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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarter ended September 30, 2023

 

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to __________

 

Commission file number 000-55976

 

OZOP ENERGY SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   3841   35-2540672

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Number)

 

(IRS Employer

Identification Number)

 

55 Ronald Reagan Blvd.

Warwick, NY 10990

(877) 785-6967

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Securities registered under Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicated by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. :

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

As of November 15, 2023, 5,283,437,652 shares of common stock of the registrant were outstanding.

 

 

 

   

 

 

OZOP ENERGY SOLUTIONS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

 

  Page
   
Consolidated Balance Sheets as of September 30, 2023, and December 31, 2022 (Unaudited) F-1
   
Consolidated Statements of Operations for the three and nine months ended September 30, 2023, and 2022 (Unaudited) F-2
   
Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2023, and 2022 (Unaudited) F-3
   
Consolidated Statements of Cash Flows for the nine months ended September 30, 2023, and 2022 (Unaudited) F-5
   
Notes to Consolidated Financial Statements (unaudited) F-6

 

 2 
 

 

OZOP ENERGY SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30, 2023   December 31, 2022 
ASSETS          
Current Assets          
Cash  $966,292   $1,369,210 
Prepaid expenses   130,861    59,405 
Accounts receivable   29,169    173,151 
Inventory   2,201,935    3,601,026 
Vendor deposits   -    3,053,821 
Other receivable   770,020    - 
Total Current Assets   4,098,277    8,256,613 
           
Operating lease right-of-use asset, net   407,210    507,706 
Property and equipment, net   641,804    711,615 
Other assets   13,408    13,408 
TOTAL ASSETS  $5,160,699   $9,489,342 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Liabilities          
Current Liabilities          
Accounts payable and accrued expenses  $7,241,564   $5,089,009 
Convertible notes payable, net of discounts   25,000    25,000 
Current portion of notes payable, net of discounts   3,929,423    4,447,605 
Customer deposits   250,000    250,000 
Derivative liabilities   2,590,186    4,314,270 
Operating lease liability, current portion   144,257    133,508 
Deferred liability   490,495    490,000 
Liabilities of discontinued operations   1,043,747    1,059,837 
Total Current Liabilities   15,714,672    15,809,229 
           
Long Term Liabilities          
Notes payable, net of discount   15,228,750    14,272,500 
Operating lease liability, net of current portion   274,855    384,382 
TOTAL LIABILITIES   31,218,277    30,466,111 
           
COMMITMENTS AND CONTINGENCIES   -    - 
           
Stockholders’ Deficit          
Preferred stock (10,000,000 shares authorized, par value $0.001) Series C Preferred Stock (50,000 shares authorized and 2,500 shares issued and outstanding, par value $0.001)   3    3 
Series D Preferred Stock (4,570 shares authorized and 1,334 shares issued and outstanding, par value $0.001)   1    1 
Series E Preferred Stock (3,000 shares authorized, -0- issued and outstanding, par value $0.001)   -    - 
Common stock (6,990,000,000 shares authorized, par value$0.001; 5,057,706,280 and 4,771,275,349 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively)   5,057,706    4,771,275 
Treasury stock, at cost, 47,500 shares of Sereis C Preferred Stock and 18,667 shares of Series D Preferred Stock   (11,249,934)   (11,249,934)
Common stock to be issued; 637,755 shares as of September 30, 2023, and December 31, 2022   638    638 
Additional paid in capital   198,500,930    197,586,824 
Accumulated deficit   (217,582,145)   (211,300,799)
Total Ozop Energy Solutions, Inc. stockholders’ deficit   (25,272,801)   (20,191,992)
Noncontrolling interest   (784,777)   (784,777)
TOTAL STOCKHOLDERS’ DEFICIT   (26,057,578)   (20,976,769)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $5,160,699   $9,489,342 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-1 
 

 

OZOP ENERGY SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2023   2022   2023   2022 
   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Revenue  $172,559   $3,928,918   $4,205,083   $11,614,117 
Cost of goods sold   126,438    3,598,134    4,255,030    10,634,170 
Gross profit (loss)   46,121    330,784    (49,947)   979,947 
                     
Operating expenses:                    
General and administrative, related parties   240,000    220,000    720,000    850,000 
Loss associated with early termination of vendor agreement   1,755,082    -    1,755,082    - 
General and administrative, other   642,713    1,294,524    2,195,545    3,798,920 
Total operating expenses   2,637,795    1,514,524    4,670,627    4,648,920 
                     
Loss from continuing operations   (2,591,674)   (1,183,740)   (4,720,574)   (3,668,973)
                     
Other (income) expenses:                    
Interest expense   1,039,735    1,424,553    3,300,944    6,812,834 
Gain on change in fair value of derivatives   (3,304,989)   (1,937,710)   (1,724,084)   (15,314,483)
Total Other (Income) Expenses   (2,265,254)   (513,157)   1,576,860    (8,501,649)
                     
