UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarter ended:
OR
For the Transition Period from ___________ to____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (zip code)
(Registrant’s telephone number, including area code)
42 N Main St.
Florida NY 10921
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | Smaller reporting company | |||
| (Do not check if a smaller reporting company) | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
As of November 14, 2022, there were shares outstanding of the registrant’s common stock, $0.001 par value per share.
OZOP ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
| 2 |
OZOP ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Vendor deposits | ||||||||
| Assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Property and equipment, net | ||||||||
| Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Convertible notes payable, net of discounts | ||||||||
| Current portion of notes payable, net of discounts | ||||||||
| Customer deposits | ||||||||
| Deferred liability | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liability, current portion | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Note payable, net of discount | ||||||||
| Operating lease liability, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock ( shares authorized, par value $) Series C Preferred Stock ( shares authorized and and shares issued and outstanding, par value $) | ||||||||
| Series D Preferred Stock ( shares authorized and shares issued and outstanding, par value $) | ||||||||
| Series E Preferred Stock ( shares authorized, -- issued and outstanding, par value $) | ||||||||
| Common stock ( shares authorized par value $; (2022) and (2021) shares issued and outstanding) | ||||||||
| Common
stock to be issued; | ||||||||
| Additional paid in capital | ||||||||
| Treasury Stock | ( | ) | ( | ) | ||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Ozop Energy Solutions, Inc. stockholders’ equity (deficit) | ( | ) | ( | ) | ||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| F-1 |
OZOP ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative, related parties | ||||||||||||||||
| General and administrative, other | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expenses: | ||||||||||||||||
| Interest expense | ||||||||||||||||
| (Gain) loss on change in fair value of derivatives | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on extinguishment of debt | ||||||||||||||||
| Debt restructure expense | ||||||||||||||||
| Total Other (Income) Expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax provision | ||||||||||||||||
| Net income (loss) from continuing operations | $ | ( | ) | $ | ( | ) | ||||||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Ozop Energy Solutions, Inc. | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Income (loss) from continuing operations per share of common stock basic and fully diluted | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Income (loss) from discontinuing operations per share of common stock basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) per share basic and fully diluted | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See notes to condensed consolidated financial statements.
| F-2 |
OZOP ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(Unaudited)
| Common stock to be issued | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Treasury | Additional Paid-in | Accumulated | Noncontrolling | Total
Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Stock | Capital | Deficit | Interest | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
| Balances January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balances March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances June 30, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of shares of common stock sold, net of issuance costs of $ | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balances September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
| F-3 |
OZOP ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Common stock to be issued | Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Treasury | Accumulated Comprehensive | Additional Paid-in | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Stock | Loss | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances January 1, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversions of note and interest payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon cashless exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series E Preferred Stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series E Preferred Stock | - | - | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued and to be issued for fees and services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for lease agreement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for debt restructure | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued and to be issued for fees and services | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon cashless exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversions of note and interest payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series E Preferred Stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series E Preferred Stock | - | - | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for fees and services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of Series C and Series D stock for Treasury | - | ( | ) | ( | ) | ( | ) | ( | ) | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series D Preferred Stock and warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
| F-4 |
OZOP ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) from continuing operations | $ | $ | ( | ) | ||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in continuing operations | ||||||||
| Non-cash interest expense | ||||||||
| Amortization and depreciation | ||||||||
| Debt restructure expense | ||||||||
| Loss on fair value change of derivatives | ( | ) | ||||||
| Loss (gain) on extinguishment of debt | ||||||||
| Stock compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Vendor deposits | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses, related | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ||||||||
| Net cash used in continued operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of office and computer equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities of continued operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities of discontinued operations | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock, net of costs | ||||||||
| Proceeds from issuances of notes payable | ||||||||
| Proceeds from sale of Series D preferred stock and warrants | ||||||||
| Payments of principal of convertible note payable and notes payable | ( | ) | ||||||
| Redemption of Series E Preferred Stock | ( | ) | ||||||
| Redemption of Series C and Series D Preferred Stock | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, Beginning of period | ||||||||
| Cash, End of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Schedule of non-cash Investing or Financing Activity: | ||||||||
| Original issue discount included in notes payable | $ | $ | ||||||
| Issuance of common stock upon convertible note and accrued interest conversion | $ | $ | ||||||
| Operating lease right-of-use assets and liabilities | $ | $ | ||||||
| Issuance of common stock and preferred stock for consulting fees and compensation | $ | $ | ||||||
| Issuance of common stock for lease agreement | $ | $ | ||||||
| Issuance of common stock for debt restructuring | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| F-5 |
OZOP ENERGY SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
NOTE 1 - ORGANIZATION
Business
Ozop Energy Solutions, Inc. (the” Company,” “we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.
