SCHEDULE OF NOTES PAYABLE
| | |
March 31, 2023 | | |
December 31, 2022 | |
| | |
| | |
| |
| Note payable, interest at 8%, matured January 5, 2020, in default | |
$ | 45,000 | | |
$ | 45,000 | |
| Other, due on demand, interest at 6%, currently in default | |
| 50,000 | | |
| 50,000 | |
| Note payable $750,000 face value, interest at 12%, matured August 24, 2021, in default | |
| 375,000 | | |
| 375,000 | |
| Note payable $389,423 face value, interest at 12%, matures November 6, 2023 | |
| 389,423 | | |
| 389,423 | |
| Note payable $1,000,000 face value, interest at 12%, matured November 13, 2021, in default | |
| 1,000,000 | | |
| 1,000,000 | |
| Note payable $2,200,000 face value, interest at 15%, matures October 31, 2024, net of discount of $269,167 (2023) and $311,667 (2022) | |
| 1,930,833 | | |
| 1,888,333 | |
| Note payable $11,110,000 face value, interest at 15%, matures October 31, 2024, net of discount of $1,345,833 (2023) and $1,558,333 (2022) | |
| 9,764,167 | | |
| 9,551,667 | |
| Note payable $3,300,000 face value, interest at 15%, matures October 31, 2024, net of discount of $403,750 (2023) and $467,500 (2022) | |
| 2,896,250 | | |
| 2,832,500 | |
| Note payable $3,020,000
face value, matured March
31, 2023, net of discount of $0 (2023) and $181,818
(2022), in default | |
| 2,220,000 | | |
| 2,588,182 | |
| Sub- total notes payable, net of discount | |
| 18,670,673 | | |
| 18,720,105 | |
| Less long-term portion, net of discount | |
| 14,591,250 | | |
| 14,272,500 | |
| Current portion of notes payable, net of discount | |
$ | 4,079,423 | | |
$ | 4,447,605 | |
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 50,000,000 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 $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 75,000,000 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.
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 175,000,000 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.
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 $250,000 contract renewal bonus and
will receive 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 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:
SCHEDULE OF EXPENSES TO OFFICERS
| | |
2023 | | |
2022 | |
| | |
Three months ended March 31, | |
| | |
2023 | | |
2022 | |
| CEO | |
$ | 240,000 | | |
$ | 140,000 | |
| CEO bonus | |
| - | | |
| 250,000 | |
| Total | |
$ | 240,000 | | |
$ | 390,000 | |
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 452,080 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 637,755 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 2,500,000 shares
of restricted common stock upon the execution of the agreements and every 90 days thereafter for the first year as long as the
employee is still employed. The Company valued the initial shares at $0.092 per
share (the market price of the common stock on the date of the agreement). On July 1, 2021, the Company issued each of the
Co-Directors the 2,500,000 shares
due after the first ninety days of employment. The shares were valued at $0.0745 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 2,500,000 shares
due after the first one hundred eighty days of employment. The shares were valued at $0.0445 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 2,500,000 shares
due. The shares were valued at $0.027 per
share (the market price of the common stock on the date of the issuance), and $135,000 is
included in stock-based compensation expense for the 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 5,000,000 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 10,000,000 shares of restricted common stock to Mr. Green and to a monthly fee of $2,500. The Company valued the shares at $0.0076
per share (the market price of the common stock on the date of the agreement), and $76,000 was recorded as deferred stock-based compensation,
to be amortized over the one-year term of the agreement. Effective April 1, 2021, the agreement was amended to $10,000 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 $227,200 (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 $162,085.
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 175,000,000 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.
NOTE
11– STOCKHOLDERS’ EQUITY
Common
stock
During
the three months ended March 31, 2023, the Company issued 107,756,783 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 5,000,000 shares of restricted common stock in the aggregate for services.
As
of March 31, 2023, the Company has 4,990,000,000 shares of $0.001 par value common stock authorized and there are 4,879,032,132 shares
of common stock issued and outstanding.
Preferred
stock
As
of March 31, 2023, 10,000,000 shares have been authorized as preferred stock, par value $0.001 (the “Preferred Stock”), which
such Preferred Stock shall be issuable in such series, and with such designations, rights and preferences as the Board of Directors may
determine from time to time.
