Notes
to Condensed Consolidated Financial Statements
September
30, 2021
NOTE
1 - ORGANIZATION
Business
Ozop
Energy Solutions, Inc. (the” Company,” “we,” “us” or “our”) was originally incorporated
as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.
On
October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation
(“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the
Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger
(the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the
Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted
by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change
the name of the Company from Ozop Surgical Corp to “Ozop Energy Solutions, Inc.”
On
December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary
of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.
On
August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation. The Company is
the majority shareholder of Ozop Capital with PJN Holdings LLC, a New York limited liability company,
being the minority shareholder. Ozop Capital was formed as a holding company and seeks to develop a captive insurance company.
Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control
of Ozop Capital.
On
October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware.
EVCO is a wholly owned subsidiary of Ozop Capital.
Stock
Purchase 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. The Acquisition was accounted for as a business combination and was treated as a reverse acquisition for accounting purposes
with PCTI as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic
805, Business Combinations (“ASC 805”). In accordance with the accounting treatment for a reverse acquisition, the Company’s
historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of PCTI
prior to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated
financial statements after completion of the reverse merger have and will include the assets, liabilities and results of operations of
the combined company from and after the closing date of the reverse merger.
PCTI designs, develops, manufactures and distributes
standard and custom power electronic solutions. PCTI serves clients in several industries including energy storage, shore power, DEWs,
microgrid, telecommunications, military, transportation, renewable energy, aerospace and mission critical defense systems. Customers
include the United States military and other global military organizations. All of its products are manufactured in the United
States. Because of the Company’s product scope and the high-power niche that their products occupy, the Company is targeting the
rapidly growing renewable and energy storage markets. The Company’s mission is to be a global leader for high power electronics
with a standard of continued innovation.
The
Company utilized the Option Pricing Method (the “OPM”) to value the transaction. The OPM method treats all equity linked
instruments as call options on the enterprise value, with exercise prices and liquidation preferences based on the terms of the various
common, preferred, options, warrants, and convertible debt. Under this method, the common stock only has value if the funds available
for distribution to the shareholders exceed the liquidation preferences of the preferred stock and face value of the convertible debt.
The timing of a liquidity event is required to utilize this method. The OPM considers the various terms of the stockholder agreements—including
the level of seniority among the securities, dividend policy, conversion ratios, and cash allocations—upon liquidation of the enterprise.
In addition, the method implicitly considers the effect of the liquidation preference as of the future liquidation date, not as of the
valuation date. A feature of the OPM is that it explicitly recognizes the option-like payoffs of the various share classes utilizing
information in the underlying asset (that is, estimated volatility) and the risk-free rate to adjust for risk by adjusting the probabilities
of future payoffs. The following table summarizes the preliminary value of the consideration issued and the preliminary purchase price
allocation of the fair value of assets acquired and liabilities assumed in the transaction.
SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED
|
|
|
Purchase
Price
Allocation
|
|
|
Fair value of OZOP equity consideration issued
|
|
$
|
818,444
|
|
|
Assets acquired
|
|
$
|
1,229,917
|
|
|
Goodwill
|
|
|
11,201,145
|
|
|
Liabilities assumed
|
|
|
(11,612,618
|
)
|
|
Total purchase price allocation
|
|
$
|
818,444
|
|
The
Company reviews the goodwill allocated to each of our reporting units for possible impairment annually and whenever events or changes
in circumstances indicate the carrying amount may not be recoverable. Pursuant to that review, management has determined that the goodwill
arising from the above transaction has been impaired and accordingly $11,201,145 was recorded as an impairment expense for the year ended
December 31, 2020.
NOTE
2 – RESTATEMENT
During
the preparation of the financial statements as of March 31, 2021, and for the three months ended March 31, 2021, the Company discovered
an error was made in the financial statements as of and for the period ended December 31, 2020. The error relates to the recognition
of certain warrants as derivative liabilities due to the fact the Company has insufficient authorized shares to cover the exercises.
Management believes that the error as of and for December 31, 2020, does not materially impact the balance sheet as December 31, 2020.
New warrants issued in the nine months ended September 30, 2021, have been properly accounted for as derivatives, when necessary. The
following table reflects the effect of the error on the balance sheet as of December 31, 2020:
SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS
|
|
|
Adjusted
December 31, 2020
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,387,933
|
|
|
$
|
2,387,933
|
|
|
Current liabilities
|
|
|
8,227,613
|
|
|
|
6,885,845
|
|
|
Total liabilities
|
|
|
8,737,702
|
|
|
|
7,395,934
|
|
|
Total stockholders’ deficit
|
|
|
(6,349,710
|
)
|
|
|
(5,007,942
|
)
|
The
change in the current and total liabilities is as a result of the fair value of $2,061,307 of warrants based on the Black-Scholes option
pricing valuation method, and an increase in notes payable of $733,364 as a result of reclassifying amounts previously recorded as discounts
on notes payable, related to the warrants.
NOTE
3 – 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 September 30, 2021, the Company had an accumulated deficit
of $220,268,262 and a working capital deficit of $30,621,414 (including derivative liabilities of $26,515,186). 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.
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. As of the date of this Quarterly Report the Company has not sold any securities pursuant to this Registration Statement.
During
the nine months ended September 30, 2021, the Company raised $25,100,000 (of which $11,250,000 was used to redeem Series C and Series
D shares of preferred stock from Chis) and has begun to implement the following business operations, plans and strategies:
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. Sales were approximately $4.7 million and $5.9 million for
the three and nine months ended September 30, 2021, respectively.
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. 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.
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/s 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.
Electric
Vehicle Chargers: 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. Neo-Grids will serve
both the private auto and the commercial sectors. OES has license rights to the proprietary “flow” that was filed with the
United States Patent and Trademark Office in March 2021. The exponential growth of the EV industry has been accelerated by the recent
major commitments of most of the major car manufacturers. Our Neo-Grids business model 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 solution that is being executed now and will be coming out of Research and
Development for proof of concept in Q4 2021. Having identified several manufacturers and established a supply line for EV chargers, we
have entered into agreements for EV charger installations as part of this proof of concept and plan to service them under multi-year
agreements.
Equipment
Distributor: OES has also 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. 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.
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.
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.
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation
S-X of the SEC. Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in
the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited
condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present
the financial position of the Company as of September 30, 2021, and the results of operations and cash flows for the periods presented.
The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the operating results
for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction
with the financial statements and related notes thereto included in the Company’s Current Report on Form 10-K filed on April 15,
2021.
The
unaudited condensed consolidated financial statements include the accounts of the Company and PCTI and the Company’s other wholly
owned subsidiaries Ozop Energy Systems, Inc., Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”) and the Company’s majority
owned subsidiary Ozop Capital Partners, Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. These investments
are carried at cost, which approximates fair value. Cash and cash equivalent balances may, at certain times, exceed federally insured
limits. The Company has no cash equivalents at September 30, 2021, and December 31, 2020.
