UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2022
☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 000-55976
OZOP ENERGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 3841 | 35-2540672 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Number) |
(IRS Employer Identification Number) |
55 Ronald Reagan Blvd. Warwick, NY 10990 (877) 785-6967 |
| (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. Yes ☒ No ☐
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). Yes ☒ No ☐
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 ☐ |
| Non-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 ☐ No ☒
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. ☐
The aggregate market value of the registrant’s common stock held by non-affiliates on June 30, 2022, was $56,392,828 (computed using the closing price of the common stock on June 30, 2022, as reported by the OTC Markets).
As of March 31, 2023, shares of common stock of the registrant were outstanding.
Table of Contents
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “project”, “believe”, “anticipate”, “plan”, “expect”, “estimate”, “intend”, “should”, “would”, “could”, or “may”, or other such words, verbs in the future tense and words and phrases that convey similar meaning and uncertainty of future events or outcomes to identify these forward–looking statements. There are a number of important factors beyond our control that could cause actual results to differ materially from the results anticipated by these forward–looking statements. While we make these forward–looking statements based on various factors and using numerous assumptions, you have no assurance the factors and assumptions will prove to be materially accurate when the events they anticipate actually occur in the future. Factors that could cause our actual results of operations and financial condition to differ materially are discussed in greater detail under Item 1A, “Risk Factors” of this annual report on Form 10-K.
The forward–looking statements are based upon our beliefs and assumptions using information available at the time we make these statements. We caution you not to place undue reliance on our forward–looking statements as (i) these statements are neither predictions nor guaranties of future events or circumstances, and (ii) the assumptions, beliefs, expectations, forecasts and projections about future events may differ materially from actual results. We undertake no obligation to publicly update any forward–looking statement to reflect developments occurring after the date of this report.
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PART I
Item 1. Description of Business
ORGANIZATION
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.
Our corporate website is located at http://ozopenergy.com/, and the contents of our website are expressly not incorporated herein.
On July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc., a Pennsylvania corporation (“PCTI”), and Catherine Chis (“Chis”), PCTI’s Chief Executive Officer (“CEO”) and its sole shareholder. Under the terms of the SPA, the Company acquired one thousand (1,000) shares of PCTI, which represents all of the outstanding shares of PCTI, from Chis in exchange for the issuance of 47,500 shares of the Company’s Series C Preferred Stock, 18,667 shares of the Company’s Series D Preferred Stock, and 500 shares of the Company’s Series E Preferred Stock to Chis.
On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation (“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company from Ozop Surgical Corp to “Ozop Energy Solutions, Inc.”
On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.
On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation and a wholly owned subsidiary of the Company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.
On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus.
On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED will provide customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs. We work with architects, engineers, facility managers, electrical contractors and engineers.
Corporate Matters
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. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 47,500 shares of Series C preferred Stock to Chis. On July 13, 2021, the Company purchased 47,500 shares of the Company’s Series C Preferred Stock held by Chis (see below). As of December 31, 2022, and 2021, there were 2,500 shares, respectively, of Series C Preferred Stock issued and outstanding, all owned by Mr. Conway.
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On July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series D Preferred Stock. Under the terms of the Certificate of Designation of Series D Preferred Stock, 20,000 shares of the Company’s preferred stock have been designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall not be entitled to receive dividends. The holders as a group may, at any time convert all of the shares of Series D Convertible Preferred Stock 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 3. Except as provided in the Certificate of Designation 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 10, 2020, pursuant to the SPA with PCTI, the Company issued 18,667 shares of Series D preferred Stock to Chis, and on August 28, 2020. Pursuant to Mr. Conway’s employment agreement, the Company issued 1,333 shares of Series D Preferred Stock to Mr. Conway. On July 13, 2021, the Company purchased 18,667 shares of the Company’s Series D Preferred Stock held by Chis (see below).
On July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the 47,500 shares of the Company’s Series C Preferred Stock held by Chis and the 18,667 shares of the Company’s Series D Preferred Stock held by Chis for the total purchase price of $11,250,000. In conjunction with the Agreement, Chis resigned from any and all positions held in the Company’s wholly owned subsidiary, PCTI. Further, Chis agreed that upon her resignation and for a period of five years thereafter (the “Restriction Period”), she shall not, directly or indirectly, solicit the employment of, assist in the soliciting of the employment of, or hire any employee or officer of the Company, including those of any of its present or future subsidiaries, or induce any person who is an employee, officer, agent, consultant or contractor of the Company to terminate such relationship with the Company. Additionally, Chis agrees that during the Restriction Period, she shall not compete with the Company or PCTI anywhere worldwide or be employed by any competitor of the Company.
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 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 December 31, 2022, and 2021, there were 1,334 shares, respectively, of Series D Preferred Stock issued and outstanding and warrants to purchase 3,236 shares of Series D Preferred Stock are outstanding as of December 31, 2022. Mr. Conway owns 1,333 shares of Series D Preferred Stock as of December 31, 2022, and 2021.
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. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 500 shares of Series E preferred Stock to Chis, and on August 28, 2020, pursuant to Mr. Conway’s employment agreement, the Company issued 500 shares of Series E Preferred Stock to Mr. Conway. As of December 31, 2021, and 2020, there were -0- and 1,000 shares, respectively, of Series E Preferred Stock issued and outstanding.
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On April 4, 2022, the Company, and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “GHS Purchase Agreement”) for the sale of up to Two Hundred Million (200,000,0000) shares of the Company’s common stock to GHS. We may sell shares of our common stock from time to time over a twelve (12)- month period ending April 4, 2023, at our sole discretion, to GHS under the GHS Purchase Agreement. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company’s notice to GHS for the sale of the Company’s common stock. On April 8, 2022, the Company filed a Prospectus Supplement to the Registration Statement dated October 14, 2021, regarding the GHS Purchase Agreement.
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 a loss from discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2022, and 2021.
Recent Events
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 (150,000,0000) 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 July 18, 2023, at our sole discretion, to GHS under the GHS Purchase Agreement. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company’s notice to GHS for the sale of the Company’s common stock. On January 31, 2023, the Company filed a Prospectus Supplement to the Registration Statement dated October 14, 2021, regarding the 2nd GHS Purchase Agreement.
Business Overview
Ozop Energy Systems
OES was formed to be a distributor of renewable energy products and is actively engaged in the renewable, electric vehicle (“EV”), energy storage and energy resiliency sectors. 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.
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. The utility-scale storage business 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.
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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-Grids proprietary program, patents 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.
Ozop Plus
On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation and a wholly owned subsidiary of the 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. EVCO has agreements with others whereby the battery premium associated with any EV VSC will be ceded to EVCO. 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.
Ozop Engineering and Design
OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED 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 by working with architects, engineers, facility managers, electrical contractors and engineers.
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Sales and marketing
The Company markets its products through its websites as well as attending industry specific trade shows. Additionally, Ozop Plus markets the EV VSC in conjunction with Royal Administration Services, Inc. (“Royal”) through Royal’s agents and the Company also will begin marketing the product through various third-party websites and portals for additional direct to consumer marketing to EV owners. In April 2023, OED began marketing its’ maintenance and support contract program, named Ozop Secure to existing customers as well as through other distributors.
Competition
We compete with many companies in the various application segments including larger, more established companies with substantial capabilities, personnel and financial resources. Many of our competitors have a larger presence in global markets.
Employees
As of the date of this filing, the Company employs 9 full time employees. Ozop also has contracts with various independent contractors and consultants to fulfill additional needs, including accounting, investor relations, business development, permitting, and other corporate functions, and may increase staff further as we expand activities and bring new projects online.
ITEM 1A. RISK FACTORS
We are a smaller reporting Company and are not required to include disclosures under this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
On January 2, 2021, the Company entered into a ten (10) year lease for a 6-bay garage storage facility of approximately 2,500 square feet. Pursuant to the lease the Company agreed to issue 100,000,000 shares of restricted common stock. The shares were certificated on March 8, 2021, with an effective date of January 2, 2021. The Company valued the shares at $0.0063 per share, (the market value of the common stock on the date of the agreement) and had initially recorded $630,000 as a prepaid expense. On September 6, 2022, the Company was assigned the title to a property located at 55 Ronald Reagan Blvd, Warwick, NY 10990, in exchange for the 100,000,000 shares of common stock that were issued to the building owner in January 2021. The Company also entered into a free one-year Maintenance Agreement. The Company allocated $30,000 of the prepaid expense to the Maintenance Agreement and is amortizing the $30,000 over the one-year term. The Deed was recorded in the name of the Company on October 4, 2022. The Company reclassed the remaining $600,000 as a fixed asset and credited prepaid expense.
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 $13,148 began on June 1, 2021, and increase by approximately 2.4% annually thereafter.
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ITEM 3. LEGAL PROCEEDINGS.
On November 14, 2022, Ozop Energy Systems, Inc. filed a complaint in the Superior Court for County of San Diego, State of California, Ozop Energy Systems, Inc. v. Serna, et al., Case No. 37-2022-00046102-CU-BT-NC, against five former employees, and a corporation owned by two of those defendants, Your Home Solution Corp. (“YHS”), which asserts claims for (1) fraud and deceit; (2) breach of duty of loyalty; (3) intentional interference with prospective economic advantage; (4) violation of Penal Code section 496; (5) violation of Business and Professions Code section 17200, et. seq.; (6) and accounting. The Complaint alleges that the individual defendants, while working for Ozop Energy Systems, Inc., illegally diverted customers and profits that belonged to Ozop Energy Systems, Inc. The Complaint seeks damages in the form of past and future profits, restitution of compensation, and punitive damages.
Other than the above, we know of no legal proceedings to which we are a party or to which any of our property is the subject, which are pending, threatened or contemplated or any unsatisfied judgments against the Company.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock began trading on May 8, 2017, and currently trades on the OTC Pink Market under the symbol “OZSC.” The closing price of our common stock on April 10, 2023, was $0.006.
Holders
As of December 31, 2022, the Company had 4,771,275,349 shares of our common stock issued and outstanding held by 117 holders of record.
Recent Sales of Unregistered Securities
The following table are all shares issued during the quarter ended December 31, 2022:
On October 17, 2022, the Company sold 12,526,048 shares to GHS at $0.005865 and received net proceeds of $70,971, after deducting transaction and broker fees of $2,494.