Series
C Preferred Stock
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, 50,000 shares of the Company’s
preferred remain designated as Series C Preferred Stock. The holders of Series C Preferred Stock have no conversion rights and no dividend
rights. For so long as any shares of the Series C Preferred Stock remain issued and outstanding, the Holder thereof, voting separately
as a class, shall have the right to vote on all shareholder matters equal to sixty-seven (67%) percent of the total vote. As of March
31, 2023, and December 31, 2022, there were 2,500 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, 4,570 shares of the Company’s
preferred stock will be designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall
not be entitled to receive dividends. Any holder may, at any time convert any number of shares of Series D Convertible Preferred Stock
held by such holder into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued
and outstanding shares of common stock of the Company on the date of conversion, by 1.5 and dividing that number by the number of authorized
shares of Series D Convertible Preferred Stock and multiply that result by the number of shares of Series D Convertible Preferred Stock
being converted. Except as provided in the Series D Amendment or as otherwise required by law, no holder of the Series D Convertible
Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Company for their vote, waiver, release
or other action. The Series D Convertible Preferred Stock shall not bear any liquidation rights. 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 1,334 shares, respectively, of Series D Preferred Stock issued and outstanding and
a warrant to purchase 3,236 shares of Series D Preferred Stock are outstanding as 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:
| |
i. |
Up
to 162 (one hundred and sixty-two) Warrant Shares, at any time or times on or after five (5) business days from the closing of the
Series D SPA (“the Initial Exercise Date”) subject to up to a maximum number of Warrant Shares that, if converted, would
be equal to no more than a maximum of 4.99% of the total number of outstanding shares of Common Stock of the Company and no later
than on or before the 15th year anniversary of the Initial Exercise Date (“the Termination Date”); and |
| |
|
|
| |
ii. |
The
Remainder of the Warrant representing up to 3,074 (three thousand and seventy-four) Warrant Shares (“Remaining Warrant Shares”)
shall be locked up for a period of 36 (thirty-six) months from the Initial Exercise Date (“Lock Up Period”) and shall
become exercisable at any time or times from the date that is the 36 (thirty-six) month anniversary of the Initial Exercise Date
(“Lock Up Period Termination Date”) and no later than on or before the Termination Date, as follows: |
| |
a. |
During
every 1 (one) year period, starting on the day that is the Lock Up Period Termination Date, the Holder shall have the right to exercise
the Remainder of the Warrant up to a maximum number of Remaining Warrant Shares that, if converted, would be equal to no more than
a maximum of 4.99% of the total number of outstanding shares of Common Stock of the Company during such given year (“Leak-Out
Period”). The Leak-Out Period shall come into effect on the day that is the Lock Up Period Termination Date and remain effective
on a yearly basis, for a period of 10 (ten) years thereafter, after which the Leak-Out Period will automatically terminate and become
null and void. For clarity purposes the Remainder of the Warrant shall become freely exercisable at any time or times beginning on
June 29, 2034, and until the Termination Date. |
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, 3,000 shares of the Company’s preferred stock have
been designated as Series E Preferred Stock. The holders of the Series E Convertible Preferred Stock shall not be entitled to receive
dividends. No holder of the Series E Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Corporation
for their vote, waiver, release or other action, except as may be otherwise expressly required by law. At any time, the Corporation may
redeem for cash out of funds legally available therefor, any or all of the outstanding Preferred Stock (“Optional Redemption”)
at $1,000 (one thousand dollars) per share. The shares of Series E Preferred Stock have not been registered under the Securities Act
of 1933 or the laws of any state 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 -0- shares of Series E Preferred Stock issued and outstanding, respectively.
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 490,000 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.
NOTE
13 - OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
On
April 14, 2021, the Company entered into a five-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:
SCHEDULE OF RIGHT-OF-USE ASSETS
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Office and warehouse lease | |
$ | 702,888 | | |
$ | 702,888 | |
| Less: Accumulated amortization | |
| (228,071 | ) | |
| (195,182 | ) |
| Right-of-use assets, net | |
$ | 474,817 | | |
$ | 507,706 | |
Operating
lease liabilities are summarized as follows:
SCHEDULE OF OPERATING LEASE LIABILITIES
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Lease liability | |
$ | 486,008 | | |
$ | 517,890 | |
| Less current portion | |
| (137,011 | ) | |
| (133,508 | ) |
| Long term portion | |
$ | 348,997 | | |
$ | 384,382 | |
Maturity
of lease liabilities are as follows:
SCHEDULE OF MATURITY OF LEASE LIABILITIES
| | |
Amount | |
| 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 | |
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:
SCHEDULE OF LOSS FROM DISCONTINUED OPERATIONS
| | |
2023 | | |
2022 | |
| | |
Three months ended March 31, | |
| | |
2023 | | |
2022 | |
| 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 | ) |
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
| | |
| | |
| |
| | |
March 31, 2023 | | |
December 31,
2022 | |
| 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 | |
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.
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 15,048,619 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 6,990,000,000 shall be authorized as common
shares and 10,000,000 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.
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.
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: |
| |
○ |
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.
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.
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.
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.
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.
