holder. OnMay 3, 2021 , the Company issued 75,000,000 shares of common stock to the Holder, upon the cashless exercise of a portion of the warrants. As ofSeptember 30, 2022 , andDecember 31, 2021 , the outstanding principal balance of this note was$375,000 . This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As ofSeptember 30, 2022 , andDecember 31, 2021 , the accrued interest is$157,747 and$90,247 , respectively. The Company is in discussions with the lender regarding the extension of the maturity date of
this note. NOTE 8 - DEFERRED LIABILITY OnSeptember 2, 2020 ,PCTI entered into an agreement with a third- party. Pursuant to the terms of the agreement, in exchange for$750,000 ,PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. Payments are due ninety (90) days after each calendar quarter, with the first payment due on or beforeMarch 31, 2021 , for revenues for the quarter endingDecember 31, 2020 . For the nine months endedSeptember 30, 2022 , the Company reduced this deferred liability by$158,536 and that amount is included in accounts payable and accrued expenses. The deferred liability as ofSeptember 30, 2022 , andDecember 31, 2021 , on the condensed consolidated balance sheet is$591,464 and$750,000 , respectively. No payments have been made and the Company is in default of the agreement with the total amount of$399,779 included in accounts payable and accrued expenses as ofSeptember 30, 2022 . OnFebruary 26, 2021 , the agreement was assigned to Ozop and onMarch 4, 2021 , the note was amended, whereby in exchange for 175,000,000 shares of common stock, the royalty percentage was amended to 1.8%. The Company valued the shares at$0.094 per share (the market value of the common stock on the date of the agreement) and recorded$16,450,000 as debt restructure expense on the condensed consolidated statement of operations for the nine months endedSeptember 30, 2021 .
NOTE 9 - RELATED PARTY TRANSACTIONS
Employment Agreement
OnJuly 10, 2020 , pursuant to thePCTI transaction, the Company assumed an employment contract entered into onFebruary 28, 2020 , between the Company andMr. Conway (the "Employment Agreement").Mr. Conway's compensation as adjusted was$20,000 per month, and effectiveSeptember 1, 2021 ,Mr. Conway receives$10,000 per month fromOzop Capital . F-18 EffectiveJanuary 1, 2022 , the Company entered into a new employment agreement withMr. Conway . Pursuant to the agreement,Mr. Conway received a$250,000 contract renewal bonus and will receive an annual compensation of$240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion of the BOD. The Company also agreed to compensateMr. Conway for services provided directly to any of the Company's subsidiaries.Ozop Capital increasedMr. Conway's compensation to$20,000 per month inJanuary 2022 , OES began compensatingMr. Conway $20,000 inMarch 2022 , and OED began compensationMr. Conway $20,000 per month beginning inApril 2022 . Series E Preferred Stock OnMarch 21, 2021 , the Company issued 2,000 shares of Series E Preferred Stock (see Note 11), 1,800 of the shares were issued toMr. Conway . OnApril 16, 2021 , the Board of Directors of the Company authorized the issuance 2,000 shares of Series E Preferred stock, of which 1,050were issued toMr. Conway . During the nine months endedSeptember 30, 2021 , the Company redeemed 2,850 shares issued toMr. Conway , and pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of$1,000 per share, recorded stock compensation expense toMr. Conway of$2,850,000 for the nine months endedSeptember 30, 2021 .
Management Fees and related party payables
For the three and nine months ended
SCHEDULE OF EXPENSES TO OFFICERS
2022 2021 2022 2021
Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
CEO $ 220,000 $ 70,000 $ 850,000 $ 709,999 CEO - Series E Preferred Stock - - -
2,850,000 Total$ 220,000 $ 70,000 $ 850,000 $ 3,559,999
Redemption of Series C and Series D Preferred Stock
OnJuly 13, 2021 , the Company entered into a Definitive Agreement (the "Agreement") with Chis to purchase the 47,500 shares of the Company's Series C Preferred Stock held by Chis and the 18,667 shares of the Company's Series D Preferred Stock held by Chis for the total purchase price of$11,250,000 . In conjunction with the Agreement, Chis resigned from any and all positions held in the Company's wholly owned subsidiary,PCTI . Further, Chis agreed that upon her resignation and for a period of five years thereafter (the "Restriction Period"), she shall not, directly or indirectly, solicit the employment of, assist in the soliciting of the employment of, or hire any employee or officer of the Company, including those of any of its present or future subsidiaries, or induce any person who is an employee, officer, agent, consultant or contractor of the Company to terminate such relationship with the Company. Additionally, Chis agreed that during the Restriction Period, she shall not compete with the Company orPCTI anywhere worldwide or be employed by any competitor of the Company.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Leases OnJanuary 2, 2021 , the Company entered into a ten (10) year lease for a 6-bay garage storage facility of approximately 2,500 square feet from the property owner. Pursuant to the lease the Company agreed to issue 100,000,000 shares of restricted common stock. The shares were certificated onMarch 8, 2021 , with an effective date ofJanuary 2, 2021 . The Company valued the shares at$0.0063 , (the market value of the common stock on the date of the agreement) and recorded$630,000 as a prepaid expense. The Company never took occupancy of the space. OnJuly 19, 2022 , the property owner purchased a different property and onSeptember 6, 2022 , assigned the title of such property to the Company in consideration of the 100,000,000 shares received inJanuary 2021 . The Deed was recorded in the name ofOzop Energy Solutions, Inc. onOctober 4, 2022 . The Company recorded the$630,000 as fixed asset and credited the prepaid expense. F-19 Agreements
OnSeptember 1, 2021 ,Ozop Capital entered into an advisory agreement (the "RMA Agreement") withRisk Management Advisors, Inc. ("RMA"). Pursuant to the terms of the RMA Agreement, RMA will assistOzop Capital in analyzing, structuring, and coordinatingOzop Capital's participation in a captive insurance company. RMA will coordinate legal, accounting, tax, actuarial and other services necessary to implement the Company's participation in a captive insurance company, including, but not limited to, the preparation of an actuarial feasibility study, filing of all required regulatory applications, domicile selection, structural selection, and coordination of the preparation of legal documentation. In connection with the services listed above,Ozop Capital agreed to pay$50,000 and to issue$50,000 of shares of restricted common stock. One-half of the cash and stock were due upon the signing of the RMA Agreement. Accordingly, RMA received$25,000 and 452,080 shares of restricted common stock of the Company inSeptember 2021 . The balance of the cash and stock became due onOctober 29, 2021 , upon the issuance of the captive insurance company's certificate of authority from the state ofDelaware . The Company has paid the$25,000 balance and recorded 637,755 shares of common stock to be issued. OnApril 13, 2021 , the Company agreed to engagePJN Strategies, LLC ("PJN") as a consultant. Pursuant to the agreement, the Company agreed to compensate PJN$20,000 per month. EffectiveSeptember 1, 2021 , a new agreement was entered into betweenPJN and Ozop Capital . Pursuant to the terms of the new one- year agreementOzop Capital agreed to compensate PJN$84,000 per month. For the three and nine months endedSeptember 30, 2022 , the Company recorded$252,000 and$756,000 , respectively, of consulting expenses.