On November 1, 2022, the Company sold 12,935,085 shares to GHS at $0.005525 and received net proceeds of $69,012, after deducting transaction and broker fees of $2,454.
On November 17, 2022, the Company sold 12,806,931 shares to GHS at $0.004845 and received net proceeds of $59,784, after deducting transaction and broker fees of $2,266.
On December 2, 2022, the Company sold 26,989,247 shares to GHS at $0.004845 and received net proceeds of $127,123, after deducting transaction and broker fees of $3,640.
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.
Dividends
We have not declared or paid dividends on our common stock since our formation, and we do not anticipate paying dividends in the foreseeable future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board of Directors. There are no contractual restrictions on our ability to declare or pay dividends.
Securities authorized for issuance under equity compensation plans
None
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
OTHER STOCKHOLDER MATTERS
None.
Item 6. Selected Financial Data
Not applicable to smaller reporting companies.
ITEM 7. 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.
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.
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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. |
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| ● | 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.
Stock Purchase Agreement and Stock Redemption Agreement
On July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc., a Pennsylvania corporation (“PCTI”), and Catherine Chis (“Chis”), PCTI’s Chief Executive Officer (“CEO”) and its sole shareholder. Under the terms of the SPA, the Company acquired one thousand (1,000) shares of PCTI, which represents all of the outstanding shares of PCTI, from Chis in exchange for the issuance of 47,500 shares of the Company’s Series C Preferred Stock, 18,667 shares of the Company’s Series D Preferred Stock, and 500 shares of the Company’s Series E Preferred Stock to Chis.
On July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the 47,500 shares of the Company’s Series C Preferred Stock held by Chis and the 18,667 shares of the Company’s Series D Preferred Stock held by Chis for the total purchase price of $11,250,000. The Agreement was closed on July 27, 2021.
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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 a loss from discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2022, and 2021.
Results of Operations for the years ended December 31, 2022, and 2021:
Revenue
For the year ended December 31, 2022, the Company generated revenue of $16,629,450 compared to $10,595,799 for the year ended December 31, 2021. Revenues from Ozop Energy Systems, Inc. (“OES”) began in May 2021 and 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:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Sourced and distributed products | $ | 16,537,350 | $ | 10,595,799 | ||||
| Design and installation | 92,100 | - | ||||||
| Total | $ | 16,629,450 | $ | 10,595,799 | ||||
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 that it would investigate claims by California-based solar panel manufacturer that solar energy equipment manufacturers in Cambodia, Malaysia, Thailand and Vietnam have close business ties to companies in China that produce the raw materials and some components of solar panel assemblies. On June 6, 2022, President Biden waived tariffs on solar panels from 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 December 31, 2022, the Company had inventory of approximately $3,601,000 of which approximately $3,092,000 are solar panels. As of the date of this report the Company also has outstanding purchase orders with its panel supplier of $14,393,000 and has paid deposits of approximately $3,908,000 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 $5,000,000 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 years ended December 31, 2022, and 2021, the Company recognized $15,281,791 and $9,763,943, respectively, of cost of sales.
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Sourced and distributed products | $ | 15,281,791 | $ | 9,763,943 | ||||
Based on the above cost of sales, gross margin was 8.1% and 7.85% for the years ended December 31, 2022, and 2021, respectively. Gross margin for OES was consistent on a year-to-year comparison. While the Company expects margins to remain similar for 2023, the expected increase in revenues should create additional gross profit dollars in 2023 compared to 2022.
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Operating expenses
Total operating expenses for the years ended December 31, 2022, and 2021, were $5,959,344 and $13,443,400, respectively. The operating expenses were comprised of:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Management fees, related parties including stock-based compensation of $-0- and $2,850,000, respectively | $ | 1,090,000 | $ | 3,662,099 | ||||
| Stock-based compensation, other | 136,249 | 6,472,751 | ||||||
| Salaries, taxes, and benefits | 1,302,173 | 662,758 | ||||||
| Professional and consulting fees | 1,885,700 | 1,254,604 | ||||||
| Advertising and marketing | 51,441 | 23,025 | ||||||
| Rent and office expenses | 285,076 | 163,563 | ||||||
| Insurance | 278,885 | 205,970 | ||||||
| General and administrative. Other | 929,820 | 998,630 | ||||||
| Total | $ | 5,959,344 | $ | 13,433,400 | ||||
Management fees- related parties, are amounts paid to our CEO. On July 10, 2020, pursuant to the PCTI transaction, the Company assumed an employment contract entered into on February 28, 2020, between the Company and Mr. Conway (the “Employment Agreement”). Mr. Conway’s compensation as adjusted was $20,000 per month, and effective September 1, 2021, Mr. Conway began to receive $10,000 per month from Ozop Capital. Effective January 1, 2022, the Company entered into a new employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway received a $250,000 contract renewal bonus and 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 and OES and OED began compensating Mr. Conway $20,000 in April 2022. Below is a summary of wages and management fees:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| CEO, parent | $ | 1,090,000 | $ | 812,099 | ||||
| CEO, parent- Series E Preferred Stock | - | 2,850,000 | ||||||
| Total | $ | 1,090,000 | $ | 3,662,099 | ||||
The Series E Preferred Stock based compensation for the year ended December 31, 2021, is a result of on March 2, 2021, the BOD authorized the issuance of 1,800 shares of Series E Preferred Stock to Mr. Conway and on April 16, 2021, the BOD authorized the issuance of 1,050 to Mr. Conway. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $1,000 per share, the Company recorded $2,850,000 as stock-based compensation expense for year ended December 31, 2021.
Stock based compensation, other, for the year ended December 31, 2022, of $136,429 is comprised of the following:
| ● | 5,000,000 shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.027 per share. During the year ended December 31, 2022, the Company included $135,000 in stock compensation expense. | |
| ● | $1,249 of amortization of stock compensation for shares issued in April 2021. |
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Stock based compensation, other, for the year ended December 31, 2021, of $6,472,751 is comprised of the following stock issuances:
| ● | 5,000,000 shares issued in April 2021 pursuant to a one-year consulting agreement. The Company valued the shares at $0.20 per share (the market price of the common stock on the date of the agreement), and $1,000,000 was recorded as deferred stock compensation, to be amortized over the one-year term of the agreement. The consultant was terminated in October 2021, and accordingly, for the year ended December 31, 2021, $1,000,000 is included in stock-based compensation expense. | |
| ● | 10,000,000 shares issued in April 2021 pursuant to a one-year consulting agreement. The Company valued the shares at $0.0076 per share (the market price of the common stock on the date of the agreement), and $76,000 was recorded as deferred stock-based compensation, to be amortized over the one-year term of the agreement. For the year ended December 31, 2021, the Company recorded $74,751 as stock-based compensation expense. |
| ● | 5,000,000 shares issued in April 2021 for services. The Company valued the shares at $0.1392 per share (the market price of the common stock on the date of the agreement), and $696,000 is included in stock-based compensation expense for the year ended December 31, 2021. | |
| ● | 10,000,000 shares issued for services. The shares were valued at $0.0056 per share, the date the Company agreed to issue the shares. For the year ended December 31, 2021, the Company included $56,000 in stock compensation expense. | |
| ● | 10,000,000 shares issued pursuant to a consulting agreement dated February 24, 2021. The shares were valued at $0.2386 per share. For the year ended December 31, 2021, the Company included $2,386,000 in stock compensation expense. | |
| ● | 5,000,000 shares of common stock issued in the aggregate to two new employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.23 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $460,000 in stock compensation expense for the 5,000,000 shares of common stock. | |
| ● | Issuance of 200 shares and 950 shares of Series E Preferred Stock, with a redemption value of $1,000 per share, resulting in stock compensation expense of $1,150,000 for the year ended December 31, 2021. | |
| ● | 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 $0.0745 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $372,500 in stock compensation expense for the 5,000,000 shares of common stock. | |
| ● | 452,080 shares of common stock issued for services. The shares were valued at $0.0553 per share (the market price of the common stock on the date of the agreement), and $25,000 is included in stock-based compensation expense for the year ended December 31, 2021. | |
| ● | 637,755 shares of common stock to be issued for services. The shares were valued at $0.0392 per share (the market price of the common stock on the date of the issuance), and $25,000 is included in stock-based compensation expense for the year ended December 31, 2021. | |
| ● | 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 $0.0455 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $227,500 in stock compensation expense for the 5,000,000 shares of common stock. |
Salaries, taxes, and benefits increased for the year ended December 31, 2022, compared to December 31, 2021. The increase was a result of 2022 having a full year for Ozop Energy Systems and Ozop Engineering and Design and EV Insurance company having employees beginning in April 2022, and October 2022, respectively.
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Ozop Energy Systems | $ | 952,411 | $ | 662,758 | ||||
| Ozop Engineering and Design | 314,587 | - | ||||||
| EV Insurance Company | 35,175 | - | ||||||
| Total | $ | 1,302,173 | $ | 662,758 | ||||
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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 increased for the year ended December 31, 2022, compared to December 31, 2021. The increase is due to increases in accounting expenses of Ozop and its’ subsidiaries in 2022 and consultants engaged in the second quarter of 2021 by Ozop Capital Partners that have been engaged for nine months during the year ended December 31, 2022.
Advertising and marketing expenses increased for the year ended December 31, 2022, compared to December 31, 2021. The increases were related to website development, and lead generation costs.
Rent and office expense (including supplies, utilities, and internet costs) increased for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase is the result of including in the current period, rent and office expense for the full year of approximately $222,334 for the year ended December 31, 2022, compared to from June 1, 2021, of $121,343 for the year ended December 31, 2021, for OES. Effective March 1, 2023, OES has subleased the Carlsbad office and warehouse to a third party.
Insurance expense increased for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was the result of including in the current period insurance expense of approximately $232,664 for the year ended December 31, 2022, compared to $205,970 for the year ended December 31, 2021, for OES. OED’s insurance expense was $44,471 for the year ended December 31, 2022. The Company estimates that the monthly OES and OED insurance expense to be approximately $20,000 per month.