Sales
Concentration and credit risk
Following
is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three and nine months
ended September 30, 2021, and 2020, and their accounts receivable balance as of September 30, 2021:
SCHEDULES OF CONCENTRATION OF RISK, BY RISK
FACTOR
|
|
|
Sales %
Three
Months
Ended September
30, 2021
|
|
|
Sales %
Nine
Months
Ended September
30, 2021
|
|
|
Sales %
Three
Months
Ended September
30, 2020
|
|
|
Sales %
Nine
Months
Ended
September
30, 2020
|
|
|
Accounts
receivable
balance
September
30, 2021
|
|
|
Customer A
|
|
|
N/A
|
|
|
|
11.2
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
-
|
|
|
Customer B
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
29.0
|
%
|
|
|
59.5
|
%
|
|
|
-
|
|
|
Customer C
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
19.0
|
%
|
|
|
14.3
|
%
|
|
|
-
|
|
|
Customer D
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
23.0
|
%
|
|
|
N/A
|
|
|
|
-
|
|
|
Customer E
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
12.1
|
%
|
|
|
N/A
|
|
|
|
-
|
|
All
of the above are customers of PCTI. PCTI, historically does not have year to year many recurring clients as the Company produces capital
equipment for its’ customers.
Accounts
Receivable
The
Company records accounts receivable at the time products and services are delivered. An allowance for losses is established through a
provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability
is unlikely. The allowance (if any) is an amount that management believes will be adequate to absorb estimated losses on existing receivables,
based on evaluation of the collectability of the accounts and prior loss experience.
Inventory
Inventories
are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Inventory costs include
finished goods, material, labor and manufacturing overhead. In evaluating the net realizable value of inventory, management also considers,
if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues.
The
components of inventories at September 30, 2021, and December 31, 2020 are as follows:
SCHEDULE OF INVENTORY
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
229,614
|
|
|
$
|
207,178
|
|
|
Work in process
|
|
|
163,372
|
|
|
|
142,526
|
|
|
Finished goods
|
|
|
1,333,597
|
|
|
|
9,643
|
|
|
Inventory net
|
|
$
|
1,726,583
|
|
|
$
|
359,347
|
|
Purchase
concentration
The
principal purchases by PCTI are comprised of parts and raw materials that PCTI assembles and manufactures and sells to its customers.
There were no suppliers who accounted for more than ten percent (10%) of PCTI’s purchases for the three and nine months ended September
30, 2021, and 2020. Suppliers to PCTI vary from period to period dependent upon our customer’s order specifications. In any specific
reporting period, we may be relying on certain vendors, however these vendors will vary dependent on the parts and materials needed.
PCTI believes it is not reliant on any particular vendor for future needs.
OES
purchases finished renewable energy products from its’ suppliers. For the three months ended September 30, 2021, there were two
suppliers that accounted for 20.1% and 46.8%, respectively, and for the nine months ended September 30, 2021, the same two suppliers
accounted for 23.4% and 38%, 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 balance due on delivery, while other vendors terms are
due on delivery. We also buy product from other distributors, if we are not able to purchase direct from the manufacturer. While management
believes all of its relationships with its vendors are good, if we are unable to continue to use and/or find alternative suppliers, when
we cannot buy direct, it may have a material negative effect on our business.
Property,
plant and equipment
Property
and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the
assets.
The
Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying
amounts of assets may not be recoverable. The estimated useful lives of property and equipment is as follows:
SCHEDULE OF USEFUL LIFE OF PROPERTY AND EQUIPMENT ASSETS
|
|
Office
furniture and equipment
|
3-5
years
|
|
|
Warehouse
equipment
|
7
years
|
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 606, from the commercial sales of products by: (1) identify the contract (if any) with
a customer; (2) identify the performance obligations in the contract (if any); (3) determine the transaction price; (4) allocate the
transaction price to each performance obligation in the contract (if any); and (5) recognize revenue when each performance obligation
is satisfied. Under ASC 606, 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. Other than 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. Advance payments are
typically required for commercial customers and are recorded as current liability until revenue is recognized. Advance payments are not
required for government customers. The majority of contracts typically require payment within 30 to 60 days after transfer of ownership
to the customer.
For
the periods covered herein, we did not have post shipment obligations such as training or installation, customer acceptance provisions,
credits and discounts, rebates and price protection, or other similar privileges.
The
following table disaggregates our revenue by major source for the three and nine months ended September 30, 2021:
DISAGGREGATION OF REVENUE
|
|
|
Three months ended
September 30, 2021
|
|
|
Nine months ended
September 30, 2021
|
|
|
Sourced and distributed products
|
|
$
|
4,716,607
|
|
|
$
|
5,971,589
|
|
|
Manufactured products
|
|
|
66,734
|
|
|
|
881,339
|
|
|
Total
|
|
$
|
4,783,341
|
|
|
$
|
6,852,928
|
|
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. For manufactured products, there is usually
a bidding process by branches of the military or other large firms that need mostly battery charging and storage systems for large industrial
projects. We would then purchase the raw materials and parts needed to build out the project in our Pennsylvania warehouse. There was
no disaggregation of revenues for the three and nine months ended September 30, 2020.
Advertising
and Marketing Expenses
The
Company expenses advertising and marketing costs as incurred. For the three and nine months ended September 30, 2021, the Company recorded
$9,882 and $38,426, respectively, of advertising and marketing expenses, compared to a credit of $44,158 and $47,325, respectively, for
the three and nine months ended September 30, 2020.
Research
and Development
Costs
and expenses that can be clearly identified as research and development are charged to expense as incurred. For the three and nine months
ended September 30, 2021, and 2020, the Company did not record any research and development expenses.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and
Hedging Activities.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at
fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same
terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value
of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at
the commitment date of this note transaction and the effective conversion price embedded in this note. Debt discounts under these arrangements
are amortized over the term of the related debt to their stated date of redemption.
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.
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 September
30, 2021 and December 31, 2020, for each fair value hierarchy level:
SCHEDULE OF DERIVATIVE INSTRUMENTS
|
September 30, 2021
|
|
Derivative
Liabilities
|
|
|
Total
|
|
|
Level I
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Level II
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Level III
|
|
$
|
26,515,186
|
|
|
$
|
26,515,186
|
|
|
December 31, 2020
|
|
Derivative
Liabilities
|
|
|
Total
|
|
|
Level I
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Level II
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Level III
|
|
$
|
3,299,684
|
|
|
$
|
3,299,684
|
|
Leases
The
Company accounts for leases under ASU 2016-02 (see Note 14), applying the package of practical expedients to leases that commenced before
the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases;
(ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. For contracts
entered into on or after the effective date, at the inception of a contract the Company assess whether the contract is, or contains,
a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain
the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right
to direct the use of the asset. We allocate the consideration in the contract to each lease component based on its relative stand-alone
price to determine the lease payments.
Operating
lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based
on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an
implicit rate, the Company used an incremental borrowing rate of 7.5%, for the existing lease, based on the information available at
the adoption date in determining the present value of future payments. Operating lease expense is recognized pursuant to on a straight-line
basis over the lease term and is included in rent in the condensed consolidated statements of operations.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Tax
benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon
ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax
expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented.