On
OnMarch 30, 2021 , OES hired 2 individuals as Co-Directors of Sales. Pursuant to their respective offers of employment, the Company agreed to an annual salary of$130,000 with a signing bonus of$20,000 for each and to issue each 2,500,000 shares of restricted common stock upon the execution of the agreements and every 90 days thereafter for the first year as long as the employee is still employed. The Company valued the initial shares at$0.092 per share (the market price of the common stock on the date of the agreement), and$460,000 is included in stock-based compensation expense for the six months endedJune 30, 2021 . OnJanuary 14, 2022 , the Company issued each of the Co-Directors their final 2,500,000 shares due. The shares were valued at$0.027 per share (the market price of the common stock on the date of the issuance), and$135,000 is included in stock-based compensation expense for the nine months endedSeptember 30, 2022 . One of the individuals resigned onJanuary 24, 2022 . OnMarch 15, 2021 , the Company entered into a consulting agreement withAurora Enterprises ("Aurora"). Mr.Steven Martello is a principal of Aurora. Pursuant to the agreementMr. Martello will provide strategic analysis regarding existing markets and revenue streams as well as the development of new lines of revenue. The Company agreed to a monthly retainer fee of$10,000 and to issue to Aurora or their designee 5,000,000 shares of restricted common stock. The shares were issued inApril 2021 . Aurora designated the shares to be issued toPegasus Partners, Inc. The Company valued the shares at$0.1392 per share (the market price of the common stock on the date of the agreement), and$696,000 is included in stock-based compensation expense for the nine months endedSeptember 30, 2021 . For the three and nine months endedSeptember 30, 2022 , the Company has recorded$30,000 and$90,000 , respectively, of consulting expenses, and for the three and nine months endedSeptember 30, 2021 , the Company recorded consulting expenses of$30,000 and$60,000 , respectively. OnFebruary 24, 2021 , the Company entered into a consulting agreement withChristopher Ruppel . Pursuant to the agreementMr. Ruppel was to join theOzop Advisory Board . During the year endedDecember 31, 2021 , the Company issued 10,000,000 shares of restricted common stock toMr. Ruppel and agreed to a monthly fee of$2,500 . The Company valued the shares at$0.2386 per share (the market price of the common stock on the date of the agreement), and$2,386,000 is included in stock-based compensation expense for the nine months endedSeptember 30, 2021 . EffectiveApril 1, 2021 , the agreement was amended to$10,000 per month. EffectiveMay 1, 2021 , the Company was no longer using the services ofMr. Ruppel . For the nine months endedSeptember 30, 2021 , the Company recorded$12,500 of consulting expenses. F-20 OnJanuary 22, 2021 , the Company issued 10,000,000 shares of restricted common stock for legal services performed in 2020 and approved by the BOD of the Company onDecember 1, 2020 . The Company valued the shares at$0.0056 per share (the market price of the common stock on the date of the agreement), and$56,000 is included in stock-based compensation expense for the nine months endedSeptember 30, 2021 . OnJanuary 14, 2021 , the Company entered into a Consulting Agreement with Mr.Allen Sosis . Pursuant to the agreement,Mr. Sosis will provide services as the Director of Business Development for the Company's wholly owned subsidiary. Pursuant to the agreement, as amended, the Company will payMr. Sosis a monthly fee of$15,000 and an additional$1,000 in benefits. The Company also agreed to issueMr. Sosis 5,000,000 shares of restricted common stock. The shares were issued inApril 2021 . The Company valued the shares at$0.20 per share (the market price of the common stock on the date of the agreement), and$1,000,000 was recorded as deferred stock compensation, to be amortized over the one-year term of the agreement. The Company terminatedMr. Sosis's employment inOctober 2021 . For the nine months endedSeptember 30, 2021 , the Company recorded$75,500 of consulting expenses and effectiveJune 1, 2021 ,Mr. Sosis became an employee of the Company through his termination with a$15,000 per month salary. OnJanuary 6, 2021 , the Company entered into a consulting agreement withEzra Green to begin onFebruary 8, 2021 . The Company agreed to issue 10,000,000 shares of restricted common stock toMr. Green and to a monthly fee of$2,500 . The Company valued the shares at$0 .0076per share (the market price of the common stock on the date of the agreement), and$76,000 was recorded as deferred stock-based compensation, to be amortized over the one-year term of the agreement. For the nine months endedSeptember 30, 2022 , and 2021, the Company recorded$1,249 and$36,348 as stock-based compensation expense, respectively. EffectiveApril 1, 2021 , the agreement was amended to$10,000 per month. For the nine months endedSeptember 30, 2022 , the Company recorded$60,000 of consulting expenses and for the three and nine months endedSeptember 30, 2021 , the Company recorded$30,000 and$64,500 of consulting expenses, respectively. EffectiveJune 30, 2022 ,Mr. Green was no longer providing consulting services to the Company. OnMarch 4, 2019 , the Company entered into a Separation Agreement (the "Separation Agreement") withSalman J. Chaudhry , pursuant to which the Company agreed to payMr. Chaudry $227,200 (the "Outstanding Fees") in certain increments as set forth in the Separation Agreement. As ofSeptember 30, 2022 andDecember 31, 2021 , the balance owedMr. Chaudhry is$162,085 . OnSeptember 2, 2020 ,PCTI entered into an Agreement with a third- party. Pursuant to the terms of the agreement, in exchange for$750,000 ,PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. OnFebruary 26, 2021 , the agreement was assigned to Ozop and onMarch 4, 2021 , the agreement was amended, whereby in exchange for 175,000,000 shares of common stock, the royalty percentage was amended to 1.8% (see Note 8). The Company valued the shares at$0.094 per share (the market value of the common stock on the date of the agreement) and recorded$16,450,000 as debt restructure expense on the condensed consolidated statement of operations for the nine months endedSeptember 30, 2021 . Legal matters
We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
F-21 NOTE 11- STOCKHOLDERS' EQUITY Common stock During the nine months endedSeptember 30, 2022 , the Company issued 83,655,061 shares of common stock and received net proceeds of$814 ,625after issuance costs of$24,966 . The Company also issued 5,000,000 shares of restricted common stock in the aggregate for services. During the period fromJanuary 1, 2021 , toSeptember 30, 2021 , holders of an aggregate of$760,550 in principal and$201,905 of accrued interest and fees of convertible and promissory notes, converted their debt into 483,154,618 shares of our common stock at an average conversion price of$0.002 per share.