Other Income (Expenses)
Other income, net, for the year ended December 31, 2022, was $10,763,570 compared to other expenses, net, for the year ended December 31, 2021, of $182,457,670 and were as follows.
Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Interest expense | $ | 8,438,861 | $ | 53,208,600 | ||||
| (Gain) loss on change in fair value of derivatives | (19,202,431 | ) | 17,349,076 | |||||
| Debt restructure expense | - | 16,450,000 | ||||||
| Loss on extinguishment of debt | - | 95,449,994 | ||||||
| Total other expense, net | $ | (10,763,570 | ) | $ | 182,457,670 | |||
The decrease in interest expense for the year ended December 31, 2022, is primarily a result of the initial $38,907,939 of interest expense related to the fair value of the issuance of 375,000,000 warrants during the year ended December 31, 2021. Included in other expenses for the year ended December 31, 2021, is the loss on extinguishment of debt related to the market value of shares of common stock issued in excess of the debt and accrued interest extinguished, and $16,450,000 for the issuance of 175,000,000 shares of restricted common stock related to the restructure of the deferred liability. The shares were valued at $0.094 per share and the Company recognized $16,450,000 of restructuring costs.
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Net income (loss)
Net income attributable to the Company for the year ended December 31, 2022, was $6,025,812 compared to a net loss of $195,047,946 for the year ended December 31, 2021. The change was primarily a result of the gain on the change in fair value of derivatives of $19,202,431 for the year ended December 31, 2022, compared to the expense of $17,349,075 year ended December 31, 2021. The loss for the year ended December 31, 2021, also included loss on debt settlements of $95,449,996 and $16,450,000 of debt restructure expenses, as well as $9,322,751 of stock- based compensation expenses included in the operating expenses for the year ended December 31, 2021.
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 December 31, 2022, the Company had an accumulated deficit of $211,300,799 and a working capital deficit of $7,552,616 (including derivative liabilities of $4,314,270). As of December 31, 2022, the Company was in default of $1,470,000 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, 2022, we primarily funded our business operations with the existing cash on hand as of January 1, 2022, and $2,510,000 of proceeds received pursuant to the issuance of a promissory note and $1,141,514 received from sales of common stock.
As of December 31, 2022, we had cash of $1,369,210 as compared to $6,632,194 as of December 31, 2021. As of December 31, 2022, we had current liabilities of $15,809,229 (including $4,314,270 of non-cash derivative liabilities), compared to current assets of $8,256,613, which resulted in a working capital deficit of $7,552,616. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, customer deposits, lease obligations, notes payable and liabilities of discontinued operations.
In December 2019, a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.
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Operating Activities
For the year ended December 31, 2022, net cash used in operating activities was $8,599,296 compared to $6,354,717 for the year ended December 31, 2021. For the year ended December 31, 2022, our net cash used in operating activities was primarily attributable to the net income of $6,151,885, adjusted by non- cash interest expense of $5,938,622, stock-based compensation of $136,249 and the non-cash expenses of amortization and depreciation of $191,818. This was offset by the gain on the fair value changes in derivatives related to warrants and convertible notes of $19,202,431. Net changes of $1,551,000 in operating assets and liabilities increased the cash used in operating activities.
For the year ended December 31, 2021, our net cash used in operating activities was primarily attributable to the net loss of $195,069,214, adjusted by loss on debt extinguishment of $95,449,996, non- cash interest expense of $51,487,601 (including $38,907,939 for the initial fair value of the 375,000,000 warrants issued), losses on the fair value changes in derivatives related to warrants and convertible notes of $17,349,075, debt restructuring costs of $16,450,000, stock-based compensation of $9,322,751 and the non-cash expenses of interest and amortization and depreciation of $103,000. Net changes of $779,989 in operating assets and liabilities increased the cash used in operating activities, primarily because of the start-up of the Company’s California operations in the support of inventory and accounts receivable.
Investing Activities
For the year ended December 31, 2022, the net cash used in investing activities was $65,202, compared to net cash provided by investing activities of $116,836 for the year ended December 31, 2021.
Financing Activities
For the year ended December 31, 2022, the net cash provided by financing activities was $3,401,514, compared to $11,475,000 for the year ended December 31, 2021. During the year ended December 31, 2022, we received $2,510,000 of proceeds from the issuance of $3,020,000 promissory note and $1,141,514, net of issuance costs, from the sales of common stock to GHS. During the year ended December 31, 2022, we made payments of $250,000 for notes payable.
During the year ended December 31, 2021, we received $15,000,000 of proceeds from the issuances of $16,610,000 face value of promissory notes and $13,100,000 (net of costs) from the Series D SPA. During the year ended December 31, 2021, the Company acquired 47,500 shares of Series C Preferred Stock and 18,667 shares of Series D Preferred Stock from Chis for $11,250,000, redeemed 5,000 shares of the Series E Preferred Stock for $5,000,000, and repaid $375,000 of notes payable.
Critical Accounting Policies
Our significant accounting policies are described in more details in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K. 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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the years ended December 31, 2022, and 2021.
Earnings (Loss) Per Share
The Company computes net 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on pages F1-F30 of this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), as of the end of the period covered by this annual report on Form 10-K, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO and CFO have concluded that as of December 31, 2022, disclosure controls and procedures were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.
Management’s Report on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets; |
| ● | Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our CEO and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2022, as described below.
We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:
Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
| 20 |
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.
Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.
We are committed to improving the internal controls and will (1) consider using third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.
We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of directors and executive officers.
The names and ages of our directors and executive officers are set forth below. Also included is their principal occupation(s). Our By-Laws provide for up to four directors. All directors are elected annually by the stockholders to serve until the next annual meeting of the stockholders and until their successors are duly elected and qualified.
| Name | Age | Position | Beginning | |||
| Brian Conway | 52 | Chief Executive Officer and Interim Chief Financial Officer | February 28, 2020 |
Brian P. Conway, the Chief Executive Officer and Interim Chief Financial Officer brings 20 years of proven success in marketing and business development for both private and publicly traded companies. Starting off in database management and sales for Venture Direct on Madison Avenue, he crossed over to Wall Street as a co-founder of Waypoint Capital Partners. During this time, he was responsible for national sales, marketing, business and product development, national account customers, and new business relations with international and US companies while creating awareness for public companies with many of the nation’s top public relations firms. From October 1, 2014, through August 31, 2019, Mr. Conway was the CEO, CFO and Director of Ngen Technologies, Inc. (f/k/a/ Liberated Solutions, Inc.). His relationships and experience with investment bankers, non-dilutive financing, and public relations should be instrumental in moving the Company forward.
Family Relationships
None
Involvement in Certain Legal Proceedings
No director, executive officer, significant employee, or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Corporate Governance
Our Board has not established any committees, including an audit committee, a compensation committee or a nominating committee, or any committee performing a similar function. The functions of those committees are being undertaken by our Board. Because we do not have any independent directors, our Board believes that the establishment of committees of our Board would not provide any benefits to our Company and could be considered more form than substance.
Given our relative size and lack of directors’ and officers’ insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.
As with most small, early-stage companies until such time as our Company further develops our business, achieves a greater revenue base, and has sufficient working capital to purchase directors’ and officers’ insurance, we do not have any immediate prospects to attract independent directors. When we are able to expand our Board to include one or more independent directors, we intend to establish an audit committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent, and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an audit committee or other committee of our Board.
| 22 |
Code of Ethics
We adopted a Code of Ethics for Senior Financial Management to promote honest and ethical conduct and to deter wrongdoing. This Code applies to our Chief Executive Officer and Chief Financial Officer and other employees performing similar functions. The obligations of the Code of Ethics supplement, but do not replace, any other code of conduct or ethics policy applicable to our employees generally.
Under the Code of Ethics, all members of the senior financial management shall:
| ● | Act honestly and ethically in the performance of their duties at our company, | |
| ● | Avoid actual or apparent conflicts of interest between personal and professional relationships, | |
| ● | Provide full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submits to, the SEC and in other public communications by our company, | |
| ● | Comply with rules and regulations of federal, state and local governments and other private and public regulatory agencies that effect the conduct of our business and our financial reporting, | |
| ● | Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing the member’s independent judgment to be subordinated | |
| ● | Respect the confidentiality of information in the course of work, except when authorized or legally obtained to disclosure such information, | |
| ● | Share knowledge and maintain skills relevant to carrying out the member’s duties within our company, | |
| ● | Proactively promote ethical behavior as a responsible partner among peers and colleagues in the work environment and community, | |
| ● | Achieve responsible use of and control over all assets and resources of our company entrusted to the member, and | |
| ● | Promptly bring to the attention of the Chief Executive Officer any information concerning (a) significant deficiencies in the design or operating of internal controls which could adversely affect to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in our financial reporting or internal controls. |
Director Independence
None of the members of our Board of Directors qualifies as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our Board has not made a subjective determination as to each director that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our Board of Directors made these determinations, our Board would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.
In performing the functions of the audit committee, our board oversees our accounting and financial reporting process. In this function, our board performs several functions. Our board, among other duties, evaluates and assesses the qualifications of the Company’s independent auditors; determines whether to retain or terminate the existing independent auditors; meets with the independent auditors and financial management of the Company to review the scope of the proposed audit and audit procedures on an annual basis; reviews and approves the retention of independent auditors for any non-audit services; reviews the independence of the independent auditors; reviews with the independent auditors and with the Company’s financial accounting personnel the adequacy and effectiveness of accounting and financial controls and considers recommendations for improvement of such controls; reviews the financial statements to be included in our annual and quarterly reports filed with the Securities and Exchange Commission; and discusses with the Company’s management and the independent auditors the results of the annual audit and the results of our quarterly financial statements.
| 23 |
Our board as a whole will consider executive officer compensation, and our entire board participates in the consideration of director compensation. Our board as a whole oversees our compensation policies, plans and programs, reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers, if any, and administers our equity incentive and stock option plans, if any.