Income (loss) from continuing operations before income taxes   (326,420)   (670,583)   (6,297,434)   4,832,676 
Income tax provision   -    -    -    - 
Net income (loss) from continuing operations   (326,420)   (670,583)   (6,297,434)   4,832,676 
Discontinued Operations:                    
Income (loss) from discontinued operations, net of tax   5,362    (33,970)   16,088    (386,792)
Net income (loss)   (321,058)   (704,553)   (6,281,346)   4,445,884 
Less: net loss attributable to noncontrolling interest   -    (169,565)   -    (529,672)
Net income (loss) attributable to Ozop Energy Solutions, Inc.  $(321,058)  $(534,988)  $(6,281,346)  $4,975,556 
                     
Income (loss) from continuing operations per share of common stock basic and fully diluted  $(0.00)  $(0.00)  $(0.00)  $0.00 
Income (loss) from discontinued operations per share of common stock basic and fully diluted  $0.00   $(0.00)  $0.00   $(0.00)
Income (loss) per share basic and fully diluted  $(0.00)  $(0.00)  $(0.00)  $0.00 
                     
Weighted average shares outstanding Basic and diluted   4,947,838,419    4,662,912,471    4,892,061,891    4,635,036,984 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-2 
 

 

OZOP ENERGY SOLUTIONS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Stock  

Capital

  

Deficit

  

Interest

   (Deficit) 
   Common stock to be issued   Series C Preferred Stock   Series D Preferred Stock   Common Stock   Treasury   Additional Paid-in   Accumulated   Noncontrolling  

Total

Stockholders’ Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Stock  

Capital

  

Deficit

  

Interest

   (Deficit) 
Balances January 1, 2023   637,755   $638    2,500   $3    1,334   $1    4,771,275,349   $4,771,275   $(11,249,934)  $197,586,824   $(211,300,799)  $(784,777)  $(20,976,769)
                                                                  
Issuance of shares of common stock sold, net of issuance costs of $19,110   -    -    -    -    -    -    107,756,783    107,757    -    418,636    -    -    526,393 
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    (2,527,552)   -    (2,527,552)
Balances March 31, 2023   637,755    638    2,500    3    1,334    1    4,879,032,132    4,879,032    (11,249,934)   198,005,460    (213,828,351)   (784,777)   (22,977,928)
                                                                  
Issuance of shares of common stock sold, net of issuance costs of $3,558   -    -    -    -    -    -    15,048,619    15,049    -    56,778    -    -    71,827 
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    (3,432,736)   -    (3,432,736)
Balances June 30, 2023   637,755    638    2,500    3    1,334    1    4,894,080,751    4,894,081    (11,249,934)   198,062,238    (217,261,087)   (784,777)   (26,338,837)
                                                                  
Issuance of shares of common stock sold, net of issuance costs of $17,522   -    -    -    -    -    -    163,625,529    163,625    -    438,692    -    -    602,317 
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    (321,058)   -    (321,058)
Balances September 30, 2023   637,755   $638    2,500   $3    1,334   $1    5,057,706,280   $5,057,706   $(11,249,934)  $198,500,930   $(217,582,145)  $(784,777)  $(26,057,578)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-3 
 

 

OZOP ENERGY SOLUTIONS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

(Unaudited)

 

   Common stock to be issued   Series C Preferred Stock   Series D Preferred Stock   Common Stock   Treasury  

Additional Paid-in

   Accumulated   Noncontrolling  

Total

Stockholders’ Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Stock  

Capital

  

Deficit

  

Interest

   (Deficit) 
Balances January 1, 2022   637,755   $638    2,500   $3    1,334   $1    4,617,362,977   $4,617,363   $(11,249,934)  $196,464,222   $(217,326,611)  $(255,105)  $(27,749,423)
                                                                  
Issuance of common stock for services   -    -    -    -    -    -    5,000,000    5,000    -    130,000    -    -    135,000 
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    (1,193,761)   (187,708)   (1,381,469)
Balances March 31, 2022   637,755    638    2,500    3    1,334    1    4,622,362,977    4,622,363    (11,249,934)   196,594,222    (218,520,372)   (442,813)   (28,995,892)
                                                                  
Net income (loss)   -    -    -    -    -    -    -    -    -    -    6,704,305    (172,399)   6,531,906 
Balances June 30, 2022   637,755    638    2,500    3    1,334    1    4,622,362,977    4,622,363    (11,249,934)   196,594,222    (211,816,067)   (615,212)   (22,463,986)
                                                                  
 Issuance of shares of common stock sold, net of issuance costs of $24,967   -    -    -    -    -    -    83,655,061    83,655    -    730,970    -    -    814,625 
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    (534,988)   (169,565)   (704,553)
Balances September 30, 2022   637,755   $638    2,500   $3    1,334   $1    4,706,018,038   $4,706,018   $(11,249,934)  $197,325,192   $(212,351,055)  $(784,777)  $(22,353,914)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-4 
 

 

