UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For
the quarter ended
For the transition period from __________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
| 3841 | ||||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Number) |
(IRS Employer Identification Number) |
| (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) |
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 such 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.
Indicated
by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. :
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use to 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 ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
As of May 15, 2023, shares of common stock of the registrant were outstanding.
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
| 2 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Vendor deposits | ||||||||
| Total Current Assets | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ 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’ Deficit | ||||||||
| Preferred stock ( shares authorized, par value $) Series C Preferred Stock ( shares authorized 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 $; and shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively) | ||||||||
| Treasury stock, at cost, shares of Sereis C Preferred Stock and shares of Series D Preferred Stock | ( | ) | ( | ) | ||||
| Common stock to be issued; | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Ozop Energy Solutions, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-1 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| 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 | ( | ) | ||||||
| Total Other (Income) Expenses | ( | ) | ||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Income tax provision | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Discontinued Operations: | ||||||||
| Income (loss) from discontinued operations, net of tax | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Less: net loss attributable to noncontrolling interest | ( | ) | ||||||
| Net loss attributable to Ozop Energy Solutions, Inc. | $ | ( | ) | $ | ( | ) | ||
| Loss from contuining operations per share of common stock | ||||||||
| basic and fully diluted | $ | ( | ) | $ | ( | ) | ||
| Income (loss) from discontinued operations per share of common stock | ||||||||
| basic and fully diluted | $ | $ | ( | ) | ||||
| Loss per share basic and fully diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2023
(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, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||
| Issuance
of shares of common stock sold, net of issuance costs of $ |
- | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances March 31, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 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 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Balances March 31, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) from discontinued operations | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Non-cash interest expense | ||||||||
| Amortization and depreciation | ||||||||
| (Gain) loss on fair value change of derivatives | ( | ) | ||||||
| Stock compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Vendor deposits | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ||||||||
| Net cash provided by (used in) continuing operations | ( | ) | ||||||
| Net cash used in discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of office and computer equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock, net of costs | ||||||||
| Payments of principal of convertible note payable and notes payable | ( | ) | ||||||
| Net cash used in 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: | ||||||||
| Issuance of common stock and preferred stockfor consulting fees and compensation | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
OZOP ENERGY SOLUTIONS, INC.
Notes to Consolidated Financial Statements
March 31, 2023
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 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 offer the resources needed for lighting, solar and electrical design projects. OED provides 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. We work with architects, engineers, facility managers, electrical contractors, and engineers.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S PLANS
The
accompanying 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 March 31, 2023, the Company had an accumulated deficit of
$
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.
| F-6 |
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.
On
April 4, 2022, the Company, and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “1st
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
January 18, 2023, the Company and GHS signed a Securities Purchase Agreement (the “2nd GHS Purchase Agreement”)
for the sale of up to One Hundred Fifty Million () shares of the Company’s common stock to GHS. The terms and conditions
of the 2nd GHS Purchase Agreement are similar to the terms and conditions of the 1st GHS Purchase Agreement. During
the quarter ended March 31, 2023, the Company sold to GHS shares of common stock and received $
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 - 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. On February 22, 2023, with an effective date of March 1, 2023, the Company entered into a Sublease for a Single Subleasee Agreement (the “Sublease”) with the landlord and a third party for the office and warehouse in Carlsbad California. Pursuant to the Sublease agreement, the third party will be responsible for all of the Company’s lease obligations through May 31, 2026, the lease termination date. The Company and the subleasee have agreed to work together regarding any existing Company inventory in the facility. OES currently is focused on solar panel sales to other distributors and large installation companies.
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-Grids proprietary program, 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-Grids, patent pending, is comprised 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 the license 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 installed with reduced delays, restricted areas or load limits and (2) EV charger electricity that is produced from renewable sources claiming little to no carbon footprint.
OES has developed a business plan for the Neo Grids distribution, a solution to the stress forthcoming to the existing grid infrastructure. The Company has completed its’ Neo Grid research and development as well as the first set of engineered technical drawings. This first stage of engineered technical drawings 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-Grid solution.
| F-7 |
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 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 46 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 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.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
Basis of Presentation
The accompanying unaudited 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 consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2023, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited 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 filed on April 17, 2023.
The unaudited consolidated financial statements include the accounts of the Company and Ozop Energy Systems, Inc. and the Company’s other wholly owned subsidiaries Ozop Capital Partners, Inc., Ozop Engineering and Design, Inc., Power Conversion Technologies, Inc. (“PCTI”), Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”).
| F-8 |
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
Sales Concentration and credit risk
Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three months ended March 31, 2023, and 2022, and their accounts receivable balance as of March 31, 2023:
| Sales % Three Months Ended March 31, 2023 | Sales % Three Months Ended March 31, 2022 | Accounts receivable balance March 31, 2023 | ||||||||||
| Customer A | % | $ | ||||||||||
| Customer B | % | $ | ||||||||||
| Customer C | % | $ | ||||||||||
| Customer D | % | $ | ||||||||||
| Customer E | % | $ | ||||||||||
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 consist
of finished goods. 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 as of March 31, 2023, and
December 31, 2022, were $
Purchase concentration
OES
purchases finished renewable energy products from its’ suppliers. For the three months ended March 31, 2023, there was one supplier
that accounted for
| F-9 |
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 | ||
| 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.
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. Any advance payments are recorded as current liability until revenue is recognized.
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 months ended March 31, 2023, and 2022:
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Sourced and distributed products | $ | $ | ||||||
| OED Installations | ||||||||
| Total | $ | $ | ||||||
Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company currently brings the finished goods into a third-party warehouse to fill orders as well as to build inventory for future sales orders.
Advertising and Marketing Expenses
The
Company expenses advertising and marketing costs as incurred. For the three months ended March 31, 2023, and 2022, the Company recorded
advertising and marketing expenses of $
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.
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.
| F-10 |
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 which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022. 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 the fair value of its financial instruments classified as liabilities are recorded as other income (expenses).
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. |
| F-11 |
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 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 March 31, 2023, and December 31, 2022, for each fair value hierarchy level:
| March 31, 2023 | Derivative Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | $ | ||||||
| December 31, 2022 | Derivative Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | $ | ||||||
Leases
The Company accounts for leases under ASU 2016-02 (see Note 13), 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.
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
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
| F-12 |
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 income (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 March 31, 2023, and 2022, 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 March 31, 2023, and 2022:
| March 31, 2023 | March 31, 2022 | |||||||
| Convertible preferred stock (1) | ||||||||
| Unexercised common stock purchase warrants (1) | ||||||||
| Convertible notes payable (1) | ||||||||
| Promissory notes payable (1) | ||||||||
| (1) |
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 been no recent accounting pronouncements or changes in accounting pronouncements during the period ended March 31, 2023, 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:
| March 31, 2023 | December 31, 2022 | |||||||
| Office equipment | $ | $ | ||||||
| Building and building improvements | ||||||||
| Less: Accumulated Depreciation | ( |
) | ( |
) | ||||
| Property and Equipment, Net | $ | $ | ||||||
Depreciation
expenses were $
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 March 31, 2023, and December 31, 2022, 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.
| F-13 |
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.
The
Company valued the derivative liabilities as of March 31, 2023, and December 31, 2022, at $
The
following assumptions were utilized in the Black-Scholes valuation of outstanding warrants as of March 31, 2023, and December 31, 2022,
risk free interest rate of
A summary of the activity related to derivative liabilities for the three months ended March 31, 2023, is as follows:
| Derivative liabilities associated with warrants | Derivative liabilities associated with convertible notes | Total derivative liabilities | ||||||||||
| Balance January 1, 2023 | $ | $ | $ | |||||||||
| Change in fair value | ||||||||||||
| Balance March 31, 2023 | $ | $ | $ | |||||||||
NOTE 7 – NOTES PAYABLE
The Company has the following notes payable outstanding:
| March 31, 2023 | December 31, 2022 | |||||||
| Note payable, interest at | $ | $ | ||||||
| Other, due on demand, interest at | ||||||||
| Note payable $ | ||||||||
| Note payable $ | ||||||||
| Note payable $ | ||||||||
| Note payable $ | ||||||||
| Note payable $ | ||||||||
| Note payable $ | ||||||||
| Note payable $ | ||||||||
| Sub- total notes payable, net of discount | ||||||||
| Less long-term portion, net of discount | ||||||||
| Current portion of notes payable, net of discount | $ | $ | ||||||
| F-14 |
On
November 11, 2022, the Company entered into a non-interest bearing, $
On
December 7, 2021, the Company entered into a
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
On
November 6, 2020, the Company entered into a Settlement Agreement with the holder of $
| F-15 |
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 $
No
payments have been made and the Company is in default of the agreement. On November 11, 2022, the third-party and the Company agreed
to reduce the liability by $
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 $
Management Fees and related party payables
For the three months ended March 31, 2023 and 2022, the Company recorded expenses to its officers in the following amounts:
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CEO | $ | $ | ||||||
| CEO bonus | ||||||||
| Total | $ | $ | ||||||
| F-16 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
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
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
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 $ (the “Outstanding Fees”) in certain increments as set forth in the Separation Agreement. As of March 31, 2023, and December 31, 2022, the balance owed Mr. Chaudhry is $.