Segment
Policy
The
Company has no reportable segments as it operates in one segment; renewable energy.
Earnings
(Loss) Per Share
The
Company reports earnings (loss) per share in accordance with ASC 260, “Earnings per Share.” Basic earnings (loss) per share
is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted
earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock, common stock equivalents
and other potentially dilutive securities outstanding during the period. As of September 30, 2021, and 2020, the Company’s dilutive
securities are convertible into approximately 7,516,857,489 and 10,062,327,062, respectively, shares of common stock. The following table
represents the classes of dilutive securities as of September 30, 2021, and 2020:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
Convertible preferred stock
|
|
|
6,918,544,466
|
|
|
|
9,421,359,558
|
|
|
Unexercised common stock purchase warrants
|
|
|
597,024,518
|
|
|
|
322,697,819
|
|
|
Convertible notes payable
|
|
|
1,288,506
|
|
|
|
318,268,305
|
|
|
Common stock to be issued
|
|
|
-
|
|
|
|
1,350
|
|
|
|
|
|
7,516,857,489
|
|
|
|
10,062,327,032
|
|
Recent
Accounting Pronouncements
In
August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging —Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments
by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required
for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation
in certain areas. The Company does not believe the adoption of the ASU will have a material impact on the Company’s financial position,
results of operations or cash flows.
Other
than the above, there have no recent accounting pronouncements or changes in accounting pronouncements during the period ended September
30, 2021, that are of significance or potential significance to the Company.
NOTE
5 – PROPERTY AND EQUIPMENT
The
following table summarizes the Company’s property and equipment:
PROPERTY, PLANT AND EQUIPMENT
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Office equipment
|
|
$
|
253,015
|
|
|
$
|
143,247
|
|
|
Less: Accumulated Depreciation
|
|
|
(113,932
|
)
|
|
|
(82,576
|
)
|
|
Property and Equipment, Net
|
|
$
|
139,083
|
|
|
$
|
60,671
|
|
Depreciation
expense was $31,355 and $6,784 for the nine months ended September 30, 2021, and 2020, respectively, and $12,674 and $6,784 for the three
months ended September 30, 2021 and 2020, respectively..
NOTE
6 - CONVERTIBLE NOTES PAYABLE
The
transaction with PCTI is being accounted for as a business combination and was treated as a reverse acquisition for accounting purposes
with PCTI as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic
805, Business Combinations (“ASC 805”). In accordance with the accounting treatment for a reverse acquisition, the Company’s
historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of PCTI
prior to the reverse merger. The consolidated financial statements after completion of the reverse merger have and will include the assets,
liabilities and results of operations of the combined company from and after the closing date of the reverse merger.
On
July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a past-due 15% convertible note issued by the Company on September
13, 2017. As of September 30, 2021 and December 31, 2020, the outstanding principal balance of this note was $25,000.
On
July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a 12% convertible promissory note issued by the Company on June
1, 2020, (the “Issuance Date”) to an investor, pursuant to a Securities Purchase Agreement. This
note matures 6 months after the Issuance Date. This
note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025
for the first three months after the Issuance Date. After the first three
months after the Issuance Date, the conversion price shall be equal to the lower of (i) $.025 or 50% of the lowest trading price for
the thirty-five trading days prior to the conversion. As of July 10, 2020, the outstanding principal balance of this note was $127,500
with a carrying value of $27,625,
net of unamortized discounts of $99,875.
In conjunction with this note, the Company issued a warrant to purchase 6,375,000
shares of common stock at an exercise price of $0.02,
subject to adjustments and expiring on the five-year
anniversary of the Issuance Date. For the nine months September 30, 2021, the investor converted a total of $127,500
of the face value and $14,433
of accrued interest and fees into 88,708,118
shares of common stock at an average conversion price of $0.0016.
On March 10, 2021, the investor received 6,355,008
shares of common stock upon the cashless exercise of the warrants.
As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $127,500,
respectively.
On
July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a 15%
convertible promissory note issued by the Company on June 30, 2020, (the “Issuance Date”) to an investor, pursuant to a Securities
Purchase Agreement. This
note matures 6 months
after the Issuance Date. This
note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025
for
the first three months after the Issuance Date. After the first three
months after the Issuance Date, the conversion price shall be equal to the lower of (i) $.025 or 50%
of the lowest trading price for the thirty-five trading days prior to the conversion. As of July 10, 2020, the outstanding principal
balance of this note was $129,500
with a carrying value of $8,375,
net of unamortized discounts of $121,125.
In conjunction with this note, the Company issued a warrant to purchase 6,375,000
shares of common stock at an exercise price of $0.02,
subject to adjustments and expiring on the five-year
anniversary of the Issuance Date. For the nine months September 30, 2021, the investor converted a total of $129,500
of the face value and $30,264 of accrued interest and fees into
110,946,972
shares of common stock at an average conversion price of $0.00144.
On March 10, 2021, the investor received 6,355,008
shares of common stock upon the cashless exercise of the warrants.
As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $129,500,
respectively, with a carrying value of $111,763
as of December 31, 2020, net of unamortized discounts of $10,416.
On
July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a 15%
convertible promissory note issued by the Company on July 8, 2020, (the “Issuance Date”) to an investor, pursuant to a Securities
Purchase Agreement. This
note matures 6
months
after the Issuance Date. This
note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025 for the first three months
after the Issuance Date. After the first three months after the Issuance
Date, the conversion price shall be equal to the lower of (i) $.025 or 50%
of the lowest trading price for the thirty-five trading days prior to the conversion. In conjunction with this note, the Company issued
a warrant to purchase 12,500,000
shares of common stock at an exercise price of $0.02,
subject to adjustments and expiring on the five-year
anniversary of the Issuance Date. For the nine months ended September 30, 2021, amortization of the debt discounts of $10,416
was charged to interest expense. For the nine months September 30, 2021,
the investor converted a total of $250,000
of the face value and $130,044
of accrued interest and fees into 243,012,455
shares of common stock at an average conversion price of $0.00156.
On March 10, 2021, the investor received 12,460,800
shares of common stock upon the cashless exercise of the warrants.
As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $250,000,
respectively, with a carrying value of $239,583
as of December 31, 2020, net of unamortized discounts of $10,416.
On
February 26, 2020, (the “Issuance Date”) PCTI issued a 12%
Convertible Promissory Note (the “Note”), in the principal amount of $106,950, to an investor. This
note matures 12 months after the Issuance Date. This
note is convertible into shares of the Company’s common stock beginning on the Issuance Date at 55%
of the lowest trading price for the twenty-five trading days prior to the conversion. If
the trading price cannot be calculated for such security on such date, the trading price shall be the fair market value as mutually determined
by the Company and the investor for which the calculation of the trading price is required in order to determine the conversion price.
PCTI received proceeds of $85,000
on February 26, 2020, and the Note included an original issue
discount of $13,950
and lender costs of $8,000.
This note proceeds were used by the Company for general working capital purposes. The Note also required a daily payment via ACH of $400.