On July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc., a Pennsylvania corporation (“PCTI”), and Catherine Chis (“Chis”), PCTI’s Chief Executive Officer (“CEO”) and its sole shareholder. Under the terms of the SPA, the Company acquired one thousand () shares of PCTI, which represents all of the outstanding shares of PCTI, from Chis in exchange for the issuance of shares of the Company’s Series C Preferred Stock, shares of the Company’s Series D Preferred Stock, and shares of the Company’s Series E Preferred Stock to Chis.
On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada 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 the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 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 from Ozop Surgical Corp to “Ozop Energy Solutions, Inc.”
On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.
On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation and a wholly owned subsidiary of the Company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.
On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus.
On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada 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 customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs. We work with architects, engineers, facility managers, electrical contractors and engineers.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S PLANS
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 of September 30, 2022, the Company had an accumulated
deficit of $
| F-6 |
In December 2019, a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughout the 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.
On October 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 to thirty million dollars ($) in aggregate offering price. We may offer these securities in amounts, at prices and on terms determined at the time of offering.
On
April 4, 2022, the Company and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “GHS Purchase
Agreement”) for the sale of up to Two Hundred Million () 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 ending
On
July 15, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
August 1, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
August 4, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
August 10, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
August 30, 2022, the Company sold shares to GHS at $ and received net proceeds of $
| F-7 |
On
September 15, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
September 30, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
October 17, 2022, the Company sold shares to GHS at $ and received net proceeds of $
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 May 2022, the Company entered into an agreement with GS Administrators, Inc., a member of Houston-based GSFSGroup. Under the agreement, the Company will market GSFSGroup’s EV VSC’s in all states (except, California, Florida, Massachusetts and Washington) to Ozop’s network of new and used franchised 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 June 22, 2022, the Company entered into an Agent Agreement with Royal Administration Services, Inc. (“Royal”). Under the agreement, the Company 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 American Bankers Insurance Company of Florida (“ABIC” or 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 EVCO. On the same date ABIC and EVCO also entered into a Trust Agreement, whereas EVCO as the 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.
On September 1, 2022, the Board of Directors of the Company authorized PCTI 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 of PCTI was authorized, empowered and directed, in the name of and on behalf of PCTI 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 the United States Bankruptcy Court for the Western District of Pennsylvania. The Petition was filed on October 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 in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the 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 of September 30, 2022, and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 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 on April 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 in the 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 at September 30, 2022, and December 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 ended September 30, 2022, and 2021, and their accounts receivable balance as of September 30, 2022:
| Sales
% Three Months Ended September 30, 2022 | Sales
% Nine Months Ended September 30, 2022 | Sales
% Three Months Ended September 30, 2021 | Sales
% Nine Months Ended September 30, 2021 | Accounts receivable balance September 30, 2022 | ||||||||||||||||
| Customer A | % | % | N/A | N/A | $ | |||||||||||||||
| 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 $
Purchase concentration
OES
purchases finished renewable energy products from its’ suppliers. For the three months ended September 30, 2022, there was one
supplier that accounted for
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:
| Building and building improvements | ||
| Office furniture and equipment | ||
| Warehouse equipment |
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 September 30, 2022 and 2021:
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sourced and distributed products | $ | $ | $ | $ | ||||||||||||
| OED Installations | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company brings the finished goods into our California 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 ended September 30, 2022, the Company recorded
advertising and marketing expenses of $
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 September 30, 2022, and 2021, the Company did not record any research and development expenses.