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.
We are involved as a plaintiff in a Complaint filed in the SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO NORTH COUNTY (the “Complaint”) on November 14, 2022. The Complaint alleges that former employees would place an order from a customer for purchase of product from OZOP with funds the exact source of which is presently unknown. OZOP alleges that next, the customer would sell that product to OZOP’s customers at a price marked up from the price for which the customer purchased from OZOP – to the benefit of Defendants and to the detriment of OZOP, their employer at the time. The Complaint further alleges that the former employees falsely represented that the price the customer was obtaining from other suppliers and therefore was willing to pay for OZOP product decreased, which allowed them to use the customer to then sell additional product to OZOP’s customers at increasingly larger margins, thus further wrongfully enriching themselves to the detriment of their employer, OZOP. The lawsuit also alleges that the employees were also making false statements to Ozop’s customers regarding the financial condition of Ozop and the lack of module inventory.
| F-17 |
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.
NOTE 11– STOCKHOLDERS’ EQUITY
Common stock
During
the three months ended March 31, 2023, the Company issued shares of common stock and received net proceeds of $
During the three months ended March 31, 2022, the Company issued shares of restricted common stock in the aggregate for services.
As of March 31, 2023, the Company has shares of $ par value common stock authorized and there are shares of common stock issued and outstanding.
Preferred stock
As of March 31, 2023, 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.
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 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
| F-18 |
The warrant has a 15- year term and Partial Warrant Lock Up and Leak-Out Period. The Holder may only exercise the Warrant and purchase Warrant Shares as follows:
| i. | Up to (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. |
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.
| F-19 |
Right-of- use assets are summarized below:
| March 31, 2023 | December 31, 2022 | |||||||
| Office and warehouse lease | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Right-of-use assets, net | $ | $ | ||||||
Operating lease liabilities are summarized as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Lease liability | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
Maturity of lease liabilities are as follows:
| Amount | ||||
| For the year ending December 31, 2023 | $ | |||
| For the year ending December 31, 2024 | ||||
| For the year ending December 31, 2025 | ||||
| For the year ending 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 which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022. On October 3, 2022, PCTI filed a Voluntary Petition for Non- Individuals Filing for Bankruptcy. On November 30, 2022, the Trustee filed a Notice of Abandonment of Estate Property, as it is over encumbered by the secured creditors. No objections were filed, and as such the inventory and equipment is now considered abandoned to the secured creditors to do with what they wish. In March 2023, the Trustee declared this a no-asset case and closed the bankruptcy.
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 income (loss) from discontinued operations, net of income taxes as is presented in the Consolidated Statements of Operations for the three months ended March 31, 2023, and 2022 are summarized below:
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Interest expense | ||||||||
| Income (loss) from discontinued operations | $ | $ | ( | ) | ||||
There
are
| F-20 |
Current liabilities
March 31, 2023 | December 31, 2022 | |||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Current portion of notes payable | ||||||||
| Operating lease liability | ||||||||
| Deferred revenues | ||||||||
| Total current liabilities of discontinued operations | $ | $ | ||||||
On
May 16, 2022, Huntington National Bank (“Huntington”) filed a Complaint for Confession of Judgment (“COJ”) against
Catherine Chis (“Chis”). Chis was the former CEO of PCTI and a Guarantor on Huntington’s Letter of Credit financing
(“LOC”) and a Term Loan (“Term Loan”). The Chis COJ for the LOC was for $
The
Company wrote off the book value of the inventory of $
NOTE 15 - INCOME TAXES
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely- than not that some or all of the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future income, management has determined that the deferred tax assets do not meet the more-likely-than-not threshold for realizability.
NOTE 16 – SUBSEQUENT EVENTS
From
April 1, 2023, through the filing of this report, the Company sold GHS shares of common stock for proceeds of $
On
May 2, 2023, the Company entered into an Equity Financing Agreement (the “Financing Agreement”) and Registration Rights Agreement
(the “Registration Rights Agreement”) with GHS.
On
May 5, 2023, the Board of Directors of the Company approved to amend the Company’s Articles of Incorporation (the “Amendment”)
to increase the authorized capital stock of the Company to
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-21 |
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 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.
While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern.
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 and a wholly owned subsidiary of the Company, and was formed as a holding company. On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurer that reinsures in the State of Delaware. EVCO (DBA “OZOP Plus”) is a wholly owned subsidiary of Ozop Capital.
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.
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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. |
| ● | 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 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 46 states and the others have various waiting times or approvals needed. |
| ● | On October 13, 2022, EVCO entered 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: |
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| ○ | 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 can 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.
Discontinued Operations
On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022.
Results of Operations for the three months ended March 31, 2023, and 2022:
Revenue
For the three months ended March 31, 2023, the Company generated revenue of $2,791,198 compared to $2,919,322 for the three months ended March 31, 2022. 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 March 31, | ||||||||
| 2023 | 2022 | |||||||
| Sourced and distributed products | $ | 2,758,798 | $ | 2,919,322 | ||||
| Design and installation | 32,400 | - | ||||||
| Total | $ | 2,791,198 | $ | 2,919,322 | ||||
As it did for most of the solar industry; OES’s importing of solar panels issues that began in the 4th quarter of 2021, continued during 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, 2022, that it would investigate claims by a 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 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.
As of March 31, 2023, the Company had inventory of approximately $1,648,000. As of the date of this report the Company also has outstanding purchase orders with its panel supplier of $12,626,000 and has paid deposits of approximately $3,172,000 towards these open purchase orders. In order to meet our current customers anticipated needs for 2023, the Company would need to purchase approximately an additional $3,000,000 to be received in Q4/2023. Based on the above, management anticipates revenues may approach $20 million for 2023 for solar products.
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Cost of sales
For the three months ended March 31, 2023, and 2022, the Company recognized $2,394,700 and $2,749,349, respectively, of cost of sales.
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Sourced and distributed products | $ | 2,394,700 | $ | 2,749,349 | ||||
Based on the above cost of sales, gross margin was 13.2% and 5.8% for the three months ended March 31, 2023, and 2022, respectively. Gross margin for OES was higher in the current due to the mix of product sales. The Company anticipates lower margins for the remainder of 2023 compared to the quarter ending March 31, 2023.
Operating expenses
Total operating expenses for the three months ended March 31, 2023, and 2022, were $1,069,762 and $1,765,567, respectively. The operating expenses were comprised of:
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Management fees, related parties | $ | 240,000 | $ | 390,000 | ||||
| Stock-based compensation, other | - | 136,249 | ||||||
| Salaries, taxes, and benefits | 266,804 | 251,399 | ||||||
| Professional and consulting fees | 281,008 | 628,947 | ||||||
| Advertising and marketing | 17,772 | 2,478 | ||||||
| Rent and office expenses | 55,116 | 65,975 | ||||||
| Insurance | 48,391 | 80,834 | ||||||
| General and administrative. Other | 160,671 | 209,685 | ||||||
| Total | $ | 1,069,762 | $ | 1,765,567 | ||||
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. 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 receives 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, OES began compensating Mr. Conway $20,000 in March 2022, and OED began compensating Mr. Conway $20,000 per month beginning in April 2022.
There was no stock-based compensation for the three months ended March 31, 2023. Stock based compensation for the three months ended March 31, 2022, of $136,249 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 three months ended March 31, 2022, the Company included $135,000 in stock compensation expense. | |
| ● | $1,249 of amortization of stock compensation for shares issued in April 2021. |
Salaries, taxes, and benefits increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase was a result of in the quarter ending March 31, 2023 for Ozop Engineering and Design (“OED”) and EV Insurance Company (“Ozop Plus”) having employees for the entire period, compared to OED beginning in April 2022, and Ozop Plus beginning in October 2022, respectively. These increases were significantly reduced by the termination for cause of all of the employees in the west coast location.
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Ozop Energy Systems | $ | 79,701 | $ | 251,399 | ||||
| Ozop Engineering and Design | 152,852 | - | ||||||
| EV Insurance Company | 34,251 | - | ||||||
| Total | $ | 266,804 | $ | 251,399 | ||||
Ozop Energy Systems currently has 3 employees with an aggregate annual salary of $276,000 and focused on the battery storage system, information technology and general and administrative functions. The solar distribution of this vertical is being managed by our financial consultant and the Company’s CEO. OED currently has six employees with an aggregate annual compensation of $588,000. EV Insurance Company has one employee with annual compensation of $125,000.
Professional and consulting fees decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease is due to the expiration of certain consulting contracts and accounting fees. These decreases were partially offset increases in legal expenses and auditing fees.
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Advertising and marketing expenses increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increases were related to website development, and lead generation costs.
Rent and office expense (including supplies, utilities, and internet costs) decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease is the result that on March 1, 2023, OES has subleased the Carlsbad office and warehouse to a third party.
Insurance expense decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease was the result of the termination of the west coast employees in November 2022, resulting in no health insurance and workers compensation expenses related thereto. The Company estimates that the monthly insurance expense to be approximately $20,000 per month.