Each of our directors participates in the consideration of director nominees. In addition to nominees recommended by directors, our board will consider nominees recommended by shareholders if submitted in writing to our secretary. Our board believes that any candidate for director, whether recommended by shareholders or by the board, should be considered on the basis of all factors relevant to our needs and the credentials of the candidate at the time the candidate is proposed. Such factors include relevant business and industry experience and demonstrated character and judgment.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, persons who beneficially own more than 10% of a registered class of the Company’s equity securities, and certain other persons to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC, and to furnish the Company with copies of the forms. The Company does not believe that all of its directors, executive officers and greater than 10% beneficial owners complied with all such filing requirements during 2022.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation earned in or with respect to our fiscal years 2022 and 2021:
| (i) | our principal executive officer or other individual serving in a similar capacity during the fiscal years 2022, and 2021; | |
| (ii) | our two most highly compensated executive officers other than our principal executive officers who were serving as executive officers at December 31, 2022, and 2021, whose compensation exceed $100,000; and | |
| (iii) | up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2022. Compensation information is shown for the fiscal years ended December 31, 2022, and 2021: |
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total | |||||||||||||||||||||
| Brian P Conway (1) | 2022 | $ | 840,000 | $ | 250,000 | $ | - | $ | — | $ | — | $ | 1,090,000 | |||||||||||||||
| 2021 | $ | 280,000 | $ | 532,099 | $ | 2,850,000 | $ | — | $ | — | $ | 3,662,099 | ||||||||||||||||
| Catherine Chis(2) | 2022 | $ | - | $ | — | $ | — | $ | — | $ | — | $ | - | |||||||||||||||
| 2021 | $ | 141,666 | $ | — | $ | — | $ | — | $ | — | $ | 141,666 | ||||||||||||||||
(1) On February 28, 2020, Mr. Conway was appointed as the Company’s Chief Executive Officer.
(2) Ms. Chis was the CEO of PCTI from 2018 until her resignation in July 2021.
| 24 |
| Value of Initial Fixed $100 Investment Based on: | |||||||||||||||||||||||||
| Year | Summary Compensation on Table Total for PEO | Compensation Actually Paid to PEO | Average Summary Compensation on Table Total for Non-PEO NEOs | Average Compensation Actually Paid to Non-PEO NEOs | Total Shareholder Return | Total Shareholder Return of Peer Group | Net Income (loss) | ||||||||||||||||||
| 2022 | $ | 1,090,000 | $ | 1,090,000 | $ | - | $ | - | -84.7 |
% | N/A | $ | 6,025,812 | ||||||||||||
| 2021 | $ | 3,662,099 | $ | 3,662,099 | $ | 141,666 | $ | 141,666 | 353.6 |
% | N/A | $ | (195,047,946 | ) | |||||||||||
| 2020 | $ | 4.664.452 | $ | 377,804 | $ | 83,500 | $ | 83,500 | -99.6 |
% | N/A | $ | (20,968,250 | ) | |||||||||||
2022 OPTION GRANTS
There were no options to purchase shares of our Common Stock issued and outstanding as of December 31, 2022, or December 31, 2021.
OUTSTANDING EQUITY AWARDS AT 2022 FISCAL YEAR-END
There were no outstanding equity awards for the years ended December 31, 2022, and 2021.
EXECUTIVE EMPLOYMENT AGREEMENTS
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”). Pursuant to the terms of the Employment Agreement, Mr. Conway received an initial annual salary of $120,000, for his position of CEO of the Company, payable monthly. Pursuant to the contract, Mr. Conway was issued 2,500 shares of Series C Preferred Stock, and on August 28, 2020, Mr. Conway was issued 1,333 shares of Series D Preferred stock and 500 shares of series E Preferred Stock.
Effective January 1, 2021, Mr. Conway’s compensation is $20,000 per month, and on September 1, 2021, Mr. Conway began receiving $10,000 per month from Ozop Capital. Effective January 1, 2022, the Company entered into a new employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway received a $250,000 contract renewal bonus and will receive an annual compensation of $240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion of the BOD. The Company also agreed to compensate Mr. Conway for services provided directly to any of the Company’s subsidiaries. Ozop Capital increased Mr. Conway’s compensation to $20,000 per month in January 2022 and OES and OED began compensating Mr. Conway $20,000 in April 2022.
Other than the foregoing, currently, we do not have any written employment agreement or other formal compensation agreements with our officers and directors. Compensation arrangements are the subject of ongoing development, and we will make appropriate additional disclosures as they are further developed and formalized.
DIRECTOR COMPENSATION
Director Compensation Policies
We have not compensated our directors for their service on our Board from our inception through fiscal 2020. There are no arrangements currently in place pursuant to which directors will be compensated in the future for any services provided as a director.
| 25 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of the Company’s shares as of March 31, 2023, (unless otherwise noted) by (i) each person known by the Company to own beneficially more than 5% of the outstanding shares, (ii) each director and director nominee of the Company, (iii) each executive officer of the Company named in the Summary Compensation Table (the “Named Executive Officers” or “NEOs”), and (iv) all executive officers and directors of the Company as a group. The table includes shares that may be acquired within 60 days of March 31, 2023, upon the exercise of stock options by employees or outside directors and shares of restricted stock.
Unless otherwise indicated, each of the persons or entities listed below exercises sole voting and dispositive power over the shares that each of them beneficially owns.
For the beneficial ownership of the stockholders owning 5% or more of the shares, the Company relied on publicly available filings and representations of the stockholders.
| Name and Title: | Class of Security | Amount of beneficial ownership | Percent of Class (1) | |||||||
| Executive Officers and Directors: | ||||||||||
| Brian P Conway, CEO and Director (2) | Common Stock | 2,134,710,010 | 30.4 | % | ||||||
| Series C Preferred Stock | 2,500 | 100.0 | % | |||||||
| Series D Preferred Stock | 1,333 | 99.9 | % | |||||||
(1) Percentages are based on 4,879,032,132 shares of the Company’s common stock, 2,500 shares of Series C Preferred Stock and 1,334 shares of Series D Preferred stock issued and outstanding as of March 31, 2023. The voting rights associated with the Series C Preferred Stock in the aggregate are equal to 67% of the total vote. Series C Preferred Stock has no conversion rights. 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 multiplied by the number of Series D shares being converted. Series D Preferred Stock has no voting rights.
(2) Includes 1,333 shares of Series D Preferred Stock convertible into 2,134,710,010 shares of common stock.
Item 13. Certain Relationships and Related Transactions
For the years ended December 31, 2022, and 2021, the Company recorded expenses to its officers in the following amounts:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| CEO, parent | $ | 1,090,000 | $ | 812,099 | ||||
| CEO, parent- Series E Preferred Stock | - | 2,850,000 | ||||||
| Total | $ | 1,090,000 | $ | 3,662,099 | ||||
| 26 |
Item 14. Principal Accountant Fees and Services
The following is a summary of the fees billed to us by Prager Metis CPAs LLC, our independent registered public accounting firm, for professional services rendered for the fiscal years ended December 31, 2022, and 2021.
| 2022 | 2021 | |||||||
| Audit Fees(1) | $ | 87,500 | $ | 76,000 | ||||
| Total Fees | $ | 87,500 | $ | 76,000 | ||||
| (1) | Audit Fees are fees paid for professional services rendered for the audit of the Company’s annual consolidated financial statements, reviews of the Company’s interim consolidated financial statements and statutory audit requirements at certain non-U.S. locations. |
PART IV
Item 15. Exhibits, Financial Statement Schedules
| (a) | 1. | Financial Statements |
| The financial statements and Reports of Independent Registered Public Accounting Firms are listed in the “Index to Financial Statements and Schedules” on page F-1 and included on pages F-2 to F-30. | ||
| 2. | Financial Statement Schedules | |
| All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein. | ||
| 3. | Exhibits (including those incorporated by reference). |
| 27 |
| 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). |
| 28 |
| 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.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
| 29 |
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
| Ozop Energy Solutions, Inc. |
| By: | /s/ Brian P. Conway | |
| Brian P. Conway | ||
| Chief Executive Officer | ||
| Date: | April 17, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
/s/ Brian P. Conway Brian P. Conway |
Chairman and Chief Executive Officer (principal executive officer) | April 17, 2023 |
| 30 |
OZOP ENERGY SOLUTIONS, INC.
COSOLIDATED FINANCIAL STATEMENTS
Table of Contents
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ozop Energy Solutions, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ozop Energy Solutions, Inc. (the Company) as of December 31, 2022, and 2021, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, As of December 31, 2022, the Company had an accumulated deficit of $211,300,799 and a working capital deficit of $7,552,616 (including derivative liabilities of $4,314,270). As of December 31, 2022, the Company was in default of $1,470,000 plus accrued interest on debt instruments due to non-payment upon maturity dates. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the accompanying financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
| /s/ Prager Metis CPA’s LLC | |
| We have served as the Company’s auditor since 2018 | |
| Hackensack, New Jersey | |
| April 17, 2023 |
| F-2 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 1,369,210 | $ | 6,632,194 | ||||
| Prepaid expenses | 59,405 | 139,455 | ||||||
| Accounts receivable | 173,151 | 1,292,800 | ||||||
| Inventory | 3,601,026 | 788,110 | ||||||
| Vendor deposits | 3,053,821 | 830,869 | ||||||
| Assets of discontinued operations | 570,317 | |||||||
| Total Current Assets | 8,256,613 | 10,253,745 | ||||||
| Operating lease right-of-use asset, net | 507,706 | 633,497 | ||||||
| Property and equipment, net | 711,615 | 112,441 | ||||||
| Other Assets | 13,408 | 568,249 | ||||||
| TOTAL ASSETS | $ | 9,489,342 | $ | 11,567,933 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 5,089,009 | $ | 2,813,835 | ||||
| Convertible notes payable, net of discounts | 25,000 | 25,000 | ||||||
| Current portion of notes payable, net of discounts | 4,447,605 | 12,422,060 | ||||||
| Customer deposits | 250,000 | 73,420 | ||||||
| Deferred liability | 490,000 | 750,000 | ||||||
| Derivative liabilities | 4,314,270 | 20,966,701 | ||||||
| Operating lease liability, current portion | 133,508 | 120,177 | ||||||
| Liabilities of discontinued operations | 1,059,837 | 1,238,849 | ||||||
| Total Current Liabilities | 15,809,229 | 38,410,043 | ||||||
| Long Term Liabilities | ||||||||
| Note payable, net of discount | 14,272,500 | 389,423 | ||||||
| Operating lease liability, net of current portion | 384,382 | 517,890 | ||||||
| TOTAL LIABILITIES | 30,466,111 | 39,317,356 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock ( shares authorized, par value $) | ||||||||
| Series C Preferred Stock ( shares authorized and and shares issued and outstanding, par value $) | 3 | 3 | ||||||
| Series D Preferred Stock ( shares authorized and shares issued and outstanding, par value $) | 1 | 1 | ||||||
| Series E Preferred Stock ( shares authorized, -- issued and outstanding, par value $) | ||||||||
| Common stock ( shares authorized par value $; (2022) and (2021) shares issued and outstanding) | 4,771,275 | 4,617,363 | ||||||
| Treasury Stock, at cost, shares of Series C Preferred Stock and shares of Series D Preferred Stock | (11,249,934 | ) | (11,249,934 | ) | ||||
| Common stock to be issued; 637,755 shares as of December 31, 2022 and 2021 | 638 | 638 | ||||||
| Additional paid in capital | 197,586,824 | 196,464,222 | ||||||
| Accumulated Deficit | (211,300,799 | ) | (217,326,611 | ) | ||||
| Total Ozop Energy Solutions, Inc. stockholders’ equity (deficit) | (20,191,992 | ) | (27,494,318 | ) | ||||
| Noncontrolling interest | (784,777 | ) | (255,105 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | $ | (20,976,769 | ) | (27,749,423 | ) | |||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | 9,489,342 | $ | 11,567,933 | |||||
See notes to consolidated financial statements.