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.
On September 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 of PCTI are reported as a loss from discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months ended September 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 September 30, 2022, and December 31, 2021, for each fair value hierarchy level:
| September 30, 2022 | Derivative
Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | $ | ||||||
| December 31, 2021 | Derivative
Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | $ | ||||||
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
Segment Policy
The Company has no reportable segments as it operates in one segment; renewable energy.
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 of September 30, 2022, and 2021, the Company’s dilutive securities are convertible into approximately and , respectively, shares of common stock. The following table represents the classes of dilutive securities as of September 30, 2022, and 2021:
| September 30, 2022 | September 30, 2021 | |||||||
| Convertible preferred stock (1) | ||||||||
| Unexercised common stock purchase warrants (1) | ||||||||
| Convertible notes payable | ||||||||
| Promissory note payable (1) | ||||||||
| (1) |
| F-14 |
Recent Accounting Pronouncements
In August 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 ended September 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:
| September 30, 2022 | December 31, 2021 | |||||||
| Office equipment | $ | $ | ||||||
| Building and building improvements | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property and Equipment, Net | $ | $ | ||||||
On
September 6, 2022, the Company was assigned the title to a property located at 55 Ronald Reagan Blvd, Warwick, NY 10990, in exchange
for shares of common stock that were issued to the building owner in January 2021 (see Note 10). The Company valued the shares
at $, (the market value of the common stock on the date of the agreement) and initially recorded $
Depreciation
expense was $
NOTE 5 - CONVERTIBLE NOTES PAYABLE
On
July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a past-due 15% convertible note issued by the Company on September
13, 2017. As of September 30, 2022, and December 31, 2021, the outstanding principal balance of this note was $
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 to SEC 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 at September 30, 2022, and December 31, 2021, at $
A summary of the activity related to derivative liabilities for the nine months ended September 30, 2022, is as follows:
| Derivative liabilities associated with warrants | Derivative liabilities associated with convertible notes | Total derivative liabilities | ||||||||||
| Balance December 31, 2021 | $ | $ | $ | |||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||
| Balance September 30, 2022 | $ | $ | $ | |||||||||
NOTE 7 – NOTES PAYABLE
The Company has the following note payables outstanding:
| September 30, 2022 | December 31, 2021 | |||||||
| Notes payable, interest at |
$ | $ | ||||||
| Other, due on demand, interest at |
||||||||
| Note payable $ |
||||||||
| Note payable $ |
||||||||
| Note payable $ |
||||||||
| Note payable $ |
||||||||
| Note payable $ |
||||||||
| Note payable $ |
||||||||
| Sub- total notes payable | ||||||||
| Less long-term portion | ||||||||
| Current portion of notes payable, net of discount | $ | $ | ||||||
On
December 7, 2021, the Company entered into a
| F-16 |
On
March 17, 2021, the Company entered into a
On
February 9, 2021, the Company entered into a
On
November 13, 2020, the Company entered into a
| F-17 |
On
November 6, 2020, the Company entered into a Settlement Agreement with the holder of $
On
August 24, 2020 (the “Issue Date”), the Company entered into a
NOTE 8 – DEFERRED LIABILITY
On
September 2, 2020, PCTI entered into an agreement with a third- party. Pursuant to the terms of the agreement, in exchange for $
NOTE 9 – RELATED PARTY TRANSACTIONS
Employment Agreement
On
July 10, 2020, pursuant to the PCTI transaction, the Company assumed an employment contract entered into on February 28, 2020, between
the Company and Mr. Conway (the “Employment Agreement”). Mr. Conway’s compensation as adjusted was $
| F-18 |
Effective
January 1, 2022, the Company entered into a new employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway received
a $ contract renewal bonus and will receive an annual compensation of $ 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 compensate Mr. Conway for services provided directly
to any of the Company’s subsidiaries. Ozop Capital increased Mr. Conway’s compensation to $
Series E Preferred Stock
On March 21, 2021, the Company issued shares of Series E Preferred Stock (see Note 11), of the shares were issued to Mr. Conway. On April 16, 2021, the Board of Directors of the Company authorized the issuance shares of Series E Preferred stock, of which were issued to Mr. Conway. During the nine months ended September 30, 2021, the Company redeemed shares issued to Mr. Conway, and pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $ per share, recorded stock compensation expense to Mr. Conway of $ for the nine months ended September 30, 2021.