Other (Income) Expenses
Other expense, net, for the three months ended March 31, 2023, was $1,859,651 compared to other income, net, for the three months ended March 31, 2022, of $398,305 and were as follows.
Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Interest expense | $ | 1,221,533 | $ | 3,966,898 | ||||
| (Gain) loss on change in fair value of derivatives | 638,118 | (4,365,203 | ) | |||||
| Total other (income) expense, net | $ | 1,859,651 | $ | (398,305 | ) | |||
The decrease in interest expense for the three months ended March 31, 2023, is primarily a result of the amortization period of certain note discounts were completed in 2022, resulting in $500,568 of interest related to the amortization of note discounts in the current period, compared to $3,379,121 for the three months ended March 31, 2022. Interest expense on the face value of the principal balances of the notes payable increased due to the increased rate due to mote defaults and extended maturity dates. For the three months ended March 31, 2023, the Company recognized a loss of $638,118 on the change in the fair value of derivatives compared to a gain of $4,365,203 for the three months ended March 31, 2022.
Net loss
Net loss attributable to the Company for the three months ended March 31, 2023, was $2,527,552 compared to a net loss of $1,193,761 for the three months ended March 31, 2022. The change was primarily a result of the loss on the change in fair value of derivatives of $638,118 for the three months ended March 31, 2023, compared to the gain of $4,365,203 for the three months ended March 31, 2022. This increase in the loss from the changes in the fair value of derivatives was partially offset by the increase in gross profit, the decrease in operating expenses and interest expense for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.
Liquidity and Capital Resources
The accompanying 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 March 31, 2023, the Company had an accumulated deficit of $213,828,351 and a working capital deficit of $9,216,661 (including derivative liabilities of $4,952,388). As of March 31, 2023, the Company was in default of $3,690,000 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 consolidated financial statements filed herein.
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For the year ended December 31, 2023, we primarily funded our business operations with the existing cash on hand as of January 1, 2023, cash received from sales of inventory, and $526,393 received from sales of common stock.
As of March 31, 2023, we had cash of $1,954,814 as compared to $1,369,210 as of December 31, 2022. As of March 31, 2023, we had current liabilities of $16,785,663 (including $4,952,388 of non-cash derivative liabilities), compared to current assets of $7,569,002, which resulted in a working capital deficit of $9,216,661. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, customer deposits, deferred liability, 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 three months ended March 31, 2023, net cash provided by operating activities was $611,373 compared to net cash used in operating activities of $3,060,456 for the three months ended March 31, 2022. For the three months ended March 31, 2023, our net cash provided by operating activities was primarily attributable to the net loss of $2,527,552, adjusted by non- cash items of the loss on the fair value change of derivatives of $638,118, interest expense of $500,568, and amortization and depreciation of $55,912. Net changes of $1,949,690 in operating assets and liabilities added to the cash provided by operating activities.
For the three months ended March 31, 2022, our net cash used in operating activities was primarily attributable to the net loss of $1,381,469, adjusted by non- cash interest expense of $3,379,121, stock-based compensation of $136,249 and the non-cash expenses of amortization and depreciation of $41,421. This was offset by the gain on the fair value changes in derivatives related to warrants and convertible notes of $4,365,203. Net changes of $812,666 in operating assets and liabilities increased the cash used in operating activities.
Investing Activities
For the three months ended March 31, 2023, the net cash used in investing activities was $2,162, compared to $40,000 for the three months ended March 31, 2022.
Financing Activities
For the three months ended March 31, 2023, the net cash used in financing activities was $23,607. During the three months ended March 31, 2023, we received $526,393, net of issuance costs, from the sales of common stock to GHS. During the three months ended March 31, 2023, we made payments of $550,000 for notes payable. There was no financing activity for the three months ended March 31, 2022.
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. We believe the following accounting policies to be most critical to the judgement and estimates used in the preparation of our financial statements:
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.
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 consist of finished goods. 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.
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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.
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.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Earnings (Loss) Per Share
The Company computes net income (loss) per share in accordance with FASB ASC 260, “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
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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 March 31, 2023. 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 March 31, 2023, 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 March 31, 2023, 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. |
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 March 31, 2023, 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. We are involved as a plaintiff in a Complaint filed in the SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO NORTH COUNTY (the “Complaint”) on November 14, 2022. The Complaint alleges that former employees would place an order from a customer for purchase of product from OZOP with funds the exact source of which is presently unknown. OZOP alleges that next, the customer would sell that product to OZOP’s customers at a price marked up from the price for which the customer purchased from OZOP – to the benefit of Defendants and to the detriment of OZOP, their employer at the time. The Complaint further alleges that the former employees falsely represented that the price the customer was obtaining from other suppliers and therefore was willing to pay for OZOP product decreased, which allowed them to use the customer to then sell additional product to OZOP’s customers at increasingly larger margins, thus further wrongfully enriching themselves to the detriment of their employer, OZOP. The lawsuit also alleges that the employees were also making false statements to Ozop’s customers regarding the financial condition of Ozop and the lack of module inventory.
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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
The following table are all shares issued during the quarter ended March 31, 2023:
On January 10, 2023, the Company sold 17,357,355 shares to GHS at $0.003825 and received net proceeds of $64,039, after deducting transaction and broker fees of $2,353.
On January 17, 2023, the Company sold 20,962,997 shares to GHS at $0.003825 and received net proceeds of $77,555, after deducting transaction and broker fees of $2,629.
On January 23, 2023, the Company sold 12,767,276 shares to GHS at $0.005185 and received net proceeds of $63,849, after deducting transaction and broker fees of $2,349.
On February 3, 2023, the Company sold 18,247,307 shares to GHS at $0.00629 and received net proceeds of $111,455, after deducting transaction and broker fees of $3,321.
On February 14, 2023, the Company sold 14,136,995 shares to GHS at $0.00654 and received net proceeds of $89,651, after deducting transaction and broker fees of $2,876.
On March 6, 2023, the Company sold 8,246,054 shares to GHS at $0.00519 and received net proceeds of $40,876, after deducting transaction and broker fees of $1,880.
On March 22, 2023, the Company sold 9,459,484 shares to GHS at $0.00501 and received net proceeds of $45,466, after deducting transaction and broker fees of $1,974.
On March 30, 2023, the Company sold 6,579,315 shares to GHS at $0.005355 and received net proceeds of $33,503, after deducting transaction and broker fees of $1,730.
The Company issued the foregoing securities in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b) promulgated thereunder, as there was no general solicitation to the investors and the transactions did not involve a public offering.
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 March 31, 2023, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors. |
Item 6. EXHIBITS
The following documents are filed as part of this report:
| 3.12 | Amended and Restated Certificate of Designation of Series C Preferred Stock. (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on February 5, 2020). |
| 11 |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
| 12 |
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: May 15, 2023
| /s/ Brian P Conway | |
| Brian P. Conway | |
| Chief Executive Officer | |
| (principal executive officer) | |
| (principal financial and accounting officer) |
Exhibit 31.1
CERTIFICATION
I, Brian P. Conway, Chief Executive Officer of OZOP ENERGY SOLUTIONS, INC. (the “registrant”), certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of the registrant for the period ended March 31, 2023; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023
| /s/ Brian P. Conway | |
| Brian P Conway | |
| Chief Executive Officer | |
| (principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, Brian P. Conway, Interim Chief Financial Officer of OZOP ENERGY SOLUTIONS, INC. (the “registrant”), certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of the registrant for the period ended March 31, 2023; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023
| /s/ Brian P Conway | |
| Brian P Conway | |
| Interim Chief Financial Officer | |
| (principal financial and accounting officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of OZOP ENERGY SOLUTIONS, INC. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 15, 2023
| /s/ Brian P Conway | |
| Brian P. Conway | |
| Chief Executive Officer | |
| (principal executive officer) | |
| (principal financial and accounting officer) |
Consolidated Statement of Stockholders' Deficit (Unaudited) - USD ($) |
Common Stock To Be Issued [Member] |
Preferred Stock [Member]
Series C Preferred Stock [Member]
|
Preferred Stock [Member]
Series D Preferred Stock [Member]
|
Common Stock [Member] |
Treasury Stock, Common [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2021 | $ 638 | $ 3 | $ 1 | $ 4,617,363 | $ (11,249,934) | $ 196,464,222 | $ (217,326,611) | $ (255,105) | $ (27,749,423) |
| Beginning balance, shares at Dec. 31, 2021 | 637,755 | 2,500 | 1,334 | 4,617,362,977 | |||||
| Net loss | (1,193,761) | (187,708) | (1,381,469) | ||||||
| Issuance of common stock for services | $ 5,000 | 130,000 | 135,000 | ||||||
| Common stock issued for services, shares | 5,000,000 | ||||||||
| Balances at Mar. 31, 2022 | $ 638 | $ 3 | $ 1 | $ 4,622,363 | (11,249,934) | 196,594,222 | (218,520,372) | (442,813) | (28,995,892) |
| Beginning balance, shares at Mar. 31, 2022 | 637,755 | 2,500 | 1,334 | 4,622,362,977 | |||||
| Beginning balance, value at Dec. 31, 2022 | $ 638 | $ 3 | $ 1 | $ 4,771,275 | (11,249,934) | 197,586,824 | (211,300,799) | (784,777) | (20,976,769) |
| Beginning balance, shares at Dec. 31, 2022 | 637,755 | 2,500 | 1,334 | 4,771,275,349 | |||||
| Issuance of shares of common stock sold, net of issuance costs of $19,110 | $ 107,757 | 418,636 | 526,393 | ||||||
| Issuance of shares of common stock sold, shares | 107,756,783 | ||||||||
| Net loss | (2,527,552) | (2,527,552) | |||||||
| Balances at Mar. 31, 2023 | $ 638 | $ 3 | $ 1 | $ 4,879,032 | $ (11,249,934) | $ 198,005,460 | $ (213,828,351) | $ (784,777) | $ (22,977,928) |
| Beginning balance, shares at Mar. 31, 2023 | 4,879,032,132 |
Consolidated Statement of Stockholders' Deficit (Unaudited) (Parenthetical) |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Statement of Stockholders' Equity [Abstract] | |
| Issuance cost | $ 19,110 |
ORGANIZATION |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION | 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 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 offer the resources needed for lighting, solar and electrical design projects. OED provides 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. We work with architects, engineers, facility managers, electrical contractors, and engineers.