On June 25, 2020, the Note was amended to add $111,225
of additional principal to the outstanding balance. Pursuant to
the PCTI transaction with Ozop, on July 10, 2020, the conversion price is equal to 45%
multiplied by the lowest closing bid price during the twenty-five-trading day period ending on the last completed trading date in the
OTC Markets prior to the date of conversion. Accordingly, the Company determined the conversion feature of the Notes represented an embedded
derivative since the note is convertible into a variable number of shares upon conversion, as the note was 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.
The embedded feature included in the note resulted in an initial debt discount of $85,000,
interest expense of $135,786
and initial derivative liability of $220,786.
For the nine months ended September 30, 2021, amortization of the debt discounts of $17,737
was charged to interest expense. For the nine months September 30, 2021,
the investor converted a total of $50,550
of the face value and $11,265
of accrued interest and fees into 20,218,562
shares of common stock at an average conversion price of $0.00306.
The Investor also amended the note to deduct the previously added principal amount of $111,225.
As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $161,775,
respectively. The Company accounted for the amendment as an extinguishment of debt.
On
July 15, 2020, (the “Issuance Date”) the Company issued a 15%
convertible promissory note, in the principal amount of $127,500,
to an investor. This
note matures 6 months after the Issuance Date. This
note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.011 for the first three months
after the Issuance Date. After the first three months after the Issuance
Date, the conversion price shall be equal to the lower of (i) $.025 or 50%
of the lowest trading price for the thirty-five trading days prior to the conversion. The Company received proceeds of $102,000
on July 22, 2020, and this note included an original issue discount
of $25,500.
This note proceeds will be used by the Company for general working capital purposes. In conjunction with this note, the Company issued
a warrant to purchase 6,375,000
shares of common stock at an exercise price of $0.02,
subject to adjustments and expiring on the five-year
anniversary of the Issuance Date. The Company allocated the proceeds to the debt of $82,068
and to the warrant $19,932
based on the relative fair value. The embedded conversion feature
included in this note resulted in an initial derivative liability of $207,699,
a debt discount of $82,068
with the excess of $125,541 charged to interest expense of $125,541.
On March 10, 2021, the investor received 6,355,008
shares of common stock upon the cashless exercise of the warrants.
For the nine months ended September 30, 2021, amortization of the debt discounts of $10,792
was charged to interest expense. On May 6, 2021, the Company and
the investor entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement
Agreement, the investor agreed to cancel the July 15, 2020, note. The Company accounted for the cancelled note as a gain on debt extinguishment.
As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $127,500,
respectively, with a carrying value of $116,708,
net of unamortized discounts of $10,792
as of December 31, 2020.
On
July 29, 2020, (the “Issuance Date”) the Company issued a 15%
convertible promissory note, in the principal amount of $127,500,
to an investor. This
note matures 6
months
after the Issuance Date. This
note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.011 for the first three months
after the Issuance Date. After the first three months after the Issuance
Date, the conversion price shall be equal to the lower of (i) $.025 or 50%
of the lowest trading price for the thirty-five trading days prior to the conversion. The Company received proceeds of $100,000
on August 3, 2020, and this note included an original issue discount
of $25,500.
This note proceeds will be used by the Company for general working capital purposes. In conjunction with this note, the Company issued
a warrant to purchase 12,750,000
shares of common stock at an exercise price of $0.01,
subject to adjustments and expiring on the five-year anniversary of the Issuance Date. The Company allocated the proceeds to the debt
$61,733
and warrant $40,267
based on the relative fair value. The embedded conversion feature
included in this note resulted in an initial derivative liability of $198,239,
a debt discount of $61,733
with the excess of $136,506
charged to interest expense. On March 10, 2021, the investor received
12,710,016
shares of common stock upon the cashless exercise of the warrants.
For the nine months ended September 30, 2021, amortization of the debt discounts of $21,583
was charged to interest expense. On May 6, 2021, the investor,
pursuant to the Settlement Agreement, agreed to cancel the July 29, 2020, note. The Company accounted for the cancelled note as a gain
on debt extinguishment. As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $127,500
with a carrying value of $105,917,
net of unamortized discounts of $21,583
as of December 31, 2020.
On
November 16, 2020, (the “Issuance Date”) the Company issued a promissory note, in the principal amount of $250,000,
to an investor. The note carries a guaranteed interest payment of 15%,
which is added to the principal on the Issuance Date. Principal payments shall be made in six instalments of $57,500
commencing May 21, 2021, and continuing each 30 days thereafter
for 4 months. 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. This note is convertible into shares of the Company’s common stock beginning on the Issuance
Date at $0.01
for the first three months after the Issuance Date. After the
first three months after the Issuance Date, the
conversion price shall be equal to the lower of (i) $.01 or the volume weighted average price of the common stock during the five (5)
Trading Day period ending on the day prior to conversion. The Company
received proceeds of $200,000
on November 19, 2020, and this note included an original issue
discount of $50,000. This note proceeds will be used by the Company for general working capital purposes. The embedded conversion feature
included in this note resulted in an initial derivative liability of $14,750
and a debt discount of $50,000.
In conjunction with this note, the Company issued a warrant to purchase 35,000,000
shares of common stock at an exercise price of $0.25,
subject to adjustments and expiring on the five-year
anniversary of the Issuance Date. The warrants issued resulted in a debt discount of $3,050,
with the offset to additional paid in capital. For the nine months ended September 30, 2021, amortization of the debt discounts of $59,264
was charged to interest expense. On May 6, 2021, the investor,
pursuant to the Settlement Agreement, agreed to cancel the November 16, 2020, note and the warrant to purchase 35,000,000
shares. The Company accounted for the cancelled note and warrant
as a gain on debt extinguishment. As of June 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $250,000
with a carrying value of $190,736,
as of December 31, 2020, net of unamortized discounts of $59,264.
A
summary of the convertible note balance as of September 30, 2021, is as follows:
SCHEDULE OF DEBT
|
|
|
September 30, 2021
|
|
|
|
|
|
|
|
Principal balance
|
|
$
|
25,000
|
|
|
Unamortized discount
|
|
|
-
|
|
|
Ending balance, net
|
|
$
|
25,000
|
|
NOTE
7 – 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 September 30, 2021, and December 31, 2020, at $26,515,186 and $3,299,684, respectively.
For the derivative liability associated with convertible notes, the Company used the Monte Carlo simulation valuation model with the
following assumptions as of September 30, 2021, and December 31, 2020, risk free interest rates at 0.05%
and 0.09%,
respectively, and volatility of 89%
and 48%
to 61%,
respectively. During the nine months ended, the Company issued 300,000,000 warrants
in conjunction with notes payable (see Note 8). Due to insufficient authorized shares (see above), the Company recorded a discount
to notes payable of $12,000,000 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 $50,907,939.
The following assumptions were utilized in the Black-Scholes valuation, risk free interest rate of .48%
to .80%,
volatility of 363%
to 366%,
and exercise prices of $0.13 to
$0.15.