Management Fees and related party payables
For the three and nine months ended September 30, 2022, and 2021, the Company recorded expenses to the CEO in the following amounts:
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| CEO | $ | $ | $ | $ | ||||||||||||
| CEO - Series E Preferred Stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Redemption of Series C and Series D Preferred Stock
On
July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the shares
of the Company’s Series C Preferred Stock held by Chis and the shares of the Company’s Series D Preferred Stock held
by Chis for the total purchase price of $
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Leases
On
January 2, 2021, the Company entered into a ten (
| F-19 |
Agreements
On
September 1, 2021, Ozop Capital entered into an advisory agreement (the “RMA Agreement”) with Risk Management Advisors, Inc.
(“RMA”). Pursuant to the terms of the RMA Agreement, RMA will assist Ozop Capital in analyzing, structuring, and coordinating
Ozop 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 $
On
April 13, 2021, the Company agreed to engage PJN Strategies, LLC (“PJN”) as a consultant. Pursuant to the agreement, the
Company agreed to compensate PJN $
On
April 16, 2021, the Company signed a letter of agreement with Rubenstein Public Relations, Inc. (“RPR”). Pursuant to the
letter of agreement, the Company agreed to engage RPR, effective May 1, 2021, on a month-to-month basis for $
On
March 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 $
On
March 15, 2021, the Company entered into a consulting agreement with Aurora Enterprises (“Aurora”). Mr. Steven Martello is
a principal of Aurora. Pursuant to the agreement Mr. 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 $
On
February 24, 2021, the Company entered into a consulting agreement with Christopher Ruppel. Pursuant to the agreement Mr. Ruppel was
to join the Ozop Advisory Board. During the year ended December 31, 2021, the Company issued shares of restricted common stock
to Mr. Ruppel and agreed to a monthly fee of $
| F-20 |
On January 22, 2021, the Company issued shares of restricted common stock for legal services performed in 2020 and approved by the BOD of the Company on December 1, 2020. The Company valued the shares at $ per share (the market price of the common stock on the date of the agreement), and $ is included in stock-based compensation expense for the nine months ended September 30, 2021.
On
January 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 pay Mr. Sosis a monthly fee of $
On
January 6, 2021, the Company entered into a consulting agreement with Ezra Green to begin on February 8, 2021. The Company agreed to
issue shares of restricted common stock to Mr. Green and to a monthly fee of $
On
March 4, 2019, the Company entered into a Separation Agreement (the “Separation Agreement”) with Salman J. Chaudhry, pursuant
to which the Company agreed to pay Mr. Chaudry $
On
September 2, 2020, PCTI entered into an Agreement with a third- party. Pursuant to the terms of the agreement, in exchange for $
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 ended September 30, 2022, the Company issued shares of common stock and received net proceeds of $
During
the period from January 1, 2021, to September 30, 2021, holders of an aggregate of $
During the nine months ended September 30 2021, the Company also issued the following shares of restricted common stock:
| ● | shares of restricted common stock pursuant to a lease agreement (see Note 10). | |
| ● | shares of restricted common stock pursuant to restructuring agreement related to a deferred liability (see Note 9). | |
| ● | shares of restricted common stock in the aggregate for services and consulting agreements. |
During
the nine months ended September 30, 2021, the Company also issued
As of September 30, 2022, the Company has shares of $ par value common stock authorized and there are shares of common stock issued and outstanding.