|
GOING CONCERN AND MANAGEMENT’S PLANS |
3 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||
| GOING CONCERN AND MANAGEMENT’S PLANS | NOTE 2 – GOING CONCERN AND MANAGEMENT’S PLANS
The accompanying 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 March 31, 2023, the Company had an accumulated deficit of $213,828,351 and a working capital deficit of $9,216,661 (including derivative liabilities of $4,952,388). As of March 31, 2023, the Company was in default of $3,690,000 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.
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.
On April 4, 2022, the Company, and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “1st 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 October 4, 2022, at our sole discretion, to GHS under the GHS Purchase Agreement. On October 17, 2022, the Company and GHS extended the Maturity Date to April 4, 2023. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company’s notice to GHS for the sale of the Company’s common stock. On April 8, 2022, the Company filed a Prospectus Supplement to the Registration Statement dated October 14, 2021, regarding the GHS Purchase Agreement. During the three months ended March 31, 2023, the Company sold GHS shares of common stock and received $205,443, net of offering costs. During the year ended December 31, 2022, the Company sold to GHS shares of common stock and received $1,141,514, net of offering costs. As of January 23, 2023, the Company sold GHS shares of common stock.
On January 18, 2023, the Company and GHS signed a Securities Purchase Agreement (the “2nd GHS Purchase Agreement”) for the sale of up to One Hundred Fifty Million () shares of the Company’s common stock to GHS. The terms and conditions of the 2nd GHS Purchase Agreement are similar to the terms and conditions of the 1st GHS Purchase Agreement. During the quarter ended March 31, 2023, the Company sold to GHS shares of common stock and received $320,950, net of offering costs. Subsequent to March 31, 2023, the Company has sold GHS shares of common stock for proceeds of $71,827, net of offering costs.
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 - 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. On February 22, 2023, with an effective date of March 1, 2023, the Company entered into a Sublease for a Single Subleasee Agreement (the “Sublease”) with the landlord and a third party for the office and warehouse in Carlsbad California. Pursuant to the Sublease agreement, the third party will be responsible for all of the Company’s lease obligations through May 31, 2026, the lease termination date. The Company and the subleasee have agreed to work together regarding any existing Company inventory in the facility. OES currently is focused on solar panel sales to other distributors and large installation companies.
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-Grids proprietary program, 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-Grids, patent pending, is comprised 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 the license 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 installed with reduced delays, restricted areas or load limits and (2) EV charger electricity that is produced from renewable sources claiming little to no carbon footprint.
OES has developed a business plan for the Neo Grids distribution, a solution to the stress forthcoming to the existing grid infrastructure. The Company has completed its’ Neo Grid research and development as well as the first set of engineered technical drawings. This first stage of engineered technical drawings 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-Grid solution.
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.
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 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.
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SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
Basis of Presentation
The accompanying unaudited 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 consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2023, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited 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 filed on April 17, 2023.
The unaudited consolidated financial statements include the accounts of the Company and Ozop Energy Systems, Inc. and the Company’s other wholly owned subsidiaries Ozop Capital Partners, Inc., Ozop Engineering and Design, Inc., Power Conversion Technologies, Inc. (“PCTI”), Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”).
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 March 31, 2023 and December 31, 2022.
Sales Concentration and credit risk
Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three months ended March 31, 2023, and 2022, and their accounts receivable balance as of March 31, 2023:
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 consist of finished goods. 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 as of March 31, 2023, and December 31, 2022, were $1,648,182 and $3,601,026, respectively. As of March 31, 2023, the Company has on deposit with vendor(s) approximately $3,687,000 and has a balance due of approximately $10,264,000 for open purchase orders. The remaining balance is partially due when the vendor ships the product, with the final balance due prior to delivery.
Purchase concentration
OES purchases finished renewable energy products from its’ suppliers. For the three months ended March 31, 2023, there was one supplier that accounted for 100%. For the three months ended March 31, 2022, there were four suppliers that accounted for approximately 36%, 24%,13%, and 10%, respectively. There are only a handful of major suppliers, and we currently have supply arrangements with some of those vendors. One of these vendors requires a 20% down payment with the balances due on shipment and delivery, while other vendors’ terms are due immediately prior to delivery. We may also buy product from other distributors if we are not able to purchase direct from the manufacturer. While management believes its relationships with its vendors are good, if we are unable to continue to use and/or find alternative suppliers, when we cannot buy direct, it may have a material negative effect on our business.
Property, plant, and equipment
Property and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the assets.
The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment is as follows:
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.
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. Any advance payments are recorded as current liability until revenue is recognized.
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 months ended March 31, 2023, and 2022:
Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company currently brings the finished goods into a third-party warehouse to fill orders as well as to build inventory for future sales orders.
Advertising and Marketing Expenses
The Company expenses advertising and marketing costs as incurred. For the three months ended March 31, 2023, and 2022, the Company recorded advertising and marketing expenses of $17,772 and $2,478, respectively.
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.
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 which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022. 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 the fair value of its financial instruments classified as liabilities are recorded as other income (expenses).
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:
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 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 March 31, 2023, and December 31, 2022, for each fair value hierarchy level:
Leases
The Company accounts for leases under ASU 2016-02 (see Note 13), 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.
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 consolidated statements of operations.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented.
Segment Policy
The Company has no reportable segments as it operates in one segment: renewable energy.
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 income (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 March 31, 2023, and 2022, 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 March 31, 2023, and 2022:
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 been no recent accounting pronouncements or changes in accounting pronouncements during the period ended March 31, 2023, that are of significance or potential significance to the Company.
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PROPERTY AND EQUIPMENT |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 4 – PROPERTY AND EQUIPMENT
The following table summarizes the Company’s property and equipment:
Depreciation expenses were $23,022 and $10,805 for the three months ended March 31, 2023, and 2022, respectively.
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CONVERTIBLE NOTES PAYABLE |
3 Months Ended |
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Mar. 31, 2023 | |
| Debt Disclosure [Abstract] | |
| CONVERTIBLE NOTES PAYABLE | 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 March 31, 2023, and December 31, 2022, the outstanding principal balance of this note was $25,000.
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DERIVATIVE LIABILITIES |
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| DERIVATIVE LIABILITIES | 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.
The Company valued the derivative liabilities as of March 31, 2023, and December 31, 2022, at $4,952,388 and $4,314,270 respectively. For the derivative liability associated with convertible notes, the Company used the Monte Carlo simulation valuation model with the following assumptions as of March 31, 2023, and December 31, 2022, risk free interest rates at 4.85% and 4.76%, respectively, and volatility of 86% and 71%, respectively. During the year ended December 31, 2022, the Company issued 375,000,000 warrants in conjunction with the extension of certain notes payable. The Company recorded a discount to notes payable of $2,550,000 with the offset to derivative liabilities for the initial fair value of the warrants based on the Black-Scholes option pricing model. The following assumptions were utilized in the initial Black-Scholes valuation of issued warrants during the year ended December 31, 2022, risk free interest rate of 4.45%, volatility of 509%, and an exercise price of $.
The following assumptions were utilized in the Black-Scholes valuation of outstanding warrants as of March 31, 2023, and December 31, 2022, risk free interest rate of 3.94% to 4.64%, and 4.39% to 4.73%, respectively, volatility of 112% to 168%, and 109% to 272%, respectively, and exercise prices of $ to $.