During the nine months ended
? 100,000,000 shares of restricted common stock pursuant to a lease agreement
(see Note 10).
? 175,000000 shares of restricted common stock pursuant to restructuring
agreement related to a deferred liability (see Note 9).
? 50,452,080 shares of restricted common stock in the aggregate for services and
consulting agreements.
During the nine months ended
As ofSeptember 30, 2022 , the Company has 4,990,000,000 shares of$0.001 par value common stock authorized and there are 4,706,018,038 shares of common
stock issued and outstanding. OnApril 4th, 2022 , the Company andGHS Investments LLC ("GHS"). signed a Securities Purchase Agreement (the "GHS Purchase Agreement") for the sale of up to Two Hundred Million (200,000,000) shares of the Company's common stock to GHS. We may sell shares of our common stock from time to time over a six (6)- month period endingOctober 4, 2022 (the "Maturity Date"), at our sole discretion, to GHS under the GHS Purchase Agreement. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company's notice to GHS for the sale of the Company's common stock. OnApril 8, 2022 , the Company filed a Prospectus Supplement to the Registration Statement datedOctober 14, 2021 , regarding the GHS Purchase Agreement. OnOctober 17, 2022 , the Company and GHS extended the Maturity Date toApril 4, 2023 . Preferred stock As ofSeptember 30, 2022 , andDecember 31, 2021 , 10,000,000 shares have been authorized as preferred stock, par value$0.001 (the "Preferred Stock"), which such Preferred Stock shall be issuable in such series, and with such designations, rights and preferences as the Board of Directors may determine from time to time. Series C Preferred Stock OnJuly 7, 2020 , the Company filed an Amended and Restated Certificate of Designation with theState of Nevada of the Company's Series C Preferred Stock. Under the terms of the Amendment to Certificate of Designation of Series C Preferred Stock, 50,000 shares of the Company's preferred remain designated as Series C Preferred Stock. The holders of Series C Preferred Stock have no conversion rights and no dividend rights. For so long as any shares of the Series C Preferred Stock remain issued and outstanding, the Holder thereof, voting separately as a class, shall have the right to vote on all shareholder matters equal to sixty-seven (67%) percent of the total vote. OnJuly 10, 2020 , pursuant to the SPA withPCTI , the Company issued 47,500 shares of Series C preferred Stock to Chis. OnJuly 13, 2021 , the Company purchased 47,500 shares of the Company's Series C Preferred Stock held by Chis (see Note 11). As ofSeptember 30, 2022 , andDecember 31, 2021 , there were 2,500 shares of Series C Preferred Stock issued and outstanding and the shares are held byMr. Conway . F-22 Series D Preferred Stock OnJuly 7, 2020 , the Company filed a Certificate of Designation with theState of Nevada of the Company's Series D Preferred Stock. OnJuly 10, 2020 , pursuant to the SPA withPCTI , the Company issued 18,667 shares of Series D preferred Stock to Chis, and onAugust 28, 2020 , pursuant toMr. Conway's employment agreement, the Company issued 1,333 shares of Series D Preferred Stock toMr. Conway . OnJuly 13, 2021 , the Company purchased 18,667 shares of the Company's Series D Preferred Stock held by Chis (see Note 10). OnJuly 27, 2021 , the Company filed with the Secretary of State of theState of Nevada an Amended and Restated Certificate of Designation of Series D Preferred Stock (the "Series D Amendment"). Under the terms of the Series D Amendment, 4,570 shares of the Company's preferred stock will be designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall not be entitled to receive dividends. Any holder may, at any time convert any number of shares of Series D Convertible Preferred Stock held by such holder into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion, by 1.5 and dividing that number by the number of authorized shares of Series D Convertible Preferred Stock and multiply that result by the number of shares of Series D Convertible Preferred Stock being converted. Except as provided in the Series D Amendment or as otherwise required by law, no holder of the Series D Convertible Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Company for their vote, waiver, release or other action. The Series D Convertible Preferred Stock shall not bear any liquidation rights. OnJuly 28, 2021 , the Company closed on a Stock and Warrant Purchase Agreement (the "Series D SPA"). Pursuant to the terms of Series D SPA, an investor in exchange for$13,200,000 purchased one share of Series D Preferred Stock, and a warrant to acquire 3,236 shares of Series D Preferred Stock. As ofSeptember 30, 2022 , andDecember 31, 2021 , there were 1,334 shares, respectively, of Series D Preferred Stock issued and outstanding and a warrant to purchase 3,236 shares of Series D Preferred Stock are outstanding as ofSeptember 30, 2022 , andDecember 31, 2021 .