The Company revaluated the warrants outstanding at December 31, 2020, and based on the insufficient authorized shares, the Company
determined that the warrants should have been classified as a liability, The accompanying financial statements have been adjusted to
reflect the change from an equity classification to a liability classification (see Note 2).
A
summary of the activity related to derivative liabilities for the nine months ended September 30, 2021, is as follows:
SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE
|
|
|
Derivative liabilities associated with warrants
|
|
|
Derivative liabilities associated with convertible notes
|
|
|
Total derivative liabilities
|
|
|
Balance December 31, 2020
|
|
$
|
2,061,307
|
|
|
$
|
1,238,377
|
|
|
$
|
3,299,684
|
|
|
Fair value of issuances during period
|
|
|
50,907,939
|
|
|
|
-
|
|
|
|
50,907,939
|
|
|
Notes converted or paid
|
|
|
-
|
|
|
|
(2,258,522
|
)
|
|
|
(2,258,522
|
)
|
|
Exercise of warrants
|
|
|
(48,110,301
|
)
|
|
|
-
|
|
|
|
(48,110,301
|
)
|
|
Warrants cancelled
|
|
|
(3,216,396
|
)
|
|
|
-
|
|
|
|
(3,216,396
|
)
|
|
Change in fair value
|
|
|
24,858,123
|
|
|
|
1,034,659
|
|
|
|
25,892,782
|
|
|
Balance September 30, 2021
|
|
$
|
26,500,672
|
|
|
$
|
14,514
|
|
|
$
|
26,515,186
|
|
NOTE
8 – NOTES PAYABLE
The
Company has the following note payables outstanding:
SCHEDULE OF NOTES PAYABLE
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
$
|
138,369
|
|
|
$
|
151,469
|
|
|
Note
payable bank, interest at 7.75%,
matures December
5, 2021
|
|
$
|
138,369
|
|
|
$
|
151,469
|
|
|
Note
payable bank, interest at 6.5%,
matures December
26, 2021
|
|
|
344,166
|
|
|
|
345,211
|
|
|
Economic
Injury Disaster Loan
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Paycheck
Protection Program loan
|
|
|
100,400
|
|
|
|
100,400
|
|
|
Notes
payable, interest at 8%,
matured January
5, 2020, currently in default
|
|
|
45,000
|
|
|
|
45,000
|
|
|
Other,
due on demand, interest at 6%
|
|
|
50,000
|
|
|
|
50,000
|
|
|
Note
payable $203,000
face value, interest at 12%,
matured June
25, 2021, net of discount of $13,185
|
|
|
-
|
|
|
|
189,815
|
|
|
Note
payable $750,000
face value, interest at 12%,
matured August
24, 2021, net of discount of $540,562
(2020), in default
|
|
|
375,000
|
|
|
|
209,438
|
|
|
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, net of discount of $138,750
(2021) and $971,250
(2020)
|
|
|
861,250
|
|
|
|
28,750
|
|
|
Note
payable $2,200,000
face value, interest at 12%,
matures February
9, 2022, net of discount of $793,834
|
|
|
1,406,166
|
|
|
|
-
|
|
|
Note
payable $11,110,000
face value, interest at 12%,
matures March
17, 2022, net of discount of $5,092,083
|
|
|
6,017,917
|
|
|
|
-
|
|
|
Sub-
total notes payable
|
|
|
9,737,691
|
|
|
|
1,519,506
|
|
|
Less
long-term portion
|
|
|
389,423
|
|
|
|
389,423
|
|
|
Current
portion of notes payable, net of discount
|
|
$
|
9,348,268
|
|
|
$
|
1,130,083
|
|
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 nine months ended September 30, 2021, amortization of the costs of $601,250
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 nine months ended September 30, 2021, amortization of the warrant discount of $5,416,667
was charged to interest expense. As of September 30, 2021, the outstanding
principal balance of this note was $11,110,000
with a carrying value of $6,019,917,
net of unamortized discounts of $5,092,083.
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 nine months ended September 30, 2021, amortization of the costs of $127,833
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 nine months ended September 30, 2021, amortization of the warrant discount of $1,278,333
was charged to interest expense. As of September 30, 2021, the outstanding
principal balance of this note was $2,200,000
with a carrying value of $1,406,166,
net of unamortized discounts of $793,834.
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 nine months ended September 30, 2021, amortization of the costs of $82,500
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 five-year
anniversary of the issue date. The warrants issued resulted in
a debt discount of $1,000,000.
For the nine months ended September 30, 2021, amortization of the warrant discount of $750,000
was charged to interest expense. As of September 30, 2021, and December
31, 2020, the outstanding principal balance of this note was $1,000,000
with a carrying value of $861,250
and $28,750,
respectively, net of unamortized discounts of $138,750
and $971,250,
respectively.
On
November 6, 2020, the Company entered into a Settlement Agreement with the holder of $120,000
of convertible notes with accrued and unpaid interest of $8,716
and a $210,000
Promissory Noted dated June 23, 2020 with accrued and unpaid interest
of $15,707.
The Company issued a new 12%
Promissory Note with a face value of $389,423
and a maturity date of November
6, 2023. In conjunction with this settlement, the Company issued
a warrant to purchase 60,000,000
shares of common stock at an exercise price of $0.0075,
subject to adjustments and expires on the five-year
anniversary of the issue date. The Company analyzed the transaction
and concluded that this was a modification to the existing debt. The investor exercised the warrant on January 14, 2021.
On
October 26, 2016, PCTI entered into a $210,000 note
payable with a bank. On March 15, 2021, due to defaults with the terms of the note, the note was amended with the outstanding balance
due December 5, 2021, and the interest rate changed to 7.75%.
Borrowings are collateralized by substantially all of the assets of PCTI and the personal guarantee of PCTI’s former President.
At September 30, 2021, and December 31, 2020, $138,369
and $151,469,
respectively, was outstanding on the note payable.
On
March 15, 2021, PCTI renewed their $350,000
promissory note with a bank that provides for borrowings of up to $350,000.
Interest is due monthly and the principal is due on December
26, 2021, interest rate changed to the prime rate plus 3.25%
(6.5%
at March 15, 2021). Borrowings are collateralized by substantially all of the assets of PCTI and the personal guarantee of PCTI’s
former President. At September 30, 2021, and December 31, 2020, $344,166
and $345,211,
respectively, was outstanding on the promissory note.
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 nine months ended September 30, 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 nine months ended September 30, 2021, amortization of the debt discount of $484,376
was charged to interest expense. During the nine months ended September
30, 2021, the Company paid $375,000 to the Holder. On May 3, 2021, the Company issued 75,000,000 shares of common stock to the Holder,
upon the cashless exercise of a portion of the warrants. As of September 30, 2021, and December 31, 2020, the outstanding principal balance
of this note was $375,000
and $750,000,
respectively, with a carrying value of $375,000
and $209,438, net of unamortized
discounts of $540,562 as of December 31, 2020. The note is currently in default.