OZOP ENERGY SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023   2022 
   For the Nine Months Ended September 30, 
   2023   2022 
Cash flows from operating activities:          
Net income (loss) from continuing operations  $(6,297,434)  $4,832,676 
Net income (loss) from discontinued operations   16,088    (386,792)
Net income (loss)   (6,281,346)   4,445,884 
Adjustments to reconcile net income (loss) to net cash used in operating activities          
Non-cash interest expense   1,138,067    5,020,528 
Amortization and depreciation   172,470    132,924 
Gain on fair value change of derivatives   (1,724,084)   (15,314,483)
Inventory write-down   625,000    - 
Stock compensation expense   -    136,249 
Termination costs of vendor agreements   1,755,082    - 
Changes in operating assets and liabilities:          
Accounts receivable   143,983    964,393 
Inventory   774,091    (409,773)
Prepaid expenses   (71,458)   11,499 
Vendor deposits   528,719    (2,049,281)
Accounts payable and accrued expenses   2,152,554    1,714,058 
Deferred revenue   495    - 
Operating lease liabilities   (98,778)   (88,885)
Customer deposits   -    104,932 
Net cash used in continuing operations   (885,205)   (5,331,955)
Net cash provided by (used in) discontinued operations   (16,088)   146,733 
Net cash used in operating activities   (901,293)   (5,185,222)
           
Cash flows from investing activities:          
Purchase of office and computer equipment   (2,162)   (198,362)
Net cash used in investing activities   (2,162)   (198,362)
           
Cash flows from financing activities:          
Proceeds from sale of common stock, net of costs   1,200,537    814,625 
Payments of principal of convertible note payable and notes payable   (700,000)   - 
Net cash provided by financing activities   500,537    814,625 
           
Net decrease in cash   (402,918)   (4,568,959)
           
Cash, Beginning of period   1,369,210    6,632,194 
           
Cash, End of period  $966,292   $2,063,235 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $-   $29,025 
Cash paid for income taxes  $-   $- 
           
Schedule of non-cash Investing or Financing Activity:          
Issuance of common stock and preferred stock for consulting fees and compensation  $-   $136,249 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-5 
 

 

OZOP ENERGY SOLUTIONS, INC.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited)

 

NOTE 1 - ORGANIZATION

 

Business

 

Ozop Energy Solutions, Inc. (the” Company,” “we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.

 

On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation (“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company from Ozop Surgical Corp to “Ozop Energy Solutions, Inc.”

 

On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.

 

On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation and a wholly owned subsidiary of the Company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.

 

On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus.

 

On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners offer the resources needed for lighting, solar and electrical design projects. OED provides its customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs. We work with architects, engineers, facility managers, electrical contractors, and engineers.

 

On May 5, 2023, the Board of Directors of the Company approved to amend the Company’s Articles of Incorporation (the “Amendment”) to increase the authorized capital stock of the Company to 7,000,000,000 shares, of which 6,990,000,000 shall be authorized as common shares and 10,000,000 shall be authorized as preferred shares. The Company filed the Amendment with the State of Nevada on June 23, 2023.

 

NOTE 2 – GOING CONCERN AND MANAGEMENT’S PLANS

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2023, the Company had an accumulated deficit of $217,582,145 and a working capital deficit of $11,616,395 (including derivative liabilities of $2,590,186). As of September 30, 2023, the Company was in default of $3,565,000 plus accrued interest on debt instruments due to non-payment upon maturity dates. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for one year from the date of the issuance of these financial statements. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

 F-6 
 

 

In December 2019, a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

 

Management’s Plans

 

As a public company, Management believes it will be able to access the public equities market for fund raising for product development, sales and marketing and inventory requirements as we expand our distribution in the U.S. market.

 

On April 4, 2022, the Company, and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “1st GHS Purchase Agreement”) for the sale of up to Two Hundred Million (200,000,000) shares of the Company’s common stock to GHS. We may sell shares of our common stock from time to time over a six (6)- month period ending October 4, 2022, at our sole discretion, to GHS under the GHS Purchase Agreement. On October 17, 2022, the Company and GHS extended the Maturity Date to April 4, 2023. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company’s notice to GHS for the sale of the Company’s common stock. On April 8, 2022, the Company filed a Prospectus Supplement to the Registration Statement dated October 14, 2021, regarding the GHS Purchase Agreement. During the nine months ended September 30, 2023, the Company sold GHS 51,087,628 shares of common stock and received $205,443, net of offering costs. During the year ended December 31, 2022, the Company sold to GHS 148,912,372 shares of common stock and received $1,141,514, net of offering costs. As of January 23, 2023, the Company sold GHS 200,000,000 shares of common stock.

 

On January 18, 2023, the Company and GHS signed a Securities Purchase Agreement (the “2nd GHS Purchase Agreement”) for the sale of up to One Hundred Fifty Million (150,000,000) shares of the Company’s common stock to GHS. The terms and conditions of the 2nd GHS Purchase Agreement are similar to the terms and conditions of the 1st GHS Purchase Agreement. During the nine months ended September 30, 2023, the Company sold to GHS 71,717,774 shares of common stock and received $392,777 net of offering costs.