The warrant has a 15- year term and Partial Warrant Lock Up and Leak-Out Period. The Holder may only exercise the Warrant and purchase Warrant Shares as follows:
i. Up to 162 (one hundred and sixty-two) Warrant Shares, at any time or times
on or after five (5) business days from the closing of the Series D SPA
("the Initial Exercise Date") subject to up to a maximum number of Warrant
Shares that, if converted, would be equal to no more than a maximum of 4.99%
of the total number of outstanding shares of Common Stock of the Company and
no later than on or before the 15th year anniversary of the Initial Exercise
Date ("the Termination Date"); and
ii. The Remainder of the Warrant representing up to 3,074 (three thousand and
seventy-four) Warrant Shares ("Remaining Warrant Shares") shall be locked up
for a period of 36 (thirty-six) months from the Initial Exercise Date ("Lock
Up Period") and shall become exercisable at any time or times from the date
that is the 36 (thirty-six) month anniversary of the Initial Exercise Date
("Lock Up Period Termination Date") and no later than on or before the
Termination Date, as follows:
a. During every 1 (one) year period, starting on the day that is the Lock Up
Period Termination Date, the Holder shall have the right to exercise the
Remainder of the Warrant up to a maximum number of Remaining Warrant Shares
that, if converted, would be equal to no more than a maximum of 4.99% of the
total number of outstanding shares of Common Stock of the Company during such
given year ("Leak-Out Period"). The Leak-Out Period shall come into effect on
the day that is the Lock Up Period Termination Date and remain effective on a
yearly basis, for a period of 10 (ten) years thereafter, after which the
Leak-Out Period will automatically terminate and become null and void. Forclarity purposes the Remainder of the Warrant shall become freely exercisable
at any time or times beginning on
Date.
F-23
Series E Preferred Stock OnJuly 7, 2020 , the Company filed a Certificate of Designation with theState of Nevada of the Company's Series E Preferred Stock. Under the terms of the Certificate of Designation of Series E Preferred Stock, 3,000 shares of the Company's preferred stock have been designated as Series E Preferred Stock. The holders of the Series E Convertible Preferred Stock shall not be entitled to receive dividends. No holder of the Series E Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Corporation for their vote, waiver, release or other action, except as may be otherwise expressly required by law. At any time, the Corporation may redeem for cash out of funds legally available therefor, any or all of the outstanding Preferred Stock ("Optional Redemption") at$1,000 (one thousand dollars ) per share. The shares of Series E Preferred Stock have not been registered under the Securities Act of 1933 or the laws of any state ofthe United States and may not be transferred without such registration or an exemption from registration. OnJuly 10, 2020 , pursuant to the SPA withPCTI , the Company issued 500 shares of Series E preferred Stock to Chis, and onAugust 28, 2020 . Pursuant toMr. Conway's employment agreement, the Company issued 500 shares of Series E Preferred Stock toMr. Conway . OnMarch 2, 2021 , the BOD authorized the issuance of 1,800 shares of Series E Preferred Stock toMr. Conway and 200 shares of Series E Preferred Stock to a third-party service provider. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of$1,000 per share, the Company recorded$2,000,000 as stock-based compensation expense for expense for the nine months endedSeptember 30, 2021 . OnMarch 24, 2021 , the Company redeemed the 3,000 shares of Series E Preferred Stock outstanding on that date. OnApril 16, 2021 , the BOD authorized the issuance of 2,000 shares of Series E Preferred stock, of which 1,050 were granted toMr. Conway . The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of$1,000 per share, the Company recorded$2,000,000 as stock-based compensation expense for the nine months endedSeptember 30, 2021 . As ofSeptember 30, 2022 , andDecember 31, 2021 , there were -0- shares of Series E Preferred Stock issued and outstanding, respectively.
NOTE 12 - NONCONTROLLING INTEREST
OnAugust 19, 2021 , the Company formedOzop Capital . The Company initially owned 51% with PJN owning 49%.Brian Conway was appointed as the sole officer and director ofOzop Capital and has voting control ofOzop Capital . The Company presents interest held by noncontrolling interest holders within noncontrolling interest in the condensed consolidated financial statements. OnSeptember 13, 2022 , there was a change in the ownership percentages, as PJN returned 490,000 shares, representing their 49% ownership. As of that date;Ozop Capital is a wholly owned subsidiary of the Company. For the three and nine months endedSeptember 30, 2022 ,Ozop Capital incurred losses of$346,051 and$1,080,963 , respectively, of which$169,565 and$529,672 , respectively, is the loss attributed to the noncontrolling interest for the three- and nine- months endingSeptember 30, 2022 . As ofSeptember 30, 2022 , the accumulative noncontrolling interest is$784,777 .
NOTE 13 - OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
OnApril 14, 2021 , the Company entered into a five-year lease which began onJune 1, 2021 , for approximately 8,100 square feet of office and warehouse space inCarlsbad, California , expiringMay 31, 2026 . Initial lease payments of$13,148 began onJune 1, 2021 , and increase by approximately 2.4% annually thereafter. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 7.5%, as the interest rate implicit in most of our leases is not readily determinable. During the year endedDecember 31, 2021 , upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of$702,888 for this lease. In adopting Topic 842, the Company has elected the 'package of practical expedients', which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less.
Right-of- use assets are summarized below:
SCHEDULE OF RIGHT-OF-USE ASSETS
September 30, 2022
Office and warehouse lease $ 702,888
Less: Accumulated Amortization (162,883 )
Right-of-use asset, net $ 540,005
F-24
SCHEDULE OF OPERATING LEASE LIABILITIES
September 30, 2022
Lease liability $ 549,182
Less current portion (130,070 )
Long term portion $ 419,112
Maturity of lease liabilities are as follows:
SCHEDULE OF MATURITY OF LEASE LIABILITIES
Amount
For the year ended December 31, 2022 $ 41,394
For the year ended December 31, 2023 167,858
For the year ended December 31, 2024 171,840
For the year ended December 31, 2025 175,942
For the year ended December 31, 2026 74,030
Total $ 631,064
Less present value discount (81,882 )
Lease liability $ 549,182 NOTE 14 - DISCONTINUED OPERATIONS
OnSeptember 1, 2022 , the BOD of the Company authorized the filing of a Chapter 7 proceeding (see Note 2) which meets the definition of a discontinued operation. Accordingly, the operating results ofPCTI are reported as a loss from discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months endedSeptember 30, 2022 , and 2021. The results of operations of this component, for all periods, are separately reported as "discontinued operations". A reconciliation of the major classes of line items constituting the loss from discontinued operations, net of income taxes as is presented in the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months endedSeptember 30, 2022 , and 2021 are summarized below:
SCHEDULE OF LOSS FROM DISCONTINUED OPERATIONS
2022 2021 2022 2021
Three months ended Nine months ended
September 30, September 30,
2022 2021 2022 2021
Revenues $ 5,363 $ 66,734 $ 281,038 $ 881,339
Cost of goods sold 3,572 114,636 259,828 351,136
Gross profit 1,791 (47,902 ) 21,210 530,203
Operating expenses 27,244 182,517 384,991 730,138
Interest expense 8,517 7,450 23,011 33,546
Loss from discontinued operations
$ 233,481 F-25 The assets and liabilities of discontinued operations are separately reported as "assets and liabilities held for disposal" as ofSeptember 30, 2022 , andDecember 31, 2021 . All asset and liabilities are classified as current, as the Company expects the liquidation to occur in the short-term. The following tables present the reconciliation of carrying amounts of major classes of assets and liabilities of the Company classified as discontinued operations in the condensed consolidated balance sheet atSeptember 30, 2022 , andDecember 31, 2021 : Current Assets September 30, 2022 December 31, 2021 Cash $ 50 $ 134,973 Accounts receivable - 6,534 Inventory 237,091 277,872 Vendor deposits - 43,758
Prepaid expenses and other assets 7,000
12,543
Right to use asset 13,870 74,189
Fixed assets, net 15,477 20,448Total assets of discontinued operations$ 273,488 $
570,317
Current liabilities
September
30, 2022 December 31, 2021 Accounts payable and accrued liabilities$ 455,217 $
432,508
Current portion of notes payable 589,246
589,246
Operating lease liability 13,870 74,189
Deferred revenues 30,389 46,477
Advances from customers - 96,428
Total current liabilities of discontinued operations
1,238,848
NOTE 15 - SUBSEQUENT EVENTS
On
OnOctober 17, 2022 , the Company sold 12,526,048 shares to GHS at$0.005865 and received net proceeds of$70,971 , after deducting transaction and broker fees of$2,494 .