On
April 4th, 2022, the Company and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “GHS Purchase
Agreement”) for the sale of up to Two Hundred Million () 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 ending
Preferred stock
As of September 30, 2022, and December 31, 2021, shares have been authorized as preferred stock, par value $ (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
On
July 7, 2020, the Company filed an Amended and Restated Certificate of Designation with the State 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, shares of the Company’s
preferred remain designated as Series C Preferred Stock.
| F-22 |
Series D Preferred Stock
On July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series D Preferred Stock. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued shares of Series D preferred Stock to Chis, and on August 28, 2020, pursuant to Mr. Conway’s employment agreement, the Company issued shares of Series D Preferred Stock to Mr. Conway. On July 13, 2021, the Company purchased shares of the Company’s Series D Preferred Stock held by Chis (see Note 10).
On
July 27, 2021, the Company filed with the Secretary of State of the State 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, 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
The
warrant has a
| i. | Up to (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 (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. |
| F-23 |
Series E Preferred Stock
On
July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series E Preferred Stock.
Under the terms of the Certificate of Designation of Series E Preferred Stock, 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 $
NOTE 12 – NONCONTROLLING INTEREST
On
August 19, 2021, the Company formed Ozop Capital. The Company initially owned
NOTE 13 - OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
On
April 14, 2021, the Company entered into a -year lease which began on June 1, 2021, for approximately
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:
| September 30, 2022 | ||||
| Office and warehouse lease | $ | |||
| Less: Accumulated Amortization | ( | ) | ||
| Right-of-use asset, net | $ | |||
| F-24 |
| September 30, 2022 | ||||
| Lease liability | $ | |||
| Less current portion | ( | ) | ||
| Long term portion | $ | |||
Maturity of lease liabilities are as follows:
| Amount | ||||
| For the year ended December 31, 2022 | $ | |||
| For the year ended December 31, 2023 | ||||
| For the year ended December 31, 2024 | ||||
| For the year ended December 31, 2025 | ||||
| For the year ended December 31, 2026 | ||||
| Total | $ | |||
| Less present value discount | ( | ) | ||
| Lease liability | $ | |||
NOTE 14 – DISCONTINUED OPERATIONS
On September 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 of PCTI are reported as a loss from discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months ended September 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 ended September 30, 2022, and 2021 are summarized below:
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ( | ) | ||||||||||||||
| Operating expenses | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Loss from discontinued operations | $ | $ | $ | $ | ||||||||||||
| F-25 |
The assets and liabilities of discontinued operations are separately reported as “assets and liabilities held for disposal” as of September 30, 2022, and December 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 at September 30, 2022, and December 31, 2021:
Current Assets
| September 30, 2022 | December 31, 2021 | |||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Vendor deposits | ||||||||
| Prepaid expenses and other assets | ||||||||
| Right to use asset | ||||||||
| Fixed assets, net | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
Current liabilities
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Current portion of notes payable | ||||||||
| Operating lease liability | ||||||||
| Deferred revenues | ||||||||
| Advances from customers | ||||||||
| Total current liabilities of discontinued operations | $ | $ |
NOTE 15 – SUBSEQUENT EVENTS
On October 17, 2022,the company and GHS extended the maturity date of the Purchase Agreement to April 4, 2023.
On
October 17, 2022, the Company sold shares to GHS at $ and received net proceeds of $
On
October 31, 2022, the Company and the lender of certain promissory notes agreed to extend the maturity date of such notes to October
31, 2024. The Company agreed to increase the interest rate to
On
November 1, 2022, the Company sold shares to GHS at $ and received net proceeds of $
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 the Securities 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 of the 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 in the 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 COMPANY
Ozop Energy Solutions, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.
On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.
On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada 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 the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 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 from Ozop Surgical Corp. to “Ozop Energy Solutions, Inc.”
On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware 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 of Ozop Capital and has voting control of Ozop Capital.