| F-3 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
| For the Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | 16,629,450 | $ | 10,595,799 | ||||
| Cost of goods sold | 15,281,791 | 9,763,943 | ||||||
| Gross profit | 1,347,659 | 831,856 | ||||||
| Operating expenses: | ||||||||
| General and administrative, related parties | 1,090,000 | 3,662,099 | ||||||
| General and administrative, other | 4,869,344 | 9,781,301 | ||||||
| Total operating expenses | 5,959,344 | 13,443,400 | ||||||
| Loss from continuing operations | (4,611,685 | ) | (12,611,544 | ) | ||||
| Other (income) expenses: | ||||||||
| Interest expense | 8,438,861 | 53,208,600 | ||||||
| (Gain) loss on change in fair value of derivatives | (19,202,431 | ) | 17,349,076 | |||||
| Loss on extinguishment of debt | 95,449,994 | |||||||
| Debt restructure expense | 16,450,000 | |||||||
| Total Other (Income) Expenses | (10,763,570 | ) | 182,457,670 | |||||
| Net income (loss) from continuing operations before income taxes | 6,151,885 | (195,069,214 | ) | |||||
| Income tax provision | ||||||||
| Net income (loss) from continuing operations | 6,151,885 | (195,069,214 | ) | |||||
| Discontinued Operations: | ||||||||
| Loss on disposal of assets | (252,538 | ) | ||||||
| Loss on discontinued operations | (403,207 | ) | (233,837 | ) | ||||
| Loss on discontinued operations | (655,745 | ) | (233,837 | ) | ||||
| Net income (loss) | 5,496,140 | (195,303,051 | ) | |||||
| Less: net loss attributable to noncontrolling interest | (529,672 | ) | (255,105 | ) | ||||
| Net income (loss) attributable to Ozop Energy Solutions, Inc. | $ | 6,025,812 | $ | (195,047,946 | ) | |||
| Income (loss) from continuing operations per share of common stock basic and fully diluted | $ | 0.00 | $ | (0.04 | ) | |||
| Income (loss) from discontinued operations per share of common stock basic and fully diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Income (loss) per share basic and fully diluted | $ | 0.00 | $ | (0.04 | ) | |||
| Weighted average shares outstanding | ||||||||
| Basic and diluted | 4,661,316,460 | 4,442,045,075 | ||||||
See notes to consolidated financial statements.
| F-4 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 2022
| 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 | 637,755 | $ | 638 | 2,500 | $ | 3 | 1,334 | $ | 1 | 4,617,362,977 | $ | 4,617,363 | $ | (11,249,934 | ) | $ | 196,464,222 | $ | (217,326,611 | ) | $ | (255,105 | ) | $ | (27,749,423 | ) | ||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | 5,000,000 | 5,000 | 130,000 | 135,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares of common stock sold, net of issuance costs of $24,967 | - | - | - | 148,912,372 | 148,912 | 992,602 | 1,141,514 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | 6,025,812 | (529,672 | ) | 5,496,140 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances December 31, 2022 | 637,755 | $ | 638 | 2,500 | $ | 3 | 1,334 | $ | 1 | 4,771,275,349 | $ | 4,771,275 | $ | (11,249,934 | ) | $ | 197,586,824 | $ | (211,300,799 | ) | $ | (784,777 | ) | $ | (20,976,769 | ) | ||||||||||||||||||||||||||
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 2021
| Common stock to be issued | Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Treasury | Accumulated Comprehensive | Additional Paid-in |
Accumulated | Noncontrolling | Total Stockholders’ Equity |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Stock | Loss | Capital | Deficit | Interest | (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances January 1, 2021 | 50,000 | $ | 50 | 20,000 | $ | 20 | 1,000 | $ | 1 | 3,397,958,292 | $ | 3,397,958 | $ | $ | (7 | ) | $ | 12,530,933 | $ | (22,278,665 | ) | $ | $ | (6,349,710 | ) | |||||||||||||||||||||||||||||||||||||||
| Shares issued for conversions of note and interest payable | - | - | - | - | 483,154,618 | 483,155 | 102,055,875 | 102,539,030 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon cashless exercise of warrants | - | - | - | - | 405,797,987 | 405,798 | 47,704,503 | 48,110,301 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series E Preferred Stock | - | - | - | 4,000 | 4 | - | 3,999,996 | 4,000,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series E Preferred Stock | - | - | - | (5,000 | ) | (5 | ) | - | (4,999,995 | ) | (5,000,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued and to be issued for fees and services | 637,755 | 638 | - | - | - | 55,452,080 | 55,452 | 5,267,910 | 5,324,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for lease agreement | - | - | - | - | 100,000,000 | 100,000 | 530,000 | 630,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for debt restructure | - | - | - | - | 175,000,000 | 175,000 | 16,275,000 | 16,450,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of Series C and Series D stock for Treasury | - | (47,500 | ) | (48 | ) | (18,667 | ) | (19 | ) | - | - | (11,249,934 | ) | (11,250,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series D Preferred Stock and warrants | - | - | 1 | - | - | 13,100,000 | -13,100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | 7 | -7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | (195,047,946 | ) | (255,105 | ) | (195,303,051) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances December 31, 2021 | 637,755 | $ | 638 | 2,500 | $ | 3 | 1,334 | $ | 1 | $ | 4,617,362,977 | $ | 4,617,363 | $ | (11,249,934 | ) | $ | $ | 196,464,222 | $ | (217,326,611 | ) | $ | (255,105 | ) | $ | (27,749,423) | |||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
| F-5 |
OZOP ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
| For the Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) from continuing operations | $ | 6,151,885 | $ | (195,069,214 | ) | |||
| Net loss from discontinued operations | (655,745 | ) | (233,837 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in continuing operations | ||||||||
| Non-cash interest expense | 5,938,622 | 51,487,601 | ||||||
| Amortization and depreciation | 191,818 | 103,000 | ||||||
| Debt restructure expense | 16,450,000 | |||||||
| (Gain) loss on fair value change of derivatives | (19,202,431 | ) | 17,349,075 | |||||
| Loss on extinguishment of debt | 95,449,996 | |||||||
| Stock compensation expense | 136,249 | 9,322,751 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 1,119,649 | (1,292,800 | ) | |||||
| Inventory | (2,812,916 | ) | (788,110 | ) | ||||
| Prepaid expenses | 33,641 | (830,869 | ) | |||||
| Vendor deposits | (2,222,952 | ) | (76,455 | ) | ||||
| Accounts payable and accrued expenses | 2,275,175 | 2,199,645 | ||||||
| Operating lease liabilities | (120,177 | ) | (64,821 | ) | ||||
| Customer deposits | 176,580 | 73,420 | ||||||
| Net cash used in continued operations | (8,990,602 | ) | (5,920,618 | ) | ||||
| Net cash provided by (used in) discontinued operations | 391,306 | (434,099 | ) | |||||
| Net cash used in operating activities | (8,599,296 | ) | (6,354,717 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of office and computer equipment | (65,202 | ) | (108,883 | ) | ||||
| Net cash used in investing activities of continued operations | (65,202 | ) | (108,883 | ) | ||||
| Net cash used in investing activities of discontinued operations | (7,953 | ) | ||||||
| Net cash used in investing activities | (65,202 | ) | (116,836 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock, net of costs | 1,141,514 | |||||||
| Proceeds from issuances of notes payable | 2,510,000 | 15,000,000 | ||||||
| Proceeds from sale of Series D preferred stock and warrants | 13,100,000 | |||||||
| Payments of principal of convertible note payable and notes payable | (250,000 | ) | (375,000 | ) | ||||
| Redemption of Series E Preferred Stock | (5,000,000 | ) | ||||||
| Redemption of Series C and Series D Preferred Stock | (11,250,000 | ) | ||||||
| Net cash provided by financing activities | 3,401,514 | 11,475,000 | ||||||
| Net increase (decrease) in cash | (5,262,984 | ) | 5,003,447 | |||||
| Cash, Beginning of year | 6,632,194 | 1,628,747 | ||||||
| Cash, End of year | $ | 1,369,210 | $ | 6,632,194 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 245,565 | $ | 1,003,747 | ||||
| Cash paid for income taxes | $ | $ | ||||||
| Schedule of non-cash Investing or Financing Activity: | ||||||||
| Original issue discount included in notes payable | $ | 250,000 | $ | 1,610,000 | ||||
| Reclass from prepaid expenses to fixed assets | $ | 600,000 | $ | |||||
| Issuance of common stock upon convertible note and accrued interest conversion | $ | $ | 743,555 | |||||
| Operating lease right-of-use assets and liabilities | $ | $ | 702,888 | |||||
| Issuance of common stock and preferred stock for consulting fees and compensation | $ | 136,249 | $ | 9,322,751 | ||||
| Issuance of common stock for lease agreement | $ | $ | 630,000 | |||||
| Issuance of common stock for debt restructuring | $ | $ | 16,450,000 | |||||
See notes to consolidated financial statements.
| F-6 |
OZOP ENERGY SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2022
NOTE 1 - ORGANIZATION
Business
Ozop Energy Solutions, Inc. (the” Company,” “we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.