A summary of the activity related to derivative liabilities for the three months ended March 31, 2023, is as follows:
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NOTES PAYABLE |
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| NOTES PAYABLE | NOTE 7 – NOTES PAYABLE
The Company has the following notes payable outstanding:
On November 11, 2022, the Company entered into a non-interest bearing, $3,020,000 face value promissory note with a third-party lender with scheduled weekly payments and a maturity date of March 31, 2023. In exchange for the issuance of the $3,020,000 note, inclusive of an original issue discount of $250,000, and the reclass of $260,000 from accounts payable and accrued expenses the Company received proceeds of $2,510,000 on November 11, 2022, from the lender. For the three months ended March 31, 2023, amortization of the original issue discount of $181,818 was charged to interest expense. During the three months ended March 31, 2023, the Company also repaid $550,000 of the principal of the note. As of March 31, 2023, and December 31, 2022, the outstanding principal balance of this note was $2,220,000 and $2,770,000, respectively, with a carrying value as of March 31, 2023, and December 31, 2022, of $2,220,000 and $2,588,182, respectively, net of unamortized discounts of $181,818 as of December 31, 2022. The Company is in default on the weekly payments. The Company is currently in discussions with the lender regarding an extension of the maturity date.
On December 7, 2021, the Company entered into a 12%, $3,300,000 face value promissory note with a third- party lender with a maturity date of December 7, 2022. In exchange for the issuance of the $3,300,000 note, inclusive of an original issue discount of $300,000, the Company received proceeds of $3,000,000 on December 13, 2021, from the lender. In conjunction with the note, the Company issued a warrant to purchase 75,000,000 shares of common stock at $0.039 per share (subject to adjustments) with an expiry date on the three- year anniversary of the note. On October 31, 2022, the maturity date of the note was extended to October 31, 2024, and the interest rate was increased to 15% per annum. The Company issued 75,000,000 warrants at an exercise price of $0.0067 and with an expiration of October 31, 2025, in exchange for the extension. The warrants were valued at $510,000 by the Black-Scholes option pricing method and will be amortized through the new maturity date of the note. The Company determined that this transaction was a modification of the existing note. For the three months ended March 31, 2023, $63,750 was charged to interest expense. As of March 31, 2023, and December 31, 2022, the outstanding principal balance of this note was $3,300,000 with carrying values of $2,896,250 and $2,832,500, respectively, net of unamortized discounts of $403,750 and $467,500 as of March 31, 2023 and December 31, 2022, respectively.
On March 17, 2021, the Company entered into a 12%, $11,110,000 face value promissory note with a third- party lender with a maturity date of March 17, 2022. In exchange for the issuance of the $11,110,000 note, inclusive of an original issue discount of $1,000,000 and lender costs of $110,000 the Company received proceeds of $10,000,000 on March 23, 2021, from the lender. In conjunction with the note, the Company issued a warrant to purchase 250,000,000 shares of common stock at $0.13 per share (subject to adjustments) with an expiry date on the three- year anniversary of the note. On October 31, 2022, the maturity date of the note was extended to October 31, 2024, and the interest rate was increased to 15% per annum. The Company issued 250,000,000 warrants at an exercise price of $0.0067 and with an expiration of October 31, 2025, in exchange for the extension. The warrants were valued at $1,700,000 by the Black-Scholes option pricing method and will be amortized through the new maturity date of the note. The Company determined that this transaction was a modification of the existing note. For the three months ended March 31, 2023, $212,500 was charged to interest expense. As of March 31, 2023 and December 31, 2022, the outstanding principal balance of this note was $11,110,000 with a carrying value of $9,764,167 and $9,551,667, respectively, net of unamortized discounts of $1,345,833 and $1,558,333, respectively.
On February 9, 2021, the Company entered into a 12%, $2,200,000 face value promissory note with a third- party lender with a maturity date of February 9, 2022. In exchange for the issuance of the $2,200,000 note, inclusive of an original issue discount of $200,000 the Company received proceeds of $2,000,000 on February 16, 2021, from the lender. In conjunction with the note, the Company issued a warrant to purchase 50,000,000 shares of common stock at $0.15 per share (subject to adjustments) with an expiry date on the three- year anniversary of the note. On October 31, 2022, the maturity date of the note was extended to October 31, 2024, and the interest rate was increased to 15% per annum. The Company issued warrants at an exercise price of $0.0067 and with an expiration of October 31, 2025, in exchange for the extension. The warrants were valued at $340,000 by the Black-Scholes option pricing method and will be amortized through the new maturity date of the note. The Company determined that this transaction was a modification of the existing note. For the three months ended March 31, 2023, $42,500 was charged to interest expense. As of March 31, 2023 and December 31, 2022, the outstanding principal balance of this note was $2,200,000 with a carrying value of $1,930,833 and $1,888,333, respectively, net of unamortized discounts of $269,167 and $311,667, respectively.
On November 13, 2020, the Company entered into a 12%, $1,000,000 face value promissory note with a third-party due November 13, 2021. Principal payments shall be made in six instalments of $166,667 commencing 180 days from the issue date and continuing each 30 days thereafter for 5 months and the final payment of principal and interest due on the maturity date. The Company received proceeds of $890,000 on November 20, 2020, and the Company reimbursed the investor for expenses for legal fees and due diligence of $110,000. In conjunction with this note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 125,000,000 shares of common stock at an exercise price of $0.008, subject to adjustments and expires on the five-year anniversary of the issue date. As of March 31, 2023, and December 31, 2022, the outstanding principal balance of this note was $1,000,000. This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As of March 31, 2023, and December 31, 2022, the accrued interest is $435,452 and $375,452, respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note.
On November 6, 2020, the Company entered into a Settlement Agreement with the holder of $120,000 of convertible notes with accrued and unpaid interest of $8,716 and a $210,000 Promissory Noted dated June 23, 2020, with accrued and unpaid interest of $15,707. The Company issued a new 12% Promissory Note with a face value of $389,423 and a maturity date of November 6, 2023. In conjunction with this settlement, the Company issued a warrant to purchase 60,000,000 shares of common stock at an exercise price of $0.0075, subject to adjustments and expires on the five-year anniversary of the issue date. The Company analyzed the transaction and concluded that this was a modification to the existing debt. The investor exercised the warrant on January 14, 2021.
On August 24, 2020 (the “Issue Date”), the Company entered into a 12%, $750,000 face value promissory note with a third-party (the “Holder”) due August 24, 2021 (the “Maturity Date”). Principal payments shall be made in six instalments of $125,000 commencing 180 days from the Issue Date and continuing each 30 days thereafter for 5 months and the final payment of principal and interest due on the Maturity Date. The Holder shall have the right from time to time, and at any time following an event of default, as defined on the agreement, to convert all or any part of the outstanding and unpaid principal, interest and any other amounts due into fully paid and non-assessable shares of common stock of the Company, at the lower of i) the Trading Price (as defined in the agreement) during the previous five trading days prior to the Issuance Date or ii) the volume weighted average price during the five trading days ending on the day preceding the conversion date. The Company received proceeds of $663,000 on August 25, 2020, and the Company reimbursed the investor for expenses for legal fees and due diligence of $87,000. In conjunction with this Note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 122,950,819 shares of common stock at an exercise price of $0.0061, subject to adjustments and expires on the five-year anniversary of the Issue Date. During the year ended December 31, 2021, the Company paid $375,000 to the Holder. On May 3, 2021, the Company issued shares of common stock to the Holder, upon the cashless exercise of a portion of the warrants. As of March 31, 2023, and December 31, 2022, the outstanding principal balance of this note was $375,000. This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As of March 31, 2023, and December 31, 2022, the accrued interest is $202,747 and $180,247, respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note.
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DEFERRED LIABILITY |
3 Months Ended |
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Mar. 31, 2023 | |
| Deferred Liability | |
| DEFERRED LIABILITY | 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 $750,000, PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. Payments are due ninety (90) days after each calendar quarter, with the first payment due on or before March 31, 2021, for revenues for the quarter ending December 31, 2020. On February 26, 2021, the agreement was assigned to Ozop and on March 4, 2021, the note was amended, whereby in exchange for shares of common stock, the royalty percentage was amended to 1.8%.
No payments have been made and the Company is in default of the agreement. On November 11, 2022, the third-party and the Company agreed to reduce the liability by $260,000 and add $260,000 to the promissory note issued on November 11, 2022. The deferred liability as of March 31, 2023, and December 31, 2022, on the consolidated balance sheet is $490,000.
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RELATED PARTY TRANSACTIONS |
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| RELATED PARTY TRANSACTIONS | 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 $20,000 per month, and effective September 1, 2021, Mr. Conway received $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 $ contract renewal bonus and will receive 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 $20,000 per month in January 2022, OES began compensating Mr. Conway $20,000 in March 2022, and OED began compensation Mr. Conway $20,000 per month beginning in April 2022.
Management Fees and related party payables
For the three months ended March 31, 2023 and 2022, the Company recorded expenses to its officers in the following amounts:
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
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Mar. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 10 – COMMITMENTS AND CONTINGENCIES
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 $50,000 and to issue $50,000 of shares of restricted common stock. One-half of the cash and stock were due upon the signing of the RMA Agreement. Accordingly, RMA received $25,000 and shares of restricted common stock of the Company in September 2021. The balance of the cash and stock became due on October 29, 2021, upon the issuance of the captive insurance company’s certificate of authority from the state of Delaware. The Company has paid the $25,000 balance and recorded shares of common stock to be issued.