On
April 20, 2020, PCTI was granted a loan from Huntington Bank in the amount of $100,400,
pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act, which was enacted March 27,
2020. The loan matures on April
20, 2022 and bears interest at a rate of 1.0%
per annum, payable monthly beginning on November 20, 2020. The loan may be prepaid at any time prior to maturity with no prepayment penalties.
Payments are deferred until the SBA determines the amount to be forgiven. The Company utilized the proceeds of the PPP loan in a manner
which will enable qualification as a forgivable loan. However, no assurance can be provided that all or any portion of the PPP loan will
be forgiven. The balance on this PPP loan was $100,400
as of June 30, 2021, and December 31, 2020 and has been classified
in notes payable. On March 26, 2021, the Company received notice from Huntington Bank the they have determined that PCTI’s loan
forgiveness application has been approved and has been submitted to the SBA. The SBA has ninety days to submit the loan proceeds to Huntington Bank, however, the Company has not yet received a notice of forgiveness for the PPP loan.
On
July 14, 2020, PCTI received $10,000
grant under the Economic Injury Disaster Loan (“EIDL”)
program. Up to $10,000
of the EIDL can be forgiven as long as such funds were utilized
to provide working capital. The
first payment due is deferred one year. The entirety of the loan
as of September 30, 2021, and December 31, 2020 and has been classified in notes payable.
The
following note was assumed on July 10, 2020, pursuant to the PCTI transaction:
On
June 25, 2020, the Company entered into a 12%,
$203,000
face value promissory note with a third-party lender with a maturity
date of June 25, 2021. Principal
payments shall be made in six instalments of $33,333 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 $176,000
on June 26, 2020, and the Company reimbursed the investor for
expenses for legal fees and due diligence of $27,000.
For the nine months ended September 30, 2021, amortization of the costs of $13,185
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 10,000,000
shares of common stock at an exercise price of $0.02,
subject to adjustments and expires on the five-year
anniversary of the Issue Date. During the nine months ended September
30, 2021, the investor converted a total of $203,000
of the face value and $15,899
of accrued interest and fees into 20,268,511
shares of common stock at an average conversion price of $0.0108.
On January 8, 2021, and January 15, 2021, the investor received 100,668,692
and 9,121,265
shares of common stock, respectively, upon the cashless exercise
of the warrants. As of September 30, 2021, and December 31, 2020, the outstanding principal balance of this note was $-0-
and $203,000,
respectively.
NOTE
9 – 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. The Company has recorded the $750,000
as deferred liability on the September 30, 2021, and December 31, 2020,
condensed consolidated balance sheet. No payments have been made and the Company is in default of the agreement. On February 26, 2021,
the agreement was assigned to Ozop and on March 4, 2021, the note was amended, whereby in exchange for 175,000,000
shares of common stock, the royalty percentage was amended to
1.8%.
The Company valued the shares at $0.094
per share (the market value of the common stock on the date of
the agreement) and recorded $16,450,000
as debt restructure expense on the condensed consolidated statement
of operations for the nine months ended September 30, 2021.
NOTE
10 – DEFERRED REVENUE
During
the year ended December 31, 2020, the Company received $64,353 form a customer for a payment of a three- year extended warranty. The
extended warranty period is from, March 2021 through February 2024, and accordingly the Company will recognize the revenue over such
period. For the three and nine months ended September 30, 2021, the Company recognized $5,363 and $12,513, respectively, of revenue.
Of the remaining deferred revenue of $51,840, $21,451 is recognized as the current portion of deferred revenue and $30,389 is classified
as a long- term liability on the condensed consolidated financial statements. As of December 31, 2020, $17,876 is classified as the current
portion and $46,477 is classified as a long- term liability on the consolidated financial statements.
NOTE
11 – 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”). Pursuant to the terms of the Employment Agreement, Mr. Conway is
to receive an initial annual salary of $120,000, for his position of CEO of the Company, payable monthly. Mr. Conway was issued 2,500
shares of Series C Preferred Stock. The Company valued the shares at $5,000. On August 28, 2020, Mr. Conway was issued 1,333 shares of
Series D Preferred stock and 500 shares of series E Preferred Stock. The aggregate shares of Series D Preferred Stock in its entirety,
is convertible into one and one-half times the number of shares of common stock outstanding at the time of conversion. On August 28,
2020, Mr. Conway owned 6.67% of the issued and outstanding Series D Preferred Stock, and based on the 3,107,037,634 shares outstanding
on August 28, 2020, Mr. Conway’s Preferred Stock was convertible into 621,253,401 shares of common stock. Based on the share price
of the common stock on that date of $0.0065, the shares were valued at $4,286,648 and recognized as compensation during the year ended
December 31, 2020. Effective January 1, 2021, Mr. Conway’s compensation is $20,000 per month, and on September 1, 2021, Mr. Conway
is receiving $10,000 per month from Ozop Capital.
Series
E Preferred Stock
On
March 21, 2021, the Company issued 2,000 shares of Series E Preferred Stock (see Note 12), 1,800 of the shares were issued to Mr. Conway.
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 $1,800,000 as stock compensation expense for the Series E shares issued to Mr. Conway. On April
16, 2021, the Board of Directors of the Company authorized the issuance 2,000 shares of Series E Preferred stock, of which 1,050 were
issued to Mr. Conway. The Company recorded $1,050,000 of expense related to the shares issued to Mr. Conway. During the nine months ended
September 30, 2021, the Company redeemed the 2,850 shares issued to Mr. Conway.
Management
Fees and related party payables
For
the three and nine months ended September 30, 2021, and 2020, the Company recorded expenses to its officers in the following amounts:
SCHEDULE OF RELATED PARTY TRANSACTIONS
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
CEO, parent (includes $5,000 stock-based compensation nine months ended September 30, 2020)
|
|
$
|
70,000
|
|
|
$
|
96,771
|
|
|
$
|
709,999
|
|
|
$
|
96,771
|
|
|
CEO, parent- Series E Preferred Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
2,850,000
|
|
|
|
-
|
|
|
President, subsidiary (resigned July 2021)
|
|
|
55,583
|
|
|
|
32,500
|
|
|
|
141,666
|
|
|
|
32,500
|
|
|
Total
|
|
$
|
125,583
|
|
|
$
|
129,271
|
|
|
$
|
3,701,665
|
|
|
$
|
129,271
|
|
As
of September 30, 2021, included in related party payable is $10,000 due to the Company’s CEO and as of December 31, 2020, included
in related party payable is $9,120 for the amount owed the former President of PCTI (resigned in July 2021).
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 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.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
Leases
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 $0.0063, (the market value of the common stock on the
date of the agreement) and has recorded $630,000 as a prepaid expense. The space should be ready for occupancy during the calendar quarter
ending December 31, 2021.
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 and the balance
is due upon the issuance of the captive insurance company’s certificate of authority from the state of formation. Accordingly,
RMA received $25,000 and 452,080 shares of restricted common stock of the Company and the Company recorded $25,000 as stock compensation
expense for the three and nine months ended September 30, 2021. Once the captive is formed, RMA will receive an additional $25,000, and
the number of shares of restricted common stock of the Company with a market value of $25,000, based upon the closing stock price of
the Company as of such date.