On July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc., a Pennsylvania corporation (“PCTI”), and Catherine Chis (“Chis”), PCTI’s Chief Executive Officer (“CEO”) and its sole shareholder. Under the terms of the SPA, the Company acquired one thousand () shares of PCTI, which represents all of the outstanding shares of PCTI, from Chis in exchange for the issuance of shares of the Company’s Series C Preferred Stock, shares of the Company’s Series D Preferred Stock, and shares of the Company’s Series E Preferred Stock to Chis.
On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation (“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company from Ozop Surgical Corp to “Ozop Energy Solutions, Inc.”
On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.
On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation and a wholly owned subsidiary of the Company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.
On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus.
On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED will provide customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs. We work with architects, engineers, facility managers, electrical contractors and engineers.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S PLANS
The accompanying 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 December 31, 2022, the Company had an accumulated deficit of $211,300,799 and a working capital deficit of $7,552,616 (including derivative liabilities of $4,314,270). As of December 31, 2022, the Company was in default of $1,470,000 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.
| F-7 |
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 October 14, 2021, the Company received a Notice of effectiveness related to the Company’s Form S-3 Registration Statement (the “Registration Statement”). Pursuant to the Registration Statement the Company may offer and sell from time to time in one or more offerings of up to thirty million dollars ($30,000,000) in aggregate offering price. We may offer these securities in amounts, at prices and on terms determined at the time of offering.
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. 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. On October 17, 2022, the Company and GHS extended the Maturity Date to April 4, 2023. 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. Subsequent to December 31, 2022, through January 23, 2023, the Company sold GHS shares of common stock for proceeds of $205,443, 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. As of the date of this report the Company has sold GHS shares of common stock for proceeds of $355,060, 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. 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.
| F-8 |
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.
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. |
| F-9 |
| ● | On October 13, 2022, EVCO entered into a Reinsurance Contract (the “Contract”) with American Bankers Insurance Company of Florida (“ABIC” or the “Ceding Company”). Royal is the Administrator of the Contract. Pursuant to the terms of the Contract, ABIC will cede 100% of the battery coverage portion of all electric vehicle service contracts to EVCO. On the same date ABIC and EVCO also entered into a Trust Agreement, whereas EVCO as the reinsurer agrees to deposit an amount equal to unearned premium reserves, plus losses reported but unpaid, plus the estimated amount of losses incurred but not reported to the trust account. Permissible investments (with a maturity of no more than five (5) years) of the assets of the Trust account include: |
| ○ | U.S. Treasury Securities | |
| ○ | Cash or cash instruments | |
| ○ | U.S agency issues | |
| ○ | Other investments as Ceding Company approves |
On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED will provide its’ customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs by working with architects, engineers, facility managers, electrical contractors and engineers. In April, 2022, OED began operations and generated $92,100 of revenues for the year ended December 31, 2022, and currently has six employees in sales, marketing installation and services.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”). The 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., PCTI, Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”). All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalent balances may, at certain times, exceed federally insured limits. The Company has no cash equivalents at December 31, 2022, and 2021
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 years ended December 31, 2022, and 2021, and their accounts receivable balance as of December 31, 2022:
| Sales % Year Ended December 31, 2022 | Sales % Year Ended December 31, 2021 | Accounts receivable balance December 31, 2022 | ||||||||||
| Customer A | 38 | % | $ | |||||||||
| Customer B | 22 | % | $ | |||||||||
| Customer C | 19 | % | $ | |||||||||
| F-10 |
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 at December 31, 2022, and 2021, were $3,601,026 and $788,110, respectively. As of December 31, 2022, the Company has on deposit with vendor(s) approximately $3,043,000 and has a balance due of approximately $12,176,000 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 year ended December 31, 2022, there were two suppliers that accounted for 61% and 16.3%, respectively. For the year ended December 31, 2021, there were two suppliers that accounted for 42.6% and 20.4%, respectively. There are only a handful of major suppliers, and we currently have supply arrangements with some of those vendors. One of these vendors requires a 20% down payment with the balances due on shipment and delivery, while other vendors terms are due immediately prior to delivery. We also buy product from other distributors if we are not able to purchase direct from the manufacturer. While management believes all of its relationships with its vendors are good, if we are unable to continue to use and/or find alternative suppliers, when we cannot buy direct, it may have a material negative effect on our business.
Property, plant, and equipment
Property and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the assets.
The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment is as follows:
| Building | 10-25 years | |
| Office furniture and equipment | 3-5 years | |
| Warehouse equipment | 7 years |
| F-11 |
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 years ended December 31, 2022, and 2021:
Years ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Sourced and distributed products | $ | 16,537,350 | $ | 10,595,799 | ||||
| OED Installations | 92,100 | |||||||
| Total | $ | 16,629,450 | $ | 10,595,799 | ||||
Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company brings the finished goods into our California warehouse to fill orders as well as to build inventory for future sales orders. From time to time for some of our larger orders we may have our suppliers ship directly to our customers to avoid extra shipping charges.
Advertising and Marketing Expenses
The Company expenses advertising and marketing costs as incurred. For the years ended December 31, 2022, and 2021, the Company recorded advertising and marketing expenses of $51,441 and $23,025, respectively.
Research and Development
Costs and expenses that can be clearly identified as research and development are charged to expense as incurred. For the years ended December 31, 2022, and 2021, the Company recorded $-0- and $7,500 of research and development expenses, 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.
| F-12 |
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Discontinued Operations
In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations.
On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding (see Note 2) which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as a loss from discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2022, and 2021. For additional information, see Note 14- Discontinued Operations.
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Our CEO and Chairman holds sufficient shares of the Company’s voting preferred stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO and Chairman can at any time unilaterally vote to increase the number of authorized shares of common stock of the Company, without the need to call a general meeting of common shareholders of the Company.
Initial Measurement
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement – Financial Instruments Classified as Liabilities
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income (expenses).
| F-13 |
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| ● | Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. | |
| ● | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| ● | Level 3 - Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
From time to time, certain of the Company’s embedded conversion features on debt and outstanding warrants have been treated as derivative liabilities for accounting purposes under ASC 815 due to 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 December 31, 2022, and 2021, for each fair value hierarchy level:
| December 31, 2022 | Derivative Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | 4,314,270 | $ | 4,314,270 | ||||
| December 31, 2021 | Derivative Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | 20,966,701 | $ | 20,966,701 | ||||
Leases
The Company accounts for leases under ASU 2016-02 (see Note 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.
| F-14 |
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 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 December 31, 2022, and 2021, the Company’s dilutive securities are convertible into approximately and , respectively, shares of common stock. The following table represents the classes of dilutive securities as of December 31, 2022, and 2021:
| December 31, 2022 | December 31, 2021 | |||||||
| Convertible preferred stock | 7,156,913,024 | 6,918,544,466 | ||||||
| Unexercised common stock purchase warrants | 1,047,024,518 | 672,024,518 | ||||||
| Convertible notes payable | 13,359,707 | 1,905,077 | ||||||
| Promissory notes payable (1) | 115,676,370 | |||||||
| 8,332,973,619 | 7,592,474,061 | |||||||
| (1) | The potentially dilutive shares included in the above table are limited whereby the conversion or exercise cannot result in the beneficial owner holding more than % of the then outstanding shares of common stock subsequent to any conversion or exercise. |
| F-15 |
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company does not believe the adoption of the ASU will have a material impact on the Company’s financial position, results of operations or cash flows.
Other than the above, there have no recent accounting pronouncements or changes in accounting pronouncements during the period ended December 31, 2021, 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:
| December 31, 2022 | December 31, 2021 | |||||||
| Office equipment | $ | 222,571 | $ | 157,370 | ||||
| Building and building improvements | 600,000 | |||||||
| Less: Accumulated Depreciation | (110,956 | ) | (44,929 | ) | ||||
| Property and Equipment, Net | $ | 711,615 | $ | 112,441 | ||||
Depreciation expense was $66,027 and $33,609 for the years ended December 31, 2022, and 2021, respectively.
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 December 31, 2022, and 2021, the outstanding principal balance of this note was $25,000.
NOTE 6 – DERIVATIVE LIABILITIES
The Company determined the conversion feature of the convertible notes, which all contain variable conversion rates, represented an embedded derivative since the notes were convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt under ASC 815 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability.
At any given time, certain of the Company’s embedded conversion features on debt and outstanding warrants may be treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant 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 at December 31, 2022, and 2021, at $4,314,270 and $20,966,701, respectively. For the derivative liability associated with convertible notes, the Company used the Monte Carlo simulation valuation model with the following assumptions as of December 31, 2022, and 2021, risk free interest rates at 4.76% and 0.19%, respectively, and volatility of 71% and 92%, 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 $.
| F-16 |
During the year ended December 31, 2021, the Company issued 375,000,000 warrants in conjunction with notes payable (see Note 7). Due to insufficient authorized shares (see above), the Company recorded a discount to notes payable of $14,982,815 and interest expense of $38,907,939, with the offset to derivative liabilities for the initial fair value of the warrants based on the Black-Scholes option pricing method of $53,890,754.
The following assumptions were utilized in the Black-Scholes valuation of outstanding warrants as of December 31, 2022, and 2021, risk free interest rate of 4.39% to 4.73%, and .48% to .99%, respectively, volatility of 109% to 272%, and 344% to 366%, respectively, and exercise prices of $ to $.