 

On May 2, 2023, the Company entered into an Equity Financing Agreement (the “Financing Agreement”) and Registration Rights Agreement (the “Registration Rights Agreement”) with GHS. Under the terms of the Financing Agreement, GHS has agreed to provide the Company with up to $10,000,000 of funding upon effectiveness of a registration statement on Form S-1. Pursuant to the effectiveness of the registration statement on July 19, 2023, the Company has the right to deliver puts to GHS and GHS will be obligated to purchase shares of our common stock based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice will not exceed two hundred fifty percent (250%) of the average of the daily trading dollar volume of the Company’s common stock during the ten (10) trading days preceding the put, so long as such amount does not exceed 4.99% of the outstanding shares of the Company. Pursuant to the Financing Agreement, GHS and its affiliates will not be permitted to purchase, and the Company may not put shares of the Company’s common stock to GHS that would result in GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding common stock. The price of each put share shall be equal to eighty percent (80%) of the lowest daily volume weighted average price of the Company’s common stock for the ten (10) consecutive trading days preceding the date on which the applicable put is delivered to GHS. No put will be made in an amount equaling less than $10,000 or greater than $750,000. Puts may be delivered by the Company to GHS until the earlier of twenty-four (24) months after the effectiveness of the registration statement on Form S-1 or the date on which GHS has purchased an aggregate of $10,000,000 worth of put shares. During the nine months ended September 30, 2023, the Company sold to GHS 163,625,529 shares of common stock and received $602,317 net of offering costs.

 

 F-7 
 

 

OES is actively engaged in the renewable, electric vehicle (“EV”), energy storage and energy resiliency sectors. We are engaged in multiple business lines that include project development as well as equipment distribution. Our solar and energy storage projects involve large-scale battery and solar photovoltaics (PV) installations. Our utility-scale storage business model is based on an arbitrage business model in which we install multiple 1+ megawatt batteries, charge them with off-peak grid electricity under contract with the utility, then sell the power back during peak load hours at a premium, as dictated by prevailing electricity tariffs.

 

Equipment Distributor: OES has entered the component supply/distribution side of the renewable, resiliency and energy storage industries distributing the core components associated with residential and commercial solar PV systems as well as onsite battery storage and power generation. In April 2021, the Company signed a five-year lease (beginning June 1, 2021) of approximately 8,100 SF in California, for office and warehouse space to support the sales and distribution of our west coast operations. On February 22, 2023, with an effective date of March 1, 2023, the Company entered into a Sublease for a Single Subleasee Agreement (the “Sublease”) with the landlord and a third party for the office and warehouse in Carlsbad California. Pursuant to the Sublease agreement, the third party will be responsible for all of the Company’s lease obligations through May 31, 2026, the lease termination date. The Company and the subleasee have agreed to work together regarding any existing Company inventory in the facility. OES currently is focused on solar panel sales to other distributors and large installation companies.

 

Solar PV: Our PV business model involves the design and construction of electrical generating PV systems that can sell power to the utilities or be used for off grid use as part of our developing Neo-Grids solution. The Neo-Grids proprietary program, patent pending, was developed for the off-grid distribution of electricity to remove or reduce the dependency on utilities that currently burdens the EV Charging sectors. It will also reduce or eliminate the lengthy permitting processes and streamline the installations of those EV chargers.

 

Modular Energy Distribution System: The Neo-GridTM System comprises of the design engineering, installation, and operational methodologies as well as the financial arbitrage of how we produce, capture and distribute electrical energy for the EV markets. OES has acquired the license rights to the Neo-GridTM System, a proprietary system (patent pending), for the capture and distribution of electrical energy for the EV market. The Neo-GridTM System will serve both the private auto and the commercial sectors. The exponential growth of the EV industry has been accelerated by the recent major commitments of most of the major car manufacturers. Our Neo-GridTM System leverages this accelerated growth by offering (1) charging locations that can be installed with reduced delays, restricted areas or load limits and (2) EV charger electricity that is produced from renewable sources claiming little to no carbon footprint.

 

OES has developed a business plan for the Neo-GridTM System for the distribution of electrical energy providing a solution to the inevitable stress to the existing grid infrastructure. The Company has completed its’ research and development of the Neo-GridTM System as well as compleyed the first set of engineered technical drawings. This first stage of the engineered technical drawings allows us to move forward with stage two, as well as to begin to construct the first prototype or proof of concept, (“PoC”). Our PoC design is partially reliant on auto manufacturers establishing standardizations of the actual charging/discharging protocols of the batteries such as on-board inverters as well as bi-directional capabilities in electric vehicles, which have only recently been established. As the market growth rate of EV’s continues to rise, the stress on the existing grid-tied infrastructure shows the need for the continued development of our Neo-GridTM System solution.

 

Ozop Plus markets vehicle service contracts (“VSC’s”) for electric vehicles (EV’s) that offer consumers to be able to purchase additional months and miles above the manufacturer’s warranty and to also bring added value to EV owners by utilizing our partnerships and strengths in the energy market to offer unique and innovative services. Among EV owners’ concerns are the EV battery repair and replacement costs, range anxiety, environmental responsibilities, roadside assistance, and the accelerated wear on additional components that EV vehicles experience. Management believes that the Ozop Plus marketed VSC’s will give “peace of mind” to the EV buyer.