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 three
and nine months ended September 30, 2021, the Company recorded $124,000 and $184,000, 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. For the
three and nine months ended September 30, 2021, the Company recorded $51,000 and $85,000, respectively, of consulting expenses. The Company
terminated the agreement in October 2021.
On
March 30, 2021, OES hired 2 individuals as Co-Directors of Sales. Pursuant to their respective offers of employment, the Company agreed
to an annual salary of $130,000 with a signing bonus of $20,000 for each and to issue each 2,500,000 shares of restricted common stock
upon the execution of the agreements and every 90 days thereafter for the first year as long as the employee is still employed. The Company
valued the initial shares at $0.092 per share (the market price of the common stock on the date of the agreement), and $460,000 is included
in stock-based compensation expense for the nine months ended September 30, 2021. On July 1, 2021, the Company issued each of the Co-Directors
the 2,500,000 shares due after the first ninety days of employment. The shares were valued at $0.0745 per share (the market price of
the common stock on the date of the issuance), and $186,250 is included in stock-based compensation expense for the three and nine months
ended September 30, 2021.
On
March 15, 2021, the Company entered into a consulting agreement with Aurora Enterprises (“Aurora”). Mr. Steven Martello is
a principal of Aurora. Pursuant to the agreement Mr. Martello will provide strategic analysis regarding existing markets and revenue
streams as well as the development of new lines of revenue. The Company agreed to a monthly retainer fee of $10,000 and to issue to Aurora
or their designee 5,000,000 shares of restricted common stock. The shares were issued in April 2021. Aurora designated the shares to
be issued to Pegasus Partners, Inc. The Company valued the shares at $0.1392 per share (the market price of the common stock on the date
of the agreement), and $696,000 is included in stock-based compensation expense for the nine months ended September 30, 2021. For the
three and nine months ended September 30, 2021, the Company has recorded $30,000 and $60,000 of consulting expenses.
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 nine months ended September 30, 2021, the Company issued 10,000,000 shares of restricted
common stock to Mr. Ruppel and agreed to a monthly fee of $2,500. The Company valued the shares at $0.2386 per share (the market price
of the common stock on the date of the agreement), and $2,386,000 is included in stock-based compensation expense for the nine months
ended September 30, 2021. Effective April 1, 2021, the agreement was amended to $10,000 per month. For the three and nine months ended
September 30, 2021, the Company recorded $-0- and $12,500 of consulting expenses.
On
February 19, 2021, the Company entered into a Joint Business Alliance agreement with Grid and Energy Master Planning, LLC (“GEMM”).
GEMM will provide advisory, financing and implementation solutions for behind-the-meter customers in the areas of energy efficiency,
solar, EV charging, and battery storage for OES. The GEMM services allows OES to provide one-stop-shopping in these emerging and maturing
sectors. As of September 30, 2021, there has not been any transactions related to this agreement and the Company is continuing to evaluate
the accounting treatment of any future transactions.
On
February 4, 2021, the Company entered into a Consulting Services Agreement with Energy Elements Works, LLC and Mr. Ian Graham. Pursuant
to the agreement, Mr. Graham will provide services as a Consulting Engineer for the Company’s wholly owned subsidiary OES. The
Company has agreed to compensate Mr. Graham $100 per hour for his services.
On
January 22, 2021, the Company issued 10,000,000
shares of restricted common stock for legal services performed
in 2020 and approved by the BOD of the Company on December 1, 2020. The Company valued the shares at $0.0056
per share (the market price of the common stock on the date of
the agreement), and $56,000
is included in stock-based compensation expense for the nine months
ended September 30, 2021.
On
January 14, 2021, the Company entered into a Consulting Agreement with Mr. Allen Sosis. Pursuant to the agreement, Mr. Sosis will provide
services as the Director of Business Development for the Company’s wholly owned subsidiary. Pursuant to the agreement, as amended,
the Company will pay Mr. Sosis a monthly fee of $15,000 and an additional $1,000 in benefits. The Company also agreed to issue Mr. Sosis
5,000,000 shares of restricted common stock. The shares were issued in April 2021. The Company valued the shares at $0.20 per share (the
market price of the common stock on the date of the agreement), and $1,000,000 was recorded as deferred stock compensation, to be amortized
over the one-year term of the agreement. For the three and nine months ended September 30, 2021, $252,055 and $583,562, respectively,
is included in stock-based compensation expense. For the nine months ended September 30, 2021, the Company recorded $75,500 of consulting
expenses. Effective June 1, 2021. Mr. Sosis became an employee of the Company with a $15,000 per month salary. The Company terminated
Mr. Sosis’s employment in October 2021.
On
January 6, 2021, the Company entered into a consulting agreement with Ezra Green to begin on February 8, 2021. The Company agreed to
issue 10,000,000 shares of restricted common stock to Mr. Green and to a monthly fee of $2,500. The Company valued the shares at $0.0076
per share (the market price of the common stock on the date of the agreement), and $76,000 was recorded as deferred stock-based compensation,
to be amortized over the one-year term of the agreement. For the three and nine months ended September 30, 2021, the Company recorded
$19,247 and $55,595, respectively, as stock-based compensation expense. Effective April 1, 2021, the agreement was amended to $10,000
per month. On March 9, 2021, Mr. Green filed a provisional patent with the USPTO. The provisional patent covers proprietary methods and
procedures that, will allow the expansion of OES into the EV charging and support industry. The provisional patent relates to the more
efficient production, distribution, and delivery of energy, particularly renewable energy, to the EV end consumer and enables OES to
build the support systems for such. For the three and nine months ended September 30, 2021, the Company recorded $30,000 and $64,500,
respectively, of consulting expenses.
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 September 30, 2021 and December 31, 2020, the balance owed Mr. Chaudhry is $162,085.
On
September 2, 2020, PCTI entered into an Agreement with a third- party. Pursuant to the terms of the agreement, in exchange for $750,000,
PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. On February 26, 2021,
the agreement was assigned to Ozop and on March 4, 2021, the agreement was amended, whereby in exchange for 175,000,000 shares of common
stock, the royalty percentage was amended to 1.8% (see Note 9). The Company valued the shares at $0.094 per share (the market value of
the common stock on the date of the agreement) and recorded $16,450,000 as debt restructure expense on the condensed consolidated statement
of operations for the nine months ended September 30, 2021.
Legal
matters
We
know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding
or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our interest.
NOTE
13– STOCKHOLDERS’ EQUITY
Common
stock
During
the period from January 1, 2021, to September 30, 2021, holders of an aggregate of $760,550 in principal and $201,905 of accrued interest
and fees of convertible and promissory notes, converted their debt into 483,154,618 shares of our common stock at an average conversion
price of $0.002 per share.