On
OnNovember 1, 2022 , the Company sold 12,935,085 shares to GHS at$0.005525 and received net proceeds of$69,012 , after deducting transaction and broker fees of$2,454 .
The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein.
F-26
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following is management's discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words "believes," "anticipates," "may," "will," "should," "expect," "intend," "estimate," "continue," and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with theSecurities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws ofthe United States , the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates.
The following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.
THE COMPANYOzop Energy Solutions, Inc. (the "Company," "we," "us" or "our") was originally incorporated asNewmarkt Corp. onJuly 17, 2015 , under the laws of theState of Nevada .
OnDecember 11, 2020 , the Company formedOzop Energy Systems, Inc. ("OES"), aNevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products. OnOctober 29, 2020 , the Company formed a new wholly owned subsidiary,Ozop Surgical Name Change Subsidiary, Inc. , aNevada corporation ("Merger Sub"). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company's name to "Ozop Energy Solutions, Inc. " That same day the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with the Merger Sub and filed Articles of Merger (the "Articles of Merger") with theNevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as ofNovember 3, 2020 . As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company fromOzop Surgical Corp. to "Ozop Energy Solutions, Inc. " OnAugust 19, 2021 , the Company formedOzop Capital Partners, Inc. ("Ozop Capital "), aDelaware corporation is a wholly owned subsidiary of the Company.Ozop Capital was formed as a holding company to seek to develop a captive insurance company.Brian Conway was appointed as the sole officer and director ofOzop Capital and has voting control ofOzop Capital .
On
3
OES is actively engaged in the renewable, electric vehicle ("EV"), energy
storage and energy resiliency sectors. We are engaged in multiple business lines
that include project development as well as equipment distribution. Our solar
and energy storage projects involve large-scale battery and solar photovoltaics
(PV) installations. Our utility-scale storage business model is based on an
arbitrage business model in which we install multiple 1+ megawatt batteries,
charge them with off-peak grid electricity under contract with the utility, then
sell the power back during peak load hours at a premium, as dictated by
prevailing electricity tariffs.
Equipment Distributor: OES has entered the component supply/distribution side of
the renewable, resiliency and energy storage industries distributing the core
components associated with residential and commercial solar PV systems as well
as onsite battery storage and power generation. In April 2021 , the Company
signed a five- year lease (beginning June 1, 2021 ) of approximately 8,100 SF in
California , for office and warehouse space to support the sales and distribution
of our west coast operations. The components we are distributing include PV
panels, solar inverters, solar mounting systems, stationary batteries, onsite
generators and other associated electrical equipment and components that are all
manufactured by multiple companies, both domestic and international. These core
products are sourced from management-developed relationships and are distributed
through our existing network and our in-house sales team.
Solar PV: Our PV business model involves the design and construction of
electrical generating PV systems that can sell power to the utilities or be used
for off grid use as part of our developing Neo-Grids solution. The Neo-GridTM
System, patent pending, was developed for the off-grid distribution of
electricity to remove or reduce the dependency on utilities that currently
burdens the EV Charging sectors. It will also reduce or eliminate the lengthy
permitting processes and streamline the installations of those EV chargers.
Modular Energy Distribution System: The Neo-GridTM System patent pending,
consists of the design, engineering, installation, and operational methodologies
as well as the financial arbitrage of how we produce, capture and distribute
electrical energy for the EV markets. OES has acquired through a license the
rights to a proprietary system, the Neo-GridsTM System(patent pending), for the
capture and distribution of electrical energy for the EV market. The
Neo-GridsTMSystem will serve both the private auto and the commercial sectors.
The exponential growth of the EV industry has been accelerated by the recent
major commitments of most of the major car manufacturers. Our Neo-GridsTM System
leverages this accelerated growth by offering (1) charging locations that can be
rapidly installed in restricted areas or load limits and (2) EV charger
electricity that is produced from renewable sources having little to no carbon
footprint.
OES has developed a business plan for the Neo GridTM distribution system, a
solution to alleviate the stress on the existing grid-tied infrastructure. The
Company has completed its' Neo GridTM research and development as well as the
first stage that includes the specifications and engineered technical drawings.
This completion of the first stage of allows us to move forward with stage two,
as well as to begin to construct the first prototype or proof of concept,
("PoC"). Our PoC design is partially reliant on auto manufacturers establishing
standardizations of the actual charging/discharging protocols of the batteries
such as on-board inverters as well as bi-directional capabilities in electric
vehicles, which have only recently been established. As the market growth rate
of EV's continues to rise, the stress on the existing grid-tied infrastructure
shows the need for the continued development of our Neo-GridTM System as a
viable solution.
OES management has decades of experience in the renewable, storage and resilient
energy businesses and associated markets, which include but are not limited to
project finance, project development, equipment finance, construction, utility
protocol, regulatory policy and technology assessment.