 

 F-8 
 

 

  In May 2022, the Company entered into an agreement with GS Administrators, Inc., a member of Houston-based GSFSGroup. Under the agreement, the Company will market GSFSGroup’s EV VSC’s in all states (except, California, Florida, Massachusetts, and Washington) to Ozop’s network of new and used franchised dealerships and other eligible entities. In addition to acting as an agent for the marketing, Ozop also has the right to white label the product under its’ Ozop Plus brand. Ozop’s role won’t be limited to marketing the product. GSFSGroup plans to tap into Ozop’s experience relative to battery collection and disposal and has agreed to insurance risk sharing in connection with the insurance policies that back the VSC’s. GSFSGroup is working on getting the approvals needed for the above four (4) states.
     
  On June 22, 2022, the Company entered into an Agent Agreement with Royal Administration Services, Inc. (“Royal”). Under the agreement, the Company will market Royal’s EV VSC’s and has the right to white label it under Ozop Plus. Royal has agreed to allow Ozop Plus on all VSC’s, marketed by Royal and the Company, to assume all the risk related to the electric battery at an agreed upon premium. The battery premium is dependent on the consumer’s selection of the duration of the VSC, the miles selected for coverage and the type of vehicle that the consumer has purchased, with a key component being the kWh size of the battery. These VSC’s have a maximum of 10 years and 150,000 miles and cover new and used cars from model year 2017 and newer. Royal’s VSCs are now effective in all 50 states.
     
  On October 13, 2022, EVCO entered into a Reinsurance Contract (the “Contract”) with American Bankers Insurance Company of Florida (“ABIC” or the “Ceding Company”). Royal is the Administrator of the Contract. Pursuant to the terms of the Contract, ABIC will cede 100% of the battery coverage portion of all electric vehicle service contracts to EVCO. On the same date ABIC and EVCO also entered into a Trust Agreement, whereas EVCO as the reinsurer agrees to deposit an amount equal to unearned premium reserves, plus losses reported but unpaid, plus the estimated amount of losses incurred but not reported to the trust account. Permissible investments (with a maturity of no more than five (5) years) of the assets of the Trust account include:

 

  U.S. Treasury Securities
  Cash or cash instruments
  U.S agency issues
  Other investments as Ceding Company approves

 

On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners offer the resources needed for lighting, solar and electrical design projects. OED will provide its’ customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs by working with architects, engineers, facility managers, electrical contractors, and engineers.

 

OED is developing a product branded OZOP ARC. OZOP ARC is an advanced lighting controls system, intricately engineered to integrate sophisticated wired and wireless technologies. At its core, it employs a hybrid network topology that facilitates both resilient wired connections and flexible wireless communications, making it suitable for complex infrastructural environments. The system is equipped with an array of sensors and control nodes, enabling precise light management and energy usage monitoring. With support for protocols such as DALI and Zigbee, alongside the capability for seamless integration with IoT platforms, OZOP ARC offers a comprehensive solution for intricate lighting networks. This system is designed not just for control and efficiency, but also for adaptability to diverse architectural and electrical layouts, embodying a technical solution for advanced, energy-conscious lighting management.

 

 F-9 
 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTS

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2023, 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, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Current Report on Form 10-K filed on April 17, 2023.

 

The unaudited consolidated financial statements include the accounts of the Company and Ozop Energy Systems, Inc. and the Company’s other wholly owned subsidiaries Ozop Capital Partners, Inc., Ozop Engineering and Design, Inc., Power Conversion Technologies, Inc. (“PCTI”), Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalent balances may, at certain times, exceed federally insured limits. The Company has no cash equivalents at September 30, 2023, and December 31, 2022.

 

Sales Concentration and credit risk

 

Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three and nine months ended September 30, 2023, and 2022, and their accounts receivable balance as of September 30, 2023:

 

   Sales % Three
Months
Ended
September
30, 2023
   Sales %
Nine
Months
Ended
September
30, 2023
   Sales % Three
Months
Ended
September
30, 2022
   Sales %
Nine
Months
Ended
September 30, 2022
   Accounts
receivable
balance
September 30,
2023
 
Customer A   82.5%   92.6%    N/A    N/A   $- 
Customer B   N/A    N/A    77.5%   44.5%  $- 

 

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.

 

 F-10 
 

 

Inventory

 

Inventories are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Inventory costs consist of finished goods. In evaluating the net realizable value of inventory, management also considers, if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues. Based on current market conditions related to solar panels including but not limited to reduced selling prices in the industry and the abundance of inventory supply in the market, management determined that the net realizable value of certain of the Company’s inventory required a lower of cost or market adjustment of $625,000 to the historical cost of inventory purchases for the nine months ended September 30, 2023. Finished goods inventories as of September 30, 2023, and December 31, 2022, were $2,201,935 and $3,601,026, respectively.

 

Purchase concentration

 

OES purchases finished renewable energy products from its’ suppliers. For the three and nine months ended September 30, 2023, there was one supplier that accounted for 100%. For the three months ended September 30, 2022, there was one supplier that accounted for 91.7%, and for the nine months ended September 30, 2022, there were four suppliers that accounted for 34.9%, 27.2%, 11.3% and 11.2%, respectively. There are only a handful of major suppliers, and we currently have supply arrangements with some of those vendors. One of these vendors requires a 20% down payment with the balances due on shipment and delivery, while other vendors’ terms are due immediately prior to delivery. We may also buy product from other distributors if we are not able to purchase direct from the manufacturer. While management believes its relationships with its vendors are good, if we are unable to continue to use and/or find alternative suppliers, when we cannot buy direct, it may have a material negative effect on our business.