During
the nine months ended September 30 2021, the Company also issued the following shares of restricted common stock:
|
|
●
|
100,000,000
shares of restricted common stock pursuant to a lease agreement (see Note 10).
|
|
|
●
|
175,000000
shares of restricted common stock pursuant to restructuring agreement related to a deferred liability (see Note 9).
|
|
|
●
|
50,452,080
shares of restricted common stock in the aggregate for services and consulting agreements.
|
During
the nine months ended September 30, 2021, the Company also issued 405,797,987 shares of common stock upon the cashless exercise of common
stock purchase warrants.
As
of September 30, 2021, the Company has 4,990,000,000 shares of $0.001 par value common stock authorized and there are 4,612,362,997 shares
of common stock issued and outstanding.
Preferred
stock
As
of September 30, 2021, 10,000,000 shares have been authorized as preferred stock, par value $0.001 (the “Preferred Stock”),
which such Preferred Stock shall be issuable in such series, and with such designations, rights and preferences as the Board of Directors
may determine from time to time.
Series
C Preferred Stock
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 Note 11). As of
September 30, 2021, and December 31, 2020, there were 2,500 shares of Series C Preferred Stock issued and outstanding, and 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.
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. Accordingly, on August 28, 2020, Mr. Conway owned 6.67% of the issued and outstanding Series D Preferred Stock, and based
on the 3,107,037,634 shares outstanding on August 28, 2020, Mr. Conway’s Preferred Stock was convertible into 621,253,401 shares
of common stock. Based on the share price of the common stock on that date of $0.0065, the shares were valued at $4,286,648. On July
13, 2021, the Company purchased 18,667 shares of the Company’s Series D Preferred Stock held by Chis (see Note 11).
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 September 30, 2021, and December 31, 2020, there were 1,334 and 20,000 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 September
30, 2021.
The
warrant has a 15- year term and Partial Warrant Lock Up and Leak-Out Period. The Holder may only exercise the Warrant and purchase Warrant
Shares as follows:
|
|
i.
|
Up
to 162 (one hundred and sixty-two) Warrant Shares, at any time or times on or after the Initial Exercise Date and no later than on
or before the Termination Date; and
|
|
|
|
|
|
|
ii.
|
The
Remainder of the Warrant representing up to 3,074 (three thousand and seventy-four) Warrant Shares (“Remaining Warrant Shares”)
shall be locked up for a period of 36 (thirty-six) months from the Initial Exercise Date (“Lock Up Period”) and shall
become exercisable at any time or times from the date that is the 36 (thirty-six) month anniversary of the Initial Exercise Date
(“Lock Up Period Termination Date”) and no later than on or before the Termination Date, as follows:
|
|
|
a.
|
During
every 1(one) year period, starting on the day that is the Lock Up Period Termination Date, the Holder shall have the right to exercise
the Remainder of the Warrant up to a maximum number of Remaining Warrant Shares that, if converted, would be equal to no more than
a maximum of 5% (five percent) of the total number of outstanding shares of Common Stock of the Company during such given year (“Leak-Out
Period”). The Leak-Out Period shall come into effect on the day that is the Lock Up Period Termination Date and remain effective
on a yearly basis, for a period of 10 (ten) years thereafter, after which the Leak-Out Period will automatically terminate and become
null and void. For clarity purposes the Remainder of the Warrant shall become freely exercisable at any time or times beginning on
June 29, 2034 and until the Termination Date.
|
Series
E Preferred Stock
On
July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series E Preferred Stock.
Under the terms of the Certificate of Designation of Series E Preferred Stock, 3,000 shares of the Company’s preferred stock have
been designated as Series E Preferred Stock. The holders of the Series E Convertible Preferred Stock shall not be entitled to receive
dividends. No holder of the Series E Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Corporation
for their vote, waiver, release or other action, except as may be otherwise expressly required by law. At any time, the Corporation may
redeem for cash out of funds legally available therefor, any or all of the outstanding Preferred Stock (“Optional Redemption”)
at $1,000 (one thousand dollars) per share. The shares of Series E Preferred Stock have not been registered under the Securities Act
of 1933 or the laws of any state of the United States and may not be transferred without such registration or an exemption from registration.
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. On
March 2, 2021, the BOD authorized the issuance of 1,800 shares of Series E Preferred Stock to Mr. Conway and 200 shares of Series E Preferred
Stock to a third-party service provider. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate
of Designation of the Series E Preferred Stock, including the redemption value of $1,000 per share, the Company recorded $2,000,000 as
stock-based compensation expense for the nine months ended September 30, 2021. On March 24, 2021, the Company redeemed the 3,000 shares
of Series E Preferred Stock outstanding on that date. On April 16, 2021, the BOD authorized the issuance of 2,000 shares of Series E
Preferred stock, of which 1,050 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 $1,000 per share, the Company recorded
$2,000,000 as stock-based compensation expense for the nine months ended September 30, 2021. As of September 30, 2021, and December 31,
2020, there were -0- and 1,000 shares of Series E Preferred Stock issued and outstanding, respectively.
NOTE
14 - OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
On
October 25, 2019, PCTI executed a non-cancellable lease for office and industrial space which began December 1, 2019 and expires on November
30, 2022. Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the
lease commencement date. 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. Prior to July 10, 2020, PCTI recorded monthly lease
expense pursuant to the lease agreement and effective July 10, 2020, pursuant to the PCTI transaction, operating lease expense is recognized
pursuant to ASC Topic 842. Leases (Topic 842) over the lease term. During the years ended December 31, 2020, the Company recorded $84,278
for rent expense. During the year ended December 31, 2020, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and
lease liabilities of $185,139 for this lease.
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 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 six months ended June 1, 2021,
upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $702,888 for this lease.
In
adopting Topic 842, the Company has elected the ‘package of practical expedients’, which permit it not to reassess under
the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not
elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition,
the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less.
Right-of-
use assets are summarized below:
SCHEDULE OF RIGHT OF USE ASSETS
|
|
|
September 30, 2021
|
|
|
Office and warehouse lease
|
|
$
|
888,026
|
|
|
Less accumulated amortization
|
|
|
(130,888
|
)
|
|
Right-of-us assets, net
|
|
$
|
757,138
|
|
Operating
lease liabilities are summarized as follows:
SCHEDULE OF OPERATING LEASE
|
|
|
September 30, 2021
|
|
|
Lease liability
|
|
$
|
759,750
|
|
|
Less current portion
|
|
|
(196,698
|
)
|
|
Long term portion
|
|
$
|
563,052
|
|
Maturity
of lease liabilities are as follows:
SCHEDULE OF OPERATING LEASE MATURITY
|
|
|
Amount
|
|
|
For the year ending December 31, 2021
|
|
$
|
61,443
|
|
|
For the year ending December 31, 2022
|
|
|
240,991
|
|
|
For the year ended December 31, 2023
|
|
|
167,858
|
|
|
For the year ended December 31, 2024
|
|
|
171,840
|
|
|
For the year ended December 31, 2025
|
|
|
175,942
|
|
|
Thereafter
|
|
|
74,030
|
|
|
Total
|
|
$
|
892,104
|
|
|
Less: present value discount
|
|
|
(132,354
|
)
|
|
Lease liability
|
|
$
|
759,750
|
|
NOTE
15 – SUBSEQUENT EVENTS
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.