Ozop Plus markets vehicle service contracts ("VSC's") for electric vehicles
(EV's) that offer consumers to be able to purchase additional months and miles
above the manufacturer's warranty and to also bring added value to EV owners by
utilizing our partnerships and strengths in the energy market to offer unique
and innovative services. Among EV owners' concerns are the EV battery repair and
replacement costs, range anxiety, environmental responsibilities, roadside
assistance, and the accelerated wear on additional components that EV vehicles
experience. Management believes that the Ozop Plus marketed VSC's will give
"peace of mind" to the EV buyer.
? In
Inc., a member of
will market GSFSGroup's EV VSC's in all states (except,
dealerships and other eligible entities. In addition to acting as an agent for
the marketing, Ozop also has the right to white label the product under its'
Ozop Plus brand. Ozop's role won't be limited to marketing the product.
GSFSGroup plans to tap into Ozop's experience relative to battery collection
and disposal and has agreed to insurance risk sharing in connection with the
insurance policies that back the VSC's. GSFSGroup is working on getting the
approvals needed for the above four (4) states.
4
? On
market Royal's EV VSC's and has the right to white label it under Ozop Plus.
Royal has agreed to allow Ozop Plus on all VSC's, marketed by Royal and the
Company, to assume all of the risk related to the electric battery at an
agreed upon premium. The battery premium is dependent on the consumer's
selection of the duration of the VSC, the miles selected for coverage and the
type of vehicle that the consumer has purchased, with a key component being
the kWh size of the battery. These VSC's have a maximum of 10 years and
150,000 miles and cover new and used cars from model year 2017 and newer.
Royal's VSCs are now effective in 35 states and the others have various
waiting times or approvals needed.
? On
with
Company"). Royal is the Administrator of the Contract. Pursuant to the terms
of the Contract, ABIC will cede 100% of the battery coverage portion of all
electric vehicle service contracts to
also entered into a Trust Agreement, whereas
deposit an amount equal to unearned premium reserves, plus losses reported but
unpaid, plus the estimated amount of losses incurred but not reported to the
trust account. Permissible investments (with a maturity of no more than five
(5) years) of the assets of the Trust account include:
? U.S. Treasury Securities
? Cash or cash instruments
? U.S agency issues
? Other investments as Ceding Company approves
OnFebruary 25, 2022 , the Company formedOzop Engineering and Design, Inc. ("OED") aNevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED will provide its' customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs by working with architects, engineers, facility managers, electrical contractors and engineers.
Stock Purchase Agreement and Stock Redemption Agreement
OnJuly 10, 2020 , the Company entered into a Stock Purchase Agreement (the "SPA") withPower Conversion Technologies, Inc. , aPennsylvania corporation ("PCTI"), andCatherine Chis ("Chis"),PCTI's Chief Executive Officer ("CEO") and its sole shareholder. Under the terms of the SPA, the Company acquired one thousand (1,000) shares ofPCTI , which represents all of the outstanding shares ofPCTI , from Chis in exchange for the issuance of 47,500 shares of the Company's Series C Preferred Stock, 18,667 shares of the Company's Series D Preferred Stock, and 500 shares of the Company's Series E Preferred Stock to Chis. OnJuly 13, 2021 , the Company entered into a Definitive Agreement (the "Agreement") with Chis to purchase the 47,500 shares of the Company's Series C Preferred Stock held by Chis and the 18,667 shares of the Company's Series D Preferred Stock held by Chis for the total purchase price of$11,250,000 .The Agreement was closed onJuly 27, 2021 . 5
Results of Operations for the three and nine months ended
Revenue For the three and nine months endedSeptember 30, 2022 , the Company generated revenue of$3,928,918 and$11,614,117 , respectively, compared to$4,716,607 and$5,971,589 for the three and nine months endedSeptember 30, 2021 , respectively. Revenues fromOzop Energy Systems, Inc. ("OES") are classified as sourced and distributed products. Ozop Engineering and design ("OED") operations began in the quarter endedJune 30, 2022 , and are classified as design and installation. Sales are summarized as follows: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Sourced and distributed products$ 3,907,318 $ 4,716,607 $ 11,576,017 $ 5,971,589 Design and installation 21,600 - 38,100 - Total$ 3,928,918 $ 4,716,607 $ 11,614,117 $ 5,971,589
As it did for most of the industry; OES's importing of solar panels issues that began in the 4th quarter of 2021, continued 2022. Covid issues continued to be disruptive to a continual source of product from foreign manufacturers as well as ocean freight backlogs and covid issues that plagued the port of arrivals related to the unloading of containers and the eventual customs clearance of the imported goods. An announcement by theU.S. Department inMarch 2022 stated it would investigate allegations that solar panel manufacturers inSoutheast Asia are using Chinese-made parts and evadingU.S. tariffs has raised alarms concerning both trade and environmental policy The department announcedMarch 28 that it would investigate claims byCalifornia -based solar panel manufacturer that solar energy equipment manufacturers inCambodia ,Malaysia ,Thailand andVietnam have close business ties to companies inChina that produce the raw materials and some components of solar panel assemblies. OnJune 6, 2022 ,President Biden waived tariffs on solar panels from there four Southeast Asian nations for two years and invoked the Defense Production Act to spur domestic solar panel manufacturing at home. The tariff exemption will serve as a "bridge" whileU.S. manufacturing ramps up. Based on the above