 

Property, plant, and equipment

 

Property and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the assets.

 

The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment is as follows:

 

  Building 10-25 years
  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. The Company has no outstanding contracts with any of its’ customers. The Company recognizes revenue when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms.

 

For contracts with customers, ownership of the goods and associated revenue are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments. Any advance payments are recorded as current liability until revenue is recognized.

 

For the periods covered herein, we did not have post shipment obligations such as training or installation, customer acceptance provisions, credits and discounts, rebates and price protection, or other similar privileges.

 

 F-11 
 

 

The following table disaggregates our revenue by major source for the three and nine months ended September 30, 2023, and 2022:

 

   2023   2022   2023   2022 
   Three months ended
September 30,
   Nine months ended
September 30,
 
   2023   2022   2023   2022 
Sourced and distributed products  $155,009   $3,907,318   $4,127,633   $11,576,017 
OED Installations   17,550    21,600    77,450    38,100 
Total  $172,559   $3,928,918   $4,205,083   $11,614,117 

 

Revenues from sourced and distributed products are purchased from suppliers as finished goods and the Company currently brings the finished goods into a third-party warehouse to fill orders as well as to build inventory for future sales orders.

 

Advertising and Marketing Expenses

 

The Company expenses advertising and marketing costs as incurred. For the three months ended September 30, 2023, and 2022, the Company recorded advertising and marketing expenses of $15,911 and $8,045, respectively. For the nine months ended September 30, 2023, and 2022, the Company recorded advertising and marketing expenses of $47,081 and $13,233, respectively.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.

 

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of this note transaction and the effective conversion price embedded in this note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

 

Discontinued Operations

 

In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations.

 

 F-12 
 

 

On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three and nine months ended September 30, 2023, and 2022. For additional information, see Note 15-Discontinued Operations.

 

Distinguishing Liabilities from Equity

 

The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

 

Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.

 

Our CEO and Chairman holds sufficient shares of the Company’s voting preferred stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO and Chairman can at any time unilaterally vote to increase the number of authorized shares of common stock of the Company, without the need to call a general meeting of common shareholders of the Company.

 

Initial Measurement

 

The Company records its financial instruments classified as liability, temporary equity, or permanent equity at issuance at the fair value, or cash received.

 

Subsequent Measurement – Financial Instruments Classified as Liabilities

 

The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in the fair value of its financial instruments classified as liabilities are recorded as other income (expenses).

 

Fair Value of Financial Instruments

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

  Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
  Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
  Level 3 - Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

 F-13 
 

 

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, 2023, and December 31, 2022, for each fair value hierarchy level:

 

September 30, 2023  Derivative Liabilities   Total 
Level I  $-   $- 
Level II  $-   $- 
Level III  $2,590,186   $2,590,186 

 

December 31, 2022  Derivative Liabilities   Total 
Level I  $-   $- 
Level II  $-   $- 
Level III  $4,314,270   $4,314,270 

 

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 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.

 

 F-14 
 

 

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 (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. As of September 30, 2023, and 2022, the Company’s dilutive securities are convertible into approximately 8,840,489,549 and 7,826,372,485, respectively, shares of common stock. The following table represents the classes of dilutive securities as of September 30, 2023, and 2022:

 

   September 30, 2023   September 30, 2022 
Convertible preferred stock (1)   7,586,559,420    7,059,027,462 
Unexercised common stock purchase warrants (1)   1,047,024,518    672,024,518 
Convertible notes payable (1)   20,535,748    6,529,409 
Promissory notes payable (1)   186,369,863    88,791,096 
Total   8,840,489,549    7,826,372,485 

 

(1) The potentially dilutive shares included in the above table are limited whereby the conversion or exercise cannot result in the beneficial owner holding more than 4.99% of the then outstanding shares of common stock subsequent to any conversion or exercise. These shares were excluded from the diluted per share calculation because the effect of including these potential shares was anti-dilutive due to the Company’s net loss position.

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company does not believe the adoption of the ASU will have a material impact on the Company’s financial position, results of operations or cash flows.

 

Other than the above, there have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended September 30, 2023, that are of significance or potential significance to the Company.

 

 F-15 
 

 

NOTE 4 – OTHER RECEIVABLES

 

In November 2022, the Company issued a purchase order for 80 containers of solar panels to VSUN Solar USA, Inc. (“VSUN”), based solely on an order the Company received from a customer at that time. The Company had remitted a deposit to VSUN of $2,395,768 in November 2022. Because of market conditions that began to deteriorate in early 2023 in the residential solar PV market and VSUN’s refusal to negotiate a price that would enable Ozop to realize a profit on the order, the customer eventually cancelled the order in June 2023. VSUN had already shipped 40 containers out of total 80 containers to the US and the remaining 40 containers of products have not been produced by September 30, 2023. The general terms and conditions of the purchase order allowed Ozop 30 days free storage, and to be charged storage fees after the 30 days.