On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurer that reinsures in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus.
| 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-GridsTM System 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 May 2022, the Company entered into an agreement with GS Administrators, Inc., a member of Houston-based GSFSGroup. Under the agreement, the Company will market GSFSGroup’s EV VSC’s in all states (except, California, Florida, Massachusetts and Washington) to Ozop’s network of new and used franchised 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 June 22, 2022, the Company entered into an Agent Agreement with Royal Administration Services, Inc. (“Royal”). Under the agreement, the Company 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 American Bankers Insurance Company of Florida (“ABIC” or 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 EVCO. On the same date ABIC and EVCO also entered into a Trust Agreement, whereas EVCO as the 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 |
On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada 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
On July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc., a Pennsylvania corporation (“PCTI”), and Catherine 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 of PCTI, which represents all of the outstanding shares of PCTI, 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.
On July 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 on July 27, 2021.
| 5 |
Results of Operations for the three and nine months ended September 30, 2022 and 2021:
Revenue
For the three and nine months ended September 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 ended September 30, 2021, respectively. Revenues from Ozop Energy Systems, Inc. (“OES”) are classified as sourced and distributed products. Ozop Engineering and design (“OED”) operations began in the quarter ended June 30, 2022, and are classified as design and installation. Sales are summarized as follows:
| Three
months ended September 30, | Nine
months ended 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 the U.S. Department in March 2022 stated it would investigate allegations that solar panel manufacturers in Southeast Asia are using Chinese-made parts and evading U.S. tariffs has raised alarms concerning both trade and environmental policy The department announced March 28 that it would investigate claims by California-based solar panel manufacturer that solar energy equipment manufacturers in Cambodia, Malaysia, Thailand and Vietnam have close business ties to companies in China that produce the raw materials and some components of solar panel assemblies. On June 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” while U.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 ended September 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 ended September 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 ended September 30, 2021, respectively.
| Three
months ended September 30, | Nine
months ended 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 ended September 30, 2022, compared to 7.3% and 6.6% for the three and nine months ended September 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 ended September 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 ended September 30, 2021, respectively. The operating expenses were comprised of:
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine
Months Ended September 30, 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. On July 10, 2020, pursuant to the PCTI transaction, the Company assumed an employment contract entered into on February 28, 2020, between the Company and Mr. Conway (the “Employment Agreement”). Mr. Conway’s compensation as adjusted was $20,000 per month, and effective September 1, 2021, Mr. Conway began to receive $10,000 per month from Ozop Capital. Effective January 1, 2022, the Company entered into a new employment agreement with Mr. 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 compensate Mr. Conway for services provided directly to any of the Company’s subsidiaries. Ozop Capital increased Mr. Conway’s compensation to $20,000 per month in January 2022 and OES began compensating Mr. Conway $20,000 in March 2022. Below is a summary of wages and management fees:
| Three
months ended September 30, | Nine
months ended 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 September 30, 2022, of $136,429 is comprised of the following:
| ● | 5,000,000 shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.027 per share. During the nine months ended September 30, 2022, the Company included $135,000 in stock compensation expense. | |
| ● | $1,249 of amortization of stock compensation for shares issued in April 2021. |
Stock based compensation, other for the three and nine months ended September 30, 2021, of $668,711 and $5,784,656 is comprised of the following stock issuances:
| ● | 5,000,000 shares issued in April 2021 pursuant to a one-year consulting agreement. 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. For the three and nine months ended September 30, 2021, $250,000 and $583,562, respectively, is included in stock-based compensation expense. |
| 7 |
| ● | 10,000,000 shares issued in April 2021 pursuant to a one-year consulting agreement. The Company valued the shares at $0.0076 per 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 three and nine months ended September 30, 2021, the Company recorded $21,211 and $55,595, respectively, as stock-based compensation expense. | |
| ● | 5,000,000 shares issued in April 2021 for services. 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 ended September 30, 2021. | |
| ● | 10,000,000 shares issued for services. The shares were valued at $0.0056 per share, the date the Company agreed to issue the shares. For the nine months ended September 30, 2021, the Company included $56,000 in stock compensation expense. | |
| ● | 10,000,000 shares issued pursuant to a consulting agreement dated February 24, 2021 (see Note 12). The shares were valued at $0.2386 per share. For the nine months ended September 30, 2021, the Company included $2,386,000 in stock 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 March 31, 2021. The shares were valued at $0.23 per share. For the nine months ended September 30, 2021, the Company included $460,000 in stock compensation expense for the 5,000,000 shares of common stock. | |
| ● | Issuance of 200 shares and 950 shares of Series E Preferred Stock, with a redemption value of $1,000 per share, resulting in stock compensation expense of $1,150,000 for the nine months ended September 30, 2021. | |
| ● | 5,000,000 shares of common stock to be issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.0745 per share. For the three and nine months ended 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 ended September 30, 2021. |
Salaries, taxes and benefits increased for the three and nine months ended September 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 ended September 30, 2021, respectively, of expenses related to OES and $143,320 and $198,882 for the three and nine months ended September 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 ended September 30, 2022, compared to September 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 by Ozop Capital Partners that have been engaged for the entire nine months ended September 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 ended September 30, 2022, compared to September 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 ended September 30, 2022, compared to the three months ended September 30, 2021, and increased for the nine months ended September 30, 2022, compared to the none months ended September 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 ended September 30, 2022, compared to $69,221 for the nine months ended September 30, 2021, for OES. The Company estimates that the monthly OES rent and office expense for the California operation to be approximately $18,000 per month.