situation, the Company placed approximately$14,422,000 of purchase orders for solar panels and as of the date of the filing of this report has fully paid and received approximately$7,265,000 of this product. Additionally, the Company has made approximately$1,499,000 of additional deposits to vendors, resulting in a remaining balance of$5,658,000 of open purchase orders to vendors, to assure product delivery of approximately$7.2 million with a forecasted delivery of$3.9 million in Q4 2022 and$3.3 million in Q1 2023. The Company was expecting to receive additional product in Q3 2022, that has been delayed until Q4 2022, which impacted revenues for the three and nine months endedSeptember 30, 2022 . Based on the above and the Company's current on-hand inventory, management anticipates the potential for a significant increase in fourth quarter sales over Q3 2022 sales. Cost of sales For the three and nine months endedSeptember 30, 2022 , the Company recognized$3,598,918 and$10,634,170 , respectively of cost of sales, compared to$4,370,680 and$5,575,557 for the three and nine months endedSeptember 30, 2021 , respectively. Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Sourced and distributed products$ 3,598,918 $ 4,370,680 $ 10,634,170 $ 5,575,558 Total$ 3,598,918 $ 4,370,680 $ 10,634,170 $ 5,575,558 Based on the above cost of sales, gross margin was 8.4% for the three and nine months endedSeptember 30, 2022 , compared to 7.3% and 6.6% for the three and nine months endedSeptember 30, 2021 , respectively. The increase of gross margin for the three and nine months is a result of the mix of customer sales. 6 Operating expenses
Total operating expenses for the three and nine months endedSeptember 30, 2022 , were$1,514,524 and$4,648,920 , compared to$1,708,102 and$11,309,256 for the three and none months endedSeptember 30, 2021 , respectively. The operating
expenses were comprised of:
Three Months Three Months Nine Months Nine
Ended Ended Ended Months Ended
September 30, September 30,
2022 2021 2022 2021
Wages and management fees,
related parties, including
stock-based compensation $ 220,000 $ 70,000 $ 850,000 $ 3,559,999
Stock-based compensation,
other - 668,711 136,249 5,784,656
Salaries, taxes and benefits 411,411 275,375 996,321 397,889
Professional and consulting
fees 495,820 292,278 1,674,319 830,365
Advertising and marketing 8,045 9,487 13,233 20,263
Rent and office expense 63,287 62,378 186,228 103,928
Insurance 88,256 62,961 222,547 89,609
General and administrative 227,705 266,912 600,023 522,547
Total operating expenses $ 1,514,524 $ 1,708,102 $ 4,648,920 $ 11,309,256 Wages and management fees- related parties, are amounts paid to our CEO. OnJuly 10, 2020 , pursuant to thePCTI transaction, the Company assumed an employment contract entered into onFebruary 28, 2020 , between the Company andMr. Conway (the "Employment Agreement").Mr. Conway's compensation as adjusted was$20,000 per month, and effectiveSeptember 1, 2021 ,Mr. Conway began to receive$10,000 per month fromOzop Capital . EffectiveJanuary 1, 2022 , the Company entered into a new employment agreement withMr. Conway . Pursuant to the agreement,Mr. Conway received a$250,000 contract renewal bonus and will receive an annual compensation of$240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion of the BOD. The Company also agreed to compensateMr. Conway for services provided directly to any of the Company's subsidiaries.Ozop Capital increasedMr. Conway's compensation to$20,000 per month inJanuary 2022 and OES began compensatingMr. Conway $20,000 inMarch 2022 . Below is a summary of wages and management fees: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 CEO management fees$ 220,000 $ 70,000 $ 850,000 $ 709,999 Stock-based compensation - - - 2,850,000 Total other (income) expense$ 220,000 $ 70,000 $ 850,000 $ 3,559,999
Stock based compensation for the nine months ended
? 5,000,000 shares of common stock issued in the aggregate to two employees
pursuant to their offers of employment dated
valued at
the Company included
?
Stock based compensation, other for the three and nine months ended
? 5,000,000 shares issued in
agreement. The Company valued the shares at
of the common stock on the date of the agreement), and
as deferred stock compensation, to be amortized over the one-year term of the
agreement. For the three and nine months ended
and
7
? 10,000,000 shares issued in
agreement. The Company valued the shares at
price of the common stock on the date of the agreement), and
recorded as deferred stock-based compensation, to be amortized over the
one-year term of the agreement. For the three and nine months ended September
30, 2021, the Company recorded
stock-based compensation expense.
? 5,000,000 shares issued in
shares at
of the agreement), and
expense for the nine months ended
? 10,000,000 shares issued for services. The shares were valued at
share, the date the Company agreed to issue the shares. For the nine months
ended
expense.
? 10,000,000 shares issued pursuant to a consulting agreement dated February
24, 2021 (see Note 12). The shares were valued at
nine months ended
compensation expense.
? 5,000,000 shares of common stock to be issued in the aggregate to two new
employees pursuant to their offers of employment dated
shares were valued at
2021, the Company included
5,000,000 shares of common stock.
? Issuance of 200 shares and 950 shares of Series E Preferred Stock, with a
redemption value of
of
? 5,000,000 shares of common stock to be issued in the aggregate to two
employees pursuant to their offers of employment dated
shares were valued at
September 30, 2021 , the Company included$372,500 in stock compensation expense for the 5,000,000 shares of common stock. ? 452,080 shares of common stock issued for services (see Note 12). The shares were valued at$0.0553 per share (the market price of the common stock on the date of the agreement), and$25,000 is included in stock-based compensation expense for the three and nine months endedSeptember 30, 2021 .