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 $20,000 per month. Effective September 1, 2021, a new agreement was entered into between PJN and Ozop Capital. Pursuant to the terms of the one- year agreement Ozop Capital agreed to compensate PJN $84,000 per month. For the three months ended March 31, 2023, and 2022, the Company recorded $-0- and $252,000, respectively, of consulting expenses.
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 $130,000 with a signing bonus of $20,000 for each and to issue each shares of restricted common stock upon the execution of the agreements and every 90 days thereafter for the first year as long as the employee is still employed. The Company valued the initial shares at $per share (the market price of the common stock on the date of the agreement). On July 1, 2021, the Company issued each of the Co-Directors the shares due after the first ninety days of employment. The shares were valued at $ per share (the market price of the common stock on the date of the issuance). On October 1, 2021, the Company issued each of the Co-Directors the shares due after the first one hundred eighty days of employment. The shares were valued at $ per share (the market price of the common stock on the date of the issuance). On January 14, 2022, the Company issued each of the Co-Directors their final shares due. The shares were valued at $per share (the market price of the common stock on the date of the issuance), and $is included in stock-based compensation expense for the three months ended March 31, 2022. One of the individuals resigned on January 24, 2022, and the other was terminated for cause on November 3, 2022.
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 $10,000 and to issue to Aurora or their designee shares of restricted common stock. For the three months ended March 31, 2023, and 2022, the Company has recorded consulting expenses of $-0- and $30,000, respectively.
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 $2,500. The Company valued the shares at $ 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. Effective April 1, 2021, the agreement was amended to $ per month. Effective June 30, 2022, Mr. Green was no longer providing consulting services to the Company. For the three months ended March 31, 2023, and 2022, the Company recorded consulting expenses of $-0- and $30,000 of consulting expenses respectively.
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 $ (the “Outstanding Fees”) in certain increments as set forth in the Separation Agreement. As of March 31, 2023, and December 31, 2022, the balance owed Mr. Chaudhry is $.
On September 2, 2020, PCTI entered into an Agreement with a third- party. Pursuant to the terms of the agreement, in exchange for $750,000, PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. On February 26, 2021, the agreement was assigned to Ozop and on March 4, 2021, the agreement was amended, whereby in exchange for shares of common stock, the royalty percentage was amended to 1.8% (see Note 8). As of March 31, 2023, and December 31, 2022, the Company has recorded $243,272, respectively, and is included in accounts payable and accrued expenses on the consolidated balance sheet presented herein.
Legal matters
We know of no material, existing or pending legal proceedings against our Company.
We are involved as a plaintiff in a Complaint filed in the SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO NORTH COUNTY (the “Complaint”) on November 14, 2022. The Complaint alleges that former employees would place an order from a customer for purchase of product from OZOP with funds the exact source of which is presently unknown. OZOP alleges that next, the customer would sell that product to OZOP’s customers at a price marked up from the price for which the customer purchased from OZOP – to the benefit of Defendants and to the detriment of OZOP, their employer at the time. The Complaint further alleges that the former employees falsely represented that the price the customer was obtaining from other suppliers and therefore was willing to pay for OZOP product decreased, which allowed them to use the customer to then sell additional product to OZOP’s customers at increasingly larger margins, thus further wrongfully enriching themselves to the detriment of their employer, OZOP. The lawsuit also alleges that the employees were also making false statements to Ozop’s customers regarding the financial condition of Ozop and the lack of module inventory.
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.
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STOCKHOLDERS’ EQUITY |
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| Equity [Abstract] | |||||||||||||
| STOCKHOLDERS’ EQUITY | NOTE 11– STOCKHOLDERS’ EQUITY
Common stock
During the three months ended March 31, 2023, the Company issued shares of common stock and received net proceeds of $526,393 after issuance costs of $19,110.
During the three months ended March 31, 2022, the Company issued shares of restricted common stock in the aggregate for services.
As of March 31, 2023, the Company has shares of $ par value common stock authorized and there are shares of common stock issued and outstanding.
Preferred stock
As of March 31, 2023, 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. The holders of Series C Preferred Stock have no conversion rights and no dividend rights. For so long as any shares of the Series C Preferred Stock remain issued and outstanding, the Holder thereof, voting separately as a class, shall have the right to vote on all shareholder matters equal to sixty-seven (67%) percent of the total vote. As of March 31, 2023, and December 31, 2022, there were shares of Series C Preferred Stock issued and outstanding and the shares are held by Mr. Conway.
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 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 1.5 and dividing that number by the number of authorized shares of Series D Convertible Preferred Stock and multiply that result by the number of shares of Series D Convertible Preferred Stock being converted. Except as provided in the Series D Amendment or as otherwise required by law, no holder of the Series D Convertible Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Company for their vote, waiver, release or other action. The Series D Convertible Preferred Stock shall not bear any liquidation rights. On July 28, 2021, the Company closed on a Stock and Warrant Purchase Agreement (the “Series D SPA”). Pursuant to the terms of Series D SPA, an investor in exchange for $13,200,000 purchased one share of Series D Preferred Stock, and a warrant to acquire 3,236 shares of Series D Preferred Stock. As of March 31, 2023, and December 31, 2022, there were shares, respectively, of Series D Preferred Stock issued and outstanding and a warrant to purchase 3,236 shares of Series D Preferred Stock are outstanding as of March 31, 2023, and December 31, 2022.
The warrant has a 15- year term and Partial Warrant Lock Up and Leak-Out Period. The Holder may only exercise the Warrant and purchase Warrant Shares as follows:
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 $1,000 (one thousand dollars) per share. The shares of Series E Preferred Stock have not been registered under the Securities Act of 1933 or the laws of any state of the United States and may not be transferred without such registration or an exemption from registration. As of March 31, 2023, and December 31, 2022, there were -- shares of Series E Preferred Stock issued and outstanding, respectively.
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NONCONTROLLING INTEREST |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Equity [Abstract] | |
| NONCONTROLLING INTEREST | NOTE 12 – NONCONTROLLING INTEREST
On August 19, 2021, the Company formed Ozop Capital. The Company initially owned 51% with PJN Holdings, LLC (“PJN”) owning 49%. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital. The Company presents interest held by noncontrolling interest holders within noncontrolling interest in the consolidated financial statements. On September 13, 2022, there was a change in the ownership percentages, as PJN returned shares, representing their 49% ownership. As of that date, Ozop Capital is a wholly owned subsidiary of the Company. As of March 31, 2023, and December 31, 2022, the accumulative noncontrolling interest is $784,777.
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OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES |
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| OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES | 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 8,100 square feet of office and warehouse space in Carlsbad, California, expiring May 31, 2026. Initial lease payments of $13,481 begin on June 1, 2021, and increase by approximately 2.4% annually thereafter. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 7.5%, as the interest rate implicit in most of our leases is not readily determinable. During the year ended December 31, 2021, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $702,888 for this lease. On February 22, 2023, with an effective date of March 1, 2023, the Company entered into a Sublease for a Single Subleasee Agreement (the “Sublease”) with the landlord and a third party for the office and warehouse in Carlsbad California. Pursuant to the Sublease agreement, the third party will be responsible for all of the Company’s lease obligations through May 31, 2026, the lease termination date. The Company and the subleasee have agreed to work together regarding any existing Company inventory in the facility.
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:
Operating lease liabilities are summarized as follows:
Maturity of lease liabilities are as follows:
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DISCONTINUED OPERATIONS |
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| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCONTINUED OPERATIONS | NOTE 14 – DISCONTINUED OPERATIONS
On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022. On October 3, 2022, PCTI filed a Voluntary Petition for Non- Individuals Filing for Bankruptcy. On November 30, 2022, the Trustee filed a Notice of Abandonment of Estate Property, as it is over encumbered by the secured creditors. No objections were filed, and as such the inventory and equipment is now considered abandoned to the secured creditors to do with what they wish. In March 2023, the Trustee declared this a no-asset case and closed the bankruptcy.
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 income (loss) from discontinued operations, net of income taxes as is presented in the Consolidated Statements of Operations for the three months ended March 31, 2023, and 2022 are summarized below:
There are no assets as of March 31, 2023, and December 31, 2022, as the secured lender has taken possession. Liabilities of discontinued operations are separately reported as “liabilities held for disposal” as of March 31, 2023, and December 31, 2022. All liabilities are classified as current. The following tables present the reconciliation of carrying amounts of the major classes of liabilities of the Company classified as discontinued operations in the consolidated balance sheets at March 31, 2023, and December 31, 2022:
Current liabilities
On May 16, 2022, Huntington National Bank (“Huntington”) filed a Complaint for Confession of Judgment (“COJ”) against Catherine Chis (“Chis”). Chis was the former CEO of PCTI and a Guarantor on Huntington’s Letter of Credit financing (“LOC”) and a Term Loan (“Term Loan”). The Chis COJ for the LOC was for $352,415 and accrues per diem interest of $63.65, and the Chis COJ for the Term Loan was for $141,415 and accrues per diem interest of $28.60. On June 24, 2022, Huntington filed a COJ against Power Conversion Technologies, Inc (“PCTI”). The PCTI COJ for the LOC was for $354,774 and accrues per diem interest of $63.65 and the PCTI COJ for the LOC was for $142,473 and accrues per diem interest of $28.60. On July 20, 2022, Huntington assigned the PCTI judgment against PCTI to Meraki Advisors, LLC. (“Meraki”). The Company’s understanding is Meraki is a Pennsylvania limited liability company, controlled by Chis.