 

On November 6, 2023, the Company and VSUN entered into a Termination Agreement (the “TA”) after negotiation. Pursuant to the TA, the parties agreed to cancel the remaining unpaid and/or not fully executed purchase orders the Company issued to VSUN, and to apply part of the vendor deposits (totaling $2,525,102 paid to VSUN) to unpaid storage fees of $556,884 and to a termination fee of $1,198,198. The combined amount of storage fees and termination fee of $1,755,082 is classified separately as Loss associated with early termination of vendor agreement on the consolidated statements of operations for the three and nine months ended September 30, 2023. The remaining balance of the deposit of $770,020 is included in Other Receivable on the consolidated balance sheet as of September 30, 2023. The Company received $770,020 on November 17, 2023. In addition, VSUN shall retain the above 40 containers of products in storage as a result of the early termination. The Company and VSUN shall not have any further obligations under the purchase orders which shall be terminated, and the Company shall have no liability to VSUN and VSUN shall have no liability to the Company as a result of or in connection with this termination.

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

The following table summarizes the Company’s property and equipment:

 

   September 30, 2023   December 31, 2022 
Office equipment  $224,733   $222,571 
Building and building improvements   600,000    600,000 
Less: Accumulated Depreciation   (182,929)   (110,956)
Property and Equipment, Net  $641,804   $711,615 

 

Depreciation expenses were $25,957 and $14,220 for the three months ended September 30, 2023, and 2022, respectively. Depreciation expenses were $71,973 and $39,432 for the nine months ended September 30, 2023, and 2022, respectively.

 

NOTE 6 - CONVERTIBLE NOTES PAYABLE

 

On July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a past-due 15% convertible note issued by the Company on September 13, 2017. As of September 30, 2023, and December 31, 2022, the outstanding principal balance of this note was $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 as of September 30, 2023, and December 31, 2022, at $2,590,186 and $4,314,270 respectively. For the derivative liability associated with convertible notes, the Company used the Monte Carlo simulation valuation model with the following assumptions as of September 30, 2023, and December 31, 2022, risk free interest rates at 5.53% and 4.76%, respectively, and volatility of 48% and 71%, respectively. During the year ended December 31, 2022, the Company issued 375,000,000 warrants in conjunction with the extension of certain notes payable. The Company recorded a discount to notes payable of $2,550,000 with the offset to derivative liabilities for the initial fair value of the warrants based on the Black-Scholes option pricing model. The following assumptions were utilized in the initial Black-Scholes valuation of issued warrants during the year ended December 31, 2022, risk free interest rate of 4.45%, volatility of 509%, and an exercise price of $0.0067.

 

 F-16 
 

 

The following assumptions were utilized in the Black-Scholes valuation of outstanding warrants as of September 30, 2023, and December 31, 2022, risk free interest rate of 5.01% to 5.53%, and 4.39% to 4.73%, respectively, volatility of 69% to 107%, and 109% to 272%, respectively, and exercise prices of $0.0061 to $0.15.

 

A summary of the activity related to derivative liabilities for the nine months ended September 30, 2023, 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 January 1, 2023  $4,285,400   $28,870   $4,314,270 
Change in fair value   (1,721,052)   (3,032)   (1,724,084)
Balance September 30, 2023  $2,564,348   $25,838   $2,590,186 

 

NOTE 8 – NOTES PAYABLE

 

The Company has the following notes payable outstanding:

 

   September 30, 2023   December 31, 2022 
         
Note payable, interest at 8%, matured January 5, 2020, in default  $45,000   $45,000 
Other, due on demand, interest at 6%, currently in default   50,000    50,000 
Note payable $750,000 face value, interest at 12%, matured August 24, 2021, in default   375,000    375,000 
Note payable $389,423 face value, interest at 12%, matures November 6, 2025   389,423    389,423 
Note payable $1,000,000 face value, interest at 12%, matured November 13, 2021, in default   1,000,000    1,000,000 
Note payable $2,200,000 face value, interest at 15%, matures October 31, 2024, net of discount of $184,167 (2023) and $311,667 (2022)   2,015,833    1,888,333 
Note payable $11,110,000 face value, interest at 15%, matures October 31, 2024, net of discount of $920,833 (2023) and $1,558,333 (2022)   10,189,167    9,551,667 
Note payable $3,300,000 face value, interest at 15%, matures October 31, 2024, net of discount of $276,250 (2023) and $467,500 (2022)   3,023,750    2,832,500 
Note payable $3,020,000 face value, matured March 31, 2023, net of discount of $0 (2023) and $181,818 (2022), in default   2,070,000    2,588,182 
Sub-total notes payable, net of discount   19,158,173    18,720,105 
Less long-term portion, net of discount   15,228,750    14,272,500 
Current portion of notes payable, net of discount  $3,929,423   $4,447,605 

 

On November 11, 2022, the Company entered into a non-interest bearing, $3,020,000 face value promissory note with a third-party lender with scheduled weekly payments and a maturity date of March 31, 2023. In exchange for the issuance of the $3,020,000 note, inclusive of an original issue discount of $250,000, and the reclass of $260,000 from accounts payable and accrued expenses the Company received proceeds of $2,510,000 on November 11, 2022, from the lender. For the nine months ended September 30, 2023, amortization of the original issue discount of $181,818 was charged to interest expense. During the nine months ended September 30, 2023, the Company also repaid $700,000 of the principal of the note. As of September 30, 2023, and December 31, 2022, the outstanding principal balance of this note was $2,070,000 and $2,770,000, respectively, with a carrying value as of September 30, 2023, and December 31, 2022, of $2,070,000 and $2,588,182, respectively, net of unamortized discounts of $181,818 as of December 31, 2022. The Company is in default on the weekly payments. The Company is currently in discussions with the lender regarding an extension of the maturity date.