Salaries, taxes and benefits increased for the three and nine months endedSeptember 30, 2022 , compared to the same periods in 2021. The increase was a result of the current periods including$268,091 and$767,438 , respectively, compared to$275,375 and$397,889 for the three and nine months endedSeptember 30, 2021 , respectively, of expenses related to OES and$143,320 and$198,882 for the three and nine months endedSeptember 30, 2022 , respectively, for OED. OES now has annual gross payroll of approximately$512,000 and an additional$351,000 on an annual basis of personnel focused on the Company's battery storage vertical. OED currently has five employees with an aggregate annual compensation of$457,000 . Professional and consulting fees increased for the three and nine months endedSeptember 30, 2022 , compared toSeptember 30, 2021 . The increases are due to increases in accounting expenses of Ozop and its' subsidiaries in the current three- and nine-month periods and consultants engaged in the second quarter of 2021 byOzop Capital Partners that have been engaged for the entire nine months endedSeptember 30, 2022 , as Ozop Plus initiates its business plan regarding vehicle service contracts on electric vehicles. Advertising and marketing expenses decreased for the three and nine months endedSeptember 30, 2022 , compared toSeptember 30, 2021 . The decreases were related to marketing programs during 2021, including brand awareness programs for Ozop. 8
Rent and office expense (including supplies, utilities and internet costs) remained the same for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , and increased for the nine months endedSeptember 30, 2022 , compared to the none months endedSeptember 30, 2021 . The increase is the result of including in the current period, rent and office expense of approximately$147.916 for the nine months endedSeptember 30, 2022 , compared to$69,221 for the nine months endedSeptember 30, 2021 , for OES. The Company estimates that the monthly OES rent and office expense for theCalifornia operation to be approximately$18,000 per month. Insurance expense increased for the three and nine months endedSeptember 30, 2022 , compared to the three and nine months endedSeptember 30, 2021 . The increase was the result of including in the current three- and nine-month periods, insurance expense of approximately$68,465 and$201,413 , respectively, for the three and nine months endedSeptember 30, 2022 , compared to$62,961 and$89,609 for the three and nine months endedSeptember 30, 2021 , for OES. OED's insurance expense was$19,790 and$21,135 for the three and nine months endedSeptember 30, 2022 . The Company estimates that the monthly OES and OED insurance expense to be approximately$30,000 per month. Other Income (Expenses)
Other income, net was$513,156 and$8,501,649 for the three and nine months endedSeptember 30, 2022 , respectively, compared to other income, net of$13,314,765 for the three months endedSeptember 30, 2021 , and other expenses of$186,842,894 for the nine months endedSeptember 30, 2021 , and were comprised of as follows: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Interest expense$ 1,424,554 $ 4,123,535 $ 6,812,834 $ 49,062,523 (Gain) loss on change in fair value of derivatives (1,937,710 ) (17,483,300 ) (15,314,483 ) 25,892,783 Loss on extinguishment of debt - - - 95,437,587 Debt restructure expense - -
- 16,450,000
Total other (income) expense
The decrease in other income, net, for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , is primarily a result of the reduced gain on the change in fair value of the derivatives and the reduced interest expense related to the amortization of debt discounts associated with the maturity dates of certain of the company's promissory notes. Other expenses for the nine months endedSeptember 30, 2021 , includes the loss on extinguishment of debt related to the market value of shares of common stock issued in excess of the debt and accrued interest extinguished. The Company also issued 175,000,000 shares of restricted common stock related to the restructure of the deferred liability. The shares were valued at$0.094 per share and the Company recognized$16,450,000 of restructuring costs. Also included in interest expense for the nine months endedSeptember 30, 2021 , is the initial$38,907,939 of fair value related to the issuance of 300,000,000 warrants. In addition, the amortization of debt discounts of$8,810,332 and losses on changes in fair values of derivatives, related to convertible notes and warrants. Net income (loss) Net loss for the three months endedSeptember 30, 2022 , was$534,988 compared to net income of$11,714,722 for the three months endedSeptember 30, 2021 . The change was primarily a result of the reduced gain on the change in fair value of derivatives in the current period compared to the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the Company had net income$4,975,556 compares to a net loss of$197,989,599 for the nine months endedSeptember 30, 2021 . The loss for the nine months endedSeptember 30, 2021 , was primarily a result of the other expenses descried above as well as$7,965,945 of stock- based compensation expenses included in the operating expenses for the nine months endedSeptember 30, 2021 . 9
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As ofSeptember 30, 2022 , the Company had an accumulated deficit of$212,351,054 and a working capital deficit of$23,000,162 (including derivative liabilities of$5,652,218 ). As ofSeptember 30, 2022 , the Company was in default of$14,142,588 plus accrued interest on debt instruments due to non-payment upon maturity dates. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for one year from the date of the issuance of these financial statements. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. Currently, our current capital and our other existing resources will be sufficient to provide the working capital needed for our current business, however, additional capital will be required to meet our debt obligations, and to further expand our business. We may be unable to obtain the additional capital required. If we are unable to generate capital or raise additional funds when required it will have a negative impact on our business development and financial results. These conditions raise substantial doubt about our ability to continue as a going concern as well as our recurring losses from operations, deficit in equity, and the need to raise additional capital to fund operations. This "going concern" could impair our ability to finance our operations through the sale of debt or equity securities. Management's plans in regard to these factors are discussed below and also in Note 2 to the condensed consolidated financial statements filed herein. As ofSeptember 30, 2022 , we had cash of$2,063,235 as compared to$6,767,167 atDecember 31, 2021 . As ofSeptember 30, 2022 , we had current liabilities of$29,794,842 (including$5,652,218 of non-cash derivative liabilities), compared to current assets of$6,794,680 , which resulted in a working capital deficit of$23,000,162 . The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, customer deposits, lease obligations, notes payable and liabilities of discontinued operations. InDecember 2019 , a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughoutthe United States , certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company's operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company's business and the duration for which it may have an impact cannot
be determined at this time. Operating Activities For the nine months endedSeptember 30, 2022 , net cash used in operating activities was$5,185,222 compared to$6,350,242 for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , our net cash used in operating activities was primarily attributable to the net income of$4,445,884 , adjusted by non- cash interest expense of$5,020,528 , stock-based compensation of$136,249 and the non-cash expenses of amortization and depreciation of$132,924 . This was offset by the gain on the fair value changes in derivatives related to warrants and convertible notes of$15,314,483 . Net changes of$246,943 in operating assets and liabilities decreased the cash
used in operating activities. For the nine months endedSeptember 30, 2021 , our net cash used in operating activities was primarily attributable to the net loss of$197,989,599 , adjusted by loss on debt extinguishment of$95,437,589 , non- cash interest expense of$47,838,062 (including$38,907,939 for the initial fair value of the 300,000,000 warrants issued), losses on the fair value changes in derivatives related to warrants and convertible notes of$25,892,783 , debt restructuring costs of$16,450,000 , stock-based compensation of$8,634,656 and the non-cash expenses of interest and amortization and depreciation of$62,438 . Net changes of$2,241,716 in operating assets and liabilities increased the cash used in operating activities, primarily as a result of the start-up of the Company'sCalifornia operations in the support of inventory and accounts receivable. 10 Investing Activities For the nine months endedSeptember 30, 2022 , the net cash used in investing activities was$198,632 , compared to$109,769 for the nine months endedSeptember 30, 2021 . The amounts for both periods were a result of the Company purchasing office furniture and equipment. Financing Activities For the nine months endedSeptember 30, 2022 , the Company received shares proceeds of$814,625 , net of issuance costs. During the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$8,475,000 . We received$12,000,000 of proceeds from the issuances of$13,310,000 face value of promissory notes,$13,100,000 (net of costs) from the Series D SPA. During the nine months endedSeptember 30, 2021 , the Company acquired 47,500 shares of Series C Preferred Stock and 18,667 shares of Series D Preferred Stock from Chis for$11,250,000 , redeemed 5,000 shares of the Series E Preferred Stock for$5,000,000 and repaid$375,000 of notes payable.
OFF BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.
Critical Accounting Policies
Our significant accounting policies are described in more details in the notes to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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