Insurance expense increased for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 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 ended September 30, 2022, compared to $62,961 and $89,609 for the three and nine months ended September 30, 2021, for OES. OED’s insurance expense was $19,790 and $21,135 for the three and nine months ended September 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 ended September 30, 2022, respectively, compared to other income, net of $13,314,765 for the three months ended September 30, 2021, and other expenses of $186,842,894 for the nine months ended September 30, 2021, and were comprised of as follows:
| Three
months ended September 30, | Nine
months ended 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 | $ | (513,156 | ) | $ | (13,314,765 | ) | $ | (8,501,649 | ) | $ | 186,842,894 | |||||
The decrease in other income, net, for the three months ended September 30, 2022, compared to the three months ended September 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 ended September 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 ended September 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 ended September 30, 2022, was $534,988 compared to net income of $11,714,722 for the three months ended September 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 ended September 30, 2021. For the nine months ended September 30, 2022, the Company had net income $4,975,556 compares to a net loss of $197,989,599 for the nine months ended September 30, 2021. The loss for the nine months ended September 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 ended September 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 of September 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 of September 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 of September 30, 2022, we had cash of $2,063,235 as compared to $6,767,167 at December 31, 2021. As of September 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.
In December 2019, a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughout the 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 ended September 30, 2022, net cash used in operating activities was $5,185,222 compared to $6,350,242 for the nine months ended September 30, 2021. For the nine months ended September 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 ended September 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’s California operations in the support of inventory and accounts receivable.
| 10 |
Investing Activities
For the nine months ended September 30, 2022, the net cash used in investing activities was $198,632, compared to $109,769 for the nine months ended September 30, 2021. The amounts for both periods were a result of the Company purchasing office furniture and equipment.
Financing Activities
For the nine months ended September 30, 2022, the Company received shares proceeds of $814,625, net of issuance costs. During the nine months ended September 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 ended September 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the reasons discussed below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2022, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
| 1. | We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities. | |
| 2. | We did not maintain appropriate cash controls – As of September 30, 2022, the Company has not maintained sufficient internal controls over financial reporting for cash, including failure to segregate cash handling and accounting functions, and did not require dual signatures on the Company’s bank accounts. |
| 11 |
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Controls over Financial Reporting
There has been no change in our internal control over financial reporting occurred during the three months ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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.
Item 1A. RISK FACTORS
Not applicable for smaller reporting companies.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the quarter ended September 30, 2022.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. MINE SAFETY DISCLOSURE
Not applicable.
Item 5. OTHER INFORMATION
| (a) | None. | |
| (b) | During the quarter ended September 30, 2022, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors. |
| 12 |
Item 6. EXHIBITS
The following documents are filed as part of this report:
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
| 13 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 14, 2022
| /s/ Brian P Conway | |
| Brian P. Conway | |
| Chief Executive Officer | |
| (principal executive officer) | |
| (principal financial and accounting officer) |
| 14 |