 

 F-17 
 

 

On December 7, 2021, the Company entered into a 12%, $3,300,000 face value promissory note with a third-party lender with a maturity date of December 7, 2022. In exchange for the issuance of the $3,300,000 note, inclusive of an original issue discount of $300,000, the Company received proceeds of $3,000,000 on December 13, 2021, from the lender. In conjunction with the note, the Company issued a warrant to purchase 75,000,000 shares of common stock at $0.039 per share (subject to adjustments) with an expiry date on the three-year anniversary of the note. On October 31, 2022, the maturity date of the note was extended to October 31, 2024, and the interest rate was increased to 15% per annum. The Company issued 75,000,000 warrants at an exercise price of $0.0067 and with an expiration of October 31, 2025, in exchange for the extension. The warrants were valued at $510,000 by the Black-Scholes option pricing method and will be amortized through the new maturity date of the note. The Company determined that this transaction was a modification of the existing note. For the three and nine months ended September 30, 2023, $63,750 and $191,250 was charged to interest expense. As of September 30, 2023, and December 31, 2022, the outstanding principal balance of this note was $3,300,000 with carrying values of $3,023,750 and $2,832,500, respectively, net of unamortized discount of $276,250 and $467,500 as of September 30, 2023, and December 31, 2022, respectively.

 

On March 17, 2021, the Company entered into a 12%, $11,110,000 face value promissory note with a third-party lender with a maturity date of March 17, 2022. In exchange for the issuance of the $11,110,000 note, inclusive of an original issue discount of $1,000,000 and lender costs of $110,000 the Company received proceeds of $10,000,000 on March 23, 2021, from the lender. In conjunction with the note, the Company issued a warrant to purchase 250,000,000 shares of common stock at $0.13 per share (subject to adjustments) with an expiry date on the three-year anniversary of the note. On October 31, 2022, the maturity date of the note was extended to October 31, 2024, and the interest rate was increased to 15% per annum. The Company issued 250,000,000 warrants at an exercise price of $0.0067 and with an expiration of October 31, 2025, in exchange for the extension. The warrants were valued at $1,700,000 by the Black-Scholes option pricing method and will be amortized through the new maturity date of the note. The Company determined that this transaction was a modification of the existing note. For the three and nine months ended September 30, 2023, $212,500 and $637,500 was charged to interest expense. As of September 30, 2023, and December 31, 2022, the outstanding principal balance of this note was $11,110,000 with a carrying value of $10,189,167 and $9,551,667, respectively, net of unamortized discounts of $920,833 and $1,558,333, respectively.

 

On February 9, 2021, the Company entered into a 12%, $2,200,000 face value promissory note with a third-party lender with a maturity date of February 9, 2022. In exchange for the issuance of the $2,200,000 note, inclusive of an original issue discount of $200,000 the Company received proceeds of $2,000,000 on February 16, 2021, from the lender. In conjunction with the note, the Company issued a warrant to purchase 50,000,000 shares of common stock at $0.15 per share (subject to adjustments) with an expiry date on the three-year anniversary of the note. On October 31, 2022, the maturity date of the note was extended to October 31, 2024, and the interest rate was increased to 15% per annum. The Company issued 50,000,000 warrants at an exercise price of $0.0067 and with an expiration of October 31, 2025, in exchange for the extension. The warrants were valued at $340,000 by the Black-Scholes option pricing method and will be amortized through the new maturity date of the note. The Company determined that this transaction was a modification of the existing note. For the three and nine months ended September 30, 2023, $42,500 and $127,500 was charged to interest expense. As of September 30, 2023, and December 31, 2022, the outstanding principal balance of this note was $2,200,000 with a carrying value of $2,015,833 and $1,888,333, respectively, net of unamortized discounts of $184,167 and $311,667, respectively.

 

On November 13, 2020, the Company entered into a 12%, $1,000,000 face value promissory note with a third-party due November 13, 2021. Principal payments shall be made in six instalments of $166,667 commencing 180 days from the issue date and continuing each 30 days thereafter for 5 months and the final payment of principal and interest due on the maturity date. The Company received proceeds of $890,000 on November 20, 2020, and the Company reimbursed the investor for expenses for legal fees and due diligence of $110,000. In conjunction with this note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 125,000,000 shares of common stock at an exercise price of $0.008, subject to adjustments and expires on the five-year anniversary of the issue date. As of September 30, 2023, and December 31, 2022, the outstanding principal balance of this note was $1,000,000. This note is in default and the interest rate from the date of default is the lesser of 24% or the highest amount permitted by law. As of September 30, 2023, and December 31, 2022, the accrued interest is $555,452 and $375,452, respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note.

 

 F-18 
 

 

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