The Company wrote off the book value of the inventory of $237,091 and fixed assets of $15,447 during the year ended December 31, 2022, with the offset to Loss on Disposal of Assets of Discontinued Operations. Included in the Current portion of notes payable are the principal balances of Huntington’s LOC of $344,166 and Term Loan of $134,681. Accrued interest and fees on the LOC and Term Loan debt $54,256 is included in accounts payable and accrued liabilities.
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INCOME TAXES |
3 Months Ended |
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Mar. 31, 2023 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | NOTE 15 - INCOME TAXES
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely- than not that some or all of the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future income, management has determined that the deferred tax assets do not meet the more-likely-than-not threshold for realizability.
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SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 16 – SUBSEQUENT EVENTS
From April 1, 2023, through the filing of this report, the Company sold GHS shares of common stock for proceeds of $71,827 net of offering costs. These sales were under the January 20, 2023, GHS SPA.
On May 2, 2023, the Company entered into an Equity Financing Agreement (the “Financing Agreement”) and Registration Rights Agreement (the “Registration Rights Agreement”) with GHS. Under the terms of the Financing Agreement, GHS has agreed to provide the Company with up to $10,000,000 of funding upon effectiveness of a registration statement on Form S-1. Following effectiveness of the registration statement, the Company shall have the right to deliver puts to GHS and GHS will be obligated to purchase shares of our common stock based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice will not exceed two hundred fifty percent (250%) of the average of the daily trading dollar volume of the Company’s common stock during the ten (10) trading days preceding the put, so long as such amount does not exceed 4.99% of the outstanding shares of the Company. Pursuant to the Financing Agreement, GHS and its affiliates will not be permitted to purchase, and the Company may not put shares of the Company’s common stock to GHS that would result in GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding common stock. The price of each put share shall be equal to eighty percent (80%) of the lowest daily volume weighted average price of the Company’s common stock for the ten (10) consecutive trading days preceding the date on which the applicable put is delivered to GHS. No put will be made in an amount equaling less than $10,000 or greater than $750,000. Puts may be delivered by the Company to GHS until the earlier of twenty-four (24) months after the effectiveness of the registration statement on Form S-1 or the date on which GHS has purchased an aggregate of $10,000,000 worth of put shares.
On May 5, 2023, the Board of Directors of the Company approved to amend the Company’s Articles of Incorporation (the “Amendment”) to increase the authorized capital stock of the Company to 7,000,000,000 shares, of which shall be authorized as common shares and shall be authorized as preferred shares. The Company is in the process of filing the Amendment with the State of Nevada,
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. |
SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS (Policies) |
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| Basis of Presentation | Basis of Presentation
The accompanying unaudited 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 consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2023, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited 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 filed on April 17, 2023.
The unaudited consolidated financial statements include the accounts of the Company and Ozop Energy Systems, Inc. and the Company’s other wholly owned subsidiaries Ozop Capital Partners, Inc., Ozop Engineering and Design, Inc., Power Conversion Technologies, Inc. (“PCTI”), Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”).
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| Use of Estimates | 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.
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| Cash and Cash Equivalents | 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 March 31, 2023 and December 31, 2022.
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| Sales Concentration and credit risk | Sales Concentration and credit risk
Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three months ended March 31, 2023, and 2022, and their accounts receivable balance as of March 31, 2023:
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| Accounts Receivable | 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.
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| Inventory | 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 consist of finished goods. 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 as of March 31, 2023, and December 31, 2022, were $1,648,182 and $3,601,026, respectively. As of March 31, 2023, the Company has on deposit with vendor(s) approximately $3,687,000 and has a balance due of approximately $10,264,000 for open purchase orders. The remaining balance is partially due when the vendor ships the product, with the final balance due prior to delivery.
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| Purchase concentration | Purchase concentration
OES purchases finished renewable energy products from its’ suppliers. For the three months ended March 31, 2023, there was one supplier that accounted for 100%. For the three months ended March 31, 2022, there were four suppliers that accounted for approximately 36%, 24%,13%, and 10%, respectively. There are only a handful of major suppliers, and we currently have supply arrangements with some of those vendors. One of these vendors requires a 20% down payment with the balances due on shipment and delivery, while other vendors’ terms are due immediately prior to delivery. We may also buy product from other distributors if we are not able to purchase direct from the manufacturer. While management believes its relationships with its vendors are good, if we are unable to continue to use and/or find alternative suppliers, when we cannot buy direct, it may have a material negative effect on our business.
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| Property, plant, and equipment | 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:
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| Revenue Recognition | 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.
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. Any advance payments are recorded as current liability until revenue is recognized.
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 months ended March 31, 2023, and 2022:
Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company currently brings the finished goods into a third-party warehouse to fill orders as well as to build inventory for future sales orders.
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| Advertising and Marketing Expenses | Advertising and Marketing Expenses
The Company expenses advertising and marketing costs as incurred. For the three months ended March 31, 2023, and 2022, the Company recorded advertising and marketing expenses of $17,772 and $2,478, respectively.
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| Convertible Instruments | 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.
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.
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| Discontinued Operations | 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 which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022. For additional information, see Note 14- Discontinued Operations.
|
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| Distinguishing Liabilities from Equity | 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 the fair value of its financial instruments classified as liabilities are recorded as other income (expenses).
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| Fair Value of Financial Instruments | 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:
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 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 March 31, 2023, and December 31, 2022, for each fair value hierarchy level:
Leases
The Company accounts for leases under ASU 2016-02 (see Note 13), 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.
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 consolidated statements of operations.
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| Income Taxes | Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented.
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| Segment Policy | Segment Policy
The Company has no reportable segments as it operates in one segment: renewable energy.
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| Earnings (Loss) Per Share |
The Company reports earnings (loss) per share in accordance with ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income (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 March 31, 2023, and 2022, 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 March 31, 2023, and 2022:
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| Recent Accounting Pronouncements | 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 been no recent accounting pronouncements or changes in accounting pronouncements during the period ended March 31, 2023, that are of significance or potential significance to the Company. |
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SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULES OF CONCENTRATION OF RISK, BY RISK FACTOR | Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three months ended March 31, 2023, and 2022, and their accounts receivable balance as of March 31, 2023:
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| SCHEDULE OF USEFUL LIFE OF PROPERTY AND EQUIPMENT ASSETS |
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| DISAGGREGATION OF REVENUE | The following table disaggregates our revenue by major source for the three months ended March 31, 2023, and 2022:
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| SCHEDULE OF DERIVATIVE INSTRUMENTS | The following table represents the Company’s derivative instruments that are measured at fair value on a recurring basis as of March 31, 2023, and December 31, 2022, for each fair value hierarchy level:
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| SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE |
|
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PROPERTY AND EQUIPMENT (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT | The following table summarizes the Company’s property and equipment:
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DERIVATIVE LIABILITIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE | A summary of the activity related to derivative liabilities for the three months ended March 31, 2023, is as follows:
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NOTES PAYABLE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF NOTES PAYABLE | The Company has the following notes payable outstanding:
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RELATED PARTY TRANSACTIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF EXPENSES TO OFFICERS | For the three months ended March 31, 2023 and 2022, the Company recorded expenses to its officers in the following amounts:
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OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Operating Lease Right-of-use Assets And Operating Lease Liabilities | |||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RIGHT-OF-USE ASSETS | Right-of- use assets are summarized below:
|
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| SCHEDULE OF OPERATING LEASE LIABILITIES | Operating lease liabilities are summarized as follows:
|
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| SCHEDULE OF MATURITY OF LEASE LIABILITIES | Maturity of lease liabilities are as follows:
|
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DISCONTINUED OPERATIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LOSS FROM DISCONTINUED OPERATIONS |
There are no assets as of March 31, 2023, and December 31, 2022, as the secured lender has taken possession. Liabilities of discontinued operations are separately reported as “liabilities held for disposal” as of March 31, 2023, and December 31, 2022. All liabilities are classified as current. The following tables present the reconciliation of carrying amounts of the major classes of liabilities of the Company classified as discontinued operations in the consolidated balance sheets at March 31, 2023, and December 31, 2022:
Current liabilities
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DISAGGREGATION OF REVENUE (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Product Information [Line Items] | ||
| Total | $ 2,791,198 | $ 2,919,322 |
| Sourced And Distributed Products [Member] | ||
| Product Information [Line Items] | ||
| Total | 2,758,798 | 2,919,322 |
| OED Installations [Member] | ||
| Product Information [Line Items] | ||
| Total | $ 32,400 | |
SCHEDULE OF DERIVATIVE INSTRUMENTS (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Fair Value, Inputs, Level 1 [Member] | ||
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative Liabilities | ||
| Total | ||
| Fair Value, Inputs, Level 2 [Member] | ||
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative Liabilities | ||
| Total | ||
| Fair Value, Inputs, Level 3 [Member] | ||
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative Liabilities | 4,952,388 | 4,314,270 |
| Total | $ 4,952,388 | $ 4,314,270 |
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE (Details) - shares |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| TOTAL | 8,471,310,904 | 7,689,322,026 | ||
| Convertible Preferred Stock [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| TOTAL | [1] | 7,318,548,198 | 6,933,544,496 | |
| Unexercised Common Stock Purchase Warrants [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| TOTAL | [1] | 1,047,024,518 | 672,024,518 | |
| Convertible Notes Payable [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| TOTAL | [1] | 11,025,635 | 2,461,916 | |
| Promissory Note Payable [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| TOTAL | [1] | 94,712,553 | 81,291,096 | |
| ||||
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE (Details) (Parenthetical) |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Outstanding shares, percentage | 4.99% |
SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Less: Accumulated Depreciation | $ (133,978) | $ (110,956) |
| Property and Equipment, Net | 690,755 | 711,615 |
| Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 224,733 | 222,571 |
| Building and Building Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 600,000 | $ 600,000 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expenses | $ 23,022 | $ 10,805 |
CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| 15% Promissory Note [Member] | ||
| Short-Term Debt [Line Items] | ||
| Long term debt, gross | $ 25,000 | $ 25,000 |
SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |
| Derivative liability, beginning balance | $ 4,314,270 |
| Change in fair value | 638,118 |
| Derivative liability, ending balance | 4,952,388 |
| Derivative Liabilities Associated With Warrants [Member] | |
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |
| Derivative liability, beginning balance | 4,285,400 |
| Change in fair value | 636,213 |
| Derivative liability, ending balance | 4,921,613 |
| Derivative Liabilities Associated With Convertible Notes [Member] | |
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |
| Derivative liability, beginning balance | 28,870 |
| Change in fair value | 1,905 |
| Derivative liability, ending balance | $ 30,775 |
DEFERRED LIABILITY (Details Narrative) - USD ($) |
Nov. 11, 2022 |
Feb. 26, 2021 |
Sep. 02, 2020 |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|---|---|---|
| Deferred liability | $ 490,000 | $ 490,000 | |||
| Reduce deferred liability | $ 260,000 | ||||
| Promissory Note [Member] | |||||
| Reduce deferred liability | $ 260,000 | ||||
| PCTI [Member] | Exchange Agreement [Member] | |||||
| Deferred liability | $ 750,000 | ||||
| Product liability contingency, third-Party recovery, percentage | 3.00% | ||||
| Exchange of common stock | 175,000,000 | ||||
| Royalty percentage | 1.80% |
SCHEDULE OF EXPENSES TO OFFICERS (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Related Party Transaction [Line Items] | ||
| Total | $ 240,000 | $ 390,000 |
| Chief Executive Officer [Member] | ||
| Related Party Transaction [Line Items] | ||
| Total | 240,000 | 140,000 |
| Chief Executive Officer Bonus [Member] | ||
| Related Party Transaction [Line Items] | ||
| Total | $ 250,000 | |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
1 Months Ended | ||||
|---|---|---|---|---|---|
Jan. 02, 2022 |
Jul. 10, 2020 |
Apr. 30, 2022 |
Mar. 31, 2022 |
Jan. 31, 2022 |
|
| Employment Agreement [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Amount of initial annual compensation | $ 240,000 | ||||
| Mr Conway [Member] | Employment Agreement [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Amount of initial annual compensation | $ 250,000 | ||||
| Per Month [Member] | Mr Conway [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Compensation value | $ 20,000 | $ 20,000 | |||
| Officers compensation received | $ 10,000 | $ 20,000 | $ 20,000 | ||
NONCONTROLLING INTEREST (Details Narrative) - USD ($) |
Sep. 13, 2022 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Aug. 19, 2021 |
|---|---|---|---|---|
| Accumulative noncontrolling interest | $ 784,777 | $ 784,777 | ||
| Brian Conway [Member] | ||||
| Noncontrolling interest percentage | 51.00% | |||
| PJN Strategies [Member] | ||||
| Noncontrolling interest percentage | 49.00% | 49.00% | ||
| Number of share returned | 490,000 |
SCHEDULE OF RIGHT-OF-USE ASSETS (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Operating Lease Right-of-use Assets And Operating Lease Liabilities | ||
| Office and warehouse lease | $ 702,888 | $ 702,888 |
| Less: Accumulated amortization | (228,071) | (195,182) |
| Right-of-use assets, net | $ 474,817 | $ 507,706 |
SCHEDULE OF OPERATING LEASE LIABILITIES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Operating Lease Right-of-use Assets And Operating Lease Liabilities | ||
| Lease liability | $ 486,008 | $ 517,890 |
| Less current portion | (137,011) | (133,508) |
| Long term portion | $ 348,997 | $ 384,382 |
SCHEDULE OF MATURITY OF LEASE LIABILITIES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Operating Lease Right-of-use Assets And Operating Lease Liabilities | ||
| For the year ending December 31, 2023 | $ 126,464 | |
| For the year ending December 31, 2024 | 171,840 | |
| For the year ending December 31, 2025 | 175,942 | |
| For the year ending December 31, 2026 | 74,030 | |
| Total | 548,276 | |
| Less: present value discount | (62,268) | |
| Lease liability | $ 486,008 | $ 517,890 |
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Details Narrative) |
Apr. 14, 2021
USD ($)
ft²
|
Mar. 31, 2023
USD ($)
|
Dec. 31, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
Apr. 30, 2021 |
|---|---|---|---|---|---|
| Operating lease term | 5 years | 5 years | |||
| Area of land | ft² | 8,100 | ||||
| Operating lease liability | $ 486,008 | $ 517,890 | |||
| Accounting Standards Update 2016-02 [Member] | |||||
| Operating lease liability | $ 702,888 | ||||
| Thereafter [Member] | |||||
| Lease payments increase percentage | 2.40% | ||||
| CALIFORNIA | |||||
| Lease expiration date | May 31, 2026 | ||||
| Operating lease payments | $ 13,481 | ||||
| Lease payments increase percentage | 7.50% |
SCHEDULE OF LOSS FROM DISCONTINUED OPERATIONS (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Discontinued Operations and Disposal Groups [Abstract] | |||
| Revenues | $ 5,363 | $ 162,916 | |
| Cost of goods sold | 126,482 | ||
| Gross profit | 5,363 | 36,434 | |
| Operating expenses | 212,290 | ||
| Interest expense | 8,324 | ||
| Income (loss) from discontinued operations | 5,363 | $ (184,180) | |
| Accounts payable and accrued liabilities | 445,565 | $ 445,565 | |
| Current portion of notes payable | 589,246 | 589,246 | |
| Operating lease liability | 3,575 | ||
| Deferred revenues | 19,662 | 21,451 | |
| Total current liabilities of discontinued operations | $ 1,054,473 | $ 1,059,837 | |
SUBSEQUENT EVENTS (Details Narrative) - USD ($) |
3 Months Ended | ||||
|---|---|---|---|---|---|
May 02, 2023 |
Apr. 01, 2023 |
Mar. 31, 2023 |
May 05, 2023 |
Dec. 31, 2022 |
|
| Subsequent Event [Line Items] | |||||
| Stock issued during the period | $ 526,393 | ||||
| Common stock shares, authorized | 4,990,000,000 | 4,990,000,000 | |||
| Preferrd stock shares, authorized | 10,000,000 | 10,000,000 | |||
| Common Stock [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Issuance of shares of common stock sold, shares | 107,756,783 | ||||
| Stock issued during the period | $ 107,757 | ||||
| Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Capital stock shares, authorized | 7,000,000,000 | ||||
| Common stock shares, authorized | 6,990,000,000 | ||||
| Preferrd stock shares, authorized | 10,000,000 | ||||
| Subsequent Event [Member] | Financing And Registration Rights Agreement [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Equity financing agreement description | Under the terms of the Financing Agreement, GHS has agreed to provide the Company with up to $10,000,000 of funding upon effectiveness of a registration statement on Form S-1. Following effectiveness of the registration statement, the Company shall have the right to deliver puts to GHS and GHS will be obligated to purchase shares of our common stock based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice will not exceed two hundred fifty percent (250%) of the average of the daily trading dollar volume of the Company’s common stock during the ten (10) trading days preceding the put, so long as such amount does not exceed 4.99% of the outstanding shares of the Company. Pursuant to the Financing Agreement, GHS and its affiliates will not be permitted to purchase, and the Company may not put shares of the Company’s common stock to GHS that would result in GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding common stock. The price of each put share shall be equal to eighty percent (80%) of the lowest daily volume weighted average price of the Company’s common stock for the ten (10) consecutive trading days preceding the date on which the applicable put is delivered to GHS. No put will be made in an amount equaling less than $10,000 or greater than $750,000. Puts may be delivered by the Company to GHS until the earlier of twenty-four (24) months after the effectiveness of the registration statement on Form S-1 or the date on which GHS has purchased an aggregate of $10,000,000 worth of put shares. | ||||
| GHS Investments LLC [Member] | Subsequent Event [Member] | Common Stock [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Issuance of shares of common stock sold, shares | 15,048,619 | ||||
| Stock issued during the period | $ 71,827 |
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