A summary of the activity related to derivative liabilities for the years ended December 31, 2022, and 2021, is as follows:
| Derivative liabilities associated with warrants | Derivative liabilities associated with convertible notes | Total derivative liabilities | ||||||||||
| Balance January 1, 2021 | $ | 2,061,307 | $ | 1,238,377 | $ | 3,299,684 | ||||||
| Fair value of issuances during period | 53,890,754 | 53,890,754 | ||||||||||
| Notes converted or paid | (2,246,114 | ) | (2,246,114 | ) | ||||||||
| Exercise of warrants | (48,110,301 | ) | (48,110,301 | ) | ||||||||
| Warrants cancelled | (3,216,397 | ) | (3,216,397 | ) | ||||||||
| Change in fair value | 16,313,392 | 1,035,683 | 17,349,075 | |||||||||
| Balance December 31, 2021 | 20,938,755 | 27,946 | 20,966,701 | |||||||||
| Fair value of issuances during period | 2,550,000 | 2,550,000 | ||||||||||
| Change in fair value | (19,203,355 | ) | 924 | (19,202,431 | ) | |||||||
| Balance December 31, 2022 | $ | 4,285,400 | $ | 28,870 | $ | 4,314,270 | ||||||
NOTE 7 – NOTES PAYABLE
The Company has the following note payables outstanding:
| December 31, 2022 | December 31, 2021 | |||||||
| Notes payable, interest at 8%, matured January 5, 2020, in default | 45,000 | 45,000 | ||||||
| Other, due on demand, interest at 6%, currently in default | 50,000 | 50,000 | ||||||
| Note payable $750,000 face value, interest at 12%, matured August 24, 2021, in default | 375,000 | 375,000 | ||||||
| Note payable $389,423 face value, interest at 18%, matures November 6, 2023 | 389,423 | 389,423 | ||||||
| Note payable $1,000,000 face value, interest at 12%, matures 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 $311,667 (2022) and $243,833 (2021) | 1,888,333 | 1,956,167 | ||||||
| Note payable $11,110,000 face value, interest at 15%, matures October 31, 2024, net of discount of $1,558,333 (2022) and $2,314,583 (2021) | 9,551,667 | 8,795,417 | ||||||
| Note payable $3,300,000 face value, interest at 15%, matures October 31, 2024, net of discount of $467,500 (2022) and $3,099,524 (2021) | 2,832,500 | 200,476 | ||||||
| Note payable $3,020,000 face value, matures March 31, 2023, net of discount of $181,818 | 2,588,182 | |||||||
| Sub- total notes payable | 18,720,105 | 12,811,483 | ||||||
| Less long-term portion | 14,272,500 | 389,423 | ||||||
| Current portion of notes payable, net of discount | $ | 4,447,605 | $ | 12,422,060 | ||||
| F-17 |
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 and accrued expenses the Company received proceeds of $2,510,000 on November 11, 2022, from the lender. For the year ended December 31, 2022, amortization of the original issue discount of $68,182 was charged to interest expense. During the year ended December 31, 2022, the Company also repaid $250,000 of the principal of the note. As of December 31, 2022, the outstanding principal balance of this note was $2,770,000 with a carrying value of $2,588,182, net of unamortized discounts of $181,818. The Company is in default on the weekly payments. During the three months ended March 31, 2023, the Company paid an additional $550,000 of principal. As of March 31, 2023, the balance of the note of $2,220,000 is in default. 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. For the years ended December 31, 2022, and 2021, amortization of the costs of $283,250 and $16,750, respectively, was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of $2,982,815 has been recorded as an initial debt discount and an initial derivative liability of $2,982,815. For the years ended December 31, 2022, and 2021, amortization of the warrant discount of $2,816,275 and $166,540, respectively, was charged to interest expense. 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 year ended December 31, 2022, $42,500 was charged to interest expense. As of December 31, 2022, and 2021, the outstanding principal balance of this note was $3,300,000 with carrying values of $2,832,500 and $200,476, respectively, net of unamortized discounts of $467,500 and $3,099,524, 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. For the years ended December 31, 2022, and 2021, amortization of the costs of $232,250 and $878,750, respectively, was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of $33,248,433 has been recorded as an initial debt discount of $10,000,000, interest expense of $23,248,433 and initial derivative liability of $32,248,433. For the years ended December 31, 2022 and 2021, amortization of the warrant discount of $2,083,333 and $7,916,667, respectively, was charged to interest expense. 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 year ended December 31, 2022, $141,667 was charged to interest expense. As of December 31, 2022, and 2021, the outstanding principal balance of this note was $11,110,000 with a carrying value of $9,551,667 and $8,795,417, respectively, net of unamortized discounts of $1,558,333 and $2,314,583, respectively.
| F-18 |
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. For the years ended December 31, 2022, and 2021, amortization of the costs of $22,167 and $177,833, respectively, was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of $17,659,506 has been recorded as an initial debt discount of $2,000,000, interest expense of $15,659,506 and initial derivative liability of $17,659,506. For the years ended December 31, 2022, and 2021, amortization of the warrant discount of $221,667 and $1,778,333, respectively, was charged to interest expense. 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 year ended December 31, 2022, $28,333 was charged to interest expense. As of December 31, 2022, and 2021, the outstanding principal balance of this note was $2,200,000 with a carrying value of $1,888,333 and $1,956,167, respectively, net of unamortized discounts of $311,667 and $243,833, 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. For the year ended December 31, 2021, amortization of the costs of $96,250 was charged to interest expense. In conjunction with this note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 125,000,000 shares of common stock at an exercise price of $0.008, subject to adjustments and expires on the -year anniversary of the issue date. The warrants issued resulted in a debt discount of $1,000,000. For the year ended December 31, 2021, amortization of the warrant discount of $875,000 was charged to interest expense. As of December 31, 2022 and 2021, the outstanding principal balance of this note was $1,000,000. This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As of December 31, 2022, and 2021, the accrued interest is $375,452 and $135,452, 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 -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. For the year ended December 31, 2021, amortization of the costs of $56,188 was charged to interest expense. In conjunction with this Note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 122,950,819 shares of common stock at an exercise price of $0.0061, subject to adjustments and expires on the five-year anniversary of the Issue Date. The warrants issued resulted in a debt discount of $750,000. For the year ended December 31, 2021, amortization of the debt discount of $484,376 was charged to interest expense. 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 December 31, 2022, and 2021, the outstanding principal balance of this note was $375,000. This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As of December 31, 2022, and 2021, the accrued interest is $180,247 and $90,247, respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note.
| F-19 |
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%. The Company valued the shares at $ per share (the market value of the common stock on the date of the agreement) and recorded $16,450,000 as debt restructure expense on the consolidated statement of operations for the year ended December 31, 2021.
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 December 31, 2022, and 2021, on the consolidated balance sheet is $490,000 and $750,000, respectively.
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 receives $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.
Series E Preferred Stock
On March 21, 2021, the Company issued shares of Series E Preferred Stock (see Note 11), of the shares were issued to Mr. Conway. On April 16, 2021, the Board of Directors of the Company authorized the issuance of shares of Series E Preferred stock, of which were issued to Mr. Conway. During the year ended December 31, 2021, the Company redeemed shares issued to Mr. Conway, and pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $ per share, recorded stock compensation expense to Mr. Conway of $ for the year ended December 31, 2021.
Management Fees and related party payables
For the years ended December 31, 2022, and 2021, the Company recorded expenses to its officers in the following amounts:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| CEO, parent | $ | 1,090,000 | $ | 812,099 | ||||
| CEO, parent- Series E Preferred Stock | 2,850,000 | |||||||
| Total | $ | 1,090,000 | $ | 3,662,099 | ||||
| F-20 |
Redemption of Series C and Series D Preferred Stock
On July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the shares of the Company’s Series C Preferred Stock held by Chis and the shares of the Company’s Series D Preferred Stock held by Chis for the total purchase price of $11,250,000. In conjunction with the Agreement, Chis resigned from any and all positions held in the Company’s wholly owned subsidiary, PCTI. Further, Chis agreed that upon her resignation and for a period of five years thereafter (the “Restriction Period”), she shall not, directly or indirectly, solicit the employment of, assist in the soliciting of the employment of, or hire any employee or officer of the Company, including those of any of its present or future subsidiaries, or induce any person who is an employee, officer, agent, consultant or contractor of the Company to terminate such relationship with the Company. Additionally, Chis agreed that during the Restriction Period, she shall not compete with the Company or PCTI anywhere worldwide or be employed by any competitor of the Company.
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. For the year ended December 31, 2021, the Company recorded $ as stock compensation expense.
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 new one- year agreement Ozop Capital agreed to compensate PJN $84,000 per month. For the years ended December 31, 2022, and 2021, the Company recorded $756,000 and $433,000, respectively, of consulting expenses.
On April 16, 2021, the Company signed a letter of agreement with Rubenstein Public Relations, Inc. (“RPR”). Pursuant to the letter of agreement, the Company agreed to engage RPR, effective May 1, 2021, on a month-to-month basis for $17,000 per month. The Company terminated the agreement in October 2021. For the year ended December 31, 2021, the Company recorded $102,000 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), and $ is included in stock-based compensation expense for the year ended December 31, 2021. 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), and $ is included in stock-based compensation expense for the year ended December 31, 2021. 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), and $ is included in stock-based compensation expense for the year ended December 31, 2021. 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 year ended December 31, 2022. One of the individuals resigned on January 24, 2022, and the other was terminated for cause on November 3, 2022.
| F-21 |
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. The shares were issued in April 2021. Aurora designated the shares to be issued to Pegasus Partners, Inc. The Company valued the shares at $ per share (the market price of the common stock on the date of the agreement), and $696,000 is included in stock-based compensation expense for the year ended December 31, 2021. For the years ended December 31, 2022, and 2021, the Company has recorded $90,000 and $110,000, respectively.
On February 24, 2021, the Company entered into a consulting agreement with Christopher Ruppel. Pursuant to the agreement Mr. Ruppel was to join the Ozop Advisory Board. During the year ended December 31, 2021, the Company issued shares of restricted common stock to Mr. Ruppel and agreed to a monthly fee of $2,500. The Company valued the shares at $ per share (the market price of the common stock on the date of the agreement), and $ is included in stock-based compensation expense for the year ended December 31, 2021. Effective April 1, 2021, the agreement was amended to $10,000 per month. Effective May 1, 2021, the Company was no longer using the services of Mr. Ruppel. For the year ended December 31, 2021, the Company recorded $12,500 of consulting expenses.
On January 22, 2021, the Company issued shares of restricted common stock for legal services performed in 2020 and approved by the BOD of the Company on December 1, 2020. The Company valued the shares at $ per share (the market price of the common stock on the date of the agreement), and $ is included in stock-based compensation expense for the year ended December 31, 2021.
On January 14, 2021, the Company entered into a Consulting Agreement with Mr. Allen Sosis. Pursuant to the agreement, Mr. Sosis will provide services as the Director of Business Development for the Company’s wholly owned subsidiary. Pursuant to the agreement, as amended, the Company will pay Mr. Sosis a monthly fee of $15,000 and an additional $1,000 in benefits. The Company also agreed to issue Mr. Sosis shares of restricted common stock. The shares were issued in April 2021. The Company valued the shares at $ per share (the market price of the common stock on the date of the agreement), and $1,000,000 was recorded as deferred stock compensation, to be amortized over the one-year term of the agreement. The Company terminated Mr. Sosis’s employment in October 2021. For the year ended December 31, 2021, the Company recorded $75,500 of consulting expenses and effective June 1, 2021, Mr. Sosis became an employee of the Company through his termination with a $15,000 per month salary.
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. For the years ended December 31, 2022, and 2021, the Company recorded $ and $ as stock-based compensation expense, respectively. 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 years ended December 31, 2022, and 2021, the Company recorded $60,000 and $94,500 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 December 31, 2022, and 2021, the balance owed Mr. Chaudhry is $162,085.
| F-22 |
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). The Company valued the shares at $ per share (the market value of the common stock on the date of the agreement) and recorded $16,450,000 as debt restructure expense on the consolidated statement of operations for the year ended December 31, 2021. As of December 31, 2022, and 2021, the Company has recorded $230,054 and $215,171, 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 year ended December 31, 2022, the Company issued shares of common stock and received net proceeds of $1,141,514 after issuance costs of $35,822. The Company also issued shares of restricted common stock in the aggregate for services.
During the period from January 1, 2021, to December 31, 2021, holders of an aggregate of $760,550 in principal and $201,905 of accrued interest and fees of convertible and promissory notes, converted their debt into shares of our common stock at an average conversion price of $0.002 per share.
During the year ended December 31, 2021, the Company also issued the following shares of restricted common stock:
| ● | shares of restricted common stock pursuant to a lease agreement. | |
| ● | shares of restricted common stock pursuant to restructuring agreement related to a deferred liability (see Note 8). | |
| ● | shares of restricted common stock in the aggregate for services and consulting agreements. |
During the year ended December 31, 2021, the Company also issued 405,797,987 shares of common stock upon the cashless exercise of common stock purchase warrants.
As of December 31, 2022, the Company has shares of $ par value common stock authorized and there are shares of common stock issued and outstanding.
| F-23 |
Preferred stock
As of December 31, 2022, 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. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued shares of Series C preferred Stock to Chis. On July 13, 2021, the Company purchased shares of the Company’s Series C Preferred Stock held by Chis (see Note 9). As of December 31, 2022, and 2021, 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 10, 2020, pursuant to the SPA with PCTI, the Company issued shares of Series D preferred Stock to Chis, and on August 28, 2020, pursuant to Mr. Conway’s employment agreement, the Company issued shares of Series D Preferred Stock to Mr. Conway. On July 13, 2021, the Company purchased shares of the Company’s Series D Preferred Stock held by Chis (see Note 9).
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 December 31, 2022, and 2021, 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 December 31, 2022, and 2021.
The warrant has a 15- year term and Partial Warrant Lock Up and Leak-Out Period. The Holder may only exercise the Warrant and purchase Warrant Shares as follows:
| i. | Up to (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. | 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. |
| F-24 |
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. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued shares of Series E preferred Stock to Chis, and on August 28, 2020. Pursuant to Mr. Conway’s employment agreement, the Company issued shares of Series E Preferred Stock to Mr. Conway. On March 2, 2021, the BOD authorized the issuance of shares of Series E Preferred Stock to Mr. Conway and shares of Series E Preferred Stock to a third-party service provider. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $ per share, the Company recorded $ as stock-based compensation expense for expense for the year ended December 31, 2021. On March 24, 2021, the Company redeemed the shares of Series E Preferred Stock outstanding on that date. On April 16, 2021, the BOD authorized the issuance of shares of Series E Preferred stock, of which were granted to Mr. Conway. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $ per share, the Company recorded $ as stock-based compensation expense for the year ended December 31, 2021. As of December 31, 2022, and 2021, there were -- 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 shares, representing their 49% ownership. As of that date, Ozop Capital is a wholly owned subsidiary of the Company. For the year ended December 31, 2022, Ozop Capital incurred losses of $1,217,911, of which $529,672, is the loss attributed to the noncontrolling interest for the year ending December 31, 2022. As of December 31, 2022, the accumulative noncontrolling interest is $784,777.
| F-25 |
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 $13,148 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.
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:
| December 31, 2022 | December 31, 2021 | |||||||
| Office and warehouse lease | $ | 702,888 | $ | 702,888 | ||||
| Less: Accumulated amortization | (195,182 | ) | (69,391 | ) | ||||
| Right-of-use assets, net | $ | 507,706 | $ | 633,497 | ||||
Operating lease liabilities are summarized as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Lease liability | $ | 517,890 | $ | 638,067 | ||||
| Less current portion | (133,508 | ) | (120,177 | ) | ||||
| Long term portion | $ | 384,382 | $ | 517,890 | ||||
Maturity of lease liabilities are as follows:
| Amount | ||||
| For the year ending December 31, 2023 | $ | 167,858 | ||
| For the year ending December 31, 2024 | 171,840 | |||
| For the year ended December 31, 2025 | 175,942 | |||
| For the year ended December 31, 2026 | 74,030 | |||
| Total | $ | 589,670 | ||
| Less: present value discount | (71,780 | ) | ||
| Lease liability | $ | 517,890 | ||
NOTE 14 – DISCONTINUED OPERATIONS
On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding (see Note 2) which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as a loss from discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2022, and 2021. 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.
| F-26 |
The results of operations of this component, for all periods, are separately reported as “discontinued operations”. A reconciliation of the major classes of line items constituting the loss from discontinued operations, net of income taxes as is presented in the Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022, and 2021 are summarized below:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 286,401 | $ | 1,332,805 | ||||
| Cost of goods sold | 259,828 | 578,470 | ||||||
| Gross profit | 26,573 | 754,335 | ||||||
| Operating expenses | 406,518 | 944,540 | ||||||
| Loss on disposal of assets | 252,538 | |||||||
| Interest expense | 23,262 | 43,632 | ||||||
| Loss from discontinued operations | $ | (655,745 | ) | $ | (233,837 | ) | ||
The assets and liabilities of discontinued operations are separately reported as “assets and liabilities held for disposal” as of December 31, 2022, and 2021. All asset and liabilities are classified as current, as the Company expects the liquidation to occur in the short-term. The following tables present the reconciliation of carrying amounts of major classes of assets and liabilities of the Company classified as discontinued operations in the consolidated balance sheet at December 31, 2022, and 2021:
Current Assets
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash | $ | $ | 134,973 | |||||
| Accounts receivable | 6,534 | |||||||
| Inventory | 277,872 | |||||||
| Vendor deposits | 43,758 | |||||||
| Prepaid expenses and other assets | 12,543 | |||||||
| Right-to-use asset | 74,189 | |||||||
| Fixed assets, net | 20,448 | |||||||
| Total assets of discontinued operations | $ | $ | 570,317 | |||||
Current liabilities
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Accounts payable and accrued liabilities | $ | 445,565 | $ | 432,509 | ||||
| Current portion of notes payable | 589,246 | 589,246 | ||||||
| Operating lease liability | 3,575 | 74,189 | ||||||
| Deferred revenues | 21,451 | 46,477 | ||||||
| Advances from customers | 96,428 | |||||||
| Total current liabilities of discontinued operations | $ | 1,059,837 | $ | 1,238,849 | ||||
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.
| F-27 |
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. Accordingly, there is a full valuation allowance provided against the Company’s deferred tax assets as of December 31, 2022.
A reconciliation of the provision for income taxes determined at the U.S. statutory rate to the Company’s effective income tax rate is as follows:
| Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Pre-tax income (loss) | $ | 6,025,812 | $ | (195,047,946 | ) | |||
| U.S. federal corporate income tax rate | 21 | % | 21 | % | ||||
| Expected U.S. income tax (credit) | 1,265,421 | (40,960,069 | ) | |||||
| Permanent differences | (2,756,788 | ) | 39,912,479 | |||||
| Change of valuation allowance | 1,491,367 | 1,047,590 | ||||||
| Effective tax expense | $ | $ | ||||||
The Company had deferred tax assets as follows:
| December 30, 2022 | December 30, 2021 | |||||||
| Net operating losses carried forward | $ | 3,799,242 | $ | 2,307,875 | ||||
| Less: Valuation allowance | (3,799,242 | ) | (2,307,875 | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
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 meet the more-likely-than-not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s deferred tax assets as of December 31, 2022.
| F-28 |
As of December 31, 2022, the Company has approximately $17,623,000 net operating loss carryforwards available to reduce future taxable income. As of December 31, 2022, and 2021, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods, and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the years ended December 31, 2022, and 2021, and no provision for interest and penalties is deemed necessary as of December 31, 2022, and 2021.
NOTE 16 – SUBSEQUENT EVENTS
From January 1, 2023, through January 23, 2023, the Company sold GHS shares of common stock for proceeds of $205,443 net of offering costs. These sales were under the February 23, 2022, GHS SPA. As of January 23, 2023, the Company has sold in the aggregate the shares of common stock registered in the April 4, 2022, GHS Securities Purchase Agreement.
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. As of the date of this report the Company has sold GHS shares of common stock for proceeds of $355,060, net of offering costs.
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 (see Note 13). 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.
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-29 |
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 annual report on Form 10-K of the registrant for the period ended December 31, 2022; |
| 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: April 17, 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 annual report on Form 10-K of the registrant for the period ended December 31, 2022; |
| 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: April 17, 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 Annual Report on Form 10-K for the period ended December 31, 2022 (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: April 17, 2023
| /s/ Brian P Conway | |
| Brian P. Conway | |
| Chief Executive Officer | |
| (principal executive officer) | |
| (principal financial and accounting officer) |